Rucker v. Schmidt, A08–1730.

• Decision Date: 03 March 2011
• Docket Number: No. A08–1730.,A08–1730.
• Citation: 794 N.W.2d 114
• Parties: Katherine M. RUCKER, Respondent,v.Steven B. SCHMIDT, Appellant,Rider Bennett, LLP, Appellant.
• Court: Minnesota Supreme Court

794 N.W.2d 114

Katherine M. RUCKER, Respondent,

v.Steven B. SCHMIDT, Appellant,Rider Bennett, LLP, Appellant.

No. A08–1730.

Supreme Court of Minnesota.

Jan. 5, 2011.Rehearing Denied March 3, 2011.

Syllabus by the Court

A client and a lawyer are not in privity solely based on their lawyer-client relationship.

William R. Skolnick, Sean A. Shiff, Skolnick & Shiff, P.A., Minneapolis, MN, for respondent.Joseph W. Anthony, Janel M. Dressen, Anthony Ostlund Baer & Louwagie P.A., Minneapolis, MN, for appellant Steven B. Schmidt.Lewis A. Remele, Kevin P. Hickey, Bassford Remele, P.A., Minneapolis, MN, for appellant Rider Bennett, LLP.

OPINION

PAGE, Justice.

Respondent Katherine M. Rucker successfully sued her ex-husband, Robert Rucker, for fraud on the court committed during a dissolution of marriage action. The trial court found that in the dissolution action Robert Rucker engaged in an intentional course of material misrepresentation and non-disclosure concerning the value of his business interest in The Tile Shop that resulted in a “grossly unfair” property settlement. Katherine Rucker subsequently sued Robert Rucker's dissolution attorney and the law firm that employed him, appellants Steven B. Schmidt and Rider Bennett, LLP, based primarily on the same facts asserted in her suit against Robert Rucker. Katherine Rucker accused Schmidt and Rider Bennett of fraud, fraud on the court, and aiding and abetting fraud in the marriage dissolution action. The district court granted summary judgment to Schmidt and Rider Bennett, holding that due to the attorney-client relationship, Robert Rucker and his attorneys were in privity for purposes of the application of the doctrine of res judicata, and therefore, Katherine Rucker's separate action against Schmidt and Rider Bennett was barred. The court of appeals reversed and remanded, concluding that the attorney-client relationship, by itself, did not create privity between Robert Rucker and his attorneys for purposes of res judicata. For the reasons discussed below, we affirm.

The material facts in this case are not in dispute. During their marriage dissolution action, the Ruckers agreed to use an independent appraiser to establish the value of Robert Rucker's 50% interest in The Tile Shop. Robert Rucker was represented in the dissolution action by Schmidt, who was employed by the Rider Bennett law firm. Based on documents provided by Robert Rucker and employees of The Tile Shop, the independent appraiser valued Robert Rucker's interest in The Tile Shop at $7.125 million. Based on this valuation, the Ruckers signed a marriage termination agreement, drafted by Schmidt, that involved a property settlement award of $2.4 million to Katherine Rucker. Robert Rucker represented in the agreement that he had made full disclosure of his business interests. The Ruckers' marriage was dissolved by a judgment and decree entered on October 1, 2001.

Katherine Rucker subsequently sued Robert Rucker for fraud on the court, asserting that Robert Rucker intentionally provided deceptive, misleading, and incomplete information to the independent appraiser and to the district court about his interest in The Tile Shop that resulted in the undervaluation of that interest. In that litigation, the district court concluded that Katherine Rucker had established her claim that Robert Rucker committed fraud on the court regarding the value of his interest in The Tile Shop. The district court found that the actual value of Robert Rucker's 50% interest in the Tile Shop was $15,367,200 and that Robert Rucker had engaged in an intentional course of material misrepresentation and non-disclosure during the marital dissolution action. Based on those findings, the court awarded Katherine Rucker an additional $3,285,864. After factoring in prejudgment interest, costs, and disbursements, the judgment entered against Robert Rucker was $4,215,673.49.

Robert Rucker appealed, but before his appeal was final, the Ruckers settled Katherine Rucker's claim. The settlement agreement, which specifically reserved Katherine Rucker's right to pursue an action against Schmidt and Rider Bennett, released and discharged Robert Rucker, The Tile Shop, and certain individuals and entities related to The Tile Shop from all further claims in exchange for a payment of $2,600,000.

On September 15, 2006, Katherine Rucker sued Schmidt and Rider Bennett, asserting fraud and deceit, fraud on the court, and aiding and abetting fraud. Katherine Rucker sought treble damages under Minn.Stat. §§ 481.07 ¹ and 481.071 (2010).² The complaint alleges that Schmidt held a meeting with Robert Rucker and other senior management of The Tile Shop to discuss creating two sets of business projections: one of growth and new stores, to be used internally by The Tile Shop for actual business purposes, and one of no growth and no new stores to be given to the independent appraiser for use in the dissolution action. Schmidt and Rider Bennett denied this allegation and eventually moved for summary judgment on several grounds, including res judicata.

The district court, noting that “the alleged fraud arose out of Schmidt's representation of [Robert] Rucker in the underlying divorce proceeding” and that precedent establishes—and the federal and state courts of the Eighth Circuit consistently hold—that an attorney is in privity with his client for purposes of res judicata, held that privity existed between Robert Rucker, Schmidt, and Rider Bennett. As a result of that privity, the court granted summary judgment to Schmidt and Rider Bennett based on res judicata. The court of appeals reversed and remanded, holding that an attorney-client relationship alone is insufficient to establish privity as a matter of law. Rucker v. Schmidt, 768 N.W.2d 408, 417–18 (Minn.App.2009).³ The court of appeals further held that before res judicata can be applied, the district court is required to analyze whether its application would work an injustice on the party against whom it is urged, and because the district court did not make such a determination, remand was necessary even if the finding of privity was appropriate. Id. at 417–18.

Schmidt and Rider Bennett concede that a party is free to sue joint tortfeasors separately, see Kisch v. Skow, 305 Minn. 328, 331, 233 N.W.2d 732, 734 (1975), but argue that because they are in privity with Robert Rucker, Katherine Rucker's claims against them are barred. According to Schmidt and Rider Bennett, they are in privity with Robert Rucker because the facts underlying Katherine Rucker's claims against them are the same facts underlying her claims in her fraud action against Robert Rucker and the conduct at issue arose out of Schmidt's and Rider Bennett's representation of Robert Rucker in the dissolution action. They also argue, by analogy, that to the extent that the attorney-client relationship is akin to a principal-agent relationship, privity can be found on a principal-agent basis.

Summary judgment is appropriate when there are no genuine issues of material fact and either party is entitled to a judgment as a matter of law. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn.1993). We review the application of res judicata de novo. Hauschildt v. Beckingham, 686 N.W.2d 829, 840 (Minn.2004). Res judicata applies as an absolute bar to a subsequent claim when: (1) the earlier claim involved the same set of factual circumstances; (2) the earlier claim involved the same parties or their privies; ⁴ (3) there was a final judgment on the merits; and (4) the estopped party had a full and fair opportunity to litigate the matter. Hauschildt, 686 N.W.2d at 840. “All four prongs must be met for res judicata to apply.” Id.

For purposes of determining whether the judgment in the fraud action bars Katherine Rucker's claims against Schmidt and Rider Bennett based on res judicata, the parties agree that: (1) Katherine Rucker's claims against Robert Rucker in the fraud action involved the same set of factual circumstances that are involved in her action against Schmidt and Rider Bennett; (2) there was a final judgment on the merits in Katherine Rucker's fraud action against Robert Rucker; and (3) Katherine Rucker had a full and fair opportunity to litigate the matter asserted in her fraud action against Robert Rucker. The dispute here is over the privity prong of the res judicata test—that is, whether Schmidt's and Rider Bennett's actions in representing Robert Rucker and their attorney-client relationship are sufficient to establish privity for purposes of res judicata.

Privity “ ‘expresses the idea that as to certain matters and in certain circumstances persons who are not parties to an action but who are connected with it in their interests are affected by the judgment with reference to interests involved in the action, as if they were parties.’ ” Margo–Kraft Distribs., Inc. v. Minneapolis Gas Co., 294 Minn. 274, 278, 200 N.W.2d 45, 47 (1972) (quoting Restatement (First) of Judgments § 83 cmt. a (1942)). “ ‘Privies' to a judgment are those who are so connected with the parties in estate or in blood or in law as to be identified with them in interest, and consequently to be affected with them by the litigation.” Hentschel v. Smith, 278 Minn. 86, 95, 153 N.W.2d 199, 206 (1967); see also McMenomy v. Ryden, 276 Minn. 55, 58–59, 148 N.W.2d 804, 807 (1967) (citing 30A Am.Jur. Judgments § 399 (1958)). According to the Restatement of Judgments, courts will find privity to exist for “ ‘those who control an action although not parties to it,’ ” “ ‘those whose interests are represented by a party to the action,’ ” and “ ‘successors in interest to those having derivative claims.’ ” Margo–Kraft Distribs., Inc., 294 Minn. at 278, 200 N.W.2d at 47–48 (quoting Restatement (First) of Judgments § 83 cmt. a (1942)). However, privity may also be found in other circumstances, beyond those categories noted in the Restatement, when a person is otherwise “ ‘so...