Christo v. Padgett

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
______________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
AUGUST 25, 2000
No. 98-3577
THOMAS K. KAHN
______________________ CLERK
D.C. Docket No. 97-00320-5-CV
JOHN CHRISTO, JR., JOHN CHRISTO, III,
JAMES PHILLIP CHRISTO,
IRENE LAURETTE CHRISTO,
Plaintiffs-Appellants,
versus
KENNETH EARL PADGETT,
Defendant-Appellee.
___________________________________________________________
______________________
No. 98-3663
______________________
D.C. Docket No. 98-00038-5-CV-LAC
Bankruptcy Court No. 94-02031
IN RE: JOHN CHRISTO, JR.,
Debtor.
JOHN CHRISTO, JR.,
Plaintiff-Appellant,
versus
WILLIAM MILLER, Trustee,
Defendant-Appellee.
__________________________
Appeal from the United States District Court
for the Northern District of Florida
__________________________
(August 25, 2000)
Before BLACK, CARNES and KRAVITCH, Circuit Judges.
KRAVITCH, Circuit Judge:
As we embark on this appeal, we must, in the apt words of the district court,
“trudge down a long and winding road”1 that has as much to do with the extensive
history behind the original complaint as it does with the procedural complexities in
its wake. The appeal requires us to consider, as a matter of first impression in this
circuit, the interplay between the removal and remand statutes in relation to a
pending bankruptcy case as well as the extent of our ability to review remand
decisions in this context. We then evaluate the district court’s denial of a recusal
motion, its approval of a settlement agreement, and its grant of summary judgment
1
Order, Sept. 30, 1998, at 2, in R6, Tab 98.
2
on the ground of issue preclusion. We conclude that we are without jurisdiction to
review the district court’s decision not to remand to the state court; we affirm the
district court on all other grounds.2
I. BACKGROUND AND PROCEDURAL HISTORY
This appeal comes after a decade of civil, criminal, and bankruptcy
proceedings concerning the Christo family and their investments in Bay Bank &
Trust (“Bay Bank”). In the early 1990s, all of the outstanding stock of Bay Bank
was owned by Florida Bay Banks (“FBB”), a one-bank holding company. The
majority of FBB’s stock was owned by the J.C.J. Irrevocable Trust Agreement
(“J.C.J. Trust”) and the Bay Bank Company Employee Stock Ownership Plan
(“ESOP”). John Christo, Jr. (“Christo, Jr.”) established the J.C.J. Trust for the
benefit of his three children, John Christo, III (“Christo, III”), James Phillip
Christo (“Phillip Christo”), and Irene Christo. Christo, III was the Trustee of both
the J.C.J. Trust and the ESOP. All three Christo children owned additional shares
of common and preferred stock through the ESOP and individually. Christo, Jr.
individually owned approximately 97% of the preferred stock of FBB.
2
Carried with this appeal was Padgett’s motion to dismiss the appeal for want of jurisdiction
due to the Christos’ lack of standing to assert any claims that became property of the estate. This
argument is merely the obverse of the issues raised in this appeal as we would have had to
consider all of the issues addressed herein before determining whether the Christos had standing.
We therefore deny the motion to dismiss the appeal as moot.
3
FBB defaulted on a $4.5 million loan from SouthTrust Bank secured by all
of FBB’s stock in Bay Bank and guaranteed individually by Christo, Jr. Litigation
between the Christos and SouthTrust (“the SouthTrust litigation”) led to a
settlement agreement providing for a court-ordered sale of the Bay Bank stock.
The impending auction imperiled the Christos’ ongoing negotiation with Union
Planters Corporation (“Union Planters”) for a stock purchase of Bay Bank because
Union Planters could not complete its due diligence prior to the date of the auction,
and Union Planters was unsuccessful in postponing the auction for additional time
in which to consummate the deal.
The auction was scheduled for September 30, 1993. The night before the
auction, Christo, Jr. contacted a lifetime friend and former officer of Bay Bank,
Kenneth Earl Padgett, and asked him to attend the auction and purchase Bay Bank.
Christo, Jr. provided Padgett a cashier’s check for $250,000, cobbled from various
sources, to secure Padgett’s ability to bid. According to Christo, Jr., Padgett
attended the auction with the understanding that, if Padgett were the successful
bidder, he would assign his bid to Union Planters. Padgett refutes that such an
agreement ever existed and contends that, although he considered the purchase out
of respect for his friendship with Christo, Jr., his decision to bid on the auctioned
bank was for his profit alone.
4
At the auction, Padgett and SouthTrust were the major bidders for the Bay
Bank stock, and Padgett was the successful bidder with a final bid of $8.5 million.
Shortly after the auction, SouthTrust filed pleadings with United States District
Court Judge Lacey A. Collier, who had presided over the earlier SouthTrust
litigation and settlement. SouthTrust sought to set aside Padgett’s purchase on the
basis that he was merely a “strawman” for Christo, Jr., which would foreclose
regulatory approval, and also sought to re-auction the Bay Bank stock. The district
court conducted a contempt hearing on November 16, 1993, at which it directed
the Christo family, Padgett, and others to appear to show cause why they should
not be held in contempt of the court’s prior order directing the sale of the Bay Bank
stock. At that hearing, Padgett testified that he acted on his own, and denied that
there had ever been an agreement between he and the Christos concerning the
purchase of Bay Bank. The Christos did not present any contrary evidence. The
court denied SouthTrust’s motion to set aside the sale, but reserved ruling on the
motion for contempt.3
While Padgett awaited final regulatory approval for his purchase of Bay
Bank, Christo, Jr. filed a bankruptcy petition under Chapter 7 on February 16,
1994. In the petition, Christo, Jr. did not list as property of his estate any interest
3
It appears the district court never ruled on this motion.
5
in Bay Bank or any contractual rights with Padgett. In 1996, upon information
received from one of the Christo children, the Trustee in Christo, Jr.’s bankruptcy
case, William Miller, filed a four-count complaint against Padgett based on an
alleged breach of an oral contract to turn over control of Bay Bank to the Christos
(“the Miller litigation”). The Trustee voluntarily dismissed the two claims seeking
to enforce the alleged oral agreement and unsuccessfully litigated the remaining
claims. Miller initially filed a notice of intent to abandon the dismissed claims, but
Padgett objected. Miller and Padgett then reached a settlement agreement on all
claims relating to the sale of the Bay Bank stock; the settlement was contingent on
the court finding that the Trustee had succeeded to any claim relating to Padgett’s
alleged agreement to buy Bay Bank on behalf of the Christos.
On November 14, 1997, the Christo family filed a complaint against Padgett
in Florida state court in which they alleged that Padgett breached an oral contract
with Christo, Jr. to purchase Bay Bank at auction on their behalf (“the Christo
litigation”).4 Padgett removed the case to federal court, after which it was
transferred to Judge Collier. The Christo family moved to remand and for the
4
Padgett suggests that the Christos’ complaint should be barred by the statute of limitations
because they were first notified that he denied the existence of a contract in documents served on
November 12, 1993. Because there is some question about whether the documents were
received on that date, see Tr. of June 30, 1998 Hr’g at 121-23, in R11 (testimony of Irene
Christo), we would not affirm the district court’s dismissal on this basis.
6
judge’s recusal. The district court deferred ruling on the motion to remand but
denied the request for recusal.
After the Trustee and Padgett moved for the district court to approve the
settlement in the Miller litigation, Christo, Jr. objected, and the court held an
evidentiary hearing, applicable to both the Miller and Christo litigations,
concerning any alleged agreement between Padgett and the Christo family. In a
July 13, 1998 Order, the court found that there was no enforceable agreement, and
that even if there were, it would only have been between Padgett and Christo, Jr.,
in which case Christo, Jr.’s interest in the agreement would have passed to his
bankruptcy estate. The district court then referred the proposed settlement to the
bankruptcy court for a Report and Recommendation on whether, in light of the
district court’s findings, the proposed settlement was in the best interest of Christo,
Jr.’s estate.
On October 1, 1998, the district court denied the Christos’ earlier motion to
remand and dismissed their civil lawsuit on grounds of issue preclusion based on
its findings in the July 13 order. The bankruptcy court recommended approving
the proposed settlement and, on October 22, 1998, the district court adopted the
recommendation and approved the settlement between Padgett and the Trustee.
7
We hear this matter on a consolidated appeal.5
II. DISCUSSION
A. Removal and Remand
In response to the Christos’ state court complaint, Padgett timely sought
removal to the United States District Court for the Northern District of Florida,6
where Christo, Jr.’s bankruptcy case was pending; the Christos responded with a
motion to remand.7 In their remand motion, the Christos requested both that the
district court abstain as mandated by 28 U.S.C. § 1334(c)(2), and remand on
5
Although the district court consolidated the two causes of action for the purpose of different
oral arguments, see Order, Jan. 6, 1998, in R1, Tab 16; Order, Jan. 29, 1998, in R2, Tab 42, it
ultimately denied Padgett’s motion to consolidate as moot after it dismissed the Christos’
complaint, see Order, Sept. 30, 1998, in R6, Tab 94.
6
Courts have split on whether 28 U.S.C. § 1446(b) (governing removals generally) or
Bankruptcy Rule 9027 provides the appropriate time period for filing a notice of removal in
cases related to a bankruptcy proceeding. See Hon. Thomas B. Bennett, Removal, Remand, and
Abstention Related to Bankruptcies: Yet Another Litigation Quagmire!, 27 Cumb. L. Rev. 1037,
1057-59 (1997). Under either provision, however, Padgett’s removal, sought within 30 days,
was timely. See id.7
It is less clear whether the Christos’ remand motion, filed 38 days after the Notice of
Removal, was timely because the statute does not define “timely,” and the Bankruptcy Rules
provide no guidance on this issue. Courts appear to have adopted a case-by-case approach. See,
e.g., Adams v. Grand Traverse Band of Ottawa & Chippewa Indians Econ. Dev. Auth. (In re
Adams), 133 B.R. 191, 195 (Bankr. W.D. Mich. 1991) (remand sought 21 days after removal
was timely); Strutz v. Hoechst Celanese Corp. (In re United States Brass Corp.), 173 B.R. 1000,
1004 (Bankr. E.D. Tex. 1994) (remand motion filed 13 days after removal was timely); Waugh
v. Eldridge (In re Waugh), 165 B.R. 450, 452 (Bankr. E.D. Ark. 1994) (unexcused delay of four
months after removal was not timely). Padgett has not challenged the timeliness of the remand
motion and we will assume, without deciding, that a motion for remand filed 38 days after
removal is timely for purpose of § 1334.
8
prudential grounds as warranted by 28 U.S.C. § 1452. Section 1334 provides
district courts with “original and exclusive jurisdiction of all cases under title 11"
and “original but not exclusive jurisdiction of all civil proceedings arising under
title 11, or arising in or related to cases under title 11.” 28 U.S.C. §§ 1334(a) & (b)
(2000). Section 1452 provides that “[a] party may remove any claim or cause of
action in a civil action . . . to the district court for the district where such civil
action is pending, if such district court has jurisdiction of such claim or cause of
action under section 1334 of this title.” Id. § 1452(a).
1. Does Mandatory Abstention Apply in Removed Cases?
As an initial matter, we address a controversy that has arisen among other
courts: whether mandatory abstention under § 1334(c)(2) applies to cases removed
under § 1452. Several courts, focusing on § 1334(c)(2)’s requirement that “an
action is commenced, and can be timely adjudicated, in a State forum of
appropriate jurisdiction,” have concluded that a parallel state court proceeding is a
prerequisite of mandatory abstention. Under this interpretation, once a state law
action is removed, there no longer remains an action “commenced . . . in a State
forum.” See, e.g., Southern Marine & Indus. Servs., Inc. v. AK Eng’g, Inc. (In re
AK Servs., Inc.), 159 B.R. 76, 83-84 (Bankr. D. Mass. 1993); Paul v. Chemical
Bank (In re 666 Assocs.), 57 B.R. 8, 12 (Bankr. S.D.N.Y. 1985).
9
The vast majority of courts, however, have concluded to the contrary on the
reasoning that the removed state law action has been “commenced” and, upon
remand, would remain capable of timely adjudication in state court. See
Southmark Corp. v. Coopers & Lybrand (In re Southmark Corp.), 163 F.3d 925,
929 (5th Cir. 1999); Robinson v. Michigan Consol. Gas Co., 918 F.2d 579, 584 n.
3 (6th Cir. 1990); Williams v. Shell Oil Co., 169 B.R. 684, 690-92 (S.D. Cal.
1994); Baxter Healthcare Corp. v. Hemex Liquidation Trust, 132 B.R. 863, 869 n.7
(N.D. Ill. 1991). In our view, this latter interpretation better comports with the
plain language of § 1334(c)(2) as well as Congress’s intent that mandatory
abstention strike a balance between the competing interests of bankruptcy and state
courts. See 130 Cong. Rec. S8,8889 (daily ed. June 29, 1984) (statement of Sen.
Dole) (describing the original mandatory abstention provision as a compromise
between the House and Senate “that preserved the integrity of bankruptcy
jurisdiction while allowing abstention for personal injury cases where they can be
timely adjudicated in State courts”). We therefore hold that § 1334(c)(2) applies to
state law claims that have been removed to federal court under § 1452(a).
2. Review of the District Court’s Remand Decision
Section 1334(c)(2), enacted in the Bankruptcy Amendments and Federal
10
Judgeship Act of 1984, Pub. L. No. 98-353, July 10, 1984, 98 Stat. 333, originally
provided that “[a]ny decision to abstain made under this subsection is not
reviewable by appeal or otherwise.” In 1990, Congress amended section
1334(c)(2) to remove appellate review from all decisions to abstain or not to
abstain. See Collier on Bankruptcy § 3.05[6][a] (Lawrence P. King, ed. 15th rev.
ed. 2000). With the Bankruptcy Reform Act of 1994, Congress renumbered §
1334 and recreated appellate review only for those decisions by a district court not
to abstain under § 1334(c)(2), the new mandatory abstention provision. See 28
U.S.C. § 1334(d) (2000). The Christos argue that the district court was required to
abstain under § 1334(c)(2) because: (1) he made a timely motion to remand; (2) in
a proceeding based upon a state law claim or state law cause of action; (3) that was
related to a case under title 11 but not arising under title 11 or arising in a case
under title 11; (4) which could not have commenced in federal court absent
jurisdiction under § 1334; and (5) which has been commenced and can be timely
adjudicated in a state forum of appropriate jurisdiction.
Before we consider whether the elements of mandatory abstention were
present, we must first determine whether § 1334(d), which would grant us power to
make that consideration, applies in this case. Section 1334(d) was one of many
amendments to the bankruptcy code in the 1994 Act. The 1994 Act provided that
11
its amendments to the Code were, with limited exception, prospective and therefore
would apply only to cases filed after the effective date of the Act, October 22,
1994. As applied to § 1334(d), the legislative history is clear that:
subsection (b) operates prospectively and applies only to cases filed after
the effective date of the Act. Accordingly, it does not make existing
orders appealable. Any future decisions not to abstain, if made in cases
filed before the effective date of the Act, would [] be governed by
present law and thus would not be appealable to the Circuit Court of
Appeals.
H.R. Rep. No. 103-835 at 37. What is less clear, however, is whether the term
“cases” as used in the Act and its history refers to the bankruptcy case or the civil
case which was removed. Because Christo, Jr.’s bankruptcy petition was filed
before the October 22, 1994 enactment date, and his civil case filed after, this
distinction is critical to our determination of our jurisdiction to review the district
court’s remand decision.
Although at first blush the civil case would appear to be the determining
case, the language used throughout the Act suggests otherwise. The 1994 Act
consistently, even if not constantly, denotes the original bankruptcy case filed
under Title 11 as “case” and applies other terms, such as “proceedings” or
“actions,” to other causes of action. This practice dates back to the original
Bankruptcy Act of 1978, in the which the term “case” referred to the original
bankruptcy petition. See Young v. Sultan Ltd. (In re Lucasa Int'l Ltd.), 6 B.R. 717,
12
719 n.5 (Bankr. S.D.N.Y. 1980) (“In the context of the jurisdictional grants given
by the 1978 statute, the word ‘case’ refers to the commencement of a bankruptcy
by the filing of a petition by a debtor under Sections 301-303 [of the Bankruptcy
Code]”); Hon. Roy Babitt, The Bankruptcy Court, Its Judges, Their Jurisdiction
and Powers and Appeals, Under Title II of the 1978 Bankruptcy Reform Act:
Transition and Beyond, 1979 Ann. Surv. Bankr. L. 89, 103 (emphasizing “that the
word ‘case’ here means the commencement of the Bankruptcy Court's judicial and
administrative process from the filing of the petition”), quoted in Ralph Brubaker,
On the Nature of Federal Bankruptcy Jurisdiction: A General Statutory and
Constitutional Theory, 41 Wm. & Mary L. Rev. 743, 941 n.359 (2000).
Further support derives from the assumption, albeit without discussion, by
most courts and commentators that the filing of the bankruptcy case determines the
applicability of the 1994 Act. See In re Southmark, 163 F.3d at 928-29; Security
Farms v. International Broth. of Teamsters, 124 F.3d 999, 1009 n.9 (9th Cir. 1997);
Collier on Bankruptcy, supra, § 3.05[6][a]. But cf. Schuster v. Mims (In re Rupp
& Bowman Co.), 109 F.3d 237, 238-39 (5th Cir. 1997) (using date of amended
state law claim to determine when § 1334(d) governs). Finally, the Act’s
application provision states unequivocally that “the amendments made by this Act
shall not apply with respect to cases commenced under Title 11 of the United States
13
Code before the date of the enactment of this Act.” The Bankruptcy Reform Act of
1994, Pub. L. No. 103-394, § 702(b), 108 Stat. 4106, 4150 (emphasis added).
Based on the foregoing, we conclude that the date on which the original
bankruptcy case was filed under Title 11 of the United States Code determines
whether § 1334(d) applies. Because Christo, Jr. filed his bankruptcy petition on
February 16, 1994, several months before the effective date of the 1994 Act,
section 1334(d) does not apply; we therefore are without jurisdiction to review the
district court’s decision not to remand under § 1334(c)(2).8
B. Motion to Recuse
Shortly after the Christos’ state law claims were transferred to Judge Collier,
the Christos moved for his recusal pursuant to 28 U.S.C. § 144. The judge denied
the motion after considering both 28 U.S.C. §§ 144 and 455.9 We review a district
court’s refusal to recuse for abuse of discretion. See Diversified Numismatics, Inc.
v. City of Orlando, 949 F.2d 382, 384-85 (11th Cir. 1991); United States v.
8
Nor would we have power to review a declination of remand on any other grounds. The
review afforded under § 1334(d) does not apply to § 1334(c)(1), which provides for
discretionary remand, and decisions not to remand for equitable reasons pursuant to § 1452 are
“not reviewable by appeal or otherwise by the court of appeals under section 158(d), 1291, or
1292 of this title.” 28 U.S.C. § 1452(b) (2000).
9
The judge, noting that no motion was required, considered sua sponte whether it was
appropriate to recuse himself under 28 U.S.C. § 455. See Order, Jan. 28, 1998, at 4, in R2, Tab
41.
14
Meester, 762 F.2d 867, 885 (11th Cir. 1985).10
Section 144 provides:
Whenever a party to any proceeding in a district court makes and files a
timely and sufficient affidavit that the judge before whom the matter is
pending has a personal bias or prejudice either against him or in favor of
any adverse party, such judge shall proceed no further therein.
28 U.S.C. § 144 (2000). To warrant recusal under § 144, the moving party must
allege facts that would convince a reasonable person that bias actually exists. See
Phillips v. Joint Legislative Comm. on Performance & Expenditure Rev., 637 F.2d
1014, 1019 n.6 (5th Cir. Unit A Feb. 1981).11 Properly pleaded facts in a § 144
affidavit must be considered as true. See id. at 1019.
Section 455 requires that a judge disqualify himself “in any proceeding in
which his impartiality might reasonably be questioned” or “[w]here he has a
personal bias or prejudice concerning a party.” 28 U.S.C. §§ 455(a) & (b)(1)
(2000). Under § 455, the standard is whether an objective, fully informed lay
observer would entertain significant doubt about the judge’s impartiality. See
United States v. Kelly, 888 F.2d 732, 744-45 (11th Cir. 1989).
10
Padgett suggests that the Christos should have sought review of the judge’s refusal to
recuse by writ of mandamus; recusal orders, however, are reviewable on appeals from final
judgment. See Diversified Nurismatics, 949 F.3d at 384.
11
Decisions of the former Fifth Circuit issued prior to October 1, 1981, are binding precedent
on this court. See Bonner v. City of Prichard, 661 F.2d 1206, 1207 (11th Cir. 1981).
15
In his affidavit supporting the recusal motion, Christo, Jr. emphasizes two
examples of Judge Collier’s alleged bias: (1) his disparaging remarks concerning
the Christos’ “Never” campaign;12 and (2) his sentencing, which was later reversed
on appeal, of Christo, III on an erroneous conviction for money laundering.13
Neither of these grounds warranted Judge Collier’s recusal. As for the
judge’s statements concerning the “Never” campaign, the Supreme Court has held
that “judicial remarks . . . that are critical or disapproving of, or even hostile to,
counsel, the parties, or their cases, ordinarily do not support a bias or partiality
challenge. They may do so if they reveal an opinion that derives from an
extrajudicial source; and they will do so if they reveal such a high degree of
12
The “Never” public relations campaign represented the Christo family’s opposition to
SouthTrust (or any other “outsider”) obtaining control of Bay Bank as a result of SouthTrust’s
foreclosure. During the November 16, 1993, contempt hearing, Judge Collier referred to the
“Never” campaign several times. As illustration, Christo, Jr. cites Judge Collier’s statement that:
Anyone who uses court proceedings for personal endeavors or publicity advantage
to me is engaged in contemptuous conduct, and this court will not be used to further
any personal agenda by anyone, either side. The court process is simply not to be a
part of any circus whatsoever. Press conferences to file lawsuits, to have Never
campaigns, use the court in that campaign certainly is borderline conduct for any
party that is before the court, and it will simply not be tolerated.
Christo, Jr. Aff. ¶ 14, in R1, Tab 34.
13
On appeal, this court found insufficient evidence of money laundering and remanded with
instructions to sentence Christo, III for a lesser offense. See United States v. Christo, 129 F.3d
578, 581 (11th Cir. 1997). It bears mention, however, that Judge Collier also awarded Christo,
Jr. an extremely light sentence for his conviction of conspiracy to defraud a bank. See Christo,
Jr. Dep. at 27, in R3, Tab 67, Ex. 2.
16
favoritism or antagonism as to make fair judgment impossible.” Liteky v. United
States, 510 U.S. 540, 555, 114 S. Ct. 1147, 1157 (1994). Evidence of the “Never”
campaign was, among other things, presented to the court in newspaper articles
attached to filed motions,14 and there is no evidence that Judge Collier formed an
opinion about the campaign based on extrajudicial sources. In addition, Judge
Collier’s admonition that the court would not be used to further the personal
agenda of either party reveals no improper partiality or hostility to either party.
Nor did Judge Collier’s occasional expressions of frustration with the Christo
family warrant recusal.15 See Hamm v. Members of Bd. of Regents, 708 F.2d 647,
651 (11th Cir. 1983) (“Neither a trial judge's comments on lack of evidence,
rulings adverse to a party, nor friction between the court and counsel constitute
pervasive bias.”). Indeed, in light of the somewhat arduous path this litigation has
followed, Judge Collier demonstrated commendable equanimity during all
14
See Tr. of Nov. 16, 1993 Hr’g at 25, in R1, Tab 13, Ex. 1. Judge Collier mentioned this
during oral argument on the recusal motion. See Tr. of Jan. 23, 1998 Hr’g at 16, in R9, Tab 48.
15
The Christos’ chief example is Judge Collier’s remark at the November 16, 1993, contempt
hearing:
[A]t the outset, the Court wants to make it crystal clear to all involved in this case,
parties and counsel, that it intends to get to the bottom of this mess, including the
question of whether Mr. Padgett’s purchase of the stock was a legitimate purchase,
or whether he was merely a “strawman” for the Christos, and rue the day should the
Court discover that the transaction was a sham.
Christo, Jr. Aff. ¶ 5, in R1, Tab 34.
17
proceedings.
We also reject the suggestion that the judge’s prior sentencing of Christo, III
and his having presided over other litigation involving the Christo family required
his recusal from this case. Although Judge Collier had heard the evidence leading
to Christo, III’s conviction, there is nothing in Christo, Jr.’s affidavit that would
cast doubt on Judge Collier’s impartiality. The mere fact of having presided over
previous criminal or civil trials involving the same parties does not mandate
recusal from all future litigation involving those parties. See Steering Comm. v.
Mead Corp. (In re Corrugated Container Litig.), 614 F.2d 958, 964 (5th Cir. 1980);
see also Jaffe v. Grant, 793 F.2d 1182, 1189 n.4 (11th Cir. 1986) (“Factual
knowledge gained during earlier participation in judicial proceedings involving the
same party is not sufficient to require a judge's recusal.”).
C. Approval of Settlement Agreement
The proposed settlement between Miller and Padgett provided for: (1) a
general and mutual release of all claims among all parties (e.g., Padgett’s claims
for sanctions and abuse of process for Miller’s former suit to enforce the purported
contract with Christo, Jr., and Miller’s ability to revive that same suit); (2) Bay
Bank’s subordination of all but one of its claims against the estate; and (3) a
payment by Padgett and/or Bay Bank to the estate of $10,000-$15,000, depending
18
on the costs associated with the settlement. The agreement also called for
declarations that Christo, Jr. alone owned any cause of action against Padgett for
his purchase of the Bay Bank stock, that any cause of action had been transferred
to the Trustee, and that no third parties would be able to pursue such a cause of
action.16
Based on the evidence presented at the June 30, 1998 hearing, the district
court made the following preliminary findings: (1) that there was never an
agreement between Christo, Jr. and Padgett for Padgett to purchase the Bay Bank
stock at the foreclosure sale on behalf of the Christos; (2) that even if there had
been an agreement, it was solely between Christo, Jr. individually and Padgett; and
(3) that any claim Christo, Jr. might have had was transferred to the Trustee as part
of the bankruptcy estate.17 The district court then referred the settlement agreement
to the bankruptcy court to determine whether, in light of its findings, the proposed
settlement was in the best interests of the estate.
The bankruptcy court cited the relevant factors when reviewing a proposed
settlement agreement: (1) the probability of success in litigation; (2) the difficulties
to be encountered in collection; (3) the complexity, expense, inconvenience, and
16
See Settlement Agreement at 7-9, in R7, Tab 9.
17
See Order, July 13, 1998, at 3-4, in R7, Tab 14.
19
delay involved in the litigation; and (4) the paramount interest of the creditors. See
Wallace v. Justice Oaks II, Ltd. (In re Justice Oaks II, Ltd.), 898 F.2d 1544, 1549
(11th Cir. 1990). The bankruptcy court found that these four factors weighed in
favor of approving the settlement.18 Although the bankruptcy court noted the
district court’s finding that there was no enforceable contract between Christo, Jr.
and Padgett, it found that Padgett and Bay Bank’s opposition to the Trustee’s
abandonment of those claims to the Christos suggested that success on those claims
was not out of the question. And although the bankruptcy court foresaw no
difficulty in collection, it found that the complexity and expense involved in
litigation were likely to be considerable. Most importantly, the bankruptcy court
emphasized that approval of the settlement would allow the creditors, who had
been waiting for four years, to be paid, and recommended approving the
settlement.19 The district court adopted the recommendation.20
The Christos challenge the settlement agreement as illegal and spurious.
Arguing that all claims but Bay Bank’s were “shams,” the Christos contend that
Padgett used the agreement to misapply Bay Bank’s fund for his own benefit, and
18
See Report & Recommendation at 5, in R8, Tab 23.
19
See id. at 4-5.
20
See Order, Oct. 22, 1998, in R8, Tab 24.
20
charge the Trustee as a possible abettor. In response, Padgett questions the
Christos’ standing either to contest the legality of the Trustee’s decisions or to
purport to speak on Bay Bank’s behalf. Padgett also maintains the legality and
propriety of the settlement agreement.21 We review an approval of a settlement
agreement under the abuse of discretion standard. See Leverso v. SouthTrust Bank
of Ala., 18 F.3d 1527, 1531 (11th Cir. 1994).22
We agree with Padgett that the Christos lack standing to assert Bay Bank’s
interest. Whether the Christos have standing to challenge the settlement agreement
on any other grounds depends, in turn, on whether they had an agreement with
Padgett. If such an agreement existed, any party to that agreement would have
standing to protect his or her pecuniary interest in it. If there was no agreement
between Padgett and the Christos, however, then the Christos would have no basis
to challenge approval of the settlement agreement between Padgett and Miller.
Turning first to the terms of the agreement, we cannot agree with the
21
Padgett argues that the Christos waived their illegality argument by failing to raise it
below. Although the Christos did not contest the agreement’s legality in their response to
Padgett’s motion to approve the settlement, they did raise this issue during the June 30, 1998,
evidentiary hearing, see Tr. of June 30, 1998 Hr’g at 33, in R11, and in their subsequent motion
for reconsideration of the court’s July 13, 1998 order, filed several months before the district
court’s order approving the settlement. See Mem. of Law in Supp. of Mot. for Reh’g and
Recons. at 19, in R7, Tab 18.
22
The Christos suggest that a settlement agreement is a contract and therefore should be
reviewed de novo; this court is not interpreting the settlement agreement, however, but rather
deciding whether it was properly approved.
21
Christos’ characterization of the settlement agreement as possibly “the most self-
serving document ever drafted.”23 Even if the likelihood of Padgett succeeding in
his claim for sanctions against Miller was slight, the bankruptcy court correctly
noted that defense of any litigation, even that which is frivolous, is both time-
consuming and costly.24 Based on the findings of the district court, approving the
settlement agreement was not an abuse of discretion.
This leaves the question of the propriety of the district court’s findings upon
which approval of the agreement was predicated. We review a district court’s
factual findings for clear error and its conclusions of law de novo. See General
Trading Inc. v. Yale Materials Handling Corp., 119 F.3d 1485, 1494 (11th Cir.
1997). The district court noted that there was some evidence of an agreement
between Christo, Jr. and Padgett, but it concluded that this evidence was “not
credible and deserves no weight.”25 The district court further found that, even if
there had been an agreement, there was no evidence that the agreement had been
23
Pls.’ Mem. of Law in Resp. to Def.’s Mot. to Dismiss and Opp’n to Approval of
Settlement Agreement at 7 n.5, in R7, Tab 10.
24
See Report & Recommendation at 5, in R8, Tab 23. Although the Christos dismiss the
claim for sanctions with the observation that “[s]o rarely are sanctions awarded it is a wonder
that any but the least experienced and most ill-prepared trial attorney gives the threat a second
thought,” Pls.’ Mem. of Law in Resp. to Def.’s Mot. to Dismiss & Opp’n to Approval of
Settlement Agreement at 8 n.6, in R7, Tab 10, we cannot agree that claims for sanctions carry so
little force.
25
Order, July 13, 1998, at 4, in R7, Tab 14.
22
between anyone other than Padgett and Christo, Jr..
After review of the record, we cannot say these findings were clearly
erroneous. At the June 30, 1998, hearing, Christo, Jr., Phillip Christo, and Irene
Christo26 all testified that Padgett had agreed to bid on the Bay Bank stock with the
understanding that he would then assign his bid to Union Planters. None of them
were able to articulate the particulars of this agreement, or explain what would
happen if Union Planters no longer wanted the bank after Padgett bought it.
The other evidence of the agreement found in the record comes primarily from
Christo, Jr.’s own, often inconsistent, testimony, although there is also evidence
from Phillip Christo;27 Irene Christo;28 Frank Wood, a former executive of Union
Planters and later officer of Bay Bank and fiancé of Irene Christo;29 Charles Hilton,
frequent borrower from Bay Bank and erstwhile counsel to both Christo, Jr. and
Padgett,30 and Benjamin W. Rawlins, Jr., Chairman of the Board of Union
26
Christo, III did not testify at the hearing.
27
See Phillip Christo Aff. ¶ 13, in R5, Tab 84.
28
See Irene Christo Aff. ¶ 12, in R6, Tab 89.
29
See Wood Aff. ¶ 9, in R6, Tab 89.
30
See Hilton Aff. ¶ 5, in R5, Tab 84.
23
Planters.31 Close examination of their testimony, however, reveals that their
knowledge of the agreement came almost exclusively from inferences and
statements from Christo, Jr.32 Indeed, throughout Christo, Jr.’s deposition
testimony, he provided scant corroboration of his version of events.33
In addition, we agree with the district court that the evidence presented at the
June 30 evidentiary hearing suggested, at most, that Christo, Jr. and Padgett
negotiated and perhaps arranged for Padgett to purchase Bay Bank for assignment
to Union Planters. First, Miller testified that none of the Christo children advised
31
See Rawlins Dep. at 62, in R5, Tab 85.
32
See Irene Christo Aff. ¶ 15 (“[Padgett] and my father then went into the next room alone
for the purpose of discussing the changes in the side deal between Defendant Padgett and the
Christo family. . . .”), ¶ 16 (“[Christo, Jr.] said that Defendant Padgett would bid on the Bay
Bank stock and then assign the bid to Union Planters or to another purchaser.”), in R6, Tab 89;
Wood Aff. ¶ 9 (“[Padgett] and [Christo, Jr.] then went into the next room alone for the purpose
of discussing the changes in the side deal between Defendant Padgett and the Christo family. . .
.”), ¶ 10 (“[Christo, Jr.] said that Defendant Padgett would bid on the Bay Bank stock and then
assign the bid to Union Planters or to another purchaser.”), in R6, Tab 89; Hilton Aff. ¶ 5 (“It
was clearly inferred that Padgett had decided not to sell the bank to a third party (pursuant to
what I understood was his prior agreement with the Christo family), but rather to compensate the
Christo family in cash for their equity in Bay Bank); Rawlins Dep. at 73 (“My perception is that
Mr. Christo thought there was some sort of agreement between he and Padgett.”), 109 (“I got the
impression that Mr. Padgett was his own man.”), in R5, Tab 85.
There is also documentary evidence of negotiations between Padgett and Union Planters
for the Bay Bank Stock, but they do not necessarily reflect that such negotiations were at the
behest of Christo, Jr.. See R4, Tab 71, Ex. F.
33
See Christo, Jr. Dep. at 48-49, 51, 78, 97-98, in R3, Tab 67, Ex. 2.
24
him of any cause of action they might have had against Padgett.34 Second,
although Phillip Christo testified that Padgett had agreed to buy Bay Bank on his
behalf, he admitted that he relied on his father’s word for that opinion.35
Moreover, throughout his testimony, Phillip Christo refers to the agreement as
Padgett and Christo, Jr.’s.36 Third, Irene Christo admitted that she had never
discussed the agreement with Padgett even though she had successfully sought
reimbursement from Padgett for her portion of the $250,000 auction payment.37
And although Irene Christo testified “I just know in my heart for him [sic] to get
the bank at 8.5 million and for the deal that he had with my father to assign the
stock over, that he didn’t fulfill his part of the bargain,” she conceded that she
never made a demand against Padgett.38 Finally, Padgett testified that he had never
had any discussion with the Chisto children regarding an agreement to purchase
34
See Tr. of June 30, 1998 Hr’g at 16, in R11 (“[O]ne of th[e Christo children] made
mention that there was a deal between Mr. Christo and Mr. Padgett for Mr. Padgett to go and bid
on behalf of Mr. Christo.”); 21 (“From the testimony we had gotten before we filed suit all
evidence pointed if [sic] there was an agreement it was Mr. Christo’s agreement with Mr.
Padgett . . . .”).
35
See id. at 138-39, 140.
36
See id. at 160 (“[T]here was an agreement between [Padgett] and dad”); 149 (“I felt like
that [sic] Mr. Padgett would honor his agreement with my dad . . . .”).
37
See id. at108-09.
38
Id. at 110.
25
Bay Bank on their behalf.39
Reviewing this record, there is simply no evidence that was ever an
agreement between Padgett and anyone other than Christo, Jr. himself.40 Even
though the Christo children would obviously have benefitted financially from
Padgett’s sale of Bay Bank to Union Planters, this, without more, does not confer
on them the right to pursue a cause of action for breach of contract against Padgett.
Because any cause of action would have belonged solely to Christo, Jr., that cause
of action became property of the estate when he filed his petition for bankruptcy.
See 11 U.S.C. § 541(a)(1) (2000); Meehan v. Wallace (In re Meehan), 102 F.3d
1209, 1210 (11th Cir. 1997). Christo, Jr. stood silently by when the Trustee filed
suit against Padgett for breach of contract, and then sought to assert the same
claims after the Trustee voluntarily dismissed them.41 This he may not do.
Christo, Jr. nevertheless contends that the district court should not have
39
See id. at 79.
40
See also note 33, supra.
41
Christo, Jr. emphasizes that Miller, deeming the dismissed claims worthless, abandoned
them and that, because the claims had been dismissed without prejudice, that Christo, Jr. was
later free to pursue those abandoned claims. At Padgett’s request, Miller filed a notice seeking
to abandon his earlier dismissed claims against Padgett, see Notice of Intent to Abandon Counts
III and IV of Lawsuit, in R3, Tab 67, Ex. 12, but after Padgett’s objection, filed an amended
notice in which Miller explained that Christo, Jr. could not pursue the dismissed claims because
the dismissal had resolved those claims or because Christo, Jr. was barred by the automatic stay,
see Trustee’s Amendment and Clarification of His Notice of Abandonment Dated January 15,
1998, at 4-5, in R3, Tab 67, Ex. 13.
26
weighed the evidence when there was an outstanding motion for summary
judgment and demand for a jury trial in the Christo litigation. The district court
made the contested factual findings in the Miller litigation, however, litigation in
which the Christos never attempted to intervene. The judge ordered a hearing on
the issues underlying both the Miller and Christo litigations and invited all
interested parties to present evidence.42 The district court’s factual findings, made
in the Miller litigation, were not clearly erroneous. In any event, summary
judgment would have been appropriate on the Christos’ claims in light of the
dearth of evidence that anyone other than Christo, Jr. would have had a viable
claim against Padgett.
D. Motion to Dismiss
In its July 13, 1998, order, the district court made preliminary findings that
no agreement existed between Christo, Jr. and Padgett regarding the purchase of
Bay Bank and that, even if such an agreement had existed, Christo, Jr. acted solely
on his own behalf and therefore any claim of his against Padgett became the
property of his bankruptcy estate.43 Based on these findings, the district court later
dismissed the Christos’ breach of contract suit against Padgett on the grounds of
42
See Order, June 15, 1998, at 2, in R7, Tab 11.
43
See Order, July 13, 1998, at 3-4, in R7, Tab 14.
27
issue preclusion. In the alternative, the court determined that summary judgment
would be appropriate.
The Christos argue that the July 13 order cannot have preclusive effect
because it was not a final judgment. Technically, the Christos’ assessment of the
July 13 order is correct. The order’s introductory paragraph reads in part, “[t]he
Court now makes preliminary findings on issues which are conditions to the
proposed settlement . . . .”44 The Christos, emphasizing the need for finality,
contend a judgment is final only when appealable under 28 U.S.C. § 1291. The
only cases cited by the Christos defining the finality requirement for preclusion,
however, involve claim preclusion. See In re Justice Oaks II, Ltd., 898 F.2d at
1549-50; First Ala. Bank of Montgomery, N.A. v. Parsons Steel, Inc., 825 F.2d
1475, 1481 (11th Cir. 1987).45 This case, by contrast, involves issue preclusion;
the court stated that all the facts and questions essential for the Christos’ breach of
contract claims were decided in the July 13 Order.46
44
Order, July 13, 1998, at 1, in R7, Tab 14 (emphasis added).
45
The First Alabama Bank court’s observation that “[n]onappealable final orders are not
entitled to collateral estoppel or res judicata effect,” see 825 F.2d at 1481 n.5, is dicta because
the decision involved only claim preclusion. See also Gresham Park Comm. Org. v. Howell, 652
F.2d 1227, 1243 (5th Cir. Unit B 1981) (applying Lummus standard of relaxed finality for issue
versus claim preclusion), overruled on other grounds, Wood v. Orange County, 715 F.2d 1543,
1546 (11th Cir. 1983).
46
The In re Justice Oaks II court summarized these concepts succinctly:
28
It is widely recognized that the finality requirement is less stringent for issue
preclusion than for claim preclusion. See Miller Brewing Co. v. Jos. Schlitz
Brewing Co., 605 F.2d 990, 996 (7th Cir. 1979); Lummus Co. v. Commonwealth
Oil Refining Co., 297 F.2d 80, 89 (2d Cir. 1961); Restatement (Second) Judgments
§ 13 (1980); 18 Charles Alan Wright et al., Federal Practice and Procedure § 4434
at 321 (1981 & Supp. 2000).47 The July 13 order satisfied this limited standard for
finality. The court considered a wide range of evidence from all concerned parties
and wrote a substantial order in which it explained its findings. Moreover, the
court put the parties on notice that the order could have preclusive effect,48 and it is
Res judicata is frequently used to refer generically to the law of former adjudication.
. . . If the later litigation arises from the same cause of action, then the judgment bars
litigation not only of every matter which was actually offered and received to sustain
the demand, but also of every claim which might have been presented. In this
opinion, we refer to this strand of former adjudication as “claim preclusion.” If,
however, the subsequent litigation arises from a different cause of action, the prior
judgment bars litigation only of those matters or issues common to both actions
which were either expressly or by necessary implication adjudicated in the first. We
refer to this strand of former adjudication as “issue preclusion.”
898 F.2d at 1549-50 n.3 (internal quotation marks and citations omitted).
47
“The rules of res judicata are applicable only when a final judgment is rendered. However,
for purposes of issue preclusion (as distinguished from merger and bar), ‘final judgment’
includes any prior adjudication of an issue in another action that is determined to be sufficiently
firm to be accorded conclusive effect.” Restatement (Second) Judgments § 13. Comment g adds
criteria for determining whether a decision was “adequately deliberated and firm” or “avowedly
tentative,” including whether the parties were fully heard.
48
See Order, June 15, 1998, at 2, in R7, Tab 11 (ordering June 30,1998 hearing and making
clear that “this proceeding could result in an order granting the motion to approve settlement,
and, ultimately, preclusion of any parties from pursuing claims against Kenneth Earl Padgett
29
clear that both the district and bankruptcy courts considered those findings final.
Even if the Christos were technically correct that the July 13 order has no
preclusive effect, their argument is ultimately one of form rather than substance.
Three weeks after dismissing the Christos’ lawsuit, the district court entered a final
order approving the proposed settlement in the Miller litigation.
In the alternative, the Christos claim that even the final order approving the
settlement has no preclusive effect. The Christos cite In re Justice Oaks II, 898
F.2d at 1549 for this proposition. In re Justice Oaks II, however, stands for the
simple proposition that a bankruptcy court’s assessment of the claims underlying a
proposed settlement do not constitute a final judgment on the merits of those
claims. See id. (“[A] bankruptcy court’s order authorizing settlement of a claim
cannot constitute a final judgment on the merits for purposes of former
adjudication.”). Here, in contrast, the district court made factual findings, after
hearing extensive evidence, that were binding on the bankruptcy court’s
consideration whether the approve the proposed settlement.
This court has articulated the following standard for issue preclusion:
To claim the benefit of collateral estoppel the party relying on the
doctrine must show that: (1) the issue at stake is identical to the one
regarding his purchase of Bay Bank and Trust Company and/or his failure to assign any interests
therein.”).
30
involved in the prior proceeding; (2) the issue was actually litigated in
the prior proceeding; (3) the determination of the issue in the prior
litigation must have been "a critical and necessary part" of the judgment
in the first action; and (4) the party against whom collateral estoppel is
asserted must have had a full and fair opportunity to litigate the issue in
the prior proceeding.
Pleming v. Universal-Rundle Corp., 142 F.3d 1354, 1359 (11th Cir. 1998). In
determining when an issue has been “actually litigated,” the Pleming court cited
with approval the Restatement’s formulation that “[w]hen an issue is properly
raised, by the pleadings or otherwise, and is submitted for determination, and is
determined, the issue is actually litigated.” Id. (quoting Restatement (Second) of
Judgments § 27 cmt. d (1982)).
In this case, all of the elements for issue preclusion have been satisfied: (1)
the issues decided after the June 30, 1998, hearing were identical to those asserted
in the Christo litigation; (2) those issues were actually litigated on June 30, 1998;
(3) determination of those issues was essential to the court’s judgment in the Miller
litigation; (4) and the Christos had a full and fair opportunity to present their
evidence on the issues. See Pleming, 142 F.3d at 1359. The district court correctly
dismissed the Christos’ claims on the ground of issue preclusion.49 In the
49
The Christos’ argument that a finding of issue preclusion denied them the right to have a
jury hear their claims against Padgett is unavailing. “The determination of an issue by a judge in
a proceeding conducted without a jury is conclusive in a subsequent action whether or not there
would have been a right to a jury in that subsequent action if collateral estoppel did not apply.”
Restatement (Second) Judgments § 27 cmt. d (1982).
31
alternative, the district court properly granted summary judgment to Padgett based
on the lack of evidence of an agreement between Padgett and any of the Christo
children.
III. CONCLUSION
We lack jurisdiction to review the district court’s decision not to remand the
Christo litigation to the state court whence it came; we AFFIRM the district court
in denying the motion to recuse, in approving the proposed settlement in the Miller
litigation, and in dismissing the claims in the Christo litigation on the ground of
issue preclusion.
32