may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2002).
IN COURT OF APPEALS
Paul J. Taunton,
Kathleen M. Picotte Newman,
Todd Freeman, et al.,
Hennepin County District Court
File No. MP0119537
Jerome S. Rice, Jerome S. Rice & Associates, 3455 Plymouth Boulevard, Suite 170, Plymouth, MN 55447 (for appellant)
Joseph W. Anthony, Karlyn Vegoe Boraas, Anthony, Ostlund & Baer, P.A., 90 South Seventh Street, Suite 3600, Minneapolis, MN 55402 (for respondent Kathleen M. Picotte Newman)
William M. Hart, Katherine A. McBride, J. Richard Bland, Damon L. Highly, Meagher & Geer P.L.L.P., 4200 Multifoods Tower, 33 South Sixth Street, Minneapolis, MN 55402. (for respondents Todd Freeman and Larkin, Hoffman, Daly & Lindgren)
Considered and decided by Peterson, Presiding Judge, Willis, Judge, and Mulally, Judge.
U N P U B L I S H E D O P I N I O N
Paul J. Taunton (Taunton) alleges his previous attorneys, individually and as members of law firm Larkin, Hoffman, Daly & Lindgren (collectively, respondents), committed legal malpractice, which forced him to enter into a settlement agreement in excess of his desired amount. The district court dismissed his claim under rule 12 as barred under the in pari delicto doctrine. We affirm.
On October 21, 1997, the family court finalized Taunton's divorce from Debra Sax (Sax). Nearly a year later, Sax sought to vacate the judgment and decree because Taunton failed to truthfully disclose his financial condition. Sax commenced a lawsuit against Taunton and respondents alleging fraud.
The district court held an evidentiary hearing over a four-day period in May 1999 on Sax's motion to vacate the earlier judgment and decree in the divorce proceeding and concluded that Taunton “engaged in an intentional course of material misrepresentation and nondisclosure respecting the marital assets of the parties throughout the marital dissolution process.” The court concluded, “Taunton's conduct constituted fraud on the Court and the property settlement provisions of the Judgment and Decree entered on October 21, 1997, should be vacated.”
The district court judge signed these findings on August 4, 1999, but did not file them. The judge issued a scheduling order, assigning an October trial date for the property division issue. In early September 1999, Taunton and Sax reached a mediated settlement that disposed of Sax’s claims against Taunton. The settlement gave Sax an undisclosed amount of money in return for Sax’s case against Taunton being dismissed with prejudice.
On October 8, 1999, the district court partially granted respondents’ motion for summary judgment in Sax’s fraud action. In the incorporated memorandum, the court found Sax could not meet the elements of fraud against respondents, but that she did raise jury issues on conspiracy to commit fraud based upon its earlier finding of Taunton’s fraud. The court further stated, regarding Newman, an individual member of respondents,
a jury could infer that Newman, although committing lawful acts in drafting the [Marriage Termination Agreement], had an unlawful purpose of helping Taunton conceal his fraud.
Respondents subsequently settled with Sax.
Approximately one year later, Taunton commenced suit against respondents for malpractice. Taunton sought damages against respondents for the increased settlement amount and the large attorney’s fees he has paid defending Sax’s fraud action against him. The malpractice action was heard by a different district court judge, who dismissed the case under rule 12 on March 12, 2002, for failure to state a claim upon which relief can be granted.
D E C I S I O N
1. Judicial Estoppel
Taunton argues that respondents took opposite positions in the fraud case and the malpractice action and therefore judicial estoppel should apply. In order for judicial estoppel to apply, two requirements must be met: (1) a party must take a later position that is clearly inconsistent with an earlier position, and (2) the party must have prevailed on its earlier position. Bauer v. Blackduck Ambulance Ass'n, Inc., 614 N.W.2d 747, 749-50 (Minn. App. 2000).
It is an open question whether the doctrine of judicial estoppel even exists in Minnesota. The Minnesota Supreme Court recently stated: “[w]e have not expressly recognized the doctrine of judicial estoppel and decline to do so here.” State v. Profit, 591 N.W.2d 451, 462 (Minn. 1999). Without deciding whether the doctrine was available in this state, the court noted that the doctrine generally required “a party’s subsequent position must be clearly inconsistent with its original position.” Id. (citation omitted) (emphasis added).
Respondents never took the position that Taunton did not commit fraud. It is self evident that it is a very different thing to challenge the sufficiency of the pleadings than to say that no fraud occurred. Here, respondents only challenged the sufficiency of Sax’s pleadings; they did not argue that factually no fraud occurred. Thus, the requirements of judicial estoppel have not been met.
Even assuming, arguendo, that judicial estoppel does exist in Minnesota, and is implicated by these facts, the application of the doctrine to a particular case would likely be reviewed under an abuse of discretion standard. Both collateral estoppel and res judicata, once found applicable, are reviewed under this standard, so it is logical to presume that judicial estoppel would be reviewed this way as well. See e.g., Erickson v. Comm’r of Dep’t of Human Servs., 494 N.W.2d 58, 61 (Minn. App. 1992) (res judicata is reviewed under abuse of discretion standard); In re Trusts Created by Hormel, 504 N.W.2d 505, 509 (Minn. App. 1993), review denied (Minn. Oct. 19, 1993) (collateral estoppel is reviewed under abuse of discretion standard). Because it is not clear that respondents positions were inconsistent, it was well within the district court’s discretion not to apply judicial estoppel, a doctrine the Minnesota Supreme Court has twice refused to recognize in Minnesota.
2. Consideration of the August 4, 1999 order
Because the district court dismissed the malpractice action under rule 12, “the only question for review is whether the complaint sets forth a legally sufficient claim for relief.” Elzie v. Comm’r of Pub. Safety, 298 N.W.2d 29, 32 (Minn. 1980). When ruling on a rule 12 motion, the court may also consider a key document the complaint is premised on. See Johnson v. State, 536 N.W.2d 328, 332 (Minn. App. 1995) (citing 1 David F. Herr & Roger S. Haydock, Minnesota Practice § 12.9, at 87 (Supp. 1995).
Taunton argues that the court erred by considering the August 4, 1999 “draft” order and findings. He claims that the order had no efficacy because the judge did not file it. We disagree. Taunton’s characterization of the findings as merely a “draft” is erroneous. The judge in the malpractice action concluded that the order was valid and binding. The court looked to the order itself and found that “[n]othing within the Order indicates that the findings would be set aside or somehow vacated upon settlement concerning the marital property.” The judge continued:
The Court firmly believes that if [the judge in the fraud action] intended to invalidate or abandon her findings because of the settlement, she would have issued another Order doing so. Since she did not, the Court gives little weight to the alleged statements that the Order would not be binding upon resolution of the dispute prior to trial.
We agree. The judge in the fraud action held a four-day evidentiary hearing and spent considerable time making detailed findings of fact, conclusions of law, and an order, which she signed. Further, the judge herself gave effect to the August 4, 1999 order by issuing a scheduling order the following day. Without her order vacating the original property division, there was nothing to schedule for trial.
The settlement agreement also clearly shows that Taunton understood and accepted the applicability of these findings. There is no question from the language of the agreement that, as between Taunton and Sax, the order and findings were accepted as conclusive. It is also clear from the language that Sax’s attorneys believed the finding that Taunton committed fraud would be useful against respondents to prove a conspiracy to commit fraud existed between Taunton and respondents. It would be more difficult to prove the conspiracy to commit fraud without the underlying fact of Taunton’s fraud. Because of this, the agreement allowed Sax, to the extent the court would permit, to use the findings against respondents.
Discussing the propriety of considering the August 4, 1999 order, the judge in the malpractice case stated:
[a]lthough the Court normally limits its review of Rule 12 motions to the four corners of the Complaint, this matter presents a unique situation where contemporaneous documents must be considered in order to properly rule on the matter.
Taunton’s complaint alleges that respondents failed to represent him adequately and, as a result, he was forced to settle for more money than he otherwise would have. The settlement agreement is unquestionably a key document, which is necessary to understand that claim.
Although the August 4, 1999 order is not specifically referenced in the complaint, the complaint does reference the settlement agreement. The August 4, 1999 order is specifically incorporated into the settlement agreement. The question of whether a key document incorporated within a key document can be examined has not previously been addressed. Despite this, the policy underlying the exception is furthered in this case. Taunton’s complaint is based upon the damages that arise from the settlement agreement. By their own language in the settlement agreement, Taunton and Sax agreed the settlement was reached because of the August 4, 1999 order. Therefore, that order is necessary to fully understand the settlement agreement. Because of this, we find no error in the district court considering the August 4, 1999 order when ruling on respondents’ rule 12 motion.
3. In Pari Delicto
Minnesota’ leading case on in pari delicto is State v. AAMCO Automatic Transmissions, Inc., 293 Minn. 342, 199 N.W.2d 444 (Minn. 1972). There, the supreme court stated: “[in pari delicto] is based upon judicial reluctance to intervene in disputes between parties who are both wrongdoers in equal fault.” Id. at 347, 199 N.W.2d at 448. The doctrine was also extended to tortious transactions based on fraud or similar intentional wrongdoing. Id. Further, “anyone who engages in a fraudulent scheme forfeits all right to protection, either at law or in equity.” Id. (citation omitted) (emphasis added). The court also made clear that the doctrine does have limited exceptions, citing antitrust claims and situations where a paramount public interest is at stake. Id. at 348, 199 N.W.2d at 448 (citation omitted).
Here, the judge in the malpractice action noted additional exceptions to the in pari delicto doctrine, such as oppression, imposition, hardship, or undue influence that would negate the doctrine's application, discussing Evans v. Cameron, 360 N.W.2d 25 (Wis. 1985). Taunton’s complaint failed to raise any of these defenses. Because Taunton failed to raise any defenses, the finding in the August 4, 1999 order that Taunton “intentionally and fraudulently hid marital assets” bars Taunton’s claim under the doctrine of in pari delicto.
* Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.