DEFENSES: Application of collateral estoppel as defense to legal malpractice and fraud claims (Simpson vs. Chesley, COA NPO 11/27/2013

Legal Malpractice, Breach of fiduciary duty and fraud. Defense of collateral estoppel.
Simpson vs. Stanley M. Chesley
Kenton;  Judge Gregory Bartlett
Affirming
COA, Not Published 11/27/2013

VANMETER, JUDGE: Appellants1 appeal from a Kenton Circuit Court order granting Appellees’ motion for summary judgment and dismissing Appellants’ claims of breach of fiduciary duty, professional negligence (legal malpractice), and fraud. We agree with the circuit court that Appellants’ claims are barred by the doctrine of collateral estoppel, and affirm its order.

This case arises out of a class action lawsuit filed in Boone Circuit Court in 2003 against the Catholic Diocese of Covington, Kentucky, styled: John Doe, et al. v. Roman Catholic Diocese of Covington, et al., Case No. 03-CI-181 (hereinafter “the Catholic Diocese litigation”). Appellants were members of a certified class, along with hundreds of other plaintiffs, who alleged that they had been sexually abused, when they were children, by clergy or other Diocese employees. Appellees served as class counsel in the Catholic Diocese litigation, which lasted for approximately two and a half years before the parties reached a proposed settlement.

The Federal Court further observed that the Boone Circuit Court, after conducting a fairness hearing, had already determined that the Catholic Diocese settlement was fair, reasonable, and adequate and that Appellants’ counsel’s performance was sufficient. Id. On remand, Appellees filed a motion to dismiss Appellants’ complaint, which the Kenton Circuit Court considered as a motion for summary judgment. Appellees argued that the complaint was barred by the doctrine of collateral estoppel because Appellants’ malpractice action was an attempt to relitigate the class action which had already been settled and dismissed. Appellees further argued that the complaint was barred by the one-year statute of limitations 6 Appellants sought an accounting, a disgorgement of attorney’s fees, and the imposition of a constructive trust on all settlement funds.  Lastly, Appellees maintained that Appellants Simpson and Barnes lacked standing to maintain the lawsuit.

The Federal Court further observed that the Boone Circuit Court, after conducting a fairness hearing, had already determined that the Catholic Diocese settlement was fair, reasonable, and adequate and that Appellants’ counsel’s performance was sufficient. Id. On remand, Appellees filed a motion to dismiss Appellants’ complaint, which the Kenton Circuit Court considered as a motion for summary judgment. Appellees argued that the complaint was barred by the doctrine of collateral estoppel because Appellants’ malpractice action was an attempt to relitigate the class action which had already been settled and dismissed. Appellees further argued that the complaint was barred by the one-year statute of limitations 6 Appellants sought an accounting, a disgorgement of attorney’s fees, and the imposition of a constructive trust on all settlement funds. Lastly, Appellees maintained that Appellants Simpson and Barnes lacked standing to maintain the lawsuit.

The doctrine of collateral estoppel, also known as issue preclusion, “allows the use of an earlier judgment by one not a party to the original action to preclude relitigation of matters litigated in the earlier action.” Miller v. Admin. Office of Courts, 361 S.W.3d 867, 871 (Ky. 2011). In order for collateral estoppel to apply, the following elements must be met: (1) at least one party to be bound in the second case must have been a party in the first case; (2) the issue in the second case must be the same as the issue in the first case; (3) the issue must have been actually litigated; (4) the issue was actually decided in that action; and (5) the decision on the issue in the prior action must have been necessary to the court’s judgment and adverse to the party to be bound. Id. at 872 (internal quotations omitted).

The parties do not direct this court to any Kentucky authority addressing the application of collateral estoppel in the same context as this case, but instead discuss at length federal case law considering the issue.8 Though the federal case law is not binding on this court, we find it supports the application of collateral estoppel in this circumstance. Indeed, the Sixth, D.C., Eighth, and Ninth Circuits have all held that a plaintiff is collaterally estopped from bringing a malpractice suit against his/her class action attorneys when the plaintiff had the opportunity to object to the class action settlement, and to the adequacy of class counsel’s representation, prior to the court’s approval of the settlement. In Laskey v. Int’l Union (UAW), 638 F.2d 954 (6th Cir. 1981), the plaintiffs brought an independent suit to challenge the adequacy of the UAW’s legal representation of them during a prior class action suit. The plaintiffs alleged that during the class action proceedings, the UAW failed to inform them of certain details of the case, agreed to a settlement to which class members objected, and misrepresented to the court that the class approved the settlement. Id. at 955-56.

Having reviewed the record and relevant legal authority, we agree with the Kenton Circuit Court that Appellants’ claims are barred by the doctrine of collateral estoppel. Appellants had ample opportunity to object to the settlement and to the distribution of settlement funds as part of the class action proceeding. The final order of dismissal of the class action resolved their claims with finality, subject to their right to appeal. Thus, Appellants’ claims regarding the adequacy of the settlement and the representation of class counsel were litigated and resolved by the Boone Circuit Court. Appellants are therefore collaterally estopped from relitigating these claims in a separate, subsequent malpractice action.

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