Legal Malpractice

It's Not Always Res Judicata in Bankruptcy Legal Malpractice Cases

By (Andrew Lavoott Bluestone)

There are two traps for the unwary legal malpractice litigant in Bankruptcy Court.  One is the failure to list a potential or actual legal malpractice claim in the schedules, depriving the emergent litigant from bringing a legal malpractice case later.  A second trap is the attorney fee hearing, which if it allows fees to the attorney may insulate that attorney from a later legal malpractice case.

Here is an example where there is no res judicata. In PENTHOUSE MEDIA GROUP, INC.,  - against - PACHULSKI STANG ZIEHL & JONES LLP, UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK;2009 U.S. Dist. LEXIS 46617; June 2, 2009, Decided  we see:
 

"Even when all of the elements of res judicata are satisfied, a malpractice claim remains viable unless a party "could and should have brought [it] in the former proceeding." 40 "In this context, important factors in this analysis include whether the fee hearing [*12] was an adversary proceeding or contested matter, the nexus between the order awarding [] fees and the claims now being asserted, and 'the amount of time that has elapsed since the case commenced.'" 41 Such a determination depends on "whether and to what extent [the party] had actual or imputed awareness prior to the fee hearing of a real potential for claims . . . and whether the bankruptcy court possesse[s] the procedural mechanisms that . . . allow [the party] to assert such claims." 42

40 In re Intelogic Trace, Inc., 200 F.3d 382, 388 (5th Cir. 2000). Accord EDP Med. Computer Sys., Inc. v. United States, 480 F.3d 621 (2d Cir. 2007) HN8("Under the doctrine of res judicata, or claim preclusion, '[a] final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action.'") (quoting St. Pierre v. Dyer, 208 F.3d 394, 399 (2d Cir. 2000) (emphasis added)); Sure-Snap Corp. v. State Street Bank & Trust Co., 948 F.2d 869, 875 (2d Cir. 1991) (finding that a claim for tortious infliction of emotional distress against creditors should have been brought as part of a prior bankruptcy proceeding and was therefore [*13] barred by res judicata).

41 In re Intelogic, 200 F.3d at 388 (quoting Matter of Howe, 913 F.2d 1138, 1147 n.28 (5th Cir. 1990)).

42 Id.

For the reasons discussed above, the bankruptcy court's Order granting Pachulski's motion for summary judgment is reversed. This case shall be remanded to the United States Bankruptcy Court for the Southern [*25] District of New York for actions consistent with this opinion. The Clerk of the Court is directed to close this case."
 

Full post as published by New York Attorney Malpractice Blog on July 13, 2009 (boomark / email).