Park v. Chang (In Re Park)

07-10880
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 25, 2008
No. 07-10880 Charles R. Fulbruge III
Clerk
In the Matter of: TAE KEUM PARK; CHUN JA PARK
Debtors
TAE KEUM PARK; CHUN JA PARK
Appellants
v.
CHEN HWU CHANG; GABRIELLA CHANG
Appellees
Appeal from the United States District Court for the Northern District of
Texas, Dallas Division
USDC No. 3:06-CV-1804-L
______________________
Before KING, DAVIS, and CLEMENT, Circuit Judges.
PER CURIAM:*
This is an appeal from a district court order affirming a bankruptcy court’s
grant of two motions for summary judgment in favor of Appellees (“the Changs”),
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published
and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
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decision with regard to an adversary proceeding in bankruptcy court, in which
the Changs sought the denial of discharge of Appellants’ (“the Parks”) pre-
petition judgment debt incurred as a result of fraud, pursuant to 11 U.S.C. §
523(a)(2)(A). The bankruptcy court granted the Changs’ first Motion for
Summary Judgment and denied discharge to the Parks on the basis that a state
court had already determined that the Appellants committed fraud, which
caused damages to the Changs, and collateral estoppel prevented relitigation of
the fraud issue. In this first order, the bankruptcy judge set for trial the issue
of damages. The Changs filed a second Motion for Summary Judgment/Motion
to Reconsider on the damages issue. The Changs’ summary judgment on
damages was then granted by the bankruptcy judge in a second order, which the
court treated as a Fed. R. Civ. P. 60 motion (“Rule 60(b) motion”) pursuant to
Fed. R. Bankr. P. 9024.1 In this order, all debts arising from the fraud were
awarded to the Changs. The district court affirmed the bankruptcy court on all
issues. We now affirm.
I. Facts and Prior Proceedings
This bankruptcy dispute arises from the Changs’ purchase of two
automobiles from the Parks’ dealership, Auto Country, Inc. The Changs initially
filed suit in state court, alleging that they fully paid for the vehicles in January
of 2004 and received title documents for them, but the cars were repossessed by
Toyota of Dallas in February 2004. The Changs alleged that Auto Country, Inc.
and the Parks failed to pay Toyota of Dallas, which claimed ownership, and the
Changs brought suit against the Parks, Auto Country, Inc., and others for
breach of contract, fraud, misrepresentation, violations of the Texas Deceptive
1
FED. R. BANKR. P. 9024 makes FED. R. CIV. P. 60 applicable in the bankruptcy context.
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Trade Practices Act, and other claims.
The case was tried before a jury in Texas state court in Dallas in July
2005, and the jury returned a verdict in favor of the Changs. The jury found
that Auto Country, Inc. committed fraud against the Parks and that the Parks
were personally responsible for the conduct of Auto Country, Inc. The Parks and
Auto Country, Inc. were held jointly and severally liable to the Changs.
In August 2005, the Parks filed a voluntary Chapter 7 bankruptcy
petition. The Changs then filed a complaint pursuant to 11 U.S.C. §§
523(a)(2)(A), (a)(4), and (a)(6),2 seeking a denial of discharge of the judgment
debt owed to them. The basis of this complaint was that the Parks committed
fraud, as found by the state court, and, according to the doctrine of collateral
estoppel, should not be discharged from the judgment debt. In June 2000, the
bankruptcy court granted the Changs’ Motion for Summary Judgment and
denied discharge of this debt.3 In that order, the bankruptcy court did not decide
the issue of damages. However, in September 2006, Changs’ filed a second
Motion for Summary Judgment/Motion to Reconsider the damages issue, and the
court treated the motion as a Rule 60(b) motion and granted it. The bankruptcy
court found that all the damages awarded to the Changs by the state court arose
from the fraud and were thus nondischargeable. The district court affirmed the
2
“A discharge under 727 . . . of this title does not discharge an individual debtor from any debt . . .
for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by .
. . false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or
an insider’s financial condition.” 11 U.S.C. § 523(a)(2)(A). “A discharge under 727 . . . of this title does
not discharge an individual debtor from any debt . . . for fraud or defalcation while acting in a fiduciary
capacity, embezzlement, or larceny.” Id. § 523(a)(4). “A discharge under 727 . . . of this title does not
discharge an individual debtor from any debt . . . for willful and malicious injury by the debtor to another
entity or to the property of another entity.” Id. § 523(a)(6).
3
The denial was based upon § 523(a)(2)(A).
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bankruptcy court on all issues. The Parks now timely appeal.
II. Standard of Review
The bankruptcy court’s findings of fact are reviewed for clear error, and its
conclusions of law are reviewed de novo.4
III. Analysis
The Parks first challenge the district court’s affirmance of the bankruptcy
court’s ruling that collateral estoppel bars relitigation of the fraud issue in this
case. The Parks allege that because the elements of fraud as found in the state
court action were not the same elements required under § 523(a)(2)(A), collateral
estoppel should not apply.5 The Parks explain that under § 523(a)(2)(A), the
Changs were required to establish that (1) the Parks made a representation, (2)
which was knowingly false, (3) that was made with intent to deceive the Changs,
(4) that the Changs actually and justifiably relied on, and (5) that the Changs
sustained a loss as a proximate result of their reliance.6 The Parks argue that
the state court finding of fraud did not include a showing of intent or of actual
and justifiable reliance as is required under § 523(a)(2)(A) and that collateral
estoppel is inapplicable. The district court pointed out, however, that the state
court’s charge to the jury explaining the elements of fraud contained elements
4
Robertson v. Dennis (In re Dennis), 330 F.3d 696, 701 (5th Cir. 2003).
5
Under Texas law, “[a] party seeking to invoke the doctrine of collateral estoppel must establish
(1) the facts sought to be litigated in the second action were fully and fairly litigated in the prior action; (2)
those facts were essential to the judgment in the first action; and (3) the parties were cast as adversaries in
the first action.” Garner v. Lehrer (In re Garner), 56 F.3d 677, 679 (5th Cir. 1995).
6
See AT&T Universal Card Services v. Mercer (In re Mercer), 246 F.3d 391, 403 (5th Cir.
2001).
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that were identical to those required under § 523.7 The district court did not err
in finding that the elements of § 523(a)(2)(A) were satisfied by the state court
fraud proceedings. Additionally, the Parks argue that even if they were
vicariously liable for the acts of Auto Country, Inc. in the state court action, such
vicarious liability is an insufficient basis for collateral estoppel. As the district
court explained, however, the Parks were found to be directly liable for the
conduct of Auto Country, Inc. for the fraud committed on the Changs. We
conclude that the district court did not err in holding that collateral estoppel
applied to the fraud issue.
The Parks argue next that it was error to award the Changs all damages
from the state court action because they allege the damages arose from both
dischargeable and nondischargeable claims. The bankruptcy court determined
that pursuant to Cohen v. de la Cruz, all the damages awarded by the state court
arose from the fraud finding.8 As the bankruptcy judge explained, the jury found
that the Parks obtained money from the Changs by fraud, and the judgment
awarded is the debt resulting from that fraud, which is wholly
nondischargeable.9 The district court affirmed the bankruptcy court on the basis
of Cohen, and we agree. The district court did not err in concluding that the
damages found in the state court action arose from the Parks’ fraud and were
7
Specifically, both definitions of fraud provided to the jury contained the elements required by §
523(a)(2)(A) as set forth in In re Mercer. See id.
8
523 U.S. 213 (1998). The Court in Cohen explained that any debt fraudulently obtained is not
dischargeable pursuant to § 523(a)(2)(A). Id. at 223. It also concluded that Congress intended the
discharge exception of § 523 to favor the creditor’s interest in full recovery of debts obtained through fraud
over the debtor’s interest in receiving a fresh start. Id. at 222.
9
Id. at 218 (citing Field v. Mans, 516 U.S. 59, 61, 64 (1995) (describing § 523(a)(2)(A) as
barring discharge of debts “resulting from” or “traceable to” fraud)).
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thus not dischargeable.
The third issue raised by the Parks is that district court erred by affirming
the bankruptcy court’s treatment of the Changs’ second Motion for Summary
Judgment/Motion to Reconsider as a Rule 60(b) motion. Although treatment of
such a motion as a Rule 60(b) motion is allowed in bankruptcy proceedings
pursuant to Fed. R. Bankr. P. 9024, that rule applies to final judgments.10 The
first judgment of the bankruptcy court in this case was interlocutory,11 and thus
Rule 60(b) is inapplicable. To the extent the district court affirmed the
bankruptcy court’s application of Rule 60(b), it erred. However, as the district
court correctly noted, the bankruptcy court was nevertheless still within its
authority to reconsider its earlier interlocutory order and consider the issue of
damages. Because the bankruptcy court was within its discretion in
reconsidering the issue of damages following its interlocutory order, we find no
error.
IV. Conclusion
Based on the foregoing, and for the reasons stated in the district court’s
careful July 19, 2007 opinion, we affirm.
10
FED. R. CIV. P. 60 (Advisory Committee Note) (explaining that the use of the word “‘final’
emphasizes the character of the judgments, orders[,] or proceedings from which Rule 60(b) affords relief;
and hence interlocutory judgments are not brought within the restrictions of the rule, but rather they are
left subject to the complete power of the court rendering them to afford such relief from them as justice
requires.”) (emphasis added); see also Bon Air Hotel Inc. v. Time, Inc., 426 F.2d 858, 862 (5th Cir.
1970).
11
The bankruptcy court was entitled to grant a partial summary judgment on the issue of liability
even though the issue of damages was not resolved. See FED. R. BANKR. P. 7056 (making Fed. R. Civ. P.
56 applicable in bankruptcy adversary proceedings). Such a partial judgment is an “interlocutory summary
judgment.” See FED. R. CIV. P. 56(d)(2); Compton Corp v. United States Dep’t of Energy (In re
Compton), 889 F.2d 1104, 1106 (Temp. Emer. Ct. App. 1989) (explaining all significant issues in an
adversary proceeding must be resolved for an order to be final); Moody v. Seaside Lanes (In re Moody),
825 F.2d 81, 85 (5th Cir. 1987) (explaining that the resolution of an entire adversary proceeding is final).
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AFFIRMED.
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