Lynn Beth Baum v. David Baum
333173
| Mich. Ct. App. | Oct 17, 2017Background
- Lynn Beth Baum divorced David Baum; the family court/arbitrator found David transferred about $1.2 million of marital funds to his brother Howard and entities, concluded no enforceable marital debt to Howard existed, and ruled the transfers were fraudulent under UFTA, awarding Lynn a chose in action and 60% of recoveries.
- Before the divorce judgment, Howard sued Lynn and David in circuit court asserting he had made repeated loans to the couple; that contract action was twice dismissed without prejudice for failures in prosecution and was never reinstated.
- After the divorce judgment, Lynn sued Howard, David, and related entities for fraudulent transfers, conversion, unjust enrichment, veil-piercing, RICO, etc.; Howard counterclaimed alleging breach of contract, account stated, and unjust enrichment based on the same alleged loans.
- Lynn moved for summary disposition arguing preclusion: (1) the divorce judgment’s findings that no debt existed and transfers were fraudulent precluded Howard’s counterclaim; and (2) the prior dismissal of Howard’s contract action also precluded his counterclaim.
- The circuit court granted summary disposition to Lynn on the ground that Howard was in privity with David in the divorce action (so res judicata/collateral estoppel barred Howard), but denied relief based on the fact the contract case had been dismissed without prejudice.
- The Court of Appeals reversed the privity/preclusion ruling (holding Howard was not David’s privy and thus not precluded by the divorce judgment) and affirmed that the dismissed contract case did not have preclusive effect; case remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the divorce judgment precludes Howard from relitigating the existence of a debt / fraudulent-transfer issue | Lynn: Family court findings that no marital debt existed and that transfers were fraudulent preclude Howard’s counterclaim (res judicata/collateral estoppel) | Howard: He was not bound by the divorce judgment because he was not a party; he had not been in privity with David during the divorce | Court: Reversed—Howard was not in privity with David; collateral estoppel/res judicata do not bar his counterclaim |
| Whether Howard’s prior circuit-court breach-of-contract action (dismissed without prejudice) precludes his counterclaim here | Lynn: The earlier action was the same claim and should bar relitigation | Howard: Dismissals were without prejudice, not an adjudication on the merits; he retained the right to pursue the claim | Court: Affirmed—dismissal without prejudice is not a merits adjudication and does not preclude relitigation |
Key Cases Cited
- Adair v. Michigan, 470 Mich 105 (2004) (defines privity for res judicata as substantial identity of interests and a working functional relationship)
- Taylor v. Sturgell, 553 US 880 (2008) (limits nonparty preclusion; requires adequate representation and procedural protections for virtual-representation exceptions)
- Monat v. State Farm Ins. Co., 469 Mich 679 (2004) (elements of collateral estoppel: issue actually litigated and decided, same parties or privies had full and fair opportunity, and mutuality/binding effect)
- Grimmer v. Lee, 310 Mich App 95 (2015) (dismissal without prejudice is not an adjudication on the merits for res judicata purposes)