Matter of Busick
| Decision Date | 03 October 1986 |
| Docket Number | Civ. No. F 86-175.,Bankruptcy No. 80-10502 |
| Parties | In the Matter of Jane M. BUSICK, Debtor. |
| Court | U.S. District Court — Northern District of Indiana |
Earl Raskosky, Fort Wayne, Ind., for debtor/appellant.
DeWayne H. Herman, Decatur, Ind., Ward Miller, Fort Wayne, Ind., for creditors/appellees: Erie-Haven, Inc., Northern Indiana Fuel & Light Co., Inc., Hal Page, Sr., Elizabeth Ann Page and Amoco Oil Co.
This matter is before the court on debtor/appellant Jane M. Busick's (Jane) appeal from a final order of the United States Bankruptcy Court for the Northern District of Indiana, entered April 5, 1985. That order granted an involuntary petition commenced against Jane by Erie-Haven, Inc. and Northern Indiana Fuel & Light Co., and subsequently joined by four other intervening creditors (creditors). After full briefing, the parties appeared before the court on July 15, 1986, for oral argument. The parties have submitted supplemental briefs pursuant to the court's order at that hearing, and the matter is now ripe for decision. For the reasons which follow, the order of the bankruptcy court will be reversed.
This case has a long and convoluted procedural history which need only be summarized here. Creditors filed a joint petition for involuntary relief against Jane and her husband, Leo, on February 14, 1980. The day after the bankruptcy court entered an order for relief by default on March 12, 1980, it received answers from Jane and Leo. The court returned them unfiled.
Shortly thereafter, creditors filed a petition to amend the joint involuntary petition and transform it into two involuntary individual petitions against Jane and Leo. Leave to do so was granted on June 27, 1980.
Jane filed a motion to reconsider the entry of default judgment during the same time period. At the hearing arising out of this motion, she argued that she was prejudiced by the entry of default judgment because she had a meritorious defense to involuntary bankruptcy. The bankruptcy court denied the motion in an order dated August 5, 1980. In so doing, the court made several findings of fact. As summarized by the Seventh Circuit before which the case later was argued, these findings included:
(1) Leo Busick was engaged in the businesses of building homes, selling and installing swimming pools, and managing rental properties; (2) Jane Busick was not involved in Leo Busick\'s business affairs; (3) most of the Busicks\' real property was owned in tenancy by the entirety; (4) the contracts for services and materials out of which the creditors\' claims arose were entered into by Leo Busick; (5) there were no express agreements between Jane Busick and the creditors that she would be liable for the amounts due on the contracts; and (6) the materials and services were provided for the real property held by the Busicks as tenants by the entirety.
Matter of Busick, 719 F.2d 922, 923 (7th Cir.1983). Based on these facts, the bankruptcy court concluded that since the benefits of Leo's individual contracts inured to the real property held by Jane and Leo as tenants by the entirety, Leo could be presumed to have had the authority to act for Jane. This made Jane liable for the debts, and consequently defeated her argument that she had a meritorious defense to the involuntary bankruptcy petition.
Following months of further procedural entanglements, the case ultimately was appealed to the Seventh Circuit, resulting in the October 24, 1983 decision cited above which ordered the bankruptcy court to allow Jane to file a responsive pleading to the individual involuntary petition filed against her on July 2, 1980. Id. at 926-27. Following the trial, the bankruptcy court held on April 5, 1985, that Jane was indebted to the creditors, and granted the involuntary petition. Jane's motion to alter or amend this judgment was denied on March 11, 1986. Jane now appeals the decision of the bankruptcy court.
Jane has raised both factual and legal issues in this case. When a party in a bankruptcy appeal alleges factual errors, the Rules of Bankruptcy Procedure provide the applicable standard of review. Rule 8013 reads:
On an appeal the district court or bankruptcy appellate panel may affirm, modify, or reverse a bankruptcy court\'s judgment, order, or decree or remand with instructions for further proceedings. Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.
This high standard of review has been followed by district courts. See, e.g., In re Clarkson, 767 F.2d 417, 419 (8th Cir.1985); In re Tesmetges, 47 B.R. 385, 388 (E.D.N.Y.1984). The "clearly erroneous" language of the rule tracks the language found in Federal Rule of Civil Procedure 52(a), and cases construing the standard under Rule 52(a) are equally applicable to bankruptcy cases. Matter of Louisiana Industrial Coatings, Inc., 53 B.R. 464, 467 (E.D.La.1985). The Supreme Court recently reaffirmed its longstanding definition of this standard: "`A finding is "clearly erroneous" when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.'" Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)).
Unlike the "clearly erroneous" standard used to review factual findings of the bankruptcy court, legal conclusions are subject to de novo review. In re Global Western Development Corp., 759 F.2d 724, 726 (9th Cir.1985). In addition, "the reviewing court must determine whether the trial court applied the proper legal standard to the facts." In re Stratton, 23 B.R. 284, 287 (D.S.D.1982).
As a preliminary consideration, Jane has raised by way of a motion for partial summary judgment an issue of collateral estoppel. In essence, she argues that the bankruptcy court was precluded from finding facts following the trial of this case which differed from the explicit findings it made in its August 5, 1980 order, when it denied Jane's motion to reconsider the default judgment. At the hearing before this court on July 15, 1986, the court requested the parties to submit supplemental briefs on the issue of the applicability of the law of the case doctrine. Neither collateral estoppel nor the law of the case applies. The bankruptcy court's denial of Jane's motion for partial summary judgment will be affirmed.
The doctrine of collateral estoppel may be applied to preclude a party from relitigating an issue decided adversely to it in an earlier proceeding when the issue on which collateral estoppel is being asserted is identical to that determined in the prior action, when the controlling facts or legal principles have not changed significantly since the prior judgment, and when no special circumstances exist which would render preclusion inappropriate or unfair. Montana v. United States, 440 U.S. 147, 155, 99 S.Ct. 970, 974, 59 L.Ed.2d 210 (1979). While the earlier proceeding may involve identical issues, a fundamental aspect of collateral estoppel is that it be a different proceeding from the one in which the issue is raised.
While the instant case was originally filed on February 14, 1980, it has yet to come to a conclusion. Despite its numerous journeys up and down the judicial hierarchy, only one case has ever existed. Therefore, the doctrine of collateral estoppel does not apply.
The applicable doctrine, if any, is the law of the case. This doctrine covers a variety of situations in the context of a single case. The one most applicable here relates to the need for a single court to adhere to its own prior rulings without need for repeated reconsideration. See 18 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 4478 (1981). Unlike collateral estoppel, the doctrine has a measure of flexibility built into it; a court retains the power to reconsider a matter occurring in the same case at an earlier time if it so wishes. Appleton Electric Co. v. Graves Truck Lines, 635 F.2d 603 (7th Cir.1980), cert. denied, 451 U.S. 976, 101 S.Ct. 2058, 68 L.Ed.2d 357 (1981). The doctrine does not apply at all, however, when a higher court vacates the judgment of the lower court. In that case, neither court is constrained by the law of the case in subsequent proceedings, since the original "law" no longer exists. Johnson v. Bd. of Educ. of the City of Chicago, 457 U.S. 52, 53-54, 102 S.Ct. 2223, 2224, 72 L.Ed.2d 668 (1982).
While the Seventh Circuit did not vacate the judgment of the bankruptcy court's August 5, 1980 order, it did reverse the court and hold that it abused its discretion in not allowing Jane to file a responsive pleading to the involuntary petition. Consequently, it remanded the case in order to allow her to file an answer so that the case might proceed to trial. Implicit in this action was the authorization to receive evidence at the trial in order to determine the merits of the case. Any other construction of the Seventh Circuit's decision is illogical since there would be little purpose in conducting a trial if the facts in the case had already been conclusively determined. This conclusion is supported by language in the decision. The Seventh Circuit stated that "what appellant terms `a ruling on the merits' was in fact a ruling that appellant had not shown good cause for setting aside the default judgment." Busick, supra, 719 F.2d at 925. The bankruptcy court's denial of partial summary judgment based on the application of the law of the case is affirmed.
The statutory provision under which the creditors have proceeded is 11 U.S.C. § 303 (§ 303), which governs involuntary...
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