Piperi v. Gutierrez ( 1996 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
No. 96-20114
No. 96-20152
No. 96-20183
Summary Calendar
_______________
In the Matter of:
RONALD A. PIPERI,
Debtor.
RONALD A. PIPERI,
Appellant,
VERSUS
JORGE A. GUTIERREZ, as Receiver for Rio Grande
Savings and Loan Association, in Liquidation,
Appellee.
_________________________
Appeal from the United States District Court
for the Southern District of Texas
(CA-H-91-3296, CA-H-90-3906 & CA-H-91-3661)
_________________________
September 12, 1996
Before SMITH, BENAVIDES, and DENNIS, Circuit Judges.
JERRY E. SMITH, Circuit Judge:*
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion
should not be published except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
This is a consolidated appeal from three separate judgments of
the district court affirming three respective decisions of the
bankruptcy court. The debtor, Ronald Piperi, appeals the modifica-
tion of the mandatory stay to allow a state court fraud action to
continue (No. 96-20152), the order granting summary judgment in a
discharge action (No. 96-20183), and the denial of his motion to
stay the discharge action (No. 96-20114). We affirm in all three
proceedings.
I.
This case arises out of the failure of the Rio Grande Savings
and Loan Association (“Rio Grande”) and Piperi's bankruptcy. In
short, Piperi, as controlling director of Champion Savings
Association, entered into a number of loan swaps with Rio Grande.
Following the transactions, Rio Grande, which was not insured by
either the federal government or the State of Texas, was placed
into conservatorship and liquidated by the Texas Savings and Loan
Commissioner (the “commissioner”).
Jorge Gutierrez, the state receiver, filed a state court suit
against Piperi, alleging that he had defrauded Rio Grande in
connection with the loan transactions. Following extensive
discovery, the state court action was scheduled to begin on
November 13, 1990.
2
On November 12, Piperi commenced a chapter 11 bankruptcy.1 On
November 14, Gutierrez filed with the bankruptcy court an emergency
motion to modify the stay. The court provided notice and conducted
an evidentiary hearing on November 16.
Piperi did not testify at the hearing but he was represented
by counsel. Gutierrez testified that he was appointed as receiver
after the commissioner declared Rio Grande insolvent and that his
duties included prosecuting fraud actions in furtherance of the
state's duty to regulate financial institutions.
The court granted Gutierrez’s motion, finding that good cause
existed under 11 U.S.C. § 362(d)(1) (West Supp. 1996) and that
Gutierrez, as receiver, was a governmental instrumentality acting
to enforce the police or regulatory powers of the state under
§ 362(b)(4) (1993). The court modified the stay in an order dated
November 28.
Following the modification, Piperi voluntarily withdrew his
answer in state court. Gutierrez presented evidence, and the jury
returned a $96 million fraud verdict against Piperi. The verdict
was reduced to $84 million, consisting of $21 million in actual
fraud damages and $63 million in exemplary damages.
Gutierrez commenced an adversary proceeding against Piperi in
the bankruptcy court under 11 U.S.C. § 523(d) (1993), seeking to
except the state court award from any discharge. Piperi answered,
1
The proceeding was converted to a chapter 7 proceeding on August 26,
1991.
3
and Gutierrez filed a motion for summary judgment. Piperi did not
offer any contravening summary judgment evidence.
On April 26, 1991, Piperi filed a motion to stay or abate the
discharge action under 11 U.S.C. § 305 (1993), based on an alleged
criminal investigation into his business affairs. Piperi argued
that a stay was required under the parallel proceeding doctrine.
After an evidentiary hearing, the court entered an order denying
the motion.
On November 1, 1991, the court entered summary judgment in
favor of Gutierrez, holding that the actual damages of $21 million
were not dischargeable. The court based its judgment on the
collateral estoppel effect of the state court judgment, finding
that the judgment established that Piperi had engaged in fraud.
II.
Piperi first argues that the bankruptcy court abused its
discretion in modifying the automatic stay. With regard to the
finding of good cause under § 362(d)(1), Piperi asserts that there
was no evidence of “imminent harm.” With regard to § 362(b)(4), he
contends that Gutierrez is not a government instrumentality.
The bankruptcy court did not abuse its discretion in finding
that there was good cause for modification of the automatic stay.2
A finding of good cause does not require a finding of “imminent
2
As a result, we do not address the district court’s holding that
modification was proper under § 362(b)(4).
4
harm.” Piperi filed for bankruptcy on the eve of trial. Risk of
delay and judicial economy are both sufficient to constitute good
cause.3 Piperi’s assertion that the court improperly based its
decision on the fact that he had retained a criminal defense
attorney is without merit.
We also reject Piperi’s contention that holding the hearing
four days after he filed for bankruptcy and two days after
Gutierrez filed his motion to lift the stay denied him due process
of law. By definition, an emergency hearing cannot be scheduled in
a leisurely manner. We agree with the Seventh Circuit that limited
notice before a hearing does not violate due process when a state
court trial is impending. Holtkamp, 669 F.2d at 508.
III.
Piperi next avers that the bankruptcy court erred in granting
summary judgment on the ground that the state court action
conclusively determined that the $21 million judgment was for
fraud. Piperi argues that the state court judgment was a default
judgment and, as such, cannot support collateral estoppel.
For purposes of § 523(a), a bankruptcy court may grant summary
3
Holtkamp v. Littlefield, 669 F.2d 505, 508 (7th Cir. 1982) (finding that
judicial economy provides good cause to modify stay when trial was five days away);
In re Saunders, 103 B.R. 298, 299 (Bankr. N.D. Fla. 1989) (finding that judicial
economy supports good cause modification); In re Elliott, 66 B.R. 466, 467 (Bankr.
S.D. Fla. 1986) (finding that good cause exists to allow conclusion of pending state
court proceeding); In re McGuirt, 61 B.R. 974 (Bankr. S.D. Tex. 1986) (finding good
cause when state court litigation is on the verge of trial).
5
judgment based on the collateral estoppel effect of a state court
judgement. Garner v. Lehrer (In re Garner), 56 F.3d 677 (5th Cir.
1995). The preclusive effect of a judgment is determined by the
preclusion law of the state in which it was rendered. Id. at 679.
Under Texas law, collateral estoppel “bars relitigation of any
ultimate issue of fact actually litigated and essential to the
judgment in a prior suit, regardless of whether the second suit is
based upon the same cause of action.” Id. Texas law requires that
the following:
A party seeking to invoke the doctrine of collateral
estoppel must establish (1) the facts sought to be
litigated in the second action were fully and fairly
litigated in the prior action; (2) those facts were
essential to the judgment in the first action; and
(3) the parties were cast as adversaries in the first
action.
Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 818 (Tex. 1994).
In the present case, Piperi questions only the first element of the
test.
Because we find that the state court judgment was not a true
“default judgment,” we reject Piperi’s argument that the judgment
is not entitled to collateral estoppel effect.4 In state court,
Gutierrez waived his right to take a default judgment and, instead,
proceeded with a trial on the merits.5 In that context, the
4
Whether a true default judgment is entitled to collateral estoppel effect
in a bankruptcy proceeding is an open question in this circuit, and we do not
address it.
5
See 47 TEX. JUR. 3D Judgments § 129 (1980) (noting that a party may waive
(continued...)
6
judgment was not technically a default judgment.6
This case presents a situation more akin to a post-answer
default, where a party answers and fails to appear at trial and the
plaintiff is forced to present his evidence before the jury.7 A
jury heard the evidence presented by Gutierrez and found that he
had met his burden of proof. Like the defendant in Garner, Piperi
could have defended the case but, instead, chose to withdraw. The
issue of fraud was fully and fairly litigated.
IV.
We find it unnecessary to reach the merits of Piperi’s appeal
in No. 96-20114. The district court dismissed the appeal as moot
because Piperi already had been convicted in the parallel criminal
proceeding. Piperi has failed to articulate a single reason why
this case is not moot.
The purpose of the stay was to prevent the risk of self-
incrimination. Piperi has not pointed to any instance where he was
prejudiced in the bankruptcy proceeding by the risk of self-
5
(...continued)
the right to a default judgment).
6
See Stoner v. Thompson, 578 S.W.2d 679, 682 (Tex. 1979); 47 TEX. JUR. 3D
Judgments § 114 (1980) (noting that a default judgment is allowed only when a party
fails to file an answer and is deemed to have admitted the plaintiff’s allegations).
7
See Garner, 56 F.3d at 680 (finding that collateral estoppel applies to a
post-answer default because the plaintiff must offer evidence to prove his case);
Stoner, 578 S.W.2d at 682 (distinguishing between “default judgment” and “post-
answer default”); 47 TEX. JUR.3D Judgments § 119 (1980) (noting that post-answer
default is not a default judgment because the plaintiff must prove its case).
7
incrimination or where continuation of the proceeding will result
in prejudice to his criminal case. The appeal is moot.
The judgments in all three proceedings are AFFIRMED.
8