Source: https://law.justia.com/cases/federal/appellate-courts/F3/173/192/548167/
Timestamp: 2019-11-14 14:23:23
Document Index: 100509664

Matched Legal Cases: ['§ 1291', '§ 27', '§ 84', '§ 13', '§ 13', '§ 27', '§ 351']

Joseph A. Witkowski, M.d.; Grace Witkowski; Joseph A.witkowski, M.d., P.c. Defined Benefit Pensionplan; Joseph A. Witkowski, M.d.,trustee, Appellants, v. Robert G. Welch; Robert G. Welch, P.c.; Intrepid Oneservices, Inc.; Historical Second Street Developmentassociates; Robert G. Welch, General Partner; Robert G.welch, Trustee; Ronald J. Srein, Mortgagee, 173 F.3d 192 (3d Cir. 1999) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Third Circuit › 1999 › Joseph A. Witkowski, M.d.; Grace Witkowski; Joseph A.witkowski, M.d., P.c. Defined Benefit Pensionpl...
Joseph A. Witkowski, M.d.; Grace Witkowski; Joseph A.witkowski, M.d., P.c. Defined Benefit Pensionplan; Joseph A. Witkowski, M.d.,trustee, Appellants, v. Robert G. Welch; Robert G. Welch, P.c.; Intrepid Oneservices, Inc.; Historical Second Street Developmentassociates; Robert G. Welch, General Partner; Robert G.welch, Trustee; Ronald J. Srein, Mortgagee, 173 F.3d 192 (3d Cir. 1999)
U.S. Court of Appeals for the Third Circuit - 173 F.3d 192 (3d Cir. 1999) Argued Dec. 17, 1998. Decided April 12, 1999
The District Court, upon motion by defendant Welch, ordered that Counts I, II and V be subject to arbitration in accordance with the Agreement of Participation signed by the Witkowskis. The remaining matters were stayed pending the completion of arbitration. Defendant Srein, only named in Count V, filed a motion for reconsideration arguing that he was not a party to the participation agreement which compelled arbitration, and thus he should not be required to submit to it. The District Court agreed, and in a January 11, 1994 order directed that "Count V of the complaint involving Defendant Srein shall not be compelled to arbitration" but that " [t]he arbitration shall proceed in all other respects as previously ordered." App. 98. Whether this order removed the fraudulent conveyance issue with respect to all defendants, as the Witkowskis contend, or whether it simply removed Srein from the arbitration process while still mandating the other defendants to fully arbitrate that issue, is the gravamen of the present controversy.
The District Court had jurisdiction over this matter pursuant to 29 U.S.C. 1132(e) (1). We have appellate jurisdiction pursuant to 28 U.S.C. § 1291. Our review of the District Court's grant of summary judgment is plenary, and we test the record by the same standard which the District Court was required by Fed. R. Civ. P. 56 to utilize. Kelley v. TYK Refractories Co., 860 F.2d 1188, 1192 (3d. Cir. 1988). This standard requires the trial judge to enter summary judgment if there is no dispute as to material facts and if the moving party is entitled to judgment as a matter of law. In this case, as in Kelley, the District Court made no findings regarding the existence of material facts, but instead rested its decision solely on the preclusive effect of the arbitrator's award. Factual disputes, ordinarily resolved on a motion for summary judgment in favor of the nonmoving party, are not implicated in this appellate review. Accordingly, the only question on appeal is whether the District Court correctly applied the law in holding that the doctrine of collateral estoppel barred the Witkowskis' claim of fraud and fraudulent conveyance against defendant Srein, the transferee of real property.7
The doctrine of collateral estoppel, now commonly referred to as issue preclusion,8 prevents parties from litigating again the same issues when a court of competent jurisdiction has already adjudicated the issue on its merits, and a final judgment has been entered as to those parties and their privies. Schroeder v. Acceleration Life Ins. Co., 972 F.2d 41, 45 (3d. Cir. 1992). Issue preclusion "forecloses relitigation in a later action [ ] of an issue of fact or law which was actually litigated and which was necessary to the original judgment." Hebden v. Workmen's Compensation Appeal Bd., 534 Pa. 327, 330, 632 A.2d 1302, 1304 (1993); see also Restatement (Second) of Judgments, § 27 cmt. c (1982) ("An issue on which relitigation is foreclosed may be one of evidentiary fact, of 'ultimate fact' (i.e. the application of law to fact), or of law."). As the Supreme Court has observed, this doctrine reduces the costs of multiple lawsuits, facilitates judicial consistency, conserves resources, and "encourage [s] reliance on adjudication." Allen v. McCurry, 449 U.S. 90, 94, 101 S. Ct. 411, 415, 66 L. Ed. 2d 308 (1980).
Bortz v. Workmen's Compensation Appeal Bd., 546 Pa. 77, 81-82, 683 A.2d 259, 261 (1996); Safeguard Mut. Ins. Co. v. Williams, 463 Pa. 567, 574, 345 A.2d 664, 668 (1975); Shaffer v. Smith, 543 Pa. 526, 528-30, 673 A.2d 872, 874 (1996); Kelley, 860 F.2d at 1194; Bradley v. Pittsburgh Bd. Of Ed., 913 F.2d 1064, 1073 (3d Cir. 1990); Gregory v. Chehi, 843 F.2d 111, 121 (3d Cir. 1988); Rider v. Commonwealth of Pennsylvania, 850 F.2d 982, 989-90 (3d. Cir.), cert. denied, 488 U.S. 993, 109 S. Ct. 556, 102 L. Ed. 2d 582 (1988).
We have no doubt that the second and third criteria for issue preclusion have been fulfilled in this case. The doctrine of collateral estoppel can apply to the arbitration process in which the Witkowskis obtained a judgment against Welch, and that judgment could potentially bar them from pressing claims against Srein.9 Under Pennsylvania law, arbitration proceedings and their findings are considered final judgments for the purposes of collateral estoppel. See Dyer v. Travelers, 392 Pa.Super. 202, 572 A.2d 762, 764 (1990) ("An arbitration award from which no appeal is taken has the effect of a final judgment on the merits."); Ottaviano v. Southeastern Pennsylvania Trans. Auth., 239 Pa.Super. 363, 370, 361 A.2d 810, 814 (1976); Restatement (Second) of Judgments § 84 (1982) (" [A] valid and final award by arbitration has the same effects under the rules of res judicata, subject to the same exceptions and qualifications, as a judgment of a court."); Id. § 13 (" [F]or purposes of issue preclusion ... 'final judgment' includes any prior adjudication of an issue in another action that is determined to be sufficiently firm to be accorded conclusive effect.") The Witkowskis, in fact, had this award confirmed in full by the District Court. See 9 U.S.C. § 13 ("The judgment [confirming an arbitration award] so entered shall have the same force and effect, in all respects, as, and be subject to all the provisions of law relating to, a judgment in an action; and it may be enforced as if it had been rendered in an action in the court in which it is entered.") Moreover, the full arbitration proceeding was "on the merits" because the arbitrator dismissed all state claims based on either the expiration of the statute of limitations, the failure to be pleaded, and/or failures of proof. Such grounds for the dismissals constitute a judgment "on the merits." See e.g., Mellon Bank v. Rafsky, 369 Pa.Super. 585, 594, 535 A.2d 1090, 1094 (1987) (failure to produce sufficient evidence supports collateral estoppel); Restatement (Second) of Judgments § 27 cmt. d (1982) ("A determination may be based on a failure of the pleading or of proof as well as on the sustaining of the burden of proof.") Finally, the Witkowskis were a party to the prior proceeding, and thus, the third requirement was obviously fulfilled.10 What remains in contention is whether the issues were identical and whether there was a full and fair opportunity to litigate that issue in the prior proceeding. Each issue will be addressed in turn.
The Witkowskis dispute this reasoning, asserting two distinct arguments in support of their position. First, they correctly point out that " [t]he arbitrator dismissed only all of Plaintiffs' state common law claims...." Appellants' Br. at 10. Thus, the dismissal of state common law fraud is not fatal to a statutory claim under the Pennsylvania Uniform Fraudulent Conveyance Act ("the UFCA"). 39 Pa.Stat.Ann. §§ 351-363 (1991).11 Second, the finding of self-dealing and breach of fiduciary duty amounts to a finding of fraud under the federal common law embodied in the statutory scheme of ERISA. Thus, argue the Witkowskis, this finding is tantamount to a finding of facts sufficient to support Srein's independent liability as a "non-fiduciary knowingly participating in a fiduciary's breach of trust...." Appellants' Br. at 13.12 In sum, the Witkowskis believe they should be given the opportunity to prove that they were creditors of Historical, that a fraudulent transfer of Historical's only asset was made through its general partner Welch to Srein, without any consideration passing to Historical, and that Historical was rendered insolvent by virtue of this conveyance.
We disagree. While we are sympathetic to a prevailing plaintiff who seeks to somehow satisfy a substantial judgment against a seemingly judgment-proof defendant, established judicial principles and their application to the record before us cannot be ignored. That record demonstrates that a plain reading of the second amended complaint, an understanding of how the issues got to arbitration, confirmed by extensive testimony at the arbitration hearing and an analysis of the legal issues raised in the complaint and covered during arbitration--but pressed to be litigated once again only now in federal court--lead to the inescapable conclusion that "the ultimate and controlling issues have been decided in a prior proceeding in which the present parties actually had an opportunity to appear and assert their rights." Helmig v. Rockwell Mfg. Co., 389 Pa. 21, 131 A.2d 622, 627, cert. denied, 355 U.S. 832, 78 S. Ct. 46, 2 L. Ed. 2d 44 (1957) (citations omitted).
The process by which this case and different counts of the complaint reached arbitration is also necessary to understanding that which the arbitrator considered. Originally, the District Court ordered that Counts I, II and V be submitted to arbitration. Upon Srein's motion for reconsideration, however, the court held that "Count V of the Complaint involving Defendant Srein shall not be compelled to arbitration [.]" A fair reading of this second order, given the arbitrator's indications quoted infra, suggests that Count V was removed from the arbitrator's purview only as to the defendant Srein.
Turning to the award itself, the District Court found that the non-ERISA claims, including the fraudulent conveyance issue, were inextricably linked to the same alleged fraudulent scheme dismissed by the arbitrator. We agree. Implicit in the arbitrator's award is that neither Historical nor Welch, as its General Partner, committed the fraud complained of in plaintiffs' complaint. Indeed, the only place in plaintiff's complaint where Welch is recognized as the General Partner of Historical (or any other entity for that matter) is in Count V, the fraudulent conveyance claim. Yet, in the arbitration award, the "claims of CLAIMANTS against ... ROBERT G. WELCH, GENERAL PARTNER [were] denied." App. 134. Thus, this fraud issue which was clearly addressed in arbitration was also dismissed as to a party who was only named in the fraudulent conveyance count. In this manner, it is clear that dismissal of the fraudulent conveyance issue was "essential" to the arbitrator's award.15 Even if there was not a precise identity of the "causes of action" asserted, it would be of no legal consequence; there is no such requirement for the application of issue preclusion. Only the issues need be the same. See Rider, 850 F.2d at 990 n. 11. And in this case, the issues were "in substance the same" as that which the Witkowskis press to litigate once again. Raytech Corp. v. White, 54 F.3d 187, 192-93 (3d Cir. 1995). Accordingly, the identity of issues requirement is fulfilled in this case.
A party does not have an opportunity for a full and fair hearing when "procedures fall below the minimum requirements of due process as defined by federal law." Bradley, 913 F.2d at 1074. See also Kremer v. Chemical Constr. Corp., 456 U.S. 461, 481, 102 S. Ct. 1883, 1897, 72 L. Ed. 2d 262 (1982) (full and fair opportunity to litigate presumed when state proceedings satisfy minimum procedural requirements of due process); Rider, 850 F.2d at 991. The extensive arbitration hearing held here did not fall below this standard. That the arguments made during the arbitration hearing were not accepted in full by the arbitrator does not mean that the Witkowskis were prevented from fully presenting them. The District Court did not err in its decision to apply the doctrine of collateral estoppel. The Witkowskis cannot now be heard to complain that they did not have a full and fair opportunity to litigate the issue.
C.S. Helmig v. Rockwell Mfg. Co., 389 Pa. 21, 32-33, 131 A.2d 622, 628, cert. denied, 355 U.S. 832, 78 S. Ct. 46, 2 L. Ed. 2d 44 (1957). We find this reasoning persuasive and applicable to this case. Here, the fraud and fraudulent conveyance issues brought against Welch and Srein are so inextricably intertwined with one another that the disposal of the claims against the one is necessarily fatal to the alleged claim against the other.
This opinion, similar to the briefs submitted, is necessarily fact intensive as the facts are what complicate this issue. In holding that collateral estoppel applies to this unique case, we caution against its invocation in most others without extreme care. Indeed, doubts about its application should usually be resolved against its use. See Kauffman v. Moss, 420 F.2d 1270, 1274 (3d Cir. 1970) ("Reasonable doubt as to what was decided by a prior judgment should be resolved against using it as an estoppel.") While we are mindful of these concerns and feel it necessary to address them specifically, they are not implicated in the facts of this case, and thus not a bar to issue preclusion applied here.
We note that appellate courts, even within this Circuit, have reviewed the application and non-application of collateral estoppel under differing standards. Compare Raytech Corp. v. White, 54 F.3d 187, 190 (3d Cir. 1995) (abuse of discretion standard applies to review of District Court's decision to apply collateral estoppel), McLendon v. Continental Can Co., 908 F.2d 1171, 1177 (3d Cir. 1990) (same), with Dici v. Commonwealth of Pennsylvania, 91 F.3d 542, 547 (3d Cir. 1996) (plenary review of doctrine's application) and Arab African Int'l Bank v. Epstein, 958 F.2d 532, 534 (3d Cir. 1992) (same). See also Winters v. Diamond Shamrock Chemical Co., 149 F.3d 387, 391-92 (5th Cir. 1998) (abuse of discretion standard applies); Keystone Shipping Co. v. New England Power Co., 109 F.3d 46, 50 (1st Cir. 1997) (de novo review of application of issue preclusion); Berger Transfer & Storage v. Central States, Southeast and Southwest Areas Pension Fund, 85 F.3d 1374, 1376 (8th Cir. 1996) (decision not to apply issue preclusion reviewed for abuse of discretion); Town of North Bonneville v. Callaway, 10 F.3d 1505, 1508 (9th Cir. 1993) (availability of collateral estoppel is a mixed question of law and fact subject to de novo review); Bates v. Union Oil Co. of California, 944 F.2d 647, 651 (9th Cir. 1991) (abuse of discretion standard applies); Sandberg v. Virginia Bankshares, Inc., 979 F.2d 332, 344 (4th Cir. 1992) vacated and remanded for dismissal, 1993 WL 524680 (4th Cir. 1993) (de novo standard applies to availability of collateral estoppel, abuse of discretion standard applies to fairness of applying estoppel); United States v. Sandoz Pharm. Corp., 894 F.2d 825, 826 (6th Cir.), cert. denied, 498 U.S. 810, 111 S. Ct. 45, 112 L. Ed. 2d 21 (1990) (de novo review). We need not resolve whether or not an abuse of discretion standard should apply to some facets of the collateral estoppel analysis because even under the more exacting plenary review, the result of this case is the same
This doctrine is often confused with res judicata, which is now commonly referred to as claim preclusion. Claim preclusion "gives dispositive effect to a prior judgment if the particular issue, albeit not litigated in the prior action, could have been raised." Bradley v. Pittsburgh Bd. of Educ., 913 F.2d 1064, 1070 (3d Cir. 1990) (citations omitted). Issue preclusion (or collateral estoppel), "bars relitigation only of an issue identical to that adjudicated in the prior action." Id
The fact that Srein was not a party, and in fact may have refused to testify at the arbitration hearing without being subpoenaed, is of no consequence to the application of collateral estoppel. Mutuality of the parties, once the rule, has now been abolished in Pennsylvania. See In re Estate of Ellis, 460 Pa. 281, 286-87, 333 A.2d 728, 730-31 (1975); Public Serv. Mut. Ins. Co. v. Cohen, 616 F.2d 704, 707 (3d Cir. 1980). The only requirement is, logically, that the party against whom estoppel is asserted be a party to the prior adjudication. This was the case here because the Witkowskis were parties to the arbitration proceeding. Appellant's concede this in their brief. Appellant Br. 10
The Witkowskis claim that Srein is liable under Federal common law, discerned from the provisions of ERISA and trust law principles, for a non-fiduciary knowingly participating in a fiduciary's breach of duty. See Lowen v. Tower Asset Management, 829 F.2d 1209, 1220 (2d.Cir. 1987). This second argument can be disposed of because it was never made to the District Court. This Court consistently holds that arguments made for the first time on appeal, will generally not be considered. Harris v. City of Philadelphia, 35 F.3d 840, 845 (3d Cir. 1994). Before the submissions to this court, Count V seemingly concerned only the fraudulent transfer. Nowhere was Srein's potential liability as a nonfiduciary under federal common law based on ERISA raised. This includes in the Witkowskis' submissions in opposition to Srein's first summary judgment motion, which extensively discusses the fraudulent conveyance issue, App. 80-87, as well as in the Witkowskis' opposition to Srein's motion to amend and for summary judgment, App. 201-07. Having not raised this issue below, this court need not and will not comment on its merit or viability in the Third Circuit
Some Pennsylvania courts state that there are actually five--instead of four--elements to the issue preclusion doctrine. The fifth element requires that the determination of an issue in the prior case must have been "essential" to the previous judgment. See Mellon Bank v. Rafsky, 369 Pa.Super. 585, 593, 535 A.2d 1090, 1093 (1987). Whether there are four or five formal elements to the doctrine is not of consequence, nor is it for us to decide. In any event, the doctrine is essentially the same under either analysis. Even with just the four formal elements, clearly there must be a nexus between the first two. In other words, " [t]he identical issue must have been necessary to final judgment on the merits." Balent v. City of Wilkes-Barre, 542 Pa. 555, 564, 669 A.2d 309, 313 (1995) (citing Allen v. McCurry, 449 U.S. 90, 94, 101 S. Ct. 411, 414, 66 L. Ed. 2d 308 (1980))