Michaelson v. Michaelson

• Citation: 884 P.2d 695
• Decision Date: 07 November 1994
• Docket Number: No. 93SC438,93SC438
• Parties: Ruth MICHAELSON, Petitioner, v. Ervin MICHAELSON, Respondent.
• Court: Supreme Court of Colorado

Page 695

884 P.2d 695

Ruth MICHAELSON, Petitioner, v. Ervin MICHAELSON, Respondent.

No. 93SC438.

Supreme Court of Colorado,

En Banc.

Nov. 7, 1994.

Rehearing Denied Dec. 5, 1994.

Mitchem and Mitchem, P.C., James E. Mitchem, Allen P. Mitchem, Denver, for respondent.

Timothy J. Lamb, P.C., Timothy J. Lamb, Katherine S. Lucht, Denver, for petitioner.

Justice MULLARKEY delivered the Opinion of the Court.

We granted certiorari to review an unpublished opinion of the court of appeals, Michaelson v. Michaelson, No. 92CA0052 (Colo.App. April 22, 1993) (not selected for official publication). At issue is the preclusive effect of the property division in a 1965 divorce action on claims brought in the case now before us. The petitioner, Ruth Michaelson, brings this action against her former husband, Ervin Michaelson, seeking damages for his alleged mismanagement of a corporation in which the two were the sole stockholders. ¹ We find that the present action is not barred by res judicata or collateral estoppel and, accordingly, we reverse the decision of the court of appeals.

I.

Ruth and Ervin Michaelson were married in 1946. In 1952, they formed a Colorado corporation known as Michaelson's Originals, Inc., in which each held fifty percent of the stock, or 2,500 shares each.

The couple was divorced in 1965 in a Denver District court action, but permanent orders dividing the marital property were not entered until 1989. The marital property was valued as of 1965 and divided under 1965 law. ²

After the divorce decree was entered in 1965, Ervin Michaelson continued to conduct the business of Michaelson's Originals, Inc. Ruth Michaelson moved out of state and had no contact with her former husband or the enterprise. The corporation, whose business concerned mainly real estate investment and development, continued until Ervin Michaelson wrongfully dissolved the corporation in 1987. A meeting was called in December 1987, at which the shareholders and directors voted to dissolve the corporation. Ruth Michaelson, however, was not notified of this meeting and did not attend. Nor did she receive any distribution of the corporation's assets, which exceeded one million dollars. Following the meeting, Ervin Michaelson filed fraudulent statements concerning the dissolution with the Secretary of State, reporting that the assets of the corporation had been distributed among all the shareholders according to their rights and interests. In addition to his wrongful dissolution of the corporation in 1987, Ervin Michaelson intentionally failed to pay taxes on some of the real property belonging to the corporation in order to buy it back and take Ruth Michaelson's name off the deeds.

In February 1988, Ruth Michaelson discovered that the corporation had been wrongfully dissolved. Later that year, she initiated proceedings for a permanent division of the marital property. Judge Rothenberg heard several days of testimony on the value of the property owned by the parties as of 1965, and on the relative fault of the two parties and, pursuant to 1965 law, issued the relevant orders. ³

Judge Rothenberg valued each piece of property owned by the parties and by the corporation as of 1965 and divided the total of $517,917.00 equally between them. The court held: "All of this remaining property is awarded to Ervin Michaelson. Ruth Michaelson is awarded one-half the value or $258,959.00." The court also awarded interest to Ruth Michaelson for the entire marital estate and described the interest alternatively as statutory or moratory interest. In awarding interest, the court noted Ervin Michaelson's wrongful withholding of funds and the significant time delay between the divorce decree and the property division. The court's final lump sum award to Ruth Michaelson, including interest, totalled $800,000.00. The court did not address the disposition of the shares of corporate stock in Michaelson's Originals, Inc. held by the parties.

Pursuant to the court's order, Ervin Michaelson paid the sum awarded to Ruth Michaelson. Ruth Michaelson quitclaimed all of her interest in real property owned by the corporation to Ervin Michaelson but did not tender her shares of the corporation. Ervin Michaelson never made a demand for the tender of the shares. Judge Rothenberg's order dividing the property was not appealed.

On December 13, 1990, Ruth Michaelson filed the present action in Denver District Court against Ervin Michaelson requesting an accounting and seeking damages as a shareholder of the corporation, based on claims of breach of fiduciary duty, fraud, and theft. Judge Peterson heard the case and rejected Ervin Michaelson's res judicata and collateral estoppel claims, stating:

10. The gravamen of Defendant's motion is that Plaintiff's claims are barred though [sic] the application of the doctrines of collateral estoppel and res judicata.

11. With respect to these issues the Court is inclined to agree with Plaintiff [Ruth Michaelson]. What Judge Rothenberg did in civil action No. B-68907 was to consider the actions of the Defendant as to his treatment of marital property from or relating back in time to the 1965 divorce decree. The Court then attempted to make an equitable distribution of the marital property. The law in effect at the time of the parties' divorce required Judge Rothenberg to take into account the respective fault of Plaintiff and Defendant. The Court's attempt at equity related only to the division of marital property between the parties.

12. The elements of the claims in this case [90 CV 13033] concern different elements of proof, different remedies, and are based on Plaintiff's status as a principal in the corporation, rather than as a wife seeking distribution of marital assets. The Plaintiff hopes to punish the Defendant further.

She granted Ervin Michaelson's motion for summary judgment on the fraud claim and later granted his motion to dismiss the claims for theft and accounting. The only issue remaining at trial was the claim for breach of fiduciary duty. At the conclusion of the trial, the court awarded Ruth Michaelson $401,008.00, plus prejudgment interest from December 11, 1987, in the amount of $137,805.00, for a total judgment of $538,813.00. Costs of $4,136.00 were also awarded to her. Ervin Michaelson appealed.

The court of appeals vacated Judge Peterson's judgment and remanded the case with directions to dismiss the action with prejudice. The court of appeals reasoned that Ruth Michaelson's claims to corporate assets and proceeds were barred because the rights of each party had been determined by Judge Rothenberg in the 1989 property division. Further, the court found that her claim of breach of fiduciary duty was barred because Judge Rothenberg's award in the earlier property division proceeding, which was based on marital fault, considered Ervin Michaelson's improper disposal of some of the corporate assets and concluded that he had breached his fiduciary duty to the other stockholder, Ruth Michaelson. Finally, the court of appeals held that, because Ruth Michaelson had a full and fair opportunity to litigate her rights as a corporate shareholder during the property division proceeding, she was barred from relitigating those rights. According to the court of appeals, Judge Rothenberg's ruling in the property division effectively removed any ownership interest of Ruth Michaelson in the corporation.

II.

The issue before us is the applicability of res judicata and collateral estoppel to the civil damage action heard by Judge Peterson. ⁴ We hold that res judicata is inapplicable because Ruth Michaelson could not raise the issue of corporate mismanagement in the divorce proceeding. Collateral estoppel is inapplicable because the issue was neither actually litigated nor necessarily adjudicated in the prior case.

A.

The doctrine of res judicata holds that an existing judgment is conclusive of the rights of the parties in any subsequent suit on the same claim. State Engineer v. Smith Cattle, Inc., 780 P.2d 546, 549 (Colo.1989); Pomeroy v. Waitkus, 183 Colo. 344, 350, 517 P.2d 396, 399 (1974). Res judicata constitutes an absolute bar to subsequent actions only when both the prior and subsequent suits have "identity of subject matter, identity of cause of action, and identity of capacity in the persons for which or against whom the claim is made." Smith Cattle, Inc., 780 P.2d at 549; City of Westminster v. Church, 167 Colo. 1, 9, 445 P.2d 52, 55 (1968). The "same claim or cause of action" requirement is determined by the injury for which relief is demanded, and not by the legal theory on which the person asserting the claims relies. 1B J. Moore, J. Lucas & T. Currier, Moore's Federal Practice, p 0.410(1) (2d Ed.1988) ("Generally, it has been held that a 'cause of action' is defined by the injury for which the claimant seeks redress and not by the legal theory on which the claimant relies.").

Unlike the present Uniform Dissolution of Marriage Act, Colorado's 1965 divorce law was premised on a finding of fault and permitted divorce only in limited situations. ⁵ See, e.g., Schrader v. Schrader, 156 Colo. 521, 400 P.2d 675 (1965). The "injury," under the 1965 law, was the fault providing grounds for the divorce. In her oral rulings, Judge Rothenberg addressed the question of fault at several different points, and each time she found that both parties had been at fault. The written order found that "each of the parties has wronged the other party egregiously" and that there was "considerable fault by both parties." Because both the divorce and the subsequent property division relate back to the 1965 divorce, only the adjudication of injuries arising before that date could properly be the basis for application of res judicata. Any injury which occurred subsequent to 1965 would be a new injury because the divorce decree already had been issued.

In his argument that res judicata does apply, Ervin Michaelson contends...