Opinion Issued June 15, 2006
In The
Court of Appeals
For The
First District of Texas
NO. 01-05-00378-CV
ROBERT H. BISHOP, Appellant
V.
JERRY WILLIAM SADLER, OMNIBANK, N.A., AND RHONDA LEWIS HARDAWAY, Appellees
On Appeal from the 157th District Court
Harris County, Texas
Trial Court Cause No. 2003-36095
MEMORANDUM OPINION
Robert Bishop sued Jerry Sadler, Rhonda Hardaway, and Omnibank, N.A. (collectively “Omnibank”) for fraud, civil conspiracy, and breach of contract, arising from a transaction in which Bishop guaranteed a restaurant loan that Omnibank furnished to a third party. The trial court granted summary judgment to Omnibank, from which Bishop appeals. We conclude that the trial court properly granted summary judgment on the basis of collateral estoppel and therefore affirm.
Background
In 1996, Alan and Sally Mallett negotiated to purchase the Café Noche restaurant, where Alan was a chef, from the restaurant’s owner, Sadler, for $437,500. Bishop agreed to guarantee a Small Business Administration loan to the Malletts from Omnibank in the amount of $350,000, in exchange for a 25% interest in the restaurant. Bishop avers in a summary judgment affidavit that Hardaway, the Omnibank loan officer handling the loan, represented to him that Sally’s uncle would infuse 20% of the total purchase price, or $87,500, toward the purchase price. During the negotiations, the Malletts also procured a standby agreement from Sadler, in which he agreed to provide the 20% cash infusion in the event that Sally’s uncle was unwilling or unable to provide it. On the day of the closing, Alan told Bishop that Sally’s uncle would not provide the money. Bishop then loaned the Malletts the $87,500 on a short term basis. The sale closed. Sadler then provided the cash infusion to Omnibank pursuant to the standby agreement, and Omnibank repaid Bishop for the short-term loan.
Within eighteen months of the sale, Bishop became dissatisfied with the Malletts’ management of the restaurant, and informed Omnibank that the Malletts were in non-monetary default on the loan. Omnibank refused to call the loan because the Malletts had timely made all loan payments. Concerned that the bank eventually would call the loan, Bishop arranged to purchase the note from Omnibank. He averred that he purchased the note before the bank formally called on him to honor his guaranty because his attorney had advised him that doing so would put him in a better position to collect on the note and would save legal fees. Bishop then sued the Malletts for default on the note in state court in December 1998. He obtained a judgment against the Malletts in December 2000, and thereafter took over as 100% owner of the restaurant. Bishop then purchased the assets of the restaurant at auction.
In December 2000, the Malletts filed a Chapter 7 bankruptcy. Bishop instituted an adversary proceeding, attempting to prevent the Malletts from discharging the state court judgment against them by alleging fraud, material misrepresentation, and willful and malicious injury, among other things. In the adversary proceeding, Bishop contended that the Malletts misrepresented to him that Sally’s uncle would provide a 20% cash infusion knowing that he would not. Bishop further contended that he would not have guaranteed the loan if he had known there would be no cash infusion by a family member. The bankruptcy court rejected Bishop’s claims. Specifically, the bankruptcy court found that (1) Bishop had failed to prove that he suffered any damages as a result of any alleged misrepresentations because Omnibank had never called the note; and (2) Bishop’s own action in purchasing the note from the bank meant that he would not be liable to Omnibank on the guaranty. During the pendency of the adversary proceeding, Bishop instituted this state court proceeding against Omnibank, asserting the same causes of action he had asserted against the Malletts in the bankruptcy court. The trial court granted summary judgment in favor of all defendants.
Standard of Review
We review the trial court’s ruling on a summary judgment motion de novo. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). We view the evidence in a light most favorable to the non-movant, making all reasonable inferences and resolving all doubts in the non-movant’s favor. Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 223 (Tex. 1999). Because the summary judgment order does not specify the ground or grounds on which the trial court relied for its ruling, we affirm the summary judgment if any of the summary judgment grounds is meritorious. FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872–73 (Tex. 2000).
Here, Omnibank sought a traditional summary judgment as to all of Bishop’s causes of action. The movant for a traditional summary judgment has the burden of showing that no genuine issue of material fact exists and thus he is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c); KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999). A defendant moving for summary judgment must either disprove at least one element of each of the plaintiff’s causes of action, or plead and conclusively establish each essential element of its affirmative defense, thereby rebutting the plaintiff’s causes of action. Cathey v. Booth, 900 S.W.2d 339, 341 (Tex. 1995). Once the movant shows it is entitled to judgment as a matter of law, the burden shifts to the non-movant to present evidence raising a fact issue to defeat the motion for summary judgment. Haight v. Savoy Apartments, 814 S.W.2d 849, 851 (Tex. App.—Houston [1st Dist.] 1991, writ denied).[1]
Collateral Estoppel
Omnibank contends the trial court properly granted summary judgment because it proved the affirmative defense of collateral estoppel as a matter of law. Specifically, it contends that the bankruptcy court determined that Bishop’s purchase of the note negated the fraud claim against the Malletts, and thus Bishop is collaterally estopped from asserting identical facts as the basis for a fraud claim against Omnibank. Bishop responds that the bankruptcy action was personal to the Malletts, and thus the bankruptcy court did not consider whether any of the defendants in this case had committed fraud.[2]
Defensive collateral estoppel, or issue preclusion, can prevent relitigation by a plaintiff of issues previously lost against another defendant. Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 519 (Tex. 1998). A party asserting the bar of collateral estoppel must establish that (1) the facts sought to be litigated in the present action were fully and fairly litigated in a previous action, (2) those facts were essential to the judgment in the previous action, and (3) the parties were cast as adversaries in the previous action. John G. & Marie Stella Kenedy Mem’l Found. v. Dewhurst, 90 S.W.3d 268, 288 (Tex. 2002).[3] Strict identity of parties is not required; it is only necessary that the party against whom the doctrine is asserted either was a party or was in privity with a party in the first action. Sysco Food Servs., Inc. v. Trapnell, 890 S.W.2d 796, 802 (Tex. 1994). Bishop concedes that he was a party to the bankruptcy court action, so here we consider whether Omnibank satisfies the first and second prongs of collateral estoppel as a matter of law.
1. Facts Essential to the Judgment
Bishop contends that Omnibank, Hardaway, and Sadler committed fraud and civil conspiracy by collectively and individually concealing from him the fact that Sally’s uncle would provide no cash infusion, and further that he would not have guaranteed the loan if he had known that he was, in fact, guaranteeing a loan for the full purchase price of the restaurant. In the adversary proceeding, Bishop sought to prevent the Mallets from discharging the state court judgment against them, alleging essentially the same facts he asserts here—that he would not have guaranteed the loan if the Mallets had not misrepresented to him that Sally’s uncle would provide a cash infusion to the loan. In the bankruptcy court, he further contended that these allegations, if proved, would afford relief to him pursuant to sections 523 and 727 of the Bankruptcy Code. See 11 U.S.C. §§ 523(a)(2)(A), (a)(2)(B), (a)(4), (a)(6), 727(a)(2)–(5) (2000).
Under Bankruptcy Code section 523(a)(2)(A), Bishop had to prove by a preponderance of the evidence that: (1) the Malletts made a representation, (2) the Malletts knew the representation was false, (3) the representation was made with the intent to deceive Bishop, (4) Bishop actually and justifiably relied on the representation, and (5) Bishop sustained a loss as a proximate result of his reliance. Id. § 523(a)(2)(A); see In re Acosta, 406 F.3d 367, 372 (5th Cir. 2005). Under section 523(a)(6), the Malletts had to act in causing the willful and malicious injury to Bishop. 11 U.S.C. § 523(a)(6). It was, thus, essential to the trial court’s judgment in the adversary proceeding that the court determine whether any misrepresentation or malicious act that occurred during the underlying restaurant purchase transaction caused damages to Bishop. In comparison, to prove his action for fraud against Omnibank, Bishop must establish: (1) a material misrepresentation was made; (2) was known to be false when made or was asserted without knowledge of its truth; (3) was intended to be acted upon; (4) was relied on by Bishop; and (5) caused injury to Bishop. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001). Bishop’s civil conspiracy claim requires him to prove that: (1) two or more persons; (2) had an object to be accomplished; (3) had a meeting of the minds on the object or course of action; (4) committed one or more unlawful, overt acts; and (5) Bishop was damaged as a proximate result. Chon TRI v. J.T.T., 162 S.W.3d 552, 556 (Tex. 2005).
In an extensive written opinion, the bankruptcy court denied Bishop’s claims, concluding, “In light of the overwhelming testimony inconsistent with Mr. Bishop’s speculation, the Court concludes that Mr. Bishop has failed to prove the first element of a false representation or false pretenses.” Bishop v. Mallett (In re Mallett), Ch. 7 Case No. 00-41559, Adv. No. 01-3108, slip op. at 9, 18 (Bankr. S.D. Tex. Nov. 20, 2003). The court further found, “[Bishop’s] guaranty never resulted in injury. The bank never called the guarantee and therefore, Mr. Bishop never became liable on the note. Instead, he chose to buy the note and attempt to collect on it.” Id.
Bishop’s bankruptcy court claims required him to prove that misrepresentations by the Malletts proximately caused him to close on the loan and suffer damages pursuant to his guaranty. Here, Bishop must also prove that misrepresentations occurring as part of the same underlying transaction caused damages to him. The bankruptcy court already has determined, however, that Bishop cannot recover on the guaranty for any misrepresentations because Bishop never became liable on the underlying note. We conclude that Omnibank has established that the facts necessary for Bishop to recover in this action were essential to the judgment in the previous bankruptcy action, satisfying the second element of collateral estoppel.
2. Facts Fully and Fairly Litigated
Next, we determine whether the facts Bishop seeks to litigate here were fully and fairly litigated in the bankruptcy court. An issue is “actually litigated” when it is properly raised, by the pleadings or otherwise, is submitted for determination, and is determined. Van Dyke v. Boswell, O'Toole, Davis & Pickering, 697 S.W.2d 381, 384 (Tex. 1985) (citing Restatement (Second) of Judgments § 27 cmt. d (1982)). As noted above, it was incumbent upon the bankruptcy court to determine whether Bishop suffered damages as a result of a misrepresentation made to him during the Malletts’ negotiation and purchase of the restaurant. See 11 U.S.C. § 523(a)(2)(A), (a)(6). The bankruptcy court determined that Bishop did not establish that his injury bore any relationship to the alleged wrongful acts of the Malletts. Bishop, Ch. 7 Case No. 00-41559, slip op. at 18. The court found that “[t]he bank never called the guarantee and therefore, Mr. Bishop never became liable on the note. Instead, he chose to buy the note and attempt to collect on it. His own actions created his cause of action in the state court proceeding and therefore created the debt in question.” Id. The court concluded that to allow Bishop to prevent the discharge of the judgment he obtained against the Malletts as a result of his own decision to purchase the note “would be inequitable, as well as contrary to the legal principles governing §§ 523 and 727.” Id. at 24.
In this case, Bishop has the burden to prove every element of his fraud and civil conspiracy causes of action, including the element of damages. The bankruptcy court’s conclusion that Bishop did not suffer damages was not specific to any misrepresentation by the Malletts. Bishop’s allegation that he would not have guaranteed the note if he had known there would be no cash infusion by one of the Mallett’s family members is undermined by his decision to purchase the note and sue on it before the bank called the note, regardless of whether the misrepresentation regarding the infusion came from the Malletts, Omnibank, Hardaway, or Sadler. We conclude that the issue of the cause of any damages arising from misrepresentations made in the restaurant purchase transaction that Bishop seeks to litigate in this case was fully and fairly litigated in the adversary proceeding.
Conclusion
Because the bankruptcy court concluded that Bishop did not suffer any damages as a result of any misrepresentations which may have occurred in the restaurant purchase transaction, due to his intervening purchase of the note, he is collaterally estopped from recovering in this case. Omnibank thus has demonstrated its affirmative defense of collateral estoppel as a matter of law, and the trial court properly granted summary judgment. We therefore affirm the judgment of the trial court. All pending motions are denied as moot.
Jane Bland
Justice
Panel consists of Justices Taft, Higley, and Bland.
[1] Omnibank also moved for a no-evidence summary judgment on the issue of damages, but we resolve the case under the traditional summary judgment motion.
[2] In the trial court, Bishop asserted causes of action for fraud, civil conspiracy, and breach of contract. On appeal, Bishop presents no argument on the breach of contract claim, thus waiving that issue. San Jacinto River Auth. v. Duke, 783 S.W.2d 209, 209–10 (Tex. 1990). Accordingly, we need only consider the applicability of collateral estoppel to his fraud and conspiracy claims.
[3] When a federal opinion is used to bar a state court proceeding, we review the claim under federal standards. See San Antonio Indep. Sch. Dist. v. McKinney, 936 S.W.2d 279, 281 (Tex. 1996). Here, because the rule for collateral estoppel is the same under both state and federal law, we cite to Texas state cases. John G. & Marie Stella Kenedy Mem’l Found. v. Dewhurst, 90 S.W.3d 268, 288 (Tex. 2002).