Articles Posted in Collateral Estoppel

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This issue comes up every now and then. An attorney files a collection lawsuit against a client and obtains a judgment against the client. (Here the client did not appear and a default judgment was entered). Later, the client reviews the attorney’s work and files a legal malpractice lawsuit. May the lawyer argue that the legal malpractice case is barred by the doctrine of res judicata? Here the answer is “No.”

The court includes a discussion of res judicata:

The purpose of this common law doctrine is to “relieve the parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and, by preventing inconsistent decisions, encourage reliance on adjudication.” Allen v McCurry, 449 US 90, 94; 101 S Ct 411; 66 L Ed 2d 308 (1980). “For the sake of repose, res judicata shields the fraud and cheat as well as the honest person. It therefore is to be invoked only after careful inquiry [as to whether foreclosing plaintiff’s case would protect] the interests served by res judicata.” Brown v Felsen, 442 US 127, 132; 99 S Ct 2205; 60 L Ed 2d 767 (1979). “The burden of establishing the applicability of res judicata is on the party asserting the doctrine.” Richards v Tibaldi, 272 Mich App 522, 531; 726 NW2d 770 (2006).

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Collateral estoppel is a doctrine that allows a court to bar relitigation of an issue that was already decided in a prior case. This case, Hexum v. Parker and Parker & Halliday, 2017 IL App (3d) 150514-U, is unpublished. The decision is one of many that reject a collateral estoppel defense to a legal malpractice action.

Hexum sued his lawyers for legal malpractice for allegedly giving him negligent advice in his divorce case; specifically as to the amount of maintenance he would owe.

In the underlying divorce case, Hexum entered into an agreement with his ex-wife to pay her $6250 per month and 35% of any bonus or stock option that he exercised.

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Source: Sheth v. Premier Bank, Dist. Court, WD Wisconsin 2015 – Google Scholar

The plaintiff in this case, Kamlesh Sheth, lost a state court foreclosure case. Sheth then sued a law firm for legal malpractice and the bank that obtained the judgment against him for fraud and other torts.

Sheth claimed that the defendant bank had agreed not to pursue a deficiency judgment against Sheth. Sheth cited an agreement between himself and the bank and drafted by the defendant law firm under which the Bank waived the right to pursue the deficiency if Sheth obtained a buyer for the property and the sales price was $1,100,000 and the buyer agreed to pay off the mortgage note. Sheth claimed that he met his obligations under the agreement and that the Bank had no right to seek a deficiency judgment.

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In the appeal captioned, Stevens v. McGuirewoods, LLP, 2014 IL App (1st) 13-3952, the Illinois Appellate Court reversed a grant of summary judgment in favor of McGuirewoods. The Appellate Court held that the trial court erred in applying collateral estoppel to bar the claims.

In their complaint against McGuireWoods, the plaintiffs alleged that the law firm breached its fiduciary duty to plaintiffs by failing to assert claims against Sidley Austin LLP (Sidley). McGuireWoods moved for summary judgment on the ground that in the underlying case the trial judge ruled that the plaintiffs lacked standing to sue Sidley.

The plaintiffs were former minority shareholders of Beeland Management LLC. They hired McGuireWoods to bring both individual and derivative claims on their behalf and derivative claims on behalf of Beeland against Beeland’s managers and majority shareholder. In the litigation, the plaintiffs eventually sued Sidley for breach of fiduciary duty and other claims. (In a derivative claim, the shareholder stands in the shoes of the corporation and files a lawsuit against someone who has allegedly breached a duty to the corporation.).

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