‘Dunn’ : Collateral Estoppel and Attorney Discipline

When I first wrote about the use of collateral estoppel in attorney discipline proceedings 17 years ago,1 most disciplinary and grievance committees had not applied the doctrine except to establish liability in criminal conviction cases or to impose reciprocal discipline based upon discipline in a foreign jurisdiction. The idea of applying collateral estoppel to a broader array of civil judgments was largely rendered impractical by the burden of proof which, in a majority of U.S. jurisdictions, is proof “by clear and convincing evidence” in order to establish disciplinary liability, a higher burden than the ordinary civil “preponderance of the evidence” standard (except in fraud cases).

New York, however, is different. Here, based on longstanding New York Court of Appeals precedent, the burden of proof in disciplinary cases is the same as the civil “preponderance” standard.2 This allows New York’s disciplinary and grievance committees to employ the doctrine of collateral estoppel, at least in theory, to preclude litigation of a broad array of civil judgments implicating an attorney in professional misconduct. Nonetheless, by 1998 only the Departmental Disciplinary Committee (First Department) and the Committee on Professional Standards (Third Department) had utilized the doctrine and obtained public discipline. Nor was any rule of disciplinary procedure concerning the use of collateral estoppel codified in the respective procedural rules of the four departments.

That may now change, for at least two reasons. First, the grievance committees and Appellate Divisions have begun to apply the doctrine with more regularity.3 Second, and of perhaps more importance, the New York Court of Appeals, for the first time, has addressed, and endorsed, collateral estoppel—if carefully applied—in the attorney discipline context, where there has been a prior civil adjudication implicating an attorney in professional misconduct. Which brings us to the subject of this article: Matter of Jill Dunn.4

The Dunn Case

The facts in Dunn, a Third Department case, are somewhat convoluted. An underlying federal action, commenced in the Northern District of New York, involved allegations that certain investment advisors had defrauded investors in violation of various federal securities laws.5 In connection with that action, the Securities and Exchange Commission (SEC) had obtained a temporary restraining order (TRO) freezing the assets of a trust that one of the defendants had allegedly established for the benefit of his children. Dunn, who represented the trust, obtained permission from the court to intervene in the SEC action and, shortly thereafter, convinced the court to vacate the TRO, arguing that the defendant did not have a beneficial interest in the trust.

The SEC then moved for reconsideration based on newly discovered evidence—namely, the existence of an annuity agreement requiring the trust to make annual payments to the defendant and his wife beginning in 2015. In the course of “back and forth” about the annuity’s existence and significance, the SEC accused Dunn of hiding the fact of the annuity and then providing contradictory information regarding her knowledge of it. In the end, the magistrate judge granted the SEC’s motion for a preliminary injunction against the trust, and for leave to move for sanctions against Dunn (and others).

Ultimately, following written submissions but no sanctions hearing, the magistrate granted the motion in part, finding Dunn’s initial representation—that she was unaware of the existence of the annuity agreement—”knowingly false,” and that her corrective declaration on the eve of the hearing on reconsideration “mitigated only minimally” her earlier false declaration. As a sanction, the magistrate ordered Dunn to disgorge the disbursement she had received from the trust, imposed a “public admonishment,” and directed the clerk of the court to forward a copy of the decision to the Third Department’s Committee on Professional Standards (COPS).6

In December 2011, the committee filed a petition with the Third Department charging that Dunn had “engaged in fraudulent conduct prejudicial to the administration of justice adversely reflecting on her fitness as a lawyer by making false statements under oath in written declarations filed in federal court,” all in violation of New York RPCs 3.3(a) and 8.4(c)(d) and (h). Critically, The committee asked that the magistrate’s sanction opinion be given preclusive effect.

Dunn, in her answer, argued that the sanctions order should not be given preclusive effect, and that the entire matter should be held in abeyance pending the outcome of her appeal to the U.S. Court of Appeals for the Second Circuit. Then, in March 2013, after a series of state court adjournments, the Second Circuit dismissed Dunn’s appeal because it lacked jurisdiction over the non-final sanctions order.7

The Committee on Professional Standards then moved for an order of preclusion in the Third Department, asking the court to declare that Dunn engaged in misconduct and fix a time for her to be heard solely in mitigation. Notwithstanding Dunn’s position that she was not given a full and fair opportunity to contest the magistrate’s sanctions decision, or take an appeal, the Third Department, after hearing evidence in mitigation, imposed a public censure.8

In reversing, the state Court of Appeals initially distinguished civil collateral estoppel from criminal conviction cases, where collateral estoppel necessarily applies without further need for analysis (and by statute, it should be said) because criminal trials involve “rigorous safeguards.”9 By contrast, in Dunn,the determination here was made on papers—without cross-examination or the opportunity to call witnesses. Although Dunn did testify before the Magistrate, it was in the context of the motion for reconsideration and was for the purpose of determining whether the trust’s assets should be unfrozen. Essentially, the issue before the Magistrate there was whether the annuity agreement was new evidence that the SEC could not have discovered in a timely fashion through the exercise of due diligence. While the issue of whether Dunn had made false statements in her written declaration concerning her prior knowledge of that agreement may have been relevant, it was certainly not the focus of the hearing on the motion. The cursory nature of the sanctions proceeding itself failed to provide a full and fair opportunity to litigate the issue.10

Based on the foregoing finding that Dunn had not been provided a full and fair opportunity to litigate the issue of whether she made false statements in the subject declaration concerning her prior knowledge, the Court of Appeals determined that the Appellate Division should not have given preclusive effect to the magistrate’s sanctions order. It thus reversed the Third Department’s disciplinary order imposing a public censure, and remitted the matter to the Appellate Division for further proceedings wherein the committee would have to prove the alleged misconduct at issue. Notably, however, the Court of Appeals also made it clear that the doctrine of collateral estoppel could be applied to attorney discipline matters “where the necessary prerequisites have been met.”11

Discussion

Now that the Court of Appeals has endorsed the doctrine as appropriate in lawyer discipline, I expect that grievance and disciplinary committees in New York will apply collateral estoppel with more regularity. Plainly, application of the doctrine to a wider range of civil judgments against lawyers expedites the judicial process. In particular, preclusion furthers efficiency in the judicial system by barring parties from relitigating issues decided in prior lawsuits. Moreover, it advances public confidence in the legal system by producing consistent judgments among various jurisdictions and a speedier resolution of alleged serious misconduct by lawyers.

On the other hand, collateral estoppel can be “elusive and difficult to apply.”12 Despite the economies achieved by the use of the doctrine, it is not to be mechanically applied, because it is capable of producing extremely harsh and unfair results.13 Therefore, the doctrine should be employed only after a practical inquiry into the realities of litigation. Thus, while collateral estoppel should have a place in cases where the prior civil action clearly mirrors violations of New York’s Rules of Professional Conduct, the doctrine should not be considered a panacea for overtaxed disciplinary staff seeking to shortcut complex or lengthy hearings. The Court of Appeals’ caveat in Dunn that collateral estoppel could be applied to attorney discipline matters “where the necessary prerequisites have been met,”14 implicitly acknowledges that the doctrine requires a balancing of efficiency and fairness.

While unambiguously endorsing issue preclusion as a procedural remedy in disciplinary cases, the Court of Appeals left open an important question. Collateral estoppel involves a two-pronged analysis: (1) whether the issues in the earlier adjudication are essentially similar to those to be decided in the later case, i.e., “identity of issue;” and, (2) whether the party against whom collateral estoppel will be applied had a “full and fair opportunity” to litigate the issue in the initial adjudication.12

The open question is whether, in order to satisfy the “full and fair opportunity” prong, a lawyer facing a collateral estoppel determination should have the opportunity to appeal from the adverse finding of the lower court. Although Dunn raised that issue after the Second Circuit dismissed her appeal as premature, the state Court of Appeals never discussed it in the Dunn decision, perhaps concluding that the perfunctory nature of the sanctions adjudication was, by itself, sufficient to defeat collateral estoppel.

But clarification is important, because in the analogous criminal conviction/issue preclusion context, an appeal does not prevent application of the doctrine or otherwise stay the imposition of discipline. Of course, as the Court of Appeals observed, criminal proceedings are different, according more “due process” protections (and applying a higher standard of proof) than in ordinary civil litigations.

Additionally, as noted at the outset, the absence of procedural rules governing collateral estoppel is a lacuna which ought to be filled now that the Court of Appeals has “blessed” the doctrine as appropriate in lawyer discipline. Just as procedural rules cover the process of determining the preclusive effect of a criminal conviction or discipline in a foreign jurisdiction (reciprocal jurisdiction), so too there should be rules governing the standards and procedures to be followed whenever a disciplinary or grievance committee applies for a determination of collateral estoppel following a civil finding of misconduct by a lawyer.

Reprinted with permission from the “June 16, 2015″ edition of the “New York Law Journal”© “2015” ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 – reprints@alm.com or visit www.almreprints.com.

1. Hal R. Lieberman, “Use of Collateral Estoppel in Attorney Disciplinary Proceedings,” NYLJ, July 27, 1998.

2. Matter of Capoccia, 59 N.Y.2d 549 (1983); Matter of Friedman, 196 A.D.2d 280 (1st Dept. 1994).

3. See, e.g., Matter of Klarer, 66 A.D.3d 247 (2d Dept. 2009); Matter of Duffy, 117 A.D.3d 124 (2d Dept. 2014); Matter of Capoccia, 272 A.D.2d 838 (3d Dept. 2000).

4. 24 N.Y.3d 699 (2015).

5. See Securities & Exch. Commn. v. Smith, 798 F.Supp.2d 412 (N.D.N.Y. 2011)

6. Dunn, 798 F.Supp.2d at 441-442.

7. Securities & Exch. Commn. v. Smith, 710 F.3d 87, 94 (2d Cir. 2013).

8. Matter of Dunn, 111 A.D.3d 1019, 1020 (3d Dept. 2013).

9. Dunn, 24 N.Y.3d at 704 (distinguishing Matter of Levy, 37 N.Y.2d 279, 281 (1975)).

10. Dunn, 24 N.Y.3d at 704.

11. Id. at 705.

12. Commissioner of the State Ins. Fund v. Low, 3 N.Y.2d 590, 595 (1958).

13. Remington Rand Corp. v. Amsterdam-Rotterdam Bank, NV, 68 F.3d 1478, 1486 (2d Cir. 1995).

14. Dunn, 24 N.Y.3d at 705.

12. Schwartz v. Public Adm’r, 24 N.Y.2d 65, 71 (1969) (“There must be an identity of issue which has necessarily been decided in the prior action and is decisive of the present action, and second, there must have been a full and fair opportunity to contest the decision said to be controlling.”).

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