Trahan v. Trahan

Trahan v. Trahan (2003-131); 176 Vt. 539; 839 A.2d 1246

2003 VT 100

[Filed 29-Oct-2003]

                                 ENTRY ORDER

                                 2003 VT 100

                      SUPREME COURT DOCKET NO. 2003-131

                             OCTOBER TERM, 2003

  Claire J. Trahan	               }	APPEALED FROM:
                                       }
                                       }
       v.	                       }	Chittenden Superior Court
                                       }	
  Michael J. Trahan, PayData Payroll   }
  Services, Inc., Bergeron, Paradis,   }
  Fitzpatrick & Smith, Vincent 	       }
  Paradis, and John O'Donnell          }
                                       }	DOCKET NO. S1219-99 CnC

                                                Trial Judge: Matthew I. Katz

             In the above-entitled cause, the Clerk will enter:

       ¶  1.  Plaintiff Claire Trahan appeals a summary judgment in favor
  of defendants Michael Trahan (plaintiff's former husband), Michael's
  company, and the company's attorneys.  Concluding that Michael and Claire's
  divorce judgment prevented Claire from relitigating a factual issue that
  was key to her claims in superior court, the court dismissed her complaint,
  and she now appeals.  We affirm.

       ¶  2.  The relevant facts are undisputed.  Michael and Claire were
  divorced in 1998 after a twenty-six year marriage.  During the divorce
  proceeding, the couple disputed the value of a payroll services business
  the couple started in 1987 and which they jointly owned at the time of the
  divorce.  The company, PayData Payroll Services, Inc., writes payroll
  checks and provides other services to its roughly 800 clients, which are
  primarily small and medium-sized businesses in New England and upstate New
  York.  In addition to the fees the company charges for its services,
  PayData receives income through interest earned on the money the company's
  clients deposit with it to cover their payroll.  Not all of the checks
  PayData writes are cashed.  Prior to 1996, the company had not reconciled
  the bank accounts it used to make payments to employees.  By the time of
  the final divorce hearing, a sum of $2.175 million had accumulated in the
  company's unreconciled accounts.  In April 1998, the money was placed in a
  trust pending a reconciliation of the company's accounts.  Whether the
  funds in the trust should be considered PayData assets for the purpose of
  valuing Michael and Claire's marital estate was the most contentious issue
  during the divorce.  Both parties offered expert testimony on this issue.
   
       ¶  3.  Ultimately, the family court found it "more likely than not"
  that the $2.175 million belonged to PayData's clients, although it
  acknowledged that the finding lacked certainty.  The court also found that
  the couple's marital interest in PayData was at least $2 million, and it
  concluded that Michael and Claire should share the company's value equally. 
  Neither party appealed the final judgment to this Court.  As of March 1999,
  Claire no longer had a legal or financial interest in PayData because
  Michael had purchased her marital interest in the company in accordance
  with the divorce decree.  

       ¶  4.  In October 1999, Claire filed suit against Michael, PayData,
  and the attorneys who advised PayData on creating the trust for the
  disputed $2.175 million.  In addition to other relief, Claire initially
  sought a declaration that the trust contained abandoned property that must
  be reported and surrendered to the State.  Following the State Treasurer's
  intervention and subsequent withdrawal from the action, Claire discovered
  that $1.8 million of the funds held in trust were transferred to a PayData
  corporate account before Michael and Claire's divorce was final.  Believing
  that the transfer was improper and that it supported her claim that the
  funds belonged to PayData (and in turn PayData's owners), Claire amended
  her complaint.  The amended complaint presented two claims: (1) a
  shareholder derivative claim seeking an accounting "to determine whether
  there has been a misappropriation of corporate funds," and (2) a breach of
  fiduciary duty claim against the trustees of the $2.175 million trust for
  failing to reconcile the trust funds, and for transferring a portion of the
  funds to PayData's corporate accounts before completing the reconciliation. 
  In support of her claim against the trustees, Claire alleged that without a
  reconciliation, the extent of her interest in the trust funds was unknown. 
  Claire sought compensatory damages as well as injunctive relief in the form
  of an escrow account for the trust funds pending an audit and
  reconciliation.  

       ¶  5.  In January 2003, the superior court dismissed Claire's
  complaint, concluding that she was collaterally estopped by the prior
  divorce judgment from relitigating the ownership of the $2.175 million. 
  The court explained that if the money did not belong to PayData, neither
  the company nor Claire as its derivative had any legal interest in its
  proper management.  Thus, summary judgment in defendants' favor was
  required.  Claire then took the present appeal.

       ¶  6.  Claire argues on appeal that the superior court erred by
  concluding that collateral estoppel bars her from pursuing her claims
  against Michael, PayData, and the lawyers who drafted the trust and served
  as its trustees.  We review her claim de novo because whether collateral
  estoppel applies to a particular set of facts is a question of law. 
  Farrell v. Mountain Folk, Inc., 169 Vt. 568, 569, 730 A.2d 597, 599 (1999)
  (mem.).  

       ¶  7.  Collateral estoppel prevents a party from relitigating an
  issue that was decided in a prior adjudication.  Id.  The following
  criteria must be met for the doctrine to apply:

    (1) preclusion is asserted against one who was a party or in
    privity with a party in the earlier action; (2) the issue was
    resolved by a final judgment on the merits; (3) the issue is the
    same as the one raised in the later action; (4) there was a full
    and fair opportunity to litigate the issue in the earlier action;
    and (5) applying preclusion in the later action is fair. 

  Trepanier v. Getting Organized, Inc., 155 Vt. 259, 265, 583 A.2d 583, 587
  (1990).  "Issue preclusion applies to issues of fact as well as law." 
  Mellin v. Flood Brook Union Sch. Dist., 173 Vt. 202, 209, 790 A.2d 408, 416
  (2001).  The first criterion is easily satisfied as there is no question
  that Claire is the party against whom preclusion is being asserted and that
  she was a party to the earlier divorce action.  

       ¶  8.  To determine whether the second, third, and fourth criteria
  are also satisfied, we must identify what is at issue here and what was at
  issue in the divorce.  Claire argues that the issue is whether Michael and
  the trustees wrongfully withheld profits from PayData to her detriment.  We
  disagree.  The key issue here is whether the funds that were placed in
  trust belonged to PayData and its shareholders or were the property of the
  company's clients because, as the superior court reasoned, if Claire had no
  interest in the trust funds, she had no interest in the propriety of
  defendants' actions relative to the trust.  Claire's complaint acknowledges
  that ownership of the funds in the trust account was at issue during the
  divorce.  Nevertheless, her amended complaint asked the superior court for
  an investigation and accounting of the trust fund to determine the extent
  of her interest in the trust corpus and whether defendants' actions harmed
  that interest.  The extent of Claire's interest in the disputed money was,
  however, determined in the divorce proceeding, which concluded that the
  $2.175 million did not belong to the company or, in turn, its shareholders. 
  Claire did not appeal that finding, and it is therefore conclusive on the
  issue insofar as her interest is concerned.

       ¶  9.  Claire claims that collateral estoppel should not apply here
  because she did not know about the transfer of $1.8 million before the
  divorce became final and thus did not have an adequate opportunity to
  litigate the matter.  She theorizes that the transfer demonstrates that the
  funds were not in fact client funds, as the family court found, but were
  company funds.  That Claire was unaware of the transfer does not mean that
  she did not have an adequate opportunity to contest the ownership of the
  $2.175 million.  The record the parties supplied on appeal demonstrates
  that Claire and Michael contested this question because it was necessary to
  determine their marital interest in PayData for an equitable property
  division.  We note that Claire filed this case in superior court even
  before she knew about the allegedly improper transfer.  

       ¶  10.  As to the final collateral estoppel criterion - whether it is
  fair to preclude relitigation of an issue - we agree with the superior
  court that fairness supports the use of estoppel.  None of the defendants
  should be required to expend their time and financial resources litigating
  an issue that was the subject of dispute and final resolution in Claire and
  Michael's divorce.
        
       ¶  11.  We observe that Claire's complaint amounts to an impermissible
  collateral attack on the 1998 divorce judgment.  Cf. Tudhope v. Riehle, 167
  Vt. 174, 179-80, 704 A.2d 765, 767-68 (1997) (holding that separate action
  complaining of fraudulent inducement to enter settlement agreement in a
  prior divorce was barred by res judicata).  This is not a case like Farrell
  v. Mountain Folk, Inc. in which we permitted the plaintiff to pursue her
  civil action for misappropriation of corporate funds by her then husband
  and others because the family court expressly did not adjudicate the issue
  during the parties' divorce.  See 169 Vt. at 570, 730 A.2d  at 599.  Nor are
  the facts of this case like Slansky v. Slansky, 150 Vt. 438, 553 A.2d 152
  (1988).  In that case we held that a prior divorce judgment did not
  preclude a subsequent tort claim between divorced spouses because the claim
  was neither raised during the divorce nor necessary to its final
  resolution.  See 150 Vt. at 441-42, 553 A.2d  at 154.  Instead, similar to
  the collateral attack in Tudhope, Claire seeks a declaration that at least
  some of the funds in the trust were company funds which added value to the
  marital estate, and the family court did not account for that value in its
  property award.  To the extent that Claire disagreed with the property
  award based on the family court's findings on the ownership of the disputed
  funds, the proper avenue for relief was either an appeal to this Court or a
  motion to the family court to set aside the divorce judgment under V.R.C.P.
  60(b).  

       ¶  12.  Because of our disposition, we do not reach Michael's
  additional arguments that Claire, who was not a shareholder of PayData when
  the action was brought, cannot bring a shareholder derivative action, and
  that she also lacks standing to bring an action with respect to the trust.

       Affirmed.



                                       BY THE COURT:



                                       _______________________________________
                                       Jeffrey L. Amestoy, Chief Justice

                                       _______________________________________
                                       John A. Dooley, Associate Justice

                                       _______________________________________
                                       Denise R. Johnson, Associate Justice

                                       _______________________________________
                                       Marilyn S. Skoglund, Associate Justice

                                       _______________________________________
                                       Paul L. Reiber, Associate Justice