18 F.4th 169
5th Cir.2021Background
- BVS (a Texas construction co.) and its owner Ricky Palasota filed a Chapter 11 plan in 2015 that described Prosperity Bank’s secured claim in detail; BVS and Palasota proposed and signed the plan, no objections were filed, and the plan was confirmed on September 25, 2015.
- The 2015 Plan stated Prosperity’s Allowed Secured Claim (originally listed as $1,812,472.43) and set a payment schedule with an Effective Date of November 8, 2015.
- BVS made 38 monthly payments under the 2015 Plan but did not complete the 59 payments or the 60th balloon payment; BVS filed a new Chapter 11 petition on January 2, 2019.
- In the 2019 bankruptcy Prosperity filed a proof of claim for $1,333,695.84 (reflecting credits for payments received before the 2019 petition); BVS objected, arguing the amount was wrong and that some notes were individually the Palasotas’ obligations.
- The bankruptcy court overruled BVS’s objection (citing res judicata, judicial estoppel, and judicial admission) and allowed Prosperity’s claim; the district court affirmed, and the Fifth Circuit affirmed the dismissal of BVS’s objection.
Issues
| Issue | Plaintiff's Argument (BVS) | Defendant's Argument (Prosperity) | Held |
|---|---|---|---|
| Subject-matter jurisdiction to allow Prosperity’s claim | Court lacked jurisdiction to allow full claim against BVS because some notes were individually signed by the Palasotas | Allowance/disallowance of claims is a core bankruptcy proceeding under 28 U.S.C. § 157(b)(2)(B); court has jurisdiction | Bankruptcy court had jurisdiction; challenge to propriety of allowance is not a jurisdictional defect |
| Whether res judicata bars BVS’s objection that Prosperity’s 2015-Plan claim amount was wrong | The 2019 objection raises a distinct cause of action and BVS could not or should not be precluded from contesting amounts now | 2019 claim arises from same transaction as 2015 claim; BVS proposed the plan, did not object or appeal, so claim preclusion applies | Res judicata applies: BVS is precluded from relitigating the propriety/amount of Prosperity’s 2015-Plan claim |
| Whether Prosperity’s $1,333,695.84 claim correctly credits BVS’s payments | Prosperity failed to credit certain payments (Jul–Oct 2015; May–Nov 2019) | Prosperity’s ledger and testimony show credits for pre-petition payments; post-petition 2019 payments are excluded from the claim under § 502(b) | Bankruptcy court’s factual finding was not clearly erroneous; ledger supports the allowed claim amount |
| Scope of any remaining objections BVS may bring | BVS sought to preserve ability to object in 2019 bankruptcy | Prosperity: objections premised on the 2015 claim amount are precluded; other grounds may remain | BVS is barred only to the extent its objection relies on alleged impropriety of the 2015-Plan claim; other challenges not premised on that are not precluded |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (2011) (bankruptcy judges may enter final judgments in core proceedings)
- In re Renaissance Hosp. Grand Prairie Inc., 713 F.3d 285 (5th Cir. 2013) (standards of review for appeals from bankruptcy court)
- In re Gerhardt, 348 F.3d 89 (5th Cir. 2003) (appellate review framework for bankruptcy findings)
- Republic Supply Co. v. Shoaf, 815 F.2d 1046 (5th Cir. 1987) (bankruptcy confirmation orders have res judicata effect)
- Southmark Props. v. Charles House Corp., 742 F.2d 862 (5th Cir. 1984) (res judicata principles regarding bankruptcy confirmation)
- Petro-Hunt, L.L.C. v. United States, 365 F.3d 385 (5th Cir. 2004) (elements of res judicata)
- In re Southmark Corp., 163 F.3d 925 (5th Cir. 1999) (res judicata and bankruptcy confirmation)
- Eubanks v. F.D.I.C., 977 F.2d 166 (5th Cir. 1992) (confirmed plan precludes later claims arising from same loan transaction)
- Nilsen v. City of Moss Point, 701 F.2d 556 (5th Cir. 1983) (transactional test for claim identity)
- In re Howe, 913 F.2d 1138 (5th Cir. 1990) (lender-liability claims precluded when based on same nucleus of operative facts as bankruptcy proceeding)