The law firm Crane, Heyman, Simon, Welch & Clar (“Crane”) advised World Marketing as the company filed for bankruptcy. The bankruptcy trustee later sued Crane for legal malpractice, alleging the firm had failed to advise World Marketing that it was subject to the Worker Adjustment and Retraining Notification Act. As a result, World Marketing terminated over 300 employees without sufficient notice. The former employees then sued World Marketing in a class action.
Crane moved to dismiss, asserting the trustee’s claim was barred by collateral estoppel and res judicata when the Court denied his objection to Crane’s final fee application. Crane argued that resolution of the trustee’s objection also resolved the underlying question of malpractice. The Court disagreed, noting that the trustee’s objection brought only “potential causes of action” against Crane in compliance with the rule that “if you don’t raise an issue with respect to malpractice at the time of a fee application, you may be precluded from bringing it later.” Id. at 465.
With respect to collateral estoppel, the Court “explicitly declined to determine whether its ruling [on the trustee’s objection] precluded a later malpractice claim against any party.” Id. at 463-464. Thus, the issue of malpractice was not previously litigated or decided on the merits. As for res judicata, the Court held that any claim for malpractice was “merely speculative” at the time of the trustee’s objection, since the Court had not yet resolved the employees’ class action against World Marketing. Id. at 465. Without any harm to World Marketing established, the malpractice claim could not have been brought as part of the objection, let alone ruled upon.
(This is for informational purposes and is not legal advice.)