Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


1-19-2007

In Re: Banks
Precedential or Non-Precedential: Non-Precedential

Docket No. 06-1909




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"In Re: Banks " (2007). 2007 Decisions. Paper 1762.
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DLD-96                                              NOT PRECEDENTIAL

                    UNITED STATES COURT OF APPEALS
                         FOR THE THIRD CIRCUIT


                                   No. 06-1909


                         IN RE: FREDERICK H. BANKS,
                                           Debtor

                              FREDERICK H. BANKS,
                                           Appellant

                                         v.

                         JOHN MOORE, Protium Recordings


                  On Appeal From the United States District Court
                     For the Western District of Pennsylvania
                            (D.C. Civ. No. 05-cv-01064)
                   District Judge: Honorable Joy Flowers Conti


Submitted For Possible Dismissal Under 28 U.S.C. § 1915(e)(2)(B) or Summary Action
                   Under Third Circuit LAR 27.4 and I.O.P. 10.6
                                  January 11, 2007


           Before: BARRY, AMBRO AND FISHER, CIRCUIT JUDGES

                             (Filed: January 19, 2007 )


                                    OPINION


PER CURIAM

     On November 1, 2001, Frederick H. Banks filed for bankruptcy protection under
Chapter 7 of the Bankruptcy Code. The appointed trustee in bankruptcy filed a report of

no assets.

       On February 8, 2002, John Moore t/d/b/a Protium Recordings filed an adversary

action in the Bankruptcy Court to determine the dischargeability of a debt owed to him by

Banks. The debt related to a July 12, 2001 agreement for the manufacture, distribution,

and retail promotion of a music CD. Banks did not appear for trial. In an order entered

December 30, 2004, the Bankruptcy Court entered judgment in favor of Moore. The

Bankruptcy Court held that Banks’ debt to Moore was non-dischargeable because of

Banks’ defalcation while acting in a fiduciary capacity and embezzlement, see 11 U.S.C.

§ 523(a)(4), and because of the willful and malicious injury that Banks had caused, see

523(a)(6). The Bankruptcy Court also granted Moore relief from the automatic

stay to recover the debt from Banks.

       Banks appealed, claiming that his right to due process of law was violated because

the Bankruptcy Court allowed his counsel to withdraw, rescheduled the trial without

notice to him, and entered judgment in Moore’s favor in Banks’ absence. The District

Court affirmed the Bankruptcy Court’s order. Banks then appealed to us. For reasons

stated elsewhere, we concluded that his appeal had no arguable basis in fact or law.

See In re Banks, No. 06-1828, slip. op. at 4-5 (3d Cir. Oct. 3, 2006) (non-precedential

opinion).

       In 2005, Banks filed many adversary actions, including one against Moore and



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Protium Recordings relating to the July 12, 2001 agreement described in broad terms

above. In the main bankruptcy action, he also filed a motion to convert his Chapter 7

bankruptcy into a Chapter 11 bankruptcy, claiming that his previous counsel had

withdrawn from his case without notice and without listing Banks’ assets in the

bankruptcy schedules.

       On June 23, 2005, the Bankruptcy Court denied Banks’ motion to convert on

numerous grounds, including Banks’ failure to pay the conversion fee. Also on June 23,

2005, after issuing an order to show cause why the adversary action should not be

dismissed and then holding a hearing, the Bankruptcy Court dismissed Banks’ action

against Moore and Protium Recordings with prejudice. The Bankruptcy Court held that

Banks’ causes of action were barred under principles of res judicata because they were

compulsory counterclaims that Banks had failed to raise in the adversary action instituted

by Moore, and accordingly dismissed Banks’ adversary complaint under Fed. R. Bankr. P.

7012(b) and Fed. R. Civ. P. 12(b)(6) for failure to state a claim. The Bankruptcy Court

also held that dismissal was appropriate because Banks’ causes of action arose pre-

petition, belonged to the bankruptcy estate, and must be pursued by the bankruptcy

trustee, whom Banks had failed to name. The Bankruptcy Court noted that Banks’

attempt to pursue the action on his own under the auspices of Chapter 11 of the

Bankruptcy Code would not work, because the Bankruptcy Court had, that day, already

denied Banks’ motion to convert.



                                            3
       Banks appealed from the Bankruptcy Court’s orders of June 23, 2005. In his

statement of issues on appeal, cross-filed in two District Court appeals, Banks raised the

questions (1) whether the Bankruptcy Court erred in dismissing his adversary complaint

sua sponte and (2) whether the Bankruptcy Court erred in denying his conversion motion.

In the District Court case related to this appeal of the res judicata determination, Banks

did not specifically dispute the res judicata holding. In his appellate brief, he argued that

he should be permitted to pursue his claims against Moore and Protium Recordings

because his right to due process was violated by the ruling in favor of Moore in Moore’s

suit against Banks and by the order disallowing conversion in his main bankruptcy action.

Concluding that Banks’ action against Moore was barred by principles of res judicata, and

that Banks did not have standing to bring the claims in any event (as the claims belonged

to the bankruptcy estate and could be pursued only by the trustee in bankruptcy), the

District Court ruled against Banks. Banks appeals.

       The District Court had jurisdiction to review the Bankruptcy Court’s order

pursuant to 28 U.S.C. § 158(a), and we have jurisdiction to review the District Court’s

order under 28 U.S.C. §§ 158(d) & 1291. We exercise the same standard of review as the

District Court, subjecting the Bankruptcy Court’s legal determinations to plenary review

and reviewing its factual findings for clear error. See In re United Healthcare Sys., 

, 249 (3d Cir. 2005).

       We will affirm the District Court’s order. See L.A.R. 27.4; I.O.P. 10.6. Banks’



                                              4
claims of due process violations are foreclosed by our decisions in Banks’ other appeals.

See In re Banks, No. 06-1898, slip op. at 6-7 (3d Cir. Jan. 5, 2007) (non-precedential

opinion) (holding that the Bankruptcy Court did not err in denying Banks’ motion to

convert because, among other things, Banks did not pay the required fee); In re Banks,

No. 06-1828, slip. op. at 4-5 (holding that the Bankruptcy Court did not violate Banks’

right to due process by entering judgment in his absence). Similarly, we refer the parties

to the discussions in those cases for a refutation of any other claims of error relating to the

judgment in favor of Moore and the order denying the motion to convert. However, for

the convenience of the parties, we will repeat the analysis most relevant to the res judicata

issue on appeal.

       The District Court did not err in rejecting Banks’ appeal from the Bankruptcy

Court’s order holding that Banks’ claims were barred by res judicata. Res judicata “gives

dispositive effect to a prior judgment if a prior issue, although not litigated, could have

been raised in the earlier proceeding.” CoreStates Bank, N.A. v. Huls Am., Inc., 

, 194 (3d Cir. 1999) (citation omitted). Banks not only could have raised his claims

against Moore and Protium Recordings in the action instituted by Moore d/b/a Protium

Recordings, but he also was required to raise them as compulsory counterclaims under

Rule 13 of the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 13(a) (“A pleading

shall state as a counterclaim any claim which at the time of serving the pleading the

pleader has against any opposing party . . . .”); Transamerica Occidental Life Ins. Co. v.



                                              5
Aviation Office of Am., Inc., 

, 389-91 (defining “compulsory

counterclaims” and “opposing parties”). Having not raised his claims in the earlier

action, Banks could not litigate them in his adversary complaint. See New York Life Ins.

Co. v. Deshotel, 

, 879 (5th Cir. 1998); see also Randolph v. Lipscher, 641 F.

Supp. 767, 775 (D.N.J. 1986) (holding that the doctrine of res judicata “contemplates that

when a controversy between parties is once fairly litigated and determined it is no longer

open to relitigation”) (citation omitted).

       For the reasons given here and elsewhere, we conclude that the Bankruptcy Court

did not err in dismissing Banks’ adversary action. Accordingly, we will affirm the

District Court’s order.




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