Allen v. Martin, 06CA1768.

• Decision Date: 12 June 2008
• Docket Number: No. 06CA1768.,06CA1768.
• Citation: 203 P.3d 546
• Parties: Mary B. ALLEN, a/k/a Mary Beth Stenzel, Plaintiff-Appellant, v. William S. MARTIN; Kutak Rock L.L.P.; Paul G. Bursiek; and Pendleton Friedberg Wilson & Hennessey, P.C., Defendants-Appellees.
• Court: Colorado Court of Appeals

203 P.3d 546

Mary B. ALLEN, a/k/a Mary Beth Stenzel, Plaintiff-Appellant, v. William S. MARTIN; Kutak Rock L.L.P.; Paul G. Bursiek; and Pendleton Friedberg Wilson & Hennessey, P.C., Defendants-Appellees.

No. 06CA1768.

Colorado Court of Appeals, Div. VI.

June 12, 2008.

Charles Welton, P.C., Charles Welton, Denver, Colorado; Doug Meier, Lakewood, Colorado, for Plaintiff-Appellant.

Haddon Morgan Mueller Jordan Mackey & Foreman, P.C., Jeffrey S. Pagliuca, Denver, Colorado; Wheeler Trigg Kennedy L.L.P., Michael L. O'Donnell, Carolyn J. Fairless, Jessica G. Simbalenko, Denver, Colorado, for Defendants-Appellees.

Opinion by Judge WEBB.

In this legal malpractice action, plaintiff, Mary Beth Allen, appeals the summary judgment in favor of defendants, William S. Martin, Paul G. Bursiek, Kutak Rock, L.L.P., and Pendleton Friedberg Wilson & Hennessey, P.C., and the trial court's order striking her criminal law expert. We affirm.

Synopsis

We first discuss whether malpractice claims are compulsory counterclaims in an action to collect legal fees, and conclude that C.R.C.P. 13(a) bars all of Allen's claims against Bursiek, Pendleton, and Martin for his conduct while at Pendleton. The remainder of the opinion addresses Martin's conduct while at Kutak, for which it could be vicariously liable.

We next examine whether a guilty plea is preclusive in subsequent civil litigation and conclude that Allen's guilty plea estops her from relitigating any facts necessarily established by the plea. However, it is not preclusive on the "in connection with" a security element of criminal securities fraud, which does not require proof of specific intent.

Nevertheless, Martin's failure to have made rescission offers to participating buyers does not establish the negligence claim because such offers would have been irrelevant to Allen's culpability for having already committed securities fraud. Negligent securities advice by Martin that supposedly "led to" to the Ryan charge is not actionable because Allen's plea admitted having acted knowingly on all elements of this charge.

We then turn to the breach of fiduciary duty claim, and conclude that expert testimony is required for both Martin's alleged obligation to have discussed his representation of Allen with the prosecutor and the purported effect such a discussion would have had on the criminal proceedings. We uphold the trial court's ruling striking the criminal law expert, which precludes this claim.

Thus, the summary judgment is affirmed.

                I.     Introduction ....................................................... ____
                       A. Facts ........................................................... ____
                       B. Allen's Theory of the Case ...................................... ____
                       C. The Trial Court's Ruling ........................................ ____
                   II. Summary Judgment Standard .......................................... ____
                  III. C.R.C.P. 13(a) ..................................................... ____
                       A. Capacity ........................................................ ____
                       B. Logical Relationship ............................................ ____
                       C. Maturity of Compulsory Counterclaim ............................. ____
                       D. Opposing Parties ................................................ ____
                   IV. Allen's Guilty Plea and Causation .................................. ____
                       A. Issue Preclusion ................................................ ____
                          1. Colorado Precedent ........................................... ____
                          2. Out-of-State Authority ....................................... ____
                          3. Policy Considerations ........................................ ____
                       B. Causation ....................................................... ____
                          1. Setting Aside a Criminal Conviction .......................... ____
                          2. The Negligence Claim ......................................... ____
                          3. The Breach of Fiduciary Duty Claim ........................... ____
                          4. The Criminal Law Expert ...................................... ____
                

I. Introduction

A. Facts

Many of the facts in this case are disputed. The record establishes the following facts as either undisputed or necessarily resolved in favor of Allen for purposes of this appeal.

Allen was an officer and minority shareholder of Women's International Investment Network (WIIN). WIIN purchased residential properties, which it resold to "participating buyers" in noncash transactions partly funded by a promissory note from WIIN. A participating buyer would obtain a loan to finance the remainder of the purchase price, lease the property back to WIIN, and plan to service the loan with rent collected by WIIN on its sublease of the property until the property could be sold at a profit to be divided between WIIN and the participating buyer. See People v. Destro, ___ P.3d ____, ____, 2008 WL 2202099, *1 (Colo.App. No. 03CA1261, May 29, 2008) (affirming conviction of one of the WIIN principals on charges arising from WIIN's failure to perform its obligations to participating buyers).

In 1998, WIIN entered into a fee agreement with the Pendleton firm. Allen guaranteed payment. In August 2000, Pendleton terminated its representation of WIIN for nonpayment of fees. During this time, both Bursiek and Martin were with Pendleton, and they provided advice concerning the securities law implications of the participating buyers program.

In April or May 2000, the district attorney began investigating WIIN. Neither Bursiek nor Martin ever spoke to the prosecutor about their representation of Allen. In October 2000, Martin left Pendleton and joined the Kutak firm. In November 2000, Kutak began representing WIIN and Allen in various civil matters, including complaints against her filed with the real estate commission. Martin also performed some services in connection with loans to WIIN from a third party who had not been a participating buyer (the Ryan transaction).

On September 12, 2001, Pendleton sued WIIN, Allen, and others for its fees (the collection action). Allen was served with the summons and complaint on October 2, 2001, but failed to respond, and Pendleton obtained a default judgment against her.

Meanwhile, on August 22, 2001, Allen and the other WIIN principals were indicted on multiple counts of securities fraud and theft arising from transactions with participating buyers. In 2002, they were indicted for theft and conspiracy involving the Ryan transaction.

In August 2003, Allen agreed to plead guilty to one count of securities fraud in violation of sections 11-51-501(1)(c) and 11-51-603(1), C.R.S.2007, concerning the most recent of the previously charged participating buyers transactions, and one count of theft in violation of section 18-4-401(1), (2)(d), C.R.S.2007, concerning the Ryan transaction. Based on the plea agreement, judgment of conviction was entered and Allen was sentenced. She has not sought to set aside her plea.

B. Allen's Theory of the Case

According to Allen, she had an attorney-client relationship with all defendants and relied on them for advice, including securities issues arising from the participating buyers program. As relevant here, she asserted negligence and breach of fiduciary duty.

The negligence claim alleged that defendants acted below the standard of care by failing to warn her that WIIN's activities could violate the securities laws, to caution her as to potential criminal liability, to make the participating buyers program securities law compliant, and to remedy possible past securities law violations by offering participating buyers rescission based on additional disclosures before she was indicted. Allen asserts that noncompliance with the securities laws led to prosecution of the Ryan charges, but she does not identify any deficiencies in the legal services performed on the Ryan transaction by Martin while he was with Kutak.

The breach of fiduciary duty claim alleged that Bursiek and Martin did not assist her in defense of the criminal securities fraud charges by acknowledging to the prosecutor their supposed approval of the participating buyers program. The amended complaint did not specifically include the Ryan transaction in her breach of fiduciary duty claim. According to Allen's criminal law expert, however, Martin should have told the prosecutor that the Ryan transaction involved no intentional wrongdoing.

C. The Trial Court's Ruling

After the parties had engaged in extensive discovery and exchanged summaries of anticipated expert testimony, Pendleton moved for summary judgment. Kutak joined in that motion and filed its own summary judgment motion. While these motions were pending, the trial court held an evidentiary hearing and struck Allen's criminal law expert. Thereafter, in a detailed written order, the trial court granted Pendleton's motion on three grounds, without mentioning Kutak's motion. The court did not specifically rely on its ruling striking the expert.

First, the court held that Allen's claims should have been brought in the collection action as compulsory counterclaims under C.R.C.P. 13(a), and therefore were barred as against Pendleton, and Bursiek and Martin because they were in privity with Pendleton. In this aspect of its ruling, the court acknowledged that Kutak was not in privity, but it did not address Martin's conduct while he was at Kutak.

Second, treating Allen's guilty plea as conclusively establishing that she had committed securities fraud and theft, the court held that the in pari delicto doctrine barred Allen's claims against Pendleton, Bursiek, and Martin because Allen's "theory of the case is that the Pendleton Defendants participated in the illegal and fraudulent conduct to which she pled guilty." Again, the court did not address Martin's conduct while he was at Kutak.

Third, the court held that Allen could not prove causation because she had ...