Community Bank v. Torcise , 162 F.3d 1084 ( 1998 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
No. 96-4632
Non-Argument Calendar
D. C. Docket No. 94-994-CIV-ARONOVITZ
BKRPTCY No. 89-16286-BKC-AJC
COMMUNITY BANK OF HOMESTEAD,
Plaintiff-Appellant,
versus
JOSEPH A. TORCISE, JR.,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of Florida
(December 11, 1998)
Before TJOFLAT and BIRCH, Circuit Judges, and RONEY, Senior Circuit Judge.
TJOFLAT, Circuit Judge:
This appeal arises from the defendant’s collateral attack on a state court foreclosure
judgment. We hold that the defendant’s claim is barred by the principle of collateral estoppel.
In April 1989, Community Bank of Homestead, Florida, loaned Joe Torcise $1.5 million
for use in his tomato farming operations. The loan was secured by a lien on certain real property
and farm equipment. It appears that Torcise never made any payments on the loan.
In late November 1989, Torcise filed for Chapter 11 bankruptcy relief in the United
States Bankruptcy Court for the Southern District of Florida. The bankruptcy court approved a
liquidation plan that required Torcise to sell the farm equipment securing Community Bank’s
loan, and lifted the automatic stay to allow Community Bank to foreclose on the real property.1
The plan stated, however, that the proceeds from these sales were to be held in escrow pending
the result of certain fraudulent transfer and preference litigation that Torcise’s bankruptcy estate
had brought against Community Bank.
Community Bank foreclosed on Torcise’s property in the Circuit Court of Dade County,
Florida. The circuit court determined that Torcise was liable for the principal amount of the note
plus interest at the contractual default rate accruing until the time of the foreclosure.2 The
resulting liability totaled nearly $2 million. The judgment also provided that postjudgment
interest would accrue at the Florida statutory rate of 12%. The judgment was not appealed, and
1
The commencement of bankruptcy proceedings automatically
stays any pending litigation against the debtor. See 11 U.S.C. §
362(a) (1994).
2
The note’s interest rate was set at Community Bank’s “base
rate” plus 2%. The note also stated, however, that in the event
of default the note would bear interest at the rate of 18%.
2
the real property was subsequently sold at a foreclosure sale.
In the fraudulent transfer and preference litigation, Community Bank was held liable for
$3.55 million. Community Bank posted a bond for this sum (thus satisfying any concerns about
the payment thereof), and then moved in bankruptcy court for a release of the proceeds from the
sale of its collateral. The bankruptcy court, after addressing various issues relating to costs and
attorneys’ fees, held (as a matter of course) that the proceeds would be released to pay Torcise’s
indebtedness to Community Bank and that interest would accrue as provided for in the circuit
court foreclosure judgment.
The bankruptcy court’s resolution of this motion was appealed to the United States
District Court for the Southern District of Florida. The district court suggested that the circuit
court’s foreclosure judgment, by imposing postjudgment interest on a judgment that included
prejudgment interest, imposed “interest on interest” in violation of Florida law. See Community
Bank of Homestead v. Torcise (In re Torcise), 187 B.R. 18, 23 (S.D. Fla. 1995). The district
court also held that 11 U.S.C. § 506(b) required that prejudgment interest be calculated at the
contract rate3 until the filing of the bankruptcy petition, and that postjudgment interest at the
contract rate (rather than the Florida statutory rate) should accrue on the total indebtedness as of
the filing of the bankruptcy petition.4 See id. at 22-23. Community Bank appeals the district
court’s holding.
3
The district court’s opinion was unclear on whether
interest was to be calculated at the regular contract rate or the
default contract rate.
4
Thus, the district court’s resolution also entailed
“interest on interest” – postjudgment interest was to accrue on a
prejudgment amount that included interest.
3
The principle of collateral estoppel requires us to reverse the district court’s decision.
Collateral estoppel prevents relitigation of an issue resolved in a prior judicial proceeding,
provided that (1) the identical issue has been fully litigated, (2) by the same parties, and (3) a
final decision has been rendered by a court of competent jurisdiction. See Essenson v. Polo Club
Assocs., 688 So.2d 981, 983 (Fla. 2d DCA 1997).5 These criteria are met in this case. The
foreclosure proceeding resolved the issue of the appropriate interest rates on Community Bank’s
claim – the same issue that is being challenged on this appeal.6 The parties are identical.7
5
Under the Full Faith and Credit Act, 28 U.S.C. § 1738(1994), state court judgments are to be given the same preclusive
effective in federal court that they would have in the state in
which the judgment was rendered. See University Drive Prof’l
Complex, Inc. v. FSLIC (In re University Drive Prof’l Complex,
Inc.), 101 B.R. 790, 793 (Bankr. S.D. Fla. 1989). Hence, we turn
to Florida law for the appropriate collateral estoppel standard.
6
The fact that Torcise did not contest the foreclosure
judgment on direct appeal does not prevent the issue from having
been “fully litigated” for collateral estoppel purposes. See
Johnson v. Keene (In re Keene), 135 B.R. 162, 168 (Bankr. S.D.
Fla. 1991); Masciarelli v. Maco Supply Corp., 224 So.2d 329, 330
(Fla. 1969); see also Walters v. Betts (In re Betts), 174 B.R.
636, 646 (Bankr. N.D. Ga. 1994) (“[A] consideration of ‘actually
litigated’ is not addressed to the quality or quantity of
evidence or argument presented. Instead, it only requires that
an issue was effectively raised in the prior action, and that the
adverse party had a fair opportunity to contest the issue.”).
7
Torcise argues that the parties are different – the
foreclosure proceeding was instituted against Torcise in his
individual capacity, while the present action is against his
bankruptcy estate. “Identical” parties for collateral estoppel
purposes, however, includes parties in “privity” with the parties
in the prior litigation. See R.D.J. Enters., Inc. v. Mega Bank,
600 So.2d 1229, 1231 (Fla. 3d DCA 1992). Privity exists where
there is a successive relationship to the same property right.
See Rhyne v. Miami-Dade Water & Sewer Auth., 402 So.2d 54, 55
(Fla. 3d DCA 1981). Torcise’s estate was the successor to
Torcise’s property when Torcise filed for bankruptcy; the estate
is therefore in privity with Torcise and the parties in the two
suits are therefore considered identical.
Furthermore, there is some question whether identity of
4
Finally, the Florida circuit court had jurisdiction over the foreclosure proceeding. Thus, Torcise
is collaterally estopped from contesting the calculation of interest.
The district court’s suggestion that Florida law does not permit “interest on interest” is an
argument that should have been made in the circuit court foreclosure proceeding. By the district
court’s reasoning, if the bankruptcy court had granted relief from the automatic stay for an
injured party to pursue an auto accident claim in Florida circuit court, the bankruptcy court could
subsequently (when the injured party attempted to collect on the judgment) decide that the circuit
court had improperly applied the Florida law of negligence. Likewise, if 11 U.S.C. § 506(b) was
relevant in determining the amount of Community Bank’s claim, that argument should have been
made in the circuit court.8 See Jeffries v. Bar J. Forest Prods., Inc. (In re Jeffries), 191 B.R. 861,
863 (Bankr. D. Or. 1995) (“[T]he state court is empowered to decide any . . . issue arising under
the Bankruptcy Code implicated by the facts of the case.”).
parties is even necessary under Florida law when collateral
estoppel is raised defensively. Compare E.C. v. Katz, 711 So.2d
1155, 1156-57 (Fla. 4th DCA 1998) (holding that identity of
parties is “irrelevant” for defensive collateral estoppel), and
Verhagen v. Arroyo, 552 So.2d 1162, 1164 (Fla. 3d DCA 1989)
(same), with Lee v. Gadasa Corp., 680 So.2d 1107, 1108 (Fla. 1st
DCA 1996) (holding that identity of parties is required for
defensive collateral estoppel), and Jones v. Upjohn Co., 661
So.2d 356, 357-58 (Fla. 2d DCA 1995) (same).
8
The district court’s opinion suggests that the bankruptcy
court’s relief from stay order allowed Community Bank only to
foreclose on the property, and not to obtain a determination of
the amount to which Community Bank was entitled. See Community
Bank, 187 B.R. at 23. There is nothing in the relief from stay
order to suggest that this was the case. The relief from stay
order stated that Community Bank “may obtain judgment in its
foreclosure action” on Torcise’s property. A foreclosure action
generally includes a determination of the amount of indebtedness.
Nothing in the relief from stay order suggests that the
foreclosure action that it authorized was to be conducted without
a determination of indebtedness.
5
The judgment of the district court is therefore REVERSED, and the case is REMANDED
with instructions to affirm the judgment of the bankruptcy court.
6