Case Information
*1 15‐4185‐cv
Brown Media Corporation v. K&L Gates, LLP
In the
United States Court of Appeals For the Second Circuit _________________________
August Term, (Argued: November Decided: April 14, 2017) Docket No. ‐ ‐ cv
_________________________
BROWN MEDIA CORPORATION, ROY E. BROWN,
Plaintiffs ‐ Appellants , v. GATES, LLP, EDWARD M. FOX, ERIC T. MOSER,
Defendants Appellees . ________________________
Before:
H ALL L IVINGSTON Circuit Judges , AND G ARAUFIS , District Judge . [*] ________________________
On appeal from order United States District Court for Eastern District New York (Spatt, J. ), granting defendants’ motion dismiss under Fed. R. Civ. P. 12(b)(6) grounds res judicata bars for breach fiduciary duty, tortious interference contract *2 common law fraud against defendant law firm attorneys who represented plaintiffs in connection their proposed purchase of assets of debtor in bankruptcy. Because plaintiffs’ claims of sort should raised underlying proceedings nor do they implicate validity of asset confirmed proceedings, res judicata does bar them. The judgment district vacated.
VACATED AND REMANDED.
D ANIEL A BRAMS , Law Office Daniel L. Abrams, PLLC, New York, NY, for Plaintiffs ‐ Appellants . A NTHONY C. A CAMPORA Silverman Acampora LLP, Jericho, NY, for Defendants Appellees . H ALL Circuit Judge :
The plaintiffs appeal from order United States District Court for Eastern District New York (Spatt, J. ), dismissing their asserting claims breach fiduciary duty, tortious interference, common law fraud against law firm Gates, LLP two former partners. The plaintiffs, unsuccessful bidders proceeding, alleged defendants used their prior representation plaintiffs undermine attempt acquire assets sale. granted defendants’ motion dismiss res judicata grounds, reasoning raised during course proceedings and allowing action go forward call into question integrity court’s final orders.
On appeal, argue they brought their during proceedings, and this present will disturb orders court. We agree. For following reasons we REVERSE court’s decision, VACATE judgment, and REMAND case further proceedings consistent with this opinion.
BACKGROUND
I. Factual Background Gates (“K&L”), large international law firm, and former partners
Edward Fox and Eric Moser (collectively, “the defendants”), represented Brown Publishing Company, Brown Media Holdings Company, and affiliates (collectively, “Brown Publishing”) Brown Publishing’s Chapter bankruptcy.
Plaintiff Roy Brown former Chief Executive Officer, well former shareholder, manager, director Brown Publishing. Brown other Publishing insiders owned controlled plaintiff Brown Media Corporation (“Brown Media” and, together Brown, “the plaintiffs”), they formed purchase assets auction. *4 plaintiffs’ arises out events occurred just prior and during Brown Publishing’s proceeding.
Because we reviewing dismissal complaint, we draw following facts from complaint and present them light most favorable plaintiffs. See Carpenters Pension Tr. Fund St. Louis v. Barclays PLC 227, 2014).
A. Pre ‐ Bankruptcy
Before entering bankruptcy, Brown Publishing closely held corporation controlled Roy Brown, his brother Clancy Brown, parents— Bud Joyce Brown; Brown former General Counsel Joel Dempsey, Joe Ellingham (collectively, “Managers”). At an unspecified time, Publishing received financing from company known Windjammer Capital (“Windjammer”), equity option part financing arrangement. late Managers grew concerned Windjammer
verge exercising option, might resulted Managers losing control Publishing. Managers decided seek legal advice. To end, Dempsey sent memorandum Fox requesting legal advice *5 regarding, inter alia following: (a) “the legal ramifications a proposed transaction whereby Managers create a new LLC and Managers Roy, Dempsey and Ellingham acquire assets Brown Publishing through new LLC,” transaction would “take place outside bankruptcy”; (b) “what actions to take, if any, regards to Windjammer Capital”; (c) “possible successor liability related to proposed transaction”; (d) “what state be advantageous one for incorporation new LLC”; (e) “the tax consequences to Managers”; and (f) “other issues pertaining to Brown lenders.” App’x 14. response to memorandum, K&L and Fox “provided advice directly Roy Dempsey,” advising them “unless Publishing brought through process, successor liability could flow shareholders new LLC.” K&L Fox, however, further advised Roy Dempsey that, if transaction took place outside bankruptcy, steps be taken reduce these concerns. billed Managers time devoted providing these legal services.
By March Publishing verge defaulting on loan from Windjammer, prompting Managers take series actions *6 protect Brown Publishing’s assets. Later that month, Managers followed advice K&L entered into agreement to execute a non bankruptcy transaction similar to that contemplated memorandum Dempsey provided to K&L. When transaction did desired result, Dempsey again sought advice Fox, who advised Managers a sale Brown Publishing’s assets best way retain control company. K&L also advised Roy Dempsey they purchase Brown assets through sale pursuant U.S.C. § 363, authorizes conduct sale debtor’s assets even outside ordinary course business. See generally In re Lionel Corp. 1063, 1070–71 1983) (discussing circumstances permitting conduct § process). Managers rescinded March transaction and, pursuant K&L’s advice, ushered Brown Publishing into bankruptcy.
In June 2009, K&L notified Roy Dempsey firm interested representing Publishing proceeding. K&L, however, seek obtain waiver or consent from Managers do so. July Publishing retained counsel. *7 In August 2009, K&L and Dempsey began preparing a “’stalking horse” asset purchase agreement (the “APA”), designed to “further ultimate goal being able to obtain assets with blessing court.” App’x 16. K&L also allegedly “continued to serve Managers’ counsel, despite having been retained by Brown Publishing.” In addition to preparing APA, K&L advised Managers how to maximize chances would approve their bid sale. K&L also advised Managers respect forming Brown Media (the company make “stalking horse” bid), and assisted Managers their effort convince Brown lenders finance Managers’ purchase. With help K&L, Managers obtained funding commitment through Guggenheim Partners support purchase offer.
Shortly before Brown Publishing filed bankruptcy, urge Managers Media obtain new counsel. On Fox’s recommendation, hired Richard Levy, Fox’s friend former partner. By time Levy hired, however, Media had been formed much APA drafted. *8 B. The Bankruptcy Filing April 2010, Brown Publishing filed for Chapter bankruptcy. As part court’s approval of K&L Brown Publishing’s counsel,
firm submitted disclosure statement reveal K&L’s prior representation Managers extent its relationship with members PNC Bank Group, rival bidder for Brown Publishing’s assets.
After filing, Brown Publishing received credit bid from PNC Group. That bid, however, rejected inferior to Managers’ stalking horse bid. Thus, May Brown Publishing, advised K&L, executed APA sought court’s approval sale assets Managers through Media. approved Managers’ bid, and, at same time, approved procedures eventual assets should auction become necessary.
Although Managers retained Levy represent them, “continued treat them like clients,” advising Roy how answer questions creditors meeting gathering some Managers discuss issues relating bankruptcy, all without Levy present.
C. The Foreclosure Action and Defendants’ Alleged Fraudulent Scheme CRJ Investments, an affiliate of Brown Publishing, was owned Roy, Dempsey, and Roy’s brother. “CRJ owned real estate which housed all of [Brown Publishing’s] manufacturing operations a substantial majority [its] profit generating operations.” Importantly, Brown Media’s bid had deemed superior, in part because, under APA, Brown Media agreed assume Brown Publishing’s leases CRJ.
CRJ’s sole lender Huntington Bank, also happened be a member PNC Bank Group. As noted above, PNC Bank Group submitted a last minute competing offer for Brown Publishing’s assets. Huntington Bank also a creditor Brown Publishing a sometime client K&L. June Huntington Bank filed foreclosure action against CRJ Ohio state court, move designed reduce value Brown Media’s assumption CRJ leases, thereby undermining bid Brown Publishing’s assets.
The foreclosure violated stay, Dempsey, his capacity General Counsel, directed promptly file *10 motion enforce automatic stay. Through representation plaintiffs, K&L “was well aware” leases owned CRJ “a critical component Managers’ strategy, considerable importance Guggenheim, [which] was funding Managers’ bid.” K&L, however, deliberately delayed filing stay motion until after final review bids for Brown Publishing’s assets so PNC Bank Group be successful bidder. In light these events, K&L declared PNC Bank Group’s bid be superior bid, necessitated an auction Brown Publishing’s assets.
D. Auction July K&L’s New York office hosted auction for Brown Publishing’s assets. Because Media’s financing fallen through wake foreclosure action, PNC Bank Group successful acquiring most assets. Following auction, successfully moved Huntington foreclosure enforce automatic stay. By then, however, it too late salvage bid. *11 II. Procedural Background
Alleging facts set forth above, the plaintiffs filed this lawsuit asserting following causes of action: (1) breach of fiduciary duty based on defendants’ (a) failure to secure waiver of conflict of interest presented their dual representation of Managers and Publishing, (b) failure disclose their relationship with members of PNC Bank Group, and (c) use of confidential information gleaned from K&L’s representation plaintiffs manipulate bidding process favor PNC Group; (2) tortious interference with prospective economic advantage based on defendants’ interference with relationship between Managers Publishing; (3) common law fraud based on defendants’ breach their duty disclose potential conflicts interest. plaintiffs sought unspecified amount damages. connection with claim breach fiduciary duty, however, asserted damages would “include calculation based part value assets [they] unable purchase due [the defendants’] breach fiduciary duty, where [the plaintiffs] financially respect assets they succeeded obtaining assets contemplated APA.”
The defendants moved dismiss the complaint under Rule 12(b)(6) for failure state claim, arguing, inter alia the claims were barred by res judicata and, in particular, by preclusive effect of three final orders of court: (1) “Sale Procedures Order,” which approved procedures eventual sale Brown Publishing’s assets; (2) “Sale Approval Order,” which authorized assets, (3) “Confirmation Order,” confirmed Third Amended Joint Chapter Plan Liquidation Publishing affiliates (“the Liquidation Plan”).
The granted defendants’ motion res judicata grounds. It noted parties disputed only one prong res judicata analysis: “whether causes action same, if not, whether asserted by Plaintiffs this action brought prior proceeding.” Special (“Sp.”) explained that, because none three orders cited defendants’ motion dismiss “directly sufficiently addresse[d] causes asserted this case,” “there [was] no indication [K&L’s] allegedly improper dual representation, *13 the issue dominate[d] the entire complaint this action, was raised at the time [b]ankruptcy [o]rders.” Sp. App’x 23.
The court observed, however, that whether plaintiffs asserted their present claim court “a closer question.” Sp. App’x The court determined that “a thinly disguised collateral attack [b]ankruptcy [o]rders.” Sp. App’x (internal quotation marks citation omitted). The court reasoned sought “to challenge result § sale by placing themselves same position if they had been successful bidders assets,” evidenced “demand compensation restore them where [they] would financially respect these assets they succeeded auction.” Sp. App’x 25–26 (internal quotation marks omitted). district court’s view, obtaining this relief “call into question integrity” final orders, result “would impair, destroy, challenge, or invalidate enforceability or effectiveness original reorganization plan, whether [was] unwound not.” Sp. (internal quotation marks omitted). The court observed further *14 plaintiffs, unsuccessful bidders who “complaining about fraudulent collusion among sale participants,” standing raise issue collusion during auction. Sp. App’x (internal quotation marks alteration omitted). explained that, ultimately, action “so
inextricably linked” underlying proceeding relief sought by plaintiffs require “to effectively overrule” court’s orders. Sp. App’x According court, any policy interest allowing proceed “outweighed by longstanding policy favoring finality orders issued courts.” Sp. 29–30.
This appeal followed.
DISCUSSION
I. We review de novo grant motion dismiss pursuant Rule 12(b)(6), “accepting complaint’s factual allegations true drawing all reasonable inferences plaintiff’s favor.” Carpenters Pension Tr. Fund, F.3d (quoting Steginsky v. Xcelera Inc., 2014)). “To survive *15 motion dismiss, complaint must contain sufficient factual matter, accepted true, ‘state claim relief that is plausible on face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A court’s application res judicata is also reviewed de novo . TechnoMarine SA v. Giftports, Inc., 758 F.3d 493, 498 (2d Cir. 2014).
II. “The doctrine res judicata , or claim preclusion, holds ‘a final judgment on merits action precludes parties or privies from relitigating issues were or raised action.’” Monahan v. N.Y.C. Dep’t Corr. , 214 F.3d 275, 284 (2d Cir. 2000) (quoting Allen v. McCurry , U.S. 90, (1980)). “To determine whether doctrine res judicata bars subsequent action, we consider whether 1) prior decision final judgment on merits, 2) litigants were same parties, 3) prior competent jurisdiction, 4) causes same.” re Layo F.3d 289, (2d Cir. 2006) (quoting Corbett v. MacDonald Moving Servs., Inc. 87–88 1997)). “Whether or first judgment will preclusive effect depends part whether same transaction series transactions issue, whether same evidence is needed support both *16 claims, whether facts essential second present first.” Monahan , 214 F.3d at 285 (quoting NLRB v. United Techs. Corp. , 706 F.2d 1254, 1260 (2d Cir. 1983)).
“In context, we ask well whether an independent judgment a separate proceeding would impair, destroy, challenge, or invalidate enforceability or effectiveness reorganization plan.” re Layo , 460 F.3d at 292 (quoting Corbett , 124 F.3d at 87–88); see also Sure ‐ Snap Corp. v. State St. Tr. Co. , 948 F.2d 869, 874 (2d Cir. 1991) (“Also dispositive finding preclusive effect, is whether independent judgment separate proceeding ‘impair or destroy rights or interests established judgment entered first action.’” (quoting Herendeen v. Champion Int’l Corp ., 525 F.2d 130, 133 (2d Cir. 1975)). A party cannot avoid preclusive effect res judicata “by asserting new theory different remedy.” Sure Snap Corp. , 948 F.2d (quoting Matter Howe F.2d 1138, n.10 (5th Cir. 1990)). “The burden party seeking invoke res judicata prove doctrine bars second action.” Comput. Assocs. Int’l v. Altai, Inc. 1997).
A. As below, focus their argument whether causes action they advancing against defendants addressed bankruptcy proceeding whether, any event, they brought present during bankruptcy proceedings. For reasons stated below, we vacate judgment remand further proceedings.
At outset, other courts observed, standard res judicata analysis can be awkward fit when applied proceedings. See, e.g., In re Piper Aircraft Corp. , F.3d 1289, 1299 (11th Cir. 2001) (noting that, given unique nature proceedings, “different res judicata considerations may come into play when first case is proceeding”); see also HSBC USA v. Adelphia Commc’ns Corp. No. CV ‐ 553A, WL *12 (W.D.N.Y. Feb. 12, 2009), aff ʹ d sub nom. re Adelphia Recovery Tr. 2011) (“Because case is fundamentally different from typical civil action, comparison proceeding another proceeding is susceptible standard res judicata analysis. Rather, Court must scrutinize totality circumstances each then determine whether there identity causes action.”) *18 (citing Oneida Motor Freight, Inc. v. United Jersey , F.2d 419 n.5 1988)). Unlike a typical lawsuit, where one party brings action against another, a bankruptcy proceeding provides a forum multiple parties— debtors, creditors, bidders, etc.—to sort out how allocate, among other things, a debtor’s assets. In other words, a court’s foremost concern is maximizing value of debtor’s estate. See In re Piper Aircraft Corp. F.3d at (observing that when confirming a debtor’s Chapter plan, a “primarily determining whether plan, presented, [meets] literal requirements policy objectives Bankruptcy Code maximizing value [the debtor’s] estate”). context, therefore, instead examining whether a subsequent lawsuit asserts claims that could have been included part previous lawsuit, courts have assessed whether new seeks bring claims could have been raised litigated within scope proceeding. See, e.g., Sure ‐ Snap 873–75 (noting fact “ could brought [their] actions” during proceeding “germane finding res judicata, since doctrine bars re litigation just those which brought prior proceeding, but any other admissible matter *19 brought, but wasn’t” (internal quotation marks omitted)). We tasked here with resolving this question.
It undisputed the plaintiffs not inform the bankruptcy court defendants’ alleged conduct prior to confirmation Liquidation Plan. The issues surrounding defendants’ alleged conduct thus not litigated explored during course proceedings. The district court was, therefore, correct issues had fully fairly litigated prior orders identified defendants as having preclusive effect. nonetheless identified at least one way
plaintiffs vindicated their rights against defendants court. It posited plaintiffs, unsuccessful bidders, “likely had standing” assert similar fashion In re Colony Hill Assocs. F.3d 1997). Sp. Colony Hill disqualified bidder was denied opportunity place bid at sale because next highest bidder fraudulently colluded other participants exclude disqualified bidder. 271–72. We held *20 that the disqualified bidder standing challenge whether the successful bidder was a “good faith purchaser” because the alleged conduct by the successful bidder, “if proven, would call into question the ‘intrinsic fairness’ of the hearing.” Id . at 274. We explained that, “when collusion occurs between debtor, creditors successful bidder, unsuccessful bidder may be only party interest exposing such inequitable conduct.” Id .
We do view gravamen complaint here alleging type collusion at issue Colony Hill . Rather, plaintiffs focus vast majority their allegations conduct K&L, Fox particular. To be sure, there isolated allegations that suggested semblance collusion. plaintiffs allege, for example, that Huntington Bank, member PNC Bank Group, filed foreclosure action against CRJ ensure that PNC Group’s bid prevail at sale. However, although plaintiffs alleged “well aware” CRJ’s leases strategic importance Managers’ bid, assert Huntington Bank’s foreclosure action orchestrated defendants done behest. Indeed, referencing Huntington Bank’s foreclosure simply provided context true target claim: defendants’ allegedly *21 conflict ridden decision to delay filing motion in the foreclosure to enforce the bankruptcy stay.
In our view, therefore, the complaint fairly read to allege misconduct only on the part the defendants. Thus, because the plaintiffs are not alleging collusion among the defendants and the PNC Bank Group (through Huntington Bank’s foreclosure action) Brown Publishing (through Carlson), it incumbent on plaintiffs to challenge bankruptcy court “good faith purchaser” status PNC Group or, more generally, “intrinsic fairness” bankruptcy on grounds collusion.
We acknowledge that, alerted bankruptcy defendants’ conduct during proceedings, likely considered whether defendants’ conflict interest and other mischief warranted their removal as counsel. See, e.g., re Congoleum Corp. 2005) (observing context that “the obligation ensure that professional ethics followed has led courts rule that counsel has standing raise challenge unethical *22 procedures the part of opposing lawyers,” “[r]ules governing professional conduct are often viewed as more necessary applicable in cases than in other contexts”). Removing the defendants as Publishing’s counsel, however, would have addressed only the defendants’ failure to disclose conflict of interest to court, either its initial disclosure statement or pursuant to an attorney’s obligations an officer of court. defendants’ removal would not have provided plaintiffs fair forum which to litigate fully it now brings against them. These claims seek to remedy not simply fact conflict but defendants’ effective interference attempt acquire debtor’s assets. Although consideration defendants’ potential conflict interest may prompted examine some facts necessary support present claims, factual overlap limited proper framing each claim. Defendants point us no case fact attorney’s conflict one will bar subsequent action malpractice breach fiduciary duty. Thus, even if objected to, successfully blocked, assets PNC Group, this equivalent asserting present claims, which, described above, *23 limited to the mere fact a conflict interest. See re Piper Aircraft Corp. , 244 F.3d at 1303 (observing that “[m]erely objecting to the [confirmation] plan not have equivalent pursuing [breach fiduciary duty and breach agreement] claims [the plaintiff] asserts in state court” against successful plan proponent). Here, objecting to plan “would not have provided complete substitute relief sought in [instant] action.” Id . 1304.
The defendants assert on appeal that bankruptcy courts “arising in” jurisdiction over “malpractice similar against debtor’s retained professionals occur during because they are inseparable from context.” Defs. Appellees’ Br . Thus, defendants contend court exercised jurisdiction over plaintiffs’ claims. [6]
The defendants are referring “plenary jurisdiction” courts enjoy “over ‘all cases under [T]itle all core proceedings arising under [T]itle 11, arising in case under Title 11.’” Baker v. Simpson F.3d *24 346, 350 (2d Cir. 2010) (quoting Mt. McKinley Ins. Co. v. Corning Inc. , 399 F.3d 436, 447–48 Cir. 2005)). We indeed held that bankruptcy courts have jurisdiction consider, example, a debtor’s malpractice (and related conversion, negligence, fraud, and intentional misrepresentation) claims against debtor’s counsel because adjudication those claims “an essential part administering estate” “implicate[d] integrity entire process.” Baker , F.3d at (internal quotation marks omitted). As we observed in Baker “while meaning statutory language ‘arising in’ may not be entirely clear, it clear us that has ability review conduct attorneys . . . who appointed by aid person in need counsel in proceeding pursuant Title 11.” Id . (internal citation omitted); see also Grausz v. Englander 469, 471–72 (4th 2003) (holding that professional malpractice claim, filed by Chapter debtor against firm represented him that proceeding, “arose case”). present case, course, brought debtor against his counsel, defendants do contend presented claims posture described Baker . Rather, defendants argue “are rooted in, no existence but for, Debtor’s bankruptcy case.” Defs. ‐ Appellees’ Br . 22–23. While we observed in Baker that bankruptcy court “arising in” jurisdiction over debtor’s malpractice other claims against his bankruptcy counsel, part, because those claims “would no practical existence but bankruptcy,” Baker (internal quotation marks omitted), we do not view this general principle dispositive circumstances before us here. First all, Baker court was wrestling whether a bankruptcy court required abstain from even considering debtor’s claims against counsel, not whether debtor’s failure raise issue court meant that some third party barred by res judicata from bringing later suit. Moreover, just because court need not abstain from exercising jurisdiction over claim does mean failing ask exercise “arising in” jurisdiction necessarily precludes plaintiff’s future claim. any case, already explained, claims here do involve parties proceedings making jurisdictional nature brought parties proceeding irrelevant.
*26 For their part, plaintiffs argue that they could have brought their claims only through an adversary proceeding, over which lacked jurisdiction. Courts, including ours, have held that “[a]lthough confirmed plans res judicata issues therein, confirmed plan has no preclusive effect on issues that must be brought by an adversary proceeding.” Whelton v. Educ. Credit Mgmt. Corp. , 432 F.3d 150, 154 Cir. 2005), abrogated other grounds by United Student Funds, Inc. v. Espinosa , 559 U.S. 260 (2010) (quoting Enewally v. Wash. Mut. F.3d 1165, (9th Cir. 2004)); see Cen Pen Corp. v. Hanson , F.3d (4th 1995) (observing that confirmation plan “is res judicata only as issues that can be raised in less formal procedure for contested matters,” confirmation “generally cannot have [a] preclusive effect [matters] which must be resolved in an adversary proceeding”). We need not resolve, however, whether adversary proceeding only way plaintiffs litigated claims their present lawsuit. It enough hold here circumstances did demand raise claims proceeding, note relevant issues disposing [the debtor’s] would undermine efficient administration proceedings.” Baker Here, it likely entirely inefficient distract itself dealing dispute that, pleaded complaint, involve debtor, creditors, successful bidder. *27 were not litigated through an adversary proceeding or otherwise. See, e.g. , In re Piper Aircraft Corp. , F.3d at 1297 (“That the critical facts underlying [the plaintiff’s] suit never discussed by court or litigated by parties is powerful evidence that Chapter case not involve ‘same cause action’ state court suit” breaches fiduciary contractual duties); Cen Pen Corp. F.3d at (observing that “if an issue must be raised through adversary proceeding it is not part confirmation process and, unless it is actually litigated, confirmation will not preclusive effect” (internal quotation marks notations omitted)). any case, it defendants’ burden prove that res judicata bars second action, prove they barred. Comput. Assocs.
For foregoing reasons we disagree district plaintiffs have, should have, raised present proceeding.
B. further concluded “practical effect relief sought” would “call into question integrity” court’s orders, “invalidate enforceability *28 effectiveness original reorganization plan, whether is unwound or not.” Sp. (internal quotation marks omitted). We do not share this view.
As explained above, “dispositive a finding preclusive effect, is whether an independent judgment separate proceeding ‘impair or destroy rights or interests established by judgment entered first action.’” Sure ‐ Snap Corp. F.2d at (quoting Herendeen , F.2d at 133). Initially, although not formally seek rescission orders, fact alone does end inquiry. We held though subsequent lawsuit may “not technically ask[] court disturb” final order, subsequent is barred res judicata when “appellants’ failure raise these claims (if valid) when they should have, almost certainly affected prior judgment.” Sure Snap Corp. This because “[h]ad court found merit appellants’” challenge aspect proceedings, “would structured different disposition.” Id.
Under circumstances, we persuaded that, asserted present sought litigate issues *29 necessary to those claims, the bankruptcy court structured different disposition vis ‐ à ‐ vis the Liquidation Plan. Again, as explained above, plaintiffs’ allegations not aimed at the parties subject to the bankruptcy court orders—the PNC Group, creditors, and Publishing—but at two former partners. Because factual allegations complaint do implicate parties to bankruptcy proceedings, plaintiffs’ failure to raise against defendants court “almost certainly affect” orders pertained only parties participating proceedings. Sure Snap Corp. at Likewise, even if had concluded defendants failed disclose conflict interest engaged misconduct, still, concluded above, there no basis imputed such conduct auction participants parties subject Liquidation Plan.
Finally, key component plaintiffs’ allegations that, result defendants’ actions, financing fell through they unable bid effectively auction assets. other words, *30 time the plaintiffs’ allegations were ripe, any hearing on these would not have changed the outcome of the auction process.
For these reasons, we disagree that the plaintiffs’ action “so inextricably linked to the underlying proceeding that the relief the Plaintiffs seek would require [the district court] to effectively overrule the [b]ankruptcy [o]rders.” Sp. App’x 29. Indeed, a judgment against the defendants will have no effect on the continuing validity of the court’s order approving the of assets to the PNC Group order confirming Liquidation Plan. [8] Cf. In re Brook Valley VII, Joint Venture F.3d (8th 2007) (holding a trustee’s action for breach of fiduciary duty against winning bidders, who were on both sides of transaction, “not an impermissible collateral attack on final *31 sale” because trustee sought “a remedy for alleged breach fiduciary duty,” “presume[d] continued validity foreclosure sale itself”).
We mindful proceedings are “a forum where finality orders is particularly important,” In re Lawrence , 615, Cir. 2002), § “protects reasonable expectations good faith third party purchasers preventing overturning completed sale,” re Farmland Indus. Inc. B.R. 508–09 (B.A.P. 8th 2009). As lawsuit poses no threat finality court’s orders, allowing lawsuit proceed will do no violence these principles.
CONCLUSION
For foregoing reasons, district court’s decision dismiss case basis res judicata is REVERSED, judgment is VACATED, case REMANDED further proceedings consistent this opinion.
[*] Judge Nicholas G. Garaufis, United States District Court Eastern District New York, sitting designation.
[1] A “stalking horse” contract “is first, favorable bid strategically solicited bankrupt company prevent low ball offers.” re WestPoint Stevens, Inc., n.3 2010).
[2] allege complaint defendants represented Huntington either bank’s role creditor Publishing member PNC Bank Group.
[3] took judicial notice under Rule 12(d) relevant orders.
[4] It appears made aware K&L’s potential conflict until approximately one year after Liquidation Plan confirmed, when Roy moved disqualify counsel liquidating trust.
[5] We note, however, plaintiffs’ allegations respect defendants’ decision Publishing hire Tom Carlson independent director for duration process Carlson perform adequately role touch, core, adequacy defendants’ representation debtor proceeding thus cannot properly serve basis suit here.
[6] defendants did not mention “arising in” jurisdiction motion dismiss, court not address such jurisdiction order dismissing plaintiffs’ action. While we prefer not speculate first instance whether “arising in” jurisdiction consider claim, we are precluded from entertaining argument given “[w]e free affirm any ground finds support record, even if it ground upon [district] relied.” Headley v. Tilghman 1995).
[7] We observed Baker “[t]o hold mandatory abstention barred from
[8] Although plaintiffs not denominate quantum of damages in their complaint, they asserted damages for their claim for breach fiduciary duty would be based, part, “on value assets [they] were unable purchase due [the defendants’] breach fiduciary duty,” put them where they “would financially” if they “succeeded obtaining assets as contemplated APA.” By framing their potential damages this way, they may inadvertently invited view attack on final orders. While we decline comment on appropriate measure damages prevail, we do view request damages obtainable solely way judgment expectation against defendants K&L, Fox, Moser, evincing any desire attack orders. We also note “res judicata turns primarily on commonality facts prior subsequent actions, nature remedies sought.” re Piper Aircraft Corp. (emphasis original).