Answering Service, Inc. v. Egan, s. 82-1726

• Decision Date: 28 February 1984
• Docket Number: 82-1793,Nos. 82-1726,s. 82-1726
• Citation: 728 F.2d 1500
• Parties: ANSWERING SERVICE, INC., Appellant, v. Thomas J. EGAN, Executor of the Estate of Paul J. Rohrich, Deceased, Appellee. ANSWERING SERVICE, INC., Appellee, v. Thomas J. EGAN, Executor of the Estate of Paul J. Rohrich, Deceased, Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1500

728 F.2d 1500

234 U.S.App.D.C. 266

ANSWERING SERVICE, INC., Appellant, v. Thomas J. EGAN, Executor of the Estate of Paul J. Rohrich, Deceased, Appellee.

ANSWERING SERVICE, INC., Appellee, v. Thomas J. EGAN, Executor of the Estate of Paul J. Rohrich, Deceased, Appellant.

Nos. 82-1726, 82-1793.

United States Court of Appeals District of Columbia Circuit.

Argued Feb. 23, 1983.

Decided Feb. 28, 1984.

Kenneth Wells Parkinson, Washington, D.C., with whom James R. Michal, Washington, D.C., was on brief, for appellant.

William E. Fay, III, Washington, D.C., for appellee.

Before MIKVA, EDWARDS, and SCALIA, Circuit Judges.

Opinion for the Court filed by Circuit Judge MIKVA.

Concurring opinion filed by Circuit Judge SCALIA.

MIKVA, Circuit Judge:

The issue in this diversity action is whether appellant is barred by res judicata from bringing a claim for wrongful involvement in litigation against a defendant from which appellant previously sought, and was denied, indemnification. We hold that state law would require the two actions to be brought in separate suits and that a federal court sitting in diversity must honor that state policy. Accordingly, we reverse the judgment of the district court in this action and allow appellant to proceed to the merits of its wrongful-involvement-in-litigation claim.

FACTS

The origins of the present action trace to 1976, when William Carmichael sued both the present appellant, Answering Service, Inc., and the present appellee, Thomas Egan, executor for Answering Services' deceased officer and director, Paul Rohrich, in the United States District Court for the District of Columbia. Carmichael alleged that Rohrich had committed fraud, breach of contract, or been negligent when he purported to issue to Carmichael ten shares of common stock in Answering Service. As an overissue, the shares were nonexistent and therefore void. Answering Service cross-claimed against Egan and asked that the Rohrich estate indemnify the corporation and hold it harmless for any loss resulting from a judgment in favor of Carmichael. Buried within that cross-claim, in boiler-plate form, was a request for "reasonable attorneys' fees, expenses, and all court costs."

The jury returned a verdict against Egan in the amount of $35,000 and absolved Answering Service of all liability. The trial judge then granted Egan's unopposed motion to dismiss Answering Service's cross-claim. After the parties filed appeals, cross-appeals, and protective cross-appeals in this court, we affirmed the jury's verdicts and the dismissal of Answering Service's indemnification claim by unpublished memorandum order. See Carmichael v. Egan, 672 F.2d 893 et al. (D.C.Cir.1981).

All this was prelude to the present action, in which Answering Service sued Egan in the United States District Court for the District of Columbia in an attempt to recover the attorneys' fees and costs it had expended in the earlier litigation. Answering Service grounded this claim on a cause of District Judge Pratt, who presided over the entire Carmichael-Egan-Answering Service litigation, dismissed Answering Service's wrongful-involvement-in-litigation action on the ground that that action could have been advanced in the earlier litigation because it "ar[ose] out of the same events" underlying Carmichael's suit and Answering Service's indemnification cross-claim. Answering Service, Inc. v. Egan, No. 82-0200, Memorandum Order at 3 (D.D.C. May 28, 1982). According to Judge Pratt, "nothing prevented [Answering Service] from adding as grounds for recovery wrongful involvement in litigation as well as indemnity." Id. at 4.

                action created by D.C. law for "wrongful involvement in litigation."    Among the essential elements of such a cause of action is that the plaintiff have been sued by a third party in a prior action and that the defendant have been found guilty in that action of some tortious act, the commission of which absolved the plaintiff from all liability in the earlier action.  The relief sought in the current lawsuit is substantially the same as that asked for in the "boilerplate" claim for attorneys' fees in the earlier suit
                

We conclude that state law did prevent Answering Service from being required by a federal court to assert its wrongful-involvement-in-litigation claim at the same time that it sought indemnification. We further conclude that, under Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), the initial judgment in this action was required to be rendered consistently with that state law. In the absence of any indication that the first judgment was intended to flout this obligation, we assume that Erie was correctly followed. Accordingly, the judgment of the district court in this case, which is predicated on the opposite interpretation of the initial judgment, is reversed.

DISCUSSION

A. Threshold Issues

We address two preliminary issues before proceeding to determine whether claim preclusion doctrines bar the present wrongful-involvement-in-litigation action. First, Answering Service cannot be collaterally estopped from seeking attorneys' fees from Egan, for a brief review of the record demonstrates that the only issue necessarily decided in the dismissal of Answering Service's indemnification action was that the corporation had no legal liability to the plaintiff Carmichael in the underlying litigation. The request for attorneys' fees contained in Answering Service's indemnification cross-claim appears to have been contingent upon a finding that the corporation bore some liability to Carmichael:

WHEREFORE, the Defendant Answering Service, Inc., demands that the Estate of Paul J. Rohrich hold it harmless and indemnify it against all claims of whatever nature whatsoever by the plaintiff arising out of the allegation contained in the Amended Complaint herein, along with reasonable attorneys' fees, expenses, and all court costs.

Record Excerpts at 62 (Answer to Amended Complaint, Counterclaim, and Cross-Claim of Defendant, Answering Service, Inc.). Though the attorneys'-fees clause is not without ambiguity, we read that clause as intended to modify that which precedes it, rather than as an independent request; that is, if the plaintiff were found not to have any valid claims against Answering Service, Answering Service's request for attorneys' fees would be mooted.

This interpretation of the complaint is buttressed by the conduct of appellee Egan. Egan construed the complaint in precisely the manner outlined above when, after the jury absolved Answering Service of all liability, he moved to dismiss the entire indemnification cross-claim:

In view of the fact that the jury verdict was in favor of the co-defendant Answering Service, Inc. ... the cross-claims of these defendants against Thomas J. Egan, as executor, should be dismissed. Accordingly, since there is no basis for these cross-claims the court should enter an Order dismissing them.

Record Excerpts at 113 (emphasis added). Answering Service did not oppose this motion, and the trial judge granted it by order without any inquiry into whether Egan was an implied indemnitor of Answering Service. Id. at 114. Thus, the parties and court assumed throughout the litigation that an indemnification claim is to be dismissed when the claimant has suffered no legal liability. Because the issue of Answering Service's right to attorneys' fees in the absence of any legal liability on its part in the main litigation was never actually litigated, Answering Service cannot now be collaterally estopped from seeking those fees.

The second threshold issue we must dispose of concerns the application of the Federal Rules of Civil Procedure to this case. We conclude that the claim preclusion issue presented in this case cannot be resolved by reference to those Rules. Answering Service's initial cross-claim against Egan for indemnification was clearly permissive, see Fed.R.Civ.P. 13(g), and the mere bringing of that cross-claim did not, as far as the Rules are concerned, require Answering Service then to bring all other cross-claims it might have had against Egan which arose out of the transaction or occurrence underlying the indemnification claim. That this is so is evident from the compulsory counterclaim rule, which makes a claim compulsory only when it is asserted against an "opposing party." Fed.R.Civ.P. 13(a). Because Egan had filed no claim against Answering Service at the time the latter filed its indemnification cross-claim against him, Egan was not an "opposing party" to Answering Service when the indemnification cross-claim was filed. See, e.g., First Nat'l Bank in Dodge City v. Johnson County Nat'l Bank and Trust Co., 331 F.2d 325, 328 (10th Cir.1964) ("The very concept of a counterclaim presupposes the existence or assertion of a claim against the party filing it."). Just as nothing in the Rules requires plaintiffs to bring all related claims against a defendant at the same time, see 6 C. WRIGHT & A. MILLER, FEDERAL PRACTICE AND PROCEDURE Sec. 1583 (1971), neither is a third-party plaintiff directly obligated by the Rules to do so. The compulsory counterclaim rule was therefore not triggered with respect to any other cross-claim Answering Service might have had against Egan.

Having disposed of these two points, we now proceed to consider the appropriate res judicata rule to apply to determine whether the present action is barred by Answering Service's failure to raise its wrongful-involvement claim at the same time that Answering Service sought indemnification from Egan.

B. Wrongful Involvement in Litigation in the District of Columbia

As a general rule, attorneys' fees and expenses incurred by a party in the successful litigation of a claim are not recoverable as damages absent a contractual or statutory basis for liability. See, e.g., Alyeska Pipeline Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975); Sundown, Inc. v....