Witkowski v. Welch

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit

4-13-1999

Witkowski v. Welch
Precedential or Non-Precedential:

Docket 98-1213

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Filed April 12, 1999

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 98-1213

JOSEPH A. WITKOWSKI, M.D.; GRACE WITKOWSKI;
JOSEPH A. WITKOWSKI, M.D., P.C. DEFINED
BENEFIT PENSION PLAN; JOSEPH A. WITKOWSKI,
M.D., TRUSTEE,

Appellants

v.

ROBERT G. WELCH; ROBERT G. WELCH, P.C.;
INTREPID ONE SERVICES, INC.; HISTORICAL
SECOND STREET DEVELOPMENT ASSOCIATES;
ROBERT G. WELCH, GENERAL PARTNER;
ROBERT G. WELCH, TRUSTEE; RONALD J. SREIN,
MORTGAGEE

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 92-cv-00924)
District Judge: Hon. Robert F. Kelly

Argued December 17, 1998

BEFORE: SLOVITER and COWEN, Circuit Judges
and RODRIGUEZ, District Judge*

[Filed April 12, 1999]

_________________________________________________________________

* Hon. Joseph H. Rodriguez, United States District Court for the District
of New Jersey, sitting by designation.
 Richard K. Doty, Esq. (Argued)
131 North 20th Street
Philadelphia, PA. 19103

Attorney for Appellants

James L. Griffith, Esq. (Argued)
Klett, Lieber, Rooney & Schorling
18th and Arch Streets
Two Logan Square, 12th Floor
Philadelphia, PA. 19103

Attorney for Appellee

OPINION OF THE COURT

RODRIGUEZ, District Judge.

I.

At issue in this case is whether the doctrine of collateral
estoppel applies to bar a claim of fraudulent conveyance
and fraud alleged against a transferee of real property,
where an arbitrator awarded damages for breach of
fiduciary duty and fraud against the transferor of that
property, but seemingly dismissed all other claims against
the transferor, including the claim that he fraudulently
conveyed the disputed property.

After extensive arbitration hearings which did not involve
the transferee of the real property in question here, the
arbitrator awarded the plaintiffs to that action $150,000
based on the defendant's breach of fiduciary duty and fraud
under the Employee Retirement Income Security Act
("ERISA"), 29 U.S.C. SS 1001 et seq. This award also
dismissed in their entirety, but without specificity, other
claims pressed against many other defendants. At the
request of the prevailing plaintiffs, the District Court
confirmed the arbitrator's award in all respects.
Subsequently, based on that award and the doctrine of
collateral estoppel, the District Court granted the defendant
transferee's motion for summary judgment. Judgment was
thus entered, dismissing the fraudulent conveyance claim

2
against the defendant transferee contained in Count V of
plaintiffs' complaint. This appeal followed.

II.

Appellants in this action are Dr. Joseph A. Witkowski,
individually, and as trustee of his pension plan, Joseph A.
Witkowski, M.D., P.C. Defined Benefit Pension Plan, along
with his wife, Grace, who is a beneficiary of the plan
(collectively, "the Witkowskis"). Appellants were the
plaintiffs in the underlying action claiming, inter alia, that
a conveyance of real property was fraudulent and should be
set aside. The principal defendant in the underlying
controversy was Robert G. Welch ("Welch"), individually and
as a General Partner and Trustee of other entities. These
other legal entities which he allegedly controlled were also
named as defendants in a five count complaint. 2 Finally,
named as a defendant, but only to Count V of the
Witkowskis' second amended complaint, was appellee
Ronald J. Srein ("Srein"), the transferee of real property in
which the Witkowskis now claim an interest.

A.

The events leading up to this appeal began in July of
1986, when the Witkowskis invested retirement funds held
by a retirement plan3 in an entity controlled by Welch.4
Specifically, the Witkowskis invested $150,000 for the
purchase of a 19.23% `Mortgage Participation Interest'
which they believed was to be used to finance the
_________________________________________________________________

2. The other named defendants include: Robert G. Welch, P.C.; Intrepid
One Services, Inc., a corporation controlled by Welch; and Historical
Second Street Development Associates, a limited partnership with Welch
acting as the General Partner.

3. This plan is governed by the Employee Retirement Income Security Act
("ERISA"), 29 U.S.C. SS 1001 et. seq.

4. Welch was introduced to Grace and Joseph Witkowski back in 1991,
when Welch formed Joseph A. Witkowski, P.C. for them. Over the next
five years, the Witkowskis were impressed with his credentials as a
lawyer and financial advisor, and came to rely upon him for legal and
financial advice.

3
acquisition or renovation of 70 - 72 North Second Street in
Philadelphia. The check drawing this money from their
account was made payable to Historical Second Street
Development Associates ("Historical"). A subscription
agreement described the investment interests as
"speculative investments which involve a substantial degree
of risk." App. 211-12. The Witkowskis believed that a
mortgage was to be made to Historical, a limited
partnership which Welch controlled either as a trustee or
general partner. They also believed that this mortgage, once
recorded, would be the first on the property and thus serve
to secure the investment. Apparently, no mortgage interest
was ever recorded in Historical's name.5

What the record does reflect, however, is that a
$1,400,000 mortgage was on the property, and that this
mortgage was held by an entity called Follansbee-Merion
Historic Associates ("FMHA"), another entity related to
Welch. This mortgage first encumbered the property on
December 31, 1985, yet it was not recorded until April of
1990. According to the testimony of Welch, FMHA was the
mortgagee of the property, and Historical was the
mortgagor. This, of course, was the same entity in which
the Witkowskis bought an interest for $150,000.

Srein entered this situation in July 1989 when, at the
request of Welch, he invested $300,000 in a limited
partnership called St. George Mortgage Associates. The
record contains a subscription agreement signed by Welch,
however, it was neither notarized nor signed by Srein.
According to Welch's testimony, this investment found its
way into the FMHA account, and was used for renovations
and improvements to the property at 70-72 North Second
Street.6 When Welch failed to make payments as required of
_________________________________________________________________

5. According to Welch, the property in question at North 70-72 Second
Street was purchased by Historical sometime in 1985, before the
Witkowskis made their initial investment.

6. The Appellees strongly dispute this contention. According to the
testimony of Bernard Egan, C.P.A., at the arbitration hearing, the money
that went into St. George was initially transferred to FMHA, which then
disbursed several checks, including one for $320,000 to the Kenver
Corporation (yet another legal entity controlled by Welch). Money
disbursed from the account of this corporation does not reveal expenses
paid for the benefit of Historical. App. 343-45.

4
him to Srein, legal action was threatened. To assuage Srein,
Welch executed a personal $300,000 promissory note
in January 1990. However, payments still were not
forthcoming.

On July 19, 1990, after another threat of legal action,
Welch offered a first mortgage on the property at 70-72
North Second Street to secure the debt (including now the
personal debt he owed), allegedly telling Srein that his
investment was used to improve that property. Welch
purportedly assured Srein that, as the General Partner of
Historical, he had the full authority to encumber the
property. Srein accepted the offer, and Welch and Historical
executed a promissory demand note and mortgage on the
property in the amount of $500,000. This was to cover
Srein's original investment, plus interest, an additional
$50,000 that was part of the bargain, and related attorneys
fees and costs. Welch also agreed to subordinate thefirst
mortgage on the property, held by FMHA, to Srein's
interest.

In January 1991, after not receiving payments, Srein
initiated an action based on the demand note. Shortly
thereafter, the property at 70 - 72 South Second Street was
deeded to Srein from Historical in lieu of foreclosure. Welch
and related entities were released from liability due to the
transfer. The Witkowskis therefore claim Srein is properly a
defendant transferee for the purpose of setting aside his
ownership of the Second Street property which was
originally owned by Historical, because it was fraudulently
conveyed to him.

B.

The Witkowskis commenced an action principally against
Welch, and the other entities he controlled, but they also
named Srein in Count V of the plaintiffs' Second Amended
Complaint. Count I, against Welch and Welch P.C., alleges
that as investment advisors and fiduciaries to the
Witkowskis' retirement plan, the $150,000 investment
made to Historical constituted self-dealing and a breach of
fiduciary duty. Count II also concerns the $150,000
investment, and alleges that the scheme to convert that

5
money to the defendant's own use constituted fraud.
Counts III and IV alleged fraud concerning the investment
by the Witkowskis' retirement plan into two other Welch-
controlled ventures known as the Medic Monitor, and St.
George Mortgage Associates, which are not relevant here.
Count V, which names Srein as a defendant, is a
fraudulent conveyance claim regarding the ownership and
rights to the property at 70-72 North Second Street,
Philadelphia. Count V claims that Srein paid no
consideration for the property, and that he fraudulently
conspired with Welch to defraud the retirement plan by
filing false mortgages to permit Srein to leapfrog prior
interests in the property.

The District Court, upon motion by defendant Welch,
ordered that Counts I, II and V be subject to arbitration in
accordance with the Agreement of Participation signed by
the Witkowskis. The remaining matters were stayed
pending the completion of arbitration. Defendant Srein,
only named in Count V, filed a motion for reconsideration
arguing that he was not a party to the participation
agreement which compelled arbitration, and thus he should
not be required to submit to it. The District Court agreed,
and in a January 11, 1994 order directed that "Count V of
the complaint involving Defendant Srein shall not be
compelled to arbitration" but that "[t]he arbitration shall
proceed in all other respects as previously ordered." App.
98. Whether this order removed the fraudulent conveyance
issue with respect to all defendants, as the Witkowskis
contend, or whether it simply removed Srein from the
arbitration process while still mandating the other
defendants to fully arbitrate that issue, is the gravamen of
the present controversy.

After extensive hearings an arbitrator dismissed all of the
Witkowskis' state law fraud claims contained in Counts I
and II but found the defendants liable under ERISA claims
in those same counts. An award of $150,000 was granted.
Because this appeal centers directly on what the arbitrator
did and did not decide, his opinion is set forth in detail.

AWARD OF THE ARBITRATOR

I. THE UNDERSIGNED ARBITRATOR, having been
designated in accordance with the Court Orders dated

6
 March 11, 1993 and January 11, 1994, and having
duly heard the proofs and allegations of the parties,
AWARD as follows:

1. All state court common law claims of JOSEPH A.
WITKOWSKI, M.D., GRACE WITKOWSKI, JOSEPH A.
WITKOWSKI, M.D., P.C. DEFINED BENEFIT PENSION
PLAN, hereinafter referred to as CLAIMANTS, set forth
in Count I and II, are dismissed because of the:

1.1 Expiration of the Statute of Limitations, and/or

1.2 Failure to be pleaded and/or

1.3 Failure of proofs

2. All claims against ROBERT G. WELCH, TRUSTEE
SET FORTH in Count II, paragraphs 19-22 inclusive,
are dismissed, because the designation of "ROBERT G.
WELCH, TRUSTEE" is an insufficient designation of a
Trustee, as a defendant. Without a designation of the
Trust against which the claim is made, the designation
of "ROBERT G. WELCH, TRUSTEE" is not a party sui
juris.

3. The defense of the Statute of Limitations to th e filing
of the ERISA claim, is Dismissed.

4. The claims of CLAIMANTS against INTREPID ONE
SERVICES, INC., HISTORICAL SECOND STREET
DEVELOPMENT ASSOCIATES, AND ROBERT G.
WELCH, GENERAL PARTNER, are denied.

5. On the ERISA claim, set forth in Counts I and I I of
CLAIMANTS' Complaint, an Award is entered in favor
of JOSEPH A. WITKOWSKI, M.D., P.C., DEFINED
BENEFIT PENSION PLAN and against ROBERT G.
WELCH AND ROBERT G. WELCH, P.C., jointly and
severally, in the amount of ONE HUNDRED FIFTY
THOUSAND DOLLARS ($150,000.00).

* * * *

9. This Award is in full settlement of all claims
submitted to this arbitration.

App. 134-35.

7
At the request of the Witkowskis, this award was
subsequently confirmed by the District Court `in all
respects.' Srein amended his complaint to include the
defenses of arbitration and award and collateral estoppel,
and then moved for summary judgment. Srein argued that
because the arbitrator dismissed the Witkowskis' claim that
Welch, the transferor, fraudulently conveyed the property,
collateral estoppel should bar the Witkowskis from
asserting any claim against Srein, who was the mere
transferee in the transaction. The District Court agreed and
granted Srein's motion. The Witkowskis appeal from that
ruling.

C.

The District Court had jurisdiction over this matter
pursuant to 29 U.S.C. 1132(e)(1). We have appellate
jurisdiction pursuant to 28 U.S.C. S 1291. Our review of the
District Court's grant of summary judgment is plenary, and
we test the record by the same standard which the District
Court was required by Fed.R.Civ.P. 56 to utilize. Kelley v.
TYK Refractories Co., 860 F.2d 1188, 1192 (3d. Cir. 1988).
This standard requires the trial judge to enter summary
judgment if there is no dispute as to material facts and if
the moving party is entitled to judgment as a matter of law.
In this case, as in Kelley, the District Court made no
findings regarding the existence of material facts, but
instead rested its decision solely on the preclusive effect of
the arbitrator's award. Factual disputes, ordinarily resolved
on a motion for summary judgment in favor of the non-
moving party, are not implicated in this appellate review.
Accordingly, the only question on appeal is whether the
District Court correctly applied the law in holding that the
doctrine of collateral estoppel barred the Witkowskis' claim
of fraud and fraudulent conveyance against defendant
Srein, the transferee of real property.7
_________________________________________________________________

7. We note that appellate courts, even within this Circuit, have reviewed
the application and non-application of collateral estoppel under differing
standards. Compare Raytech Corp. v. White, 54 F.3d 187, 190 (3d Cir.
1995) (abuse of discretion standard applies to review of District Court's
decision to apply collateral estoppel), McLendon v. Continental Can Co.,

8
III.

The doctrine of collateral estoppel, now commonly
referred to as issue preclusion,8 prevents parties from
litigating again the same issues when a court of competent
jurisdiction has already adjudicated the issue on its merits,
and a final judgment has been entered as to those parties
and their privies. Schroeder v. Acceleration Life Ins. Co., 972
F.2d 41, 45 (3d. Cir. 1992). Issue preclusion "forecloses re-
litigation in a later action[ ] of an issue of fact or law which
was actually litigated and which was necessary to the
original judgment." Hebden v. Workmen's Compensation
_________________________________________________________________

908 F.2d 1171, 1177 (3d Cir. 1990) (same), with Dici v. Commonwealth
of Pennsylvania, 91 F.3d 542, 547 (3d Cir. 1996) (plenary review of
doctrine's application) and Arab African Int'l Bank v. Epstein, 958 F.2d
532, 534 (3d Cir. 1992) (same). See also Winters v. Diamond Shamrock
Chemical Co., 149 F.3d 387, 391-92 (5th Cir. 1998) (abuse of discretion
standard applies); Keystone Shipping Co. v. New England Power Co., 109
F.3d 46, 50 (1st Cir. 1997) (de novo review of application of issue
preclusion); Berger Transfer & Storage v. Central States, Southeast and
Southwest Areas Pension Fund, 85 F.3d 1374, 1376 (8th Cir. 1996)
(decision not to apply issue preclusion reviewed for abuse of discretion);
Town of North Bonneville v. Callaway, 10 F.3d 1505, 1508 (9th Cir.
1993) (availability of collateral estoppel is a mixed question of law and
fact subject to de novo review); Bates v. Union Oil Co. of California, 944
F.2d 647, 651 (9th Cir. 1991) (abuse of discretion standard applies);
Sandberg v. Virginia Bankshares, Inc., 979 F.2d 332, 344 (4th Cir. 1992)
vacated and remanded for dismissal, 1993 WL 524680 (4th Cir. 1993)
(de novo standard applies to availability of collateral estoppel, abuse of
discretion standard applies to fairness of applying estoppel); United
States v. Sandoz Pharm. Corp., 894 F.2d 825, 826 (6th Cir.), cert. denied,
498 U.S. 810, 111 S.Ct. 45, 112 L.Ed.2d 21 (1990) (de novo review). We
need not resolve whether or not an abuse of discretion standard should
apply to some facets of the collateral estoppel analysis because even
under the more exacting plenary review, the result of this case is the
same.

8. This doctrine is often confused with res judicata, which is now
commonly referred to as claim preclusion. Claim preclusion "gives
dispositive effect to a prior judgment if the particular issue, albeit not
litigated in the prior action, could have been raised." Bradley v.
Pittsburgh Bd. of Educ., 913 F.2d 1064, 1070 (3d Cir. 1990) (citations
omitted). Issue preclusion (or collateral estoppel),"bars relitigation
only
of an issue identical to that adjudicated in the prior action." Id.

9
Appeal Bd., 534 Pa. 327, 330, 632 A.2d 1302, 1304 (1993);
see also Restatement (Second) of Judgments,S 27 cmt. c
(1982) ("An issue on which relitigation is foreclosed may be
one of evidentiary fact, of `ultimate fact' (i.e. the application
of law to fact), or of law."). As the Supreme Court has
observed, this doctrine reduces the costs of multiple
lawsuits, facilitates judicial consistency, conserves
resources, and "encourage[s] reliance on adjudication."
Allen v. McCurry, 449 U.S. 90, 94, 101 S.Ct. 411, 415, 66
L. Ed.2d 308 (1980).

The Pennsylvania Supreme Court has cited approvingly
to the Restatement of Judgments for the rule of issue
preclusion. See Pennsylvania State Univ. v. County of
Centre, 532 Pa. 142, 148-49, 615 A.2d 303, 306 (1992).
The Restatement explains: "When an issue of fact or law is
actually litigated and determined by a valid andfinal
judgment, and the determination is essential to the
judgment, the determination is conclusive in a subsequent
action between the parties, whether on the same or a
different claim." Restatement (Second) of Judgments S 27
(1982).

Stated another way, both parties agree that the following
four requirements must be met in order to apply the
doctrine and thus bar a potential claim:

1) the issue decided in the prior adjudication mus t be
identical with the one presented in the later action;

2) there must have been a final judgment on the
merits;

3) the party against whom collateral estoppel is
asserted must have been a party or in privity with the
party to the prior adjudication; and

4) the party against whom collateral estoppel is
asserted must have had a full and fair opportunity to
litigate the issue in question in the prior adjudication.

Bortz v. Workmen's Compensation Appeal Bd., 546 Pa. 77,
81-82, 683 A.2d 259, 261 (1996); Safeguard Mut. Ins. Co.
v. Williams, 463 Pa. 567, 574, 345 A.2d 664, 668 (1975);
Shaffer v. Smith, 543 Pa. 526, 528-30, 673 A.2d 872, 874
(1966); Kelley, 860 F.2d at 1194; Bradley v. Pittsburgh Bd.

10
Of Ed., 913 F.2d 1064, 1073 (3d Cir. 1990) Gregory v.
Chehi, 843 F.2d 111, 121 (3d Cir. 1988); Rider v.
Commonwealth of Pennsylvania, 850 F.2d 982, 989-90 (3d.
Cir.), cert. denied, 488 U.S. 993, 109 S.Ct. 556, 102
L.Ed.2d 582 (1988).

A.

We have no doubt that the second and third criteria for
issue preclusion have been fulfilled in this case. The
doctrine of collateral estoppel can apply to the arbitration
process in which the Witkowskis obtained a judgment
against Welch, and that judgment could potentially bar
them from pressing claims against Srein.9 Under
Pennsylvania law, arbitration proceedings and their
findings are considered final judgments for the purposes of
collateral estoppel. See Dyer v. Travelers, 572 A.2d 762,
764 (Pa. Super. 1990) ("An arbitration award from which no
appeal is taken has the effect of a final judgment on the
merits."); Ottaviano v. Southeastern Pennsylvania Trans.
Auth., 239 Pa. Super. 363, 370, 361 A.2d 810, 814 (1976);
Restatement (Second) of Judgments S 84 (1982) ("[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."); Id. S 13
("[F]or purposes of issue preclusion ... `final judgment'
includes any prior adjudication of an issue in another
_________________________________________________________________

9. The Witkowskis argue strenuously that the results of the arbitration
cannot be a final judgment on the merits. They argue this conclusion for
the following reason:

Inasmuch as Count V was completely ignored by the award of the
Arbitrator, and in that both Historical, and Welch as General
Partner of Historical, are included in Count V, it cannot be said
that
there has been a final judgment on the merits of either the
fraudulent conveyance averments in Count V or on the non-
fiduciary liability of Defendant Srein.

Appellants' Br. 17.

This argument is not properly addressed in the `final judgment on the
merits' prong of collateral estoppel. Such argument is relevant to, and
will be considered during, the `identity of issues' and `full and fair
opportunity to litigate' analyses infra.

11
action that is determined to be sufficiently firm to be
accorded conclusive effect.") The Witkowskis, in fact, had
this award confirmed in full by the District Court. See 9
U.S.C. S 13 ("The judgment [confirming an arbitration
award] so entered shall have the same force and effect, in
all respects, as, and be subject to all the provisions of law
relating to, a judgment in an action; and it may be enforced
as if it had been rendered in an action in the court in which
it is entered.") Moreover, the full arbitration proceeding was
`on the merits' because the arbitrator dismissed all state
claims based on either the expiration of the statute of
limitations, the failure to be pleaded, and/or failures of
proof. Such grounds for the dismissals constitute a
judgment `on the merits.' See e.g., Mellon Bank v. Rafsky,
369 Pa.Super. 585, 594, 535 A.2d 1090, 1094 (1987)
(failure to produce sufficient evidence supports collateral
estoppel); Restatement (Second) of Judgments S 27 cmt. d
(1982) ("A determination may be based on a failure of the
pleading or of proof as well as on the sustaining of the
burden of proof.") Finally, the Witkowskis were a party to
the prior proceeding, and thus, the third requirement was
obviously fulfilled.10 What remains in contention is whether
the issues were identical and whether there was a full and
fair opportunity to litigate that issue in the prior
proceeding. Each issue will be addressed in turn.

B.

The District Court found that the issue decided in the
arbitration hearing was identical to the questions raised in
Count V of the Witkowskis' second amended complaint.
According to the district court, any claim against Srein was
_________________________________________________________________

10. The fact that Srein was not a party, and in fact may have refused to
testify at the arbitration hearing without being subpoenaed, is of no
consequence to the application of collateral estoppel. Mutuality of the
parties, once the rule, has now been abolished in Pennsylvania. See In
re Estate of Ellis, 460 Pa. 281, 286-87, 333 A.2d 728, 730 31 (1975);
Public Serv. Mut. Ins. Co. v. Cohen, 616 F.2d 704, 707 (3d Cir. 1980).
The only requirement is, logically, that the party against whom estoppel
is asserted be a party to the prior adjudication. This was the case here
because the Witkowskis were parties to the arbitration proceeding.
Appellant's concede this in their brief. Appellant Br. 10.

12
necessarily based on the same alleged fraudulent scheme
as the fraud claims against Welch and Historical which
were specifically dismissed by the arbitrator. This
conclusion was buttressed by the second amended
complaint, which specifically incorporated Count V into
Count II. Thus, the dismissal of the fraud claims of Count
II necessarily barred the fraudulent conveyance issue
alleged in Count V.

The Witkowskis dispute this reasoning, asserting two
distinct arguments in support of their position. First, they
correctly point out that "[t]he arbitrator dismissed only all
of Plaintiffs' state common law claims . . .." Appellants' Br.
at 10. Thus, the dismissal of state common law fraud is not
fatal to a statutory claim under the Pennsylvania Uniform
Fraudulent Conveyance Act ("the UFCA"). 39 Pa.Stat.Ann.
SS 351-363 (1991).11 Second, the finding of self-dealing and
breach of fiduciary duty amounts to a finding of fraud
under the federal common law embodied in the statutory
scheme of ERISA. Thus, argue the Witkowskis, thisfinding
is tantamount to a finding of facts sufficient to support
Srein's independent liability as a "non-fiduciary knowingly
participating in a fiduciary's breach of trust . ..."
Appellants' Br. at 13.12 In sum, the Witkowskis believe they
_________________________________________________________________

11. In Pennsylvania, the Uniform Fraudulent Conveyance Act ("UFCA")
was repealed and re-enacted by the Act of December 3, 1993, P.L. 479,
No. 70, codified at 12 Pa.Cons.Stat.Ann. 5101-5110, and renamed the
Uniform Fraudulent Transfer Act ("UFTA"). The UFTA is applicable to
transfers made after its effective date of February 1, 1994. The transfer
which is the subject of the present appeal took place in 1991, therefore,
the UFCA is still applicable to this matter.

12. The Witkowskis claim that Srein is liable under Federal common law,
discerned from the provisions of ERISA and trust law principles, for a
non-fiduciary knowingly participating in a fiduciary's breach of duty. See
Lowden v. Tower Asset Management, 829 F.2d 1209, 1220 (2d. Cir.
1987). This second argument can be disposed of because it was never
made to the District Court. This Court consistently holds that arguments
made for the first time on appeal, will generally not be considered.
Harris
v. City of Philadelphia, 35 F.3d 840, 845 (3d Cir. 1994). Before the
submissions to this court, Count V seemingly concerned only the
fraudulent transfer. Nowhere was Srein's potential liability as a non-
fiduciary under federal common law based on ERISA raised. This

13
should be given the opportunity to prove that they were
creditors of Historical, that a fraudulent transfer of
Historical's only asset was made through its general
partner Welch to Srein, without any consideration passing
to Historical, and that Historical was rendered insolvent by
virtue of this conveyance.

We disagree. While we are sympathetic to a prevailing
plaintiff who seeks to somehow satisfy a substantial
judgment against a seemingly judgment-proof defendant,
established judicial principles and their application to the
record before us cannot be ignored. That record
demonstrates that a plain reading of the second amended
complaint, an understanding of how the issues got to
arbitration, confirmed by extensive testimony at the
arbitration hearing and an analysis of the legal issues
raised in the complaint and covered during arbitration--but
pressed to be litigated once again only now in federal court
--lead to the inescapable conclusion that "the ultimate and
controlling issues have been decided in a prior proceeding
in which the present parties actually had an opportunity to
appear and assert their rights." Helmig v. Rockwell Mfg. Co.,
389 Pa. 21, 131 A.2d 622, 627, cert. denied, 355 U.S. 832,
78 S.Ct. 46, 2 L.Ed.2d 44 (1957) (citations omitted).

The second amended complaint asserted five counts
against numerous defendants.13 Count I describes the
$150,000 investment the Witkowskis made in Historical
Second Street Associates, at the direction of Welch. It then
asserts that this constituted self-dealing and a breach of
Welch's fiduciary duty, and demands judgment for losses
pursuant to 29 U.S.C. S 1109(a), a provision of ERISA.
Count II repeats these same allegations concerning the
$150,000 investment and alleges that this was part of a
_________________________________________________________________

includes in the Witkowskis' submissions in opposition to Srein's first
summary judgment motion, which extensively discusses the fraudulent
conveyance issue, App. 80-87, as well as in the Witkowskis' opposition
to Srein's motion to amend and for summary judgment, App. 201-07.
Having not raised this issue below, this court need not and will not
comment on its merit or viability in the Third Circuit.

13. Counts III and IV are not relevant to the present appeal.

14
scheme to defraud the Witkowskis and convert their
moneys to other uses. Of significance in this count is that
it specifically incorporates the remaining paragraphs of the
complaint, and thus, it covers the "scheme and artifice to
defraud and obtain money from Plaintiffs by means of false
and fraudulent activities, omissions, nondisclosures and
misrepresentations as set forth" in the remaining counts,
including Count V. App. 24. Judgment was demanded there
for $150,000 plus interest, which presumably must refer to
the $150,000 investment by the Witkowskis into Historical.
Thus, Count II, by its own terms, covered the fraudulent
conveyance issue with respect to Welch and Historical and
which the Witkowskis now attempt to revive only against
Srein.

The process by which this case and different counts of
the complaint reached arbitration is also necessary to
understanding that which the arbitrator considered.
Originally, the District Court ordered that Counts I, II and
V be submitted to arbitration. Upon Srein's motion for
reconsideration, however, the court held that "Count V of
the Complaint involving Defendant Srein shall not be
compelled to arbitration[.]" A fair reading of this second
order, given the arbitrator's indications quoted infra,
suggests that Count V was removed from the arbitrator's
purview only as to the defendant Srein.

This reading of the complaint and the District Court's
orders are no doubt ambiguous, which may have been the
precise reason why the arbitrator himself also attempted to
define the issues with the assistance of both parties. In the
following colloquy, Mr. Caine is the arbitrator, Mr. Doty and
Mr. Scutti represent the plaintiff Witkowskis, and Mr.
Grimes represents the defendant Welch.

MR. CAINE: I'm attempting to define the issues so that
anybody who looks at this transcript later on will know
what it is that we're going to deal with in terms of the
issues which are before us ...

* * *

As I understand it, the questions that are being raised
in this matter are, one, did Mr. Welch, who is one of
the respondents in this matter, breach any duty to the

15
 claimants as a result of one, the investment by the
claimant of the sum of $150,000 in Historical Second
Street Development Associates. And the second

question is whether the transfer of that investment to
Mr. Srein without adequate consideration was a
voidable transaction relative to the claimants. Is that a
fair statement?

MR. DOTY: Yes.

MR. CAINE: Mr. Scutti?

MR. SCUTTI: Yes.

MR. GRIMES: As I understand the claimant's claim.

MR. CAINE: Now as I understand it, the remedies being
requested by the claimant in this matter are, one, an
award for monetary damages not to exceed $150,000
plus interest, costs, and attorneys fees; is that correct,
Mr. Doty?

MR. DOTY: Correct.

MR. CAINE: Two, that there is a demand for a
reconveyance of the Historical Second Street
Development Associates, something that was made to
Mr. Srein -- apparently a conveyance of some kind.

MR. SCUTTI: I think, sir, the best way to describe it
would be a reconveyance of the property 70-72 North
Second Street.

MR. CAINE: From ...

MR. SCUTTI: From Srein back to Historical Second
Street Development Associates.

MR. CAINE: Does that fairly state the remedy you're
seeking with regards to the reconveyance issue?

MR. SCUTTI: Yes.

MR. CAINE: Three, that you're asking for the
reinstatement of the mortgage as collateral security for
Dr. WITKOWSKI's investment; is that correct?

MR. DOTY: That is correct.

App. 284-287 (emphasis added).
16
This discussion made it clear what the arbitrator was
considering; the evidence and testimony subsequently
submitted confirmed this fact. Nonetheless, the clear
framing of the issues and evidence considered during the
hearing is not determinative as to whether such issues were
actually resolved one way or the other. And the arbitrator's
award was not a model of clarity as to what was and was
not decided.14 Yet, the framing of the issues before the
arbitrator and the record created during such proceedings
inform this Court's analysis of what the arbitrator's
ultimate award means. Such an award was not created in
a vacuum; neither can it be interpreted in one.

Turning to the award itself, the District Court found that
the non-ERISA claims, including the fraudulent conveyance
issue, were inextricably linked to the same alleged
fraudulent scheme dismissed by the arbitrator. We agree.
Implicit in the arbitrator's award is that neither Historical
nor Welch, as its General Partner, committed the fraud
complained of in plaintiffs' complaint. Indeed, the only
place in plaintiffs' complaint where Welch is recognized as
the General Partner of Historical (or any other entity for
that matter) is in Count V, the fraudulent conveyance
claim. Yet, in the arbitration award, the "claims of
CLAIMANTS against . . . ROBERT G. WELCH, GENERAL
PARTNER [were] denied." App. 134. Thus, this fraud issue
which was clearly addressed in arbitration was also
dismissed as to a party who was only named in the
fraudulent conveyance count. In this manner, it is clear
that dismissal of the fraudulent conveyance issue was
`essential' to the arbitrator's award.15 Even if there was not
_________________________________________________________________

14. The American Arbitration Association in fact discourages arbitrators
from specifying the bases of their decisions, fearing that such
specification would open up avenues of appeal for unsuccessful litigants.
See G. Richard Shell, Res Judicata and Collateral Estoppel Effects of
Commercial Arbitration, 35 UCLA L. REV. 623, 632 (1988).

15. Some Pennsylvania courts state that there are actually five--instead
of four--elements to the issue preclusion doctrine. The fifth element
requires that the determination of an issue in the prior case must have
been `essential' to the previous judgment. See Mellon Bank v. Rafsky,
369 Pa.Super. 585, 593, 535 A.2d 1090, 1093 (1987). Whether there are
four or five formal elements to the doctrine is not of consequence, nor is

17
a precise identity of the `causes of action' asserted, it would
be of no legal consequence; there is no such requirement
for the application of issue preclusion. Only the issues need
be the same. See Rider, 850 F.2d at 990 n. 11. And in this
case, the issues were "in substance the same" as that
which the Witkowskis press to litigate once again. Raytech
Corp. v. White, 54 F.3d 187, 192-93 (3d Cir. 1995).
Accordingly, the identity of issues requirement is fulfilled in
this case.

C.

The final requirement for the application of estoppel is
that the party against whom it is asserted must have had
a full and fair opportunity to litigate the issue in question
in the prior proceeding. The District Court found that the
appellants did indeed have an opportunity to fully and
fairly litigate the fraudulent conveyance issue, citing as
proof the portion of the arbitration dealing with the tracing
of funds from Srein to the Second Street property, the
closing presentation of plaintiffs' counsel in which he asked
for a reconveyance, and the proposed findings of fact and
conclusions of law plaintiffs submitted to the arbitrator.

The Witkowskis argue, unconvincingly, that "Dr.
Witkowski's counsel could have presented compelling
argument and evidence regarding a fraudulent transfer, but
the Arbitrator would not and refused to make findings on
that issue, as he believed Count V in its entirety had been
ordered out of the arbitration proceedings." Appellants' Br.
19. Yet the record demonstrates otherwise.

The portions of the transcript quoted by the Witkowskis
in support of their claimed inability to argue the fraudulent
conveyance are selectively chosen, and indeed parsed from
_________________________________________________________________

it for us to decide. In any event, the doctrine is essentially the same
under either analysis. Even with just the four formal elements, clearly
there must be a nexus between the first two. In other words, "[t]he
identical issue must have been necessary to final judgment on the
merits." Balent v. City of Wilkes-Barre, 542 Pa. 555, 564, 669 A.2d 309,
313 (1995) (citing Allen v. McCurry, 449 U.S. 90, 94, 101 S.Ct. 411, 414,
66 L.Ed.2d 308 (1980)).

18
a much fuller record. For example, appellants quote the
following.

Mr. Caine: Now, I repeat that Counts I and II are the
claims to be arbitrated. Actually, Count II is the only
claim, and Count I is incorporated by reference, and,
therefore, the matters set forth in Counts I and II are
the claims to be arbitrated, and those Counts I and II
are set forth in the Federal Court Complaint which has
been attached to the submission in this case; is that
correct?

Mr. Grimes: That's correct. (Welch's attorney)

Mr. Doty: That's correct. (The Witkowskis' attorney)

Mr. Caine: I want the record to show that.

App. 283.

What the Witkowskis fail to include, however, is what
followed that exchange. Mr. Caine, the arbitrator, continued
speaking and, putting into context the previous excerpts,
said the following:

MR. CAINE: As I understand it, this claim is also
limited to the matters involving the Historical Second
Street Development Associates, 70-72 North 2nd
Street, Philadelphia, Pennsylvania; is that correct?

MR. DOTY: Yes; however, collateral to that is the
matter of St. George Mortgage Associates, which has to
do with Historical.

MR. CAINE: You're not precluded bringing in or from
mentioning any related matters.

MR. DOTY: Okay.

MR. CAINE: It's just my understanding that the
investment in the Historical Second Street Associates,
70-72 North Second Street, Philadelphia, Pennsylvania,
was the basis for the claim --

MR. DOTY: Arbitration; that's correct.

MR. CAINE: -- which is now being arbitrated.

MR. DOTY: That's correct.

19
 MR. CAINE: I'm attempting to define the issues so that
anybody who looks at this transcript later on will know
what it is that we're going to deal with in terms of the
issues which are before us, and I don't want to go all
over the field and get involved in all kinds of matters
that are not relevant, so I'm defining the scope of
what's relevant, if I may, and please correct me if you
want to modify these in any way.

App. 283 - 285.

The discussion continued as to the remedies requested,
which is quoted verbatim above in the section on the
identity of issues. As that revealed, both sides to the
arbitration and the arbitrator understood at that time that
the fraudulent conveyance issue was very much at issue.

Following that exchange, there was also a discussion on
the jurisdiction of the arbitrator to actually reconvey the
property in issue, because Srein, as the titled owner, was
not a party to the arbitration. The arbitrator recognized
this, but in a foretelling comment, noted the following:

I would agree with that [that the arbitrator did not
have the power to reconvey the property]. That doesn't
mean that I can't make a finding that the property
shouldn't be conveyed, and if somebody wants to use
that in some other proceeding, they might be able to do
that. They might bring an action against Mr. Srein and
say somehow the issue is to litigate, and whether
anybody would argue that's res judicata as to Srein
and binding upon him, I don't know.

But if we find it is a fraud, that's something which I
might find could be done or should be done or
recommended that it be done. So I'll deal with that
when the time comes.

App. 288-89.

The record does not reflect any objection to these
statements. Instead, the record reflects an explicit
understanding that the arbitrator's findings might have
preclusive effect in subsequent litigation.

The Witkowskis also claim that Srein was unavailable to
present any evidence or participate in any other way in the

20
proceedings, which thus prevented them from fully and
fairly litigating the claims against him. Again, the record
demonstrates that this is only partly correct. While Srein
was not a party to the arbitration and did not in fact
participate nor would he voluntarily, he could have been
subpoenaed as a witness. Discussions were held on the
record in which the arbitrator made clear his power--and
willingness--to subpoena any witness necessary to either
side's case. App. 519-20. No explanation is given why these
witnesses were never called. Indeed, there is nothing else
besides this testimony that the Witkowskis have cited
which they contend they did not have the opportunity to
present at the arbitration.

Moreover, the findings of fact and conclusions of law
submitted by the Witkowskis, including six pages detailing
what allegedly happened concerning the conveyance,
proposed that the transfer be declared fraudulent under
Pennsylvania law App. 156-61. This submission is
indicative of the range and scope of the arbitration hearing
and the relief sought by plaintiffs.

A party does not have an opportunity for a full and fair
hearing when "procedures fall below the minimum
requirements of due process as defined by federal law."
Bradley, 913 F.2d at 1074. See also Kremer v. Chemical
Constr. Corp., 456 U.S. 461, 481, 102 S.Ct. 1883, 1897, 72
L.Ed.2d 262 (1982) (full and fair opportunity to litigate
presumed when state proceedings satisfy minimum
procedural requirements of due process); Rider, 850 F.2d at
991. The extensive arbitration hearing held here did not fall
below this standard. That the arguments made during the
arbitration hearing were not accepted in full by the
arbitrator does not mean that the Witkowskis were
prevented from fully presenting them. The District Court
did not err in its decision to apply the doctrine of collateral
estoppel. The Witkowskis cannot now be heard to complain
that they did not have a full and fair opportunity to litigate
the issue.

D.

The original defendant, Welch, apparently manipulated
many different corporations he controlled and investors he

21
courted to obtain and then manipulate funds. The fall-out
of the real estate market in the late 1980s led to the
collapse of his scheme. In the case of the Witkowskis, he
squandered their investment. The evidence the arbitrator
received relating to all of this was quite extensive and
permitted him to determine that Welch breached his
fiduciary duty owed to the Witkowskis.

The Witkowskis have a judgment against Welch for their
full investment based on this, and understandably, they are
looking to reach assets with which to satisfy it. The former
property of Historical at 70-72 North Second Street is the
most logical candidate. Yet the extensive record
demonstrates that the arbitrator considered all of the facts,
at least with respect to Welch and all related entities, and
dismissed with one exception the claims of Counts I and II.
This necessarily included, for all the foregoing reasons, the
fraudulent conveyance claim. Despite the Witkowskis'
protestations to the contrary, the District Court did not err
in applying the doctrine of collateral estoppel to dismiss the
suit against Srein.

The District Court wrote in a footnote that,

It would be an anomalous result to have Welch and
Welch P.C. cleared of any liability for the alleged
fraudulent scheme to convert assets of the Plan, while
the same claims could still proceed against Srein,
whose only alleged involvement in the transaction was
to accept a mortgage on the Second Street Property to
satisfy a judgment against Welch.

(D.C. Opinion, April 14, 1997, p. 6 n.4). To this we add the
teachings of the Pennsylvania Supreme Court, writing in a
related context:

[I]f the defendant's responsibility is necessarily
dependent upon the culpability of another, who was
the immediate actor, and who, in an action against him
by the same plaintiff for the same act, has been
adjudged not culpable, the defendant may have the
benefit of that judgment as an estoppel, even though
he would not have been bound by it had it been the
other way. And we think it could not well be otherwise,
for, when the plaintiff has litigated directly with the

22
 immediate actor the claim that he was culpable, and,
upon the full opportunity thus afforded for its legal
investigation, the claim has been adjudged against the
plaintiff, there is manifest propriety, and no injustice,
in holding that he is thereby concluded from making it
the basis of a right of recovery from another who is not
otherwise responsible.

C.S. Helmig v. Rockwell Mfg. Co., 389 Pa. 21, 32-33, 131
A.2d 622, 628, cert. denied, 355 U.S. 832, 78 S.Ct. 46, 2
L.Ed.2d 44 (1957). We find this reasoning persuasive and
applicable to this case. Here, the fraud and fraudulent
conveyance issues brought against Welch and Srein are so
inextricably intertwined with one another that the disposal
of the claims against the one is necessarily fatal to the
alleged claim against the other.

This opinion, similar to the briefs submitted, is
necessarily fact intensive as the facts are what complicate
this issue. In holding that collateral estoppel applies to this
unique case, we caution against its invocation in most
others without extreme care. Indeed, doubts about its
application should usually be resolved against its use. See
Kauffman v. Moss, 420 F.2d 1270, 1274 (3d Cir.1970)
("Reasonable doubt as to what was decided by a prior
judgment should be resolved against using it as an
estoppel.") While we are mindful of these concerns and feel
it necessary to address them specifically, they are not
implicated in the facts of this case, and thus not a bar to
issue preclusion applied here.

IV.

For the foregoing reasons, the judgment of the District
Court will be affirmed.

A True Copy:
Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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