Schaefer v. Putnam

• Decision Date: 01 July 2016
• Docket Number: No. 15–2333,15–2333
• Citation: 827 F.3d 766
• Parties: Larry Schaefer ; Elaine Schaefer Plaintiffs–Appellants, v. Dale L. Putnam; Putnam Law Office ; Raymond Schaefer ; Dean Schaefer Defendants–Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

827 F.3d 766

Larry Schaefer ; Elaine Schaefer Plaintiffs–Appellants

v.Dale L. Putnam; Putnam Law Office ; Raymond Schaefer ; Dean Schaefer Defendants–Appellees.

No. 15–2333

United States Court of Appeals, Eighth Circuit.

Submitted: February 10, 2016

Filed: July 1, 2016

Rehearing Denied August 25, 2016

Peter Craig Riley, Tom Riley Law Firm, Cedar Rapids, IA, for Plaintiffs–Appellants.

Erik William Fern, Putnam & Fern, Decorah, IA, for Defendants–Appellees Dale L. Putnam and Putnam Law Office.

Raymond Schaefer, Mason City IA, Pro Se.

Dean Schaefer, Mason City, IA, Pro Se.

Before SHEPHERD, BEAM, and KELLY, Circuit Judges.

SHEPHERD

, Circuit Judge.

Larry and Elaine Schaefer (“Larry and Elaine”)¹ appeal the district court's² dismissal of their claims in this diversity action. The district court found that res judicata and collateral estoppel barred all claims. We affirm.

I.

Larry and Elaine are husband and wife. They began to experience financial troubles after a $127,125 judgment was entered against Larry in 1998 for breach of a grain contract.

In January 2001, Larry and Elaine's attorney, Dale Putnam, advised them that if they were to file for Chapter 7 bankruptcy, the bankruptcy trustee could not reach real property transferred more than two years prior to filing their bankruptcy petition. Pursuant to this advice, Larry and Elaine executed ten quitclaim deeds transferring farmland and other real estate in Cerro Gordo County, Iowa (hereinafter the “Cerro Gordo Property”) to a newly formed entity, G.R.D. Investments, LLC (“G.R.D.”). Larry and Elaine's sons, Dean and Raymond Schaefer, were the sole members of G.R.D., and Larry and Elaine were the managers, each drawing a salary of $20,000 per year.

In October 2003, Larry and Elaine filed for Chapter 7 bankruptcy. Around the same time that Larry and Elaine filed for bankruptcy, Putnam sent them a letter addressing the amount of money they would need to settle their bankruptcy obligations. Putnam created SMP, LLC (“SMP”), and designated his wife as the sole member. He planned to utilize SMP to make a loan to Larry and Elaine.

The bankruptcy trustee filed a complaint seeking to avoid the ten quitclaim deeds to G.R.D. with respect to the Cerro Gordo Property as fraudulent transfers. The bankruptcy court issued an order concluding that the transfers to G.R.D. were fraudulent and merely an effort by Larry and Elaine and their sons to shield nonexempt assets from the parents' creditors. The court held that the transfers of the Cerro Gordo Property to G.R.D. were avoidable under 11 U.S.C. § 544(b)(1)

.

The trustee later filed a motion to amend the order and judgment seeking to modify the language pertaining to the quitclaim deeds from “avoidable” to “void.” The bankruptcy court subsequently corrected its order to reflect that the transfers of the Cerro Gordo Property to G.R.D. were indeed void.

To prevent the trustee from selling the Cerro Gordo Property, Larry and Elaine borrowed money from SMP secured by a mortgage on their homestead and 40 acres of agricultural property. Rather than liquidating the Cerro Gordo Property for a cash distribution to creditors, the trustee accepted a settlement from Larry and Elaine (the “Settlement Agreement”) in order to pay all of Larry and Elaine's creditors in full. The court subsequently granted Larry and Elaine's discharge from bankruptcy.

Following the bankruptcy, Raymond farmed the Cerro Gordo Property and paid rent to his parents. On May 6, 2008, after Raymond failed to pay rent, Larry and Elaine filed a forcible entry and detainer action in Cerro Gordo County. In response, Raymond and G.R.D. filed an action to quiet title in favor of G.R.D. On October 7, 2008, an Iowa district court determined that Larry and Elaine owned the Cerro Gordo Property. Raymond and G.R.D. appealed, and on November 25, 2009, the Iowa Court of Appeals reversed. Schaefer v. Schaefer , No. 08-2009, 2009 WL 4116197, at *4 (Iowa Ct. App. Nov. 25, 2009)

. On February 25, 2011, the Iowa Supreme Court issued an opinion agreeing with the Iowa Court of Appeals' analysis that the Cerro Gordo Property was owned by G.R.D. Schaefer v. Schaefer , 795 N.W.2d 494 (Iowa 2011).

On September 28, 2008, Larry and Elaine filed suit in Iowa state court against multiple parties, including Putnam, whom they claimed was negligent in his pre- bankruptcy and bankruptcy-planning advice, including advising them to form G.R.D. and transfer the Cerro Gordo Property to G.R.D. to stave off creditor claims. They also claimed that Putnam breached his duty of loyalty. Putnam counterclaimed for attorney's fees. The trial commenced on February 8, 2011, and on March 4, 2011, the jury found in favor of Putnam and awarded him a $12,200 judgment. On May 30, 2013, the Iowa Court of Appeals affirmed the award of unpaid legal fees. Schaefer v. Putnam , No. 11-1437, 2013 WL 2368819, at *7 (Iowa Ct. App. May 30, 2013)

.

In this action, filed on November 25, 2014, Larry and Elaine allege that Putnam was negligent in advising them regarding their bankruptcy, and that their sons, Raymond and Dean, acted in concert with Putnam to close the bankruptcy through the Settlement Agreement with the bankruptcy trustee. Specifically, Larry and Elaine contend that Putnam negligently advised them to enter into the Settlement Agreement, because if they had not executed the Settlement Agreement, they arguably would have owned the Cerro Gordo Property that they had previously transferred to G.R.D. after the bankruptcy court voided the transfer.³ Larry and Elaine further allege that Putnam breached his fiduciary duty to them because he had conflicts of interest with respect to their bankruptcy.

Defendants Putnam and Putnam Law Office (collectively “Putnam”) filed a motion to dismiss, arguing that Larry and Elaine's claim was barred by res judicata, collateral estoppel, and the statute of limitations. The district court determined that the jury verdict in the prior case disposed of all issues in the instant case but one: the alleged failure of Putnam to protect Larry and Elaine's interests when the bankruptcy was closed. Larry and Elaine argued that their claim of negligence with regard to the protection of their interests in the Settlement Agreement had not accrued by the time the trial commenced in the first malpractice action because the Iowa Supreme Court had not yet rendered its decision regarding whether G.R.D. or Larry and Elaine owned the Cerro Gordo Property. However, the district court found that Larry and Elaine could have asserted this claim in the prior malpractice action but failed to do so. Thus, the district court concluded that claim preclusion and issue preclusion bar all claims that were or could have been brought in the first malpractice action. Accordingly, the district court granted Putnam's motion to dismiss Larry and Elaine's claims. This appeal followed.

II.

“We review de novo the district court's grant of a motion to dismiss for failure to state a claim based on res judicata.” C.H. Robinson Worldwide, Inc. v. Lobrano , 695 F.3d 758, 763 (8th Cir. 2012)

(quoting Laase v. Cnty. of Isanti , 638 F.3d 853, 856 (8th Cir. 2011) ). We accept the non-moving party's factual allegations as true and construe all reasonable inferences in favor of the nonmovant. St. Jude Med. S.C., Inc. v. Cormier , 745 F.3d 325, 327 (8th Cir. 2014).

“The law of the forum that rendered the first judgment controls the res judicata analysis.” St. Paul Fire & Marine Ins. Co. v. Compaq Computer Corp. , 539 F.3d 809, 821 (8th Cir. 2008)

(citing 28 U.S.C. § 1738 ). Thus, because an Iowa state court rendered the first judgment, Iowa law controls.

In Iowa, the general rule of claim preclusion provides that a valid and final judgment on a claim precludes subsequent actions by “the parties or their privies as to any claim or cause of action that was litigated or could have been litigated in the first action.” Colvin v. Story Cnty. Bd. of Review , 653 N.W.2d 345, 348 (Iowa 2002)

. “A party must litigate all matters growing out of his claim at one time and not in separate actions.” Harrison v. State Bank of Bussey , 440 N.W.2d 398, 400 (Iowa Ct. App. 1989) (internal citations omitted). Thus, claim preclusion may foreclose matters that were never actually litigated. Arnevik v. Univ. of Minn. Bd. of Regents , 642 N.W.2d 315, 319 (Iowa 2002). The party against whom preclusion is asserted must have had a “full and fair opportunity” to litigate the matter in the prior action in order for claim preclusion to apply in a subsequent action. Id. at 319 (quoting Whalen v. Connelly , 621 N.W.2d 681, 685 (Iowa 2000) ). “A second claim is likely to be barred by claim preclusion where the ‘acts complained of, and the recovery demanded are the same or where the same evidence will support both actions.’ ” Id. (quoting Whalen , 621 N.W.2d at 685 ).

Iowa courts look for the presence of three factors when considering the defense of claim preclusion: (1) the parties in the first and second action are the same; (2) the claim in the second suit could have been fully and fairly adjudicated in the prior case; and (3) there was a final judgment on the merits in the first action. Arnevik , 642 N.W.2d at 319

. If any one of these factors is not present, the defense of claim preclusion fails. Id.

Larry, Elaine, and Putnam were all parties to the prior malpractice action. Larry and Elaine argue, however, that they could not have brought their claim against Putnam for negligence with respect to the Settlement Agreement with the bankruptcy trustee because the Iowa Supreme Court did not issue a decision regarding the ownership of the Cerro Gordo Property until after the trial had commenced in the prior malpractice action.

To determine whether a claim in a second suit could have been fully and fairly adjudicated in the prior case, we must examine “(1) the protected right, (2) the alleged wrong, and (3) the relevant evidence.” Pavone v. Kirke , 807 N.W.2d 828, 837 (Iowa 2011)

(quoting Iowa Coal...