Court Opinion

ID: 46007
Source: CourtListenerOpinion
Date Created: 2010-04-25 22:50:17+00
Date Added: 2024-06-11T17:17:32.670235
License: Public Domain

United States Court of Appeals
                                                                      Fifth Circuit
                                                                   F I L E D
                 IN THE UNITED STATES COURT OF APPEALS
                                                                   October 10, 2006
                         FOR THE FIFTH CIRCUIT
                         _____________________                 Charles R. Fulbruge III
                                                                       Clerk
                              No. 05-11027
                         _____________________

In The Matter Of:
DAVID I. SHEINFELD,
                                                                      Debtor.
----------------------------------

DAVID I. SHEINFELD,

                                                                 Appellant,

                                 versus

GARY LEEDS; LEEDS FAMILY PARTNERSHIP,

                                                       Appellees.
_________________________________________________________________

           Appeal from the United States District Court
            for the Northern District of Texas, Dallas
                       USDC No. 3:03-CV-2601
_________________________________________________________________

Before KING, GARWOOD and JOLLY, Circuit Judges.

PER CURIAM:*

     Debtor David I. Sheinfeld (“Sheinfeld”) appeals the district

court’s affirmance of the bankruptcy court’s entry of partial

summary judgment for Gary Leeds and the Leeds Family Partnership

(collectively,    “Leeds”)   based   on   the   preclusive   effect      of   a

California arbitration award.        Finding no reversible error by

either the district court or the bankruptcy 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this opinion should not be published and is not precedent except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.
      This dispute originated in the formation of Mission Hills

Hotel Development Partnership in 1985, later succeeded by the TLS

Partnership (“the Partnership”).             The Partnership consisted of

Leeds, Sheinfeld, Richard Engelberg (“Engelberg”), and James Enis

(“Enis”), and it developed a California hotel that opened in April

1987.     That   same   year,   Enis       assigned   his   interest      in   the

Partnership to LS Investments, a partnership in which Sheinfeld had

an   interest.    Three    years   later      Sheinfeld     and   Leeds   bought

Engelberg’s interest in the Partnership and then sold their entire

interest to a group of Japanese investors.

      Leeds brought suit in California in 1992 against Sheinfeld,

claiming, inter alia, that he had concealed his acquisition of

Enis’s interests.       Enis and Engelberg later sued both Leeds and

Sheinfeld, whereupon the two lawsuits were consolidated.                  A jury

eventually found that Sheinfeld and Leeds had breached their

fiduciary duties and were thus jointly and severally liable to Enis

and Engelberg. Before the trial, Sheinfeld and Leeds had agreed to

arbitrate any contribution issues between them arising from a

judgment for Enis and Engelberg. However, on February 4, 2000, one

day prior to that long-scheduled arbitration hearing, Sheinfeld

filed a voluntary petition for relief under Chapter 11 of the

Bankruptcy Code in U.S. Bankruptcy Court in Dallas and the hearing

was stayed under the automatic stay provision in 11 U.S.C. §

                                       2
362(a).      The bankruptcy case was later converted into a Chapter 7

proceeding, with Jeffrey H. Mims (“Mims”) appointed as Trustee.

       On May 9, 2000, Leeds filed a non-dischargeability complaint

against Sheinfeld under 11 U.S.C. § 523(a)(2) and (a)(4), asserting

that Sheinfeld violated his fiduciary duties to Leeds in the

Partnership      transactions,    rendering         any    debts    he     owed    non-

dischargeable. Leeds also moved for relief from the automatic stay

to allow arbitration to go forward.               At a hearing on June 28, the

bankruptcy court granted Leeds’s motion, modifying the automatic

stay   “to    the   extent   necessary       to   permit    the    Leeds    Group    to

liquidate its claims against the Debtor pursuant to the Arbitration

Agreement . . . .”      Over the next several months, Mims negotiated

for Sheinfeld’s bankruptcy estate with Leeds, entering into a

Settlement Agreement on November 28 that granted Leeds an unsecured

claim of $5,213,337.30 against the estate.                Mims also agreed not to

pursue any counterclaims against Leeds.                   The agreement provided

that it would not affect current disputes between Sheinfeld and

Leeds to be resolved through arbitration or by the Bankruptcy

Court. The Settlement Agreement also stated the parties’ agreement

that Leeds’s general claim of $5,213,337.30 was a ceiling and it

could be reduced if the debt was found to be less by arbitration or

otherwise.       Over   Sheinfeld’s      objection,        the    bankruptcy      court

approved the Settlement Agreement.

       The arbitration hearing was scheduled for January 15, 2001.

About one week before the hearing, Sheinfeld moved the bankruptcy

                                         3
court for a six-month continuance of arbitration and his motion was

denied.   He then asked the arbitrator for a continuance, which was

also denied.      The hearing proceeded on January 15 with only Leeds

participating.         Neither Sheinfeld nor Mims appeared, nor did

Sheinfeld provide any comment to a notice of intended ruling the

arbitrator   distributed            to    the    parties.          On   February      12,    the

arbitrator awarded Leeds the full claim in compensatory damages and

an   additional    $7,473,451.48            in       punitive      damages.         Sheinfeld

unsuccessfully appealed the award in California trial and appellate

courts before it was ultimately confirmed on January 30, 2003.

       Leeds then moved the bankruptcy court for partial summary

judgment on the ground that its claim was not dischargeable under

11 U.S.C. § 523(a)(2) and (a)(4).                    The findings in the award, Leeds

argued,   established         the        elements      of    fraud      and    violation      of

fiduciary      duty         under        those        sections        to      satisfy       non-

dischargeability.            The     bankruptcy            court   granted      the   motion,

allowing the offensive use of collateral estoppel to prohibit

relitigation of the factual findings in the arbitral award.                                   It

also    applied    the       Settlement          Agreement         to      limit    the     non-

dischargeable amount to the original claim amount of $5,213,337.30.

The district court affirmed the bankruptcy court’s grant of partial

summary judgment in a Memorandum Order on July 19, 2005, holding

that (1) the arbitrator did not exceed the scope of the bankruptcy

court’s modified stay, (2) collateral estoppel was proper under the

circumstances,        (3)     Sheinfeld’s            due    process        rights   were     not

                                                 4
violated, and (4) the bankruptcy court had not erred in allowing

the arbitrator to liquidate Leeds’s claim.

     We have reviewed the record and thoroughly considered the

opinion of the district court.   We conclude that neither it nor the

bankruptcy court made any reversible error in giving preclusive

effect to the arbitration award, and accordingly the judgment is

                                                          AFFIRMED.

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