Opinion ID: 686447
Heading Depth: 2
Heading Rank: 2

Heading: Entry of Money Judgment

Text: 11 Porges also argues that section 502(b) of the Bankruptcy Code, which governs adversary proceedings, supplies the basis for the bankruptcy court to allow or deny Gruntal's proofs of claim but does not support the entry of a money judgment. This argument thus raises the issue of whether a bankruptcy court has jurisdiction to enter a money judgment against a debtor in an adversary proceeding following the dismissal of the underlying bankruptcy case. Porges does not contest the factual findings of the bankruptcy court. We thus review this legal issue de novo. In re Brody, 3 F.3d at 38. 12 Porges does not contest that the adversary proceeding involving Gruntal's claims and Porges' counterclaims was subject to the jurisdiction of the bankruptcy court when it was filed. 3 Nor does Porges contest the fact that an adversary proceeding is a core proceeding, see 28 U.S.C. Sec. 157(b)(2)(B)-(C); see also In re Manville Forest Prods., 896 F.2d at 1389, and thus the bankruptcy court had jurisdiction to enter appropriate orders and judgments. 28 U.S.C. Sec. 157(b)(1). 4 Porges contends, however, that because Gruntal's claims and his counterclaims were determined by the bankruptcy court in the context of a section 502(b) hearing, the bankruptcy court's authority is limited simply to determining the viability of any claims against his estate and does not extend to the entry of a money judgment. Porges' argument reduces to the contention that a bankruptcy court reviewing an adversary proceeding possesses sufficient jurisdiction to determine liability on a contested claim but does not have jurisdiction to enter a money judgment predicated on that liability. Nothing in the Bankruptcy Code or other federal law supports such a construction. 13 The basis of the bankruptcy court's authority to issue a money judgment rests on section 502 of the Bankruptcy Code. Section 502(a) provides that [a] claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest ... objects. 11 U.S.C. Sec. 502(a). Section 502(b) then provides that, except in certain circumstances not relevant here, if such [an] objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim ... and shall allow such claim in such amount. 11 U.S.C. Sec. 502(b); see In re McLaren, 3 F.3d 958, 965-66 (6th Cir.1993); In re Hallahan, 936 F.2d 1496, 1508 (7th Cir.1991). Thus, it is illogical to separate the function of determining the validity of a claim from the function of fixing the claim's monetary value. See In re Devitt, 126 B.R. 212, 215 (Bankr.D.Md.1991). 14 Section 502 therefore required the bankruptcy court to determine[ ] the validity of the claim[s] and the amount allowed. Kane v. Johns-Manville Corp., 843 F.2d 636, 646 (2d Cir.1988). It was then but a short and logical step for the bankruptcy court to enter a money judgment against Porges, on the basis of its section 502 determination, pursuant to Federal Rule of Civil Procedure 58 5 and Bankruptcy Rule 9021. 6 Rule 58 directs the clerk of the court to enter judgment in favor of a prevailing party on a separate document following a decision by the court, and it serves to inform the parties that the court has reached a final decision. See Ellender v. Schweiker, 781 F.2d 314, 317 (2d Cir.1986). Bankruptcy Rule 9021 incorporates Rule 58 and likewise directs that [e]very judgment entered in an adversary proceeding on a contested matter shall be set forth on a separate document. As the bankruptcy court had determined the validity and amount of Gruntal's claims following the trial of the adversary proceeding, and as the bankruptcy court's jurisdiction over the adversary proceeding survived the dismissal of Porges' bankruptcy case, entry of judgment pursuant to Rule 58 and Bankruptcy Rule 9021 was appropriate. See Reid v. White Motor Corp., 886 F.2d 1462, 1468 (6th Cir.1989) (holding Rule 58 and Bankruptcy Rule 9021 applied in decision denying proofs of claim following adversary proceeding), cert. denied, 494 U.S. 1080, 110 S.Ct. 1809, 108 L.Ed.2d 939 (1990); see generally United States v. Indrelunas, 411 U.S. 216, 221-22, 93 S.Ct. 1562, 1564-65, 36 L.Ed.2d 202 (1973) (per curiam) (holding that in order to prevent uncertainty Rule 58 must be mechanically applied). 15 The entry of a money judgment also finds support in the bankruptcy court's inherent equitable powers. It has long been the rule that bankruptcy courts sit as courts of equity, see Pepper v. Litton, 308 U.S. 295, 304-05, 60 S.Ct. 238, 244, 84 L.Ed. 281 (1939), and once a court sitting in equity has jurisdiction over the parties to a controversy brought before it, the court can decide all disputed matters and decree complete relief. Alexander v. Hillman, 296 U.S. 222, 242, 56 S.Ct. 204, 211, 80 L.Ed. 192 (1935); see also In re Hallahan, 936 F.2d at 1508; In re Beck Indus., 605 F.2d 624, 634 (2d Cir.1979); cf. Abramowitz v. Palmer, 999 F.2d 1274, 1279 (8th Cir.1993) (holding that bankruptcy court possessed jurisdiction to enter money judgment in non-core proceeding against third party). 16 The bankruptcy court properly exercised such discretion in this case. While Porges obtained a dismissal of his bankruptcy case and chose not to convert his petition to a proceeding under another chapter of the Bankruptcy Code, he previously had sought bankruptcy protection and initiated the adversary proceeding. Porges thus subjected himself  'to all the consequences that attach to an appearance,'  including the determination of liability on Gruntal's claims. 7 In re McLaren, 3 F.3d at 966 (quoting Hillman, 296 U.S. at 242, 56 S.Ct. at 211). A party seeking relief in bankruptcy court cannot avoid an adverse judgment by subsequently abjuring bankruptcy protection. See Pepper, 308 U.S. at 305, 60 S.Ct. at 244 (holding that where a court possesses jurisdiction over a disputed matter, it may exercise its equitable powers to ensure that substance will not give way to form, [and] that technical considerations will not prevent substantial justice from being done). 8 Finally, the exercise of a court's equitable powers to enter judgment is particularly appropriate where the court's decision would have preclusive effect in any subsequent proceedings. See Walter E. Heller & Co. v. Cox, 343 F.Supp. 519, 524 (S.D.N.Y.1972) (holding that bankruptcy court's decision with respect to a creditor's claim for money or for property is a final judgment and should be given the same effect as any other judgment of a competent court, in a subsequent suit against the bankrupt or anyone in privity with him) (citations omitted), aff'd without opinion, 486 F.2d 1398 (2d Cir.), cert. denied, 414 U.S. 827, 94 S.Ct. 46, 38 L.Ed.2d 61 (1973); accord In re Baudoin, 981 F.2d 736, 742 (5th Cir.1993) (noting that order allowing proof of claim constitutes final judgment); Sure-Snap Corp. v. State Street Bank & Trust Co., 948 F.2d 869, 870 (2d Cir.1991) (holding that debtor whose plan of reorganization had been confirmed by bankruptcy court could not later bring lender liability claims against creditors where those claims could have been raised in bankruptcy proceeding). 17 Porges argues that the entry of judgment in favor of Gruntal violated the chief goals of bankruptcy, including the orderly and equal distribution of a bankruptcy estate's assets among all creditors and the rehabilitation of debtors. Specifically, Porges asserts that the bankruptcy court placed Gruntal ahead of Porges' other creditors by entering judgment for Gruntal. Porges' voluntary dismissal of his bankruptcy case after learning of a probable adverse decision leads one to question his concern for his other creditors, and in any case the dismissal lifted the automatic bankruptcy stay and rendered moot the concept of equal treatment among creditors. The dismissal did not, however, shield Porges from the legal consequences of a determination in a previous adversary proceeding.