Linda S. Kahn v. Farrell Kahn , 21 F.3d 859 ( 1994 )

21 F.3d 859

Linda S. KAHN, Appellant,
v.
Farrell KAHN, Appellee.

No. 93-3248.

United States Court of Appeals,
Eighth Circuit.

Submitted March 16, 1994.
Decided April 21, 1994.

Francis G. Slay, St. Louis, MO, argued (Jim J. Shoemake, on the brief), for appellant.

Alan C. Kohn, St. Louis, MO, argued (John A. Klobasa, on the brief), for appellee.

Before BEAM, Circuit Judge, BRIGHT, Senior Circuit Judge, and MORRIS SHEPPARD ARNOLD, Circuit Judge.

BRIGHT, Senior Circuit Judge.

1

Linda Kahn (Linda) appeals from the district court's entry of summary judgment in favor of her ex-husband, Farrell Kahn (Farrell), holding Linda's claims for breach of fiduciary duty, conversion, constructive fraud and fraud barred by res judicata. The present action, seeking tort damages and an accounting, involves allegations of wrongful conduct that occurred in the course of the marital relationship and that are inextricably intertwined with those issues subject to the parties' previously adjudicated dissolution proceeding. Consequently, we hold that the domestic relations exception to diversity of citizenship jurisdiction applies and precludes the exercise of federal jurisdiction.1 We dismiss the appeal and direct the district court on remand to dismiss the action for lack of subject matter jurisdiction.

I. BACKGROUND

2

Linda filed for divorce after almost thirty years of marriage. She alleged various improprieties as to Farrell's marital conduct, which generally included extramarital affairs, procuring loans secured by marital property and Linda's property without Linda's permission, misappropriating the net profits from the sale of Linda's separate property, converting funds and failing to render an accounting. Citing the aforesaid conduct, Linda's counsel requested that the court award Linda a "heavily disproportionate share of the marital property." Tr. on Appeal, Dissolution Proceeding (Oct. 9, 1990), Vol. I, at 27. Trial of the dissolution action took nine days. Thereafter, on April 12, 1991, the Circuit Court of St. Louis County issued a Second Amended Decree of Dissolution, distributing the property at issue as follows:

3

Petitioner Linda Kahn         Amount  Respondent Farrell Kahn        Amount
A.  Separate Property       1,187,593  A. Separate Property            7,100
B. Marital Property        4,224,423  B. Marital Property         3,743,518
C. Debt Allocation           220,625  C. Debt Allocation            937,341
NET MARITAL PROPERTY       4,003,798  NET MARITAL PROPERTY        2,806,177
% of Net Marital Property       58.8   % of Net Marital Property       41.2
----------

4

Appellant's App. at 100. The Missouri Court of Appeals affirmed the circuit court's decree. Kahn v. Kahn, 839 S.W.2d 327 (Mo.Ct.App.1992).

5

Linda brought the instant action against her ex-husband on January 15, 1992, in the United States District Court for the Eastern District of Missouri. Linda's four-count complaint alleged that Farrell committed the following torts: breach of fiduciary duty, fraud, constructive fraud and conversion. The complaint asserted essentially the same conduct as set forth in the dissolution petition.2 Linda sought both compensatory and punitive damages and an accounting. The district court granted Farrell's motion for summary judgment, concluding that, based upon the previous dissolution action, res judicata barred litigation of the tort claims. Kahn v. Kahn, No. 4:92CV00063-JCH, slip op. at 11 (E.D.Mo., Aug. 2, 1993).

II. DISCUSSION

6

The domestic relations exception, first articulated in Barber v. Barber, 62 U.S. (1 How.) 582, 584, 16 L. Ed. 226 (1859), divests the federal courts of jurisdiction over any action for which the subject is a divorce, allowance of alimony, or child custody. Ankenbrandt v. Richards, --- U.S. ----, ----, 112 S. Ct. 2206, 2215, 119 L. Ed. 2d 468 (1992). In addition, as observed previously, ante n. 1, when a cause of action closely relates to but does not precisely fit into the contours of an action for divorce, alimony or child custody, federal courts generally will abstain from exercising jurisdiction. In the case at bar, we determine that Linda's claims for relief, although drafted to sound in tort, are so inextricably intertwined with the prior property settlement incident to the divorce proceeding that subject matter jurisdiction does not lie in the federal court.

7

Missouri law establishes a statutory procedure for divorce, in which "the circuit court shall enter a decree of dissolution if " (1) certain residency requirements are met, (2) the marriage is irretrievably broken and (3) "[t]o the extent it has jurisdiction to do so, the court has considered, approved, or made provision for child custody, the support of any child of the marriage who is entitled to support, the maintenance of either spouse, and the disposition of property." Mo.Ann.Stat. Sec. 452.305.1 (Vernon 1986) (emphasis added).

8

The division of property incident to Missouri's statutory dissolution action, requires consideration of

9

all relevant factors including:

10

(1) The economic circumstances of each spouse at the time the division of property is to become effective, including the desirability of awarding the family home or the right to live therein for reasonable periods to the spouse having custody of any children;

11

(2) The contribution of each spouse to the acquisition of the marital property, including the contribution of a spouse as homemaker;

12

(3) The value of the nonmarital property set apart to each spouse;

13

(4) The conduct of the parties during the marriage; and

14

(5) Custodial arrangements for minor children.

15

Mo.Ann.Stat. Sec. 452.330.1 (Vernon Supp.1993) (emphasis added). In addition, the distribution of marital property is relevant to whether the trial court awards alimony as well as the amount to be awarded. Sec. 452.335.2(1) (Vernon Supp.1993). Accordingly, the distribution of marital property is intricately related to the divorce determination and the issue of alimony.

16

Although the division of property under Sec. 452.330.1 does not necessarily require the same proof to support a damages award based on the torts of breach of fiduciary duty, fraud, constructive fraud and conversion3, cf. Nebbitt v. Nebbitt, 589 S.W.2d 297, 300 (Mo. banc 1979) (divorce action does not affect spouse's right to sue for conversion of property), here the evidence proffered in both proceedings is the same and involves conduct that occurred exclusively throughout the duration of the marital relationship. That Linda received property in the dissolution proceeding in part based on the wrongful conduct constituting the intentional torts is relevant to any award of damages based on that same conduct.4 By necessity then, proof of Linda's tort claims would require that the district court inquire into matters directly relating to the marital relationship or the property settlement. Compare Gonzalez Canevero v. Rexach, 793 F.2d 417, 418-19 (1st Cir.1986) (domestic relations exception applied to suit for money damages or partition order relating to half interest in corporation controlled by ex-husband) and Csibi v. Fustos, 670 F.2d 134, 138 (9th Cir.1982) (domestic relations exception prevented exercise of jurisdiction over action seeking to establish rights between two women claiming to be intestate's surviving spouse) with Lannan v. Maul, 979 F.2d 627, 631 (8th Cir.1992) (district court erroneously invoked domestic relations exception to preclude jurisdiction over action for breach of contract by child's conservator seeking from trustees insurance proceeds paid on father's insurance policy) and Lloyd v. Loeffler, 694 F.2d 489, 493 (7th Cir.1982) (domestic relations exception inapplicable to tort action for wrongful interference with child custody).

17

Based upon our determination that the district court did not have subject matter jurisdiction, we do not express any opinion as to the merits of Linda's tort claims against Farrell, or whether the prior dissolution action bars said claims from being brought in the state court. Appeal dismissed and case remanded to the district court to enter a dismissal of the action without prejudice, for lack of subject matter jurisdiction.

18

                           ADDENDUM
First Amended Petition          Federal Complaint
for Dissolution
6. From the beginning and
15.  From the beginning of the   throughout the duration of the
marriage, Respondent assumed    couple's marriage, defendant,
exclusive responsibility for    who was experienced in business
and control of the business     matters, assumed exclusive
affairs of the family and has   control over and responsibility
continued to do so throughout   for the couple's business
the marriage.  In 1979, at the   affairs and managed the
request of Respondent,          couple's properties and
Petitioner executed two         finances.
separate powers of attorney
....
---------------------------------------------------------------
---------------------------------------------------------------
16.  By virtue of the powers of  9. On April 16, 1979,
attorney, Respondent has        plaintiff, at defendant's
maintained and been in control  request, signed two separate
of all transactions involving   powers of attorney,....
the purchase and sale of
assets, of all bank accounts
containing marital monies and
Petitioner's separate monies.
All financial and business
records of marital assets and
Petitioner's separate assets
have been maintained by him and his
employees.
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17. As a result of                     28.  As a result of plaintiff's
Petitioner's granting the              granting the aforesaid powers
aforesaid powers of attorney to        of attorney to defendant, plaintiff and
Respondent, she and Respondent         defendant stood in a fiduciary
stood in a fiduciary relationship,     relationship under which defendant
under which Respondent owed the        owed the following duties and
following obligations to               obligations to plaintiff:
Petitioner:
(a) to be perfectly frank with           (a) to make full disclosure to
Petitioner; (b) to make full           plaintiff of all material facts about
disclosure of all material facts       business transactions concerning the
about business transactions to         use and disposition of the couple's
Petitioner;                            funds and assets, plaintiff's separate
funds and assets, and borrowed funds,
including the Bank borrowings and his
use
(c) to strictly avoid                  and disposition of the proceeds from the
misrepresentation to Petitioner;       sale of the Lindbergh Property;
(d) in all respects to act               (b) to strictly avoid
with the utmost good faith,            misrepresentation to plaintiff;
fidelity and loyalty to
Petitioner;                              (c) in all respects to act
with the utmost good faith,
(e) to engage in business              fidelity and loyalty to
transactions which were in             plaintiff;
Petitioner's best interest;
(d) to engage in business
(f) to place Petitioner's              transactions which were in
interest above all others,             plaintiff's best interest;
including Respondent's;
(e) to place plaintiff's
(g) to invest borrowed money only for  interest above all others, including
purposes which were in Petitioner's    defendant's;
interest;
(f) to use borrowed funds
(h) to invest marital funds and        only for purposes which were in
Petitioner's separate funds with       plaintiff's interests;
prudence and care, avoiding undue      (g) to invest the couple's funds and
risk and speculation;                  plaintiff's separate
funds with prudence and care,
(i) to keep adequate and                avoiding undue risks and
accurate records of financial           speculation;
transactions; and
(h) to keep adequate and
(j) to account to Petitioner            accurate records of financial
for his use and disposition of          transactions; and
marital funds, her separate
funds and borrowed funds.                 (i) to account to plaintiff
for his use and disposition of
the couple's funds and assets,
plaintiff's separate assets, and
borrowed funds.
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18. Respondent breached his             29.  Defendant breached his
fiduciary duties to Petitioner          fiduciary duty to plaintiff in
in the following respects, all          at least the following
of which should be taken into           respects:
account by the Court in the
allocation of property between the      .... (b) After 1984, defendant
parties and the awarding of             increased the indebtedness to the
permanent maintenance to Petitioner:    Bank from $898,000.00 to the
.... F. Respondent procured loans       aggregate amount of $1,398,000.00,
from Royal Bank in the aggregate        secured by the couple's assets by
amount of $1,398,000,00 [sic],          signing plaintiff's name on the
secured by marital assets and           collateral pledge notes and other
Petitioner's separate assets.           loan documents all without notifying
Respondent has not made a full          plaintiff and without plaintiff's
accounting to Petitioner of his use     knowledge, authorization or consent;
and disposition of the proceeds of      ....
these loans.                              (f) Defendant failed to
account to plaintiff for his
use and disposition of the
proceeds from the Bank loans
and the sale of the Lindbergh
Property.
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-------------------------------------------------------------------------------
18H. In 1985, Respondent                14.  Subsequent to the
caused $1,000,000.00 of the             plaintiff notifying defendant
proceeds of the sale of certain         of her desire not to be part of
real estate which was                   any further borrowings,
Petitioner's separate property          plaintiff sold certain real
to be deposited in accounts in          estate, consisting of ... the
his name at Drexel, Burnham & Lambert.  "Lindbergh Property."
Subsequently,
Respondent withdrew nearly all of said  .... 29(c) Defendant failed to use ...
funds.  He has failed to fully           the proceeds from the sale
account to Petitioner for the use
and disposition of
said funds                 of the Lindbergh Property in plaintiff's best
interest, but instead used the proceeds for his
own personal benefit to support his extravagant
lifestyle, and speculative, imprudent and
unprofitable business ventures;
29(d) Defendant misrepresented to plaintiff his use
of the proceeds from the sale of the Lindbergh
Property;
....
29(f) Defendant failed to
account to plaintiff for his
use and disposition of the
proceeds from ... the sale of
the Lindbergh Property.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
18M. On July 5, 1988,      48.  In or around October of
Petitioner revoked any     1988, approximately three
and all
powers of attorney she     months after plaintiff revoked
had
previously signed.         any and all powers of attorney previously signed by
Thereafter Respondent      her, defendant, against plaintiff's will and in
misappropriated            open defiance to plaintiff's ownership and right
approximately $52,250      to possession of said funds, did convert said
from the checking          funds to his own use by affixing plaintiff's
account at Royal Bank      facsimile signature to checks drawn on said
in Petitioner's name by    account at the Bank in the total amount of
affixing Petitioner's      $52,250, which was the total balance of said
facsimile signature to     account at the time, thereby closing out the
checks drawn on that       account, all without plaintiff's knowledge,
account, despite the       authorization or consent.  Defendant has refused
revocation of the          and failed to return said funds to plaintiff.
powers of attorney.  He
has failed to account
to Petitioner for the
use and disposition of
these funds.

19

Appendix at 6-8, 15-17, 23-24, 82-83, 85-88.

1

We recognize that at least one of our sister circuits, and some legal commentators, speak of abstention when invoking the domestic relations exception. See, e.g., Congleton v. Holy Cross Child Placement Agency, Inc., 919 F.2d 1077, 1079 n. 3 (5th Cir.1990); Rebecca E. Swenson, Note, Application of the Federal Abstention Doctrines to the Domestic Relations Exception to Federal Diversity Jurisdiction, 1983 Duke L.J. 1095 (Nov.1983); Anthony B. Ullman, Note, The Domestic Relations Exception to Diversity Jurisdiction, 83 Colum.L.Rev.1824 (Nov.1983). Courts generally use abstention in the context of a dispute relating to domestic relations when the controversy does not fall within the exact purview of divorce, alimony or child custody, but instead is closely related. See Lannan v. Maul, 979 F.2d 627, 631 (8th Cir.1992); Gonzalez Canevero v. Rexach, 793 F.2d 417, 418 (1st Cir.1986); Csibi v. Fustos, 670 F.2d 134, 137 (9th Cir.1982)

2

See Addendum for a comparison of the pleadings in both the dissolution action and the case at bar, which illuminates the extent to which the state and federal cases are interrelated

3

Missouri law recognizes as a separate cause of action a suit based upon injuries intentionally inflicted by one spouse against the other, Townsend v. Townsend, 708 S.W.2d 646, 650 (Mo. banc 1986), whether the damages incurred are to property or person

4

Although the state trial court did not make factual findings or set forth the bases for the property distribution, the Missouri Court of Appeals in Kahn, 839 S.W.2d at 331, stated that "we presume the trial court considered all the evidence in dividing the marital property."