In Re: Banks

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
1-5-2007
In Re: Banks
Precedential or Non-Precedential: Non-Precedential
Docket No. 06-1898
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DLD-76 NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 06-1898
IN RE: FREDERICK H. BANKS,
Debtor
FREDERICK H. BANKS,
Appellant
v.
ROBERT L. WILLIAMS; UNITED
STATES OF AMERICA
On Appeal From the United States District Court
For the Western District of Pennsylvania
(D.C. Civ. No. 05-cv-01128)
District Judge: Honorable Joy Flowers Conti
Submitted For Possible Dismissal Under 28 U.S.C. § 1915(e)(2)(B) or Summary Action
Under Third Circuit LAR 27.4 and I.O.P. 10.6
December 15, 2006
Before: BARRY, AMBRO AND FISHER, CIRCUIT JUDGES
(Filed: January 5, 2007)
OPINION
PER CURIAM
On November 1, 2001, Frederick H. Banks filed for bankruptcy protection under
Chapter 7 of the Bankruptcy Code. The appointed trustee in bankruptcy filed a report of
no assets.
On February 8, 2002, John Moore t/d/b/a Protium Recordings filed an adversary
action in the Bankruptcy Court to determine the dischargeability of a debt owed to him by
Banks. The debt related to a July 12, 2001 agreement for the manufacture, distribution,
and retail promotion of a music CD. Banks did not appear for trial. In an order entered
December 30, 2004, the Bankruptcy Court entered judgment in favor of Moore. The
Bankruptcy Court held that Banks’ debt to Moore was non-dischargeable because of
Banks’ defalcation while acting in a fiduciary capacity and embezzlement, see 11 U.S.C.
§ 523(a)(4), and because of the willful and malicious injury that Banks had caused, see
id. at § 523(a)(6). The Bankruptcy Court also granted Moore relief from the automatic
stay to recover the debt from Banks.
Banks appealed, claiming that his right to due process of law was violated because
the Bankruptcy Court allowed his counsel to withdraw, rescheduled the trial without
notice to him, and entered judgment in Moore’s favor in Banks’ absence. The District
Court affirmed the Bankruptcy Court’s order. Banks then appealed to us. For reasons
stated elsewhere, we concluded that his appeal had no arguable basis in fact or law.
See In re Banks, No. 06-1828, slip. op. at 4-5 (3d Cir. Oct. 3, 2006).
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In 2005, Banks filed many adversary actions, including one against Moore and
Protium Recordings relating to the July 12, 2001 agreement described in broad terms
above. In the main bankruptcy action, he also filed a motion to convert his Chapter 7
bankruptcy into a Chapter 11 bankruptcy, claiming that his previous counsel had
withdrawn from his case without notice and without listing Banks’ assets in the
bankruptcy schedules. The United States, seeking dismissal of Banks’ bankruptcy
petition and other adversary actions, unsuccessfully moved to intervene in the Bankruptcy
Court.
On June 23, 2005, the Bankruptcy Court denied Banks’ motion to convert on the
followings grounds: (1) Banks had not paid the conversion fee; (2) Banks would not
obtain any relief under Chapter 11 that he would not receive in a Chapter 7 discharge in
due course; (3) Banks would not be able to propose, obtain confirmation of, or
consummate a feasible Chapter 11 plan given his imprisonment and lack of regular
income, so conversion would be futile; and (4) Banks’ purpose for conversion was
improper and abusive, based only on his desire to prosecute many post-petition, non-
bankruptcy adversary actions.
Also on June 23, 2005, after issuing an order to show cause why the adversary
action should not be dismissed and then holding a hearing, the Bankruptcy Court
dismissed Banks’ action against Moore and Protium Recordings with prejudice. The
Bankruptcy Court held that Banks’ causes of action were barred under principles of res
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judicata because they were compulsory counterclaims that Banks had failed to raise in the
adversary action instituted by Moore, and accordingly dismissed Banks’ adversary
complaint under Fed. R. Bankr. P. 7012(b) and Fed. R. Civ. P. 12(b)(6) for failure to state
a claim. The Bankruptcy Court also held that dismissal was appropriate because Banks’
causes of action arose pre-petition, belonged to the bankruptcy estate, and must be
pursued by the bankruptcy trustee, whom Banks had failed to name. The Bankruptcy
Court noted that Banks’ attempt to pursue the action on his own under the auspices of
Chapter 11 of the Bankruptcy Code would not work, because the Bankruptcy Court had,
that day, already denied Banks’ motion to convert.
Filing one notice of appeal, Banks appealed from both of the Bankruptcy Court’s
orders of June 23, 2005, to the District Court. In his statement of issues on appeal, Banks
raised the questions (1) whether the Bankruptcy Court erred in dismissing his adversary
complaint sua sponte and (2) whether the Bankruptcy Court erred in denying his
conversion motion. In his appellate brief, he argued only that the Bankruptcy Court
should have granted his motion to convert because any money won in his adversary
actions would have paid creditors of his estate. Banks did not otherwise dispute the
factual findings or legal conclusions of the Bankruptcy Court. In its order of March 8,
2006, the District Court described Banks’ appeal as related to the adversary case and the
main bankruptcy action and also as an appeal from the June 23, 2005 order denying the
motion to convert. The District Court affirmed the Bankruptcy Court’s order denying the
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motion to convert on the basis of Banks’ failure to pay the conversion fee; the District
Court did not consider the June 23, 2005 order in the adversary case.
Banks appeals. The United States Attorney’s Office and the United States, neither
of whom were parties in the Bankruptcy or District Courts, but the latter of whom is
named as a party on appeal, filed a motion for summary action, seeking affirmance of the
order of March 8, 2006,1 and a motion to stay the briefing schedule pending the resolution
of the motion for summary action. The Clerk granted the motion to stay the briefing
schedule. Banks opposes the motion for summary action, moves for reconsideration of
the order granting the motion to stay the briefing schedule, and moves to strike both
motions.
The District Court had jurisdiction to review the Bankruptcy Court’s order
pursuant to 28 U.S.C. § 158(a), and we have jurisdiction to review the District Court’s
order under 28 U.S.C. §§ 158(d) & 1291. We exercise the same standard of review as the
District Court, subjecting the Bankruptcy Court’s legal determinations to plenary review
and reviewing its factual findings for clear error. See In re United Healthcare Sys., 396
F.3d 247, 249 (3d Cir. 2005).
As a preliminary matter, we consider the pending motions. More specifically, we
first must decide whether the United States and the United States Attorney’s Office have
1
In their motion, they also ask us to affirm a separately appealed-from order in other
appeals brought by Banks. We do not presently consider that request.
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standing to advance their pending motion. Although the United States is nominally a
party to these related appeals, the appealed-from order does not affect its rights or the
rights of United States Attorney’s Office. Accordingly, they lack standing to argue the
merits of these appeals. See Marshall v. Sun Petroleum Products Co., 622 F.2d 1176,
1188 (3d Cir. 1980) (concluding that nominal parties on appeal have no standing to
defend the merits of a decision); In re St. Clair & Karen M. St. Clair, 251 B.R. 660, 670
& n.11 (D.N.J. 2000). We therefore deny the motion for summary affirmance insofar as it
relates to this appeal. We do not grant reconsideration of the order staying the briefing
schedule, however. Nor do we grant Banks’ motion to strike the Government’s motions.
We will, however, affirm the District Court’s order. See L.A.R. 27.4; I.O.P. 10.6.
Upon review, we conclude, as the District Court did, that the Bankruptcy Court did not
err in denying Banks’ motion to convert because he did not pay the required fee. A
debtor who wishes to convert his bankruptcy action from one under Chapter 7 to one
under Chapter must pay the difference of the fees for filing under Chapter 7 and Chapter
11. See 28 U.S.C. § 1930(a)(7). Banks has not disputed that he did not pay the fee.
Furthermore, the alternative grounds for the Bankruptcy Court’s decision appear sound.
Given Banks’ imprisonment and lack of regular income, conversion would have been
futile – Banks would not be able to propose a feasible plan. See In re Lilley, 29 B.R. 442
(1st Cir. B.A.P. 1983). Moreover, despite his argument that he wished to convert his
bankruptcy action so as to bring claims for the benefit of his creditors, Banks has
6
demonstrated a desire to abuse the bankruptcy process to bring claims for post-petition
events against victims and witnesses of crimes for which the United States prosecuted
him. See In re Young, 269 B.R. 816, 824 (W.D. Mo. Bankr. 2001) (summarizing other
cases for the proposition that a bankruptcy court has discretion to disallow conversion
under extreme circumstances, such as abuse of the bankruptcy process or bad faith).
Although the District Court declined to explicitly consider whether the Bankruptcy
Court properly dismissed Banks’ adversary complaint in the other order of March 8,
2006, we affirm the District Court’s order dismissing that aspect of Banks’ appeal. Banks
may have waived the issue. Although he included his appeal from the order dismissing
the adversary complaint in the statement of issues on appeal that he filed in the District
Court with his notice of appeal, he did not include the issue in the appellate brief that he
filed in the District Court.
Even if Banks did not waive the issue, the District Court did not err in rejecting
Banks’ appeal from the Bankruptcy Court’s order. The Bankruptcy Court did not err in
concluding that Banks’ claims were barred by res judicata. Res judicata “gives
dispositive effect to a prior judgment if a prior issue, although not litigated, could have
been raised in the earlier proceeding.” CoreStates Bank, N.A. v. Huls Am., Inc., 176 F.3d
187, 194 (3d Cir. 1999) (citation omitted). Banks not only could have raised his claims
against Moore and Protium Recordings in the action instituted by Moore d/b/a Protium
Recordings, but he also was required to raise them as compulsory counterclaims under
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Rule 13 of the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 13(a) (“A pleading
shall state as a counterclaim any claim which at the time of serving the pleading the
pleader has against any opposing party . . . .”); Transamerica Occidental Life Ins. Co. v.
Aviation Office of Am., Inc., 292 F.3d 384, 389-91 (defining “compulsory
counterclaims” and “opposing parties”). Having not raised his claims in the earlier
action, Banks could not litigate them in his adversary complaint. See New York Life Ins.
Co. v. Deshotel, 142 F.3d 873, 879 (5th Cir. 1998); see also Randolph v. Lipscher, 641 F.
Supp. 767, 775 (D.N.J. 1986) (holding that the doctrine of res judicata “contemplates that
when a controversy between parties is once fairly litigated and determined it is no longer
open to relitigation”) (citation omitted).
For the reasons stated above, we conclude that the Bankruptcy Court did not err in
dismissing Banks’ adversary action and denying Banks’ motion to convert. Accordingly,
we will affirm the District Court’s order.
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