In the Matter of Jill A. Dunn, An Attorney. Committee on Professional Standards, Respondent; Jill A. Dunn, Appellant.BriefN.Y.January 15, 2015To be Argued by: BENJANUNZELERMYER Time Requested: 20 Minutes Qtuurt uf l\pptaLa ~tatt nf Ntm Inrk In the Matter of JILL A. DUNN, an Attorney. COMMITTEE ON PROFESSIONAL STANDARDS, JILL A. DUNN, BRIEF FOR APPELLANT BENJAMIN ZELERMYER STEVEN A. COPLOFF STEINBERG & CAVALIERE, LLP Attorneys for Appellant 50 Main Street, 9th Floor White Plains, New York 10606 Telephone: (914) 761-4200 Facsimile: (914) 761-4256 Brief Completed: April 14, 2014 APL - 2014-00029 Respondent; Appellant. Appeal Press, LLC - (914) 761-3600 (212) 267-6602 (16647) Table of Contents Page Table of Authorities .................................................................................................. ii Introduction ................................................................................................................ 1 Jurisdiction ................................................................................................................. 2 Question Presented For Review ................................................................................. 2 Nature of the Case ...................................................................................................... 3 The Petition and Answer ................................................................................. 3 The Committee's Collateral Estoppel Motion ................................................ .4 Underlying Facts and Proceedings in Federal Court ................................................. 5 The SEC's Motion for a Preliminary Injunction ............................................. 5 The SEC's Motion for Reconsideration .......................................................... 6 The SEC's Motion for Sanctions ..................................................................... 9 The Second Circuit Decision ......................................................................... l 0 Argument. ................................................................................................................. 12 THE APPELLATE DIVISION ERRED IN GIVING COLLATERAL ....... 12 ESTOPPEL EFFECT TO A NON-FINAL DECISION OF A UNITED STATES MAGISTRATE JUDGE WHICH COULD NOT BE APPEALED A. Collateral Estoppel in Attorney Disciplinary Proceedings ....... 12 B. The Requirement of Finality ..................................................... 13 C. Considerations ofFaimess ........................................................ 25 Conclusion ............................................................................................................... 30 Table of Authorities Page Cases Ashe v. Swenson, 397 u.s. 436 (1970) .................................................................... 13 Assoc. of Holocaust Victims for Restitution of Artwork and Masterpieces v. Erste Bank, A.G., Docket No. 05-5397-cv (2nd Cir. Dec. 8,2005) .............. .23 Auqui v. Seven Thirty One Ltd Partnership, 22 N.Y.3d 246 (2013) ...................... 25 Berman v. United States, 302 U.S. 211 (1937) .......................................... 15 Brown v. Cleveland Trust Co., 233 N.Y. 399 (1922) .............................................. 13 Chambers v. Nasco, 501 U.S. 32 (1991) ................................................................. 28 Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541 (1949) .......................... .19 Cruz v. Kamlis Dresses & Sportswear Co., 238 A.D.2d 103 (1 st Dep't 1997) ..................................................................................................... 22 Douglas v. Victor Capital Group, 1997 WL 716912 (S.D.N.Y. Nov. 17, 1997),21 F. Supp. 2d 379 (S.D.N.Y. 1998), appeal dismissed, Docket No. 98-9524 (2nd Cir. March 23, 1999) .......................... 24 Eisemann v. Greene, 204 F.3d 393 (2nd Cir. 2000) ................................................. 28 Engel v. Aponte, 51 A.D.2d 989 (2nd Dep't 1976) ................................................... 22 Gilberg v. Barbieri, 53 N.Y.2d 285 (1981) ...................................................... 25,27 Greenwood Trust Co. v. Mason, 277 A.D.2d 740 (3rd Dep't 2000) ........................ 26 Halyalkar v. Board of Regents of the State of New York, 72 N.Y.2d 261 (1988) ........................................................................................... 25 Interconnect Planning Corp. v. Feil, 774 F.2d 1132 (Fed. Cir. 1985) .............. 18-19 11 Page Leisten v. Leisten, 309 AD.2d 1202 (4'h Dep't 2003) ................................. 26 Long v. State, 7 N.Y.3d 269 (2006) ......................................................................... 11 Mackler Productions, Inc. v. Cohen, 146 F.3d 126 (2nd Cir. 1998) ........................ 27 Matter o/Babigian, 247 AD.2d 817 (3 rd Dep't), cert. denied, 525 U.S.1003 (1998) ............................................................................................ 25 Matter o/Capoccia, 272 AD.2d 838 (3rd Dep't 2000) ................................ 24 Matter o/Cousins, 80 AD.3d 99 (1 "Dep't 2010) ................................................... 23 Matter o/Davey, III A.D.3d 207 (1 stDep't 20l3) ................................................ .23 Matter o/Donegan, 282 N.Y. 285 (1940) ............................................................... 12 Matter o/Drucker, 109 AD.3d 292 (2nd Dep't 20l3) ............................................. 24 Matter 0/ Fagan, 58 AD.3d 260 (1 st Dep't 2008) .................................................. .23 Matter o/Flannery, 274 AD.2d 940 (3rd Dep't 2000) ............................................ 25 Matter o/Flannery, 186 F.3d 143 (2nd Cir. 1999) ................................................... 25 Mattero/Harley, 293 AD.2d l31 (1"Dep't2001) ................................................ 23 Matter o/Henning, 32 AD.3d 161 (2nd Dep't 2006) .............................................. 24 Matter o/Keogh v. Richardson, 17 N.Y.2d 479 (1965) .......................................... 12 Matter o/Levy v. Association o/the Bar o/the City o/New York, 37 N.Y.2d 279 (1975) .................................................................... 12-l3, 22, 25-26 Matter 0/ Mackenzie, 32 AD.3d 189 (2nd Dep't 2006) .......................................... .24 Matter 0/ Miller, 76 A.D.3d 258 (2nd Dep't 2010) .................................................. .24 111 Page Matter of Rosenberg, 97 AD.3d 189 (1 stDep't 2012) ............................................ 23 Matter of Taylor, 113 AD.3d 56 (1 stDep't 2013) ................................................... 23 Matter ofYao, 231 AD.2d 346 (1st Dep't 1997) ..................................................... 14 McGrath v. Gold, 36 N.Y.2d 406 (1975) ................................... 12, 13, 14-15,20,21 Moore v. Aegon Reinsurance Co. of America, 196 AD.2d 250 (1't Dep't), cert. dismissed, 512 U.S. 1283 (1994) ......................................... 18-20 Morley v. Quinones, 208 AD .2d 813 (2nd Dep 't 1994) ........................................... 21 New Pacific Overseas Group (USA) Inc. v. Excal International Development Corp., 2000 WL 377513 (S.D.N.Y. April12, 2000), appeal dismissed, 252 F.3d 667 (2nd Cir. 2001) ................................................................................ 26 People v. Aguilera, 82 N.Y.2d 23 (1993) ............................................ 15-16 Schlaifer Nance & Co., Inc. v. Estate of Warhol, 194 F.3d 323 (2nd Cir. 1999) ..................................................................... 26, 27, 28 Schwartz v. Public Administrator of the County of the Bronx, 24 N.Y.2d 65 (1969) ............................................................................................. 25 60 East 80th Street Equities, Inc. v. Sapir (In re 60 East 80th Street Equities, Inc.), 218 F.3d 109 (2nd Cir. 2000) ............ 26 SS &J Morris, Inc. v. 1. Appel Corp., 2000 WL 1028680 (S.D.N.Y. July 26, 2000), objections overruled, 2001 WL 99877 (S.D.N.Y. Feb. 5,2001) .................................................................. 24 SS & J Morris, Inc. v. Mahoney Cohen & Co., Docket No. 01-7228 (2nd Cir. May 1, 2001) ..................................................................... 24 S.T. Grand, Inc. v. City of New York, 32 N.Y.2d 300 (1973) ........................... 13 Slater v. American Mineral Spirits Co., 33 N.Y.2d 443 (1974) ....................... 13, 15 IV Page Vavolizza v. Kreiger, 33 N.Y.2d 351 (1974) ..................................................... 12-13 Webb v. Buckelew, 37 Sickels 555, 82 N.Y. 555 (1880) ......................................... 13 Williams v. Moore, 197 A.D.2d 511 (2nd Dep't 1993) ................................. 20-21,22 Wolters Kluwer Financial Services, Inc. v. Scivantage, 564 F.3d 110 (2nd Cir. ), cert. denied, 558 U.S. 1037 (2009) ............................................... 27-28 Zangiacomi v. Hood, 193 A.D.2d 188 (15t Dep't 1993) .............................. 16-17,20 New York Statutes Insurance Law § 1213(c)(1) ..................................................................................... 18 Judiciary Law § 90 ...................................................................... 2, 12 Labor Law § 240 ...................................................................................................... 16 Federal Statute 28 U.S.C. § 1609 ............................................................................ 18 Other Authorities Restatement (Second) Judgments § 13 (1982), Comment g .......................... 19 Restatement (Second) Judgments § 28 (1982) .......................................... 17 The Record, "The Collateral Estoppel Effect of Sanctions," Summer 2002, Vol. 57, No.3 ....................................................................... 26-27 v STATE OF NEW YORK COURT OF APPEALS In the Matter of JILL A. DUNN, An Attorney. COMMITTEE ON PROFESSIONAL STANDARDS, Respondent; JILL A. DUNN, Appellant. Introduction APL-2014-00029 BRIEF FOR APPELLANT Granting collateral estoppel effect to a non-final decision of a United States magistrate judge, the Appellate Division, Third Department found that Jill A. Dunn, an attorney, made false statements in a written declaration filed in the federal case and, after hearing Dunn in mitigation, censured her. This Court's precedents consistently hold that only final orders and judgments-orders and judgments that have been appealed or could have been appealed but were not- may be given collateral estoppel effect in subsequent proceedings. Since the magistrate judge's decision is not appealable until the conclusion of the underlying civil case, as the Second Circuit ruled when it dismissed Dunn's appeal from the magistrate judge's decision without reaching the merits, it should not have been given collateral estoppel effect. This Court should reverse. Jurisdiction This Court has jurisdiction over this appeal under subdivision 8 of Judiciary Law § 90: "Any petitioner or respondent in a disciplinary proceeding against an attorney or counsellor-at-law under this section ... shall have the right to appeal to the court of appeals from a final order of any appellate division in such proceeding upon questions oflaw involved therein, subject to the limitations prescribed by section three of article six ofthe constitution of this state." The Constitutional provision referred to limits this Court's jurisdiction to questions of law. The Appellate Division's Order censuring Dunn finally determined the proceeding. Her appeal presents a pure question oflaw. This Court granted leave to appeal on February 18,2014. A_2. 1 Question Presented for Review May collateral estoppel effect be given to a non-final decision of a United States magistrate judge which is not subject to review by a United States district judge or by the United States Court of Appeals until the conclusion of the underlying civil action? Implicitly answering this question affirmatively, the Appellate Division gave collateral estoppel effect to a magistrate judge's non-final decision. A -8-9. Dunn preserved the issue for review. A -137 -41. 1 References to "A-_" are to pages in Appellant's Appendix. 2 Nature of the Case The Petition and Answer The Committee on Professional Standards for the Third Judicial Department (the "Committee") served its Petition and Notice of Petition in December 2011. A-lO, 12. The Petition contains a single charge of professional misconduct: that Dunn "engaged in fraudulent conduct prejudicial to the administration of justice adversely reflecting on her fitness as a lawyer by making false statements under oath in written declarations filed in federal court." A-13. This charge rested entirely on findings of United States Magistrate Judge David R. Homer in Securities and Exchange Commission v. Smith, 798 F. Supp. 2d 412 (N.D.N.Y. 2011) ("Smith 2"), afJ'd in part, dismissed in part and remanded, 710 F.3d 87 (2nd Cir. 2013) ("Smith 3"). A-14-21.2 In her Verified Answer to the Petition, Dunn denied the substantive allegations ofthe Petition and asserted that Magistrate Judge Homer's decision should not be given collateral estoppel effect because she was not afforded a full and fair opportunity to litigate and because Magistrate Judge Homer's decision was being appealed. A-23-27. Dunn requested that proceedings based on that decision be held in abeyance pending disposition of her appeal to the United States Court of 2 Copies of the material decisions in the underlying federal action are reproduced in an Addendum to Appellant's Appendix, beginning at A-150. 3 Appeals for the Second Circuit. A-2S. For more than a year, the Appellate Division granted Dunn's requests and adjourned the proceedings. A-34-35. On March IS, 2013, the Second Circuit ruled that Magistrate Judge Homer's decision was not a final decision of the district court and therefore could not be appealed until final judgment is entered in the underlying civil action. The court dismissed Dunn's appeal without addressing the merits. Smith 3, 710 F.3d at 93-96 (A-229-32). The Committee's Collateral Estoppel Motion A month later, by Notice of Motion dated April 22, 2013, the Committee moved for an Order declaring that there were no factual issues and fixing a time for Dunn to be heard in mitigation. A-31. Like the Petition, the Committee's motion was based solely on Magistrate Judge Homer's July 20,2011, Memorandum- Decision and Order (Smith 2), which the Committee argued should be given preclusive effect. A-3S. Dunn opposed the motion, principally on the ground that Magistrate Judge Homer's decision was not final. A-137-41. In a Confidential Memorandum and Order entered July IS, 2013, the Appellate Division concluded "that the falsity of the statements is the common and decisive issue decided by the Magistrate Judge and to be decided in this proceeding, and that the appellate status of the Magistrate Judge's order does not preclude the application of collateral estoppel. ... Accordingly, we find that the 4 doctrine of collateral estoppel is properly applied in this proceeding, and grant petitioner's motion." A-8-9. Following Dunn's written submissions in mitigation and oral argument on October 16, 2013, the Appellate Division issued its Memorandum and Order censuring Dunn on November 7,2013. A-4.3 Underlying Facts and Proceedings in Federal Court The SEC's Motion for a Preliminary Injunction The United States Securities and Exchange Commission ("SEC") brought an action against broker-dealer McGinn, Smith & Co. and others in April 20 1 0, alleging violations ofthe federal securities laws. On the same day, the SEC obtained a Temporary Restraining Order appointing a receiver to take possession of the defendants' assets and freezing specific property, including the assets of a Trust established by David and Lynn Smith in 2004 (the "Trust"). Securities and Exchange Commission v. McGinn, Smith & Co., Inc., 752 F. Supp. 2d 194,201 (N.D.N.Y 2010) (A-157), afj'd, 432 Fed. Appx. 10 (2nd Cir. 2011) ("Smith 1"). The Trust, represented by Dunn, intervened in the SEC action (it had not been named as a party) and moved to lift the TRO as to the Trust's assets. Smith 2, 798 F. Supp. 2d at 418 (A-197). 3 The Appellate Division decision is reported as Matter of Dunn, III A.D.3d 1019 (3 rd Dep't 2013). 5 After an evidentiary hearing in June 2010, Magistrate Judge Homer found that the SEC failed to show that the Trust was created with ill-gotten gains or that David Smith (a principal defendant) was the beneficial owner ofthe Trust. Smith 1, 752 F. Supp. 2d at 217-19 (A-173-75). On July 7, 20lO, Magistrate Judge Homer denied the SEC's motion for a preliminary injunction continuing the freeze of the Trust's assets. Smith 1,752 F. Supp. 2d at 219 (A-175). The SEC's Motion for Reconsideration Having observed that no gift tax return was filed when the Trust was formed, the SEC decided to ask Magistrate Judge Homer to reconsider his decision. On July 22, 20lO, SEC attorneys David Stoelting and Kevin P. McGrath invited Dunn to join them in a pre-motion conference call with Magistrate Judge Homer. During the call, Dunn said that no taxes were due. After the call, Stoelting and McGrath telephoned Dunn to ask why no taxes were due. According to Stoelting, Dunn said, "It's a private annuity agreement." McGrath did not hear those words. According to Dunn, she said that no gift tax return was filed and no gift taxes were due because "this was a private annuity trust." Securities and Exchange Commission v. Wojeski, 752 F. Supp. 2d 220,225-26 (N.D.N.Y 20lO) (A-182-83), aff'd, 432 Fed. Appx. 10 (2nd Cir. 20lO) ("Wojeski"). Following the call with Dunn, the SEC attorneys consulted their tax expert, who advised them that if a trust was established, and if a private annuity agreement 6 was signed, taxes could be deferred. The SEC then contacted the original trustee of the Trust, who located an Annuity Agreement (A-70) and sent copies to the SEC and Dunn on July 27,2010. Wojeski, 752 F. Supp. 2d at 226 (A-I 83). In August 2010, the SEC moved for reconsideration of Magistrate Judge Homer's July 7, 2010, decision (Smith 1), principally on the ground that the Annuity Agreement established David Smith's interest in the assets of the Trust. Wojeski, 752 F. Supp. 2d at 222-23 (A-179-80). The Trust opposed the SEC's motion on several grounds. For the purposes ofthis case, the most significant gronnd was that the Annuity Agreement was not "newly-discovered" evidence because the SEC, in the exercise of due diligence, could have discovered it earlier. Wojeski, 752 F. Supp. 2d at 228 (A-185).4 On September 3,2010, Dunn filed a Declaration in opposition to the SEC's motion, stating that she did not know of the existence of the Annuity Agreement nntil she received it from the original trustee on July 27,2010, the same day that the SEC received it, and that neither she nor her client, the successor trustee, were 4 The telephone call described above was not the first time "private annuity trust" had been used in the case. A letter dated August 4,2004 (A-74), which was received in evidence at the Jnne 2010 hearing (A-80), referred to a "Private Annuity Trust," but the SEC claimed to have understood the letter to refer to a Declaration of Trust rather than to an annuity agreement. Wojeski, 752 F. Supp. 2d at 228-29 (A-I 85-86). A copy ofthe Annuity Agreement had been in the possession of federal law enforcement authorities since it was seized on April 20, 2010, the day the SEC filed its action. Wojeski, 752 F. Supp. 2d at 224 (A-181); Smith 2, 798 F. Supp. 2d at 419, n. 5 (A-198). 7 in possession of any documents relating to the private annuity other than the documents she received from the original trustee on July 27. A-75, 86. Magistrate Judge Homer scheduled an evidentiary hearing regarding the July 22,2010, telephone conversation between Dunn and SEC attorneys Stoelting and McGrath for November 16,2010. Smith 2,798 F. Supp. 2d at 428 (A-207). As she prepared for the hearing, Dunn learned that on July 21, 2010, her client (the successor trustee) forwarded to her by e-mail a copy of a fax transmission which he had received from David Smith the day before (July 20,2010). A-97. Smith's fax (A-l 00-04) referred to an annuity contract, but did not include the Annuity Agreement itself. On November 15,2010, the day before the hearing, Dunn filed a two-page Declaration in which she acknowledged that her prior statement that neither she nor her client was in possession of any documents relating to the private annuity was incorrect. A-96-97. Appended to Dunn's Declaration was a complete copy of the July 21,2010, e-mail she had received from her client. A-99-104. After the hearing, Magistrate Judge Homer found that the SEC did not discover the Annuity Agreement until the July 22, 2010, telephone conversation, ruled that the Annuity Agreement demonstrated David Smith's "substantial interest" in the Trust and reimposed the freeze on the Trust's account. Wojes/d, 752 F. Supp. 2d at 228-32 8 (A-185-89). In addition, Magistrate Judge Homer invited the SEC to move for sanctions against Dunn and others. Wojeski, 752 F. Supp. 2d at 233 (A-190). The SEC's Motion for Sanctions In January 2011, the SEC moved for sanctions (Smith 2, 798 F. Supp. 2d at 416 [A-195]), seeking the return of funds disbursed by the Trust between July 7, 2010, when the asset freeze was vacated, and August 3,2010, when the SEC moved for reconsideration-more than $1,000,000 (Smith 2, 798 F. Supp. 2d at 420 [A-199])-plus $164,000 in attorneys' fees and costs claimed to have been incurred as a result of allegedly wrongful acts of Dunn and others (Smith 2, 798 F. Supp. 2d at 438 [A-2l7]). The SEC argued that Dunn knew of the existence of the Annuity Agreement prior to the court's ruling on the SEC's initial motion to freeze the Trust's assets, and knowingly submitted false declarations and tailored the testimony of witnesses in order to conceal the truth. Smith 2, 798 F. Supp. 2d at 426 (A-205). Magistrate Judge Homer rejected those arguments, finding that the SEC failed to demonstrate that Dunn knew of the existence of the Annuity Agreement prior to the issuance of his decision on July 7, 2010, or that she acted in bad faith, either objectively or subjectively, prior to that date. Smith 2, 798 F. Supp. 2d at 426-27 (A-205-06). 9 However, despite the undisputed fact that the fax transmitted to Dunn by e-mail on July 21 (A-99-104) did not include the Annuity Agreement (A-70-73), Magistrate Judge Homer found that Dunn received a copy of the Annuity Agreement from her client on July 21,2010, and therefore the statement in her September 3, 2010, Declaration that she was unaware of the existence ofthe Annuity Agreement prior to receiving a copy on July 27,2010, was knowingly false. Smith 2, 798 F. Supp. 2d at 429-30 (A-208-09). Magistrate Judge Homer directed Dunn to disgorge $5,355 paid to her by the Trust on July 31, 2010, publicly admonished her, and directed the Clerk of the Court to forward a copy of his decision to the Committee. Smith 2, 798 F. Supp. 2d at 441-42 (A-220-21). Dunn promptly filed objections and sought a stay in the district court. A -105, 117. The district judge ruled that any appeal should be taken to the Second Circuit and did not consider Dunn's motion for a stay. A-I08, Ill. Two months later, Dunn's motion for a stay was "deemed" referred to Magistrate Judge Homer (A-I 18), who denied it on the ground that the harm inflicted by the sanctions had already been suffered and therefore would not be affected by a stay (A-120-21). The Second Circuit Decision The Second Circuit held that it lacked jurisdiction to entertain Dunn's . appeal. Smith 3, 710 F.3d at 93-96 (A-229-32). The court recognized that federal appellate jurisdiction is limited to final decisions of district courts, subj ect to an 10 exception known as the collateral order doctrine, under which appellate courts may review decisions that are conclusive, resolve important questions separate from the merits, and are effectively unreviewable on appeal from the final judgment in the underlying action. Smith 3, 710 F.3d at 94 (A-230). The Second Circuit held that decisions imposing sanctions prior to the entry of fmal judgment do not fall within the collateral order doctrine and therefore cannot be appealed until final judgment is entered in the underlying action. Smith 3, 710 F.3d 93-96 (A-229-32). Since the underlying action has not come to an end, Dunn cannot appeal Magistrate Judge Homer's ruling until some unknown time in the future, no matter what hardship she may suffer as a result. Smith 3, 710 F.3d at 96, n. 10 (A-232).5 The Committee's collateral estoppel motion followed a month later. A-31. 5 This Court may take judicial notice of the fact that the underlying SEC case (N.D.N.Y Case No.1 0-cv-00457 [GLS-CFH]) is continuing. Long v. State, 7 N.Y.3d 269, 275 (2006). 11 Argument THE APPELLATE DIVISION ERRED IN GIVING COLLATERAL ESTOPPEL EFFECT TO A NON-FINAL DECISION OF A UNITED STATES MAGISTRATE JUDGE WHICH COULD NOT BE APPEALED A. Collateral Estoppel in Attorney Disciplinary Proceedings Prior to Matter of Levy v. Association of the Bar of the City of New York, 37 N.Y.2d 279 (1975), this Court had not approved the application of collateral estoppel in attorney discipline proceedings. In Matter of Levy, this Court expressly departed from Matter of Keogh v. Richardson, 17 N.Y.2d 479,481 (1965), and Matter of Donegan, 282 N.Y. 285, 293 (1940), which held that prior judgments were prima facie evidence in discipline proceedings, but were not conclusive. In Matter of Levy, this Court held that a criminal conviction precluded an attorney from relitigating the issue of his guilt in a subsequent disciplinary proceeding. 37 N.Y.2d at 281. Levy was convicted of conspiracy to pay kickbacks, a federal felony which was only a misdemeanor under New York law. Therefore, he was not automatically disbarred under Judiciary Law § 90(4). An evidentiary hearing was conducted by a referee, who precluded Levy from testifying regarding his guilt. 37 N. Y .2d at 280-81. This Court affirmed, reasoning that members of the Bar should not be accorded a more favorable position than others, and since principles of collateral estoppel were applicable in both criminal and civil cases, citing McGrath v. Gold, 36 N.Y.2d 406 (1975), Vavolizza v. Kreiger, 33 N.Y.2d 12 351 (1974), and s.T. Grand, Inc. v. City a/New York, 32 N.Y.2d 300 (1973), it was not unfair or unreasonable to apply the same principles in an attorney disciplinary proceeding. Matter a/Levy, 37 N.Y.2d at 28l. B. The Requirement of Finality The cornerstone of collateral estoppel and res judicata is finality: "It is, therefore, only a fmal judgment upon the merits, which prevents further contest upon the same issue .... An interlocutory order is not such a judgment. It is not a judgment at all." Webb v. Buckelew, 37 Sickels 555, 82 N.Y. 555, 560 (1880) (citations omitted). As this Court explained in Brown v. Cleveland Trust Co., 233 N.Y. 399,405-06 (1922): The Appellate Division also erred in holding that the judgment in the prior action was res adjudicata as to the construction of the agreement in this action. That was an interlocutory judgment which is never res adjudicata. It is only a final judgment upon the merits which prevents further contest upon the same issue, between the same parties, that becomes conclusive between them and their privies, which is res adjudicata. Thus, in order to invoke the principle of collateral estoppel, "the issue of ultimate fact must have been determined by a 'final judgment.' " McGrath v. Gold, supra, 36 N.Y.2d at 412, quoting Ashe v. Swenson, 397 U.S. 436, 443 (1970); Slater v. American Mineral Spirits Co., 33 N.Y.2d 443, 446-47 (1974). 13 Rejecting Dunn's argument that Magistrate Judge Homer's decision should not be accorded collateral estoppel effect because it was not final, the Appellate Division ruled that "the appellate status ofthe Magistrate Judge's decision does not preclude the application of collateral estoppel." A -9 (emphasis added). While this statement may be literally correct ("[T]his Court routinely enters fmdings of professional misconduct based on attorneys' convictions of a 'serious crime' before appeals from those convictions are determined"; Matter ojYao, 231 A.D.2d 346,348 [1 st Dep't 1997]), it addresses the wrong question. The issue is not whether an appeal from a prior determination has been decided, but whether a magistrate judge's decision is appealable and therefore sufficiently "final" to be given collateral estoppel effect. In McGrath v. Gold, supra, the petitioners were indicted in both Kings and Queens Counties based on the same facts and circumstances. After a Queens County Supreme Court decision suppressed evidence obtained by means of an eavesdropping warrant and dismissed the Queens County indictment, the petitioners sought to block the Kings County prosecution, claiming collateral estoppel. This Court rejected the contention, holding that collateral estoppel requires a final judgment, while the dismissal of the Queens County indictment was based on a suppression order "that was interlocutory in nature." 36 N.Y.2d at 412. "[T]here was not the requisite finality since the dismissal would not bar a 14 trial based on a subsequent accusatory instrument charging the identical offenses" (36 N.Y.2d at 412; citations omitted).6 In Slater v. American Mineral Spirits Co., supra, three plaintiffs brought actions arising from the same industrial accident. The defendants brought third- party actions against the plaintiffs' employer, which successfully moved to dismiss the third-party complaints. The defendants/third-party plaintiffs could have appealed from the orders granting dismissal, but did not. This Court ruled that the dismissal orders became "final," for estoppel purposes, because "an appeal could have been taken ... from the order of December 15,1971," but was not. 33 N.Y.2d at 447. "The 1971 decisions were on the merits of the third-party claims, and no appeal having been taken those dispositions becamefinal." 33 N.Y.2d at 446 (emphasis added; citations omitted). More recent decisions reflect the same care in assessing finality as a crucial determinant of the application of collateral estoppel. For example, in People v. Aguilera, 82 N.Y.2d 23 (1993), the defendant was charged with two murders a few days apart in Manhattan and the Bronx. His interrogation covered both crimes. The Bronx case proceeded first. After a Huntley hearing, the Bronx trial court denied the defendant's suppression motion, finding that the procedures were proper, and 6 In a criminal case, final judgment means conviction and sentencing. "The sentence is the judgment." Berman v. United States, 302 U.S. 211, 212 (1937) (citations omitted). 15 that the defendant was advised of his rights and knowingly and voluntarily waived them. The defendant was tried and convicted, and his conviction was affirmed by the Appellate Division. When the Manhattan case was subsequently brought to trial, the court found that the Bronx ruling was binding. On appeal, the defendant argued that the original denial of his suppression motion was not binding because the post-Huntley hearing ruling was not a final judgment. This Court held that the Huntley ruling "obtained the requisite finality" (82 N.Y.2d at 31) when the defendant was convicted in the Bronx-an appealable event, and the defendant took an appeal-which pre-dated the application of collateral estoppel in Manhattan. Two First Department decisions are highly pertinent. First, in Zangiacomi v. Hood, 193 A.D.2d 188, 195 (1 st Dep't 1993), the plaintiff, a New York resident, was injured while working in Westport, Connecticut. He brought suit against the property owner in federal court in New York; after the plaintiff was unable to obtain jurisdiction over another party he wished to add, the suit was voluntarily discontinued without prejudice and the plaintiff sued again in Supreme Court, New York County. 193 A.D.2d at 190-91. Prior to the discontinuance, the federal district court ruled that Labor Law § 240 did not apply to the accident. The principal defendant in the state court action moved for summary judgment on 16 collateral estoppel grounds, arguing that the federal district court decision was preclusive. The First Department rejected the argument: For collateral estoppel to apply, there must be a "valid and final judgment." (Matter of McGrath v. Gold, 36 N.Y.2d 406, 411, 369 N.Y.S.2d 62,330 N.E.2d 35.) The District Court determination was a non-appealable interlocutory order (see, 28 U.S.C. § 1291), which distinguishes the instant case from Murray v. National Broadcasting Co., 178 A.D.2d 157,576 N.Y.S.2d 578 [1 st Dep't 1991], upon which Saunders relies. There, the dismissal ofthe federal action was affirmed and both a rehearing application and petition for a writ of certiorari denied before the state action was even commenced. . .. [PJlaintiff could not obtain review of the adverse District Court determination and he should not be bound by it. 193 A.D.2d at 195 (emphasis added), citing Restatement, Second, ofJudgments, § 28[1]).7 Dunn attempted to appeal Magistrate Judge Homer's Order imposing sanctions to the district judge, who ruled that Dunn could only appeal to the Second Circuit. A-108, Ill. The Second Circuit ruled that Magistrate Judge Homer's determination cannot be appealed until after the entry of final judgment in the underlying case. Smith 3, 710 F.3d at 96 (A-232). 7 § 28 Exceptions to the General Rule ofIssue Preclusion Although an issue is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, relitigation ofthe issue in a subsequent action between the parties is not precluded in the following circumstances: (l) The party against whom preclusion is sought could not, as a matter of law, have obtained review of the judgment in the initial action .... Restatement (Second) Judgments § 28 (1982). 17 Second, in Moore v. Aegon Reinsurance Co. of America, 196 A.D.2d 250, 254-60 (1 st Dep't), cert. dismissed, 512 U.S. 1283 (1994), the Kentucky Insurance Commissioner sued a Brazilian reinsurer and other insurance companies in connection with the liquidation of an insolvent Kentucky insurer. Initially, suit was brought in federal court in Kentucky; the actions were transferred to the United States District Court for the Southern District of New York, where state court actions had also been brought. Several foreign insurers sought relief from the requirement that they post security pursuant to Insurance Law § 1213(c)(1). A United States magistrate ruled that the Brazilian insurer was an instrumentality of a foreign state and that under the Foreign Sovereign Immunities Act (28 U.S.C. § 1609), it was not subject to the imposition of the security requirement, which was the equivalent of an attachment. The lAS court ruled that it was not bound by the federal magistrate's ruling, which it viewed as interlocutory, not subject to appeal and therefore not entitled to preclusive effect. 196 A.D.2d at 253-55. The lAS court in Moore relied on Interconnect Planning Corp. v. Feil, 774 F.2d 1132, 1135-36 (Fed. Cir. 1985), which held that a federal district court's interlocutory order is not entitled to conclusive effect. As the Second Circuit explained, 774 F.2d at 1135: [F]or collateral estoppel to arise the prior decision need not have been final in the sense of28 U.S.C. § 1291 but, in the words ofthe Restatement, the prior adjudication must have been 'sufficiently firm to be accorded 18 conclusive effect'. Restatement (Second) of Judgments § 13 (1982). Sufficient firmness, according to the Restatement, requires that the party against whom the estoppel is asserted have had the right, even if not exercised, to challenge on appeal the correctness of the earlier decision.8 On appeal, the First Department held that under Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541 (1949), which also involved an order dispensing with security for expenses, the order refusing to require the posting of security could have been treated as final under the collateral order doctrine if it had been issued by a district judge, but that decisions of United States magistrates were not considered final for purposes of review by the federal courts of appeal. Moore v. Aegon Reinsurance Co. of America, 196 A.D.2d at 258-59. The First Department in Moore also found that the magistrate's ruling was subject to review by the district judge presiding over the case; however, the Commissioner had not objected to the magistrate's decision or her ruling on reargument and failed to seek review of the magistrate's decision by the district judge. Therefore, the magistrate's ruling should have been given preclusive effect. Moore v. Aegon Reinsurance Co. of America, 196 A.D.2d at 260. The court in 8 Referring to claim preclusion, Comment g to Section 13 ofthe Restatement states, "[T]hat the parties were fully heard, that the court supported its decision with a reasoned opinion, that the decision was subject to appeal or was in fact reviewed on appeal, are factors supporting the conclusion that the decision is final for the purpose of preclusion." Restatement (Second) of Judgments § 13, Comment g (1982) (emphasis added.) 19 Moore specifically reaffirmed the principle that "interlocutory orders of the United States District Court, which are nonappealable (see, 28 U.S.C. § 1291), cannot provide a basis for collateral estoppel." Moore v. Aegon Reinsurance Co. of America, 196 A.D.2d at 260, citing Zangiacomi v. Hood and McGrath v. Gold, supra. Here, Dunn sought review in the district court and in the Second Circuit. The district judge ruled that Dunn could only appeal to the Second Circuit, and that court ruled that it lacked jurisdiction to entertain her appeal. Accordingly, Magistrate Judge Homer's decision was not "final" and should not have been given preclusive effect. Numerous appellate decisions reflect the proper application of these principles: If an interlocutory decision is reviewable, it may be accorded estoppel effect; when an interlocutory decision can be appealed, but is not, the interlocutory decision will be considered "final" for purposes of collateral estoppel. If, however, as here, the prior decision cannot be appealed, it may not be given preclusive effect. For example, in Williams v. Moore, 197 A.D.2d 511 (2nd Dep't 1993), the plaintiff brought a false arrest action against the City of New York and others. The City moved to dismiss, contending that in a prior criminal proceeding, the court found that the arrest was supported by probable cause. However, when the victim's identification of the plaintiff as her assailant was later discredited, the charges 20 against the plaintiff were dismissed. Thus, "the plaintiff [the defendant in the criminal case] was precluded from seeking appellate review ofthe pre-trial Wade determination [of probable cause]. That determination, therefore, was not 'sufficiently final to be accorded collateral estoppel effect' in the instant action." 197 A.D.2d at 513, citing McGrath v. Gold, supra, and other like decisions. Similarly, in Morley v. Quinones, 208 A.D.2d 813 (2nd Dep't 1994), in a prior action, after trial as to liability, an interlocutory judgment was entered establishing the liability of the defendants, who appealed. The trial as to damages proceeded while the appeal was pending and resulted in a finding that the plaintiff had failed to meet the no-fault threshold. Accordingly, the complaint was dismissed, as was the appeal, since the defendants were no longer aggrieved. In a subsequent action based on the same event, the plaintiff moved for summary judgment, contending that the defendants' liability had been established by the interlocutory judgment entered in the prior action. The court ruled that "the interlocutory judgment dated November 7, 1990, cannot be given collateral estoppel effect in this action since the dismissal of the appeal from that judgment prevented the defendants from obtaining appellate review ofthe jury's findings of fact as to the respective degrees of fault of the parties in the happening of the accident. 'That determination ... therefore, was not "sufficiently final to be 21 accorded collateral estoppel effect" in the instant action ... .' "208 AD.2d at 814, quoting Williams v. Moore, supra, 197 AD.2d at 513. Finality was present in Cruz v. Kamlis Dresses & Sportswear Co., 238 AD.2d 103 (1st Dep't 1997), in which summary judgment was entered dismissing claims against a defendant (Westover) due to the plaintiff's failure to comply with discovery demands. Subsequently, seeking contribution, other defendants impleaded Westover, which moved to dismiss on the basis of the prior summary judgment order. The court held that the claims were barred: "Westover's summary judgment motion sought and obtained dismissal of all claims against it. Philip & Tony opposed the motion in responsive papers and, therefore, had standing to appeal from the award of summary judgment as a party aggrieved by the ruling .... Philip & Tony's failure to prosecute an appeal bars further litigation of the same facts raised in the prior proceeding." 238 AD.2d at 104 (citations omitted). Likewise, in Engel v. Aponte, 51 AD.2d 989, 990 (2nd Dep't 1976), the plaintiff's failure to appeal from a prior order granting summary judgment to one defendant and dismissing the complaint as to another "bars further litigation on the same facts." Since Matter of Levy, supra, the Appellate Divisions frequently apply collateral estoppel in attorney discipline cases, but in every other case we have 22 found, the courts do so only when the prior determination has been appealed or could have been appealed but was not. Illustrative recent First Department decisions include Matter o/Taylor, 113 A.D.3d 56, 57-58 (1 slDep't 2013); Matter o/Davey, 111 A.D.3d 207, 208-10 (1 sI Dep't 2013); Matter o/Rosenberg, 97 A.D.3d 189,190 (1 slDep't 2012). In Matter o/Cousins, 80 A.D.3d 99,102, (1 slDep't 2010), a notice of appeal was filed, but the appeal was dismissed for failure to perfect. In Matter 0/ Harley, 293 A.D.2d 131, 139 (1 sl Dep't 2001), the attorney could have appealed the underlying determination, but chose not to do so. In Matter 0/ Fagan, 58 A.D.3d 260, 262 (1 sl Dep't 2008), the court gave collateral estoppel effect to a federal district court judgment dismissing the underlying case and imposing sanctions. An appeal to the Second Circuit was dismissed because, as the court's docket shows, required forms were not filed. Assoc. 0/ Holocaust Victims for Restitution 0/ Artwork and Masterpieces v. Erste Bank, A. G., Docket No. 05-5397 -cv (2nd Cir. Dec. 8, 2005). Similarly, in Matter o/Osborne, 1 A.D.3d 31 (1 sl Dep't 2003), the court gave collateral estoppel effect to sanctions imposed in three earlier decisions. One ofthe prior decisions had been affirmed by the First Department itself. 1 A.D.2d at 32. The others were decisions of United States magistrate judges in the Southern District of New York. In the first, Douglas v. Victor Capital Group, 1997 WL 716912 (S.D.N.Y. Nov. 17, 1997), final judgment was entered a year later, 23 21 F. Supp. 2d 379 (S.D.N.Y. 1998); an appeal was taken to the Second Circuit, but was dismissed for failure to comply with the scheduling order. Docket No. 98-9524 (2nd Cir. March 23, 1999). In the second, SS & J Morris, Inc. v. 1. Appel Corp., 2000 WL 1028680 (S.D.N.Y. July 26, 2000), the magistrate judge's decision was upheld by the district judge, 2001 WL 99877 (S.D.N.Y. Feb. 5, 2001), and the appeal from the final judgment was voluntarily withdrawn. SS & J Morris, Inc. v. Mahoney Cohen & Co., Docket No. 01-7228 (2nd Cir. May 1,2001). Recent Second Department decisions to the same effect include Matter of Drucker, 109 A.D.3d 292 (2nd Dep't 2013); Matter of Miller, 76 A.D.3d 258 (2nd Dep't 2010); Matter of Mackenzie, 32 AD.3d 189 (2nd Dep't 2006); Matter of Henning, 32 AD.3d 161 (2nd Dep't 2006). In none of these cases did the court give collateral estoppel effect to a prior decision that could not have been appealed. The only decision which the Appellate Division cited in its collateral estoppel ruling here does not support the court's conclusion. In Matter of Capoccia, 272 AD.2d 838 (3 rd Dep't 2000), in eight ofthe 17 underlying cases, no appeal was taken; in four of the cases in which an appeal was taken, the appeals were not timely perfected; and in one of the cases in which an appeal was perfected, the Appellate Division affirmed the result below. Critically, the underlying decisions were appealable and therefore sufficiently final to have preclusive effect. 24 Other Third Department decisions apply the same logic. In Matter of Flannery, 274 A.D.2d 940 (3 fd Dep't 2000), the respondent failed to contest the sanction imposed by the Court of Appeals for the Second Circuit in Matter of Flannery, 186 F.3d 143,146 (2nd Cir. 1999). And in Matter ofBabigian, 247 A.D.2d 817 (3 fd Dep't), cert. denied, 525 U.S. 1003 (1998), the federal district court's imposition of sanctions had been affirmed by the Court of Appeals. We have not found any decision of this Court or any of the Appellate Divisions-save for the decision from which Dunn now appeals-in which preclusive effect was given to an unreviewable decision of a United States magistrate judge. C. Considerations of Fairness Time and again this Court has emphasized that the doctrine of collateral estoppel is rooted in considerations of fairness and should never be applied rigidly or mechanically. Auqui v. Seven Thirty One Ltd. Partnership, 22 N.Y.3d 246, 255 (2013); Halyalkar v. Board of Regents of the State of New York, 72 N.Y.2d 261, 268-69 (1988); Gilberg v. Barbieri, 53 N.Y.2d 285,292 (1981); Schwartz v. Public Administrator of the County of the Bronx, 24 N.Y.2d 65, 73 (1969). In Matter of Levy, a criminal conviction was given collateral estoppel effect because it was not unfair to preclude a party from relitigating an issue that had been resolved in a 25 proceeding attended by the highest standard of proof and rigorous safeguards against an unjust conviction. Matter 0/ Levy, supra, 37 N.Y.2d at 281. In contrast, sanctions may be imposed on an attorney, under State or federal law, without procedural protections available to a party to a civil action, such as discovery, the opportunity to cross-examine adverse witnesses, and a trial before a neutral fact-finder, much less the stringent protections available to defendants in criminal cases. Leisten v. Leisten, 309 AD.2d 1202 (4th Dep't 2003); Greenwood Trust Co. v. Mason, 277 AD.2d 740, 741 (3 rd Dep't 2000); 60 East 80th Street Equities, Inc. v. Sapir (In re 60 East 80th Street Equities, Inc.), 218 F.3d 109,117 (2nd Cir. 2000); Schlaifer Nance & Co., Inc. v. Estate a/Warhol, 194 F.3d 323, 335 (2nd Cir. 1999); New Pacific Overseas Group (USA) Inc. v. Excal International Development Corp., 2000 WL 377513 (S.D.N.Y. April 12, 2000), appeal dismissed, 252 F.3d 667 (2nd Cir. 2001). While due process may not require an evidentiary hearing or trial prior to the imposition of sanctions, a sanctions decision imposed by a single judge based on nothing more than affidavits and briefs is not the equivalent of a criminal conviction or a judgment after trial. For this reason, among others, the Committee on Professional Responsibility of the Association of the Bar of the City of New York specifically recommended against automatic discipline based on court- 26 imposed sanctions. The Record, "The Collateral Estoppel Effect of Sanctions," Summer 2002, Vol. 57, No.3, pp. 298, 303. Whether or not the sanctions proceedings before Magistrate Judge Homer satisfied due process is not the issue before this Court. As this Court observed in Gilberg v. Barbieri, supra, 53 N.Y.2d at 292 (citations omitted): The question as to whether a party has had a full and fair opportunity to contest a prior determination cannot be reduced to a formula. It cannot, for instance, be resolved by a finding that the party against whom the determination is asserted was accorded due process in the prior proceeding .... The point of the inquiry, of course, is not to decide whether the prior determination should be vacated but to decide whether it should be given conclusive effect beyond the case in which it was made .... The Second Circuit has recognized that "[ a] troublesome aspect of a trial court's power to impose sanctions, either as a result of a finding of contempt, pursuant to the court's inherent power, or under a variety of rules ... is that the trial court may act as accuser, fact finder and sentencing judge, not subject to restrictions of any procedural code and at times not limited by any rule of law governing the severity of sanctions that may be imposed." Mackler Productions, Inc. v. Cohen, 146 F.3d 126, 128 (2nd Cir. 1998). See also Schlaifer Nance & Co., Inc. v. Estate of Warhol, supra, 194 F.3d at 334. As a matter of fairness, the lack of procedural protection makes appealability even more important. As the court explained in Wolters Kluwer Financial Services, 27 Inc. v. Scivantage, 564 F.3d 1l0, 113-14 (2nd Cir.), cert. denied, 558 U.S. 1037 (2009), "when the district court is 'accuser, fact finder and sentencing judge' all in one [Schlaifer Nance & Co., Inc. v. Estate a/Warhol, supra], 194 F.3d at 334 (internal quotation marks omitted), our review is 'more exacting than under the ordinary abuse-of-discretion standard,' Perez v. Danbury Hasp., 347 F.3d 419,423 (2nd Cir. 2003)." While sanctions decisions lie within the province of the district courts, the Second Circuit has acknowledged its essential role of "ensur[ing] that any such decision is made with restraint and discretion." Schlaifer Nance & Co., Inc. v. Estate a/Warhol, supra, 194 F.3d at 333-34, citing Chambers v. Nasca, Inc., 501 U.S. 32,44 (1991); Eisemann v. Greene, 204 F.3d 393,396 (2nd Cir. 2000). Because her appeal was dismissed for lack of finality, Dunn has been denied the scrutiny which the Second Circuit considers essential. Finally, the Appellate Division below stated that Dunn's argument that Magistrate Judge Homer's decision was wrong does not preclude the application of collateral estoppel. A-9. Considered by itself, the statement is incontestable. However, in the context of a sanctions decision made on papers alone, with no discovery, no hearing and-most important here-no opportunity for scrutiny on appeal, the magistrate judge's fundamental factual error illuminates the fact that Dunn did not have a full and fair opportunity to litigate. 28 Magistrate Judge Homer concluded that Dunn's declaration was knowingly false because he found that David Smith faxed a copy of an Annuity Agreement- , a "smoking gun," according to Magistrate Judge Homer (Smith 2, 798 F. Supp. 2d at 429 [A-208])-to David Wojeski on July 20, 20ID, and that Wojeski forwarded the same document to Dunn bye-mail the next day. However, it is beyond dispute that Smith's fax to Wojeski and Wojeski's e-mail to Dunn did not include the Annuity Agreement. The factual keystone of the lower court's adverse findings and conclusions as to Dunn is a mirage. Giving collateral estoppel effect to a clearly erroneous ruling which Dunn was unable to appeal is manifestly unfair. The Appellate Division's contrary conclusion should be reversed. 29 Conclusion Magistrate Judge Homer's July 20, 2011, decision was not appealable and should not have been given collateral estoppel effect. This Court should reverse the Appellate Division's Memorandum and Order issued November 7, 2013, as well as the court's Confidential Memorandum and Order entered July 18,2013, which gave collateral estoppel effect to Magistrate Judge Homer's non-fmal decision. Dated: April 14, 2014 By: 30 Respectfully submitted, Steinberg & Cavaliere, LLP Be . amin Zelermyer Attorneys for Appellant Jill A. Dunn, Esq. 50 Main Street, 9th Floor White Plains, NY 10606 Telephone: (914) 761-4200 Facsimile: (914) 761-4256 E-mail: bzlaw@optonline.net