In re: Joe Conte Toy ( 1998 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
Nos. 98-30516 & 98-30518
Summary Calendar
IN RE: JOSEPH P CONTE, TOYOTA, INC.
Debtor
JOSEPH P. CONTE, JR.
Appellant
versus
DORIS L. CONTE and SUSAN C CONTE
Appellees
Appeals from the United States District Court
for the Eastern District of Louisiana
(97-CV-2938-J & 97-CV-3910)
December 21, 1998
Before HIGGINBOTHAM, JONES, AND DENNIS, Circuit Judges.
PER CURIAM:*
Joseph P. Conte, Jr., appeals both a permanent injunction and
a grant of summary judgment against him. Underlying both judgments
are preclusion issues, and we consolidate them for review. For the
reasons below, we affirm.
I
*
Pursuant to 5th Cir. R.47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5th Cir. 47.5.4.
The cases before us are shrapnel from a contentious
bankruptcy. In the bankruptcy, the directors of the debtor
corporation disagreed about whether to settle a suit in which the
debtor was plaintiff. The bankruptcy court approved the settlement
over the objections of Joseph P. Conte, Jr., and in its findings of
fact concluded that Mr. Conte owned 25% of the debtor, with the
Joseph P. Conte Family Trust owning another 37.5% and Doris L.
Conte also owning 37.5%. These findings were necessary to
determine whether the corporation properly agreed to the
settlement, which Doris Conte and Susan Conte approved on behalf of
the trust. Conte appealed, but the district court dismissed the
appeal as moot because the plan of reorganization had been
implemented, and we affirmed. See In re Joe Conte Toyota, Inc.,
1996 WL 190103 (E.D. La.), aff’d, 105 F.3d 654 (5th Cir. 1996).
Joseph Conte subsequently filed three separate lawsuits. The
first was an adversary proceeding in the bankruptcy court to
determine the extent of his shareholder interest in the debtor.
The bankruptcy court dismissed the action on preclusion grounds,
and Conte filed but dismissed an appeal. The second was a legal
malpractice action against two attorneys who he alleged gave him
negligent legal advice that initially led to the appointment of
Doris and Susan Conte as directors. The third was a quo warranto
suit1 seeking to require Doris and Susan Conte to show their
1
Under Louisiana law, a writ of quo warranto “is limited to
determining by what authority a person is holding office in a
corporation.” Morris v. Thomason, 672 So. 2d 433, 434 (La. App.),
writ denied, 679 So. 2d 105 (La. 1996).
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authority to act as directors of Conte Toyota. Both of these
actions were removed to federal court and referred to the
bankruptcy court. Finding the claims barred by both claim
preclusion and issue preclusion, the bankruptcy court granted
summary judgment against Joseph Conte on both claims, and the
district court affirmed.
Meanwhile Doris and Susan Conte filed a suit for permanent
injunction. The bankruptcy court granted judgment in their favor,
prohibiting Joseph Conte from filing any further litigation against
Doris and Susan Conte arising from the facts and issues previously
determined in the bankruptcy court. The court found that enjoining
state proceedings was “necessary . . . to protect or effectuate its
judgments,” 28 U.S.C. § 2283, and thus allowed under this
relitigation exception to the Anti-Injunction Act.
On this consolidated appeal, we consider both the summary
judgment in the quo warranto proceeding and the entry of the
permanent injunction. The legal malpractice action is not before
us here.
II
We first consider the summary judgment. If preclusion
doctrines apply, the bankruptcy court’s factual findings clearly
control. In the quo warranto proceeding, Joseph Conte seeks to
show that the elections of Doris and Susan Conte as directors were
perpetrated by a fraud. This assertion conflicts directly with the
bankruptcy court’s conclusion that their approval of the settlement
was valid.
3
The familiar requirements for claim preclusion are that (1)
the parties from the two actions must be identical or in privity
with one another; (2) the judgment in the prior action was rendered
by a court of competent jurisdiction; (3) the prior action must
have concluded with a final judgment on the merits; and (4) the
same claim or cause of action must be involved in both suits. See,
e.g., Eubanks v. FDIC, 977 F.2d 166, 169 (5th Cir. 1992).
The second prong is undisputed, and despite Joseph Conte’s
protests, the first and fourth prongs are straightforward. The
parties from the first action are in privity with those in the
current action. In a bankruptcy proceeding, the corporate
officers, directors, and shareholders of a debtor corporation are
considered parties to that proceeding, or at least “in privity”
with the corporation. See Fox v. Maulding, 112 F.3d 453, 460 (10th
Cir. 1997); Horwitz v. Alloy Automotive Co., 992 F.2d 100, 103 (7th
Cir. 1993). “Under the ‘same claim’ inquiry, the critical issue is
whether the two actions under consideration are based on the same
nucleus of operative facts.” Rivet v. Regions Bank, 108 F.3d 576,
588 (5th Cir. 1997); see also Agrilectric Power Partners, Ltd. v.
General Elec. Co., 20 F.3d 663, 665 (5th Cir. 1994) (“The
substantive theories advanced, forms of relief requested, types of
rights asserted, and variations in evidence needed do not inform
this inquiry.”). Joseph Conte’s new claims involve the same
nucleus of operative facts involved in the prior proceeding.
The third prong, requiring that the judgment be “on the
merits,” is more subtle, because the district court dismissed the
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appeal as moot rather than reaching the merits. This dismissal,
however, does not deprive the bankruptcy court’s judgment of
preclusive effect. The Supreme Court confronted a similar
situation in United States v. Munsingwear, Inc., 340 U.S. 36(1950). It held that where the losing party in the prior
adjudication did not seek vacatur of judgment upon dismissal, the
lower court judgment was still entitled to res judicata. This
doctrine was discussed and reaffirmed in U.S. Bancorp Mortgage Co.
v. Bonner Mall Partnership, 115 S. Ct. 386 (1994), in which the
Supreme Court found that mootness by reason of a settlement does
not justify vacatur of the judgment under review. Under the
Munsingwear logic, the district court’s dismissal of the appeal
from the bankruptcy court without vacating the bankruptcy court
judgment means that judgment still has preclusive effect. The quo
warranto action is thus barred.
III
We now turn to the injunction. The relitigation exception to
the Anti-Injunction Act permits a federal court to enjoin a state
court action barred by claim preclusion. See Carpenter v. Wichita
Falls Ind. Sch. Dist., 44 F.3d 362, 370 (5th Cir. 1995). A court
has the inherent authority to protect its jurisdiction through
injunction. See Villar v. Crowley Maritime Corp., 990 F.2d 1489,
1499 (5th Cir. 1993) (“[F]ederal courts have broad powers to
protect their judgments and the integrity of the courts as a
whole.”) (citing In re Marhn-Trigona, 737 F.2d 1254, 1262 (2d Cir.
1984), abrogated on other grounds by Marathon Oil Co. v. A.G.
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Ruhrgas, 145 F.3d 211 (5th Cir. 1998) (en banc). Factors relevant
to whether a court can enter injunctive relief include the history
of the litigation, the litigant’s motives, whether the litigant was
represented by counsel, whether the litigant caused needless
expense to others, and whether other sanctions would be sufficient.
See, e.g., Shafii v. British Airways, 895 F. Supp. 451, 458
(E.D.N.Y. 1995), aff’d in part, vacated in part, 83 F.3d 566 (2d
Cir. 1996). None of these factors significantly helps Joseph
Conte, and we find no abuse of discretion or error in the grant of
the injunction.
IV
Doris and Susan Conte cross-appeal the bankruptcy court’s
refusal to impose monetary sanctions on Joseph Conte. This
litigation was not frivolous, and the bankruptcy court’s refusal to
impose sanctions was well within its discretion. See Placid
Refining Co. v. Terrebonne Fuel & Lube, Inc. (In re Terrebonne Fuel
& Lube, Inc.), 108 F.3d 609, 613 (5th Cir. 1997).
AFFIRMED.
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