Horwitz v. Alloy Automotive Co., 92-2803
| Decision Date | 21 April 1993 |
| Docket Number | No. 92-2803,92-2803 |
| Citation | 992 F.2d 100 |
| Parties | Donald A. HORWITZ and Wesco Products Company, Plaintiffs-Appellants, v. ALLOY AUTOMOTIVE COMPANY, Sheldon Gray, and Avrum Gray, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Forrest L. Ingram (argued), John B. Kalish, John E. Gierum, Christine M. Reidy, Kalish & Colleagues, Kenneth W. Bley, Durkin, Morgan, Roberts, Barnett & Bley, Chicago, IL, for plaintiffs-appellants.
Peter Flynn (argued), Myron M. Cherry, Jeffrey M. Wagner, Cherry & Flynn, Chicago, IL, for defendants-appellees.
Before POSNER and EASTERBROOK, Circuit Judges, and TIMBERS, Senior Circuit Judge. *
Wesco Products Company fell on hard times in the late 1970s. Negotiations to infuse new capital or sell the business failed, and Wesco filed a petition under Chapter 11 of the Bankruptcy Code of 1978. During the bankruptcy Alloy Automotive Company offered to buy the business, but Wesco's creditors set terms Alloy was unwilling to accept. Eventually Alloy purchased one product line. The bankruptcy court approved this purchase. Wesco as debtor in possession, and Donald Horwitz as its manager and sole equity investor, contended that Alloy had connived with its lenders to strip away its assets and had taken over the whole business, even though it had paid for but a single product line. Wesco commenced an adversary proceeding in the bankruptcy, charging Alloy, its managers, and the bank that was Wesco's principal secured creditor, with business torts, breach of trust, and violations of the trademark laws. Horwitz commenced a separate lawsuit making the same allegations and adding a claim under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-68.
Both the Chapter 11 reorganization and the adversary proceeding languished. Wesco did not propose a plan of reorganization, and its creditors did not ask the bankruptcy judge to liquidate the firm under Chapter 7. No one filed anything in the adversary proceeding after 1982. On January 11, 1985, Bankruptcy Judge Eisen dismissed the reorganization under 11 U.S.C. § 1112(b). The order adds: "the adversary proceeding is rendered moot by the dismissal of the bankruptcy case and is therefore adjourned sine die." A case that has become moot is not adjourned, "sine die" or otherwise; it is dismissed. Although Judge Eisen may have meant to dismiss it, no such order was entered on the docket of the adversary proceeding. On August 4, 1986, Judge Eisen set a status hearing in the adversary proceeding for September 2, 1986. The order instructs counsel to appear and adds that failure to do so would result in dismissal with leave to reinstate. No one appeared on September 2. Judge Eisen entered this order the same date: "Plaintiff's complaint is dismissed for want of prosecution." Wesco did not appeal.
The separate case that Horwitz filed--this case--was proceeding in desultory fashion in the district court. Wesco joined as a plaintiff after the conclusion of the bankruptcy. Alloy eventually invoked Judge Eisen's order of September 2 as claim preclusion (res judicata), observing that under Fed.R.Civ.P. 41(b), applied to adversary proceedings by Fed.R.Bankr. 7041, an order dismissing a case for want of prosecution acts as an adjudication on the merits:
For failure of the plaintiff to prosecute or to comply with these rules or any order of court, a defendant may move for dismissal of an action or of any claim against the defendant. Unless the court in its order for dismissal otherwise specifies, a dismissal under this subdivision and any dismissal not provided for in this rule, other than a dismissal for lack of jurisdiction, for improper venue, or for failure to join a party under Rule 19, operates as an adjudication upon the merits.
See Kimmel v. Texas Commerce Bank, 817 F.2d 39 (7th Cir.1987); LeBeau v. Taco Bell, Inc., 892 F.2d 605 (7th Cir.1989). After Alloy and the Grays pleaded this order as res judicata, Wesco scurried back to the bankruptcy court, where in January 1988 it asked Judge Wedoff (Judge Eisen's successor) to vacate the order of September 2, 1986. Eventually the question came to this court. We held that Judge Eisen acted within his jurisdiction and that Wesco's delay foreclosed all other objections to his order. Wesco Products Co. v. Alloy Automotive Co., 880 F.2d 981 (7th Cir.1989). The panel did not, however, prescribe the consequences, observing: "Res judicata ... is not an inflexible principle, see C. Wright & A. Miller, Federal Practice and Procedure, § 4415 (2d ed. 1981), and Wesco is not precluded from arguing that an exception to the doctrine should apply." Id. at 985 n. 5.
Our decision in 1989 closed the books on the bankruptcy case and left the preclusion question for District Judge Bua, presiding in the remaining action. Judge Bua held that four of the plaintiffs' claims were precluded and attempted to return the case to us without entering a final decision. We dismissed plaintiffs' appeal for want of jurisdiction. Horwitz v. Alloy Automotive Co., 957 F.2d 1431 (7th Cir.1992). By then Judge Bua had resigned, and Judge Shadur had been assigned to the case. He granted judgment in defendants' favor. Wesco and Horwitz have abandoned their claims under RICO and the trademark laws, leaving only tort claims based on state law. These Judge Shadur dismissed on grounds of preclusion, deeming the issue settled by Judge Bua's order. Plaintiffs believe that preclusion is impossible because a bankruptcy judge lacks jurisdiction over state-law claims unless the parties consent to the adjudication. See Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982).
A large part of plaintiffs' brief on appeal is given over to a request that we overrule the opinion issued in 1989. That is not in the cards. The panel fully considered the issues, and no subsequent developments draw the reasoning into question. See Christianson v. Colt Industries Operating Corp., 486 U.S. 800, 815-18, 108 S.Ct. 2166, 2177-78, 100 L.Ed.2d 811 (1988). Plaintiffs' assertion that the bankruptcy judge lacked jurisdiction because of the nature of the claims in the adversary action was not passed on by the prior panel, and thus is open today, but is unsubstantial. Marathon and the 1984 legislation to which it gave rise removed from the bankruptcy court's jurisdiction some state-law claims that were independent of the reorganization. Claims "arising in" the bankruptcy proceeding are securely within the bankruptcy court's power. 28 U.S.C. § 157(a). Wesco contends that Alloy defrauded it during the negotiations leading to the sale of part of its business and the confirmation of that sale. See § 157(b)(2)(A), (N). It demanded that Alloy return to the estate the assets it had purchased. See § 157(b)(2)(E). No claims that arose prior to the commencement of the bankruptcy case are before us. Although § 157(b)(2)(O) excludes from "core" proceedings "personal injury tort or wrongful death claims", business torts cannot be shoehorned into this category. What is more, § 157(c)(2) permits litigants to consent to a bankruptcy court's decision of a non-core claim related to the bankruptcy. Wesco filed its adversary action in the bankruptcy court and never asked that court to refer the matter to a district judge. Silence does not imply consent, Home Insurance Co. v. Cooper & Cooper, Ltd., 889 F.2d 746, 750 (7th Cir.1989), but affirmatively invoking the bankruptcy court's jurisdiction most assuredly supplies whatever consent is necessary. In re Mann, 907 F.2d 923, 926 (9th Cir.1990).
Most of plaintiffs' remaining arguments are equally thin. They contend, for example, that defendants forfeited the benefit of the 1986 order by pleading "res judicata" rather than "claim splitting" as a defense. The argument is hair splitting. Claim splitting is an aspect of the law of preclusion. Lawyers often use the words "res judicata" to summon up all aspects of preclusion. E.g., Migra v. Warren City School District Board of Education, 465 U.S. 75, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984); Sutcliffe Storage & Warehouse Co. v. United States, 162 F.2d 849, 852 (1st Cir.1947); Harper Plastics, Inc. v. Amoco Chemical Corp., 657 F.2d 939, 943 (7th Cir.1981); Car Carriers, Inc. v. Ford Motor Co., 789 F.2d 589, 593-94 (7th Cir.1986). The potential for confusion engendered by the Latinate "res judicata" and "collateral estoppel" have led the American Law Institute and many other thoughtful persons to prefer "claim preclusion" and "issue preclusion," which are more descriptive. See Restatement (2d) of Judgments § 27 (1982).
Next comes the contention that Horwitz and Wesco may go on litigating against the Grays, Alloy's managers and principal investors, even if Alloy is entitled to the benefit of the 1986 order. Yet principles of preclusion apply not only to the parties to the first case (that is, to Alloy) but also to those in privity with them (the Grays). E.g., Montana v. United States, 440 U.S. 147, 99 S.Ct. 970, 59 L.Ed.2d 210 (1979); Supporters to Oppose Pollution, Inc. v. Heritage Group, 973 F.2d 1320, 1327 (7th Cir.1992). Horwitz, as Wesco's CEO and sole shareholder, is assuredly in privity with Wesco. Why, then, would the Grays not be in privity with Alloy? Plaintiffs quibble with the district court's disposition of this subject but have no real ground for doubting its propriety.
Plaintiffs lack any substantial basis to doubt the district court's impartiality. Judge Shadur informed them soon after coming to the case that Avrum Gray lived in his neighborhood and that he knew the Grays' parents socially. That does not create an actual conflict of interest, see 28 U.S.C. § 455(b), and plaintiffs did not take the steps necessary to...
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