Howe, Matter of
| Decision Date | 24 September 1990 |
| Docket Number | Nos. 89-4513,89-4548,s. 89-4513 |
| Citation | 913 F.2d 1138 |
| Parties | Bankr. L. Rep. P 73,640 In the Matter of Maxcy Gregg HOWE and Dena Crawford Howe, Debtors. Maxcy Gregg HOWE and Dena Crawford Howe, Appellants, v. Benjamin F. VAUGHAN, et al., Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
E. Eugene Hastings, Kneipp & Hastings, Monroe, La., for appellants in No. 89-4513.
Winston G. DeCuir, Baton Rouge, La., for appellants in No. 89-4548.
William Lake Hearne, Tucker, Jeter, Jackson & Hickman, Shreveport, La., for Vaughan.
J.J. Caraway, Blanchard, Walker, O'Quin & Roberts, Shreveport, La., for Premier Bank, formerly First Nat'l Bank of Shreveport.
Appeals from the United States District Court for the Western District of Louisiana.
Before KING, GARWOOD and SMITH, Circuit Judges.
Five years after the confirmation of a Chapter 11 bankruptcy plan, the debtors filed lender liability claims in state court against two of their principal creditors. The creditors removed the suit to federal district court, which in turn referred the suit to the bankruptcy court. The bankruptcy court granted the creditors' motion to dismiss, holding that, under the principles of res judicata, the confirmation order barred the debtors' claims. The district court affirmed, as do we.
In a second consolidated case, the debtors also contend that they should be allowed to dismiss their substantially consummated Chapter 11 proceeding and continue under Chapter 12. We hold that the district court did not err in refusing to dismiss the debtors' Chapter 11 proceeding.
Maxcy Gregg Howe and Dena Crawford Howe ("the Howes") instituted voluntary Chapter 11 bankruptcy proceedings in 1982. They negotiated a plan of reorganization with their creditors and the bankruptcy court confirmed the plan on January 28, 1983. Five years later, the Howes filed in state court lender liability claims that were removed to federal court and referred to the bankruptcy court. The Howes' creditors, principally Premier Bank ("Premier") (formerly First National Bank of Shreveport) and Benjamin Vaughan ("Vaughan"), moved to dismiss the claims on the basis of res judicata, prescription, or equitable or judicial estoppel. The Howes, in turn, moved to abstain and remand, arguing that their claims concerned issues of evolving state law better left to the state courts. The bankruptcy court granted Premier's motion to dismiss and recommended the denial of the motion to abstain and remand. The district court affirmed the dismissal and adopted the recommendation. The Howes also sought to dismiss their Chapter 11 action and proceed under Chapter 12, but the bankruptcy court refused to dismiss the Chapter 11 case. The district court affirmed.
After the Howes first instituted Chapter 11 proceedings, Premier filed a proof of claim on two promissory notes executed in 1980 totalling $2,122,622.20. The notes were secured by a collateral mortgage covering 1,200 acres of the Howes' farm and dairy operations and a chattel mortgage on their house, farm equipment and cattle. The Howes responded by filing a complaint seeking, for various reasons, to have the chattel mortgage declared null and void and contending that the rate of interest charged by Premier was usurious. As a condition for Premier's loan to the Howes in 1980, the Howes' hired Vaughan as a consultant for their dairy operation at $1,000.00 per month. In the reorganization proceedings, the Howes filed an application to reject Vaughan's management contract as an executory contract that overcharged for management services. Premier opposed this application and, following a hearing, the parties entered into a stipulated order whereby Vaughan would continue in a lesser management role and at a reduced compensation level.
On June 18, 1982, the Howes filed their disclosure statement and initial plan of reorganization. Premier filed objections to the disclosure statement and plan and also filed a motion to dismiss the reorganization proceedings as unfeasible. The Howes filed a second and a third disclosure statement and plan. Premier withdrew its objections and its motion to dismiss "subject to settlement and agreement." The parties negotiated and settled on a Fourth Amended Plan of Reorganization and Disclosure Statement, dated January 17, 1983. The Howes' lender liability claims that are the subject of this appeal were not scheduled as an asset of the estate, nor were they disclosed or treated in the Fourth Amended Plan of Reorganization and Disclosure Statement. The bankruptcy court confirmed this plan on January 28, 1983.
The plan specifically treated the Howes' indebtedness to Premier as an allowed claim, partially secured and partially unsecured. Pursuant to the plan, the Howes executed a dation en paiement (giving in payment) providing that 601 acres of the Howes' dairy farm would be transferred to Premier in satisfaction of a portion of the Howes' indebtedness. The plan treated a portion of the remaining indebtedness as a secured claim with mortgages encumbering dairy cattle, farm equipment and certain real estate. The Howes were to pay this indebtedness over a 20 year period. The plan treated the remainder of the indebtedness to Premier as an unsecured claim. The plan also contained a liquidation provision should the Howes fail to comply with the plan. This provision allowed for a release of a deed held in escrow covering the dairy cattle, farm equipment and real estate to Premier. Finally, the Howes, as debtors-in-possession, reserved the right to prosecute "any claims or causes of action" which existed in their favor and that were not previously litigated to a final judgment. The question of whether the Howes' lender liability claims against Premier in the present action were previously litigated to a final judgment constitutes the principal issue on appeal.
The Howes made monthly payments to Premier in accordance with the plan until September 1988. Approximately five years after confirmation of the plan, the Howes brought this lender liability action based on the 1980 loan transaction. They claim that Premier, Vaughan and others induced the Howes to incur substantial indebtedness without regard to their ability to repay the borrowed sum. The aim, according to the Howes, was to drive the Howes into financial ruin so that the defendants could obtain a certain tract of the Howes' land for commercial development. They also alleged that Premier requested, as a condition for the loan, that the Howes hire Vaughan as a consultant, and that Vaughan thereafter took total control of their operations. The Howes claimed violations of fiduciary and contractual duties, Louisiana securities laws, and state law fraud. Damages were sought in the amount of $14,250,000.00. The defendants removed to federal court. The district court referred the matter to the bankruptcy court and, as noted above, the bankruptcy court dismissed the claim as barred by res judicata.
In October through December of 1988, the Howes failed to make monthly payments to Premier in accordance with the reorganization plan. The Howes also filed a petition for Chapter 12 relief in the bankruptcy court. In response, and due to the failure of the Howes to make payments, Premier requested, pursuant to the terms of the plan's liquidation provision, that the deed held in escrow be released to Premier. The Howes then moved to dismiss their Chapter 11 proceedings. The bankruptcy court denied the Howes' motion to dismiss their Chapter 11 proceedings and granted Premier's motion for release of deed.
The Howes raise three issues on appeal. In the first consolidated case, the Howes contend that the district court erred in failing to abstain under either the mandatory or permissive abstention provisions of 28 U.S.C. Sec. 1334. They also contend that the courts below erred in concluding that their lender liability claims were barred by res judicata. As to the second consolidated case, the Howes contend that the bankruptcy and district courts erred in failing to permit the Howes to dismiss their Chapter 11 proceedings and continue under Chapter 12.
Premier and Vaughan removed the Howes' state court proceedings pursuant to 28 U.S.C. Sec. 1452, based on allegations that the state court action was a civil proceeding arising in or related to a bankruptcy case. The bankruptcy court's "Reasons for Decision and Report and Recommendation" concluded that the district court should not abstain. The court set out two reasons for its conclusion. First, because res judicata was at issue, it noted "the close nexus between this matter and prior orders of the ... Bankruptcy Court." Second, the court concluded that the matter was a core proceeding. The district court agreed with the bankruptcy court and denied the motion to abstain and remand. 1
In response to Premier's motion to dismiss the Howes' lender liability claims, the Howes filed a motion to abstain and remand, urging the district court to abstain on the grounds set forth in 28 U.S.C. Sec. 1334(c)(2). That section provides:
Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under Title 11 but not arising under Title 11 or arising in a case under Title 11, with respect to which an action could not have been commenced in a Court of the United States absent jurisdiction under this Section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a state forum of appropriate jurisdiction. 2
In other words, a district court must abstain from hearing a non-core, related matter if the action can be timely adjudicated in state court. The Howes argue that their action is a non-core, related proceeding at least in regard to those defendants who did not file a proof of claim in the original bankruptcy. We need not...
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