394 F.3d 347 (5th Cir. 2004), 03-51252, In re Gupta

Docket Nº:03-51252.
Citation:394 F.3d 347
Party Name:In the Matter of: Shailesh GUPTA, Debtor. Shailesh Gupta, Appellant, v. Eastern Idaho Tumor Institute, Inc., Appellee.
Case Date:December 17, 2004
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 347

394 F.3d 347 (5th Cir. 2004)

In the Matter of: Shailesh GUPTA, Debtor.

Shailesh Gupta, Appellant,


Eastern Idaho Tumor Institute, Inc., Appellee.

No. 03-51252.

United States Court of Appeals, Fifth Circuit

December 17, 2004

Page 348

Stephen W. Sather (argued), Barron & Newburger, Austin, TX, for Appellant.

David Charles Alford (argued), Waco, TX, Philip Dermot Rigg, Rigg & Greer, Sugar Land, TX, for Appellee.

Appeal from the United States District Court for the Western District of Texas.

Before REAVLEY, JONES and DENNIS, Circuit Judges.

EDITH H. JONES, Circuit Judge:

Dr. Shailesh Gupta sought Chapter 7 bankruptcy relief after a judgment was obtained against him in Texas state court for his "breach of fiduciary duty" against a co-joint venturer. The question before this court is whether collateral estoppel applies to bar relitigation of the facts and to compel a conclusion that the judgment was a non-dischargeable debt for "fraud or defalcation while acting in a fiduciary capacity ..." 11 U.S.C. § 523(a) (4). Contrary to the bankruptcy and district courts, we hold that collateral estoppel was inappropriate, and must reverse and remand for further proceedings.


On September 1, 1995, Northwest Houston Radiation Medical Group Limited ("Northwest") entered into a Joint Venture Agreement ("Agreement") with Dr. Gupta ("Gupta") to operate a radiological clinic. The initial term of the joint venture was to be twelve months. Gupta was responsible for medical and professional staffing, while Northwest contributed all necessary equipment, office space and machinery. Gross revenues were to be divided equally between the parties. While Gupta was responsible for billing for services, that function was to be performed "at the direction and supervision of Northwest...." Finally, each party was to share in the management of the business, and all non-medical decisions required the partners' unanimous agreement. The venture lapsed when the parties failed to renew their Agreement before its expiration date. Gupta, however, remained on the property, conducted the same business, and retained all revenues collected for more than a year.1

Page 349

In 1997, Eastern Idaho Tumor Institute, Inc. ("Eastern Idaho"), as successor in interest to Northwest, sued Gupta in state court alleging, in part, breach of fiduciary duty for Gupta's failure to remit a fifty percent share of gross revenues to Eastern Idaho. After a three-day trial, the jury found against Gupta and awarded Eastern Idaho over $250,000 in damages. The jury specifically found that: (1) Gupta breached the Agreement by failing to remit half the gross revenues to Eastern Idaho; (2) "a relationship of trust and confidence" existed between Gupta and Eastern Idaho; (3) Gupta breached a fiduciary duty to Eastern Idaho created by virtue of the Agreement;2 and (4) Gupta failed to pay rent while he occupied the premises after the Agreement expired. Gupta not only appealed the judgment to the state appellate court, but he also filed for Chapter 7 bankruptcy.

Eastern Idaho commenced an adversary proceeding to determine the non-dischargeability, under 11 U.S.C. § 523(a) (4), of approximately one-fourth of the judgment, i.e., that part which was attributable to the findings of breach of fiduciary duty. The bankruptcy court agreed that the state jury's findings are entitled to preclusive effect on the federal claim. Gupta appealed to the district court, which affirmed.

Gupta now appeals to this court, contending that the state court findings did not effectively determine the dischargeability of this portion of the judgment under § 523(a) (4) of the Bankruptcy Code. We agree.


This court reviews a bankruptcy court's decision to give preclusive effect to a state court judgment de novo, and its findings of fact under a clearly erroneous standard. Gober v. Terra + Corp. (In re Gober), 100 F.3d 1195, 1201 (5th Cir. 1996).


A bankruptcy court may apply collateral estoppel in a dischargeability proceeding to preclude relitigation of state court findings that are relevant to dischargeability. See Schwager v. Fallas (In re Schwager), 121 F.3d 177, 181 (5th Cir. 1997) (citing Grogan v. Garner, 498 U.S. 279, 285...

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