Baudoin, Matter of
| Decision Date | 06 January 1993 |
| Docket Number | No. 91-5091,91-5091 |
| Citation | 981 F.2d 736 |
| Parties | , 23 Bankr.Ct.Dec. 1401, Bankr. L. Rep. P 75,126 In the Matter of Raywood F. BAUDOIN, Louella H. Baudoin and Raywood Baudoin, Inc., Debtors. BANK OF LAFAYETTE, Appellant, v. Raywood F. BAUDOIN, Louella H. Baudoin and Raywood Baudoin, Inc., Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Joseph C. Giglio, Jr., Cecily E. Bateman, Liskow & Lewis, Lafayette, LA, for appellant.
Bert Wilson, Onebane, Donohoe, Bernard, Torian, Diaz, McNamara & Abell, Lafayette, LA, for appellees.
Appeal from the United States District Court for the Western District of Louisiana.
Before REYNALDO G. GARZA, DAVIS, and BARKSDALE, Circuit Judges.
At issue is whether Chapter 7 debtors may, three years after discharge, bring a lender liability action in state court against their creditor which, inter alia, bid in its mortgages to purchase the debtors' property sold during their personal bankruptcies in liquidation of their estate, and filed a proof of claim and received partial payment in the bankruptcy for the debtors' wholly-owned corporation. Because we hold that the lender liability claim would have been a "core proceeding" in the earlier bankruptcy actions, the state action is barred by res judicata. Therefore, we REVERSE the district court's summary judgment for the debtors and RENDER judgment for the creditor.
Beginning in 1978, the Bank of Lafayette (Bank) had a lending relationship with Mr. and Mrs. Raywood F. Baudoin and their wholly-owned corporation, Raywood F. Baudoin, Inc. (RFBI). In 1985, the Bank made three separate loans to RFBI, totalling over $500,000. Each was secured by Mr. Baudoin's personal guarantee, mortgages on two pieces of the Baudoins' real property (in Lafayette and Grand Coteau, Louisiana), and an assignment of RFBI's accounts receivable. The Bank also reserved the right to offset the balance of RFBI's deposit accounts by any amount due on the notes and to accelerate amounts due on all three notes, should RFBI fail to meet its obligations under any one of them. At that time, the Baudoins' personal debt to the Bank was approximately $183,000. It, too, was secured by the Lafayette and Grand Coteau properties.
One of RFBI's notes was due on August 23, 1985. Not having received payment by August 30, the Bank offset an RFBI account by approximately $120,000 and notified RFBI's debtors to forward future payments directly to the Bank. Approximately one month later, RFBI and the Baudoins, individually, filed for Chapter 7 bankruptcy.
For their personal bankruptcies, the Baudoins listed the Bank as a secured creditor for slightly over $183,000 and an unsecured creditor for an unknown amount. In the schedule of assets, under the category "Property of any Kind not Otherwise Scheduled", they listed "Any possible claim against creditor for actions taken against debtors prior to bankruptcy proceeding" and assigned an "undetermined" value.
The Baudoins' personal bankruptcies were consolidated; and on October 1, 1985, W. Simmons Sandoz was appointed trustee for the Baudoins and RFBI. The first meeting of the Baudoins' creditors was held on November 7, 1985. 1 Though the record includes no formal notice, it appears, pursuant to statements by Sandoz in the state court record and responses given at oral argument before us, that the Baudoins informed the trustee of their possible claim against the Bank very early in the bankruptcy proceeding.
Approximately one month later, on motion of the trustee in the personal bankruptcies, the two properties securing the Baudoins' personal debt to the Bank, as well as the Bank's loans to RFBI, were sold at a public auction in an effort to liquidate all of the Baudoins' assets. The Bank purchased both tracts, not only bidding in its mortgages, but also paying the claim of the first lienholder on the Lafayette property. The Baudoins were discharged in January 1986 2; the auction sales were ratified and previous liens and mortgages cancelled in March and April of that year.
In the RFBI bankruptcy, the Bank filed two proofs of claim in late 1985. In May 1986, again upon consent of the trustee, the automatic stay in the RFBI bankruptcy was modified, allowing the Bank to proceed with collection of RFBI's accounts receivable. Three years later, in April 1989, the Bank's claim was allowed in the amount of nearly $360,000. The RFBI bankruptcy remains open.
In March 1989, the month before the Bank's claim was allowed in the RFBI bankruptcy and over three years after the Baudoins' discharge, the Baudoins filed suit in Louisiana state court against the Bank, seeking over $4,000,000 in damages for both breach of the loan agreements and numerous related tort claims. 3 Their basic contention was that the Bank's actions forced them and their company, RFBI, into bankruptcy. The Bank filed exceptions in state court, as well as a separate federal action, seeking to enjoin the state action and any attempted similar actions by the Baudoins or RFBI.
In state court, the exceptions for prescription of the tort claims and no right of action were sustained. The Baudoins were given leave to either obtain an order of abandonment or add the trustee as a plaintiff; they chose the latter, adding him in late August 1989. 4 No ruling was made on the res judicata exception; instead, the state court withheld judgment pending this action.
Meanwhile, after the Bank's federal action was filed, the Baudoins' personal bankruptcies were re-opened. The Bank's action (this case) was then transferred to bankruptcy court, where both sides moved for summary judgment. It was granted for the Baudoins on the ground that the lender liability claim was not a "core" matter and could not have been pursued earlier in the bankruptcy court. Finding the bankruptcy court's decision "supported by the evidence and well within the bounds of discretion", 5 the district court affirmed in a two paragraph order, holding that the lender liability claim was not a "core" proceeding and, therefore, not barred by res judicata.
The Bank contends that the district court erred as a matter of law in not holding the state court claim barred by either res judicata or judicial estoppel. 6 For the reasons that follow, we hold that the claim is precluded by the doctrine of res judicata; therefore, we need not reach estoppel.
Our standard for reviewing a summary judgment is more than well settled. We conduct a de novo review of the entire record and determine whether there are any genuine issues of material fact. Finding none, we next decide whether the prevailing party is entitled to judgment as a matter of law. Stine v. Marathon Oil Co., 976 F.2d 254, 265 (5th Cir.1992); Fed.R.Civ.P. 56.
Our review of the record in this case reveals no material fact disputes. Moving to the second prong, we reach legal conclusions contrary to those of the district court, and hold that the Bank, not the Baudoins, is entitled to judgment as a matter of law.
"This Court has previously recognized the important interest in the finality of judgments in a bankruptcy case". Hendrick v. Avent, 891 F.2d 583, 587 n. 9 (5th Cir.), cert. denied, --- U.S. ----, 111 S.Ct. 64, 112 L.Ed.2d 39 (1990). In promoting that interest, we have applied our traditional test for res judicata in the bankruptcy context: Matter of Brady, 936 F.2d 212, 215 (5th Cir.), cert. denied, --- U.S. ----, 112 S.Ct. 657, 116 L.Ed.2d 748 (1991). As stated by the Second Circuit in a case quite similar to this case, discussed infra, "[r]estraining litigious plaintiffs from taking more than 'one bite of the apple' has been our avowed purpose since the common law doctrine of res judicata first evolved". Sure-Snap Corp. v. State Street Bank and Trust Co., 948 F.2d 869, 870 (2d Cir.1991). Of course, in the bankruptcy context, especially a Chapter 7 liquidation, that bite is to be taken as expeditiously and economically as possible, to try to ensure, inter alia, that creditors get their share. After all, it has long been the "general spirit and purpose" of bankruptcy not only to release a bankrupt from the obligation to pay his debts, but also to "secure a just distribution of the bankrupt's property among his creditors". Wilson v. City Bank, 84 U.S. (17 Wall.) 473, 480, 21 L.Ed. 723 (1872). In sum, the numerous and substantial reasons for the doctrine of res judicata are too well known, and obvious, to bear repeating. And, they are all the more compelling today, especially for bankruptcy, and related, proceedings. Because of spiraling litigation costs, increasingly congested courts--especially bankruptcy courts--and expanding theories of recovery, such as lender liability, it is more imperative than ever that the doctrine of res judicata be applied with unceasing vigilance.
Thus, a bankruptcy judgment bars a subsequent suit if: 1) both cases involve the same parties; 2) the prior judgment was rendered by a court of competent jurisdiction; 3) the prior decision was a final judgment on the merits; and 4) the same cause of action is at issue in both cases. Latham v. Wells Fargo Bank, N.A., 896 F.2d 979, 983 (5th Cir.1990). The parties agree that the first element is satisfied; they disagree on the other three. 7 We address them seriatim.
The Baudoins and RFBI (appellees) contend that the lender liability suit is not a core proceeding and that, therefore, the bankruptcy court lacked jurisdiction in the prior bankruptcy proceedings to entertain the lender liability claim they raised later in state court. It is true that, if that claim was not "core", the bankruptcy court could not have entered a final judgment for it; instead, it could...
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