Opinion
Petition that trustee in bankruptcy be ordered to repay to petitioner part of judgment, entered against and paid by petitioner in state court conversion action brought by trustee, and consisting of unpaid balance due on mortgaged property at time of conversion, which balance petitioner had assumed and partially paid, was barred by judgment in conversion action under doctrine of res judicata.
The following is the opinion of Michael J. Kerley, Referee in bankruptcy.
On July 27, 1949, an involuntary petition in bankruptcy was filed against the Mid-Columbia Publishers, Inc., and, consent to bankruptcy having been filed by the alleged bankrupt in the meantime, Mid-Columbia was adjudicated a bankrupt on September 20, 1949. Mid-Columbia's business had been that of a print shop and conducting a newspaper at Kennewick, Washington. In due course, Ernest R. Crutcher was elected trustee of the bankrupt estate and acted as such during the state court conversion action with which we are here concerned.
Soon after his election and qualification, the trustee brought an action against the Scott Publishing Company for the alleged conversion by the Scott Company, on or about June 12, 1949, of the bankrupt's newspaper plant and equipment, which equipment included a Mergenthaler linotype machine, on which, at the time of the alleged conversion, there was still due the Mergenthaler Company $8,550 as the balance on the purchase mortgage.
This conversion action was originally commenced by the trustee in the United States District Court for the Eastern District of Washington, but the Scott Company procured removal of it to the State Superior Court, where all subsequent litigation on the conversion took place. The case was tried to a jury in the Franklin County, Washington, Superior Court, and a verdict was rendered in favor of the trustee in the amount of $22,033. The Scott Publishing Company appealed from the verdict and the trustee cross-appealed because, under an instruction of the trial court, the Scott Company was allowed to set off the $8,550 balance due on the purchase mortgage to the Mergenthaler people. It should be mentioned that there was also a special verdict with eight interrogatories and answers thereto on various items of damage comprising the $22,033 plaintiff's verdict returned. The State Supreme Court affirmed the judgment on appeal and, on the trustee's cross-appeal, increased the judgment by $8,550. See Crutcher v. Scott Publishing Co., 42 Wash.2d 89, 253 P.2d 925. A petition by Scott Publishing Co. for a rehearing was denied in 42 Wash.2d 104, 253 P.2d 925. Scott Publishing Co. has since paid in full to the trustee the amended judgment of $30,583. After payment of the judgment the Scott Publishing Co. filed herein a petition asking that the trustee be ordered to repay $8,550 to the Scott Publishing Co., which petition is based upon the ground that the trustee, by receiving the $8,550, has been unjustly enriched. Thereupon, the Referee issued an order directing the trustee to show cause in response to the petition. The trustee then served and filed a motion to dismiss the petition, consideration of which motion was deferred until a hearing was had on the merits; the trustee also served and filed an answer. The Scott Publishing Co. will henceforth be referred to as petitioner.
The petition and answer are mostly undisputed narratives of steps in the state court litigation and inferences drawn from the pleadings. A hearing was had on the merits and the reporter made a transcript of the proceedings. At the inception of the hearing the trustee renewed his motion to dismiss the petition upon the ground that it does not state any grounds for relief against the bankrupt estate, and a ruling on the petition was deferred until completion of the evidence. Petitioner offered in evidence copies of the pleadings and record on appeal in the state court action, which were objected to by the trustee except for the purpose of proving res judicata, and these exhibits were admitted in evidence, subject to the objection. These exhibits include the statement of fact and briefs of the parties on appeal, as well as the writings which were admitted over objection of the trustee. It should be said that a ruling on the trustee's motion to dismiss was deferred so it could be learned to what extent the question of the $8,550 sought by petitioner had been touched upon in the state court action, and this, of course, for the reason that the trustee's defense to the petition is the doctrine of res judicata. The only oral testimony adduced at the hearing was that from Glenn Lee, secretary-treasurer of petitioner, and from Thomas Malott, attorney for the trustee. Mr. Lee's testimony, objected to by the trustee, was to the effect, that, as of the date of the hearing, July 23, 1953, because of payments on the linotype mortgage by petitioner, the balance due on the mortgage was $2,850. Mr. Malott's testimony had to do with events between the adjudication in bankruptcy and trial of the conversion action.
The petitioner's position is fairly put in its first memorandum of authorities, page 1, as follows:
'The petitioner takes the position that it has assumed and agreed to pay that mortgage indebtedness and is saving the bankrupt estate harmless from any liability therefor, and has been paying and will pay off the mortgage indebtedness. The effect of so doing and the opinion in the Crutcher Case, supra, will be, unless a court of equity intervenes, that Scott Publishing Company will pay the mortgagor the full mortgage indebtedness and likewise pay the same amount to the Trustee of this bankruptcy. In short, it will constitute a double payment and unjustly enrich the bankrupt estate to the extent of $8,550.00 that the estate would not otherwise have received.
'Under these circumstances the petitioner asserts that it is entitled to restitution.'
Petitioner frankly concedes in its opening brief that it has found no case factually close in point, and the writer of this opinion makes a similar confession. Petitioner's opening brief (memo points, etc. dated July 21, 1953) is replete with general expressions pertaining to the doctrine of unjust enrichment, many of which are from the Restatement 'Restitution'. Eight Washington cases are cited and principles therefrom extracted with the general theme that one ought not to unjustly enrich himself at the expense of another, where it is contrary to equity, natural justice, etc. The case of Cone v. Ariss, 13 Wash.2d 650, 126 P.2d 591, is construed to the effect that although the action for money had and received is an action at law, yet it is equitable in its nature and determinable by the application of equitable principles. This case, however, upon examination, discloses that this expression of a rule specifically deals with a void contract, the original conversion theory having been rejected by the trial court.
The required elements for making a matter res judicata are stated in Northern Pacific Railway Co. v. Snohomish County, 101 Wash. 686, 172 P. 878, and in Johnson v. National Bank of Commerce, 152 Wash. 47, 277 P. 79 as follows:
'To make a judgment res judicata * * * there must be * * * identity in four respects: (1) Of subject-matter; (2) of cause of action; (3) of persons and parties; and (4) in the quality of the persons for or against whom the claim is made.' (101 Wash. 686, 172 P. 879.)
Interrogatory No. 6 of the special verdict submitted to the jury reads as follows:
'How much have you allowed by way of set-off, if any, in your general award by reason of the fact that there was owing the sum of $----- on the chattel mortgage on the Model 34 Mergenthaler linotype? (Answer) $8550.00.'
Instruction No. 29 told the jury that it was admitted that at the time of the alleged conversion the balance due on the mortgage on the linotype was $8,550. The respondent trustee's brief on cross-appeal, at page 59, discusses the $8,550 chattel mortgage linotype deduction of the jury's verdict at length and asks restoration of this $8,550, which restoration the Supreme Court granted in Crutcher v. Scott Publishing Co., supra. At page 92 of 42 Wash.2d at page 933 of 253 P.2d of the opinion the Supreme Court gives as a reason for granting the respondent's cross-appeal for addition of the $8,550 to the verdict 'a person who is entitled to bring an action for a conversion, although he has a limited interest in the property converted, may, as against a stranger recover the full value of the property.'
On the same page, the Supreme Court further said, 'The question of settlement between appellant (petitioner herein) and the third parson who also owns an interest in the property is not before the court.'
And, further, on the same page: 'If appellant wanted credit for $8,550 on the judgment, it had the burden of showing that it had paid that amount or had exonerated Mid-Columbia from all liability therefor; and that appellant failed to do. It was therefore error to offset that amount against the judgment.'
The court's opinion concludes with an affirmance of the verdict and an instruction to increase the judgment by $8,550.
The petitioner here, as appellant in the State Supreme Court action, filed a petition for rehearing, which dwelt at length upon the equitable principles governing unjust enrichment, etc., and sought relief from the $8,550 increase in the verdict, but the petition for rehearing was denied in Crutcher v. Scott Publishing Co., 42 Wash.2d at page 104, 253 P.2d 925.
Apropos of the Supreme Court's view as to what the petitioner herein had to do to receive credit for the $8550.00 by showing that it had paid that amount or had exonerated Mid-Columbia from all liability therefor, is the language of our State Supreme Court in McDougall v. Walling, 21 Wash. 478, 58 P. 669, in which it is held that mere failure by defendant to voluntarily disclose evidence which would tend to defeat his defense, does not constitute such fraud as would authorize vacation of a judgment. Even perjury is not a ground for vacating a judgment. Thomas & Co. v. Penland, 148 Wash. 279, 268 P. 867, 868. A judgment for an additional bond for an amount in excess of the penalty is not void or subject to a motion to vacate but at most only subject to correction by appeal. Hayworth v. McDonald, 67 Wash. 496, 121 P. 984. Olson v. Title Trust Company, 58 Wash. 599 (109 P. 49), and McPherson Brothers Co. v. Okanogan County, 61 Wash. 239, 112 P. 267, holds the general rule to be that a judgment on the merits concludes the parties and their privities not only as to the things determined, but as to matters which might have been litigated.
In Metropolitan Life Insurance Co. v. Davies, 2 Wash.2d 155, 97 P.2d 686, 688, our Supreme Court used the following language:
'Where causes of action are the same, the rule of res judicata applies, not only to questions presented, but to all matters which rightfully belong to litigation which the parties could, by exercising reasonable diligence, have presented at the trial.'
The trustee cites Batey v. Batey, 35 Wash.2d 791, 215 P.2d 694, 699, which says:
'A 'collateral attack' is an attempt to impeach the judgment by matters dehors the record in an action other than that in which it was rendered; an attempt to avoid, defeat or evade it, or deny its force and effect in some incidental proceeding not provided by law for the express purpose of attacking it.'
There can be little question here about the $8550.00 balance on the linotype machine having been litigated in the state court action; it was not only litigated but it was one of the main bones of contention in that it was the subject matter of a special interrogatory, an instruction by the trial court, discussed and decided by the Supreme Court, and the basis for Scott Company's petition for a rehearing in the state court. It must be conclusively considered as subject to the res judicata doctrine.
Remington on Bankruptcy (5th Ed.) para. 2192, p. 332, says:
'Where the trustee resorts to a state court, he is, of course, bound by the judgment on principles of res judicata the same as any other party litigant;'
Remington, (5th Ed.), Vol. 5A, para. 2343, p. 40, further says:
'One who is dissatisfied with the result of proceedings in the bankruptcy court is nevertheless bound thereby, if he submitted his rights to that court, and cannot indirectly obtain a review of the result by suing his trustee in another tribunal.'
Conversely applying this to the instant situation it seems obvious that the petitioner cannot successfully attack a state court's disposition of the $8,550 added to the jury's verdict.
As to general principles of equity and their corollary provisions about unjust enrichment being applicable to the present situation in seeking indirect relief from the state court judgment, it would seem that petitioner's chief strength is the exact ascertainment of the amount sought to be recovered by reclamation. However, it must be kept in mind that the state court judgment was one for a tort and presumably a willful tort at that, as appears from a careful reading of paragraph 4 of the State Supreme Court's opinion. 42 Wash.2d 98, 253 P.2d 931. Tortfeasors are not so tenderly regarded by the courts in the confinement of elements and measure of damage, particularly in the case of willful conversions, as are defendants in violations of contract where the parties originally placed themselves in the contractual relation by some form of agreement. Some jurisdictions would doubtless allow punitive damages in a situation like this, though our Supreme Court does not formally recognize such damages as proper except in statutory cases.
In rejecting petitioner's contention that the $8,550 balance due on the linotype should be deducted from the jury's verdict, and particularly in rejecting it in the petitioner's petition for rehearing, which last-mentioned petition could reasonably be regarded as a petition coram nobis, the State Supreme Court must be considered as having had all the elements, legal and equitable, in mind, and to disturb the State Supreme Court's judgment would be to set the bankruptcy court up as a reviewer of the State Supreme Court's conscience in disposing of a tortious controversy, where judicial tenderness toward the tortfeasor has never been the policy of the law.
The trustee's petition to dismiss Scott Publishing Co.'s petition for restoration to it of $8,550 will be granted.
John Gavin of Gavin, Robinson & Kendrick, Yakima, Wash., represented petitioner Scott Publishing Co.
Thomas Malott of Malott, Dellwo & Rudolf, Spokane, Wash., appeared for Trustee, Ernest R. Crutcher.
LINDBERG, District Judge.
It is the opinion of the court, after reviewing the whole record submitted and after fully considering the arguments and authorities submitted by counsel, that the Referee's findings of fact, conclusions of law and order should be approved and affirmed.
The doctrine of collateral estoppel by judgment, being an application of the rule of res judicata, appears to be controlling in this case. In addition to the reasoning of the Referee, set forth in his opinion appearing in the record in support of his findings of fact, conclusions of law and order, and authorities cited by the Referee and counsel for the Trustee, the following cases are cited in support of the court's decision in this matter:
Partmar Corp. v. Paramount Pictures Theatres Corp., 347 U.S. 89, 74 S.Ct. 414, 98 L.Ed. 532; Heiser v. Woodruff, 327 U.S. 726, 66 S.Ct. 853, 90 L.Ed. 970; Baltimore S.S. Co. v. Phillips, 274 U.S. 316, 47 S.Ct 600, 71 L.Ed. 1069; Reed v. Allen, 286 U.S. 191, 52 S.Ct. 532, 76 L.Ed. 1054; Deposit Bank of Frankfort v. Frankfort, 191 U.S. 499, 24 S.Ct. 154, 48 L.Ed. 276; Lester v. National Broadcasting Co., Inc., 9 Cir., 217 F.2d 399; Restatement of the Law, Restitution, Ch. 8, 146, page 585.
An order in accordance herewith may be submitted upon notice.