Graeme Hancock v. Hon. o'neil/state Bar of Arizona

Citation: Not availableDocket: CV-21-0145-SA

Court: Arizona Supreme Court; August 29, 2022; Arizona; State Supreme Court

Original Court Document: View Document

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In a special action case, the Arizona Supreme Court addressed whether offensive issue preclusion is applicable in attorney disciplinary proceedings. The court noted that Arizona's Supreme Court rules specifically grant preclusive effect to two types of prior judgments in attorney discipline: criminal convictions and disciplinary actions from other jurisdictions. Consequently, the court concluded that offensive issue preclusion does not apply in these proceedings, meaning that sanctions orders from other lawsuits cannot be used to preclude relitigation in attorney disciplinary matters.

The background involves a case concerning Goodyear's G159 tire, where plaintiffs, the Haegers, suffered injuries due to tire failure. After Goodyear denied the existence of test records during discovery, the case settled shortly before trial. Subsequently, a newspaper article revealed the existence of the previously denied testing data, leading the Haegers to file a motion for sanctions for discovery fraud. The district court issued a sanctions order against Goodyear, its national counsel, and local counsel Graeme Hancock, detailing their roles in the alleged fraud. Following this, the State Bar of Arizona investigated Hancock, resulting in a formal complaint after probable cause was found.

During the disciplinary proceedings, the Presiding Disciplinary Judge granted the Bar’s motion for partial summary judgment, applying offensive non-mutual issue preclusion based on the district court’s findings. Hancock challenged this decision, prompting the Arizona Supreme Court to determine the applicability of issue preclusion in this context. The court asserted jurisdiction under the Arizona Constitution.

Issue preclusion, also known as collateral estoppel, is a judicial doctrine that prevents a party from relitigating a factual issue that has been previously decided. It can be invoked offensively, meaning a party uses it against someone who lost on that issue in an earlier case. The applicability of issue preclusion is a legal question reviewed de novo, and its effects depend on the law of the jurisdiction of the initial judgment.

In federal diversity cases, federal law applies the relevant state law, which in this context is Arizona law. Therefore, Arizona law determines the preclusive effect of judgments from federal courts in Arizona. For defensive issue preclusion to apply, four criteria must be met: (1) the issue must be identical in both cases; (2) it must have been actually litigated and decided previously; (3) the opposing party must have had a fair chance to litigate; and (4) the issue must have been necessary to the previous case's outcome.

Offensive issue preclusion, however, is subject to a fairness test to avoid unjust outcomes. This test includes four factors: (1) whether the plaintiff could have joined the earlier action; (2) whether the subsequent litigation was foreseeable, giving the defendant a strong incentive to defend; (3) whether the judgment being used for preclusion conflicts with any prior judgments favoring the defendant; and (4) whether the second action offers the defendant procedural opportunities that were unavailable in the first action, which could lead to a different outcome.

The Arizona Supreme Court holds ultimate authority over Arizona law and the practice of law, as established in Bates v. State Bar of Ariz. and further supported by the Arizona Constitution. It has determined that the doctrine of offensive issue preclusion does not apply to attorney disciplinary proceedings, meaning prior judgments in such matters do not automatically carry preclusive effect, except as specified by existing rules and case law. The Arizona Supreme Court Rules outline specific grounds for discipline based on prior judgments, particularly in cases involving criminal convictions (Rule 54(g)) and discipline from other jurisdictions (Rule 54(h)). These rules effectively create a form of issue preclusion but do not formally adopt the doctrine. The Court emphasizes that independent fact-finding is essential in disciplinary proceedings, asserting its role as an independent trier of fact and law, which would be undermined if issue preclusion were applied beyond what the rules allow. Consequently, the rules specify when prior judgments may influence disciplinary outcomes, reinforcing the Court's regulatory authority over attorney conduct in Arizona.

If the Bar relied on a state court sanctions order to discipline Hancock, such an order would not have preclusive effect under existing rules, as it is neither a criminal conviction nor disciplinary action from another jurisdiction. Applying offensive issue preclusion to a federal court order, while not to a similar state court order, is inconsistent, particularly when state law governs. The Bar argues that this ruling creates a disparity in treatment for lawyers compared to other regulated professions, potentially fostering a public perception of elitism among attorneys. However, any perceived differential treatment arises from the Arizona Constitution, which grants the judicial authority administrative supervision over courts and the power to establish specific disciplinary rules for lawyers, distinct from those applicable to other professions. 

The ruling does not prevent the Bar from using the sanctions as evidence in disciplinary proceedings, as the inapplicability of issue preclusion does not negate the relevance of collateral proceedings. A Presiding Disciplinary Judge (PDJ) is not restricted by evidence rules and can conduct hearings flexibly to ensure substantial justice. While the Bar cannot bar an attorney from relitigating issues from a sanctions order, the PDJ can admit relevant evidence from collateral proceedings, allowing the attorney to contest it and present additional evidence.

The Bar's claim that this ruling exempts lawyers from applicable rules is rejected, as the cited cases of In re Marquardt and Wetzel are not analogous. In Marquardt, a judge’s criminal conviction was binding in subsequent judicial misconduct proceedings due to different applicable rules. If the attorney discipline rules had applied, the same conviction would still have been preclusive under existing regulations allowing criminal convictions as grounds for attorney discipline.

Wetzel involved a disbarred lawyer who had his real estate license revoked by the Arizona State Department of Real Estate based solely on disbarment orders. After the broker exhausted administrative remedies, he contested the Department’s application of offensive non-mutual issue preclusion in court, which was affirmed by the court of appeals. The hearing officer granted preclusive effect to the disbarment orders according to Department rules, differing from the Professional Disciplinary Judge (PDJ) who felt compelled to apply issue preclusion under federal law. Other administrative agencies can adopt their procedural rules at discretion, but the key issue here is the PDJ's application of attorney disciplinary rules. Unlike Wetzel, this case involves a profession under the court's regulatory authority, specifically attorney disciplinary proceedings. The court concluded that issue preclusion is not applicable in these proceedings, allowing only criminal convictions and disciplinary orders from other jurisdictions to have preclusive effect. Although Wetzel approved offensive, non-mutual issue preclusion, it clarified that in Arizona, it is limited to defensive use, as established in Standage Ventures, which explicitly prohibited offensive use. Due to the governing rules, the court did not need to address the ambiguity between the cases. The court accepted jurisdiction, vacated the PDJ's order, and remanded for further proceedings.