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RES JUDICATA, COLLATERAL ESTOPPEL, AND EQUITABLE DISTRIBUTION
© 1996 National Legal Research Group, Inc.
Divorce cases sometimes seem to have as many lives as a cat. For one thing, appeals and postjudgment motions may prolong the matrimonial litigation itself interminably. Moreover, disputes related to key issues in the divorce may surface in other civil actions, such as litigation between the divorced spouses, or litigation between a former spouse and a third party. In these other civil actions, the doctrines of res judicata and collateral estoppel can play a key role.
Generally speaking, the doctrine of res judicata holds that a judgment on the merits in a suit involving the same parties or their privies bars a subsequent suit based upon the same cause of action. The doctrine of collateral estoppel precludes relitigation of issues actually litigated and determined in the prior suit, regardless of whether the prior suit was based on the same cause of action as the subsequent suit. Napier v. Jones, 925 S.W.2d 193 (Ky. Ct. App. 1996). See generally 46 Am. Jur. 2d Judgments 20514, 20524, 20539 (1994).
This article highlights the surprisingly wide range of scenarios in which res judicata and collateral estoppel may come into play and affect either the division of property or the outcome of some other civil action. Res judicata and/or collateral estoppel may be invoked, for example, when one former spouse files a motion or action against the other after equitable distribution (Part I); when one former spouse sues or is sued by a business owned by the other spouse (Part II); when a former spouse sues or is sued by his or her divorce lawyer (Part III); when a former spouse sues or is sued by the estate of the other spouse (Part IV); or when a former spouse sues or is sued by a third party (Part V). Courts have been known to award attorney's fees as a sanction for repetitive litigation (Part VI).
I. Litigation with Former Spouse
General Rules Regarding Property Claims. As a general rule, a divorce decree entered by a court with personal jurisdiction over both spouses precludes a subsequent claim for equitable distribution. E.g., Albert v. Schoenlein, ___ A.D.2d ___, 645 N.Y.S.2d 907 (1996) (divorce decree entered upon wife's default precluded consideration of equitable distribution claims that could have been litigated in divorce action). After appeal or expiration of the time for appeal, the terms of the final property division are binding and may not be altered on the basis of changed circumstances. Valyou v. Estate of Valyou, 163 Vt. 25, 653 A.2d 765 (1994) (trial court properly denied wife's motion to modify the terms of the property division in parties' final divorce decree, despite husband's suicide note attempting to relinquish all his claims to the property in favor of the wife).
The majority rule is that a court in an equitable distribution jurisdiction may not divide an asset that was omitted from the property division, either because there is no authority for a later distribution and/or because principles of res judicata preclude further adjudication of the parties' property rights. Brett R. Turner, Equitable Distribution of Property 209.06 (2d ed. 1994); e.g., Harshfield v. Harshfield, 842 P.2d 535 (Wyo. 1992) (res judicata barred wife's action to divide husband's military retirement payments). Although some states have enacted statutes authorizing distribution of omitted assets, res judicata may conceivably be raised as a bar to the subsequent proceeding in a case where the spouse seeking relief had an adequate opportunity to seek distribution of the assets in the initial proceeding.
A minority of courts have permitted omitted assets to be divided after the final decree. E.g., Brink v. Brink, 396 N.W.2d 95 (Minn. Ct. App. 1996) (court did not discuss issue of res judicata); Hutchins v. Hutchins, 660 S.W.2d 403 (Mo. Ct. App. 1983) (decree which fails to divide all property is not a final order); Viviano v. Allard, 197 A.D.2d 210, 611 N.Y.S.2d 666 (1994) (although provisions of a divorce judgment are normally not subject to collateral attack, wife could seek a share of an asset where she first learned about the asset after the parties' divorce and thus did not have a full and fair opportunity to litigate the issue in the divorce proceeding); cf. Fry v. Kersey, 833 S.W.2d 392 (Ky. Ct. App. 1992) (taking note of cases in which former spouses have been permitted to institute a separate action to distribute jointly owned property which was not disposed of in the dissolution decree, but declining to reach the issue).
In community property jurisdictions, assets omitted from a property division are subject to division despite a final decree dividing other community assets, because community property interests remain unchanged if not altered by judicial decree or the parties' agreement. Walton v. Johnson, 879 S.W.2d 942 (Tex. Ct. App. 1994) (neither collateral estoppel nor res judicata barred action to divide property not divided in divorce proceeding). On the other hand, the doctrine of res judicata bars a spouse from using an omitted-asset theory to seek distribution of an asset where the spouses' rights to the asset have already been resolved. In re Marriage of Mason, 46 Cal. App. 4th 1025, 54 Cal. Rptr. 2d 263 (1996) (rejecting husband's request for division of business goodwill as an "omitted" asset, in view of his previous, unsuccessful motion to set aside property division on theory that wife had deceived him about the business).
Divorce Proceedings Following Earlier Divorce. If divorced spouses remarry and divorce again, does the earlier divorce decree have preclusive effect in the second divorce? In a recent Michigan case, collateral estoppel was held not to bar a trial court from awarding a wife a share of her husband's pension benefits when they divorced for the second time. Her right to share in the benefits had not actually been decided in the prior divorce proceedings, so collateral estoppel did not apply, the court reasoned. McMichael v. McMichael, ___ Mich. App. ___, 552 N.W.2d 688 (1996).
Divorce Proceedings Following Separate Maintenance. If property is divided in a separate maintenance proceeding, is that division binding on the court in a subsequent divorce proceeding? A Kansas appeals court held that collateral estoppel did not bar a trial court from addressing property issues in the parties' divorce action, even though their property had been divided in a separate maintenance proceeding. Once the divorce was granted, the prior decree became meaningless, the court explained. In re Marriage of Vargas, 20 Kan. App. 2d 480, 891 P.2d 462 (1994).
Litigation Relating to Children's Trust Funds. Collateral estoppel does not preclude one former spouse from suing the other over a children's trust fund which had been addressed in the parties' equitable distribution proceedings, according to a Pennsylvania appeals court. Robbins v. Kristofic, 434 Pa. Super. 392, 643 A.2d 1079 (1994). In Robbins, the former wife brought an action in which she alleged that the former husband was estopped from holding the trust funds as his own, due to his affirmation in the parties' divorce action that the trust had been created to help the parties' children pay for their higher education and belonged to them. The appeals court held that the wife's action was not barred by collateral estoppel because neither the parties nor the issues were identical in the divorce action and the wife's action here. The wife here was not seeking an interest in the trust as marital property but was acting as the guardian on behalf of the children; moreover, the issue here was not equitable distribution but the propriety of imposing a constructive trust in favor of the wife for the benefit of the children.
Tort Claims. Most courts have permitted postdivorce tort actions to proceed unless the tort issues were actually litigated and decided in the divorce proceedings. E.g., Vance v. Chandler, 231 Ill. App. 3d 747, 597 N.E.2d 233 (1992) (detailed discussion of res judicata and collateral estoppel in the context of a tort action against a former spouse). In jurisdictions which preclude joinder of interspousal tort claims and dissolution actions, res judicata does not come into play because the tort issue could not be litigated in the divorce action. E.g., Windauer v. O'Connor, 197 Ariz. 267, 485 P.2d 1157 (1971); Noble v. Noble, 761 P.2d 1369 (Utah 1988). Some courts which have permitted postdivorce tort claims have reasoned that the issues in the divorce and the tort action are not identical, e.g., Stuart v. Stuart, 143 Wis. 2d 347, 421 N.W.2d 505 (1988), that an unliquidated personal injury claim is not property subject to division in divorce proceedings, McNevin v. McNevin, 447 N.E.2d 611 (Ind. Ct. App. 1983), and/or that policy considerations weigh against applying the doctrine of res judicata. Nash v. Overholser, 114 Idaho 461, 757 P.2d 1180 (1980), overruled on other grounds, State v. Guzman, 122 Idaho 981, 842 P.2d 660 (1992).
On the other hand, New Jersey's high court held that a divorcing spouse's tort claims against a marriage partner must be presented in conjunction with their divorce action in order to resolve all legal differences between them in one proceeding. Tevis v. Tevis, 79 N.J. 422, 400 A.2d 1189 (1979).
Res judicata has been held to bar later tort claims where the personal injury issue was actually litigated in the divorce action, e.g., Coleman v. Coleman, 566 So. 2d 482 (Ala. 1990); Kemp v. Kemp, 723 S.W.2d 138 (Tenn. Ct. App. 1983), or where the settlement included a waiver of all claims. E.g., Jackson v. Hall, 460 So. 2d 1290 (Ala. 1984).
II. Litigation with Business Owned by Former Spouse
As a general rule, the doctrines of res judicata or collateral estoppel preclude an action after equitable distribution by one former spouse against a business awarded to the other spouse. Similarly, a corporation wholly owned by one former spouse generally will be barred from suing the other spouse. If, however, both former spouses have an ongoing ownership interest in the business after the divorce, an action may not be barred.
Later Claims Barred. An action by a former spouse against a business owned by the other spouse will generally be barred by res judicata or collateral estoppel. E.g., Hofsommer v. Hofsommer Excavating, Inc., 488 N.W.2d 380 (N.D. 1992) (former wife held barred by res judicata and collateral estoppel from claiming secretarial back wages against former husband's solely owned business); O'Kenney v. Don-Ra, Inc., 178 Ga. App. 492, 343 S.E.2d 779 (1986) (in wife's action for issuance of stock certificates pursuant to alleged agreement with former husband during marriage, res judicata applied because question of ownership of business was resolved in divorce judgment, which awarded entire business to husband).
Along the same lines, a business owned by one former spouse generally will be precluded from maintaining an action against the other spouse. E.g., Missouri Mexican Products, Inc. v. Dunafon, 873 S.W.2d 282 (Mo. Ct. App. 1993) (doctrine of collateral estoppel precluded business solely owned by husband from relitigating right to possession of antique car which was awarded to wife in dissolution action); Grant Fritzsche Enterprises, Inc. v. Fritzsche, 107 Ohio App. 3d 23, 667 N.E.2d 1004 (1995) (corporation's complaint alleging fraud and conversion against former wife was barred under the doctrine of collateral estoppel, where former husband was sole shareholder of corporation and thus in privity with corporation).
Where it appears at the time of the divorce proceedings that one spouse may conduct separate litigation to pursue claims against a business which is an asset to be distributed in the divorce, the divorce court may be asked to enjoin the separate litigation. E.g., In re Marriage of Isaacs, 260 Ill. App. 3d 423, 632 N.E.2d 228, 233 (1994) (upholding such an injunction, appeals court declared that "both common sense and sound public policy dictate that matrimonial litigants should not be permitted to make a circuitous run around the divorce court in coordinate courts").
Claims Not Barred. The preclusive effect of a divorce decree is less clear when both parties continue as stockholders after the divorce.
In a Colorado case, the parties were divorced in 1965, but orders dividing the marital property were not entered until 1989. The marital property was valued as of 1965 and divided under 1965 law. In the interim, the parties continued to be the sole stockholders of the corporation until the husband wrongfully dissolved the corporation in 1987. After the property division, the wife brought a claim against the husband for breach of fiduciary duty. The Colorado Supreme Court held that res judicata did not apply because the wife could not raise the issue of corporate mismanagement in the divorce proceeding, and collateral estoppel did not apply, the court held, because the issue of corporate mismanagement was neither actually litigated nor necessarily litigated in the divorce proceeding. Michaelson v. Michaelson, 884 P.2d 695 (Colo. 1994).
In a Wyoming case, the parties' settlement left each spouse with 50% of the stock in their company. After the divorce decree, the wife filed a shareholder's derivative action challenging loans made by the corporation to the former husband and the former wife as sole shareholders to cover expenses incurred during their divorce proceeding. The Wyoming Supreme Court held that the doctrines of res judicata and collateral estoppel did not bar the wife's action. The issue of the loans was not resolved or decided during the divorce proceeding, the court observed. On the contrary, the agreement specifically contemplated that the district court could resolve any disputes regarding the company. McKee v. McKee, 882 P.2d 885 (Wyo. 1994).
III. Litigation with Divorce Lawyer
Malpractice Claim Against Lawyer. Recent cases suggest that if a client unsuccessfully complains about his lawyer's conduct in a motion for relief from a divorce judgment, that litigation may collaterally estop the client from maintaining a subsequent malpractice claim against the lawyer. See, e.g., Sei Young Choi v. Dworkin, ___ A.D.2d ___, 646 N.Y.S.2d 531 (1996) (former husband's action for fraud, breach of fiduciary duty, and breach of contract against the attorney who represented him and negotiated property settlement was barred by the doctrine of collateral estoppel, as the claims regarding the attorney's conduct were previously raised in his application to vacate the settlement, and his application was denied on the merits); Walden v. Hoke, 189 W. Va. 222, 429 S.E.2d 504 (1993) (principles of collateral estoppel precluded wife from suing her divorce lawyers for malpractice since that lawsuit involved issues which had been fully litigated in wife's earlier motion for relief from the divorce judgment).
Fee Dispute. The Utah Supreme Court held that a divorce court's award of attorney's fees in favor of a client does not collaterally estop the client from litigating the reasonableness of the attorney's fees in a subsequent civil action by the lawyer to recover fees from the client. It is unrealistic to expect that a client can challenge the reasonableness of her own attorney's fees at a divorce trial where the attorney is her only advocate, the court reasoned. Jones, Waldo, Holbrook & McDonough v. Dawson, 923 P.2d 1366 (Utah 1996).
IV. Litigation with Former Spouse's Estate
Collateral estoppel issues also sometimes arise in litigation between a former spouse and the estate of the other spouse. For example, in an action by the executrix of a former husband's estate seeking a declaratory judgment pronouncing stock to be an asset of the estate, the former wife was held to be collaterally estopped from relitigating the issue of the ownership of the stock. Napier v. Jones, 925 S.W.2d 193 (Ky. Ct. App. 1996).
Similarly, litigation in probate or inheritance proceedings may have a preclusive effect in subsequent matrimonial litigation. E.g., Brown v. Brown, 208 A.D.2d 485, 617 N.Y.S.2d 48 (1994) (former wife's motion to vacate divorce judgment because it had been entered after husband's death was barred by collateral estoppel since that issue had been decided unfavorably against the wife in a prior, separate proceeding in surrogate's court).
V. Litigation with Third Party
In rare cases, a third party has been able to invoke collateral estoppel to preclude a spouse from contesting an issue resolved in the spouse's divorce action. E.g., Mutual Fire Insurance Co. v. Richardson, 640 A.2d 205 (Me. 1994) (judgment entered in wife's divorce action collaterally estopped her from denying responsibility for the burning of her house since the issue was necessarily determined in the divorce proceeding and the wife had a fair opportunity and incentive to litigate the issue).
On the other hand, a spouse's financial disclosures in divorce proceedings generally do not have preclusive effect in subsequent litigation with third parties. See Coconate v. Schwanz, 165 Wis. 2d 226, 477 N.W.2d 74 (Ct. App. 1991) (husband's failure to list note payable to him as an asset in his divorce proceeding did not bar him from collecting the note since the issue of whether there was a valid and enforceable debt was not raised or decided in the divorce proceeding).
VI. Award of Fees or Costs
Courts in recent cases have not been reluctant to impose attorney's fees on a former spouse who just will not give up. Repetitive litigation amounts to frivolous litigation in the view of these courts.
In a Pennsylvania case in which a former wife pursued numerous pro se appeals in a long-standing divorce action, the court finally assessed costs against her to encourage more prudent use of the legal system. The court invoked a state rule of appellate procedure that permits an appellate court to award a reasonable counsel fee and damages for delay if it determines that an appeal is frivolous. Principles of the law of the case and res judicata exist to provide finality and prevent repetitive litigation, the court observed, noting that the wife had had every opportunity for appropriate hearings on the points of which she complained. "Allowing [the wife] to continue to utilize the courts to pursue fruitless claims at the expense of not only the opponents specifically, but also the public, will not be tolerated." Winpenny v. Winpenny, 434 Pa. Super. 348, 643 A.2d 677, 680 (1994).
In a California case, an appellate court awarded attorney's fees on appeal against a husband who persisted in trying to obtain a share of his former wife's business. After filing an unsuccessful motion to set aside the parties' property division on the theory that the wife had deceived him about the business, he filed for an order to show cause to divide business goodwill as an alleged omitted asset. After holding that res judicata barred the husband from pursuing the omitted-asset theory, the court held that the husband should be required to pay attorney's fees for the frivolous appeal. Attorney's fees are proper where a spouse engages in conduct that frustrates a settlement and increases the cost of litigation, the court noted, citing a California family code statute. "Hopefully, this published opinion will deter husband and others from bringing repetitive challenges to the trial court's orders." In re Marriage of Mason, 46 Cal. App. 4th 1025, 54 Cal. Rptr. 2d 263, 264 (1996).
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