Case Information
*1 Before DAVIS, CLEMENT, and COSTA, Circuit Judges.
GREGG COSTA, Circuit Judge:
ASARCO, L.L.C., thrоugh an affiliate, became partners in a Montana copper mine with Montana Resources, Inc. (MRI). Because of financial troubles in the early 2000s, ASARCO was unable to meet cash calls the partnership required. When it failed to contribute on four occasions, MRI covered ASARCO’s portion. But this was not an act of benevolence. By covering its partner’s cash calls, MRI diluted ASARCO’s interest in the partnership from 49.9% to nothing.
About eight years after it lost its interest in the mine, ASARCO sent a letter invoking a clause in the partnership agreement that discusses a right to reinstatement. Surprisingly, the clause contains no time limit. In seeking reinstatement, ASARCO offered to pay MRI the full amount of the missed cash calls plus interest. MRI refused to bring ASARCO back into the partnership. ASARCO filed this lawsuit challenging that refusal.
ASARCO’s suit is complicated by a significant legal proceeding that took place after it missed the cash calls but before it sought reinstatement. Fiscal problems—likely the same that prevented it from making the partnership contributions—resulted in ASARCO filing Chaрter 11 bankruptcy. MRI contends that two of ASARCO’s decisions during that bankruptcy prevent it from now suing for reinstatement. First, it contends that an adversary proceeding the parties litigated has preclusive effect on the reinstatement claim. Second, it contends that ASARCO’s alleged failure to disclose the potential partnership interest to the bankruptcy court estops it from now pursuing that interest. In this interlocutory appeal, we agree with the district court that neither of these arguments presents an obstacle to ASARCO’s suit.
I. An ASARCO affiliate [1] and MRI formed a mining partnership called Montana Resources in 1989. The partnership agreement provided that if a partner failed to pay a cash call within thirty days, that partner fell into default. The nondefaulting party could cover the deficit, but the defaulting partner’s share would dilute by 1% for every $100,000 it failed to contribute. According to ASARCO, section 12.02 of the agreement allows for reinstatement through the following provision: “[T]he defaulting partner may cure such default by contributing all amounts owеd, plus interest at the Overdue Rate, to the non-defaulting partner and the Partnership, which repayment shall constitute reinstatement.”
During a fourteen month period starting in 2002, the affiliate missed four cash calls totaling more than $5 million. MRI covered all of them, which resulted in a reduction in the affiliate’s interest from 49.9% to 25.3%, to 3.9%, to 1.2%, and finally to 0%. At that time, MRI purported to dissociate the affiliate from Montana Resources.
In 2005, ASARCO and its affiliates filed for bankruptcy. As part of those proceedings, MRI filed Proofs of Claim against ASARCO to recover contingent environmental liability incurred by the partnership prior to ASARCO’s bankruptcy. ASARCO responded by initiating an adversary proceeding. ASARCO alleged fraudulent transfer, breach of contract, and improper expulsion relating to its affiliate’s dilution and purported dissociation from the partnership. The original complaint also alleged that ASARCO had a right to reinstatement after dilution. As a remedy, that complaint sought (1) a declaration that ASARCO had a right to reinstatement if it cured its default, аnd (2) monetary damages for income that ASARCO would have received had it not been improperly diluted. ASARCO later amended its complaint, dropping the declaratory judgment claim without prejudice. The other claims were dismissed with prejudice pursuant to an agreement between the parties, and shortly after the underlying bankruptcy concluded. The bankruptcy was a remarkable success: the plan offered full payment to all creditors.
With its newfound solvency, ASARCO tried to get back its interest in the mine, as the mine was doing well. Two years after the bankruptcy plan was confirmed, ASARCO sent MRI a letter that tendered the full cure amount to cover the cash call defaults and notified MRI that ASARCO would commence all appropriate action if tender was not accepted within five business days. MRI did not accept, [2] and ASARCO filed this suit.
The complaint alleges that MRI’s failure to accept the tender constituted a breach of contract, along with other claims that accrued prebankruptcy. MRI initially filed a motiоn to dismiss based on ASARCO’s lack of standing to prosecute claims postbankruptcy, judicial estoppel, and res judicata. The district court held that all undisclosed claims that existed during the bankruptcy or that were not specifically scheduled postbankruptcy were barred on standing, estoppel, or res judicata grounds.
All was not lost for ASARCO, though, because the district court also ruled that none of these doctrines could bar the breach of contract claim that arose from the postbankruptcy tender and demand for reinstatement. For judicial estoppel and standing, the court reasoned that the breach of contract claim did not exist during bankruptcy, as the demand for reinstatement and tender had not yet occurred. For res judicata, the court held that the breach of contract was a new claim, unrelated to the other claims for coercive relief in the adversary proceeding. The court also concluded that the dropped request for declaratory relief concerning the right to reinstatement filed during the adversary proceeding did not have preclusive effect.
Following discovery, MRI filed a motion for summary judgment, again arguing lack of standing, judicial estoppel, and res judicata. It also asserted a limitations defense. The district court rejected those procedural defenses. MRI also raised the principal merits issue: whether the partnership agreement allows ASARCO’s attempted reinstatement. The court concluded that question сould not be decided as a matter of law because of ambiguity in the reinstatement provision and inconclusive extrinsic evidence. The court was, however, able to grant summary judgment on another merits question that greatly weakened ASARCO’s attempted reinstatement: assuming there is a right to reinstatement, the court held it only allows ASARCO to regain the 1.23% interest it held before the final default.
Even that 1.23% interest in the mine must have significant value as MRI has pressed full speed ahead in challenging the district court’s refusal to dismiss thе entire case. [3] After the district court certified its rulings on estoppel and res judicata for interlocutory appeal, MRI successfully obtained permission from this court to appeal. [4] See 28 U.S.C. § 1292(b).
II.
We turn first to MRI’s contention that ASARCO’s breach of contract
claim is barred by res judicata, which is more descriptively known as claim
preclusion. The district court held that it was not, a determination we review
de novo.
Matter of Baudoin
,
ASARCO did seek a declaratory judgment in that adversary proceeding
on the main issue the current case raises: whether the partnership agreement
provides ASARCO with a right to reinstatement if it tenders the missed cash
calls. ASARCO voluntarily dismissed that claim prior to obtaining a ruling,
however, so issue preclusion does not apply. Because that declaratory
judgment was part of the prior case MRI is invoking for claim preclusion, the
parties focus their attention on
Kaspar Wire Works, Inc. v. Leco Engineering &
Machine, Inc.
,
But the nature of declaratory actions led the court to conclude that the
related but distinct doctrine of claim preclusion should not apply. Claim
preclusion of coursе bars a party from relitigating the same claim that has been
resolved in an earlier suit. What gives claim preclusion far-reaching force,
however, is that it also bars claims that could have been brought in the earlier
suit.
Id
. at 535 (“Under these rules of claim preclusion, the effect of a judgment
extends to the litigation of all issues relevant to the same claim between the
same parties, whether or not raised at trial.”). Therein lies the problem with
applying the doctrine to declaratory judgment aсtions. The whole point of a
declaratory judgment action is to decide only a single issue in a dispute, one
that is often preliminary as subsequent events will need to occur before a
traditional lawsuit can be pursued. Parties would be deterred from using that
efficient process if it would bar all later claims arising out of the same dispute.
See id.
at 537;
Harborside Refrigerated Servs., Inc.. v. Vogel
,
Kaspar Wire
was assessing the preclusive effect of a prior suit that did
not seek those additional equitable or legal remedies; the only claim was one
seeking declaratory relief. That is not our case, because in the adversary
proceeding ASARCO pursued claims seeking monetary relief—breach of
contract, fraudulent transfer—in addition to thе request for declaratory relief
it later dismissed. Since
Kaspar Wire
, courts have addressed this situation
when the prior lawsuit involved both a claim for declaratory relief and one or
more claims seeking damages or other coercive relief.
Mandarino v. Pollard
,
Kaspar Wire and these later cases thus establish the following principle: when it comes to claim preclusion, a request for declaratory relief neither giveth nor taketh away. The declaratory claim on its own typically will not preclude future claims involving the same circumstances (as noted, issue preclusion may still apply to any declaration the court issues). But in a case involving both declaratory claims and ones seeking coercive relief, the former will not serve as an antidote that undoes the preclusive force that traditional claims would ordinarily have. This is why, despite all the ink in this case discussing Kaspar Wire , it ends up largely being a sideshow. The declaratory judgment claim asserted and then dismissed in the adversary proceeding does not have preclusive effect. But the traditional claims for damages asserted in that case are subject to regular claim preclusion analysis.
That analysis finds preclusive effect when: “(1) the parties are identical
or in privity; (2) the judgment in the prior action was rendered by a court of
competent jurisdiction; (3) thе prior action was concluded by a final judgment
on the merits; and (4) the same claim or cause of action was involved in both
actions.”
Comer v. Murphy Oil USA, Inc.
,
ASARCO contests the final three requirements, but we need only
address the last because we conclude that it is not satisfied. We use a
transactional test to answer the “same claim” question, barring the new claim
if it arises from the same nucleus of operative facts as the prior claims.
N.Y.
Life Ins. Co. v. Gillispie
,
MRI responds that courts have nonetheless applied preclusion when the
party asserting the earlier claims had control over the reasons the claim was
not brought in the first case. But the cases it cites involve situations in which
the material facts for the claims had already occurred; the plaintiff just failed
to abide by procedural rules in nоt bringing these claims in the first proceeding.
In
Davis v. Dall. Area Rapid Transit
,
That is unlike this case, in which the facts that spurred the present
breach of contract claim—MRI’s denial of ASARCO’s cure—had not occurred
at the time of the prior suit. The other cases cited by MRI involve the
Davis
scenario when the facts giving rise to the claim occurred before the prior
proceeding.
See, e.g.
,
Murry v. GSA
,
Another way to think about this is that in all of the cases just cited, the
claim asserted in the later suit had accrued at the time of the first suit that did
not include the claim—that is, the statute of limitations began running on the
discrimination claims in
Davis, Murry
, and
Nilsen
prior to the filing of the first
suit. But ASARCO’s claim for failure to reinstate did not accrue until MRI
rejected the tender in 2011. “If the purported injury is ‘contingent [on] future
events that may not occur as anticipаted, or indeed may not occur at all,’ the
claim is not ripe for adjudication.”
Lopez v. City of Houston
,
III.
That brings us to ASARCO’s other bankruptcy court conduct that MRI
argues is a bar to this lawsuit: its alleged failure to disclose the existence of
the right to reinstate it now invokes. MRI contends this amounted to conduct
worthy of judicial estoppel, which “is a common law doctrine that prevents a
party from assuming inconsistent positions in litigation.”
In re Superior
Crewboats, Inc.
,
MRI is correct that nowhere in its bankruptcy disclosure did ASARCO Master or its parent explicitly disclose a partnership interest in the mine, or a right to reinstatement. The closest either came was in Schedule G, where ASARCO Master listed an interest in a “Joint Venture Agrеement” under its disclosure of all executory contracts. But that was somewhat contradicted by ASARCO LLC’s Statement of Financial Affairs, where it listed the alleged interest but described the partnership as “dissolved.” MRI asserted that these disclosures were inadequate and show that ASARCO intentionally concealed its alleged interest in the partnership to ensure the interest would survive the bankruptcy proceeding, only to resurrect the interest in this suit.
The district court disagreed. It emphasized that the purpose of the disclosure requirement is to protect creditors, as it maximizes the value of the estate to ensure that creditors are paid as fully as possible. To that end, the district court noted that all creditors were paid in full, and the trustee was undoubtedly aware of the partnership contract because it filed the adversary proceeding with claims derived from the partnership agreement. Ultimately, it found that the disclosure of the interest, though scant, was sufficient. The district court’s decision to not apрly judicial estoppel was within the discretion we afford it in this fact-intensive area. [5]
IV.
Finally, MRI asserts that even if ASARCO can evade claim preclusion and judicial estoppel, the right to reinstatement did not make it through the bankruptcy because the provision was an executory contract neither assumed nor rejected at bankruptcy. Executory contracts that are not assumed or rejected “ride through” the bankruptcy “unaffected by the bankruptcy proceedings.” In re O’Connor , 258 F.3d 392, 405 (5th Cir. 2001). But MRI argues that the ride-through dоctrine does not apply to executory contracts in default, which is how it characterizes ASARCO’s alleged right to reinstatement.
The district court did not rule on this question though. Indeed, it had not yet decided whether the reinstatement provision is an executory contract or a nonexecutory option contract. Unlike executory contracts, nonexecutory contracts—like option contracts—are just assets or liabilities that must be disclosed along with other interests; they are not subject to assumption, rejection, or the ride-through doctrine. See CHS, Inc. v. Plaquemines Holdings, LLC , 735 F.3d 231, 239 (5th Cir. 2013) (noting, in a different context, that option contracts are assets in bankruptcy); see also In re Digicon, Inc. , 71 F. App’x. 442, at *5–6 (5th Cir. 2003). As the district court did not decide whether the reinstatement provision was an executory or option contract, it did not list that issue—or whether a defaulted executory contract rides through a bankruptcy—in its order certifying the case for interlocutory appeal.
“[W]e
may
address all issues material to the order in question and are
not limited to the ‘controlling question[s] of law.’”
Wheeler v. Pilgrim’s Pride
Corp.
,
* * * The district court’s denial of MRI’s motion for summary judgment on preclusion and estoppel grounds is AFFIRMED.
Notes
[1] The ASARCO affiliate involved was AR Montana, which at the time was a special- purpose subsidiary of ASARCO. AR Montana would later merge into ASARCO Master Inc., another ASARCO affiliate. For ease of reference, we refer to ASARCO and its affiliates in this suit as ASARCO and MRI and its affiliates as MRI, unless the identities of the specific entities makes a difference.
[2] Although MRI acknowledges the existence of a reinstatement provision, it reads that provision as allowing reinstatement under different scenarios than the one that led to ASARCO’s dilution. This is because, MRI contends, to allow reinstatement after dilution would allow the defaulting partner to take the sweet without the bitter; the defaulting partner could let its partner cover the cash calls while business was bad, only to step back into the partnership when business was booming.
[3] Of course, ASARCO would be able to appeal the determinаtion that reinstatement allows it to regain only that small percentage after a final judgment. As it did not seek interlocutory review we do not consider that question.
[4] The district court had certified its earlier ruling on the motion to dismiss for interlocutory appeal, but we declined to hear an appeal at that time.
[5] MRI also argues that ASARCO should have disclosed that it had a potential breach of contract claim, not just that it had a partnership interest in the contract. But MRI cites no case requiring a party to disclose a potential claim for breach of contract when the contract had not yet been breached. This makes sense, because MRI’s position would require a debtor to scour its contracts looking for hypothetical claims that another party could maybe breach in the future.
[6]
Wheeler
noted that “some Circuits have held that we are ‘obliged to address the order
that was certified rather than the controlling question of law framed by the district court,’”
but nonetheless framed our ability to do so as a “may” rather than a “must.”