Wolcott v. Ginsburg, Civ. A. No. 85-1088.

• Decision Date: 23 September 1988
• Docket Number: Civ. A. No. 85-1088.
• Citation: 697 F. Supp. 540
• Parties: E. Keene WOLCOTT, et al., Plaintiffs, v. David GINSBURG, et al., Defendants.
• Court: U.S. District Court — District of Columbia

697 F. Supp. 540

E. Keene WOLCOTT, et al., Plaintiffs, v. David GINSBURG, et al., Defendants.

Civ. A. No. 85-1088.

United States District Court, District of Columbia.

September 23, 1988.

Brock R. Landry, Robin W. Grover, Keck, Mahin & Cate, Washington, D.C., George E. Weaver, Chicago, Ill., for plaintiffs.

John P. Arness, Jamie M. Bennett, L. Anthony Sutin, Hogan & Hartson, Washington, D.C., for defendants.

MEMORANDUM OPINION

JOHN H. PRATT, District Judge.

I.

This matter comes before the Court on a series of motions. Presently before us are 1) plaintiffs' Motion for Partial Summary Judgment against the law firm defendants¹ on their Amended Complaint; 2) the law firm defendants' Cross-motion for Summary Judgment on plaintiffs' complaint; 3) plaintiffs' Motion for Summary Judgment on defendants' counter-claims; and 4) defendants' Motion for Partial Summary Judgment on their counterclaims. For the reasons stated below, we deny plaintiffs' motion for partial summary judgment, grant in part and deny in part defendants' motion for summary judgment, deny defendants' motion for partial summary judgment on their cross-claims and grant plaintiffs' motion for summary judgment on defendants' cross-claims.

II. BACKGROUND

Plaintiffs E. Keene Wolcott and Daniel B. Nelsen, Jr. are two of fourteen original limited partners who entered into a partnership known as "Desert Exploration '76" ("DE" or "the partnership"). They bring this suit derivatively, seeking to enforce alleged rights of the partnership against the defendants.² DE was created to exploit petroleum resources under a Concession Agreement with the State of Israel for the exploration, development and production of petroleum in a certain area of the Sinai. In February 1980, DE filed a request for arbitration against the State of Israel. Desert Exploration hired the law firm of Ginsburg, Feldman and Bress, Chartered ("GF & B"), to represent the partnership in the arbitration proceeding. As part of its request for arbitration, DE designated a party-appointed arbitrator.

The Attorney General for the State of Israel wrote DE counsel in the Summer of 1982, indicating that Israel intended to terminate the arbitration proceedings, based upon DE's failure to disclose, for more than two years, a "retainer agreement" between the Partnership and its party-appointed arbitrator.³ Israel moved in the District Court for Tel Aviv-Jaffa shortly thereafter seeking an order confirming the State's decision to terminate the arbitration. On July 30, 1982, the Tel Aviv-Jaffa District Court issued a decision holding that Israel's termination of the arbitration was proper. Counsel for DE filed an appeal to the Supreme Court of Israel. A ten million dollar settlement agreement was ultimately reached between the parties, and the appeal was withdrawn. In 1983 the Supreme Court in Jerusalem granted the parties' joint petition to vacate the decision of the Tel Aviv-Jaffa District Court, consistent with the terms of the DE-Israeli settlement agreement.

The parties agreed to condition the distribution of proceeds from the Israeli settlement upon each limited partner's signing a release form discharging the general partners of DE and the Board of Directors of DE from all future liability.⁴ Each of the limited partners signed a release, and all received the monies agreed upon in the settlement. After a "winding up" period of approximately seven months, the remaining assets were distributed to the partners, and the partnership was terminated. Plaintiffs filed this derivative suit some eighteen months after the partnership was dissolved.

Wolcott and Nelsen allege that the law firm defendants breached their fiduciary duty as attorneys and were negligent in their representation of DE. They also charge that Myer Feldman breached the Limited Partnership Agreement of Desert Exploration and his fiduciary duty as a general partner to the limited partners. Finally, plaintiffs claim that Myer Feldman and Lee Marks fraudulently concealed the existence of the allegedly unlawful payment. They seek recovery on behalf of the partnership in an amount in excess of $5,000,000 in compensatory damages and $1,000,000 in punitive damages.

III. DISCUSSION

A. Plaintiffs' Motion for Partial Summary Judgment

Plaintiffs move, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for partial summary judgment on their amended complaint. Specifically, they seek a determination by this court that the decision of the Tel Aviv-Jaffa District Court is binding on the law firm defendants in this action.⁵ It is their position that the doctrines of collateral estoppel and/or res judicata require such an outcome. We disagree.

First, it is clear that the Israeli decision is not entitled to preclusive effect, as it was vacated by the Israeli Supreme Court in Jerusalem. As a general matter a judgment which is vacated, for whatever reason, is deprived of its conclusive effect, both as collateral estoppel and res judicata. Dodrill v. Ludt, 764 F.2d 442, 444 (6th Cir.1985); Universal City Studios, Inc. v. Nintendo Co., 578 F.Supp. 911, 919 (S.D.N. Y.1983), aff'd, 746 F.2d 112 (2d Cir.1984); 1B J. Moore, J. Lucas & T. Currier, Moore's Federal Practice ¶ 0.4162 at 2231 (2d ed. 1984). Plaintiffs have offered no valid reason for us to depart from this established rule. Second, fairness and equity counsel against binding the law firm defendants by the prior Israeli District Court adjudication. Plaintiffs Wolcott and Nelsen essentially ask this court to assume the factual and legal heart of their claim. This would be wholly inappropriate in the context of this case. The law firm defendants were not parties to the underlying litigation and, contrary to plaintiffs' assertions, were not in control of the Israeli suit.⁶ As a result, GF & B did not have an opportunity to appeal the decision of the Israeli District Court and to potentially vindicate itself. DE did not have the same interest in pursuing the claim as GF & B would have had were it a party to the Israeli proceedings, since the latter's reputation was directly at stake, while the former's was not. In any event, the decision of the Israeli District Court was vacated and no longer had any effect. Accordingly, we deny plaintiffs' motion for partial summary judgment.

B. Law Firm Defendants' Motion for Summary Judgment

Defendants assert five arguments in support of their motion for summary judgment. First, they argue that plaintiffs' claims against defendant Myer Feldman are absolutely barred by the releases which each of the limited partners, including plaintiffs, signed. Second, they claim that the releases apply by law to the law firm and the individual partners of the law firm as well, since they were agents of DE and the general partners. Third, they assert that the plaintiffs should be estopped from proceeding with this suit, based on the doctrine of quasi-estoppel. Fourth, they argue that plaintiffs are foreclosed from bringing this suit derivatively on behalf of the partnership, as the partnership no longer exists. Finally, defendants Robert Hawkins and Celia Roady argue that, under District of Columbia law, they are entitled to dismissal from this suit because they became partners in GF & B after the cause of action accrued. We find some of these arguments meritorious, and reject others.

1. Release of Myer Feldman as General Partner of DE

As indicated, each of the limited partners signed a document:

releasing and discharging the general partners of Desert Exploration-76 and the Board of Directors of Desert Exploration, Ltd. from any and all claims and demands in any way related to the conduct of the business of Desert Exploration-76, including, but not limited to, the distribution of proceeds.

For purposes of our analysis, releases are to be treated as contracts, and general contract principles apply. Bartel Dental Books Co. v. Schultz, 786 F.2d 486, 488 (2d Cir.1986), cert. denied, 478 U.S. 1006, 106 S.Ct. 3298, 92 L.Ed.2d 713 (1986). Defendant Feldman argues that plaintiffs are, by the plain terms of their covenants, barred from proceeding against him in any capacity. Plaintiffs argue that the releases are void, because they were unsupported by consideration, and were obtained by Feldman in breach of his fiduciary duty as a general partner to them as limited partners. We reject these arguments, and accordingly dismiss this action against Feldman in his capacity as a general partner of DE.⁷

Under District of Columbia law,⁸ consideration is required in order for a release to be valid. City Stores Co. v. Ammerman, 266 F.Supp. 766, 779 (D.D.C.1967), aff'd, 394 F.2d 950 (D.C.Cir.1968). Plaintiffs assert that the defendants simply gave them what they were already entitled to in exchange for signing the releases. We reject plaintiffs' characterization of the transaction. The record demonstrates more than amply that the plaintiffs did in fact receive consideration in exchange for their signatures to the release. The Partnership Agreement vests "sole management authority and control of the Partnership business" in the General Partners. It further provides that "the Limited Partners, individually and collectively, may exercise no control in the management of the Partnership business." Partnership Agreement, Article 13, ¶ 13.1. The Agreement gives the management of DE absolute discretion to retain until termination of the partnership any net income which is necessary for working capital. Article 9, ¶ 9.1.2. Finally, the Partnership Agreement states that "no Partner shall have the right to demand the return of all or any part of his capital contribution...." Article 14, ¶ 14.4. Thus, the plaintiffs had no right to receive their portion of the proceeds from the Israeli settlement when they did. The benefit they received was in having access to the money sooner, rather than later.⁹

Plaintiffs claim that as a general partner of DE, Myer Feldman owed them a...