Opinion ID: 417992
Heading Depth: 1
Heading Rank: 1

Heading: issues

Text: 7 On this appeal, the plaintiff Texas argues: (1) that the bankruptcy court should have abstained, as a matter of federal-state comity, from conducting a hearing on the issue of fraud, which was the subject of previously filed and concurrent state proceedings; and (2) that the bankruptcy court, in reaching any determinations based on the existence of fraud, should have given binding effect to the state court's factfindings in the prior TRO hearing. 8 As to (1), the state urges that the bankruptcy court should have abstained from independent factfindings on the issue of fraud because this decision by a federal court interferes with pending state judicial proceedings on the securities violations, citing Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). Preliminarily, we note that, while the determination of whether the property was subject to a constructive trust is by state law, the issue of whether the property was indeed so impressed was properly determined as a federal bankruptcy issue by the bankruptcy court, with exclusive jurisdiction over the bankrupts' assets, 28 U.S.C. Sec. 1471(e) (quoted in note 2 supra ), under the bankruptcy statutory law then in effect. 4 Thus, insofar as determining whether the assets were part of the bankrupts' estates or not, the bankruptcy court in the exercise of exclusive federal jurisdiction to determine the issue, did not impermissibly interfere with the pending state judicial proceedings. And the bankruptcy court's orders explicitly did not attempt to enjoin Texas' prosecution of its suit to enforce the state securities regulation or to prevent enforcement of state regulations, so no Younger abstention issue is arguably presented. Cf. Younger, 401 U.S. at 51-56, 91 S.Ct. at 754-55. 9 As to contention (2), we also reject Texas' argument that the bankruptcy court should have accorded deference to the state findings of fact regarding the defendants' fraud in the state TRO hearings rather than have conducted an independent hearing on that factual issue. Res judicata as to future claims or collateral estoppel as to particular factual issues may not be invoked unless a final judgment based on adjudication of facts has occurred. See Gresham Park Community Organization v. Howell, 652 F.2d 1227, 124-42 (5th Cir.1981); United States v. Burch, 294 F.2d 1, 5-6 (5th Cir.1961). See generally 1B Moore's Federal Practice p 0.443, at 3916 (1982). 10 The temporary restraining order issued by the state court in this case did not have the effect, under applicable Texas jurisprudence, of resolving with finality the factual issues addressed by the bankruptcy court's evidentiary hearing and factfindings. Texas law does not require that preclusive effect be given the factfindings made in temporary restraining orders or preliminary injunctions. Hearings on these nonpermanent injunctions do not serve the same purpose as a hearing on the merits; they only preserve the status quo awaiting resolution of the merits. See, e.g., Houston Bolt & Terminal Railway v. Texas & New Orleans Railroad, 155 Tex. 407, 289 S.W.2d 217, 219 (Tex.1956); Permian Corporation v. Pickett, 620 S.W.2d 878, 881 (Tex.Civ.App.1981). The merits of the underlying case are not at issue on appellate review of whether a temporary injunction was properly issued, and a court subsequently determining issues concerning the subject matter of the temporary injunction hearing will not assume that the evidence taken at a preliminary hearing will be the same as the evidence developed at a full trial on the merits. Davis v. Huey, 571 S.W.2d 859, 861, 862 (Tex.1978), modified on other grounds, 620 S.W.2d 561 (Tex.1981). 11 The findings that resulted from the prior state TRO hearing, therefore, did not prevent the bankruptcy court from independently hearing evidence and making contrary factual determinations in a related matter. 12 The plaintiff further suggests that the federal court could give greater credit, or collateral estoppel effect, to the state court order than, presumably, would the Texas courts or than the federal court would otherwise give to federal temporary injunctions. In the case cited to by the plaintiff state, Gresham Park Community Organization v. Howell, supra, 652 F.2d 1227, 1243 (5th Cir.1981), this court considered instances where the federal court could exercise federal common law principles of res judicata and collateral estoppel involving state court orders that would not be final according to that state's rules governing effect of judgments. The Gresham court did not give preclusive effect to a state court permanent injunction involved in that case, however; it concluded that [a]n order in a pending [state] case should only be considered final for purposes of preclusion where it is substantially certain that subsequent [state] proceedings will not affect it. In the present case, as we above noted, the state court proceedings on the merits may result in different factfindings or outcome. The prior TRO hearing thus is not determinative of the factual issues addressed by the bankruptcy court. 5