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Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 11, 2009 Decided June 26, 2009 

No. 08-7109 

CAPITOL HILL GROUP, A CALIFORNIA CORPORATION, 

APPELLANT

v. 

PILLSBURY, WINTHROP, SHAW, PITTMAN, LLC, A DELAWARE 

LIMITED LIABILITY PARTNERSHIP, ET AL., 

APPELLEES

Appeal from the United States District Court 

for the District of Columbia 

(No. 1:07-cv-01936) 

Emil Hirsch argued the cause and filed the briefs for 

appellant. 

Jack McKay argued the cause and filed the brief for 

appellees. 

Before: HENDERSON, BROWN and KAVANAUGH, Circuit 

Judges. 

Opinion for the Court filed by Circuit Judge BROWN. 

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BROWN, Circuit Judge: Appellant Capitol Hill Group 

(CHG) filed suit in the Superior Court of the District of 

Columbia against its former counsel, Shaw Pittman (now 

Pillsbury Winthrop Shaw Pittman LLP) and various 

associated attorneys, for claims stemming from alleged legal 

malpractice. Appellees removed the case to federal court, 

asserting federal jurisdiction under 28 U.S.C. § 1334(b), 

so-called “arising in” bankruptcy jurisdiction. The district 

court denied appellant’s motion to remand for lack of 

jurisdiction, and later granted summary judgment for 

appellees because CHG’s claims are barred by res judicata. 

Finding no error, we affirm. 

I. 

To make a long and already well-documented story short 

—well, somewhat shorter—we summarize the relevant facts. 

CHG filed for bankruptcy in February 2002. CHG’s primary 

asset, commercial property in the District of Columbia, was 

embroiled in a zoning dispute with the District’s Department 

of Consumer and Regulatory Affairs regarding the amount of 

off-street parking required. The controversy continued during 

the bankruptcy proceedings and Shaw Pittman, CHG’s courtapproved bankruptcy counsel, represented CHG in the zoning 

process. 

Initially CHG was told it would have to provide 225 

parking spaces, but in March 2003 the Zoning Administrator 

decided 85 spaces would suffice. In January 2004, after a 

neighborhood association appealed, the Board of Zoning 

Adjustment (BZA) affirmed, but then decided to reconsider 

its ruling. On February 24, 2004, the BZA finally settled on 

a total of 177 spaces, an announcement it made orally. The 

ruling was not issued in written form until September 9, 2004, 

at which time it was transmitted by the BZA to Shaw Pittman, 

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but not to CHG itself. According to CHG, such an expansive 

parking requirement “effectively precludes CHG from either 

utilizing a substantial portion of the Property itself, or leasing 

it to others[.]” 

In the interim the bankruptcy court granted Shaw 

Pittman’s request to terminate its court-approved 

representation of CHG. Shaw Pittman returned its BZArelated files to CHG but did not tell the BZA it had stopped 

representing CHG. As a courtesy, Shaw Pittman informed 

CHG of the BZA’s decision to reconsider its favorable 

January ruling at a hearing to take place on February 24—

information a Shaw Pittman attorney gleaned while present at 

the BZA on other business. 

CHG and Shaw Pittman’s post-representation relations 

were rocky. CHG first complained that Shaw Pittman’s fees 

were unreasonable. After contested hearings, the bankruptcy 

judge granted summary judgment to Shaw Pittman and 

“awarded the firm fees based primarily on its conclusion that 

CHG had agreed not to contest the amount of the fees. The 

bankruptcy judge also made oral findings that Shaw Pittman’s 

services were professional and that Shaw Pittman deserved to 

be compensated for those services.” Capitol Hill Group v. 

Pillsbury Winthrop Shaw Pittman, LLP, 574 F. Supp. 2d 143, 

146 (D.D.C. 2008). The district court affirmed the 

bankruptcy court’s decision. In re Capitol Hill Group, 313 

B.R. 344, 358 (D.D.C. 2004). 

Shaw Pittman then filed an application for fees and costs 

incurred during the first fee dispute. After a trial on October 

21 and 22, the bankruptcy judge orally ruled that CHG was 

responsible for paying all fees and expenses that were 

reasonably foreseeable as a result of engaging in the fee 

litigation with Shaw Pittman. Nevertheless, the cycle of 

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acrimony continued. After a one-day trial on a third fee 

application on August 1, 2005, the bankruptcy court approved 

the application. The court later entered a fourth and a fifth fee 

judgment with the consent of CHG. On April 12, 2006, the 

parties made one final appearance before the bankruptcy 

court, after Shaw Pittman filed a motion to compel because it 

feared CHG was withholding further claims. The bankruptcy 

court specifically asked CHG whether it had any other claims 

against the firm. CHG’s counsel stated “[t]here are concerns 

that CHG has about the representation that Shaw Pittman 

provided during its representation of Capitol Hill Group that 

began in 1999 or whatever. But nothing’s been filed.” CHG 

also represented it “had no outstanding claims against Shaw 

Pittman arising out of the bankruptcy proceedings.” Capitol 

Hill Group, 574 F. Supp. 2d at 147. In addition, “[t]he 

bankruptcy court noted that CHG could have pursued 

malpractice claims against Shaw Pittman regarding the 

adequacy of its representation,” in addition to claims CHG 

had made about excessive fees and related professional 

misconduct, “but that it had failed to do so and would 

therefore be barred from later asserting such claims by the 

doctrine of res judicata.” Id. 

In this suit, CHG alleges Shaw Pittman committed 

malpractice in two respects: by failing to notify CHG when 

BZA issued the September 2004 order, and by failing to make 

a particular legal argument to the BZA. Shaw Pittman 

removed the case to federal court. The district court 

concluded it had jurisdiction, and granted summary judgment 

for appellees because CHG’s claims are barred by res 

judicata. 

We have jurisdiction under 28 U.S.C. § 1291 from the 

final order of the district court granting summary judgment 

for defendants. After such a final order, the district court’s 

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earlier denial of the motion to remand for lack of subject 

matter jurisdiction also is reviewable. See Geruschat v. Ernst 

Young LLP (In re Seven Fields Dev. Corp.), 505 F.3d 237, 

244–45 (3d Cir. 2007); see also 14C CHARLES ALAN WRIGHT,

ARTHUR R. MILLER & EDWARD H. COOPER, FEDERAL 

PRACTICE AND PROCEDURE § 3740 & n.66 (3d ed. 1998). We 

review the district court’s legal conclusions regarding subject 

matter jurisdiction, including a denial of a motion to remand, 

de novo. E.g., Vill. of DePue v. Exxon Mobil Corp., 537 F.3d 

775, 782 (7th Cir. 2008). And, of course, we review the 

district court’s grant of summary judgment de novo as well. 

E.g., Woodruff v. Peters, 482 F.3d 521, 526 (D.C. Cir. 2007). 

II. 

CHG insists the district court erred in exercising 

jurisdiction over this case under 28 U.S.C. § 1334(b), which 

provides “the district courts shall have original but not 

exclusive jurisdiction of all civil proceedings arising under 

title 11, or arising in or related to cases under title 11.” 

“[P]roceedings or claims arising in Title 11 are those that are 

not based on any right expressly created by Title 11, but 

nevertheless, would have no existence outside of the 

bankruptcy.” Grausz v. Englander, 321 F.3d 467, 471 (4th 

Cir. 2003) (internal quotations omitted). 

In concluding it had “arising in” jurisdiction, the district 

court principally relied on two cases: Southmark Corp. v. 

Coopers & Lybrand (In re Southmark Corp.), 163 F.3d 925 

(5th Cir. 1999) and Geruschat, 505 F.3d 237. Each holds 

there is federal bankruptcy jurisdiction over malpractice 

claims brought by debtors against court-appointed 

professionals arising while the professionals assisted the 

debtor and the court during the bankruptcy process. 

Southmark Corp., 163 F.3d at 932; Geruschat, 505 F.3d 

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at 260–62. As the Fifth Circuit observed, “[a] sine qua non in 

restructuring the debtor-creditor relationship is the court’s 

ability to police the fiduciaries, ... [including] court-appointed 

professionals, who are responsible for managing the debtor’s 

estate in the best interest of creditors.” Southmark Corp., 163 

F.3d at 931. After all, “[t]he bankruptcy court must be able to 

assure itself and the creditors who rely on the process that 

court-approved managers of the debtor’s estate are 

performing their work, conscientiously and cost-effectively.” 

Id. Moreover, “[e]xcessive professional fees or fees charged 

for mediocre or, worse, phantom work also cause the estate 

and the creditors to suffer.” Id. 

Appellant argues that claims arising post-petition and 

post-plan-confirmation are outside the “arising in” jurisdiction 

of the court, citing Valley Historic Limited Partnership v. 

Bank of New York, 486 F.3d 831 (4th Cir. 2007), and 

Community Bank of Homestead v. Boone (In re Boone), 52 

F.3d 958 (11th Cir. 1995). Rejecting a similar argument, the 

Fifth Circuit in Southmark Corporation specifically 

distinguished cases not implicating a “malpractice claim 

involving court-appointed professionals” but rather involving 

claims that “could stand alone from the bankruptcy case.” 

163 F.3d at 931. The two cases appellant cites are 

distinguishable for the same reason. The claim at issue in 

Community Bank of Homestead was not a malpractice claim 

against professionals involved in the bankruptcy proceeding 

but rather was against a bank that allegedly had tortiously 

interfered with the sale of the debtors’ house. 52 F.3d at 959–

60. In Valley Historic Limited Partnership, similarly, the 

claims at issue were not against bankruptcy professionals, but 

rather were tort claims against the bank that held the mortgage 

on the corporate debtor’s real estate assets. 486 F.3d at 834. 

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In sum, we agree with our sister circuits that malpractice 

claims against court-appointed professionals stemming from 

services provided in the bankruptcy proceeding are 

“inseparable from the bankruptcy context,” Southmark Corp., 

163 F.3d at 931, and “constitute ... a proceeding ‘arising in’ 

the bankruptcy,” Geruschat, 505 F.3d at 263. Such claims 

therefore fall within the bankruptcy jurisdiction of the federal 

courts. 

III. 

CHG argues res judicata should not bar it from pressing 

its malpractice claims against Shaw Pittman despite the fee 

litigation during the bankruptcy proceedings. “Under the 

doctrine of res judicata, or claim preclusion, a subsequent 

lawsuit will be barred if there has been prior litigation 

(1) involving the same claims or cause of action, (2) between 

the same parties or their privies, and (3) there has been a final, 

valid judgment on the merits, (4) by a court of competent 

jurisdiction.” Smalls v. United States, 471 F.3d 186, 192 

(D.C. Cir. 2006). 

CHG’s arguments go to the first element listed, the socalled “identity” element; the existence of the other three 

elements is not contested. As the district court explained, 

“there is an identity of the causes of action when the cases are 

based on the ‘same nucleus of facts’ because ‘it is the facts 

surrounding the transaction or occurrence which operate to 

constitute the cause of action, not the legal theory on which a 

litigant relies.’” Capitol Hill Group, 574 F. Supp. 2d at 149 

(quoting Page v. United States, 729 F.2d 818, 820 (D.C. Cir. 

1984)). Put a little more pithily, “claim preclusion precludes 

the litigation of claims, not just arguments.” NRDC v. EPA, 

513 F.3d 257, 261 (D.C. Cir. 2008); see also id. (“[C]laim 

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preclusion is also intended to prevent litigation of matters that 

should have been raised in an earlier suit.”). 

A. 

The district court relied primarily on three cases in 

granting summary judgment for appellees under the doctrine 

of res judicata: Grausz, 321 F.3d 467, Iannochino v. 

Rodolakis (In re Iannochino), 242 F.3d 36 (1st Cir. 2001), and 

Osherow v. Ernst & Young LLP (In re Intelogic Trace, Inc.), 

200 F.3d 382 (5th Cir. 2000). In each, fee litigation in the 

bankruptcy proceeding precluded later malpractice claims 

against the bankruptcy professionals to whom the fees had 

been awarded. Grausz, 321 F.3d at 475 (“[Debtor’s] legal 

malpractice claim is barred by the final fee order in the 

bankruptcy case.”); Iannochino, 242 F.3d at 38 (“[A]n award 

of fees in bankruptcy to a debtor’s attorney will act as a bar 

under claim preclusion principles to a later suit filed by the 

debtor alleging professional malpractice arising from the 

bankruptcy representation.”); Osherow, 200 F.3d at 388 

(“[T]he award of professional fees and the ... malpractice 

claims concern ‘the same nucleus of operative facts’ and meet 

the transactional test.”). 

CHG argues that, as in the Fourth Circuit’s unpublished 

decision in Kronish Lieb Weiner & Hellman, LLP v. Fort, 197 

Fed. App’x 261 (4th Cir. 2006) (unpublished), this case arises 

from a different nucleus of operative facts than the fee 

litigation, and therefore Iannochino, Osherow, and Grausz are 

inapposite. We disagree. In Kronish, the Fourth Circuit held 

a Consent Order resolving a bankruptcy claim for fees 

stemming from pre-petition legal services did not bar the 

trustee of the bankruptcy estate from bringing a malpractice 

action against the law firm. 197 Fed. App’x at 264–65. 

Unlike in this case, there was no litigation before the 

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bankruptcy court about the adequacy of the representation or 

the reasonableness of the fees; the claim was allowed and not 

contested by anyone. Id. at 264. Moreover, the legal services 

at issue took place prior to the filing of the bankruptcy 

petition. Because the claim was for pre-petition services, the 

bankruptcy court had no basis on which to evaluate the 

quality of the legal services. Id. As a result, the Fourth 

Circuit distinguished Grausz, its own precedent. Id. at 264 

n.2. In this case, however, there was an adversarial process 

before the bankruptcy court and the bankruptcy court was in a 

position to judge the quality of Shaw Pittman’s services. We 

look to Grausz, rather than Kronish, and thus agree with the 

district court that the fee applications and the malpractice 

claim arise out of the same nucleus of facts and the identity 

element of res judicata is satisfied. 

B. 

Res judicata may not bar a later suit where the plaintiff 

was not aware of its claim at the time of the first litigation. 

See, e.g., Grausz, 321 F.3d at 473–74. CHG contends it had 

neither actual nor constructive knowledge of its claims during 

the bankruptcy fee litigation. 

CHG insists it had no actual knowledge of Shaw 

Pittman’s failure to forward the BZA order until March 2005, 

and became aware of Shaw Pittman’s failure to make a 

particular legal argument on the parking issue in the “Spring 

of 2006.” CHG quickly goes on to assert, in the next 

paragraph of its brief, “therefore ... CHG had neither actual 

nor constructive knowledge.” But, of course, when CHG 

gained actual knowledge of specific claims tells us nothing 

about its actual or constructive knowledge of the operative 

facts. 

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The district court found CHG’s claims barred for two 

reasons: CHG (1) had actual knowledge of the general nature 

of its claims against Shaw Pittman, as evidenced by the 

arguments it did raise during the fee litigation, and (2) also 

had constructive knowledge. That is, CHG would have 

discovered the specifics of each of the two claims, had it acted 

with due diligence. Capitol Hill Group, 574 F. Supp. 2d 

at 150–51. “We look at the date the final fee order was 

entered ... and ask whether by that time [the debtor] knew or 

should have known there was a real likelihood that [it] had a 

malpractice claim.” Grausz, 321 F.3d at 474. In April 2006, 

at the last hearing during the bankruptcy court fee litigation, 

the bankruptcy judge asked CHG whether it had any other 

claims against Shaw Pittman, and CHG’s counsel stated 

“[t]here are concerns that CHG has about the representation 

that Shaw Pittman provided during its representation of 

Capitol Hill Group that began in 1999 or whatever. But 

nothing’s been filed.” Moreover, at that same April 2006 

hearing, counsel for Shaw Pittman and the bankruptcy judge 

each noted it was their understanding that future claims 

arising from the representation would be barred by res 

judicata. Following that warning and without objection from 

CHG, the bankruptcy judge announced the final conclusion of 

the fee litigation that same day. 

“[R]es judicata ... bars relitigation not only of matters 

determined in a previous litigation but also ones a party could 

have raised[.]” NRDC v. Thomas, 838 F.2d 1224, 1252 (D.C. 

Cir. 1988). In April 2006, CHG was aware of Shaw Pittman’s 

failure to forward the written BZA order, and could have 

become aware of the failure to make the historic designation 

legal argument. As in the Osherow case, here CHG “was 

sufficiently aware of the real possibility of there being errors 

by [the bankruptcy professional] such as now alleged and of 

their likely consequences before the fee hearing.” 200 F.3d 

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at 388. “[R]ather than considering whether the [debtors] 

knew of the precise legal contours of their malpractice claim 

at the time of the fee application, we must instead determine 

whether they knew of the factual basis of that claim.” 

Iannochino, 242 F.3d at 48–49. When CHG decided to 

litigate Shaw Pittman’s fees, raising broad professional 

responsibility arguments questioning the representation, 

CHG’s duty to discover the legal errors (if any) committed by 

Shaw Pittman was triggered. As the First Circuit observed, 

“the breakdown of the attorney/client relationship here is 

further evidence that the [debtors] should have raised their 

malpractice claims as objections to the fee award.” Id. at 49. 

And as CHG was warned they would be, these claims are now 

precluded.1

 

C. 

CHG also argues its claims, which it asserts were 

permissive rather than compulsory counterclaims, cannot be 

automatically precluded. The First Circuit has described the 

principle: the “failure to interpose a counterclaim does not 

necessarily act as a bar to later actions.” Iannochino, 242 

F.3d at 41. There are two “exceptions” which lead to a later 

action being barred by res judicata: (1) compulsory 

counterclaims may be barred, and (2) permissive 

counterclaims too may be barred when “the relationship 

between the counterclaim and the plaintiff’s claim is such that 

the successful prosecution of the second action would nullify 

the initial judgment or impair the rights established in the 

 

1

 CHG also argues there are disputed issues of material fact as to its 

knowledge, precluding summary judgment. Because the district 

court accepted CHG’s assertions with respect to the dates on which 

it gained actual knowledge, and charged CHG with constructive 

knowledge, there are no factual disputes in this case precluding 

summary judgment. 

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initial action.” Id. at 42 (quoting RESTATEMENT (SECOND) OF 

JUDGMENTS § 22(2)(b)). That is, res judicata may generally 

bar compulsory counterclaims, but not always permissive 

ones; otherwise res judicata would swallow Rule 13. But if 

allowing a permissive counterclaim to go forward would 

nullify the earlier judgment or impair rights established in the 

earlier action, even a permissive counterclaim can be barred. 

In this case, we need not determine whether CHG’s 

claims against Shaw Pittman were permissive or compulsory 

counterclaims because they are barred under the second 

“exception” regardless. The bankruptcy judge repeatedly 

awarded fees to Shaw Pittman for the services rendered to 

CHG in connection with its bankruptcy proceedings, and the 

district court affirmed the awards. E.g., In re Capitol Hill 

Group, 313 B.R. 344, 349–51 (D.D.C. 2004) (rejecting 

CHG’s equitable breach of fiduciary duty/breach of 

professional conduct argument). As the district court noted in 

granting summary judgment, the bankruptcy judge also made 

oral findings that Shaw Pittman’s services were professional 

and that Shaw Pittman deserved to be compensated for those 

services. At the final hearing before the bankruptcy court, the 

judge informed CHG it “could have pursued claims against 

Shaw Pittman regarding the adequacy of its representation ... 

at the bankruptcy fee hearings but that it failed to do so and 

would therefore be barred from later asserting claims based 

on Shaw Pittman’s representation by the doctrine of res 

judicata.” Capitol Hill Group, 574 F. Supp. 2d at 147. 

To allow CHG to litigate malpractice claims against 

Shaw Pittman now, based on the same representation, would 

nullify the initial judgment or impair the rights established by 

Shaw Pittman in the bankruptcy fee litigation. Unlike in 

regular civil litigation, “[i]n bankruptcy ... a successful 

malpractice action could impair rights that [the bankruptcy 

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professionals] had gained from the order awarding them fees. 

Under the relevant section of the bankruptcy code governing 

fee awards, a finding of malpractice would mean that the 

attorneys were not entitled to compensation for those services 

found to be substandard.” Iannochino, 242 F.3d at 42–43 

(internal citation omitted); see Southmark Corp., 163 F.3d 

at 931 (“Award of the professionals’ fees and enforcement of 

the appropriate standards of conduct are inseparably related 

functions of bankruptcy courts.”). 

IV. 

The judgment of the district court is 

Affirmed. 

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