1999 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-11-1999

Corestates Bank v. Huls America Inc

Precedential or Non-Precedential:

Docket 97-1784

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Recommended Citation

"Corestates Bank v. Huls America Inc" (1999). 1999 Decisions. Paper 118.

http://digitalcommons.law.villanova.edu/thirdcircuit_1999/118
Filed May 11, 1999 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

NO. 97-1784 

CORESTATES BANK, N.A., 

Appellant 

v. 

HULS AMERICA, INC. 

On Appeal From the United States District Court 

For the Eastern District of Pennsylvania 

(D.C. Civ. No. 96-cv-08119) 

District Judge: Honorable Harvey Bartle, III 

Argued: July 17, 1998 

Before: BECKER, Chief Judge, STAPLETON and WEIS, 

Circuit Judges. 

(Filed May 11, 1999) 

 WALTER WEIR, JR., ESQUIRE 

 (ARGUED) 

 Weir & Partners 

 100 So. Broad Street 

 Suite 1200 - Land Title Building 

 Philadelphia, PA 19110 

 Counsel for Appellant 
 DAVID J. D'ALOIA, ESQUIRE 

 VINCENT F. PAPALIA, ESQUIRE 

 (ARGUED) 

 ADAM S. RAVIN, ESQUIRE 

 Saiber, Schlesinger, Satz & 

 Goldstein, LLC 

 One Gateway Center, 13th Floor 

 Newark, NJ 07102-5311 

 EDWARD J. DiDONATO, ESQUIRE 

 DiDonato & Winterhalter 

 1818 Market Street, 29th Floor 

 Philadelphia, PA 19103 

 Counsel for Appellee 

OPINION OF THE COURT 

BECKER, Chief Judge. 

This appeal by CoreStates Bank, N.A. ("CoreStates")

requires us to consider the putative claim preclusive effect 

of the Bankruptcy Judge's denial of CoreStates's objections 

to a Chapter 11 bankruptcy reorganization plan 

confirmation. Both CoreStates and appellee Huls America, 

Inc. ("Huls") had extended substantial credit to the debtor, 

United Chemical Technologies, Inc. ("UCT"), a chemical 

separation science company, to facilitate the purchase by 

UCT of a manufacturing facility from Huls. They then 

entered into a Subordination Agreement in order to clarify 

their respective rights to receive payment from UCT. Under 

the Agreement, UCT's debts to Huls were subordinated to 

CoreStates's. Huls also agreed that it would not retain any 

payment by UCT, including those paid under a bankruptcy 

plan, until UCT had paid off its indebtedness to CoreStates 

in full. 

After UCT filed for bankruptcy, but before the Plan of 

Reorganization was finally confirmed, UCT paid to Huls 

some $600,000 as called for by the Plan. CoreStates

demanded that Huls pay this sum over to it. CoreStates 

filed objections to the Plan on the grounds, inter alia, that 

the Plan entitled Huls to receive $600,000 immediately, 

 2 
asserting that this proposed payment unfairly discriminated 

between creditors. CoreStates did not contend to the 

Bankruptcy Judge that the $600,000 had to be paid over to 

it pursuant to the Subordination Agreement. 

Subsequently, CoreStates filed the present suit in the 

District Court, alleging that Huls is obligated by the 

Subordination Agreement to turn the $600,000 over to 

CoreStates. The issue on appeal is whether CoreStates has 

a right to receive the funds, when both CoreStates's and 

Huls's rights in the bankruptcy estate, and CoreStates's 

objection based on the payment in particular, were settled 

in the confirmation proceeding. The District Court 

concluded that CoreStates's claim was precluded because 

CoreStates could have raised its claim based on the

Agreement in the bankruptcy proceeding alongside its 

objection, but failed to do so. See CoreStates Bank, N.A. v. 

Huls America, Inc., No. Civ. A. 96-8119, 1997 WL 560193 

(E.D. Pa. Aug. 28, 1997). 

This case is difficult because it falls within the interstices 

of the law of judgments. As discussed below, a Bankruptcy 

Judge's order rejecting a creditor's objection to a

bankruptcy reorganization plan acts as a final judgment for 

preclusion purposes. In this case, CoreStates objected to 

the Plan because it would result in the immediate payment 

of $600,000 to Huls, and its objection seems to subsume 

the Subordination Agreement, even though it was not

advanced in terms. As a result, both issue preclusion and 

claim preclusion might have some relevance to the present 

litigation, which concerns whether Huls is obligated by the 

Subordination Agreement to turn the $600,000 over to 

CoreStates. We think that claim preclusion provides the 

more appropriate framework, however, because we are

unsure that the Subordination Agreement was raised with 

sufficient clarity in the reorganization proceeding to give 

rise to issue preclusion. 

Claim preclusion bars a party from litigating a claim that 

it could have raised or did raise in a prior proceeding in 

which it raised another claim based on the same cause of 

action. Agreeing with three other circuits (two are of the 

contrary view), we conclude that the doctrine applies 

regardless of the type of bankruptcy jurisdiction-- core or 

 3 
non-core -- within which the current claim would fall. 

Moreover, we believe that the facts of this case-- 

particularly where the parties were formerly creditors in a 

bankruptcy proceeding -- fall within the rubric of claim 

preclusion, albeit at the margin. 

Although our holding is largely fact-bound, insofar as we 

bring it within the claim preclusion jurisprudence we are 

obliged to flesh out its doctrinal aspect. We note in this 

regard the limiting effects on these precepts of the internal 

elements of the claim preclusion test itself, set forth in 

Board of Trustees of Trucking Employees Welfare Fund, Inc. 

v. Centra, 983 F.2d 495, 504 (3d Cir. 1992), and of the 

statutory constraints on the scope of bankruptcy 

jurisdiction. First, claim preclusion applies only if the 

current claim would have been within the jurisdiction of the 

court hearing the prior bankruptcy proceeding. A claim, in 

order to fall within the bankruptcy jurisdiction, must at 

least be one that "could conceivably have any effect on the 

estate being administered in bankruptcy." Pacor, Inc. v. 

Higgins, 743 F.2d 984, 994 (3d Cir. 1984). Second, except 

possibly in certain unusual circumstances, claim 

preclusion applies only if the party to be precluded raised 

a claim, such as an objection to a reorganization plan, in a 

prior proceeding. Finally, claim preclusion applies only if 

the events underlying the current claim are essentially 

similar to those underlying the claim made in the 

bankruptcy proceeding. If the current claim alleged to be 

precluded does not meet these three requirements it will 

not be precluded. 

CoreStates's claim clearly meets these three 

requirements. First, it could have raised its claim under the 

Subordination Agreement during the confirmation 

proceeding along side its objections, both as a legal and as 

a factual matter. The claim based on the Subordination 

Agreement fell within the non-core "related to" bankruptcy 

jurisdiction, if not the core jurisdiction. In addition, since 

UCT paid Huls the money before the Plan was confirmed, 

CoreStates's claim accrued before the confirmation 

proceeding concluded. Second, CoreStates filed an objection 

to the confirmation of UCT's Plan of Reorganization that 

was argued at length before the Bankruptcy Judge and the 

 4 
District Court by both CoreStates and Huls. This objection 

put into controversy the entire amount that Huls was to 

receive in full satisfaction of its claims against UCT. Third, 

CoreStates's objection to the confirmation of the Plan 

involved the same underlying factual issues as CoreStates's 

present claim. We therefore conclude that the District Court 

correctly found that CoreStates's claim was precluded; 

hence we will affirm. 

I. Facts & Procedural History 

This case arises out of a series of events culminating in 

the bankruptcy reorganization of UCT. See CoreStates 

Bank, N.A. v. United Chem. Techs., Inc., 202 B.R. 33 (E.D. 

Pa. 1996). In 1993, UCT purchased from Huls a facility that 

manufactured specialty chemicals.1 This purchase was 

funded in part by loans and extensions of credit from 

CoreStates, totaling about $1.1 million.2 Huls also provided 

financing for the purchase and, after the sale, continued to 

supply products to UCT on credit terms. As a condition of 

the financing, CoreStates, UCT and Huls executed a 

Subordination Agreement ("the Agreement"). The Agreement 

provided, in part, that Huls would subordinate its claims to 

CoreStates's and would not retain any payment by UCT 

until UCT's indebtedness to CoreStates had been paid off in 

full. It further provided that, if any bankruptcy proceeding 

was filed by or against UCT, Huls would hold any payments 

it received pursuant to that proceeding as trustee for the 

benefit of CoreStates and deliver such payments 

immediately to CoreStates. 

As a consequence of an explosion at UCT's new facility, 

UCT filed for Chapter 11 protection in October 1995. UCT 

filed its first Plan of Reorganization in February 1996. This 

plan met with resistance from a number of interested 

parties, including Huls and CoreStates. Following further 

negotiations, UCT submitted a First Amended Plan of

Reorganization in March 1996. The Amended Plan had the 

_________________________________________________________________ 

1. During the pendency of this litigation, Huls America changed its name 

to Creanova, Inc. We continue to refer to the defendant herein as Huls. 

2. During the pendency of this litigation, CoreStates merged into First 

Union Corp. We continue to refer to the plaintiff herein as CoreStates. 

 5 
consent of all interested parties except CoreStates, which 

objected to it. 

Under the Amended Plan, CoreStates was to receive a

cash payment of $550,497 on the Plan's effective date, and 

repayment of remaining lines of credit and mortgages with 

interest over periods ranging from five to fifteen years. 

CoreStates would also retain all its liens and security 

interests, except for certain machinery and equipment 

liens. Huls, a creditor with a priority junior to CoreStates, 

was to receive a $600,000 cash payment in full satisfaction 

of its more than $3.2 million in claims, approximately $2.3 

million of which was secured. Nothing in the Amended Plan 

purported to modify or nullify the Agreement as between 

CoreStates and Huls. 

CoreStates filed an action in the form of objections to the 

Amended Plan. These objections did not refer to the

Agreement. CoreStates did, however, specifically object on 

the grounds that under the Plan Huls was entitled to 

receive $600,000 immediately. CoreStates argued that this 

proposed payment to Huls unfairly discriminated between 

creditors. 

On June 5, 1996, the Bankruptcy Judge rejected 

CoreStates's objections. One week later, he held a 

confirmation hearing. Just prior to the hearing, counsel for 

CoreStates informed counsel for Huls that CoreStates 

intended to enforce Huls's obligation to turn over the 

proceeds that it would receive under the Plan. At the 

confirmation hearing, Huls raised the issue with the court, 

and a brief colloquy ensued, although no papers were filed. 

The court did not formally resolve the issue, however, and 

proceeded to confirm the Plan over CoreStates's objection. 

CoreStates appealed the order confirming the Amended 

Plan to the District Court. See CoreStates, 202 B.R. 33. 

Among other issues, CoreStates argued that the 

Bankruptcy Judge improperly rejected its objection by 

wrongly "[d]etermining that [Huls] was permitted to receive 

payments . . . before [CoreStates] was paid, in 

contravention of the Subordination Agreement," thereby 

violating 11 U.S.C. S 510(a) and the "fair and equitable" 

requirement of 11 U.S.C. S 1129(b)(1) & (2). In fact, Huls 

 6 
itself filed a brief in opposition to CoreStates's appeal, and 

CoreStates filed a reply brief responding almost exclusively 

to Huls's arguments. The District Court refused to consider 

this argument. It found that CoreStates had not raised the 

Agreement as a basis for objecting to the Amended Plan in 

the Bankruptcy Court, and therefore was not entitled to 

raise it before the District Court. See CoreStates, 202 B.R. 

at 48. The Court also rejected CoreStates's more general 

contention that the $600,000 payment unfairly 

discriminated against it, which Huls discussed at length in 

its brief. For other reasons, however, the court reversed the 

confirmation of the Plan. See 202 B.R. at 58. 

On August 12, 1996, prior to the ruling of the District 

Court, UCT paid to Huls the $600,000 sum called for by 

the Amended Plan.3 On September 6, CoreStates made a 

written demand on Huls for the money. In that letter, 

CoreStates asserted that, as a result of the District Court's 

vacatur of the Amended Plan, there was no confirmed plan 

and therefore Huls was required to pay the money over to 

CoreStates per the Agreement. Huls refused. 

UCT filed a Second Amended Plan on September 19. The 

Second Amended Plan altered the Amended Plan only with 

respect to CoreStates. It restored some of CoreStates's 

existing liens, which had been eliminated under the

Amended Plan. It did not, however, purport to change 

either CoreStates's rights vis a vis Huls or the payment 

Huls was to receive. CoreStates objected to the Second 

Amended Plan as well. It stated a number of grounds for 

objecting, but did not invoke the Subordination Agreement, 

except by generalized incorporation. The Bankruptcy Judge 

again confirmed the Plan over CoreStates's objections. 

CoreStates did not appeal the confirmation of the Second 

Amended Plan. 

In December 1996, CoreStates filed the present diversity 

action in the District Court, which had jurisdiction under 

28 U.S.C. S 1332. Huls moved to dismiss the complaint for 

_________________________________________________________________ 

3. CoreStates had previously requested a stay of the Amended Plan in 

order to prevent UCT from paying Huls the $600,000. This request was 

based in part on the Agreement. The Bankruptcy Court denied the 

request without addressing the Agreement. 

 7 
failure to state a claim under Fed. R. Civ. P. 12(b)(6), or, in 

the alternative, for judgment on the pleadings under Fed. 

R. Civ. P. 12(c). CoreStates responded with a motion for 

summary judgment. The District Court granted Huls's

motion for judgment on the pleadings and denied 

CoreStates's motion for summary judgment. See 

CoreStates, 1997 WL 560193, at *4. The court held that the 

doctrine of claim preclusion barred CoreStates's claim, 

reasoning that the claims CoreStates raises in the present 

case could have been raised during the UCT bankruptcy 

proceeding. See 1997 WL 560193, at *3-*4. CoreStates 

timely appeals from this decision. We have jurisdiction 

pursuant to 28 U.S.C. S 1291. 

This court exercises plenary review over a district court's 

order granting a motion for judgment on the pleadings 

pursuant to Fed. R. Civ. P. 12(c). See Kruzits v. Okuma 

Mach. Tool, Inc., 40 F.3d 52, 54 (3d Cir. 1994). Under Rule 

12(c), a district court cannot grant judgment on the 

pleadings, and we may not affirm such a grant, "unless the 

movant clearly establishes that no material issue of fact 

remains to be resolved and that he is entitled to judgment 

as a matter of law." Kruzits, 40 F.3d at 54 (quoting 

Jablonski v. Pan Am. World Airways, Inc., 863 F.2d 289, 

290 (3d Cir. 1988) (quoting Society Hill Civic Assn. v. 

Harris, 632 F.2d 1045, 1054 (3d Cir. 1980) (citation 

omitted))). 

II. Claim Preclusion and Bankruptcy Proceedings 

The central issue in this appeal is the claim preclusive 

effect of the Bankruptcy Judge's final order of confirmation, 

over CoreStates's objection, on CoreStates's claim against 

Huls. In the confirmation proceeding, CoreStates objected 

to the Plan as unfair in part because it provided for the 

immediate payment of $600,000 to Huls, a junior creditor. 

CoreStates's present claim is that the Subordination 

Agreement requires Huls to pay to CoreStates the $600,000 

Huls received pursuant to the now-confirmed 

Reorganization Plan. A strong argument can be made that 

CoreStates's unfairness objection so clearly implicated the 

Agreement that the issue that divides the parties in the 

present case was effectively raised and litigated in the 

 8 
bankruptcy proceeding, so that we are dealing here with 

issue preclusion rather than claim preclusion.4 Since the 

District Court and the parties have treated this case as 

involving primarily claim preclusion, however, and claim 

preclusion is the most clearly applicable doctrine, we begin 

with a review of the basic law of claim preclusion.

In Board of Trustees of Trucking Employees Welfare Fund, 

Inc. v. Centra, 983 F.2d 495 (3d Cir. 1992), we explained 

that claim preclusion (or res judicata as it is also called) 

"gives dispositive effect to a prior judgment if a particular 

issue, although not litigated, could have been raised in the 

earlier proceeding. Claim preclusion requires: (1) afinal 

judgment on the merits in a prior suit involving; (2) the 

same parties or their privities; and (3) a subsequent suit 

based on the same cause of action." Centra, 983 F.2d at 

504 (emphasis added; citations omitted). If these three 

factors are present, a claim that was or could have been 

raised previously must be dismissed as precluded. 

We have elaborated on the third element of the Centra 

test, both in general and in the context of bankruptcy 

proceedings. In deciding whether two suits are based on the 

same "cause of action," we take a broad view, looking to 

whether there is an "essential similarity of the underlying 

events giving rise to the various legal claims." United States 

v. Athlone Indus., 746 F.2d 977, 984 (3d Cir. 1984); see 

also Restatement (Second) of Judgments S 24 cmt. a ("The 

present trend is to see claim in factual [as opposed to legal] 

terms and to make it coterminous with the transaction 

regardless of the number of substantive theories . .. that 

may be available to the plaintiff . . . ."); id. cmt. b ("In 

general, the expression [`transaction'] connotes a natural 

grouping or common nucleus of operative facts."). Because 

a "bankruptcy case" is fundamentally different from the 

typical civil action, however, comparison of a bankruptcy 

proceeding with another proceeding is not susceptible to 

_________________________________________________________________ 

4. Another way of looking at it might be that CoreStates's claim should 

be barred by reason of S 1141 of the Bankruptcy Code, 11 U.S.C. 

S 1141(a), which provides that a confirmed plan is binding on all 

creditors, including feuding creditors such as CoreStates and Huls, who 

litigated the fairness of the Plan as affected by the disputed payment. 

 9 
the standard res judicata analysis. "Rather, we scrutinize 

the totality of the circumstances in each action and then 

determine whether the primary test of Athlone, i.e., 

essential similarity in the underlying events, has been 

satisfied." Oneida Motor Freight, Inc. v. United Jersey Bank, 

848 F.2d 414, 419 n.5 (3d Cir. 1988). 

The principle of claim preclusion applies to final orders 

overruling objections to a reorganization plan in bankruptcy 

proceedings just as it does to any other final judgment on 

a claim. See Wallis v. Justice Oaks II, Ltd. (In re Justice 

Oaks II, Ltd.), 898 F.2d 1544, 1552 (11th Cir. 1990) 

("Because the claims raised in the Wallises' adversary 

complaint were already raised, or could have been raised, 

in their objection to confirmation, we hold that the doctrine 

of claim preclusion bars them from relitigating those 

claims."); see also Katchen v. Landy, 382 U.S. 323, 334 

(1966) ("The normal rules of res judicata and collateral 

estoppel apply to the decisions of bankruptcy courts."); 

Donaldson v. Bernstein, 104 F.3d 547, 554 (3d Cir. 1997) 

("[A] confirmation order is res judicata as to all issues 

decided or which could have been decided at the hearing on 

confirmation." (quoting In re Szostek, 886 F.2d 1405, 1408 

(3d Cir. 1989))); Crop-Maker Soil Servs. v. Fairmount St. 

Bank, 881 F.2d 436, 440 (7th Cir. 1991) ("Public policy 

supports res judicata generally, but in the bankruptcy 

context in particular."); cf. 11 U.S.C.S 1141(a) ("[T]he 

provisions of a confirmed plan bind . . . any creditor . . . 

whether or not the claim or interest of such creditor . . . is 

impaired under the plan and whether or not such creditor 

. . . has accepted the plan."). Accordingly, we ordinarily 

would simply apply these rules. CoreStates suggests two 

reasons why we should not.5 We address these in turn. 

_________________________________________________________________ 

5. CoreStates also submits that claim preclusion should not apply 

because the bankruptcy proceeding did not modify or adjudicate its 

rights under the Agreement. This argument misapprehends the 

fundamental nature of the doctrine of claim preclusion, which applies 

whether or not the particular issue was actually raised or decided by the 

prior court. See Agrilectric Power Partners, Ltd. v. General Elec. Co., 20 

F.3d 663 (5th Cir. 1994). The continued effectiveness of the contract is 

simply irrelevant. Of course, if CoreStates's claim had not accrued before 

the Bankruptcy Judge confirmed UCT's Plan of Reorganization, then 

whether the Plan had modified the Agreement would be important. 

 10 
III. Claim Preclusion: Non-Core Claims and Claims 

 Between Creditors 

CoreStates's submissions raise legitimate questions as to 

the extent to which claim preclusion applies to bankruptcy 

orders and judgments. The thrust of its contentions is in 

the nature of a caveat that, because bankruptcy 

jurisdiction is so comprehensive, and a bankruptcy 

proceeding potentially can be so broad, its preclusive effect 

should be limited. We address two questions CoreStates 

poses about the claim preclusive effect of a bankruptcy 

judge's orders rejecting objections to reorganization plans: 

whether the doctrine should preclude claims that would 

have fallen within the non-core "related" -- as opposed to 

the core -- bankruptcy jurisdiction, and whether it should 

apply to the claims of a creditor who objects to a 

bankruptcy reorganization plan. We believe that these 

suggested limitations on the application of claim preclusion 

are unnecessary, and that claim preclusion should apply 

regardless of the jurisdictional basis of the present claim 

and between all parties to a bankruptcy case. 

A. Claim Preclusion and Non-Core Claims 

The first question is whether claim preclusion should 

apply if CoreStates's claim falls within the non-core 

"related" bankruptcy jurisdiction. The jurisdiction of a court 

hearing a Chapter 11 bankruptcy reorganization case is 

broad. This jurisdiction is delineated in 28 U.S.C. SS 157 & 

1334. Title 28 initially grants jurisdiction over all aspects of 

a bankruptcy case to the district courts. See 28 U.S.C. 

S 1334.6 Section 157(a) then permits the district courts to 

_________________________________________________________________ 

6. Section 1334 provides as follows: 

 (a) Except as provided in subsection (b) of this section, the 

 district courts shall have original and exclusive jurisdiction of 

all 

 cases under title 11. 

 (b) Notwithstanding any Act of Congress that confers exclusive 

 jurisdiction on a court or courts other than the district courts, 

the 

 district courts shall have original but not exclusive jurisdiction 

of all 

 civil proceedings arising under title 11, or arising in or related 

to 

 cases under title 11. 

 11 
automatically refer any proceedings over which they have 

jurisdiction under S 1334 to the bankruptcy courts.7 See, 

e.g., Bankruptcy Administration Orders (E.D. Pa. July 25, 

1984, Nov. 8, 1990) (using the District Court's full 

authority to refer cases to bankruptcy judges under

S157(a)). Section 157(b)(1) provides that "[b]ankruptcy 

judges may hear and determine all cases under title 11 and 

all core proceedings arising under title 11, or arising in a 

case under title 11, referred under subsection [157(a)], and 

may enter appropriate orders and judgments . . . ."

Along with those listed in the statute,8 "a proceeding is 

core under section 157 if it invokes a substantive right 

provided by title 11 or if it is a proceeding that, by its 

nature, could arise only in the context of a bankruptcy 

case." Torkelsen v. Maggio (In re Guild & Gallery Plus, Inc.), 

72 F.3d 1171, 1178 (3d Cir. 1996) (quoting In re Marcus 

Hook Dev. Park, Inc., 943 F.2d 261, 267 (3d Cir. 1991) 

(citations omitted)). Bankruptcy judges may also hear noncore proceedings that are otherwise related to a bankruptcy 

case. See S 157(c)(1) ("A bankruptcy judge may hear a 

proceeding that is not a core proceeding but that is 

otherwise related to a case under title 11."). 

A claim is a non-core "related" claim if its 

 outcome . . . could conceivably have any effect on the 

 estate being administered in bankruptcy. Thus, the 

 proceeding need not necessarily be against the debtor 

 or against the debtor's property. An action is related to 

 bankruptcy if the outcome could alter the debtor's 

 rights, liabilities, options, or freedom of action (either 

 positively or negatively) and which in any way impacts 

 upon the handling and administration of the bankrupt 

 estate. 

_________________________________________________________________ 

7. Section 157(a) provides: "Each district court may provide that any or 

all cases under title 11 and any or all proceedings arising under title 11 

or arising in or related to a case under title 11 shall be referred to the 

bankruptcy judges for the district." 

8. Section 157(b)(2) presents a nonexclusive list of core proceedings, 

including "determinations of the validity, extent, or priority of liens." 

S 157(b)(2)(K). 

 12 
Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) 

(emphasis and citations omitted). In non-core claims, 

however, the bankruptcy judge may not enter final orders 

or judgments, but must submit proposed findings of fact 

and conclusions of law to the district court for entry of 

judgment, see 28 U.S.C. S 157(c)(1),9 unless all the parties 

consent to the bankruptcy judge's entering judgment, see 

S 157(c)(2).10 

This distinction between core and non-core proceedings 

dates to the Supreme Court case of Northern Pipeline 

Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982). 

The principles of Northern Pipeline are familiar, and are 

described in the margin.11 Although CoreStates does not 

_________________________________________________________________ 

9. Section 157(c)(1) provides, in pertinent part: 

 In [a non-core] proceeding, the bankruptcy judge shall submit 

 proposed findings of fact and conclusions of law to the district 

 court, and any final order or judgment shall be entered by the 

 district judge after considering the bankruptcy judge's proposed 

 findings and conclusions and after reviewing de novo those matters 

 to which any party has timely and specifically objected. 

10. Section 157(c)(2) provides: 

 Notwithstanding the provisions of paragraph (1) of this 

subsection, 

 the district court, with the consent of all the parties to the 

 proceeding, may refer a proceeding related to a case under title 11 

 to a bankruptcy judge to hear and determine and to enter 

 appropriate orders and judgments . . . . 

11. A Chapter 11 debtor brought claims before a bankruptcy judge 

against a creditor for breach of contract and warranty, 

misrepresentation, coercion, and duress, under the jurisdictional 

provisions of the 1978 Bankruptcy Reform Act. Those provisions granted 

bankruptcy courts jurisdiction over all "civil proceedings arising under 

title 11, or arising in or related to cases under title 11." 458 U.S. at 

54 

(quoting 28 U.S.C. S 1471(b) (1976 ed. Supp. IV)) (emphasis and 

alteration in original). The Court concluded that this grant of 

jurisdiction 

over proceedings merely "related to" bankruptcy cases to non-Article III 

bankruptcy judges violated the Constitution. This decision rested on the 

notion that non-Article III judges may only hear cases involving public, 

congressionally created rights, but not claims based on private commonlaw rights. See 458 U.S. at 80-84 (citing Crowell v. Benson, 285 U.S. 22, 

51-65 (1932)). The protections afforded a debtor under the Bankruptcy 

Code are congressionally created public rights. The debtor's breach of 
 13 
argue that section 157 is constitutionally problematic in 

light of Northern Pipeline, some courts and commentators 

have questioned whether claim preclusion can apply to 

non-core claims that could have been raised in a 

bankruptcy proceeding. More specifically, the Fifth and 

Seventh Circuits have held that a subsequent claim is not 

barred by a confirmation order from a bankruptcy 

proceeding in which the present claim could have been 

raised only under section 157's non-core "related" 

jurisdiction. See Barnett v. Stern, 909 F.2d 973, 978-79 

(7th Cir. 1990); Howell Hydrocarbons, Inc. v. Adams, 897 

F.2d 183, 189 (5th Cir. 1990); see also George A. Martinez, 

The Res Judicata Effect of Bankruptcy Court Judgments: 

The Procedural and Constitutional Concerns, 62 Mo. L. Rev. 

9 (1997). 

Ordinarily, a party will not be precluded from raising a 

claim by a prior adjudication if the party did not have the 

opportunity to fully and fairly litigate the claim. See 

Restatement (Second) of Judgments S 26(1)(c). The courts in 

Barnett and Howell reasoned that, because a bankruptcy 

judge could not, under section 157(c)(1), finally adjudicate 

a non-core claim, a party to such a confirmation proceeding 

would not have an opportunity to fully and fairly litigate a 

claim "related to" the bankruptcy case. Accordingly, they 

concluded that a confirmation order does not have a claim 

preclusive effect on a claim that would have been brought 

under non-core "related" jurisdiction and adjudicated 

within the constraints of section 157(c). See Barnett, 909 

F.2d at 979; Howell, 897 F.2d at 189. 

_________________________________________________________________ 

contract claim, along with the other claims the debtor brought, however, 

involved only private common-law rights, and thus could not be 

adjudicated in a non-Article III court. 

In response to the Northern Pipeline decision, Congress enacted the 

jurisdiction provisions currently set forth in 28 U.S.C. SS 157 & 1334. 

See Bankruptcy Amendments & Federal Judgeship Act of 1984, Pub. L. 

No. 98-353, 98 Stat. 344. As seen above, these provisions differ from 

those at issue in Northern Pipeline primarily in that they limit a 

bankruptcy judge's ability to issue final orders and judgments in cases 

brought under the non-core "related" jurisdiction. See 28 U.S.C. S157(c). 

 14 
We disagree, believing that an order rejecting an 

objection to a reorganization plan in a bankruptcy 

proceeding has a claim preclusive effect on a claim that 

could have been brought in that proceeding by the objector, 

even if only under the non-core "related" bankruptcy 

jurisdiction. Our conclusion in this regard is consistent 

with those of the Second, Sixth and Ninth Circuits. See, 

e.g., Robertson v. Isomedix, Inc. (In re Intl. Nutronics, Inc.), 

28 F.3d 965 (9th Cir. 1994); Sanders Confectionery Prods., 

Inc. v. Heller Fin., Inc., 973 F.2d 474, 482-83 (6th Cir. 

1992); Sure-Snap Corp. v. State St. Bank & Trust Co., 948 

F.2d 869, 873 (2d Cir. 1991); see also Ralph E. Avery, 

Chapter 11 Bankruptcy and Principles of Res Judicata, 102 

Com. L.J. 257, 286-88 (1997). These courts have observed 

that, even though a bankruptcy judge could not 

conclusively determine a non-core proceeding, the 

bankruptcy judge and the district court together could do 

so, and this was sufficient to permit full and fair litigation 

of the non-core claim. Accordingly, these courts have 

concluded that a confirmation order could have claim 

preclusive effect even on non-core "related" claims that 

could have been raised alongside an objection in the 

confirmation proceeding. See Robertson, 28 F.3d at 969; 

Sanders, 973 F.2d at 482. 

We thus conclude that the restrictions on a bankruptcy 

judge's judicial power with respect to non-core"related" 

claims do not limit the effect of the doctrine of claim 

preclusion. This depends on our interpretation of section 26 

of the Restatement (Second) of Judgments. See Venuto v. 

Witco Corp., 117 F.3d 754, 758-59 (3d Cir. 1997) (relying on 

section 26 in analyzing federal law of claim preclusion). 

Section 26 provides, in pertinent part: 

 When any of the following circumstances exists, the 

 [doctrine of claim preclusion] does not apply to 

 extinguish the claim, and part or all of the claim 

 subsists as a possible basis for a second action by the 

 plaintiff against the defendant: 

 . . . . 

 The plaintiff was unable to rely on a certain theory of 

 the case or to seek a certain remedy or form of relief in 

 15 
 the first action because of the limitations on the 

 subject matter jurisdiction of the courts or restrictions 

 on their authority to entertain multiple theories or 

 demands for multiple remedies or forms of relief in a 

 single action, and the plaintiff desires in the second 

 action to rely on that theory or to seek that remedy or 

 form of relief. 

Restatement (Second) of Judgments S 26(1)(c). Claim

preclusion should therefore apply only where "the 

jurisdiction in which the first judgment was rendered was 

one which put no formal barriers in the way of a litigant's 

presenting to a court in one action the entire claim, 

including any theories of recovery or demands for relief that 

might have been available to him under applicable law." 

Restatement S 26 cmt. c. 

The comments to the Restatement discuss two primary

types of cases in which this limitation applies. First, they 

discuss a case in which the first judgment is in a state 

court, and the plaintiff then brings a second action in 

federal court under a statute that gives federal courts 

exclusive jurisdiction. In such a case, the Supreme Court 

has held that the later federal action is not barred by claim 

preclusion. See Marrese v. American Acad. of Orthop. 

Surgs., 470 U.S. 373 (1985); Restatement S 26 cmt. c, illus. 

2. Second, the Restatement explains that a later action is 

not barred by a prior action when the court hearing the 

first action had personal jurisdiction over the defendant 

only as to the theory of the first action, but not for that on 

which the second action is predicated. See Restatement 

S 26 cmt. c. 

We think the exceptions set forth in section 26(1)(c) of the 

Restatement are inapplicable to the case at bar. A 

bankruptcy judge's jurisdiction over a non-core "related" 

claim is not limited in the sense of that section. Section 

26(1)(c) applies to limitations on the types of theories, 

remedies, or relief available if a claim is brought in a 

particular forum. But bringing a non-core "related" claim 

before a bankruptcy judge does not in any way limit the 

available theories, remedies, or relief. Cf. Celotex Corp. v. 

Edwards, 514 U.S. 300, 309 n.7 (1995) (rejecting the 

argument that a bankruptcy judge does not have the power 

 16 
to issue an injunction barring an action in a different 

district court). A bankruptcy judge is perfectly capable of 

recommending, and the district court of awarding, 

judgment based on any theory, remedy, or relief, just as if 

the claim had been brought originally before a district 

court, or even a state court of general jurisdiction, outside 

of a bankruptcy proceeding. 

The Fifth and Seventh Circuits' main concern seems to 

be that since a bankruptcy judge cannot conclusively 

reward relief in a non-core proceeding, the judge does not 

have jurisdiction over non-core claims. See Howell, 897 

F.2d at 189 ("Moreover, the bankruptcy court would not 

have had jurisdiction over the [non-core `related'] claims 

against the defendants."). This concern, however, misses 

the basic point that, like magistrate judges, bankruptcy 

judges have no jurisdiction over any cases. In any 

bankruptcy proceeding, jurisdiction over the case rests with 

the district court; proceedings are only referred to the 

bankruptcy judges for consideration. See Sanders, 973 F.2d 

at 483 ("Although the bankruptcy court would not have 

subject matter jurisdiction over a non-core related

proceeding, the action would still be within the district 

court's jurisdiction."). In addition, the district courts retain 

the power to withdraw the reference at any time. See 28 

U.S.C. S 157(d). 

Likewise, even assuming that the bankruptcy judge has 

jurisdiction in some sense, the restraints that section 

157(c) imposes on the judge's power to dispose of a noncore claim do not bring it within the ambit of section 

26(1)(c) of the Restatement. Jurisdiction is different from 

judicial power.12 A limitation on judicial power is not a 

_________________________________________________________________ 

12. See American Hardwoods, Inc. v. Deutsche Credit Corp. (In re 

American Hardwoods, Inc.), 885 F.2d 621, 624 (9th Cir. 1989) ("Subject 

matter jurisdiction and power are separate prerequisites to the court's 

capacity to act. Subject matter jurisdiction is the court's authority to 

entertain an action between the parties before it. Power . . . is the 

scope 

and forms of relief the court may order in an action in which it has 

jurisdiction."); Holly's, Inc. v. City of Kentwood (In re Holly's, Inc.), 

172 

B.R. 545, 554 n.9 (Bankr. W.D. Mich. 1994), affd., 178 B.R. 711 (W.D. 

Mich. 1995); Gray v. Hall, 265 P. 246, 251 (Cal. 1928) ("Jurisdiction has 

 17 
limitation on jurisdiction. Section 157(c) only limits a 

bankruptcy judge's power to grant relief, not jurisdiction 

over a proceeding requesting such relief. Since section 26(c) 

of the Restatement speaks only of jurisdiction, it does not 

limit the preclusive effect of a confirmation of a 

reorganization plan over objection on a subsequent claim 

that could have been brought during the confirmation 

proceeding as a non-core "related" claim. See Restatement 

S 24 cmt. g (limits on the power of a court to grant a 

remedy do not affect the claim preclusive effect of its 

judgments). Accordingly, we agree with the Second, Sixth 

and Ninth Circuits that a prior confirmation order has 

claim preclusive effect with respect to a claim that could 

have been brought as a non core "related" proceeding 

during the confirmation proceeding. 

This is not to say, of course, that claim preclusion will 

apply to all claims with any factual connection to issues 

raised in the bankruptcy proceeding. Under section 26 of 

the Restatement, the claim must fall within the bankruptcy 

jurisdiction. Accordingly, claim preclusion will only apply if 

the claim is at least "related to" the bankruptcy case, 28 

U.S.C. SS 157 & 1334, i.e., if it "could conceivably have any 

effect on the estate being administered in bankruptcy," 

Pacor, 743 F.2d at 994 (emphasis and citations omitted). A 

party to a bankruptcy would not be precluded from later 

bringing a claim that could not conceivably have had any 

effect on the bankruptcy estate. 

B. Claim Preclusion Between Creditors 

CoreStates contends that claim preclusion cannot apply 

to claims between creditors in a bankruptcy confirmation 

proceeding. It relies on the fact that a party in a civil action 

is not precluded from litigating a claim simply because it 

had an opportunity to raise the claim as a cross-claim in a 

_________________________________________________________________ 

often been said to be `the power to hear and determine.' It is in truth 

the 

power to do both or either -- to hear without determining or to 

determine without hearing."); see also In re Specialty Equip. Cos., 3 F.3d 

1043, 1045 (7th Cir. 1993) (distinguishing between challenges to a 

court's jurisdiction and challenges to its power). 

 18 
prior suit to which it was a party. See United States v. 

Berman, 884 F.2d 916, 923 n.9 (6th Cir. 1989); Peterson v. 

Watt, 666 F.2d 361, 363 (9th Cir. 1982); 6 Charles Alan 

Wright et al., Federal Practice & ProcedureS 1431, at 236 

(2d ed. 1990) ("A party who decides not to bring his claim 

[as a cross-claim] will not be barred by res judicata . . . 

from asserting it in a later action, as he would if the claim 

were a compulsory counterclaim . . . ."); cf. Charter Oak Fire 

Ins. Co. v. Sumitomo Marine & Fire Ins. Co., 750 F.2d 267, 

270 (3d Cir. 1984) (noting that, under Pennsylvania law, 

claim preclusion bars the litigation of a claim that actually 

was raised as a cross-claim in a prior proceeding).

CoreStates is of course correct that, in general, a creditor 

who does not raise a claim against another party to the 

bankruptcy proceeding cannot be precluded from later 

asserting a claim. The question is, whether, for claim 

preclusion purposes, a creditor's, such as CoreStates's, 

objection to a reorganization plan can state a claim against 

another creditor, such as Huls, whose rights under the 

proposed plan the objection concerns. We conclude that in 

particular circumstances, such as those present here, it 

can. 

A cause of action is defined by its factual contours. As 

noted above, two claims involve the same cause of action if 

there is "an essential similarity of the underlying events 

giving rise to the various legal claims." Athlone, 746 F.2d at 

984; see also Restatement (Second) of Judgments S 24 

cmts. a, b. Because a "bankruptcy case" is fundamentally 

different from the typical civil action, however, comparison 

of a bankruptcy proceeding with another later proceeding is 

not susceptible to the standard res judicata analysis. 

"Rather, we scrutinize the totality of the circumstances in 

each action and then determine whether the primary test of 

Athlone, i.e., essential similarity in the underlying events 

has been satisfied." Oneida, 848 F.2d at 419 n.5. 

As noted above, claim preclusion traditionally has not 

acted as a bar to the later litigation of a claim by a party 

who has not actively raised a claim based on the same 

cause of action in a prior proceeding.13 See Peterson, 666 

_________________________________________________________________ 

13. The Restatement provides two limited exceptions to this rule, in 

addition to the case discussed in the text where the defendant interposes 

 19 
F.2d at 363; cf. Restatement (Second) of Judgments S 22(1) 

("Where the defendant may interpose a claim as a 

counterclaim but he fails to do so, he is not thereby 

precluded from subsequently maintaining an action on that 

claim [with certain exceptions]."); id. S 38 cmt. a ("Where no 

[cross- or counter-] pleadings have been interposed, the 

possibility of merger and bar by definition does not arise."). 

Where a party interposes such a claim, however, the party 

becomes a plaintiff for claim preclusion purposes. See 

Restatement (Second) of Judgments S 23 cmt. a ("A 

defendant who interposes a counterclaim is, in substance, 

a plaintiff, as far as the counterclaim is concerned. . . ."). 

Accordingly, claim preclusion applies to the claims of a 

party who asserts any claim in an action, even where the 

party is not the original plaintiff. See Fowler v. Vineyard, 

405 S.E.2d 678 (Ga. 1991); 18 Wright et al., supra, S 4450, 

at 425 ("Preclusion should apply according to ordinary 

rules between any parties who tried a claim between

themselves."). 

A party who raises an objection to a reorganization plan 

in a confirmation proceeding has interposed a claim in the 

sense just discussed. Under 11 U.S.C. S 1128(b), "[a] party 

_________________________________________________________________ 

a counterclaim. See Restatement (Second) of Judgments S 22(2). First, a 

defendant cannot bring a claim in a later proceeding if it could have 

been brought as a compulsory counterclaim in an earlier proceeding to 

which a compulsory counterclaim statute or rule applied. See S 22(2)(a). 

This exception will not ordinarily apply to bankruptcy confirmation 

orders, however, because a confirmation proceeding is a contested 

matter to which no compulsory counterclaim rule applies. See Fed. R. 

Bankr. P. 3020(b)(1), 9014. Second, a defendant in a case that proceeds 

to judgment cannot bring a later claim if "[t]he relationship between the 

counterclaim and the [later] claim is such that successful prosecution of 

the second action would nullify the initial judgment or would impair 

rights established in the initial action." See S 22(2)(b). Under this 

latter 

exception, even if a creditor did not proffer an objection to a plan 

confirmation, it would still be precluded from bringing a later claim 

based on the same cause of action if a judgment in its favor on the later 

claim would effectively nullify the effects of the confirmation order. 

See, 

e.g., Sure-Snap, 948 F.2d at 874-76. Since we can decide this case 

without considering these exceptions, we need not and do not decide 

whether and how they apply to bankruptcy plan confirmation orders. 

 20 
in interest may object to the confirmation of a plan." A 

claim is a "[m]eans by or through which claimant obtains 

possession or enjoyment of [a] privilege or thing." Black's 

Law Dictionary 247 (6th ed. 1990). By asserting an 

objection, a creditor asserts its privilege of having its 

interests in the bankruptcy estate settled in a plan that 

satisfies the requirements of S 1129. Furthermore, an 

objection requires the bankruptcy judge to adjudicate 

whether a proposed plan of reorganization meets the

requirements of S 1129. 

We also observe that, procedurally, an objection to a plan 

may possess all the hallmarks of a claim. An objection 

requires the bankruptcy judge to adjudicate whether a plan 

meets the requirements for confirmation. See 11 U.S.C. 

S 1129. Such an objection must be filed with the court and 

served on all parties to the confirmation proceeding. See 

Fed. R. Bankr. P. 3020(b)(1). The filing of an objection gives 

rise to a contested matter, see Fed. R. Bankr. P. 3020(b)(1), 

in which the many of the familiar rules of civil procedure 

apply, including the rules of discovery, see Fed. R. Bankr. 

P. 9014. A confirmation order rejecting objections is a final 

adjudication sufficient to preclude later claims. See Stoll v. 

Gottlieb, 305 U.S. 165, 170-71 (1938); Szostek, 886 F.2d at 

1409-10. 

Furthermore, we think that an objection can be a claim 

against other creditors, as well as the debtor, for claim 

preclusion purposes. A claimant may be bound under the 

doctrine of claim preclusion by a judgment on a claim 

against another party not named as its adversary if they are 

adversaries in fact. See Sullivan v. Easco Corp., 662 F. 

Supp. 1396, 1408 (D. Md. 1987); 18 Wright et al., supra, 

S 4450, at 420; cf. Restatement (Second) of Judgments S 38 

("Parties who are not adversaries to each other under the 

pleadings in an action involving them and a third party are 

bound by and entitled to the benefits of issue preclusion 

with respect to issues they actually litigate fully and fairly 

as adversaries and which are essential to the judgment 

rendered."). Parties are adversaries if they have"opposing 

interests, . . . interests for the preservation of which 

opposition is essential." Black's Law Dictionary, supra, at 

53. 

 21 
An objection frequently puts into question the interests of 

specific non-objecting creditors under a proposed plan. In 

order to preserve these interests, these non-objecting 

creditors then have the right to oppose the objections in a 

hearing.14 We think it beyond cavil that these non-objecting 

creditors -- whose rights in the estate may be affected by 

the objection -- are fairly denominated adversaries of the 

objecting creditor. Accordingly, we think that claim 

preclusion should bar an objecting creditor such as

CoreStates from litigating in a later proceeding claims 

against a non-objecting creditor in the circumstances 

present here. 

The Eleventh Circuit reached a similar conclusion in 

Wallis. There, creditors objected to a plan on the grounds 

that a certain lender had engaged in unfair conduct in 

obtaining a security interest in the bankruptcy estate, and 

also that the lender's security interest was really a 

partnership interest. These objections were rejected. The 

creditors later brought a separate claim against the lender 

alleging that the lender engaged in fraud and that the 

lender was not a secured creditor. The court held that these 

claims were barred by claim preclusion. 

 The Wallises' objection was overruled, and they failed 

 to appeal the order. The Wallises' adversary complaint 

 essentially brings an impermissible collateral attack on 

 the order confirming the plan. Because the claims 

 raised in the Wallises' adversary complaint were 

 already raised, or could have been raised, in their 

 objection to confirmation, we hold that the doctrine of 

 claim preclusion bars them from relitigating those 

 claims. 

Wallis, 898 F.2d at 1552 (footnote omitted). 

_________________________________________________________________ 

14. For example, one creditor might object to a reorganization plan on 

the ground that another creditor had become secured as a result of 

fraud, and therefore its interest should be treated as unsecured. If the 

bankruptcy judge sustained the objection and refused to confirm the 

plan, any future proposed plan would presumably be prohibited from 

treating the second creditor as secured. Accordingly, that creditor would 

have standing and good reason to oppose the objection. 

 22 
C. The Limiting Principle that the Two Claims Must Arise 

 out of "Same Cause of Action" 

Although we have rejected these two extrinsic limitations 

on the applicability of claim preclusion, our holding is 

actually a narrow one. Although fact-bound, it is also well 

within the confines of claim preclusion doctrine. As noted 

above, claim preclusion only applies to claims that would 

have been within the bankruptcy court jurisdiction, i.e., 

those that are at least "related to" the bankruptcy case. See 

supra section III.A. In addition, except possibly in unusual 

circumstances, it only applies to creditors who raise a claim 

in the bankruptcy proceeding contrary to the interests of 

another specific creditor. See supra section III.B. Finally, 

the Centra test for claim preclusion provides an additional 

limit on the preclusive effect of bankruptcy confirmation 

orders over objections. These three intrinsic limitations 

provide an appropriate and sufficient limit on the preclusive 

effect of the rejection of objections to bankruptcy plans 

than the putative restraints we reject above. See supra 

sections III.A & B. Since we have already discussed the 

jurisdictional limitations on the doctrine and the 

requirement that the party to be precluded have previously 

raised a claim, we need now discuss only the restraint the 

Centra test provides. 

Under Centra, a subsequent claim is barred only if it 

arises out of "the same cause of action" as that litigated in 

the first action. See Centra, 983 F.2d at 504. Where the 

first case is a bankruptcy proceeding, we "scrutinize the 

totality of the circumstances in each action," Oneida, 848 

F.2d at 419 n.5, to ascertain whether there is an "essential 

similarity of the underlying events giving rise to the various 

legal claims," Athlone Indus., 746 F.2d at 984. We think the 

"essential similarity" requirement sufficiently limits the 

claim preclusive effect of final orders concerning objections 

to bankruptcy reorganization plan confirmations. 

We note that some judges and commentators have 

expressed concern that claim preclusion has been applied 

where the two actions are not sufficiently factually 

connected. See Oneida, 848 F.2d at 422 (Stapleton, J., 

dissenting) (arguing that claim preclusion should not apply 

because no matter what the judgment in the second case, 

 23 
it could not be inconsistent with the confirmation order); 

see also Martinez, supra, 62 Mo. L. Rev. at 26-27. But 

where the evidence required to prove a new claim would 

have been largely immaterial in a prior confirmation 

proceeding, we doubt that there will be an "essential 

similarity of the underlying events" as required to give rise 

to claim preclusion. See Facchiano Constr. Co. v. United 

States Dept. of Labor, 987 F.2d 206, 212-13 (3d Cir. 1993) 

("whether the material facts alleged are the same" is a key 

factor in determining whether claim preclusion applies; 

claim preclusion did not apply where the two claims rested 

on "different evidence"); Athlone Indus., 746 F.2d at 984 

(same). 

Similarly, some commentators have complained that 

claims falling within the non-core, "related" bankruptcy 

jurisdiction often raise factual issues "totally unrelated" to 

the confirmation proceeding. See Martinez, supra, 62 Mo. L. 

Rev. at 26-27. Accordingly, the argument goes, claim 

preclusion should not apply, because it would be no more 

efficient to try non-core "related" proceedings in conjunction 

with a confirmation hearing. Of course, a confirmation 

proceeding should not bar a subsequent action based on 

facts totally unrelated to objections raised in the

confirmation proceeding. But we think it is wrong to 

assume as a result that all non-core claims will be factually 

unrelated to objections raised in the confirmation 

proceeding in which they could have been brought. 

In short, we conclude that where the factual 

underpinnings of the subsequent claim are not essentially 

the same as those of the claims raised in the confirmation 

proceeding, the latter should not have a claim preclusive 

effect on the former. But, as this case demonstrates, see 

infra Part IV, not all non-core claims or claims between 

creditors are factually unrelated to objections adjudicated 

in confirmation proceedings that assertedly preclude them. 

Other courts have applied claim preclusion in situations 

that likewise provide excellent examples of the potential for 

close factual relationships between claims in bankruptcy 

proceedings and non-core claims, on the one hand, and 

claims between creditors, on the other. See, e.g., Robertson, 

28 F.3d at 970-71 (applying claim preclusion to non-core 

 24 
claim); Crop-Maker, 881 F.2d at 440 (applying claim

preclusion between creditors). Accordingly, we turn to a 

discussion of the application of the principles set forth 

above in the admittedly unusual circumstances of the case 

before us. 

IV. Is the Claim Under the Subordination Agreement 

 Precluded on the Facts? 

Applying the precepts set forth above, we conclude that 

CoreStates's claim under the Subordination Agreement is 

precluded. 

A. Could CoreStates Have Raised its Present Claim in the 

 Bankruptcy Proceeding? 

Claim preclusion does not apply unless the present claim 

was or could have been raised in the prior proceeding. See 

Centra, 983 F.2d at 504. Accordingly, we must inquire 

whether CoreStates could have raised its claim before the 

Bankruptcy Judge. As we have suggested above, CoreStates 

functionally raised the Subordination Agreement in its 

objection to the Reorganization Plan. Since it did not 

formally interpose it, however, and the parties have 

proceeded as though it did not, we begin with a discussion 

of whether the legal issue here falls within the scope of a 

bankruptcy judge's jurisdiction. We then analyze whether, 

as a factual matter, that issue could have been raised in 

the bankruptcy proceeding. We conclude that there was no 

reason CoreStates could not have brought its current claim 

before the Bankruptcy Judge.15 

1. Bankruptcy Jurisdiction 

The question before us is whether a creditor's rights as 

against another creditor under a subordination agreement 

_________________________________________________________________ 

15. We note that CoreStates's appellate counsel, when pressed by the 

panel at oral argument, conceded with the benefit of hindsight, but 

without abandoning his legal position, that the claim based on the 

Subordination Agreement probably should have been raised by trial 

counsel during the bankruptcy proceeding. 

 25 
fall within the bankruptcy jurisdiction. Our circuit 

precedent suggests that the enforcement of a subordination 

agreement between creditors may not qualify as a core 

proceeding. "[A] proceeding is core under section 157 if it 

invokes a substantive right provided by title 11 or if it is a 

proceeding that, by its nature, could arise only in the 

context of a bankruptcy case." See Torkelsen, 72 F.3d at 

1178. One could reasonably suppose that CoreStates's 

claim meets this standard because it in effect concerns the 

extent and priority of Huls's interest in the bankruptcy 

estate. In fact, the Second Circuit seems to have reached 

just this conclusion. In Resolution Trust Co. v. Best 

Products Co. (In re Best Products Co.), 68 F.3d 26 (2d Cir. 

1995), which involved a dispute over the enforcement of a 

contractual subordination agreement between creditors of a 

Chapter 11 debtor, the court found that while enforcing 

subordination agreements is "not listed as a core 

proceeding, the power to prioritize distributions has long 

been recognized as an essential element of bankruptcy 

law." Id. at 31. Furthermore, the court reasoned: 

 [T]he Subordination Agreement . . . sets forth the 

 relative priority of Best's obligations. Moreover, the fact 

 that Best filed briefs and argued in favor of enforcing 

 the Subordination Agreement in both the district court 

 and this court belies the claim that Best had no 

 interest in the controversy. Determination of the 

 priority rights of various creditors to assets of the 

 Debtor was necessary to administer the estate and was 

 not merely a dispute between two creditors. 

Id. at 32. 

But an argument could also be made that the core 

jurisdiction standard is not satisfied here. Even if that is 

true, however, the claim based on the Subordination

Agreement easily satisfies the requirements for the non-core 

"related to" bankruptcy jurisdiction. See Pacor, 743 F.2d at 

994. Pacor only requires that "the outcome of that 

proceeding could conceivably have any effect on the estate 

being administered in bankruptcy" in order to invoke noncore "related to" jurisdiction. See Torkelsen, 72 F.3d at 

1180-81 (quoting Pacor, 743 F.2d at 994). The court in 

Pacor further observed that "the proceeding need not 

 26 
necessarily be against the debtor or against the debtor's 

property. An action is related to bankruptcy if the outcome 

could alter the debtor's rights, liabilities, options, or 

freedom of action (either positively or negatively) and which 

in any way impacts upon the handling and administration 

of the bankrupt estate." 743 F.2d at 994. We have further 

noted that the "key word in [the Pacor test] is conceivable. 

Certainty, or even likelihood, is not a requirement. 

Bankruptcy jurisdiction will exist so long as it is possible 

that a proceeding may impact on the debtor's rights, 

liabilities, options, or freedom of action or the handling and 

administration of the bankruptcy estate." Torkelsen, 72 

F.3d at 1181 (quoting Marcus Hook, 943 F.2d at 264)

(alteration in original). 

Although CoreStates submits that the dispute is entirely 

between itself and Huls -- and thus does not impact the 

debtor at all -- we believe it clear that the resolution of this 

dispute conceivably would have impacted upon the debtor's 

options in crafting a plan that met with Huls's approval and 

thereby affected the handling of the bankruptcy estate. If 

Huls had known that the $600,000 the Reorganization Plan 

set aside for it was not going to be there "up front," Huls 

might not have consented to the Plan. Indeed, we cannot 

overlook that Huls gave up a claim for over $3,000,000 in 

debt, most of which was secured, in exchange for a cash 

payment of $600,000. Although junior to CoreStates's, we 

gather that Huls's largely secured claim had real value and 

was not simply pie in the sky. Without Huls's consent, UCT 

might have had a much more difficult time having the Plan 

confirmed. Likewise, if CoreStates had litigated its rights 

under the Agreement in the bankruptcy proceeding and 

lost, it might have fought more strenuously against

ultimate confirmation of the Plan, rather than, for example, 

choosing not to appeal the second confirmation order. We 

conclude that CoreStates's claim is of the type that falls 

within the non-core "related," if not the core, jurisdiction of 

a court sitting in bankruptcy proceedings. 

2. Could CoreStates Have Sued Huls While the 

 Bankruptcy Confirmation was Still Pending? 

Of course, even if an issue is of a type that theoretically 

could be raised in a bankruptcy case, claim preclusion only 

 27 
applies if the particular claim at issue actually could have 

been brought in the particular bankruptcy proceeding. On 

the aspect of this consideration relevant here, if the claim 

asserted in a later proceeding between co-creditors could 

not have been raised during the bankruptcy proceeding 

because the cause of action had not yet accrued, the 

plaintiff is not precluded from asserting it in the later 

proceeding. See Labelle Processing Co. v. Swarrow, 72 F.3d 

308, 314 (3d Cir. 1995) ("[N]ew facts (i.e. events occurring 

after the events giving rise to the earlier claim) may give 

rise to a new claim, which is not precluded by the earlier 

judgment."); Centra, 983 F.2d at 505. Whether a claim 

could have been brought in a bankruptcy confirmation 

proceeding depends on whether the claim is based on preconfirmation or post-confirmation acts. "Claims for postconfirmation acts are not barred by the res judicata effect 

of the confirmation order. . . . Creditors whose claims arise 

from and after confirmation are not barred by the event of 

confirmation from asserting such claims, except to the 

extent that they arise from pre-confirmation acts."

Donaldson, 104 F.3d at 555 (citations and internal 

quotations omitted). 

The District Court concluded that the present cause of 

action arose out of pre-confirmation events and could have 

been raised in the bankruptcy proceeding: 

 The first amended plan of reorganization dated March 

 27, 1996 and known to all interested parties several 

 months before the initial confirmation order, provided 

 for the $600,000 remittance to Huls rather than 

 CoreStates. In addition, UCT actually paid the 

 $600,000 to Huls in August, 1996, before the final 

 amended plan was confirmed by the bankruptcy

 judge's order of October 1, 1996. CoreStates also put 

 Huls on notice as early as June 12, 1996 that it was 

 obligated to turn over the funds to CoreStates. June 12 

 was before Huls received the $600,000 and before the 

 final confirmation order. This is simply not a case 

 where CoreStates's claim to the funds in issue was 

 unknown before the bankruptcy proceeding ended. 

CoreStates, 1997 WL 560193, at *4 (emphasis added).

 28 
Our reading of the pleadings confirms the District Court's 

conclusion. Because (a) UCT gave the $600,000 to Huls; (b) 

CoreStates was aware of this; and (c) CoreStates had 

demanded the money, all before the confirmation order was 

issued, we conclude that CoreStates's cause of action based 

on the Subordination Agreement had accrued before the 

confirmation was finalized. The key fact here is that UCT 

paid the $600,000 to Huls before the confirmation of the 

Second Amended Plan. CoreStates's cause of action could 

not accrue until Huls received money from UCT, since Huls 

could not breach the Agreement until it received money 

from UCT and then refused to turn it over to CoreStates. If 

Huls had not received the $600,000 payment until after the 

Plan was confirmed, CoreStates could not have raised its 

claim under the Agreement in the bankruptcy proceeding 

and it would not be precluded from raising it now. In the 

present case, however, Huls received money from UCT and 

in fact failed to turn it over to CoreStates in response to 

CoreStates's demands, all before the final confirmation of 

the Second Amended Plan. Therefore, we agree with the 

District Court's conclusion that CoreStates could have 

raised its present claim in the bankruptcy proceeding. 

B. The Centra Factors 

Even if CoreStates could have raised its present claim 

before the Bankruptcy Judge, claim preclusion only applies 

if the current claim meets the requirements of Centra. 

"Claim preclusion requires: (1) a final judgment on the 

merits in a prior suit involving; (2) the same parties or their 

privities; and (3) a subsequent suit based on the same 

cause of action." Centra, 983 F.2d at 504. CoreStates 

agrees that the parties in the former and present 

proceedings are the same, and the law supports this

conclusion. See First Union Comm. Corp. v. Nelson, Mullins, 

Riley & Scarborough (In re Varat Enters., Inc.), 81 F.3d 

1310, 1316 n.6 (4th Cir 1996). As noted above and as 

CoreStates also concedes, it is settled that orders of a 

bankruptcy judge rejecting objections and confirming a 

plan of reorganization are final judgments to which the 

doctrine of claim preclusion applies. See Stoll, 305 U.S. at 

170-71; Szostek, 886 F.2d at 1408. This does not entirely 

 29 
settle the matter, however, because a question remains 

whether CoreStates raised its claim to the $600,000 in the 

bankruptcy proceeding and whether the claim was one

against Huls. 

Raising an objection to a reorganization plan can be a 

claim for claim preclusion purposes. See supra section 

III.B. Furthermore, we think CoreStates's objection was a 

claim against Huls. The objection put Huls's rights in the 

bankruptcy estate into question. The $600,000 payment 

was all Huls was entitled to receive under the 

Reorganization Plan. A challenge to that payment amounted 

to a challenge to Huls's position in the scheme of 

distribution the Plan envisioned. In addition, Huls clearly 

felt that it had an interest in the issue worth preserving, 

since it opposed the objection extensively throughout the 

bankruptcy proceedings. Furthermore, Huls filed a brief in 

opposition to CoreStates's appeal in the District Court, and 

CoreStates filed a reply brief dealing almost solely with 

Huls's arguments. Accordingly, the Bankruptcy Judge's 

dismissal of CoreStates's objection and the subsequent 

confirmation of the Plan constitute a final judgment on 

CoreStates's claim against Huls. We thus disagree with the 

dissent that CoreStates did not assert a claim against Huls 

in the bankruptcy proceeding. 

The more significant question, then, is whether 

CoreStates's present cause of action is essentially the same 

as that which it raised in its objection to the Plan. We think 

it is apparent that the objection and CoreStates's present 

claim addressed the same factual issue: who should receive 

and retain the $600,000 UCT was prepared to pay. 

Although, as CoreStates contends, its legal claims 

concerning this money may rest on somewhat different 

grounds in the two proceedings, the "same cause of action" 

requirement relates to the factual circumstances underlying 

the claims, not their legal basis. See Athlone Indus., 746 

F.2d at 984 (looking to the "essential similarity of the 

underlying events giving rise to the various legal claims"). 

The event underlying both the objection to the Plan and the 

current claim was the distribution of the $600,000. The 

primary evidence of CoreStates's claim to the money in both 

the bankruptcy proceeding and the present case would be 

the Agreement itself. 

 30 
Although we ordinarily "scrutinize the totality of the 

circumstances" in determining whether two claims are 

based on the same cause of action where the first claim 

arose in a bankruptcy proceeding, see Oneida, 848 F.2d at 

419 n.5, we think the "essential similarity" of CoreStates's 

past and present claims is facially apparent. We thus need 

not engage in any searching scrutiny of the totality of the 

circumstances to conclude that CoreStates's present claim 

meets the third prong of the Centra test. 16 

V. Conclusion 

In closing, we reiterate that CoreStates's present claims 

are precluded because of the coincidence of several

unusual circumstances. First, in the bankruptcy 

proceeding, CoreStates and Huls contested at length the 

fairness of the Reorganization Plan to the extent it provided 

for the payment of $600,000 to Huls. CoreStates's present 

claim concerns who is ultimately entitled to receive this 

same money. In the absence of extensive litigation of this 

claim in the confirmation proceeding, CoreStates would not 

now be prevented from bringing its suit. Second, UCT paid 

Huls the $600,000, and CoreStates was aware of and 

objected to this payment, before the bankruptcy 

confirmation proceeding ended in a final confirmation of the 

Plan over CoreStates's objection. Thus, CoreStates could 

have brought its claim as an ancillary to the confirmation 

proceeding. In what we suspect is the more usual case, 

where payments are not made pursuant to reorganization 

plans until they are confirmed finally, an objecting creditor 

could not be expected to bring its claim alongside the 

confirmation proceeding. Primarily because of these two 

particular circumstances, we conclude that CoreStates's 

claim is barred by the doctrine of claim preclusion. The 

_________________________________________________________________ 

16. The dissent contends that the facts CoreStates would need to prove 

in its present claim differ from those it needed to establish in its 

objection to UCT's Reorganization Plan. As is clear from the text, we 

disagree. Furthermore, contra the dissent, we think the precise issue in 

both cases was whether Huls was entitled to receive and retain the 

$600,000 payment. Huls had the absolute right to receive the payment 

only in the most technical sense. 

 31 
order of the District Court granting judgment on the 

pleadings in favor of Huls will be affirmed. 

 32 
STAPLETON, Circuit Judge, Dissenting: 

I agree with the Court that principles of claim preclusion 

can properly be applied with respect to claims falling within 

the non-core jurisdiction, as well as the core jurisdiction, of 

a Bankruptcy Court. I assume, without deciding, that the 

Bankruptcy Court would have had non-core jurisdiction 

over CoreStates' claim against Huls. I further agree that 

principles of claim preclusion can properly be applied with 

respect to crossclaims asserted between creditors in a 

bankruptcy proceeding. 

I am constrained to dissent, however, because the Court 

reaches its conclusion that CoreStates' claim against Huls 

is barred only by ignoring well-established principles of 

claim preclusion. While purporting to apply those 

principles, the Court proceeds to fashion an unprecedented 

"entire controversy doctrine" for bankruptcy litigation. 

Because the parameters of this new doctrine are so broad 

and ill defined, I fear that much mischief will be done by 

today's decision. 

The Court holds that any claim that could have been

asserted in a bankruptcy proceeding by anyone objecting to 

confirmation of a plan of reorganization against anyone who 

would benefit from confirmation is barred from being 

asserted in a subsequent proceeding if the facts underlying 

the objections raised in the confirmation proceeding and 

the subsequent claim are "essentially similar." This holding 

ignores the fact that under traditional principles of claim 

preclusion the scope of preclusion arising from a judgment 

is determined by the claim underlying the judgment and is 

limited to the rights asserted between the claimant and the 

party against whom the claim is asserted. 

The Court is, of course, correct that modern principles of 

claim preclusion view the concept of a "claim" broadly. 

When "a valid and final judgment rendered in an action 

extinguishes the plaintiffs' claim pursuant to the rules of 

merger or bar . . ., the claim extinguished includes all 

rights of the plaintiff to remedies against the defendant with 

respect to all or any part of the transaction, or series of 

connected transactions, out of which the action arose." 

Restatement, Judgments 2d, S 24(1). 

 33 
Claim preclusion cannot be applied, however, without 

reference to the party who asserted the claim underlying 

the prior judgment. Thus, a judgment for or against a 

plaintiff in a prior proceeding rarely affects the claims 

assertable by other parties to that proceeding even though 

they may arise out of the same transaction. In the absence 

of a compulsory counterclaim rule or statute, for example, 

a defendant who fails to assert a counterclaim arising out 

of the same transaction is normally not barred from

pressing his claim in a subsequent proceeding. Id. S 22.1 

The only narrow exception to this rule is where the plaintiff 

in a prior proceeding has secured a favorable judgment on 

her claim and successful prosecution of a second action 

would nullify the initial judgment or would impair rights 

established in the initial action against the defendant. Id. 

S 22(2).2 Since a judgment in the plaintiff 's favor on a claim 

_________________________________________________________________ 

1. Section 22 of Restatement, Judgments 2d, provides: 

 (1) Where the defendant may interpose a claim as a counterclaim 

 but he fails to do so, he is not thereby precluded from 

subsequently 

 maintaining an action on that claim, except as stated in Subsection 

 (2). 

 (2) A defendant who may interpose a claim as a counterclaim in an 

 action but fails to do so is precluded, after the rendition of 

judgment 

 in that action, from maintaining an action on the claim if: 

 (a) The counterclaim is required to be interposed by a compulsory 

 counterclaim statute or rule of court, or 

 (b) The relationship between the counterclaim and the plaintiff 's 

 claim is such that successful prosecution of the second action 

 would nullify the initial judgment or would impair rights 

established 

 in the initial action. 

2. As noted in the commentary to S 22(2): 

 For such an occasion to arise, it is not sufficient that the 

 counterclaim grow out of the same transaction or occurrence as the 

 plaintiff's claim, nor is it sufficient that the facts constituting 

a 

 defense also form the basis of the counterclaim. The counterclaim 

 must be such that its successful prosecution in a subsequent action 

 would nullify the judgment, for example, by allowing the defendant 

 to enjoin enforcement of the judgment, or to recover on a 

restitution 

 theory the amount paid pursuant to the judgment (see Illustration 
 9), or by depriving the plaintiff in the first action of property 

rights 

 vested in him under the first judgment (see Illustration 10). . . . 

 34 
establishes rights only as between the plaintiff and the 

opponent of the claim, the rationale for this exception has 

no application when the defendant in the subsequent suit 

is not the original plaintiff. Thus, not surprisingly, there 

appears to be no case in which a judgment on a plaintiff 's 

claim has been held to preclude by merger or bar a claim 

that would have been a crossclaim if asserted in the 

original action. 

While a claim preclusion analysis must thus focus on the 

claimant and his or her claim, the universe of "potential 

claimants" is, of course, not limited to the plaintiff in the 

original action. As the majority notes, if a defendant in the 

original action asserts a counterclaim or a crossclaim and 

a final judgment is rendered with respect to that claim, he 

becomes a claimant for purposes of claim preclusion

analysis. Id. S 23. Thus, had CoreStates asserted a claim 

against Huls in the bankruptcy proceeding, principles of 

claim preclusion could properly be applied with reference to 

that claim. See Charter Oak Fire Ins. Co. v. Sumitomo 

Marine & Fire Ins. Co., 750 F.2d 267, 270 (3d Cir. 1984). 

CoreStates asserted no such claim, however. 

While I agree that application of principles of claim 

preclusion in the context of a bankruptcy proceeding 

requires flexibility and must take into account the nature of 

the bankruptcy process, those principles cannot fairly be 

stretched far enough to effect a preclusion of CoreStates' 

claim here. In order for claim preclusion to preclude, there 

must be a final judgment in favor of a claimant into which 

the precluded claim has merged or a final judgment for the 

defendant that bars another action by the claimant on the 

same claim. See Restatement, Judgments 2d, SS 18, 19. A 

confirmation order may be viewed as a judgment in favor of 

creditors on their claims against the debtor. To the extent 

claims have been disallowed, it may also be viewed as a 

judgment in the debtor's favor on the disallowed claims. 

Moreover, there is an in rem aspect to the judgment entered 

at the end of a confirmation proceeding. See 28 U.S.C. 

S 1334(a). Under traditional principles of claim preclusion, 

however, none of these judgments would extinguish a claim 

 35 
between creditors who have not raised claims against each 

other in the bankruptcy proceeding.3 

In the bankruptcy proceeding, CoreStates asserted no 

right to relief from Huls. Moreover, it claimed no right to 

receive from the debtor's estate the $600,000 ultimately 

received by Huls. It had no such right to assert. 

Accordingly, the only way one can conclude that CoreStates 

made a claim against Huls in the bankruptcy proceeding, 

as the Court does, is to hold that an objection to 

confirmation of a plan of reorganization constitutes a claim 

against anyone who has an economic interest in having the 

plan confirmed. Since virtually all non-objecting creditors 

will have such an interest, this holding will require that any 

party considering an objection canvass the entire universe 

of creditors to determine whether it has a claim against one 

of them that might conceivably be regarded as arising from 

the same or similar underlying events. 

The burden thus imposed will be greatly exacerbated by 

the Court's broad vision of what constitutes the same or 

similar underlying events. CoreStates' objection to

confirmation of the plan was not based, directly or

indirectly, on its Subordination Agreement with Huls. 

Rather, to the extent it was related to Huls at all, 

CoreStates' objection was based on the claim that the plan 

"discriminate[d] unfairly" among a class of secured

creditors in violation of section 1129(b). The claim 

CoreStates here seeks to assert is a breach of contract 

claim based on allegations that it entered into a 

Subordination Agreement with Huls which Huls breached 

when it declined to pay $600,000 to CoreStates after it 

received that amount from UCT. The Court fails to 

satisfactorily explain how CoreStates' two claims can 

reasonably be deemed the same cause of action for claim 

preclusion purposes. 

_________________________________________________________________ 

3. An in rem judgment, of course, is"conclusive as to interests [in the 

res] but does not bind anyone with respect to personal liability." 

Restatement, Judgments 2d, S 30. Here, CoreStates asserts that Huls is 

personally liable to it in the amount of $600,000. It has not, and could 

not, contend that it had a right to receive a $600,000 distribution from 

the assets of the debtor's estate based upon its agreement with Huls. 

 36 
The section 1129(b) claim that CoreStates included in its 

objection to confirmation of the plan was based on the 

respective circumstances of the members of the identified 

class of secured creditors, their treatment under the 

proposed plan, and the feasibility of alternative plans of 

distribution. In contrast, the claim that CoreStates here 

seeks to press is based on the terms of a Subordination 

Agreement entered long before the bankruptcy and the fact 

that Huls received $600,000 from UCT because of UCT debt 

obligations to it. I perceive no "essential similarity of the 

[legally relevant] underlying events giving rise to" these 

claims, and, indeed, I can think of no evidence that would 

be material to both claims. It would not be necessary for 

CoreStates, in proving its breach of contract claim, to even 

refer to the bankruptcy proceeding or the plan of 

reorganization. It would suffice to show only that Huls 

received monies from UCT on account of UCT's debt 

obligation to Huls. The Court seeks to gloss over the 

distinctiveness of these claims by asserting that"the 

objection and CoreStates' present claim addressed the same 

factual issue: who should receive and retain the $600,000 

VCT was prepared to pay." Slip Op. at 30. The fact of the 

matter, however, is that the claim asserted in the 

bankruptcy proceeding had absolutely nothing to do with 

whether Huls was entitled to retain the $600,000 payment 

it would receive under the plan and the claim asserted here 

has absolutely nothing to do with whether Huls was 

entitled to receive $600,000 in the bankruptcy. 

Because an objection to a plan will now be regarded as 

making a claim against all who would benefit from 

confirmation and because the concept of a single cause of 

action will now be an elastic one, it will be extraordinarily 

difficult for a creditor in the Third Circuit to determine 

what crossclaims it must or need not assert. Since the 

penalty for a mistaken choice is forfeiture, it is not difficult 

to predict the ultimate result of the Court's holding: 

multitudinous protective filings of claims against nondebtors and the needless complication of bankruptcy

confirmation proceedings. 

I would reverse the judgment of the District Court.

 37 
A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

 38