Opinion ID: 199309
Heading Depth: 2
Heading Rank: 2

Heading: The three requirements of res judicata

Text: 18 Having determined that res judicata is generally applicable in this situation, we next evaluate whether the specific res judicata requirements are present. For the fee award to bar the Iannochinos' malpractice claim, there must be (1) a final judgment on the merits in an earlier suit, (2) sufficient identicality between the causes of action asserted in the earlier and later suits, and (3) sufficient identicality between the parties in the two suits. 5 Mass. School of Law v. American Bar Assoc., 142 F.3d 26, 37 (1st Cir. 1998). The Iannochinos contend that each of these requirements is absent. 6
19 The question of whether the fee award was a final or an interim judgment presents an unusual degree of difficulty because, in contrast to most other civil litigation, finality in bankruptcy is a more elusive concept. See In re Am. Colonial Broad. Corp., 758 F.2d 794, 801 (1st Cir. 1985). To be final, a bankruptcy court order need not resolve all the issues raised by the bankruptcy[, though it] must completely resolve all of the issues pertaining to a discrete claim, including issues as to the proper relief. In re Integrated Res., Inc., 3 F.3d 49, 53 (2d Cir. 1993) (emphasis in original). A bankruptcy court order must leave nothing to be done with respect to the claim except the ministerial supervision of the execution of the order. See In re Am. Colonial Broad. Corp., 758 F.2d at 801. An application for an award of fees for professional services is precisely such a discrete claim. Consequently, in this context, an interim award of attorney's fees under 11 U.S.C.a§ 330(a)(1) and 331 is not final because the order does not fully resolve the attorney's claim, leaving open the possibility that the claim will later be enlarged through future fee applications. In re Spillane, 884 F.2d 642, 644 (1st Cir. 1989). On the other hand, a fee award that determines all of the compensation owed to an attorney under section 330 may be considered final. See id. The determination of whether an award was or was not final, by its nature, depends upon the circumstances of the case. In re Dahlquist, 751 F.2d 295, 297 (8th Cir. 1985). 20 The Iannochinos argue that Aframe created a genuine issue of material fact by indicating on the fee application that he was seeking only an interim rather than a final award. The application begins with Aframe's assertion that he was the attorney of the debtor in the Chapter 13 bankruptcy. By this statement, the Iannochinos contend, Aframe admitted that he was continuing to represent them. Because representation was continuing, a factfinder could reasonably conclude that there would be future requests for compensation. This conclusion is bolstered, they argue, by the reference in the application to section 331, which is the section of the bankruptcy code applicable solely to interim compensation. 21 Stripped of their context, these two references in the fee application render superficial support for the Iannochinos' position. We cannot, however, simply examine isolated fragments from a fee application to create a factual dispute if none reasonably exists when the application is viewed in its full context. After examining the full circumstances surrounding the fee application, we conclude that a reasonable factfinder could only determine that the order here was final. 22 In his fee application, Aframe sought reimbursement for services that extended into August, even though his application was captioned Chapter 13 and the bankruptcy had been converted to Chapter 7 in April. The bankruptcy court, however, explicitly denied the application insofar as it sought fees for services provided after the conversion. This approach suggests that even if representation had continued, neither defendant would have been entitled to further fee awards. In the present case, however, representation did not continue. Despite Aframe's assertion in the fee application that he was the attorney of the debtor, the only reasonable conclusion from the record is that Aframe was not the Iannochinos' attorney at the time of the application. The Iannochinos themselves lend support to this conclusion. Their opposition to the fee application was based in part upon the assertion that they owed no fees to Aframe because, though they had hired Rodolakis, they never retained Carl D. Aframe as counsel. Indeed, they claimed an express understanding at the time of Rodolakis's retention that Rodolakis-and not Aframe-was their attorney. 7 23 Moreover, when read in context, the fee application does not indicate that Aframe was continuing to represent the Iannochinos. Aframe asserted that he was the attorney for the debtor in this proceeding, which the caption references as the Chapter 13 bankruptcy action. The Chapter 13 action had concluded upon the conversion to Chapter 7 several months prior to the application. Although Aframe did seek fees for services performed after the conversion of the case, he did not seek any fees for the time after Rodolakis, and by extension, his firm had withdrawn from the case. In this context, Aframe's recitation of his employment status is simply a statement that he was entitled to an award of attorney's fees because he had been employed by the Iannochinos at the time the services had been rendered. Indeed, the only reasonable conclusion from the record evidence is that Aframe represented the Iannochinos purely through his partnership relationship with Rodolakis. When Rodolakis withdrew from the case, Aframe's professional relationship with the Iannochinos also terminated. The discharge of an attorney prior to an order approving a fee application indicates that no further services will be rendered and consequently that no further applications will be made. 8 See In re Spillane, 884 F.2d at 645. 24 The mere reference to section 331 also does not undercut the finality of the order on attorney's fees. Though the Iannochinos are correct that section 331 only applies to interim compensation, 9 and thus there is no reason to reference it in an application for a final award of fees, we decline to allow a mere statutory reference to determine the actual nature of the fee request, particularly when section 331 was mentioned here in conjunction with the more general, final compensation provisions of section 330. See In re Yermakov, 718 F.2d 1465, 1469 (9th Cir. 1983) (holding fee order was final despite explicit reference in the order to future fee applications). As the bankruptcy court's order determined all issues related to the defendants' claim for fees, the order was final and may be given res judicata effect.
25 The Iannochinos' challenge to the identity of the parties is confined to Rodolakis. They note that Rodolakis had withdrawn from the case by the time of the fee application and award and that Aframe applied for the fees in his name only. Therefore, they contend, Rodolakis was not in privity with Aframe and cannot now gain any benefit from whatever res judicata effect might attach to the fee award. 26 The record does indicate that Rodolakis and Aframe ceased to be law partners at some point after Rodolakis stopped representing the Iannochinos and withdrew from the case. Though the precise date of that split is unclear, the fee application came from Aframe's solo practice rather than from the firm of Aframe and Rodolakis. We can reasonably infer, therefore, favorably to the Iannochinos, that Rodolakis was not a party to the fee application. This inference, however, does not stretch as far as the Iannochinos urge. Nonparties may gain the benefit of a prior litigation if they were in privity with a party to the previous action. See Gonzales v. Banco Central Corp., 27 F.3d 751, 756 (1st Cir. 1994). Though privity is an elusive concept, we have found privity if a nonparty either substantially controlled a party's involvement in the initial litigation or, conversely, permitted a party to the initial litigation to function as his de facto representative. Id. at 758. 27 Even drawing all reasonable inferences in favor of the Iannochinos, a reasonable factfinder could only conclude on this record that Aframe and Rodolakis were in privity because Aframe was acting as Rodolakis's de facto representative in pursuit of the legal fees. See, e.g., In re Belmont Realty Corp., 11 F.3d 1092, 1097; In re Medomak Canning, 922 F.2d 895, 901 (1st Cir. 1990). Aframe and Rodolakis were law partners during the time that the services detailed in the fee application were provided to the Iannochinos. Rodolakis was potentially entitled to payment from the estate for those services. See 11 U.S.C. § 330. Aframe's fee application, though submitted from his office, did not limit itself to a claim for the services Aframe had rendered, but instead sought reimbursement for all services provided to the Iannochinos, irrespective of which attorney had provided the services. The amount sought was nearly $10,000. The overwhelming majority of this work had been performed by Rodolakis, who billed sixty hours to Aframe's six. Moreover, at some point shortly after the fee application was granted in March 1995, Rodolakis had a chance meeting with the Iannochinos in the bankruptcy court during which they discussed the ongoing bankruptcy. 10 Peter Iannochino testified in deposition that Rodolakis told the Iannochinos at this meeting that he was due to receive twenty percent of the compensation awarded pursuant to the fee application. This statement confirms that Aframe was Rodolakis's de facto representative in filing the fee application. Consequently, the defendants have established the identity of parties element of res judicata. 28
29 In determining whether causes of action are sufficiently related to support a res judicata defense, we have adopted a transactional approach. Mass. Sch. of Law, Inc. v. American Bar Assoc., 142 F.3d 26, 38 (1st Cir. 1998). We have relied upon the three factors set forth in the Restatement to guide our analysis of whether two claims are actually part of a single cause of action. See Porn v. Nat'l Grange Mut. Ins. Co., 93 F.3d 31, 34 (1st Cir. 1996). Though none of these factors is determinative, and the three factors do not exhaust all factors that may be considered, they provide a helpful framework for analyzing the Iannochinos' contentions. See id. First, we look to whether the facts are related in time, space, origin or motivation, second, to whether they form a convenient trial unit, and third, to whether their treatment as a unit conforms to the parties' expectations. Id. (quoting Restatement (Second) of Judgments §a24 (1982)). 30 Before turning to a discussion of those elements, however, we note that the Fifth Circuit has found identity of cause of action upon facts that are essentially identical to those in this case. SeeIn re Intelogic Trace, Inc., 200 F.3d 382, 387 (5th Cir. 2000). In Intelogic Trace, a Chapter 11 debtor had hired an accounting firm to assist it in various accounting matters connected with the bankruptcy. See id. at 384. Shortly after the reorganization plan was confirmed and before the firm's fee application was approved, the debtor discovered errors in the services the firm provided. See id. The debtor nonetheless declined to proceed on a malpractice claim, preferring instead to negotiate a reduction in the fees from the firm. See id. The bankruptcy court approved the application, with the negotiated reduction. See id. at 385. When, months later, the reorganization plan failed and the debtor again entered bankruptcy under Chapter 7, the Chapter 7 trustee initiated a malpractice action in state court against the accounting firm. See id. After this action was removed to the bankruptcy court, it agreed that res judicata barred the malpractice claim and granted summary judgment. See id. at 385-86. The Fifth Circuit affirmed. See id. at 387. The Intelogic Trace court's reasoning on these issues is persuasive and we refer to it throughout our discussion of the Restatement factors. 31
32 The Iannochinos do not mount a serious challenge to the factual similarities between the two claims. Nor could they. As the Intelogic Trace court noted, the bankruptcy court must undertake a comprehensive evaluation of the services listed in a fee application when determining whether to award fees. Under section 330, the bankruptcy court must consider the nature, the extent, and the value of such services. 11 U.S.C. §a330(a)(3)(A). 11 A bankruptcy court therefore makes an implied finding of quality and value in the professional services provided to the Iannochinos during the bankruptcy. Intelogic Trace, 200 F.3d at 387. Likewise, the Iannochinos' malpractice claim entails the same concern, as their allegations of malpractice arise from the defendants' legal advice relating to the bankruptcy. It was this legal advice that formed the basis of Aframe's fee application. Thus, the central factual question in both claims is the same: What advice did the defendants give to the Iannochinos during the bankruptcy, and what was the quality and value of that advice? 33
34 We examine whether the two claims form a convenient trial unit with an eye towards the conservation of judicial resources by preventing needless duplication of litigation. See Porn, 93 F.3d at 36. In contrast to the evaluation of the factual relationships we undertook above, this inquiry focuses upon what would happen at trial. See Restatement (Second) of Judgments §a24 cmt. b (1982). We determine whether the witnesses or proofs required to prove the factual basis of both claims substantially overlap. See Mass. Sch. of Law, 142 F.3d at 38 ([W]here the witnesses or proof needed in the second action overlap substantially with those used in the first action, the second action should ordinarily be precluded.) (quoting Porn, 93 F.3d at 36). The Iannochinos argue that the proof is different, pointing primarily to the necessity of expert witnesses for their malpractice claims. This contention, however, ignores the essential nature of the bankruptcy court's examination of the fee application. Although no experts are called in a fee hearing, this does not mean that there is no expert evaluation of the services rendered in this case. The bankruptcy court has directly seen the results of the attorney's work for which a fee award is requested. Moreover, a judge is presumed knowledgeable as to the fees charged by attorneys in general and as to the quality of legal work presented to him by particular attorneys; these presumptions obviate the need for expert testimony such as might establish the value of services rendered by doctors or engineers. In re W.J. Servs., Inc., 139 B.R. 824, 828 (S.D. Tex. 1992). To the extent that the malpractice claim would require an expert witness or witnesses not required by the fee hearing, this difference in proof does not eliminate the substantial overlap of the remaining proofs required to determine the essential issue in both claims, namely the quality of the defendants' legal services to the Iannochinos. 35 Of course, this substantial overlap between the proof required for each claim would not matter for the purposes of res judicata if the Iannochinos could not have brought their malpractice claim in opposition to Aframe's fee application. See Kale v. Combined Ins. Co. of Am., 924 F.2d 1161, 1167 (1st Cir. 1991) (noting that res judicata cannot bar a claim that could not have been raised in the first action). Though the Aframe fee application was a contested matter in bankruptcy, this does not mean, as the Iannochinos contend, that the bankruptcy court's evaluation of the fee application would be limited to a purely administrative analysis of the fees, leaving it no authority to undertake a full trial--including a potential award of damages--on the malpractice claim. Indeed, the Intelogic Trace court has directly addressed the powers of the bankruptcy court in this context: Although the fee hearing was a contested matter [the] fee application was a claim against [the debtor]. Had [the debtor] objected to the fee application and included with its objection a claim for affirmative relief on account of alleged malpractice, the matter would have become an adversary proceeding. In re Intelogic Trace, Inc., 200 F.3d at 389-90 (citations omitted). The bankruptcy rules specifically provide for objections to the allowance of a claim, a provision that the Iannochinos used by filing their initial objection to the application. See Fed. R. Bankr. P. 3007. Furthermore, when an objection is combined with a demand for monetary damages under this rule, as in a professional malpractice claim, the fee hearing becomes an adversary proceeding in which these issues may be addressed. Fed. R. Bankr. P. 3007 (providing for an adversary proceeding when an objection to a claim is joined with a demand for relief of the kind specified in Rule 7001); see also Fed. R. Bankr. P. 7001(1) (defining a proceeding to recover money or property as an adversary proceeding). The fact that the Iannochinos did not take advantage of these procedures does not alter the fact that they could have done so and thus tried the malpractice claim at the time of the fee application. 36
37 Finally, we examine whether treating these two claims as a single trial unit would conform to the parties' expectations. In assessing the parties' litigation expectations, we look to the parties' knowledge at the time of the first suit on the underlying facts. SeePorn, 93 F.3d at 37. The Iannochinos contend that at the time of the fee application they did not know that Rodolakis and Aframe might have violated their duty of care towards them. As laypersons, they say, they would have little idea about the standards governing the legal profession, and thus they had no way of knowing whether the defendants had breached those standards. Without this knowledge of a breach of duty, the Iannochinos contend, they could not have known that they had a malpractice claim against the defendants. We disagree. When evaluating the parties' expectations, we are guided by the principle that, where two claims arose in the same time frame out of similar facts, one would reasonably expect them to be brought together. Id. Therefore, rather than considering whether the Iannochinos 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. 38 The Iannochinos point to three areas in which they claim Rodolakis gave them substandard advice: his advice to repudiate the Kwik Kopy franchise agreement, to ignore the Clark University lawsuit, and to enter into the bankruptcy. Although the Iannochinos may not have had any reason to question this advice when given, their situation at the time of the fee application necessarily changed the reasonable perception of these events. By that time, their relationship with their attorney had broken down. Indeed, Rodolakis withdrew from the case because there [was] no effective attorney/client relationship between counsel and the Debtors. In each instance, the advice the Iannochinos now claim was improper resulted in almost immediate negative results. After the Iannochinos removed all Kwik Kopy indicia from the Iannochinos' print store and opened under another name, Kwik Kopy took aggressive actions to enforce its rights under the franchise agreement, including requesting relief on multiple occasions from the automatic stay so that it might enforce the non-compete provision of the contract. Likewise, their inaction on the Clark University lawsuit quickly resulted in a default judgment. Indeed, the record indicates that the Iannochinos were upset about the Clark lawsuit and felt that they should not ignore what they thought were their valid counterclaims to that action. Furthermore, by the time of the fee application, the bankruptcy had been converted from Chapter 13 to Chapter 7. This conversion surely brought with it a similar reevaluation of whether it had been appropriate to file for bankruptcy in the first instance. Accordingly, the Iannochinos knew all the facts necessary for bringing their malpractice claim at the time of the fee application, and we think it reasonable for Aframe and Rodolakis to expect that all concerns about the quality of their services would have been raised in response to the fee application. See Porn, 93 F.3d at 37 (Defendants may reasonably demand that disposition of the first suit establish repose as to all matters that ordinary people would intuitively count part of a single basic dispute.) (quoting 18 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure §a4407 at 56 (1981)). 39 We are mindful that the Iannochinos were unrepresented at the time of the fee award. The Iannochinos emphasize this fact, arguing that this distinguishes them from the debtor in Intelogic Trace. Although the debtor in that case was represented at the time of the accounting firm's fee application, that fact is not determinative. Indeed, the breakdown of the attorney/client relationship here is further evidence that the Iannochinos should have raised their malpractice claims as objections to the fee award. We reject the suggestion implicit in their argument that parties can ignore facts indicating that they should assert a malpractice claim solely because of a lack of representation.