Banks v. Moore (In Re Banks)

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
1-19-2007
In Re: Banks
Precedential or Non-Precedential: Non-Precedential
Docket No. 06-1909
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"In Re: Banks " (2007). 2007 Decisions. Paper 1762.
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DLD-96 NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 06-1909
IN RE: FREDERICK H. BANKS,
Debtor
FREDERICK H. BANKS,
Appellant
v.
JOHN MOORE, Protium Recordings
On Appeal From the United States District Court
For the Western District of Pennsylvania
(D.C. Civ. No. 05-cv-01064)
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
January 11, 2007
Before: BARRY, AMBRO AND FISHER, CIRCUIT JUDGES
(Filed: January 19, 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 at 4-5 (3d Cir. Oct. 3, 2006) (non-precedential
opinion).
In 2005, Banks filed many adversary actions, including one against Moore and
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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.
On June 23, 2005, the Bankruptcy Court denied Banks’ motion to convert on
numerous grounds, including Banks’ failure to pay the conversion fee. 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 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.
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Banks appealed from the Bankruptcy Court’s orders of June 23, 2005. In his
statement of issues on appeal, cross-filed in two District Court appeals, 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 the District Court case related to this appeal of the res judicata determination, Banks
did not specifically dispute the res judicata holding. In his appellate brief, he argued that
he should be permitted to pursue his claims against Moore and Protium Recordings
because his right to due process was violated by the ruling in favor of Moore in Moore’s
suit against Banks and by the order disallowing conversion in his main bankruptcy action.
Concluding that Banks’ action against Moore was barred by principles of res judicata, and
that Banks did not have standing to bring the claims in any event (as the claims belonged
to the bankruptcy estate and could be pursued only by the trustee in bankruptcy), the
District Court ruled against Banks. Banks appeals.
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).
We will affirm the District Court’s order. See L.A.R. 27.4; I.O.P. 10.6. Banks’
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claims of due process violations are foreclosed by our decisions in Banks’ other appeals.
See In re Banks, No. 06-1898, slip op. at 6-7 (3d Cir. Jan. 5, 2007) (non-precedential
opinion) (holding that the Bankruptcy Court did not err in denying Banks’ motion to
convert because, among other things, Banks did not pay the required fee); In re Banks,
No. 06-1828, slip. op. at 4-5 (holding that the Bankruptcy Court did not violate Banks’
right to due process by entering judgment in his absence). Similarly, we refer the parties
to the discussions in those cases for a refutation of any other claims of error relating to the
judgment in favor of Moore and the order denying the motion to convert. However, for
the convenience of the parties, we will repeat the analysis most relevant to the res judicata
issue on appeal.
The District Court did not err in rejecting Banks’ appeal from the Bankruptcy
Court’s order holding 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
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.
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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 given here and elsewhere, we conclude that the Bankruptcy Court
did not err in dismissing Banks’ adversary action. Accordingly, we will affirm the
District Court’s order.
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