CONTINENTAL ILL. NAT. BANK & TR. CO. v. Windham

• Citation: 668 F. Supp. 578
• Decision Date: 07 July 1987
• Docket Number: Civ. A. No. B-87-00015-CA.
• Parties: CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO, as Administrator for Federal Deposit Insurance Corporation v. Morris WINDHAM.
• Court: U.S. District Court — Eastern District of Texas

668 F. Supp. 578

CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO, as Administrator for Federal Deposit Insurance Corporation v. Morris WINDHAM.

Civ. A. No. B-87-00015-CA.

United States District Court, E.D. Texas, Beaumont Division.

July 7, 1987.

COPYRIGHT MATERIAL OMITTED

Mark A. Shaiken, Mayer, Brown & Platt, Houston, Tex., for plaintiff.

Glenn H. Steele, Jr., Craig H. Clendenin, Provost, Umphrey, Swearingen & Eddins, Port Arthur, Tex., for defendant.

MEMORANDUM OPINION

COBB, District Judge.

On January 7, 1987, Continental Illinois National Bank and Trust Company of Chicago (CINB), as administrator for the Federal Deposit Insurance Corporation (FDIC), filed a complaint against Morris B. Windham, seeking judgment in excess of 1.5 million dollars, based on a guaranty agreement executed by Windham, guarantying a debt owed by Beaumont Oil, Inc. to FDIC. On February 12, 1987, Windham, acting pro se, filed defendant's original answer and counterclaims. The FDIC subsequently filed a motion to dismiss the defendant's counterclaims, which is presently before the court. For the reasons set forth herein, FDIC's motion is hereby granted.

I.

In 1981, CINB lent in excess of fifteen million dollars to Beaumont Oil, Inc., and Beaumont Oil executed a promissory note in return. The Beaumont Oil note was guaranteed by Windham, president and owner of 100 percent of the shares of Beaumont Oil. On September 26, 1984, the 1981 note was sold and transferred from CINB to FDIC. CINB continues to act as administrator for the FDIC with respect to collection of the Beaumont Oil and Windham obligations. On February 28, 1984, Beaumont Oil failed to make payment then due, and subsequently refused FDIC's demand for payment in full.

On September 19, 1986, an involuntary Chapter VII proceeding was commenced against Beaumont Oil by the filing of an involuntary Chapter VII petition in the United States Bankruptcy Court for the Southern District of Texas, Houston Division. FDIC was one of the petitioning creditors. In its October 9, 1986, answer, Beaumont Oil admitted in that bankruptcy case it owed the debt to FDIC. Further, on October 30, 1986, a deposition of Morris Windham was conducted in the Beaumont Oil bankruptcy proceeding. In the course of the deposition in which he was represented by counsel, Windham was asked if he disputed Beaumont Oil's debt to CINB or FDIC. In his response, Windham confirmed the validity of the debt owed to FDIC by Beaumont Oil.

On January 7, 1987, FDIC filed the present action, seeking judgment against Windham on his guaranty of the principal amount of $1,575,443.17 plus accrued interest, costs and fees. On February 12, 1987, Windham, acting pro se, filed his defendant's original answer and counterclaim, which sets out 25 paragraphs of purported disputes, ranging from fraud, misrepresentation, duress, usury, deceptive trade practices, unconscionability, and civil RICO violations, to breach of warranty. The FDIC, in its response, filed a motion to dismiss the defendant's counterclaims.

II. JUDICIAL ESTOPPEL

The court finds that Windham is barred by the doctrine of judicial estoppel from raising counterclaims which contradict his prior admissions as to the validity of the debt owed to FDIC. The doctrine of judicial estoppel provides that a party who, for the purpose of maintaining his position in litigation, has deliberately represented a thing in one respect, is estopped to contradict his own representation by giving the same thing another aspect in litigation with the same adversary as to the same subject matter. Texas Co. v. Gulf Refining Co., 26 F.2d 394, 397 (5th Cir.1928); accord, Livesay Industries v. Livesay Window Co., 202 F.2d 378, 382 (5th Cir.1953). In Long v. Knox, 155 Tex. 581, 291 S.W.2d 292 (1956), the court stated:

Under the doctrine of judicial estoppel ... a party is estopped merely by the fact of having alleged or admitted in his pleadings in a former proceeding under oath the contrary to his assertions sought to be made ... Long, 291 S.W.2d at 295.

Elements of reliance and injury are not essential under judicial estoppel. Id.; Galerie des Monnaies of Geneva, Ltd. v. Deutsche Bank, A.G., 55 B.R. 253, 258 (Bankr.S.D.N.Y.1985). Furthermore, the sworn statement giving rise to judicial estoppel can occur in a deposition. Van Deusen v. Connecticut General Life Insurance Co., 514 S.W.2d 951, 956 (Tex.Civ. App.—Fort Worth 1974, no writ).

Thus, the "essential function and justification of judicial estoppel is to prevent the use of intentional self-contradiction as a means of obtaining unfair advantage in a forum provided for suitors seeking justice." Allen v. Zurich Insurance Co., 667 F.2d 1162, 1167 (4th Cir. 1982). Further, judicial estoppel is an appropriate basis to dismiss a counterclaim that is banned by previous sworn contrary statements. Wade v. Woodings-Verona Tool Works, Inc., 469 F.Supp. 465, 466-67 (W.D.Pa.1979).

In the instant case, Windham testified under oath in his deposition on October 30, 1987, that he did not dispute the indebtedness to FDIC. The question and response were as follows:

Q. ... Is it my understanding that you have no dispute with the debt of Continental?

A. None, none to my knowledge.

Furthermore, Beaumont Oil's answer to the bankruptcy petition admitted and did not dispute the allegation owed to the FDIC. Although Windham testified in his corporate capacity in his deposition, the answers given during his deposition may be attributed to Windham as well, since he was the president and sole shareholder of Beaumont Oil. As a result, the answers of Beaumont Oil acknowledging debt owed to the FDIC can be attributed to Windham to preclude Windham from asserting his counterclaims in the present case.

III. RES JUDICATA

For the theory of res judicata to prevail, there must be a showing that the prior litigation involved:

1. A final judgment on the merits;

2. The same parties (or their privies);

3. A situation arising from the same cause of action.

Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979).

In the present case, all three criteria have been met, so as to preclude Windham from asserting his counterclaims. In an involuntary bankruptcy proceeding such as the Beaumont Oil bankruptcy, whether or not a debt is disputed is significant. In this respect, 11 U.S.C. § 303 provides:

(b) An involuntary case is commenced by the filing with the bankruptcy court of a petition under Chapter VII ... of this Title—

(i) by three or more entities, each of which is either a holder of a claim against such person that is not contention as to liability or the subject of a bona fide dispute ...

In the case of In re Cates, 62 B.R. 179 (Bankr.S.D.Tex.1986), the court held that a claim is subject to a bona fide dispute if facts exist that would preclude the petitioning creditor from obtaining summary judgment on the claim. Id. at 181. By testifying under oath that there was no dispute with FDIC's claim, Windham acknowledged under oath that no material facts existed which would preclude FDIC from obtaining summary judgment on its claim. Therefore, the debt owed to the FDIC is not disputed. Further, the bankruptcy court's order for relief signed on February 26, 1987, establishes that the Beaumont Oil debt is not subject to a bona fide dispute.

Moreover, an order for relief pursuant to 11 U.S.C. § 303 is a final appealable order binding upon all parties and privies subject to it. In this respect, the court in Mason v. Integrity Insurance Co., 709 F.2d 1313 (9th Cir.1983), described the characteristics and ramifications of an order for relief as follows:

The procedure on a petition for an order for relief has many of the attributes of adversary proceedings governed by part VII of the bankruptcy rules ... In turn, the rules governing adversary proceedings are derived largely from the Federal Rules of Civil Procedure ... In a proceeding on an involuntary petition, the rules contemplate a procedure much like any other lawsuit: the petition for relief is treated as a complaint which must be answered by the debtor to avoid default, ... motions akin to those under Federal Rules of Civil Procedure 12 may be made, ... discovery is available, ... a hearing is held on evidence taken, ... the court must make findings of fact and conclusions of law, ... and, ... the court must enter judgment ... It is evident, then that the decision to enter an order for relief is prefaced by a procedure similar to that proceeding other final judgments in civil and criminal litigation.... Mason, 709 F.2d at 1313.

In addition to the procedural acknowledgement that an order for relief is an appealable order, we believe that the practical effect of the order compels such a conclusion. An order for relief, being a conclusive determination of the debtor's status as bankrupt, carries with it a great potential for irreparable injury if immediate appeal is not allowed.... Id. An adjudication and, concomitantly, an order for relief, is, ... a judgment in rem, a conclusive determination of the debtor's status in bankruptcy, and res judicata between the actual parties to the proceeding to all the facts and subsidiary questions of law on which it is based. Mason, 709 F.2d at 1315-16.

Thus, in the present case, the first criteria for barring Windham's claims by res judicata has been met in that an order for relief has been entered which is a final appealable order on the merits of the debt in dispute.

Windham cites In re All Media Properties, 5 B.R. 126 (Bankr.S.D.Tex.1980), for the proposition that:

The entry of an order for relief, agreed or otherwise, simply provides that the claims made the basis of the involuntary petition were not contingent as to liability. Because a claim is not contingent as to liability does not mean the claim cannot still be disputed.

However, Windham fails to note that 11 U.S.C. § 303, the basis for the above decision, was amended after the 1980 All Media...