In re Barrow, Bankruptcy No. 81-01371-A

• Decision Date: 13 June 1988
• Docket Number: Adv. No. 83-0519-A.,Bankruptcy No. 81-01371-A
• Citation: 87 BR 879
• Parties: In re Tom L. BARROW, Debtor. Robert CELL, Plaintiff, George L. Gullette, Substitute Plaintiff, v. Tom L. BARROW, Defendant.
• Court: U.S. District Court — Virgin Islands, Bankruptcy Division

87 B.R. 879 (1988)

In re Tom L. BARROW, Debtor.

Robert CELL, Plaintiff, George L. Gullette, Substitute Plaintiff, v. Tom L. BARROW, Defendant.

Bankruptcy No. 81-01371-A, Adv. No. 83-0519-A.

United States Bankruptcy Court, E.D. Virginia, Alexandria Division.

June 13, 1988.

Roy B. Zimmerman, Alexandria, Va., for plaintiff Robert Cell.

Robert O. Tyler, Alexandria, Va., for George L. Gullette.

Kermit Rosenberg, McLean, Va., for debtor.

Henry Counts, Jr., Alexandria, Va., Trustee in Bankruptcy.

MEMORANDUM OPINION

MARTIN V.B. BOSTETTER, Jr., Chief Judge.

This matter comes before the Court upon a motion by Tom L. Barrow ("debtor" or "defendant") to dismiss the complaint prosecuted by George L. Gullette ("plaintiff" or "Gullette") to revoke the debtor's discharge. Gullette was substituted as plaintiff in the place of Robert Cell ("Cell"), who had filed the complaint and settled with the debtor during the course of their litigation.

Tom L. and Jean G. Barrow filed a voluntary petition in bankruptcy under chapter 7 on November 31, 1981. Gullette instituted an adversary proceeding objecting to the discharge of the Barrows under § 523 and § 727 of the Bankruptcy Code ("the Code"). 11 U.S.C. §§ 523, 727. Prior to a hearing, Gullette voluntarily withdrew his claim which was based on section 727, and this dismissal was acknowledged in an order entered by this Court on October 15, 1982. In pertinent part, that order provided:

ORDERED, that the Plaintiff\'s objections to the Defendant\'s discharge pursuant to 11 U.S.C. § 727(a)(4) and (c)(2) be, and the same hereby are, dismissed, with prejudice.

Gullette's remaining objection based on section 523 was denied, and the Barrows received their discharge on November 16, 1982.

On November 15, 1983, Cell, another creditor of the Barrows and an acquaintance of Gullette, filed a complaint to revoke only Tom L. Barrow's discharge under 11 U.S.C. § 727(d), alleging that Barrow had obtained his discharge through fraud. To obtain assistance in the financing of his case against Barrow, Cell contacted other creditors, including Gullette, in regard to the revocation proceeding. Cell received no response beyond that which he received from Gullette. Gullette assisted Cell in ascertaining the existence and value of the debtor's assets, prepared litigation documents used by Cell, and contributed $2,000.00 towards the payment of an attorney hired to conduct the litigation of Cell's case. Gullette allegedly offered his assistance to ensure that the case would be tried on the merits. The arrangement between the two creditors, however, was never documented and never disclosed to Barrow, the attorneys, the trustee or this Court.

Cell proceeded with his case against Barrow and ultimately obtained a settlement. The settlement agreement between Cell and Barrow was entered by this Court on June 25, 1985 and provided in pertinent part:

7. It is understood that Cell can and will make his entire file available to intervening or substituting party if said party moves to intervene or substitute themselves within sixty (60) days from the date of this agreement.

8. Barrow agrees that he will not oppose any motion or intervention or substitution pursuant to Bankruptcy Rule 7024 and 7025 and agrees to endorse any order for the substitution or intervention of additional parties.

Accordingly, the order which followed the entry of the settlement agreement postponed the final date of entry for sixty (60) days, through August 12, 1985, in order to permit any other party in interest, including the U.S. Trustee, to intervene or substitute itself as party plaintiff and noted that the debtors would not oppose the intervention or substitution.

Upon learning of the settlement between Cell and Barrow, Gullette requested the return of the $2,000.00 that he had forwarded to retain a bankruptcy attorney. Cell's attorney declined to return the money, however, prompting Cell and Barrow to enter into an agreement to provide for repayment (hereinafter "Agreement"). That Agreement in full provided as follows:

AGREEMENT

WHEREAS, Robert S. Cell and George L. Gullette have each contributed $2,000.00 for a fee of $4,000.00 to attorney, . . . as flat compensation to try the case of Robert S. Cell vs. Tom L. Barrow to revoke Tom L. Barrow\'s discharge in bankruptcy, Adversary Proceeding 84-0519-A; and

WHEREASE (sic), Robert S. Cell desires Court approval of a settlement with Tom L. Barrow for $15,000.00, with leave to any other creditor to proceed as substituted plaintiff, but without . . . as attorney (since a conflict of interest could arise) NOW THEREFORE, it is agreed that Robert S. Cell will reimburse George L. Gullette $2,000.00 within fifteen (15) days, or sooner, if paid any amount by Tom L. Barrow, and the said George L. Gullette agrees that if he succeeds in taking the case against Tom L. Barrow, he will give any reimbursement of fees received through the Court to Robert S. Cell, up to $2,000.00, and if George L. Gullette obtains a settlement from Tom L. Barrow without trying the case he will pay Robert Cell $2,000.00.

June 11, 1985 s/ George L. Gullette s/ Robert S. Cell

Note: The information shown in brackets reflects the handwritten changes made in the original agreement.

On August 9, 1985, Gullette filed an application to intervene and requested this Court to substitute him as plaintiff in the adversary proceding against Barrow consistent with this Court's order. As grounds for his application to intervene, Gullette stated that he was a "creditor of the debtor and in all other respects . . . qualified to prosecute this action."

The defendant now seeks to dismiss the proceeding to revoke his discharge on various grounds, alleging that:

1. Gullette as the real party in interest in the adversary proceeding, Cell v. Barrow, and as a recipient of funds disbursed in the compromise of that adversary is barred from intervening in the instant litigation by the settlement agreement entered by this Court;

2. Gullette and Cell were in a principal/agent relationship, therefore Cell\'s agreement to settle with Barrow was binding on Gullette;

3. Gullette was in privity with Cell, therefore the settlement agreement between Cell and Barrow also was binding on Gullette, and

4. The intervention and substitution of Gullette as party plaintiff is barred by res judicata and estoppel in view of Gullette\'s status as plaintiff in the prior adversary proceeding objecting to the Barrows\' discharge and the dismissal rendered therein.

The debtor's allegations actually span two separate litigations. The first three allegations pertain to the revocation proceeding filed by Cell against Barrow, which ultimately ended in settlement. The last allegation pertains to the initial adversary proceeding objecting to the Barrows' discharge filed by Gullette, alone.

We entertain first the allegation that Gullette is barred from intervening in the instant case in view of his former adversary proceeding and the principles of res judicata and collateral estoppel, in that a resolution of these threshold issues would have been a resolution of the entire matter. As indicated, Gullette in his own adversary proceeding objecting to the Barrows' discharge, voluntarily dismissed his claim based on § 727(a)(4) and (c)(2) of the Code with prejudice.¹ Although the reasons for Gullette's actions are not entirely clear, it is certain that no evidence was put before this Court, and that no explanatory settlement agreement ensued.

Although the debtor makes no distinction between the doctrines of res judicata and collateral estoppel, we consider them separately in our discussion below.² The Fourth Circuit has observed that the doctrine of res judicata represents society's interest in the finality of judgments, Itco Corp. v. Michelin Tire Corp., Commercial Div., 722 F.2d 42, 50 (4th Cir.1983), cert. denied, 469 U.S. 1215, 105 S.Ct. 1191, 84 L.Ed.2d 337 (1985) and will bar a subsequent suit if three requirements are met:

1. The first suit must have concluded in a final judgment on the merits;

2. The second suit must involve the assertion of claims by persons who were parties or in privity with parties in the first suit; and

3. The claims asserted in a second suit must be based on the same cause of action as the first suit.

Kenny v. Quigg, 820 F.2d 665, 669 (4th Cir.1987), citing Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 973, 59 L.Ed.2d 210 (1979); Harnett v. Billman, 800 F.2d 1308, 1312 (4th Cir.1986), cert. denied, ___ U.S. ___, 107 S.Ct. 1571, 94 L.Ed.2d 763 (1987). The doctrine of res judicata applies not only to the claims that were actually determined but also to matters which could have been resolved in the first litigation. See Harnett v. Billman, 800 F.2d 1308, 1314 (4th Cir.1986) (citing general principle that judgment in a first suit extinguishes any claims that might have been raised in that litigation).

Applying the facts of the instant case to the requirements above, the first two criteria are easily met. Gullette's voluntary dismissal of his claim with prejudice constituted a valid, final judgment on the merits, see Kenny v. Quigg, 820 F.2d at 669, and the parties involved in the instant litigation are the same as were involved in the prior suit. The questions remaining as to whether Gullette's intervention to revoke Barrow's discharge is based on the same cause of action as Gullette's objection to Barrow's discharge, and whether Gullette could have litigated the issues asserted now at that time are indeed more troublesome.

To determine whether Gullette's revocation of discharge proceeding is based on the same cause of action as his objection to the debtor's discharge, we must first proceed by comparing Gullette's original complaint with the complaint filed by Cell. In the first complaint, Gullette accused the Barrows of omitting or misstating financial information when filing their petition.³ Such misrepresentations,...