Case ID: so2d_649/html/0086-01.html
Source: Caselaw Access Project
Author: {"author": "| ]ARMSTRONG, Judge. liLOBRANO, Judge, | iBARRY, Judge,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

TERREBONNE FUEL & LUBE, INC. v. PLACID REFINING COMPANY.
    No. 93-CA-2364.
    Court of Appeal of Louisiana, Fourth Circuit.
    Dec. 28, 1994.
    Rehearings Denied Feb. 15, 1995.
    
      C. Berwick Duval, II, Stanwood R. Duval, Jr., Duval, Funderburk, Sundbery & Lovell, L.L.P., Houma, for plaintiff.
    James G. Burke, Jr., Robert D. Hoffman, Jr., Burke & Mayer, New Orleans, for defendant.
    Before BARRY, LOBRANO, ARMSTRONG, PLOTKIN and LANDRIEU, JJ.
   | ]ARMSTRONG, Judge.

This is an appeal from a judgment in favor of the plaintiff-appellee, Terrebonne Fuel & Lube, Inc. (“Terrebonne”) in a breach of contract suit. The defendant-appellant, Placid Refining Company (“Placid”) alleges a number of errors as to both liability and damages. We find one specification of error, that based upon res judicata, to be meritorious and immediately dispositive of this case. In particular, a decision of the Louisiana Supreme Court, rendered after the trial below and while this appeal was pending, clarifies a key issue as to res judicata in this case with the result that it is now clear that this action is barred by res judicata. Therefore, we reverse the judgment of the trial court and render a judgment in favor of the defendant dismissing this suit.

Terrebonne was a fuel retailer. Placid, a fuel wholesaler, sold diesel fuel to Terre-bonne on a credit basis for eventual resale. There was a written contract, the Fuel Purchase and Supply Agreement (“the Fuel Agreement”), providing for sale of the diesel fuel and payment by Terrebonne to Placid sixty-five days after each purchase. There were also several written security instruments to secure payment for the diesel fuel.

Terrebonne became in arrears in its payments to Placid for the diesel fuel, Placid began to enforce the security instruments and Terrebonne then filed for Chapter 11 ^reorganization bankruptcy. After appropriate proceedings in bankruptcy, the federal bankruptcy court rendered a judgment confirming a plan of reorganization for Terre-bone. The plan was proposed by Terrebonne itself. The plan “allowed” (i.e., recognized as payable) Placid’s claim against Terrebonne for payment under the Fuel Agreement and provided for that claim to be paid in full, with interest, over a period of time. The plan did not even mention, much less provide, for any claims to be made by Terrebonne against Placid.

Some time later, after the federal bankruptcy court judgment was rendered confirming the plan, Terrebonne filed the present suit alleging that Placid had breached the Fuel Agreement just prior to Terrebonne’s bankruptcy and had, in fact, caused Terre-bonne’s bankruptcy by that breach of contract. Placid excepted to the present suit on res judicata grounds, but that exception was overruled by the trial court. The trial court gave no oral or written reasons for overruling the res judicata exception, but Placid’s brief on appeal represents that the trial court stated that Louisiana res judicata law, rather than federal res judicata law, is applicable to this case and Terrebonne does not dispute that representation. Indeed, Terrebonne’s principal argument on appeal as to res judi-cata is that Louisiana state res judicata law applies in this case.

There are two issues regarding res judica-ta in this ease. First, and this is the key issue and the principal dispute as to res judicata in this case, there is an issue as to whether the res judicata effect of the federal bankruptcy court’s judgment confirming Ter-rebonne’s reorganization plan is determined by federal res judicata law or, instead, by Louisiana state res judicata law. We hold, based upon a recent Louisiana Supreme Court case, that it is federal res judicata law that must be applied in this ease. Second, there is an issue as to whether, as a matter of federal res judicata law, the present suit is barred by the res judicata effect of the federal bankruptcy court’s judgment confirming Terrebonne’s reorganization plan. We hold, based upon the federal jurisprudence, that the present suit is so barred.

In deciding the issue of whether the res judicata effect of the federal bankruptcy court’s judgment is determined by federal, or, instead, by Louisiana State res judicata law, we, unlike the trial court, have the benefit of the Louisiana Supreme Court’s decision Reeder v. Succession of Palmer, 623 So.2d 1268 (La.1993). In Reeder, there had been an earlier suit in federal district court that was dismissed with prejudice. The plaintiff then brought a suit involving the same transaction against the same defendant in Louisiana state court. This second suit involved a Louisiana state law theory, breach of contract, which had not been presented in the earlier federal court suit. Under Louisiana state law res judicata principles (in effect at the time of Reeder, but since, legislatively changed), the breach of contract theory would not have been barred in the second suit because it was not presented and decided in the earlier federal suit. Under federal res judicata principles, the breach of contract theory would be barred in the second suit because it could have been brought in the earlier federal court suit and involved the same transaction or occurrence as the earlier federal court suit.

The Louisiana Supreme Court decided Reeder by holding that federal res judicata principles applied, because the judgment in the first suit was by a federal court exercising federal question jurisdiction (i.e., not diversity of citizenship jurisdiction), with the result that the breach of contract claim was barred. “When a state court is required to determine the preclusive effects of a judgment rendered by a federal court exercising federal question jurisdiction, it is the federal law of res judicata that must be applied.” Reeder, 623 So.2d at 1271. The Supreme Court cited, in support of the just-quoted holding, Section 87 of the Restatement (Second) of Judgments which states: “Federal law determines the effects under the rules of res judicata of a judgment of federal court.” The Restatement is somewhat broader than the actual holding in Reeder as, unlike the Supreme Court, the Restatement does not limit its rule to situations in which the federal court was exercising federal question jurisdiction. However, that difference between Reeder and the Restatement is of no moment in the present ease because the federal bankruptcy court which rendered judgment confirming Terrebonne’s plan of reorganization was exercising federal question, specifically, bankruptcy, jurisdiction. Thus, following Reeder, we hold that the res judicata effects of the federal bankruptcy court’s decision confirming Terrebonne’s plan of reorganization must be determined using federal res judicata principles.

LUnder federal law, the judgment of a federal bankruptcy court confirming a plan of reorganization has res judicata effect. Eubanks v. FDIC, 977 F.2d 166 (5th Cir.1992); Sure-Snap Corp. v. State Street Bank and Trust Co., 948 F.2d 869 (2d Cir.1991); Sanders Confectionary Products, Inc. v. Heller Financial, Inc., 973 F.2d 474 (6th Cir.1992), cert denied, — U.S. —, 113 S.Ct. 1046, 122 L.Ed.2d 355 (1993). See also Stoll v. Gottlieb, 305 U.S. 165, 59 S.Ct. 134, 83 L.Ed. 104 (1938) (decided under previous bankruptcy statute).

The federal courts apply the doctrine of res judicata vigorously in order to give effect to the decisions of federal bankruptcy courts and to avoid relitigation of matters which were, or could have been, litigated in concluded bankruptcy proceedings.

This Court has previously recognized the important interest in the finality of judgments in a bankruptcy case_ In promoting that interest, we have applied our traditional rule of res judicata in the bankruptcy context: “An arrangement confirmed by a bankruptcy court has the effect of a judgment rendered by a district court. Any attempt by the parties to relit-igate any of the matters that were raised or could have been raised therein is barred under the doctrine of res judicata.”

Bank of Lafayette v. Baudoin (In re Boudoin), 981 F.2d 736, 739 (5th Cir.1993) (emphasis in original).

The four-element test for the application of res judicata used by federal courts requires that (1) the parties must be identical in two actions; (2) the prior judgment must have been rendered by a court of competent jurisdiction; (3) there must be a final judgment on the merits and (4) the same cause of action must be involved in both cases. E.g., Eubanks, 977 F.2d at 169; Baudoin, 981 F.2d at 740. There can be no dispute as to the first element because Terrebonne was the debtor and Placid was a scheduled creditor in the bankruptcy proceeding. Nor is there any dispute that the bankruptcy court had jurisdiction to render a judgment confirming a plan of reorganization in a bankruptcy proceeding.

As to the third element, the federal courts treat a judgment of the bankruptcy court confirming a plan of reorganization as a final judgment on the merits. Eubanks, supra; Sure-Snap, supra; Sanders, supra; Stoll, supra. Also, this is consistent with Section 1141(a) of the ^Bankruptcy Code which provides that a confirmed plan of reorganization is binding on both the debtor and the creditors. 11 U.S.C. 1141(a).

As to the fourth element, the federal courts determine whether the same cause of action is involved by looking to whether the same “transaction” is involved in the two actions—i.e. whether “the actions are based on the same nucleus of operative facts.” Baudoin, 981 F.2d at 743. See also Eubanks, 977 F.2d at 171 (collecting cases); Sure-Snap, 948 F.2d at 874; Sanders, 973 F.2d at 484.

The Eubanks, Sure-Snap and Baudoin cases all involved lender liability suits by debtors against their lenders asserted after a bankruptcy court judgment confirming a reorganization plan for the debtor which had allowed the lender’s claim. In each case, the lender liability suit was based upon some alleged misconduct of the lender in connection with the loan from which the creditor’s allowed claim arose. In other words, the lender’s allowed claim in bankruptcy against the debtor, and the debtor’s later-asserted suit against the lender, arose from the same loan. In each case, the lender liability suit was held to be barred by res judicata as a result of the earlier bankruptcy court judgment confirming a plan of reorganization which allowed the lender’s claim. That is, because the lender’s claim against the debt- or, and the debtor’s later suit against the creditor, arose from the same loan (i.e., the same transaction), it was held that the “same cause of action” element was met and the debtor’s suit was barred.

The present case is analogous to the Eubanks, Sure-Snap and Baudoin cases. Terrebonne’s suit against Placid comes after an earlier bankruptcy court judgment confirming a plan of reorganization which allowed Placid’s claim. Terrebonne’s suit is based upon alleged breach of the Fuel Agreement from which Placid’s allowed claim also arose. That is to say, Placid’s claim in bankruptcy against Terrebonne, and Terre-bonne’s later-asserted suit against Placid, arise from the same contract. Thus Terre-bonne’s suit against Placid is barred by res judicata as a result of the earlier bankruptcy court judgment confirming a plan of reorganization which allowed Placid’s claim. Because Placid’s claim against Terrebonne, and Terrebonne’s later suit against Placid, arose from the same contract (i.e., the same transaction), the “same cause of action” element is met and Terrebonne’s suit |6is barred. It simply cannot be denied that, with Placid’s claim in bankruptcy and Terrebonne’s suit based on the very same contract, i.e., The Fuel Agreement, both matters are based upon the same nucleus of operative facts.

For the foregoing reasons, the judgment of the trial court is reversed and judgment is rendered in favor of Placid dismissing Terre-bonne’s suit.

REVERSED AND RENDERED.

LOBRANO, J., concurs.

PLOTKIN, J., concurs for the reasons assigned by LOBRANO, J.

BARRY, J., dissents with reasons.

liLOBRANO, Judge,

concurring.

I agree that Terrebonne’s claim should be barred because of res judicata. My reasons for sustaining Placid’s exception require a review of the convoluted procedural history of this case.

On May 1,1986 Terrebonne filed for Chapter 11 protection in the federal bankruptcy court. Placid was listed as a major creditor. The plan of reorganization was confirmed on April 16, 1987. On April 24, 1987, Terre-bonne filed a complaint for equitable subordination against Placid alleging that Placid’s breach of its agreement to supply Terre-bonne with diesel fuel caused Terrebonne to seek protection of the bankruptcy court. Terrebonne sought damages for that alleged breach.

Placid filed a Motion to Dismiss arguing Terrebonne’s petition failed to state a cause of action for equitable subordination and that its claim was barred by res judicata. On June 29, 1989, the Bankruptcy court granted the motion on the basis that the complaint failed to state a claim for equitable subordination and that the matter was not a “core” proceeding under 28 U.S.C. § 157. The court concluded that Terrebonne’s claim represented, at best, a “related to matter” and that the court would exercise its discretion and abstain from hearing the matter. The court did not address the res judicata issue raised by Placid.

|2On July 24, 1989 Terrebonne filed the instant suit in state court. Placid filed an exception of res judicata. On February 3, 1993 Placid filed a reconventional demand. Terrebonne went back to bankruptcy court on a contempt motion asserting that Placid was seeking damages that were already discharged in bankruptcy. Placid responded with a motion requesting the bankruptcy court to order Terrebonne to dismiss its state court claims on the basis of res judica-ta.

On March 23, 1993 the bankruptcy court held Placid in contempt, but declined to exercise jurisdiction on the res judicata issue. That ruling was appealed to the federal district court. While that appeal was pending, the trial of the state court proceedings concluded. In state court, the trial judge dismissed the res judicata exception, and rendered judgment in favor of Terrebonne. Subsequently, the federal district court held that the intervening judgment of the state court “mooted” Placid’s appeal of the bankruptcy order. Thus the res judicata issue, again, was not considered.

During the pendency of the instant appeal before this court, Placid appealed the federal district court’s ruling to the U.S. Fifth Circuit Court of Appeal. That court noted that In Re Baudoin, 981 F.2d 736 (5th Cir.1993), “mandates the conclusion that lender-liability claims of a debtor against a listed creditor (for wrongfully precipitating the bankruptcy), are indeed ‘core’ proceedings,” and that the bankruptcy court was in error in not resolving Terrebonne’s claims against Placid. However, the court affirmed the district court’s result for the reason that comity and efficient judicial administration required that the state court litigation should run its course. In Re Matter of Terrebonne Fuel, 20 F.3d 1169 (5th Cir.1994).

laPIacid has argued throughout these proceedings, both in federal court and in state court, that Terrebonne’s claim, filed after confirmation of its reorganization plan, is barred by the principle of res judicata. In support, it cites numerous cases that hold that once a plan is confirmed by the bankruptcy court, any claims by the debtor against a creditor are barred by res judicata. In Re Baudoin, supra; Eubanks v. F.D.I.C., 977 F.2d 166 (5th Cir.1992); Howe v. Vaughan, 913 F.2d 1138 (5th Cir.1990). “It has long been recognized that a bankruptcy court’s order confirming a plan of reorganization is given the same effect as a district court’s judgment of the merits for claim preclusion purposes.” Eubanks, 977 F.2d at 170. Res judicata “bars all claims that were or could have been advanced in support of the causes of action on the occasion of its former adjudication ... not merely those that were adjudicated.” Howe, 913 F.2d at 1144.

Ironically, the federal courts have never addressed the merits of Placid’s res judicata arguments. In June of 1989, when Terre-bonne’s complaint, filed after confirmation of its plan of reorganization, was erroneously dismissed because it was not a “core” proceeding, res judicata was not addressed. In March of 1993, when the bankruptcy court held Placid in contempt, the court ruled that it lacked jurisdiction to consider res judicata. The federal district court, on Placid’s appeal of that ruling, failed to address the issue when it ruled that the appeal was “mooted” because judgment had already been rendered in state court. And finally, the U.S. Fifth Circuit, although recognizing the inequities of allowing a debtor to wait until after confirmation to assert a claim against a creditor, did not address the issue in the interest of comity and judicial efficiency.

The trial judge in the instant proceedings did not render reasons for overruling Placid’s exception. However, I am of the opinion that federal Uprinciples of res judicata are applicable, Reeder v. Succession of Palmer, 623 So.2d 1268 (La.1993), and once Terre-bonne’s plan of reorganization was confirmed it was barred from bringing this breach of contract suit. It is inequitable to allow Ter-rebonne to proceed with a claim in state court that should have been heard by the bankruptcy court prior to confirmation of the reorganization plan. Had that taken place and Terrebonne been successful, the plan of reorganization would have been different, and perhaps, would not have been required at all. It is patently unfair to allow a debtor to seek the protection of the bankruptcy laws, work out a plan of reorganization, and then, once the plan is confirmed, file a breach of contract suit against a creditor alleging that the creditor caused the bankruptcy in the first place.

The U.S. Fifth Circuit stated that comity requires that the state court proceedings should be allowed to run its course. Part of that course is Placid’s plea of res judicata which, I concur, is valid.

PLOTKIN, J., concurs for the reasons assigned by LOBRANO,- J.

| iBARRY, Judge,

dissenting with reasons.

The majority errs by stating that the reorganization plan did not provide for any claim by Terrebonne against Placid. Under the first amended reorganization plan (dated December 12, 1986 and confirmed April 16, 1987) no claims against the estate were definitively adjudicated and Terrebonne reserved its right to object to any and all claims and to pursue its claims against other parties. The plan permitted Placid’s claims against Terre-bonne to be balanced against the tort claims that Terrebonne would assert against Placid. Section 15.3 of the plan provided:

[T]he Debtor reserves all claims, demands, causes of action, and powers that it may have under the Bankruptcy Code and reserves the rights, absent a Liquidation, to have Reorganized Terrebonne enforce the same at times and on terms and conditions as Reorganized Terrebonne, in its sole discretion, deems fit, including making objections to claims.

Before confirmation of the reorganization became final, Terrebonne asserted its claim that Placid forced it into bankruptcy. The bankruptcy court dismissed Terrebonne’s claim for equitable subordination and declined to exercise jurisdiction over Terre-bonne’s claim against Placid, essentially a claim “of breach of contract, which action can and should be brought in state court.” In re Terrebonne Fuel & Lube, Inc., 87-0130 (Bankr.E.D.La. 6/29/89). Terrebonne did not appeal, but filed the claim in state court. Placid filed an exception of res judicata in state court. Years later Placid filed a recon-ventional demand. Terrebonne went back to bankruptcy court and moved that Placid be held in contempt for seeking damages in state court which had been discharged. Placid requested the bankruptcy court order Terrebonne to dismiss its state court claims on the grounds of res judicata. The bankruptcy court held Placid in contempt and dismissed Placid’s motion because the court lacked jurisdiction more than three years after the plan was confirmed. Placid appealed to the U.S. district court. By that time the state court (Civil district court) had overruled the exception, trial had been 12held and Terrebonne was awarded $500,000. This appeal had also been filed. The U.S. District Court held that the state court judgment made the appeal from the bankruptcy court moot and dismissed the action. Placid appealed to the U.S. Fifth Circuit.

The Fifth Circuit affirmed for different reasons. The Court stated-that the appeal actually related to the bankruptcy court’s 1989 order dismissing Terrebonne’s claims against Placid, which was erroneous; however, no rehearing was requested. The Court explained that Terrebonne’s claims had not been adjudicated in the reorganization order; if the claims had been finalized, Terrebonne’s state court litigation would have been barred by res judicata. However, because the lender-liability issues were not definitively adjudicated in the reorganization order and the bankruptcy court abstained from hearing Terrebonne’s breach of contract claim, the Fifth Circuit concluded that “[i]t was therefore entirely appropriate for the state court to proceed with the litigation_” 93-3553 (5th Cir. 4/4/94), slip op. at 7.

This is not a situation where the reorganization plan adjudicated all claims. Terre-bonne was not attempting to relitigate in state court its claims against Placid which were or could have been raised in bankruptcy court. Terrebonne expressly reserved its right to file such a claim after reorganization.

The Louisiana district court correctly overruled Placid’s res judicata exception. Unlike Eubanks v. FDIC, 977 F.2d 166 (5th Cir.1992) and Bank of Lafayette v. Baudoin, 981 F.2d 736 (5th Cir.1993), Terrebonne’s lender-liability claims against Placid were not definitively resolved by the confirmed reorganization order. Terrebonne reserved its rights to all claims and causes of action including making objections to claims. Unlike Bau-doin the state court judgment was not inconsistent with the confirmed plan of reorganization.