Note: Decisions of a three-justice panel are not to be considered as precedent before any tribunal.



                                           ENTRY ORDER

                           SUPREME COURT DOCKET NO. 2015-193

                                       OCTOBER TERM, 2015

 Alfred Lunde                                          }    APPEALED FROM:
                                                       }
                                                       }    Superior Court, Lamoille Unit,
    v.                                                 }    Civil Division
                                                       }
                                                       }
 Bonnie Batchelder &                                   }    DOCKET NO. 150-7-14 Lecv
 Batchelder Associates, P.C.                           }

                                                            Trial Judge: Dennis R. Pearson

                          In the above-entitled cause, the Clerk will enter:

        This case follows separate legal proceedings surrounding the dissolution of a real estate
partnership in which plaintiff Alfred Lunde was the general partner. Lunde filed suit against the
accountant retained by the partnership’s court-appointed receiver, alleging that the accountant
personally and through her firm committed professional negligence. Based on the pleadings, the
court granted judgment to defendants, concluding that Lunde failed to establish that defendants
owed him the requisite duty of care necessary to maintain a professional negligence action, and
that the action was barred by collateral estoppel. On appeal, Lunde argues that the court erred in
concluding that defendants owed no legal duty to Lunde and that collateral estoppel applies. We
affirm.

        In its analysis, the court assumed that the allegations in Lunde’s verified complaint were
true, and drew for background on the final court decision in the related case from which Lunde’s
allegations in this case arose. See O’Rourke v. Lunde, 2014 VT 88, 197 Vt. 360 (setting forth
facts of related case). Lunde was the sole general partner in a partnership created to manage
rental housing. The partnership ended per the terms of the partnership agreement in December
2009. At that point, the proceeds were to be distributed fifty percent to the general partner and
the remainder to the limited partners. When Lunde did not promptly liquidate the partnership’s
assets, the limited partners filed suit in superior court requesting appointment of a receiver to
wind up the partnership’s business, liquidate assets, and distribute the proceeds. In March 2011,
the court appointed a receiver. Although the receivership was initially limited, Lunde was
removed as a general partner after he failed to cooperate.

         In January 2012, Lunde filed a demand for arbitration pursuant to an arbitration clause in
the partnership agreement. The court referred the matter for arbitration, but reserved the issue of
attorney’s fees. The arbitration was to determine the proper apportionment of the net proceeds
from the liquidation of the partnership assets. Lunde claimed that construction companies
affiliated with Lunde performed work for the partnership and that the partnership owed debts to
him personally for this work. Lunde did not attend the final hearing before the arbitrator. At that
hearing, defendant Bonnie Batchelder testified as accountant for the receiver about the debts that
Lunde claimed were owed to him in his personal capacity. She did not support Lunde’s view
that the debts were owed to him personally. Because Lunde had not been present at the hearing,
the arbitrator held the record open for ten days to allow Lunde an opportunity to offer additional
evidence regarding his absence or his claims. Lunde did not submit any additional
documentation to the arbitrator. In January 2013, the arbitrator issued an award, distributing the
partnership assets and concluding that Lunde’s share would be surcharged with receiver’s fees,
arbitration costs, and attorney’s fees. The superior court confirmed the order and denied Lunde’s
motions to vacate. The court also made a final attorney’s fees award. Lunde appealed the
arbitration decision to this Court, challenging the court’s jurisdiction to appoint a receiver, the
denial of his motion to vacate the arbitration award, and the assessment of certain fees and costs.
This Court affirmed, but remanded to correct a mathematical error in the attorney’s fees award.
Id. ¶¶ 47-48.

        Lunde then filed suit against the accountant retained by the partnership’s receiver,
alleging professional negligence. Lunde alleged that the accountant deleted payments owed to
him in the partnership’s accounts. Defendants moved for judgment on the pleadings, arguing
that they owed no duty of care to Lunde, and that he was collaterally estopped from challenging
the substance of the accounting because it had already been litigated and decided in the
arbitration proceeding.

        The trial court granted judgment to defendants, concluding that defendants did not owe
Lunde the requisite duty of care necessary to maintain a professional negligence action, and that
the action was barred by collateral estoppel because the same issue regarding the proper amounts
owed to Lunde was already resolved by a final judgment. Lunde challenges both conclusions on
appeal.

        On appeal from a grant of judgment on the pleadings under Rule of Civil Procedure
12(c), “this Court takes as true all well-pleaded factual allegations in the nonmovant’s pleadings
and all reasonable inferences to be drawn from them, and takes as false all contravening
assertions in the movant’s pleadings.” Knight v. Rower, 170 Vt. 96, 98 (1999); see V.R.C.P.
12(c) (allowing party to move for “judgment on the pleadings”). If the pleadings contain no
allegation that would permit recovery, then judgment will be affirmed. Knight, 170 Vt. at 98.

        We first address the issue of collateral estoppel. “Collateral estoppel, or issue preclusion,
bars the subsequent relitigation of an issue that was actually litigated and decided in a prior case
where that issue was necessary to the resolution of the dispute.” Scott v. City of Newport, 2004
VT 64, ¶ 8, 177 Vt. 491 (mem.) (quotation omitted). To apply collateral estoppel, the following
elements must be shown:

               (1) preclusion is asserted against one who was a party or in privity
               with a party in the earlier action; (2) the issue was resolved by a

       
          The trial court indicated that because it had not excluded matters outside the pleadings,
it was considering the motion as one for summary judgment and gave all parties a chance to
respond. V.R.C.P. 12(c) (allowing motion to dismiss to be converted to motion for summary
judgment if information outside pleadings is presented to court and not excluded, and requiring
notice to parties). It appears that the only document the court considered outside of the pleadings
was this Court’s decision in O’Rourke v. Lunde, 2014 VT 88. We need not reach the question of
whether consideration of this prior order converts the motion into one for summary judgment
because on appeal the parties do not challenge the court’s process and, in any event, the different
standard of review would not change the outcome.
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               final judgment on the merits; (3) the issue is the same as the one
               raised in the later action; (4) there was a full and fair opportunity to
               litigate the issue in the earlier action; and (5) applying preclusion
               in the later action is fair.

Id. (quotation omitted).

        Here, the trial court concluded that all of these elements were satisfied. First, preclusion
is being asserted against Lunde, who was a party in the prior proceeding. Second, the issue of
whether Lunde was personally owed money held by the partnership was resolved in the
arbitration proceeding. Third, the issue now raised—whether certain monies were owed to
Lunde personally—is the same. Fourth, there was a full and fair opportunity to litigate the
issues. And, fifth, application of the doctrine is fair.

         Lunde concedes that this Court has held that collateral estoppel applies to matters that
were adjudicated in an arbitration proceeding, but contends that enforcement by a third party is a
different matter, and that because defendants in this case were not parties to the arbitration matter
they should not be able to use collateral estoppel in this later proceeding. In support, Lunde
relies on Vandenberg v. Superior Court, 982 P.2d 229, 240 (Cal. 1999), in which the California
Supreme Court held that a private arbitration award, even confirmed by judicial order, could not
have the effect of collateral estoppel in favor of a third party unless the arbitral parties had so
agreed. The court explained that enforcing judgments made in the context of a contracted
arbitration proceeding did not meet the general goals of collateral estoppel—preserving the
integrity of the judicial system, promoting judicial economy, and protecting vexatious
litigation—because the initial private award is outside the judicial system, and therefore the
subsequent case does not result in duplication of judicial resources or additional litigation. Id.

        We have previously held that a final adjudication from an arbitration proceeding can be
used to collaterally estop the relitigation of issues finally decided subject to the same conditions
as any other judgment. In Agway, Inc. v. Gray, 167 Vt. 313, 316 (1997), this Court held that
since “an arbitration is in the nature of a judicial inquiry, and thus has the same force and effect
of an adjudication in terms of estopping the same parties from relitigating the same subject.”
While that case did not directly address whether collateral estoppel could be asserted by a third
party to the arbitration award, a blanket exception barring third parties from asserting estoppel
based on a private arbitration award is not supported by Agway. In that case, we explained that
the question of whether to enforce the terms of the arbitration award are the same as for any
award—an arbitration proceeding will collaterally estop future litigation if “the parties were
afforded a full and fair opportunity to litigate.” Id. at 316. In Agway, this Court cited
approvingly to the Restatement (Second) of Judgments, for the proposition that “[A] valid and
final award by arbitration has the same effects under the rules of res judicata, subject to the same
exceptions and qualifications, as a judgment of a court.” Restatement (Second) of Judgments §
84(1) (1982).

        Just as this Court has previously explained that a third party can assert collateral estoppel
to bar relitigation of an issue already decided by a prior court proceeding, so can a third party use
a prior arbitration award to bind another party as long as the general requirements for collateral
estoppel are met. See Trepanier v. Getting Organized, Inc., 155 Vt. 259, 264-65 (1990)
(explaining that collateral estoppel does not require mutuality of both parties). Vandenberg does
not persuade us otherwise. The court in that case acknowledged that some other commentators
and most other courts had taken a contrary approach. Vandenberg, 982 P.2d at 240; see Bailey
v. Metro. Prop. & Liab. Ins. Co., 505 N.E.2d 908, 910 (Mass. Ct. App. 1987) (holding that “party
                                                  3
not involved in a prior arbitration may use the award in that arbitration to bind his opponent if
the party to be bound, or a privy, was before the arbitrator, had a full and fair opportunity to
litigate the issue, and the issue was actually decided by the arbitrator or was necessary to his
decision.”). Further, allowing arbitration awards to be used in this manner meets the intended
policy goals by promoting efficiency and reducing duplicity of litigation. See Riverdale Dev.
Co. v. Ruffin Bldg. Sys., Inc., 146 S.W.3d 852, (Ark. 2004) (holding that party not involved in
prior arbitration could bind opponent if party to be bound had full opportunity to litigate and
issue was decided by arbitrator).

        Turning to the elements of collateral estoppel, Lunde argues that collateral estoppel
should not apply because it would be unfair and because the issues raised in this case are
different from those raised in the arbitration proceeding. Lunde has presented no reason why
application of collateral estoppel would be unfair in this case. There was a full and fair
opportunity to litigate issues in the arbitration proceeding. Although Lunde did not attend the
hearing and challenge the evidence presented, the opportunity certainly existed.

        Further, the issues raised in this case are the same as those decided in the arbitration.
Lunde’s complaint here asserts that defendants “unreasonably failed or refused to acknowledge
the validity of debts owed to plaintiff.” Lunde contends that the specific claim made in this
case—that defendants committed professional negligence in refusing to acknowledge the validity
of certain debts owed to Lunde—was not and could not have been brought in the context of the
arbitration proceeding. In order to prevail in this case, Lunde has to establish that the partnership
owed him money, and that defendant was negligent in not crediting it to him in her accounting as
receiver. The validity of the claimed debts is a necessary element in this case, and is exactly
what the arbitrator decided in concluding that certain debts were not owed to Lunde personally.
Therefore, Lunde is estopped from further litigating this issue, and the trial court properly
granted dismissal on the pleadings.

        Because we conclude that Lunde’s claims are barred by collateral estoppel, we do not
reach the question of whether defendants owed Lunde a duty of care.

       Affirmed.

                                                 BY THE COURT:


                                                 _______________________________________
                                                 Paul L. Reiber, Chief Justice

                                                 _______________________________________
                                                 Beth Robinson, Associate Justice

                                                 _______________________________________
                                                 Harold E. Eaton, Jr., Associate Justice




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