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Stricken Permissive Counter Claims Not Barred by Doctrine of Res Judicata under Summers v. Beltway Builders, Inc. (App. Ct. of Md.)

Filed: February 7, 2023

Opinion by: Friedman, J.

Holding: A dismissed permissive counter-claim cannot be barred by the doctrine of res judicata when subsequently filed by the former defendant in a subsequent lawsuit against the former plaintiff.

Facts: The dispute originated when homeowners James Summers and Dr. Steven Snyder contracted Beltway Builders, Inc. for home remodeling. A disagreement arose over the performance, leading Beltway to sue for breach of contract and unjust enrichment, while the homeowners filed a late counterclaim for breach of contract. Beltway then filed a motion to strike the counterclaim. The homeowners, therefore, filed the instant, separate suit against Beltway. The homeowners prevailed in the original lawsuit filed by Beltway, and Beltway defended the subsequent lawsuit on the grounds of res judicata.

Analysis: The doctrine of res judicata bars re-litigating civil claims after such claims have had their day in court and a final judgment on the merits has been entered by the court. Under Maryland law, the elements of res judicata are: (1) that the parties in the present litigation are the same or are in privity with the parties to the earlier litigation; (2) that the claim presented in the current action is identical to the one determined or which could have been brought in the prior litigation; and (3) that there was a final judgment on the merits in the prior litigation. Spangler v. McQuitty, 449 Md. 33, 65 (2016). Under Rowland, however, courts will not find that a party’s claims are barred by res judicata when that party still has the right to bring them as an independent suit. Rowland, 320 Md. at 232-33.

The circuit court had dismissed the homeowners’ separate lawsuit, filed later, based on the doctrine of res judicata, deciding that the homeowners should have initially brought their claims as counterclaims in Beltway’s lawsuit. However, the Appellate Court held that under Maryland Rule 2-331(a), counterclaims are permissive, not mandatory. Citing Rowland v. Harrison and other sources, the court underscored that Maryland law does not force defending parties into a ‘use it or lose it’ situation regarding counterclaims.

Consequently, the appellate court found that the lower court’s dismissal based on res judicata was erroneous, as it conflicted with the flexible nature of Maryland’s counterclaim rules. The judgment was reversed, and the case was remanded. 

The full opinion is available HERE | MSBA Business Law Section Blog HERE

Tim Faith is a practicing business law and estates planning attorney, and also an associate professor at The Community College of Baltimore County, where he teaches business law, legal writing, and torts.

Tim also serves as the chair of the Maryland Business Law Developments blog, a service of the Business Law Section of the MSBA.