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Irish v. Irish

United States Court of Appeals, First Circuit

November 14, 2016

DAWN E. IRISH, Plaintiff, Appellee,
v.
CRAIG S. IRISH, Defendant, Appellee, PEBBLE NUCLEAR, INC., f/k/a Nuclear Logistics, Inc.; ARON SEIKEN, Defendants.

         APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS Hon. William G. Young, U.S. District Judge

          Robert J. O'Regan, with whom Laura R. Studen, Elizabeth G. Crowley, Andrea L. Martin, and Burns & Levinson LLP were on brief, for appellant.

          Sean T. Carnathan, with whom O'Connor, Carnathan and Mack LLC, Michael Gottfried, and Duane Morris LLP were on brief, for appellee.

          Before Torruella, Lynch, and Lipez, Circuit Judges.

          LYNCH, Circuit Judge.

         This appeal comes to us from the district court's award of damages to Dawn Irish arising out of her 2010 divorce in Massachusetts from Craig Irish and the Separation Agreement filed in their divorce proceeding. After the divorce, Dawn brought suit in federal court, rather than state court, arguing that Craig did not fully disclose his assets or deal in good faith during the negotiation of their Separation Agreement. The federal court exercised jurisdiction over those claims.

         We do not reach Craig's challenges to the merits of the district court's decision because we hold that the district court lacked subject matter jurisdiction pursuant to the domestic relations exception to federal diversity jurisdiction. Accordingly, we vacate the judgment and remand for dismissal of the action, with prejudice as to federal jurisdiction and without prejudice as to any state court action Dawn might bring.

         I.

         We derive the following facts from Dawn's allegations in federal court. Dawn and Craig Irish wed on October 3, 1992. During their marriage, Craig worked at Nuclear Logistics, Inc. ("NLI"), eventually serving as an officer and acquiring a minority ownership stake in the company, while Dawn primarily maintained the marital home. On February 4, 2009, Craig filed for divorce.

         Craig and Dawn, each represented by counsel, thereafter negotiated the terms of a Separation Agreement, which, inter alia, provided for alimony and divided their marital assets. The agreement divided all marital assets equally, with the exception of Craig's ownership stake in NLI. At the parties' final pre-divorce conference, Dawn produced a draft agreement under which she would receive 20% of Craig's total interest in the company. But at Craig's urging, Dawn agreed to amend the relevant provision to give Dawn 24 shares of NLI instead, which was 20% of the 120 shares Craig represented he owned. Dawn later attested that she consented to this revision because Craig "had represented many times that he would not get any more from a sale [of NLI] than his 6% equity entitled him to."

         In the same provision dividing the shares, Craig promised that he would do "nothing to deprive [Dawn] of the benefits intended by this agreement, including . . . entering into any agreement intended to diminish [her] share of any compensation paid for [his] interest in [NLI]." In addition, three different provisions referenced Craig's "Financial Statement, " which was submitted to the Middlesex Probate and Family Court along with the Separation Agreement, and contained the following clause: "I certify under the penalties of perjury that the information stated on this Financial Statement . . . is complete, true, and accurate."

         On January 21, 2010 -- the same day that the Irishes filed their Separation Agreement -- the probate court entered a judgment of divorce nisi. Under Massachusetts law, when parties asserting an irretrievable breakdown in their marriage file a separation agreement in their divorce proceeding, the state probate court must determine whether it approves of that agreement, and that "agreement either shall be incorporated and merged into [the divorce] judgment or by agreement of the parties, it shall be incorporated and not merged, but shall survive and remain as an independent contract." Mass. Gen. Laws ch. 208, § 1A; see also id. § 1B. In its judgment, the probate court found that the Irishes' agreement was "fair and reasonable, " and "ordered that the parties shall comply with [its] terms." Additionally, and in line with parallel language in the agreement itself, the probate court declared that the agreement was "incorporated and not merged in" the divorce judgment and that it would "survive and have independent legal significance."

         Roughly two years after the divorce became final, NLI was acquired for $80, 000, 000, plus $20, 000, 000 in potential earn-out compensation. Despite having disclosed only a 6% ownership stake during negotiations about the Separation Agreement with Dawn, Craig received a payment of $21, 600, 000 from the sale of NLI.

         On November 15, 2012, Dawn chose to file a complaint in federal district court in Massachusetts based on diversity jurisdiction, alleging various contract, tort, and fraud claims against Craig and two other parties not relevant to this appeal. The primary basis for Dawn's suit against Craig was her claimed entitlement to 20% of the $21, 600, 000 payment. Pointing to emails between Craig and his accountant that support her contention, Dawn insisted that Craig concealed a pre-divorce "side deal, " which granted him "phantom equity" well beyond the 6% interest he purported to hold in shares. Accordingly, she sought compensation equal to 20% of his actual profits from the sale, rather than 20% of his 120 shares. Craig, through his pleadings, denied the existence of a side deal. He characterized the $21, 600, 000 payment as a "bonus" unrelated to any "interest or expectancy due . . . at the time of the divorce." Dawn ...


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