Opinion ID: 195057
Heading Depth: 2
Heading Rank: 1

Heading: The Application of Res Judicata.

Text: In granting summary judgment in favor of the Bank on its suit to collect on the Belmont Note, the district court held: having had the opportunity to litigate these issues in the Bankruptcy Court, having received a final judgment on the merits (right or wrong), and having failed to protect its rights with respect to the appellate process, [Belmont] and those in privity with it cannot attempt to relitigate these issues in this proceeding. On the facts of this case, any other result would undermine the primary goal of the doctrine of res judicata -- that there be finality in litigation. The district court's point was well taken. In Dennis v. R.I. Hospital Trust Nat. Bank , 744 F.2d 893, 898 (1st Cir. 1984), we explained that the claim preclusion aspect of res judicata bars the relitigation of any claim that was, or might have been , raised in respect to the subject matter of the prior litigation. Id. (emphasis in original) (citations omitted). Issue preclusion or collateral estoppel, on the other hand, prohibits relitigation of any factual or legal issue that was actually decided in previous litigation 'between the parties, whether on the same or on a different claim.' Id. explicitly decided, for it may have constituted, logically or practically, a necessary component of the decision reached. Id. (emphasis in original). See supra With the exception of the conflict of interest allegations discussed in section B below, we have no doubt that the issues and claims litigated in the Adversary Proceeding were substantially the same issues and claims with respect to the Banks's alleged oral promise that defendant Bogosian sought to litigate with respect to the Belmont Note in the District Court Action. As the district court noted in granting summary judgment, Belmont had every incentive to litigate those matters exhaustively in the Adversary Proceeding. On appeal, Bogosian's principal contention is that the usual rules of res judicata should not apply in this case. Before turning to this argument, we briefly consider and reject three other arguments now made by Bogosian. First, Bogosian argues that the district court should not have applied res judicata because she was not a party nor in privity with a party in the Adversary Proceeding. The court below, however, accurately stated that, It is undisputed that Mrs. Bogosian is an officer of [Belmont], that she participated directly in obtaining the loan for [Belmont] to purchase the Newport and Middletown, R.I. properties, that she signed the Guaranty of the [Belmont] indebtedness at issue in this case, and that she was very active in the bankruptcy proceedings. Thus, privity exists between defendant Bogosian and [Belmont]. Bogosian points to nothing that makes us doubt either the conclusion of law or the finding of fact by the district court. See Second, Bogosian contends that the bankruptcy court did not have jurisdiction to adjudicate the validity of her guaranty and that the preclusive effect of a Bankruptcy Court must reflect the reality of its limited jurisdiction. See Latham v. Wells Fargo Bank , 896 F.2d 979, 983 (5th Cir. 1990). Bogosian forgets, however, that res judicata includes issue, as well as claim, preclusion. She does not dispute that the bankruptcy court properly exercised its jurisdiction over Belmont's claims and that the issues necessarily considered in Belmont's claims were the same as in Bogosian's counterclaims in the District Court Action. Given that Bogosian and Belmont were in privity, Bogosian is barred from litigating those same issues again, even if the bankruptcy court did not have jurisdiction over her personal claims. refused to allow Belmont to engage in discovery before the Belmont Decision. In re Belmont Bogosian's fourth and principal argument here is that the Bank must be deemed by implication to have waived any res judicata effects of the Belmont Decision when it agreed, in the Consent Order, to have the merits of the counterclaims decided in the District Court Action rather than in the Bankruptcy Appeal. Bogosian contends that the parties' obvious desire to have their dispute decided in the District Court Action rather than in the Bankruptcy Appeal leads ineluctably to the conclusion that the res judicata effects of the Belmont Decision were to be permanently cancelled. This scenario, however, ignores the fact that, under the Consent Order, the Bankruptcy Appeal was merely to be continued nisi , with both parties being expressly entitled to initiate further proceedings in that appeal at will. Nothing was said about waiving the res judicata effects of the Belmont Decision, there being no need to do so since, as previously discussed, any attempt of the Bank to raise a res judicata defense in the District Court Action could be counteracted by Belmont's reopening of its Bankruptcy Appeal. 1: supra It was when Belmont voluntarily dismissed its bankruptcy petition and the Bankruptcy Appeal was passed, that the happy balance of power that had supported the compromise came to an end. The Bank could thereafter assert res judicata with impunity. In effect, Bogosian is asking this Court to supply in the Consent Order a missing contract term to which the parties never expressly agreed, namely, an agreement by the Bank to forego its res judicata defense. We see no reason to do so. Nothing in the Consent Order, expressly or by implication, shows an intent by the Bank to waive its res judicata defense. If the parties foresaw the possibility of the current situation, their failure to have provided for it could well have been due to their inability to find common ground. See E. Allan Farnsworth, Contracts Under United States v. Munsingwear, Inc. , 340 U.S. 36 (1950), we are not required to do either. There, the Supreme Court held that a judgment could be accorded res judicata effect in a subsequent litigation even though the original judgment was rendered unreviewable because it was dismissed as moot by the appellate court. The Court acknowledged that the usual course is for the appellate court to dismiss the appeal with instructions to vacate the judgments below, destroying their preclusive effects. But when the party that lost below fails to request a vacatur of the lower court judgments, the appellate court does not err when it allows the judgments to stand. The case is therefore one where the [appellant], having slept on its rights, now asks us to do what by orderly procedure it could have done for itself. The case illustrates not the hardship of res judicata , but the need for it in providing terminal points for litigation. Id. at 41. Here, too, Bogosian and Belmont slept on [their] rights at their peril. The district court's passing of the Bankruptcy Appeal did not automatically vacate the Belmont Decision, and absent a request for vacatur, it was not error for the district court to fail to order vacatur sua sponte . Five months after the district judge dismissed the appeal and over four months after the Bank raised its res judicata defense, Belmont finally moved pursuant to Rule 60(b) that the judge amend his order to make clear that the Belmont Decision had no preclusive effect. Even if such a motion could be generously construed as a request for vacatur, it is doubtful that such a request sufficed under Munsingwear . As the district court noted, Belmont should have acted sooner to protect its right to an appeal. As in Munsingwear , if there is hardship in this case, it was preventable. Munsingwear , 340 U.S. at 39. Bogosian might have presented a colorable argument that the district court erred in passing the Bankruptcy Appeal when it was not in fact moot. While there is no controlling law in this Circuit, the apparent majority rule in other jurisdictions is that bankruptcy courts may continue to exercise jurisdiction over pending adversary proceedings even after a dismissal of a related bankruptcy petition. See See , e.g. , In re Morris , 950 F.2d 1531 (11th Cir. 1992). Some retain jurisdiction for other reasons or as a matter of course. See , e.g. , In re Carraher In re Pocklington In re Lake Tahoe Land Co. , 12 Bankr. 479, 4 Collier Bankr. Cas. 2d 1089 (Bankr. D. Nev. 1981). But Belmont never contested the dismissal of the appeal below, and neither Bogosian nor Belmont has made the argument on appeal that the dismissal was in error. The argument is therefore waived. Moreover, even if the dismissal was in error, Belmont could have cured any harmful effect with a simple motion to vacate the Bankruptcy Court's judgment. Under Munsingwear , Belmont must share the responsibility for seeing to it that lower court judgments do not prejudice them later. We therefore affirm the district court's decision to apply res judicata in the District Court Action. We also affirm the district court's denial of Belmont's Rule 60(b) motion. Except for the one fraud claim based on conflict of interest described below, we affirm the district court's grant of summary judgment against Bogosian as to the Belmont Note.