In 1989, Avin C. Copeland (Copeland), founder and franchisor of Popeye’s Famous Fried Chicken decided to acquire competitor Church’s Fried Chicken. After an acquisition and merger, the emerging company, A Copeland Enterprises, Inc. (ACE), was the obligor on loans in the amount of $173 million from Merrill Lynch and $300 million from Canadian Imperial Bank of Commerce, Inc. (CIBC). Financial difficulties ensued, and ACE defaulted on the obligations. In April 1991, ACE entered Chapter 11 bankruptcy in the bankruptcy court for the Western Dis
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
ACE’s DIP Financing Motion
While the ACE bankruptcy was pending, Copeland, Merrill Lynch, ACE, CIBC and the creditors committee tried to obtain a consensus on a reorganization plan. As a condition to any agreement, CIBC demanded that ACE bring current pre- and post-petition interest on the defaulted debt. In July 1991, ACE moved for authority to arrange a debtor-in-possession financing facility (the DIP financing) to bring the interest arrears current. After objections to the DIP financing were raised by Merrill Lynch, the Church’s Independent Franchises Association and the State of Texas, the parties feverishly negotiated amongst themselves to satisfy the various objectors and come up with a framework for a reorganization plan that would persuade the court to authorize the DIP financing.
On July 31, 1991, the bankruptcy court held a hearing on ACE’s motion for DIP financing. Disagreement about what occurred in that hearing forms the basis of this lawsuit. Copeland claims that the parties entered into a binding agreement in this hearing to submit a joint plan of reorganization according to the terms announced in the hearing (the July 31 Agreement). Merrill Lynch claims that the only event of legal significance that occurred in the hearing was that the court approved the DIP financing. Under the plan discussed in the hearing, Copeland individually was to receive substantial cash and other assets (in excess of $30 million) for entering into four agreements with ACE: (1) a non-compete agreement; (2) a new supply agreement; (3) a settlement agreement; and (4) a formula and recipe agreement (the Copeland Agreements). Copeland sued for breach of the alleged July 31 agreement in general and for breach of the Copeland Agreements in particular.
At the conclusion of the hearing, the bankruptcy court granted the requested approval for DIP financing, stressing the importance of the fact that there was “the potential of seeing a consensual plan of reorganization.” Needless to say, the plan alluded to in the July 31 hearing was never submitted to the court. After due diligence and further negotiation, the parties were unable to reach a final consensus concerning material terms of the reorganization plan, including the Copeland Agreements.
Competing Plans for Reorganization and the Genesis of this Suit
In April 1992, CIBC submitted its own plan for reorganizing ACE. Copeland objected to the CIBC plan because it did not include certain favorable provisions of the Copeland Agreements. After submission of both the CIBC and Copeland plans to creditor vote the CIBC plan was adopted, over Copeland’s objection. Copeland responded in May 1992 by filing this action against Merrill Lynch and CIBC, as an adversary proceeding in the bankruptcy court. Count I of Copeland’s complaint requested specific performance by confirmation of the reorganization plan allegedly agreed to in the July 31 hearing. Count II sought money damages for breach of the July 31 agreement.
In October 1992, after a six-day hearing, the CIBC plan was confirmed by the bank
Bankruptcy Court’s Continuing Jurisdiction over Copeland’s Breach of Contract Claim Following Confirmation of CIBC Plan
Following confirmation of the CIBC plan, the bankruptcy court raised sua sponte the issue of whether it had continuing jurisdiction over Copeland’s individual claim for breach of the alleged July 31 Agreement. After argument of counsel, the bankruptcy court issued its Memorandum Opinion on Jurisdiction. The Memorandum Opinion concluded that the bankruptcy court either did not have or would decline to exercise continuing jurisdiction over Copeland’s individual contract claim. In core proceedings under title 11 or arising in a case under title 11, the bankruptcy court can enter final orders and judgments. 28 U.S.C. § 157(b)(1). Bankruptcy judges may also hear non-core proceedings which are related to the bankruptcy proceeding. 28 U.S.C. § 157(c)(1). In those cases, the bankruptcy court can recommend findings of fact and conclusions of law to the district court, but cannot enter final orders or judgment. 28 U.S.C. § 157(c)(1). Copeland’s request for specific performance, the bankruptcy court held, was a core claim that was mooted by the court’s confirmation of the CIBC reorganization plan. Copeland’s damage claim, the court held, was a non-core claim which could no longer have any conceivable effect on the bankruptcy estate because many of the material issues, including the existence and breach of the alleged July 31 Agreement by Merrill Lynch, had already been litigated in the confirmation hearings. See In re Wood,
Despite the bankruptcy court’s conclusion that it did not have jurisdiction, the Memorandum Opinion reiterated the confirmation hearing findings that Merrill Lynch, but not CIBC, had breached an obligation to submit the joint reorganization plan announced in the July 31 hearing. Relying on its asserted adjudication and release of Merrill Lynch’s liability to ACE, the bankruptcy court concluded that Merrill Lynch would be precluded from litigating its liability to Copeland individually. Thus, the only remaining issue was the quantum of damages, regardless of where the matter was tried. Since the outcome of the damage determination could have no effect on the bankruptcy estate, the bankruptcy court decided that, even if its conclusion that it lacked jurisdiction was incorrect, it would decline to exercise jurisdiction over Copeland’s non-core claim and would transfer the case instead. On appeal, Copeland claims that the bankruptcy court’s findings, in the confirmation hearing and the Memorandum Opinion, prohibit Merrill Lynch from litigating either the existence or the breach of the July 31 Agreement.
Proceedings in the Western District of Texas
Merrill Lynch filed objections to the Memorandum Opinion pursuant to Bankruptcy Rule 9033, which the bankruptcy court denied.
Proceedings in the Eastern District of Louisiana
Once in the Eastern District of Louisiana, Copeland moved for summary judgment, claiming that the doctrines of collateral es-toppel and law of the case precluded Merrill Lynch from litigating its liability for breach of the July 31 Agreement. The district court denied this motion, based on its judgment that the bankruptcy court’s compromise of Merrill Lynch’s liability to ACE in the confirmation process did not include litigation of Merrill Lynch’s liability to Copeland individually. The alleged July 31 Agreement, the court concluded, was merely an unenforceable “agreement to agree.” For its conclusion that there was no binding agreement, the district court relied primarily on the uncertainty of material terms and indications in the DIP financing hearing transcript that everyone involved was aware that additional negotiation would be required to “complete the deal.” As to the four Copeland Agreements, which were to be an integral part of the reorganization plan, the district court found that they changed substantially well after the July 31 hearing and likewise never became final.
Based on the disposition of Copeland’s motion, Merrill Lynch filed its own motion for summary judgment, which was granted by the district court. Despite a “voluminous record” and ample time for discovery, the district court found that Copeland failed to create a fact issue on elements essential to his case. We review the district court’s entry of summary judgment in favor of Merrill Lynch de novo, applying the same standard as the district court. Lemelle v. Universal Mfg. Corp.,
II. DISCUSSION
Copeland argues that the district court put “the cart before the horse” by reaching the issue of whether there was an agreement, instead of merely enforcing the bankruptcy court’s findings in the confirmation hearing (related to ACE’s bankruptcy) and the Memorandum Opinion (entered in this adversary proceeding) that Merrill Lynch breached the July 31 Agreement. We conclude that the statements made by the bankruptcy court in the confirmation hearing, and reiterated in its Memorandum Opinion, did not bar Merrill Lynch from litigating its liability to Copeland individually.
Collateral Estoppel — The Confirmation Hearing
Copeland maintains that the statements made by the bankruptcy court in ACE’s confirmation hearing collaterally es-top Merrill Lynch from litigating the existence and breach of the alleged July 31 Agreement in this proceeding.
Merrill Lynch argues that it cannot be collaterally estopped by findings made in the bankruptcy confirmation hearing because the court had, at best, non-core jurisdiction over Copeland’s individual claim, citing two cases decided by this Circuit which suggest that judgments rendered in core bankruptcy proceedings are not res judicata in non-core matters. See Howell Hydrocarbons, Inc. v. Adams,
Collateral estoppel does not preclude litigation of an issue unless both the facts and the legal standard used to assess them are the same in both proceedings. Recoveredge L.P. v. Pentecost,
The issue presently under consideration is whether there was a binding July 31 Agreement and whether Merrill Lynch breached any obligation to Copeland individually under that agreement. The objective of the confirmation hearing was to determine the con-firmability of CIBC’s proposed plan for reorganization. As part of that mandate, the bankruptcy court had to decide whether compromise of the numerous and varied claims held by ACE against Merrill Lynch and CIBC was in the best interest of the bankruptcy estate. Copeland’s individual claim did not impact the bankruptcy court’s consideration of the CIBC plan because, as explained by the bankruptcy court, the “real issue to try and analyze is whether the estate has any cause of action that should be pursued instead of confirming the plan.” Determining whether to compromise the claim in the Chapter 11 proceeding required a balancing of the prospect and potential value of recovery from Merrill Lynch against the certain and ascertainable benefits assured under the CIBC reorganization plan. Copeland’s individual claim, on the other hand, is governed by the ordinary principles of contract law. While acknowledging that causes of action “may exist” in favor of Copeland indi
Nor was the issue of Merrill Lynch’s liability to Copeland fully and vigorously litigated in the bankruptcy confirmation hearing. Collateral estoppel is unavailable when a “new determination of the issue is warranted by differences in the quality or extensiveness of the procedure followed in the two courts.” Restatement (Second) of Judgments § 28(3). Examining whether a particular settlement is fair or equitable and in the best interest of the estate and creditors is a different inquiry, driven by different policies, than litigation of the actual claim. See, e.g., In re Jackson Brewing Co.,
After reviewing the extensive record, it is apparent that whether there had been any breach of the alleged July 31 Agreement was in issue primarily as an aspect of whether CIBC, which both presented the July 31 plan and benefited from the DIP financing, acted in good faith. Copeland did present expert testimony that the alleged July 31 Agreement would have been a feasible way to reorganize ACE. The focus of the hearings, however, remained at all times on valuation and compromise of claims held by ACE, the debtor, against Merrill Lynch and CIBC. The material terms of the Copeland Agreements were not in issue and the essential elements of Copeland’s claim for breach of those agreements, were not litigated.
Finally, collateral estoppel does not apply unless the issue presented was a “critical and necessary part” of the prior judgment. Society of Separationists, Inc. v. Herman,
Collateral estoppel (issue preclusion) differs from res judicata (claim preclusion) in that it is an equitable doctrine which should be “applied only when the alignment of the parties and the legal and factual issues raised warrant it.” Nations v. Sun Oil Co. (DELAWARE),
Law of the Case — The Memorandum Opinion on Jurisdiction
The law of the case doctrine provides that once a court of competent jurisdiction decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages of the same case. Christianson v. Colt Indus. Operating Corp.,
First, Merrill Lynch’s liability to Copeland individually and the existence or scope of the alleged Copeland Agreements were not litigated in the instant proceeding. Instead, the bankruptcy court simply restated, without expressly adopting, the fact findings made in the ACE bankruptcy confirmation hearing and opined that those findings would preclude Merrill Lynch from litigating its liability to Copeland. Moreover, those remarks were offered merely for support of the actual “rule of law” being decided upon, which was that the court either did not have or should decline to exercise jurisdiction.
Second, the preclusive effect of a bankruptcy court decree must reflect the reality of its limited jurisdiction. Latham v. Wells Fargo Bank N.A.,
Third, the law of the case doctrine is a discretionary rule of practice which does not limit the power of the court to revisit a legal issue. Arizona v. California,
Having removed the obstacle of earlier proceedings, the issue now becomes whether the district court correctly concluded that there were no genuine issues of fact concerning Merrill Lynch’s liability to Copeland and that Merrill Lynch was entitled to judgment as a matter of law.
The July SI Agreement and the Copeland Agreements
No written document was prepared that purported to embody all of the material terms of the July 31 or Copeland Agreements. Copeland claims those terms were announced in the July 31 hearing on the DIP financing motion. However, even after the district court asked Copeland to submit the exact terms of the alleged agreements, with specific references to the record, Copeland was unable to identify any source for material terms in each of the agreements, either in the July 31 transcript or elsewhere in the record. We agree with the district court that the parties never reached an enforceable consensus either as to the July 31 Agreement to submit a joint plan of reorganization or the four Copeland Agreements which were to be part of that plan.
Concerning the July 31 Agreement to submit a joint reorganization plan, the hearing transcript together with other record evidence, clearly demonstrates that there was only a general commitment to move forward with negotiations. Neither Merrill Lynch nor CIBC would have agreed to the proposed $30 million post-petition DIP financing, which would significantly increase the
In the hearing, Mr. Trost, counsel for CIBC, which was to be the obligee on the DIP financing, spoke first. Trost stated: “[t]he actual part that is before your honor is the DIP facility, but if you — but all the parties ... I think have agreed in principle that the reorganization plan that was filed by the debtor will be amended and there will be facilitating agreements filed as exhibits which in a general way accomplish the following.” After giving the “contours of an overall [reorganization] arrangement” for “information purposes,” Trost concluded by stating: “[t]hat is the background of why we are asking the court to approve the DIP facility today.” Next, Mr. Pitts, also counsel for CIBC, spoke as to the details of the DIP financing. Finally, the court “polled” the parties for their assent to what had been stated by Trost and Pitts. Subsequent comments by counsel indicate that, although all parties felt they had a duty to negotiate in good faith, no final agreement had been reached. Counsel for Church’s Independent Franchises Association expressed strong reservations about whether the proposed plan could be confirmed, to which the court responded:
“Well, I don’t think they had represented that you had yet agreed to the plan but that you had agreed to the financing that was going to be requested to be authorized, and I think that’s exactly what you did.”
Counsel for the creditors committee also expressly limited his assent to the terms of DIP financing, stating that he had no authority to approve a plan process.
Thus, the record demonstrates that there was only an “agreement to agree” to a joint reorganization plan, contingent upon meeting the requirements of Chapter 11 and upon substantial additional negotiation. Such agreements to agree, particularly absent material terms such as the required amount of post-petition debt and the scope of the various Copeland agreements, are unenforceable under Texas law, the law of the state where the contract was allegedly formed. T.O. Stanley Boot Co., Inc. v. Bank of El Paso,
Concerning the Copeland agreements, both Copeland and Merrill Lynch were still negotiating the terms and scope of those agreements late in 1991. Copeland was to receive compensation from ACE once a plan incorporating the desired terms was reached and confirmed by the bankruptcy court. Merrill Lynch, as the potential majority owner of the emerging entity, was involved in drafting the Copeland Agreements, which were to be executed by ACE, the debtor, and Copeland individually. Much of the negotiation centered on exhibits and schedules which delineated the scope of the various agreements, such as what personnel would be subject to the non-compete agreement and what products subject to the supply agreement. Those schedules and exhibits were never completed or agreed upon by the parties and thus the Copeland Agreements never reached a final form.
Copeland maintains that he fulfilled his obligations under the agreements and that they became binding when he assented to Merrill Lynch’s “final position” as expressed in a transmittal dated September 26, 1991. An examination of the record, however, reveals that even as of that late date material terms remained unsettled. On August 23rd Copeland wrote to Merrill Lynch Vice President Frank Duemmler: “[although we made tremendous progress on July 31st, it should have been obvious to everyone that a lot of work remained to finalize the four agreements. And it is equally obvious that the agreements will never be finalized unless the principals are directly involved.” On September 20th, Merrill Lynch transmitted a proposed draft of the agreements that “represented Merrill Lynch’s final position with respect to the matters to which they relate” and requested complete schedules from Copeland, as well as other information. On September 26th, Copeland answered that he concurred with the September 20th drafts. Under separate letter, Copeland also responded to questions posed by Merrill Lynch in the September 20th correspondence. Copeland’s letter makes plain that the agreement was not final. For example, Copeland proposed that he should retain certain insurance policies and benefits. Copeland also acknowledged that further negotiation was necessary on certain key schedules. Nonetheless, in a Wall Street Journal article published September 27th, Copeland claimed that he and Merrill Lynch had reached a “definitive agreement.” Merrill Lynch immediately responded that no definitive agreement had been reached because due diligence was being held up, because management enhancements discussed had not been achieved, because Merrill Lynch had not received or reviewed any draft of exit financing documentation with the secured lenders and because any plan of reorganization would be subject to the final approval of Merrill Lynch’s Executive Committee. Even as late as November 1991 there was correspondence indicating that there were remaining issues for negotiation.
Under Texas law, the state where the Copeland Agreements were allegedly formed, an agreement is not enforceable unless it resolves all essential terms and leaves no material matters open for future negotiation. E.g., T.O. Stanley Boot Co., Inc. v. Bank of El Paso,
Merrill Lynch argues and the district court found below that Copeland admitted he was not a party to the alleged July 31 Agreement. We need not reach that issue. Even assuming Copeland was a party, the record is clear that the parties never reached a binding agreement, either in the July 31 hearing or at any later date. Copeland’s claim that the record was factually insufficient to render summary judgment is likewise without merit. Ample time was allowed for discovery and Copeland was allowed an opportunity to identify the specific terms of the alleged agree
CONCLUSION
Neither collateral estoppel nor law of the case applied to preclude Merrill Lynch from litigating the existence and breach of the alleged July 31 Agreement. The bankruptcy court’s confirmation findings did not reach the issue of Merrill Lynch’s liability to Copeland individually and that issue was not fully litigated as part of confirming a reorganization plan in ACE’s bankruptcy. While the bankruptcy court restated those findings in its Memorandum Opinion on Jurisdiction, those remarks were made in the context of the bankruptcy court’s decision to decline jurisdiction and were further subject to de novo review by the Eastern District of Louisiana.
The record clearly supports the district court’s analysis that as of July 31, the parties intended only to “agree in principle” to a basic framework for a joint reorganization plan in order to secure court approval for the post-petition DIP financing. Everyone involved recognized that further negotiations would be necessary to “complete the deal.” Likewise the record supports the district court’s conclusion that the parties never reached, on July 31 or thereafter, any consensus as to the material terms of the so-called Copeland Agreements. Copeland did not create any genuine fact issue to the contrary, and Merrill Lynch was entitled to judgment as a matter of law. Accordingly, the district court’s order granting summary judgment in favor of Merrill Lynch is AFFIRMED.
Notes
. CIBC was dismissed from the case by joint stipulation of Copeland and CIBC and entry of rale 54(b) judgment.
. Debtor ACE also had other substantial claims against Merrill Lynch based on Merrill Lynch’s alleged failure to issue junk bonds and arrange for certain mortgage financing prior to the ACE bankruptcy.
. Bankruptcy Rule 9033 provides for de novo review by the district court of written objections to proposed findings of fact and conclusions of law entered by the bankruptcy court in a non-core proceeding. Fed.R.Bankr.P. 9033. Denying Merrill Lynch's objections, the bankruptcy court stated that Rule 9033 was not applicable because the disputed findings were made as part of its core determination that it had no jurisdiction.
. The bankruptcy court made findings that ACE had a potential claim against Merrill Lynch, but not CIBC, for breach of that portion of the July 31 Agreement calling for submission of a joint plan of reorganization. As to Copeland’s individual claim, the court stated:
Mr. Copeland put on evidence through Mr. Jenkins and Mr. Talluto that the 7/31 agreement could have been consummated. Even if that were proven without a shadow of doubt, I do not find that that is a bar to considering the confirmation of any other proposal put on the table in good faith by any other party in interest. All that means is that there are causes of action that may exist, clearly that may exist in favor of Mr. Copeland. And just as clearly, this plan does not affect that cause of action one iota.
So the real issue to try and analyze is whether or not the estate has a cause of action that should be pursued instead of confirming the plan, and that goes really to best interests, that*1422 is ... going forward against Merrill Lynch, what would be the prospect for recovery?
Is there anything in this record that shows that the prospect for recovery, under that scenario, for this estate is any greater than what this estate is getting under this plan? And I would answer that question, “No.”