CHAMBERS, J.
We are asked in this case to decide whether the defendants are entitled to summary judgment dismissing the plaintiffs' causes of action which are based upon allegations of legal malpractice allegedly occurring during the defendants' representation of the plaintiff debtors in bankruptcy proceedings.
The plaintiff Breslin Realty Development Corp. (hereinafter Breslin Realty) is a real estate developer, and the plaintiff Wilbur F. Breslin (hereinafter Breslin), is an officer, director, and shareholder of Breslin Realty. Breslin, along with the plaintiffs Easa Easa and Jack Easa, are principals in one or more of the plaintiff debtors. The plaintiffs Bay Harbour Associates, L.P. (hereinafter Bay Harbour), Huntington Square Associates, L.P. (hereinafter Huntington Square), Busy Bee Associates, L.P. (hereinafter Busy Bee), Rochester Associates, L.P. (hereinafter Rochester), Riverwood La Place Associates, LLC (hereinafter Riverwood), and Verleye & Jericho Associates, L.P. (hereinafter Verleye), are debtors that owned several shopping centers. The debtors filed bankruptcy petitions pursuant to chapter 11 (see 11 USC § 1101 et seq.) in the United States Bankruptcy Court for the Eastern District of New York (hereinafter the Bankruptcy Court). They were represented in the bankruptcy proceedings by the individual defendants, J. Stanley Shaw and John H. Hall, also known as John H. Hall, Jr., of the defendant law firm, Shaw, Licitra, Gulotta, Esernio & Schwartz, P.C. (hereinafter referred to collectively as Shaw).
Owing to the illness of J. Stanley Shaw, the law firm of Dollinger, Gonski & Grossman (hereinafter the Dollinger firm) was appointed special counsel for Bay Harbour, Huntington Square, Rochester, and Verleye to handle adversary proceedings conducted in the summer of 2000. Matthew Dollinger, a member of the Dollinger firm, stated in an affidavit that since he was actually engaged in another trial at the time of the confirmation hearing, the Dollinger firm did not participate in the confirmation hearing, which was instead handled by Shaw.
In a verified complaint dated March 18, 2005, the plaintiff alleged three causes of action. The first cause of action alleged acts of legal malpractice with respect to the so-called Leucadia agreement entered into in July 1999 between the debtors and Leucadia, Inc. (hereinafter Leucadia). Pursuant to this agreement, Leucadia, through its entity Luk-Shop, Inc., purchased mortgages on property owned by the debtors in exchange for entering into joint venture agreements with the debtors. The agreement set a deadline of December 15, 1999, by which date the debtors were required to obtain financing for restructuring. When Breslin was unable to obtain financing by that date and demanded "consensual foreclosure" and conveyance to the appropriate joint venture, Leucadia exercised its rights under the agreement to foreclose the mortgages for its own benefit.
In their third cause of action, the plaintiffs argued that Shaw breached a fiduciary duty to the plaintiffs by engaging in these acts of legal malpractice. This cause of action stands or falls with the causes of action sounding in legal malpractice (see Adamski v Lama, 56 A.D.3d 1071 [2008]; Weil, Gotshal & Manges, LLP v Fashion Boutique of Short Hills, Inc., 10 A.D.3d 267, 271-272 [2004]).
By notice of motion dated August 22, 2006, Shaw moved for summary judgment against all of the plaintiffs. In its affirmation in support of the motion, it noted that Riverwood and Busy Bee did not participate in the adversary proceedings and confirmation hearing conducted in the summer of 2000.
Shaw's fee awards against Riverwood and Busy Bee were approved on September 22, 1999 and February 14, 2000, respectively, prior to the legal malpractice which allegedly occurred in the summer of 2000. Shaw stated that the assets of Busy Bee were sold less than 60 days after the commencement of its bankruptcy proceeding, for the sum of $12,000,000, which was distributed. Further, Riverwood's assets were not sold, and it emerged from bankruptcy in July 1999 without the equity holders losing their property.
Shaw argued that the claims of Bay Harbour, Huntington Square, Rochester, and Verleye were barred by the doctrine of res judicata, because they failed to object to Shaw's fee applications in the bankruptcy proceedings, despite the fact that they were aware of the alleged acts of malpractice. Shaw noted that, by letter dated January 29, 2003, counsel for one of Breslin's partners wrote to Paul Berger, Breslin's in-house counsel, that,
Shaw also observed that, on June 20, 2003, it entered into an agreement with Breslin Realty whereby Breslin Realty agreed to pay Shaw $100,000 in "final discharge" of any obligation for legal fees, "without prejudice to Client's or any of the Debtors' or partners of the Debtors' rights to pursue any claim against the Firm for acts of malpractice relating to the Luk-Shop Proceedings." This agreement was drafted at least in part by the Dollinger law firm, acting as attorney for Bay Harbour, Huntington Square, Rochester, and Verleye. Nevertheless, Shaw contends that the plaintiffs did nothing to pursue their claims, and on December 31, 2003 the Bankruptcy Court issued an order approving Shaw's fee application with respect to Bay Harbour, Huntington Square, Rochester, and Verleye.
As to the plaintiffs Wilbur Breslin, Breslin Realty, Easa Easa, and Jack Easa, Shaw sought summary judgment, based upon the defense of lack of standing, arguing that they were not Shaw's clients in the bankruptcy proceedings.
The plaintiffs, in opposition, acknowledged that Busy Bee's assets were sold separately. Breslin, in an affidavit, argued that even if the value of Busy Bee's property was excluded from the computation, the plaintiffs "had substantial equity that we lost and forfeited as a result of the Shaw defendants' malpractice."
In an order entered October 3, 2007, the Supreme Court rejected Shaw's claim of res judicata, focusing instead on the "equitable doctrine of collateral estoppel" (Breslin Realty Dev. Corp. v Shaw, 17 Misc.3d 1110[A], 2007 NY Slip Op 51919[U], *7 [2007]), and concluding that Shaw failed to meet its burden of establishing that the Bankruptcy Court "necessarily considered" the particular acts of legal malpractice asserted in the complaint (id. at *8). Nevertheless, the Supreme Court determined that Shaw did not commit malpractice. However, upon
Under the doctrine of res judicata, a final judgment precludes reconsideration of all claims which could have or should have been litigated in the prior proceedings against the same party (see Parker v Blauvelt Volunteer Fire Co., 93 N.Y.2d 343, 347 [1999]). The doctrine of collateral estoppel, a narrower species of res judicata, precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in the prior action or proceeding, and decided against that party or those in privity, whether or not the tribunals or causes of action are the same (see Ryan v New York Tel. Co., 62 N.Y.2d 494, 501-502 [1984]). Once the party seeking the benefit of collateral estoppel establishes that the identical issue was "material" to a prior judicial or quasi-judicial determination, the party to be estopped bears the burden of establishing the absence of a full and fair opportunity to litigate the issue in the prior action or proceeding (id.). Contrary to the determination of the Supreme Court, the proponent of the doctrine of collateral estoppel need not demonstrate that the particular theory in support of a cause of action was actually raised and litigated in the prior action or proceeding (see Matter of Schulz v New York State Legislature, 278 A.D.2d 710, 711 [2000]; Williams v Steinberg, 211 A.D.2d 597 [1995]; Lanzano v City of New York, 202 A.D.2d 378, 379 [1994]; In re Sokol, 113 F.3d 303, 306 [1997]).
Where the prior adjudication involved the same parties and the same cause of action, res judicata applies. "Under res judicata, or claim preclusion, a valid final judgment bars future actions between the parties on the same cause of action ... [a]s a general rule, `once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy'" (Parker v Blauvelt Volunteer Fire Co., 93 N.Y.2d 343, 347 [1999], quoting O'Brien v City of Syracuse, 54 N.Y.2d 353, 357 [1981]; see Insurance Co. of State of Pa. v HSBC Bank USA, 10 N.Y.3d 32 [2008]).
Under New York State law, a determination fixing a defendant's fees in a prior action brought by the defendant against the
In Insurance Co. of State of Pa. v HSBC Bank USA (10 N.Y.3d 32, 38 n 3 [2008]), the Court of Appeals observed that there are "authorities suggesting that a court should apply the rules of res judicata followed in the jurisdiction that rendered the earlier court decision." Therefore, without deciding to what extent New York res judicata law is relevant to the res judicata effect of a decision of a Federal Bankruptcy Court, the Court applied the federal rule which bars consideration of "not only issues actually litigated, but also ... `issues that ... could have been raised' in the prior action" (Insurance Co. of State of Pa. v HSBC Bank USA, 10 NY3d at 39, quoting Federated Department Stores, Inc. v Moitie, 452 U.S. 394, 398 [1981]).
In bankruptcy proceedings, the general rule arising under 11 USC § 330 (a) (4) is that "a finding of malpractice would mean that the attorneys were not entitled to compensation for those services found to be substandard" and, accordingly, failure to raise the malpractice claims when the final fee applications were considered and approved by the Bankruptcy Court barred later litigation of such claims under principles of res judicata (In re Iannochino, 242 F.3d 36, 42 [2001]; see Grausz v Englander, 321 F.3d 467 [2003]; In re Intelogic Trace, Inc., 200 F.3d 382 [2000]; cf. In re Boddy, 950 F.2d 334 [1991]). Res judicata bars future litigation between the same parties or those in privity arising out of transactions giving rise to a cause of action which could have been raised in a prior bankruptcy proceeding (see Truesdell v Donaldson, Lufkin & Jenrette Sec. Corp., 281 A.D.2d 334 [2001]; Evergreen Bank v Dashnaw, 246 A.D.2d 814 [1998]). An exception lies if the plaintiff was deceived in the prior action or proceeding (see Izko Sportswear Co., Inc. v Flaum, 25 A.D.3d 534 [2006]; cf. Penthouse Media Group, Inc. v Pachulski Stang Ziehl & Jones LLP, 406 B.R. 453 [SD NY 2009, Scheindlin, J.]).
Further, we are unpersuaded that there is evidence in this case that the defendants deceived the debtors or the Bankruptcy Court. The June 2003 agreement demonstrates that the plaintiffs were aware of the factual basis of their malpractice claim at the time of the defendants' fee application. Moreover, the June 2003 agreement was drafted at least in part by separate and independent counsel—the Dollinger law firm. Thus, on the date that the Bankruptcy Court entered the defendants' final award, December 15, 2003, the debtors had ample opportunity to raise their malpractice claims as objections to the fee award. Accordingly, we conclude that the plaintiffs failed to meet their burden of demonstrating under the doctrine of collateral estoppel that they lacked a full and fair opportunity to litigate the legal malpractice claim in the Bankruptcy Court (see Izko Sportswear Co., Inc. v Flaum, 25 A.D.3d 534 [2006]; cf. Penthouse Media Group, Inc. v Pachulski Stang Ziehl & Jones LLP, 406 B.R. 453 [SD NY 2009, Scheindlin, J.]).
The plaintiffs further claim that the June 2003 agreement carved out an exception to res judicata. Under Restatement (Second) of Judgments § 26, a court may reserve "for later resolution" an issue that might otherwise have been adjudicated in the initial proceeding (see Central States, Southeast & Southwest Areas Pension Fund v Hunt Truck Lines, Inc., 296 F.3d 624, 629 [2002]; Apparel Art Intl., Inc. v Amertex Enters. Ltd., 48 F.3d 576, 586 [1995]; Landau, P.C. v LaRossa, Mitchell & Ross, 11 N.Y.3d 8 [2008]; Parker v Blauvelt Volunteer Fire Co., 93 NY2d at 349). The cause of action must be "expressly" reserved by the court (D & K Props. Crystal Lake v Mutual Life Ins. Co. of N.Y., 112 F.3d 257, 260 [1997]; see Browning v Levy, 283 F.3d 761, 774 [2002]). Here, the June 2003 agreement fails to meet those criteria because it was an agreement between the parties, not a determination by the court; there was no express reservation by the Bankruptcy Court of a legal malpractice cause of action. Accordingly, summary judgment should have been granted dismissing the complaint insofar as asserted on behalf of Bay Harbour, Huntington Square, Rochester, and Verleye.
Shaw's fee awards against Riverwood and Busy Bee were approved on September 22, 1999 and February 14, 2000, respectively, before the legal malpractice which occurred at the confirmation hearing in the summer of 2000. Res judicata does not bar a claim to recover damages for legal malpractice relating to transactions which occurred after the fee awards on those cases, since claims relating to transactions cannot be resolved before the transactions occur (see O'Brien v City of Syracuse, 54 N.Y.2d 353, 358 [1981]).
However, notably, Riverwood emerged from bankruptcy in July 1999, more than one year prior to the confirmation hearing in the summer of 2000, and Busy Bee's assets were sold separately, and the proceeds distributed. Shaw established as a matter of law that, since they did not participate in the confirmation hearing, the alleged malpractice which occurred at that hearing did not affect them. On this question, the plaintiffs did not raise a triable issue of fact. Accordingly, summary judgment should have been granted dismissing the complaint insofar as asserted on behalf of Busy Bee and Riverwood.
The remaining plaintiffs, Easa Easa, Jack Easa, Breslin, and Breslin Realty, were not debtors in the bankruptcy proceedings. The Easas' claim to standing was derived from their interests as limited partners in the limited partnerships Bay Harbour and Busy Bee. However, the Easas assert no damages independent of damages incurred by those limited partnerships. Moreover, they were not parties to the Leucadia agreement. Accordingly, the Easas had no standing (see Eurycleia Partners, LP v Seward & Kissel, LLP, 12 N.Y.3d 553 [2009]), and summary judgment should have been granted dismissing the complaint insofar as asserted on their behalf.
However, J. Stanley Shaw acknowledged at his deposition that his law firm represented Breslin individually. Breslin claimed that Shaw represented him and Breslin Realty with respect to the instant transactions as part of a longstanding attorney-client relationship. Accordingly, Shaw failed to establish as a matter of law that Breslin and Breslin Realty lacked standing (see Town Line Plaza Assoc. v Contemporary Props., 223 A.D.2d 420 [1996]), and summary judgment was properly denied with respect to them.
The appeal from the order entered October 3, 2007, is dismissed, as the defendants are not aggrieved by that order (see CPLR 5511), and the order dated April 21, 2008, is modified, on the law, by deleting the provisions thereof which, upon reargument, in effect, vacated so much of the order entered October 3, 2007, as granted those branches of the defendants' motion which were for summary judgment dismissing the complaint insofar as asserted on behalf of the plaintiffs Easa Easa, Jack Easa, Bay Harbour Associates L.P., Huntington Square Associates, L.P., Rochester Associates, L.P., Busy Bee Associates, L.P., Verleye & Jericho Associates, L.P., and Riverwood La Place Associates, LLC, and substituting therefor provisions, upon reargument, adhering to so much of the determination in the order entered October 3, 2007, as granted those branches of the defendants' motion; as so modified, the order dated April 21, 2008, is affirmed.
Ordered that the appeal from the order entered October 3, 2007, is dismissed, without costs or disbursements, as the defendants are not aggrieved by that order (see CPLR 5511); and it is further,
Ordered that the order dated April 21, 2008, is modified, on the law, by deleting the provisions thereof which, upon reargument, in effect, vacated so much of the order entered October 3, 2007, as granted those branches of the defendants' motion which were for summary judgment dismissing the complaint insofar as asserted on behalf of the plaintiffs Easa Easa, Jack Easa, Bay Harbour Associates L.P., Huntington Square Associates, L.P., Rochester Associates, L.P., Busy Bee Associates, L.P., Verleye & Jericho Associates, L.P., and Riverwood La Place Associates, LLC, and substituting therefor provisions, upon reargument, adhering to so much of
