Case: 24-30273 Document: 56-1 Page: 1 Date Filed: 05/20/2025
United States Court of Appeals
for the Fifth Circuit
____________ United States Court of Appeals
Fifth Circuit
No. 24-30273
FILED
May 20, 2025
____________
Lyle W. Cayce
In the Matter of Ross Shaun Adair, Clerk
Debtor,
Ross Shaun Adair,
Appellant,
versus
Stutsman Construction, L.L.C.,
Appellee.
______________________________
Appeal from the United States District Court
for the Middle District of Louisiana
USDC No. 3:23-CV-625
______________________________
Before Higginbotham, Willett, and Ho, Circuit Judges.
James C. Ho, Circuit Judge:
Ross Shaun Adair contracted with Stutsman Construction to repair
his home from flood damage. Adair claimed that the repairs were done poorly
and refused to pay the final installment to Stutsman. Stutsman responded by
obtaining a default judgment against Adair in Louisiana state court.
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Adair subsequently filed for bankruptcy. Stutsman sought to have its
default judgment declared nondischargeable. Adair argued that Stutsman’s
unclean hands barred this relief, citing various regulatory violations. The
bankruptcy court held that the Louisiana judgment precluded any unclean
hands defense.
We disagree and accordingly vacate and remand the case to the
bankruptcy court for consideration of Adair’s unclean hands defense in the
first instance.
I.
In 2016, Adair’s home experienced severe damage from widespread
flooding in Baton Rouge. He hired Stutsman, a Louisiana construction
company licensed to perform home repairs up to $75,000.00. Freedom
Mortgage Company paid for the repairs in four installments—together
exceeding $150,000.00. The installment checks were sent to Adair with both
Adair and Stutsman listed as payees. Before each check was issued, an
inspector from Freedom Mortgage visited the property and determined the
project’s completion percentage. Adair endorsed the first three checks and
gave them to Stutsman.
After a final inspection resulted in a 100% complete evaluation,
Freedom Mortgage issued the final check for $71,755.48. Adair testified that,
before depositing the final check, he grew concerned about the quality and
completeness of the work. Stutsman’s manager testified that he believed the
project was “pretty much finalized,” with only a “punch list” of minor
repairs remaining.
Adair endorsed the final check and deposited it into his own account.
He testified that he wanted it within his control, because he felt that
Stutsman’s work was poor and incomplete. Stutsman contacted Adair,
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offered to remediate the issues he complained of, and drafted a proposal with
options to resolve the dispute. Resolution was unsuccessful.
Stutsman then filed a complaint for damages in Louisiana state court.
Adair did not appear at trial. A default judgment was rendered for Stutsman
for the value of the final check, plus interest, fees, costs, and $5,000.00 in
general damages.
Adair filed a complaint with the Louisiana State Licensing Board for
Contractors, alleging that Stutsman engaged in unlawful home repair. An
investigator informed Stutsman that it was “out of compliance” with its
$75,000.00 license. Stutsman’s manager countered that he thought
completing the project in four phases would avoid any such violation. The
investigator found that Stutsman performed work in the amount of
$179,761.90 and recommended citations for operating without a license as
well as violation of mold remediation regulations. Stutsman pled guilty to
both violations.
Adair later filed for Chapter 13 bankruptcy. Stutsman filed a
complaint seeking to except the Louisiana judgment from discharge under 11
U.S.C. § 523(a)(6). Adair sought to dismiss the complaint by arguing that
Stutsman’s “unclean hands” barred relief—namely, its lack of proper
licensure, as well as Adair’s claim of inadequate workmanship. The
bankruptcy court declined to consider this defense, because it found the issue
precluded by the Louisiana judgment.
Following a bench trial, the bankruptcy court held that Adair willfully
and maliciously injured Stutsman by failing to pay him the final installment
check and denied dischargeability of the Louisiana judgment. The district
court affirmed both the preclusion of Adair’s unclean hands defense and the
merits of Stutsman’s complaint.
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Adair filed this appeal. We’ve repeatedly held that “[a] bankruptcy
court’s decision to give preclusive effect to a state court judgment is a
question of law that we review de novo.” In re Keaty, 397 F.3d 264, 269 (5th
Cir. 2005) (citing cases).
II.
Federal bankruptcy law generally prevents a debtor from discharging a
debt incurred from his willful and malicious injury to another entity or its
property. See 11 U.S.C. § 523(a)(6). In response, Adair counters that
Stutsman’s nondischargeability claim is barred by its unclean hands. The
bankruptcy court rejected consideration of this defense, finding it precluded
by the state litigation. We disagree with the bankruptcy court.
Issue preclusion principles apply in bankruptcy discharge proceedings
under § 523(a). See, e.g., Grogan v. Garner, 498 U.S. 279, 284–85 n.11 (1991)
(“collateral estoppel principles do indeed apply in discharge exception
proceedings pursuant to § 523(a)”). When considering whether a state court
judgment is preclusive, we apply the issue preclusion rules of that state.
Keaty,
397 F.3d at 270. Under Louisiana law, a “judgment in favor of either
[party] is conclusive, in any subsequent action between them, with respect to
any issue actually litigated and determined if its determination was essential
to that judgment.” La. Stat. § 13:4231.
So as we’ve observed, “[t]he requirements for issue preclusion under
Louisiana state law are identical to those recognized by the Fifth Circuit: (1)
the parties must be identical; (2) the issue to be precluded must be identical
to that involved in the prior action; (3) the issue must have been actually
litigated; and (4) the determination of the issue in the prior action must have
been necessary to the resulting judgment.” Keaty, 397 F.3d at 270–71.
The scope of issue preclusion is defined by the particularized findings
of the state court judgment. Id. at 271. It applies where “the first court has
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made specific, subordinate, factual findings on the identical dischargeability
issue in question—that is, an issue which encompasses the same prima facie
elements as the bankruptcy issue—and the facts supporting the court’s
findings are discernible from that court’s record.” Id. (quotations omitted).
An issue is “actually litigated” when “the issue is raised, contested by the
parties, submitted for determination by the court, and determined.” Id. at
272.
The bankruptcy court erred by finding Adair’s unclean hands defense
precluded. The entry of default judgment here does not support a finding
that the issue was “actually litigated.” Id. The one-page judgment has no
findings of fact or conclusions of law. It simply awards Stutsman damages
for the value of the final check with interest, fees, and costs. Absent from the
record is any allegation or evidence concerning the potential uncleanliness of
Stutsman’s actions.
Moreover, the bankruptcy court erred for another reason: Adair’s
unclean hands defense was not available to him in the Louisiana litigation.
The defense of unclean hands is equitable and not bound by precise
elements. See, e.g., Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co.,
324 U.S. 806, 815 (1945). In Louisiana, its crux is that “[a] party who seeks
equitable relief, must not be pari delicto; that is, he himself must be free from
any unlawful or inequitable conduct with respect to the matter or transaction
in question.” City of New Orleans v. Bd. of Dirs. of the Louisiana State
Museum,
739 So.2d 748, 759 (La. 1999).
The Louisiana Civil Code, by contrast, afforded Adair only a narrower
legal defense against Stutsman’s action in Louisiana state court. Under
Article 2030, “[a] contract is absolutely null when it violates a rule of public
order, as when the object of a contract is illicit or immoral.” La. Civ.
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Code. art. 2030. See also La. Civ. Code. art. 2033 (deeming such
contracts nonexistent and making recovery for damages impossible).
Louisiana law views these two defenses differently. See, e.g., Palowsky
v. Cork, 337 So.3d 550, 557 (La. App. 5 Cir. 2022) (distinguishing the
equitable defense of unclean hands from Articles 2030 and 2033). The Civil
Code mandates that a court proceed in equity only when a legislative rule is
unavailable. La. Civ. Code. art. 4.
Stutsman’s petition in Louisiana state court was based on breach of
contract. Accordingly, had Adair responded to the petition, he would have
had to satisfy the considerably stricter requirements of Articles 2030 and
2033.
…
We vacate the judgment of the bankruptcy court and remand the case
to the bankruptcy court for consideration of Adair’s unclean hands defense
in the first instance. 1
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1
The dissent would have us decide the unclean hands defense in the first instance.
We decline to do so. As we’ve repeatedly noted, we are “a court of review, not first view.”
Utah v. Su, 109 F.4th 313, 318 (5th Cir. 2024). We of course recognize the principle
invoked by the dissent that we can affirm on any grounds available in the record. But
considering Stutsman’s multiple admitted infractions, we are quite comfortable concluding
that these issues are sufficiently contestable to warrant adversarial proceedings in the first
instance in the court below. See, e.g., Lone Star Nat’l Bank, N.A. v. Heartland Payment Sys.,
Inc.,
729 F.3d 421, 427 (5th Cir. 2013) (“Though we are free to uphold the district court’s
judgment on any basis that is supported by the record, we decline to decide these complex
issues as they are better addressed by the district court in the first instance.”) (cleaned up);
Baker v. Bell,
630 F.2d 1046, 1056 (5th Cir. 1980) (“a federal appellate court is justified in
resolving an issue not passed on below . . . where the proper resolution is beyond any
doubt”).
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Don R. Willett, Circuit Judge, dissenting:
The bankruptcy court addressed a single question: whether Adair’s
debt to Stutsman was nondischargeable under 11 U.S.C. § 523(a)(6) because
it arose from a “willful and malicious injury”? The bankruptcy court
answered yes, and the district court affirmed. I would do the same.
Though the issue is close, I respectfully disagree with the majority’s
conclusion that the bankruptcy court erred in applying res judicata to Adair’s
unclean hands defense. In both the state court litigation and the bankruptcy
proceeding, Adair’s defense rested on the same factual premise: that
Stutsman lacked the license required for construction projects exceeding
$75,000. I agree with the majority that Adair could have raised that licensing
issue only as a “clean hands” defense in the earlier state court breach-ofcontract action. Accordingly, the equitable “unclean hands” defense was
technically available for the first time in the bankruptcy discharge
proceeding. 1 But the label does not alter the core question: whether
Stutsman’s lack of licensure excused Adair’s nonpayment. That issue was
fully available in state court. Adair simply chose not to raise it.
The bankruptcy court rightly rejected Adair’s “unclean hands”
argument as a repackaging of the same defense in equitable terms. That the
state court litigation ended in a bare, one-page default judgment with no
findings of fact or conclusions of law is beside the point. The issue could have
been adjudicated but went unraised—entirely due to Adair’s own inaction.2
Res judicata bars a second bite at the apple.
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1
Ante, at 6.
2
See, e.g., Johnson v. Hypolite, 2005-598 (La. App. 3 Cir. 12/30/05), 918 So. 2d
1121, 1122–23 (applying res judicata based on prior default judgment).
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Even if the majority is correct that the bankruptcy court should have
addressed Adair’s “unclean hands” defense on the merits, I would still
affirm the judgment. That defense fails—and the record supports the
conclusion that Adair’s debt arose from a willful and malicious injury. 3
Under the “unclean hands” doctrine, a court may deny equitable
relief where the claimant “can be shown to have engaged in fraud or bad faith
behavior.” 4 There is no evidence in this record that Stutsman acted
fraudulently or in bad faith.
It is undisputed that Stutsman lacked the license required for the full
scope of the project. But Stutsman believed it could lawfully divide the
project into smaller phases, each under the $75,000 threshold permitted by
its existing license. Even if that belief was mistaken, nothing suggests it was
dishonest. Nor does the record suggest that any deficiencies in Stutsman’s
work were willful or undertaken in bad faith. Stutsman’s manager
acknowledged that minor tasks remained at the time Adair withheld
payment. But he described them as a routine “punch list” and offered a
proportional reduction in the final payment. As for Adair’s chief complaint—
water damage—the manager testified that it stemmed from a preexisting
rusted pipe and fell outside the scope of Stutsman’s work.
Adair disputed much of this testimony at trial, but the bankruptcy
court found Stutsman’s manager more credible. As the court
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3
“This Court may affirm on grounds other than those relied upon by the district
court when the record contains an adequate and independent basis for that result.” Lauren
C. by & through Tracey K. v. Lewisville Indep. Sch. Dist., 904 F.3d 363, 374 (5th Cir. 2018)
(quotation omitted); see also In re Williams,
298 F.3d 458, 462 n.5 (5th Cir. 2002) (applying
this rule in bankruptcy appeal).
4
In re Austin, No. 07-20702, 2009 WL 3193167, at *14 (Bankr. W.D. La. Oct. 2,
2009) (citing Alcatel U.S.A., Inc. v. DGI Techs., Inc.,
166 F.3d 772, 796 (5th Cir. 1999))
(applying unclean hands doctrine in bankruptcy proceeding).
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explained,“[t]his case largely turns on the relative credibility of the
witnesses.” And because the bankruptcy court observed those witnesses
firsthand, I see no basis to second-guess its credibility determinations. 5
Nothing in the record supports a finding of fraud or bad faith on Stutsman’s
part. The unclean hands defense fails.
Because Adair’s defense fails, I would affirm the bankruptcy court’s
conclusion that his debt to Stutsman arose from a willful and malicious injury.
The record offers no support for Adair’s decision to withhold more than
$70,000. He knew that little—if any—work remained. He knew the
mortgage company had inspected the property and certified the job as
complete. Yet he withheld payment. He rejected Stutsman’s repeated offers
to resolve any remaining issues and instead chose to keep the money.
Adair claimed he needed the funds to hire new contractors to fix
Stutsman’s work. Yet he admitted to spending only $4,000—far less than
the $70,000 he withheld. He later testified that he spent an additional
$20,000 in cash, but the bankruptcy court found that assertion “rather
incredible.” Adair also acknowledged that some appliances were never
replaced, and he failed to produce photographic evidence of any actual
repairs.
Perhaps most tellingly, trial testimony revealed that Adair contacted
his bank before depositing the check—to ask whether it would be illegal to do
_____________________
5
We must give “due regard . . . to the opportunity of the [bankruptcy] court to
judge the credibility of the witnesses.” Matter of Perez, 954 F.2d 1026, 1027 (5th Cir. 1992)
(qouting Fed R. Civ. P. 52(a)). We may reverse the bankruptcy court’s factual
determinations only “upon a definite and firm conviction that the Bankruptcy Court
erred.” In re Quinlivan,
434 F.3d 314, 318 (5th Cir. 2005) (citing Anderson v. Bessemer City,
470 U.S. 564, 573 (1985)).
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so. As the bankruptcy court rightly concluded, this showed that Adair “knew
what he was doing was questionable, perhaps even illegal.”
By depositing the check despite knowing the work was essentially
complete, Adair knowingly breached his contract with substantial certainty
that Stutsman would be harmed. 6 In my view, that conduct was willful and
malicious conduct under § 523(a)(6), making the debt nondischargeable.
Respectfully, I dissent.
_____________________
6
Williams, 337 F.3d at 509–10 (describing the § 523(a)(6) “willful and malicious”
standard in the breach-of-contract context as “a knowing breach of a clear contractual
obligation that is certain to cause injury”).
10
