Court Opinion

ID: 6984114
Source: CourtListenerOpinion
Date Created: 2022-07-24 02:46:07.0893+00
Date Added: 2024-06-11T16:09:21.183802
License: Public Domain

BOYCE F. MARTIN, JR., Chief Judge,
dissenting.
I join Judge Kennedy’s dissent. In the third opinion rendered by this Court in this case, I dissented from the panel’s decision, and I continue to remain convinced both that the Florida plaintiffs’ interests in the claims against Merrill Lynch were substantially identical to those of the Becherer plaintiffs, and that the Becherer plaintiffs adequately represented the interests of the Florida plaintiffs.
This case for me presents the best evidence I have seen of why litigation involving substantial real estate transactions is ill-suited for the courts. Each of the investors in the Registry Hotel was substantially financially able to personally undertake a reasonable investigation before investing in the project. Whatever the cause of the dispute, both the Eastern District of Michigan and this Court have devoted far too much time and effort to a matter that should long since have been resolved.
The return of this case for a fourth review of matters meticulously examined by courts in Michigan and Florida is a terrible waste of the current limited resources of our judicial system. The Florida plaintiffs were part of the class certified with respect to the contract claims against SSG and were part of a class that was conditionally certified for settlement purposes as to all issues. Although no class was certified for purposes of resolving the fraud claims, the district court correctly found that the Becherer plaintiffs and Florida plaintiffs had substantially identical interests in the claims against Merrill Lynch and that the Becherer plaintiffs adequately represented the Florida plaintiffs.
We review the district court’s factual findings regarding adequacy of representation for clear error. See Sanders Confectionery Prods. v. Heller Fin., 973 F.2d 474, 481 (6th Cir.1992) (citing King v. South Cent. Bell Tel. & Tel. Co., 790 F.2d 524, 530 (6th Cir.1986)); Fed.R.Civ.P. *44352(a). Of course, the ultimate legal determination of res judicata is subject to de novo review. Sanders, 973 F.2d at 480.
In Becherer III, this Court stated that the doctrine of virtual representation
requires more than a showing of parallel interest or, even, a use of the same attorney in both suits.... The question of virtual representation is one of fact and is to be kept within “strict confines.” Virtual representation demands the existence of an express or implied legal relationship in which the parties to the first suit are accountable to non-parties who file a subsequent suit raising identical issues.
43 F.3d at 1070 (quoting Benson & Ford, Inc. v. Wanda Petroleum Co., 833 F.2d 1172, 1175 (5th Cir.1987) (citations omitted)). Thus, the essential prerequisite for a finding of virtual representation is an express or implied legal relationship in which the parties to the first suit are accountable to the parties who bring the second suit.
In addition, this Court cited four additional factors that support a finding of virtual representation: (1) a close, non-litigating relationship between the parties in the two suits, (2) participation by the second parties in the first suit, (3) apparent acquiescence in the prior proceedings, and (4) deliberate maneuvering by the second parties to avoid the effects of the previous suit. Id. (quoting 18 Charles A. Wright et al., Federal Practice and Procedure § 4457 (1981)).
After reviewing the district court’s opinion, I believe that this Court should affirm its determination that the Florida plaintiffs were virtually represented by the Becherer plaintiffs in the earlier action, and that they are bound by this Court’s prior decision. The district court carefully evaluated voluminous evidence in this case and concluded that there was an express or implied legal relationship that made the Becherer plaintiffs accountable to all Unit Owners, including the Florida plaintiffs. Specifically, the district court found that the requisite accountability existed because the Becherer plaintiffs and their counsel, Simon, owed a fiduciary duty to, and thus were accountable to all Unit Owners, including the Florida plaintiffs. See Sondel v. Northwest Airlines, 56 F.3d 934, 938 (8th Cir.1995). The AUO and Unit Owners provided substantial financial and other assistance and participated in the Becherer action. They also influenced the conduct of the litigation in the Becherer action.
The Florida plaintiffs argue that the requisite legal relationship can only be found in a few precise situations — trustees and beneficiaries, agents and principals, fiduciaries, legal representatives, and class representatives — articulated in the Restatement of Judgments (Second) § 41 (1981). However, Merrill Lynch correctly points out that nothing in our prior opinions suggests such a limited scope for the doctrine; rather, this Court’s suggestion that “this case may yet be an appropriate one for the application of res judicata and collateral estoppel” strongly suggests that we did not intend to limit virtual representation to the situations listed in the Restatement. Becherer III, 43 F.3d at 1071; see also Tyus v. Schoemehl, 93 F.3d 449, 454 (8th Cir.1996) (rejecting view that parties should be bound under a theory of virtual representation only in very limited, technical situations).
Moreover, the district court found that the other four factors cited by Wright & Miller were present in this case. Specifically, it found that the Florida plaintiffs shared a close, non-litigating relationship with the Becherer plaintiffs because, as Unit Owners, all had invested in the same enterprise, and every Unit Owner was a member of a legal entity — the AUO— which existed before the action was ever filed, and which elected a board and held regular meetings.
Second, the district court found that the Florida plaintiffs had participated in the Becherer plaintiffs’ litigation. It found *444that the AUO, to . which all Florida plaintiffs belonged, authorized and financed the investigation and prosecution of the Bech-erer plaintiffs’ lawsuit by hiring attorney Simon under an agreement that specifically contemplated class litigation. Furthermore, the AUO paid Simon $250,000, of which over $58,000 was collected from Unit Owners, including $14,500 from twenty-nine Florida plaintiffs. The district court also found that the AUO controlled the investigation and prosecution of the Bech-erer plaintiffs’ lawsuit by continuing to communicate with class counsel throughout the Becherer action.
Third, the court found that the Unit Owners, including the Florida plaintiffs, acquiesced in permitting the Becherer plaintiffs to represent their interests. Grady, Simon, and the AUO all acknowledged that they believed that the Becherer plaintiffs were adequately representing all Unit Owners’ interests. None of the Florida plaintiffs objected to the AUO’s funding of and involvement in the Becherer action, and no Unit Owner sought to pursue individual claims until the Florida plaintiffs filed this second action. There was also evidence that Grady told the Florida plaintiffs to “wait and see” if the results of the Becherer action would be favorable before acting themselves.
Fourth and finally, the district court found that the Unit Owners deliberately maneuvered to obtain the benefits of the Becherer action while avoiding its detriments, using the earlier suit as a “test case” to see how their rights would be determined, and filing their own action years after the Becherer action began, and only then upon the district court’s imminent summary judgment ruling against the Becherer plaintiffs.
I believe that these findings amply support the district court’s conclusion that virtual representation applies to bind the Florida plaintiffs to the result in the Bech-erer action. None of the criticisms raised by the Florida plaintiffs in their brief is sufficient to find that the district court’s factual determination was clearly erroneous. Given the facts found by the district court, I cannot say that it erred in finding that the doctrine of virtual representation is appropriate in this case.
This case reminds me of my childhood reading, and I could not say it better than Charles Dickens did in Bleak House, referring to the case Jamdyce and Jamdyce:
At the present moment (August, 1853) there is a suit before the court which was commenced nearly twenty years ago, in which from thirty to forty counsel have been known to appear at one time, in which costs have been incurred to the amount of seventy thousand pounds, which is A FRIENDLY SUIT, and which is (I am assured) no nearer to its termination now than when it was begun. There is another well-known suit in Chancery, not yet decided, which was commenced before the close of the last century and in which more than double the amount of seventy thousand pounds has been swallowed up in costs. If I wanted other authorities' for Jarn-dyce and Jarndyce, I could rain them on these pages, to the shame of — a parsimonious public.
This case was first filed on August 21, 1989. Ten years later, it is still in court. With modern technology, we should have been able to do better. I therefore respectfully dissent. Footnotes