Copeland v. Merrill Lynch & Co., Inc., 94-30179

• Citation: 47 F.3d 1415
• Decision Date: 09 March 1995
• Docket Number: No. 94-30179,94-30179
• Parties: Bankr. L. Rep. P 76,397 Alvin C. COPELAND, et al., Plaintiffs, Alvin C. Copeland, Plaintiff-Appellant, v. MERRILL LYNCH & CO., INC., et al., Defendants, Merrill Lynch & Co., Inc., Defendant-Appellee. Alvin C. COPELAND, Plaintiff, v. AMERICA'S FAVORITE CHICKEN COMPANY, et al., Defendants. Alvin C. COPELAND, Plaintiff-Appellant, v. MERRILL LYNCH & CO., INC., et al., Defendants, Merrill Lynch & Co., Inc., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 1415

47 F.3d 1415

Bankr. L. Rep. P 76,397

Alvin C. COPELAND, et al., Plaintiffs, Alvin C. Copeland, Plaintiff-Appellant, v. MERRILL LYNCH & CO., INC., et al., Defendants, Merrill Lynch & Co., Inc., Defendant-Appellee.

Alvin C. COPELAND, Plaintiff, v. AMERICA'S FAVORITE CHICKEN COMPANY, et al., Defendants.

Alvin C. COPELAND, Plaintiff-Appellant, v. MERRILL LYNCH & CO., INC., et al., Defendants, Merrill Lynch & Co., Inc., Defendant-Appellee.

No. 94-30179.

United States Court of Appeals Fifth Circuit.

March 9, 1995.

Donald J. Miester, Jr., Benj. R. Slater, III, Mark E. Van Horn, Kevin M. Wheeler, New Orleans, LA, for appellant.

William R. Forrester, Jr., Lemle & Kelleher, New Orleans, LA, George J. Wade, Shearman & Sterling, New York, NY, N. Lee Cooper, James L. Goyer, III, Tony G. Miller, Maynard, Cooper, Frierson & Gale, P.C., Birmingham, AL, for appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before REYNALDO G. GARZA, DeMOSS and BENAVIDES, Circuit Judges.

DeMOSS, Circuit Judge:

In 1989, Alvin C. Copeland (Copeland), founder and franchisor of Popeye's Famous Fried Chicken decided to acquire competitor Church's Fried Chicken. After an acquisition and merger, the emerging company, Al Copeland Enterprises, Inc. (ACE), was the obligor on loans in the amount of $173 million from Merrill Lynch and $300 million from Canadian Imperial Bank of Commerce, Inc. (CIBC). Financial difficulties ensued, and ACE defaulted on the obligations. In April 1991, ACE entered Chapter 11 bankruptcy in the bankruptcy court for the Western District

                of Texas.  Copeland, individually, brought the instant breach of contract action as an adversary proceeding in the ACE bankruptcy, claiming that Merrill Lynch and CIBC failed to perform under an agreement to submit a joint plan for ACE's reorganization to the bankruptcy court.  After traveling through the tangled web of proceedings detailed below, the case landed in the Eastern District of Louisiana.  That court granted summary judgment in favor of Merrill Lynch on Copeland's breach of contract claim, finding that no binding agreement had ever been reached by the parties, and Copeland appealed. 1  After a thorough review of the record, we conclude that there was no genuine fact issue and therefore affirm the district court's holding that no agreement was ever reached, 165 B.R. 417
                

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY ACE's DIP Financing Motion

While the ACE bankruptcy was pending, Copeland, Merrill Lynch, ACE, CIBC and the creditors committee tried to obtain a consensus on a reorganization plan. As a condition to any agreement, CIBC demanded that ACE bring current pre- and post-petition interest on the defaulted debt. In July 1991, ACE moved for authority to arrange a debtor-in-possession financing facility (the DIP financing) to bring the interest arrears current. After objections to the DIP financing were raised by Merrill Lynch, the Church's Independent Franchises Association and the State of Texas, the parties feverishly negotiated amongst themselves to satisfy the various objectors and come up with a framework for a reorganization plan that would persuade the court to authorize the DIP financing.

On July 31, 1991, the bankruptcy court held a hearing on ACE's motion for DIP financing. Disagreement about what occurred in that hearing forms the basis of this lawsuit. Copeland claims that the parties entered into a binding agreement in this hearing to submit a joint plan of reorganization according to the terms announced in the hearing (the July 31 Agreement). Merrill Lynch claims that the only event of legal significance that occurred in the hearing was that the court approved the DIP financing. Under the plan discussed in the hearing, Copeland individually was to receive substantial cash and other assets (in excess of $30 million) for entering into four agreements with ACE: (1) a non-compete agreement; (2) a new supply agreement; (3) a settlement agreement; and (4) a formula and recipe agreement (the Copeland Agreements). Copeland sued for breach of the alleged July 31 agreement in general and for breach of the Copeland Agreements in particular.

At the conclusion of the hearing, the bankruptcy court granted the requested approval for DIP financing, stressing the importance of the fact that there was "the potential of seeing a consensual plan of reorganization." Needless to say, the plan alluded to in the July 31 hearing was never submitted to the court. After due diligence and further negotiation, the parties were unable to reach a final consensus concerning material terms of the reorganization plan, including the Copeland Agreements.

Competing Plans for Reorganization and the Genesis of this Suit

In April 1992, CIBC submitted its own plan for reorganizing ACE. Copeland objected to the CIBC plan because it did not include certain favorable provisions of the Copeland Agreements. After submission of both the CIBC and Copeland plans to creditor vote the CIBC plan was adopted, over Copeland's objection. Copeland responded in May 1992 by filing this action against Merrill Lynch and CIBC, as an adversary proceeding in the bankruptcy court. Count I of Copeland's complaint requested specific performance by confirmation of the reorganization plan allegedly agreed to in the July 31 hearing. Count II sought money damages for breach of the July 31 agreement.

In October 1992, after a six-day hearing, the CIBC plan was confirmed by the bankruptcy

                court.  One term of the CIBC plan compromised any claims ACE, the debtor, had against Merrill Lynch and CIBC, one of which was the potential claim for breach of the July 31 agreement. 2  To determine whether compromise was in the best interests of the estate, the bankruptcy court had to inquire whether ACE had a viable breach of contract claim and whether the potential recovery would return more to the estate than the plan being confirmed.  The bankruptcy court decided that, although the debtor ACE and Copeland individually may have had a claim against Merrill Lynch for not proceeding with the alleged July 31 Agreement, the proposed CIBC plan was more beneficial for the estate and the creditors.  Accordingly, the CIBC plan was confirmed
                

Bankruptcy Court's Continuing Jurisdiction over Copeland's Breach of Contract Claim Following Confirmation of CIBC Plan

Following confirmation of the CIBC plan, the bankruptcy court raised sua sponte the issue of whether it had continuing jurisdiction over Copeland's individual claim for breach of the alleged July 31 Agreement. After argument of counsel, the bankruptcy court issued its Memorandum Opinion on Jurisdiction. The Memorandum Opinion concluded that the bankruptcy court either did not have or would decline to exercise continuing jurisdiction over Copeland's individual contract claim. In core proceedings under title 11 or arising in a case under title 11, the bankruptcy court can enter final orders and judgments. 28 U.S.C. Sec. 157(b)(1). Bankruptcy judges may also hear non-core proceedings which are related to the bankruptcy proceeding. 28 U.S.C. Sec. 157(c)(1). In those cases, the bankruptcy court can recommend findings of fact and conclusions of law to the district court, but cannot enter final orders or judgment. 28 U.S.C. Sec. 157(c)(1). Copeland's request for specific performance, the bankruptcy court held, was a core claim that was mooted by the court's confirmation of the CIBC reorganization plan. Copeland's damage claim, the court held, was a non-core claim which could no longer have any conceivable effect on the bankruptcy estate because many of the material issues, including the existence and breach of the alleged July 31 Agreement by Merrill Lynch, had already been litigated in the confirmation hearings. See In re Wood, 825 F.2d 90, 93 (5th Cir.1987) (adopting the "conceivable effect on the estate" test for non-core jurisdiction).

Despite the bankruptcy court's conclusion that it did not have jurisdiction, the Memorandum Opinion reiterated the confirmation hearing findings that Merrill Lynch, but not CIBC, had breached an obligation to submit the joint reorganization plan announced in the July 31 hearing. Relying on its asserted adjudication and release of Merrill Lynch's liability to ACE, the bankruptcy court concluded that Merrill Lynch would be precluded from litigating its liability to Copeland individually. Thus, the only remaining issue was the quantum of damages, regardless of where the matter was tried. Since the outcome of the damage determination could have no effect on the bankruptcy estate, the bankruptcy court decided that, even if its conclusion that it lacked jurisdiction was incorrect, it would decline to exercise jurisdiction over Copeland's non-core claim and would transfer the case instead. On appeal, Copeland claims that the bankruptcy court's findings, in the confirmation hearing and the Memorandum Opinion, prohibit Merrill Lynch from litigating either the existence or the breach of the July 31 Agreement.

Proceedings in the Western District of Texas

Merrill Lynch filed objections to the Memorandum Opinion pursuant to Bankruptcy Rule 9033, which the bankruptcy court denied. ³ Shortly thereafter the bankruptcy

court issued an order transferring the case to the Eastern District of Louisiana, as requested by Copeland. Merrill Lynch moved for leave to appeal the order denying its objections and moved to stay transfer of the case pending appeal. On Merrill Lynch's appeal to the Western District of Texas, the district court found that the bankruptcy court had jurisdiction, not only over the specific performance request (core proceeding), but also over the damages claim (a non-core proceeding). The Western District therefore concluded that the case was properly transferred and declined to consider the substantive merits of Merrill Lynch's objections, stating that the arguments could be raised before the...