Reliance Capital, Inc. v. G.R. Hmaidan, Inc (Tex.App.- Houston [14th Dist.] May 14,
2009)(Hedges) (promissory note suit, res judicata, UFTA)
AFFIRMED: Opinion by Chief Justice Hedges
Before Chief Justice Hedges, Justices Anderson and Seymore)
14-07-01059-CV Reliance Captial, Inc. v. G.R. Hmaidan, Inc., G.R. Hmaidan, and Isam Hmaidan
Appeal from 113th District Court of Harris County
Trial Court Judge: PATRICIA ANN HANCOCK
Trial Court Cause No. 2000-29229A
M E M O R A N D U M O P I N I O N
Reliance Capital, Inc. appeals from a grant of summary judgment favoring appellees, G.R Hmaidan,
Inc., G.R. Hmaidan, and Isam Hmaidan (collectively “the Hmaidans"). Reliance sued the Hmaidans for
breach of contract based on an alleged failure to pay on promissory notes. The trial court granted
summary judgment for the Hmaidans on res judicata grounds. In its first three issues on appeal,
Reliance contends that the trial court erred in granting judgment on res judicata principles because:
(1) Reliance was not a party or in privity with a party to the prior action; (2) the judgment in the prior
action resulted from an impermissible Mary Carter agreement; and (3) the Uniform Fraudulent
Transfer Act ("UFTA") was improperly applied in the prior action. In its fourth issue, Reliance contends
that the trial court erred in refusing to grant Reliance's motion for summary judgment. We affirm.
The present action was severed from another action (“the main action"), which began when Greatland
Investments sued several entities, including Bert Wheeler Liquors, Inc. (“BWLI"), for overdue lease
payments on commercial rental property. Greatland subsequently added La Villita del Norte, Inc. as
well as the Hmaidans as defendants. The Hmaidans had purchased the business that had formerly
occupied the rental space in question from BWLI and were still paying on notes for this purchase. The
Hmaidans were making their payments on the notes to La Villita, La Villita having been assigned the
notes by BWLI. In its claims against La Villita, Greatland claimed that the assignment of the right to
receive payment on the notes from BWLI to La Villita was a fraudulent conveyance. Greatland sued
the Hmaidans to force them to make future payments on the notes to Greatland rather than BWLI or
La Villita. During the pendency of the main action, La Villita assigned the notes to Reliance Capital,
purportedly to extinguish, at least in part, a prior debt. Afterwards, the Hmaidans apparently made
payments to Reliance for a time and then stopped.
After failing to attend depositions in the main action, BWLI and La Villita had their pleadings stricken as
discovery sanctions. Greatland was subsequently awarded an interlocutory summary judgment
against BWLI and an interlocutory default judgment against La Villita. Greatland and the Hmaidans
then filed pleadings bringing Reliance into the lawsuit. As mentioned above, La Villita had assigned
the notes to Reliance. Reliance, however, was not served with the lawsuit until(1) the claims against it
were severed from the main action, and (2) final judgment was entered in the main action. The
remaining parties, principally Greatland and the Hmaidans, reached a settlement, later incorporated
into the final judgment, under which the Hmaidans would make future payments on the notes to
Greatland. In the final judgment in the main action, the trial court (1) held BWLI and La Villita liable
for past due rental payments to Reliance, (2) found that the assignment of the notes from BWLI to La
Villita was fraudulent, and (3) ordered the Hmaidans to make further payments on the notes to
Greatland. The final judgment also severed the claims involving Reliance.
In the present, or severed, action, Reliance is suing the Hmaidans for payments on the notes while the
Hmaidans are suing, essentially, to be released from their obligation to pay anyone on the notes
except as instructed in the final judgment in the main action. Both sides filed motions for summary
judgment. In their motion, which was granted, the Hmaidans argued that all issues pertaining to rights
to payments under the notes were resolved in the main lawsuit; thus, Reliance is barred by the
doctrine of res judicata (claim preclusion or issue preclusion) from attempting to re-litigate those
matters in the severed action. In its motion, which was denied, Reliance contended that it was entitled
to payments under the notes and had proven so as a matter of law.
As stated above, in its first three issues, Reliance contends that the Hmaidans' motion was
improvidently granted because: (1) Reliance was not a party or in privity with a party to the main
action; (2) the judgment in the main action resulted from an impermissible Mary Carter agreement; and
(3) the Uniform Fraudulent Transfer Act (“UFTA") was improperly applied in the main action. In its
fourth issue, Reliance contends that the trial court erred in denying its motion for summary judgment.
We analyze the grant of a traditional motion for summary judgment under well‑established standards
of review. See generally Tex.R. Civ. P. 166a; Nixon v. Mr. Prop. Mgmt. Co., Inc., 690 S.W.2d 546,
548‑49 (Tex. 1985). The movant bears the burden to show that there is no genuine issue of material
fact and that it is entitled to judgment as a matter of law. Tex.R. Civ. P. 166a(c). We review the motion
and the evidence de novo, taking as true all evidence favorable to the nonmovant, and indulging
every reasonable inference and resolving any doubts in the nonmovant's favor. Valence Operating
Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). Where, as here, both sides filed motions seeking
summary judgment on the same issue, and the trial court granted one while denying the other, we
review both sides' summary judgment evidence, determine all questions presented, and, if the trial
court erred, render the judgment the trial court should have rendered. Id.
II. Res Judicata
In its first issue, Reliance contends that the trial court improperly granted the Hmaidans' motion on res
judicata grounds. “Res judicata" is often said to encompass two separate but related doctrines: claim
preclusion and issue preclusion. Barr v. Resolution Trust Corp., 837 S.W.2d 627, 628 (Tex. 1992).
Claim preclusion, or traditional res judicata, precludes relitigation of claims that have been finally
adjudicated, or that arise out of the same subject matter and could have been litigated in the prior
action. Amstadt v. U.S. Brass, 919 S.W.2d 644, 652 (Tex. 1996). It requires proof of: (1) a prior final
judgment on the merits by a court of competent jurisdiction, (2) an identity of parties or those in privity
with them, and (3) a second action based on the same claims as were raised or could have been
raised in the first action. Id. Issue preclusion, or collateral estoppel, precludes relitigation of particular
issues already resolved in a prior action, and it requires that (1) the facts sought to be litigated in the
second action were fully and fairly litigated in the first, (2) those facts were essential to the judgment in
the first action, and (3) the party against whom the doctrine is asserted was a party, or in privity to a
party, in the first action. Sysco Food Servs., Inc. v. Trapnell, 890 S.W.2d 796, 801‑02 (Tex. 1994).
Neither party takes a firm stance on whether issue preclusion or claim preclusion is more properly
applied here. We believe that the facts of this case place it more neatly in the realm of issue
preclusion: the issue in question being ownership of the notes. Clearly, the issue of ownership of the
notes was essential to the judgment in the main action, the trial court having found that BWLI owned
the notes because the attempted conveyance to La Villita was fraudulent. Accordingly, the question of
whether issue preclusion applies depends on (1) whether Reliance can be held to have been in privity
with La Villita or BWLI; and (2) whether the facts were fully and fairly litigated in the first action.
No prevailing definition of privity exists that automatically applies to all cases involving res judicata or
collateral estoppel. Ayre v. J.D. Bucky Allshouse, P.C., 942 S.W.2d 24, 27 (Tex. App.- Houston [14th
Dist.] 1996, writ denied). Instead, the determination of whether two entities are in privity requires a
detailed examination of their specific circumstances. Id. Generally, privity connotes those who are so
connected with a party to the judgment as to have such an identity of interests that the party to the
judgment represented the same legal right. Amstadt, 919 S.W.2d at 653. However, privity is not
established by the mere fact that entities may happen to be interested in the same question or in
proving the same facts. Ayre, 942 S.W.2d at 27. Courts have identified three common but non-
exclusive ways in which an entity can be in privity with a party to an action: (1) the entity can control
an action even if it is not a party to the action; (2) its interests can be represented by a party to the
action; or (3) it can be a successor-in-interest, deriving its claims through a party to the prior action.
Amstadt, 919 S.W.2d at 653.
In their motion for summary judgment, the Hmaidans argued, among other things, that Reliance, BWLI,
and La Villita were in privity because they were operated as a single business enterprise. See
generally Paramount Petroleum Corp. v. Taylor Rental Ctr., 712 S.W.2d 534, 536 (Tex. App.- Houston
[14th Dist.] writ ref'd n.r.e.) (discussing the single business enterprise doctrine). Indeed, uncontested
summary judgment evidence demonstrated with specificity the interconnectedness of the three
entities. To begin with, a Rule 11 agreement between the parties in the present action established a
high degree of commonality of shareholders, directors, and officers between Reliance, La Villita, and
BWLI. Specifically, Ronald J. Herrmann is listed as the sole director of both Reliance and La Villita,
and he is listed as co-director of BWLI along with his wife. Ronald Herrmann is also listed as the sole
shareholder in La Villita, and formerly the sole shareholder in Reliance. The current shareholder of
Reliance, as well as the other shareholders in BWLI, are also related in one way or another to Ronald
Herrmann, including his wife and various family trusts. The president of La Villita is listed as Ronald
Herrmann; for BWLI, his wife is listed; for Reliance, his daughter is listed.
Additionally, Reliance's designated corporate representative in this case, Louis Wenzel, testified in his
deposition regarding the interconnectedness of management and operations, particularly in regard to
matters relating to this case such as the Hmaidans' purchase of the business and creation of the
associated notes. For another example, in regards to the purported unsecured loan from Reliance to
BWLI, for which later conveyance of the notes was supposed payment, Wenzel acknowledged that
“Ronald J. Herrmann was signing checks on behalf of [Reliance] and giving them to [BWLI], and he as
president of [BWLI] was signing the notes evidencing those loans." Furthermore, the record reflects
that BWLI, La Villita, and Reliance all shared a primary business address and that the same attorney,
Todd A. Prins, who represented both BWLI and La Villita in the main action, represents Reliance in the
Based on this uncontested evidence establishing the interconnectedness of BWLI, La Villita, and
Reliance, particularly in regard to matters pertaining to the main action and the present action, we find
that the trial court did not err in holding that Reliance was in privity with BWLI and La Villita. Cf.
Amstadt, 919 S.W.2d at 653 (explaining that a party is in privity with a party to a judgment when they
are so connected as to have an identity of interests); Gaughan v. Spires Council of Co-Owners, 870 S.
W.2d 552, 555 (Tex. App.- Houston [1st Dist.] 1993, no writ.) (rejecting application of res judicata
because there was no evidence that associated-party in second lawsuit was sham or alter ego of
corporate defendant in first lawsuit); CLS Assocs., Ltd. v. AC BC, 762 S.W.2d 221, 224 (Tex. App.-
Dallas 1988, no writ.) (rejecting argument that party asserting res judicata had to be the alter ego of
the party in the first action, suggesting that a lesser standard applies).
B. Fully & Fairly Litigated
Reliance argues that the issue of ownership was not fully and fairly litigated in the main action because
the trial court struck the pleadings of BWLI and La Villita as a discovery sanction before then entering,
respectively, a summary judgment and default judgment against them. Reliance cites authority for the
proposition that dismissal of an action as a discovery sanction does not constitute a determination on
the merits. See TransAm. Nat. Gas Corp. v. Powell, 811 S.W.2d 913, 918 (Tex. 1991) (holding that a
dismissal or default judgment for discovery abuse adjudicates claims without regards to the merits).
Here, however, the trial court did not dismiss BWLI or La Villita's claims or enter a default judgment
against them as a discovery sanction. Rather, the court struck BWLI and La Villita's pleadings as a
discovery sanction. The summary judgment and default judgment clearly reached the merits.
Indeed, the final judgment, which incorporates the earlier interlocutory judgments, is quite detailed
regarding the merits, finding specifically, among other things, that the assignment of the notes from
BWLI to La Villita was a fraudulent conveyance. Moreover, Reliance concedes that a default judgment
can constitute a determination on the merits for res judicata purposes. See Jones v. First Bank of
Anson, 846 S.W.2d 107, 110 (Tex. App.- Eastland 1992, no writ) (holding that default judgment can be
used to assert res judicata); Mendez v. Haynes Brinkley & Co., 705 S.W.2d 242, 245‑46 (Tex. App.-
San Antonio 1986, writ ref'd n.r.e.) (applying collateral estoppel after default judgment).
Because the trial court clearly considered and ruled on the merits of the controlling issue - ownership
of the notes - and the striking of BWLI and La Villita's pleadings was occasioned by their own conduct,
we find that the issue was fully and fairly litigated. Because we find that (1) the issue of ownership of
the notes was essential to the judgment in the main action, (2) Reliance was in privity with parties to
the main action, and (3) the facts were fully and fairly litigated in the main action, we further find that
the trial court did not err in granting the Hmaidans' motion for summary judgment on res judicata,
specifically collateral estoppel, grounds. Accordingly, we overrule Reliance's first issue.
III. Mary Carter
In its second issue, Reliance contends that the trial court improperly granted the Hmaidans' motion
because the judgment in the main action was the product of an impermissible “Mary Carter" settlement
agreement between the Hmaidans and Greatland. A so-called Mary Carter agreement occurs when
one of several defendants settles with the plaintiff - guaranteeing a minimum recovery for the
plaintiffCwhile agreeing to continue through trial as a party; depending on the jury's allocation of
liability, the settling defendant's share of liability may be reduced. Elbaor v. Smith, 845 S.W.2d 240,
247 (Tex. 1992). The Texas Supreme Court has held such settlements to be against public policy
because they distort the character of a lawsuit in which they are entered (e.g., through the joining of
forces of titularly adverse parties), and encourage ultimate resolution through a final trial rather than
through settlement. Id.
In its reply brief, Reliance refines its argument to say that while the settlement agreement between
Greatland and the Hmaidans may not have been a true Mary Carter agreement, it was A>Mary Carter'
like" because, through it, Greatland and the Hmaidans (plaintiff and defendant) agreed to cooperate
against Reliance (another defendant). However, the circumstances in the present lawsuit, or pair of
lawsuits, are clearly distinguishable from the “Mary Carter" scenario. Although the settlement in
question contained provisions in which Greatland and Hmaidan agreed to cooperate in the lawsuit
against Reliance, it is still not in the nature of a Mary Carter agreement, principally because of the
nature of Greatland's claims against the Hmaidans. While the Hmaidans were defendants in the main
action, they were not defendants in the same way that the Reliance-associated entities (BWLI and La
Villita) were defendants. BWLI and La Villita were sued for breach of a lease agreement and
fraudulent conveyance of assets. The Hmaidans were pulled into the lawsuit essentially as a means of
collecting the amounts owed by BWLI and La Villita. Reliance provides no argument as to how the the
Hmaidans own liability could be reduced by their cooperation with Greatland. The Hmaidans had no
apparent liability or potential liability outside of what they already owed on the notes. The Hmaidans
appear to simply want to know whom to pay on the notes, and Greatland wants to get paid.
Cooperation under such circumstances does not violate any public policy identified by Reliance. It
further does not create a concern that Reliance's or related entities's liability might be artificially
increased; in other words, the settlement does not distort the litigation process. See Elbaor, 845 S.W.
2d at 247. Accordingly, we overrule Reliance's second issue.
In its third issue, Reliance contends that the trial court erred in granting the Hmaidans' motion for
summary judgment because the Uniform Fraudulent Transfer Act (“UFTA") was improperly applied in
the main action. Tex. Bus. & Com. Code Ann. §§ 24.001-.013. As mentioned above, the trial court
utilized UFTA as the basis for holding in the main action that the transfer of the notes from BWLI to La
Villita was fraudulent. Specifically, Reliance asserts that the trial court should not have applied UFTA
in the main action because: (1) the Hmaidans were not creditors entitled to protection under the act;
(2) the transfer from BWLI to Reliance was for reasonably equivalent value; and (3) the transfer
constituted a good faith purchase of the notes.
In response, the Hmaidans argue that Reliance is attempting, improperly, to collaterally attack the
judgment in the main action. AA collateral attack is an attempt to avoid the binding force of a judgment
in a proceeding not instituted for the purpose of correcting, modifying, or vacating the judgment, but in
order to obtain some specific relief which the judgment currently stands as a bar against." See
Browning v. Prostok, 165 S.W.3d 336, 346 (Tex. 2005). Only a void judgment, i.e., one where the
court rendering judgment Ahad no jurisdiction of the parties or property, no jurisdiction of the subject
matter, no jurisdiction to enter the particular judgment, or no capacity to act," may be collaterally
attacked. Id. Clearly, under this issue, Reliance is not (1) arguing against the application of res
judicata; (2) arguing that the trial court in the main action had no jurisdiction or no capacity; or (3)
seeking mere correction, modification, or vacation of the prior judgment. Instead, Reliance is now
seeking affirmative relief (payment on the notes) that is barred by application of the judgment in the
main action, in which the court ordered such payments made to Greatland. This is an impermissible
collateral attack. See id. Consequently, we overrule Reliance's third issue.
VI. Reliance's Motion
In its fourth issue, Reliance contends that the trial court erred in denying its motion for summary
judgment. In its motion, Reliance asserted that it was entitled to payment under the notes as a matter
of law. As explained above, in the main action, the trial court resolved all issues pertaining to rights
under the notes and ordered the Hmaidans to make payments under the notes to Greatland.
Obviously, Reliance would not be entitled to such payments if res judicata applies to defeat its claim of
entitlement to the payments. Because we have held above that the trial court properly granted the
Hmaidans' motion on res judicata grounds (holding that payment must be made to Greatland), we
summarily overrule Reliance's fourth issue.
We affirm the trial court's judgment.
/s/ Adele Hedges
Panel consists of Chief Justice Hedges and Justices Anderson and Seymore.
 In the main action, Greatland also named Bert Wheeler's Inc. and BWI Merger Co. as defendants.
Greatland asserts that it leased the property in question to these entities who then subleased it to
BWLI, who then defaulted.
 Initially only G.R. Hmaidan, Inc. and Isam Hmaidan participated in the lawsuits until Reliance
subsequently brought G.R. Hmaidan into the lawsuit as a party in his personal capacity.
 Specifically, under the terms of the settlement agreement, other defendants, Bert Wheeler's Inc.
and BWI Merger Co., who had leased the property in question and then subleased it to BWLI, agreed
to pay Greatland $92,500. The Hmaidans were then to make their payments on the notes 60% to
Greatland and 40% to Bert Wheeler's Inc. and BWI Merger Co. Furthermore, under the agreement,
Greatland agreed to essentially finance the Hmaidans' lawsuit with Reliance.
 The following timetable may help clarify the sequence of events:
* July 2000: Greatland files original suit
* September 1, 2000: La Villita purportedly assigns notes to Reliance
* August 7, 2001: Pleadings of La Villita and BWLI stricken
* August 7, 2001: Summary judgment against BWLI
* September 4, 2001: Default judgment against La Villita
* November 2-7, 2001: Greatland settles with Hmaidans
* November 8, 2001: Pleadings add Reliance to main case
* November 14, 2001: Final judgment including severance order
* November 29, 2001: Reliance served
 It is also worth noting that La Villita attempted to assign the notes to Reliance shortly after
Greatland filed its lawsuit. Reliance has suggested no reason for the timing of this assignment other
than to shield this asset from Greatland.
 BWLI and La Villita's essentially dropping out of the main action after the purported conveyance of
the notes to Reliance appears to have been a strategic move on their part. However, the move left
them open to a default judgment on the merits. It is also worth noting again, as mentioned above, that
counsel for both parties at the time was the same counsel now representing Reliance.
 See n. 3 supra.
 Reliance cites State Farm Fire & Casualty Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996), in arguing
that public policy concerns may provide a basis for invalidating settlement agreements even outside
the Apure" Mary Carter context. In Gandy, the Texas Supreme Court examined several cases,
including Elbaor, in which it had invalidated an assignment of a cause of action or a settlement when
such assignment or settlement gave a defendant a direct financial stake in the plaintiff's cause of
action against a third party. Gandy, 925 S.W.2d at 707-12. Each of these situations is distinguishable
from the present case, wherein the Hmaidans did not receive any financial stake in a recovery by
Greatland against Reliance or Reliance-related entities. Instead, in the severed action, the Hmaidans
are primarily defending against Reliance's demand for payment on notes. The Hmaidans are
contractually obligated to pay someone on the notes. The settlement agreement does not alter the
amount of their liability, regardless of the outcome of the severed action. Thus, this situation is unlike
those identified in Gandy, wherein a defendant obtained a direct financial stake in a plaintiff's cause of
action. Id. Consequently, the public policies identified in Gandy do not apply here.
Reliance further cites Phillips v. Allums, 882 S.W.2d 71, 75 (Tex. App.- Houston [14th Dist.] 1994, writ
denied), for the proposition that it is fundamentally unfair to permit two parties to resolve an issue by
settlement and then use the resulting judgment (via collateral estoppel) against a party in a severed
action that did not have an opportunity to litigate the issue in the main action. However, as discussed
above, the issue of who had a right to the note payments was fully and fairly litigated in the main
action, and Reliance was in privity with parties to that action. Thus, the reasoning in Phillips is not
applicable to the present case.