Kaiser Aerospace & Elec. v. Teledyne Indus.

Decision Date23 March 2001
Docket NumberDocket No. 98-00540-CIV-ASG,No. 99-4230,99-4230
Citation244 F.3d 1289
Parties(11th Cir. 2001) IN RE: PIPER AIRCRAFT CORPORATION, Debtor. KAISER AEROSPACE AND ELECTRONICS CORP. and PAQ, INC., f.k.a. PIC, INC., Plaintiffs-Appellees, Cross-Appellants, v. TELEDYNE INDUSTRIES, INC., Defendant-Appellant, Cross-Appellee. D. C
CourtU.S. Court of Appeals — Eleventh Circuit

[Copyrighted Material Omitted] Appeals from the United States District Court for the Southern District of Florida

Before EDMONDSON and MARCUS, Circuit Judges, and RESTANI*, Judge.

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. 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 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 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. 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 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 (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...

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