Court Opinion

ID: 46136
Source: CourtListenerOpinion
Date Created: 2010-04-25 22:52:43+00
Date Added: 2024-06-11T17:17:33.972066
License: Public Domain

United States Court of Appeals
                                                                Fifth Circuit
                                                             F I L E D
               IN THE UNITED STATES COURT OF APPEALS
                       FOR THE FIFTH CIRCUIT               September 14, 2006

                                                         Charles R. Fulbruge III
                            No. 06-20180                         Clerk
                          Summary Calendar

In the Matter of:   DAVID LEE MONTGOMERY,

                                     Debtor,

DAVID LEE MONTGOMERY,

                                     Appellant,

versus

POPE MONTGOMERY ARCHITECTS & BUILDERS LLC; TOM POPE,

                                     Appellees.
                        ____________________

          Appeal from the United States District Court
               for the Southern District of Texas
                           (05-CV-1656)
                      _____________________

Before DAVIS, BARKSDALE, and BENAVIDES, Circuit Judges.

PER CURIAM:*

     In this bankruptcy proceeding, Defendant-Appellant David Lee

Montgomery appeals from a grant of summary judgment to Plaintiffs-

Appellees Pope Montgomery Architects & Builders LLC (PMAB) and Tom

Pope based on a bankruptcy court default judgment, which declared

the debts to be non-dischargeable.      For the reasons thoroughly

outlined by the bankruptcy court and district court, we affirm.

     *
        Pursuant to 5th Cir. R. 47.5, the Court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5th Cir. R.
47.5.4.

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I.   BACKGROUND

     In 2002, Montgomery sued PMAB and Pope in state court.                    Pope

filed a counterclaim in both his individual capacity and derivative

capacity on behalf of PMAB.             A jury found for PMAB on all of its

claims and for Pope on all but one of his claims.                      The verdict

awarded PMAB over one million dollars and Pope approximately

$87,500.00.         Following     entry    of     the    state    court   judgment,

Montgomery filed for Chapter 7 bankruptcy court protection.                    PMAB

and Pope filed a complaint, objecting to the dischargeability of

debts stemming from the state court proceeding.                    Montgomery then

converted his Chapter 7 proceeding to a Chapter 13 proceeding.

Montgomery    did    not   file    an     answer    to   the     complaint.    PMAB

subsequently filed for a default judgment, which was granted.                   The

default judgment stated that Montgomery’s debts to PMAB and Pope

were not entitled to discharge.                Following the default judgment,

Montgomery moved to dismiss his Chapter 13 proceeding.                    His motion

was granted.

     In September 2004, Montgomery filed for bankruptcy court

protection under Chapter 11.              PMAB and Pope filed a complaint,

seeking a determination that their claims were non-dischargeable

and claiming that—because of the default judgment—res judicata

precluded Montgomery from arguing that the state court judgment was

dischargeable.      Montgomery answered the complaint.               PMAB and Pope

moved for summary judgment.               The bankruptcy court granted the

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motion.      It upheld the default judgment, determined that res

judicata     applies        to    default      judgments,   and    concluded       that

Montgomery may not pursue a discharge for debts owed to PMAB or

Pope.    The district court affirmed.

II.    STANDARD   OF   REVIEW

       We   review       the    district      court’s   decision   under     the   same

standard     of    review        that   the    district   court    applied    to    the

bankruptcy court’s decisions.                 See Wells Fargo Bank of Texas N.A.

v. Sommers (In re Amco Ins.), 444 F.3d 690, 694 (5th Cir. 2006).

Findings of fact are reviewed for clear error; conclusions of law

are reviewed de novo.             Id.   A bankruptcy court’s grant of summary

judgment is appropriate when there is no genuine issue of material

fact and the moving party is entitled to a judgment as a matter of

law.    First Am. Title Ins. Co. v. First Trust Nat’l Ass’n (In re

Biloxi Casino Belle Inc.), 368 F.3d 491, 496 (5th Cir. 2004)

(citing FED. R. CIV. P. 56(c); BANKR. R. 7056).

III. DISCUSSION

        Montgomery makes three arguments on appeal: (1) the district

court erred in failing to recognize that it held the authority to

vacate the default judgment; (2) the district court erred in

holding that 11 U.S.C. § 349 will not serve to vacate a judgment

entered pursuant to a bankruptcy which was subsequently dismissed;

and (3) justice requires reversal because the underlying judgment

does not support a finding of non-dischargeability.

                                               3
      A.        Res Judicata Barred Vacatur of the Default Judgment

      Montgomery claims he is entitled to relief through Rule 60(b).

See FED. R. CIV. P. 60(b) (hereinafter “Rule 60(b)”).                Under Rule

60(b), a party may be relieved of a final judgment by making a

motion     to    the    court   or   filing   an   independent    action.     Id.

Montgomery claims he made a Rule 60(b) motion to the district court

in his brief.           In that brief, Montgomery, in arguing that the

district court should set aside the default judgment, quotes and

describes Rule 60(b) and then urges the court to apply it to the

case.      Montgomery does not move for vacatur under Rule 60(b) but

merely used it as an argument in support of vacatur.                 Montgomery

does the same here.         Therefore, we proceed to whether the district

court failed to recognize its authority to vacate the default

judgment, despite the fact that Montgomery failed to contest the

judgment.

      The district court did not have the authority to set aside the

final default judgment of the bankruptcy court.                  The doctrine of

collateral estoppel applies in discharge proceedings pursuant to §

523(a). Grogan v. Garner, 498 U.S. 279, 285 n.11 (1991).                  And, the

doctrine applies to a default judgment.             Morris v. Jones, 329 U.S.
545, 550–51 (1947) (“A judgment of a court having jurisdiction of

the parties and of the subject matter operates as res judicata, in

the   absence      of   fraud   or   collusion,    even   if   obtained    upon   a

default.”); Moyer v. Mathas, 458 F.2d 431, 434 (5th Cir. 1972).

                                          4
The bankruptcy court entered a default judgment because Montgomery

had failed to answer PMAB’s and Pope’s complaint.               The district

court recognized the res judicata effect of the bankruptcy court’s

default judgment.    That judgment was uncontested and not appealed.

Therefore, the district court did not err by failing to recognize

that it had the authority to set aside the default judgment.

     B.    Section 349 Does not Affect the Default Judgment

     Montgomery next argues that, because he converted his Chapter

7 bankruptcy to Chapter 13 bankruptcy at the time the default

judgment was entered, section 349 renders the default judgment not

preclusive.   See 11 U.S.C. § 349.             Section 349 states that the

“dismissal of a case under this title does not bar the discharge,

in a later case under this title, of debts that were dischargeable

in the case dismissed . . . .”           Id.    However, as the bankruptcy

court   astutely   explained:    “[T]o    read    §   349(a)   as   preserving

discharge rights in the face of a judgment denying discharge is a

misinterpretation of the statute.”         Moreover, the default judgment

stated that Montgomery was not entitled to discharge of the debts

per 11 U.S.C. § 523(a)(2)(A), (4), (6).           Montgomery concedes that

section 349 states that a dismissal vacates certain judgments but

does not list section 523.      See 11 U.S.C. 349(b)(2).       The dismissal

of the earlier bankruptcy therefore has no effect on the default

judgment entered.     Thus, Montgomery’s argument that section 349

affects a judgment under section 523(a) fails.

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     C.     Justice Does not Require Reversal

     Montgomery essentially argues that the default judgment was

erroneous for three reasons: (1) the jury damage findings are not

conclusive; (2) state law fraud does not satisfy the federal

requirements for bankruptcy fraud; and (3) the judgment exceeds the

state law cap on punitive damages.     The validity of the default

judgment is not before this Court.    Montgomery has had the chance

to attack the default judgment, but it is not through this instant

appeal.   Therefore, we decline to address Montgomery’s attacks on

the default judgment.

     Based on the foregoing, the order of the district court is

AFFIRMED.

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