English et al
Filing
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MEMORANDUM OPINION. This Court affirms the bankruptcy court's grant of summary judgment in favor of the trustee, disallowing Claim Nos. 69 and 82. (Signed by Judge Kenneth M Hoyt) Parties notified.(gclair, 4)
United States District Court
Southern District of Texas
ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
WAYNE M ENGLISH, et al.,
Appellants,
VS.
LOWELL T CAGE, TRUSTEE,
Appellee.
December 02, 2021
Nathan Ochsner, Clerk
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§ CIVIL ACTION NO. 4:21-CV-01804
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MEMORANDUM OPINION
I.
This is an appeal from the United States Bankruptcy Court for the Southern
District of Texas, bankruptcy case number 15-31305. The appeal is taken pursuant
to Title 28 U.S.C. § 158(a)(1) from a final order entered in the bankruptcy court
granting summary judgment for appellee Lowell T. Cage, the Chapter 7 Trustee for
debtor Porter Development Partners, LLC (“Porter”) and related entities. The
Trustee moved for summary judgment on the claims filed by the appellants, Wayne
M. English and James D. Colling, against the Porter estate. After considering the
Trustee’s motion for summary judgment and the appellants’ responses, the
bankruptcy court entered its order granting the Trustee’s motion, disallowing the
appellants’ claims against Porter. This Court AFFIRMS the bankruptcy court’s
order granting summary judgment.
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II.
Between March and April 2015, Porter and 18 other investment partnerships
and holding companies filed Chapter 7 voluntary bankruptcy petitions in the
Southern District of Texas. The Trustee was appointed to jointly administer those
debtors’ estates. The four debtors relevant to this appeal are Porter, WB Murphy
Road Development LLC (“Murphy Road”), WB Real Estate Holdings LLC
(“WBREH”), and Wallace Bajjali Investment Fund II LP (“Fund II”) (together, the
“WB Debtors”).
In 2007, the appellants had each invested $100,000 in Fund II. In May 2009,
Fund II and two other entities consolidated their holdings into one holding company,
WBREH. The entities effected the consolidation through a Contribution Agreement
dated May 26, 2009. Following the consolidation, Fund II owned 74% of WBREH.
WBREH, in turn, owned 90% of Murphy Road and 50% of Porter.
On October 20, 2019, both appellants filed proofs of claim in the cases of
WBREH, Murphy, and Porter (the “2019 Claims”). They described the basis of the
2019 Claims as “money invested, equity interest, fraud, [and] fraud in solicitation.”
On April 15, 2020, the Trustee objected to the appellants’ claims against the Porter
estate,1 in part on the grounds that the claims were based on the appellants’
1
The 2019 Claims against the Porter estate were Claim Nos. 66 (by appellant English) and 67 (by
appellant Colling). The appellants’ numbering of these claims is inconsistent, and the Court will
use the designations from the record on appeal.
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investment in Fund II, and not any loan to or investment in Porter. The appellants
did not respond to the Trustee’s objections, and, on May 26, 2020, the bankruptcy
court entered orders disallowing their claims against Porter.2 The bankruptcy court
subsequently denied the appellants’ motions to reconsider the disallowance, and the
appellants did not appeal the disallowance orders.
The day after the bankruptcy court disallowed the 2019 Claims, it set July 17,
2020, as the deadline for “late claims” to be filed in the WB Debtors’ cases. On the
expiration date, the appellants each filed proofs of claim in the Porter, Murphy Road,
and WBREH cases (the “2020 Claims”).3 The 2020 Claims cited, as their basis,
“money invested, limited partnership of [Fund II] which owns [WBERH] and
[Porter], fraud.”
On September 23, 2020, the Trustee filed objections to the 2020 Claims, and
the appellants timely filed their responses.4 The crux of the appellants’ argument
was that their ownership in Fund II “bestows upon [the appellants] a corresponding
ownership in WBREH, the Murphy [Road] partnership, and the Porter partnership.”
The bankruptcy court also disallowed appellant English’s claim against the Murphy Road estate,
No. 54, which rested on the same basis as his claim against the Porter estate.
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English filed Claim No. 71 against WBREH, No. 57 against Murphy Road, No. 69 against Porter,
as well as two additional claims, one against Murphy Road and the other against Porter. The Court
presumes that the two additional claims are those referred to by the trustee as Nos. 53 and 56.
Colling also filed claims against the Porter, Murphy Road, and WBREH estates—Nos. 82, 57, and
56, respectively.
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Although the appellants’ responses were filed only in the Porter case, they addressed the Trustee’s
objections to all the 2020 Claims.
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Accordingly, the appellants contended they were entitled to a distribution from each
of the WB Debtors’ estates. The appellants also disputed the validity of the Trustee’s
affirmative defenses.
On October 29, 2020, the bankruptcy court entered orders disallowing the
appellants’ 2020 Claims against WBREH, Murphy Road, and Porter. Twenty-one
days later, the bankruptcy court entered a scheduling order for adjudicating “the sole
legal issue of whether [the appellants] have any interest beyond Fund II.” On April
13, 2021, the bankruptcy court granted the Trustee’s summary judgment motion on
that issue, which resulted in disallowance of Claim Nos. 69 and 82 against the Porter
estate. The bankruptcy court denied the appellants’ motions to reconsider, and this
appeal followed.
In denying the appellants’ post-judgment motions, the bankruptcy court held
that the extent of Fund II’s ownership in WBREH was not “newly discovered
evidence.” The court below also held “there is no evidence that [the appellants] have
a claim beyond Fund II” and that the Contribution Agreement, which the appellants
attached for the first time to their post-judgment motions, should have been
presented at the summary judgment stage.
III.
The sole issue on appeal is whether, in granting summary judgment for the
Trustee, the bankruptcy court wrongly held that the appellants lack claims against
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WBREH, Murphy Road, and Porter.5 On that point, the appellants assert that the
structure created by the Contribution Agreement made them owners of all three of
those entities. Therefore, they contend, they are entitled to file proofs of claim
against and receive a distribution from each of those entities’ estates. They further
note that the bankruptcy court authorized the Trustee to settle the claims of other
Fund II investors, and that the settlement involved payment of funds from the other
WB Debtors’ estates. Thus, the appellants argue, they are entitled to recover funds
from those same entities.
In response, the Trustee argues that: (1) the appellants can only be paid from
assets held by Fund II’s estate, since they invested only in Fund II and not in the
other WB Debtors; (2) the bankruptcy court acted lawfully in authorizing the
settlement with other Fund II investors; and (3) the appellants are bound by the
bankruptcy court’s orders disallowing the 2019 Claims, and res judicata bars their
2020 Claims, since both sets of claims are based on the appellants’ investments in
Fund II.
The Court does not consider the appellants’ numerous arguments that either were not raised at
the summary judgment stage or that the appellants waived by failing to timely appeal the
bankruptcy court’s orders disallowing the 2019 Claims and the 2020 Claims. Fed. R. Bankr. P.
8002(a); Jefferson Cmty. Health Care Ctrs., Inc. v. Jefferson Par. Gov’t, 849 F.3d 615, 626 (5th
Cir. 2017). The waivers extend to the appellants’ potential fraud claims against the WB Debtors.
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IV.
In reviewing a bankruptcy court’s decision, a district court applies the
standards of review typically applied in federal courts of appeal. See In re Webb,
954 F.2d 1102, 1103–04 (5th Cir. 1992). To this end, a district court will not set
aside a bankruptcy court’s findings of fact, unless they are clearly erroneous. In re
IFS Fin. Corp., 803 F.3d 195, 203 (5th Cir. 2015). “A finding of fact is clearly
erroneous only if ‘on the entire evidence, the court is left with the definite and firm
conviction that a mistake has been committed.’” Robertson v. Dennis (In re Dennis),
330 F.3d 696, 701 (5th Cir. 2003) (quoting Hibernia Nat’l Bank v. Perez (In re
Perez), 954 F.2d 1026, 1027 (5th Cir. 1992)). A bankruptcy court’s conclusions of
law, however, are reviewed de novo. In re Dennis, 330 F.3d at 701. Mixed questions
of law and fact within a bankruptcy case are also reviewed de novo. In re San
Patricio Cty. Cmty. Action Agency, 575 F.3d 553, 557 (5th Cir. 2009). A reviewing
district court may affirm on any ground supported by the record, including one not
reached by the bankruptcy court. See Hammervold v. Blank, 3 F.4th 803, 813 (5th
Cir. 2021).
Additionally, a district court reviews a grant of summary judgment de novo,
applying the same standards as the bankruptcy court. Summary judgment is
appropriate where the pleadings, the discovery and disclosure materials on file, and
any affidavits show that “there is no genuine issue as to any material fact and that
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the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “A
fact is material only if its resolution would affect the outcome of the action, . . . and
an issue is genuine only ‘if the evidence is sufficient for a reasonable jury to return
a verdict for the [nonmovant].’” Wiley v. State Farm Fire and Cas. Co., 585 F.3d
206, 210 (5th Cir. 2009) (internal citations omitted). When determining whether a
genuine issue of material fact has been established, a reviewing court is required to
construe “all facts and inferences . . . in the light most favorable to the [nonmovant].”
Boudreaux v. Swift Transp. Co., Inc., 402 F.3d 536, 540 (5th Cir. 2005) (citing
Armstrong v. Am. Home Shield Corp., 333 F.3d 566, 568 (5th Cir. 2003)).
V.
The Court first considers whether it should affirm the bankruptcy court’s grant
of summary judgment because the res judicata doctrine barred the appellants’ 2020
Claims. “Claim preclusion or res judicata, bars the litigation of claims that either
have been litigated or should have been raised in an earlier suit.” Test Masters Educ.
Servs., Inc. v. Singh, 428 F.3d 559, 571 (5th Cir. 2005), cert. denied, 547 U.S. 1055,
(2006) (citing Petro-Hunt, L.L.C. v. United States, 365 F.3d 385, 395 (5th Cir.
2004)). The elements of res judicata require proof that:
(1) the parties in the subsequent action are identical to, or in privity
with, the parties in the prior action; (2) the judgment in the prior case
was rendered by a court of competent jurisdiction; (3) there has been a
final judgment on the merits; and (4) the same claim or cause of action
is involved in both suits.
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Duffie v. United States, 600 F.3d 362, 372 (5th Cir. 2010) (citing Test Masters, 428
F.3d at 571; see also Ellis v. Amex Life Ins. Co., 211 F.3d 935, 937 (5th Cir. 2000)).6
If all four of these elements are present, “claim preclusion prohibits [a litigant] from
raising any claim or defense in the later action that was or could have been raised in
support of or in opposition to the cause of action asserted in the prior action.” United
States v. Shanbaum, 10 F.3d 305, 310 (5th Cir. 1994) (citing In re Howe, 913 F.2d
1138, 1144 (5th Cir. 1990) (emphasis in original)). When the prior and later actions
are both brought before the same court, a party is not required in the later action to
raise the res judicata defense prior to filing his summary judgment motion. See
Mowbray v. Cameron Cnty., 274 F.3d 269, 281 (5th Cir. 2001).
Starting with the first prong, the appellants are the same individuals who filed
the 2019 Claims against the WBREH, Murphy Road, and Porter estates, which the
Trustee then also represented. Moving to the second prong, there is no dispute that
the bankruptcy court had jurisdiction to enter orders disallowing the 2019 Claims.
28 U.S.C. § 157(b)(2). As to the third prong, the bankruptcy court’s May 26, 2020,
order disallowing the 2019 Claims was a final judgment on the merits because the
appellants did not appeal the order. See In re Paige, 610 F.3d 865, 871–72 (5th Cir.
2010). See also In re Baudoin, 981 F.2d 736, 740 (5th Cir. 1993) (“[W]e read our
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The Court determines the res judicata effect of a federal judgment under federal common law. In
re Ark–La–Tex Timber Co., 482 F.3d 319, 330 n. 12 (5th Cir. 2007).
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prior holdings to establish that an order allowing a proof of claim is, likewise, a final
judgment.”).
The fourth prong requires the Court to determine whether the 2020 Claims
arose out of “the same nucleus of operative facts” as the 2019 Claims. Id. This
inquiry “revolves around the factual predicate of the claims asserted,” not “the type
of relief requested, substantive theories advanced, or types of rights asserted.” Id.
The fourth prong is satisfied because the 2019 Claims and the 2020 Claims share the
same factual basis—i.e., the appellants’ investment in Fund II and its relationship
with the other WB Debtors. Because both sets of claims are based on the same
nucleus of operative facts, the two proceedings arise from the same cause of action.
Finally, the Court must determine whether the claims adjudicated by the
bankruptcy court on summary judgment “could or should have been brought in the
earlier litigation.” Id. The Court answers this question in the affirmative. The
appellants had the opportunity to fully litigate their 2019 Claims, but they chose not
to do so. As the Trustee points out, during the adjudication of the 2019 Claims, the
appellants did not respond to the Trustee’s objection that those claims were based
on the appellants’ investment in Fund II, and not on any loan to or investment in
Porter. The appellants subsequently attempted to relitigate the validity of that
objection, as to the factually indistinguishable 2020 Claims. Because they could and
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should have done so in the prior proceeding, the final requirement of the res judicata
doctrine is satisfied.
The Court is of the opinion that because the appellants could have, but failed
to, fully litigate the 2019 Claims against WBREH, Murphy Road, and Porter, res
judicata precluded them from relitigating the same issues under the guise of the 2020
Claims. Therefore, this Court AFFIRMS that bankruptcy court’s grant of summary
judgment in favor of the Trustee, disallowing Claim Nos. 69 and 82.
It is so ORDERED.
SIGNED on December 1, 2021, at Houston, Texas.
_____________________________
Kenneth M. Hoyt
United States District Judge
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