UNREPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND. No September Term, 2012 MARY LYONS KENNETH HAUTMAN A/K/A JOHN HAUTMAN

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1 UNREPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No September Term, 2012 MARY LYONS v. KENNETH HAUTMAN A/K/A JOHN HAUTMAN Zarnoch, Graeff, Moylan, Charles E. Jr. (Retired, Specially Assigned), JJ. Opinion by Zarnoch, J. Filed: May 16, 2014

2 In this domestic relations case, appellant Mary Lyons seeks our review of an order of the Circuit Court for Montgomery County, which granted appellee John Hautman s motion to dismiss. We find no error and therefore affirm the decision of the circuit court. FACTS AND LEGAL PROCEEDINGS Lyons and Hautman divorced in 2004 after nineteen years of marriage. The parties have two grown sons, born in 1987 and The Judgment of Absolute Divorce incorporated but did not merge the parties Separation and Property Settlement Agreement of July 11, 2004 ( Settlement Agreement ). The Settlement Agreement included an award of alimony, as well as a custody arrangement not at issue in this case. Both Lyons and Hautman are trained as attorneys. Hautman was a partner at Hogan & Hartson (now Hogan Lovells) during the marriage. Hautman was constructively fired from the firm in 2005, and he received severance payments through Hautman agreed 1 to take these payments instead of retirement benefits. Lyons did not work during the marriage, but after the divorce, she earned a Masters in Library Science and became a law firm librarian. After leaving the firm, Hautman requested a decrease in his alimony and child support obligations. On March 30, 2007, the circuit court ordered the spousal support lowered to $4,500 per month and ordered the child support to remain at $1,500 per month ( He explained at the motions hearing that to take the retirement benefits he had to agree not to practice law. 1

3 Modification Order ). Within the 2007 Modification Order, the court treated Hautman s severance payments as income when recalculating the alimony payments. On September 28, 2009, Lyons filed a complaint against Hautman, asserting three issues relevant to this appeal, all relating to fraud, breach of the parties Settlement Agreement, and a request for punitive damages. First, Lyons alleged that Hautman fraudulently used her name to borrow around $30,000 from PNC bank ( Loan Claims ) in violation of the Settlement Agreement, where each party agreed that no future debts would be contracted in the name of the other party. Second, Lyons claimed that Hautman took approximately $30,000 from their youngest son s 529 Maryland Pre-Paid College Savings Plan ( College Savings Claims ) in violation of the Settlement Agreement where the parties agreed not to remove any funds other than for the benefit of their youngest son s college education. Finally, she alleged that Hautman s waiver of retirement benefits in exchange for severance pay was fraudulent ( Retirement Claims ). On November 28, 2009, Lyons served Hautman with the complaint. Hautman did not file an answer. On February 23, 2010, Hautman filed for bankruptcy. Both parties filed a motion to stay this action, and the circuit court ordered the case stayed. On May 24, Lyons lodged a complaint in the bankruptcy proceedings, objecting to the potential discharge of some of Hautman s debts. She made similar allegations relating to the breach of the parties Settlement Agreement. She did not want the bankruptcy court to discharge the debts that Hautman had incurred relating to her College Savings Claims and Loan Claims. Regarding 2

4 her Retirement Claims, Lyons also sought a ruling on whether the retirement benefits that Hautman waived in exchange for the severance pay were classified as part of an executory contract for future assets or a present contract. On February 17, 2011, the U.S. Bankruptcy Court for the Eastern District of Virginia held a hearing on Lyons s complaint. The next day, the bankruptcy court issued a Memorandum Opinion and an Order ( Bankruptcy Order ). Regarding the College Savings Claims, the bankruptcy court entered a judgment in favor of Lyons for $30,240.00, with interest. The bankruptcy court ordered that Hautman is liable for any increase in tuition for a Maryland state college beyond the judgment amount of $30, and that this judgment would not be discharged. With respect to the Loan Claims, the court ordered that: Any liability that Mary C. Lyons may have on the debt to PNC Bank as successor to Riggs Bank on the PreferredLine Loan Agreement and Disclosure Statement dated April 20, 1997, in the maximum principal amount of $30,000 plus reasonable attorney s fees for both the bank, if awarded or paid, and Ms. Lyons are not discharged by any discharge that may be entered in this case. To the extent that there are or may be other obligations to PNC Bank, as successor to Riggs Bank, subject to Article XI of the Voluntary Separation and Property Settlement Agreement, those obligations are also not discharged by any discharge that may be entered in this case. Regarding the Retirement Claims, the bankruptcy court ordered Lyons to promptly consult the trustee and advise the trustee of the information she had. The bankruptcy court explained that if the trustee and the Office of the United States Trustee did not file a motion substituting 3

5 the trustee as a party in place of Lyons, then the court would dismiss the complaint without prejudice. 2 On May 4, 2012, the circuit court issued a Notification to the Parties of Contemplated Dismissal. Lyons filed a motion for deferral, which was not served on Hautman. On July 27, the circuit court held a status hearing. Hautman did not attend, claiming he did not receive notice. At the hearing, the court lifted the stay and set a trial date for November 13. On October 10, Lyons filed an amended complaint, which included the allegations of fraud related to the College Savings Claims, fraud and false pretenses for the Loan Claims, and fraud and conversion with respect to the Retirement Claims. On October 26, Hautman filed an answer and a motion to dismiss. On the date of the trial, November 13, Lyons filed a response to the motion to dismiss, claiming that she did not receive the motion. The court held a hearing on the motion that day. The court ruled from the bench and later memorialized the ruling in a written order. The order dismissed the Loan Claims without prejudice, with leave for Lyons to refile, because of her failure to proffer to the court any evidence to support those counts. At the hearing, the judge stated that he could not determine if Hautman took out a loan in Lyons s name because: the plaintiff has no documentation whatsoever showing that, one, she s indebted to PNC; I also find that there s nothing from PNC to indicate that she s indebted to them. And the third thing 2 The bankruptcy court also entered a judgment in favor of Lyons against Hautman for $21,000 in past due child support and $63,000 in past due spousal support with interest, and that this judgment could not be discharged. These awards are not at issue in this case. 4

6 is that I have a recorded document from Montgomery County Circuit Court showing that the PNC lawsuit against the plaintiff was dismissed. 3 For the remaining counts related to Lyons s Loan Claims, the judge explained again that he could not grant damages without proof that there was a judgment against her or that Hautman had fraudulently indebted her to the bank. The court circuit court dismissed the Retirement Claims on res judicata grounds based on the 2007 Modification Order by the circuit court. The judge explained, Well, this was all dealt with [by] Judge Sundt in her order. She presided over the divorce, the division of property, the retirement, the alimony.... That clearly is res judicata and certainly issues that dealt with the domestic relations action [sic]. The circuit court next dismissed the College Savings Claims on res judicata grounds based on the Bankruptcy Order. The judge explained that: Now... she s alleging... the defendant withdrew the monies from the Maryland Pre-Paid college trust fund. The defendant admits he did that and admits that he took it, and we know the amount, and there s a judgment against him and I m glad the Eastern District of Virginia Bankruptcy Court refused to discharge it, and they did the right thing.... Finally, the circuit court rejected Lyons s prayer for compensatory and punitive damages for breach of the Settlement Agreement, finding that it was not grounds for punitive damages. The judge explained, First of all, it s res judicata. Second of all, I would not grant, 3 In 2010, PNC Bank brought an action against Lyons in Montgomery County Circuit Court which PNC voluntarily dismissed after receiving Lyons s answer. 5

7 nor can you get punitive damages for money taken out of a college fund improperly. Lyons filed a timely appeal. Additional facts will be provided as necessary in our discussion of the issues. QUESTION PRESENTED Lyons presents the following questions for our review: I. Did the circuit court err in dismissing all the counts in appellant s complaint on the grounds of res judicata where: A. there was no final judgment on the merits in the prior bankruptcy proceeding sufficient to support res judicata on the PNC claims? B. there was no final judgment on the merits in the prior bankruptcy proceeding sufficient to support res judicata on the retirement funds claims? C. there was no final judgment on the merits in the prior bankruptcy proceeding sufficient to support res judicata on the 529 plan claims? We answer these questions in the negative and affirm the decision of the circuit court. I. Standard of Review DISCUSSION A party may seek dismissal of a complaint if the complaint fails to state a claim upon which relief can be granted. Md. Rule 2-322(b)(2). The standard of review for a grant of a motion to dismiss is whether the trial court was legally correct. Schisler v. State, 177 Md. App. 731, 742 (2007) (Citation omitted). This Court must determine whether the complaint on its face, discloses a legally sufficient cause of action and we must presume the truth of 6

8 all well-pleaded facts in the complaint, along with any reasonable inferences derived therefrom. Id. at 743. II. Res Judicata Principles In Maryland, res judicata requires 1) that the parties in the present litigation are the same or in privity with the parties to the earlier dispute; 2) that the claim presented in the current action is identical to the one determined in the prior adjudication; and 3) that there was a final judgment on the merits. Colandrea v. Wilde Lake Cmty. Ass n, Inc., 361 Md. 371, 392 (2000) (Citations omitted). This means that a judgment between the same parties and their privies is a final bar to any other suit upon the same cause of action. Id. This type of judgment extends to matters that could have been litigated in the original suit. To avoid the vagaries of res judicata s preclusive effect, a party must assert all the legal theories he wishes to in his initial action, because failure to do so does not deprive the ensuing judgment of its effect as res judicata. Id. (emphasis in original). III. Loan Claims Lyons contends that there was no final judgment on the merits in the Bankruptcy Order sufficient to support a finding of res judicata on her Loan Claims. Hautman contends that Lyons is precluded from challenging the Loan Claims on the basis of res judicata because this was not the basis for the circuit court s decision. 7

9 Lyons s contention that the court erred in relying on res judicata for this claim has no merit. The circuit court did not base its decision rejecting the Loan Claims on res judicata. The judge explained that he dismissed these counts because Lyons did not provide documentation showing that she was indebted to the bank. The court noted that [i]n fact, the proof is just the opposite[;] PNC dismissed the suit, but there s no documentation, loan application, or any type of document showing that PNC is holding the plaintiff as a debtor. Lyons did not meet her burden in pursuing these claims. Therefore the circuit court was correct to dismiss this claim without prejudice. IV. Retirement Claims Lyons next contends that there was no final judgment on the merits in the prior Bankruptcy Order sufficient to support res judicata on the Retirement Claims. Lyons explained at the circuit court motions hearing that this issue never got argued or dealt with at all, basically because the judge told her to speak with the trustee. Hautman contends that Lyons is precluded from challenging the decision on the basis of res judicata of the Bankruptcy Order, because the circuit court dismissed the retirement claims on res judicata grounds on the basis of the 2007 Modification Order, not the Bankruptcy Order. He argues that the withdrawal payments were classified as severance pay in the 2007 Modification Order, and that Lyons is prohibited from relitigating this issue to get the payments classified as retirement benefits for a second bite of the apple. He also argues that Lyons made similar claims in the bankruptcy proceeding, but did not pursue them. 8

10 The court was correct to dismiss the Retirement Claims on res judicata grounds. Lyons s argument has no merit because the court did not find res judicata on the basis of the Bankruptcy Order. In the 2007 Modification Order, the circuit court treated the Hogan & Hartson payments as income, not retirement funds. The court noted that Defendant expects income of $319,500 in This amount comprises $307,500 in severance pay from Hogan & Hartson, which Defendant received in January Hogan & Hartson deducted certain amounts from the $307,500 and Defendant received approximately $268,224. Thus his gross actual income is posited at $280,224, or $23,352 per month. The court used this monthly gross income for its calculation of the modified alimony, and explained that it had not made the reduction retroactive because Defendant received substantial payments from Hogan & Hartson. (emphasis in original). As explained in Colandrea, a judgment between the same parties upon the same cause of action is conclusive even for matters that could have been litigated in the original suit. 361 Md. at 392. At the two-day merits trial leading to the 2007 Modification Order, both parties appeared with representation, and [t]estimony was taken and evidence was received. At the conclusion of the trial, the Court requested that each party file a brief memorandum, including findings of fact and proposed recommendations. Lyons had the opportunity to litigate this matter during the Modification for Alimony and Child Support trial, and she failed to so. Therefore, the court was correct to dismiss her Retirement Claims on the basis of res judicata. 9

11 V. College Savings Claims Lyons contends that there was no final judgment on the merits in the Bankruptcy Order sufficient to support res judicata on the College Savings Claims. The bankruptcy court ordered a monetary award for the repayment of the money, and also the possibility of future liability for the difference between the award and the actual cost. She argues that because this future liability is not quantifiable and there is a possibility of a future suit, it is not a final judgment. She also argues that the bankruptcy court issued a declaratory judgment and that it is not a legally sufficient ground for res judicata. Hautman contends that Lyons made identical allegations of breach of the Settlement Agreement, fraud, and conversion in her bankruptcy complaint. He argues that the bankruptcy court issued a final order, and that the Bankruptcy Order was not characterized as a declaratory judgment. The circuit court was correct to grant the motion to dismiss based on res judicata of the Bankruptcy Order. The bankruptcy court s Opinion and Order did not state that it would 4 issue a declaratory judgment in relation to the College Savings Claims, and the order is clearly titled Order. It states: Judgment is entered in favor of Mary C. Lyons against John Kenneth Hautman (aka Kenneth John Hautman) in the amount of $30, together with interest at the federal judgment rate from June 2, 2009, until paid. The debtor is liable for any 4 The bankruptcy court did use the words declaratory judgment in its memorandum opinion with respect to the Loan Claims, but not the College Savings Claims. 10

12 increase in tuition for a Maryland state college beyond the judgment amount of $30, This judgment will not be discharged by any discharge that may be entered in this case. Lyons cites Bankers & Shippers Ins. Co. of New York v. Electro Enterprises, Inc., 287 Md. 641 (1980), for the contention that the principles of res judicata do not apply to a declaratory judgment. However, the Court in Bankers went on to explain that the cases have consistently held that the matters raised and declared in a declaratory judgment are final and may not be relitigated in a separate, subsequent action for further relief based on that judgment. Id. at 655. Even if this were a declaratory judgment, res judicata still applies: Lyons did not bring a suit to determine the amount that Hautman is liable beyond the judgment amount due to an increase in tuition. Instead, her claim alleges again that Hautman breached the Settlement Agreement and that this constituted fraud and conversion. This issue was already litigated. Therefore, the circuit court was correct to dismiss these claims because of the res judicata effect of the Bankruptcy Order. For all of these reasons we affirm the judgment of the circuit court. JUDGMENT OF THE CIRCUIT COURT F O R M O N T G O M E R Y C O U N T Y AFFIRMED. COSTS TO BE PAID BY APPELLANT. 11