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WOLCOTT v. GINSBURG

September 23, 1988

E. KEENE WOLCOTT, et al., Plaintiffs,
v.
DAVID GINSBURG, et al., Defendants



The opinion of the court was delivered by: PRATT

 HONORABLE JOHN H. PRATT, UNITED STATES DISTRICT JUDGE

 I.

 II.

 BACKGROUND

 Plaintiffs E. Keene Wolcott and Daniel B. Nelsen, Jr. are two of fourteen original limited partners who entered into a partnership known as "Desert Exploration '76" ("DE" or "the partnership"). They bring this suit derivatively, seeking to enforce alleged rights of the partnership against the defendants. *fn2" DE was created to exploit petroleum resources under a Concession Agreement with the State of Israel for the exploration, development and production of petroleum in a certain area of the Sinai. In February 1980, DE filed a request for arbitration against the State of Israel. Desert Exploration hired the law firm of Ginsburg, Feldman and Bress, Chartered ("GF&B"), to represent the partnership in the arbitration proceeding. As part of its request for arbitration, DE designated a party-appointed arbitrator.

 The Attorney General for the State of Israel wrote DE counsel in the Summer of 1982, indicating that Israel intended to terminate the arbitration proceedings, based upon DE's failure to disclose, for more than two years, a "retainer agreement" between the Partnership and its party-appointed arbitrator. *fn3" Israel moved in the District Court for Tel Aviv-Jaffa shortly thereafter seeking an order confirming the State's decision to terminate the arbitration. On July 30, 1982, the Tel Aviv-Jaffa District Court issued a decision holding that Israel's termination of the arbitration was proper. Counsel for DE filed an appeal to the Supreme Court of Israel. A ten million dollar settlement agreement was ultimately reached between the parties, and the appeal was withdrawn. In 1983 the Supreme Court in Jerusalem granted the parties' joint petition to vacate the decision of the Tel Aviv-Jaffa District Court, consistent with the terms of the DE-Israeli settlement agreement.

 The parties agreed to condition the distribution of proceeds from the Israeli settlement upon each limited partner's signing a release form discharging the general partners of DE and the Board of Directors of DE from all future liability. *fn4" Each of the limited partners signed a release, and all received the monies agreed upon in the settlement. After a "winding up" period of approximately seven months, the remaining assets were distributed to the partners, and the partnership was terminated. Plaintiffs filed this derivative suit some eighteen months after the partnership was dissolved.

 Wolcott and Nelsen allege that the law firm defendants breached their fiduciary duty as attorneys and were negligent in their representation of DE. They also charge that Myer Feldman breached the Limited Partnership Agreement of Desert Exploration and his fiduciary duty as a general partner to the limited partners. Finally, plaintiffs claim that Myer Feldman and Lee Marks fraudulently concealed the existence of the allegedly unlawful payment. They seek recovery on behalf of the partnership in an amount in excess of $ 5,000,000 in compensatory damages and $ 1,000,000 in punitive damages.

 III.

 DISCUSSION

 A. Plaintiffs' Motion for Partial Summary Judgment

 Plaintiffs move, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for partial summary judgment on their amended complaint. Specifically, they seek a determination by this court that the decision of the Tel Aviv-Jaffa District Court is binding on the law firm defendants in this action. *fn5" It is their position that the doctrines of collateral estoppel and/or res judicata require such an outcome. We disagree.

 First, it is clear that the Israeli decision is not entitled to preclusive effect, as it was vacated by the Israeli Supreme Court in Jerusalem. As a general matter a judgment which is vacated, for whatever reason, is deprived of its conclusive effect, both as collateral estoppel and res judicata. Dodrill v. Ludt, 764 F.2d 442, 444 (6th Cir. 1985); Universal City Studios, Inc. v. Nintendo Co., 578 F. Supp. 911, 919 (S.D.N.Y. 1983), aff'd, 746 F.2d 112 (2d Cir. 1984); 1B J. Moore, J. Lucas & T. Currier, Moore's Federal Practice para. 0.416[2] at 2231 (2d ed. 1984). Plaintiffs have offered no valid reason for us to depart from this established rule. Second, fairness and equity counsel against binding the law firm defendants by the prior Israeli District Court adjudication. Plaintiffs Wolcott and Nelsen essentially ask this court to assume the factual and legal heart of their claim. This would be wholly inappropriate in the context of this case. The law firm defendants were not parties to the underlying litigation and, contrary to plaintiffs' assertions, were not in control of the Israeli suit. *fn6" As a result, GF&B did not have an opportunity to appeal the decision of the Israeli District Court and to potentially vindicate itself. DE did not have the same interest in ...


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