1 Pursuant to Local Rule 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this opinion should not be published and is not precedent except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 Local Rule 47.5.4.

1 UNITED STATES COURT OF APPEALS

For the Fifth Circuit

No. 96-30356

In The Matter of: GNR PRODUCTION SERVICES INCORPORATED

Debtor.

__________________________________________

GNR PRODUCTION SERVICES, INC.,

Appellant,

VERSUS

HENRY AUDELL DAVIS, MARTHA WILSON DAVIS,

AND MELBA DAVIS VAUGHN,

Appellees.

Appeal from the United States District Court

for the Western District of Louisiana

(95-CV-2156)

May 20, 1997

Before KING, JOLLY and DENNIS, Circuit Judges.

DENNIS, Circuit Judge: 1

Appellant GNR Production Services, Inc. (“GN R”) appeals a

directed verdict in bankruptcy court dismissing its claims against

Appelle es Henry Davis, Martha Davis, and Melba Davis Vaughan

(collectively, the “Davises”). GNR asserts that the court erred in

failing to apply the doctrine of res judicata to an earlier2

proceeding between the parties in Louisiana state court. Because

we find that the earlier disposition was not final, and therefore

not entitled to preclusive effect, we affirm.

Facts and Proceedings Below

In 1981, the Davises leased a tract of land to ROJO Oil

Company, Inc. (“ROJO”). The area contained a “dry hole” due to a

p rior unsuccessful drilling attempt, and ROJO desired to use the

land for a salt water injection disposal operation. The lease

granted ROJO the rights to the land for one year with a renewal

option for twenty consecutive one year terms. The lease also

provided that ROJO enjoyed the right to assign or sublet the lease

and stated that “th e lessee may not be evicted until twenty (20)

days after the lessors shall have posted notice to the lessee.”

When the lease was executed, ROJO was owned by Ron Haughton

and Joe Collins. In 1985, Collins decided to end his association

with ROJO and sold his interest to Haughton. ROJO continued to run

the operation until sometime in 1988, when it is asserted by the

appellant that Ron and his wife Gail, an officer of ROJO,

transferred R OJO’s salt water operations to GNR (formerly, Ron

Haughton, Inc.). At the time, Ron and Gail were the sole

shareholders in both ROJO and GNR. During this same period, ROJO

filed for Chapter 11 protection, but the case was eventually

dismissed and closed.

In 1992, the Davises, concerned that the rents being paid on2 The pleading of the state court causes of action as

counterclaims is characterized by the Davises as having “in

3 the property were insufficient, attempted to obtain an accounting.

They were unable to do so, and as a result, the Davises filed suit

on March 1, 1994, in Louisiana state court. Alleging unpaid rents,

the Davises sought both cancellation of the lease and eviction.

The Davises also requested a writ of seques tration which was

granted by the court the same day. S ee La. Code Civ. Proc. art.

3571. GNR filed a dilatory exception of prematurity to the writ of

sequestration based on the provision of the lease entitling leasees

to 20 days notice pri or to any eviction. The trial court denied

the exception on April 1 3, 1994. GNR appealed, and a Louisiana

court of appeals vacated the ruling and remanded for further

proceedings. The district court then held a hearing on the matter

and on October 17, 1994, signed an order sustaining the exception

of prematurity and dismissing the writ of sequestration.

This order concluded the proceedings in state court because,

on November 8, 1994, GNR filed for Chapter 11. By doing so, GNR

automatically stayed any further stat e court action, 11 U.S.C. §

362, and not until January of 1995 did litigation between the

parties resume. It was then that GNR filed an adversary proceeding

in bankruptcy court to recover money damages for what it considered

the wrongful sequestration of the leased property. The Davises

counterclaimed, seeking the same relief outlined in their original

state court action. 2 Following GNR’s presentation of its case inessence” effectuated a removal of the state court case. This

unorthodox procedure occurred, at least in part, as a concession to

GNR, who asserted that it would be subject to financial ruin in the

time required to bring the case up from state court. Therefore all

parties agreed to expedite the case by circumventing the demands of

formal removal. The bankruptcy judge stated that the case was “for

this Court’s purposes a removed lawsuit.” The Davises argue that

this fact necessitates a finding that the bankruptcy court was free

to reassess the state court judgment under 28 U.S.C. § 1450.

However, whether this “removal” should be treated as one for the

purposes of resolving the preclusive effect of the state court

judgement need not be reached here.

3 Although precisely what issues GNR briefed to this court is

unclear, counsel at oral argument clarified that the only assigned

error relates to the failure of the bankruptcy court to apply res

judicata

.

4 chief, the Davises moved for a directed verdict. The court granted

the motion and dismissed all of GNR’s claims in an o rder signed

September 22, 1995. In addition, the court ruled that, based on

the 1988 ROJO bankruptcy filing, GNR had no right of possession of

the disputed property. The district court affirmed the decision,

and after moving for a new trial, GNR filed a timely appeal. GNR’s

sole point of contention on appeal is that the bankruptcy court was

required to accord res judicata effect to the October 17 state

court ruling which sustained GNR’s exception of prematurity to the

Davises’ writ of sequestration. 3

Jurisdiction

This court will sua sponte consider threshold jurisdictional

questions. C lick v. Abilene Nat’l Bank

, 8 22 F.2d 544, 545 (5th

C ir. 1987). We note that we have jurisdiction “‘only if the

unde rlying bankruptcy court order was final.’” In re First4 Rule 54(b) provides that “[w]hen more than one claim for

relief is presented in an action, whether as a claim, counterclaim,

cross-claim, or third party claim

. . . the court may direct the

entry of a final judgment as to one or more but fewer than all of

the claims.” Fed. R. Civ. P. 54(b). See Kelly v. Lee’s Old

Fashioned Hamburgers, Inc.

, 908 F.2d 1218, 1220 (5th Cir. 1990)(en

banc)(determinin g that all that is needed to invoke Rule 54 is a

clear intent to enter a partial final judgment under it);

Ban kruptcy Rule 7054(a)(stating that Rule 54(b) “applies in

adversary proceedings”).

5 Financial Development Corp.

, 960 F.2d 23, 25 (5t h Cir.

1992)(quoting In re Delta Serv. Indus.

, 782 F.2d 1267, 1268 (5th

Cir. 1986)); see also 28 U.S.C. § 158(d). Here, the bankruptcy

court entered a directed verdict regarding only GNR’s claims, and

GNR appealed before the court ever ruled on the Davises’

counterclaims. However, despite the fact that a substantial

portion of the case remained unresolved at the time the notice of

appeal was filed, this court can exercise jurisdiction due to the

bankruptcy court proclaiming that its “final judgment” was entered

“pursuant to F.R.C.P. 54(b).” 4

Standard of Review

Through the bankruptcy appellate process, this court is in the

atypical position of providing the parties with a second round of

review. Our method of review, however, remains pedestrian -- we

perform the identical function as the district court, reviewing the

bankruptcy court’s finding of fact for clear error and de cide

issues of law d e novo

. In re Kemp

, 52 F.3d 546, 550 (5th Cir.

1995). A bankruptcy court’s decision to give preclusive effect to6

a state court judgment is a question of law. In re Gober

, 100 F.3d

1195, 1201 (5th Cir. 1996).

Analysis

The doctrine of res judicata

, by reducing redundancy and

fostering confidence in judicial disposition s

, assists in the

administration of an efficient system of justice. In addition, it

promotes “comity between state an d federal courts that has been

recognized as a bulwark of the federal system.” Allen v. McCurry

,

449 U.S. 90, 96 (1980). Although federal courts look to common law

principles of preclusion in order to examine the effect of other

f ederal court decisions, Congress has specifically spoken to the

manner in which a federal court weighs an earlier state court

ruling. The full faith and credit statute requires that “judicial

p roceedings . . . shall have the same full faith and credit in

every court within the United states . . . as they have by law or

usage in the courts of such State, Territory or Possession from

which they are taken.” 28 U.S.C. § 1738. As emphasized by the

Supreme Court:

It has long been established that § 1738 does not allow

federal courts to employ their own rules of res judicata in

d etermining the effect of state judgments. Rather, it goes

beyond the common law and commands a federal court to accept

the rules chosen by the State from which the judgment is

taken.

Kremer v. Chemical Constr. Corp

., 4 56 U.S. 461, 481-82

(1982)(citations omitted). The statute applies with equal force in

bankruptcy proceedings. In re Garner , 56 F.3d 677, 679 n.2 (5th7

Cir. 1995). We must therefore look to the law of the state of

Louisiana to determine the effect, if any, of the judgment in

question.

In Louisiana, res judicata will only apply to a “valid and

final j udgment.” La. Rev. Stat. Ann. § 13:4231. Whether a

judgment is final is established by reference to the state Code of

Civil Procedure

-- “[a] judgment that determines the merits in

whole or in part is a final judgment.” La. Code Civ. Proc. art.

1841. In contrast, “[a] judgment that does not determine the

merits but only preliminary matters in the course of the action is

an interlocutory judgment.” Id

.

Not only is the October 17 order dismissing seques tration

clearly a preliminary matter, but a number of Louisiana courts,

when ruling as to whether or not an order dismissing sequestration

is appealable, explicitly refer to such matters as interlocutory.

See, e.g., Commercial Sec. Co. v. Mattingly

, 26 So. 2d 37, 41 (La.

Ct. App. 1946); see also Schwan v. S c hwan

, 27 So. 678 (La.

1900)(determining whether an “interlocutory” order setting aside

sequestration caused irreparable harm and was therefore

appealable); c f. Smith v. Utility & Maintenance Contractors of

America

, Inc.

, 301 So. 2d 906, 908 (La. Ct. App. 1974)(citing cases

for the proposition that “a judgment denying a motion to dissolve

a writ of attachment or sequestration is an interlocutory judgment

which . . . is not appealable”).8

GNR does not cite any persuasive authority to the contrary,

and its reliance on Smith is misplaced. S mith stands only for the

proposition that a judgment rejecting a claim for damages regarding

the wrongful issuance of a writ of attachment is a final judgment.

Smith

, 301 So. 2d at 909. In fact, the defendant in S mith

“concede[d] the interlocutory nature of [the] p ortion of the

judgment overruling the motion to dissolve.” Id

. at 908. Because

GNR’s bankruptcy action was the only proceeding intended to address

the losses associated with what it considered a wrongful

sequestration, there is nothing contained in the state court

judgment that falls withi n the S mith framework. S ee also In re

Hornsby & Landry , 559 So. 2d 863, 864 (La. Ct. App. 1990)(stating

a rationale identical to Smith ).

Similarly, there is no basis for concluding that the October

17 order acquired the authority of a “thing adjudged.” Under

Louisiana law, once a judgment attains this authority, no court has

jurisdiction to alter it “regardless of the magnitude of the final

judgment’s error.” A venue Plaza, L.L.C. v. Falgoust

, 676 So. 2d

1077, 1079 (La. 1996)(citation omitted). However, the Civil Code

makes clear that for a court’s disposition become a thing adjudged,

it must first have been “decided by a final judgment.” La. Civ.

Code art. 3506(31). As noted above, the order here is

unquestionably interlocutory.

Furthermore, we find no support for GNR’s contention that the9

Davises’ failure to timely file a Motion for Abstention and Motion

to Lift Stay in bankruptcy court converted the interlocutory order

into one that is “final and definitive.” Our analysis is driven by

the clear wording of § 1738 which requires that we apply Louisiana

law in order to ascertain the preclusive ef fect of Louisiana

judgments. Accordingly, the October 17 ruling remains

interlocutory regardless of the Dav ises’ actions in bankruptcy

court.

Conclusion

For the foregoing reasons, the bankruptcy court did not err in

refusing to apply res judicata to the state court decision to

dismiss sequestra tion, and we AFFIRM the ruling of the court

dismissing GNR’s claims.