Crop-Maker Soil Services, Inc. v. Fairmount State Bank, CROP-MAKER

• Decision Date: 07 August 1989
• Docket Number: CROP-MAKER,No. 88-1931,88-1931
• Citation: 881 F.2d 436
• Parties: SOIL SERVICES, INC., Plaintiff-Appellant, v. FAIRMOUNT STATE BANK, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 436

881 F.2d 436

CROP-MAKER SOIL SERVICES, INC., Plaintiff-Appellant, v. FAIRMOUNT STATE BANK, Defendant-Appellee.

No. 88-1931.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 6, 1988.

Decided Aug. 7, 1989.

C. David Peebles, Daniel J. Skekloff, Peebles, Thompson, Rogers & Skekloff, Fort Wayne, Ind., for plaintiff-appellant.

Malcolm C. Mallette, Krieg, Devault & Alexander, Indianapolis, Ind., for defendant-appellee.

Before COFFEY, MANION and KANNE, Circuit Judges.

MANION, Circuit Judge.

Crop-Maker Soil Services, Inc., (Crop-Maker) sued Fairmount State Bank (Fairmount Bank), claiming that Fairmount Bank defrauded Crop-Maker by omission and through misleading release of information. A bankruptcy proceeding originally included both Fairmount Bank and Crop-Maker as creditors. The district court granted Fairmount Bank's motion for summary judgment on the ground that the matters raised in this action are barred by res judicata due to the earlier bankruptcy proceedings in that court. Crop-Maker on appeal maintains that the bankruptcy case concerned different legal theories and did not turn on the same core of facts as this case. We affirm.

I. THE BANKRUPTCY PROCEEDINGS

The district court originally adjudicated bankruptcy proceedings including Cecil Richard Manwell and Winifred Madge Manwell (doing business as Manwell Farms) and of Manwell Foods, Inc. In 1983 the debtors (the Manwells) applied for a loan from Fairmount Bank, to be secured by On July 2, 1984, the court entered an order amending this financing agreement and making EIPCA a participant. In anticipation of EIPCA becoming a participant, on June 26, 1984, Fairmount Bank, as secured party, filed additional financing statements with the Secretary of State and Grant County Recorder.

their 1984 crop and pack of canned tomatoes. On May 15, 1984, the court approved a secured loan from Fairmount Bank as administrator securing Fairmount Bank and other participating institutions. This May 15 order was produced by an agreement among the Manwells, Manwell Foods, Inc., Eastern Indiana Production Credit Association (EIPCA), Phoenix Mutual Life Insurance Company, and defendant. EIPCA approved this agreement, although at that point it was not intended to be a loan participant. The agreement afforded Fairmount Bank and the participating institutions a first lien on the 1984 crops and tomato pack to secure the total loan of $1,170,000. Fairmount Bank filed financing statements with the Indiana Secretary of State on May 14, 1984, and with the Grant County Recorder on May 16, 1984, showing Fairmount Bank as administrator and the Manwells as debtors.

On June 27, 1984, Crop-Maker requested the Grant County Recorder to make a formal search for UCC financing statements under the names of Manwell and Manwell Farms. The search indicated that financing statements were on file for both Fairmount Bank and EIPCA. Although Crop-Maker was on notice of the lien on the crops by Fairmount Bank and the other participating lenders, it nevertheless filed its own financing statement with respect to Manwell Foods and Manwell Farms in Grant County and later with the Secretary of State. In October 1984, District Judge Lee (who was originally adjudicating the bankruptcy proceedings which had been transferred from the bankruptcy court) granted the Manwells' petition for authority to borrow additional funds from Crop-Maker. He also authorized a security interest to Crop-Maker, subordinate to the security interest of Fairmount Bank as administrator for the participating Banks.

II. THE SPEEDLING PROCEEDINGS

In December of 1984, Speedling Inc., a supplier of tomato seedlings, sued Manwell Foods for balances due. This Speedling litigation was one of the Manwells' bankruptcy proceedings transferred to the district court. Speedling also attacked the 1984 secured lending agreement. Crop-Maker participated in hearings and related matters in the Speedling proceedings. In February 1985 Crop-Maker, the Manwells, EIPCA, Speedling, the First Bank of Whiting, and Fairmount Bank stipulated to an agreed order in the bankruptcy court under which proceeds of the 1984 pack of foods would be held in escrow until all claims to the escrow had been asserted by intervention in the adversary proceedings and had been decided. ¹

On April 8, 1985, the district court required any nonparties wishing to assert any claim or defense relating to the proceeds of tomatoes grown or processed by the Manwells in 1984 to file a motion to intervene in the Speedling proceedings. Crop-Maker had agreed to assert any claims concerning the 1984 pack and secured lending by intervening in the Speedling proceedings on or before April 26, 1985. But Crop-Maker failed to intervene at any juncture in the Speedling litigation. When the Speedling litigation was settled through withdrawal of Speedling's claims, Crop-Maker at first objected to that settlement by the trustee, but later withdrew the objection. The bankruptcy court granted Crop-Maker's withdrawal motion.

III. DISTRICT COURT PROCEEDINGS

On February 27, 1987, the Speedling proceeding was dismissed with prejudice by the district court. But Crop-Maker filed this suit against Fairmount Bank in district court on August 28, 1987. Crop-Maker's complaint alleges that during May 1984 Crop-Maker contacted Fairmount Bank regarding extension of credit for the Manwell operations. Crop-Maker alleges that it stated to Fairmount Bank its intent to obtain a first lien on the 1984 Manwell crop/pack, but that Fairmount Bank withheld the fact that it and others then were engaged in obtaining the first lien on the Manwell crops. Crop-Maker claims that this omission plus Fairmount Bank's selective release of information constituted fraud and that by the June 27, 1984, formal lien search Crop-Maker already had been damaged. Fairmount Bank moved for either dismissal or summary judgment. The prior bankruptcy litigation had proceeded before Judge Lee, the same district judge who heard the motion for summary judgment now on appeal, so he was very familiar with the record of those prior proceedings.

The district court concluded that in the Speedling proceeding Crop-Maker could have asserted the facts it now alleges to prove its priority over all secured and unsecured creditors, by demonstrating that Fairmount Bank had misled Crop-Maker to obtain unfair advantage. Judge Lee emphasized that the February 13, 1985, agreed order provided that the proceeds of the 1984 pack of foods were to be held in escrow until every claim to the escrow had been asserted via intervention in the adversary proceedings and then adjudicated. Judge Lee found that Fairmount Bank was entitled to judgment because the claim ought to have been raised in the bankruptcy proceedings. On April 13, 1988, the district court granted summary judgment to Fairmount Bank under the doctrine of res judicata.

IV. STANDARD OF REVIEW

Federal Rule of Civil Procedure 56(c) provides for summary judgment to be rendered when the pleadings, depositions, answers to interrogatories, and admissions on file plus any affidavits show no genuine material fact issue, and demonstrate the moving party is entitled to judgment as a matter of law. The primary goal of Rule 56 is isolation and disposal of factually unsupported claims or defenses. Goka v. Babbitt, 862 F.2d 646, 650 (7th Cir.1988). The motion for summary judgment is granted only if the instruments offered the court fail to show a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The simple assertion of a factual dispute cannot defeat the motion for summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). Review of a district court grant of summary judgment takes every reasonable factual inference in favor of the movant's opposing party. In re Wildman, 859 F.2d 553, 556 (7th Cir.1988).

V. ANALYSIS

Generally, the res judicata doctrine serves the interests of judicial economy and finality in disposing disputes by barring both the parties to a judgment and their privies from relitigating the identical cause of action. Durhan v. Neopolitan, 875 F.2d 91, 93-94 (7th Cir.1989). Res judicata thus precludes Crop-Maker from "splitting" its claim. Different causes of action deriving from the same incident are regarded as a single claim in recognition of the economies in combining the various theories of liability in a single suit.

Res judicata ensures the finality of decisions. Under res judicata, "a final judgment on the merits bars further claims by parties or their privies based on the same cause of action." (Citation omitted.) Res judicata prevents litigation of all grounds for, or defenses to, recovery Brown v. Felsen, 442 U.S. 127, 131, 99 S.Ct. 2205, 2209, 60 L.Ed.2d 767 (1979).

                that were previously available to the parties, regardless of whether they were asserted or determined in the prior proceeding.  (Citations omitted.)    Res judicata thus encourages reliance on judicial decisions, bars vexatious litigation, and frees the courts to resolve other disputes.
                

The preclusive effect of the federal res judicata doctrine bars not only those issues which actually were decided in a prior action but also any issues which could have been raised. Shaver v. F.W. Woolworth Co., 840 F.2d 1361, 1364 (7th Cir.1988). This court will follow the traditional doctrine of res judicata if the elements of res judicata are met. Id. at 1365. Those elements are (1) a final judgment on the merits in a prior action; (2) the identity of the cause of action in both the prior and subsequent suits; and (3) the identity of parties or privies in these suits. Id. at 1364. This is a rule of fundamental public policy, well-established in the public interests that there be an end to litigation. Id. at 1364-65.

The doctrine of res judicata applies in...