STATE OF MINNESOTA
IN COURT OF APPEALS
Brown-Wilbert, Inc., et al.,
Copeland Buhl & Co., P.L.L.P., et al.,
Filed June 13, 2006
Hennepin County District Court
File No. MC-05-3798
Kay Nord Hunt, Lommen, Nelson, Cole & Stageberg, P.A., 2000 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402; and
George E. Antrim, III, George E. Antrim, III, PLLC, 201 Ridgewood Avenue, Minneapolis, MN 55403 (for appellants)
Thomas J. Shroyer, Peter A. Koller, Julia M. Dayton, Moss & Barnett, P.A., 4800 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402 (for respondents)
Considered and decided by Toussaint, Chief Judge; Dietzen, Judge; and Harten, Judge.*
S Y L L A B U S
Because the doctrine of res judicata prohibits a party from splitting a claim into two separate lawsuits, the prohibition against claim splitting is a component of the res judicata doctrine rather than a separate affirmative defense.
O P I N I O N
Appellant challenges the district court judgment dismissing its second lawsuit against respondent on res judicata grounds, arguing that the second lawsuit was not precluded because there is no final judgment on the merits in the first lawsuit, the first and second lawsuits involve different causes of action, and they were deprived of a full and fair opportunity to litigate the matter. Respondent argues that the second lawsuit is barred by application of res judicata and the prohibition against claim splitting. Because we conclude that there has not been a final judgment on the merits in the first lawsuit and that the prohibition against claim splitting is part of the doctrine of res judicata, we reverse.
Appellant Brown-Wilbert, Inc. (Brown-Wilbert) is engaged in
the business of manufacturing burial vaults, septic tanks, and other concrete
products, and arranges for the distribution and sale of its products throughout
In 1993, Chandler-Wilbert initiated discussions regarding the sale of the company to C.B. with the intent that he would ultimately take over the family business. C.B. and J.B. formed Brown-Wilbert to acquire the stock of Chandler-Wilbert. J.B. recommended that respondent serve as the accountant for Brown-Wilbert in the transaction. C.B. and J.B. agreed that C.B. would buy the majority of the equity in the company, and that both would share control of the company on a 50-50 basis. Trusting his father and respondent, C.B. agreed to a revised proposal whereby he would own 80% of the company, but J.B. would own 51% of the voting shares. C.B. was led to believe that the proposal was a condition for a loan of $1,000,000 to Brown-Wilbert.
Ultimately, C.B. and J.B. purchased all of the stock of Chandler-Wilbert, and operated its successor Brown-Wilbert. Respondent continued to provide accounting and financial services to the company. In December 1997, the $1,000,000 loan was fully repaid, which eliminated the alleged obstacle to C.B. obtaining control of Brown-Wilbert consistent with his 80% majority equity interest in the company. Respondent allegedly failed to advise C.B. of that fact.
Between 1997 and 2003, respondent allegedly joined with J.B. to squeeze C.B. out of the operations of Brown-Wilbert, using a variety of illegal methods, including presenting inaccurate and misleading financial information, falsifying Brown-Wilbert’s audited financial statements, threatening that if C.B. did not accept a buy-out that he would be required to immediately re-pay significant loans to the company, and advocating J.B.’s interests to the detriment of C.B.. Respondent never advised C.B. of any conflicts of interest.
In March 2004, appellant commenced a lawsuit against respondent, alleging the following theories of recovery: breach of contract, breach of fiduciary duty, accounting malpractice, and restitution (first lawsuit). Respondent moved to dismiss the first lawsuit, alleging that appellant failed to submit the expert-review and expert-identification affidavits required by Minn. Stat. § 544.42 (2004). The district court found that appellant failed to provide the requisite expert affidavits within the statutory time limits, and granted respondent’s motion to dismiss the entire lawsuit.
On appeal, this court affirmed the
district court’s dismissal with prejudice of appellant’s accounting-malpractice
claim for failure to timely satisfy the expert-review and expert-identification
affidavit requirements, but we remanded the remaining three counts with
directions for the district court to determine whether expert testimony was
necessary to establish a prima facie case on those counts. Brown-Wilbert,
Inc. v. Copeland Buhl & Co., 2005 WL 3111959, *3 (
In February 2005, appellant commenced a second lawsuit against respondent, alleging fraud, intentional misrepresentation, negligent representation, and aiding and abetting as theories of recovery (second lawsuit). The factual allegations of the second lawsuit were very similar to but not identical to those in the first lawsuit. The complaint in the second lawsuit re-framed the same facts in terms of fraud and misrepresentation and added two new factual allegations that respondent provided misleading information regarding debts that C.B. owed to Brown-Wilbert and refinanced the company without C.B.’s knowledge.
Respondent then moved to dismiss the second lawsuit, alleging that it was precluded by the doctrine of res judicata. The district court agreed, reasoning that res judicata applied because there was a final judgment on the merits in the first lawsuit and appellant’s complaint in the second lawsuit was “a recasting of the earlier complaint.” The district court concluded that the allegations in the second complaint were “substantially though not wholly, identical to those set forth in the first complaint.” This appeal from the judgment of dismissal followed.
Subsequently, the Minnesota Supreme Court granted appellant’s petition for review in the first lawsuit for the following issues: (1) what constitutes a “demand” for counsel’s affidavit of expert review that triggers the 60-day period under Minn. Stat. § 544.42, subd. 6; and (2) what is the minimum standard for an affidavit of expert identification sufficient to entitle plaintiff to notice of deficiencies and an opportunity to cure under Minn. Stat. § 544.42. The briefs have been submitted and the parties are awaiting scheduling.
I. Did the district court err by dismissing appellant’s second lawsuit under the doctrine of res judicata?
II. Does the prohibition against claim splitting provide an affirmative defense separate from the doctrine of res judicata?
On appeal, appellant argues that the district court erred in applying the res judicata doctrine to the second lawsuit because there is no final judgment on the merits in the first lawsuit, the first and second lawsuits involve different causes of action, and appellant was deprived a full and fair opportunity to litigate the matter.
The application of res judicata is a question of law, which we review de
novo. State v. Joseph, 636 N.W.2d 322, 326 (
Res judicata applies when (1) there has been a final judgment on the
merits, (2) the same cause of action is involved, (3) the parties are identical
or in privity, and (4) the estopped party had a full and fair opportunity
to litigate the matter.
Appellant argues that there is no final judgment on the merits in the
first lawsuit because this court remanded three counts to the district court for
further consideration. In
Here, the district court dismissed appellant’s second lawsuit on res judicata grounds prior to the termination of the appellate process in the first lawsuit. Thus, there was no final judgment on the merits in the first lawsuit at the time the district court ordered dismissal of the second lawsuit and, therefore, the dismissal was premature. Further, finality in the first lawsuit continues to be suspended due to this court’s remand of three counts and the Minnesota Supreme Court’s pending review of the remaining count.
We conclude that there is no final judgment on the merits in the first lawsuit and, therefore, the district court erred by dismissing the second lawsuit on res judicata grounds. Because all four prongs must be met for res judicata to apply, we decline to address the remaining requirements. On remand of the second lawsuit, we defer to the authority of the district court to manage its own calendar, including the possible consolidation of both lawsuits.
Respondent raises the alternative argument that, even if res judicata does not bar appellant’s second lawsuit, it should be dismissed because appellant is prohibited from “splitting” its cause of action.
Respondent, nonetheless, invites us to follow the California Supreme
Court by adopting the prohibition against claim splitting as an affirmative
defense separate from the doctrine of res judicata. See
Hamilton v. Asbestos Corp., Ltd., 998 P.2d 403, 414 (
D E C I S I O N
Because we conclude that the district court erred by dismissing appellant’s second lawsuit absent a final judgment on the merits in the first lawsuit and decline to adopt the prohibition against claim splitting as an affirmative defense separate and independent from res judicata, we reverse the district court judgment dismissing appellant’s second lawsuit.