UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 97-41338
Summary Calendar
DENNIS JOSLIN, Certified Public Accountant,
Plaintiff-Appellee,
VERSUS
WALTER YOUNAS STEWART, ET. Al.,
Defendants,
WALTER YOUNAS STEWART
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of Texas
(9:96-CV-169)
September 8, 1998
Before REYNALDO G. GARZA, BARKSDALE, and DENNIS, Circuit Judges.
PER CURIAM:*
Walter Stewart executed four separate promissory notes
totaling $256,000.00 to Sam Houston National Bank of Huntsville,
Texas in 1983, 1984, and 1985. During the signing of the notes,
Stewart also executed four deeds of trust on four individual tracts
of land to secure the notes. Each of the deeds of trust contained
a cross-collateralization clause which provided that each deed of
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
trust secured “all indebtedness” of Walter Stewart to the bank,
whether past, present or future and incurred by any means.
The first tract of land, conveyed by the deed of trust on July
13, 1983, pledged a 70.773 acre plot of land which fronts a county
road. The other three parcels of land are essentially land-locked
and cannot be reached except by use of the first tract of land.
There is an easement along a creek bed, but it is unreliable due to
its location and possible flooding.
Stewart defaulted on the four notes and then filed voluntary
Chapter 12 bankruptcy in the Eastern District of Texas. The
bankruptcy court entered an Order Confirming Debtors’ Chapter 12
Plan of Reorganization on June 16, 1988. Under his Plan, Stewart
committed to repay a total of $102,855.20 out of the $256,000.00
that he originally borrowed from the Sam Houston National Bank of
Huntsville, Texas under the four notes. The Plan did not address
the cross collateralization clauses.
On April 16, 1993, in accordance with 11 U.S.C. Section
1222(b)(9), the bankruptcy court entered an Order Modifying
Debtors’ Chapter 12 Plan. The bankruptcy court’s order held that
the modifications requested were “not material.” The order’s
effect was to extend the terms of payment to the secured creditors
so that the Stewarts could continue to make payments on their debts
after the time period contemplated by the Chapter 12 Plan was
terminated. The modified plan indicated that the amount of the
indebtedness secured by the four tracts of land, at that time, was
approximately $92,231.35.
The modification order also provided that the Stewarts could
prepay any secured claim by paying the unpaid balance of the note,
principal and accrued interest and shall “thereupon be entitled to
and said creditor shall forthwith issue a release of lien on said
property and otherwise extinguishing any debt secured or formerly
secured thereby.” This language is essentially the same as the
language of the initial plan submitted by the bankruptcy court.
Dennis Joslin then purchased the four notes and deeds of trust
from the FDIC, the successor in interest to the Sam Houston
National Bank of Huntsville, Texas. Joslin filed suit for judicial
foreclosure under the deeds of trust. Both parties filed motions
for summary judgment.
Stewart asserted that res judicata should apply because the
modification order showed that the cross-collateralization issue
was litigated and was specifically addressed.
Joslin, on the other hand, contended that the modification
order could not have set aside the cross-collateralization
provision without resulting in an impermissible “material
modification.” Joslin further argued that the issue of cross-
collateralization was not only not litigated, but was not even
mentioned in any of the bankruptcy documents.
The United States District Court for the Eastern District of
Texas granted Joslin’s motion for summary judgment. Judge John
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Hannah entered a partial summary judgement in favor of Joslin on
September 19, 1996, and on September 24, 1997 entered final summary
judgment granting the relief requested by Joslin, namely the
foreclosure of the deed of trust liens on the property owned by
STEWART, as well as an award of attorney’s fees and costs of court.
The district court agreed with Joslin that the modification
order entered April 19, 1993 was not res judicata as to the cross-
collateralization issue. The court noted that the issue of cross-
collateralization clauses was not the subject of any of the
bankruptcy proceedings. Moreover, the court found that if the
modification order was intended to terminate the cross-
collateralization rights of the note holder, this would be an
impermissible material modification of the Plan. The court also
stated that if it was the intention of Plaintiffs to eliminate the
cross-collateralization terms of the deeds of trust, this should
have been expressly stated within the documents. Furthermore, the
fact that it was not mentioned must be construed against the
Debtors who were the drafters of the documents.
On October 22, 1997 Stewart perfected his appeal to this
court.
Discussion
I. Summary Judgment
The Fifth Circuit reviews a grant of summary judgment de novo,
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applying the same standard applied by the district court. Lubbock
County Hosp. Dist. v. National Union Fire Ins. Co. of Pittsburgh,
Pennsylvania, 143 F.3d 239, 241 (5th Cir. 1998). In reviewing a
motion for summary judgment, we view the evidence in the light most
favorable to the non-moving party. Bloom v. Bexar County, Texas,
130 F.3d 722, 724 (5th Cir. 1997). Summary judgment is proper if
the evidence when so viewed demonstrates that there is no genuine
issue as to any material fact and that the moving party is entitled
to a judgment as a mater of law. FED R. CIV. P. 56(c); see Bloom,
130 F.3d at 724. The party seeking summary judgment carries the
burden of showing that there is lack of evidence supporting the
non-moving party’s case. Celotex Corp. v. Catrett, 477 U.S. 317,
322, 106 S.Ct. 2548, 2552 91 L.Ed.2d 265 (1986).
After reviewing the district court’s granting of summary
judgment de novo, this court affirms its decision in granting
Joslin’s motion and its denial of STEWART’s motion.
II. Res judicata
Res judicata is utilized when claims have already been
judicially acted upon or decided. Bradley v. Armstrong Rubber Co.,
130 F.3d 168, 179 (5th Cir. 1997). In order for res judicata to
apply, four requirements must be satisfied. Gulf Island-IV, Inc.,
v. Blue Streak-Gulf Is Ops, 24 F.3d 743, 746 (5th Cir. 1994), cert.
denied, 513 U.S. 1155 (1995). First, the parties in the instant
action must be the same as or in privity with the parties in the
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prior action. Russell v. Sunamerica Securities, Inc., 962 F.3d
1169, 1172-73 (5th Cir. 1992). Second, “the court that rendered
the prior judgment must have been a court of competent
jurisdiction.” Gulf Island-IV, Inc., 24 F.3d at 746. Third, there
must be a final judgment on the merits. Bradley v. Armstrong Rubber
Co., 130 F.3d 168, 179 (5th Cir. 1997). Fourth, the same cause of
action must be involved in both suits. Id.
The element at issue in this case is whether there has been a
final judgment on the merits. The district court was correct in
its conclusion that the modification order did not render a final
judgment in regard to the cross-collateralization clauses. The
issue of the cross-collateralization clauses was not the subject of
any of the bankruptcy proceedings. The district court noted that
the Plan submitted by the Stewarts to the bankruptcy court for its
approval provided “[i]n this particular Plan all Deed of Trust
lienholders will be allowed to maintain their respective liens on
the property described on the Schedules in the Chapter 12 Plan, to
the full extent of the Plan Secured Values.” Clearly this language
supports Joslin’s contention and the court’s decision that the
bankruptcy court did not intend to terminate the cross-
collateralization rights of the note holder.
In addition, this court agrees with the district court’s
finding that the elimination of the cross-collateralization clauses
under the modification order would constitute an impermissible
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material modification of Stewart’s Chapter 12 Plan. Under the
Bankruptcy Code, a Modification Order is prohibited from creating
“a change in the rights of a [secured creditor] from what such
rights were under the Plan before modification.” 11 U.S.C.
§1223(c) (1998). Furthermore, the Modification Order itself states
that “the modifications ... are not material.” Moreover, as the
district court noted, if the plaintiffs intended to eliminate the
cross-collateralization terms of the deeds of trust, this should
have been expressed within the documents. The fact that it is not
mentioned must be construed against against the Debtors who were
the drafters of the documents. In re Fawcett, 758 F.2d 588, 591
(11th Cir. 1985); In re Duplechain, 111 B.R. 576 (W.D. Louisiana
1990).
Accordingly, this court affirms the district court’s decision
that the modification order is not res judicata to the cross-
collateralization issue. In addition, Appellant’s remaining
contentions are not viable and are without merit because the
modification order did not eliminate the cross-collateralization
clauses. Therefore, this court affirms the district court’s
decision in all respects.
AFFIRMED.
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