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J. Kent Holland, Jr.

A State Board of Examiners of Architects was legally permitted to consider admissions against interest by Architect in a settlement agreement with its client which was incorporated into a court order resolving litigation.   The architect’s argument that the settlement was intended to be confidential and that it should not have been considered by the Board was rejected by a court.  In addition, the appellate court held that the facts admitted to in the settlement agreement, when adopted by a trial court order containing conclusions of fact and of law, establish res judicata—meaning that the issues are resolved and need not be further litigated.

In Nye v. Ohio Board of Examiners of Architects (No.05AP-833, (Ct. of Appeals – Ohio, 2006),  the appellate court affirmed a judgment of a lower court that had affirmed an order of the state Board of Examiners revoking the architect’s certificate of qualification to practice architecture in Ohio.

The architect argued that the Board should not have deemed admissions by the architect in a settlement agreement with its client to be binding and irrefutable evidence of professional misconduct.  The client had filed lawsuits against the architect asserting fraudulent transfer of assets, misstatements made with fraudulent intent, and fraudulent actions involving the creation of corporations for illegal purposes and breach of contract.  The architect, according to the court, “specifically admitted to fraud, fraudulent transfers and conduct preventing the discharge of debt under the bankruptcy code.”

The settlement agreement was by its own terms incorporated into an agreed judgment entry that the common pleas trial court issued.  The court order entered judgment against the architect, pursuant to the settlement agreement, in the amount of $110,000 and stated that the judgment entry “constitutes a finding of fact and law regarding the substantive merits of each of [client’s] underlying claims.”

After the matter was resolved by settlement agreement and court order, the client filed a complaint with the board of examiners requesting that the board revoke or suspend the architects’ license.  The architect received an administrative hearing before the Board and the Board considered as documentary evidence the court’s judgment entry as well as the facts contained in the settlement agreement.  The hearing officer for the Board concluded that the architect’s actions violated various sections of the state statutes.  The court of common pleas (trail court) then affirmed the decision of the Board and the architect appealed the court’s decision.

On appeal, the architect argued that it was improper for the trail court to affirm the board’s order because the board improperly applied the doctrine of res judicata and deemed architect’s admissions in the settlement agreement to be conclusively binding evidence in the proceedings before the board. The court explained that the doctrine of res judicata includes two separate concepts: (1) claim preclusion, historically called estoppel by judgment, and (2) issue preclusion, traditionally called collateral estoppel.  The doctrine of collateral estoppel, said the court, “provides that an issue or a fact that was fairly, fully, and necessarily litigated and determined in a prior action may not be drawn into question in a subsequent action between the same parties or their privies, whether the cause of action in the two actions be identical or different.”

Because the architect’s factual admissions were incorporated into the agreed judgment entry, the civil action by the client is deemed actually litigated and determined by final judgment of the court.  But the architect argued that because the Board was not a party to the civil action that gave rise to the admissions, the principal of res judicata cannot be applied because mutuality of parties is a prerequisite to apply res judicata.

The appellate court declined to apply the general requirement that there must be complete mutuality of parties for res judicata to be applied.  Instead, it held that “because [architect] was not preclude from litigating whether the admitted facts from the prior civil litigation warranted the revocation of his architect’s license, the trial court did not err in affirming the board’s use of offensive collateral estoppel to give conclusive effect to [architect’s] prior admissions, even though the board was not a party in the prior civil litigation.”

Comment: When entering into a settlement agreement with an angry client, it may be advisable to put as few substantive facts and admissions as possible into the agreement.  I prefer settlement agreements that state that without either party admitting wrong doing, fault or liability, it is agreed that the matter is settled according to terms set forth in the settlement agreement, and this agreement should further state that it is waiver and release of all claims–known and unknown.  If possible under relevant state law, it may be advisable to make the settlement agreement conditioned on waiver of subsequent complaint to the Board. Rules of ethics do not permit such a release of ethics complaints a client may have against their attorney, but the rules may be different for other professions in different jurisdictions.  In this current case, the settlement agreement purported on its face to be confidential.  A major exception to the confidentiality requirement was provided for in the agreement, however, to allow disclosure if either the client or architect “requires use of this Agreement for evidence or otherwise in litigation, bankruptcy proceeding or other court proceeding.”  The appellate court concluded hat this was broad enough to allow its use before the board of examiners.  It is likely, however, that the intent of this exception to the confidentiality agreement was merely to permit a party to enforce divulge its contents in a subsequent proceeding in order to enforce its terms.  Having it used as a weapon in an unrelated matter such as before a state board of examiners was probably never anticipated by the architect.

About the author: Kent Holland is a construction lawyer  in Tysons Corner, Virginia, and is a risk management consultant for environmental and design professional liability insurance and contracts.   He is also publisher of ConstructionRisk.com Report.  He may be reached at Kent@ConstructionRisk.com.  This article is published in ConstructionRisk.com Report, Vol. 8, No. 6.