Grantham et al v. Cory et al
Filing
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ORDER that 11 Plaintiff's appeal is DENIED and the ruling of the Bankruptcy Court dismissing this action is AFFIRMED. Signed by Judge Kent J. Dawson on 2/28/13. (Copies have been distributed pursuant to the NEF - cc: USBC - EDS)
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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GREGORY E. GRANTHAM, et al.,
Case No. 2:12-CV-00671-KJD-CWH
Plaintiffs/Appellants,
Bankruptcy Appeal from:
Adversary No. 12-01025 BAM
Bankr. Case No. bk-03-19478 BAM
consolidated with
Bankr. Case No. bk-03-25222 BAM
Chapter 7
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v.
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TIMOTHY S. CORY, et al.,
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Defendants/Appellees.
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ORDER
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Before the Court is the appeal of Plaintiffs/Appellants Gregory Grantham and John Saba
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(collectively “Planitiffs”) from an Order of the Bankruptcy Court dismissing their Complaint (#11).
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Defendants Timothy Cory, Chapter 7 Trustee of the consolidated bankruptcy estates of Flamingo 55,
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Inc. and Vegas Townhome Partners, LP, and his attorneys Durham Jones & Pinegar PA (collectively
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“Defendants”) filed an answering brief (#12) to which Plaintiffs filed a reply (#15).
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I. Introduction
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Plaintiffs, as successors in interest to Broadway Acacia, LLC, (“BA”) seek review of the
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order of the Bankruptcy Court dismissing their action against Defendants. In several proceedings
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before Judge Bruce Markell, the Bankruptcy Court determined that a parcel of land containing 54
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unimproved lots in Las Vegas Nevada (the “Property”) was the property of the bankruptcy estate of
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Flamingo 55. Subsequently, Plaintiffs contended before the Bankruptcy Court that a ruling by the
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United States Court of Appeals for the Ninth Circuit demonstrates that property which the Trustee
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sold actually was the property of a partnership between Flamingo 55, Inc. and BA. Plaintiffs sought
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dissolution of the partnership and contended that the proceeds of that sale constitute partnership
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property and that the Trustee is wrongfully withholding funds in which the partnership has an
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interest.
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The Bankruptcy Court dismissed the action because Plaintiffs were seeking to litigate issues
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already decided by the Bankruptcy Court and the Ninth Circuit’s decision did not affect the
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Bankruptcy Court’s prior determinations that the Property was part of the bankruptcy estate.
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Plaintiffs appealed.
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II. Background
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The parties are familiar with the underlying facts in this case and a more detailed background
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of this case has been recounted in prior orders of the Bankruptcy Court. See, e.g., In re Flamingo 55,
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Inc., 378 B.R. 893, 899 (Bkrtcy.D.Nev. 2007) (the “Subrogation Opinion”). The relevant procedural
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facts of this case are as follows. On July 31, 2003, an involuntary Chapter 7 bankruptcy petition was
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filed against Flamingo 55, Inc. (“Flamingo 55”) as case no. 03-1947-BAM. On January 15, 2004,
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Defendant Cory was added as Chapter 7 trustee. See In re Flamingo 55, Inc., 378 B.R. 893, 901
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(Bankr. D. Nev. 2007).
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On December 12, 2003, Vegas Townhome Partners, L.P. (“Vegas Townhome”) filed a
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voluntary Chapter 11 petition, as case no. 03-25222-BAM. On March 18, 2004, Vegas Townhome’s
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Chapter 11 case was converted to a Chapter 7 case and the Trustee was added to the Vegas
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Townhome case as Chapter 7 trustee. On May 12, 2004, the Chapter 7 case of Flamingo 55 and
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Vegas Townhome (the “Debtors”) were consolidated and the Trustee was confirmed as the trustee
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for the consolidated case.
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Before the Flamingo 55 bankruptcy, the Property was conveyed to entities controlled by
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Plaintiffs. The Trustee brought a fraudulent transfer action against Plaintiffs (the “Fraudulent
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Transfer Action”). This action was settled on August 3, 2004 when Plaintiffs signed a Quitclaim
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Deed conveying all right, title, and interest in and to the Property to Flamingo 55. The Bankruptcy
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Court approved settlement of the Fraudulent Transfer Action on September 22, 2004.
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On May 7, 2004, Plaintiffs filed a proof of claim against the Debtors’ estate (the “Claim”),
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asserting a secured claim for $5,000,000.00 against the Property. The Trustee objected to the claim
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and on November 16, 2004, the Bankruptcy Court entered an order disallowing the Claim (the
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“Claim Order”). Plaintiffs appealed the Claim Order to the District Court. The District Court upheld
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the decision of the Bankruptcy Court and Plaintiffs unsuccessfully appealed to the Ninth Circuit.
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On November 30, 2004, the Bankruptcy Court entered an Order authorizing the Trustee to
sell the real property of the estate, including the Property (the “Sale Order”). Plaintiffs
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acknowledged in their objection to the sale, that the Property was property of the bankruptcy estate.
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Plaintiffs filed a notice of appeal of the Sale Order, which they moved to dismiss on March 4, 2005.
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On February 1, 2005, Plaintiffs filed a complaint against the Trustee in an adversary
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proceeding, case no. 05-01020-BAM (the “First Adversary Complaint”), seeking a declaratory
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judgment that Plaintiffs are the owners of the Property and entitled to an equitable lien on the
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Property, and seeking a constructive trust on the Property in their favor. The Bankruptcy Court
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granted summary judgment on the claims raised in the First Adversary Complaint and ruled that the
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estate owned the Property and that Plaintiffs lacked a claim to the Property.
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The Property was eventually sold in July 2005 and the Trustee retained the proceeds from the
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sale. On November 19, 2005, Plaintiffs filed a claim based on subrogation in the consolidated case
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(the “Subrogation Claim”). The Trustee filed an objection to the Subrogation Claim. The
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Bankruptcy Court disallowed the Subrogation Claim and issued an opinion (the “Subrogation
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Opinion”) in which the Bankruptcy Court held that Plaintiffs’ interest in Flamingo 55 was equity
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interest only and not an interest in the ownership of the Property. Accordingly, the Bankruptcy Court
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found that the Trustee’s claim to the property had priority over any alleged subrogation claim and
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“As of [the Trustee’s] appointment, he had the status of a bona fide purchaser of the . . . Property
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without notice of [Plaintiffs’] claimed subrogation interest.”
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Plaintiffs moved for reconsideration of the Order, which the Bankruptcy Court denied.
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Plaintiffs then appealed to the District Court, which affirmed the Bankruptcy Court’s ruling.
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Plaintiffs appealed to the Ninth Circuit, which affirmed the Bankruptcy Court’s disallowance of the
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subrogation claim. In its opinion, the Ninth Circuit noted the Bankruptcy Court’s determination that
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BA was partners with Flamingo 55, and stated that “We clarify that it is [BA’s] position as a partner
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or coventurer in the development enterprise that distinguished it as a joint borrower rather than a
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mere surety, guarantor or accommodation comaker.” In re Flamingo 55, Inc., 646 F.3d 1253, 1255
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(9th Cir. 2011).
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Plaintiffs contend that this language established BA’s interest in the Property. On September
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27, 2011, Plaintiffs filed a complaint against Defendants in District Court (the “Dissolution
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Complaint,” case no: 2:11-cv-01569-PMP -VCF). Based on the Ninth Circuit’s ruling, Plaintiffs
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sought dissolution of the partnership between BA and Flamingo 55, Inc. and further sought judgment
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against the Defendants based on the Trustee’s sale of the Property. Judge Philip M. Pro referred the
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matter to the Bankruptcy Court because the claims were core proceedings.
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Plaintiffs’ Dissolution Complaint claimed that the Ninth Circuit had “determined that
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Grantham and Saba’s predecessor in interest Broadway-Acacia, LLC, and the debtor Flamingo 55,
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Inc., were partners or coventurers in a venture to develop certain property.” On February 24, 2012,
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the Trustee filed a Motion to Dismiss the Complaint, which the Bankruptcy Court granted on April 6,
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2012. Plaintiffs now appeal the order of the Bankruptcy Court dismissing the Dissolution
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Complaint.
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III. Discussion
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A. Legal Standard
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The District Court has jurisdiction to hear appeals from final judgments, orders, and decrees
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of the bankruptcy court pursuant to 28 U.S.C. § 158. A district court reviews de novo a bankruptcy
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court’s conclusions of law. See In re Lazar, 83 F.3d 306, 308 (9th Cir. 1996); In re Frontier Props.,
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Inc., 979 F.2d 1358, 1362 (9th Cir. 1992). Because the Bankruptcy Court determined that Plaintiffs’
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claims failed as a matter of law, the Court reviews the decision de novo.
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B. Collateral Estoppel and Res Judicata
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The principle of collateral estoppel or issue preclusion, dictates that “once a court has decided
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an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the issue
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in a suit on a different cause of action involving a party to the first case.” Allen v. McCurry, 449 U.S.
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90, 94 (1980). A party is estopped from relitigating an issue where: 1) The issue is same as that
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involved in the prior action; 2) The issue was litigated in the prior action; 3) The issue has been
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determined by a valid and final judgment; and 4) The determination must have been essential to the
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final judgment. See In re Pizante, 186 B.R. 484, 488 (9th Cir. BAP 1995); In re Berr, 172 B.R. at
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306.
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Res judicata is a similar principle which operates to bar specific claims. “Generally, four
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elements must be present in order to establish the defense of res judicata: (1) the parties were
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identical in the two actions; (2) the prior judgment was rendered by a court of competent jurisdiction;
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(3) there was a final judgment on the merits; and, (4) the same cause of action was involved in both
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cases.” In re Heritage Hotel Partnership, I 160 B.R. 374, 376 -377 (9th Cir.BAP 1993). Generally,
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res judicata prevents a party from raising claims arising out of the same transaction or series of
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transactions. In re Associated Vintage Group, Inc., 283 B.R. 549, 556 (9th Cir.BAP 2002). (quoting
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Restatement (Second) of Judgments § 24).
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The issue of whether the Property was part of the estate has been litigated by the parties and
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determined by valid and final judgments. In dismissing the Dissolution Complaint, the Bankruptcy
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Court stated that “there have been prior rulings of this Court that either explicitly or necessarily
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found that the real property was titled... in the Flamingo 55 estate... . Indeed part of that title transfer
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involves a quitclaim deed by the Plaintiffs in this case to the estate.” The issue was fully litigated
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because Plaintiffs opposed the Trustee’s sale, pursued the subrogation claim, and litigated the First
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Adversary Complaint. Finally, the Bankruptcy Court’s determination was essential to these
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judgments, specifically its determination that, to the extent there was a partnership between BA and
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Flamingo 55, the partnership did not own the Property.
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Despite Plaintiffs’ strident assertion at argument before Judge Markell that “[t]he ruling of
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the circuit court says that we were partners and the partnership owned the land,” the Ninth Circuit
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made no such factual determination. The Ninth Circuit’s opinion was entirely consistent with the
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Subrogation Order and the prior orders of the Bankruptcy Court. The Ninth Circuit acknowledged
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the existence of a partnership for development between BA and Flamingo 55 while unambiguously
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adopting the Bankruptcy Court’s factual finding that Flamingo 55 owned the Property and that the
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judgment on this issue was final. Had the Ninth Circuit believed that the Bankruptcy Court made so
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consequential an error in its determination that the Property was part of the estate, it would have said
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so. Instead the Ninth Circuit affirmed the Subrogation Order, adopted the Bankruptcy Court’s
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findings of fact wholesale, and made only a clarification in the scope of the Subrogation Order.
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IV. Conclusion
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The Court has reviewed the issues presented in this appeal de novo. Based on this review,
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the Court concludes that the Bankruptcy Court was correct in its determination that Plaintiffs failed
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to state a viable claim. The claims and issues raised in the Dissolution Complaint have previously
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been litigated between the parties. The Bankruptcy Court has determined more than once that the
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Property did not belong to any partnership between BA and Flamingo 55 and that it was properly
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included in the bankruptcy estate.
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Accordingly, IT IS HEREBY ORDERED that Plaintiffs’ appeal (#11) is DENIED and the
ruling of the Bankruptcy Court dismissing this action is AFFIRMED.
DATED this 28th day of February 2013.
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_____________________________
Kent J. Dawson
United States District Judge
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