Wright v. Wright ( 2015 )

NOTICE: NOT FOR PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION DOES NOT CREATE
LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
In re the Marriage of: PAUL ROBERT WRIGHT, Petitioner/Appellee,
v.
JENNIFER WRIGHT, Respondent/Appellant.
No. 1 CA-CV 13-0761 FC
FILED 3-26-2015
Appeal from the Superior Court in Maricopa County
No. FC2011-050271
The Honorable Carey Snyder Hyatt, Judge
REVERSED AND REMANDED
COUNSEL
Korbin Steiner & Marquis, Scottsdale
By Stanley David Murray, Ronee Korbin Steiner
Counsel for Petitioner/Appellee
Berkshire Law Office, PLLC, Phoenix
By Keith Berkshire, Maxwell Mahoney
Counsel for Respondent/Appellant
MEMORANDUM DECISION
Presiding Judge John C. Gemmill delivered the decision of the Court, in
which Judge Kenton D. Jones and Judge Donn Kessler joined.
WRIGHT v. WRIGHT
Decision of the Court
G E M M I L L, Judge:
¶1 Jennifer Wright (“Wife”) appeals the trial court’s dismissal of
her petition to divide community property not disposed of in the marital
dissolution decree between her and Paul Robert Wright (“Husband”). For
the reasons that follow, we reverse the trial court’s dismissal and remand
for further consideration.
FACTS
¶2 Husband and Wife were married in 1999. In 2010, they
decided to divorce and employed a third-party mediation service to help
draft a dissolution decree ending the marriage and distributing the couple’s
assets. This decree was entered on March 29, 2011.
¶3 When Husband’s mother passed away in 2009, Husband was
the beneficiary of $500,000 in proceeds from her life insurance policy. Upon
receiving those funds, Husband placed $100,000 into each of two 529
Accounts1 for the couple’s two children. Husband then used the remaining
$300,000 to make loans to his girlfriend and his employer. These loans are
still outstanding. Wife claims that at the time the dissolution decree was
entered, she was unaware of any such loans made by Husband. Wife also
claims that Husband told her these insurance proceeds were an inheritance,
and therefore Husband’s separate property.
¶4 Accordingly, on September 22, 2011, Wife filed a motion to set
aside the decree under Arizona Family Rule of Procedure (“Rule”)
85(C)(1)(c), claiming that Husband made fraudulent misrepresentations,
including misrepresentations about the nature and distribution of the
insurance proceeds, and that she was induced into entering into the decree
as a result. The court held a hearing on Wife’s motion on March 6, 2013.
Explaining that Wife was unable to show that Husband engaged in fraud
or that Wife reasonably relied on any alleged misrepresentations made by
Husband, the family court denied Wife’s motion to set aside the decree in a
signed minute entry filed March 14, 2013.
¶5 On March 28, 2013, Wife filed a separate petition to divide
assets not included in the dissolution decree under Arizona Revised
Statutes (“A.R.S.”) section 25–318(D). In that petition, Wife alleged that the
life insurance proceeds were community property because the insurance
1A 529 Account is a tax-advantaged savings account used to help save
money for college or other post-secondary education.
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Decision of the Court
premiums were paid with community funds. She further contended that
the accounts payable from the outstanding loans made by Husband
constitute community property, and that this community property was not
distributed by the dissolution decree. Husband filed a motion to dismiss
Wife’s petition for failure to state a claim under Rule 32(B)(6), arguing that
the petition was barred by issue preclusion or by claim preclusion. The
family court agreed with Husband, and in a minute entry filed October 23,
2013, it denied Wife’s petition to divide assets as barred by both issue and
claim preclusion.
¶6 Wife timely appealed the family court’s dismissal of her
petition. This court has jurisdiction under A.R.S. § 12-2101(A)(1).
ANALYSIS
I. Issue Preclusion
¶7 Wife argues that the distribution of life insurance proceeds as
community property was never litigated, and that she had no opportunity
or motivation to litigate that issue. As such, she claims that the trial court
erred in applying the doctrine of issue preclusion to dismiss her petition to
divide assets. We review de novo the application of issue preclusion.
Phoenix Newspapers, Inc. v. Dep’t of Corr., 188 Ariz. 237, 240, 934 P.2d 801, 804
(App. 1997).
¶8 Issue preclusion bars re-trial of an issue decided in a previous
lawsuit when there is a common identity of parties, the issue was actually
litigated, a valid, final decision on the merits of the issue was entered, and
the resolution of the issue was essential to the decision. Campbell v. SLZ
Properties, Ltd., 204 Ariz. 221, 223, ¶ 9, 62 P.3d 966, 968 (App. 2003). For an
issue to be actually litigated, the parties must have a “full and fair
opportunity” to argue its merits. Corbett v. ManorCare of America, Inc., 213
Ariz. 618, 626, ¶ 22, 146 P.3d 1027, 1035 (App. 2006). An issue is “actually
litigated” when it is “properly raised by the pleadings or otherwise, and is
submitted for determination, and is determined[.]” Restatement (Second)
of Judgments § 27 cmt. d (1982); see Chaney Bldg. Co. v. City of Tucson, 148
Ariz. 571, 573, 716 P.2d 28, 30 (1986)
¶9 Here, Husband argues that the proper distribution of the life
insurance proceeds was actually litigated, and should have been litigated,
as an issue in the Rule 85 proceedings. It is true that Wife’s claims were
discussed during the March 6 hearing on Wife’s Rule 85 motion. During
that hearing, the court engaged in the following dialogue with Wife’s
attorney:
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Decision of the Court
THE COURT: Your claim here on this cash value is we’re
entitled to $150,000? . . . . Because if it was not an inheritance
it’s community property, correct?
WIFE’S COUNSEL: We are asserting two grounds to set aside
the decree; one is newly --
THE COURT: I -- listen to me. The cash value of a life
insurance, that discrete issue -- your claim is for $150,000,
correct?
WIFE’S COUNSEL: As it -- well, there was $300,000 of
undisclosed assets --
THE COURT: Right.
WIFE’S COUNSEL: -- so it would be for 150, correct.
THE COURT: And you claim -- you claim because it was not
an inheritance, because it was community property --
effectively what you’re saying is this is money that we are
entitled to and we didn’t get, so you want a judgment for
$150,000, right?
WIFE’S COUNSEL: We want the -- we want the opportunity
to set aside the decree and re -- basically retry the issues as to
the financial aspects of the decree. There was additional --
THE COURT: Well, you don’t get a new trial -- if I were to
rule that the evidence today convinces me this was
community property, what stops me from entering a
judgment in your favor for $150,000?
WIFE’S COUNSEL: You --
THE COURT: Why do you need to try that?
WIFE’S COUNSEL: Your Honor, our issue in this case is that
there was -- are there grounds for setting aside this decree as
fraud, misrepresentations and basically omissions that were
made.
THE COURT: Right.
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WRIGHT v. WRIGHT
Decision of the Court
WIFE’S COUNSEL: There was material misrepresentations
that basically made the entire decree as far as the financial
portion --
THE COURT: No, we’re talking about four issues here. You
don’t -- you don’t get to say if I prove any one of these four
issues we throw out the entire decree. What you’re effectively
saying is on the cash value issue is the decree, what the decree
reflects as fraudulently induced, and we’re in effect entitled
to a modification. The modification is we should get $150,000.
Why is that incorrect?
WIFE’S COUNSEL: The misrepresentations also affected the
-- the spousal maintenance and other property --
THE COURT: We’ll get -- we’ll get to those. Those are
different issues.
WIFE’S COUNSEL: Those are the other -- those are the other
financial items we’re looking --
THE COURT: Right.
WIFE’S COUNSEL: -- to set aside.
THE COURT: Right. But why -- you don’t need a –- if I’m
convinced that this is community property, why do you need
a trial to establish that it’s community property?
WIFE’S COUNSEL: Our position is that the entire mediation
would have been different had she been aware that this
money was something she was entitled to.
This discussion about the hypothetical distribution of the insurance
proceeds fell short of actual litigation of that issue. See, e.g., Corbett, 213
Ariz. at 626, ¶ 22, 146 P.3d at 1035. Furthermore, the final ruling of the court
denying Wife’s Rule 85 motion did not account for or determine the proper
distribution of the insurance proceeds. Instead, that ruling, as well as a
subsequent minute entry clarifying the ruling, properly focused on Wife’s
inability to prove that Husband made fraudulent misrepresentations or that
she relied on those misrepresentations when entering into the dissolution
agreement. Wife’s motion for reconsideration following the denial of her
Rule 85 motion similarly focused on Husband’s alleged fraud and
misrepresentation, not on the requested distribution of this particular
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Decision of the Court
property. Accordingly, the characterization and distribution of the life
insurance proceeds was not actually litigated in the Rule 85 proceedings.
¶10 Husband also argues that, even if the issue was not actually
litigated, allowing Wife to bring a separate petition to divide this asset
would impede the finality of this court’s judgments. Although this court
recognizes the public policy of strong respect for the finality of judgments,
Panzino v. City of Phoenix, 196 Ariz. 442, 448, 999 P.2d 198, 204 (2000), Wife’s
action under A.R.S. § 25-318(D) does not challenge the finality of the
dissolution decree as a whole or the denial of her Rule 85 motion, see
Dressler v. Morrison, 212 Ariz. 279, 282, ¶ 16, 130 P.3d 978, 981 (2006).
Instead, such an action seeks to establish rights in property not awarded in
the dissolution decree. Id. at 281, ¶ 12, 130 P.3d at 281. We conclude Wife
is not barred from bringing an action to determine ownership rights in the
asset when she is not challenging the finality of the entire decree.
¶11 Accordingly, the issue of whether the life insurance proceeds
should be distributed as community property was not fully litigated in the
Rule 85 proceedings. Wife did not, and was not required, to litigate the
distribution of the insurance proceeds in the context of a Rule 85 motion.
The court erred in holding that Wife was precluded from bringing a later
petition to divide assets.
II. Claim Preclusion
¶12 Wife also argues that the trial court erred when it held that
her petition to divide was barred by claim preclusion. Claim preclusion
prevents parties from re-litigating an issue once there has been a final
judgment on that matter: “[u]nder the doctrine of claim preclusion, a final
judgment on the merits in a prior suit involving the same parties . . . bars a
second suit based on the same claim.” Dressler, 212 Ariz. at 282, ¶ 15, 130
P.3d at 981. Wife asserts that her petition to divide under § 25-318(D)
presents a claim separate and distinct from the claims in her Rule 85 motion,
thereby making claim preclusion inapplicable. Because a question of law is
presented, we review de novo the application of claim preclusion. Pettit v.
Pettit, 218 Ariz. 529, 531, ¶ 4, 189 P.3d 1102, 1104 (App. 2008).
¶13 We agree with Wife that the legal issues raised by the Rule 85
motion and the petition to divide are separate and distinct. A Rule 85
motion may seek to invalidate a dissolution decree because of the “fraud,
misrepresentation, or other misconduct” of a party to the decree. ARFLP
85(C)(1)(c). This requires that the moving party provide evidence of
fraudulent statements and reasonable reliance on those statements, and the
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Decision of the Court
relief sought is the setting aside of the decree in its entirety. Id. On the other
hand, a petition to divide an undisclosed asset under § 25-318(D) seeks to
establish ownership rights in that property. Such an action requires only
that there be community property which was not disposed of in the
dissolution decree. A showing of fraud is not required, the evidence need
not be newly-discovered, and the claim can be made at any time after the
decree is entered. See Cooper v. Cooper, 167 Ariz. 482, 487, 808 P.2d 1234,
1239 (App. 1990) (dividing assets under § 25-318 even though both parties
knew of the asset at the time the dissolution decree was entered). If a claim
under § 25-318(D) is successful, the terms of the original decree remain in
place, and the court simply provides for the distribution of property in
accordance with the statutory requirements. See Dressler, 212 Ariz. at 282,
¶ 16, 130 P.3d at 981 (explaining that “a separate action to enforce [A.R.S. §
25-318(D)] does not impair the finality of the dissolution decree”).
Accordingly, the two claims are not identical for the purposes of claim
preclusion.
¶14 Husband argues that because the evidence necessary to
support Wife’s claim under § 25-318(D) is identical to what she presented
in support of her Rule 85 motion, Wife’s complaint is barred by claim
preclusion. At oral argument, Husband relied on the “same evidence” test
applied by Arizona courts when determining whether a subsequent claim
is so closely related to an initial claim as to be barred by res judicata. See
Phoenix Newspapers, 188 Ariz. at 240, 934 P.2d at 804. Under that test, a
“plaintiff is precluded from subsequently maintaining a second action
based upon the same transaction, if the evidence needed to sustain the
second action would have sustained the first action.” Restatement of
Judgments § 61 (1942); see Pettit, 218 Ariz. at 532, ¶ 8, 189 P.3d at 1106; see
also Rousselle v. Jewett, 101 Ariz. 510, 513, 421 P.2d 529, 532 (1966) (“The
relevant test is not whether there has been a prior lawsuit, but whether the
same cause of action, or one so closely related that its proof depends on the
same facts, has once been litigated.”)
¶15 In this case, however, we need not employ the same evidence
test to determine whether the claims are distinct. “For an action to be
barred, it must be based on the same cause of action asserted in the prior
proceeding.” Phoenix Newspapers, 188 Ariz. at 240, 934 P.2d at 804. On its
face, an action pursuant to § 25-318(D) is not identical to a motion under
Rule 85. The purpose of an action under § 25-318 is to determine property
rights and ownership. The purpose of an action based on Rule 85 is to set
aside or invalidate a judgment. See supra ¶ 13. It is true that, in order to
prove her claim under § 25-318(D), Wife will be required to present
evidence that was presented at the Rule 85 hearing. The legal conclusions
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Decision of the Court
to be drawn from that evidence, however, are not identical to those required
to sustain a Rule 85 motion. The legal claims are distinct, notwithstanding
the fact that they may be supported by similar factual findings.
¶16 Because Wife’s claims under § 25-318(D) are separate and
distinct from her claims under Rule 85 and her claims under § 25-318(D)
were not actually litigated below, the trial court erred in holding that Wife’s
petition to divide assets was precluded.
III. Attorney Fees
¶17 The family court awarded Father attorney fees upon
dismissal of Wife’s petition. Because we vacate the family court’s dismissal,
we also set aside its award of attorney fees to Father.
CONCLUSION
¶18 We hold only that issue and claim preclusion do not apply to
bar Wife’s petition to divide assets not included in the dissolution decree
under A.R.S. § 25–318(D). We vacate the family court’s denial of Wife’s
petition on those grounds and remand for further proceedings consistent
with this decision. We express no opinion regarding whether Wife is
ultimately entitled to relief.
¶19 Both parties have requested attorney fees on appeal pursuant
to A.R.S. § 25-324. In our discretion, we decline to award fees on appeal.
Wife is entitled to recover statutory, taxable costs upon compliance with
Arizona Rule of Civil Appellate Procedure 21.
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