Montgomery v. Pope Montgomery Architects & Builders LLC , 200 F. App'x 320 ( 2006 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT September 14, 2006
Charles R. Fulbruge III
No. 06-20180 Clerk
Summary Calendar
In the Matter of: DAVID LEE MONTGOMERY,
Debtor,
DAVID LEE MONTGOMERY,
Appellant,
versus
POPE MONTGOMERY ARCHITECTS & BUILDERS LLC; TOM POPE,
Appellees.
____________________
Appeal from the United States District Court
for the Southern District of Texas
(05-CV-1656)
_____________________
Before DAVIS, BARKSDALE, and BENAVIDES, Circuit Judges.
PER CURIAM:*
In this bankruptcy proceeding, Defendant-Appellant David Lee
Montgomery appeals from a grant of summary judgment to Plaintiffs-
Appellees Pope Montgomery Architects & Builders LLC (PMAB) and Tom
Pope based on a bankruptcy court default judgment, which declared
the debts to be non-dischargeable. For the reasons thoroughly
outlined by the bankruptcy court and district court, we affirm.
*
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that this opinion should not be published and is not precedent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. R.
47.5.4.
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I. BACKGROUND
In 2002, Montgomery sued PMAB and Pope in state court. Pope
filed a counterclaim in both his individual capacity and derivative
capacity on behalf of PMAB. A jury found for PMAB on all of its
claims and for Pope on all but one of his claims. The verdict
awarded PMAB over one million dollars and Pope approximately
$87,500.00. Following entry of the state court judgment,
Montgomery filed for Chapter 7 bankruptcy court protection. PMAB
and Pope filed a complaint, objecting to the dischargeability of
debts stemming from the state court proceeding. Montgomery then
converted his Chapter 7 proceeding to a Chapter 13 proceeding.
Montgomery did not file an answer to the complaint. PMAB
subsequently filed for a default judgment, which was granted. The
default judgment stated that Montgomery’s debts to PMAB and Pope
were not entitled to discharge. Following the default judgment,
Montgomery moved to dismiss his Chapter 13 proceeding. His motion
was granted.
In September 2004, Montgomery filed for bankruptcy court
protection under Chapter 11. PMAB and Pope filed a complaint,
seeking a determination that their claims were non-dischargeable
and claiming that—because of the default judgment—res judicata
precluded Montgomery from arguing that the state court judgment was
dischargeable. Montgomery answered the complaint. PMAB and Pope
moved for summary judgment. The bankruptcy court granted the
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motion. It upheld the default judgment, determined that res
judicata applies to default judgments, and concluded that
Montgomery may not pursue a discharge for debts owed to PMAB or
Pope. The district court affirmed.
II. STANDARD OF REVIEW
We review the district court’s decision under the same
standard of review that the district court applied to the
bankruptcy court’s decisions. See Wells Fargo Bank of Texas N.A.
v. Sommers (In re Amco Ins.), 444 F.3d 690, 694 (5th Cir. 2006).
Findings of fact are reviewed for clear error; conclusions of law
are reviewed de novo. Id. A bankruptcy court’s grant of summary
judgment is appropriate when there is no genuine issue of material
fact and the moving party is entitled to a judgment as a matter of
law. First Am. Title Ins. Co. v. First Trust Nat’l Ass’n (In re
Biloxi Casino Belle Inc.), 368 F.3d 491, 496 (5th Cir. 2004)
(citing FED. R. CIV. P. 56(c); BANKR. R. 7056).
III. DISCUSSION
Montgomery makes three arguments on appeal: (1) the district
court erred in failing to recognize that it held the authority to
vacate the default judgment; (2) the district court erred in
holding that 11 U.S.C. § 349 will not serve to vacate a judgment
entered pursuant to a bankruptcy which was subsequently dismissed;
and (3) justice requires reversal because the underlying judgment
does not support a finding of non-dischargeability.
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A. Res Judicata Barred Vacatur of the Default Judgment
Montgomery claims he is entitled to relief through Rule 60(b).
See FED. R. CIV. P. 60(b) (hereinafter “Rule 60(b)”). Under Rule
60(b), a party may be relieved of a final judgment by making a
motion to the court or filing an independent action. Id.
Montgomery claims he made a Rule 60(b) motion to the district court
in his brief. In that brief, Montgomery, in arguing that the
district court should set aside the default judgment, quotes and
describes Rule 60(b) and then urges the court to apply it to the
case. Montgomery does not move for vacatur under Rule 60(b) but
merely used it as an argument in support of vacatur. Montgomery
does the same here. Therefore, we proceed to whether the district
court failed to recognize its authority to vacate the default
judgment, despite the fact that Montgomery failed to contest the
judgment.
The district court did not have the authority to set aside the
final default judgment of the bankruptcy court. The doctrine of
collateral estoppel applies in discharge proceedings pursuant to §
523(a). Grogan v. Garner, 498 U.S. 279, 285 n.11 (1991). And, the
doctrine applies to a default judgment. Morris v. Jones, 329 U.S.
545, 550–51 (1947) (“A judgment of a court having jurisdiction of
the parties and of the subject matter operates as res judicata, in
the absence of fraud or collusion, even if obtained upon a
default.”); Moyer v. Mathas, 458 F.2d 431, 434 (5th Cir. 1972).
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The bankruptcy court entered a default judgment because Montgomery
had failed to answer PMAB’s and Pope’s complaint. The district
court recognized the res judicata effect of the bankruptcy court’s
default judgment. That judgment was uncontested and not appealed.
Therefore, the district court did not err by failing to recognize
that it had the authority to set aside the default judgment.
B. Section 349 Does not Affect the Default Judgment
Montgomery next argues that, because he converted his Chapter
7 bankruptcy to Chapter 13 bankruptcy at the time the default
judgment was entered, section 349 renders the default judgment not
preclusive. See 11 U.S.C. § 349. Section 349 states that the
“dismissal of a case under this title does not bar the discharge,
in a later case under this title, of debts that were dischargeable
in the case dismissed . . . .” Id. However, as the bankruptcy
court astutely explained: “[T]o read § 349(a) as preserving
discharge rights in the face of a judgment denying discharge is a
misinterpretation of the statute.” Moreover, the default judgment
stated that Montgomery was not entitled to discharge of the debts
per 11 U.S.C. § 523(a)(2)(A), (4), (6). Montgomery concedes that
section 349 states that a dismissal vacates certain judgments but
does not list section 523. See 11 U.S.C. 349(b)(2). The dismissal
of the earlier bankruptcy therefore has no effect on the default
judgment entered. Thus, Montgomery’s argument that section 349
affects a judgment under section 523(a) fails.
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C. Justice Does not Require Reversal
Montgomery essentially argues that the default judgment was
erroneous for three reasons: (1) the jury damage findings are not
conclusive; (2) state law fraud does not satisfy the federal
requirements for bankruptcy fraud; and (3) the judgment exceeds the
state law cap on punitive damages. The validity of the default
judgment is not before this Court. Montgomery has had the chance
to attack the default judgment, but it is not through this instant
appeal. Therefore, we decline to address Montgomery’s attacks on
the default judgment.
Based on the foregoing, the order of the district court is
AFFIRMED.
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