Chemlen v. Bank of Ireland
U.S. Court of Appeals for the First Circuit
Chemlen v. Bank of Ireland
Opinion
USCA1 Opinion
November 3, 1993
[NOT FOR PUBLICATION]
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 93-1592
LEON P. CHEMLEN,
Plaintiff, Appellant,
v.
BANK OF IRELAND FIRST HOLDINGS, INC., ET AL.,
Defendants, Appellees.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Edward F. Harrington, U.S. District Judge]
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Before
Breyer, Chief Judge,
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Torruella and Selya, Circuit Judges.
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Leon P. Chemlen on brief pro se.
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Alan R. Hoffman and Lynch, Brewer, Hoffman & Sands, on brief
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for appellee.
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Per Curiam. Appellant Leon Chemlen appeals the dismissal
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of his civil action alleging violations of the Racketeer
Influenced and Corrupt Organization Act [RICO], 18 U.S.C.
1961 et seq., the Massachusetts Consumer Protection Act,
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M.G.L. ch. 93A, and state and federal civil rights statutes
by appellees Bank of Ireland, its general counsel, Joel
Brickman, the law firm of Sheehan, Phinney, Bass & Green and
two of its employees, and Joseph Schindler, trustee of
appellee's bankruptcy estate. We affirm the dismissal.
Background
Background
In October 1990, Chemlen filed a voluntary Chapter 7
petition in the United States Bankruptcy Court. Appellee
Joseph Schindler was appointed trustee of the estate. In
October 1991, Schindler sought approval from the court to
settle two lawsuits Chemlen had brought against Merchants
National Bank and other defendants.1 Each suit alleged
misconduct in violation of the Fair Credit Reporting Act, 15
U.S.C. 1681 et seq. Alleging misconduct by counsel for the
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bank and collusion between counsel for the bank and the
trustee, Chemlen opposed the settlement motion. The
bankruptcy court granted the trustee's motion and denied that
of Chemlen.
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1. Appellee Bank of Ireland is the parent of First New
Hampshire Bank, the successor to Merchants National Bank.
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In January 1992, Chemlen moved to remove Schindler as
trustee of the estate. He alleged that Schindler had engaged
in various improprieties in regard to the settlement of the
suits against the bank, including threatening appellant with
criminal prosecutions if he continued to oppose settlement of
the suits, deceiving appellant, the court and creditors as to
the settlements, and giving the appearance of collusion with
the bank in settlement negotiations. This motion was denied.
Chemlen later moved to enjoin the trustee from "interfering"
with his suits against the bank and, for a second time, to
remove the trustee. These motions too were denied.
Finally, Chemlen appealed the order authorizing the
trustee to settle the suits against the bank, the order
denying his request to enjoin the settlement, and the order
denying his request to remove the trustee. The district
court dismissed his appeal on these issues on the ground that
Chemlen lacked standing. The court found that the settlement
proceeds were part of the estate and that Chemlen had not
shown that a successful appeal would create a surplus of
assets over liabilities for the estate. Chemlen therefore
lacked any direct pecuniary interest in the estate and was
not a "person aggrieved" by the contested orders. Chemlen
did not appeal the decision of the district court.
Meanwhile, in January 1993, Chemlen filed the instant
suit. It repeats various factual allegations previously made
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before the bankruptcy court. However, Chemlen now seeks
relief under RICO, federal civil rights law and state
consumer protection and civil rights law. The gravamen of
Chemlen's complaint is that he suffered harm from appellees'
illegal actions depriving him of his property in the proceeds
of the two lawsuits settled by the trustee. The district
court dismissed the complaint on the ground that it was an
improper attempt to relitigate issues already ruled on in the
bankruptcy court. In the alternative, the court found that
the focus of the complaint concerned communications made in
connection with judicial proceedings, which communications
were absolutely privileged. We find that the case was
properly dismissed on the ground of res judicata and,
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therefore, do not reach the district court's alternate
ground.
Discussion
Discussion
We have recently placed the doctrine of res judicata
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into workable perspective:
The doctrine of res judicata bars all parties and
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their privies from relitigating issues which were
raised or could have been raised in a previous
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action, once a court has entered a final judgment
on the merits in the previous action. United
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States v. Alky Enterprises, Inc., 969 F.2d 1309,
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1314 (1st Cir. 1992). The essential elements of
res judicata, or claim preclusion, are (1) a final
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judgment on the merits in an earlier action; (2) an
identity of the parties or privies in the two
suits; and (3) an identity of the cause of action
in both the earlier and later suits. Kale v.
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Combined Insurance Co. of America, 924 F.2d 1161,
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1165 (1st Cir.), cert. denied, 112 S.Ct. 69 (1991).
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F.D.I.C. v. Shearson-American Express, Inc., 996 F.2d 493,
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497 (1st Cir. 1993) (quoting Aunyx Corp. v. Canon U.S.A.,
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Inc., 978 F.2d 3, 6 (1st Cir. 1992), cert. denied, 113 S.Ct.
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1416 (1993)) (emphasis in original). "The normal rules of
res judicata and collateral estoppel apply to the decisions
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of the bankruptcy courts." Id. (quoting Katchen v. Landy,
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382 U.S. 323, 334 (1966)). "Generally, a court-approved
settlement receives the same res judicata effect as a
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litigated judgment." In re Medomak Canning, 922 F.2d 895,
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900 (1st Cir. 1990).
We find all the elements of res judicata to have been
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met in this case. We consider the elements in reverse order
for the sake of clarity.
First, the gravamen of Chemlen's complaint both in the
bankruptcy proceedings and in the instant suit is that the
settlement of his suits against the bank deprived him of his
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rightful property.2 In his motions to prevent and then to
void the settlement, Chemlen had the opportunity to present
his factual allegations of wrongdoing to the bankruptcy
court. Thus, even though the current suit is in the guise of
an action under RICO and other laws, it is in effect a
collateral attack on the judgment affirming the validity of
the trustee's settlement of the suits against the bank and,
for purposes of res judicata, it is the same cause of action
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as that pursued in the bankruptcy court.3 See Hendrick v.
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Avent, 891 F.2d 583, 586-87 (5th Cir.), cert. denied 498 U.S.
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819 (1990) (appellant's RICO and securities claims which are
"directly inconsistent with the crux" of bankruptcy court
decision are "same cause of action" for purposes of res
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judicata); In re Met-L-Wood Corp, 861 F.2d 1012, 1018 (7th
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Cir. 1988), cert. denied 490 U.S. 1006 (1989) (dismissing on
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res judicata grounds a RICO suit because "the suit is a
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thinly disguised collateral attack on the judgment" of the
bankruptcy court).
Second, even though the bank may not have been a party
or a privy to a party in bankruptcy proceedings, it may still
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2. Chemlen's motion to dismiss the trustee was simply
another attempt to block the settlement.
3. Allowing a collateral attack on a trustee's court
approved settlement agreement would also undermine the
efficient administration of bankruptcy estates which depend,
in part, on the finality of such agreements. In re Medomak
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Canning, 922 F.2d at 901.
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estop Chemlen from relitigating his challenge to the
settlements. See Blonder-Tongue Laboratories, Inc. v.
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University of Illinois Foundation, 402 U.S. 313 (1971)
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(defendant may invoke estoppel against plaintiff who lost on
same issue to earlier defendant); Lynch v. Merrell-National
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Laboratories, Div. of Richardson-Merrell, Inc., 830 F.2d
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1190, 1192 (1st Cir. 1987) (same).
Third, the order approving the settlement of the suits
is a final order within the context of the bankruptcy
proceedings. In bankruptcy proceedings, "an order which
disposes of a 'discrete dispute within the larger case' [is]
considered final and appealable." In re American Colonial
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Broadcasting Corp., 758 F.2d 794, 801 (1st Cir. 1985)
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(quoting In re Saco Local Development Corp., 711 F.2d 441,
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444 (1st Cir. 1983)). For purposes of this rule:
A final judgment is one which disposes of the
whole subject, gives all the relief that was
contemplated, provides with reasonable completeness
for giving effect to the judgment and leaves
nothing to be done in the cause save superintend,
ministerially, the execution of the decrees.
Id. (quoting City of Louisa v. Levi, 140 F.2d 512, 514 (6th
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Cir. 1944)). The court order approving the settlement of the
suits fits this definition. See In re Patel, 43 Bankr. 500,
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503 (N.D. Ill. 1984) ("bankruptcy court order approving a
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settlement is final and appealable under [28 U.S.C.]
1334(a) because it determines the rights of the parties to
the settlement").
Finally, Chemlen asserts that he falls within an
exception to the usual rules of res judicata because his
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appeal was dismissed for lack of standing and thus was not an
appeal on the merits of the bankruptcy court decision. See,
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e.g., 18 Wright, Miller, & Cooper, Federal Practice and
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Procedure: Jurisdiction 4433, at 316 ("If ordinary
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opportunities to appeal are thwarted by the circumstances of
a particular case . . . preclusion may prove unwise.");
McCarney v. Ford Motor, Co., 657 F.2d 230, 234 (8th Cir.
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1981) (dismissal based upon lack of standing is ordinarily
not "on the merits" of the underlying substantive claims).
The exception cited by Chemlen is not applicable in this
case. Chemlen's appeal of the settlement orders to the
district court was dismissed because the court found that
Chemlen did not meet the standard for appellate standing in
bankruptcy cases. In this circuit, only "persons aggrieved,"
i.e., only "those persons whose rights or interests are
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'directly and adversely affected pecuniarily'" by a contested
order in bankruptcy may appeal that order. In re El San Juan
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Hotel, 809 F.2d 151, 154 (1st Cir. 1987) (quoting In re
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Fondiller, 707 F.2d 441, 442 (9th Cir. 1983)). The district
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court found that the rights to the two lawsuits were the
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property of the estate, not of Chemlen, and that Chemlen had
failed to show that a successful appeal would produce assets
for the estate in excess of its liabilities. In other words,
the district court's decision on the issue of standing was
predicated on a factual finding that Chemlen had not shown
that he had any property interest in the settlement of the
suits. See id. at 155 n.3 (whether appellant is "person
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aggrieved" is finding of fact for district court). Since
Chemlen's underlying claims were predicated on his property
interest in the settlement, this factual finding, even though
made in the context of determining Chemlen's standing, was a
determination of the merits of those claims. Moreover,
Chemlen made no attempt to appeal that finding to the Court
of Appeals. Chemlen was thus not deprived of the opportunity
to appeal the determination of the merits of the settlement
decision and does not fall within an exception to the usual
rules of res judicata.
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The dismissal of appellant's claim is affirmed.
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Reference
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