In re Olick v. House

IN RE: THOMAS W. OLICK, Debtor THOMAS W. OLICK, Plaintiff, v. WILLIAM C. HOUSE, Defendant.

Bky. No. 07-10880 ELF

Adv. No. 10-038

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF PENNSYLVANIA

Date: June 28, 2011

MEMORANDUM

I.

For over ten (10) years, Thomas W. Olick ("Olick") has asserted claims in this court against his former attorney, William C. House ("House"), based on House's representation of Olick in a prior bankruptcy case and related legal matters. Because the parties are familiar with the circumstances surrounding this litigation, it is unnecessary to detail the lengthy procedural history leading up to the present dispute. Suffice it to say that the dispute between Olick and House was aired previously in a contested matter in Olick's prior chapter 13 bankruptcy and in an adversary proceeding filed during the pendency of that prior bankruptcy case.

The present adversary proceeding is related to Olick's present chapter 13 bankruptcy case, filed in 2007. Olick commenced the adversary proceeding on February 4, 2010 by filing acomplaint ("the Complaint") asserting four (4) causes of action against House:

Count I - Breach of Contract;

Count II - Fraud;

Count III - Negligence and Malpractice; and,

Count IV - Breach of Fiduciary Duty.

Presently before the court is House's Motion to Dismiss the Complaint With Prejudice ("the Motion"). The Motion offers several grounds for dismissal of all four claims: res judicata, statute of limitations, and failure to a state claim upon which relief may be granted.

For the reasons stated more fully below, the Motion will be granted and an order will be entered dismissing the Complaint with prejudice based on the doctrine of res judicata.¹

II.

A. Legal Standard under Fed. R. Civ. P. 12(b)(6)

House moves to dismiss the adversary proceeding based on Fed. R. Civ. P. 12(b)(6).²The purpose of a Rule 12(b)(6) motion is to test the legal sufficiency of the factual allegations of a complaint, see Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993), and to determine whether a plaintiff is "entitled to offer evidence to support the claims." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 563 n.8 (2007) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).

In deciding a motion to dismiss a complaint, the court is required to accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, viewing them in the light most favorable to the plaintiff. See, e.g., Hishon v. King & Spaulding, 467 U.S. 69, 73 (1984); Taliaferro v. Darby Township Zoning Board, 458 F.3d 181, 188 (3d Cir. 2006). However, a court is not "bound to accept as true a legal conclusion couched as a factual allegation." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009) (quoting Twombly, 550 U.S. at 555).

Dismissal is appropriate only if, accepting as true all facts alleged in the complaint, the plaintiff has not pled "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570; accord Iqbal, 129 S. Ct. at 1950 (the standard under Rule 12(b)(6), whether complaint states a "plausible claim for relief," involves a determination that is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense").

In assessing a Rule 12(b)(6) motion, the court is able to "consider the allegations in the complaint, exhibits attached to the complaint and matters of public record . . . [as well as,] 'undisputedly authentic documents' where the plaintiff's claims are based on the documents and the defendant has attached a copy of the document to the motion to dismiss." Unite Nat'l Ret. Fund v. Rosal Sportswear, Inc., 2007 WL 2713051, at *4 (M.D. Pa. Sept. 14, 2007) (citing Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993)).

B. All of Olick's Claims Are Barred by the Doctrine of Res Judicata

1. Introduction

To resolve the Motion, I need to consider only House's principle argument: that under the doctrine of res judicata, all four claims must be dismissed.

The doctrine of res judicata "protect[s] litigants from the burden of relitigating an identical issue with the same party or his privy and . . . promot[es] judicial economy by preventing needless litigation." Post v. Hartford Ins. Co., 501 F.3d 154, 169 (3d Cir. 2007) (quoting Parklane Hosiery Co. v. Shore, 439 U.S. 322, 327 (1979)). Res judicata is also designed "to avoid piecemeal litigation from the same events." Churchill v. Star Enters., 183 F.3d 184, 194 (3d Cir. 1999).

For res judicata to apply, based on prior litigation in federal court, three circumstances must be present: "(1) a final judgment on the merits in a prior suit involving (2) the same parties or their privies and (3) a subsequent suit based on the same cause of action." Post, 501 F.3d at 169 (quoting Lubrizol Corp. v. Exxon Corp., 929 F.2d 960, 963 (3d Cir.1991)). Further, "[a]pplication of the principles of claim preclusion is not altered by the fact that the judgmentmay have been wrong or rested on a legal principle subsequently overruled in another case." Infomast Mfg., Inc. v. Bardsley, 103 F. Supp. 2d 847, 849 (E.D. Pa. 2000) (citing Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981)); accord Lewis v. Smith, 361 F. App'x 421, 424 (3d Cir. 2010) (nonprecedential); see also In re Eastern Steel Corp., 175 B.R. 539, 541 (Bankr. D.N.J. 1994) ("[i]t is axiomatic . . . that a change in the governing law after a final order has been entered and the time to appeal has expired is not a basis for vacating such an order") (citing Moitie, 452 U.S. at 398).

Although res judicata constitutes an affirmative defense, it may be raised on a motion to dismiss for failure to state a claim if the defect appears on the face of the pleading. In re Faust, 353 B.R. 94, 101 (Bankr. E.D. Pa. 2006) (citing Brody v. Hankin, 299 F. Supp. 2d 454, 458 (E.D. Pa. 2004), rev'd on other grounds, 145 F. App'x 768 (3d Cir. 2005)).

For two independent reasons, all of Olick's claims are barred by res judicata.

2. The Claims Are Barred by the Final Order Awarding House Counsel Fees

in Olick's 1996 Bankruptcy Case

On July 11, 1996, Olick filed a chapter 13 bankruptcy petition in this court, docketed at Bky. No. 96-22123 ("the 1996 Bankruptcy Case").³ On January 16, 2003, this court entered an order determining that House was entitled to compensation and reimbursement for the period from March 25, 1998 through December 7, 1998 ("the January 16, 2003 Order"). (See Bky. No.96-22123, Doc. # 523; Motion, Tab N). In the January 16, 2003 Order, the court "found as a fact" and "concluded as a matter of law . . . that these fees and expenses were reasonable." (Id.). The January 16, 2003 Order was entered over Olick's objection. (See Bky. No. 96-22123, Doc. # 304).

Olick failed to file a timely appeal from the January 16, 2003 Order. His request for reconsideration of the Order was denied by the bankruptcy court. (See Bky. No. 96-22123, Doc. #'s 334, 410; see also Motion, Tab O). Olick appealed the order denying his motion for reconsideration. Both the district court (on February 9, 2005) and the Court of Appeals (on June 4, 2008) affirmed the bankruptcy court's order denying Olick's request for reconsideration. (See Bky. No. 96-22123, Doc. #'s 633, 723; see also Motion, Tabs P & Q).⁴

The dispositive principle in this matter is quite simple: the entry of a final order allowing compensation to an attorney under 11 U.S.C. §330 bars further litigation regarding the propriety of the legal fees under the doctrine of res judicata. E.g., In re Earned Capital Corp., 331 B.R. 208, 226-27 (Bankr. W.D. Pa. 2005) (collecting cases), aff'd, 346 B.R. 123, 125 (W.D. Pa. 2006), aff'd sub nom. In re Seven Fields Dev. Corp., 505 F.3d 237 (3d Cir. 2007); see also Capitol Hill Grp. v. Pillsbury, Winthrop, Shaw, Pittman, LLC, 569 F.3d 485, 490-91 (D.C. Cir. 2009); In re Iannochino, 242 F.3d 36, 43-45 (1st Cir. 2001); In re Interlogic Trace, Inc., 200 F.3d 382, 390 (5th Cir. 2000).

3. The Claims Are Barred by the Judgment Entered in House I

I also conclude that the dismissal of Olick's complaint in an earlier filed adversary proceeding in this court is an independent ground for the dismissal of the Complaint based on res judicata.

a.

Olick previously asserted the same factual allegations and some of the same claims in his amended complaint in a prior action, Olick v. House, Adv. No. 99-2058 (Bankr. E.D. Pa.) ("House I"). House I was an adversary proceeding that was related to the 1996 Bankruptcy Case. The amended complaint in House I asserted claims for, inter alia, breach of contract and "negligence and malpractice." The claim arose out of House's representation of Olick in the 1996 Bankruptcy Case and certain NASD arbitrations. (Adv. No. 99-2058, Amended Complaint ¶¶197-221; see also Motion, Tab C). In House I, the court entered an order on March 30, 2000, denying Olick's motion for leave to file a second amended complaint and granting House's motion to dismiss the amended complaint with prejudice. (Adv. No. 99-2058, Doc. # 68). Olick did not appeal the dismissal order in House I.

In Counts I and III, of the Complaint in the present adversary proceeding, Olick again asserts claims for breach of contract and "negligence and malpractice." The underlying factual allegations for the claims again relate back to House's legal representation of Olick in the 1996 Bankruptcy Case and in certain arbitrations before the National Association of Securities Dealers ("NASD"). (See Adv. No. 10-038, Compl. ¶¶3-5, 182-201, 224-46).

Based on this court's final order dismissing House I with prejudice, the required elements of res judicata apply to Counts I and III of the present adversary Complaint. The parties in HouseI are the same as those in the present adversary proceeding. The court in House I rendered final judgment on the merits. See, e.g., Moitie, 452 U.S. at 399 n.3 (holding that dismissal for failure to state a claim under...