Heinig v. Hudman, 1

• Decision Date: 27 May 1993
• Docket Number: CA-CV,No. 1,1
• Citation: 177 Ariz. 66,865 P.2d 110
• Parties: Sandra K. HEINIG, Plaintiff-Appellant, Cross Appellee, v. George HUDMAN and Cheryl Fisher Hudman, husband and wife, Defendants-Appellees, Cross Appellants. 90-207.
• Court: Arizona Court of Appeals

Page 110

865 P.2d 110

177 Ariz. 66

Sandra K. HEINIG, Plaintiff-Appellant, Cross Appellee, v. George HUDMAN and Cheryl Fisher Hudman, husband and wife, Defendants-Appellees, Cross Appellants.

No. 1 CA-CV 90-207.

Court of Appeals of Arizona Division 1, Department B.

May 27, 1993.

Review Denied Jan. 19, 1994.

[177 Ariz. 67] Dioguardi, Poli & Ball, Ltd. by Michael N. Poli and N. Mark Kramoltz, Phoenix, for plaintiff-appellant, cross appellee.

Treon, Strick, Lucia & Aguirre, P.A. by Gerald J. Strick and Scott F. Frerichs, Phoenix, for defendant-appellee, cross appellant George Hudman.

Goldstein, Kingsley & McGroder, Ltd. by Philip T. Goldstein and Pamela L. Kingsley, Phoenix, for defendant-appellee, cross appellant Cheryl Fisher Hudman.

OPINION

LANKFORD, Judge.

Plaintiff Sandra K. Heinig appeals from a summary judgment granted in favor of defendants George Hudman and Cheryl Fisher Hudman. We reverse in part and affirm in part.

The parties raise numerous issues which we summarize as follows:

1. Does the doctrine of res judicata bar Heinig's action?

2. Does Heinig have a fraudulent conveyance claim against the Hudmans' marital community when she is a judgment creditor only of Mr. Hudman individually?

On review of summary judgment, we view the evidence in a light most favorable to the party against whom summary judgment was granted and draw all reasonable inferences in favor of that party. United Bank of Ariz. v. Allyn, 167 Ariz. 191, 193, 195, 805 P.2d 1012, 1014, 1016 (App.1990). Summary judgment was granted against the plaintiff, Heinig, and we view the record accordingly.

The facts are as follows. Heinig, George Hudman, and a third person ¹ entered into a partnership agreement to develop raw land owned by Heinig. George Hudman represented both orally and on the face of the partnership agreement that he was a married man dealing with his sole and separate property. The agreement also contained a provision requiring that disputes among the partners would be subject to arbitration.

Subsequently, George Hudman purchased the interest held by the third partner. He then attempted to use the unanimity requirement in the partnership agreement to inhibit financing until he could buy out Heinig's interest at terms favorable to him. The real estate market deteriorated, the project became less viable, and a lender initiated a trustee's sale on the property.

Heinig then initiated arbitration proceedings against George Hudman under the arbitration provision of the partnership agreement. Heinig and Hudman asserted claims against each other in the arbitration.

Heinig learned from George Hudman's testimony in the arbitration hearing that, contrary to Mr. Hudman's prior oral and written statements that he was a married man dealing with his sole and separate property, he had acquired his partnership interest with funds obtained through a line of credit on which both he and his wife, Cheryl Hudman, were obligors. The line of credit was secured by a mortgage on real property which the record suggests is an asset of their marital community.

Following George Hudman's testimony in the arbitration proceeding, Heinig moved to join Cheryl Hudman as a party to the arbitration so that any resulting judgment would be paid from the Hudmans' community assets. George Hudman opposed that motion, arguing:

The clear, written agreement between the parties does not give the arbitrator the authority to determine any claims against Cheryl Hudman....

Since Mrs. Hudman cannot be forced to be a party to this arbitration, no claim against the community property of George and Cheryl Hudman can be asserted here. Ariz.Rev.Stat. (A.R.S.) § 25-215(d) [sic] makes both spouses necessary parties to any claim against community property. Eng v. Stein, 599 P.2d 796, 798, 231 Ariz. 343 [sic] (1979).

The arbitrator declined to join Mrs. Hudman. The arbitrator and plaintiff's counsel discussed the significance of that ruling:

THE ARBITRATOR: I understand the issues of community property and the enforceability of judgments and all of those good things, and I would suggest to the claimant that if you are successful in this action to any extent and you want to go after the community interests of Mr. and Mrs. Hudman, do it by separate action. I'm not saying I'm leaning one way or the other, but if, in fact, that happens I think you have avenues of redress but--

MR. POLI [counsel for plaintiff]: You are not expressing any decision on the merits of that?

THE ARBITRATOR: No decision on the merits, and if you want to bring in evidence the fact [sic] that you were somehow defrauded by representations of the community or sole and separate, that is fine, but I think the claimant's beef is with Mr. Hudman, and I will adjudicate that beef only. I think any claim or attempt to bring Mrs. Hudman into the action is merely for enforceability of a judgment ... But I don't think this is Mrs. Hudman's fight. So for that reason I will deny your claim to admit her as a party to this action.

MR. POLI: So I'm clear on the denial, this is not a resolution on the merits and is no prejudice to our ability to claim--

THE ARBITRATOR: You guys can do whatever you want after this is over. I'm going to resolve the dispute only with respect to the parties to the partnership ...

MR. POLI: The only thing concerning me is in the event that we get a verdict in our favor and we go to what perhaps will be the next step, which is some sort of, you know, RICO claim perhaps against the marital community or some other fraud claim against the marital community, that you are not rendering any decision that would have res judicata effect.

THE ARBITRATOR: I would hope so. I am making no adjudication as to whether or not this was Mr. Hudman's sole and separate property or his community property or whatever.... [T]he only reason to bring in the community property issue, as far as I am concerned, would be enforceability and collectability, and I'm going to leave that to you guys. I just don't see that as being within my province with what we have on the table here. But I guess the roundabout answer to your question is no, I'm not going to rule one way or the other whether it was sole and separate property or community property, and frankly don't necessarily want to get into it.

The arbitrator eventually decided some of the claims in favor of each party. He determined that George Hudman had breached both the contract and the fiduciary duty he owed to his partners. The arbitrator entered an award for Heinig against George Hudman in the amount of $195,000, but denied both Heinig's racketeering claim and her punitive damages claim. On the other hand, the arbitrator found in favor of George Hudman's claim against Heinig for negligent misrepresentation and awarded $30,000 to Hudman. The arbitrator offset the two awards and entered a net award in favor of Heinig in the amount of $165,000.

Heinig then applied to the superior court to have the arbitration award confirmed. See Ariz.Rev.Stat.Ann. ("A.R.S.") § 12-1511 (1982). The court entered a money judgment against George Hudman for $165,000, which was not appealed and became final.

Heinig next filed the present action in superior court. She sought declaratory relief that the judgment against George Hudman was enforceable against the Hudmans' marital community. She also raised fraudulent conveyance and racketeering claims against Mr. and Mrs. Hudman.

The superior court granted summary judgment in favor of Mr. and Mrs. Hudman on every claim. The court held that the doctrine of res judicata barred Heinig from raising claims which had already been litigated in arbitration.

Our decision reverses the superior court's ruling. Heinig is not barred from pursuing claims against Mrs. Hudman in this action because Heinig did not have a prior opportunity to assert those claims in the arbitration. Moreover, the fraudulent conveyance and/or racketeering claims are not barred because they differ from the claims asserted in the arbitration proceeding.

I.

We first consider whether the superior court properly granted summary judgment against Heinig's claim for declaratory relief. She had requested a declaratory judgment that the community assets of George and Cheryl Hudman are subject to satisfy the prior money judgment, which named only George Hudman. In other words, Heinig sought to convert the judgment on the arbitration award against one spouse into a judgment enforceable against both spouses and the assets of their marital community. In response, George and Cheryl Hudman raised the defense of res judicata.

The trial court incorrectly entered summary judgment against the declaratory relief claim. Res judicata is no defense because Heinig had no opportunity in the arbitration proceeding to assert her claims against Cheryl Hudman. The arbitration proceeded against Mr. Hudman in his capacity as a married man dealing with his separate property, and resulted in an arbitration award and judgment against him alone. The parties correctly assume that this judgment did not bind the marital community. See A.R.S. § 25-215(D) (1991); Flexmaster Aluminum Awning Co. v. Hirschberg, 173 Ariz. 83, 88, 839 P.2d 1128, 1133 (App.1992). Thus, the community liability of Mr. and Mrs. Hudman remains an open question.

However, the judgment against George Hudman cannot be converted into one against both George and Cheryl Hudman without regard for Mrs. Hudman's right to procedural due process. As Article 2, Section 4 of the Arizona Constitution provides, "No person shall be deprived of life, liberty, or property without due process of law." See also U.S. Const. amend. XIV ("nor shall any State deprive any person of life, liberty, or property, without due process of law ..."). Under the Arizona and federal constitutions, Cheryl Hudman must have an opportunity to be heard at a meaningful time and in a meaningful manner before governmental power can be employed to deprive her of...