Sheinfeld v. Leeds, et al

*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this opinion should not be published and is not precedent except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.
United States Court of Appeals
Fifth Circuit
F I L E D
October 10, 2006
Charles R. Fulbruge III
Clerk
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 05-11027
_____________________
In The Matter Of:
DAVID I. SHEINFELD,
Debtor.
----------------------------------
DAVID I. SHEINFELD,
Appellant,
versus
GARY LEEDS; LEEDS FAMILY PARTNERSHIP,
Appellees.
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas, Dallas
USDC No. 3:03-CV-2601
_________________________________________________________________
Before KING, GARWOOD and JOLLY, Circuit Judges.
PER CURIAM:*
Debtor David I. Sheinfeld (“Sheinfeld”) appeals the district
court’s affirmance of the bankruptcy court’s entry of partial
summary judgment for Gary Leeds and the Leeds Family Partnership
(collectively, “Leeds”) based on the preclusive effect of a
California arbitration award. Finding no reversible error by
either the district court or the bankruptcy court, we AFFIRM.

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This dispute originated in the formation of Mission Hills
Hotel Development Partnership in 1985, later succeeded by the TLS
Partnership (“the Partnership”). The Partnership consisted of
Leeds, Sheinfeld, Richard Engelberg (“Engelberg”), and James Enis
(“Enis”), and it developed a California hotel that opened in April
1987. That same year, Enis assigned his interest in the
Partnership to LS Investments, a partnership in which Sheinfeld had
an interest. Three years later Sheinfeld and Leeds bought
Engelberg’s interest in the Partnership and then sold their entire
interest to a group of Japanese investors.
Leeds brought suit in California in 1992 against Sheinfeld,
claiming, inter alia, that he had concealed his acquisition of
Enis’s interests. Enis and Engelberg later sued both Leeds and
Sheinfeld, whereupon the two lawsuits were consolidated. A jury
eventually found that Sheinfeld and Leeds had breached their
fiduciary duties and were thus jointly and severally liable to Enis
and Engelberg. Before the trial, Sheinfeld and Leeds had agreed to
arbitrate any contribution issues between them arising from a
judgment for Enis and Engelberg. However, on February 4, 2000, one
day prior to that long-scheduled arbitration hearing, Sheinfeld
filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code in U.S. Bankruptcy Court in Dallas and the hearing
was stayed under the automatic stay provision in 11 U.S.C. §

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362(a). The bankruptcy case was later converted into a Chapter 7
proceeding, with Jeffrey H. Mims (“Mims”) appointed as Trustee.
On May 9, 2000, Leeds filed a non-dischargeability complaint
against Sheinfeld under 11 U.S.C. § 523(a)(2) and (a)(4), asserting
that Sheinfeld violated his fiduciary duties to Leeds in the
Partnership transactions, rendering any debts he owed non-
dischargeable. Leeds also moved for relief from the automatic stay
to allow arbitration to go forward. At a hearing on June 28, the
bankruptcy court granted Leeds’s motion, modifying the automatic
stay “to the extent necessary to permit the Leeds Group to
liquidate its claims against the Debtor pursuant to the Arbitration
Agreement . . . .” Over the next several months, Mims negotiated
for Sheinfeld’s bankruptcy estate with Leeds, entering into a
Settlement Agreement on November 28 that granted Leeds an unsecured
claim of $5,213,337.30 against the estate. Mims also agreed not to
pursue any counterclaims against Leeds. The agreement provided
that it would not affect current disputes between Sheinfeld and
Leeds to be resolved through arbitration or by the Bankruptcy
Court. The Settlement Agreement also stated the parties’ agreement
that Leeds’s general claim of $5,213,337.30 was a ceiling and it
could be reduced if the debt was found to be less by arbitration or
otherwise. Over Sheinfeld’s objection, the bankruptcy court
approved the Settlement Agreement.
The arbitration hearing was scheduled for January 15, 2001.
About one week before the hearing, Sheinfeld moved the bankruptcy

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court for a six-month continuance of arbitration and his motion was
denied. He then asked the arbitrator for a continuance, which was
also denied. The hearing proceeded on January 15 with only Leeds
participating. Neither Sheinfeld nor Mims appeared, nor did
Sheinfeld provide any comment to a notice of intended ruling the
arbitrator distributed to the parties. On February 12, the
arbitrator awarded Leeds the full claim in compensatory damages and
an additional $7,473,451.48 in punitive damages. Sheinfeld
unsuccessfully appealed the award in California trial and appellate
courts before it was ultimately confirmed on January 30, 2003.
Leeds then moved the bankruptcy court for partial summary
judgment on the ground that its claim was not dischargeable under
11 U.S.C. § 523(a)(2) and (a)(4). The findings in the award, Leeds
argued, established the elements of fraud and violation of
fiduciary duty under those sections to satisfy non-
dischargeability. The bankruptcy court granted the motion,
allowing the offensive use of collateral estoppel to prohibit
relitigation of the factual findings in the arbitral award. It
also applied the Settlement Agreement to limit the non-
dischargeable amount to the original claim amount of $5,213,337.30.
The district court affirmed the bankruptcy court’s grant of partial
summary judgment in a Memorandum Order on July 19, 2005, holding
that (1) the arbitrator did not exceed the scope of the bankruptcy
court’s modified stay, (2) collateral estoppel was proper under the
circumstances, (3) Sheinfeld’s due process rights were not

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violated, and (4) the bankruptcy court had not erred in allowing
the arbitrator to liquidate Leeds’s claim.
We have reviewed the record and thoroughly considered the
opinion of the district court. We conclude that neither it nor the
bankruptcy court made any reversible error in giving preclusive
effect to the arbitration award, and accordingly the judgment is
AFFIRMED.

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