After a judgment for possession, does res judicata prevent a landlord from taking a money judgment?

I represent a lot of commercial landlords, and, when there’s a payment default and they want to evict a tenant, there’s an early strategy question that they all face: (1) Do we sue for possession only; or (2) Do we sue for money and unpaid rent (through the date of the court hearing)?

It’s a nuanced question. Most landlords choose # 2, especially since detainer lawsuits are filed in General Sessions Court and, due to a little-known exception, you can take a huge money judgment in “small” claims court.

But, they’ll generally say, what about the unpaid rent for time periods after we get a judgment and evict them from the property? That’s a second lawsuit. Isn’t there a rule against two lawsuits on the same issues?

Yes, it’s called res judicata, which we talked about last year.

So, can you sue a tenant two times on the same lease agreement?

Yes, you can. The Tennessee Court of Appeals reaffirmed this answer yesterday, in BOP, LLC, et al. v. Plastic Surgery of Nashville, P.C., et al., No. M2019-00588-COA-R3-CV (Oct. 8, 2020).

In that case, the landlord won an eviction judgment for possession and for money in 2005 , which the tenant later paid in full. Then, apparently, the landlord filed more lawsuits (5 more, actually), over other damages. This last part did not make sense to me, so I’ll stick to the part I care about, the law.

The Court wrote that “[t]he law on successive actions states that ‘[s]uccessive actions may be maintained on the same contract or transaction whenever, after the former action, a new cause of action arises therefrom’.” Tenn. Code Ann. § 20-6-201.

From there, the Court reasoned that each and every installment default under a contract for long term payments creates a new default, since a “suit may be brought in successive actions upon each default in an installment for
the amount of that defaulted installment.” Farmers & Merchants Bank v. Templeton, 646 S.W.2d 920, 923 (Tenn. Ct. App. 1982) (citing Barnes v. Black Diamond Coal Co., 47 S.W. 498, 499–500 (Tenn. 1898) (holding that “[i]nstallments of rent are subject to the same rule as installments of money due, and an action may be brought as each installment falls due” and that “[a] new cause of action arises and becomes enforceable with every successive installment”).

Therefore, a later suit to recover rents that “had not accrued” at the time of the first judgment constituted a new cause of action.

While the outcome in this particular case turned on really specific facts, this opinion, generally, supports the legal conclusion that, if there had been post-judgment amounts owed, the landlord would have a new cause of action to collect those and would not have been barred by res judicata.

So, to go back to the early fork-in-the road: Is it worth it to sue for unpaid rent when you don’t yet know all your damages?

I think it is. Getting possession is only “step one” of a landlord trying to establish its ultimate damages. Then, it must clean, repair, and market the premises. Once a tenant gets into the space and starts paying rent, then, the landlord will have mitigated its damages and will have the ability to calculate what its true and total damages are. But, that process could take six months to a year.

If you’re already filing a lawsuit, why not go ahead and get a judgment for at least a partial amount now (since, in many cases, the landlord doesn’t go back to sue a second time).

Res Judicata Part 2: What about Bankruptcy Court?

Remember a few months ago, when I talked about the concept of res judicata in Tennessee and how, in some situations, a smart plaintiff will include all relevant causes of action in its initial action? That way, the plaintiff may be able to avoid re-litigating similar issues later.

In that post, I noted that it can be a critical issue in bankruptcy cases, where a state court judgment for fraud can potentially fast-track a non-dischargeability finding under 11 U.S.C. Sec. 523.

Specifically, to do that, the plaintiff needs to plead specific facts and causes of action that would satisfy the elements of 11 U.S.C. Sec. 523 (but in the state court proceeding). In order to convince the bankruptcy courts, however, to apply issue preclusion, the plaintiff generally also has to actually litigate the matter, i.e. the judgment can’t have been based on a default judgment.

As a quick recap, here’s the typical checklist that a bankruptcy court may consider. Were the issues in the prior proceeding:

  • identical with those in the subsequent proceeding;
  • actually litigated;
  • necessarily decided in a final judgment on the merits; and
  • asserted against the same party or someone in privity.

The question that comes up, then, is whether a default judgment has issue preclusive effect? As you can guess from the above, in most cases, a default judgment (i.e. one that is entered solely because the defendant doesn’t respond) is not deemed to be “actually litigated.”

But, two pending cases from August 2019 suggest that courts are looking at these issues.

They are: Creech v. Viruet (In re Creech), 18-12584 (11th Cir. Aug. 7, 2019) (full copy here); the Draka v. Andrea (In re Andrea), 18-96014 (N.D. Ill. Aug. 6, 2019) (full copy here).

These are really interesting cases, and they are worth a reivew, if only to see the heightened standards that a bankruptcy court will apply in 523 actions. Which, by itself, is the primary reason so many creditors want courts to grant issue preclusive effect to default judgments.

In the end, it’s a short-circuit to avoid the relief that the Bankruptcy Code provides to debtors, so it’s a disfavored move. I’d be surprised if a default judgment will satisfy that burden.

New Court of Appeals Opinion provides good statement of doctrine of Res Judicata

As lawyers, the business model is fairly simple: We sell our time, multiplied by our hourly rates.

This creates a huge disconnect between clients and lawyers. All clients want their matters resolved in their favor, but also quickly, smartly, and cost-efficiently (that’s a nice way to say for as little legal fees as possible). On the other hand, the lawyer-industrial-complex wants lawyers to ponder, research, litigate, bill, examine, depose, etc. (i.e. for as many billable hours as possible).

First off, run away from lawyers like that.

Second, if you’re a lawyer and want clients to be happy, you should read this new Tennessee Court of Appeals opinion, which discusses the concept of res judicata. That’s a doctrine that allows parties to avoid unnecessary, duplicative litigation, when the issues have already been decided by a court.

The facts aren’t that important, so I’ll just focus on the legal discussion.  The Court wrote: Continue reading “New Court of Appeals Opinion provides good statement of doctrine of Res Judicata”

Borrower’s Attack on Foreclosure Process May be Barred by Detainer/Eviction Proceedings

Across the country, lenders are fighting claims from borrowers that the lender’s foreclosure on real property was defective.  In response, courts will sometimes entertain an examination of the specifics of the foreclosure. Regardless of the outcome, the lender is invariably faced with delay in obtaining a deficiency judgment or the costs of litigating these issues.

On January 31, 2011, the Tennessee Court of Appeals issued a decision finding that such claims by a borrower will not be considered, where the lender has filed a post-foreclosure unlawful detainer warrant in General Sessions Court and obtained an eviction judgment. If the homeowner does not raise the defective foreclosure in the General Sessions Court, then the decision is “res judicata” on any subsequent action.

It’s a a quick and cheap way to clear title on property. Also, you serve the detainer warrant by nailing it to the door of the property — no chasing the elusive occupants around the world trying to get service.

Cite:  Robert E. Davis, et. al, v. Crawford L. Williams, et. al, No. E2010-01139-COA-R3-CV (Tenn. Ct. Apps.  Jan. 31, 2011).