In re Grenert

• Decision Date: 05 December 1989
• Docket Number: Civ. No. 89-0027-P.,Bankruptcy No. 286-00235
• Parties: In re Geoffrey R. GRENERT, Debtor/Appellant. Geoffrey R. GRENERT, Debtor/Appellant, v. William HOWISON, Esq., Trustee/Appellee, and United States of America, Department of Labor, Appellee.
• Court: U.S. District Court — District of Maine

108 B.R. 1 (1989)

In re Geoffrey R. GRENERT, Debtor/Appellant.

Geoffrey R. GRENERT, Debtor/Appellant, v. William HOWISON, Esq., Trustee/Appellee, and United States of America, Department of Labor, Appellee.

Bankruptcy No. 286-00235, Civ. No. 89-0027-P.

United States District Court, D. Maine.

December 5, 1989.

William L. Harvey, David J. Perkins, Pierce Atwood Scribner, Portland, Me., for appellant.

William Howison, Trustee, Portland, Me.

Albert H. Ross, Regional Solicitor, Constance B. Franklin, U.S. Dept. of Labor, Boston, Mass.

ORDER AFFIRMING THE DECISION OF THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MAINE

GENE CARTER, Chief Judge.

Appellant appeals the final order entered by the United States Bankruptcy Court for the District of Maine, in which the Honorable Fredrick A. Johnson approved the joint application filed by Appellees to compromise certain wage claims against Appellant's estate. Appellant argues that it was inappropriate for the bankruptcy court to apply the doctrine of res judicata, based on a consent decree signed by Appellant and the Department of Labor (DOL) before the United States District Court for the District of New Hampshire, to prevent a full evidentiary hearing on the joint application. Upon review of the pleadings and the record, the Court affirms the bankruptcy court's holding that the Consent Order estops Appellant from objecting to Appellees' joint application.

Appellant filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the District of Maine on July 30, 1986. On or about August 13, 1986, DOL sued Appellant and the American Messenger Service, Inc. (AMS) in the United States District Court for the District of New Hampshire for violations of the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201, et seq., requesting unpaid wages and liquidated damages and a court order enjoining Appellant and AMS from further violating the provisions of the FLSA.

Claiming that the automatic stay provisions of the Bankruptcy Code, 11 U.S.C. § 362(a)(1), barred DOL's claim, Appellant and AMS moved the court to dismiss the suit. The district court denied the motion, holding that 11 U.S.C. § 362(b)(4) exempted DOL's action from the automatic stay provisions. Appellant and AMS also filed for a change of venue, which the court likewise dismissed.

Appellant and AMS then answered DOL's complaint and subsequently entered into a Consent Order approved by the court. In the Consent Order, Appellant and AMS, while not admitting liability, agreed that the employees were due $143,558.22, that they would pay employees this amount, that they were restrained from withholding these funds, and

. . . that neither this judgment, nor any of its terms or provisions, shall constitute any admission by or an estoppel against the defendant Grenert except in any action that may be brought by the plaintiff under the Fair Labor Standards Act to enforce this decree.

Consent Order at 3 (emphasis added).

DOL filed a priority claim in Appellant's bankruptcy action for the wages set out in the Consent Order. The Trustee, Appellee, objected and both Appellees agreed to a compromise claim of $112,360.78 as a priority claim pursuant to 11 U.S.C. § 507(a)(3). Appellant objected to this claim on three grounds: (1) he was not an "employer" under FLSA; (2) the liquidated damages are not wages entitled to priority; (3) the wage claims fall outside the time period (90 days) established under section 507(a)(3).

The bankruptcy court, after a hearing and the submission of briefs, held that the doctrine of res judicata, arising from the Consent Order, barred all of Appellant's objections to the joint application. In particular, the court found that, under a transactional approach to res judicata, the action concerning the joint compromise was essentially the same action as that concerning the Consent Order since both arose from a natural grouping or common nucleus of facts. The court then concluded that Appellant's objections to the compromise were defenses he could have raised or did raise in the prior action.

On appeal, Appellant argues that res judicata should not apply to this suit because the prior action was technically distinct. Appellant further asserts that the doctrine should not apply because the Consent Order did not explicitly discuss issues which he raised in objection to the joint application; thus the bankruptcy court's conclusions were based on "improper inferences." Appellant states that the Consent Order either clearly preserved the issues to be raised before a bankruptcy court or was too ambiguous for the application of res judicata. Finally, Appellant offers arguments, not previously presented before the bankruptcy court, allegedly indicating that the joint application generates issues that were not considered or could not be considered in the prior action.

DISCUSSION

Res judicata is applied by courts so that parties are precluded from relitigating issues that were raised or could have been raised in a previous action in which there was a final judgment on the merits. Manego v. Orleans Board of Trade, 773 F.2d 1, 5 (1st Cir.1985). This doctrine is not a technical rule, but a rule of "fundamental and substantial justice." Nash County Board of Education v. Biltmore Co., 640 F.2d 484, 486 (4th Cir.1981), citing American Surety Co. v. Baldwin, 287 U.S. 156, 166, 53 S.Ct. 98, 101, 77 L.Ed. 231 (1932). The doctrine promotes judicial economy by preventing needless litigation. Allen v. McCurry, 449 U.S. 90, 94, 101 S.Ct. 411, 414, 66 L.Ed.2d 308 (1980). Finally, "as a general matter, consent judgments are given the same res judicata effect as judgments in litigated cases." Arrieta-Gimenez v. Arrieta-Negron, 859 F.2d 1033, 1041 (1st Cir.1988); Urbino v. Puerto Rico Ry. Light & Power Co., 164 F.2d 12, 13 (1st Cir.1947) (court applied the res judicata doctrine to a consent decree arising from an action brought under the FLSA).

The substance of Appellant's objections to the application of res judicata manifests an overly narrow view of the doctrine. Appellant's argument that res judicata cannot apply in this suit because there is a "technical distinction" between the bankruptcy action and the underlying action is an example of this view. Appellant seems to ask the Court to require that two causes of action be identical in order to apply the doctrine. This is not the law in this circuit.

The Court of Appeals for the First Circuit has adopted the view put forth in the Restatement (Second) of Judgments that the prior claim or cause of action must merely be based on the same "transaction" as the subsequent action. Manego v. Orleans Board of Trade, 773 F.2d 1, 5 (1st Cir.1985). The Restatement provides that a final judgment extinguishes all rights concerning all or any part of the transactions or series of transactions out of which the original action arose. Restatement (Second) of Judgments § 24. Furthermore, a "transaction" is not a technical term, but must be determined pragmatically. Id. Thus, because both actions in this suit arose from the issue of wage claims, and because Appellant's objection to the FLSA action and the joint application are very similar, the transactional approach to applying res judicata is satisfied.

Other of Appellant's arguments also evidence a narrow conception of the doctrine of res judicata. For example, many of Appellant's objections to the Court's application of res judicata focus solely on the language in the Consent Order. Appellant essentially argues that the Court may consider only the words contained in the Consent Order in determining which issues were addressed in the prior action for the purposes of res judicata. Appellant thus maintains that the issue of whether he was an employer is not barred by res judicata because the Consent Order did not contain the term "employer." The Court finds, however, that for the purposes of applying the doctrine of res judicata, the Appellant's characterization is incorrect.

Res judicata requires that the precluded issue be one which might have been raised or was raised in the underlying case. Federated Dept. Stores v. Moitie, 452 U.S. 394, 398, 101 S.Ct. 2424, 2427, 69 L.Ed.2d 103 (1981); Manego v. Orleans Board of Trade, 773 F.2d 1, 5 (1st Cir. 1985). A court may not address an issue in a consent order which a party has either raised or could have raised in the pleadings. Such an issue, although not addressed in the order, nonetheless satisfies the test for res judicata. Thus, the Court is not confined solely to the Consent Order in determining whether the doctrine of res judicata applies in this suit.

Furthermore, Appellant's view concerning the language of the Consent Order evidences a "contract" approach to the application of res judicata to such orders. The Court recognizes the Consent Order, not as a contract but as a judicial order made by the District Court in New Hampshire. J. Moore, J. Lucas & T. Currier, 1B Moore's Federal Practice 0.4095 (2d ed. 1988). The District Court in New Hampshire is not merely a registry of contracts; it makes its own determination that justice will be served before signing a Consent Order.¹ This view necessitates that the Court analyze the whole case — the pleadings submitted by the parties prior to the entry of the Consent Order, in addition to the Order itself — to help determine what issues were raised or could have been raised before the court which culminated in the issuance of the Consent Order. Thus, Appellant's reliance on the absence of specific language in the Consent Order is misplaced because such absence is not necessarily determinative.

In addition, even if the Court applied a contractual approach, the central issue would be the intent of the parties. C. Wright, A. Miller, E. Cooper, 18 Federal Practice and Procedure § 4443. The Supreme Court has stated that to discover the intent of a decree, a court should look to the circumstances surrounding the...