IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 91-3433 _____________________
B.R. EUBANKS, M.D. and BONNIE B. EUBANKS,
Plaintiffs-Appellants,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION as Receiver for FIRST CITY BANK, New Orleans, Louisiana and FIRST NATIONAL BANK OF JEFFERSON,
Defendants-Appellees.
_________________________________________________________________
Appeal from the United States District Court for the Eastern District of Louisiana _________________________________________________________________ (August 20, 1992)
Before BROWN, KING and WIENER, Circuit Judges.
KING, Circuit Judge:
Dr. and Mrs. B.R. Eubanks appeal from a judgment of the
district court granting summary judgment in favor of First City
Bank ("First City") and First National Bank of Jefferson ("FNJ")
(collectively, the "Banks") on grounds of res judicata and
judicial estoppel. We affirm the judgment below on the ground of
res judicata.
I. FACTS AND PROCEDURAL HISTORY
In 1983, Dr. Eubanks invested in a partnership in commendam
that was to convert an apartment building in New Orleans into condominium units (the "Project"). First City made a loan to Dr.
Eubanks and the other partners to purchase and convert the units.
Shortly thereafter, the Project failed and First City brought
suit against Dr. Eubanks and others in state court. The state
court proceeding resulted in a foreclosure sale, at which First
City acquired ownership of the Project.
In September 1985, Dr. Eubanks purchased the Project from
First City for the balance due on the debt and received an
assignment of First City's deficiency judgment rights against Dr.
Eubanks' co-obligors on the debt. The Project subsequently
failed again, and in August 1986, Dr. Eubanks and his wife filed
a petition for bankruptcy under chapter 11 of the Bankruptcy
Code.
The Eubankses' Fourth Amended Plan (the "Plan"), filed July
14, 1989, was confirmed by the bankruptcy court on February 15,
1990, and the bankruptcy court's confirmation order was affirmed
by the district court on August 28, 1990. On February 12, 1990,
three days prior to confirmation of the Plan, Dr. Eubanks filed
suit in federal district court against First City, alleging
lender liability and violation of the Racketeer Influenced
Corrupt Organization Act ("RICO"). Dr. Eubanks later voluntarily
dismissed that suit pursuant to Federal Rule of Civil Procedure
41. On August 21, 1990, six months after confirmation of the
Plan, the Eubankses filed in bankruptcy court an objection to the
claim of First City, citing the complaint in the dismissed suit
as the basis of the objection.
2 The Eubankses then filed the instant action in Louisiana
state court, adding FNJ as a co-defendant. We address the
allegations in the state complaint in some detail. First, the
Eubankses claimed that there was a substantial identity of
management and ownership of both banks. Dr. Eubanks was
approached by an officer of First City who proposed that Dr.
Eubanks purchase an interest in the Project. According to
Eubanks, the officer represented to him, "with the knowledge,
consent and approval of the executive officers of both First City
and FNJ," that the Project was a sound investment, that it would
be conceptualized, implemented, and partially financed by general
partners, other First City and FNJ customers, who had
considerable expertise in condominium conversion, that financing
would be provided by First City and/or FNJ, and that the Banks
held considerable security for the various loans involved in
financing the Project. Eubanks also claimed that the officer
informed him that his involvement in the Project was primarily
"window dressing" for the federal banking regulators, and that
unless he participated, the Project would not go forward. Based
upon these representations, claimed Eubanks, he agreed to
participate in the Project as one of the general partners and
thus become fully liable for the parnership debt to First City.
After signing the promissory note to fund the Project,
Eubanks became aware that the situation was not as represented.
He alleged that First City, prior to his involvement in the
Project, had already committed to provide funds for the Project
3 regardless of Eubanks' participation, and that the other general
partners, represented by First City and FNJ to be experts, were
neither experienced with condominium conversion nor in
financially sound condition. Further, Eubanks learned that funds
that should have been expended on the Project were being diverted
into other condominium projects by the general partners, and that
First City had mortgages on all of these other projects. Eubanks
also learned that First City did not have the security interests
in the property it claimed prior to obtaining his signature, and
that "the only real security for the repayment of the loan
obligation to First City was the personal obligation and
guarantee of Eubanks." Based upon these alleged
misrepresentations, the Eubankses claimed that First City and FNJ
violated the Louisiana Blue Sky Law, La. Rev. Stat. 51:701, et
seq., breached their fiduciary duties toward him, committed
fraud, and breached the loan contract.
The Banks removed this action on December 14, 1990, alleging
removal jurisdiction under 28 U.S.C. §§ 1452(a) and 1441(b).1
The district court subsequently dismissed the Eubankses' claims
against the Banks, reasoning that the Eubankses knew of the
claims prior to the bankrupcty proceeding, and should have
addressed their claims against First City and FNJ in their
1 On February 6, 1991, the Banks filed a complaint in federal district court seeking a declaration that the Eubankses were barred from proceeding with the instant action based upon the order confirming their Plan. The record is unclear as to the disposition of this action.
4 disclosure statements and in the Plan.2 Based upon their failure
to bring the claims in the bankruptcy court, the district court
held that the Eubankses were barred by the doctrines of res
judicata and judicial estoppel from raising the claims in the
instant case. The Eubankses now appeal the district court's
dismissal of their action against the Banks.
II. DISCUSSION
The Eubankses contend that the district court improperly
applied the doctrine of res judicata to their claims against the
Banks. Application of the doctrine is proper only if the
2 Section 521(1) of the Bankruptcy Code requires the debtor to "file a . . . schedule of assets and liabilities . . . and a statement of the debtor's financial affairs . . . ." The debtor is also required, pursuant to Bankruptcy Rule 1007(b)(1), Form No. 6, Schedule B-2, to disclose contingent and unliquidated claims "of every nature, including counterclaims of the debtor." Section 1125(b) mandates the filing of a "written disclosure statement approved, after notice and a hearing, by the court as containing adequate information." "Adequate information" is defined as
information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor's books and records, that would enable a hypothetical reasonable investor typical of holders of claims or interests of the relevant class to make an informed judgment about the plan . . . .
11 U.S.C. § 1125(a)(1); see also Sure-Snap Corp. v. State Street Bank & Trust, 948 F.2d 869, 873 (2d Cir. 1991). A determination as to the adequacy of the contents of a disclosure statement necessarily depends upon the facts and circumstances of each case. See Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 417 (3d Cir.), cert. denied, 488 U.S. 967 (1988); 5 Collier on Bankruptcy ¶ 1125.03[1] (15th ed. 1992). Adequate information may include the disclosure of any litigation likely to arise in a non-bankruptcy context. See Oneida, 848 F.2d at 417; Monroe County Oil Co. v. Amoco Oil Co., 75 B.R. 158 (S.D. Ind. 1987).
5 following four requirements are met: (1) the parties must be
identical in the two actions; (2) the prior judgment must have
been rendered by a court of competent jurisdiction; (3) there
must be a final judgment on the merits; and (4) the same cause of
action must be involved in both cases. See Nilsen v. City of
Moss Point, 701 F.2d 556, 559 (5th Cir. 1983) (en banc); Russell
v. SunAmerica Securities, Inc., 962 F.2d 1169 (5th Cir. 1992);
Meza v. General Battery Corp., 908 F.2d 1262, 1265 (5th Cir.
1990). This four-part test has been applied in the bankruptcy
context of an order confirming a plan of reorganization. See
Howe v. Vaughn, 913 F.2d 1138, 1143 (5th Cir. 1990); Republic
Supply Co. v. Shoaf, 815 F.2d 1046, 1053 (5th Cir. 1987).
The first element of this test is clearly satisfied here.
While the Eubankses argue that the addition of Mrs. Eubanks
changes the parties, Mrs. Eubanks' claims against the Banks
derive exclusively from Dr. Eubanks' loan transactions with the
Banks. As such, Mrs. Eubanks' addition as a plaintiff does not
alter the identity of the parties. As to the second element, the
Eubankses do not dispute the jurisdiction of the bankruptcy court
which oversaw their estate and confirmed the Plan.
The Eubankses contest the third element -- that there must
be a final judgment on the merits in the previous case -- arguing
that there has never been a final judgment. We disagree. It has
long been recognized that a bankruptcy court's order confirming a
plan of reorganization is given the same effect as a district
court's judgment on the merits for claim preclusion purposes.
6 See Stoll v. Gottlieb, 305 U.S. 165, 170-71 (1938); Miller v.
Meinhard-Commercial Corp., 462 F.2d 358, 360 (5th Cir. 1972)
("[a]n arrangement confirmed by a bankruptcy court has the effect
of a judgment rendered by a district court") (citing In re
Constructors of Florida, Inc., 349 F.2d 595, 599 (5th Cir. 1965),
cert. denied sub nom. Coral Gables First Nat'l Bank v. American
Surety Co., 383 U.S. 912 (1966)); In re Justice Oaks II, Ltd.,
898 F.2d 1544, 1550 (11th Cir.), cert. denied, 111 S. Ct. 387
(1990); see also Shoaf, 815 F.2d at 1053. Section 1141(a) of the
Bankruptcy Code clearly provides that all parties to a confirmed
plan are bound by its terms:
(a) . . . [T]he provisions of a confirmed plan bind the debtor . . . and any creditor, . . . whether or not the claim or interest of such creditor . . . is impaired under the plan and whether or not such creditor . . . has accepted the plan.
11 U.S.C. § 1141(a). One commentator has explained the res
judicata consequences of § 1141(a) as follows:
Section 1141(a) of the Code has the same effect as Sections 224(1), 367(1) and 473(1) of the Bankruptcy Act in that a plan is binding upon all parties once it is confirmed and all questions which could have been raised pertaining to such plan are res judicata. While section 1141(a) is more narrowly drafted than the correlative sections of the Bankruptcy Act, the effect is the same. Subject to compliance with the requirements of due process under the Fifth Amendment, a confirmed plan of reorganization is binding upon every entity that holds a claim or interest even though a holder of a claim or interest is not scheduled, has not filed a claim, does not receive a distribution under the plan, or is not entitled to retain an interest under such plan.
5 Collier on Bankruptcy ¶ 1141.01[1] (15th ed. 1992) (footnotes
omitted); see J. Stephen Gilbert, "Substantive Consolidation in
7 Bankruptcy: A Primer," 43 Vand. L. Rev. 207, 239 (1990) ("Like
final judgments, confirmed plans of reorganization are binding on
all parties, and issues that could have been raised pertaining to
such plans are barred by res judicata.").3 There is little doubt
that the bankruptcy court's confirmation order is binding and
final, and we accord it the weight of a final judgment for res
judicata purposes.
Finally, the Eubankses argue that there is no identity of
claims. To determine whether the same claim is involved in two
actions, we apply the transactional test of the Restatement
(Second) of Torts § 24. Ocean Drilling & Exploration Co. v. Mont
Boat Rental Servs., Inc., 799 F.2d 213, 217 (5th Cir. 1986);
Southmark Properties v. Charles House Corp., 742 F.2d 862, 869
(5th Cir. 1984) (where court approved agreement and settlement
that a mortgagee could purchase the sole asset of a corporation
in reorganization proceedings for the unpaid balance on its
claim, res judicata barred a subsequent action arising from same
transaction, in which debtor asserted that mortgagee had acted
improperly in acquiring title to the asset); see also Lane v.
Peterson, 899 F.2d 737, 742-44 (8th Cir.) (adopting transactional
test), cert. denied, 111 S.Ct. 74 (1990); In re Energy Co-op, 814
F.2d 1226, 1230-31 (7th Cir.) (same), cert. denied, 484 U.S. 928
(1987). Under this approach, the critical issue is whether the
3 Section 1141(a) does not act as a bar to claims that arise after confirmation of the plan. See 5 Collier on Bankruptcy ¶ 1141.01[1] (15th ed. 1992). Here, the Banks allege, and the Eubankses concede, that the instant claims arose prior to confirmation of the Plan.
8 two actions were based on the "same nucleus of operative facts."
Howe, 913 F.2d at 1144-45; In re Air Crash at Dallas/Ft. Worth
Airport, 861 F.2d 814, 816 (5th Cir.1988). In this inquiry, we
look to the factual predicate of the claims asserted, not the
legal theories upon which the plaintiff relies. See Nilsen, 701
F.2d at 564 ("a judgment on the merits operates as a bar to the
later suit, even though a different legal theory of recovery is
advanced in the second suit"); see also Alexander v. Chicago Park
Dist., 773 F.2d 850, 854 (7th Cir.) ("mere change in legal theory
does not create a new cause of action" for res judicata
purposes), cert. denied, 475 U.S. 1095 (1985); In re Hoffman, 99
B.R. 929, 937 (N.D. Iowa 1989); In re Galerie des Monnaies of
Geneva, Ltd., 55 B.R. 253, 257 (Bankr. S.D.N.Y. 1985), aff'd, 62
B.R. 224 (S.D.N.Y. 1986).
We agree with the district court that the claims in the
instant case are identical. In a case quite similar to the one
at bar, the Second Circuit recently found an identity of claims
between a confirmation order and a later lender liability action
based upon conduct which allegedly contributed to the bankruptcy.
In Sure-Snap Corp. v. State Street Bank & Trust Co., 948 F.2d 869
(2d Cir. 1991), two banks agreed to finance the debtor, Sure-
Snap, and in return took a mortgage on the owner's real estate
and a security interest in the equipment. Though Sure-Snap was
not in default, the banks subsequently terminated the loan, and
Sure-Snap filed for protection under chapter 11. A disclosure
statement filed on behalf of Sure-Snap faulted one of the banks
9 for forcing it into bankruptcy. This mention of the bank's fault
was later omitted at the request of the bank. Prior to the
confirmation hearing, the debtor-in-possession initiated an
adversary proceeding against the banks, challenging the validity
of the liens on grounds that did not involve any lender
liability. The validity of the liens was upheld and the plan was
later confirmed over the banks' objections. At the time of the
confirmation hearing, no lender liability claims were alleged
against either bank, although records which were later discovered
indicated that the debtor-in-possession was well-aware of
potential claims prior to confirmation. One year after
confirmation, the debtor brought the lender liability claims in
federal district court.
The district court held that the claims were barred by res
judicata, and the court of appeals affirmed. Id. at 877. In
addressing whether the case before it presented an identity of
claims, the court referred to the adversary proceeding regarding
the validity of the liens, but found it to be of little relevance
to its res judicata analysis, noting that the narrowly drawn
adversary proceeding "was not of the scope that would have
precluded the bringing of the lender liability action." Id. at
874. Rather, the confirmed plan, and not the adversary
proceeding, was the prior determination that precluded the later
suit. Id. According to the Second Circuit, "[t]he formal
bankruptcy hearing, confirming as it did Sure-Snap's plan for
reorganization and schedule of repayment, did necessitate
10 preclusion of the lender liability action, as the claims
premising Sure-Snaps petition for reorganization, and those
alleging predatory banking practices, were integrally related."
Id. "[I]t is evident," continued the court, "that the focus of
contention and the basis for scheduling in the hearing
encompassed the entire lender-debtor relationship . . .
[including] the early calling of the loan." Id. As further
evidence of the inter-relationship of the two proceedings, the
court noted that the debtor admitted in its brief that the banks'
post-loan conduct forced the debtor into bankruptcy: "because the
lender liability claims would be misleading if alleged in a
vacuum -- devoid of the financial atmosphere which prompted Sure-
Snap to file for bankruptcy -- the tortious conduct action should
not be heard separate and apart from the original bankruptcy
proceeding." Id. at 875. The court accordingly held that the
claims were identical because, for res judicata purposes, the
same cause of action includes "'all the remedial rights of the
plaintiff against the defendant growing out of the relevant
transaction.'" Id. (citing Nilsen, 701 F.2d at 560 n.4).
We note that the loan transaction at the heart of the
instant litigation was also the source of First City's claim
against the Eubankses' estate, a claim which was uncontested and
fully allowed as one of the provisions in the Plan. As did the
debtor in Sure-Snap, the Eubankses alleged in their petition that
the foreclosure of the Project forced them into bankruptcy. See
also Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d
11 414, 419 n. 5 (3d Cir.) ("Since it is Oneida's threshold
allegation that the bank's activity in connection with the
lending agreements was the catalyst to Oneida's filing a Chapter
11 petition, we are unpersuaded by Oneida's current position that
the [former and instant] actions represent unrelated events."),
cert. denied, 488 U.S. 967 (1988). In this case, all of the
Eubankses' claims in this lender liability action are based on
the same transaction that gave rise, in part, to the terms of the
Plan, and the order confirming the Plan was based, in part, on
the transaction at the core of the instant action. Cf. Justice
Oaks II, 898 F.2d at 1551. Put another way, the Eubankses'
instant complaint, alleging various counts of lender liability,
puts into issue the same facts which would determine, inter alia,
the treatment and amount of the debt owed to First City. See In
re Hoffman, 99 B.R. at 937. Accordingly, there is an identity of
claims between the confirmation proceeding and this lender
liability suit.
Even where there is an identity of claims, the doctrine of
res judicata does not bar the second action unless the plaintiff
could or should have brought its claim in the former proceeding.
Howe, 913 F.2d at 1145; see Commissioner of Internal Revenue v.
Sunnen, 333 U.S. 591, 597 (1948) ("Under th[e] rules of claim
preclusion, the effect of a judgment extends to the litigation of
all issues relevant to the same claim between the same parties,
whether or not raised at trial."); Cromwell v. County of Sac, 94
U.S. 351, 352 (1876) (res judicata binds parties to a suit "not
12 only as to every matter which was offered and received to sustain
or defeat the claim or demand, but as to any other admissible
matter which might have been offered for that purpose"); Howe,
913 F.2d at 1145 ("The law of this circuit is well-settled that a
plan is binding upon all parties once it is confirmed and all
questions that could have been raised pertaining to such plan are
res judicata.") (emphasis in original); D-I Enterprises, Inc. v.
Commercial State Bank, 864 F.2d 36, 38 (5th Cir. 1989). As we
stated in Miller v. Meinhard-Commercial Corp., "any attempt by
the parties or those in privity with them to relitigate any of
the matters that were raised or could have been raised therein is
barred under the doctrine res judicata." 462 F.2d at 360
(emphasis added, citations omitted). It is uncontested that the
Eubankses' lender liability claims were not raised in the
confirmation proceeding. Our inquiry therefore focuses on
whether the Eubankses could or should have raised the claims in
that proceeding.
Our recent decision in Howe is instructive as to whether
claims such as those at bar could have been raised in a prior
confirmation proceeding. 913 F.2d 1138. In Howe, the creditor
bank filed a proof of claim based on two promissory notes secured
by mortgages covering the debtors' house and farm. In response,
the debtors filed adversary proceedings seeking to invalidate the
mortgages and contending that the interest charged on the loans
was usurious. Following extensive negotiations, the parties
settled their differences and ironed out a plan. Five years
13 after confirmation of the plan, the debtors brought a lender
liability action against the bank. The specific lender liability
claims filed post-confirmation were not scheduled as assets of
the estate or disclosed or treated in the plan. Instead, the
indebtedness to the creditor bank was treated in the plan as an
allowed secured claim, partially secured and partially unsecured.
Id. at 1140-41.
The bankruptcy court dismissed the lender liability claims
based on res judicata, and the district court affirmed. The
debtors appealed, arguing that there was no identity of claims
between the treatment of the bank in the plan and the lender
liability claims they currently pursued. We disagreed, and
affirmed the judgment below. Id. at 1149. Res judicata, we
noted, "bars all claims that were or could have been advanced in
support of the cause of action on the occasion of its former
adjudication, . . . not merely those that were adjudicated." Id.
at 1144 (emphasis in original) (quoting Nilsen, 701 F.2d at 560).
Applying the transactional test, we noted that the loan
transaction at the heart of the new litigation was also the
source of the bank's original claim against the estate. Id. As
evidence of whether the debtors could have brought the lender
liability claims in the earlier proceeding, we noted that the
debtors had disclosed and treated the bank in their confirmed
plan, instituted adversary proceedings contesting different
aspects of the loan transaction, and extensively negotiated
14 various aspects of the loan with the bank in formulating the
plan. Id. at 1146. Accordingly, we held that
when a confirmed plan discloses and specifically treats the creditor's claim, and the debtor has had a full opportunity to contest the creditor's claim in an adversary proceeding that is, in effect, settled in the plan, the debtor cannot collaterally attack the bankruptcy court's decision five years later in an action based on the same transaction.
Id. at 1147.
Howe differs from the instant case only by virtue of the
fact that the debtors in Howe instituted pre-confirmation
adversary proceedings against the creditor urging theories of
recovery which were related to those later pursued post-
confirmation. Here, the Eubankses did not bring any adversary
proceedings against the Banks. We were careful to note in Howe,
however, that a pre-confirmation adversary proceeding related to
the issue later pursued is not a prerequisite for the application
of res judicata:
We do not intimate that whether an adversary proceeding preceded a confirmation hearing is a litmus test for determining whether the action is barred by res judicata, nor do we intimate that whether a proceeding sought to be given res judicata effect is an adversary proceeding or a contested matter is such a litmus test. The critical question for res judicata purposes is whether the party could or should have asserted the claim in the earlier proceeding. Whether the proceeding was an adversary proceeding or contested matter, however, may be an important factor in determining if the claim could or should have been effectively litigated in the earlier proceeding. Other important factors may include the nexus between the plan and the claim being asserted and the amount of time that has elapsed since the case commenced.
913 F.2d at 1146 n. 28. In this vein, the absence of a prior,
related adversary proceeding was not fatal to the application of
15 res judicata in Sure-Snap. There, the court noted that the
adversary proceeding that was brought prior to confirmation was
not, because of its limited scope, res judicata of the later
lender liability claims. 948 F.2d at 874. Rather, it was the
confirmed plan itself (which failed to address material lender
liability claims) that precluded the later action. Id.
In the instant case, the Eubankses gave First City an
allowed claim as a provision in the Plan. It is uncontested that
the claims the Eubankses now assert against the Banks were never
listed on a schedule of assets, set forth in a disclosure
statement or, in fact, brought to the attention of the bankruptcy
court at any time. The Eubankses contend that they failed to
assert their claims or bring them to the attention of the
bankruptcy court because they were unaware of them prior to the
filing of the instant suit. We find, as did the district court,
that this profession of ignorance is simply false. The Eubankses
concede in their brief to this court that their claims against
the Banks were discovered "within a matter of days or weeks prior
to the final confirmation of the Chapter 11 plan of
reorganization." In various affidavits, the Eubankses and their
counsel admit knowing of their claims against the Banks even
earlier, indeed, by late 1989 or early 1990. In any case, it is
clear that the Eubankses knew of the claims prior to confirmation
of their plan, yet failed to bring the claims, perhaps the most
significant assets of their estate, to the attention of the
bankruptcy court or their creditors as mandated by the Bankruptcy
16 Code and Rules.4 See also Sure-Snap, 948 F.2d at 873 (owners of
debtor company had adequate information about prospective lender
liability claims prior to commencement of confirmation
proceedings, and it was therefore "clear that they could have
brought these actions in the first instance") (emphasis in
original).
The order confirming the Plan is therefore res judicata of
the instant claims. Accordingly, we agree with the district
court that the instant claims against the Banks are barred.5
III. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the
district court.
4 Certainly, the Eubankses could have alerted the bankruptcy court to the lender liability claims pursuant to 11 U.S.C. § 1127, which provides, in relevant part, as follows:
(a) The proponent of a plan may modify such plan at any time before confirmation . . . . After the proponent of a plan files a modification of such plan with the court, the plan as modified becomes the plan.
11 U.S.C. § 1127(a). 5 The Eubankses on appeal do not differentiate between First City and FNJ as regards the application of res judicata except to point out that the February 12, 1990 district court lawsuit -- filed on the eve of confirmation of the Plan and subsequently dismissed -- was only against First City. As we have seen, however, it is not the existence of the dismissed complaint that triggers the application of res judicata, but instead, the confirmation of the Plan, the absence of any reference in the Plan or related disclosure statements to claims against the Banks, and the allowance in the Plan of First City's claim. We recognize that there may be distinctions between the two Banks with regard to the predicate for the invocation of res judicata. But in the absence of any argument by the Eubankses directed to those differences, we decline to address them.