Sanders Confectionery Products, Inc. v. Heller Financial, Inc.
| Decision Date | 17 August 1992 |
| Docket Number | Nos. 90-2039,90-2040,s. 90-2039 |
| Citation | 973 F.2d 474 |
| Parties | Fed. Sec. L. Rep. P 96,966, Bankr. L. Rep. P 74,917, RICO Bus.Disp.Guide 8063 SANDERS CONFECTIONERY PRODUCTS, INC., a Michigan corporation; John M. Sanders; Filipp J. Kreissl, Plaintiffs-Appellants (90-2039), Sam J. Merigian, on behalf of himself and all persons who were shareholders of Sanders Confectionery Products, Inc., as a Class Action Under FRCP 23(a) and 23(b), Plaintiff-Appellant (90-2040), v. HELLER FINANCIAL, INC., a Delaware corporation; Butzel, Keidan, Simon, Myers & Graham, a partnership; John W. Butler, Jr.; Jay Alix, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Richard L. Roble (argued and briefed), Savanah, Ga., for Sanders Confectionery Products, Inc., John M. Sanders and Filipp J. Kreissl.
Susan Artinian, Dykema & Gossett, Detroit, Mich., Timothy J. Rivelli, Daniel K. Webb (argued and briefed), Winston & Strawn, Chicago, Ill., for Heller Financial, Inc., Butzel, Keidan, Simon, Myers & Graham, and John W. Butler, Jr.
Sheldon S. Toll, Honigman, Miller, Schwartz & Cohn, Robert J. Diehl, Jr., David G. Chardavoyne, Michael B. Lewiston (argued and briefed), Bodman, Long & Dahling, Detroit, Mich., for Jay Alix.
Joseph L. Hardig, Jr. (argued and briefed), Hardig & McConnell, Bloomfield Hills, Mich., for Filipp J. Kreissl in No. 90-2040.
Before: NELSON and SUHRHEINRICH, Circuit Judges; and ENGEL, Senior Circuit Judge.
Plaintiffs Sanders Confectionery Products, Inc., John M. Sanders, and Filipp J. Kreissl appeal from the district court's dismissal of their lender liability claims against Heller Financial, Inc., Butzel, Keidan, Simon, Myers & Graham, John W. Butler Jr., and Jay Alix. Plaintiff Sam J. Merigian appeals from the dismissal of his RICO and securities fraud claims against Heller Financial, Inc. 1 All of the plaintiffs claim the district court erred in holding that the earlier bankruptcy proceedings of Fred Sanders, Inc. barred these actions under the doctrine of res judicata. Merigian claims the district court erred in failing to recognize Heller's liability as a control person under section 12(2) of the 1933 Securities Act and as an aider and abettor in violation of section 10(b) of the 1934 Securities Act. This case also presents questions concerning causation and standing to bring a RICO claim. We affirm the district court's dismissal of the actions by Sanders Confectionery Products, Inc., Sanders, Kreissl, and Merigian.
In late 1985, Filipp J. Kreissl, president of Sanders Confectionery Products, Inc. (SCPI), approached Heller Financial, Inc. (Heller) about obtaining financing for Fred Sanders, Inc. (FSI). SCPI was the parent company of FSI, a 117 year old company famous in southeastern Michigan for its hot fudge and chocolate candies. FSI had recently emerged from bankruptcy protection and sought to expand its operations. In a February 15, 1986 loan agreement, Heller agreed to provide up to $2.45 million to the candy manufacturer.
In July 1986 the relationship between Heller and FSI began to sour. Heller declared events of default, accelerated the loan and stopped funding. As a cure, Heller demanded loan guarantees from SCPI, Kreissl and SCPI's chairperson, John M. Sanders, a release of cure period rights, a "blocked account" for cash collections, and increased interest rates. The borrowing formula was to remain unchanged. FSI acceded to these demands in order to obtain much needed funds to begin building an adequate Christmas inventory.
Seeking more cash, and hoping to draw on its good reputation in Detroit, SCPI began preparing a stock offering in December 1986. On December 9, 1986, Heller certified that FSI was a borrower in good standing. However, after SCPI issued the prospectus, Heller found defaults in the payment of state and federal taxes. To avoid changing the prospectus, FSI requested a waiver of these defaults by Heller. Heller conditionally agreed, upon a grant of further concessions by FSI.
Throughout this period, FSI sought changes in the lending formula as part of an effort to obtain additional funds. Finally, on or about February 17, 1987, Heller orally agreed to loan FSI an additional $750,000 if the public offering raised at least $1,000,000. The public offering, completed in May 1987, raised $5,000,000. Heller never made the additional funds available.
On February 18, 1987, FSI received a letter from Heller declaring more events of default. FSI once again cured the default. FSI also obtained more funds through a $600,000 loan from First Independence Bank. Heller represented to First Independence that FSI was a borrower in good standing, but upon execution of the note Heller made additional demands. It required payment of $120,000 from this loan, double its original demand, and accelerated the maturity date of its loan by eight months.
In August 1987, the state of Michigan issued another tax lien, this time in error. First Independence and Heller declared and then rescinded events of defaults. Heller also closed its Michigan office, an event planned since at least May 1987. At this time Heller told FSI that small business loans no longer fit its plans, and informed FSI it should seek financing elsewhere.
Heller initially denied FSI a Christmas inventory loan, but in October offered one when FSI could not procure a loan from other sources. FSI prepared a debt offering for fall 1987, but the stock market crash delayed it. FSI remained cash hungry.
On November 5, 1987, Heller sent FSI another letter of default, and declared it would continue stop-gap financing on an absolutely discretionary basis. On November 9, FSI requested an additional $450,000 for Christmas needs. Heller promised to do everything it could, but then failed to attend a November 13 meeting on the topic. Instead, Heller foreclosed on its loans. The next day, Heller demanded FSI file for Chapter 11 protection and execute new loan agreements. FSI filed for bankruptcy on November 16, 1987.
On November 18, 1987, FSI sought authorization to borrow more money from Heller. See 11 U.S.C. § 364. The post-petition agreement gave discretionary financing to the Debtor (FSI) while waiving all claims, setoffs or defenses of FSI, SCPI, Sanders and Kreissl against Heller. The bankruptcy court entered a Consent Financing Order approving the post-petition agreement and ratifying the pre-petition agreements. Neither SCPI, Sanders nor Kreissl signed the Consent Order, but they were party to and guarantors of the post-petition loan agreement.
On December 4, 1987, the bankruptcy court approved Jay Alix as the trustee for the debtor-in-possession. See 11 U.S.C. § 1104. Heller and the unsecured creditors' committee had moved for Alix's appointment. Neither SCPI nor FSI opposed his appointment as trustee, although earlier they had rejected him as an examiner.
Alix, the Creditors' Committee and another FSI creditor, Michigan Strategic Fund, objected to the Consent Financing Order. Alix claimed the terms of the agreement made it impossible to operate without being in default and that the agreement gave Heller too much control. The bankruptcy court conducted several hearings between December 21, 1987 and January 7, 1988. The court then entered an order amending the Consent Financing Order.
The amended order determined that Heller's claims under the pre-petition loan agreements were valid and not subject to any claims, set-offs or defenses of FSI. It also confirmed the superpriority status of Heller's secured claims. See 11 U.S.C. § 364. The amended order expressly provided, "all parties in interest in this Proceeding, or any further or future proceeding whether under [any provision of the bankruptcy laws], are forever barred from prosecuting any actions or filing any claims against [Heller] arising or related to the Financing Arrangements...."
Finally on May 4, 1988, the court approved a plan offered by FSI's employees' union, United Distributive Workers Council 30, for the purchase of FSI's assets by Country Home Bakery, Inc. SCPI, Sanders and Kreissl participated in the plan process and did not object to the plan. Under the plan, Heller was paid the full amount of its allowed claims.
In 1989, SCPI, Sanders, Kreissl and Sam J. Merigian, a shareholder of SCPI, 2 sued Heller, Butzel, Keidan, Simon, Myers & Graham, Heller's attorneys, John W. Butler, a partner in the Butzel firm, and Alix. The complaint contained thirteen counts alleging, among other things, common law fraud, RICO violations, and securities law claims. The district court dismissed all of the claims as barred on res judicata grounds, based on the bankruptcy case of Fred Sanders, Inc. See In re Fred Sanders, Inc., Case No. 87-06979-B . 3 The court also held that Merigian failed to state a claim upon which relief may be granted. SCPI, Sanders and Kreissl appeal as to the dismissal of their claims against all defendants. Merigian appeals only from the dismissal of the securities claims against Heller.
The district court dismissed all of the claims by all of the plaintiffs on res judicata grounds. We review de novo district court dismissals of cases on res judicata grounds. Gargallo v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 918 F.2d 658 (6th Cir.1990).
Courts apply the doctrine of res judicata to promote the finality of judgments, which in turn increases certainty, discourages multiple litigation and conserves judicial resources. See Federated Department Stores v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981). Res judicata should not be confused with collateral estoppel or issue preclusion. This latter doctrine only "preclude[s] relitigation of issues of fact or law actually litigated and decided in a prior action between the same parties and necessary to the judgment, even if decided as part of a different claim or cause of action." Gargall...
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