Opinion
No. 11–P–1627.
2013-04-18
CUSTOM KITS COMPANY, INC. v. Shawn TESSIER & others.
Ibid., citing Gottsegen v. Gottsegen, 397 Mass. 617, 623 (1986), and Hay v. Cloutier, 389 Mass. 248, 254 (1983). TLT Constr. Corp., 48 Mass.App.Ct. at 5, quoting from Commissioner of the Dept. of Employment & Training v. Dugan, 428 Mass. 138, 142 (1998). “[T]he party moving for summary judgment on the basis of claim and issue preclusion ... bears the burden of establishing each of these factors.” TLT Constr. Corp., 48 Mass.App.Ct. at 5, citing Sarvis v. Boston Safe Deposit & Trust Co., supra.
By the Court (KANTROWITZ, SIKORA & RUBIN, JJ.).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
The plaintiff, Custom Kits Company, Inc. (corporation), a closely held Massachusetts corporation, appeals from the entry of summary judgment against its multiple claims of tortious and inequitable conduct by the defendants Shawn Tessier (Shawn), the owner of fifty percent of the corporation's stock, and Phillip J. Ryznal and Professional Tax Services of Oxford, Inc. (Ryznal defendants), as vendors of accounting services to the corporation. By its complaint in Superior Court, the corporation alleged that the defendants had effectively collaborated to misappropriate corporate funds of $286,000 for the use of Shawn. A judge of the Superior Court converted the defendants' motions for dismissal pursuant to Mass.R.Civ.P. 12(b)(6), 365 Mass. 755 (1974), to a motion for summary judgment pursuant to Mass.R.Civ.P. 56(a), 365 Mass. 824 (1974). See Mass.R.Civ.P. 12(b), final paragraph.
For the following reasons we now reverse. Background. The following facts emerged as undisputed from the verified information presented to the motion judge. Michael Tessier (Michael) and Shawn were married from July 22, 1989, until their divorce on June 21, 2010. During the marriage they formed Custom Kits Company, Inc., a manufacturer and purveyor of small sporting goods products. Each owned fifty percent of its stock and served as a director. Michael served as president and Shawn as treasurer and secretary.
The motion judge observed that the parties had impliedly consented to summary judgment disposition by submission of factual information outside the complaint in affidavits and verified exhibits. See Stop & Shop Cos. v. Fisher, 387 Mass. 889, 892 (1983); Gibbs Ford, Inc. v. United Truck Leasing Corp., 399 Mass. 8, 13 (1987); Gamache v. Mayor of N. Adams, 17 Mass.App.Ct. 291, 295 (1983).
As part of their divorce judgment, each retained a fifty percent stock ownership interest, each agreed to have disclosed fully all income, financial resources, expenses, and liabilities to the other party; and each released the other from all “matters arising out of the marital relationship ... which either of them has had or now has against the other party.”
After the divorce, Michael undertook an appraisal of the value of the corporation. By its complaint in Superior Court, the corporation alleged that the appraisal and a related investigation into the corporation's financial records uncovered a misappropriation of approximately $286,000 by Shawn; and that the Ryznal defendants conspired with Shawn to conceal her diversion of corporate assets by fabrication of financial reports and tax returns. The corporation, of which Michael remained president and fifty percent shareholder, brought the present claim for tortious and inequitable wrongdoing against both Shawn and the Ryznal defendants.
Against Shawn the corporation pleaded counts of (1) breach of fiduciary duty, (2) misappropriation and conversion of corporate assets, (3) entitlement to injunctive relief against Shawn's ongoing access to corporate information and conduct, (4) common law indemnification, and (5) fraud.
Against the Ryznal defendants, the corporation alleged claims of (1) fraud, (2) common law indemnification, and (3) negligence.
The motion judge concluded that “the doctrine of res judicata o[r] claim preclusion” barred the present lawsuit. He reasoned that the corporation and Michael were “functionally the same”; that “Michael ... [had] had the opportunity to litigate every one of these claims in [the divorce] proceedings and [had] failed to do so”; and that “the corporation's interest was fully represented by Michael in the earlier divorce action.”
Analysis. The motion judge's reasoning has practical appeal. However, the strong and direct precedent of Heacock v. Heacock, 402 Mass. 21 (1988), contradicts it. We must comply with the controlling reasoning and result of the Heacock decision.
1. Separate and distinct nature of the claims. “ ‘Res judicata’ is the generic term for various doctrines by which a judgment in one action has a binding effect in another. It encompasses ‘claim preclusion’ and ‘issue preclusion.’ “ Id. at 23 n. 2. “The doctrine of claim preclusion makes a valid, final judgment conclusive on the parties and their privies, and bars further litigation of all matters that were or should have been adjudicated in the action.” Id. at 23, citing Franklin v. North Weymouth Coop. Bank, 283 Mass. 275, 279–280 (1933). The three elements that must be met for claim preclusion to apply are: “(1) the identity or privity of the parties to the present and prior actions; (2) identity of the cause of action; and (3) prior final judgment on the merits.” TLT Constr. Corp. v. A. Anthony Tappe & Assocs., 48 Mass.App.Ct. 1, 4 (1999) (citation omitted).
Claim preclusion does not bar the corporation's suit because the suit presents claims separate and distinct from the previous divorce action. “A tort action is not based on the same underlying claim as an action for divorce.” Heacock, supra at 24. “The purpose of a tort action is to redress a legal wrong in damages; that of a divorce action is to sever the marital relationship between the parties, and, where appropriate, to fix the parties' respective rights and obligations with regard to alimony and support, and to divide the marital estate.” Ibid.
The divorce proceedings between Michael and Shawn served a purpose different from the corporation's tort claim for damages.
“[T]he purposes for which [an award of alimony and the division of a marital estate] are made do not include compensating a party in damages for injuries suffered. The purpose of an award of alimony is to provide economic support to a dependent spouse ...; that of the division of marital property is to recognize and equitably recompense the parties' respective contributions to the marital partnership.”
Ibid., citing Gottsegen v. Gottsegen, 397 Mass. 617, 623 (1986), and Hay v. Cloutier, 389 Mass. 248, 254 (1983).
2. Jurisdiction. The Heacock analysis rests also upon jurisdictional grounds: “[t]he plaintiff could not have recovered damages for the tort in the divorce action, as the Probate Court does not have jurisdiction to hear tort actions and award damages.” Heacock, supra at 24, citing G.L. c. 215, §§ 3, 6. Other courts have recognized that the Massachusetts Probate and Family Court does not have jurisdiction over tort claims. See, e.g., In re Hermosilla, 450 B.R. 276 (Bankr.D.Mass.2011) (attorney sanctioned for making an argument on jurisdiction of State probate court that was directly contradicted by decision of State's highest court); Koepke v. Koepke, 52 Ohio App.3d 47, 48 (1989) (“More recently, several courts have held that intentional tort actions between spouses should be considered independently from their divorce actions”).
3. Inapplicability of issue preclusion. The corollary rule of issue preclusion does not apply to the corporation's tort claim. That rule “prevents relitigation of an issue determined in an earlier action where the same issue arises in a later action, based on a different claim, between the same parties or their privies” (emphasis added). TLT Constr. Corp., 48 Mass.App.Ct. at 4–5, quoting from Heacock, 402 Mass. at 23 n. 2. “Issue preclusion can be used only to prevent relitigation of issues actually litigated in the prior action ..., and thus we look to the record to see what was actually litigated.” TLT Constr. Corp ., 48 Mass.App.Ct. at 5, quoting from Sarvis v. Boston Safe Deposit & Trust Co., 47 Mass.App.Ct. 86, 99 (1999).
“[The doctrine of issue preclusion] requires proof that ‘(1) there was a final judgment on the merits in the prior adjudication; (2) the party against whom estoppel is asserted was a party (or in privity with a party) to the prior adjudication; and (3) the issue in the prior adjudication is identical to the issue in the current adjudication. Additionally, the issue decided in the prior adjudication must have been essential to the earlier judgment.’ “
TLT Constr. Corp., 48 Mass.App.Ct. at 5, quoting from Commissioner of the Dept. of Employment & Training v. Dugan, 428 Mass. 138, 142 (1998). “[T]he party moving for summary judgment on the basis of claim and issue preclusion ... bears the burden of establishing each of these factors.” TLT Constr. Corp., 48 Mass.App.Ct. at 5, citing Sarvis v. Boston Safe Deposit & Trust Co., supra.
Here, the moving parties have failed to establish that the corporation's claims of fraud, negligence, and misappropriation were “actually litigated in the prior action”. TLT Constr. Corp., 48 Mass.App.Ct. at 5. No allegations of fraud arose in the divorce action. The uncontested nature of that litigation meant that the probate judge neither engaged in fact finding nor resolved any issues related to the defendants' alleged misappropriation of corporate funds. See Apostolicas Properties Corp. v. Richman, 28 Mass.App.Ct. 671, 677 n. 6 (1990). See also Okoli v. Okoli (No. 2), 81 Mass.App.Ct. 381 (2012) (subsequent tort claims by a husband against former wife after a divorce proceeding were not barred by collateral estoppel because the issue was not adjudicated in the prior litigation).
4. Discoverability. Finally, an issue of unresolved fact would bar the entry of summary judgment even if we were to adopt the view of the corporation and Michael as functionally identical.
The corporation's Superior Court complaint charges that the defendants concealed from Michael the diversion of corporate assets. That allegation remains unresolved.
An assumption which we would not make in the absence of additional evidence concerning the strength of the separative corporate veil.
If the allegation turns out to be accurate, Michael's unawareness effectively prevented him from the assertion of his acceptance of the corporate financial interest as part of the divorce litigation and independently would relieve him from the operation of any preclusive rule. In Heacock, the plaintiff did not divulge the existence of her tort action during the divorce proceedings, even though she was aware of its pendency. Heacock, 402 Mass. at 22. The Heacock court held that, in future divorce actions, parties should be required to “list the existence of such claims, although of unascertainable market value, in financial statements filed with the Probate Court.” Id. at 25 n. 3. According to the Superior Court complaint and his affidavit, Michael was unaware of the defendants' alleged fraud, and therefore could not have either reported or raised the allegations during the divorce action. His actual or chargeable knowledge of the existence of a tort claim during the divorce proceedings is an unresolved question of fact.
Finally, the acknowledgments contained in the separation agreement do not apply to the instant case. That agreement, as incorporated into the divorce judgment, settles child support, division of marital assets, and other matters arising from the marital relationship. The present action arises from the corporation's affairs, not the marital relationship between Michael and Shawn. The parties acknowledged also that they had each fully disclosed all of their assets and liabilities to the other and that each had relied upon those financial statements for execution of the separation agreement. The allegations in the instant case effectively assert a breach of the disclosure term by reason of Shawn's concealment of diverted corporate funds. If proved, that conduct would relieve Michael of his contractual acceptance of the financial terms (the mutual release) of the separation agreement.
Conclusion. We therefore reverse the summary judgment entered in favor of all defendants and remand the case to the Superior Court for further proceedings consistent with this memorandum and order.
So ordered.