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Armbruster v. Anderson

Court of Appeals of Louisiana, Fourth Circuit

June 27, 2018


          APPEAL FROM CIVIL DISTRICT COURT, ORLEANS PARISH NO. 2016-10644, DIVISION "F" Honorable Christopher J. Bruno, Judge


          Julie U. Quinn Justin E. Alsterberg QUINN ALSTERBERG, LLC 855 Baronne Street New Orleans, LA 70113 COUNSEL FOR DEFENDANT/APPELLEE

          Court composed of Chief Judge James F. McKay, III, Judge Edwin A. Lombard, Judge Rosemary Ledet

          Rosemary Ledet, Judge

         This is a complex commercial litigation dispute. Robert and Nicole Armbruster, a married couple, and two companies controlled by Mr. Armbruster- F.I.N.S. Construction, LLC ("FINS"); and Celeste Developer, LLC ("Developer")-are the Plaintiffs. Steven Anderson and four companies controlled by Mr. Anderson-Cambrie Celeste, LLC ("Celeste"); Cambrie Partners I, LLC ("Partners"); Cambrie Celeste Commercial Tenant, LLC ("Tenant"); and Avalon Re: Partners, LLC ("Avalon")-are the Defendants. From the trial court's judgment granting the Defendants' peremptory exception of res judicata and dismissing the suit, the Plaintiffs appeal. For the reasons that follow, we affirm.


         Mr. Anderson is a property developer who specializes in the use of tax credits to develop properties. Mr. Armbruster is a contractor. Together, Mr. Armbruster and Mr. Anderson, through various companies that they respectively control, have engaged in numerous real estate and construction ventures. The ventures jointly entered into by Mr. Anderson and Mr. Armbruster have spawned much litigation. The joint venture that gave rise to the instant litigation involved a project to rehabilitate property located at 621 Celeste Street in New Orleans, Louisiana (the "Property").

         Briefly summarized, the factual background of the venture is as follows. On March 21, 2006, pursuant to an act of cash sale, Religious and Celeste, LLC ("R&C"), an entity co-owned by the Armbrusters, [1] acquired the Property for $1, 480, 000.[2] R&C ultimately intended to develop the Property, in multiple phases, into mixed used commercial, retail, and residential space. The first phase of R&C's development plans was to rehabilitate the building located on the Property, which at the time of acquisition was a three-story shell in poor condition. R&C used FINS-Mr. Armbruster's construction company-to perform the work.[3] R&C also began the process of applying for historic tax credits ("HTC") for the rehabilitation project.

         R&C financed the rehabilitation project by obtaining from Omni Bank ("Omni") two loans, totaling $2, 872, 000, which the Armbrusters personally guaranteed. R&C defaulted on the Omni loans, and Omni commenced a foreclosure action on June 10, 2009. To avoid foreclosure, Mr. Armbruster, acting as R&C's representative, entered into a deal with Mr. Anderson and two of his companies, Avalon and Celeste. The deal, as ultimately closed, encompassed two steps. Collectively, these two steps are referred to as the "Transaction."

         The first step of the Transaction was an act of cash sale, executed on December 29, 2009, by which R&C transferred title to the Property to Celeste subject to the Omni mortgage. The second step of the Transaction occurred on March 22, 2010, when Celeste assumed R&C's Omni debt. As part of the Transaction, Mr. Armbruster and Mr. Anderson, through their respective companies, also entered into various other agreements, including a lease (the "Lease").

         The Lease was an integral part of the second step of the Transaction. According to the Defendants, the parties entered into a New Markets Tax Credit ("NMTC") transaction to obtain a low market loan to refinance the existing debt on the Property. In order for the NMTC transaction to close, the Property had to be leased. On March 22, 2010, Celeste leased to Tenant the commercial component of the Property. On that same date, Celeste, Tenant, and Starboard Management, LLC ("Starboard"), a company owned by the Armbrusters, entered into the Lease. Under the Lease, Starboard rented the residential component of the Property from Celeste and the commercial component from Tenant. Contemporaneously, the Armbrusters, FINS, and Developer (collectively the "Guarantors") executed an agreement to guarantee Starboard's obligations under the Lease (the "Guaranty").

         About three months after the second step of the Transaction, on June 2, 2010, R&C filed a petition for relief under Chapter 11 of the Bankruptcy Code.[4]On March 1, 2012, Celeste and Tenant (the lessors) filed in Louisiana state court a cumulated action for eviction and breach of contract against Starboard and the Guarantors.[5]

         In response, on March 29, 2012, R&C filed an adversary proceeding in the Bankruptcy Case against Mr. Anderson, Celeste, Partners, and Avalon (the "Adversary Proceeding").[6] The gist of R&C's claims in the Adversary Proceeding was that the documents executed in connection with the Transaction did not accurately memorialize the deal it had made with Mr. Anderson and that instead Mr. Anderson had defrauded R&C with respect to the Transaction.[7] The relief R&C requested was to have the Bankruptcy Court void the Transaction.

         In March and April 2013, a seven-day trial was held in the Adversary Proceeding. On April 11, 2014, the Bankruptcy Court's Judgment was issued, dismissing R&C's claims. On August 11, 2014, the United States District Court for the Eastern District of Louisiana affirmed the Bankruptcy Court's Judgment, stating: "[i]nsofar as the core proceedings are concerned, the Court finds that the ruling of the Bankruptcy Court is not clearly erroneous; as to all other claims, the Court finds no error of fact or law on this record, and accepts the Bankruptcy Court's proposed findings of fact and conclusions of law, overruling objections to the same."

          After the conclusion of the trial in the Adversary Proceeding, the stay of the Eviction case was lifted in July of 2013. During the following three years of litigation of the Eviction Case, Starboard was summarily evicted and held in contempt.[8] On July 27, 2016, the trial court granted a motion for summary judgment filed by Celeste and Tenant and rendered judgment against Starboard and the Guarantors in the amount of $1, 614, 941.69, representing past due rent and damages. Starboard and the Guarantors appealed. On November 6, 2017, this court affirmed the trial court's judgment granting summary judgment as to Starboard only; however, as to the Guarantors, this court reversed the trial court's judgment granting summary judgment and remanded for further proceedings. Cambrie Celeste LLC v. Starboard Mgmt., LLC, 16-1318 (La.App. 4 Cir. 11/6/17), 231 So.3d 79, writ denied, 17-2041 (La. 2/2/18), 235 So.3d 1110 (hereinafter "Starboard").

         Meanwhile, on October 27, 2016, while the appeal in the Eviction Case was still pending, the Plaintiffs filed in Louisiana state court the instant suit, styled a petition for declaratory judgment. In their petition, the Plaintiffs set forth in detail the facts of the Transaction and alleged that Mr. Anderson and the other defendants-companies owned and controlled by Mr. Anderson-drafted and fraudulently induced Mr. Armbruster, on behalf of the other plaintiffs, to execute six specific agreements (the "Anderson Documents") in a complex scheme to enable the Defendants to obtain lucrative tax credits.[9] Through the petition, the Plaintiffs sought to rescind the Anderson Documents. In the alternative to rescinding the Anderson Documents, the Plaintiffs sought damages for bad faith breach of contract and unfair trade practices. In response, the Defendants filed an exception of res judicata. On June 7, 2017, the trial court rendered judgment granting the Defendants' exception of res judicata and dismissing with prejudice the Plaintiffs' claims.[10] This appeal followed.[11]


         Although the Defendants assert multiple assignments of error, [12] the dispositive issue is whether the trial court erred in granting the Defendants' peremptory exception of res judicata. This court has noted that it reviews factual issues relating to an exception of res judicata under a manifest error-clearly wrong standard and that it reviews legal issues relating to an exception of res judicata under a de novo standard. Countrywide Home Loans Servicing, LP v. Thomas, 12-1304, p. 3 (La.App. 4 Cir. 3/20/13), 113 So.3d 355, 357; Ames v. Ohle, 16-0612, p. 6 (La.App. 4 Cir. 4/26/17), 219 So.3d 396, 402.

         "Res judicata is an issue preclusion device found both in federal law and in state law." Terrebonne Fuel & Lube, Inc. v. Placid Ref. Co., 95-0654, 95-0671, p. 11 (La. 1/16/96), 666 So.2d 624, 631; BBCL Enterprises, LLC v. Am. Alternative Ins. Corp., 15-0469, p. 3 (La.App. 4 Cir. 2/3/16), 187 So.3d 65, 67 (citing Terrebonne, supra). "The purpose of both federal and state law on res judicata is essentially the same; to promote judicial efficiency and final resolution of disputes by preventing needless relitigation." Terrebonne, 95-0654, 95-0671 at p. 12, 666 So.2d at 631. "Under federal precepts, 'claim preclusion' or 'true res judicata' treats a judgment, once rendered, as the full measure of relief to be accorded between the same parties on the same 'claim' or 'cause of action.'" Reeder v. Succession of Palmer, 623 So.2d 1268, 1271 (La. 1993).

         Since 1991, [13] res judicata under Louisiana law, akin to federal law, [14] applies to "all causes of action existing at the time of final judgment arising out of the transaction or occurrence that is the subject matter of the litigation are extinguished." La. R.S. 13:4231. The res judicata doctrine, in Louisiana, is stricti juris; "any doubt regarding the application of the doctrine must be resolved against its application." Bd. of Sup'rs of Louisiana State Univ. v. Dixie Brewing Co., Inc., 14-0641, p. 6 (La.App. 4 Cir. 11/19/14), 154 So.3d 683, 688 (collecting cases).

         Here, the Defendants premised their res judicata exception on two judgments-one federal and one state. The federal judgment was rendered on August 11, 2014, by the United States District Court for the Eastern District of Louisiana, which affirmed the Bankruptcy Court's Judgment in the Adversary Proceeding (the "Bankruptcy Court's Judgment"). The state judgment was issued on July 27, 2016, by the trial court in the Eviction Case (the "State Court's Judgment").[15]

         After the trial court rendered its decision granting the Defendants' res judicata exception in this case, however, this court rendered its decision in Starboard, reversing the State Court's Judgment as it pertains to all parties in that case except for Starboard. As a result of our decision in Starboard, any res judicata effect of the State Court's Judgment was lost. See La. R.S. 13:4231 cmt. (d) (stating that "the preclusive effect of a judgment attaches once a final judgment has been signed by the trial court and would bar any action filed thereafter unless the judgment is reversed on appeal"). The State Court Judgment thus can no longer have any res judicata effect. The narrow issue before us is whether the Bankruptcy Court's Judgment has res judicata effect.

         "A prior federal court judgment in a case involving the same facts . . . may support a plea of res judicata in a Louisiana court." 1 Frank L. Maraist and Harry T. Lemmon, LOUISIANA CIVIL LAW TREATISE: CIVIL PROCEDURE §6.7 (1999) (citing Reeder, 623 So.2d at 1271). Louisiana courts "'have repeatedly confirmed that federal law is applicable to consideration of whether a federal court judgment has res judicata effect.'" Jones ex rel. Jones v. GEO Grp., Inc., 08-1276, p. 5 (La.App. 3 Cir. 4/1/09), 6 So.3d 1021, 1025 (quoting Green v. Iberia Parish Sch. Bd., 06-1060, p. 3 (La.App. 3 Cir. 12/20/06), 945 So.2d 940, 943).[16]

         "A bankruptcy judgment, just as any judgment under federal res judicata law, bars a subsequent suit if all of the following tests are satisfied: 1) both cases involve the same parties; 2) the prior judgment was rendered by a court of competent jurisdiction; 3) the prior decision was a final judgment on the merits; and 4) the same cause of action is at issue in both cases." Terrebonne, 95-0654, 95-0671 at p. 15, 666 So.2d at 633 (citing Matter of Baudoin, 981 F.2d 736, 740 (5th Cir. 1993); Eubanks v. F.D.I.C., 977 F.2d 166, 169 (5th Cir. 1992)).

         Contrary to the Plaintiffs' contention, we find all four federal res judicata requirements are satisfied here. The second and third requirements are easily met. The Bankruptcy Court's ruling in the Adversary Proceeding was affirmed by the federal district court; hence, the Bankruptcy Court's Judgment is a final judgment rendered by a court of competent jurisdiction. See Stern v. Marshall, 564 U.S. 462');">564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011).[17] The first and the fourth requirements, however, require more detailed analysis.

         For purposes of federal res judicata, the contours of the requirement that the parties be the same have been defined as follows:

"[P]arties" for purposes of res judicata does not mean formal, paper parties only, but also includes "'parties in interest, that is, that persons whose interests are properly placed before the court by someone with standing to represent them are bound by the matters determined in the proceeding.'" (quoting 1B J. Moore, Moore's Federal Practice, P.O. 411[1] at 390-391 (2d ed. 1983)) (emphasis supplied). A non-party is in privity with a party for res judicata purposes in three instances. First, if he has succeeded to the party's interest in property, he is bound by prior judgments against the party. Second, if he controlled the prior litigation, he is bound by its result. Third, he is bound if the party adequately represented his interests in the prior proceeding.

Latham v. Wells Fargo Bank, N.A., 896 F.2d 979, 983 (5th Cir. 1990).

          The Plaintiffs emphasize that the debtor, R&C, was the sole plaintiff in the Adversary Proceeding and thus the sole party to whom the Bankruptcy Court could grant relief. They emphasize that, in this case, four other parties are named as plaintiffs and that none of the Plaintiffs was a debtor in the Bankruptcy Case. The Plaintiffs further contend that "[w]hile the contracts and documents at issue (the Anderson Documents) in [the Plaintiffs'] Petition for ...

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