KATHARINE M. SAMSON, Bankruptcy Judge.
This matter came on for hearing on March 8, 2012 (the "Hearing") on the Motion to Dismiss Adversary Complaint
The Court has jurisdiction over the subject matter of and the parties to this proceeding pursuant to 28 U.S.C. § 1334. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (K) and (O).
This matter concerns an order dismissing the debtors' prior adversary proceeding "with prejudice" on the basis that the underlying bankruptcy case had been dismissed and their second bankruptcy case had been filed. At the time the order was entered, the debtors' first bankruptcy case remained open, and their second bankruptcy case and second adversary proceeding were pending. Because the dismissal of the first adversary proceeding was jurisdictional, the doctrine of res judicata does not bar the second adversary proceeding.
1. On December 2, 2009, the Jeffersons filed a voluntary petition for relief under Chapter 13 of Title 11 of the United States Code ("Bankruptcy I"). In re Charles and Sandra Jefferson, No. 09-52702-KMS (Bankr.S.D. Miss. filed Dec. 2, 2009) (cited herein as "No. 09-52702, Dkt. No. ___").
2. On September 27, 2010, the Jeffersons filed an adversary complaint
3. Bankruptcy I was dismissed for non-payment on May 31, 2011. (No. 09-52702, Dkt. No. 122).
4. On June 17, 2011, the Jeffersons filed a motion to reinstate their bankruptcy case (No. 09-52702, Dkt. No. 125); they filed an amended motion to reinstate on June 21, 2011 (No. 09-52702, Dkt. No. 129). On September 9, 2011, after multiple responses and a hearing, the Court denied the Amended Motion to Reinstate. (No. 09-52702, Dkt. No. 141).
5. On August 25, 2011, approximately three months before Bankruptcy I and Adversary I were closed, the Jeffersons filed their second voluntary petition for relief under Chapter 13 ("Bankruptcy II"). In re Charles and Sandra Jefferson, No. 11-51958-KMS (Bankr.S.D. Miss. filed Aug. 25, 2011) (cited herein as "No. 11-51958, Dkt. No. ___").
6. On September 26, 2011, Community Bank filed a motion to dismiss Adversary I on the basis that "the underlying bankruptcy case [Bankruptcy I] has already been dismissed and that no prejudice could result to Plaintiffs as they have re-filed a separate proceeding [Bankruptcy II]." (No. 10-05059, Adv.Dkt. No. 34). The Jeffersons did not file a response.
7. On November 15, 2011, before dismissal of Adversary I, the Jeffersons filed an adversary complaint
8. On November 21, 2011, after Bankruptcy II and Adversary II were filed, the Court entered an order dismissing Adversary I. (No. 10-05059, Adv.Dkt. No. 38).
9. Adversary I was closed on December 6, 2011, and Bankruptcy I was closed on December 22, 2011 (No. 09-52702, Dkt. No. 145).
10. On January 27, 2012, Community Bank filed its Answer
After the Court declined to reinstate Bankruptcy I, Community Bank filed a motion to dismiss Adversary I asserting that there would be no prejudice to the Jeffersons because they had filed a second bankruptcy case. The motion stated in relevant part:
(No. 10-05059, Adv. Dkt. No. 34, at 2-3) (emphasis added).
When the Jeffersons failed to respond, counsel for Community Bank submitted a proposed order that was entered by the Court. The Order Granting Defendant Community Bank's Motion to Dismiss Adversary Proceeding ("Dismissal Order") submitted by Community Bank stated:
(No. 10-05059, Adv.Dkt. No. 38).
In its Motion to Dismiss, Community Bank asserts that the complaint in Adversary II is barred by the doctrine of res judicata because Adversary I was dismissed "with prejudice for all purposes." Res judicata, or claim preclusion, bars the litigation of claims that either have been litigated or should have been raised in an earlier suit. Test Masters Educ. Servs., Inc. v. Singh, 428 F.3d 559, 571 (5th Cir. 2005) (internal citations omitted). Application of the doctrine of res judicata is proper only if the following four-part test is met: (1) the parties must be identical in the two actions; (2) the prior judgment must have been rendered by a court of competent jurisdiction; (3) there must be a final judgment on the merits; and (4) the same cause of action must be involved in both cases. Eubanks v. F.D.I.C., 977 F.2d 166, 169 (5th Cir.1992).
Neither party disputes the first, second and fourth elements. The initial suit named the exact same parties, the Dismissal Order was rendered by this Court, a court of competent jurisdiction, and the claims
Community Bank asserts that the unappealed Dismissal Order, which contained express language dismissing the case "with prejudice," is a final judgment on the merits for purposes of res judicata. (No. 11-05059, Adv. Dkt. No. 10, at ¶¶ 10-12) (citing Ries v. Paige (In re Paige), 610 F.3d 865 (5th Cir.2010)) (citing Royal Ins. Co. of Am. v. Quinn-L Capital Corp., 960 F.2d 1286, 1293 (5th Cir.1992), for the proposition that an unappealed order constitutes final judgment on the merits for purposes of res judicata).
"As a general rule the dismissal or closing of a bankruptcy case should result in the dismissal of related proceedings." Querner v. Querner (In re Querner), 7 F.3d 1199, 1201 (5th Cir.1993) (internal citations omitted); see Armstrong v. Bailey, 101 Fed.Appx. 778, 779 (10th Cir. 2004) (district court rightly concluded it was required to dismiss adversary dependent on bankruptcy case; jurisdiction automatically stripped where adversary depends on bankruptcy case for existence; jurisdiction discretionary where adversary "relates to" bankruptcy case). However, if dismissal would prejudice one of the parties, the bankruptcy court may retain jurisdiction over an adversary proceeding. In re Querner, 7 F.3d at 1201 (decision to retain jurisdiction over related proceedings rests within sound discretion of bankruptcy court); see Un-Common Carrier Corp. v. Oglesby, 98 B.R. 751 (S.D.Miss.1989) (dismissing adversary upon dismissal of underlying bankruptcy case where plaintiff made no effort to show prejudice, no indication that "plaintiff would be precluded by reason of running of statute of limitations or otherwise from filing the action in another forum," case had not proceeded through pretrial conference stage, plaintiff had not vigorously prosecuted case and little discovery had been completed). Whether to retain an adversary after dismissal of the underlying case is essentially a question of jurisdiction. Querner, 7 F.3d at 1201.
When Bankruptcy I was dismissed, Community Bank moved to dismiss Adversary I citing the dismissal of the underlying bankruptcy case as the basis for its motion. No other grounds for dismissal were stated in the motion and the Court dismissed on jurisdictional grounds.
Federal Rule of Civil Procedure 41(b)
Additionally, while a dismissal designated "with prejudice" is generally treated as an adjudication on the merits, the Fifth Circuit has declined to adopt a stringent view "that any `with prejudice' comment associated with a dismissal categorically triggers a res judicata bar." Miller, 2008 WL 3086783, at *5 ("we have never held that dismissal with prejudice is per se a final judgment on the merits ... [m]oreover our sister circuits have consistently held that "with prejudice" designation does not categorically create a res judicata bar"); see Weissinger v. United States, 423 F.2d 795, 802-03 (5th Cir.1970) (Rives, J., dissenting) (substance of matter actually decided should control, not form (i.e. words "with prejudice" in judgment); "there must have been a right adjudicated or released in first suit to make it a bar, and this fact must appear affirmatively"). In Miller, the underlying claim was dismissed "with prejudice" on jurisdictional grounds. Id. On appeal, the Fifth Circuit held that regardless of the designation, the claim was not barred by res judicata because the dismissal for lack of jurisdiction was not a decision on the merits. Id. (citing Nilsen v. City of Moss Point, Miss., 701 F.2d 556, 562 (5th Cir.1983) (other citations omitted)).
Because Adversary I was dismissed on jurisdictional grounds, precluding the Court from reaching the merits of the claims, the dismissal was not a final judgment on the merits and does not have res judicata effect on Adversary II. Accordingly, the Motion to Dismiss should be denied.
For the reasons stated above, Community Bank's Motion to Dismiss is
Likewise, Royal Insurance Co. of America, is distinguishable from the instant case. In Royal Insurance Co. of America, the parties entered a settlement agreement to dismiss the federal claims with prejudice. 960 F.2d at 1289. After the district court entered a final judgment as to other claims, the parties against whom the judgment was rendered filed suit based on the same claims, collaterally attacking the judgment that dismissed with prejudice on the basis that the district court lacked subject matter jurisdiction over the matter. Id. The Fifth Circuit held that "if the parties against whom judgment was rendered did not appeal, the judgment becomes final and the court's subject matter jurisdiction is insulated from collateral attack." Id. at 1293. In the present case, the parties did not enter into any settlement agreement or agreed order to dismiss Adversary I. Adversary I was dismissed on motion of Community Bank because the underlying bankruptcy case had been dismissed and the Jeffersons had filed their second bankruptcy case. Furthermore, the Jeffersons are not collaterally attacking the Dismissal Order. The issue in the instant case is the effect of the Dismissal Order on Adversary II.
