Opinion ID: 195057
Heading Depth: 2
Heading Rank: 3

Heading: The Consent Order and the Dismissal of the Bankruptcy Appeal

Text: nisi pending resolution of the District Court Action. Thus, on February 22, 1991, the district court entered a Consent Order setting out the agreement. The Order stated that the District Court Action may resolve all pending issues, but made it clear that if further proceedings in [the Bankruptcy Appeal] become necessary or desirable, any party may initiate it in the same manner as if this order had not been entered. In effect, the order simplified the proceedings so that the issues between the parties would be resolved in the District Court Action rather than in the Bankruptcy Appeal. The Order did not refer to any agreement as to the res judicata effects of the Belmont Decision in the Adversary Proceeding. The appeal notwithstanding, the Belmont Decision already constituted a final judgment for res judicata purposes. See Katchen v. Landy Turshen v. Chapman So long as the bankruptcy proceeding was pending, however, the parties were under no practical compulsion to negotiate any agreement about the res judicata effects of the Belmont Decision. If the Bank raised a res judicata defense to Bogosian's counterclaims in the District Court Action, Belmont could simply reopen the Bankruptcy Appeal, pursuant to the Consent Order. It was not in the Bank's interest to raise the res judicata defense in the District Court Action because Belmont and Bogosian had an effective way to counter, i.e. , by reopening the Bankruptcy Appeal. The Consent Order, however, did not spell out any agreement as to what would happen to the Bankruptcy Appeal if the underlying Bankruptcy Proceeding were dismissed. This potentiality occurred little more than a year later. On February 28, 1992, the United States Trustee filed a motion to dismiss the Bankruptcy Proceeding on the grounds that Belmont had failed to confirm a plan of reorganization and had never filed monthly cash flow and profit and loss statements, as required by the Trustee. The bankruptcy court dismissed the Bankruptcy Proceeding on March 20, 1992. Belmont did not object, and the dismissal was considered voluntary. Neither Belmont nor Bogosian attempted to reopen the Bankruptcy Appeal. The district court, having been advised of the consensual dismissal of the Bankruptcy Proceeding, passed, i.e. , dismissed, the Bankruptcy Appeal on April 30, 1992. Once the Bankruptcy Appeal was dismissed, Bogosian lost her ability to pursue that appeal as a counterweight to any assertion by the Bank of a res judicata defense to her counterclaims in the District Court Action. By leave of the court, the Bank accordingly amended its Answer to Amended Counterclaims to include defenses of res judicata and collateral estoppel. Shortly thereafter, in June, 1992, the Bank filed its motion for summary judgment. Several months later, Belmont filed a motion in the district court pursuant to Rule 60(b) of the Federal Rules of Civil Procedure, seeking to amend the district court's order passing the Bankruptcy Appeal. Belmont asked the court to clarify that the dismissal was without prejudice to the right of Elizabeth V. Bogosian to raise any defense or make any assertion in the [District Court Action]. The district court denied the motion. On November 20, 1992, the district court granted in entirety the Bank's motion for summary judgment. As for the Belmont Note, the district court dismissed Bogosian's amended counterclaims on res judicata grounds. The court rejected Bogosian's argument that the Consent Order should be construed to prohibit the Bank from raising its res judicata defenses. Regarding the Bogosian Note, the court dismissed Bogosian's amended counterclaims on the grounds that Bogosian's fraud and breach of fiduciary duty allegations could not succeed as a matter of law. These appeals ensued.