Unsecured Lenders Feel the Fallout of Father Son Company Going Under

In Pearce v. Sandler, No. 3D15-1562, 2017 WL (Fla. 3rd DCA 2017), Edgar B. Pearce III, seeks to reverse the Final Judgment and remand with directions to enter summary judgment in his favor. Appellant Pearce and his father Edgar Pearce, together owned Pearce Financial, a financial investment company.  Martin and Patricia Sandler and Joseph and Patricia Conrad had invested money in Pearce Financial in exchange for a promissory note. The Sandler’s and Conrad’s continued to invest additional money into Pearce Financial; some money invested was generated from one of the Conrad’s trusts, The Lyons Family CRT. In 2008, Pearce financial began to decline in value and by 2009, Pearce Financial was unable to pay its creditors. As a result, Pearce Financial was forced to sell its assets to its senior secured lender, the second secured lender foreclosed on the remaining assets. The Sandler’s and Conrad’s were unsecured lenders and received nothing.

The Sandler’s and Conrad’s, in addition to other unsecured lenders, sued the Pearce corporate entities and Pearce and his father individually for the fraudulent misrepresentation, breach of fiduciary duty, and negligence. The Sandler’s and Conrad’s alleged that Pearce materially and intentionally misrepresented the financial condition of Pearce Financial as well as the repayment priority of the promissory notes in order to entice the Sanders and Conrads to continually invest their money in Pearce Financial.

During litigation in 2010, Joseph Conrad died, shortly after while still in litigation, Patricia Conrad died. Between Joseph and Patricia’s deaths, the promissory notes that were individually held by Joseph and Patricia Conrad were assigned to the Conrad Family Trust. After Patricia Conrad died, her daughter Patricia Sandler, became the trustee and continued to pursue these claims against Pearce Financial as trustee of both the Conrad Family Trust and the Lyons Family CRT.  Patricia Sandler asserted that the promissory notes that were held by the Lyons family CRT were always included in the claims asserted by the Conrad’s in the 2010 Action.

Pearce filed a motion for summary judgement against each plaintiff at the close of discovery. The trial court dismissed the Conrad’s claims with prejudice on October 26, 2012 for failure to timely comply with Florida Rule of Civil Procedure 1.260 which requires the substitution of parties upon death. Upon rehearing and appeal, the ruling was not challenged. The trial court granted summary judgement in favor of Pearce on all remaining claims against him, finding no genuine issues of material fact in dispute. Specifically, the trial court found the pleadings and record evidence demonstrated no misrepresentation, no breach of fiduciary duty, and no negligence by Pearce. Additionally, that ruling was never challenged upon appeal.

In 2013, Patricia Sandler, acting as Trustee for the Conrad Trusts, brought the current suit against Pearce for the alleged negligent misrepresentation. Patricia Sandler relied on the same facts and evidence as in the previous action that began in 2010. Pearce moved for summary judgement based on res judicata and collateral estoppel. Patricia Sandler attempted to argue that as in acting as Trustee of the Conrad Trusts, she has no identity of interest with any party to the prior lawsuit back in 2010, because then the Conrad Trusts were not named plaintiffs.  The trial court agreed with Patricia Sandler and denied Pearce’s motion for summary judgement based on its conclusion that in 2010 Patricia acted as an individual and in 2013 Sandler acted as a Trustee. Thus, they were not identical parties and collateral estoppel did not apply to bar the 2013 action from being brought. The case went to jury trial.  The jury found that Pearce had made negligent misrepresentations that there was a legal cause of loss to Sandler as Trustee for the Conrad’s Trusts. Furthermore, the jury found that the Conrad Trusts were at fault for their own harm as well. The jury returned a verdict assigning 40% negligence as a result of the Trusts, and 60% negligence as a result of Pearce. A $210,300.00 Verdict was awarded to Sandler as Trustee.

Upon review, the court determined that once summary judgement was entered into specifically dismissing all claims against him, the matter should have been concluded for all other purposes. Any remaining claims against the promissory notes no longer existed. Therefore, no claim against those promissory notes could be brought by the Sandler as Trustee. The trial court should have entered summary judgement in the 2013 action in favor of Pearce thus ending the issue before it reached trial.

“Furthermore, the 2013 Action is also barred by the doctrines of collateral estoppel and res judicata as the 2010 and 2013 Actions are, in fact, identical in things sued for, operative facts, parties and capacity of the parties. “[C]ollateral estoppel, also known as issue preclusion, applies where: (1) the identical issues were presented in a prior proceeding; (2) there was a full and fair opportunity to litigate the issues in the prior proceeding; (3) the issues in the prior litigation were a critical and necessary part of the prior determination; (4) the parties in the two proceedings were identical; and (5) the issues were actually litigated in the prior proceeding.” Topps v. State, 865 So.2d 1253, 1255 (Fla. 2004). Where these elements are satisfied, “[c]ollateral estoppel may be applied to bar subsequent causes of action even where the second claim requires proof of different essential facts than those required to be proved in the initial suit.” Larimore v. State, 76 So.3d 1121, 1123 (Fla. 1st DCA 2012). “Collateral estoppel precludes re-litigating an issue where the same issue has been fully litigated by the parties or their privies, and a final decision has been rendered by a court.” Mtge. Elec. Registration Sys., Inc. v. Badra, 991 So.2d 1037, 1039 (Fla. 4th DCA 2008) [e.s.]; accord Cook v. State, 921 So.2d 631, 635 (Fla. 2d DCA 2005) (“A person who was not a named party to an action will nonetheless be subject to collateral estoppel arising from that action if that person was in privity with a party or virtually represented a party.”).”

“To be in privity with one who is a party to a lawsuit, or for one to have been virtually represented by one who is a party to a lawsuit, one must have an interest in the action such that she will be bound by the final judgment as if she were a party. Southeastern Fidelity Ins. Co. v. Rice, 515 So.2d 240 (Fla. 4th DCA 1987) (“One not a party to a suit is in privity with one who is where his interest in the action was such that he will be bound by the final judgment as if he were a party.”); Aerojet–General Corp. v. Askew, 511 F.2d 710, 719 (5th Cir.), cert. denied, 423 U.S. 908, 96 S. Ct. 210, 46 L.Ed.2d 137 (1975) (“A person may be bound by a judgment even though not a party if one of the parties to the suit is so closely aligned with his interests as to be his virtual representative.”). See also Stogniew v. McQueen, 656 So.2d 917, 920 (Fla. 1995).”

Sandler, as Trustee, argues that the claims in the 2013 case are not barred by collateral estoppel because she has no identity of interest and no privity with the parties in the 2010 action.

“The doctrine of res judicata similarly bars Sandler as Trustee’s 2013 lawsuit against Pearce. To successfully invoke a res judicata defense, a party must satisfy two prerequisites. First, a judgment on the merits must have been rendered in a former suit. See Ludovici v. McKiness, 545 So.2d 335, 337 (Fla. 3d DCA 1989); e.g., Tyson v. Viacom, Inc., 890 So.2d 1205, 1209 (Fla. 4th DCA 2005) (en banc). Second, four identities must exist between the former suit and the suit in which res judicata is to be applied: “ ‘(1) identity in the thing sued for; (2) identity of the cause of action; (3) identity of the persons and parties to the actions; and (4) identity of the quality or capacity of the persons for or against whom the claim is made.’ ” Id. (citations omitted); Youngblood v. Taylor, 89 So.2d 503, 505 (Fla. 1956). In the 2013 Action, all four identities are present. The policy “underlying res judicata is that if a matter has already been decided, the petitioner has already had his or her day in court, and for purposes of judicial economy, that matter generally will not be reexamined again in any court (except, of course, for appeals by right).” Zikofsky v. Mktg. 10, Inc., 904 So.2d 520, 523 (Fla. 4th DCA 2005). Based on principles of res judicata, a judgment on the merits will thus bar a subsequent action between the same parties on the same cause of action. Importantly, the doctrine of res judicata not only bars issues that were raised, but it also precludes consideration of issues that could have been raised but were not raised in the first case. See Kimbrell v. Paige, 448 So.2d 1009, 1012 (Fla. 1984); Tyson v. Viacom, 890 So.2d 1205, 1210 (Fla. 4th DCA 2005) (“The doctrine of splitting a cause of action is related to res judicata in that it requires that all damages sustained or accruing to one as a result of a single wrongful act must be claimed and recovered in one action or not at all.”); Youngblood, 89 So.2d at 505. Applying that principle here, Pearce’s alleged intentional or fraudulent misrepresentation was fully litigated in the 2010 Action and he was found not liable. Sandler as Trustee’s 2013 claim against Pearce for negligent misrepresentation based on the identical subject matter and factual circumstances is thus precluded from consideration as an issue that could have been raised in 2010, but was not.”

The appellate court held that the 2013 action is properly barred by collateral estoppel and res judicata. The Final Judgement is reversed and remanded, and the trial court is directed to enter summary final judgement in favor of Pearce.

NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.

If you or anyone you know is in need of representation in actions involving Guardianship, Probate and/or Trust Disputes, or questions pertaining to such proceedings, please contact The Law Offices of Glenn M. Mednick, P.L., at (954) 315-1154 or gmednick@mednicklawgroup.com.