Maxfield filed a motion to disqualify attorneys, citing undisclosed conflicts of interest in their representations of the multiple debtors. In May 2004, Maxfield filed a motion for leave to pursue claims on behalf of the estate however, this motion was denied. In November 2004, the Court granted the motion to disqualify. As a result, five months later, the Court authorized Maxfield to pursue malpractice claims on behalf of the estate, and in May 2005, Maxfield filed a complaint (individually and on behalf of the estate) against the attorneys for malpractice and breach of fiduciary duty in connection with their conflicts of interest in representing multiple debtors around the time of the Chapter 11 filings.
The attorneys argued that collateral estoppel and res judicata precluded the malpractice claim because the claims for damages had already been raised, litigated, and determined in the disqualification proceeding, in which the Court ordered the attorneys to forgo any compensation for their services plus disgorge any pre-petition retainers for the bankruptcy filings.
The Court held that the malpractice action was not barred. For collateral estoppel to apply, there must be a valid prior judgment that is final, both of the claims must consist of the same parties or privies and finally, there must be the same cause of action. The Court first determined that the malpractice action was materially different from the disqualification proceeding, which only involved ethical considerations and fees. In contrast, the malpractice claim involved negligence and damages for economic loss.
The Court also ruled that both of the causes of actions consisted of different parties. When Maxfield filed the disqualification motion, he was acting only as a creditor of the estate. In the malpractice action he was a representative of the estate. Finally, the Court held that there was no full and fair opportunity to litigate the malpractice claim during the disqualification proceeding.
Based on the foregoing reasons, the Court denied the attorney’s motion for summary judgment.
Judge(s): Paul M. Glenn
Related Categories: Bankruptcy , Civil Procedure , Civil Remedies
|Debtor Lawyer(s)||Debtor Law Firm(s)|
|Creditor Lawyer(s)||Creditor Law Firm(s)|
|Gregory A. Anderson||Anderson Glenn, LLC|
|Elizabeth H. Brabham||Anderson Glenn, LLC|
|Stanley J. Galewski||Buchanan Ingersoll & Rooney PC|
|Lee Christie||Cline Farrell Christie Lee & Caress|
|Mark J. Bernet||Kass Shuler Solomon Spector Foyle|
|Richard Ruggieri||Law Office|
|Douglas H. Morford||Morford & Whitefield PA|
|Betsy C. Cox||Rogers Towers PA|
|Bradley R. Markey||Stutsman Thames & Markey PA|
|Richard R. Thames||Stutsman Thames & Markey PA|
|Trustee Lawyer(s)||Trustee Law Firm(s)|
|Kelli E. Lueckert||Anderson Glenn, LLC|
|Elena L. Escamilla||U.S. Department of Justice|