Hendrick v. Avent, 89-3102
| Decision Date | 11 January 1990 |
| Docket Number | No. 89-3102,89-3102 |
| Citation | 891 F.2d 583 |
| Parties | , 15 Fed.R.Serv.3d 1111, Bankr. L. Rep. P 73,217, RICO Bus.Disp.Guide 7410 Rodney D. HENDRICK, Plaintiff-Appellant, v. H.E. AVENT, et al., An Unincorporated Association, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Randall A. Smith, George C. Freeman, III, Michael R. Fontham, Stone Pigman, Walther, Wittman & Hutchinson, New Orleans, La., for plaintiff-appellant.
John L. Avant, Baton Rouge, La., for John C. Lindsay and Brantley T. Burnett.
Russ M. Herman, Steven J. Lane, Matthew P. Chenevert, New Orleans, La., R. Wayne Byrd, Florence, S.C., for H.E. Avent, Fink and Kinney.
Appeal from the United States District Court for the Middle District of Louisiana.
Before GARZA, WILLIAMS, and DAVIS, Circuit Judges.
Rodney D. Hendrick appeals the district court's grant of summary judgment in favor of defendants-appellees. 96 B.R. 620. Because we find this action is an improper collateral challenge to a final judgment and cannot constitute a proper direct challenge, we affirm.
Rodney D. Hendrick ("Hendrick") filed a voluntary petition under Chapter 11 of the Bankruptcy Code on November 21, 1983, in the Bankruptcy Court for the Middle District of Louisiana. 1 The bankruptcy court appointed Donald P. Starns ("Starns" or "Trustee") trustee of the debtor's estate. At the time of filing, Hendrick owned 310 shares of stock in a closely-held South Carolina corporation named PFC, Inc., d/b/a Stingray Boat Company ("Stingray"). On February 7, 1985, Hendrick's bankruptcy trustee, Starns, applied for authorization to sell Hendrick's stock for $150,000. Hendrick filed an objection to the sale of his Stingray stock.
On February 13, 1985, the bankruptcy court conducted an adversary hearing on the trustee's application to sell stock. The result of the hearing was the authorization and confirmation of the sale of Hendrick's stock in Stingray to James A. Fink, Jr., with the express reservation that the trustee conduct an investigation into the facts alleged by Hendrick. Immediately after the hearing, Hendrick's stock was delivered to James A. Fink, Jr. and the trustee received $150,000, which was paid by a cashier's check drawn on a South Carolina bank. As further consideration for this transaction, Hendrick was dismissed as a party in a suit which had been filed against him in the Court of Common Pleas for the County of Darlington, South Carolina by Francis A. Collins, who was an officer, stockholder, and director of Stingray.
The next day, February 14, 1985, the Trustee applied to the bankruptcy court to employ special counsel to investigate the circumstances surrounding the February 13, 1985 stock sale. Pursuant to this investigation, the bankruptcy court issued three separate orders for Bankruptcy Rule 2004 examinations, due to the trustee's ongoing concern about the integrity of the offer and certain undisclosed and unknown facts. At no time did the trustee, Hendrick, or any other party to the bankruptcy proceeding file an appeal or any other post trial motions under Rules 52(b), 59(e), or 60(b) 2 of the Federal Rules of Civil Procedure to overturn, vacate, or modify the February 13, 1985 judgment of the bankruptcy court.
After the third set of depositions in the investigation, the trustee sought and obtained approval of the bankruptcy court to file suit in federal district court. On February 12, 1986, the trustee filed suit on behalf of Hendrick asserting fraud claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., the Securities Exchange Act of 1934, 15 U.S.C. § 78a, et seq., and state law. Some time thereafter, the trustee, with the approval of the bankruptcy court, abandoned the claims as to Hendrick. On November 6, 1987, Hendrick and the trustee filed a second amended complaint, which added additional state law claims based on alleged misrepresentations, omissions, breaches of fiduciary duty, and sought rescission of the sale.
On December 4, 1987, the appellees filed a motion to dismiss and, in the alternative, for summary judgment. The appellees based their motion on the following grounds:
1. The order of the bankruptcy court was res judicata;
2. The suit was an impermissible collateral attack on a final judgment rendered by the bankruptcy court from which no appeal was taken; and
3. The second amended complaint could not be construed as a Rule 60(b) motion under the Federal Rules of Civil Procedure, and even if it was so considered, the motion was not timely filed.
The motion was denied with the suggestion that the court would be willing to reconsider the ruling if the motion were re-urged. On August 16, 1988, the motion was re-urged adding the following grounds:
4. Private rights of action to enforce Rule 10b-5 and RICO claims do not lie with regard to the sale and purchase of securities in an exchange approved by the court; and
5. James A. Fink, Jr. was absolutely immune from civil liability for any misstatement or omission as a witness in the bankruptcy court.
On December 2, 1988, the trial court advised the parties that a motion for summary judgment had been granted in favor of all defendants. On January 24, 1989, the trial court issued its written judgment. Hendrick brought this appeal the next day.
A motion for summary judgment focuses the court's attention merely on disputes of material facts. 3 While the facts alleged by Hendrick are tantalizing, this appeal focuses only on the available methods of attacking the bankruptcy court's approval of the stock sale. At no time did the trustee, Hendrick, or any other party to the bankruptcy proceeding file an appeal or any other post trial motions under Rules 52(b), 59(e) or 60(b) of the Federal Rules of Civil Procedure to overturn, vacate, or modify the February 13, 1985 judgment of the bankruptcy court.
In light of this absence of appeal, the material facts are contained only in the question of whether these fraud, RICO, and rescission claims can be brought independently or whether they must be in the form of a Rule 60 modification of the judgment of the bankruptcy court. Consequently, the eloquent and intriguing story revealed in appellant's brief, which is quite shocking, is not before us, except that it can be noted that at the time of the bankruptcy court ruling, neither Hendrick nor the court had full knowledge of all that had taken place in a complex scheme of facts.
In deciding this case, the district court determined (1) plaintiff's sole remedy to contest the February 13, 1985 order of the bankruptcy court under the facts of this case is through a Rule 60(b) motion; (2) plaintiff has not filed a Rule 60(b) motion; (3) the second amended complaint cannot be treated as a Rule 60(b) motion; 4 (4) even if the second amended complaint is treated as a Rule 60(b)(3) motion, the one year period to file such a motion has expired and cannot be extended by the court; and, (5) even if the second amended complaint is treated as a Rule 60(b) motion to reopen the judgment for fraud on the court, the motion is without merit because there was no fraud committed on the bankruptcy court. The first step in analyzing the district court's analysis is to determine whether the collateral attacks used in this case are barred by res judicata.
The test in this Circuit for determining whether a claim is barred by the doctrine of res judicata is as follows:
"For a prior judgment to bar an action on the basis of res judicata, the parties must be identical in both suits, the prior judgment must have been rendered by a court of competent jurisdiction, there must have been a final judgment on the merits and the same cause of action must be involved in both cases.' " Nilsen v. City of Moss Point, Miss., 701 F.2d 556, 559 (5th Cir.1983) (en banc), quoting Kemp v. Birmingham News Co., 608 F.2d 1049, 1052 (5th Cir.1979).
After conducting an evidentiary hearing on February 13, 1985, the bankruptcy court issued an order which authorized and confirmed the sale of Hendrick's stock in Stingray. The first hurdle is whether the February 13, 1985 order was a final judgment. Neither Hendrick nor any other party appealed the February 13, 1985 order in accordance with Bankruptcy Rule 8001. Appellees contend that this order was a final judgment which can only be attacked by an appeal or by a motion filed pursuant to Rule 60(b) of the Federal Rules of Civil Procedure. 5
Bankruptcy Rule 9021 requires that every judgment "be set forth on a separate document." The order of February 13, 1985, which was prepared by the attorney for the trustee and signed by Judge Wesley Steen, complies with Rule 9021. The District Court found the order signed by the bankruptcy judge on February 13, 1985 to be a final judgment, and found plaintiff's contention that the order was interlocutory in nature was without merit. We find no error in the district court's finding.
The February 13, 1985 order authorized the sale of "all of the estate's shares of stock in PFC, Inc., said sale to be free and clear of all liens, claims, and encumbrances, including any and all alleged co-owner's rights or right of first refusal of Judith Polk Hendrick." Thus, the order was an authorization to sell property of the bankrupt's estate. An order issued by the bankruptcy court authorizing the sale of part of the bankrupt estate is a final judgment 6 even though the order neither closes the bankruptcy case nor disposes of any claim. 7 As this Court stated in Southmark Properties v. Charles House Corp., 742 F.2d 862 (5th Cir.1984): 8
There is no real doubt that the district court possessed jurisdiction to authorize and approve a trustee's sale. See 11 U.S.C. §§ 515, 516(3).
That the district court's order authorizing the sale of the ... [property] and...
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