Court Opinion

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Date Created: 2015-10-13 22:46:16.586851+00
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Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

1-5-2007

In Re: Banks
Precedential or Non-Precedential: Non-Precedential

Docket No. 06-1898

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"In Re: Banks " (2007). 2007 Decisions. Paper 1807.
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DLD-76                                                    NOT PRECEDENTIAL

                    UNITED STATES COURT OF APPEALS
                         FOR THE THIRD CIRCUIT

                                   No. 06-1898

                         IN RE: FREDERICK H. BANKS,
                                           Debtor

                              FREDERICK H. BANKS,
                                           Appellant

                                         v.

                          ROBERT L. WILLIAMS; UNITED
                             STATES OF AMERICA

                  On Appeal From the United States District Court
                     For the Western District of Pennsylvania
                            (D.C. Civ. No. 05-cv-01128)
                   District Judge: Honorable Joy Flowers Conti

Submitted For Possible Dismissal Under 28 U.S.C. § 1915(e)(2)(B) or Summary Action
                   Under Third Circuit LAR 27.4 and I.O.P. 10.6
                                 December 15, 2006

          Before: BARRY, AMBRO AND FISHER, CIRCUIT JUDGES

                              (Filed: January 5, 2007)

                                     OPINION
PER CURIAM

       On November 1, 2001, Frederick H. Banks filed for bankruptcy protection under

Chapter 7 of the Bankruptcy Code. The appointed trustee in bankruptcy filed a report of

no assets.

       On February 8, 2002, John Moore t/d/b/a Protium Recordings filed an adversary

action in the Bankruptcy Court to determine the dischargeability of a debt owed to him by

Banks. The debt related to a July 12, 2001 agreement for the manufacture, distribution,

and retail promotion of a music CD. Banks did not appear for trial. In an order entered

December 30, 2004, the Bankruptcy Court entered judgment in favor of Moore. The

Bankruptcy Court held that Banks’ debt to Moore was non-dischargeable because of

Banks’ defalcation while acting in a fiduciary capacity and embezzlement, see 11 U.S.C.

§ 523(a)(4), and because of the willful and malicious injury that Banks had caused, see

id. at § 523(a)(6). The Bankruptcy Court also granted Moore relief from the automatic

stay to recover the debt from Banks.

       Banks appealed, claiming that his right to due process of law was violated because

the Bankruptcy Court allowed his counsel to withdraw, rescheduled the trial without

notice to him, and entered judgment in Moore’s favor in Banks’ absence. The District

Court affirmed the Bankruptcy Court’s order. Banks then appealed to us. For reasons

stated elsewhere, we concluded that his appeal had no arguable basis in fact or law.

See In re Banks, No. 06-1828, slip. op. at 4-5 (3d Cir. Oct. 3, 2006).

                                             2
         In 2005, Banks filed many adversary actions, including one against Moore and

Protium Recordings relating to the July 12, 2001 agreement described in broad terms

above. In the main bankruptcy action, he also filed a motion to convert his Chapter 7

bankruptcy into a Chapter 11 bankruptcy, claiming that his previous counsel had

withdrawn from his case without notice and without listing Banks’ assets in the

bankruptcy schedules. The United States, seeking dismissal of Banks’ bankruptcy

petition and other adversary actions, unsuccessfully moved to intervene in the Bankruptcy

Court.

         On June 23, 2005, the Bankruptcy Court denied Banks’ motion to convert on the

followings grounds: (1) Banks had not paid the conversion fee; (2) Banks would not

obtain any relief under Chapter 11 that he would not receive in a Chapter 7 discharge in

due course; (3) Banks would not be able to propose, obtain confirmation of, or

consummate a feasible Chapter 11 plan given his imprisonment and lack of regular

income, so conversion would be futile; and (4) Banks’ purpose for conversion was

improper and abusive, based only on his desire to prosecute many post-petition, non-

bankruptcy adversary actions.

         Also on June 23, 2005, after issuing an order to show cause why the adversary

action should not be dismissed and then holding a hearing, the Bankruptcy Court

dismissed Banks’ action against Moore and Protium Recordings with prejudice. The

Bankruptcy Court held that Banks’ causes of action were barred under principles of res

                                             3
judicata because they were compulsory counterclaims that Banks had failed to raise in the

adversary action instituted by Moore, and accordingly dismissed Banks’ adversary

complaint under Fed. R. Bankr. P. 7012(b) and Fed. R. Civ. P. 12(b)(6) for failure to state

a claim. The Bankruptcy Court also held that dismissal was appropriate because Banks’

causes of action arose pre-petition, belonged to the bankruptcy estate, and must be

pursued by the bankruptcy trustee, whom Banks had failed to name. The Bankruptcy

Court noted that Banks’ attempt to pursue the action on his own under the auspices of

Chapter 11 of the Bankruptcy Code would not work, because the Bankruptcy Court had,

that day, already denied Banks’ motion to convert.

       Filing one notice of appeal, Banks appealed from both of the Bankruptcy Court’s

orders of June 23, 2005, to the District Court. In his statement of issues on appeal, Banks

raised the questions (1) whether the Bankruptcy Court erred in dismissing his adversary

complaint sua sponte and (2) whether the Bankruptcy Court erred in denying his

conversion motion. In his appellate brief, he argued only that the Bankruptcy Court

should have granted his motion to convert because any money won in his adversary

actions would have paid creditors of his estate. Banks did not otherwise dispute the

factual findings or legal conclusions of the Bankruptcy Court. In its order of March 8,

2006, the District Court described Banks’ appeal as related to the adversary case and the

main bankruptcy action and also as an appeal from the June 23, 2005 order denying the

motion to convert. The District Court affirmed the Bankruptcy Court’s order denying the

                                             4
motion to convert on the basis of Banks’ failure to pay the conversion fee; the District

Court did not consider the June 23, 2005 order in the adversary case.

       Banks appeals. The United States Attorney’s Office and the United States, neither

of whom were parties in the Bankruptcy or District Courts, but the latter of whom is

named as a party on appeal, filed a motion for summary action, seeking affirmance of the

order of March 8, 2006,1 and a motion to stay the briefing schedule pending the resolution

of the motion for summary action. The Clerk granted the motion to stay the briefing

schedule. Banks opposes the motion for summary action, moves for reconsideration of

the order granting the motion to stay the briefing schedule, and moves to strike both

motions.

       The District Court had jurisdiction to review the Bankruptcy Court’s order

pursuant to 28 U.S.C. § 158(a), and we have jurisdiction to review the District Court’s

order under 28 U.S.C. §§ 158(d) & 1291. We exercise the same standard of review as the

District Court, subjecting the Bankruptcy Court’s legal determinations to plenary review

and reviewing its factual findings for clear error. See In re United Healthcare Sys., 396
F.3d 247, 249 (3d Cir. 2005).

       As a preliminary matter, we consider the pending motions. More specifically, we

first must decide whether the United States and the United States Attorney’s Office have

   1
    In their motion, they also ask us to affirm a separately appealed-from order in other
appeals brought by Banks. We do not presently consider that request.

                                             5
standing to advance their pending motion. Although the United States is nominally a

party to these related appeals, the appealed-from order does not affect its rights or the

rights of United States Attorney’s Office. Accordingly, they lack standing to argue the

merits of these appeals. See Marshall v. Sun Petroleum Products Co., 622 F.2d 1176,

1188 (3d Cir. 1980) (concluding that nominal parties on appeal have no standing to

defend the merits of a decision); In re St. Clair & Karen M. St. Clair, 251 B.R. 660, 670

& n.11 (D.N.J. 2000). We therefore deny the motion for summary affirmance insofar as it

relates to this appeal. We do not grant reconsideration of the order staying the briefing

schedule, however. Nor do we grant Banks’ motion to strike the Government’s motions.

       We will, however, affirm the District Court’s order. See L.A.R. 27.4; I.O.P. 10.6.

Upon review, we conclude, as the District Court did, that the Bankruptcy Court did not

err in denying Banks’ motion to convert because he did not pay the required fee. A

debtor who wishes to convert his bankruptcy action from one under Chapter 7 to one

under Chapter must pay the difference of the fees for filing under Chapter 7 and Chapter

11. See 28 U.S.C. § 1930(a)(7). Banks has not disputed that he did not pay the fee.

Furthermore, the alternative grounds for the Bankruptcy Court’s decision appear sound.

Given Banks’ imprisonment and lack of regular income, conversion would have been

futile – Banks would not be able to propose a feasible plan. See In re Lilley, 29 B.R. 442

(1st Cir. B.A.P. 1983). Moreover, despite his argument that he wished to convert his

bankruptcy action so as to bring claims for the benefit of his creditors, Banks has

                                              6
demonstrated a desire to abuse the bankruptcy process to bring claims for post-petition

events against victims and witnesses of crimes for which the United States prosecuted

him. See In re Young, 269 B.R. 816, 824 (W.D. Mo. Bankr. 2001) (summarizing other

cases for the proposition that a bankruptcy court has discretion to disallow conversion

under extreme circumstances, such as abuse of the bankruptcy process or bad faith).

       Although the District Court declined to explicitly consider whether the Bankruptcy

Court properly dismissed Banks’ adversary complaint in the other order of March 8,

2006, we affirm the District Court’s order dismissing that aspect of Banks’ appeal. Banks

may have waived the issue. Although he included his appeal from the order dismissing

the adversary complaint in the statement of issues on appeal that he filed in the District

Court with his notice of appeal, he did not include the issue in the appellate brief that he

filed in the District Court.

       Even if Banks did not waive the issue, the District Court did not err in rejecting

Banks’ appeal from the Bankruptcy Court’s order. The Bankruptcy Court did not err in

concluding that Banks’ claims were barred by res judicata. Res judicata “gives

dispositive effect to a prior judgment if a prior issue, although not litigated, could have

been raised in the earlier proceeding.” CoreStates Bank, N.A. v. Huls Am., Inc., 176 F.3d
187, 194 (3d Cir. 1999) (citation omitted). Banks not only could have raised his claims

against Moore and Protium Recordings in the action instituted by Moore d/b/a Protium

Recordings, but he also was required to raise them as compulsory counterclaims under

                                              7
Rule 13 of the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 13(a) (“A pleading

shall state as a counterclaim any claim which at the time of serving the pleading the

pleader has against any opposing party . . . .”); Transamerica Occidental Life Ins. Co. v.

Aviation Office of Am., Inc., 292 F.3d 384, 389-91 (defining “compulsory

counterclaims” and “opposing parties”). Having not raised his claims in the earlier

action, Banks could not litigate them in his adversary complaint. See New York Life Ins.

Co. v. Deshotel, 142 F.3d 873, 879 (5th Cir. 1998); see also Randolph v. Lipscher, 641 F.

Supp. 767, 775 (D.N.J. 1986) (holding that the doctrine of res judicata “contemplates that

when a controversy between parties is once fairly litigated and determined it is no longer

open to relitigation”) (citation omitted).

       For the reasons stated above, we conclude that the Bankruptcy Court did not err in

dismissing Banks’ adversary action and denying Banks’ motion to convert. Accordingly,

we will affirm the District Court’s order.

                                             8