Potter v. PiercePotter v. Pierce
- Reporters:
- , ,
- Before:
- J. Miles Hanisee, James J. Wechsler, Michael D. Bustamante
HANISEE, J.
{1} In this case we examine whether Jeffery Potter (Plaintiff) may bring a malpractice
I. BACKGROUND
{2} With Defendant Chris Pierce as his lead attorney, Plaintiff filed for bankruptcy under Chapter 11 of the Federal Bankruptcy Code. The action was later converted to a Chapter 7 bankruptcy. During the proceedings, Plaintiff purchased at auction any malpractice and related claims he might have against Defendants.
{3} Pierce represented Plaintiff in the bankruptcy proceedings for approximately one year. Plaintiff also employed Martin Friedlander, a California attorney, to represent him in all matters other than the bankruptcy. Eventually, citing “a fundamental disagreement” with Plaintiff, Defendants, including Pierce, filed a motion to withdraw as Plaintiff‘s counsel, which was granted. Defendants then filed two applications for attorney fees with the bankruptcy court.
{4} Before the fee application hearing, Plaintiff, acting pro se, filed objections to the fee application within which Plaintiff accused Defendants of malpractice. At the hearing, Plaintiff was represented by replacement counsel and Friedlander appeared at the hearing as a creditor. Pierce testified with respect to the fee applications, and Friedlander questioned Pierce about alleged failures in his representation of Plaintiff. Plaintiff elected not to cross-examine Pierce on any topic, including the pertinent basis on which he countered Defendants’ fee applications: Pierce‘s malpractice. Following the hearing, the bankruptcy court allowed some fees, but disallowed others that the court concluded were premised on work that was duplicative, administrative, excessive, or not beneficial to the bankruptcy. The bankruptcy court made no express findings or conclusions related to Plaintiff‘s malpractice allegations. Plaintiff‘s bankruptcy was ultimately denied.
{5} Almost ten months following this denial, Plaintiff filed the malpractice claim that is the subject of this appeal. The district court granted Defendants’ motion for summary judgment on the ground that the claim was barred by claim preclusion1 because the
II. DISCUSSION
{6} On appeal, Plaintiff argues that the district court erred in concluding that his malpractice claim was precluded, and instead maintains that the court should have proceeded to the merits of the case. “Summary judgment is appropriate where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. . . .We review . . . legal questions de novo.” Self v. United Parcel Serv., Inc., 1998-NMSC-046, ¶ 6, 126 N.M. 396, 970 P.2d 582 (citation omitted); Rosette, Inc. v. U.S. Dep‘t of the Interior, 2007-NMCA-136, ¶ 31, 142 N.M. 717, 169 P.3d 704 (“When the facts are not in dispute, the preclusive effect of a prior judgment is a question of law reviewed de novo.“).
A. The Elements of Claim Preclusion Have Been Satisfied
{7} In general, “[t]he purpose of our application of res judicata is to protect individuals from multiple lawsuits, to promote judicial economy, and to minimize the possibility of inconsistent judgments.” Moffat v. Branch, 2002-NMCA-067, ¶ 14, 132 N.M. 412, 49 P.3d 673. “Res judicata applies if three elements are met: (1) a final judgment on the merits in an earlier action, (2) identity of parties or privies in the two suits, and (3) identity of the cause of action in both suits.” Rosette, Inc., 2007-NMCA-136, ¶ 33. At the outset, we note that the requirements for res judicata are the same under both New Mexico and federal law. See Edwards v. First Fed. Sav. & Loan Ass‘n, 1985-NMCA-015, ¶ 40, 102 N.M. 396, 696 P.2d 484 (“Unless obliged to follow a contrary decision of our [S]upreme [C]ourt,” we apply federal law to “determin[e] the preclusive effect of a Federal court‘s judgment[.]“).
{8} With regard to the third element, both New Mexico and the Court of Appeals for the Tenth Circuit have adopted the “transactional approach” set out in the Restatement (Second) of Judgments §§ 24-25 (1982) for determining whether a later cause of action is the same as an earlier one. Petromanagement Corp., 835 F.2d at 1335 (adopted in the Tenth Circuit); Computer One, Inc., 2008-NMSC-038, ¶ 31 (adopted in New Mexico). Under this approach, two issues are the “same claim” for purposes of claim preclusion when “they involve a
{9} Notably, claim preclusion applies only when “the claimant [has] had a full and fair opportunity to litigate the claim in the original action.” Moffat, 2002-NMCA-067, ¶ 17; see Grausz v. Englander, 321 F.3d 467, 474 (4th Cir. 2003) (considering “whether [a] fee proceeding in bankruptcy court provided [the plaintiff] with an effective opportunity to litigate his malpractice claim“). Finally, “[r]es judicata bars not only claims that were raised in the prior proceeding, but also claims that could have been raised.” City of Sunland Park v. Macias, 2003-NMCA-098, ¶ 18, 134 N.M. 216, 75 P.3d 816; Grausz, 321 F.3d at 473-74 (considering whether the plaintiff “knew or should have known” of his malpractice claim at the time of a fee adjudication in bankruptcy court).
{10} At issue in this case is whether the district court correctly found that the elements of claim preclusion were satisfied. Under de novo review, we consider each element in turn. The first element of our analysis is whether there was a final judgment on the merits in the earlier proceedings. Rosette, Inc., 2007-NMCA-136, ¶ 33. Although “an interim award of attorney[] fees . . . is not final because [it] . . . leav[es] open the possibility that the claim will later be enlarged through future fee applications[,] . . . a[n] award that determines all of the compensation owed to an attorney . . . [is] final.” In re Iannochino, 242 F.3d 36, 44 (1st Cir. 2001) (internal quotation marks and citation omitted). Here, Defendants’ fee applications were adjudicated after Defendants had withdrawn from representation of Plaintiff on May 22, 2006. The second and final fee application covered the period from May 25, 2005 through May 18, 2006. Thus, there was no possibility of further fee applications. The fee award was a final order.
{11} The second question in the claim preclusion analysis is whether the parties in the two suits are identical. Rosette, Inc., 2007-NMCA-136, ¶ 33. This element is satisfied because Plaintiff is both a party to the malpractice claim and a party in interest to the fee proceedings. See
{12} Most vigorously disputed by the parties is whether the third element of claim preclusion was satisfied, i.e. whether the district court correctly determined that the dispute over attorney fees and malpractice in bankruptcy court was the “same claim” as Plaintiff‘s
{13} In Grausz, the plaintiff filed for bankruptcy with the assistance of his counsel. 321 F.3d at 469. Counsel later withdrew and filed two fee applications; both were approved without objection from the plaintiff. Id. at 470. Subsequently, the plaintiff‘s bankruptcy discharge was denied and the plaintiff filed a malpractice claim against his counsel. Id. at 471. The Fourth Circuit held that the plaintiff‘s malpractice claims were precluded because approval of the fee applications was a final order. Id. at 472. The plaintiff was a “party in interest” to the fee dispute since he “ha[d] a pecuniary interest in the distribution of assets to creditors[,]” id. at 472-73, and “[t]he core of operative facts in the . . . fee application proceeding and the malpractice action . . . are the same. Id. at 473. Both actions relate[d] to the nature and quality of legal services the [firm] provided to [the plaintiff] in connection with the bankruptcy proceeding.” Id. (internal quotation marks and citation omitted).
{14} The Court recognized that the bankruptcy code “necessarily included an inquiry by the bankruptcy court into the quality of professional services rendered by the [firm].” Id. at 473 (citing
{16} Notably, in each of the aforementioned cases, each court found that the “identity of claims” element of the claim preclusion test was met because the questions presented to the bankruptcy court in a fee proceeding inherently involve an assessment of the quality of the professionals’ work similar to the assessment required in a malpractice action. See Capitol Hill Grp., 569 F.3d at 491 (stating that “the bankruptcy court was in a position to judge the quality of [the attorneys‘] services“); Grausz, 321 F.3d at 473; In re Intelogic Trace, Inc., 200 F.3d at 388; In re Iannochino, 242 F.3d at 47 (citing
{17} We likewise conclude that the cause of action within each proceeding at issue in this case arises from the same “nucleus of operative facts.” Rosette, 2007-NMCA-136, ¶ 33. Both the fee proceedings and malpractice claim address the same conduct during the same period of representation. In addition, under
B. Computer One Does Not Bar Claim Preclusion in this Case
{19} Plaintiff makes several arguments as to why his malpractice claim should not be precluded. Plaintiff first argues that Computer One, Inc., 2008-NMSC-038, stands for the proposition that “[claim preclusion] . . . cannot be based on an application for fees by way of an attorney charging lien or motion for fees as occurred in [his] bankruptcy case[,]” and that “approval [of attorney fees] cannot operate [to preclude] a later malpractice claim.” For reasons explained below, we disagree.
{20} Our Supreme Court in Computer One, Inc. relied on the same basic claim preclusion test stated above to conclude that the malpractice claim before it differed from the issues addressed in the charging lien that proceeded it. Notably, the Computer One Court assumed that the first two claim preclusion elements—a final order and identity of parties—were met. See 2008-NMSC-038, ¶¶ 31-36 (not addressing those elements). It then focused on the facts of the case as they related to the third element: whether the claims were identical. Id.
{21} In that case, Computer One filed suit against Sandia Corporation for breach of contract and misrepresentation. Computer One, 2008-NMSC-038, ¶ 2. Computer One was represented by Grisham & Lawless, P.A. (the Firm) Id. ¶ 3. The Firm entered into a settlement agreement with Sandia Corporation, but Computer One maintained that the absence of its own ratification of the agreement meant that the settlement was unauthorized. Id. The Firm withdrew as counsel for Computer One and filed notice of an attorney charging lien against the settlement proceeds, id., which the district court enforced. Id. ¶ 4. After a series of proceedings in which Computer One filed objections to the charging lien, the “[district] court ordered disbursement of the settlement funds including payment of the Firm‘s charging lien.” Id. ¶ 7.
{22} Over a year later, Computer One filed a legal malpractice claim against the Firm “arguing that the Firm had been negligent in the manner in which it had evaluated Computer One‘s claims against Sandia [Corporation] and their potential settlement value.” Id. ¶ 8. The Firm moved for summary judgment on the ground that Computer One‘s claims were barred because they were compulsory counterclaims to the Firm‘s motion for a charging lien under
{23} Our Supreme Court reversed on both grounds. Id. ¶ 38. Relying on Bennett v. Kisluk, 1991-NMSC-060, 112 N.M. 221, 814 P.2d 89, and
{24} Indeed, “[t]he preclusive effect of
{25} Our Supreme Court next examined whether Computer One‘s claim was barred by claim preclusion “[i]ndependent of any preclusive effects of
{26} Furthermore, the Court relied on the facts of that case to determine that even if Computer One could have raised the malpractice claim in the context of the charging lien motion, it “would not change our result in this particular case.” Id. ¶ 36. Because the Firm had “affirmatively acknowledg[ed] that the charging lien was not related to the malpractice claim, [it could not] change course and claim an opportunity for Computer One to do the very thing it urged Computer One not to do below.” Id.; see City of Sunland Park, 2003-NMCA-098, ¶ 18 (stating claim preclusion bars claims that could have been brought in prior proceedings).
{27} Thus, Computer One, Inc. rests in part on claim preclusion and in part on principles of equity. It concluded that because the malpractice claim sought damages amounting to the difference between the actual settlement amount and the potential settlement had the Firm‘s representation been more effective, rather than recovery of fees awarded, the malpractice claim was “distinct” from Computer One‘s objections to the charging lien. 2008-NMSC-038, ¶¶ 34-35. Much of this analysis rests on “the limited nature of . . . a [charging] lien.” Id. ¶ 35. There is no clear statement that claim preclusion never applies to bar malpractice claims after adjudication of broader fee applications.
{28} In sum, contrary to Plaintiff‘s argument, Computer One, Inc. does not stand for the proposition that malpractice claims are never barred by adjudication of fee applications. Rather, we conclude that when a plaintiff actually argues or could have argued, or asserted but did not substantively pursue malpractice as a defense to a fee application or as a separate claim, claim preclusion may apply to bar later malpractice claims. As the district court noted, this holding is not inconsistent with federal law.
{29} Moreover, Computer One, Inc. is specific to the facts and circumstances of that case. For instance, the Court grounded its holding in the context of charging liens. See id. ¶ 12 (“We begin our discussion with . . . the history of attorney charging liens, because the resolution of the issue presented here becomes clear when the historical basis for the charging lien is considered.” (alteration, internal quotation marks, and citation omitted)). New Mexico cases have recognized that a charging lien “is a peculiar lien, to be enforced by peculiar methods.” Prichard v. Fulmer, 1916-NMSC-046, ¶ 29, 22 N.M. 134, 159 P. 39 (internal quotation marks and citation omitted); see Sowder v. Sowder, 1999-NMCA-058, ¶ 8, 127 N.M. 114, 977 P.2d 1034 (calling a charging lien “a unique method of protecting attorneys” and stating that “an attorney charging lien functions in a very limited manner“). The fees in question here were not sought through a charging lien. Finally, to the extent that Computer One relied on the fact that the damages sought by Computer One were not related
{30} Finally, Computer One, Inc. does not in any way address the preclusive effect of fee adjudications in bankruptcy court. The requirements and capabilities of bankruptcy courts make Computer One, Inc. inapposite in at least two ways. First, unlike analysis of charging liens, analysis of fee applications in bankruptcy proceedings “necessarily include[s] an inquiry . . . into the quality of professional services rendered.” Grausz, 321 F.3d at 473;
{31} Computer One Inc.‘s only categorical statement is that a fee adjudication does not make an attorney and his or her client (or former client) into “opposing parties” such that malpractice claims related to the attorney‘s representation of the client are compulsory under
C. Plaintiff‘s Remaining Arguments Regarding the Elements of Claim Preclusion Fail
{32} Plaintiff additionally argues that he could not have brought his malpractice claim at the time of the fee proceeding because at that juncture his bankruptcy petition had not yet been denied, citing Sharts v. Natelson, 1994-NMSC-114, 118 N.M. 721, 885 P.2d 642. The district court rejected this argument, stating that it “fails on the facts.” We agree that this argument is unavailing. Plaintiff‘s reliance on Sharts is misplaced. In that case, our Supreme Court considered the statute of limitations for attorney malpractice claims. Id. ¶ 10. It stated that “a cause of action for legal malpractice does not accrue until the client discovers, or through reasonable diligence should discover, the facts essential to the client‘s claim.” Id. ¶ 15.
{33} Plaintiff contends that the Sharts holding means that “a cause of action for legal
{34} Plaintiff also argues that the fact that he purchased the malpractice claim at auction militates against application of claim preclusion.4 This argument is unavailing because the right Plaintiff purchased at auction––his right to litigate his malpractice claim—has not been impeded. Plaintiff in fact filed a complaint, initiating the present suit. Defendants raised a legitimate defense to the complaint consistent with the terms of the sale that reserved to them “all rights, defenses, counterclaims, crossclaims, and other rights or claims of any kind whatsoever arising out of or related to any malpractice claims against them.” As the district court noted, it was Plaintiff‘s obligation to be aware of any “negative baggage [that] might . . . be attached to the claims” including possible defenses to them. The fact of the sale of the malpractice claim presents no barrier to Defendants’ assertion of claim preclusion, nor does the purchase of something valueless bestow worth.
{35} Therefore, we conclude that all of the elements of claim preclusion have been satisfied and Plaintiff was sufficiently aware of the facts of his claim at the time of the fee adjudication such that preclusion of them in later proceedings is fair. We thus affirm the district court.
CONCLUSION
{36} For the foregoing reasons, we affirm the grant of summary judgment in favor of
{37} IT IS SO ORDERED.
J. MILES HANISEE, Judge
WE CONCUR:
JAMES J. WECHSLER, Judge
MICHAEL D. BUSTAMANTE, Judge