Custom Kits Co. v. Tessier

• Decision Date: 18 April 2013
• Docket Number: No. 11–P–1627.,11–P–1627.
• Citation: 83 Mass.App.Ct. 1125,985 N.E.2d 874
• Court: Appeals Court of Massachusetts
• Parties: CUSTOM KITS COMPANY, INC. v. Shawn TESSIER & others.

83 Mass.App.Ct. 1125

985 N.E.2d 874

CUSTOM KITS COMPANY, INC.

v.Shawn TESSIER & others.¹

No. 11–P–1627.

Appeals Court of Massachusetts.

April 18, 2013.

OPINION TEXT STARTS HEREBy 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.² 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.

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.³

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...