Golladay v. Broach et al

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 00-40480 TR
Chapter 7
ENVIRODYNE CORPORATION,
Debtor.
___________________________/
JAMES D. GOLLADAY, 	A.P. No. 06-4073 AT
Plaintiff,
vs.
WILLIAM BROACH, Trustee;
DANIEL M. LINCHEY,
Defendants.
___________________________/
MEMORANDUM OF DECISION
In 	this 	adversary 	proceeding, 	Creditor 	James 	D. 	Golladay
(“Golladay”) 	asserts 	claims 	against 	William 	Broach, 	the 	chapter 	7
trustee, 	(the 	“Trustee”) 	and 	his 	counsel 	Daniel 	M. 	Linchey
(“Linchey”) (referred to sometimes collectively as “Defendants”) for
negligence, 	breach 	of 	fiduciary 	duty, 	and 	negligent
misrepresentation. 	Defendants 	move 	to 	dismiss 	the 	claims 	with
Signed: July 06, 2006
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
July 07, 2006
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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prejudice. 	For 	the 	reasons 	stated 	below, 	their 	motion 	will 	be
granted.
SUMMARY OF FACTS
Envirodyne 	Corporation 	(“Enviroydyne”) 	filed 	a 	voluntary
petition 	seeking 	relief 	under 	chapter 	11 	of 	the 	Bankruptcy 	Code 	on
January 	26, 	2000. 	John 	Thomas 	Coburn 	(“Coburn”), 	Envirodyne’s
president and sole shareholder, filed a voluntary chapter 11 petition
the next day. 	Both Envirodyne and Coburn continued to operate during
the chapter 11 cases as debtors in possession. 	No reorganization
plan 	was 	ever 	confirmed 	in 	either 	chapter 	11 	case, 	and 	on 	May 	1,
2001, orders were entered converting both cases to chapter 7 of the
Bankruptcy Code.
Broach was appointed as the chapter 7 trustee in the Envirodyne
case. 	Broach was authorized by Court order to employ Linchey as his
general 	bankruptcy 	counsel. 	Various 	disputes 	arose 	between 	Broach
and the chapter 7 trustee of the Coburn estate–-Lois Brady (“Brady”)-
-concerning which estate owned which scheduled asset. 	The principal
assets 	in 	controversy 	were 	a 	condominium 	in 	Mexico 	(the 	“Mexican
Condo”), a judgment against Donna Pinion (the “Pinion Receivables”),
and 	two 	race 	cars, 	a 	T-70 	Lola 	(the 	“T-70 	Race 	Car”), 	and 	a 	T-162
Lola 	(the 	“T-162 	Race 	Car”). 	In 	March 	2003, 	Broach 	filed 	an
application 	for 	approval 	of 	a 	compromise 	of 	those 	disputes 	in 	the
Envirodyne case (the “Trustees’ Compromise”).
Golladay 	filed 	an 	objection 	to 	the 	Trustees’ 	Compromise.
Thereafter, 	Broach 	and 	Golladay 	entered 	into 	a 	settlement 	of
Golladay’s 	objection 	(the 	“Golladay 	Compromise”). 	The 	Golladay
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Compromise was approved by the Court pursuant to an order entered on
September 	9, 	2003. 	Thereafter, 	Golladay 	withdrew 	his 	objection 	to
the Trustees’ Compromise, and the Trustees’ Compromise was approved
by the Court pursuant to an order entered on September 30, 2003.
Broach 	filed 	his 	final 	report 	and 	final 	application 	for
compensation in the Envirodyne case on August 6, 2004. 	Linchey filed
his firm’s final fee application on or about the same date. 	Orders
approving the final report and the fee applications were entered on
September 13, 2004. 	On October 30, 2004, a final decree was entered,
and the Envirodyne case was closed.
On March 1, 2006, on Golladay’s motion, the Envirodyne case was
reopened to permit Golladay to prosecute a previously filed adversary
proceeding 	against 	Broach 	and 	Linchey: 	i.e., 	the 	above-captioned
adversary 	proceeding. 	On 	April 	3, 	2006, 	the 	Defendants 	filed 	a
motion 	to 	dismiss 	the 	complaint. 	On 	April 	17, 	2006, 	the 	parties
appeared 	at 	a 	status 	conference 	in 	the 	proceeding. 	The 	Court
continued 	the 	status 	conference 	to 	May 	18, 	2006 	when 	the 	motion 	to
dismiss was scheduled to be heard. 	The Court gave Golladay until May
4, 2006 to file an opposition to the motion and Defendants until May
11, 2006 to file a reply. 	No further briefs were filed. 	However, on
May 	16, 	2006, 	Golladay 	filed 	an 	amended 	complaint. 	The 	parties
appeared 	at 	the 	May 	18, 	2006 	hearing, 	and 	the 	matter 	was 	argued 	at
some length. 	At the conclusion of the hearing, the motion was taken
under submission.
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DISCUSSION
A. 	APPLICABLE LAW
Defendants characterize their motion as a motion to dismiss for
failure 	to 	state 	a 	claim. 	See 	Fed. 	R. 	Civ. 	Proc. 	12(b)(6), 	made
applicable 	to 	this 	proceeding 	pursuant 	to 	Fed. 	R. 	Bankr. 	Proc.
7012(b). 	Normally, such motions are limited to consideration of the
allegations 	in 	the 	complaint. 	Conley 	v. 	Gibson, 	355 	U.S. 	41, 	78
S.Ct. 99 (1957). 	However, Defendants ask the Court to take judicial
notice of various documents. 	Certain of the documents are critical
to the Court’s decision.
A 	court 	may 	take 	judicial 	notice 	of 	matters 	outside 	the
pleadings in considering a motion under Rule 12(b)(6) as long as they
are 	matters 	of 	public 	record. 	See 	Molloy 	v. 	Primus 	Automotive
Financial Services, 247 B.R. 804, 814 n.8 (C.D. Cal. 2000). 	However,
some 	of 	the 	documents 	of 	which 	Defendants 	ask 	the 	Court 	to 	take
judicial 	notice–-i.e., 	the 	settlement 	agreement 	between 	Broach 	and
Golladay–-do not appear to be matters of public record. 	Therefore,
this 	motion 	to 	dismiss 	should 	be 	considered 	a 	motion 	for 	summary
judgment. See Jacobson v. AEG Capital Corp., 50 F.3d 1493, 1496 (9 th
Cir. 1995).
In determining whether to grant a motion for summary judgment,
the Court must determine whether there is any genuine issue as to a
material fact. 	See Fed. R. Civ. Proc. 56(c), made applicable to this
proceding by Fed. R. Bankr. Proc. 7056. 	If not, the Court may enter
judgment based on the parties’ legal rights. 	Although Golladay did
not file a declaration in opposition to the motion, at the hearing,
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he 	did 	not 	contest 	the 	authenticity 	of 	the 	settlement 	agreement.
Moreover, 	the 	Court 	permitted 	him 	to 	make 	numerous 	factual
representations 	which 	the 	Court 	has 	taken 	into 	consideration 	in
ruling on this motion.
B. 	DECISION
The original complaint filed by Golladay asserted two claims for
relief: i.e., negligence and breach of fiduciary duty. 	The claims,
which were not separately stated, alleged that Defendants:
1. 	Negligently allowed Envirodyne’s assets, consisting of the
Mexican Condo and the T-70 Race Car, to be transferred to the Coburn
estate, despite evidence provided by Golladay that Envirodyne owned
them;
2. 	Failed to timely renew the judgment supporting the estate’s
right to the Pinion Receivables;
3. 	Withheld 	payment 	from 	and 	halted 	the 	efforts 	of 	a 	private
investigator hired to locate various Envirodyne assets;
4. 	Failed 	to 	provide 	Golladay 	with 	“legal 	action, 	warrants,
advice, or other means against...[Coburn enabling him to recover the
T-70 Race Car and other assets];
5. 	Failed “to provide...[Golladay or pursue] themselves, legal
action 	against...[Coburn] 	who 	illegally 	occupied...[the 	Mexican
Condo] and openly collected rents from same”;
6. 	Refused to communicate with Golladay and his lawyer, thereby
impeding Golladay’s efforts in recovering assets awarded him by the
Court so as to minimize his damages.
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The amended complaint incorporated by reference the contents of
the 	original 	complaint 	and 	added 	two 	additional 	claims: 	i.e., 	for
negligent misrepresentation and to set aside the Golladay Compromise.
In 	the 	amended 	complaint, 	Golladay 	alleged 	that 	Broach 	negligently
misrepresented that the T-70 Race Car had been recovered. 	Golladay
alleged that he entered into the Golladay Compromise in reliance on
this 	misrepresentation. 	In 	addition, 	he 	alleged 	that, 	in 	entering
into the Golladay Compromise, he assumed that Broach would supply him
with whatever legal documents were necessary to prove his entitlement
to 	the 	Mexican 	Condo 	and 	the 	T-70 	Race 	Car. 	The 	amended 	complaint
alleged that Broach failed to supply him with these documents despite
having 	been 	asked 	to 	do 	so. 	As 	a 	result, 	according 	to 	Golladay,
Coburn 	was 	able 	to 	“pocket 	an 	estimated 	$140,000 	in 	rents 	from
the...condominium” and to sell it for another $200,000.
Defendants move to dismiss the claims asserted in the original
complaint on two grounds. 	First, they contend that Golladay released
these claims when he entered into the Golladay Compromise. 	Second,
they 	contend 	that 	the 	claims 	are 	barred 	by 	the 	doctrine 	of 	res
judicata 	by 	virtue 	of 	Golladay’s 	failure 	to 	object 	to 	Defendants’
final fee applications.
Because 	the 	motion 	to 	dismiss 	was 	filed 	before 	the 	amended
complaint, 	the 	motion 	to 	dismiss 	does 	not 	specifically 	address 	the
two added claims. 	However, the two arguments made in support of the
motion to dismiss the two original claims apply equally to the 	claim
for 	negligent 	misrepresentation 	asserted 	in 	the 	amended 	complaint.
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Thus, 	the 	Court 	will 	address 	this 	claim 	as 	well 	in 	ruling 	on
Defendants’ motion below.
Finally, Golladay’s request to set aside the order approving the
Golladay 	Compromise 	was 	also 	asserted 	too 	late 	to 	be 	addressed 	by
Defendants’ motion. 	However, because the proper disposition of that
request 	is 	apparent 	from 	the 	Court’s 	conclusions 	with 	respect 	to
Defendants’ motion, the Court will also rule on that request in this
memorandum.
A. 	RELEASE PROVISIONS
The first legal ground for the Defendants’ motion to dismiss is
that, pursuant to the Golladay Compromise, Golladay released all of
the claims asserted in the original complaint. 	As recited above, the
Golladay 	Compromise 	was 	approved 	pursuant 	to 	an 	order 	entered 	on
September 9, 2003. 	The agreement that embodied the compromise (the
“Agreement”) 	recites 	that 	Golladay 	asserts 	lien 	rights 	in 	certain
property 	of 	the 	Envirodyne 	estate 	that 	was 	the 	subject 	of 	the
Trustees’ 	Compromise. 	It 	recites 	that 	Golladay 	and 	Broach 	have
agreed to settle their disputes by Broach assigning to Golladay the
following property:
(a) 	All 	the 	estate’s 	rights 	in 	the 	Mexican
Condo;
(b) 	All 	amounts 	collected 	or 	to 	be 	collected
from 	the 	Pinion 	Receivables, 	except 	for 	the
amount 	of 	$15,000.00, 	which 	amount 	shall 	be
retained 	by 	the 	Trustee 	free 	and 	clear 	of 	any
claims thereto by Golladay;
(c) 17.5% of the proceeds to be received by the
Trustee 	from 	sale 	of 	the 	T-162 	after 	deduction
of the amount due Davenport under the Trustee’s
Settlement;
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(d) All the estate’s rights in the Other Estate
Property. 	Golladay 	specifically 	releases 	any
interest 	he 	may 	have 	in 	the 	$15,000 	of 	the
Pinion 	Receivables 	retained 	by 	the 	Trustee 	and
the 	balance 	of 	the 	proceeds 	of 	the 	T-162 	after
payment 	of 	the 	amount 	provided 	for 	in..(c)
hereinabove.
Agreement, page 2, para. 2.
The Agreement contains the following provision pursuant to which
Golladay releases his known claims against Broach and Linchey:
4. 	Golladay’s Release. 	In consideration of the
provisions 	of 	this 	Agreement, 	including 	the
Trustee’s 	Release, 	Golladay 	hereby 	forever
releases and discharges the Trustee, his agents,
employees, servants, representatives, attorneys,
assigns and successors, jointly and individuall,
of 	and 	from, 	and 	covenants 	not 	to 	seek 	or
commence 	or 	prosecute, 	or 	aid 	in 	the
commencement 	of 	prosecution 	of, 	any 	and 	all
rights, 	claims, 	demands, 	damages, 	actions,
causes 	of 	action 	of 	every 	kind 	and 	nature 	that
Golladay 	may 	have 	against 	the 	Truste 	and 	the
Debtor’s estate (“Golladay’s Release”).
Agreement, page 2, para. 4.
The Agreement also contains a release by Golladay of unknown
claims against Broach and Linchey as follows:
6. 	General 	Release. 	In 	connection 	with 	the
Trustee’s 	Release 	and 	Golladay’s 	Release, 	the
Parties 	waive 	the 	requirements 	of 	California
Civil 	Code 	§1542, 	which 	states: 	“A 	general
release 	does 	not 	extend 	to 	claims 	which 	the
creditor 	does 	not 	know 	or 	suspect 	to 	exist 	in
his favor at the time of executing the release,
which 	if 	known 	by 	him 	must 	have 	materially
affected his settlement with the Debtor.”
Agreement, page 3, para. 6.
Finally, in paragraph 15 of the Agreement, each party, including
Golladay, warranted that, in executing the Agreement, he had either
relied on legal advice or had voluntary decided not to seek counsel
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and fully understood the terms of the Agreement. 	As recited above,
Golladay 	was 	represented 	by 	legal 	counsel 	in 	connection 	with 	the
negotiation of the Agreement.
In 	November 	2003, 	the 	Court 	approved 	an 	amendment 	to 	the
Golladay Compromise (the “Agreement Amendment”). 	In Paragraph B of
the 	Agreement 	Amendment, 	Golladay 	acknowledges 	that, 	when 	the
Golladay Compromise was negotiated, neither he nor Broach were aware
that the judgment supporting the claim to the Pinion Receivables had
expired. 	In 	light 	of 	this 	new 	knowledge, 	the 	Agreement 	Amendment
increases 	the 	proceeds 	from 	other 	assets 	assigned 	by 	Broach 	to
Golladay.
Obviously, the release provisions only cover claims that arose
before 	the 	Agreement 	was 	executed. 	As 	noted 	above, 	the 	original
complaint 	contained 	six 	factual 	bases 	for 	Golladay’s 	claims. 	The
amended complaint contained one additional factual basis. 	Thus, in
determining whether to the grant the Defendants’ motion and, if so,
with 	or 	without 	prejudice, 	the 	Court 	must 	determine, 	if 	possible,
when 	each 	factual 	basis 	for 	the 	claims 	occurred. 	The 	Court’s
conclusions are set forth below.
1. 	Defendants 	negligently 	allowed 	Envirodyne’s 	assets 	to 	be
transferred to the Coburn estate.
The 	first 	factual 	basis 	for 	Golladay’s 	claims 	restates 	the
factual 	basis 	for 	his 	objection 	to 	the 	Trustees’ 	Compromise.
Golladay 	withdrew 	his 	objection 	to 	the 	Trustees’ 	Compromise 	at 	the
time he entered into the Golladay Compromise. 	Thus, he was clearly
aware of this factual basis for his claims when he entered into the
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Golladay 	Compromise 	and 	therefore 	released 	it 	when 	he 	executed 	the
Agreement. 	Moreover, even if he had not known of this factual basis
for 	his 	claims, 	the 	factual 	basis 	clearly 	arose 	before 	Golladay
executed the Agreement. 	As a result, it was covered by the general
release provision. 	Consequently, this factual basis for Golladay’s
claims should be dismissed with prejudice.
2. 	Defendants failed to timely renew the judgment supporting
the Pinion Receivables.
As 	discussed 	above, 	the 	Agreement 	Amendment 	recites 	that,
although 	neither 	Broach 	nor 	Golladay 	realized 	it 	prior 	to 	entering
into the Golladay Compromise, the Pinion Judgment had already expired
by 	that 	time. 	Thus, 	this 	factual 	basis 	for 	his 	claims 	clearly
existed 	prior 	to 	the 	execution 	of 	the 	Agreement. 	Even 	though
Golladay did not know about this factual basis for his claim when he
signed 	the 	Golladay 	Agreement, 	he 	dismissed 	it 	pursuant 	to 	the
general release provision. 	In any event, even if he had not released
it 	at 	that 	time, 	he 	subsequently 	released 	it 	by 	entering 	into 	the
Agreement Amendment. 	See In re Dominelli, 820 F.2d 313, 316 (9th Cir.
1987)(order 	approving 	settlement 	considered 	final 	judgment 	for 	res
judicata purposes). 	Consequently, this factual basis for Golladay’s
claims should also dismissed with prejudice.
3. 	Defendants failed to halt efforts of private investigator
to locate Envirodyne assets.
In his oral presentation at the hearing on the motion, Golladay
conceded that this factual basis for his claims also occurred before
the execution of the Golladay Compromise. 	Thus, for the same reason
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as 	the 	two 	prior 	factual 	bases, 	this 	factual 	basis 	for 	his 	claims
should also be dismissed with prejudice.
4. 	Defendants failed to provide Golladay with legal documents
enabling him to recover Envirodyne’s assets.
This 	portion 	of 	the 	claim 	has 	not 	been 	stated 	with 	sufficient
specificity 	to 	permit 	the 	Court 	to 	determine 	whether 	it 	has 	been
released 	pursuant 	to 	the 	Golladay 	Compromise. 	At 	the 	hearing,
Golladay complained that Brady, the chapter 7 trustee of the Coburn
estate, had failed to provide him with a legal document sufficient to
permit 	him 	to 	assert 	control 	over 	the 	Mexican 	Condo. 	However, 	the
Court does not recall any similar allegations with respect to Broach
and 	Linchey. 	Therefore, 	based 	on 	the 	Defendants’ 	first 	basis 	for
their 	motion-–i.e., 	the 	release 	provisions--the 	Court 	would 	be
required 	to 	dismiss 	this 	portion 	of 	the 	claims 	without 	prejudice,
for lack of specificity.
5. 	Defendants failed to take prompt legal action (or provide
Golladay 	with 	the 	means 	of 	doing 	so) 	with 	respect 	to 	the
Mexican Condo.
It is also impossible to determine from the vague nature of this
allegation whether the conduct complained of occurred before or after
the 	execution 	of 	the 	Agreement. 	Moreover, 	again, 	the 	Court 	is
unsure, 	based 	on 	Golladay’s 	comments 	at 	the 	hearing, 	whether 	he
really 	means 	to 	assert 	this 	claim 	against 	Broach 	and 	Linchey 	as
opposed to Brady. 	As a result, as with the prior factual basis for
Golladay’s claims, to the extent that Defendants’ motion to dismiss
is 	based 	on 	the 	release 	provisions, 	the 	Court 	would 	be 	required 	to
dismiss this portion of Golladay’s claim without prejudice.
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6. 	Defendants 	refused 	to 	communicate 	with 	Golladay 	and 	his
attorney, 	thereby 	impeding 	Golladay’s 	efforts 	to 	recover
assigned assets.
By referring to the “assigned assets,” the allegations make it
clear 	that 	this 	factual 	basis 	for 	Golladay’s 	claims 	occurred 	after
the execution of the Agreement. 	As a result, Golladay could not have
released this portion of the claims in the Agreement, and the claims
may not be dismissed on the basis of the release provisions.
7. 	Prior 	to 	the 	execution 	of 	the 	Golladay 	Compromise,
Defendants negligently represented that the T-70 race car
had been recovered.
Conversely, 	these 	allegations 	make 	it 	clear 	that 	this 	factual
basis 	for 	Golladay’s 	claim 	occurred 	before 	the 	execution 	of 	the
Agreement. 	As 	a 	result, 	by 	executing 	the 	Agreement, 	Golladay
released 	this 	factual 	basis 	for 	his 	claims, 	and 	this 	factual 	basis
should be dismissed with prejudice. 	The fact that Golladay may not
have known about this factual basis when he executed the Agreement is
irrelevant in view of the general release provision.
Summary of Rulings
Based 	on 	the 	release 	provisions 	in 	the 	Agreement, 	Golladay
clearly 	released 	the 	claims 	asserted 	in 	the 	original 	and 	amended
complaint 	as 	to 	the 	factual 	bases 	stated 	in 	items 	1, 	2, 	3, 	and 	7
above. 	Therefore, 	based 	on 	the 	release 	provisions 	in 	the 	Agreement
alone, these factual bases for Golladay’s claims should be dismissed
with prejudice.
The 	factual 	allegations 	set 	forth 	in 	item 	4 	and 	5 	are 	not
sufficiently definite for the Court to determine whether the conduct
in question occurred before the execution of the Agreement and thus
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were 	covered 	by 	the 	release 	provisions 	contained 	in 	the 	Agreement.
Therefore, 	these 	factual 	bases 	for 	Golladay’s 	claim 	would 	be
dismissed without prejudice based on Defendants’ first legal ground
for 	their 	motion: 	i.e., 	the 	release 	provisions. 	The 	factual
allegations 	set 	forth 	in 	item 	6 	clearly 	relate 	to 	conduct 	that
occurred 	after 	the 	execution 	of 	the 	Agreement. 	Thus, 	Golladay 	did
not 	release 	this 	portion 	of 	his 	claims, 	and 	the 	claim 	need 	not 	be
dismissed, 	either 	with 	or 	without 	prejudice, 	based 	on 	this 	legal
ground.
B. 	RES JUDICATA
The 	second 	basis 	for 	Defendants’ 	motion 	to 	dismiss 	applies
equally 	to 	all 	seven 	claims. 	Defendants 	contend 	that 	all 	of 	the
claims asserted by Golladay in the original and amended complaint are
barred 	by 	the 	doctrine 	of 	res 	judicata. 	The 	doctrine 	of 	res
judicata–-sometimes referred to as claim preclusion--provides that a
final judgment on the merits precludes further litigation on issues
that 	either 	were 	or 	could 	have 	been 	litigated 	in 	the 	prior
proceeding. 	Montana v. U.S., 440 U.S. 147, 153 (1979); Nordhorn v.
Ladish Co., 9 F.3d 1402, 1404 (9 th Cir. 1993).
In 	a 	bankruptcy 	case, 	a 	final 	fee 	award 	is 	considered 	a 	final
judgment on the merits. 	See 	In 	re 	Iannochino, 242 F.3d 36, 44 (1 st
Cir. 	2001). 	As 	recited 	above, 	Broach’s 	and 	Linchey’s 	final 	fee
applications 	were 	approved 	pursuant 	to 	orders 	entered 	on 	September
13, 2004. 	Golladay was sent notice of the hearing the applications
and 	did 	not 	file 	an 	objection. 	Because 	claims 	of 	malfeasance 	or
nonfeasance 	could 	have 	been 	asserted 	as 	an 	objection 	to 	a 	fee
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application, subsequent actions against a trustee or professional by
a 	party 	in 	interest 	who 	received 	notice 	of 	the 	applications 	are
barred 	by 	the 	doctrine 	of 	res 	judicata. 	See 	In 	re 	Shaw, 	2000 	WL
1897344 at *6 (N.D. Cal. 2000); Epstein v. Visher, 1997 WL 231108 at
*1 (N.D. Cal.).
In determining whether the doctrine of res judicata bars pending
litigation, the Court must examine four factors as follows:
(1) 	whether 	rights 	or 	interests 	established 	in
the 	prior 	judgment 	would 	be 	destroyed 	or
impaired 	by 	the 	prosecution 	of 	the 	second
action; 	(2) 	whether 	substantially 	the 	same
evidence 	is 	presented 	in 	the 	two 	actions; 	(3)
whether 	the 	two 	suits 	involve 	infringement 	of
the 	same 	right; 	and 	(4) 	whether 	the 	two 	suits
arise 	out 	of 	the 	same 	transactional 	nucleus 	of
facts.
Nordhorn, 	9 	F.3d 	at 	1405. 	Each 	of 	these 	factors 	as 	applied 	to
Golladay’s claims is discussed below.
(1) 	Whether Prior Rights Established Would be Destroyed.
The right of a professional to a fee award would be impaired by
permitting 	a 	subsequent 	malpractice 	claim 	to 	be 	asserted. 	Shaw 	at
*5. 	Similarly, 	here, 	Golladay’s 	claims 	against 	Defendants--for
negligence, breach of fiduciary duty, and negligent representation--
would impair their fee awards. 	Thus, the first of the four required
factors is clearly satisfied.
(2) 	Whether 	Two 	Actions 	Would 	Require 	Substantially 	the 	Same
Evidence.
In Shaw, the party asserting the subsequent malpractice action
had objected to the fee application. 	The Shaw court found that the
evidence presented in support of the objection was the same evidence
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that would be offered in support of the malpractice action. 	Shaw at
*5. 	Here, 	Golladay 	did 	not 	file 	an 	objection 	to 	the 	fee
applications. 	However, 	all 	of 	the 	factual 	bases 	for 	the 	claims
asserted 	here 	could 	have 	been 	asserted 	in 	support 	of 	such 	an
objection. 	As noted above, 	for res judicata to apply, a party need
not 	have 	asserted 	the 	claim 	in 	the 	prior 	action. 	It 	is 	sufficient
that 	the 	party 	could 	have 	asserted 	the 	claim. 	As 	recited 	above,
Golladay 	received 	ample 	notice 	of 	the 	fee 	applications. 	He 	had 	a
full and fair opportunity to assert his claims in the context of an
objection 	to 	the 	fee 	applications. 	Thus, 	the 	Court 	concludes 	that
the second of the four factors is also satisfied.
(3) 	Whether Both Actions Involve Infringement of Same Right.
The 	Court 	also 	concludes 	that 	the 	third 	factor 	has 	been
satisfied. 	The 	claims 	asserted 	by 	Golladay 	here 	involve 	the
infringement of the same right as that raised by the fee application.
The right asserted by Golladay here is the right to have the chapter
7 	trustee 	and 	his 	counsel 	exercise 	due 	care 	in 	marshalling 	the
debtor’s assets for the benefit of the estate’s creditors. 	This is
the same right that he could have asserted by means of an objection
to the fee applications.
(4) 	Whether 	Both 	Actions 	Arise 	Out 	of 	Same 	Nucleus 	of 	Facts.
The 	final 	factor 	is 	also 	clearly 	satisfied. 	The 	fee
applications of a chapter 7 trustee and his counsel put at issue the
quality of their services on behalf of the estate and its creditors.
This is the same nucleus of facts raised by Golladay’s claims. 	See
In re Coastal Plains, Inc., 338 B.R. 703, 713 (N.D. Tex. 2006)(causes
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1Because the order approving the Golladay Compromise was
entered in the bankruptcy case, not in this adversary proceeding,
this request should have been made by motion in the case. 	However,
as a matter of judicial economy, the Court will address it in the
context of this proceeding.
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of 	action 	for 	negligence 	and 	breach 	of 	fiduciary 	duty 	are 	based 	on
same nucleus of operative facts as trustee’s fee application).
Based 	on 	the 	foregoing, 	the 	Court 	concludes 	that 	all 	of 	the
claims asserted in the original and amended complaint are barred by
res 	judicata 	effect 	of 	the 	orders 	approving 	Broach’s 	and 	Linchey’s
final 	fee 	applications. 	Therefore, 	the 	claims 	asserted 	in 	the
original and amended complaint should be dismissed with prejudice.
C. 	MOTION TO SET ASIDE ENVIRODYNE COMPROMISE
In 	the 	amended 	complaint, 	Golladay 	also 	asks 	the 	Court 	to 	set
aside the order approving the Golladay Compromise. 1 	He alleges that
he entered into the Golladay Compromise based on Broach’s negligent
misrepresentation that the Mexican Condo was registered in Coburn’s
name and/or was owned by Coburn. 	He also alleges that he was unaware
that Broach had negligently misrepresented that the T-70 Race Car had
been recovered.
Golladay alleges further that, when he signed the Agreement, he
assumed 	that 	Broach 	would 	provide 	any 	necessary 	documents 	to 	prove
his 	entitlement 	to 	the 	Mexican 	Condo 	and 	the 	Race 	Cars. 	These
documents were not provided despite his request for them. 	Finally,
he alleges that, he signed the Agreement without realizing the effect
of 	a 	“general 	release” 	clause. 	Although 	represented 	by 	counsel 	in
connection with the Agreement, he notes that the attorney was acting
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on a pro bono basis. 	Finally, he alleges that the Court approved the
Golladay Compromise in ignorance of all these facts.
As 	recited 	above, 	the 	order 	approving 	the 	Golladay 	Compromise
was entered on September 9, 2003. 	Golladay did not seek to set aside
this 	order 	until 	the 	amended 	complaint 	was 	filed 	on 	May 	16, 	2006.
Clearly, Golladay learned of the factual basis for his request to set
aside 	the 	order 	long 	before 	the 	amended 	complaint 	was 	filed. 	The
Court finds that his request untimely. 	See Fed. R. Civ. Proc. 60(b),
made applicable to this proceeding by Fed. R. Bankr. Proc. 9024.
Moreover, 	setting 	aside 	the 	Golladay 	Compromise 	would 	not
breathe life into Golladay’s claims. 	As discussed above, the release
provisions contained in the Agreement only require the dismissal of
some of the claims with prejudice. 	However, all of the claims must
be dismissed with prejudice based on the doctrine of res judicata due
to Golladay’s failure to object to the fee applications.
CONCLUSION
Defendants’ motion to dismiss will be granted in its entirety.
Most 	of 	the 	claims 	asserted 	in 	the 	original 	and 	amended 	complaint
arose before the Agreement was executed. 	As a result, by executing
the 	Agreement, 	Golladay 	released 	the 	claims 	even, 	pursuant 	to 	the
general release provision, if he did not know about them. 	For that
reason, the motion to dismiss those claims would have to be dismissed
with prejudice in any event. 	A few of the claims were or may have
been based on conduct subsequent to the execution of the Agreement.
Therefore, 	the 	motion 	to 	dismiss 	these 	claims 	would 	not 	be 	granted
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based on the release provisions or, if granted, would be granted with
leave to amend to state the claim more definitely.
However, all of the claims are barred by the res judicata effect
of 	the 	orders 	approving 	Defendants’ 	final 	fee 	applications.
Therefore, 	the 	motion 	to 	dismiss 	must 	be 	granted 	with 	prejudice 	in
its 	entirety. 	Golladay’s 	request 	to 	set 	aside 	the 	Golladay
Compromise 	is 	untimely. 	Moreover, 	even 	if 	the 	Agreement 	were 	set
aside, 	the 	claims 	would 	still 	be 	barred 	by 	the 	doctrine 	of 	res
judicata. 	Defendants are directed to submit a proposed form of order
in accordance with this decision.
END OF DOCUMENT
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COURT SERVICE LIST
Dennis D. Davis
Goldberg, Stinnett, Meyers & Davis
44 Montgomery St., Ste. 2900
San Francisco, CA 94104
James D. Golladay
P.O. Box 1784
Grass Valley, CA 95945
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