O'Halloran v. Pricewaterhousecoopers Llp

• Decision Date: 04 May 2007
• Docket Number: No. 2D04-147.,2D04-147.
• Citation: 969 So.2d 1039
• Parties: Kevin O'HALLORAN, as trustee and individually as alleged assignee, Appellant, v. PRICEWATERHOUSECOOPERS LLP, Appellee.
• Court: Florida District Court of Appeals

969 So.2d 1039

Kevin O'HALLORAN, as trustee and individually as alleged assignee, Appellant, v. PRICEWATERHOUSECOOPERS LLP, Appellee.

No. 2D04-147.

District Court of Appeal of Florida, Second District.

May 4, 2007.

Zala L. Forizs and Haley Dempsey of Forizs & Dogali, P.L., Tampa, and Nicholas J. DiCarlo of Beus Gilbert, PLLC, Scottsdale, AZ, for Appellant.

John R. Blue, Thomas J. Roehn, and Ellen K. Lyons of Carlton Fields, P.A., Tampa, and Jami Wintz McKeon and John C. Goodchild, III, of Morgan, Lewis & Bockius LLP, Philadelphia, PA, for Appellee.

CANADY, Judge.

In this case, the trial court dismissed with prejudice a complaint against PricewaterhouseCoopers (PWC) filed by Kevin O'Halloran, a chapter 11 bankruptcy trustee for Keller Financial Services of Florida, Inc., and subsidiary corporations (collectively, Keller Financial). The claims asserted by O'Halloran arose from the performance of financial advisory services by PWC for Keller Financial in 1997 and 1998. O'Halloran's claims include "debtors' causes of action," as well as a claim — the noteholder claim — brought pursuant to assignments made to O'Halloran by certain purchasers of secured notes sold by Keller Financial.

The gravamen of the complaint was that PWC, which was retained to give advice concerning the restructuring of Keller Financial, pursued a merger strategy that PWC knew or should have known was futile. By doing so, according to O'Halloran's allegations, PWC delayed Keller Financial's filing for bankruptcy and thereby "allowed Keller [Financial] to become increasingly insolvent and Keller [Financial's] assets to be looted, squandered or otherwise dissipated while PWC pursued [the] futile transaction." O'Halloran also alleged that PWC pursued the merger strategy because it would have involved "a lucrative `transaction fee'" for PWC.

The debtors' causes of action against PWC — that is, claims against PWC allegedly possessed by Keller Financial when it went into bankruptcy — included claims for breach of fiduciary duty (count 1), negligence/professional malpractice (count 2), aiding and abetting breach of fiduciary duty (count 3), breach of contract (count 4), and constructive fraud (count 5). The noteholder claim was for aiding and abetting breach of fiduciary duty (count 6).

The trial court ruled that several of the claims — counts 1, 3, 4, and 5 — were subject to dismissal because they were barred by res judicata — or claim preclusion — arising from the bankruptcy court's order confirming the joint plan of liquidation presented in the Keller Financial bankruptcy proceedings. In brief, the trial court concluded that these claims could have been litigated in the bankruptcy proceedings and that the bankruptcy plan did not adequately preserve O'Halloran's right to litigate them after confirmation of the plan by the bankruptcy court.

The trial court also ruled that several of the claims — counts 1, 2, 3, and 4 — were barred by the doctrines of imputation and in pari delicto. The trial court reasoned that O'Halloran, as bankruptcy trustee, "stands in the shoes" of Keller Financial and that — according to O'Halloran's own allegations — Keller Financial was itself involved in wrongdoing "to further its existence." In reaching this conclusion, the trial court relied not only on the allegations of the complaint in the instant case but also on the allegations in a complaint filed by O'Halloran against insiders of Keller Financial and in a complaint filed by O'Halloran against KPMG Peat Marwick, Keller Financial's auditor.

In addition, the trial court ruled that the noteholder claim (count 6) was barred because O'Halloran "is not empowered to bring creditors' claims" and because allowing the claim would create the possibility of "double recovery" by noteholders who did not assign their claims to O'Halloran.

The trial court thus dismissed with prejudice all of the claims against PWC and entered a final judgment in favor of PWC.

1. Principles Governing Review of Dismissed Claims

Since a trial court's ruling on a motion to dismiss presents a question of law, it is subject to de novo review. Siegle v. Progressive Consumers Ins. Co., 819 So.2d 732, 734 (Fla.2002). In conducting such de novo review, the appellate court is "required to accept the factual allegations of the complaint as true and to consider those allegations and any inferences to be drawn therefrom in the light most favorable to" the plaintiff. Aguilera v. Inservices, Inc., 905 So.2d 84, 87 (Fla.2005).

Florida Rule of Civil Procedure 1.110(d) provides that "[a]ffirmative defenses appearing on the face of a prior pleading may be asserted as grounds for a motion [to dismiss] under rule 1.140(b)." Accordingly, a complaint may be dismissed if its allegations show the existence of an affirmative defense to the claims asserted in the complaint. See Boca Burger, Inc. v. Forum, 912 So.2d 561, 568-69 (Fla.2005).

2. The Res Judicata Issue

O'Halloran argues on appeal — as he did before the trial court — that the debtors' claims against PWC were specifically preserved in the bankruptcy proceeding and that the order confirming the bankruptcy plan therefore does not operate to preclude those claims. We conclude that O'Halloran's argument is supported by the record before the trial court concerning the bankruptcy proceedings and the law concerning the preservation of a debtor's claims in bankruptcy.¹

Section 1123 of the Bankruptcy Code provides that a bankruptcy plan may provide for "the retention and enforcement by the debtor, [or] by the trustee" of "any claim or interest belonging to the debtor or to the estate." 11 U.S.C. § 1123(b)(3) (1994). Accordingly, although a bankruptcy confirmation order may give rise to res judicata with respect to claims of the debtor that could have been litigated in the bankruptcy proceeding, see Sure-Snap Corp. v. State Street Bank & Trust Co., 948 F.2d 869, 873-74 (2d Cir.1991), "res judicata does not apply when a cause of action has been expressly reserved for later adjudication," D & K Props. Crystal Lake v. Mut. Life Ins. Co. of N.Y., 112 F.3d 257, 259-60 (7th Cir.1997). There is considerable divergence of opinion concerning the degree of specificity required for an effective retention of a debtor's claim pursuant to § 1123. See Kmart Corp. v. Intercraft Co. (In re Kmart Corp.), 310 B.R. 107, 120 (Bankr.N.D.Ill. 2004) (discussing various views regarding "how a section 1123(b)(3) retention provision must be written in order to accomplish the desired result").

Here, the trial court's ruling on the res judicata issue can be sustained only if we adopt a strict rule of specificity under which the naming of each cause of action is required for the effective retention of the debtors' claims. We decline to impose such an exacting rule of specificity.

To begin with, the text of § 1123 provides no support for the imposition of such a rule. Furthermore, the context strongly militates against such a rule. "To require a debtor to conjure up and list every imaginable cause of action would unduly complicate the reorganization process and would be unrealistic." EXDS, Inc. v. Ernst & Young LLP (In re EXDS, Inc.), 316 B.R. 817, 824 (Bankr.D.Del.2004). "[M]andating a specific description of every claim the debtor intends to pursue could entail months or years of investigation and a corresponding delay in the confirmation of the plan of reorganization." Katz v. I.A. Alliance Corp. (In re I. Appel Corp.), 300 B.R. 564, 569 (S.D.N.Y.2003); see also Alary Corp. v. Sims (In re Associated Vintage Group, Inc.), 283 B.R. 549, 564 (B.A.P. 9th Cir.2002) (recognizing "the danger of engrafting an unduly burdensome specificity requirement onto the § 1123(b)(3) authorization for the retention and enforcement of claims" and stating that it is "impractical and unnecessary to expect that a disclosure statement and plan must list . . . each and every possible theory" of recovery).

We turn now to the language used in the bankruptcy disclosure statement concerning claims retained against PWC and to our evaluation of the application of the law.

The disclosure statement filed by O'Halloran makes two references to claims against PWC. First, the statement states that "[t]he Debtors may be able to assert claims . . . against . . . accounting firms for professional malpractice." The statement then goes on to specifically list PWC after stating that "all [p]ersons identified herein by . . . name should understand that all claims against them held by the Trustee or the Debtors are preserved and may be asserted following confirmation of the Plan." (Emphasis added.) Second, under the heading of "Professional Liability," the statement again names PWC and states: "All claims held by the Trustee or the Debtors against any professional persons employed, retained, or consulted by the Debtors are reserved for the benefit of the Debtors' creditors under the Plan."

The trial court concluded that the language of the disclosure statement was sufficient to preserve only the claim against PWC for negligence/malpractice (count 2). If the only reference in the disclosure statement to claims against PWC were the reference to "professional malpractice" claims, we would be inclined to agree with the trial court. But the second reference to claims against PWC — under the heading of "Professional Liability" — suggests a broader interpretation of the scope of the claims preserved against PWC. Those provisions of the disclosure statement are most reasonably read as preserving all the asserted claims of the debtors against PWC arising from PWC's professional relationship with Keller Financial. We also conclude, for the reasons that we have discussed above, that such language preserving "all claims" against PWC arising from PWC's professional relationship with Keller Financial was sufficient to be an effective retention pursuant to section 1123.

The trial court read the claim preservation provisions of the...