The opinion of the court was delivered by: Honorable Richard J. Arcara Chief Judge United States District Court
On February 14, 2007, plaintiff D.A. Elia Construction Corp. ("Elia") commenced an action in New York State Supreme Court against defendant Damon & Morey LLP, the law firm that represented Elia as debtor in connection with a massive Chapter 11 reorganization. The state law complaint asserted claims of legal malpractice, breach of contract, conversion and attorney misconduct in violation of § 487 of New York State Judiciary Law.
Damon & Morey removed the action to federal court under 28 U.S.C. § 1452(a), asserting that the state law claims "arise in" or are "related to" Elia's Chapter 11 petition within the meaning of 28 U.S.C. § 1334. Damon & Morey moved for dismissal and/or summary judgment under principles of res judicata and sought monetary sanctions and injunctive relief against Elia. Elia opposed the motion and moved to remand.
For the reasons stated below, the Court: (1) denies Elia's motion to remand; (2) grants summary judgment because all of the state law claims are barred by res judicata; and (3) denies the motion for sanctions and injunctive relief without prejudice.
A. Elia's Chapter 11 Bankruptcy and the Related Attorneys' Fee Dispute
In order to fully address the issues relevant to this case it is necessary to summarize briefly the relationship and prior proceedings between the parties.*fn1
On March 30, 1994, Elia filed a voluntary petition for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Shortly thereafter, Elia moved to employ Damon & Morey as its counsel. The bankruptcy court granted that motion in June 1994.
Damon & Morey's representation of Elia in connection with the Chapter 11 matter was extensive and spanned over 10 years. The firm also represented Elia in numerous other related federal and state court lawsuits, including over eight federal court actions and a bench trial before the New York Court of Claims. Damon & Morey acted at the direction of the debtor and its principal, David A. Elia, who is also an attorney.
Damon & Morey obtained favorable results in many of the proceedings. The firm, working at times in conjunction with other counsel, obtained various judgments and settlements that benefitted the estate. The firm also successfully objected to numerous claims on Elia's behalf, which led to expungement of almost $1 million in claims against the bankruptcy estate. In the end, the bankruptcy was quite successful.
The total funds collected through the various litigation and settlement proceedings ultimately exceeded the total amount of creditor claims, thereby leaving a surplus in the estate.
Following payment in full of all creditors, Damon & Morey moved in bankruptcy court for an award of attorneys fees under 11 U.S.C. § 330. The bankruptcy court had granted several interim fee applications throughout the course of the bankruptcy and in June 2004 Damon & Morey filed its final fee application seeking $358,756.62 in attorneys fees and disbursements. Elia strenuously opposed the final fee application asserting, among other things, that the firm had committed legal malpractice and had labored under various conflicts of interest.
On October 19, 2004, the bankruptcy judge presiding over the Elia's Chapter 11 proceeding granted Damon & Morey's final fee application in full and rejected Elia's objections as simply a "gambit" to avoid paying counsel fees. The bankruptcy judge also found that Elia's allegations of malpractice lacked credibility and were belied by the record.
Elia appealed the bankruptcy court's ruling on the attorneys' fees issue to this Court. On June 19, 2006, this Court issued a Decision and Order affirming the bankruptcy court's October 19, 2004 award of attorneys' fees. See Decision and Order dated June 19, 2006, in In re Elia, 04-CV-975, Dkt. No. 21 (affirming the bankruptcy court's award of 11 U.S.C. § 330 fees and outlining the bankruptcy court proceedings relating thereto).
Elia then appealed this Court's Decision and Order to the United States Court of Appeals for the Second Circuit. On June 28, 2007, the Second Circuit issued a Summary Order affirming this Court's judgment. ...