Opinion ID: 2975680
Heading Depth: 4
Heading Rank: 2

Heading: Living Care Kirkersville

Text: Analyzing whether Living Care Kirkersville is bound by the courts’ prior adjudications in Living Care Utica I/II gives rise to considerations different from those for Living Care Utica. Living Care Kirkersville presents an identical set of claims in challenging the IRS Appeals Office decision as did Living Care Utica. (Kirkersville J.A. 6-11). In adjudicating Living Care Kirkersville’s appeal of the decision, the district court concluded that it was in privity with Living Care Utica. The judge noted, and it is undisputed, that Rosser is the sole shareholder and officer of both Living Care Kirkersville and Living Care Utica and that Rosser represented both companies in the CDP hearings. But Living Care Kirkersville maintains that the district court erred in finding that it was in privity with Living Care Utica and thereby proceeding to apply collateral estoppel principles. And, unlike the district court in Living Care Utica III/IV, the district court in Living Care Kirkersville applied collateral -17- estoppel to all of the claims, including the second claim concerning the refinancing. This issue was not presented in the prior litigation, and collateral estoppel should not be applied, as noted by the district court in Living Care Utica III/IV. (Utica J.A. 208). Collateral estoppel is “not generally applicable unless there exists either identity or privity between the parties to the relevant litigation. The person being estopped from relitigating an issue must have been either a party to the prior lawsuit or have been so closely related to the interest of the party to be fairly considered to have had his day in court.” Mitchell Inv. Co. v. Fed. Sav. & Loan Ins. Corp., 741 F.2d 107, 110 n.9 (6th Cir. 1984) (citing In re Gottheiner, 703 F.2d 1136, 1140 (9th Cir. 1983)). Montana suggests that whether one is in “privity” with a prior party so as to be collaterally estopped from relitigating issues is driven by that person’s involvement in the prior litigation. In particular, can the interests of common-law adjudication fairly be said to be implicated as to that person; namely, protecting adversaries from the inconvenience and expense of multiple suits, conserving judicial resources, and minimizing the possibility of inconsistent decisions thereby fostering reliance on judicial action, where a party has had a full and fair opportunity to litigate. Montana, 440 U.S. at 153-54. These interests are similarly implicated when nonparties assume control over litigation in which they have a direct financial or proprietary interest and then seek to redetermine issues previously resolved. . . . [T]he persons for whose benefit and at whose direction a cause of action is litigated cannot be said to be “strangers to the cause. . . . [O]ne who prosecutes or defends a suit in the name of another to establish and protect his own right, or who assists in the prosecution or defense of an action in aid of some interest of his own . . . is as much bound . . . as he would be if he had been a party to the record.” -18- Id. at 154 (quoting Souffront v. Compagnie des Sucreries, 217 U.S. 475, 487 (1910)). As this Court has previously noted, “‘Privity’ is an ambiguous term, a shorthand designation for those persons who have a sufficiently close relationship with the record parties to be bound by the judgment.” Vulcan, 658 F.2d at 1109 (internal quotation and citation omitted). There are three categories of privity recognized in this Circuit: (1) “successors in interest to a party will be bound by a judgment against that party”; (2) “a nonparty who controlled the original suit will be bound by the resulting judgment”; or (3) “a nonparty who is adequately represented by a party will also be precluded from relitigating the same issues.” Becherer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 193 F.3d 415, 422 (6th Cir. 1999). The first category does not apply in this case. The Government argues that Living Care Kirkersville’s claims are barred by the doctrine of collateral estoppel because it and Living Care Utica are in privity with one another via their shared sole shareholder and officer, Rosser. This basis, which was accepted by the district court in finding privity and applying collateral estoppel, would seem to be based upon privity under categories two or three. Under the second category, collateral estoppel is applied to nonparties that “assume[d] control over [the prior] litigation in which they ha[d] a direct financial or propriety interest.” Montana, 440 U.S. at 154. “Privity exists when there is ‘substantial identity’ between parties, that is, when there is sufficient commonality of interest. When a person owns most or all of the shares in a corporation and controls the affairs of the corporation, it is presumed that in any litigation involving that corporation the individual has sufficient commonality of interest.” In re Gottheiner, 703 F.2d at 1140. -19- In understanding how the second category is applied, this Court in Becherer explained that “‘[t]o have control of litigation requires that a person have effective choice as to the legal theories and proofs to be advanced in behalf of the party to the action. He must also have control over the opportunity to obtain review.’” Becherer, 193 F.3d at 423 (quoting Benson and Ford, Inc. v. Wanda Petroleum Co., 833 F.2d 1172, 1174 (5th Cir. 1987) (citation omitted)). Examples of relationships providing such sufficient control include “president/sole shareholder and his or her company, a parent corporation and its subsidiary, an indemnitor and its indemnitee, or a liability insurer and an insured.” Id. The Government relies upon cases that have held that the owner of a corporation is in privity with the corporation for purposes of collateral estoppel when the owner exercises complete ownership and control of the corporation. Mitchell Inv. Co. v. Fed. Sav. & Loan Ins. Corp., 741 F.2d at 110 n.9 (referencing In re Gottheiner, 703 F.2d at 1139); Kreager v. Gen. Elec. Co., 497 F.2d 468, 472 (2d Cir. 1974) (finding sole shareholder and officer who controlled action involving corporation “had an identity of interest with [the company] and was bound by judgment against it”). But these authorities offered by Appellee do not support the expansion of the concept of privity posed by the Government here. The Government fails to cite authority from this Court or elsewhere that applies collateral estoppel to a legally distinct, nonparty corporation because of a judgment against another similar corporation with which it shares a common sole shareholder/officer. While Rosser may have had sufficient interest in and “control” over the prior Living Care Utica litigation due to his status as its sole shareholder and officer such as to find him in privity with Living Care Utica, that is not the extension of privity that Appellee seeks here. It seeks to extend privity to Living Care Kirkersville, but this separate corporation did not have a -20- direct financial or proprietary interest in nor control over the prior Living Care Utica litigation as is necessary in order to impose privity under the second category. The other manner of seeking to establish that Living Care Kirkersville is in privity with Living Care Utica is by virtue of their “sister” corporate relationship – mirror business operations via the same owner. This arguably implicates Becherer’s third category; that is, binding a nonparty who is adequately represented by a party to the prior litigation, sometimes referred to as “virtual” representation. See Becherer, 193 F.3d at 423. This presents the question of whether privity should be found between corporate entities with similar purposes and common ownership, by posing that the nonparty corporation’s interest, via its common ownership and business purposes, was adequately represented in prior litigation by a sister corporation presenting identical issues. Because Living Care Kirkersville was not an uninvolved curious observer of the outcome of the Living Care Utica tax proceedings, application of this third category arguably has some appeal. Living Care Kirkersville is a corporation that owns and operates a mirror image business through the direct, personal efforts of shared sole owner and officer Rosser. The issues and concerns identified and articulated by Rosser on behalf of each corporation are virtually identical. Becherer describes this third privity category of adequate or virtual representation as requiring “‘an express or implied legal relationship in which parties to the first suit are accountable to non-parties who file a subsequent suit raising identical issues.’ [Benson and Ford, 833 F.2d at 1175 (emphasis added) (citation omitted). This third category may also be established by a nonparty’s express agreement to be bound by or acquiescence to a party’s representation. See, e.g., RESTATEMENT (SECOND) OF JUDGMENTS § 40 (1980).” Becherer, 193 F.3d at 423. In this case, while Rosser serves as the sole owner -21- and officer of both corporations, this fact alone creates neither an express nor an implied legal relationship making Living Care Utica accountable to Living Care Kirkersville. Nor is there any evidence that Living Care Kirkersville expressly agreed to be bound by or acquiesced in Living Care Utica’s representation. Certainly, corporate entities may have an interest in the same legal issue or in proving or disproving similar facts, but this should not be and is not sufficient to establish privity between them, even where they may have common ownership. We will not view the mere fact of common corporate ownership as amounting to an express agreement, particularly given Becherer’s caution that “absent an express agreement to be bound, an agreement should not be inferred “‘except upon the plainest circumstances.’” Becherer, 193 F.3d at 423 ((quoting Bittinger v. Tecumseh Prods. Co., 123 F.3d 877, 882 (6th Cir. 1997) (emphasis in original) (quoting RESTATEMENT (SECOND) OF JUDGMENTS § 40 cmt. b)). To extend privity to the common ownership of sister corporations present here, without more, also raises due process concerns. Applying privity between commonly-owned corporations requires proof that the nonparty must have been “so closely related to the interest of the party to be fairly considered to have had his day in court.” Mitchell, 741 F.2d at 110 n.9. It is not reasonable to conclude from this record that this has occurred. The Government would have the court extend privity to Living Care Kirkersville and thereby estop it from having its day in court on the basis that its owner also owns and operates other similar corporations. To do so, without more, is surely an overly broad extension of the concept of privity that could unfairly subject business owners to legal obligations or obstacles without due process, something this Court will not do. -22- In summary, the Court finds that Living Care Kirkersville lacks sufficient privity with Living Care Utica to apply collateral estoppel from the prior litigation. Although it is possible that a more careful examination of the interests involved in this case could have demonstrated sufficient commonality of interests, that evidence is lacking in this record. Therefore, in the absence of a presumption of commonality of interest, the fact that Living Care Kirkersville’s sole shareholder can be collaterally estopped by prior litigation is insufficient to bind Living Care Kirkersville.