Ronald Gollehon v. United States Bankruptcy Court for the District of Colorado

FILED
U.S. Bankruptcy Appellate Panel
of the Tenth Circuit
April 17, 2015
NOT FOR PUBLICATION Blaine F. Bates
Clerk
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE TENTH CIRCUIT
IN RE RONALD DUANE BAP No. CO-14-031
GOLLEHON,
Debtor.
FLORADO PARTNERS, LLC, Bankr. No. 10-28933
Adv. No. 11-01298
Plaintiff – Appellee, Chapter 7
v. OPINION *
RONALD DUANE GOLLEHON,
Defendant – Appellant.
Appeal from the United States Bankruptcy Court
for the District of Colorado
Before THURMAN, Chief Judge, CORNISH, and JACOBVITZ, Bankruptcy
Judges.
CORNISH, Bankruptcy Judge.
Debtor appeals the bankruptcy court’s order and judgment denying him a
discharge because he made fraudulent transfers, failed to maintain adequate
records of financial condition, made intentionally misleading statements to
prevent the Chapter 7 trustee from discovering the nature of his financial affairs,
and failed to explain loss of assets. Plaintiff, an LLC in which debtor indirectly
holds a 34% ownership interest, brought this adversary proceeding after obtaining
*
This unpublished opinion may be cited for its persuasive value, but is not
precedential, except under the doctrines of law of the case, claim preclusion, and
issue preclusion. 10th Cir. BAP L.R. 8026-6.
a judgment against debtor in state court. On appeal, debtor does not contest the
bankruptcy court’s findings regarding his misconduct or its conclusions that he is
not entitled to a discharge. Instead, debtor argues only that plaintiff lacked
authority to commence the adversary proceeding and the bankruptcy court erred
by denying his motion to dismiss on that ground. Having reviewed the record and
applicable law, we affirm the bankruptcy court’s order.
I. BACKGROUND 1
Debtor Ronald Duane Gollehon (“Gollehon”) was engaged in real estate
development and conducted business activities using a multitude of corporate
entities. In July 2004, Gollehon, Kenneth M. Cahill (“Cahill”), and David Curtis
Lundberg (“Lundberg”) formed Florado Partners LLC (“Florado”) to combine
various property interests and possible development projects. 2 Gollehon
participated in Florado in his capacity as manager of Summerlin Equities LLC,
which owned a 34% interest. Summerlin Equities, in turn, was a family holding
company owned by Gollehon, his wife, and two adult sons. 3 Lundberg
participated in Florado in his capacity as managing principal of L5 Holdings LLC,
which owned a 33% interest. Cahill participated in Florado as an individual and
owned the remaining 33% of Florado.4 A transfer of 3% of each 33% interest
held by Lundberg and Cahill was subsequently made to Lundberg’s father in
1
Unless otherwise indicated, this factual description is taken from the
bankruptcy court’s Order regarding Defendant’s motion to dismiss (“Order
Denying Dismissal”), in Appellant Ronald Gollehon’s Appendix (“Appellant’s
App.”) at 182.
2
Arbitrator’s Findings of Fact, Conclusions of Law, Ruling and Award
(“Arbitration Ruling”) at 3-4, in Appellant’s App. at 94-95.
3
Findings of Fact and Conclusions of Law (“Discharge Opinion”) at 1, in
Appellant’s App. at 268.
4
Arbitration Ruling at 5, in Appellant’s App. at 96.
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consideration of a loan to Florado. 5
Gollehon drafted Florado’s operating agreement, which was executed by
the members in August 2004 (“Operating Agreement”). The Operating
Agreement appointed Gollehon and Lundberg as managing principals, with
Gollehon handling the day to day financial management of Florado. In October
2004, the Operating Agreement was amended to appoint Cahill as an additional
managing principal. 6
Relations between the members of Florado soon turned acrimonious, and by
the end of December 2004 it was apparent that Florado would be unable to raise
funds for further work on projects it had undertaken.7 In January 2005, Cahill and
the Lundbergs removed Gollehon as a managing principal, obtained a writ of
replevin, and seized Florado’s records from Gollehon.8 Immediately thereafter,
Florado and its members filed a complaint against Gollehon in Colorado state
court. At about the same time, Gollehon executed the Summerlin Trust as sole
settlor, naming his wife and sons as beneficiaries.9 He then transferred his
ownership interest in the Summerlin Equities family holding company, which
owned the Florado interest, to the Summerlin Trust.
In its state court suit, Florado alleged Gollehon breached his fiduciary
duties to the other members of Florado and committed fraud in exercising his
responsibilities as a managing principal. Gollehon filed a motion to compel
arbitration because Florado’s Operating Agreement required all disputes between
managing principals and/or members to be resolved through arbitration. An
5
Id.
6
Id.
7
Id. at 6-7, in Appellant’s App. at 97-98.
8
Id. at 7-8, in Appellant’s App. at 98-99.
9
Discharge Opinion at 3, in Appellant’s App. at 270.
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arbitrator heard the matter in 2006. In its March 2008 ruling in favor of Florado,
the arbitrator concluded Gollehon operated Florado and many of his other real
estate partnerships and corporate entities as his alter ego,10 and that he
“consistently ignored any distinctions about the duties and obligations he might
owe to one of the entities he had organized as opposed to another.” 11 In June
2009, the Colorado state court confirmed the arbitration award and entered
judgment against Gollehon in the amount of $984,681.09 (“Judgment”). Gollehon
did not appeal the Judgment.
Gollehon filed for Chapter 7 bankruptcy protection on July 28, 2010,
scheduling assets of $2,900 and liabilities of $2,145,950 (all unsecured
nonpriority claims including the Judgment).12 He also scheduled monthly
expenses of $5,495,13 and no current income.14 On an addendum to his Statement
of Financial Affairs, he listed thirty-six different business entities, most of them
real estate related, all formed between 2000 and 2010, and located at either his
home address or one single business address. 15
On May 6, 2011, Florado filed an adversary complaint16 objecting to
Gollehon’s discharge pursuant to 11 U.S.C. § 727(a)(2), (a)(3), (a)(4), (a)(5), and
10
Arbitration Ruling at 6-7, in Appellant’s App. at 97-98.
11
Id. at 5, in Appellant’s App. at 96.
12
Chapter 7 Petition Summary of Schedules, in Appellee’s Supplemental
Appendix (“Appellee’s App.”) at 53.
13
Schedule J - Current Expenditures of Individual Debtor(s), in Appellee’s
App. at 70.
14
Schedule I - Current Income of Individual Debtor(s), in Appellee’s App. at
69.
15
Statement of Financial Affairs (addendum to question 18 - Nature, location
and name of business), in Appellee’s App. at 51-52.
16
Complaint Objecting to Discharge, in Appellant’s App. at 29.
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(a)(6).17 The bankruptcy court described the complaint as:
premised upon allegations including those underlying the Judgment,
such as a pattern and practice of transferring funds to third party
insiders, failure to disclose assets, failure to disclose partnerships
with third parties, failure to account for the dissipation of assets,
destruction of financial records and failure to produce financial
records in response to subpoenas, transfer of assets to insider third
parties within a year of the petition date and failure to disclose those
transactions in his statement of financial affairs and schedules, as
well as postpetition transfer of estate property without court
authorization. 18
Gollehon filed an answer on June 17, 2011, with dubious responses to Florado’s
allegations and argued Florado lacked standing and was acting ultra vires because
it did not have the requisite consent to sue under its Operating Agreement. 19
Florado then sought and was granted leave to file an amended complaint
and did so on November 1, 2011 (“Complaint”). 20 Gollehon responded by filing a
motion to dismiss the Complaint pursuant to Federal Rule of Civil Procedure
12(b)(1) and (6)21 (“Motion to Dismiss”), arguing in part that Florado was
required under its Operating Agreement to plead unanimous consent from all of
its managers or members as a condition for moving forward with the merits of its
§ 727 adversary proceeding.22 Florado countered that it had standing as a creditor
17
Unless otherwise indicated, all future statutory references in text are to the
Bankruptcy Code, Title 11 of the United States Code.
18
Order Denying Dismissal at 3, in Appellant’s App. at 184.
19
Answer, in Appellant’s App. at 59.
20
Amended Complaint Objecting to Discharge, in Appellant’s App. at 74.
According to Florado, “[t]he proposed Amended Complaint attempts to clarify the
prior allegations and eliminates several exhibits in an effort to have the Debtor
understand the allegations and properly admit or deny the truth of such
allegations.” Florado Partners, LLC’s Response to Motion to Dismiss at 4, in
Appellant’s App. at 143.
21
Unless otherwise indicated, all future references in text to “Rule” are to the
Federal Rules of Civil Procedure.
22
Defendant’s Motion to Dismiss Pursuant to Fed. R. Bankr. P. 7012(b) and
Fed. R. Civ. P. 12(b)(1) and 12(b)(6) (“Motion to Dismiss”) at 3, in Appellant’s
(continued...)
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to object to Gollehon’s discharge and that Gollehon’s Motion to Dismiss was an
unsupported collateral attack on the Judgment barred by the doctrine of res
judicata.23 On May 11, 2012, following an evidentiary hearing, the bankruptcy
court entered an order denying the Motion to Dismiss (“Order Denying
Dismissal”).24 The bankruptcy court primarily concluded that, based on the rules
of prior adjudication, Gollehon was precluded from challenging Florado’s
authority to sue in the adversary proceeding because it constitutes an
impermissible collateral attack on the Judgment. Following the bankruptcy
court’s denial of his Motion to Dismiss, Gollehon challenged Florado’s authority
or capacity in his answer to the Complaint and in the joint pretrial statement, but
did not raise the issue again before the bankruptcy court.
The Complaint proceeded to trial. After a three-day hearing, the
bankruptcy court concluded Gollehon was a sophisticated businessman with a
college education and more than 30 years of experience who “chose to create
numerous separate entities and to engage in business with foreign citizens and in
22
(...continued)
App. at 90. The body of the Motion to Dismiss also states that “[b]ecause the
basis for this Motion is that Florado lacks standing or the legal capacity to
prosecute this action, this Motion may be treated as a motion to dismiss for lack
of subject matter jurisdiction. . . . Alternatively, this Motion may be considered
and determined under [Rule 12(c), motion for judgment on the pleadings].” Id. at
2, in Appellant’s App. at 89. In his reply brief on appeal, Gollehon again
characterizes his Motion to Dismiss as filed pursuant to Rule 12(b)(1) for lack of
subject matter jurisdiction, or alternatively, for judgment on the pleadings under
Rule 12(c). However, for purposes of a Rule 12(b)(1) motion, Gollehon conflates
standing with capacity to sue, which although related, are separate concepts
governed by different rules. Lack of capacity to sue is not a matter of subject
matter jurisdiction in this case. See 5A Charles Alan Wright et al., Fed. Prac. &
Proc. Civ. §§ 1293, 1295, and 6A Charles Alan Wright et al., Fed. Prac. & Proc.
Civ. § 1559 (3d ed. 2014). Although standing to sue is required for subject matter
jurisdiction, there is no actual dispute regarding Florado’s standing, only its
capacity to sue.
23
Florado Partners, LLC’s Response to Motion to Dismiss Pursuant to Fed.
R. Bankr. P. 7012(b) and Fed. R. Civ. P. 12(b)(1) and 12(b)(6), in Appellant’s
App. at 140.
24
Order Denying Dismissal, in Appellant’s App. at 182.
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foreign countries as part of a complex financial structure.” 25 However, due to
lack of documentation, the bankruptcy court concluded it could not “determine
whether and to what extent Gollehon directly or indirectly owned an interest in
any of his entities or their assets.”26 Nor could it determine Gollehon’s material
business transactions or his true financial condition.27 As to Gollehon’s testimony
as a witness, the bankruptcy court found him to be “inconsistent, evasive, and
lacking credibility,” and noted that he even “disagreed with the ‘undisputed facts’
submitted to this Court prior to trial, which facts were prepared with the
assistance of Gollehon’s counsel.” 28
On June 25, 2014, the bankruptcy court entered a judgment denying
Gollehon a discharge (“Order Denying Discharge”) based on § 727(a)(2), (a)(3),
(a)(4), and (a)(5),29 and its related Discharge Opinion. The bankruptcy court
ruled Gollehon had: 1) defrauded his creditors by making numerous transfers of
assets within one year prior to filing bankruptcy;30 2) failed to maintain business
records from which his true financial condition could be ascertained; 31 3)
intentionally made omissions or misleading statements in order to prevent the
Chapter 7 trustee from discovering the nature of his financial affairs, 32 and 4)
failed to explain the deficiency of assets to meet his liabilities because he
deliberately maintained very few assets in his individual name by transferring
25
Discharge Opinion at 18, in Appellant’s App. at 285.
26
Id. at 19, in Appellant’s App. at 286.
27
Id.
28
Id. at 14, in Appellant’s App. at 281.
29
Judgment (Docket No. 171), in Appellant’s App. at 4.
30
Discharge Opinion at 15-17, in Appellant’s App. at 282-84.
31
Id. at 17-19, in Appellant’s App. at 284-86.
32
Id. at 19-22, in Appellant’s App. at 286-89.
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them to the accounts of his entities, friends, or family members. 33 Gollehon
timely filed a notice appealing the bankruptcy court’s Order Denying Discharge
on July 7, 2014.
On appeal, Gollehon challenges only the bankruptcy court’s Order Denying
Dismissal. That order was not appealable when entered because an order denying
a Rule 12(b) motion to dismiss is interlocutory in nature.34 Gollehon does not
contend the bankruptcy court erred in any of its findings of fact or conclusions of
law that he is not entitled to a discharge based on his copious improprieties.
Instead, Gollehon attempts to resurrect his argument regarding Florado’s capacity
to once again avoid the consequences of his misdeeds by “cloaked . . . reliance on
corporate governance.” 35
II. APPELLATE JURISDICTION AND STANDARD OF REVIEW
This Court has jurisdiction to hear timely filed appeals from “final
judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit,
unless one of the parties elects to have the district court hear the appeal. 36
Neither party elected to have this appeal heard by the United States District Court
for the District of Colorado. The parties have therefore consented to appellate
review by this Court.
33
Id. at 22-24, in Appellant’s App. at 289-91. The bankruptcy court did not
deny Gollehon a discharge under § 727(a)(6) because Florado abandoned that
argument at trial.
34
Turi v. Main St. Adoption Servs., LLP, 633 F.3d 496, 500-01 (6th Cir.
2011); John E. Burns Drilling Co. v. Central Bank of Denver, 739 F.2d 1489,
1491-92 (10th Cir. 1984) (citing Catlin v. United States, 324 U.S. 229, 236 (1945)
(“[D]enial of a motion to dismiss, even when the motion is made on jurisdictional
grounds, is not immediately reviewable” under predecessor to § 1291.)). See also
15A Charles Alan Wright et al., Fed. Prac. & Proc. Juris. §§ 3914.1 & 3914.6 (2d
ed. 2014).
35
Order Denying Dismissal at 6, in Appellant’s App. at 187.
36
28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002; 10th Cir.
BAP L.R. 8001-3 (now at 10th Cir. BAP L.R. 8005-1, effective Dec. 1, 2014).
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A decision is considered final “if it ‘ends the litigation on the merits and
leaves nothing for the court to do but execute the judgment.’” 37 Here, the
bankruptcy court’s Order Denying Discharge terminated the adversary
proceeding, and therefore is final for purposes of review.
For purposes of standard of review, decisions by trial courts are
traditionally divided into three categories denominated: 1) questions of law,
which are reviewable de novo; 2) questions of fact, which are reviewable for clear
error; and 3) matters of discretion, which are reviewable for abuse of discretion. 38
The issues raised on appeal here are legal ones. De novo review requires an
independent determination of legal issues, giving no special weight to the
bankruptcy court’s decision. 39
III. ANALYSIS
Gollehon appeals the Order Denying Discharge, but the only error he
alleges is that the bankruptcy court did not dismiss the Complaint based on
Florado’s lack of capacity or authority to commence the adversary proceeding. In
a nutshell, Gollehon does not contest any of the bankruptcy court’s findings or
conclusions that he is not entitled to a discharge based on a wide range of
misconduct, but instead attempts to rehash the issue of Florado’s corporate
capacity to sue. Again, he argues that Florado did not have the requisite authority
under its Operating Agreement to bring the adversary proceeding. In response,
Florado initially contends that, for procedural reasons, Gollehon is barred from
appealing the bankruptcy court’s Order Denying Dismissal following trial and
final judgment. We agree with Florado’s contention and address it before turning
37
Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712 (1996) (quoting Catlin
v. United States, 324 U.S. 229, 233 (1945)).
38
Pierce v. Underwood, 487 U.S. 552, 558 (1988); Fowler Bros. v. Young (In
re Young), 91 F.3d 1367, 1370 (10th Cir. 1996).
39
Salve Regina Coll. v. Russell, 499 U.S. 225, 238 (1991).
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to Gollehon’s argument on the merits.
A. Procedural Bar to Challenging Lack of Capacity on Appeal
Florado argues Gollehon’s Motion to Dismiss is moot and that he failed to
preserve the corporate authority defense for purposes of appeal.40 Specifically,
Florado asserts “[i]n the Tenth Circuit, denial of a Motion to Dismiss for Failure
to State a Claim or a Motion for Summary Judgment is not reviewable on appeal
if the opposing party prevails at trial.”41 As explained below, while Florado’s
assertion is not categorically true, we believe it is applicable here and yields the
right result in this case.
In Whalen v. Unit Rig, Inc. (“Whalen”),42 the Tenth Circuit addressed the
appealability of a trial court’s alleged erroneous denial of summary judgment
subsequent to trial. It held that when a trial court denies a motion for summary
judgment based on factual disputes, and final judgment is entered following a
trial, the proper redress is not an appeal of the denial of summary judgment via
final judgment.43 Rather, a party should file a motion for judgment as a matter of
law in the trial court and seek appellate review of the denial of that motion. 44
However, the Tenth Circuit then recognized an exception to the Whalen rule in
Haberman v. Hartford Insurance Group (“Haberman”). 45
In Haberman, the Tenth Circuit held that “when the material facts are not
in dispute and the denial of summary judgment is based on the interpretation of a
40
Appellee’s Answer Brief at 13.
41
Id.
42
974 F.2d 1248 (10th Cir. 1992).
43
Id. at 1250-51.
44
Id.
45
443 F.3d 1257 (10th Cir. 2006).
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purely legal question, such a decision is appealable after final judgment.” 46
The Tenth Circuit has confirmed its Haberman ruling in recent decisions, 47 but
though it has been asked to do so, it has not extended the Haberman exception to
trial court orders denying motions to dismiss.
In ClearOne Communications, Inc. v. Biamp Systems (“ClearOne”), 48 the
trial court denied defendant’s motion to dismiss plaintiff’s misappropriation of
trade secrets action for failure to state a claim. Defendant’s motion to dismiss
was based on both a factual dispute and a legal argument. The case proceeded to
trial and the jury rendered a verdict in favor of plaintiff. On appeal, defendant
argued, among other things, that the district court erred in denying its motion to
dismiss.
The Tenth Circuit indicated it had not previously addressed the
appealability of a denial of a motion to dismiss following trial, but pointed to its
ruling in Whalen in the summary judgment context. It then noted the Fifth Circuit
had addressed the precise issue in Bennett v. Pippin,49 and that it was persuaded
by its reasoning. The Tenth Circuit held that
as a general rule, a defendant may not, after a plaintiff has prevailed
at trial, appeal from the pretrial denial of a Rule 12(b)(6) motion to
dismiss, but must instead challenge the legal sufficiency of the
plaintiff’s claim through a motion for judgment as a matter of law. 50
In ClearOne, defendant had filed a motion for judgment as a matter of law.
However, the Tenth Circuit concluded the trial court’s denial of the motion to
46
Id. at 1264. Other circuits have recognized the same exception. See, e.g.,
Feld v. Feld, 688 F.3d 779, 781-82 (D.C. Cir. 2012).
47
Stew. v. Beach, 701 F.3d 1322, 1328-29 (10th Cir. 2012); Copar Pumice
Co. v. Morris, 639 F.3d 1025, 1031 (10th Cir. 2011).
48
653 F.3d 1163 (10th Cir. 2011).
49
74 F.3d 578 (5th Cir. 1996).
50
ClearOne, 653 F.3d at 1172.
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dismiss was not properly before the court for consideration on appeal because
defendant did not assert the order denying dismissal was error in its motion for
judgment as a matter of law and did not appeal the trial court’s denial of that
motion. 51
Nevertheless, on appeal defendant asserted it “should be allowed, post-trial,
to appeal the pretrial denial of a Rule 12(b)(6) motion if the denial was based on
the resolution of a purely legal question.”52 In other words, defendant argued the
Tenth Circuit should create an exception for motions to dismiss like it did in
Haberman in the summary judgment context. But the Tenth Circuit declined to
address the argument because the district court’s “denial of [defendant’s] motion
to dismiss was based largely on its conclusion that additional factual development
was necessary, and [defendant] does not seek in this appeal to challenge the sole
legal conclusion reached by the district court in denying the motion to dismiss.” 53
In the case on appeal here, Gollehon did not move for judgment as a matter
of law at the close of Florado’s case based on lack of capacity or authority, and
nothing in the record suggests that he offered any evidence on the issue or
otherwise raised it at trial. In addition, Gollehon did not assert the defense in his
written closing argument,54 and made no post-trial motion of any kind. Now that
the bankruptcy court has denied Gollehon a discharge on numerous grounds
following a three-day trial, Gollehon wants another bite at the “capacity” apple.
As the Tenth Circuit has repeatedly explained, “[S]ummary judgment was not
intended to be a bomb planted within the litigation at its early stages and
51
Id.
52
Id.
53
Id. at 1172-73.
54
Defendant Ronald D. Gollehon’s Written Closing Argument, in Appellee’s
App. at 349.
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exploded on appeal.”55 This reasoning applies equally, if not more so, to
Gollehon’s Motion to Dismiss. Perhaps at some point in the future, the Tenth
Circuit will definitively rule that in limited instances a denial of a motion to
dismiss is appealable following trial and final judgment. But until such time, we
decline to push that boundary, especially given the facts of this case.
Even if there were an established exception to the post-trial reviewability
rule for motions to dismiss involving “purely legal issues,” this case would not
fall in that category. Although the bankruptcy court’s Order Denying Dismissal
is based primarily on the legal rules of prior adjudication, the basis of Gollehon’s
Motion to Dismiss was not a purely legal one. Gollehon contended Florado did
not have capacity to sue because it lacked requisite consent under its Operating
Agreement. That contention first involves interpretation of the Operating
Agreement to determine what consent was required, followed by factual
development regarding actual consent given. As explained by the United States
Supreme Court, cases fitting the “purely legal issue” criterion “typically involve
disputes about the substance and clarity of pre-existing law.”56 Gollehon’s
Motion to Dismiss simply does not fall within this narrow category.
Further, apart from whether Gollehon preserved the right to appeal denial
of his Motion to Dismiss, he waived any other challenge to capacity or authority
by not raising it at trial. Lack of capacity or authority is a defense the party
asserting it must raise; it is analogous to an affirmative defense. 57 An affirmative
55
ClearOne, 653 F.3d at 1171-72 (quoting Whalen v. Unit Rig, Inc., 974 F.2d
1248, 1251 (10th Cir. 1992)).
56
Ortiz. v. Jordan, 562 U.S. 180, 190 (2011).
57
5A Charles Alan Wright et al., Fed. Prac. & Proc. Civ. § 1295 (3d ed.
2014).
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defense is not preserved if the defendant never mentions it at trial. 58
Gollehon argues that lack of capacity or authority attacks plaintiff’s
standing and implicates the bankruptcy court’s subject matter jurisdiction, an
issue Gollehon can raise at anytime. We disagree. Capacity or authority to sue
based on corporate governance issues is not jurisdictional.59 Like any defense, an
ultra vires challenge must be raised and preserved or it is waived. Further, when
the defense is raised in the context of a motion to dismiss, Rule 12(b)(6), not
12(b)(1), applies.
Under Tenth Circuit law, no grounds exist to permit Gollehon to
successfully appeal the bankruptcy court’s ruling on Florado’s capacity or
authority to sue.
B. Action on a Judgment
Even were we to conclude the bankruptcy court’s Order Denying Dismissal
is reviewable at this stage despite any action on Gollehon’s part to preserve the
error, we reject the merits of his argument on appeal. We view Gollehon’s
challenge to Florado’s capacity in this adversary proceeding as an impermissible
collateral attack on the Judgment.
In its Order Denying Dismissal, the bankruptcy court ruled:
58
Cavic v. Pioneer Astro Indus., Inc., 825 F.2d 1421, 1425 (10th Cir. 1987)
(concluding appellant did not sufficiently preserve affirmative defense where
defense was listed in pretrial order but was not argued or mentioned by appellant
at trial). See also United States v. Rogers, 118 F.3d 466, 474 (6th Cir. 1997)
(defendant failed to preserve defense where he failed to raise the argument at trial
despite having raised it in pretrial motion to dismiss); Kraushaar v. Flanigan, 45
F.3d 1040, 1054 n.7 (7th Cir. 1995) (although issue was raised generally in final
pre-trial order, appellant waived the argument by not arguing the point at trial).
59
See Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 193-94 (2d Cir.
2003) (Rule 17 relates only to determination of proper parties and capacity to sue
and does not affect jurisdiction); Summers v. Interstate Tractor & Equip. Co., 466
F.2d 42, 50 (9th Cir. 1972) (question of litigant’s capacity or right to sue or to be
sued generally does not affect subject matter jurisdiction); Davis v. Lifetime
Capital, Inc., 560 F. App’x 477, 478 n.2 (6th Cir. 2014) (capacity is generally
considered an affirmative defense, not a jurisdictional issue).
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Among the arguments raised by Florado in its Response [to the
Motion to Dismiss], the most compelling and, in the Court’s view,
dispositive, is claim preclusion, otherwise referred to by the parties
as res judicata. Florado argues Gollehon is precluded from asserting
any argument it lacks the authority to sue Gollehon based on his
waiver of the argument in the underlying Arbitration. The Court
agrees. 60
Res judicata refers to case-law developed principles regarding former
adjudication. The purposes underlying these principles serve both private and
public interests by requiring disputes between parties and their privies to be
resolved within the context of a single litigation. 61 Thus, the United States
Supreme Court has observed that res judicata “has the dual purpose of protecting
litigants from the burden of relitigating an identical issue with the same party or
his privy and of promoting judicial economy by preventing needless litigation.” 62
“Res judicata ensures the finality of decisions” and “prevents litigation of all
grounds for, or defenses to, recovery that were previously available to the parties,
regardless of whether they were asserted or determined in the prior proceeding.” 63
Colorado has not specifically adopted the Restatement (Second) of
Judgments, but Colorado courts frequently cite to its provisions. 64 Section 18 of
the Restatement addresses the question presented in this appeal. It provides:
When a valid and final personal judgment is rendered in favor of the
plaintiff:
60
Order Denying Dismissal at 5, in Appellants’ App. at 186 (footnote
omitted).
61
See 18 Charles Alan Wright et al., Fed. Prac. & Proc. Juris. § 4403 (2d ed.
2014).
62
Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 (1979).
63
Brown v. Felsen, 442 U.S. 127, 131 (1979).
64
See, e.g., Stanton v. Schultz, 222 P.3d 303, 306 (Colo. 2010) (citing
Restatement (Second) of Judgments § 27); Michaelson v. Michaelson, 884 P.2d
695, 701 & n.7 (Colo. 1994)(citing Restatement (Second) of Judgments § 27);
Cont’l W. Ins. Co. v. Heritage Estates Mut. Hous. Ass’n, 77 P.3d 911, 916 (Colo.
App. 2003) (citing Restatement (Second) of Judgments § 18).
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(1) The plaintiff cannot thereafter maintain an action on
the original claim or any part thereof, although he may
be able to maintain an action upon the judgment; and
(2) In an action upon the judgment, the defendant cannot
avail himself of defenses he might have interposed, or
did interpose, in the first action. 65
As a prepetition judgment creditor, Florado is entitled to object to Gollehon’s
discharge pursuant to § 727(c)(1). Florado has done so in an effort to prevent its
Judgment against Gollehon from becoming meaningless. In this regard, we view
the adversary proceeding as in the nature of “an action upon the Judgment.”
Several other courts have also equated bankruptcy dischargeability
proceedings with an action on a judgment. In National Union Fire Insurance
Company v. Owenby (In re Owenby),66 a creditor obtained a default judgment
against debtor prior to debtor filing bankruptcy. Creditor brought an adversary
proceeding in debtor’s case and the bankruptcy court held creditor’s debt to be
nondischargeable pursuant to § 523(a)(2)(B). The district court affirmed. Debtor
appealed the district court’s order and the Ninth Circuit affirmed, opining that the
adversary action in bankruptcy was a timely action on the earlier judgment that
commenced its own ten-year enforcement period.67 According to the Ninth
Circuit,
An action on a judgment is the “customary way” to secure
enforcement of an out of state judgment. The doctrine that a
judgment creates it own cause of action is an entirely practical legal
device, the purpose of which is to facilitate the goal of securing
satisfaction of the original cause of action. In combination with the
doctrine of “merger,” whereby a cause of action is said to merge with
a judgment upon it such that only the judgment survives as a basis
for further litigation, the doctrine also provides a bar against attempts
65
Restatement (Second) of Judgments § 18 (1982).
66
42 F. App’x 59 (9th Cir. 2002).
67
Id. at 63.
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to opportunistically relitigate the same cause of action.” 68
Clearly, in the § 727 proceeding on appeal here, Florado is attempting to secure
satisfaction of the Judgment it obtained in the original cause of action, and
Gollehon should not be allowed to opportunistically relitigate matters already
concluded.
In Federal Trade Commission v. Wright (In re Wright),69 a Connecticut
bankruptcy court reached a similar conclusion regarding the nature of
dischargeability proceedings for res judicata purposes. The Wright court opined
that in the limited context of § 523(a)(7), res judicata may operate to require
summary judgment in favor of a governmental unit which obtained a prior
non-bankruptcy monetary judgment for civil penalties even if that judgment was
by default.70 It further stated, “because the Dischargeability Action can be
viewed as the ‘same claim’ as the District Court Action, the Defendant would
appear to be precluded under principles of res judicata from presently offering
any defenses which were available to him in the District Court Action.” 71 To
support its reasoning, the Wright court relied on Sure-Snap Corp. v. State Street
Bank and Trust Co.,72 a Second Circuit decision regarding res judicata in a
different bankruptcy context.
In Sure-Snap, a debtor-borrower filed for Chapter 11 relief and a plan of
reorganization was confirmed. Subsequent to confirmation, the debtor brought an
action in federal district court against lenders who had asserted claims in the
bankruptcy case. The district court determined that debtor’s failure to raise the
68
Id. (citations omitted).
69
194 B.R. 715 (Bankr. D. Conn. 1996).
70
Id. at 717.
71
Id. at 718.
72
948 F.2d 869 (2d Cir. 1991).
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lender liability claims during the bankruptcy barred it from litigating them in a
separate proceeding.73 The Second Circuit affirmed, holding that the bankruptcy
court’s order confirming the plan of reorganization was entitled to res judicata
effect. The Second Circuit stated that the test for deciding “sameness of claims”
requires that the same transaction, evidence, and factual issues be involved.
Further, the Second Circuit opined “[a]lso dispositive to a finding of preclusive
effect, is whether an independent judgment in a separate proceeding would
‘impair or destroy rights or interests established by the judgment entered in the
first action.’” 74
The bankruptcy court in Wright cited Sure-Snap, stating “because the result
of dischargeability litigation determines the continued enforceability of the prior
non-bankruptcy judgment, a judgment of dischargeability holds the prospect of
‘impair[ing] or destroy[ing] rights or interests established by the
[non-bankruptcy] judgment.’”75 Therefore, the Wright court concluded res
judicata principles would be applicable because it viewed the dischargeability
action as the same claim in the underlying district court action. Similarly, the
adversary litigation here involves the same transactions, evidence, and factual
issues as the state court action, and impacts the future enforceability of the prior
non-bankruptcy Judgment. The adversary is an action on the Judgment that seeks
to prevent a discharge order from destroying the rights established thereunder. As
a result, we believe the bankruptcy court correctly concluded Gollehon should not
be permitted to challenge Florado’s capacity in this adversary proceeding.
73
Id. at 874-75.
74
Id. at 874 (quoting Herendeen v. Champion Int’l Corp., 525 F.2d 130, 133
(2d Cir. 1975)).
75
In re Wright, 194 B.R. at 718.
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IV. CONCLUSION
Under Tenth Circuit law, no grounds exist to permit Gollehon to
successfully appeal the bankruptcy court’s denial of his Motion to Dismiss
following final judgment when he has done nothing to preserve that alleged error.
After a three-day trial, the bankruptcy court determined, on numerous grounds,
that Gollehon did not qualify as an honest but unfortunate debtor eligible for a
discharge and fresh start. To allow him to avoid this result by now resuscitating
his capacity argument would be inequitable.
Even if we thought the Order Denying Dismissal appealable, Gollehon’s
revival of his capacity argument would be problematic because his Motion to
Dismiss did not involve only purely legal issues. Further, we view Gollehon’s
dispute of capacity as an impermissible collateral attack on the Judgment
prohibited by the Restatement of Judgments § 18 because Florado’s adversary
litigation is in the nature of an action on a judgment. Therefore, the bankruptcy
court’s Order Denying Discharge is hereby affirmed.
JACOBVITZ, Bankruptcy Judge, concurring in part.
I concur with my colleagues except as to their conclusion that Gollehon’s
challenge to capacity or authority to sue was barred under the doctrine of res
judicata or claim preclusion.
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