Weinberger v. Tucker

• Decision Date: 20 December 2007
• Docket Number: No. 06-2302.,06-2302.
• Citation: 510 F.3d 486
• Parties: Alan D. WEINBERGER; The ASCII Group, Incorporated, Plaintiffs-Appellants, v. Stefan F. TUCKER, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

510 F.3d 486

Alan D. WEINBERGER; The ASCII Group, Incorporated, Plaintiffs-Appellants, v. Stefan F. TUCKER, Defendant-Appellee.

No. 06-2302.

United States Court of Appeals, Fourth Circuit.

Argued: September 27, 2007.

Decided: December 20, 2007.

ARGUED: Christopher G. Hoge, Crowley, Hoge & Fein, P.C., Washington, D.C., for Appellants. Deborah Judith Jeffrey, Zuckerman & Spaeder, L.L.P., Washington, D.C., for Appellee. ON BRIEF: Bernard J. DiMuro, Dimuroginsberg, P.C., Alexandria, Virginia; Mitchell J. Rotbert, Rotbert Law Group, L.L.C., Rockville, Maryland, for Appellants. Francis D. Carter, Ellen D. Marcus, Zuckerman & Spaeder, L.L.P., Washington, D.C., for Appellee.

Before WILKINSON, MOTZ, and GREGORY, Circuit Judges.

Affirmed by published opinion. Judge GREGORY wrote the opinion, in which Judge WILKINSON and Judge MOTZ joined.

OPINION

GREGORY, Circuit Judge:

This case addresses whether the Virginia doctrine of collateral estoppel applies to allegations of legal malpractice. Alan D. Weinberger ("Weinberger") and ASCII Group, Inc. ("ASCII") sued their former lawyer, Stefan F. Tucker ("Tucker"), for fraud, breach of fiduciary duty, and professional negligence. For the reasons outlined below, we affirm the district court's finding that collateral estoppel bars this lawsuit.

I.

Weinberger is the founder and CEO of ASCII. TechnologyNet, Inc. ("TechNet") is a separate corporation, incorporated by Weinberger and others. ASCII retained the Tucker, Flyer, & Lewis law firm in May 1998. At that firm, Tucker was primarily responsible for representing ASCII. When he moved to Venable, Baetjer & Howard, LLP ("Venable") in 2000, Weinberger and ASCII went with him as clients.

Concurrently, Tucker and Venable represented technology investor Lev Volftsun ("Volftsun"). In Fall 2000, at a party at his house, Tucker introduced Weinberger and Volftsun. At that time, TechNet was seeking investors. In January 2001, Tucker arranged a meeting between Weinberger and Volftsun at Venable's office, during which Volftsun agreed to loan TechNet $250,000 and to become a member of the Board. On January 9, 2001, Tucker helped negotiate a bridge note and other terms of Volftsun's loan to TechNet. In conjunction with the January meeting, Tucker sent both parties a waiver letter, stating that with regard to the loan Tucker had only represented Voftsun's interests.¹ The letter, dated January 17, 2001, was intended to apply retroactively to the January 9 meeting.

In Spring 2001, TechNet began to decline and Weinberger sought to protect his estate, as well as ASCII, from TechNet creditors. Weinberger claims he met with Tucker at Venable, seeking his advice, and that Tucker advised him to create a separate holding company.² In the process of creating the holding company, ASCII Technology Holdings, Inc. ("ATH"), Weinberger and ASCII sought the assistance of another attorney, Paul Rogers ("Rogers") of Covington & Burling. Rogers presented the proposal to the TechNet Board on July 13, 2001. In Summer 2001, Weinberger held discussions with board members, including Volftsun, concerning loans to TechNet. Volftsun agreed to loan TechNet an additional $150,000. ASCII was to guarantee both Volftsun's January 2001 and July 2001 loans. Weinberger alleges that he sent Tucker a letter that stated:

as I have told you and Lev many times, that any language of any possible guarantee of ASCII lasts only until, the holding company is agreed to by vote of stockholders. I would never risk 17 years of my life's work and the livelihood of long term employees and put in jeopardy ASCII, but I am enabling 150 investors of TechnologyNet, Inc., many who I know personally, to obtain some return. As my lawyer, this is very important to me for you to understand.

(J.A. 148.)³ In September 2001, a memo from ATH was sent to all the TechNet and ASCII shareholders offering to exchange their shares for shares in ATH. According to Weinberger, all the shareholders but Volftsun complied. Weinberger attempted to convince Volftsun to convert his debt into equity, but ultimately failed.

A. Volftsun v. ASCII Group (ASCII I)

Volftsun, represented by Venable, sued ASCII, ATH, and TechNet (collectively "ASCII") in the Eastern District of Virginia to enforce the guarantee ("the underlying case"). ASCII filed a motion to disqualify counsel, alleging a conflict of interest. Volftsun filed a brief in opposition to the motion to disqualify. The court held a hearing on the motion and denied the motion to disqualify, based on the January 2001 waiver letter. Ultimately, the court found the guarantee binding on ASCII and entered a final judgment in favor of Volftsun.

B. Weinberger v. Tucker (ASCII II)

On July 1, 2004, Weinberger and ASCII (collectively "Weinberger" with respect to this action) filed a suit against Tucker for fraud, breach of fiduciary duty, and professional negligence. Tucker moved to dismiss, based on collateral estoppel. On September 29, 2005, the United States District Court for the District of Columbia transferred the case to the Eastern District of Virginia ("district court") and denied Tucker's motion without prejudice for mootness. Following the transfer, Tucker filed a renewed motion to dismiss, also based on collateral estoppel. Weinberger filed a response to the renewed motion to dismiss. The district court held a hearing on Tucker's motion, dismissed Weinberger's claim based on collateral estoppel, and entered a judgment for Tucker on November 9, 2006. Weinberger appeals to this Court.

II.

As all parties are in agreement as to the proper standard, we review the district court's decision de novo.

Collateral estoppel, or issue preclusion, provides that once a court of competent jurisdiction actually and necessarily determines an issue, that determination remains conclusive in subsequent suits, based on a different cause of action but involving the same parties, or privies, to the previous litigation. See Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 59 L.Ed.2d 210 (1979) (quoting S. Pac. R. Co. v. United States, 168 U.S. 1, 48-49, 18 S.Ct. 18, 42 L.Ed. 355 (1897)) ("[A] `right, question or fact distinctly put in issue and directly determined by a court of competent jurisdiction ... cannot be disputed in a subsequent suit between the same parties or their privies....'") (omissions in original); see also Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 5, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979). Thus, "[t]he doctrine of collateral estoppel precludes relitigation of issues of fact or law that are identical to issues which have been actually determined and necessarily decided in prior litigation in which the party against whom collateral estoppel is asserted had a full and fair opportunity to litigate." Virginia Hosp. Ass'n. v. Baliles, 830 F.2d 1308, 1311 (4th Cir.1987).

Both parties agree that, as this is a diversity jurisdiction case in a Virginia federal district court, Virginia collateral estoppel law applies. In Virginia, collateral estoppel requires: (1) the parties to the two proceedings, or their privies, be the same; (2) the factual issue sought to be litigated must have been actually litigated in the prior action and must have been essential to the prior judgment; and (3) the prior action must have resulted in a valid, final judgment against the party sought to be precluded in the present action. In re Ansari, 113 F.3d 17, 19 (4th Cir.1997) (quoting TransDulles Ctr., Inc. v. Sharma, 252 Va. 20, 472 S.E.2d 274, 275 (1996)). Additionally, in Virginia, collateral estoppel requires a fourth element, mutuality. Id.

Weinberger maintains that he is not estopped from bringing his professional negligence, fraud, and breach of fiduciary duty claims, as Volftsun's failure to convert his debt into equity and the validity of the guarantee were the central issues in ASCII I. Tucker counters that the denial of the motion to disqualify and the upholding of the guarantee fundamentally resolve the disputes at issue in the case. We agree.

A.

The first element of collateral estoppel requires that the parties, or their privies, be parties to the underlying case. Weinberger argues that the parties are not the same: in the first action Volftsun sued ASCII, TechNet, and ATH, and in this action, Weinberger and ASCII sued Tucker. Tucker responds that even though Tucker and Weinberger were not parties to the original proceedings, privity exists between Weinberger, as the founder and CEO of ASCII, and the company itself, as well as between Volftsun and Tucker, as his lawyer.

"Under both Fourth Circuit and Virginia decisions, the test for privity is [] the same: whether the interests of one party are so identified with the interests of another that representation by one party is representation of the other's legal right." Londono-Rivera v. Virginia, 155 F.Supp.2d 551, 565 (E.D.Va.2001) (citing State Water Control Bd. v. Smithfield Foods, Inc., 261 Va. 209, 542 S.E.2d 766, 769 n. 4 (2001)). According to the Virginia Supreme Court in State Water Control Board v. Smithfield Foods, Inc., 542 S.E.2d at 769 (citing Nero v. Ferris, 222 Va. 807, 284 S.E.2d 828, 831 (1981); Storm v. Nationwide Mut. Ins. Co., 199 Va. 130, 97 S.E.2d 759, 762 (1957)),

There is no single fixed definition of privity for purposes of res judicata. Whether privity exists is determined on a case by case examination of the relationship and interests of the parties. The touchstone of privity for purposes of res judicata is that a party's interest is so identical with another that representation by one party is representation of the other's legal right.

We now conduct an individualized examination of whether collateral estoppel properly applies to each of the parties in the present action: ASCII, Weinberger, and Tucker.

1.

As ASCII was a party in the underlying case and is also a party here, collateral estoppel clearly can apply.

2.

Weinberger argues that his interests are distinct from ASCII's in...