Galaz v. Katona (In Re Galaz)
2016 U.S. App. LEXIS 19506
| 5th Cir. | 2016Background
- Raul Galaz and Marian Oshita formed WSG; ownership shifted through divorce and litigation so that Katona ultimately held 75% and Oshita 25% after state-court judgment in Katona’s favor against Oshita.
- Katona assigned half her WSG interest to Denise Vernon; Vernon later sued Katona over WSG control in Texas; that litigation was resolved in bankruptcy proceedings while Katona pursued Chapter 13.
- The bankruptcy court approved a 2008 settlement and later a 2011 Settlement Agreement giving Vernon Katona’s WSG interest and, explicitly, "any unliquidated claims against third parties relating to WSG, including claims against Marian Oshita," plus a broad release of claims between Vernon and Katona.
- Vernon assigned the claims she received under the 2011 Agreement to Alfred Galaz; Galaz obtained a California foreclosure judgment against Oshita and then sued Katona in Texas asserting Oshita-related distribution claims (the “Oshita claims”).
- Katona removed and then sued in bankruptcy court seeking an injunction barring Galaz from pursuing the Oshita claims as violating her discharge and the 2011 Settlement; the bankruptcy court enjoined Galaz, the district court affirmed, and Galaz appealed.
Issues
| Issue | Plaintiff's Argument (Katona) | Defendant's Argument (Galaz) | Held |
|---|---|---|---|
| Bankruptcy subject-matter jurisdiction over injunction after Chapter 13 closed | Katona: court retains post-confirmation jurisdiction to enforce discharge and to interpret/enforce its prior orders | Galaz: bankruptcy lacked jurisdiction because Katona’s case was closed and claims were state law | Held: jurisdiction exists — the dispute implicates discharge/plan implementation and the court may enforce its prior orders |
| Statutory authority to enter final judgment (core v. non-core) | Katona: action to enforce discharge and interpret the 2011 Settlement is a core proceeding under §157(b) | Galaz: claims are purely state-law and non-core, so bankruptcy lacked authority to enter final judgment | Held: core — enforcing discharge and interpreting approved settlement are bankruptcy-created rights giving statutory authority |
| Mandatory abstention under 28 U.S.C. §1334(c)(2) | Katona: not applicable because the matter is core and involves enforcement of discharge and prior orders | Galaz: bankruptcy court should have abstained to allow state adjudication | Held: no mandatory abstention — provision applies only to non-core matters and this is core |
| Merits defenses barring Galaz’s suit (res judicata/release, judicial estoppel, waiver of issues) | Katona: 2011 Settlement and broad releases, plus judicial estoppel and assignment law, bar Galaz; bankruptcy properly granted summary judgment and injunction | Galaz: defenses were not pleaded or applicable; he acquired Oshita’s rights and is not bound by Vernon’s release; judicial estoppel improper | Held: defenses apply — Galaz waived some appellate issues; his assigned rights took Vernon’s defects and releases and are therefore barred; judicial estoppel appropriately applied |
Key Cases Cited
- Beitel v. OCA, Inc., 551 F.3d 359 (5th Cir.) (subject-matter jurisdiction reviewed de novo)
- In re Galaz, 765 F.3d 426 (5th Cir.) (standard of review for district court’s affirmance of bankruptcy court)
- In re Spillman Dev. Grp., Ltd., 710 F.3d 299 (5th Cir.) (related-to jurisdiction pre-confirmation)
- Newby v. Enron Corp. (In re Enron Corp. Sec.), 535 F.3d 325 (5th Cir.) (post-confirmation jurisdiction limited to plan implementation/execution)
- Travelers Indem. Co. v. Bailey, 557 U.S. 137 (Supreme Court) (bankruptcy court may interpret and enforce its own orders)
- Bradley v. Barnes (In re Bradley), 989 F.2d 802 (5th Cir.) (jurisdiction to consider discharge violations survives case closing)
- In re Nat’l Gypsum Co., 118 F.3d 1056 (5th Cir.) (enforcing discharge injunction is bankruptcy statutory right — core proceeding)
- In re Wood, 825 F.2d 90 (5th Cir.) (state-law claims may be core if dependent on bankruptcy-created rights)
- In re Gober, 100 F.3d 1195 (5th Cir.) (mandatory abstention applies only to non-core proceedings)
- Republic Supply Co. v. Shoaf, 815 F.2d 1046 (5th Cir.) (bankruptcy orders have res judicata effect)