Potter v. Chris Pierce, William Davis, Davis & Pierce, P.C.

315 P.3d 303

Jeffery POTTER, Plaintiff–Appellant,

v.Chris PIERCE, William Davis, Davis & Pierce, P.C., and John Doe Law Firm, Defendants–Appellees.

No. 31,595.

Court of Appeals of New Mexico.

Sept. 23, 2013.

William G. Gilstrap, P.C., William G. Gilstrap, Law Offices of Daymon B. Ely, Daymon B. Ely, Albuquerque, NM, for Appellants.

Domenici Law Firm, Pete V. Domenici, Jr., Lorraine Hollingsworth, Albuquerque, NM, for Appellees.

OPINION

HANISEE, J.

{1} In this case we examine whether Jeffery Potter (Plaintiff) may bring a malpractice action against his former bankruptcy attorneys (Defendants) after Plaintiff objected to Defendants' fee applications with allegations of malpractice and the bankruptcy court awarded fees in a final order. The district court dismissed the malpractice claim on the ground that it was barred by the principles of claim preclusion because Plaintiff did or could have brought the malpractice claim in response to Defendants' fee applications. We agree that Plaintiff's claim is barred because the elements of claim preclusion are met, and Plaintiff had a full and fair opportunity to litigate the malpractice claim but failed to successfully do so. We affirm.

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 preclusion ¹ because the bankruptcy court's grant of fees constituted a final order on Defendants' fee applications and the bankruptcy court's decision necessarily incorporated that court's assessment of Defendants' representation of Plaintiff. Plaintiff now appeals.

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. United States 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, 142 N.M. 717, 169 P.3d 704. 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, 144 N.M. 424, 188 P.3d 1175 (adopted in New Mexico). Under this approach, two issues are the “same claim” for purposes of claim preclusion when “they involve a common nucleus of operative facts.” Rosette, Inc., 2007–NMCA–136, ¶¶ 23, 33, 142 N.M. 717, 169 P.3d 704 (internal quotation marks and citation omitted). A common nucleus might be identified by examining “(1) how the facts relate in time, space, origin, or motivation; (2) whether, taken together, the facts form a convenient trial unit; and (3) whether treatment of the facts as a single unit conforms to the parties' expectations, or business understanding or usage.” Chavez v. City of Albuquerque, 1998–NMCA–004, ¶ 23, 124 N.M. 479, 952 P.2d 474.

{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, 132 N.M. 412, 49 P.3d 673;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, 142 N.M. 717, 169 P.3d 704. 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, 142 N.M. 717, 169 P.3d 704. This element is satisfied because Plaintiff is both a party to the malpractice claim and a party in interest to the fee proceedings. See11 U.S.C. § 1109(b) (2006) (including “the debtor” among a list of parties in interest); 11 U.S.C. § 1121(c) (2006) (same); In re Alpex Computer Corp., 71 F.3d 353, 356 (10th Cir.1995) (stating that party in interest is “generally understood to include all persons whose pecuniary interests are[ ] directly affected by the bankruptcy proceedings” (internal quotation marks and citation omitted)); Grausz, 321 F.3d at 473 (holding that the plaintiff was a party in interest to fee proceedings because he “had a pecuniary interest in the outcome of the fee applications”).

{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 subsequent malpractice claim in state court. This particular fact pattern has yet to be addressed by New Mexico appellate courts. Nonetheless, we find helpful cases from the Courts of Appeals for the First, Fourth, Fifth, and D.C. Circuits, which addressed fact patterns congruent to the legally operative facts in this case, and found that claim preclusion bars malpractice claims following fee adjudications in bankruptcy court. See, e.g., Capitol Hill Grp. v. Pillsbury, Winthrop, Shaw, Pittman, LLC, 569 F.3d 485, 491–93 (D.C.Cir.2009); Grausz, 321 F.3d at 475–76;In re Intelogic Trace, Inc., 200 F.3d 382, 391 (5th Cir.2000); In re Iannochino, 242 F.3d at 41–49.

{13} In Grausz, the...