Linda S. Kahn, Appellant, v. Farrell Kahn, Appellee, 21 F.3d 859 (1994)

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U.S. Court of Appeals for the Eighth Circuit - 21 F.3d 859 (1994)

Submitted March 16, 1994.Decided April 21, 1994


Francis G. Slay, St. Louis, MO, argued (Jim J. Shoemake, on the brief), for appellant.

Alan C. Kohn, St. Louis, MO, argued (John A. Klobasa, on the brief), for appellee.

Before BEAM, Circuit Judge, BRIGHT, Senior Circuit Judge, and MORRIS SHEPPARD ARNOLD, Circuit Judge.

BRIGHT, Senior Circuit Judge.

1

Linda Kahn (Linda) appeals from the district court's entry of summary judgment in favor of her ex-husband, Farrell Kahn (Farrell), holding Linda's claims for breach of fiduciary duty, conversion, constructive fraud and fraud barred by res judicata. The present action, seeking tort damages and an accounting, involves allegations of wrongful conduct that occurred in the course of the marital relationship and that are inextricably intertwined with those issues subject to the parties' previously adjudicated dissolution proceeding. Consequently, we hold that the domestic relations exception to diversity of citizenship jurisdiction applies and precludes the exercise of federal jurisdiction.1 We dismiss the appeal and direct the district court on remand to dismiss the action for lack of subject matter jurisdiction.

2

Linda filed for divorce after almost thirty years of marriage. She alleged various improprieties as to Farrell's marital conduct, which generally included extramarital affairs, procuring loans secured by marital property and Linda's property without Linda's permission, misappropriating the net profits from the sale of Linda's separate property, converting funds and failing to render an accounting. Citing the aforesaid conduct, Linda's counsel requested that the court award Linda a "heavily disproportionate share of the marital property." Tr. on Appeal, Dissolution Proceeding (Oct. 9, 1990), Vol. I, at 27. Trial of the dissolution action took nine days. Thereafter, on April 12, 1991, the Circuit Court of St. Louis County issued a Second Amended Decree of Dissolution, distributing the property at issue as follows:

3
Petitioner Linda Kahn Amount Respondent Farrell Kahn Amount A. Separate Property 1,187,593 A. Separate Property 7,100 B. Marital Property 4,224,423 B. Marital Property 3,743,518 C. Debt Allocation 220,625 C. Debt Allocation 937,341 NET MARITAL PROPERTY 4,003,798 NET MARITAL PROPERTY 2,806,177 % of Net Marital Property 58.8 % of Net Marital Property 41.2 ----------
4

Appellant's App. at 100. The Missouri Court of Appeals affirmed the circuit court's decree. Kahn v. Kahn, 839 S.W.2d 327 (Mo.Ct.App.1992).

5

Linda brought the instant action against her ex-husband on January 15, 1992, in the United States District Court for the Eastern District of Missouri. Linda's four-count complaint alleged that Farrell committed the following torts: breach of fiduciary duty, fraud, constructive fraud and conversion. The complaint asserted essentially the same conduct as set forth in the dissolution petition.2 Linda sought both compensatory and punitive damages and an accounting. The district court granted Farrell's motion for summary judgment, concluding that, based upon the previous dissolution action, res judicata barred litigation of the tort claims. Kahn v. Kahn, No. 4:92CV00063-JCH, slip op. at 11 (E.D.Mo., Aug. 2, 1993).

6

The domestic relations exception, first articulated in Barber v. Barber, 62 U.S. (1 How.) 582, 584, 16 L.Ed. 226 (1859), divests the federal courts of jurisdiction over any action for which the subject is a divorce, allowance of alimony, or child custody. Ankenbrandt v. Richards, --- U.S. ----, ----, 112 S.Ct. 2206, 2215, 119 L.Ed.2d 468 (1992). In addition, as observed previously, ante n. 1, when a cause of action closely relates to but does not precisely fit into the contours of an action for divorce, alimony or child custody, federal courts generally will abstain from exercising jurisdiction. In the case at bar, we determine that Linda's claims for relief, although drafted to sound in tort, are so inextricably intertwined with the prior property settlement incident to the divorce proceeding that subject matter jurisdiction does not lie in the federal court.

7

Missouri law establishes a statutory procedure for divorce, in which "the circuit court shall enter a decree of dissolution if " (1) certain residency requirements are met, (2) the marriage is irretrievably broken and (3) "[t]o the extent it has jurisdiction to do so, the court has considered, approved, or made provision for child custody, the support of any child of the marriage who is entitled to support, the maintenance of either spouse, and the disposition of property." Mo.Ann.Stat. Sec. 452.305.1 (Vernon 1986) (emphasis added).

8

The division of property incident to Missouri's statutory dissolution action, requires consideration of

9

all relevant factors including:

10

(1) The economic circumstances of each spouse at the time the division of property is to become effective, including the desirability of awarding the family home or the right to live therein for reasonable periods to the spouse having custody of any children;

11

(2) The contribution of each spouse to the acquisition of the marital property, including the contribution of a spouse as homemaker;

12

(3) The value of the nonmarital property set apart to each spouse;

13

(4) The conduct of the parties during the marriage; and

14

(5) Custodial arrangements for minor children.

15

Mo.Ann.Stat. Sec. 452.330.1 (Vernon Supp.1993) (emphasis added). In addition, the distribution of marital property is relevant to whether the trial court awards alimony as well as the amount to be awarded. Sec. 452.335.2(1) (Vernon Supp.1993). Accordingly, the distribution of marital property is intricately related to the divorce determination and the issue of alimony.

16

Although the division of property under Sec. 452.330.1 does not necessarily require the same proof to support a damages award based on the torts of breach of fiduciary duty, fraud, constructive fraud and conversion3, cf. Nebbitt v. Nebbitt, 589 S.W.2d 297, 300 (Mo. banc 1979) (divorce action does not affect spouse's right to sue for conversion of property), here the evidence proffered in both proceedings is the same and involves conduct that occurred exclusively throughout the duration of the marital relationship. That Linda received property in the dissolution proceeding in part based on the wrongful conduct constituting the intentional torts is relevant to any award of damages based on that same conduct.4 By necessity then, proof of Linda's tort claims would require that the district court inquire into matters directly relating to the marital relationship or the property settlement. Compare Gonzalez Canevero v. Rexach, 793 F.2d 417, 418-19 (1st Cir.1986) (domestic relations exception applied to suit for money damages or partition order relating to half interest in corporation controlled by ex-husband) and Csibi v. Fustos, 670 F.2d 134, 138 (9th Cir.1982) (domestic relations exception prevented exercise of jurisdiction over action seeking to establish rights between two women claiming to be intestate's surviving spouse) with Lannan v. Maul, 979 F.2d 627, 631 (8th Cir.1992) (district court erroneously invoked domestic relations exception to preclude jurisdiction over action for breach of contract by child's conservator seeking from trustees insurance proceeds paid on father's insurance policy) and Lloyd v. Loeffler, 694 F.2d 489, 493 (7th Cir.1982) (domestic relations exception inapplicable to tort action for wrongful interference with child custody).

17

Based upon our determination that the district court did not have subject matter jurisdiction, we do not express any opinion as to the merits of Linda's tort claims against Farrell, or whether the prior dissolution action bars said claims from being brought in the state court. Appeal dismissed and case remanded to the district court to enter a dismissal of the action without prejudice, for lack of subject matter jurisdiction.

18
 ADDENDUM First Amended Petition Federal Complaint for Dissolution 6. From the beginning and 15. From the beginning of the throughout the duration of the marriage, Respondent assumed couple's marriage, defendant, exclusive responsibility for who was experienced in business and control of the business matters, assumed exclusive affairs of the family and has control over and responsibility continued to do so throughout for the couple's business the marriage. In 1979, at the affairs and managed the request of Respondent, couple's properties and Petitioner executed two finances. separate powers of attorney .... --------------------------------------------------------------- --------------------------------------------------------------- 16. By virtue of the powers of 9. On April 16, 1979, attorney, Respondent has plaintiff, at defendant's maintained and been in control request, signed two separate of all transactions involving powers of attorney,.... the purchase and sale of assets, of all bank accounts containing marital monies and Petitioner's separate monies. All financial and business records of marital assets and Petitioner's separate assets have been maintained by him and his employees. ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 17. As a result of 28. As a result of plaintiff's Petitioner's granting the granting the aforesaid powers aforesaid powers of attorney to of attorney to defendant, plaintiff and Respondent, she and Respondent defendant stood in a fiduciary stood in a fiduciary relationship, relationship under which defendant under which Respondent owed the owed the following duties and following obligations to obligations to plaintiff: Petitioner: (a) to be perfectly frank with (a) to make full disclosure to Petitioner; (b) to make full plaintiff of all material facts about disclosure of all material facts business transactions concerning the about business transactions to use and disposition of the couple's Petitioner; funds and assets, plaintiff's separate funds and assets, and borrowed funds, including the Bank borrowings and his use (c) to strictly avoid and disposition of the proceeds from the misrepresentation to Petitioner; sale of the Lindbergh Property; (d) in all respects to act (b) to strictly avoid with the utmost good faith, misrepresentation to plaintiff; fidelity and loyalty to Petitioner; (c) in all respects to act with the utmost good faith, (e) to engage in business fidelity and loyalty to transactions which were in plaintiff; Petitioner's best interest; (d) to engage in business (f) to place Petitioner's transactions which were in interest above all others, plaintiff's best interest; including Respondent's; (e) to place plaintiff's (g) to invest borrowed money only for interest above all others, including purposes which were in Petitioner's defendant's; interest; (f) to use borrowed funds (h) to invest marital funds and only for purposes which were in Petitioner's separate funds with plaintiff's interests; prudence and care, avoiding undue (g) to invest the couple's funds and risk and speculation; plaintiff's separate funds with prudence and care, (i) to keep adequate and avoiding undue risks and accurate records of financial speculation; transactions; and (h) to keep adequate and (j) to account to Petitioner accurate records of financial for his use and disposition of transactions; and marital funds, her separate funds and borrowed funds. (i) to account to plaintiff for his use and disposition of the couple's funds and assets, plaintiff's separate assets, and borrowed funds. ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 18. Respondent breached his 29. Defendant breached his fiduciary duties to Petitioner fiduciary duty to plaintiff in in the following respects, all at least the following of which should be taken into respects: account by the Court in the allocation of property between the .... (b) After 1984, defendant parties and the awarding of increased the indebtedness to the permanent maintenance to Petitioner: Bank from $898,000.00 to the .... F. Respondent procured loans aggregate amount of $1,398,000.00, from Royal Bank in the aggregate secured by the couple's assets by amount of $1,398,000,00 [sic], signing plaintiff's name on the secured by marital assets and collateral pledge notes and other Petitioner's separate assets. loan documents all without notifying Respondent has not made a full plaintiff and without plaintiff's accounting to Petitioner of his use knowledge, authorization or consent; and disposition of the proceeds of .... these loans. (f) Defendant failed to account to plaintiff for his use and disposition of the proceeds from the Bank loans and the sale of the Lindbergh Property. ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 18H. In 1985, Respondent 14. Subsequent to the caused $1,000,000.00 of the plaintiff notifying defendant proceeds of the sale of certain of her desire not to be part of real estate which was any further borrowings, Petitioner's separate property plaintiff sold certain real to be deposited in accounts in estate, consisting of ... the his name at Drexel, Burnham & Lambert. "Lindbergh Property." Subsequently, Respondent withdrew nearly all of said .... 29(c) Defendant failed to use ... funds. He has failed to fully the proceeds from the sale account to Petitioner for the use and disposition of said funds of the Lindbergh Property in plaintiff's best interest, but instead used the proceeds for his own personal benefit to support his extravagant lifestyle, and speculative, imprudent and unprofitable business ventures; 29(d) Defendant misrepresented to plaintiff his use of the proceeds from the sale of the Lindbergh Property; .... 29(f) Defendant failed to account to plaintiff for his use and disposition of the proceeds from ... the sale of the Lindbergh Property. ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 18M. On July 5, 1988, 48. In or around October of Petitioner revoked any 1988, approximately three and all powers of attorney she months after plaintiff revoked had previously signed. any and all powers of attorney previously signed by Thereafter Respondent her, defendant, against plaintiff's will and in misappropriated open defiance to plaintiff's ownership and right approximately $52,250 to possession of said funds, did convert said from the checking funds to his own use by affixing plaintiff's account at Royal Bank facsimile signature to checks drawn on said in Petitioner's name by account at the Bank in the total amount of affixing Petitioner's $52,250, which was the total balance of said facsimile signature to account at the time, thereby closing out the checks drawn on that account, all without plaintiff's knowledge, account, despite the authorization or consent. Defendant has refused revocation of the and failed to return said funds to plaintiff. powers of attorney. He has failed to account to Petitioner for the use and disposition of these funds.
19

Appendix at 6-8, 15-17, 23-24, 82-83, 85-88.

1

We recognize that at least one of our sister circuits, and some legal commentators, speak of abstention when invoking the domestic relations exception. See, e.g., Congleton v. Holy Cross Child Placement Agency, Inc., 919 F.2d 1077, 1079 n. 3 (5th Cir.1990); Rebecca E. Swenson, Note, Application of the Federal Abstention Doctrines to the Domestic Relations Exception to Federal Diversity Jurisdiction, 1983 Duke L.J. 1095 (Nov.1983); Anthony B. Ullman, Note, The Domestic Relations Exception to Diversity Jurisdiction, 83 Colum.L.Rev.1824 (Nov.1983). Courts generally use abstention in the context of a dispute relating to domestic relations when the controversy does not fall within the exact purview of divorce, alimony or child custody, but instead is closely related. See Lannan v. Maul, 979 F.2d 627, 631 (8th Cir.1992); Gonzalez Canevero v. Rexach, 793 F.2d 417, 418 (1st Cir.1986); Csibi v. Fustos, 670 F.2d 134, 137 (9th Cir.1982)

2

See Addendum for a comparison of the pleadings in both the dissolution action and the case at bar, which illuminates the extent to which the state and federal cases are interrelated

3

Missouri law recognizes as a separate cause of action a suit based upon injuries intentionally inflicted by one spouse against the other, Townsend v. Townsend, 708 S.W.2d 646, 650 (Mo. banc 1986), whether the damages incurred are to property or person

4

Although the state trial court did not make factual findings or set forth the bases for the property distribution, the Missouri Court of Appeals in Kahn, 839 S.W.2d at 331, stated that "we presume the trial court considered all the evidence in dividing the marital property."