Opinion ID: 11909
Heading Depth: 3
Heading Rank: 1

Heading: Identity and Privity of the Parties

Text: The bankruptcy court’s order authorizing the sale of the leasehold estate reflects that Edmond G. Miranne Jr., an attorneyat-law, appeared in court on the previous day, both pro se and as counsel for his father, in connection with the pending sale application by the trustee. The fact that the Mirannes’ wives, Rivet and Winer,47 did not personally appear and were not expressly identified by Miranne Jr. as parties that he represented, is of no significance. We have previously held that one individual’s participation in a bankruptcy proceeding may bind a non-party, such as a spouse, whose interests are closely aligned with and adequately represented by the person who did appear.48 Here, Rivet and Winer had interests identical to those of their husbands in the bankruptcy proceeding —— namely the preservation (more accurately here, the resurrection) and protection of the second mortgage. In fact, their subsequent state court complaint listed only the husbands as owners of the collateral mortgage note, even though it was presumptively community property under Louisiana law.49 Consequently, the husbands’ participation in the 1986 bankruptcy 47 In Louisiana, married women are entitled to retain and use their maiden names, and frequently do so in legal documents, such as deeds, mortgages, and pleadings, especially in New Orleans and the “country parishes” of South Louisiana. See La. Civ. Code art. 100. 48 Eubanks v. F.D.I.C., 977 F.2d 166, 170 (5th Cir. 1992). 49 See La. Civ. Code art. 2340 (“Things in possession of a spouse during the existence of a regime of community of acquets and gains are presumed to be community, but either spouse may prove that they are separate property.”). 18 proceedings by way of Edmond G. Miranne, Jr.’s appearance at the sale application hearing served as adequate representation of the interests of the spouses in community and was thus no less binding on the wives for claim preclusion purposes than it was on their husbands.50 With respect to the defendants, there is no dispute that FFB was a party to the bankruptcy proceedings as holder of the first mortgage and the eventual purchaser of the leasehold estate at the public auction. Neither is there doubt that Regions and FSA are successors-in-interest to FFB with respect to the property affected by the bankruptcy court orders. Again, the rule is well established that a judgment may have claim preclusive effect on a non-party if the non-party is a successor-in-interest to a party’s interest in property affected by the judgment.51 Consequently, both Regions and FSA are bound by the bankruptcy court’s orders to the same extent as is their predecessor, First Financial. Accordingly, we conclude that the first element of claim preclusion is clearly satisfied in this case with respect to all four plaintiffs and to 50 Under Louisiana’s community property laws, the rule of equal management generally applies to community property; however, the concurrence of both spouses is required for the alienation, encumbrance or lease of community immovables and in other limited situations specified by law. La. Civ. Code arts. 2346-47. As the collateral mortgage note held by the Mirannes is classified as an “incorporeal movable,” concurrence of the Mirannes’ spouses would not have been required for the husbands to alienate whatever rights flowed from their ownership of the note and the mortgage securing it. See Nathan, 49 La. L. Rev. at 44. 51 Meza v. General Battery Corp., 908 F.2d 1262, 1266 (5th Cir. 1990); Howell Hydrocarbons, Inc. v. Adams, 897 F.2d 183, 188 (5th Cir. 1990). 19 defendants Regions and FSA.52 2. A Court of Competent Jurisdiction and A Final Judgment The second and third claim preclusion elements are also present in the instant case. As a general proposition, district courts have jurisdiction over cases or civil proceedings arising under Title 11, or arising in or related to cases under Title 11.53 It follows that a district court has jurisdiction to authorize and approve a trustee’s sale.54 Indeed, a proceeding to sell property free and clear of liens pursuant to 11 U.S.C. § 363(b) and (f) is a core proceeding in which the bankruptcy court has jurisdiction to issue final orders and judgments.55 Here the proposed sale of the leasehold interest arose under and was related to THILP’s chapter 7 bankruptcy case. Consequently, the bankruptcy court had jurisdiction to consider the Trustee’s sale application and to issue the ensuing orders (1) authorizing the sale of the leasehold estate free and clear of specified junior liens, expressly including the second mortgage held by the Mirannes, and (2) approving that sale and directing the cancellation of those specified inferior encumbrances. 52 We acknowledge that this first condition of claim preclusion cannot be satisfied with respect to the Browns, but we dispose of the jurisdictional wrinkle raised by this fact below. See infra Part E. 53 28 U.S.C. § 1334(a),(b). 54 Southmark Properties v. Charles House Corp., 742 F.2d 862, 870 (5th Cir. 1984); In re Heine, 141 B.R. 185, 187 (Bank. D.S.D. 1992); see also Matter of Baudoin, 981 F.2d 736, 740 (5th Cir. 1983) (recognizing wide reach of jurisdiction under Title 11). 55 28 U.S.C. § 157(a),(b)(2)(N); Heine, 141 B.R. at 188. 20 Although they characterize the bankruptcy court’s sale orders as actions beyond the “power” of the bankruptcy court under the rules and provisions of the Bankruptcy Code,56 the Mirannes’ authority for this proposition does not comport with Congress’ jurisdictional grant to the district court —— and its adjunct, the bankruptcy court —— to determine whether property of a debtor should be sold free and clear of liens and encumbrances. The Mirannes, of course, were entitled to question whether the bankruptcy court properly exercised the powers granted to it by 11 U.S.C. § 363 in the particular circumstances of this case. This kind of substantive —— but not jurisdictional —— objection to a bankruptcy court’s orders, however, is one that had to have been timely raised either in an appeal or a motion for reconsideration, not eight years after the fact in a state court collateral attack on those orders. We reject out of hand the Mirannes’ specious contention that, for claim preclusion purposes, the bankruptcy court lacked jurisdiction to issue the 1986 sale orders. In addition, an order by a bankruptcy court authorizing or approving the sale of an asset of the bankrupt estate is a final judgment on the merits for res judicata purposes even if the order neither closes the bankruptcy case nor disposes of any claim.57 56 Appellants principally contend that the bankruptcy court order extinguishing the second mortgage was invalid because the order did not result from an adversary proceeding as required by Fed. R. Bank. Proc. 7001 and because the court did not satisfy the provisions of § 363(f)(1)-(5). 57 Matter of Baudoin, 981 F.2d at 742; Hendrick v. Avent, 891 F.2d 583, 586 (5th Cir.), cert. denied, 498 U.S. 819, 111 S.Ct. 64, 112 L.Ed.2d 39 (1990); Southmark Properties, 742 F.2d at 870. 21 Therefore, there can be no serious question that the bankruptcy court’s 1986 orders authorizing and approving the sale of the leasehold estate free and clear of essentially all liens and encumbrances were final judgments capable of precluding the Mirannes’ later filed state court collateral attack. It is equally beyond serious question that these final judgments affected issues of federal law: Bankruptcy is a quintessential federal question. 3. The Same Cause of Action In conducting our search for the presence of the fourth element required for the applicability of claim preclusion, we employ the transactional test of Section 24 of the Restatement (Second) of Judgments to determine whether the two suits in question involve the same claim for purposes of claim preclusion.58 Under the “same claim” inquiry, the critical issue is whether the two actions under consideration are based on the same nucleus of operative facts.59 In the instant case, we find that both the bankruptcy court’s 1986 orders authorizing and approving the sale of the leasehold estate free and clear of the Mirannes’ second mortgage and the Mirannes’ claims in their state court action are unquestionably based on, and in fact are entirely dependent on, the same nucleus of operative facts —— namely, the viability, the validity, the enforceability of the second mortgage. In “artfully” contending 58 Matter of Baudoin, 981 F.2d at 743; Southmark Properties, 742 F.2d at 870-71. 59 Matter of Baudoin, 981 F.2d at 743. 22 that their putative state cause of action arises solely out of the December 1993 transaction involving the Browns, Secor and FSA, the Mirannes studiously ignore the fact their claim relative to that 1993 transfer can go absolutely nowhere unless they can establish that their second mortgage was alive and well at that time, despite the 1986 bankruptcy court orders that expressly authorized and approved the sale of the leasehold estate free and clear of that mortgage and directed that it be canceled from the mortgage records of Orleans Parish. Without an extant enforceable mortgage, the Mirannes cannot forthrightly plead either a right of action or a cause of action in state court. Indeed, all of the acts of alleged wrongdoing in the December 1993 transaction are so inextricably intertwined with and dependent on the 1986 bankruptcy orders directing and approving the sale of the leasehold estate free and clear of the second mortgage that we would be hard pressed to conjure up a better hypothetical example of two actions arising from the same nucleus of operative facts. In this regard we remain ever mindful of the basic canon of Louisiana law that the public records do not create rights; the existence of the uncanceled inscription of the second mortgage on the public records could not keep the mortgage itself legally viable after the obligation it secured —— the collateral mortgage note —— as well as the mortgage, were terminated in the bankruptcy of the maker/mortgagor, THILP. A review of relevant case law applying res judicata principles in the bankruptcy context further confirms our analysis. On one 23 hand, our decisions have consistently held that under the transactional test a final bankruptcy court sale bars any subsequent claims that challenge the finality or integrity of the transfer of title pursuant to that sale.60 On the other hand, the Mirannes’ reliance on D-1 Enterprises, Inc. v. Commercial State Bank,61 a case in which we held that res judicata does not apply to claims that were largely unrelated to and which could not have been raised in an earlier bankruptcy proceeding, is inapposite to the instant case. Unlike the situation in D-1 Enterprises, here the Mirannes had far more than a mere opportunity to object to the sale of the leasehold estate in the bankruptcy court: They were invited by the court to file their objections; they actually appeared in court at the hearing scheduled for the airing of such objections; and once the court issued its sale order, they could have timely filed either a motion for reconsideration —— or a notice of appeal —— but they did neither. Given their personal attendance, together with these multiple waived or forfeited opportunities to raise and litigate their objections (if any) to the sale, the Mirannes cannot now contend —— at least not with a straight face —— 60 See Southmark Properties, 742 F.2d at 870-72 (debtor’s later filed lender liability action barred by bankruptcy court’s order authorizing sale of property in debtor’s estate “free and clear of all . . . claims” to secured creditor as both involved “common nucleus of operative facts”); Hendrick, 891 F.2d at 587 (trustee’s actions under RICO and securities laws barred by bankruptcy court’s sale order authorizing transfer of title of stock against which trustee had launched his collateral action). 61 864 F.2d 36 (5th Cir. 1989). 24 as did the debtor in D-1 Enterprises,62 that claim preclusion should not be applied because their claim could not have been effectively litigated in the earlier proceeding. Indisputably, all requisites of claim preclusion are present here, vis-á-vis Regions and FSA. As to these two defendants, therefore, we affirm the district court’s refusal to remand the Mirannes’ previously removed action under the artful pleading exception to the well-pleaded complaint doctrine.