Lindsey v. Prive Corp.

• Decision Date: 24 November 1998
• Docket Number: No. 97-10651,97-10651
• Citation: 161 F.3d 886
• Parties: 78 Fair Empl.Prac.Cas. (BNA) 1857, 50 Fed. R. Evid. Serv. 969 Anne Marie LINDSEY, et al., Plaintiffs, Linda Ann York, Plaintiff-Appellant, v. PRIVE CORPORATION, doing business as Cabaret Royale; Walhill Partners Ltd.; CRC Operating Corporation, also known as Dallas Food & Beverage; DNL Corporation, Defendants-Appellees. Linda Ann YORK, Plaintiff-Appellant, v. PRIVE CORPORATION, doing business as Cabaret Royale, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 886

161 F.3d 886

78 Fair Empl.Prac.Cas. (BNA) 1857, 50 Fed. R.

Evid. Serv. 969

Anne Marie LINDSEY, et al., Plaintiffs, Linda Ann York, Plaintiff-Appellant, v. PRIVE CORPORATION, doing business as Cabaret Royale;

Walhill Partners Ltd.; CRC Operating Corporation,

also known as Dallas Food & Beverage;

DNL Corporation, Defendants-Appellees.

Linda Ann YORK, Plaintiff-Appellant, v. PRIVE CORPORATION, doing business as Cabaret Royale,

Defendant-Appellee.

No. 97-10651.

United States Court of Appeals, Fifth Circuit.

Nov. 24, 1998.

William Clayton Isbell, Dallas, TX, for Plaintiff-Appellant.

Charles Gregory Shamoun, William Charles Campbell, Howard Jay Klatsky, Dallas, TX, for Defendants-Appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before KING, GARWOOD and HIGGINBOTHAM, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Linda York appeals from a judgment entered on a jury verdict against her. Her principal claim is that the trial should not have been allowed to proceed, because the defendant's legal representative in bankruptcy had previously agreed to a settlement. In the alternative, she argues that the district court made various evidentiary and procedural errors that warrant reversal. We affirm.

I

York and Anne Marie Lindsey brought Age Discrimination in Employment Act claims against Prive Corp., operator of an upscale gentleman's club, which allegedly refused the women promotions and constructively discharged them on the basis of their age. The district court granted summary judgment. We vacated and remanded. See Lindsey v. Prive Corp., 987 F.2d 324 (5th Cir.1993). Prive Corp. then filed for protection under Chapter 7 of the Bankruptcy Code. Before the bankruptcy filing it transferred its assets to defendant-appellee Walhill Partners, Ltd., which in turn transferred to defendant-appellees CRC (Dallas Food and Beverage) Operating Corp. and DNL Corp. The transfers are allegedly without consideration.

Prive Corp.'s trustee in bankruptcy, Daniel Sherman, agreed to entry of judgment in the amount of $3.3 million against Prive. Plaintiffs maintain that the trustee arrived at this amount after consulting with a labor law firm, reviewing the proof of claim, and considering two mock jury verdicts that favored the plaintiffs. Sherman, however, confessed little knowledge of age discrimination law. Asked whether he "really just accepted the claims plaintiffs here have filed to be allowed, and based on whatever damages they claim to be able to support," Sherman replied, "That's pretty close to being accurate, yes." Sherman explained that Prive Corp. had no assets, but that if it consented to a judgment, the plaintiffs might be able to pursue the other corporations on a theory of successor liability. Should the plaintiffs win, Sherman maintained that Prive Corp. would receive at least 25% of the damages under the terms of the agreed judgment, and that this was the best way of getting money into the estate for the benefit of other creditors, including the United States. As we will explain, in effect, the agreement effectively gave Lindsey and York 75% contingency fees on any recovery, and that from assets the trustee chose not to pursue for the benefit of the estate.

Bankruptcy Judge Harold C. Abramson approved the agreed upon judgment, finding the litigation to be a "core matter" and determining that the decision to settle "falls within the necessary range of reasonableness considering the expense and delay encountered in litigation of this type." In re Prive Corp., No. 394-32837-HCA-7 (Bankr.N.D.Tex. Feb. 21, 1996). He verbally added, however, "[T]his Court will not take a position with regard to any effect of the claim in this case as to other Courts."

Despite the agreed upon judgment, which is now final, the district court required the plaintiffs to try their claims before a jury, with the alleged successors in interest rather than the trustee in bankruptcy defending the claims. Judge Solis explained that he did not believe that the trustee in bankruptcy was the real party in interest in defense of the age discrimination claims. The district court ordered a bifurcated trial, the first part dealing with questions of liability, and the second dealing with successorship issues, contingent on a liability finding in the first trial.

The jury found against York on both of her claims. The jury rejected Lindsey's constructive discharge claim after first deadlocking 5-1 on her wrongful-denial-of-promotion claim, five jurors apparently voting for her. During deliberations, the holdout juror requested to be excused. Plaintiffs declined to consent to a nonunanimous verdict. The parties agreed to allow the court to question the juror outside the presence of counsel. The juror explained that his desire to be excused was "just a matter of conscience in regard to this case." When counsel returned, the judge told them that the juror had no personal reason to be excused. Counsel accepted this general statement and did not ask the judge for more detail.

The court granted partial final judgment. The defendants received a judgment on both of York's claims. Because Lindsey's two claims were intertwined, the court did not enter judgment on either of them. Only York appeals.

II

Our first question is whether the bankruptcy court's judgment was entitled to issue preclusive effect against the successors in interest. ¹ We hold that it was not.

A trustee in bankruptcy has the authority to settle claims filed against the estate. See, e.g., Marks v. Brucker, 434 F.2d 897, 900-01 (9th Cir.1970). Judgments of bankruptcy courts enjoy the issue preclusive effects of a final judgment by a court of competent jurisdiction. See Katchen v. Landy, 382 U.S. 323, 334, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966); see also Burkett v. Shell Oil, 487 F.2d 1308, 1315 (5th Cir.1973).

These general principles do not decide this case, however, for the judgment was the product not of adversaries, but of joint venturers. The plain purpose was to agree to an extraordinarily high judgment against Prive and impose the liability upon asserted successors in interest--with no opportunity for the true defendants to defend the merit of the judgment. The basis of this successor liability was said to be a series of fraudulent transfers of Prive's assets to them. The trustee could have pursued the return of the assets for the benefit of all creditors. If successful, the assets would have been returned. The trustee's interest would then have been to defend York's claim against Prive. The trustee explains that pursuing the assets would have been expensive and this was a no asset case. The trustee's solution was in essence to allow another party to pursue the claim and take 75% of the assets. We need not unfold the full tale to expose the agreed judgment for what it was.

"Redetermination of issues is warranted if there is reason to doubt the quality, extensiveness, or fairness of procedures followed in prior litigation." Montana v. United States, 440 U.S. 147, 164 n. 11, 99 S.Ct. 970, 59 L.Ed.2d 210 (1979); see also Kremer v. Chemical Const. Corp., 456 U.S. 461, 480-81, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982) (requiring a full and fair opportunity to litigate a claim as a prerequisite to application of preclusion doctrines); Universal Am. Barge Corp. v. J-Chem, Inc., 946 F.2d 1131, 1139 (5th Cir.1991) (discussing the requirement in an indemnity case). ²

The defendant-appellees were not given a full and fair chance to defend the age discrimination claim. Indeed, they were given no chance. Thus, the successors in interest remained free to try the liability issue in a subsequent proceeding. See 18 James Wm. Moore, Moore's Federal Practice 3d, § 132.03 [I] ("Issues that were only addressed in the trial court's adoption of a consent agreement, and were not contested or litigated, may be litigated in a subsequent action.").

This conclusion is consistent with the general principle that "parties who choose to resolve litigation through settlement may not dispose of the claims of a third party, and a fortiori may not impose duties or obligations on a third party, without that party's agreement." Local No. 93, Intern. Ass'n of Firemen v. City of Cleveland, 478 U.S. 501, 529, 106 S.Ct. 3063, 92 L.Ed.2d 405 (1986); see also id. ("A court's approval of a consent decree between some of the parties therefore cannot dispose of the valid claims of nonconsenting intervenors; if properly raised, these claims remain and may be litigated by the intervenor.... [A] court may not enter a consent decree that imposes obligations on a party that did not consent to the decree."); cf. In re Del Grosso, 106 B.R. 165, 168 (Bankr.N.D.Ill.1989) (noting, in another bankruptcy context, that proponents of settlement and the bankruptcy trustee must show that the settlement agreement was not collusive). ³

III

Two additional points of error claimed by the defendant hinge directly on our resolution of the validity of the settlement. York maintains that the district court erred by allowing the successors in interest to assume Prive Corp.'s defense at trial and prohibiting the trustee in bankruptcy from appearing or testifying at trial. The defendants on the plaintiffs' successorship claims, however, are necessarily the alleged successors of Prive Corp. The district court was not trying again Prive Corp.'s liability, but rather litigating the alleged successors' successorship liability. Because the collusive settlement has no preclusive effect, this liability depended not only on a finding that they were successors, but also on a finding that illegal discrimination occurred. Thus, the trial was not of Prive Corp.'s liability, but that of the successors, and Prive Corp. had no direct interest in the outcome. ⁴

IV

The district court acted well within his discretion in bifurcating the trial into one proceeding to determine liability and another to determine...