## Facts

- An orthopedic surgeon and an engineer invented a prosthetic shoulder device and retained a law firm to prosecute a patent application on a contingency basis.
- A 1974 written fee agreement granted the firm a one-third interest in monies, profits, or income resulting from the invention.
- The parties later formed a corporation to exploit the invention and future inventions; the inventors each held one-third, and the attorneys collectively held one-third.
- The attorneys did not fully disclose conflicts implicated by converting a one-third interest in a single invention into an equity interest tied to exploitation of all future inventions.
- For tax reasons, the corporation was dissolved and its assets transferred to a trust that preserved the attorneys’ collective one-third beneficial interest.
- After one attorney (Rhodes) left the firm, the remaining attorneys (Bain and Gilfillan) continued providing legal services related to the business.
- Rhodes sued the inventors for trust payments; the inventors counterclaimed against Rhodes for breach of fiduciary duty and malpractice challenging the fee/trust structure.
- After a bench trial, the court in the Rhodes action ruled the fee arrangement and resulting trust interests invalid due to ethical violations and lack of informed consent, and rescinded Rhodes’s interest; that judgment became final.
- The inventors then sued Bain and Gilfillan in a separate action for malpractice and breach of fiduciary duty, seeking rescission of their trust interests and a declaration that the fee agreements were unenforceable.

## Issues

1. Whether collateral estoppel bars Bain and Gilfillan from relitigating the legality and enforceability of the fee agreements and related trust interests that were held invalid in the prior Rhodes action.
2. Whether Bain and Gilfillan were in privity with Rhodes and had a full and fair opportunity to litigate the fee-validity issue in the earlier action.

## Decision

- The Court of Appeals affirmed the order granting plaintiffs partial summary judgment.
- The court held that the prior judgment conclusively determined the illegality and unenforceability of the fee/trust arrangements.
- The court ruled that Bain and Gilfillan were in privity with Rhodes and could be bound by the earlier determination.
- The court concluded Bain and Gilfillan had a full and fair opportunity to litigate the controlling issue in the Rhodes action.
- The certified question—whether the Appellate Division’s order was properly made—was answered in the affirmative.

## Legal Principles

- Collateral estoppel applies when (1) the identical issue was necessarily decided in a prior action and is decisive in the later action, and (2) the party to be bound (or one in privity) had a full and fair opportunity to litigate the issue.
- Privity exists where a nonparty’s interests are so closely aligned with a party’s interests that the nonparty’s rights can be treated as having been represented in the prior litigation.
- Collateral estoppel is grounded in fairness and should not be applied mechanically; courts consider whether binding the later litigant is equitable under the circumstances.
- Nonparties with a direct financial stake in the prior litigation and the ability to protect that stake may be precluded from relitigating issues resolved in the prior action.

## Conclusion

The court held that the earlier final judgment invalidating the attorneys’ fee and trust interests precluded other attorneys with the same stake from relitigating the arrangement’s legality, because the issue was identical, their interests were closely aligned with the prior defendant’s, and they had a fair opportunity to contest the issue in the first case.


Buechel v. Bain, 97 N.Y.2d 295 (N.Y. 2001)