Court Opinion

ID: 894673
Source: CourtListenerOpinion
Date Created: 2013-06-06 20:11:03.177247+00
Date Added: 2024-06-11T13:42:19.860967
License: Public Domain

IN THE SUPREME COURT OF 
TEXAS
 
════════════
No. 
03-0784
════════════
 
Peter C. 
Browning, et al., Petitioners,
 
v.
 
Jeff P. 
Prostok, et al., Respondents
 
════════════════════════════════════════════════════
On Petitions for Review 
from the
Court of Appeals for the 
Fifth District of Texas
════════════════════════════════════════════════════
 
 
Argued October 19, 2004
 
 
Justice Wainwright delivered the 
opinion of the Court.
Justice O’Neill did not participate in 
the decision.
This 
dispute arises out of highly contentious bankruptcy proceedings. During the 
bankruptcy proceedings, a committee representing bond and trade unsecured 
creditors vigorously disputed the valuation of the debtor as presented by the 
debtor’s management. The committee sought to replace the debtor’s management 
with a bankruptcy trustee, based in part on allegations of intentional 
undervaluation of the debtor. In addition, the committee objected to the 
debtor’s plan of reorganization, again raising allegations of intentional 
undervaluation. Over two years after the bankruptcy court entered its order 
confirming the reorganization plan proposed by the debtor, a class of 
bondholders brought this suit. The class of bondholders alleges that the 
officers and directors breached their fiduciary duties by intentionally 
undervaluing the debtor during the bankruptcy proceedings. The trial court 
granted summary judgment against the class and entered a take-nothing judgment. 
We consider whether the class claims, based on conduct occurring during 
bankruptcy proceedings, can be maintained in state court years after the 
bankruptcy court’s final order confirming the debtor’s reorganization plan. We 
conclude that the claims cannot.
I. Background and Procedural History
A. 
Bankruptcy Proceedings
On 
October 28, 1990, National Gypsum Company and its parent holding company, Aancor Holdings (collectively National Gypsum), filed 
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy 
Code. The United States Bankruptcy Court for the Northern District of Texas, 
Dallas Division, consolidated and jointly administered the cases.
National 
Gypsum had three classes of publicly traded debt: 1) senior notes, 2) senior 
debentures, and 3) junior bonds. The senior notes and senior debentures were 
held by several entities known collectively as the Senior Bondholders. The 
junior bonds were held by persons and entities referred to as Junior 
Bondholders, and include Jeff Prostok and the class 
members he represents. In addition, there were parties holding actual or 
potential claims against National Gypsum arising from personal injury and 
property damage related to asbestos products, the Asbestos Claimants. This case 
stems from conflicts that arose during the bankruptcy proceedings between the 
Junior Bondholders and Asbestos Claimants, on one side, and the Senior 
Bondholders and National Gypsum management, on the other.
During 
the bankruptcy proceedings, National Gypsum operated as debtor-in-possession 
under the Bankruptcy Code.[1] 
In November 1990, the United States trustee appointed a committee of bond and 
trade unsecured creditors (the BT Committee) to serve as a statutory creditors’ 
committee in the Chapter 11 proceedings.[2] 
Section 1104 of the Bankruptcy Code authorizes the bankruptcy court to replace a 
debtor-in-possession with an appointed trustee upon a determination that it 
would be in the best interest of the debtor’s stakeholders or upon a 
determination of “cause, including fraud, dishonesty, incompetence, or gross 
management.” 11 U.S.C. ' 
1104(a).[3] 
In January 1992, the BT Committee moved to replace National Gypsum’s management 
with a bankruptcy trustee for the National Gypsum estate. The BT Committee 
claimed, among other things, that National Gypsum management had intentionally 
undervalued National Gypsum by “understat[ing] all its forecasts to hide its objective views of the 
company.” After a two-day hearing on the motion in March 1992, the bankruptcy 
court held that the BT Committee did not meet its burden on this issue and 
denied the BT Committee’s motion.
National 
Gypsum submitted a plan of reorganization to the bankruptcy court based on a 
$350 million valuation of National Gypsum. As part of National Gypsum’s proposed 
plan, a second corporate entity, a new National Gypsum Company (New NGC), would 
receive National Gypsum’s operating assets and ongoing business. The plan 
provided that the officers and directors of National Gypsum would remain as the 
initial management of New NGC. New NGC stock would be largely owned by the 
Senior Bondholders, with Junior Bondholders receiving warrants to acquire New 
NGC stock. 
However, 
the BT Committee was not satisfied with the plan and proposed a competing plan 
based on a $630 million valuation of National Gypsum. In November 1992, the BT 
Committee filed its objections to National Gypsum’s plan of reorganization. The 
BT Committee alleged that National Gypsum’s “[m]anagement knowingly misrepresented [National Gypsum’s] 
future business prospects and value.” The BT Committee explained that:
 
[i]n exchange for greater than 100% recovery and control of 
the reorganized company’s board of directors, certain post petition acquirors of Senior Notes . . . publicly accepted the 
[National Gypsum] Plan, including its management-entrenchment and enrichment 
provisions. Hence, management deceived [National Gypsum’s] creditors with a 
misrepresentation of the value of the company to coax a small creditor faction 
into supporting its plan and opposing the BT Plan.
 
Confirmation 
proceedings on the competing plans of reorganization began in December 1992. At 
the conclusion of the valuation phase of the proceedings, the bankruptcy court 
concluded that the BT Committee plan could not be confirmed because it failed to 
prove the value of National Gypsum as of the effective date of the plan of 
reorganization. The order confirming the National Gypsum reorganization plan was 
entered on March 9, 1993 and was effective as of July 1, 1993.
An 
interested party may contest a bankruptcy confirmation order within 180 days 
after its entry on the basis that it was procured by fraud. 11 U.S.C. § 1144. 
The 180-day period expired on September 9, 1993. No interested party requested 
that the order be set aside within the 180-day period or otherwise appealed the 
confirmation order. In October 1993, New NGC announced a new cost-savings plan 
that allegedly resulted in an annual reduction of expenses of $30 to $40 million 
dollars.
B. 
Current Litigation
Prostok, individually and on behalf of all other Junior 
Bondholders, filed the current case in state court in October 1995 against the 
former officers and directors of National Gypsum (Officers and Directors) and 
their financial advisor, Donaldson, Lufkin & Jenrette Securities Corporation 
(DLJ).[4]
Prostok amended his petition to add one of the Senior 
Bondholders, TCW.[5]
Prostok sued for breach of fiduciary duties, fraud and 
constructive fraud, and civil conspiracy against all the defendants. Prostok also brought claims against DLJ and the Officers and 
Directors for gross negligence, and alternative claims against TCW and DLJ for 
participating, aiding, assisting, and/or inducing breach of fiduciary 
duties.
Prostok alleges that during the course of the bankruptcy 
proceedings, the Senior Bondholders, the Officers and Directors, and their 
financial advisors intentionally undervalued National Gypsum by concealing a 
plan to dramatically reduce the company’s operating expenses. Specifically, 
Prostok alleges that the Officers and Directors 
represented that National Gypsum was worth $300 to $375 million, based on 
management’s “best estimate and intention of how the company would operate once 
out of bankruptcy,” though the Officers and Directors were fully aware of the 
cost-savings plan later announced in October 1993. Prostok alleges that this cost-savings plan resulted in an 
increase in the market value of New NGC’s outstanding stock from $350 million to 
almost $1 billion. According to Prostok, had the 
Officers and Directors disclosed the plan to cut expenses to the bankruptcy 
court, the value assigned to National Gypsum would have been higher, and the 
distribution to the Junior Bondholders would have been greater. Prostok claims that as a result of the cost-savings plan, 
the value in stock acquired by Senior Bondholders by reorganization far exceeded 
its initial value, resulting in a windfall for Senior Bondholders. Prostok alleges that in exchange for their participation in 
concealing the cost-savings plan, the Officers and Directors maintained their 
positions in New NGC and received lucrative incentive deals.
On 
November 15, 1995, the Officers and Directors and DLJ (the only defendants at 
the time) removed the case to federal district court. The bankruptcy court 
remanded the case to state court for lack of federal jurisdiction. The federal 
district court affirmed the remand order.
On 
March 30, 1998, New NGC intervened in the action. New NGC asserted that under 
the terms of the reorganization plan, it owned the claims asserted by Prostok, and thus Prostok’s class 
lacked standing to raise the claims. New NGC sought a declaratory judgment to 
that effect.[6]
On 
February 1, 1999, the Officers and Directors, DLJ, New NGC, and TCW (except The 
TCW Group, Inc.) joined in a motion for summary judgment asserting that Texas 
law did not recognize Prostok’s claims.[7] 
TCW (except The TCW Group, Inc.) filed a separate supplemental motion for 
summary judgment against Prostok, asserting statute of 
limitations, res judicata, 
collateral estoppel, and lack of a fiduciary duty.[8]
On 
March 1, 1999, the trial court specifically denied TCW’s motion for summary judgment on limitations grounds but 
granted summary judgment in favor of the Officers and Directors, TCW, and New 
NGC without specifying grounds. On April 21, 1999, the trial court signed a 
final judgment and dismissed New NGC’s plea in intervention as moot.
C. 
Appeals
Prostok appealed the trial court’s final take-nothing 
judgment. Subsequently, DLJ and several of the Officers and Directors settled 
their disputes with Prostok and the class. 
Accordingly, the court of appeals severed the claims between these parties and 
remanded them to the trial court to effectuate their settlements. Thus, the 
remaining parties on appeal were Prostok, the 
non-settling Officers and Directors,[9] 
TCW, and New NGC.
Prostok complained on appeal that the trial court erred in 
granting summary judgment on his claims against the Officers and Directors and 
TCW. The court of appeals held that none of the theories asserted by the 
Officers and Directors could support summary judgment. The court of appeals 
reversed the summary judgment granted in favor of the Officers and Directors 
against Prostok.
TCW 
cross-appealed the trial court’s denial of its motion for summary judgment on 
statute of limitations grounds. The court of appeals held that TCW’s motion for summary judgment on statute of limitations 
grounds was meritorious. Thus, the court of appeals effectively affirmed the 
trial court’s judgment in favor of TCW on different grounds than the trial court 
articulated in its judgment.[10] 
New NGC cross-appealed, complaining that the trial court erred in failing to 
consider and sustain New NGC’s standing argument as an alternative ground for 
dismissal.[11] 
The court of appeals reversed the trial court’s dismissal of New NGC’s 
intervention as to the surviving causes of action. The court of appeals remanded 
this “ownership” issue to the trial court as a challenge to capacity to sue, 
instead of as a standing issue as it was raised by New NGC. Therefore, the court 
of appeals held that Prostok take nothing from TCW 
because of statute of limitations but remanded all other pending claims to the 
trial court.
The 
Officers and Directors petitioned this Court for review, arguing that the court 
of appeals erred in reversing summary judgment. Specifically, they argue that 
summary judgment was proper because: 1) Prostok’s 
claims are an impermissible collateral attack on the bankruptcy court’s final 
judgment; 2) Texas law does not recognize the duty on which Prostok’s claim relies; 3) Prostok’s claims, which arise from alleged misconduct in 
prior litigation, are precluded under this Court’s holding in Trevino v. 
Ortega, 969 S.W.2d 950 (Tex. 1998); 4) the court of appeals erred in 
reversing summary judgment on the ground that Prostok 
could rely on federal bankruptcy law for the existence of a fiduciary duty in 
state court; and 5) summary judgment was proper on Prostok’s conspiracy claim because it derives from Prostok’s other alleged tort claims.
New 
NGC also petitioned this Court for review arguing that the court of appeals 
erred in holding that its claim of ownership merely raised an issue of capacity 
to sue. New NGC argues that Prostok lacks standing to 
bring claims for harm suffered by the estate. Lastly, Prostok petitions this Court for review arguing that the 
court of appeals erred in holding that its claims against TCW were barred by 
limitations.
II. Standard of Review
In 
a summary judgment motion brought under Texas Rule of Civil Procedure 166a(c), 
the moving party has the burden of showing that there is no genuine issue as to 
any material fact and that it is entitled to judgment as a matter of law. 
Provident Life Ins. Co. v. Knott, 128 S.W.3d 211, 215B16 
(Tex. 2003).
The 
trial court’s order specifically rejected the motions based on statute of 
limitations but does not specify which of the remaining grounds asserted formed 
the basis of its summary judgment. Thus, we may affirm the summary judgment if 
any of the theories presented to the trial court and preserved for appellate 
review are meritorious. Id. at 216.
III. Finality of Confirmation Orders
Section 
1144 of the United States Bankruptcy Code provides that upon proper request made 
within 180 days of the entry of the confirmation order and after notice and a 
hearing, the bankruptcy court may revoke the order if and only if the order was 
procured by fraud. 11 U.S.C. ' 
1144. Section 1144 provides the exclusive means for revoking a confirmation 
order. Dale C. Eckert Corp. v. Orange Tree Assocs. (In re Orange Tree 
Assocs.), 961 F.2d 1445, 1447 n.6 (9th Cir. 1992) (quoting In re Longardner & Assocs., 855 F.2d 455, 460 (7th Cir. 
1988)); In re Newport Harbor Assocs., 589 F.2d 20, 23B24 
(1st Cir. 1978). Any attempt to revoke a confirmation order after expiration of 
the 180-day limitations period is barred even if the alleged fraud is not 
discovered until then. In re Orange Tree Assocs., 961 F.2d at 1447; 
see also Farley v. Coffee Cupboard, Inc. (In re Coffee Cupboard, 
Inc.), 119 B.R. 14, 19 (E.D.N.Y. 1990) (“The 180 day time limit in Section 
1144 has been strictly enforced by the courts . . . even to the extent of 
enforcing it in those cases where the alleged fraud of the debtor is not 
discovered until after the limitations period.”) (citations omitted).
In 
accordance with these principles, the First Circuit in Newport Harbor 
held that notwithstanding the court’s traditional equitable powers or powers 
conferred by Federal Rule of Civil Procedure 60(b), a motion seeking to revoke 
an order confirming a Chapter 11 reorganization plan filed three years outside 
the applicable limitations period was filed too late.[12] 
589 F.2d. at 23B24. 
However, the First Circuit also recognized that while the revocation provision 
provides the exclusive means for revoking a confirmation plan for fraud, it does 
not necessarily provide the exclusive remedy for debtors or creditors who have 
been injured by fraud. Id. at 24 (applying the Bankruptcy Act predecessor 
to Bankruptcy Code Section 1144 and stating, “Our opinion should not be read to 
suggest that the Debtors or other creditors who may have been injured by fraud 
are necessarily without other remedies in other forums.”). The court recognized 
that the “doctrines of res judicata and collateral estoppel 
would not bar such an action, at least where the alleged fraud could not have 
been asserted in the bankruptcy proceedings, the underlying factual claims were 
not actually adjudicated, and the relief sought would not upset the confirmed 
plan of arrangement.” Id. (emphasis added).
Some 
federal courts have held that Section 1144 is not the exclusive remedy for 
debtors or creditors subject to a fraudulently obtained confirmation order 
if an independent action may otherwise be maintained for the fraudulent 
conduct. See id.; see also In re Coffee Cupboard, Inc., 119 B.R. 
at 19 (“Section 1144 does not act as a bar to truly independent courses of 
action based on a debtor’s wrongful conduct.”). However, debtors and creditors 
“may not attack confirmation orders by simply characterizing their attempt as an 
independent cause of action.” In re Coffee Cupboard, Inc., 119 B.R. at 
19. The Fifth Circuit has also determined that even though an action has an 
independent purpose and contemplates some other relief, “it is a collateral 
attack if it must in some fashion overrule a previous judgment.” Miller v. 
Meinhard-Commercial Corp., 462 F.2d 358, 360 (5th 
Cir. 1972).
An 
action is not truly independent when maintenance of the action would violate 
established finality doctrines or constitute an impermissible collateral attack 
on the confirmation order. See In re Newport Harbor Assocs., 589 F.2d at 
24 (recognizing that a subsequent action could be barred by res judicata and collateral estoppel). Section 1144 provides a means, within a 
prescribed time limit, to revoke a confirmation order under limited 
circumstances. F & M Marquette Nat’l Bank v. Emmer Bros. Co. (In 
re Emmer Bros. Co.), 52 B.R. 385, 390 (Bankr. D. 
Minn. 1985). A collateral attack brought outside Section 1144's strict time 
limit represents nothing more than an impermissible attempt to enlarge the time 
limit. See id. at 391 (noting that the Section 1144 time limit cannot be 
enlarged, and later noting that if an action for fraud is construed as an 
attempt to revoke the confirmation order, then it is barred by the limitations 
period in Section 1144). An attempt to revoke a confirmation order in a separate 
proceeding is a collateral attack on the order. See id. (holding that 
creditors’ complaint was “not an attempt to revoke or otherwise collaterally 
attack the confirmation order that is subject to the limitations period of 
Section 1144”). An action which, in effect, attempts to revoke a 
confirmation order is also a collateral attack. See Miller, 462 F.2d at 
360 (“[I]t is a collateral attack if it must in some fashion overrule a previous 
judgment.”). Thus, if Prostok’s claims constitute an 
impermissible collateral attack on the confirmation order, Section 1144 of the 
Bankruptcy Code provides his exclusive remedy. We now turn to whether Prostok’s claims constitute an impermissible collateral 
attack.
IV. Collateral Attack
Collateral 
attacks on final judgments are generally disallowed because it is the policy of 
the law to give finality to the judgments of the courts. Tice v. City of 
Pasadena, 767 S.W.2d 700, 703 (Tex. 1989) (quoting Crouch v. McGaw, 138 S.W.2d 94, 96 (Tex. 1940)).
 
[T]he 
mischief of retrying every case in which the judgment or decree rendered on 
false testimony, given by perjured witnesses, or on contracts or documents whose 
genuineness or validity was in issue, and which are afterwards ascertained to be 
forged or fraudulent, would be greater, by reason of the endless nature of the 
strife, than any compensation arising from doing justice in individual 
cases.
 
United 
States v. Throckmorton, 98 U.S. 61, 68B69 
(1878). This policy of finality is especially important in a Chapter 11 
bankruptcy, where the proceedings are intended to rehabilitate a business. A 
confirmation plan affects the rights of, and restructures the relationships 
between, the debtor and its creditors. In re Newport Harbor Assocs., 589 
F.2d at 22. If the rehabilitative purpose of Chapter 11 is to be realized, 
Chapter 11 proceedings must be “concluded with reasonable expedition and 
finality so as to allow certainty for future business planning.” Id.; 
see also Kaufman v. Pub. Serv. Co. (In re 
Pub. Serv. Co.), 43 F.3d 763, 768 (1st Cir. 1995) 
(“[T]he willingness of future claimants and creditors to compromise in chapter 
11 proceedings depends on giving the reorganization court’s approval a due 
measure of finality.”); Christopher v. Am. Universal Ins. Group (In re 
Christopher), 148 B.R. 832, 837 (Bankr. N.D. Tex. 
1992) (“A strong policy favors enforcement of the plan of reorganization because 
too many rights of too many interests have relied on the finality of the 
confirmation order.”). A collateral attack runs counter to this strong policy of 
finality because a collateral attack attempts to bypass the appellate process in 
challenging the integrity of a judgment.
A 
collateral attack is an attempt to avoid the binding force of a judgment in a 
proceeding not instituted for the purpose of correcting, modifying, or vacating 
the judgment, but in order to obtain some specific relief which the judgment 
currently stands as a bar against. Crawford v. McDonald, 33 S.W. 325, 327 
(Tex. 1895); see also Biaza v. Simon, 879 
S.W.2d 349, 353 (Tex. App.CHouston 
[14th Dist.] 1994, writ denied) (citing Crawford, 33 S.W. at 327). Only a 
void judgment may be collaterally attacked. Browning v. Placke, 698 S.W.2d 362, 363 (Tex. 1985). A judgment is 
void only when it is apparent that the court rendering judgment “had no 
jurisdiction of the parties or property, no jurisdiction of the subject matter, 
no jurisdiction to enter the particular judgment, or no capacity to act.” 
Id. (citing Austin Indep. Sch. Dist. v. Sierra Club, 495 S.W.2d 878, 881 (Tex. 
1973)). A confirmation order issued by a bankruptcy court has the effect of a 
judgment rendered by a district court. Miller, 462 F.2d at 360; In re 
Emmer Bros., 52 B.R. at 390. Prostok does not 
argue that the bankruptcy order was void; therefore, any collateral attack is 
improper.
The 
heart of Prostok’s complaint is that the alleged 
misconduct of the Officers and Directors and TCW during the bankruptcy 
proceedings resulted in the bankruptcy court’s undervaluation of National 
Gypsum. In turn, he argues, the Junior Bondholders received less than what they 
would have received had the estate been properly valued. To calculate the 
damages incurred by Prostok and the Junior Bondholders 
he represents, a court would need to determine not only how much larger the 
bankruptcy estate would have been but for the defendants’ conduct, but also what 
percentage of the estate each class of creditors would have been entitled to if 
the bankruptcy court had considered the larger estate. Thus, while Prostok’s action contemplates relief other than revoking the 
confirmation order, it necessarily challenges the integrity of the order and 
results in a review, perhaps a recalculation, of the bankruptcy determinations 
of the assets to which some claimants are entitled. See Miller, 462 F.2d 
at 360 (holding an unsecured creditor’s post-confirmation suit against a secured 
creditor for fraudulent misrepresentation at a creditors’ meeting constituted a 
collateral attack on the confirmation order); Mitchell v. Village Creek 
Drainage Dist., 158 F.2d 475, 477B78 
(8th Cir. 1946) (state law defining collateral attack generally as a separate 
proceeding in which the integrity of the judgment is challenged even if brought 
with some independent purpose); In re French Gardens, Ltd., 58 B.R. 959, 
963 (Bankr. S.D. Tex. 1986) (“Though an action may 
have an independent purpose and may contemplate some other relief, it is a 
collateral attack if it must in effect overrule a previous judgment.”). The 
success of Prostok’s state court suit necessarily 
turns upon what the judgment of the bankruptcy court should have been. See 
Miller, 462 F.2d at 360.
The 
court of appeals held that Prostok’s claims do not 
collaterally attack the confirmation order because they are based on conduct 
extrinsic to the confirmation order. 112 S.W.3d at 905. This Court has held that 
when a party does not seek to set aside a prior judgment, but instead brings 
suit based on extrinsic fraud, the action is not a collateral attack. State 
v. Durham, 860 S.W.2d 63, 67 (Tex. 1993) (recognizing, in a suit brought by 
the state for fraud in obtaining court approval for an oil and gas lease, that 
the State had not sought to set aside the judgment but had “alleged fraud 
extrinsic to the judgment, and invoke[d] the equity powers of the court to 
impose a constructive trust”); cf. Spera v. Fleming, Hovenkamp & Grayson, P.C., 25 S.W.3d 863, 871 (Tex. 
App.CHouston 
[14th Dist.] 2000, no pet.) (holding that extrinsic conduct that formed the 
basis of claims for attorney malpractice and breach of fiduciary duty were not a 
collateral attack on trial court’s order apportioning attorneys’ fees). In 
contrast, the underlying issues resolved by a judgment are considered intrinsic. 
See King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 752 (Tex. 2003) 
(“Issues underlying the judgment attacked by a bill of review are intrinsic and 
thus have no probative value on the fraud necessary to [support] a bill of 
review.”). An attack on a final judgment, otherwise constituting a collateral 
attack, cannot be maintained on grounds that the judgment was obtained through 
fraudulent conduct intrinsic to the judgment. See Neill v. Neill, 386 
S.W.2d 642, 647 (Tex. Civ. App.CAustin 
1965, writ dism’d) (“Neither a collateral nor a direct 
attack upon a prior judgment can be based upon intrinsic fraud.”).
Extrinsic 
fraud is fraud that denies a losing party the opportunity to fully litigate at 
trial all the rights or defenses that could have been asserted. Montgomery v. 
Kennedy, 669 S.W.2d 309, 312 (Tex. 1984) (citing Alexander v. Hagedorn, 226 S.W.2d 996, 1001 (Tex. 1950)). It 
generally includes wrongful conduct occurring outside of the adversarial 
proceedings. See Hagedorn, 226 S.W.2d at 
1002 (citing Phillips Petroleum Co. v. Jenkins, 91 F.2d 183, 187 (8th 
Cir. 1937)). The fraud must be collateral to the matter tried and not something 
which was actually or potentially in issue. Montgomery, 669 S.W.2d at 
312. For example, a fiduciary’s concealment of material facts to induce an 
agreed or uncontested judgment, which prevents a party from presenting his legal 
rights at trial, is extrinsic fraud. Id. at 313.
Intrinsic 
fraud, by contrast, “relates to the merits of the issues [that] were presented 
and presumably were or should have been settled in the former action.” 
Tice, 767 S.W.2d at 702. Intrinsic fraud includes fraudulent instruments, 
perjured testimony, or any matter which was actually presented to and considered 
by the trial court in rendering judgment. Id.; see also 
Montgomery, 669 S.W.2d at 313 (“It is particularly well-established that the 
alleged perjury of a witness on a contested issue, which the opposing party had 
the opportunity to refute, is intrinsic fraud.”). Allegations that a plaintiff 
conspired to suborn perjury is an allegation of intrinsic fraud. Tice, 
767 S.W.2d at 702. In addition, when the fraudulent acts themselves are in 
issue, or could have been in issue, in the prior proceeding, the fraud is 
intrinsic. Montgomery, 669 S.W.2d at 313 (citing Mills v. Baird, 
147 S.W.2d 312, 316 (Tex. Civ. App.CAustin 
1941, writ ref’d)). This Court has noted that while 
concealment of a material fact by a fiduciary charged with the duty of full 
disclosure generally is extrinsic fraud, where “the alleged specific fraudulent 
acts were known and in issue in the prior suit, the fraud is intrinsic.” 
Id. at 313B14. 
Similarly, the First Circuit affirmed a bankruptcy court’s injunction barring a 
civil action for fraud occurring in Chapter 11 proceedings “[b]ecause the alleged inaccuracies could have been, and in part 
were, litigated in the bankruptcy court.” In re Pub. Serv. Co., 43 F.3d at 768.
The 
distinction between extrinsic and intrinsic fraud as grounds for attacking a 
judgment represents a balance of competing concerns. On one hand, the sound 
policy of promoting finality in judgments arises from a general level of 
confidence that the adversarial process leading to judgment is reasonably 
effective to ascertain the merits of the controversy. See Restatement (Second) of Judgments § 70 
cmt. a (1982). While no system is infallible, 
“[e]ndless litigation, in which nothing was ever 
finally determined, would be worse than occasional miscarriages of justice.” 
Hagedorn, 226 S.W.2d at 998 (quoting Pico v. 
Cohn, 25 P. 970, 971 (Cal. 1891)). On the other hand, to fully insulate 
judgments from attack would give great protections to the most devious parties. 
See Restatement (Second) of 
Judgments § 70 cmt. a (1982) (“[I]f judgments 
were wholly immune it would give powerful incentive to use . . . fraudulent 
tactics in obtaining a judgment.”). As such, an attack upon a judgment based on 
intrinsic fraud is not allowed because the fraudulent conduct may be properly 
exposed and rectified within the context of the underlying adversarial process 
itself. In contrast, a collateral attack on a judgment on the basis of extrinsic 
fraud is allowed because such fraud distorts the judicial process to such an 
extent that confidence in the ability to discover the fraudulent conduct through 
the regular adversarial process is undermined. See Throckmorton, 
98 U.S. at 65 (“But there is an admitted exception to this general rule [of 
finality] in cases where, by reason of something done by the successful party to 
a suit, there was in fact no adversary trial or decision of the issue in the 
case.”); see generally 47 Am. 
Jur. 2d Judgments § 929 (1995) (citing Peet v. Peet, 429 
S.E.2d 487, 490 (Va. Ct. App. 1993)).
It 
is undisputed that the BT Committee represented the interests of Prostok and the other Junior Bondholders in the bankruptcy 
proceedings. 112 S.W.3d at 885. In January 1992, the BT Committee filed a motion 
requesting appointment of a Chapter 11 trustee to replace National Gypsum’s 
management pursuant to Section 1104 of the Bankruptcy Code. One of the grounds 
alleged was that management intentionally undervalued National Gypsum by 
manipulating downward the company’s value arising from its business plan. 
Specifically, the BT Committee claimed that “[m]anagement intentionally understated all its forecasts to 
hide its objective views of the company and to hide the company’s value.” In 
addition, the BT Committee asserted that this “manipulation [was] a weapon 
[m]anagement has used to try to eliminate the 
consensual plan forged by the BT Committee and to promote a war between the 
senior and junior bondholders.” The BT Committee made similar arguments at the 
hearing on the motion, making clear that the “debtor’s business plan is the 
driver of Chapter 11 plan negotiations because from that busi-ness [sic] plan, which typically extends several years 
into the future, future profits and cash flow are measured, and the valuation of 
a business is measured. If that business plan is manipulated down-wards [sic] . 
. . it affects the ultimate outcome of the case in a major way.” In March 1992, 
the bankruptcy court rejected the BT Committee’s motion for appointment of a 
trustee, and specifically held that the BT Committee had not met its burden to 
prove that National Gypsum’s management had intentionally manipulated the 
company’s business plan.
National 
Gypsum submitted a reorganization plan to the bankruptcy court based on a 
valuation of $350 million. In November 1992, the BT Committee objected to the 
confirmation of this plan. Again, the BT Committee raised an allegation of 
intentional undervaluation. The BT Committee alleged, among other things, that 
“[National Gypsum] management [had] systematically exploited the plan process 
and intentionally manipulated downward its business projections and [National 
Gypsum’s] value.” Further, the BT Committee alleged that this plan was supported 
by a small creditor faction “[i]n exchange for greater 
than 100% recovery and control of the reorganized company’s board of directors.” 
Confirmation hearings on the proposed plan began on December 7, 1992. On March 
9, 1993, the Bankruptcy Court entered its order confirming National Gypsum’s 
reorganization plan and its supporting findings of fact and conclusions of law. 
The bankruptcy court expressly overruled all objections to the confirmation of 
the plan and found that the debtor solicited the plan in good faith.
In 
this case, Prostok complains that the Officers and 
Directors intentionally misled the bankruptcy court regarding the proper 
valuation of National Gypsum. The controlling question is “whether the alleged 
fraud prevented the party from knowing about and presenting [their] legal rights 
at trial.” Montgomery, 669 S.W.2d at 314. The alleged fraudulent conduct, 
the misrepresentation of the value of National Gypsum, is a material issue that 
was presented and considered by the bankruptcy court over two years before Prostok filed this suit. The conduct was considered by the 
bankruptcy court in rendering judgmentCspecifically, 
when the trial court denied the BT Committee’s motion to appoint a trustee and 
again in overruling the BT Committee’s objection to the confirmation of National 
Gypsum’s proposed reorganization plan. The fraud Prostok now alleges did not prevent the Junior Bondholders 
from presenting their legal rights in the bankruptcy proceedings. In fact, the 
BT Committee raised and litigated at the bankruptcy court the fraud Prostok now alleges. Fraud is intrinsic when the fraudulent 
conduct was in issue in the prior proceedings, even when the acts are committed 
by a fiduciary. Id. at 313B14. 
Because the fraud Prostok alleges was litigated in the 
bankruptcy proceedings, the alleged fraudulent conduct is intrinsic to the 
confirmation order. Therefore, Prostok’s allegations 
based on intrinsic fraud constitute an impermissible collateral attack on the 
bankruptcy’s confirmation order.
Prostok argues that, at a minimum, claims based on 
fraudulent conduct occurring post-confirmation could not have been subject to 
the confirmation order. It is axiomatic that fraud discovered post-confirmation 
could not have been litigated in the pre-confirmation bankruptcy proceedings. 
The post-confirmation conduct to which Prostok refers 
is the delayed implementation of a cost-savings plan. However, it is the 
misrepresentation of the proper valuation of National Gypsum, by failing to 
reveal this cost-savings plan to the bankruptcy court during the bankruptcy 
proceedings, that is ultimately the basis of Prostok’s alleged damages. In addition, the implementation 
of a cost-savings plan simply does not present the type of new evidence of fraud 
necessary to justify deviation from the general rule of finality. See In re 
Pub. Serv. Co., 43 F.3d at 768 (“Absent 
substantial new evidence of fraud, there is no reason why Congress would 
have wished, or the courts should permit, participants who actively participated 
in the reorganization to relitigate in later civil 
actions previously raised issues about the adequacy of the disclosure statement, 
or to reserve for such actions claims that feasibly could have been made in the 
reorganization.”).
Prostok also argues that we cannot treat his claims as a 
collateral attack on the bankruptcy court’s confirmation judgment because the 
bankruptcy court itself expressly rejected this argument. In ruling on Prostok’s motion to remand, the bankruptcy judge held that 
the complaint did not give rise to ancillary jurisdiction under the Fifth 
Circuit’s decision in Baccus v. Parrish, 
45 F.3d 958, 960B61 
(5th Cir. 1995) (finding removal proper where a state suit sought to set aside 
provisions of a settlement agreement in a federal case). This ruling was 
subsequently upheld by the district court on appeal of the bankruptcy court’s 
order remanding the case to state court. Specifically, the bankruptcy judge held 
that the “complaint does not seek to attack or undermine an order of this 
court.” Even if these statements refer to the issue of whether Prostok’s claims constitute a collateral attack on the 
judgment, because the bankruptcy court held that it lacked subject matter 
jurisdiction to rule on the substance of the case, the statements carry no 
preclusive effect on this Court’s consideration of the substantive collateral 
attack defense. See Smith v. Texas Children’s Hosp., 172 F.3d 923, 926 
(5th Cir. 1999); Soley v. First Nat’l Bank 
of Commerce, 923 F.2d 406, 409 (5th Cir. 1991) (citing Whitman v. Raley’s Inc., 886 F.2d 1177, 1181 (9th Cir. 1989)) (“We 
take comfort in the fact that, because we construe the order as jurisdictional, 
the district court’s statements will have no preclusive effect on the state 
court’s consideration of the substantive preemption defense.”).
Finally, 
the court of appeals relies heavily on several federal cases for the proposition 
that “bankruptcy courts agree that Section 1144 does not bar fraud claims unless 
those claims would require revocation of a confirmed plan.” 112 S.W.3d at 903 
(citing S.N. Phelps & Co. v. Circle K Corp. (In re Circle K 
Corp.), 181 B.R. 457, 460 (Bankr. D. Ariz. 1995); 
In re Emmer Bros. Co., 52 B.R. at 392). In both of these cases the courts 
determined that the cause of action was the type of independent action 
contemplated in Newport Harbor. However, these cases are readily 
distinguishable from the case at hand.
In 
Emmer Brothers, a creditor bank sued a debtor for wrongfully withholding 
and concealing the existence of an asset, thereby obtaining a settlement 
agreement and order approving it on false pretenses. 52 B.R. at 388. The 
bankruptcy court dismissed the complaint on two grounds, one of which was that 
it was time barred under Section 1144. On review, the district court held that 
the bank’s complaint was “not an attempt to revoke or otherwise collaterally 
attack the confirmation order that is subject to the limitations of Section 
1144.” Id. at 391 (emphasis added). The action was allowed to proceed. 
Applying the test in Newport Harbor, the court determined that the 
plaintiff could not have asserted the fraud in the Chapter 11 proceedings. 
Id. at 392. Thus, unlike the case at hand, the alleged fraudulent conduct 
was not and could not have been asserted in the underlying bankruptcy 
proceedings.
Similarly, 
in Circle K, the creditors sought damages based on allegations of 
improper conduct, defective disclosures, and erroneous valuation information in 
connection with the debtor’s plan of reorganization. 181 B.R. at 459. In 
determining whether the action was time barred by Section 1144, the bankruptcy 
court noted that “in applying Newport Harbor, courts look carefully at 
the cause of action and requested relief to determine if plaintiff is seeking to 
revoke [the] confirmation [order] or ‘redivide the 
pie.’” Id. at 462. Finding that the bare requirements of Newport 
Harbor were met, the bankruptcy court noted that arguably the alleged fraud 
could not have been asserted in the confirmation proceedings and that the 
underlying claims certainly were not actually adjudicated. Id. at 462. 
Again, Circle K does not present the situation, as in this case, where 
the alleged fraud was in fact asserted in the underlying bankruptcy 
proceedings.
V. Conclusion
Because 
we hold that Prostok’s suit constitutes an 
impermissible collateral attack on the confirmation order, we need not reach the 
other issues raised in the Officers and Directors’, New NGC’s, or Prostok’s petitions for review. Accordingly, we reverse the 
judgment of the court of appeals in part and affirm in part, and render judgment 
that Prostok take nothing.[13]
 
______________________________
J. 
Dale Wainwright
Justice
 
OPINION 
DELIVERED: May 27, 2005