• July 21, 2009

In a divorce, the ex-husband-to-be made representations as to the value of a business which his ex-wife, after divorce, concluded were false and fraudulent.

Ex-wife settled with ex-husband but continued claims against his lawyer and lawyer’s law firm. The lawyer and firm argued, however, that the ex-wife, in settling her claims with the ex-husband should be foreclosed from bringing a claim against the lawyer and the law firm (i.e., the lawyer and firm invoked res judicata).

In a published split decision, the Minnesota Court of Appeals addressed the question of whether the attorney-client relationship alone constitutes privity for purposes of res judicata, a question of first impression in Minnesota, and reversed the trial court’s finding of res judicata.

The Court of Appeals reviewed the string of federal appellate cases relied on by the district court to find privity (and thus res judicata) between client and lawyer and found an “astounding lack of analysis in the cases reviewed (many of which cite each other as authority).” Contrary to these numerous cases, the Court held that “in an action in Minnesota in which a party and his attorney are each alleged to have committed fraud, the attorney-client relationship does not create per se privity between the client and attorney for purposes of res judicata.”

Judge Schellhas issued a brief dissent, saying in part, “Under the narrow factual circumstances presented here, where the alleged fraud by respondent attorney arose only out of the attorney’s representation of ex-husband, I agree with the district court that the attorney and his law firm were in privity with ex-husband, as a matter of law, such that appellant should be barred by res judicata from relitigating the fraud claim that was earlier fully and fairly tried.”

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