United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 08-2264

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Julie Rutherford, *

*

Appellant, *

*

v. *

* Appeal from the United States

Dean Kessel, * District Court for the

* District of North Dakota.

Appellee, *

*

Robert Rutherford; Elizabeth *

McGregor, *

*

Defendants. *

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Submitted: December 12, 2008

Filed: March 30, 2009

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Before WOLLMAN, BYE, and RILEY, Circuit Judges.

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BYE, Circuit Judge.

Julie Rutherford brought this action to quiet title in three condominium

properties she claims to own. These properties were the subject of a North Dakota

state trial court order entered against Rutherford's brother, Robert Rutherford. Such

order held the transfers of ownership between the brother and sister were fraudulent
1

The Honorable Daniel L. Hovland, Chief Judge, United States District Court

for the District of North Dakota.

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and therefore null and void. Rutherford appeals the district court's1

 determination that

her quiet title action is barred by the doctrine of res judicata. We affirm.

I

On May 27, 2004, Robert Rutherford assaulted Dean Kessel in the latter's home

in Bismarck, North Dakota. Robert was charged with burglary and assault, convicted,

and sentenced to serve four years. Kessel brought a civil action in state court against

Robert for the injuries suffered in the assault. At the outset of the civil action, the

state trial court entered an order enjoining Robert from disposing of his assets. Near

the same time, Kessel discovered three condominiums recorded as being owned by

Robert. On September 21, 2004, Kessel filed and recorded a lis pendens against the

properties, giving notice that a personal injury action had been filed against Robert

and that title to the properties could be affected by a judgment in such action.

In August 2005, Robert informed his sister, Julie, of the civil action brought

against him by Kessel. On October 15, 2005, while Robert was incarcerated, he

appointed Julie his attorney-in-fact. In December 2005, acting pursuant to her

appointment, Julie executed warranty deeds transferring the three condominium

properties to herself. The deeds recorded by Julie show her both as grantor (via her

power of attorney) and as grantee. Julie contends, however, her actual ownership of

two of the properties dates back to February 2000 and February 2001. At those times,

two deeds were recorded showing Robert as the legal title holder, but Julie contends

she was the actual owner. She claims Robert did not provide any consideration for the

deeds and only held legal title in trust for her benefit. With respect to the third

property, Julie contends Robert granted her a security interest in the property in

February 2000 to secure obligations owed to her by him. She contends the December
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2005 transfers pursuant to her power of attorney were to fulfill expressed or implied

agreements between herself and her brother regarding her actual ownership of the

properties.

The personal injury action proceeded to trial in April 2006. During the course

of the trial, Julie sat at defense counsel's table as her brother's representative; he was

still incarcerated. Acting pursuant to her power of attorney, she also controlled certain

aspects of the litigation, such as paying attorney fees. When documentation was

introduced showing Robert owned the three condominium properties, Julie said

nothing about her alleged ownership. The jury found in favor of Kessel and awarded

damages. On April 27, 2006, the state trial court entered a judgment in Kessel's favor

in the amount of $240,415.47, plus interest.

Following the trial, both Kessel and the Rutherfords brought post-judgment

motions. Of particular note, on September 28, 2006, Kessel brought an ex parte

motion to set aside the December 2005 transfers of the three condominium properties,

alleging the transfers were fraudulent. The state trial court granted the motion,

holding that the transfers were null and void and title to the properties remained with

Robert. On October 2, 2006, Kessel provided Robert with notice of the order. Robert,

in turn, forwarded the notice to his sister's attorneys, who received it on October 6,

2006. On that same day, Robert appealed the judgment entered against him in state

trial court to the North Dakota Supreme Court, and Julie filed her quiet title action in

federal district court. The North Dakota Supreme Court subsequently affirmed the

judgment of the state trial court. Kessel v. Rutherford, 734 N.W.2d 342 (N.D. 2007)

(unpublished table disposition).

In the quiet title action, Kessel brought a motion for summary judgment. Kessel

contended, in part, Julie was improperly attempting to seek relief from the ex parte

order of the state trial court and should be barred from doing so because she was in

privity with her brother as a result of the power of attorney to act on his behalf. The
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district court initially denied Kessel's motion, concluding Julie's claims of a property

interest in the three condominium properties was not identical to the issues decided

in the state trial court's ex parte order. In addition, the district court found Julie was

not in privity with her brother, but acknowledged it was a "close question."

After conducting discovery, which included taking Julie's deposition during

which she admitted sitting silently in court when the issue of Robert's ownership of

the three condominiums was discussed, Kessel filed a second motion for summary

judgment. He renewed his argument that Julie should be precluded from challenging

the state trial court's order voiding the transfers of the properties as fraudulent. The

district court revisited Kessel's preclusion arguments, this time finding Julie was in

privity with her brother and concluding the quiet title action was barred by the

doctrine of res judicata. Rutherford v. Rutherford, 552 F. Supp. 2d 980, 989-90 (D.

N.D. 2008). Julie filed a timely appeal to this court.

II

The district court's grant of summary judgment on the issue of res judicata is

reviewed de novo. Morse v. Comm'r, 419 F.3d 829, 833 (8th Cir. 2005). For a claim

to be precluded under the doctrine of res judicata due to a determination reached in

a prior lawsuit, five elements must be satisfied. Those elements are:

(1) the first suit resulted in a final judgment on the merits; (2) the first

suit was based on proper jurisdiction; (3) both suits involve the same

parties (or those in privity with them); and (4) both suits are based upon

the same claims or causes of action. Furthermore, the party against

whom res judicata is asserted must [(5)] have had a full and fair

opportunity to litigate the matter in the proceeding that is to be given

preclusive effect.
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Costner v. URS Consultants, Inc., 153 F.3d 667, 673 (8th Cir. 1998) (internal citations

and quotations omitted). Julie contends none of these five elements are present in this

case, and thus we examine them seriatim.

A. Final Judgment on the Merits

This element is satisfied. The state court action resulted in a final judgment on

the merits. A jury awarded Kessel $240,415.47 plus interest, and a judgment was

entered in his favor in that amount. Rutherford appealed the judgment to the North

Dakota Supreme Court, and it was affirmed. See Kessel v. Rutherford, 734 N.W.2d

342 (N.D. 2007). 

Robert did not specifically appeal the ex parte order setting aside the transfer

of the three condominium properties. Relying upon N.D. Cent. Code § 28-27-02(7),

Julie argues the order was not appealable due to its ex parte nature. The statute states

in part: "An order made by the district court or judge thereof without notice is not

appealable[.]" N.D. Cent. Code § 28-27-02(7). The statute, however, goes on to state:

[B]ut an order made by the district court after a hearing is had upon

notice which vacates or refuses to set aside an order previously made

without notice may be appealed to the supreme court when by the

provisions of this chapter an appeal might have been taken from such

order so made without notice, had the same been made upon notice.

Id.

Thus, after receiving notice of entry of the ex parte order, Robert could have

asked the district court to vacate or set aside the ex parte order. If the district court

refused to do so, he could have then appealed the second order. See Beck v. Smith,

296 N.W.2d 886, 888 (N.D. 1980) ("Although an ex parte order is not appealable the

party against whom it is issued can move the district court to vacate the ex parte order,
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and the court's order denying such motion may then be appealable under the terms of

Section 27-28-02(7)."); see also Prod. Credit Ass'n of Minot v. Schlak, 383 N.W.2d

826, 828 (N.D. 1986) ("The terms of Section 28-27-02 prohibit the appeal of an ex

parte order and require an unsuccessful party to obtain a decision based on traditional

adversarial methods, either on a motion to vacate the order or on a motion for

reconsideration.").

After receiving notice of the ex parte order, Robert failed to request a hearing

on the matter, or to ask the district court to vacate the order. If he had done so, he

could have appealed the order. Having failed to request a hearing, and consequently

having failed to appeal the order, Robert is bound by the judgment entered in the state

court suit with respect to the issue of the fraudulent transfers of the condominiums.

B. The State Trial Court's Jurisdiction

Julie contends the state trial court lacked jurisdiction, within the context of the

tort suit between her brother and Kessel, to decide whether the transfer of the three

condominium properties was fraudulent. Relying upon North Dakota statutory law

relating to the execution of judgments, she argues a separate "action" is required to

determine whether she has title to the three properties. See N.D. Cent. Code § 28-25-

14 (governing the procedure on adverse claims and indicating property claims adverse

to a judgment debtor are "recoverable only in an action against such person [brought]

by the receiver") (emphasis added); N.D. Cent. Code § 13-02.1-07(1) (governing the

remedies of creditors under the Uniform Fraudulent Transfer Act and referring to "an

action for relief against a transfer") (emphasis added). She also relies upon a passage

from an 1889 decision of the Supreme Court of Dakota (presiding over the Dakota

territories before North and South Dakota became states) which discussed the

difference between proceedings supplementary to execution of a judgment under the

Code of Civil Procedure and a creditor's bill sustainable in a court of chancery. See

Feldenheimer v. Tressel, 43 N.W. 94, 96 (Dakota 1889) ("[T]he question of title
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cannot be summarily disposed of by the court or judge before whom the proceedings

[supplementary to execution] may be pending. Such questions must be adjudicated

and determined by an action brought for that purpose.") (emphasis added).

The issue in Feldenheimer was whether post-judgment motions to execute on

a judgment entirely supplanted the right of a judgment creditor to bring a separate

action – similar to a creditor's bill historically allowed in a court of equity – to

challenge a fraudulent transfer. In other words, Feldenheimer involved the opposite

of what occurred here. Here, Kessel obtained a judgment at law against Robert

Rutherford and then brought a post-judgment motion in the same action to challenge

a fraudulent transfer. In Feldenheimer, the judgment creditor obtained a judgment at

law against the defendant and then brought a separate action to challenge a fraudulent

transfer. The defendant responded by claiming the judgment creditor's only remedy

was to do what Kessel did in this case, i.e., bring a post-judgment motion in the suit

at law (a proceeding supplementary to execution) to challenge the fraudulent transfer.

The Supreme Court of Dakota rejected the argument, holding the judgment creditor

could bring a separate action similar to a creditor's bill historically brought in

chancery court. The court emphasized the fact, however, that both choices for

remedies were available to the judgment creditor: "[S]upplemental proceedings . . . in

many respects . . . may serve as a substitute for a creditor's bill [but] they are by no

means the exclusive remedy to which the creditor may resort. He may still have his

creditor's suit." Feldenheimer, 43 N.W. at 96.

North Dakota, like most states, has a unified court system. Claims which were

historically viewed as equitable ones, such as a creditor's bill to set aside a fraudulent

transfer, are brought in the same court as those claims historically brought in a court

of law, such as a personal injury tort claim. Thus, the state trial court clearly had

jurisdiction over Kessel's personal injury claim, as well as his fraudulent transfer

claim, as both of those causes of action would be filed in the state district courts.
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North Dakota law did not prohibit Kessel from adjudicating both of his causes

of action against Robert (the tort claim and the fraudulent transfer claim) in the same

lawsuit. The North Dakota Rules of Civil Procedure provide "[a] party may also state

as many separate claims or defenses as the party has [in a single action], regardless of

consistency and whether based on legal or on equitable grounds or on both." N.D. R.

Civ. P. 8(e)(2).

A majority of courts allow a tort plaintiff to challenge a tortfeasor's allegedly

fraudulent transfer of property in the same action as the tort suit. See Travelers

Indem. Co. v. Rubin, 551 A.2d 1220, 1223 (Conn. 1988) ("The plaintiff . . . could

incorporate in a single complaint a claim for damages in tort and a petition that a

fraudulent conveyance made to defeat her claim be set aside."); Downs v. Powell, 108

S.E.2d 715, 718 (Ga. 1959) (holding a tort plaintiff "may proceed in one action against

the tortfeasor and the grantee in such voluntary deed, to obtain (1) a judgment for

damages against the tortfeasor for the negligent tortious homicide of her child, and (2)

a decree adjudging null and void as to her conveyances of real and personal property

executed by the defendant tortfeasor subsequently to the commission of the tort.");

Rachal v. Balthazar, 32 So.2d 483, 484 (La. Ct. App. 1947) (involving a case in which

a fraudulent conveyance was set aside in favor of a plaintiff in the same lawsuit as the

tort action brought by the plaintiff against the tortfeasor/fraudulent conveyor);

Exchange Nat'l Bank of Tulsa v. Washington, 30 N.Y.S.2d 43, 45 (N.Y. Sup. Ct.

1941) ("[C]reditors may now assail fraudulent conveyances without first obtaining a

judgment, and may assail them in the same suit in which they seek to establish their

debt[.]"); McMakin v. Stratton, 1884 WL 7369, at *3 (Ky. Ct. App. 1884) ("It is

certain that the appellee . . . had the right to combine with his prayer for [a tort]

judgment the further prayer for subjecting the property fraudulently conveyed to the

payment of his debt."); see also Right of Tort Claimant, Prior to Judgment, to Attack

Conveyance or Transfer as Fraudulent, 73 A.L.R.2d 749 § 4[a] (discussing those cases

in which courts allowed an action for damages to be combined with a claim to set

aside a fraudulent conveyance).
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Thus, we reject Julie's contention the state trial court lacked jurisdiction over

Kessel's fraudulent transfer claim simply because Kessel did not bring the cause of

action in a separate lawsuit.

C. Same Parties or Privies

Julie next contends she was not in privity with her brother with respect to the

state trial court's order concluding the transfer of the three condominium properties

was fraudulent. We disagree.

In general, privity exists if a person is so identified in interest with

another that he represents the same legal right. . . . [Res judicata applies

to] a person who is not technically a party to a judgment, or in privity

with him, but who is, nevertheless, connected with it by his interest in

the prior litigation and by his right to participate therein, at least where

such right is actively exercised by prosecution of the action, employment

of counsel, control of the defense, filing of an answer, payment of

expenses or costs of the action, the taking of an appeal, or the doing of

such other acts as are generally done by parties. Fundamental fairness

underlies any determination of privity.

Hofsommer v. Hofsommer Excavating, Inc., 488 N.W.2d 380, 384 (N.D. 1992)

(internal citations and quotations omitted).

As the district court recognized, Julie was in privity with her brother Robert

with respect to Kessel's tort suit. Robert granted her a power of attorney to act in his

regard. The transfer of property between Robert and Julie was undertaken by Julie

acting in her capacity as Robert's representative. Julie had the right to participate in

the Kessel tort suit pursuant to the power of attorney, and did so. She acted as

Robert's representative by sitting at defense counsel's table during the entire civil trial

in state court. She also paid the attorney fees incurred in defense of the tort suit.

Finally, with respect to the issue of "fundamental fairness" underlying a determination
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of privity, the district court found it significant that Julie "was present in the

courtroom when documentation was presented which showed that Robert Rutherford

owned the condominiums referenced as Parcels 1, 2, and 3 [and] [i]f ownership of the

condominiums had in fact changed, Julie Rutherford had an obligation to 'set the

record straight' rather than allow her brother to testify falsely." Rutherford, 552 F.

Supp. 2d at 986.

Citing Bismarck Public School District No. 1. v Hirsch, 136 N.W.2d 449 (N.D.

1965), Julie argues a grantee is no longer in privity with her grantor upon the delivery

of a deed. That is not the holding in Hirsch. The principle of law recognized in

Hirsch is that "one is not a privy to a judgment where his succession to the rights of

property thereby affected occurred previous to the institution of the suit." Hirsch, 136

N.W.2d at 452 (emphasis added). The holding in Hirsch is irrelevant to this case. The

judgment at issue is the judgment Kessel obtained against Robert in the tort suit. The

tort suit was initiated on September 19, 2004. The transfer of property between Julie

and Robert did not occur prior to the institution of the tort suit, but afterwards, on

December 2, 2005. Thus, the district court did not err in determining that Robert and

Julie were in privity.

D. Same Claims or Causes of Action

Julie next contends that her quiet title action does not involve the same claims

or causes of action adjudicated in Kessel's tort claim. We disagree. The question of

whether Julie's quiet title action is precluded by the state trial court's order "turns on

whether its claims arise out of the same nucleus of operative facts as the prior claim."

Costner, 153 F.3d at 677 (internal quotations and citations omitted). The issue Julie

wants to adjudicate in her quiet title action concerns her alleged ownership in the three

condominium properties. That is the same issue adjudicated in the state trial court's

order declaring null and void the transfers between Robert to Julie. Both suits would

involve the validity of the unilateral conveyance Julie constructed in the midst of the
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personal injury lawsuit between Kessel and her brother. This is precisely the type of

collateral attack upon a prior court's decision which the doctrine of res judicata bars.

E. Notice and Opportunity to be Heard

Finally, Julie contends she did not have an opportunity to be heard in the state

trial court with respect to her claim to title to the three condominium properties. The

issue, however, is not whether Julie had an opportunity to be heard in the state trial

court on this matter, but whether her brother had notice and an opportunity to be

heard. The doctrine of res judicata bars both parties and their privies from relitigating

an issue already decided by a prior court. Thus, as long as Robert had notice and an

opportunity to be heard on the issue of the fraudulent transfer, Julie is also barred from

relitigating the issue because Julie was in privity with her brother.

The ex parte nature of Kessel's fraudulent transfer motion is troubling. There

does not appear to be any emergency, or other reason, which justified bringing the

motion ex parte. Robert was, however, given notice of the entry of the order and had

an opportunity to be heard on the issue by moving to vacate the order or bringing a

motion for reconsideration. See Schlak, 383 N.W.2d at 828. He did not avail himself

of these opportunities, and the state trial court's order became binding against him

when the North Dakota Supreme Court affirmed the judgment. Furthermore, Julie had

actual notice of the entry of the order. Pursuant to her power of attorney, she also

could have brought a motion to vacate the order or a motion for reconsideration in her

capacity as her brother's representative. As a consequence, we conclude Robert had

notice and an opportunity to be heard on the issue of the fraudulent transfer in the state

trial court. Robert is therefore barred from relitigating the issue, and because Julie is

in privity with her brother she is also barred from relitigating the issue.
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III

All of the elements of the doctrine of res judicata are satisfied in this case. We

therefore affirm the judgment of the district court in all respects.

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