Sure-Snap Corp. v. State Street Bank and Trust Co.

• Decision Date: 07 November 1991
• Docket Number: No. 387,D,SURE-SNAP,387
• Citation: 948 F.2d 869
• Parties: , Bankr. L. Rep. P 74,330 CORPORATION, A New York Corporation; The Estate of Alfred Shure, By and Through its Personal Representative Elaine Shure; Elaine Shure, individually, Plaintiffs-Appellants, v. STATE STREET BANK AND TRUST COMPANY and Bradford National Bank, Defendants-Appellees. ockets 91-7607, 91-7611.
• Court: U.S. Court of Appeals — Second Circuit

Page 869

948 F.2d 869

60 USLW 2329, Bankr. L. Rep. P 74,330

SURE-SNAP CORPORATION, A New York Corporation; The Estate of Alfred Shure, By and Through its Personal Representative Elaine Shure; Elaine Shure, individually Plaintiffs-Appellants, v. STATE STREET BANK AND TRUST COMPANY and Bradford National Bank, Defendants-Appellees.

No. 387, Dockets 91-7607, 91-7611.

United States Court of Appeals Second Circuit.

Argued Oct. 17, 1991.

Decided Nov. 7, 1991.

David C. Pollack, Miami, Fla. (Stroock & Stroock & Lavan, Miami, Fla., of counsel), for plaintiffs-appellants.

Charles W. Throckmorton, Miami, Fla. (Corali Lopez-Castro, Kozyak Tropin Throckmorton & Humphreys, P.A., Miami, Fla., of counsel), Daniel J. Lyne, Boston, Mass. (Patricia Bramante Gary, Hanify & King, Boston, Mass., of counsel), for defendants-appellees.

Before LUMBARD, KAUFMAN and KEARSE, Circuit Judges.

IRVING R. KAUFMAN, Circuit Judge:

Restraining litigious plaintiffs from taking more than "one bite of the apple" has been our avowed purpose since the common law doctrine of res judicata first evolved. The question before us today is whether "having one's day" in bankruptcy court precludes the bringing of lender liability claims against the debtor's creditors in a separate, tort-based suit. The time-worn test of sameness of claims, based on transactional, factual, and evidentiary similarity, indicates these claims should have been brought in the original bankruptcy proceeding, as they were integrally related to the loan that was the subject of reorganization. Far from adopting too expansive a definition of the plenary scope of bankruptcy hearings, we hold that claims against creditors which could have been brought in that full and fair proceeding, and whose timely bringing may have affected the parameters of a bankruptcy repayment schedule, cannot be re-litigated another day in another court.

When Sure-Snap Corporation, through its then-President Alfred Shure and its current President Elaine Shure (collectively denominated as "Sure-Snap") first entered into a loan agreement with Bradford National Bank ("Bradford") and State Street Bank and Trust Company ("State Street"), they imagined a long and fruitful relationship would evolve. When relations eventually soured, and the loan was called early, the law provided Sure-Snap with the opportunity to file for bankruptcy, and dispose of its debts through a carefully-conceived repayment schedule. The corporation availed itself of its right, and a formal hearing confirming a reorganization plan was held. Despite the finality of the bankruptcy court's order, Sure-Snap brought tortious conduct claims against the banks before the district court for the Southern District of Florida. The case was transferred to the District of Vermont, where Judge Parker determined that appellants' failure to raise the lender liability claims during the bankruptcy hearing barred them from litigating them in a separate proceeding. 128 B.R. 885. For the reasons stated below, we affirm.

BACKGROUND

Although appellants attempt to distinguish the lender liability claims from the financial claims asserted in the bankruptcy proceeding, it is clear that both are based on and arise out of the same cause of action. A brief review of the factual context in which the original loans were made reveals the consequent need for preclusion. As mandated by the lower court's grant of summary judgment, all reasonable inferences are drawn in favor of appellants.

Loan arrangements for financing the Sure-Snap business began when the Bradford Bank president persuaded Alfred Shure, founder and former president of the company, and his wife Elaine, to move their metal-fixtures plant to Vermont. Bradford Bank arranged the financing for the relocation and construction of the facility, by overseeing the issuance of two Industrial Development Revenue Bonds ("IDRBs") State Street Bank agreed to collaborate with Bradford in financing the business. It purchased one IDRB for the sum of $600,000.00, while Bradford purchased the other valued at $150,000.00. To secure repayment on the two loans, the Shures granted VIDA a mortgage on their real estate and a security interest in their property and equipment. These were assigned by VIDA to Bradford, as trustee of the bonds.

through the Vermont Industrial Development Authority ("VIDA").

As added security, State Street conditioned its financing of the facility by obtaining supervisory control over Sure-Snap's working capital. It became the exclusive lender for the million-dollar revolving line of credit, regularly auditing Sure-Snap's books, overseeing monthly financial reports, approving managerial decisions, and requiring that all of the business's incoming checks be deposited into a trust account. In return, the bank was obliged to use its "best efforts" to supply a revolving line of credit for all of Sure Snap's reasonable needs.

Despite these precautions, and although Sure-Snap was not in default of its payments, State Street decided to terminate the loan. It requested full and immediate payment, (without cause or notice, according to appellants), and cancelled the line of credit. It was this "lender conduct," in part, that became the basis of Sure-Snap's tort liability claims. The Chapter 11 petition for reorganization was voluntarily filed by Sure-Snap in March of 1987 in the Southern District of Florida Bankruptcy Court. Some months later, Sure-Snap submitted its plan of reorganization, together with mandatory disclosure sheets listing all of its assets and liabilities. One of these disclosure statements originally contained a statement faulting State Street for "forcing" Sure-Snap into bankruptcy. It was later deleted at the bank's request, and an amended disclosure statement, containing no reference to any prospective counterclaims or defenses against the banks, was filed with the court.

Prior to the formal bankruptcy hearing, in April of 1988, Sure-Snap and Elaine Shure initiated an adversary proceeding against the banks, challenging the validity of the banks' liens. They argued that the State of Vermont, which had authorized the VIDA loans, was not licensed to lend money under the state "Licensed Lender's Act," 8 Vt.Stat.Ann. §§ 2201-2235. Based on this complaint, the appellants filed objections to the banks' proofs of claim regarding the two IDRB bonds. The validity of the liens were upheld by both the bankruptcy court and, on appeal, by the Southern District of Florida.

The bankruptcy hearing was held on June 16th. At this time, no pending claims was alleged against the banks, even though dated records show that an amended schedule, alleging contingent and unliquidated claims against the banks "for breach of contract, tortious interference, and fraud ..." had already been drafted and signed by Elaine Shure on June 15, 1988--one day before the formal bankruptcy hearing commenced.

On June 28, 1988, the bankruptcy court docketed its order confirming, over both banks' objections, Sure-Snap's plan for reorganization. In re Sure-Snap Corporation, 94 B.R. 204 (S.D.Fla.1988). The plan provided for Sure-Snap to satisfy its outstanding debts by, inter alia, transferring to Bradford its Vermont plant in satisfaction of both banks' claims. It was only after the court entered its order, ¹ that Sure-Snap filed the previously-drafted amendment to its repayment schedule, which listed as an asset a claim of unknown value against both banks.

Subsequently, appellants moved to modify the court's order, so as to preserve Sure-Snap's right to bring outstanding causes of action that had not been raised in the bankruptcy case. At a hearing held October 6th, 1988, the court denied Sure-Snap's motion to modify the confirmed plan. Two successive Motions to Reconsider the order were also denied. At the last hearing, held November 4th, counsel for "[T]hat right is not curtailed by any action of this Court, is it?" the bankruptcy court judge inquired.

Sure-Snap questioned whether the decision not to modify the plan would preclude the bringing of the claims in another forum:

Counsel responded:

"If the Court were to conclude today that it's not going to permit the modification of the plan ... and the Court then said but that is not, however, a bar to bringing of any actions by the debtor which it may otherwise appropriately bring, I have no problem with that."

The court responded:

"I think it's a matter of law, is it not, that any claims, I mean any actions, are reserved to the debtor?"

He then inquired of opposing counsel whether it was true that he had admitted Sure-Snap was entitled to proceed in another forum. The counsel clarified his position, and what his understanding of the "vested" right entailed:

"That's correct, and we have the right to move to dismiss it on the same basis that the Third Circuit found determinative in Oneida and will so do it."

At that point the judge denied the motion.

Undaunted, Sure-Snap brought the lender liability claims in the Southern District of Florida court in May of 1989--almost one year after the bankruptcy court had confirmed the plan for reorganization. Specific allegations of predatory banking practices included claims against both banks for breach of duty to deal in good faith, breach of fiduciary duty, and, through Elaine Shure, claims alleging intentional infliction of emotional distress. Against State Street, appellants alleged the additional claims of breach of contract, interference with corporate governance, and tortious interference with business relationship. The suit asserted damages in the combined amount of $15,000,000.00

Both banks moved to dismiss, on combined estoppel and res judicata grounds. In addition, Bradford moved the court to dismiss for want of personal jurisdiction, and State Street requested transfer of venue. The case was transferred to a more convenient forum in the District of Vermont, where the action against Bradford was reinstated...