In re Associated Vintage Group, Inc.
| Decision Date | 13 September 2002 |
| Docket Number | BAP No. NC-01-1418-KRyB.,Bankruptcy No. 99-13853-AJ-11. |
| Citation | 283 B.R. 549 |
| Parties | In re ASSOCIATED VINTAGE GROUP, INC., Debtor. The Alary Corporation, Appellant, v. Charles E. Sims, disbursing agent for the estate of Associated Vintage Group, Inc., Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Douglas B. Provencher, Provencher & Flatt LLP, Santa Rosa, CA, for The Alary Corporation.
Steven M. Olsen, Geary, Shea, O'Donnell & Grattan, Santa Rosa, CA, for Charles Sims, Disbursing Agent for the Estate of Associated Vintage Group, Inc.
Before KLEIN, RYAN and BRANDT, Bankruptcy Judges.
The question is whether confirmation of a chapter 11 liquidating plan terminated the ability to recover an avoidable preference from a creditor. The analysis implicates principles of res judicata and of equitable or judicial estoppel. The answer depends on the terms of the plan and the dynamics of the process of confirming it.
Appellant argued that the doctrine of claim preclusion based on the confirmation of the debtor's liquidating plan prevented the plan's disbursing agent from objecting to the secured status of appellant's claim as having been based on a preference. The bankruptcy court reclassified the claim as unsecured, reasoning that neither claim preclusion nor estoppel doctrines precluded the challenge since the confirmed plan reserved all claim objections and avoiding actions, did not definitely determine that appellant's claim was secured, and was not confirmed in circumstances in which a creditor was induced to accept the plan on the implied representation that the preference would not be attacked post-confirmation. We AFFIRM.
Debtor, Associated Vintage Group, Inc. ("AVG") filed its chapter 11 case on December 27, 1999.
Appellant, The Alary Corporation, dba Westec Tank Company ("Alary"), filed a proof of claim for $408,794.67, asserting secured status based on a security interest that had been granted within ninety days of bankruptcy on account of an existing debt.
AVG's chapter 11 plan called for an orderly liquidation by a disbursing agent who would have all powers of a chapter 11 trustee to pursue all rights extant as of confirmation that would yield a recovery or benefit for the estate and to "investigate, examine and dispute, by objection or other legal process, any claim or assessment against the AVG estate or its property." AVG Plan ("Plan"), art. V-C-2-a & b (emphasis supplied).
The plan called for the disbursing agent to pay only claims that meet the Bankruptcy Code definition of "Allowed Claim" and defined "Allowed Claim" to exclude claims "subject to disallowance pursuant to § 502(d) of the Code." Plan, art. I.
The plan also reserved, for the benefit of persons entitled to distributions under the plan, all "claims, defenses, powers and interests" of the debtor "for the purposes of objecting to the allowance of claims" and "avoiding transfers of property or interests in property." Plan, art. VII.
To the extent Alary was secured, it was in Class 2-B: "any and all Allowed Claims secured by valid and unavoidable security interests in, and valid and unavoidable liens upon, specific property of AVG and not otherwise classified in Class 2-A and is not impaired." Plan, art. II-B-2.
Finally, the plan named Alary as an entity that could be pursued by the disbursing agent. Plan, art. VIII.
The order confirming the plan, among other things, appointed appellee Charles Sims as disbursing agent.1
Sims objected to Alary's claim of secured status as based on an avoidable preference and asked it be deemed unsecured.
Alary conceded that it received an avoidable preference, but argued that Sims' objection should be overruled because the plan: (1) did not sufficiently reserve a right to institute an avoiding action against Alary; (2) did not explicitly transfer avoiding rights to the disbursing agent; and (3) did not say that Sims' power to object to claims encompassed objections based on avoiding powers.
The court sustained Sims' objection, ruling that the plan preserved both the avoiding and claim objection powers and that Alary was not lured into accepting the plan on an implication there would be no objection to its claim and then sandbagged.
This timely appeal followed.
Subject matter jurisdiction was founded on 28 U.S.C. § 1334. We have jurisdiction per 28 U.S.C. § 158(c).
1. Whether the terms of the chapter 11 plan preserved the claim objection from claim preclusion.
2. Whether doctrines of judicial estoppel or equitable estoppel bar the disbursing agent from objecting to the claim.
The preclusive effect of a plan confirmation on claim objections is reviewed de novo as a mixed question of law and fact in which the legal questions predominate. See Knupfer v. Wolfberg (In re Wolfberg), 255 B.R. 879, 881 (9th Cir. BAP 2000) ("Wolfberg"); accord, First Nat'l Bank v. Russell (In re Russell), 76 F.3d 242, 244 (9th Cir.1996). We review application of the doctrines of judicial estoppel and equitable estoppel for abuse of discretion. Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 780 (9th Cir.2001).
This appeal presents another piece of the puzzle encountered when it is argued that the confirmation of a chapter 11 plan precludes, by way of principles of res judicata or equitable doctrines, subsequent objections to claims or avoiding actions.
In the past, we have blocked post-confirmation litigation on theories of claim preclusion and of estoppel. Wolfberg, 255 B.R. at 883-84; Kelley v. S. Bay Bank (In re Kelley), 199 B.R. 698, 701-04 (9th Cir. BAP 1996) ("Kelley"); Heritage Hotel Ltd. P'ship I v. Valley Bank (In re Heritage Hotel Ltd. P'Ship I), 160 B.R. 374, 377 (9th Cir. BAP 1993), aff'd mem., 59 F.3d 175 (9th Cir.1995) ("Heritage Hotel").
The appellant's arguments in this appeal signal that we need to be more precise about our analysis of when and why plan confirmation renders particular disputes incontestable. In doing so, we will explain how our decisions in Wolfberg, Kelley, and Heritage Hotel square with the principles of res judicata stated in the Restatement (Second) of Judgments ("Restatement (Second)"). Then we turn our attention to theories of judicial estoppel and equitable estoppel.
Our decisions in Wolfberg, Kelley, and Heritage Hotel are best understood through the matrix of analysis provided by Restatement (Second). This is fundamentally a common law subject as to which federal courts have embraced the Restatement (Second) and its official comments as authoritative. See, e.g., Migra v. Warren City School Dist. Bd. of Educ., 465 U.S. 75, 77 n. 1, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984); California Employment Dev. Dep't v. Taxel (In re Del Mission Ltd.), 98 F.3d 1147, 1150 (9th Cir.1996) (Restatement (Second) § 18 cmt. g); Hiser v. Franklin, 94 F.3d 1287, 1290 (9th Cir.1996).
The first thing we must do in explaining Wolfberg, Kelley, and Heritage Hotel is conform our nomenclature to catch up with the terminology used in the Restatement (Second) and in recent Supreme Court and Ninth Circuit decisions.
By the term "rules or principles of res judicata," we generically refer to the concepts addressed in the Restatement (Second) regarding preclusive effects of former litigation. The terms "res judicata" and "collateral estoppel" have been replaced by an updated vocabulary in the interest of precision. RESTATEMENT (SECOND) OF JUDGMENTS, Introduction (1981); Migra, 465 U.S. at 77 n. 1, 104 S.Ct. 892; Hiser, 94 F.3d at 1290; Paine v. Griffin (In re Paine), 283 B.R. 33 (9th Cir. BAP 2002)("Paine"); 18 Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice & Procedure § 4402 ("The Terminology of Res Judicata") ("Wright & Miller").2
The genre of res judicata principles subsumes two basic categories. First, "claim preclusion" includes doctrines of "merger" and "bar" that foreclose litigation of matters that have never been litigated. "Claim preclusion" has supplanted the term "res judicata" that was traditionally used in a now-obsolete, non-generic sense (as used in Wolfberg, Kelley, and Heritage Hotel). Second, "issue preclusion," although often inaccurately called "collateral estoppel," actually includes doctrines of direct estoppel and of collateral estoppel, both of which foreclose relitigation of matters that have been actually litigated. See Migra, 465 U.S. at 77 n. 1, 104 S.Ct. 892; Hiser, 94 F.3d at 1290; In re Duncan, 713 F.2d 538, 541 (9th Cir.1983); Restatement (Second) of Judgments §§ 18-26 (claim preclusion) & 27-29 (issue preclusion); 18 Wright & Miller § 4402.
The key distinction under the new scheme for describing the effect of judgments is that matters that never have been litigated may be barred by "claim preclusion," while matters that have been actually litigated may be barred by "issue preclusion."
Nevertheless, the concepts of "issue" and "claim" overlap in a manner that makes distinctions "often one of degree and emphasis in applying a deeper principle that an original misadventure cannot be retrieved for a second chance." 18 Wright & Miller § 4402. Thus, references to "preclusion" encompass both concepts and correspond with "res judicata" in the generic sense. Paine, 283 B.R. at 39.
Although we used the term "res judicata" in Wolfberg, Kelley, and Heritage Hotel, we were actually applying "claim preclusion" because each case barred litigation of matters that had not been actually litigated in the plan confirmation.
Likewise, in this appeal, we deal with "claim preclusion" because the question is whether the confirmation of the debtor's chapter 11 plan terminated the disbursing agent's ability to assert a preference theory that had never been litigated.
"Claim preclusion" subdivides into doctrines of "merger," "bar," and the...
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