Kaiser Aerospace v. Teledyne Ind.

244 F.3d 1289

• Court: Court of Appeals for the Eleventh Circuit
• Decided: March 23, 2001
• Docket: 99-4230
• Status: Published

Opinion

[PUBLISH] \ IN THE UNITED STATES COURT OF APPEALS FILED FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS ________________________ ELEVENTH CIRCUIT MAR 23 2001 THOMAS K. KAHN No. 99-4230 CLERK ________________________ D. C. Docket No. 98-00540-CIV-ASG

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. ________________________

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. MARCUS, Circuit Judge:

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.

2 Accordingly, we affirm the district court insofar as it permitted Kaiser’s damages

claim to proceed in state court, but reverse the district court insofar as it enjoined

Kaiser’s constructive trust claim from going forward.

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

3 remaining 35%. Pursuant to the Kaiser/Teledyne plan, PIC would purchase Piper’s

assets for $32 million in cash and a $20 million junior secured note, and would

assume certain liabilities as well. In exchange, Teledyne would voluntarily

subordinate its claims against Piper’s estate.

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

4 Creditors’ Committee and Piper, and to avoid further objections from other

creditors, demanded that Teledyne accept a reduced interest in the new entity.

According to Teledyne, when it declined Kaiser’s modifications, Kaiser refused to

attend a critical meeting with Piper and the Creditors’ Committee to negotiate a

workable consensual plan, and virtually abandoned the deal outlined in the

Cooperation Agreement. By contrast, Kaiser contends that Teledyne demanded a

substantially larger share of the new entity for no additional consideration. When

Kaiser insisted that Teledyne honor its obligations under the Cooperation

Agreement, Teledyne unilaterally terminated the Agreement and substituted

DS&P, which was willing to accept a lesser share of the new entity, as a

co-proponent of what eventually resulted in the confirmed plan. These allegations

are at the core of Kaiser’s state court action.

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.

5 Under the Teledyne/DS&P plan, DS&P would hold 48% of the shares of New

Piper, while the Trust and Teledyne would each hold 24%. Kaiser would not hold

any ownership interest.

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

6 for breach of the Cooperation Agreement and for breach of fiduciary duty (the

“damages claim”). Kaiser alleged that Teledyne breached its express obligations

under the Cooperation Agreement by, among other things, “disclaiming and

abandoning its obligation to cooperate with plaintiffs to enable PIC to acquire the

assets of Piper,” “withdrawing from and otherwise ceasing to act as a proponent of

the [Kaiser/Teledyne plan] without the express consent of Kaiser and PIC,” and

“unilaterally terminating the Cooperation Agreement without the mutual consent of

the Parties notwithstanding the absence of any breach [by] Kaiser or PIC of any

obligations on their part.” Kaiser further alleged that Teledyne “violated implied

obligations arising under” the Cooperation Agreement, by “us[ing] a knowingly

erroneous excuse to try to justify its abandonment of a binding contractual

obligation, its leap to schedule furtive meetings with DS&P to better its own

position [and] its purported continued negotiation on behalf of [Kaiser and PIC]

when it had already contacted DS&P to bring them into the deal.”

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

7 (the “constructive trust claim”).1 Kaiser does not ask the state court to unwind the

bankruptcy’s court approval of the plan awarding ownership of New Piper to

Teledyne and DS&P, or to alter any of the bankruptcy court’s rulings. The

practical effect of granting the constructive trust, however, would be to give Kaiser

an ownership stake in New Piper, even though the bankruptcy court never

considered that possibility one way or another.

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

1 The amended complaint sought additional relief against DS&P for its alleged participation in Teledyne’s fiduciary breach and for tortious interference with an advantageous business arrangement. DS&P and PIC were also named as defendants on the constructive trust claim. 8 the parties and to enjoin Kaiser from interfering with the distributions and interests

provided by the confirmed Teledyne/DS&P plan. The basis for this relief was res

judicata. Around that time Teledyne also interposed a res judicata defense in the

state court action, but did not pursue it, opting instead to seek injunctive relief from

the bankruptcy court.

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

9 was filed in state court), the damages claim was not barred by the confirmation

order and could proceed in state court.

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.”

10 On the other hand, the district court also ruled that Kaiser’s constructive

trust claim was a “core proceeding” that arose out of a common nucleus of

operative fact with the Chapter 11 case and thus should have been pursued in that

case. Accordingly, the district court, like the bankruptcy court, enjoined Kaiser

from pursuing its constructive trust claim while allowing the damages claim to go

forward in state court. These cross-appeals followed.

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

2 The bankruptcy court in its summary judgment decision made numerous statements about how Kaiser’s lawsuit might have affected its handling of the Teledyne/DS&P plan. Teledyne insists that we must defer to those “findings.” Few if any of those “findings” warrant deference, however. Many do not resolve purely factual issues, but rather go to mixed questions of law and fact that we review de novo. See In re Marks, 131 B.R. 220, 222 (S.D. Fla. 1991), aff’d, 976 F.2d 743 (11th Cir. 1992). Other “findings” are not the product of the bankruptcy court’s evaluation 11 III.

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

of conflicting live testimony or even conflicting documents, but rather the judge’s own subjective reflections about information that he felt he would have deemed material to the confirmation process several years earlier -- reflections that in critical instances contradict the historical record. For these reasons, the key issues in this appeal cannot be resolved merely by deferring to the bankruptcy court’s post hoc “findings.” In any event, even if some deference were required, that would not alter our conclusion that res judicata is inapplicable here. 12 particular circumstances of this case, that the applicability of res judicata does not

turn on the nature of a party’s alternative legal theories. It is undisputed by

Teledyne that if Kaiser is entitled to pursue its damages claim (as the courts below

found), then Kaiser also is entitled to pursue its constructive trust claim.

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, 101 S. Ct. 411, 414 (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

13 F.2d at 1552 (bankruptcy court’s order of confirmation “‘is an absolute bar to the

subsequent action or suit between the same parties . . . in respect of every matter

which was actually offered and received to sustain the demand, but also as to every

[claim] which might have been presented’”) (citation omitted).3 If even one of

these elements is missing, res judicata is inapplicable. See Hart v. Yamaha-Parts

Distrib., Inc., 787 F.2d 1468, 1473 (11th Cir. 1986). At all times the burden is on

the party asserting res judicata (here, Teledyne) to show that the later-filed suit is

3 Kaiser asserts that, even assuming the elements of res judicata exist here, the doctrine is inapplicable to its state court action because that action was filed prior to the bankruptcy court entering its confirmation order. Thus, says Kaiser, the final judgment in the Chapter 11 case cannot serve as res judicata with regard to its suit against Teledyne. In support of this argument, Kaiser relies on the prior pending proceeding exception to the compulsory counterclaim rule, codified in Fed. R. Civ. P. 13(a) and its Bankruptcy Rules equivalent (Fed. R. Bankr. P. 7013(a)). But Kaiser cites no case law applying a pending proceeding exception to res judicata doctrine, and we are not persuaded that we should recognize such an exception here. Indeed, even looking solely at the language of Rule 13(a), Kaiser’s argument fails. The rule provides that “[a] pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim . . . . But the pleader need not state the claim if (1) at the time the action was commenced the claim was the subject of another pending action, . . . .” Fed. R. Civ. P. 13(a). Rule 13(a) literally requires that the otherwise precluded claim be pending before the other action was commenced, not merely before the judgment in that action was rendered. Piper’s Chapter 11 case began in 1991, four years before Kaiser filed suit. Moreover, recognizing a prior pending proceeding exception in this case would not advance the limited policy purpose of that exception as it is applied to compulsory counterclaims. 14 barred. See, e.g., Thorsteinsson v. M/V Drangur, 891 F.2d 1547, 1551 (11th Cir.

1990).

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

15 really the same ‘claim’ or ‘cause of action’ for purposes of res judicata.” Ragsdale

v. Rubbermaid, Inc., 193 F.3d 1235, 1239 (11th Cir. 1999) (internal citation and

quotation marks omitted).

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

16 fiduciary duty to Kaiser, and neither party introduced any evidence regarding those

alleged breaches, or the facts relating to the breakdown of the Kaiser-Teledyne

relationship. The bankruptcy court made no finding or engaged in any express

inquiry at the time of confirmation as to facts regarding the relative ownership

interests or capital structure of New Piper. No evidence was proffered or admitted

regarding the creditworthiness or business acumen of New Piper’s shareholders,

and no one proposed or considered any limitation that would have prevented others

from obtaining some or all of their shares. It is uncontested that the plan,

disclosure statements, confirmation hearing transcript, and the confirmation order

are completely devoid of any reference to the percentage ownership of stock to be

owned by Teledyne as opposed to Kaiser, and the import, if any, of Teledyne’s role

as owner of New Piper or the absence of Kaiser as an owner. There is simply no

indication in the record that the facts put at issue by Kaiser’s state court suit were

raised or litigated before the bankruptcy court; indeed, both parties for their own

strategic reasons purposefully avoided raising those facts during the Chapter 11

case.

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

17 maintains, however, that the facts underlying Kaiser’s state court suit were so

implicated by the Chapter 11 proceeding that we should consider the two actions as

arising out of a common nucleus of fact even though the relevant facts were never

actually raised. Teledyne’s position, as we see it, has two dimensions. It contends

that “but for” the filing of the Chapter 11 case the facts underlying Kaiser’s claims

would never have emerged. It also contends that the ownership and capital

structure of New Piper was necessarily a subject considered by the bankruptcy

court in the process of confirming the Teledyne/DS&P plan. Neither of these

arguments is persuasive.

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

18 Chapter 11 proceeding ultimately spawned Kaiser’s suit against Teledyne, that suit

arises out of a common nucleus of operative fact.

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

19 but not regarding “new rights acquired; pending the action which might have been,

but which were not, required to be litigated.” Id. (internal quotations omitted).

[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

20 decisions, which had not occurred when the first complaint was filed. In so ruling,

we first reiterated that “[r]es judicata acts as a bar ‘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.’ A court, therefore, must

examine the factual issues that must be resolved in the second suit and compare

them with the issues explored in the first case.” Id. at 1357-58 (citations omitted).

We then emphasized 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 by supplemental pleadings or otherwise in the earlier action.” Id.

(emphasis added) (quoting Manning, 953 F.2d at 1360). Even more recently, in

Ragsdale, we applied the principle set forth in Manning, although we ultimately

found that the plaintiff’s claim in the later suit was barred because the events

giving rise to it occurred before the first suit was brought. See 193 F.3d at 1240

(quoting Manning, 953 F.2d at 1360).

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

21 principle in unequivocal terms, we recognize that different res judicata

considerations may come into play when the first case is a bankruptcy proceeding;

the evolving scope of a bankruptcy proceeding means that in some limited

instances the bankruptcy process itself will generate and then squarely resolve the

identical facts that underlie the later-filed case. That is plainly not what we have

here, however, and decisions such as Manning underscore just how difficult it is to

square Teledyne’s “but for” argument, and indeed its entire res judicata theory,

with our precedent.

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

22 structure of New Piper. But the first premise -- that the key facts underlying the

state court action were necessarily put at issue by the confirmation process -- is

unpersuasive.

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 11 U.S.C.

§ 1129(a), sets forth the criteria that a court must consider in deciding whether to

confirm a plan. Facts relating to these criteria are the only facts that necessarily are

put at issue by the confirmation process.4

4 Section 1129 (“Confirmation of plan”) states in pertinent part as follows:

(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. 23 The facts underlying Kaiser’s action against Teledyne do not squarely

underlie any of these criteria (which likely explains why the bankruptcy court did

not explore them).5 The bankruptcy court, in confirming the Teledyne/DS&P plan,

was not determining the proper ownership composition of New Piper either at the

time of confirmation or for the future, but rather was primarily determining

whether the plan, as presented, met the literal requirements and policy objectives of

the Bankruptcy Code by maximizing the value of Piper’s estate for the benefit of

(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. . . .

11 U.S.C. § 1129. A court must independently satisfy itself that these criteria are met. Thus, it must consider facts relating to these criteria even in the absence of an objection. It is for this reason that merely establishing that the bankruptcy court did not actually make any findings regarding the ownership or capital structure of New Piper does not completely end the analysis -- we look at the facts that by law were necessarily implicated by the confirmation process. 5 Although Teledyne asserts that the ownership of the “reorganized debtor” is always an issue in a Chapter 11 confirmation proceeding, here the debtor (Piper) was not, technically speaking, reorganized; rather, its assets were sold to an entirely new entity (New Piper). 24 Piper’s creditors. The facts put at issue by Kaiser’s complaint do not involve those

issues.

The only factor of § 1129 arguably implicating the same core of facts as

Kaiser’s state court suit is contained in § 1129(a)(3), which requires the bankruptcy

court to find that “the plan has been proposed in good faith and not by any means

forbidden by law.” Teledyne argues that determining whether a plan has been

proposed in good faith necessarily requires consideration of all facts relating to the

conduct of the plan proponent. Our case law, however, does not define the inquiry

quite so broadly. See McCormick v. Banc One Leasing Corp., 49 F.3d 1524, 1526

(11th Cir. 1995) (“Where the plan is proposed with the legitimate and honest

purpose to reorganize and has a reasonable hope of success, the good faith

requirements of section 1129(a)(3) are satisfied. The focus of the court’s inquiry is

the plan itself, and courts must look to the totality of the circumstances

surrounding the plan.” (citations omitted) (emphasis added)).6 This inquiry by

definition has little to do with a prior business dispute between two potential third-

party bidders. A court certainly could have found that the Teledyne/DS&P plan

6 The additional cases cited by Teledyne on this point do not establish that a court addressing § 1129(a)(3) necessarily must consider the kind of facts underpinning Kaiser’s state court action. Rather, these cases -- like McCormick -- simply explain that the court must focus on the totality of the circumstances relevant to the plan proponent’s good faith in submitting the plan. 25 was “proposed with the legitimate and honest purpose to reorganize” Piper without

delving into facts surrounding Teledyne’s alleged breach of the Cooperation

Agreement or its fiduciary duties to Kaiser.7

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 11 U.S.C. § 1129(a)(11). Teledyne relies heavily on the bankruptcy

court’s post hoc “finding” that facts underlying the state court action would have

impacted its assessment of the likely success of the plan. The bankruptcy court

observed that “[t]he capital structure, ownership and viability of New Piper was a

material part of the plan considered by the parties and the Court,” and that

Teledyne’s rights to and ownership percentage in New Piper “are the very matters

that were determinated and at stake in the confirmation hearing.” The court also

found that New Piper’s ability to fund the trust that would be used to pay off

creditors “is a function of New Piper’s success and profitability and it is no great

stretch to, in turn, say that a function of the skills and business acumen of

7 Teledyne makes one other argument under § 1129(a)(3). It asserts, without persuasive support, that the statute’s requirement that the bankruptcy court consider whether the plan was proposed “not by any means forbidden by law” necessarily made the facts underpinning Kaiser’s suit part of the facts underlying the confirmation process. The statutory language refers to the manner by which the plan at issue is proposed to the court and interested parties, not the manner by which one of the plan proponents went about creating the plan. 26 management and owners.” But there is no indication that the bankruptcy court was

required to make (let alone actually made) any inquiry into the “skills and business

acumen of [New Piper’s] owners” such that it would necessarily have considered

collateral facts relating to Teledyne’s inclusion of DS&P rather than Kaiser in its

plan. New Piper was to continue with existing Piper management under either the

Kaiser/Teledyne plan or the Teledyne/DS&P plan.

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

27 defined for purposes of res judicata is not simply one of whether the two claims are

related to or may materially impact one another. The underlying core of facts must

be the same in both proceedings. Quite simply:

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 § 1129 analysis. We cannot infer,

on this record, that the bankruptcy court considered the kinds of facts raised by

Kaiser’s state court suit, and therefore cannot hold that the confirmation process

involved the “same cause of action.”

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

28 a collateral attack on confirmation of the Teledyne/DS&P plan, or threatens so

substantially the purposes for which that plan was proposed and adopted, why did

Teledyne never advise the bankruptcy court of the existence of the suit until long

after the confirmation process was complete? Kaiser’s suit, as noted above, was

filed before the Teledyne/DS&P plan was even submitted to the bankruptcy court.

Yet Teledyne chose not to inform the bankruptcy court about that suit, and chose

not to delve into the facts put at issue by Kaiser’s breach of contract and breach of

fiduciary duty claims. Indeed, if the suit was truly meant to accomplish what

Teledyne now says it was meant to accomplish (to “undo and undermine the entire

Reorganization Plan”), then surely Teledyne would have been under an obligation

to disclose the existence of the suit to the court and creditors prior to confirmation

(either at the hearing or by amending its disclosure statement). It is not unfair to

infer from Teledyne’s conduct that Kaiser’s suit, and the facts underlying it, were

not quite so integral to the confirmation process as Teledyne now suggests.

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

29 factual premise of the present suit differs quite significantly from the prior one”);

Manning, 953 F.2d at 1359 (res judicata inapplicable where the second suit “d[oes]

not involve the same factual situation” (internal quotation marks and brackets

omitted)). Here, the connection between the core facts of the state court suit --

relating to the contractual and fiduciary terms governing the Kaiser/Teledyne

relationship and the breakdown of that relationship -- and the core facts of the

confirmation process -- relating to the discharge of Piper’s debts, the disposition of

its assets, and the distribution of proceeds to its creditors -- is simply too attenuated

to justify res judicata. This is especially true because the key facts underlying

Kaiser’s suit did not even exist at the time of the Chapter 11 filing and were never

actually raised by the parties or discussed by the bankruptcy court during the

Chapter 11 case. Teledyne simply cannot meet the “same cause of action”

prerequisite to applying res judicata.8

8 Teledyne’s extensive reliance on the former Fifth Circuit’s decision in Miller v. Meinhard-Commercial Corp., 462 F.2d 358 (5th Cir. 1972), is misplaced. In Miller, the court upheld the dismissal of a lawsuit by a creditor who alleged that the debtor fraudulently induced him to acquiesce in allowing the debtor to proceed under Chapter 11 rather than Chapter 10. The creditor asserted that his suit did not implicate the bankruptcy court’s order confirming the debtor’s Chapter 11 plan because the cause of action asserted, fraud, had nothing to do with the arrangement proceeding, the bankrupt, or the estate. The court disagreed, observing that “[t]he suit is no more than a collateral attack upon the referee’s order confirming the plan of arrangement; the integrity of the judgment is challenged. . . . Through his fraud action, Miller is indirectly asserting that the Chapter XI proceeding should never have been approved 30 C.

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

and that a Chapter X procedure should have been decreed instead.” Id. at 360 (citations omitted). There are important distinctions between this case and Miller. The facts underpinning Miller’s suit were much closer to those implicated by the bankruptcy proceeding and specifically the bankruptcy court’s finding that the case was properly filed under Chapter 11. Here, as noted above, the facts underpinning Kaiser’s state court action are quite far removed from those necessarily implicated by the confirmation process. In addition, Kaiser’s suit cannot accurately be described as a “no more than a collateral attack” upon the confirmation order, because at least the damages portion of Kaiser’s suit was filed before the Teledyne/DS&P plan was even submitted to the bankruptcy court.

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.

31 constructive trust claim could have been litigated in the bankruptcy case. In

particular, Kaiser contends that it had no adequate procedural mechanism by which

to assert its state court claims in the bankruptcy case.9 Teledyne fails to show that

such a procedural vehicle exists.

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 § 1129(a). We find that

argument persuasive, as discussed above, but there is an even greater problem.

Merely objecting to the Teledyne/DS&P plan would not have been the equivalent

of pursuing the claims Kaiser asserts in state court. If Kaiser had succeeded in

9 Kaiser also asserts that the bankruptcy court would not have had jurisdiction over its claims. Teledyne disputes that argument, which we find unnecessary to address given the other grounds for rejecting res judicata here. Notably, the parties do agree that the district court’s analysis of whether Kaiser’s claims were within the bankruptcy court’s “core” jurisdiction asked the wrong question: whether an issue is “core” relates to how jurisdiction is exercised (i.e., whether the bankruptcy court is limited to making findings and conclusions for the district court and opposed to ruling outright, see 28 U.S.C. § 157(c)(1)), rather than whether jurisdiction exists. 10 Teledyne does not, and cannot, argue that Kaiser could have pursued its state court claims in identical form as part of the Chapter 11 case. Rather, Teledyne’s point is that Kaiser could have obtained equivalent relief by channeling its claims and allegations into an attack on the Teledyne/DS&P plan. 32 objecting to the plan (even assuming that it had standing to object and could have

done so merely on the strength of its breach of contract and breach of fiduciary

duty allegations), it would not thereby have received any equitable ownership

rights in New Piper or any money from Teledyne.11 Rather, the plan would have

been defeated, a form of relief Kaiser does not seek in the state court suit. While

defeat of the plan might have rendered unnecessary any claim of entitlement to

shares in New Piper, it would not necessarily have resolved Kaiser’s claims for

damages -- including potential consequential and punitive damages -- based on

Teledyne’s alleged breaches. More to the point, it plainly would not have

guaranteed Kaiser ownership of a piece of the reorganized entity eventually

11 We think it far from clear that Kaiser constituted a party in interest with standing to object to the Teledyne/DS&P plan. Under the Bankruptcy Code, only a “party in interest” may appear in a bankruptcy proceeding and be heard on an issue such as confirmation of a plan. 11 U.S.C. § 1109(b). “Party in interest” is defined non-exclusively to include “the debtor, the trustee, a creditor’s committee, an equity security holder’s committee, a creditor, an equity security holder, or any indenture trustee.” Id. Kaiser argues that it was not a party in interest because it was not among the groups of interested parties specifically identified in § 1109(b) and at best was akin to an unsuccessful bidder at a sale of bankruptcy estate assets. See In re O’Brien Envtl. Energy Inc., 181 F.3d 527, 531 (3d Cir. 1999) (“disappointed prospective purchasers” of estate assets at a trustee sale lacked party-in-interest standing). Kaiser also observes that it did not participate in the confirmation proceeding regarding the Teledyne/DS&P plan, and that it had no right to submit unilaterally an alternative plan of reorganization in opposition to the plan eventually put forward by Teledyne and DS&P. Compare Justice Oaks, 898 F.2d at 1551 (“One who participates in a Chapter 11 plan confirmation proceeding becomes a party to that proceeding even if never formally named as such.”) (emphasis added). 33 emerging from the bankruptcy case (something its constructive trust claim would

accomplish if successful today). We are unconvinced that Kaiser’s possible right

to object to the plan provided an adequate vehicle to assert fully the claims it raises

in the state court action.

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.

34 To reiterate, what Kaiser seeks in the state court suit is not the defeat of the

Teledyne/DP&S plan, but rather ownership rights in the post-reorganization entity,

or damages equal to the profits and benefits that it would receive if it had such

ownership rights. We are unaware of any lawful basis upon which Kaiser could

have brought, let alone win, an adversary proceeding before the bankruptcy court

not only to block the Teledyne/DP&S plan, but also to have the court adopt an

alternative plan giving it an ownership interest in a post-reorganization entity over

the undoubted opposition of the debtor, Teledyne, and all other proponents of the

Teledyne/DP&S plan. We cannot even see how Kaiser could have brought an

adversary proceeding to force adoption of an alternative plan; among other

obstacles, Kaiser did not have statutory standing to submit a reorganization plan of

its own, and even if it did it could not have submitted a plan because it was not

among the parties granted exclusivity.

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

12 Teledyne cites post hoc “findings” by the bankruptcy judge that he would have addressed Kaiser’s concerns if they had been raised. We are unpersuaded, however, that the bankruptcy court had any proper basis for doing so. Moreover, res judicata did not require Kaiser to raise its concerns based merely on speculation that the bankruptcy court might somehow have fashioned a way to address them. 35 full relief sought in its state court suit. Teledyne’s efforts to show otherwise are

not only incomplete, but they also require too many highly questionable

assumptions at odds with the plain language of the Code and Kaiser’s third-party,

non-creditor status in the Chapter 11 case.

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

36 emphasis on its perceptions of fairness and equity do not alter the res judicata

analysis mandated by our precedent.

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.