Hennepin County District Court File No. MC-05-3798.
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.
Considered and decided by Toussaint, Chief Judge; Dietzen, Judge; and Harten, Judge.*fn1
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 the upper Midwest. Appellant Christopher Brown (C.B.) owns Brown-Wilbert. Respondent Lee Harren and respondent accounting firm Copeland Buhl & Co. were retained by C.B. and his father, Jerry Brown (J.B.), to assist in the purchase of Chandler-Wilbert, Inc., the family business started by C.B.'s maternal grandfather.*fn2
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 (Minn. App. Nov. 22, 2005), review granted (Minn. Feb. 14, 2006).
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 ...