- Case Type:
- Case Status:
- Reversed and Remanded
- 20-20005 (5th Circuit, Oct 28,2020) Published
- Res judicata does not bar a plaintiff from suing his former attorneys based on statements they allegedly made to him in connection with a settlement approved by the bankruptcy court. Under the facts alleged, the lawyers' fiduciary duty arose before the settlement was approved when the lawyers made material statements to the plaintiff about how settlement funds would ultimately be allocated. The lawyers' alleged breach of that duty, however, did not occur until they failed to honor their (alleged) agreements. Res judicata does not bar claims arising after the settlement.
- Procedural context:
- Appeal from district court decision affirming bankruptcy court's decision granting the defendants' motion to dismiss and denying the plaintiff's motion to amend his complaint. The Fifth Circuit reversed and remanded with instructions that the lower court grant plaintiff's motion for leave to amend his complaint.
- During a corporate bankruptcy case, the plaintiff settled a Texas False Claims Act suit on behalf of the State of Texas against the debtor. The bankruptcy judge suggested a settlement allocation that included $720,000 to the plaintiff and $1,681,000 to his attorneys, and then granted a brief recess to allow for consultations. The plaintiff alleges that during that recess, his attorneys made material representations about how the gross recovery amount would ultimately be split to induce him to consent to the settlement. He gave his consent, the bankruptcy court approved the settlement, no one appealed, and the bankruptcy case ultimately closed. The plaintiff later filed suit in state court alleging that his former attorneys did not honor the promises they made to him about how the gross recovery would be allocated. The attorneys re-opened the bankruptcy case and removed the lawsuit against them to the bankruptcy court. The bankruptcy court held that res judicata barred the plaintiffs' claims. The bankruptcy court denied the plaintiff's request to amend his complaint to include allegations that the defendants assured him during the recess that they would treat the bankruptcy court's fee award as part of the plaintiff's "Gross Recovery" and divide the funds as their engagement agreement required a "Gross Recovery" to be allocated. The district court affirmed on the basis that the alleged bad conduct occurred before, not after, the settlement was approved.
- Ho, Dennis, Southwick
In re Khabushani
Summarizing by Amir Shachmurove
Loughran v. Wells Fargo Bank, N.A.
Summarizing by Sarah Tomlinson
3268 in the system
3 Being Processed