Bank of Lafayette v. Baudoin (In Re Baudoin) , 981 F.2d 736 ( 1993 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_________________________________________
No. 91-5091
_________________________________________
IN THE MATTER OF: RAYWOOD F. BAUDOIN,
LOUELLA H. BAUDOIN and
RAYWOOD BAUDOIN, INC., Debtors.
BANK OF LAFAYETTE,
Appellant,
VERSUS
RAYWOOD F. BAUDOIN, LOUELLA H. BAUDOIN
AND RAYWOOD BAUDOIN, INC.,
Appellees.
_________________________________________________________________
Appeal from the United States District Court
for the Western District of Louisiana
_________________________________________________________________
(January 6, 1993)
Before REYNALDO G. GARZA, DAVIS, and BARKSDALE, Circuit Judges.
BARKSDALE, Circuit Judge:
At issue is whether Chapter 7 debtors may, three years after
discharge, bring a lender liability action in state court against
their creditor which, inter alia, bid in its mortgages to purchase
the debtors' property sold during their personal bankruptcies in
liquidation of their estate, and filed a proof of claim and
received partial payment in the bankruptcy for the debtors' wholly-
owned corporation. Because we hold that the lender liability claim
would have been a "core proceeding" in the earlier bankruptcy
actions, the state action is barred by res judicata. Therefore, we
REVERSE the district court's summary judgment for the debtors and
RENDER judgment for the creditor.
I.
Beginning in 1978, the Bank of Lafayette (Bank) had a lending
relationship with Mr. and Mrs. Raywood F. Baudoin and their wholly-
owned corporation, Raywood F. Baudoin, Inc. (RFBI). In 1985, the
Bank made three separate loans to RFBI, totalling over $500,000.
Each was secured by Mr. Baudoin's personal guarantee, mortgages on
two pieces of the Baudoins' real property (in Lafayette and Grand
Coteau, Louisiana), and an assignment of RFBI's accounts receiv-
able. The Bank also reserved the right to offset the balance of
RFBI's deposit accounts by any amount due on the notes and to
accelerate amounts due on all three notes, should RFBI fail to meet
its obligations under any one of them. At that time, the Baudoins'
personal debt to the Bank was approximately $183,000. It, too, was
secured by the Lafayette and Grand Coteau properties.
One of RFBI's notes was due on August 23, 1985. Not having
received payment by August 30, the Bank offset an RFBI account by
approximately $120,000 and notified RFBI's debtors to forward
future payments directly to the Bank. Approximately one month
later, RFBI and the Baudoins, individually, filed for Chapter 7
bankruptcy.
For their personal bankruptcies, the Baudoins listed the Bank
as a secured creditor for slightly over $183,000 and an unsecured
creditor for an unknown amount. In the schedule of assets, under
the category "Property of any Kind not Otherwise Scheduled", they
2
listed "Any possible claim against creditor for actions taken
against debtors prior to bankruptcy proceeding" and assigned an
"undetermined" value.
The Baudoins' personal bankruptcies were consolidated; and on
October 1, 1985, W. Simmons Sandoz was appointed trustee for the
Baudoins and RFBI. The first meeting of the Baudoins' creditors
was held on November 7, 1985.1 Though the record includes no
formal notice, it appears, pursuant to statements by Sandoz in the
state court record and responses given at oral argument before us,
that the Baudoins informed the trustee of their possible claim
against the Bank very early in the bankruptcy proceeding.
Approximately one month later, on motion of the trustee in the
personal bankruptcies, the two properties securing the Baudoins'
personal debt to the Bank, as well as the Bank's loans to RFBI,
were sold at a public auction in an effort to liquidate all of the
Baudoins' assets. The Bank purchased both tracts, not only bidding
in its mortgages, but also paying the claim of the first lienholder
on the Lafayette property. The Baudoins were discharged in January
19862; the auction sales were ratified and previous liens and
mortgages cancelled in March and April of that year.
1
At that time, the trustee asked the Baudoins, inter alia,
"Does anyone owe you any money?", "Do you have any claims for
injuries or damages pending?", and "Do you have any law suits where
you are suing anyone pending?". They answered "no" to each
question and signed a sworn statement reflecting those answers.
2
The Baudoins waived their attendance at the discharge hearing,
stating that they had "no motions of a substantive nature to bring
before the court".
3
In the RFBI bankruptcy, the Bank filed two proofs of claim in
late 1985. In May 1986, again upon consent of the trustee, the
automatic stay in the RFBI bankruptcy was modified, allowing the
Bank to proceed with collection of RFBI's accounts receivable.
Three years later, in April 1989, the Bank's claim was allowed in
the amount of nearly $360,000. The RFBI bankruptcy remains open.
In March 1989, the month before the Bank's claim was allowed
in the RFBI bankruptcy and over three years after the Baudoins'
discharge, the Baudoins filed suit in Louisiana state court against
the Bank, seeking over $4,000,000 in damages for both breach of the
loan agreements and numerous related tort claims.3 Their basic
contention was that the Bank's actions forced them and their
company, RFBI, into bankruptcy. The Bank filed exceptions in state
court, as well as a separate federal action, seeking to enjoin the
state action and any attempted similar actions by the Baudoins or
RFBI.
In state court, the exceptions for prescription of the tort
claims and no right of action were sustained. The Baudoins were
given leave to either obtain an order of abandonment or add the
trustee as a plaintiff; they chose the latter, adding him in late
3
Although named as a plaintiff in the state court Petition for
Damages, RFBI claimed no damages and sought no relief. In their
response to the Bank's exceptions, the Baudoins stated that RFBI
was "inadvertently included in the caption on plaintiffs' Petition
for Damages. RFBI is not a party to this action".
4
August 1989.4 No ruling was made on the res judicata exception;
instead, the state court withheld judgment pending this action.
Meanwhile, after the Bank's federal action was filed, the
Baudoins' personal bankruptcies were re-opened. The Bank's action
(this case) was then transferred to bankruptcy court, where both
sides moved for summary judgment. It was granted for the Baudoins
on the ground that the lender liability claim was not a "core"
matter and could not have been pursued earlier in the bankruptcy
court. Finding the bankruptcy court's decision "supported by the
evidence and well within the bounds of discretion", 5 the district
court affirmed in a two paragraph order, holding that the lender
liability claim was not a "core" proceeding and, therefore, not
barred by res judicata.
II.
The Bank contends that the district court erred as a matter of
law in not holding the state court claim barred by either res
4
By affidavit, filed in state court in support of the Baudoins'
objections to the Bank's exceptions, the trustee stated that he
intended to abandon this claim to the debtors. A professed intent
to abandon cannot constitute abandonment, as 11 U.S.C. § 554(a)
requires notice and a hearing prior to abandonment. Furthermore,
we do not consider the Baudoins' earlier mentioned, vague reference
to "Any possible claim against creditor for actions taken against
debtors prior to bankruptcy proceeding" in their schedule of assets
a sufficient scheduling of their claim against the Bank to
constitute abandonment under § 554(c). In addition, we note that
the only debtors against whom wrongful pre-bankruptcy actions were
allegedly taken were not the Baudoins, in whose bankruptcies this
disclosure was made, but the corporation, RFBI.
5
The role of "discretion" in this context is unclear. Perhaps
this refers to the bankruptcy judge's discussion of discretionary
abstention under 28 U.S.C. § 1334(a)(1). Although he mentioned
that doctrine, he did not base his decision upon it.
5
judicata or judicial estoppel.6 For the reasons that follow, we
hold that the claim is precluded by the doctrine of res judicata;
therefore, we need not reach estoppel.
A.
Our standard for reviewing a summary judgment is more than
well settled. We conduct a de novo review of the entire record and
determine whether there are any genuine issues of material fact.
Finding none, we next decide whether the prevailing party is
entitled to judgment as a matter of law. Stine v. Marathon Oil
Co., 976 F.2d 254, 265 (5th Cir. 1992); Fed. R. Civ. P. 56.
Our review of the record in this case reveals no material fact
disputes. Moving to the second prong, we reach legal conclusions
contrary to those of the district court, and hold that the Bank,
not the Baudoins, is entitled to judgment as a matter of law.
B.
"This Court has previously recognized the important interest
in the finality of judgments in a bankruptcy case". Hendrick v.
Avent, 891 F.2d 583, 587 n.9 (5th Cir.), cert. denied, __ U.S. __,
111 S. Ct. 64 (1990). In promoting that interest, we have applied
our traditional test for res judicata in the bankruptcy context:
"An arrangement confirmed by a bankruptcy court has the effect of
6
The Bank also contends that the claim asserted in state court,
which arose before bankruptcy, belongs to the estate of either RFBI
or the Baudoins and thus, can be urged only by the trustee. The
Baudoins conceded this point at oral argument. Indeed, their
counsel stated that the trustee had been "substituted" as party
plaintiff in state court. Our review of the record shows that the
trustee has been added as a plaintiff, but has not replaced the
Baudoins.
6
a judgment rendered by a district court. Any attempt by the parties
to relitigate any of the matters that were raised or could have
been raised therein is barred under the doctrine of res judicata."
Matter of Brady, 936 F.2d 212, 215 (5th Cir.), cert. denied, __
U.S. __, 112 S. Ct. 657 (1991). As stated by the Second Circuit in
a case quite similar to this case, discussed infra, "[r]estraining
litigious plaintiffs from taking more than `one bite of the apple'
has been our avowed purpose since the common law doctrine of res
judicata first evolved". Sure-Snap Corp. v. State Street Bank and
Trust Co., 948 F.2d 869, 870 (2d Cir. 1991). Of course, in the
bankruptcy context, especially a Chapter 7 liquidation, that bite
is to be taken as expeditiously and economically as possible, to
try to ensure, inter alia, that creditors get their share. After
all, it has long been the "general spirit and purpose" of
bankruptcy not only to release a bankrupt from the obligation to
pay his debts, but also to "secure a just distribution of the
bankrupt's property among his creditors". Wilson v. City Bank, 84
U.S. (17 Wall.) 473, 480 (1872). In sum, the numerous and
substantial reasons for the doctrine of res judicata are too well
known, and obvious, to bear repeating. And, they are all the more
compelling today, especially for bankruptcy, and related,
proceedings. Because of spiraling litigation costs, increasingly
congested courts -- especially bankruptcy courts -- and expanding
theories of recovery, such as lender liability, it is more
imperative than ever that the doctrine of res judicata be applied
with unceasing vigilance.
7
Thus, a bankruptcy judgment bars a subsequent suit if: 1)
both cases involve the same parties; 2) the prior judgment was
rendered by a court of competent jurisdiction; 3) the prior
decision was a final judgment on the merits; and 4) the same cause
of action is at issue in both cases. Latham v. Wells Fargo Bank,
N.A., 896 F.2d 979, 983 (5th Cir. 1990). The parties agree that
the first element is satisfied; they disagree on the other three.7
We address them seriatim.
1.
The Baudoins and RFBI (appellees) contend that the lender
liability suit is not a core proceeding and that, therefore, the
bankruptcy court lacked jurisdiction in the prior bankruptcy
proceedings to entertain the lender liability claim they raised
later in state court. It is true that, if that claim was not
"core", the bankruptcy court could not have entered a final
judgment for it; instead, it could have only made proposed findings
of fact and conclusions of law subject to de novo review by the
7
The appellees' motion, carried with the case, to strike
portions of the Bank's reply brief is DENIED.
8
district court.8 But, this does not mean that the bankruptcy court
lacked jurisdiction to entertain the claim.
The wide reach of jurisdiction under title 11 was recognized
in Matter of Wood, 825 F.2d 90, 92 (5th Cir. 1987):
Legislative history indicates that the phrase
[in 28 U.S.C. § 1334, see note 8 supra], "arising
under title 11, or arising in or related to cases
under title 11" was meant, not to distinguish
between different matters, but to identify
collectively a broad range of matters subject to
the bankruptcy jurisdiction of federal courts.
Congress was concerned with the inefficiencies of
piecemeal adjudication of matters affecting the
administration of bankruptcies and intended to give
federal courts the power to adjudicate all matters
having an effect on the bankruptcy. Courts have
recognized that the grant of jurisdiction under the
1978 Act was broad.
(Footnotes omitted.) Indeed, pursuant to 28 U.S.C. § 157,
bankruptcy jurisdiction exists if the matter is simply "related to"
the bankruptcy -- if "the outcome of that proceeding could
conceivably have any effect on the estate being administered in
bankruptcy". Matter of Wood, 825 F.2d at 93 (quoting Pacor, Inc.
v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)) (emphasis added by
8
District courts, under 28 U.S.C. § 1334, have original
jurisdiction of "all civil proceedings arising under title 11, or
arising in or related to cases under title 11". Bankruptcy courts,
though arms of the district court, do not have full power to
adjudicate all matters over which the district court has
jurisdiction. Bankruptcy courts have full judicial authority over
the bankruptcy petition itself and may "hear and determine ... all
core proceedings ... and may enter appropriate orders and
judgments" with regard to those proceedings. 28 U.S.C. §
157(b)(1). They also have the limited power to "hear a proceeding
that is not a core proceeding [and] submit proposed findings of
fact and conclusions of law to the district court" for de novo
review. 28 U.S.C. § 157(c)(1).
9
the Wood court).9 It cannot be reasonably argued that a $4,000,000
claim belonging to a bankruptcy estate could not have any
conceivable effect on that estate. In short, the bankruptcy court
had jurisdiction to hear the lender liability claim. Because, as
discussed next, we hold that the jurisdiction was "core" in this
9
The Wood court noted that references to proceedings "arising
under", "arising in a case under" (core) and "related to a case
under" (non-core) operate conjunctively to define the scope of
bankruptcy jurisdiction. Wood, 825 F.2d at 93. 28 U.S.C. § 157(a)
allows a district court to refer any or all such cases to the
bankruptcy court. Core matters, those "arising under title 11, or
arising in a case under title 11" may be finally decided by the
bankruptcy court, 28 U.S.C. § 157(b)(1), and the district court
sits as an appellate court regarding those matters. 28 U.S.C. §
158.
Section 157(b)(2) reads in part:
Core proceedings include, but are not limited to
--
(A) matters concerning the administration of the
estate;
(B) allowance or disallowance of claims against
the estate ...;
(C) counterclaims by the estate against persons
filing claims against the estate;
. . .
(O) other proceedings affecting the liquidation of
the assets of the estate or the adjustment of
the debtor-creditor ... relationship, except
personal injury tort or wrongful death claims.
The bankruptcy judge is to determine whether a proceeding is core
or non-core, but "[a] determination that a proceeding is not a core
proceeding shall not be made solely on the basis that its
resolution may be affected by State law". 28 U.S.C. § 157(b)(3).
10
case, we need not decide whether it must be so in order to satisfy
this second prong of our res judicata analysis.10
As quoted in note 9, supra, 28 U.S.C. § 157(b)(2) is a non-
exclusive list of matters which are "core". It includes
"counterclaims by the estate against persons filing claims against
the estate", § 157(b)(2)(C), and "other proceedings affecting the
liquidation of the assets of the estate or the adjustment of the
debtor-creditor ... relationship", § 157(b)(2)(O). As hereinafter
discussed, the lender liability claim at issue would have been a §
157(b)(2) "core proceeding" in both prior bankruptcy actions: in
the corporate (RFBI) bankruptcy, under § 157(b)(2)(C), and in the
personal bankruptcies, under § 157(b)(2)(O).
In the RFBI bankruptcy, the Bank filed a proof of claim, based
on the loans it made to the corporation. The Baudoins' lender
10
In Latham v. Wells Fargo Bank, N.A., 896 F.2d 979 (5th Cir.
1990), this court held that neither confirmation of a corporation's
Chapter 11 plan nor an order authorizing the auction of another
corporation's lender liability claims in its Chapter 7 proceeding
barred a subsequent lender liability suit against creditors brought
by the non-bankrupt, sole shareholder, but only in his capacity as
co-borrower and guarantor of the corporations' loans. To the
extent that his claims were those of a shareholder, they were
barred. The court stated that "if [the shareholder's] personal
claims against the banks would not have presented a core proceeding
in [the corporations'] bankruptcy proceedings, his personal
interests could not have been properly placed before that court for
decision." Id. at 984. It went on to say, however, that there was
a "strong argument" that if the shareholder had participated in the
auction or formulation of the Chapter 11 plan and "in the process
compromised his personal claims", the orders confirming the plan
and authorizing the auction may have barred his subsequent claims.
The Latham court was simply saying that the shareholder's personal
claims could not have been effectively litigated in the
corporations' bankruptcies. Nor do we read this to hold that
bankruptcy jurisdiction must always be core in order to be
"competent" for res judicata purposes.
11
liability suit alleges violation of these very loan agreements. If
it believed that the agreements had been breached, RFBI could, and
should, have filed an objection to that proof of claim, asserting
a lender liability "counterclaim". A response to a proof of claim
which is, in essence, a counterclaim, is a core proceeding under 28
U.S.C. § 157(b)(2)(C). See In re Bedford Computer Corp., 61 B.R.
594 (Bankr. D.N.H. 1986); Interconnect Telephone Services v.
Farren, 59 B.R. 397 (S.D.N.Y. 1986); In re Bar M Petroleum Co., 63
B.R. 343 (Bankr. W.D. Tex. 1986).
In the personal bankruptcies, the Baudoins listed the Bank as
a creditor in their original Chapter 7 petition. The Bank filed no
proof of claim. The orders asserted here as carrying preclusive
effect are those ordering and confirming the sale of the Baudoins'
properties in Lafayette and Grand Coteau. The Bank held a first
mortgage on the latter and a second mortgage on the former. Both
tracts were purchased by the Bank for the "price" of cancellation
of the existing debt.11 If the Baudoins were, as they allege in
their lender liability suit in state court, "forced" into
bankruptcy by the Bank, they could, and should, have asserted that
claim in their personal bankruptcy by objecting to the Bank's
purchase of their property (by "trading in" its mortgages) and the
subsequent ratification of those sales. While we recognize that §
157(b)(2)(O) is to be narrowly construed, we are confident that the
Baudoins' claim is precisely the type which fits within the catch-
11
As noted, the Bank did pay off the first lien on the Lafayette
property and may have paid a very small additional amount in cash.
12
all provision's narrow ambit. It would "affect[] the liquidation
of the assets of the estate or the adjustment of the debtor-
creditor ... relationship" tremendously. See In re Branding Iron
Motel, 798 F.2d 396, 399 n.3 (10th Cir. 1986) (noting that a
controversy over a note and mortgage is "inextricably tied to the
bankruptcy proceeding because it affects the liquidation of assets"
and is, therefore, core).12
We hold that the Baudoins' lender liability claim falls
squarely within the provisions of 28 U.S.C. § 157(b)(2) and, as
such, would have been a "core proceeding" in both the corporate and
personal bankruptcies.
2.
Continuing our res judicata analysis, we next look to the
finality of the prior judgments.13 Our precedent clearly
12
We note, too, that, in a similar vein, the Eighth Circuit
recently affirmed a bankruptcy court's denial of a debtor's request
to file a fraud claim against one of its creditors in state court.
The fraud claim was held "core" to the bankruptcy, because it
"strikes at the heart of the debtor-creditor relationship". In re
Tranel, 940 F.2d 1168, 1174 (8th Cir. 1991) (citing Howell
Hydrocarbons, Inc. v. Adams, 897 F.2d 183 (5th Cir. 1990)).
13
There is disagreement about which judgments are at issue. The
Baudoins and RFBI present their case from the position that the
judgment claimed as preclusive by the Bank is that which modified
the automatic stay and allowed the Bank to foreclose on RFBI's
accounts receivable. The Bank, however, has never based its
preclusion claim on that judgment. Thus, we find inapplicable the
case relied on by the Baudoins, D-1 Enterprises, Inc. v. Commercial
State Bank, 864 F.2d 36, 39 (5th Cir. 1989) ("The lender liability
claims asserted in the adversary proceeding at issue in this case
were not ... `direct defenses' that the debtor could or should have
litigated in response to the creditor's motion for relief from the
stay."). The Bank asserts, instead, that the Baudoins' claim is
barred by the judgments ordering and confirming the sale of real
estate in the Baudoins' personal bankruptcies, and allowing the
Bank's proof of claim in the RFBI corporate bankruptcy. We will
13
establishes that bankruptcy court orders authorizing the sale of
part of the estate or confirming such sale are final judgments on
the merits for res judicata purposes, "even though the order
neither closes the bankruptcy case nor disposes of any claim".
Hendrick v. Avent, 891 F.2d at 586; see also Southmark Properties
v. Charles House Corp., 742 F.2d 862, 870 (5th Cir. 1984). Though
perhaps less clearly, we read our prior holdings to establish that
an order allowing a proof of claim is, likewise, a final judgment.14
See Matter of Colley, 814 F.2d 1008, 1010 (5th Cir.), cert. denied,
484 U.S. 898 (1987).15
3.
Finally, we examine the identity of the causes of action.
This court has adopted the "transactional test" for deciding
whether two cases involve the same cause of action for res judicata
purposes. Under this test, "the critical issue is ... whether ...
analyze only the preclusive effect of those judgments asserted by
the Bank as res judicata.
14
As noted, the Baudoins' personal bankruptcies have been
reopened. And, the RFBI bankruptcy has remained open. (As aptly
noted by Judge Jones for our court in Matter of Colley, 814 F.2d
1008, 1009 (5th Cir.), cert. denied, 484 U.S. 898 (1987), "old
bankruptcy cases, like old soldiers, never die".) This fact may
raise questions about the finality of the discharge order and the
order allowing the Bank's proof of claim. But, in any event, and
as discussed supra, the judgments ordering and confirming sale of
the estate's properties are, in and of themselves, sufficient to
render the Baudoins' lender liability claim barred by res judicata.
15
Colley is a Chapter 13 case. In the case before us, of
course, the judgments asserted as preclusive arose in the context
of Chapter 7 bankruptcies. However, the allowance of a proof of
claim in a Chapter 13 case is no more "final" than such allowance
in a Chapter 7, as the Code provisions governing proofs of claim,
11 U.S.C. §§ 501-02, apply equally to cases filed under Chapters 7,
11, 12 and 13. 11 U.S.C. § 103(a).
14
the two actions [are based] on the same nucleus of operative
facts". Matter of Howe, 913 F.2d 1138, 1144 (5th Cir. 1990).
We consider each prior judgment separately. First, the
bankruptcy court's orders authorizing and confirming the sale of
the properties securing the personal and corporate loans involved
the same facts at issue in the Baudoins' state court action. We
have previously held that a court ordered public auction where a
creditor is allowed to bid the full amount of its debt "necessarily
determine[s] not only that the amount bid [is] actually owing, but
also that the maturity of the debt has been validly accelerated".
Hendrick, 891 F.2d at 587 (interpreting Southmark Properties v.
Charles House Corp., 742 F.2d 862 (5th Cir. 1984)). In their
lender liability action, the Baudoins contend, inter alia, that the
Bank wrongfully attempted to collect on notes which were not due.
If the Bank's actions to recover amounts owed by the Baudoins or
RFBI violated the loan agreements, that position could, and most
certainly should, have been asserted in conjunction with the Bank
obtaining the property through the public auction. Of course, as
discussed earlier, a claim or defense which could have been, but
was not, asserted is still the "same claim" for purposes of res
judicata. See Hendrick, 891 F.2d at 587.
The bankruptcy court's order allowing the Bank's proof of
claim in the RFBI bankruptcy also involved the "same claim" the
Baudoins are asserting now in state court, because the lender
liability claim might have also been asserted in response to that
proof of claim. The Baudoins contend that the same "nucleus of
15
operative facts" was not addressed by the bankruptcy court in
allowing the Bank's claim, because the Baudoins are not challenging
their obligation to the Bank on RFBI's loans: "Instead, the
Baudoins claim that the bank breached its duty of good faith,
which, while not resulting in extinguishment of the Baudoins'
obligation to repay the indebtedness, makes Bank of Lafayette
liable to the Baudoins in damages".16 But this begs the question.
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. Here, the only remaining ground for
the Baudoins' lender liability suit is breach of contract. The
contracts at issue are the very loan agreements which were the
basis of the Bank's proof of claim in the prior bankruptcy. It is
difficult to imagine a more common nucleus of operative facts.
This distinction urged by the Baudoins is the very one
rejected by our court in Matter of Howe, 913 F.2d 1138 (5th Cir.
1990), and Eubanks v. F.D.I.C., 977 F.2d 166 (5th Cir. 1992).
Those cases both involved Chapter 11 debtors who filed lender
16
In support of this distinction, the Baudoins contend that none
of their claims could have been asserted as defenses to the Bank's
foreclosure on the mortgages after modification of the automatic
stay. Again, this is a misstatement of the facts and of the Bank's
basis for its assertion of res judicata. The Bank's acquisition of
the Grand Coteau and Lafayette properties did not result from
foreclosure and had nothing to do with modification of the stay.
Rather, the Bank purchased those properties by "trading in" its
lien at a public auction which was conducted at the request of Mr.
Sandoz, the trustee. The automatic stay was modified after the
public auction and for the sole purpose of allowing the Bank to
foreclose on RFBI's accounts receivable.
16
liability claims against creditor banks after confirmation of the
Chapter 11 plans. In Howe, the claim was filed five years later
and alleged that the bank had driven Howe to financial ruin. In
Eubanks, the claim was filed six months after confirmation and
alleged, inter alia, breach of a loan contract. As here, the
banks' loans to the debtors had been specifically addressed as
allowed claims in the respective bankruptcies. As here, the
debtors' lender liability claims had not been scheduled as assets
of the estate. The court noted in Howe, as we do here, that "[t]he
loan transaction at the heart of the present litigation was also
the source of [the bank's] claim against the estate". Howe, 913
F.2d at 1144. As such, both the Howe and Eubanks courts held the
lender liability claims to be the "same" as the bankruptcies for
purposes of res judicata.
The Second Circuit also reached the same conclusion in the
Chapter 11 context in Sure-Snap Corp., which relies in large part
on our court's decisions in Matter of Howe, Southmark Properties,
and Hendrick v. Avent, and which is discussed at length in our
recent decision in Eubanks, 977 F.2d at 171-72. The Sure-Snap
debtor brought lender liability claims against two creditor banks
one year after confirmation of the reorganization plan, and the
claims were held barred by res judicata.
Like the Baudoins, the Sure-Snap debtor attempted to
distinguish the bankruptcy judgment as a decision addressing only
the creditors' right to be paid. Calling this characterization
"excessively narrow", the Second Circuit held that the bankruptcy
17
proceeding encompasses the entire debtor-creditor relationship: not
only the creation of that relationship through the initial loan but
also the bank's actions in calling that loan early -- the act which
the debtor claimed "forced" him into bankruptcy. Sure-Snap, 948
F.2d at 874-75. Thus, the debtor's "very allegation that the
banks' ... conduct negatively influenced their business's health,
makes it hard-pressed to explain how the two causes of action --
the plan of reorganization and the lender liability claims -- did
not comprise the same essential matter". Id. at 875. Likewise,
the Baudoins are "hard pressed" to distinguish their lender
liability claim from the prior judgments of the bankruptcy court.
In fact, they have been unable to do so; and we hold that their
current claim is identical to those disposed of in the prior
bankruptcies.
III.
All elements for application of res judicata having been
established, the Baudoins' lender liability claim is barred by that
doctrine. Accordingly, the judgment is REVERSED and, instead,
RENDERED for the Bank; and this case is REMANDED to the district
court for entry of the appropriate injunctive or other relief.
REVERSED, RENDERED, and REMANDED.
18