Weinberger v. Tucker

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

ALAN D. WEINBERGER; THE ASCII 

GROUP, INCORPORATED,

Plaintiffs-Appellants,

v.  No. 06-2302

STEFAN F. TUCKER,

Defendant-Appellee.



Appeal from the United States District Court

for the Eastern District of Virginia, at Alexandria.

Leonie M. Brinkema, District Judge.

(1:06-cv-01070)

Argued: September 27, 2007

Decided: December 20, 2007

Before WILKINSON, MOTZ, and GREGORY, Circuit Judges.

Affirmed by published opinion. Judge Gregory wrote the opinion, in

which Judge Wilkinson and Judge Motz joined.

COUNSEL

ARGUED: Christopher G. Hoge, CROWLEY, HOGE & FEIN, P.C.,

Washington, D.C., for Appellants. Deborah Judith Jeffrey, ZUCKER-

MAN & SPAEDER, L.L.P., Washington, D.C., for Appellee. ON

BRIEF: Bernard J. DiMuro, DIMUROGINSBERG, P.C., Alexan-

dria, Virginia; Mitchell J. Rotbert, ROTBERT LAW GROUP, L.L.C.,

Rockville, Maryland, for Appellants. Francis D. Carter, Ellen D. Mar-

2 WEINBERGER v. TUCKER

cus, ZUCKERMAN & SPAEDER, L.L.P., Washington, D.C., for

Appellee.

OPINION

GREGORY, Circuit Judge:

This case addresses whether the Virginia doctrine of collateral

estoppel applies to allegations of legal malpractice. Alan D. Weinber-

ger ("Weinberger") and ASCII Group, Inc. ("ASCII") sued their for-

mer 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 repre-

senting 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 Voft-

sun’s interests.1 The letter, dated January 17, 2001, was intended to

apply retroactively to the January 9 meeting.

1

The letter, addressed to "Alan and Lev" stated:

As we discussed—during separate telephone conversations that

WEINBERGER v. TUCKER 3

In Spring 2001, TechNet began to decline and Weinberger sought

to protect his estate, as well as ASCII, from TechNet creditors. Wein-

berger 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 Hold-

ings, Inc. ("ATH"), Weinberger and ASCII sought the assistance of

I have had with Alan (and in some of those, Robert Freer) and

with Lev, and in the conference which we all had at the Venable

Tyson’s [sic] office on January 9, 2001—Venable and in most

circumstances I personally have represented (i) Lev and Margo

Volftsun in connection with a number of personal matters,

including estate planning; (ii) Alan and Lauren Weinberger in

connection with a number of personal matters, including estate

planning and Alan’s contract with TechnologyNet, Inc.; (iii) The

ASCII Group, Inc. in connection with the negotiation of its rela-

tionship with TechnologyNet, Inc., and the agreements resulting

therefrom; and (iv) TechnologyNet, Inc. in connection with some

of the issues related to its disassociation with i2. In other words,

at one point or another, Venable has represented all of you in

connection with one or more matters.

Notwithstanding the foregoing, it is recognized by Lev, Alan,

TechnologyNet, Inc. and The ASCII Group, Inc. that, with

regard to Lev’s $250,000 loan to TechnologyNet, Inc., as evi-

denced by Bridge Note No. 7, and Lev’s acquisition of 175,000

options to acquire TechnologyNet, Inc. stock, Venable, and I

personally, have represented only Lev. My role, in large mea-

sure, was to review the documentation, obtain the appropriate

back-up documents and agreements, and advise Lev of the risks

inherent in such a loan. I performed that role prior to and during

our meeting on January 9, 2001.

As a condition precedent to my undertaking the foregoing on

behalf of Lev, Lev, [sic] Alan, TechnologyNet, Inc. and The

ASCII Group, Inc. agreed to waive any actual or potential con-

flicts of interest. I am sending this letter to you to reflect the

same, and I am requesting that you sign a copy of the letter and

return it to me.

(J.A. 96-97.)

2

However, at a deposition in Volftsun v. The ASCII Group, Tucker

maintained he recalled no such meeting. (J.A. 969-71.)

4 WEINBERGER v. TUCKER

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 liveli-

hood 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 dis-

qualify 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 "Weinber-

3

Tucker testified that he never received the letter. (J.A. 376.)

WEINBERGER v. TUCKER 5

ger" 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 (1979) (quoting S. Pac. R. Co. v. United States,

168 U.S. 1, 48-49 (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 (1979). Thus, "[t]he doc-

trine 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 pro-

ceedings, or their privies, be the same; (2) the factual issue sought to

6 WEINBERGER v. TUCKER

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, 472

S.E.2d 274, 275 (Va. 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 Voftsun’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 guaran-

tee 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 priv-

ity is [ ] the same: whether the interests of one party are so identified

with the interests of another that representation by one party is repre-

sentation 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., 542 S.E.2d 766, 769 n.4 (Va. 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, 284 S.E.2d 828, 831 (Va. 1981); Storm v. Nationwide Mut.

Ins. Co., 97 S.E.2d 759, 762 (Va. 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

WEINBERGER v. TUCKER 7

parties. The touchstone of privity for purposes of res judi-

cata 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

the underlying action. He maintains that he was personally repre-

sented by Tucker and is bringing the action not only on behalf of

ASCII but on behalf of himself in his individual capacity. Tucker

responds that the damages Weinberger alleges stem from his shared

economic identity with ASCII. He is correct.

As the chairman of both ASCII and the holding company and as

the owner of a majority of ASCII’s stock, Weinberger is the real party

of interest when ASCII incurs damages. Weinberger’s interests are so

in line with those of ASCII that representation by ASCII in the under-

lying action effectively represented Weinberger’s legal rights in the

present case.4 We, therefore, hold that there is privity between Wein-

berger and ASCII.

4

Had Weinberger brought a legal malpractice action against Tucker

based on issues stemming from Tucker’s conduct in handling Weinber-

ger’s estate or tax planning, ASCII would not have adequately repre-

sented Weinberger’s interests in the previous action. At oral argument,

however, Weinberger conceded that all the claims in the present action

flow from Tucker’s actions surrounding the guarantee.

8 WEINBERGER v. TUCKER

3.

According to Weinberger, Tucker is not in privity with Volftsun.

Weinberger argues that the attorney-client relationship is not suffi-

cient to establish privity. Furthermore, Weinberger points out that

Tucker did not represent Volftsun in ASCII I and that Tucker never

testified or presented any evidence that he had a personal stake in the

ASCII I litigation. Tucker responds that he and Volftsun shared identi-

cal interests with respect to the motion to disqualify Venable and the

validity of the guarantee. Tucker argues that he had a particularly

strong interest, as the enforcement of the guarantee rested on his con-

duct and he faced the possibility of a legal malpractice suit by Volft-

sun had the defendants in ASCII I succeeded in their defenses that the

guarantee had expired or that the guarantee was fraudulently induced.

We again agree with Tucker.

The concept of privity requires an alignment of interests and not an

exact identity of parties. In Nash County Board of Education v. Bilt-

more Co., 640 F.2d 484, 494 (4th Cir. 1981), this Court applied the

definition of privity employed by Judge Goodrich in his concurrence

in Bruszewski v. United States, 181 F.2d 419, 423 (3d Cir. 1950):

"Privity states no reason for including or excluding one from

the estoppel of a judgment. It is merely a word used to say

that the relationship between the one who is a party on the

record and another is close enough to include that other

within the res judicata."

Thus, privity centers on the closeness of the relationship in question.

Courts have held that the attorney-client relationship itself establishes

privity. See, e.g., Plotner v. AT&T Corp., 224 F.3d 1161, 1169 (10th

Cir. 2000) (citing Henry v. Farmer City State Bank, 808 F.2d 1228,

1235 n.6 (7th Cir. 1986)) ("The law firm defendants appear by virtue

of their activities as representatives of Green and AT&T, also creating

privity."); Henry, 808 F.2d at 1235 n.6 ("Even though the Bank was

the only actual party to the state court mortgage foreclosure proceed-

ings, the other defendants, as directors, officers, employees, and attor-

neys of the Bank, are in privity with the Bank for purposes of res

judicata."); Verhagen v. Arroyo, 552 So. 2d 1162 (Fla. 3d DCA 1989)

(holding that under Florida law for the purposes of collateral estoppel,

WEINBERGER v. TUCKER 9

an attorney is in privity with his or her client in a previous suit when

the opposing party in that action brings a subsequent suit against the

attorney based in the same facts); see also 47 Am. Jur. 2d, Judgments

§ 617. But see Cont’l Sav. Ass’n v. Collins, 814 S.W.2d 829 (Tex.

App. Houston [14th Dist.] 1991) (holding that under Texas law the

mere representation of a party in a lawsuit does not establish privity

between an attorney and his or her client). We do not hold, however,

that privity exists with respect to every attorney-client interaction.

Rather, we conclude here that because Tucker’s interests were so

identified with Volftsun’s, Volftsun effectively represented Tucker’s

legal rights in ASCII I.5 Tucker, as Volftsun’s attorney during the loan

negotiation, had an undeniable interest in the motion to disqualify, as

well as in the enforcement of the guarantee. Tucker’s professional

conduct, in fact, was validated by the court’s honoring the waiver and

enforcing the guarantee. Accordingly, we hold that Volftsun and

Tucker were privies.

B.

For collateral estoppel to apply, the factual issues in the subsequent

case must have been essential to and actually litigated in the underly-

ing case.

1.

In this case, Weinberger sued Tucker for professional negligence,

breach of fiduciary duty, and fraud. Weinberger explains that while

the enforcement of the guarantee was at issue in the first litigation,

this action deals specifically with Tucker’s misconduct. Tucker

argues that the judge’s findings in ASCII I negate the elements of

Weinberger’s claims against Tucker.

The district court in ASCII I resolved issues essential to the present

case. For example, in honoring the waiver letter and denying the

motion to disqualify Venable, the court rejected ASCII’s, and there-

fore Weinberger’s, argument that Venable was simultaneously repre-

5

Again, had Weinberger alleged claims not flowing from the guaran-

tee, Tucker and Volftsun would not have been privies with respect to

those claims, as Volftsun could not have represented Tucker’s interest.

10 WEINBERGER v. TUCKER

senting ASCII, Weinberger, and Volftsun. In so doing, the district

court found that, as of the waiver letter, ASCII, and thus ASCII’s

privy Weinberger, enjoyed no attorney-client relationship with Tucker

or other Venable lawyers with respect to the guarantee. If Tucker was

not Weinberger’s lawyer, Weinberger could not sue Tucker for legal

malpractice or breach of fiduciary duty, as Tucker’s only professional

obligations laid with Volftsun. Similarly, the district court’s rejection

of ASCII’s fraudulent inducement argument and upholding of the

guarantee’s validity undermine Weinberger’s fraud claim. Because

the central disputes of this case flow from the waiver agreement and

Tucker’s conduct with regard to the validity of the guarantee, we hold

that the issues resolved in ASCII I are essential to Weinberger’s cur-

rent claims.

2.

Weinberger asserts that the denial of the motion to disqualify did

not constitute a full and fair review. Tucker, however, contends that

the issue is not precluded merely based on the motion to disqualify,

but also on the finding on the merits that the guarantee was enforce-

able and was not fraudulently induced, the finding that the parties

were separately represented with respect to the guarantee, and the

finding that the guarantee was negotiated at arm’s length.

In TransDulles, 472 S.E.2d at 276, the Virginia Supreme Court

rejected the proposition that for an issue to be "actually litigated" the

opposing party must personally appear at a hearing and contest the

matter. Thus, Virginia law does not require a hearing for an issue to

be considered actually litigated. In the first action, ASCII raised the

possible conflict of interest issue in its motion to disqualify. Thus,

through ASCII, Weinberger had the opportunity to present evidence

in accordance with that motion. The court in ASCII I assessed the

information presented and made the determination that Weinberger

had waived Tucker’s and Venable’s representation of ASCII with

respect to the guarantee. Furthermore, in the underlying action, ASCII

raised the affirmative defense of fraudulent inducement. Conse-

quently, in deciding to uphold the guarantee, the district court consid-

ered whether it had been fraudulently induced. We, therefore, hold

that the issues in this action were actually litigated in ASCII I.

WEINBERGER v. TUCKER 11

C.

Additionally, the prior judgment must have been final and valid.

Weinberger maintains that the ruling on the motion to disqualify is

not a final judgment subject to appeal because ASCII appealed in July

2003 and, due to a lack of funds, entered settlement negotiations with

Volftsun in August 2003. This argument is not compelling. According

to the Virginia Supreme Court, "a judgment is not final for the pur-

poses of res judicata or collateral estoppel when it is being appealed

or when the time limits fixed for perfecting the appeal have not

expired." Faison v. Hudson, 417 S.E.2d 302, 305 (Va. 1992).

Although Weinberger executed a settlement agreement while the

appeal was pending, the appeal was no longer pending after a settle-

ment agreement was reached and the time for appealing has long

since expired. ASCII I is a final, valid judgment.

D.

Under the principle of mutuality, a litigant may not invoke a pre-

clusive judgment if he would not have been bound by the opposite

result. Rawlings v. Lopez, 591 S.E.2d 691, 692 (Va. 2004) (citing

Norfolk & Western Ry. v. Bailey Lumber Co., 272 S.E.2d 217, 218

(Va. 1980)). Weinberger argues that Tucker would not have been

bound by the decision on the motion for disqualification. Tucker

argues that mutuality exists because the granting of the motion to dis-

qualify or a finding that the guarantee was not enforceable would

have bound Tucker.

In Angstadt v. Atlantic Mutual Insurance Co., 457 S.E.2d 86 (Va.

1995), an injured party sued, claiming that the insured’s negligence

caused his injury, and a default judgment was entered. When the

insurer learned of the default judgment, it disclaimed coverage and

sued for a declaratory judgment to be relieved from any obligation to

pay in the underlying tort case. The Virginia Supreme Court reversed

and remanded the grant of summary judgment in favor of the insured.

Among the reasons the court held that collateral estoppel did not

apply was a lack of mutuality, as the insurer was not a party to the

original action. Angstadt, 457 S.E.2d at 88 (citing Selected Risks Ins.

Co. v. Dean, 355 S.E.2d 579 (Va. 1987); Bailey, 272 S.E.2d at 217).

However, mutuality does not require the same parties but rather "that

12 WEINBERGER v. TUCKER

to be effective the estoppel of the judgment must be mutual." Bailey,

272 S.E.2d at 218. The insurer was not bound by a judgment against

the insured and, therefore, could not prevail on its claim of collateral

estoppel. Yet unlike in the insurer-insured relationship, the Virginia

Supreme Court has held that mutuality can exist between attorneys

and their clients, when the attorney was not a party to the previous

action. In Hozie v. Preston, 493 F. Supp. 42 (W.D. Va. 1980), the

Hozies sued their lawyer, Preston, after he had entered into a settle-

ment agreement with Hart on their behalf. When the Hozies refused

to honor the agreement, Hart sued in a Virginia court, asking that the

court enforce the settlement. The singular issue in that lawsuit was

whether Preston had the authority to enter into the agreement on the

Hozies’ behalf. The jury found that he did. Subsequently, the Hozies

sued Preston, alleging that he failed to adequately represent them. The

district court granted summary judgment, finding that the mutuality

requirement did not prevent collateral estoppel from barring the

Hozies’ second lawsuit. Similarly, we hold that mutuality does not bar

Tucker from estopping Weinberger’s lawsuit, because if ASCII had

prevailed on the motion to disqualify Venable or in its fraudulent

inducement affirmative defense, Tucker would have been bound by

the ruling with respect to liability in a subsequent legal malpractice

action.

III.

Weinberger cannot prevail on his claims without directly contra-

dicting the court’s findings in ASCII I. We hold that Virginia’s doc-

trine of collateral estoppel bars any attempt by Weinberger to

repackage the claims rejected in the underlying case as claims against

Tucker. Accordingly, we affirm the district court’s dismissal.6

AFFIRMED

6

On May 21, 2007, Tucker filed a motion for leave to file a surreply

with a proposed surreply. Weinberger opposed. We deferred consider-

ation until oral argument. We now grant Tucker’s motion and accept his

surreply.