Chemlen v. Bank of Ireland ( 1993 )


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  • 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    [NOT FOR PUBLICATION]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.


    __________________

    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,
    __ ___

    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
    __ ___

    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
    ______

    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.
    ____

    Combined Insurance Co. of America, 924 F.2d 1161,
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    1165 (1st Cir.), cert. denied, 112 S.Ct. 69 (1991).
    ____ ______



    F.D.I.C. v. Shearson-American Express, Inc., 996 F.2d 493,
    _______ _______________________________

    497 (1st Cir. 1993) (quoting Aunyx Corp. v. Canon U.S.A.,
    ___________ _____________

    Inc., 978 F.2d 3, 6 (1st Cir. 1992), cert. denied, 113 S.Ct.
    ___ ____ ______

    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.
    ___ ________

    Avent, 891 F.2d 583, 586-87 (5th Cir.), cert. denied 498 U.S.
    _____ ____ ______

    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
    ___

    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
    ______________
    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.
    ___ __________________________________

    University of Illinois Foundation, 402 U.S. 313 (1971)
    ____________________________________

    (defendant may invoke estoppel against plaintiff who lost on

    same issue to earlier defendant); Lynch v. Merrell-National
    _____ ________________

    Laboratories, Div. of Richardson-Merrell, Inc., 830 F.2d
    _________________________________________________

    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
    ________________________

    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
    __ _______________ ____

    Cir. 1944)). The court order approving the settlement of the

    suits fits this definition. See In re Patel, 43 Bankr. 500,
    ___ ___________

    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.
    ________ _______________

    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
    _____ ______

    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
    ___ __

    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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