IN RE: PIPER AIRCRAFT CORPORATION, Debtor. KAISER AEROSPACE AND ELECTRONICS CORP. and PAQ, INC., f.k.a. PIC, INC., Plaintiffs-Appellees, Cross-Appellants, versus TELEDYNE INDUSTRIES, INC., Defendant-Appellant, Cross-Appellee.
No. 99-4230
United States Court of Appeals, Eleventh Circuit
March 23, 2001
D. C. Docket No. 98-00540-CIV-ASG
Appeals from the United States District Court for the Southern District of Florida
(March 23, 2001)
Before EDMONDSON and MARCUS, Circuit Judges, and RESTANI*, Judge.
*Honorable Jane A. Restani, Judge, U.S. Court of International Trade, sitting by designation.
This appeal raises complicated questions regarding the application of res judicata to bankruptcy proceedings. Appellant/Cross-Appellee Teledyne Industries, Inc. owns shares in a new corporate entity formed to receive the assets of a Chapter 11 debtor, Piper Aircraft Corp. Appellee/Cross-Appellant Kaiser Aerospace and Electronics Corp. is currently suing Teledyne in Florida state court because Teledyne allegedly violated an agreement between the parties that, Kaiser says, would have given it certain shares in the new entity. In the state court action, Kaiser seeks damages as well as a constructive trust over the shares that it contends belong to it. Teledyne brought this case as an adversary proceeding in the bankruptcy court to enjoin Kaiser‘s state court action on the ground that it was barred by res judicata. Teledyne asserts that Kaiser should have, but did not, pursue its allegations during the Chapter 11 case. The bankruptcy court and subsequently the district court found that Kaiser‘s damages claim was barred by res judicata, but that Kaiser‘s constructive trust claim was not barred.
Because we conclude that Kaiser‘s state court claims do not arise out of the same nucleus of operative fact as the Chapter 11 case, and Kaiser lacked an adequate procedural vehicle to bring its state court claims, or their equivalent, in the Chapter 11 case, res judicata is not applicable to any of Kaiser‘s claims.
I.
These cross-appeals arise out of a Chapter 11 reorganization proceeding filed by Piper Aircraft Corporation (“Piper“) on July 1, 1991. Teledyne was one of Piper‘s largest creditors, holding a judgment of approximately $5,875,000 at the time of the Chapter 11 filing. Teledyne was the only unsecured creditor granted exclusive rights to participate in the preparation and submission of reorganization plans for confirmation by the bankruptcy court. Only Teledyne, the Unsecured Creditors’ Committee, and Piper itself were permitted to file such plans.
In November 1994, Teledyne entered into a Cooperation and Shareholders Agreement (“Cooperation Agreement“) with Kaiser, which was not a creditor of Piper and had no other stake in the Chapter 11 case. The Cooperation Agreement provided that Teledyne and Kaiser would act as co-proponents of a plan for the sale of Piper‘s assets. Under this plan (the “Kaiser/Teledyne plan“), a newly formed entity, Piper International Corporation (“PIC“, now Appellee PAQ, Inc.) would purchase substantially all of Piper‘s assets. Kaiser was to be the majority shareholder, holding 65% of the stock, while Teledyne was expected to hold the
The Kaiser/Teledyne plan was submitted to the bankruptcy court over the objections of Piper and the Creditors’ Committee, which submitted an alternative plan. A hearing was held on December 15, 1994, to consider approval of the respective disclosure statements regarding these proposed plans. After the hearing, the bankruptcy court concluded that neither plan was viable.
In the wake of that hearing through March of 1995, Piper, the Creditors’ Committee, Teledyne, Kaiser, and PIC actively participated in negotiations to achieve consensus on a confirmable plan. Finally, in March 1995, Teledyne and the Creditors’ Committee agreed on a new plan that provided for the acquisition of Piper‘s assets. By this point, however, Teledyne was no longer aligned with Kaiser. Instead, Teledyne had joined forces with another partner, Dimeling, Schreiber & Park (“DS&P“).
After the bankruptcy court rejected the Teledyne/Kaiser Plan, the relationship between Teledyne and Kaiser began to erode. The parties differ on the cause of the breakdown. Teledyne claims that Kaiser, in order to satisfy the
On March 31, 1995, Teledyne and DS&P, with the support of the Creditors’ Committee and Piper, filed their agreed-upon joint plan (the “Teledyne/DS&P plan“) in the bankruptcy court. The relevant portions of the Teledyne/DS&P plan provided that a different new entity called New Piper would acquire substantially all of Piper‘s assets. Primary ownership of New Piper would be held by Teledyne and DS&P. An irrevocable trust, set up to obtain the sale and other proceeds to be paid by New Piper, would be formed to make distributions to Piper‘s creditors.
In exchange for its rights under the Teledyne/DS&P plan, Teledyne waived all claims against Piper, including the $5,875,000 liquidated judgment it had acquired pre-petition. Teledyne asserts that, because of the size of this claim, its waiver materially and substantially increased the distributions available for other creditors and interest holders. Teledyne also contends that it made these concessions and acquired the New Piper stock in reliance on, and pursuant to, the provisions of the Teledyne/DS&P plan.
Following two days of confirmation hearings, the bankruptcy court on July 11, 1995, entered an order confirming the Teledyne/DS&P plan. Although Kaiser received formal notice and attended the confirmation hearing, it did not file or express any objections to the DS&P plan at the hearing or at any other time. Nor did it appeal the confirmation order.
Meanwhile, upon learning of the incipient arrangement between Teledyne and DS&P, but shortly prior to the filing of the Teledyne/DS&P plan, Kaiser commenced a lawsuit against Teledyne and others in Florida state court. In its original complaint, filed March 20, 1995, Kaiser sought damages from Teledyne
On December 10, 1996, one and a half years after confirmation of the DS&P plan, Kaiser amended its state court complaint to request a constructive trust over the stock in New Piper to the extent necessary for Kaiser to own the number of shares it allegedly would have received under the defunct Teledyne/Kaiser plan
Teledyne proceeded through the confirmation process without apparent concern over the state court suit. It did not mention Kaiser‘s suit to the bankruptcy court at the time of confirmation or address with that court any of the disputed facts giving rise to Kaiser‘s action. Not until April 1997 did Teledyne finally challenge before the bankruptcy court the viability of Kaiser‘s state court action, moving before the same bankruptcy judge who had confirmed the plan to “enforce” the confirmation order.
Eventually, at the bankruptcy court‘s urging, Teledyne filed the instant adversary proceeding on July 8, 1997, in which it sought declaratory and injunctive relief. Specifically, Teledyne asked the bankruptcy court to delineate the rights of
Teledyne moved for summary judgment in the adversary proceeding. Kaiser opposed the motion and filed a cross-motion for summary judgment. On January 14, 1998, the bankruptcy court ruled from the bench. This oral ruling, which contained an extensive recitation of the facts and circumstances that led to the dispute, was ultimately incorporated into an Order Granting in Part and Denying in Part Motions for Summary Judgment on which these appeals are predicated.
The bankruptcy court concluded that Kaiser‘s constructive trust claim was barred by the doctrine of res judicata, because it “attacks a material provision in the [confirmed] plan, namely, ownership and control of New Piper,” and thus, was an impermissible collateral attack on the confirmed plan which should have been raised as an objection during the confirmation process. The court therefore enjoined Kaiser‘s prosecution of the constructive trust claim in the state court. The bankruptcy court found, however, that because no plan was pending at the time Kaiser filed its damages claim (i.e., the date the original, unamended complaint
Both parties appealed portions of the bankruptcy court‘s order to the district court. In a lengthy order dated January 12, 1999, the district court affirmed the bankruptcy court, although on somewhat different grounds. Kaiser Aerospace & Elec. Corp. v. Teledyne Indus., Inc., 229 B.R. 860 (S.D. Fla. 1999). Like the bankruptcy court, the district court focused heavily on the different nature of the remedies sought by Kaiser. The major distinction between the district court‘s analysis and that of the bankruptcy court related to why Kaiser‘s damages claim was not barred by res judicata. The district court based its conclusion on a determination that the damages claim was not a “core proceeding” within the meaning of the Bankruptcy Code and hence could not have been brought in the bankruptcy case due to lack of subject matter jurisdiction. Notably, in reaching this conclusion, the court emphasized that “Kaiser‘s state court damages claims do not arise out of the same nucleus of operative fact as the bankruptcy proceeding” and that “the outcome of Kaiser‘s damages claims would have no ‘conceivable effect’ on the administration of the estate as reorganized under the Confirmed Plan.”
II.
The standard of review is clear. A court‘s application of res judicata presents questions of law reviewed de novo. See Richardson v. Miller, 101 F.3d 665, 667-68 (11th Cir. 1996). This standard applies to res judicata determinations made originally by bankruptcy courts. See, e.g., In re Justice Oaks II, Ltd., 898 F.2d 1544, 1550 (11th Cir. 1990). De novo review requires the court to make a judgment independent of the bankruptcy court‘s, without deference to that court‘s analysis and conclusions. See Moody v. Amoco Oil Co., 734 F.2d 1200, 1210 (7th Cir. 1984).2
Both parties object to portions of the district court‘s order affirming the bankruptcy court. As it did on appeal to the district court, Teledyne contends that the bankruptcy court erred by ruling that Kaiser‘s damages claim was not barred by res judicata. Kaiser, in turn, contends that the bankruptcy court erred by ruling that its constructive trust claim was barred by res judicata.
Notably, neither party suggests that the remedy-oriented res judicata analysis undertaken by the courts below is proper. Both parties view res judicata as an all-or-nothing proposition: either all of Kaiser‘s state court claims are barred, or none of them is barred. It is well settled that res judicata turns primarily on the commonality of the facts of the prior and subsequent actions, not on the nature of the remedies sought. See, e.g., Olmstead v. Amoco Oil Co., 725 F.2d 627, 632 (11th Cir. 1984) (res judicata “extends not only to the precise legal theory presented in the previous litigation, but to all legal theories and claims arising out of the same ‘operative nucleus of fact‘“). We agree, both generally and in the
A.
There is no dispute about the general principles of res judicata to be applied here. Under res judicata, also known as claim preclusion, a final judgment on the merits bars the parties to a prior action from re-litigating a cause of action that was or could have been raised in that action. See, e.g., Allen v. McCurry, 449 U.S. 90, 94 (1980). Res judicata may be properly applied only if certain prerequisites are met. In the Eleventh Circuit, a party seeking to invoke the doctrine must establish its propriety by satisfying four initial elements: (1) the prior decision must have been rendered by a court of competent jurisdiction; (2) there must have been a final judgment on the merits; (3) both cases must involve the same parties or their privies; and (4) both cases must involve the same causes of action. See Israel Discount Bank Ltd. v. Entin, 951 F.2d 311, 314 (11th Cir. 1992); In re Justice Oaks II, Ltd., 898 F.2d 1544, 1550 (11th Cir. 1990). The court next determines whether the claim in the new suit was or could have been raised in the prior action; if the answer is yes, res judicata applies. See Justice Oaks, 898 F.2d at 1552 (bankruptcy court‘s order of confirmation “‘is an absolute bar to the
B.
We initially address the four prerequisites to res judicata. There is no dispute that two of the requirements are met. The parties agree that the confirmation order was issued by a court of competent jurisdiction and constitutes a final judgment on the merits. The parties disagree about the other two requirements: whether Kaiser was a “party” to the Chapter 11 proceeding, and whether the Chapter 11 proceeding involved the same cause of action that Kaiser has attempted to assert in the state court action. Because we conclude that the Chapter 11 proceeding did not involve the same cause of action, we do not separately decide whether Kaiser was a party to that proceeding.
The parties agree that claims are part of the same cause of action for res judicata purposes when they arise out of the same transaction or series of transactions. See Justice Oaks, 898 F.2d at 1551 (citing Restatement (Second) Judgments § 24 (1982)). “In determining whether the causes of action are the same, a court must compare the substance of the actions, not their form. It is now said, in general, that if a case arises out of the same nucleus of operative fact, or is based upon the same factual predicate, as a former action, that the two cases are
Kaiser contends that its state court action and the bankruptcy proceeding (or, more specifically, the Teledyne/DS&P plan confirmation process) do not arise out of a common nucleus of operative fact. It asserts that merely because the bankruptcy proceeding gave rise to the events for which it seeks relief in the state court action does not establish that the cases share the same factual predicate; in other words, it is not enough simply to show that “but for” the Chapter 11 proceeding there would be no state court action. The analysis, Kaiser contends, must be more precise than that. Moreover, says Kaiser, the facts underpinning the state court action (i.e., Teledyne‘s alleged breach of the Cooperation Agreement and its fiduciary duties to Kaiser) were not at issue in the confirmation proceeding; the bankruptcy court did not consider, and was not required to consider, any factual dispute relating to its stake in the ownership or capital structure of New Piper when confirming the Teledyne/DS&P plan. We agree with these contentions.
It is essentially undisputed that the facts at the core of Kaiser‘s state court suit were neither raised nor litigated in the Chapter 11 proceeding. The bankruptcy court did not purport to rule on whether Teledyne breached any contractual or
That the critical facts underlying Kaiser‘s suit were never discussed by the bankruptcy court or litigated by the parties is powerful evidence that the Chapter 11 case did not involve the “same cause of action” as the state court suit. Teledyne
To begin with, the “but for” analysis proposed by Teledyne represents too sweeping a standard for res judicata purposes. Our case law requires us to compare with much greater precision the specific facts of the two claims being examined. See, e.g., Ragsdale, 193 F.3d at 1239. Here, the facts underlying Kaiser‘s state court action concern the efforts of Teledyne and Kaiser to submit a joint plan of reorganization on behalf of Piper (epitomized by the Cooperation Agreement) and Teledyne‘s alleged breach of that relationship by forging a new proposal with DS&P. By contrast, the facts initially giving rise to the bankruptcy proceeding relate primarily to the financial collapse of Piper and do not involve Kaiser at all. We cannot say that, simply because the commencement of the
Indeed, Teledyne‘s “but for” argument is at odds with this Circuit‘s frequent pronouncement that res judicata does not apply where the facts giving rise to the second case only “arise after the original pleading is filed in the earlier litigation.” Manning v. City of Auburn, 953 F.2d 1355, 1360 (11th Cir. 1992). In Manning, we considered a situation in which a plaintiff elected not to participate in an employment discrimination class action but instead brought a second suit alleging employment discrimination against the same defendant. The operative facts that gave rise to the plaintiff‘s claims for discrimination had not occurred when the class filed its claim but some of those facts occurred before the district court dismissed the plaintiff from the class action. The plaintiff could have presented her claims in the class action by filing a supplemental pleading or by participating in discovery in that case. We observed, however, that the doctrine of res judicata does not punish a plaintiff for exercising her option not to supplement the pleadings with an after-acquired claim. We reasoned that the parties frame the scope of litigation at the time the complaint is filed and that a judgment is only conclusive regarding the matters that the parties might have litigated at that time
[W]e do not believe that the res judicata preclusion of claims that “could have been brought” in earlier litigation includes claims which arise after the original pleading is filed in the earlier litigation. Instead, we believe that, for res judicata purposes, claims that “could have been brought” are claims in existence at the time the original complaint is filed or claims actually asserted . . . in the earlier action.
Id. (emphasis added) (footnote omitted) (citing Commercial Box & Lumber Co. v. Uniroyal, Inc., 623 F.2d 371, 374 n.2 (5th Cir. 1980)).
We repeated this rule from Manning in Pleming v. Universal-Rundle Corp., 142 F.3d 1354 (11th Cir. 1998). There, the plaintiff did not receive a job for which she had applied. In 1993, she filed an employment discrimination action against her employer for race and sex discrimination. In 1994, during the course of litigation, two additional positions became available; plaintiff again was not hired. Although the plaintiff incorporated into her briefs additional allegations of discrimination arising out of these later incidents, she did not assert a claim based on them. The district court granted summary judgment for the employer, after which the plaintiff filed a second suit based on the 1994 job openings. Invoking res judicata, the district court dismissed her second complaint, but this Circuit reversed. We found that the summary judgment in the first case did not have a res judicata effect so as to bar the plaintiff‘s later claim based upon the 1994 hiring
In this Circuit, therefore, res judicata does not bar a claim that was not in existence at the time of the original action unless the facts underlying the claim were actually raised in that action. Here, the facts underlying Kaiser‘s claim were not in existence at the time the Chapter 11 case began, and (as noted above) were never actually raised as the case unfolded. Although our decisions state the
We also reject Teledyne‘s further argument that the facts underlying Kaiser‘s state court suit were sufficiently implicated by the confirmation process to declare that the two arose out of a common nucleus of operative fact. Teledyne‘s theory, essentially endorsed by the lower courts, is that (1) facts related to the ownership and capital structure of New Piper underlay the bankruptcy court‘s decision to confirm the Teledyne/DS&P plan; and (2) facts relating to the ownership and capital structure of New Piper also underlie the state court action. The second of these premises is reasonable. The facts underlying Kaiser‘s suit -- and specifically facts relating to the process by which Teledyne first agreed to go forward with, and then allegedly excluded, Kaiser from a proposed new entity meant to receive Piper‘s assets -- go directly to the proper ownership and capital
As we have said, the res judicata effect of a confirmed plan is “premised on the notion that the bankruptcy court has addressed in the confirmed plan and order only those issues that are properly within the scope of the confirmation hearing.” In re Seidler, 44 F.3d 945, 948 (11th Cir. 1995) (emphasis added). The confirmation process in a Chapter 11 case is primarily an inquiry into the viability of the proposed plan and the disposition of the debtor‘s assets, not the conduct of unrelated third parties, let alone third parties such as Kaiser that are not creditors and have no prior relationship with the debtor. The Bankruptcy Code, at
The only factor of
Teledyne also insists that the facts underpinning the state court action are necessarily bound up with determining whether the plan had a reasonable hope of success. See
Moreover, the bankruptcy court was not required to consider -- and, tellingly, did not consider -- any limitation on Teledyne‘s ability to sell some or all of its shares and thereby relinquish ownership of New Piper. Teledyne argues that we should not attach much importance to the absence of a restriction in the plan on its ability to alienate its shares. But Teledyne cannot deny that the absence of such a limitation undercuts its argument that its post-confirmation stake in New Piper was so important an issue that the facts surrounding its dispute with Kaiser would necessarily have been implicated by the confirmation process.
Ultimately the most one can say is that the Kaiser/Teledyne dispute, and the attendant possibility that Teledyne‘s loss of that dispute might impact New Piper (either by transferring equitable ownership of some New Piper shares to Kaiser or by forcing Teledyne to pay significant damages), could be viewed as material to confirmation of the plan. But the test for “common nucleus of operative fact” as
The issue is not what effect the present claim might have had on the earlier one, but whether the same facts are involved in both cases, so that the present claim could have been effectively litigated with the prior one.
In re Baudoin, 981 F.2d 736, 743 (5th Cir. 1993).
Looking at the facts that the bankruptcy court was by law required to consider, and the facts that it actually did consider, at the confirmation hearing, we simply cannot say that the facts underpinning Kaiser‘s dispute with Teledyne were sufficiently put at issue by the confirmation process to support res judicata. The facts raised by Kaiser‘s suit regarding Teledyne‘s private business dealings with Kaiser and their relative allocation of ownership interests in the post-reorganization entity have only an attenuated relationship to the facts necessarily considered by the bankruptcy court as part of its
We are bolstered in this conclusion by Teledyne‘s own conduct during the confirmation process. If indeed Kaiser‘s suit must be viewed as nothing more than
In short, we cannot say that the state court action arises out of a common nucleus of operative fact with the Chapter 11 case. Our task is to “compare the factual issues explored in the first action with the factual issues to be resolved in the second.” Entin, 951 F.2d at 315; see also Southeast Fla. Cable Inc. v. Martin County, 173 F.3d 1332, 1336 (11th Cir. 1999) (res judicata inapplicable where “the
Even if we were to decide that all of the prerequisites to res judicata were met, Teledyne still would not be entitled to relief because the claims in Kaiser‘s state court action were not brought, and more importantly could not have been brought, in the bankruptcy proceeding. The courts below found that Kaiser‘s constructive trust claim could have been litigated in the bankruptcy action, but that its damages claim could not have been litigated there due to lack of jurisdiction. Kaiser makes multiple arguments as to why neither its damages claim nor its
Teledyne argues that Kaiser could have brought its claims in the form of an objection to confirmation of the Teledyne/DS&P plan, or a motion to strike that plan.10 Kaiser counters that the nature of its objections -- Teledyne‘s breach of its contractual and fiduciary duties to Kaiser -- could not have formed a basis for invalidating the plan under the statutory criteria of
Teledyne also suggests that Kaiser could have brought an adversary complaint in the bankruptcy court to enjoin the Teledyne/DS&P plan. For similar reasons, however, this relief would not have provided a complete substitute for the relief sought in the state court action. Cf. also Cen-Pen Corp. v. Hanson, 58 F.3d 89, 93 (4th Cir. 1995) (“confirmation of a . . . plan is res judicata only as to issues that can be raised in the less formal procedure for contested matters . . . confirmation generally cannot have [a] preclusive effect as to [matters] which must be raised in an adversary proceeding.“); In re Beard, 112 B.R. 951, 956 (Bankr. N.D. Ind. 1990) (“If an issue must be raised through an adversary proceeding it is not part of the confirmation process and, unless it is actually litigated, confirmation will not have a preclusive effect.“). Even assuming that Kaiser had standing to oppose the Teledyne/DS&P plan, challenging the plan through an adversary proceeding would not have made Kaiser whole in the way the state court lawsuit would if Kaiser eventually prevailed in that suit.
Simply put, we are unpersuaded that Kaiser had an adequate vehicle to pursue in the Chapter 11 case the equivalent of the claims it asserts in state court.12 None of the available bankruptcy court procedures would have assured Kaiser the
Because Kaiser did not have an adequate procedural vehicle to bring its state court claims, or their equivalent, in the Chapter 11 case, and Kaiser‘s state court does not arise out of the same nucleus of operative fact as the Chapter 11 case, Teledyne cannot meet its burden of showing that the technical requirements of res judicata are met. On this record, and under our precedent, Kaiser is entitled to its day in court, and the considerations of policy argued at length by Teledyne do not permit us to relax the requirements of res judicata in these circumstances. Nor do the equities tip as powerfully in Teledyne‘s favor as Teledyne maintains. Even the bankruptcy court was troubled by Teledyne‘s two-year delay in asserting that Kaiser‘s damages claim was an indirect attack on the confirmed plan. That court also admonished Teledyne for not raising res judicata as a defense in the state court action promptly once the final order of confirmation was rendered. Teledyne could have brought Kaiser‘s suit to the attention of the bankruptcy court prior to confirmation, but chose not to do so. We note these facts not to identify wrongdoing by Teledyne, but merely to underscore why Teledyne‘s frequent
Accordingly, we affirm the district court insofar as it permitted Kaiser‘s damages claim to proceed, but reverse that court insofar as it enjoined the constructive trust claim from going forward. Res judicata does not bar Kaiser from pursuing its state court action in full, and Kaiser‘s summary judgment motion should have been granted in its entirety.
AFFIRMED IN PART AND REVERSED IN PART.
Notes
(a) The court shall confirm a plan only if all of the following requirements are met:
(1) The plan complies with the applicable provisions of this title.
(2) The proponent of the plan complies with the applicable provisions of this title.
(3) The plan has been proposed in good faith and not by any means forbidden by law.
. . .
(11) Confirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan. . . .
Teledyne also relies on the Fifth Circuit‘s decision in Southmark Properties v. Charles House Corp., 742 F.2d 862, 869 (5th Cir. 1984) for the proposition that res judicata can apply to damages claims which have the effect of challenging a confirmation order. In that case, a debtor brought a state court damages action against a creditor who successfully bid for and purchased the debtor‘s property at a bankruptcy-related sale. The debtor sought damages based on the creditor‘s alleged fraudulent conduct. The court found that res judicata barred the state court suit, describing it as a “not-so-thinly veiled attack[] on the prior reorganization orders.” 742 F.2d at 869. But Southmark, like Miller, is inapplicable here because in that case the debtor‘s non-entitlement to continued ownership of its property was at the very core of the bankruptcy court‘s decision to approve the sale. In this case Kaiser‘s entitlement to shares in New Piper was not squarely at issue in the bankruptcy court‘s decision to approve the Teledyne/DS&P plan.