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Lawyer is sanctioned for ignoring res judicata

A Fairfax County judge has sanctioned a Vienna lawyer for filing a lawsuit that he said the lawyer should have known would be barred by res judicata.

Judge Jonathan C. Thacher ordered Lawrence A. Katz to pay more than $25,000 in attorneys’ fees and expenses to the defendant. Thacher ruled that an adequate investigation would have disclosed that res judicata barred claims filed by Katz eight months after his client had lost a lawsuit to the defendant.

Both lawsuits involved a dispute between Gray Diversified Asset Management Inc. and Karen Canellis and her company, LBI LLC, which had worked together to provide real estate financing services.

Katz said the case settled after Thacher’s ruling in October. “It was worked out amicably by the parties, and nothing ever came of the judge’s original ruling,” he said.
Matthew Ravencraft, the Vienna lawyer who represented Canellis along with partner Robert J. Beagan, declined comment on the case.

First suit

Canellis and Gray parted ways in September 2005, and Canellis filed suit seven months later alleging breach of contract, quantum meruit and conversion. Gray responded by pleading setoff and filing counterclaims for breach of fiduciary duty, tortious interference with prospective contractual relations, trespass and conversion.

The case was tried by a jury, and Canellis largely prevailed although she has been unable to collect the judgment entered in April 2007.

Gray retained new counsel and filed suit in December 2007 alleging that Canellis owed a portion of the salary of an employee who worked for both Gray and Canellis when they had a joint enterprise. The company also contended that Canellis owed half the commission on a real estate transaction.

The defendants responded with a motion for sanctions under Virginia Code § 8.01-271.1. They contended that the claims were filed for an improper purpose, “namely as an attempt to dragoon them into settling for less than full payment of the 2007 judgment,” and not well grounded in fact and law because they are barred by res judicata, Thacher said in Gray Diversified Management Inc. v. Canellis, (VLW 008-8-242).

Thacher said plenty of evidence supported the improper purpose argument but found it unnecessary to make a finding on that point. “[T]he evidence is overwhelming that the claims are barred by res judicata, and that Katz filed them without having conducted a reasonable inquiry into whether or not they were barred,” the judge said.

His review of the court file and the transcript of the 2007 trial showed that both the salary of the employee and the commission were the subject of discovery depositions and of testimony during the trial, Thacher said.

“By his own admissions, Katz failed to substantially discuss the 2006 action with Gray’s former counsel,” Thacher wrote. “He failed to review the trial transcript of the 2006 action or even to obtain a copy of it. He reviewed only those parts of the Court’s file from the 2006 action that he thought ‘pertinent’ ” …

“[I]t was impossible for Mr. Katz to have conducted a ‘reasonable inquiry’ into the legal and factual basis for the claims without at least having reviewed the Court’s file in detail, and having reviewed the trial transcript,” the judge concluded.

Moreover, Thacher wrote, Canellis’ attorney had warned Katz before he filed suit and afterward that the claims had been raised and resolved in the earlier suit. Despite those warnings, Katz continued to contend that both claims were well grounded in fact and law as late as July, when he signed a memorandum opposing the sanctions motion.

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