Asarco, L.L.C. v. Montana Resources, Inc., 2017 U.S. App. LEXIS 9843

Background

ASARCO (through an affiliate) and Montana Resources, Inc. (MRI) were partners in a Montana copper mine under an agreement that diluted a defaulting partner by 1% per $100,000 of missed cash calls and allowed a defaulting partner to "cure" by paying missed amounts plus interest to obtain "reinstatement."
From 2002–2003 ASARCO’s affiliate missed four cash calls (~$5 million); MRI advanced the amounts and diluted ASARCO’s interest from 49.9% down to 0%, then purported to dissociate the affiliate.
ASARCO filed Chapter 11 bankruptcy in 2005; MRI filed proofs of claim and the parties litigated an adversary proceeding in bankruptcy asserting claims (fraudulent transfer, breach, improper expulsion). ASARCO originally sought a declaratory ruling on reinstatement but voluntarily dropped that declaratory claim; other claims were later dismissed with prejudice and the bankruptcy plan paid creditors in full.
After bankruptcy, ASARCO tendered the full cure amount and demanded reinstatement (2011); MRI refused, and ASARCO sued for breach of contract (and other claims arising post-bankruptcy). MRI moved for summary judgment asserting claim preclusion (res judicata), judicial estoppel for nondisclosure in bankruptcy, and related defenses.
The district court denied summary judgment on preclusion and estoppel grounds, and held (as a merits matter) that even if reinstatement were available it would restore only ASARCO’s 1.23% pre-final-default interest; the court certified the preclusion/estoppel rulings for interlocutory appeal.
The Fifth Circuit affirmed the district court: (1) the post-bankruptcy breach claim was not claim-precluded because it accrued only after the tender and rejection; and (2) judicial estoppel did not bar ASARCO because bankruptcy disclosures were sufficient and creditors (and the trustee) were aware of the partnership dispute.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Claim preclusion (res judicata) — can ASARCO sue post-bankruptcy for MRI’s refusal to reinstate after a post-bankruptcy tender?	ASARCO: the breach claim did not exist during the adversary proceeding because the cure tender and MRI’s rejection occurred later, so claim preclusion does not apply.	MRI: ASARCO could have tendered during bankruptcy or otherwise litigated the reinstatement claim in the adversary proceeding; prior claims bar relitigation.	Held: Not precluded — the breach claim accrued only after the post-bankruptcy rejection; transactional overlap insufficient to bar the new claim.
Effect of prior declaratory claim that was voluntarily dismissed — does it preclude current claim?	ASARCO: the dismissed declaratory claim has no preclusive effect.	MRI: prior declaratory action should foreclose later litigation of the same issue.	Held: Declaratory claim alone does not trigger claim preclusion; the Kaspar Wire exception applies, and ASARCO’s dismissed declaratory claim does not bar the new claim.
Judicial estoppel for nondisclosure in bankruptcy — did ASARCO’s bankruptcy disclosures (allegedly incomplete) bar it from pursuing reinstatement now?	ASARCO: disclosures (Schedule G and related filings) were sufficient; trustee and creditors knew of the partnership dispute; nondisclosure was not willful concealment.	MRI: ASARCO failed to disclose the partnership interest/right-to-reinstate and thus should be estopped from asserting it now.	Held: No judicial estoppel — district court did not abuse discretion; disclosure was adequate and creditors were protected.
Whether the reinstatement provision rode through bankruptcy / executory-contract issue (left undecided)	ASARCO: reinstatement provision survives (either as an executory-contract that "rides through" or as a nonexecutory option/asset).	MRI: reinstatement provision is an executory contract in default and does not ride through; it was lost in bankruptcy.	Held: Not decided — Fifth Circuit declined to resolve whether the provision is executory or an option or whether a defaulted executory contract rides through; left for district court.

Key Cases Cited

Kaspar Wire Works v. Leco Eng’g & Mach., 575 F.2d 530 (5th Cir. 1978) (declining to apply claim preclusion to a purely declaratory action that was voluntarily dismissed)
Comer v. Murphy Oil USA, Inc., 718 F.3d 460 (5th Cir. 2013) (elements for claim preclusion in this circuit)
In re Coastal Plains, Inc., 179 F.3d 197 (5th Cir. 1999) (bankruptcy: potential causes of action are assets that must be disclosed)
Lopez v. City of Houston, 617 F.3d 336 (5th Cir. 2010) (ripeness—claims contingent on future events are not ripe)
Mandarino v. Pollard, 718 F.2d 845 (7th Cir. 1983) (when declaratory relief is joined with coercive relief, traditional res judicata principles may apply)
Sid Richardson Carbon & Gasoline Co. v. Interenergy Res., Ltd., 99 F.3d 746 (5th Cir. 1996) (claim accrual principles for preclusion analysis)
Wheeler v. Pilgrim’s Pride Corp., 536 F.3d 455 (5th Cir. 2008) (scope of appellate review for issues reasonably bound up with certified order)