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. e du/thir dc ir c uit_1999/118Filed 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 AppellantDAVID 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 preclusi ve effect of the Bankruptcy Judge's denial of CoreStates's ob jections to a Chapter 11 bankruptcy reorganization plan confirmation. Both CoreStates and appellee Huls Ame rica, Inc. ("Huls") had extended substantial credit to th e debtor, United Chemical Technologies, Inc. ("UCT"), a chemi cal separation science company, to facilitate the purch ase by UCT of a manufacturing facility from Huls. They the n 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 subordinate d to CoreStates's. Huls also agreed that it would not re tain any payment by UCT, including those paid under a bankru ptcy plan, until UCT had paid off its indebtedness to Co reStates

in full.

After UCT filed for bankruptcy, but before the Plan of Reorganization was finally confirmed, UCT paid to H uls some $600,000 as called for by the Plan. CoreStates demanded that Huls pay this sum over to it. CoreSta tes filed objections to the Plan on the grounds, inter alia, that the Plan entitled Huls to receive $600,000 immediat ely,

2asserting that this proposed payment unfairly discr iminated

between creditors. CoreStates did not contend to th e Bankruptcy Judge that the $600,000 had to be paid o ver 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 t o CoreStates. The issue on appeal is whether CoreStat es has a right to receive the funds, when both CoreStates' s and Huls's rights in the bankruptcy estate, and CoreSta tes's objection based on the payment in particular, were settled in the confirmation proceeding. The District Court concluded that CoreStates's claim was precluded bec ause CoreStates could have raised its claim based on the Agreement in the bankruptcy proceeding alongside it s objection, but failed to do so. See CoreStates Bank , N.A. v. Huls America, Inc., No. Civ. A. 96-8119, 1997 WL 56 0193 (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 Bank ruptcy Judge's order rejecting a creditor's objection to a bankruptcy reorganization plan acts as a final judg ment for preclusion purposes. In this case, CoreStates objec ted to the Plan because it would result in the immediate p ayment of $600,000 to Huls, and its objection seems to sub sume the Subordination Agreement, even though it was not advanced in terms. As a result, both issue preclusi on and claim preclusion might have some relevance to the p resent litigation, which concerns whether Huls is obligate d by the Subordination Agreement to turn the $600,000 over t o 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 cla im that it could have raised or did raise in a prior procee ding in

which it raised another claim based on the same cau se of action. Agreeing with three other circuits (two are of the contrary view), we conclude that the doctrine appli es regardless of the type of bankruptcy jurisdiction-- core or

3non-core -- within which the current claim would fa ll.

Moreover, we believe that the facts of this case-- particularly where the parties were formerly credit ors 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 th e internal elements of the claim preclusion test itself, set f orth in Board of Trustees of Trucking Employees Welfare Fun d, 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 jurisdicti on of the court hearing the prior bankruptcy proceeding. A cl aim, in order to fall within the bankruptcy jurisdiction, m ust at least be one that "could conceivably have any effec t on the estate being administered in bankruptcy." Pacor, In c. 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 preclude d raised a claim, such as an objection to a reorganization p lan, in a prior proceeding. Finally, claim preclusion applies only if the events underlying the current claim are essenti ally 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 leg al and as

a factual matter. The claim based on the Subordinat ion Agreement fell within the non-core "related to" ban kruptcy jurisdiction, if not the core jurisdiction. In addi tion, since UCT paid Huls the money before the Plan was confirm ed,

CoreStates's claim accrued before the confirmation proceeding concluded. Second, CoreStates filed an o bjection to the confirmation of UCT's Plan of Reorganization that was argued at length before the Bankruptcy Judge an d the

4District Court by both CoreStates and Huls. This ob jection

put into controversy the entire amount that Huls wa s to receive in full satisfaction of its claims against UCT. Third, CoreStates's objection to the confirmation of the P lan involved the same underlying factual issues as Core States's present claim. We therefore conclude that the Distr ict Court correctly found that CoreStates's claim was preclud ed;

hence we will affirm.

I. Facts & Procedural History

This case arises out of a series of events culminat ing in the bankruptcy reorganization of UCT. See CoreState s Bank, N.A. v. United Chem. Techs., Inc., 202 B.R. 3 3 (E.D. Pa. 1996). In 1993, UCT purchased from Huls a facil ity that manufactured specialty chemicals.1 This purchase wa s funded in part by loans and extensions of credit fr om CoreStates, totaling about $1.1 million.2 Huls als o provided financing for the purchase and, after the sale, con tinued to supply products to UCT on credit terms. As a condit ion of the financing, CoreStates, UCT and Huls executed a Subordination Agreement ("the Agreement"). The Agre ement provided, in part, that Huls would subordinate its claims to CoreStates's and would not retain any payment by UC T until UCT's indebtedness to CoreStates had been pai d off in full. It further provided that, if any bankruptcy p roceeding was filed by or against UCT, Huls would hold any pa yments 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 facil ity, 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 intereste d parties, including Huls and CoreStates. Following f urther negotiations, UCT submitted a First Amended Plan of Reorganization in March 1996. The Amended Plan had the

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1. During the pendency of this litigation, Huls Ame rica changed its name to Creanova, Inc. We continue to refer to the defen dant herein as Huls.

2. During the pendency of this litigation, CoreStat es merged into First Union Corp. We continue to refer to the plaintiff h erein as CoreStates.

5consent 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 da te, and repayment of remaining lines of credit and mortgage s with interest over periods ranging from five to fifteen years. CoreStates would also retain all its liens and secu rity interests, except for certain machinery and equipme nt liens. Huls, a creditor with a priority junior to C oreStates, was to receive a $600,000 cash payment in full sati sfaction of its more than $3.2 million in claims, approximat ely $2.3 million of which was secured. Nothing in the Amende d Plan purported to modify or nullify the Agreement as bet ween CoreStates and Huls.

CoreStates filed an action in the form of objection s to the Amended Plan. These objections did not refer to the Agreement. CoreStates did, however, specifically ob ject on the grounds that under the Plan Huls was entitled t o receive $600,000 immediately. CoreStates argued tha t this proposed payment to Huls unfairly discriminated bet ween 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, co unsel for

CoreStates informed counsel for Huls that CoreState s intended to enforce Huls's obligation to turn over the proceeds that it would receive under the Plan. At t he confirmation hearing, Huls raised the issue with th e court, and a brief colloquy ensued, although no papers wer e filed. The court did not formally resolve the issue, howev er, and proceeded to confirm the Plan over CoreStates's obj ection.

CoreStates appealed the order confirming the Amende d 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," ther eby violating 11 U.S.C. S 510(a) and the "fair and equi table" requirement of 11 U.S.C. S 1129(b)(1) & (2). In fac t, Huls

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

CoreStates filed a reply brief responding almost ex clusively to Huls's arguments. The District Court refused to consider this argument. It found that CoreStates had not rai sed the Agreement as a basis for objecting to the Amended P lan in the Bankruptcy Court, and therefore was not entitle d to raise it before the District Court. See CoreStates, 202 B.R. at 48. The Court also rejected CoreStates's more ge neral contention that the $600,000 payment unfairly discriminated against it, which Huls discussed at l ength in its brief. For other reasons, however, the court re versed the

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

On August 12, 1996, prior to the ruling of the Dist rict 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 lette r, CoreStates asserted that, as a result of the Distri ct Court's vacatur of the Amended Plan, there was no confirmed plan and therefore Huls was required to pay the money ov er to CoreStates per the Agreement. Huls refused.

UCT filed a Second Amended Plan on September 19. Th e Second Amended Plan altered the Amended Plan only w ith respect to CoreStates. It restored some of CoreStat es's existing liens, which had been eliminated under the Amended Plan. It did not, however, purport to chang e either CoreStates's rights vis a vis Huls or the pa yment Huls was to receive. CoreStates objected to the Sec ond Amended Plan as well. It stated a number of grounds for objecting, but did not invoke the Subordination Agr eement, except by generalized incorporation. The Bankruptcy Judge again confirmed the Plan over CoreStates's objectio ns. CoreStates did not appeal the confirmation of the S econd

Amended Plan.

In December 1996, CoreStates filed the present dive rsity action in the District Court, which had jurisdictio n under 28 U.S.C. S 1332. Huls moved to dismiss the complai nt for

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3. CoreStates had previously requested a stay of th e Amended Plan in order to prevent UCT from paying Huls the $600,000. This request was based in part on the Agreement. The Bankruptcy Cour t denied the request without addressing the Agreement.

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

the alternative, for judgment on the pleadings unde r Fed. R. Civ. P. 12(c). CoreStates responded with a motio n 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 t hat the doctrine of claim preclusion barred CoreStates's cl aim, reasoning that the claims CoreStates raises in the present case could have been raised during the UCT bankrupt cy proceeding. See 1997 WL 560193, at *3-*4. CoreState s timely appeals from this decision. We have jurisdic tion 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 pleadin gs pursuant to Fed. R. Civ. P. 12(c). See Kruzits v. O kuma Mach. Tool, Inc., 40 F.3d 52, 54 (3d Cir. 1994). Un der Rule 12(c), a district court cannot grant judgment on th e pleadings, and we may not affirm such a grant, "unl ess the movant clearly establishes that no material issue o f fact remains to be resolved and that he is entitled to j udgment as a matter of law." Kruzits, 40 F.3d at 54 (quotin g 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) (citatio n omitted))).

II. Claim Preclusion and Bankruptcy Proceedings

The central issue in this appeal is the claim precl usive effect of the Bankruptcy Judge's final order of con firmation, over CoreStates's objection, on CoreStates's claim against Huls. In the confirmation proceeding, CoreStates ob jected to the Plan as unfair in part because it provided f or the immediate payment of $600,000 to Huls, a junior cre ditor. CoreStates's present claim is that the Subordinatio n Agreement requires Huls to pay to CoreStates the $6 00,000 Huls received pursuant to the now-confirmed Reorganization Plan. A strong argument can be made that CoreStates's unfairness objection so clearly implic ated the Agreement that the issue that divides the parties i n the present case was effectively raised and litigated i n the

8bankruptcy proceeding, so that we are dealing here with

issue preclusion rather than claim preclusion.4 Sin ce the District Court and the parties have treated this ca se 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 exp lained that claim preclusion (or res judicata as it is als o called) "gives dispositive effect to a prior judgment if a particular issue, although not litigated, could have been rais ed 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 subseque nt suit based on the same cause of action." Centra, 983 F.2 d at 504 (emphasis added; citations omitted). If these t hree 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 Cent ra test, both in general and in the context of bankrup tcy proceedings. In deciding whether two suits are base d on the same "cause of action," we take a broad view, looki ng to whether there is an "essential similarity of the un derlying events giving rise to the various legal claims." Un ited 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 oppose d to legal]

terms and to make it coterminous with the transacti on regardless of the number of substantive theories . .. that may be available to the plaintiff . . . ."); id. cm t. b ("In general, the expression [`transaction'] connotes a natural grouping or common nucleus of operative facts."). B ecause a "bankruptcy case" is fundamentally different from the typical civil action, however, comparison of a bank ruptcy proceeding with another proceeding is not susceptib le to

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4. Another way of looking at it might be that CoreS tates's claim should be barred by reason of S 1141 of the Bankruptcy Cod e, 11 U.S.C. S 1141(a), which provides that a confirmed plan is binding on all creditors, including feuding creditors such as Core States and Huls, who litigated the fairness of the Plan as affected by t he disputed payment.

9the standard res judicata analysis. "Rather, we scr utinize

the totality of the circumstances in each action an d 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 Je rsey 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 b ankruptcy proceedings just as it does to any other final judg ment 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' advers ary complaint were already raised, or could have been r aised, in their objection to confirmation, we hold that th e doctrine of claim preclusion bars them from relitigating tho se claims."); see also Katchen v. Landy, 382 U.S. 323, 334 (1966) ("The normal rules of res judicata and colla teral estoppel apply to the decisions of bankruptcy court s."); 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 hea ring on confirmation." (quoting In re Szostek, 886 F.2d 140 5, 1408 (3d Cir. 1989))); Crop-Maker Soil Servs. v. Fairmou nt St. Bank, 881 F.2d 436, 440 (7th Cir. 1991) ("Public po licy supports res judicata generally, but in the bankrup tcy context in particular."); cf. 11 U.S.C.S 1141(a) (" [T]he provisions of a confirmed plan bind . . . any credi tor . . .

whether or not the claim or interest of such credit or . . . is impaired under the plan and whether or not such cre ditor . . . has accepted the plan."). Accordingly, we ord inarily would simply apply these rules. CoreStates suggests two reasons why we should not.5 We address these in tur n.

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5. CoreStates also submits that claim preclusion sh ould not apply because the bankruptcy proceeding did not modify or adjudicate its rights under the Agreement. This argument misappreh ends the fundamental nature of the doctrine of claim preclus ion, which applies whether or not the particular issue was actually ra ised or decided by the prior court. See Agrilectric Power Partners, Ltd. v . General Elec. Co., 20 F.3d 663 (5th Cir. 1994). The continued effectivene ss of the contract is simply irrelevant. Of course, if CoreStates's claim had not accrued before the Bankruptcy Judge confirmed UCT's Plan of Reorga nization, then whether the Plan had modified the Agreement would b e important.

10III. 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 ban kruptcy 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 preclus ive effect should be limited. We address two questions CoreSta tes poses about the claim preclusive effect of a bankru ptcy judge's orders rejecting objections to reorganizati on plans: whether the doctrine should preclude claims that wo uld have fallen within the non-core "related" -- as opp osed 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 the se suggested limitations on the application of claim p reclusion are unnecessary, and that claim preclusion should a pply regardless of the jurisdictional basis of the prese nt claim and between all parties to a bankruptcy case.

A. Claim Preclusion and Non-Core Claims

The first question is whether claim preclusion shou ld apply if CoreStates's claim falls within the non-co re "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 a ll aspects of a bankruptcy case to the district courts. See 28 U. S.C. S 1334.6 Section 157(a) then permits the district c ourts to

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6. Section 1334 provides as follows:

(a) Except as provided in subsection (b) of this section, the district courts shall have original and excl usive jurisdiction of

all

cases under title 11.

(b) Notwithstanding any Act of Congress tha t 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.

11automatically 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. Ju ly 25, 1984, Nov. 8, 1990) (using the District Court's ful l authority to refer cases to bankruptcy judges under S157(a)). Section 157(b)(1) provides that "[b]ankru ptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or ari sing 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 procee ding 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 bankru ptcy case." Torkelsen v. Maggio (In re Guild & Gallery P lus, Inc.), 72 F.3d 1171, 1178 (3d Cir. 1996) (quoting In re Ma rcus Hook Dev. Park, Inc., 943 F.2d 261, 267 (3d Cir. 19 91) (citations omitted)). Bankruptcy judges may also he ar noncore proceedings that are otherwise related to a ba nkruptcy case. See S 157(c)(1) ("A bankruptcy judge may hear a proceeding that is not a core proceeding but that i s otherwise related to a case under title 11.").

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

outcome . . . could conceivably have any eff ect on the estate being administered in bankruptcy. Thu s, the proceeding need not necessarily be against t he debtor or against the debtor's property. An action is related to bankruptcy if the outcome could alter the de btor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any w ay impacts upon the handling and administration of the bankrupt

estate.

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7. Section 157(a) provides: "Each district court ma y 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 s hall be referred to the bankruptcy judges for the district."

8. Section 157(b)(2) presents a nonexclusive list o f core proceedings, including "determinations of the validity, extent, or priority of liens." S 157(b)(2)(K).

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

(emphasis and citations omitted). In non-core claim s, however, the bankruptcy judge may not enter final o rders or judgments, but must submit proposed findings of fact

and conclusions of law to the district court for en try of judgment, see 28 U.S.C. S 157(c)(1),9 unless all th e parties consent to the bankruptcy judge's entering judgment , see S 157(c)(2).10

This distinction between core and non-core proceedi ngs dates to the Supreme Court case of Northern Pipelin e Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982). The principles of Northern Pipeline are familiar, a nd are described in the margin.11 Although CoreStates does not

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

In [a non-core] proceeding, the bankruptcy j udge 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 bankrup tcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifical ly 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 t o 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 ban kruptcy judge against a creditor for breach of contract and warra nty, misrepresentation, coercion, and duress, under the jurisdictional provisions of the 1978 Bankruptcy Reform Act. Those provisions granted bankruptcy courts jurisdiction over all "civil proc eedings arising under title 11, or arising in or related to cases under t itle 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 t his grant of jurisdiction over proceedings merely "related to" bankruptcy cas es to non-Article III bankruptcy judges violated the Constitution. This d ecision rested on the notion that non-Article III judges may only hear ca ses involving public, congressionally created rights, but not claims base d 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 un der the Bankruptcy Code are congressionally created public rights. The debtor's breach of13argue that section 157 is constitutionally problema tic in

light of Northern Pipeline, some courts and comment ators 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 be en raised only under section 157's non-core "related" jurisdiction. See Barnett v. Stern, 909 F.2d 973, 9 78-79 (7th Cir. 1990); Howell Hydrocarbons, Inc. v. Adams , 897 F.2d 183, 189 (5th Cir. 1990); see also George A. M artinez, The Res Judicata Effect of Bankruptcy Court Judgmen ts: The Procedural and Constitutional Concerns, 62 Mo. L. Rev. 9 (1997).

Ordinarily, a party will not be precluded from rais ing 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 c ourts in Barnett and Howell reasoned that, because a bankrup tcy judge could not, under section 157(c)(1), finally a djudicate a non-core claim, a party to such a confirmation pr oceeding would not have an opportunity to fully and fairly l itigate 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 b rought under non-core "related" jurisdiction and adjudicat ed within the constraints of section 157(c). See Barne tt, 909 F.2d at 979; Howell, 897 F.2d at 189.

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contract claim, along with the other claims the deb tor brought, however, involved only private common-law rights, and thus c ould not be adjudicated in a non-Article III court.

In response to the Northern Pipeline decision, Cong ress enacted the jurisdiction provisions currently set forth in 28 U .S.C. SS 157 & 1334. See Bankruptcy Amendments & Federal Judgeship Act o f 1984, Pub. L. No. 98-353, 98 Stat. 344. As seen above, these prov isions differ from those at issue in Northern Pipeline primarily in th at they limit a bankruptcy judge's ability to issue final orders an d judgments in cases brought under the non-core "related" jurisdiction. See 28 U.S.C. S157(c).

14We 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 o bjector, even if only under the non-core "related" bankruptc y jurisdiction. Our conclusion in this regard is cons istent with those of the Second, Sixth and Ninth Circuits. See, e.g., Robertson v. Isomedix, Inc. (In re Intl. Nutr onics, Inc.), 28 F.3d 965 (9th Cir. 1994); Sanders Confectionery Prods., Inc. v. Heller Fin., Inc., 973 F.2d 474, 482-83 (6t h Cir. 1992); Sure-Snap Corp. v. State St. Bank & Trust Co ., 948 F.2d 869, 873 (2d Cir. 1991); see also Ralph E. Ave ry, Chapter 11 Bankruptcy and Principles of Res Judicat a, 102 Com. L.J. 257, 286-88 (1997). These courts have obs erved that, even though a bankruptcy judge could not conclusively determine a non-core proceeding, the bankruptcy judge and the district court together co uld do so, and this was sufficient to permit full and fair litigation of the non-core claim. Accordingly, these courts ha ve concluded that a confirmation order could have clai m preclusive effect even on non-core "related" claims that could have been raised alongside an objection in th e confirmation proceeding. See Robertson, 28 F.3d at 969; Sanders, 973 F.2d at 482.

We thus conclude that the restrictions on a bankrup tcy judge's judicial power with respect to non-core"rel ated"

claims do not limit the effect of the doctrine of c laim preclusion. This depends on our interpretation of s ection 26 of the Restatement (Second) of Judgments. See Venut o v. Witco Corp., 117 F.3d 754, 758-59 (3d Cir. 1997) (r elying on section 26 in analyzing federal law of claim preclu sion). Section 26 provides, in pertinent part:

When any of the following circumstances exi sts, the [doctrine of claim preclusion] does not appl y to extinguish the claim, and part or all of the claim subsists as a possible basis for a second ac tion by the plaintiff against the defendant:

. . . .

The plaintiff was unable to rely on a certa in theory of the case or to seek a certain remedy or form of relief in

15the first action because of the limitations on the

subject matter jurisdiction of the courts or restrictions on their authority to entertain multiple the ories or demands for multiple remedies or forms of re lief in a single action, and the plaintiff desires in the second action to rely on that theory or to seek tha t 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 render ed was one which put no formal barriers in the way of a li tigant's presenting to a court in one action the entire clai m, including any theories of recovery or demands for r elief that might have been available to him under applicable l aw."

Restatement S 26 cmt. c.

The comments to the Restatement discuss two primary types of cases in which this limitation applies. Fi rst, they discuss a case in which the first judgment is in a state court, and the plaintiff then brings a second actio n in federal court under a statute that gives federal co urts exclusive jurisdiction. In such a case, the Supreme Court

has held that the later federal action is not barre d 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 ac tion is not barred by a prior action when the court hearing the first action had personal jurisdiction over the def endant only as to the theory of the first action, but not for that on which the second action is predicated. See Restatem ent

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 "re lated"

claim is not limited in the sense of that section. Section 26(1)(c) applies to limitations on the types of the ories, 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. Celote x Corp. v. Edwards, 514 U.S. 300, 309 n.7 (1995) (rejecting th e argument that a bankruptcy judge does not have the power

16to issue an injunction barring an action in a diffe rent

district court). A bankruptcy judge is perfectly ca pable of recommending, and the district court of awarding, judgment based on any theory, remedy, or relief, ju st as if the claim had been brought originally before a dist rict court, or even a state court of general jurisdictio n, outside of a bankruptcy proceeding.

The Fifth and Seventh Circuits' main concern seems to be that since a bankruptcy judge cannot conclusivel y reward relief in a non-core proceeding, the judge d oes 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, m isses the basic point that, like magistrate judges, bankr uptcy judges have no jurisdiction over any cases. In any bankruptcy proceeding, jurisdiction over the case r ests with the district court; proceedings are only referred t o the bankruptcy judges for consideration. See Sanders, 9 73 F.2d at 483 ("Although the bankruptcy court would not ha ve subject matter jurisdiction over a non-core related proceeding, the action would still be within the di strict court's jurisdiction."). In addition, the district courts retain the power to withdraw the reference at any time. Se e 28 U.S.C. S 157(d).

Likewise, even assuming that the bankruptcy judge h as jurisdiction in some sense, the restraints that sec tion 157(c) imposes on the judge's power to dispose of a noncore claim do not bring it within the ambit of sect ion 26(1)(c) of the Restatement. Jurisdiction is differ ent from judicial power.12 A limitation on judicial power is not a

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12. See American Hardwoods, Inc. v. Deutsche Credit Corp. (In re American Hardwoods, Inc.), 885 F.2d 621, 624 (9th C ir. 1989) ("Subject matter jurisdiction and power are separate prerequi sites 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 actio n 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. 19 28) ("Jurisdiction has

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

bankruptcy judge's power to grant relief, not juris diction over a proceeding requesting such relief. Since sec tion 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 confirmatio n proceeding as a non-core "related" claim. See Resta tement S 24 cmt. g (limits on the power of a court to gran t 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 tha t could have been brought as a non core "related" proceedin g during the confirmation proceeding.

This is not to say, of course, that claim preclusio n 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 ban kruptcy jurisdiction. Accordingly, claim preclusion will on ly apply if the claim is at least "related to" the bankruptcy c ase, 28 U.S.C. SS 157 & 1334, i.e., if it "could conceivabl y have any effect on the estate being administered in bankrupt cy," Pacor, 743 F.2d at 994 (emphasis and citations omit ted). A party to a bankruptcy would not be precluded from l ater bringing a claim that could not conceivably have ha d any effect on the bankruptcy estate.

B. Claim Preclusion Between Creditors

CoreStates contends that claim preclusion cannot ap ply to claims between creditors in a bankruptcy confirm ation proceeding. It relies on the fact that a party in a civil action is not precluded from litigating a claim simply bec ause it had an opportunity to raise the claim as a cross-cl aim in a

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

the power to do both or either -- to hear without deter mining or to determine without hearing."); see also In re Specia lty Equip. Cos., 3 F.3d 1043, 1045 (7th Cir. 1993) (distinguishing between challenges to a court's jurisdiction and challenges to its power).

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

Berman, 884 F.2d 916, 923 n.9 (6th Cir. 1989); Pete rson 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 hi s claim [as a cross-claim] will not be barred by res judica ta . . . from asserting it in a later action, as he would if the claim were a compulsory counterclaim . . . ."); cf. Chart er 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 tha t 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 late r asserting a claim. The question is, whether, for cl aim preclusion purposes, a creditor's, such as CoreStat es's, objection to a reorganization plan can state a clai m against another creditor, such as Huls, whose rights under the proposed plan the objection concerns. We conclude t hat in particular circumstances, such as those present her e, it

can.

A cause of action is defined by its factual contour s. As noted above, two claims involve the same cause of a ction 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 2 4 cmts. a, b. Because a "bankruptcy case" is fundamen tally different from the typical civil action, however, c omparison of a bankruptcy proceeding with another later proce eding is not susceptible to the standard res judicata analys is. "Rather, we scrutinize the totality of the circumst ances in each action and then determine whether the primary test of Athlone, i.e., essential similarity in the underlyi ng 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 b y a party who has not actively raised a claim based on the sa me cause of action in a prior proceeding.13 See Peter son, 666

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

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

19F.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 there by precluded from subsequently maintaining an action o n 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 no t 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 subs tance, a plaintiff, as far as the counterclaim is concerne d. . . ."). Accordingly, claim preclusion applies to the claims of a party who asserts any claim in an action, even wher e 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 ordin ary 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

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a counterclaim. See Restatement (Second) of Judgmen ts S 22(2). First, a defendant cannot bring a claim in a later proceedin g if it could have been brought as a compulsory counterclaim in an ear lier proceeding to which a compulsory counterclaim statute or rule app lied. See S 22(2)(a). This exception will not ordinarily apply to bankrup tcy confirmation orders, however, because a confirmation proceeding is a contested matter to which no compulsory counterclaim rule app lies. 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 re lationship between the counterclaim and the [later] claim is such that suc cessful prosecution of the second action would nullify the initial judgmen t 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 ob jection to a plan confirmation, it would still be precluded from brin ging 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 d ecide this case without considering these exceptions, we need not a nd do not decide whether and how they apply to bankruptcy plan confi rmation orders.

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

claim is a "[m]eans by or through which claimant ob tains 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 havi ng its interests in the bankruptcy estate settled in a pla n that satisfies the requirements of S 1129. Furthermore, an objection requires the bankruptcy judge to adjudica te 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 object ion 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 co urt and served on all parties to the confirmation proceedin g. See Fed. R. Bankr. P. 3020(b)(1). The filing of an obje ction gives rise to a contested matter, see Fed. R. Bankr. P. 3 020(b)(1), in which the many of the familiar rules of civil pr ocedure 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. S ee 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 cl aim 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 cla im against another party not named as its adversary if they are adversaries in fact. See Sullivan v. Easco Corp., 6 62 F. Supp. 1396, 1408 (D. Md. 1987); 18 Wright et al., s upra, S 4450, at 420; cf. Restatement (Second) of Judgmen ts S 38 ("Parties who are not adversaries to each other und er the pleadings in an action involving them and a third p arty are bound by and entitled to the benefits of issue prec lusion with respect to issues they actually litigate fully and fairly as adversaries and which are essential to the judgm ent rendered."). Parties are adversaries if they have"o pposing interests, . . . interests for the preservation of which opposition is essential." Black's Law Dictionary, s upra, at

53.

21An objection frequently puts into question the inte rests of

specific non-objecting creditors under a proposed p lan. In order to preserve these interests, these non-object ing creditors then have the right to oppose the objecti ons in a hearing.14 We think it beyond cavil that these non- objecting creditors -- whose rights in the estate may be affe cted by the objection -- are fairly denominated adversaries of the objecting creditor. Accordingly, we think that clai m preclusion should bar an objecting creditor such as CoreStates from litigating in a later proceeding cl aims against a non-objecting creditor in the circumstanc es present here.

The Eleventh Circuit reached a similar conclusion i n 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 est ate, and also that the lender's security interest was really a partnership interest. These objections were rejecte d. The creditors later brought a separate claim against th e lender alleging that the lender engaged in fraud and that the

lender was not a secured creditor. The court held t hat 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 collater al attack on the order confirming the plan. Because the c laims raised in the Wallises' adversary complaint were already raised, or could have been raised, i n 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).

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14. For example, one creditor might object to a reo rganization 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 refuse d to confirm the plan, any future proposed plan would presumably be prohibited from treating the second creditor as secured. Accordingl y, that creditor would have standing and good reason to oppose the objecti on.

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

out of "Same Cause of Action"

Although we have rejected these two extrinsic limit ations on the applicability of claim preclusion, our holdi ng is actually a narrow one. Although fact-bound, it is a lso well within the confines of claim preclusion doctrine. A s 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 i n unusual circumstances, it only applies to creditors who rai se a claim in the bankruptcy proceeding contrary to the intere sts of another specific creditor. See supra section III.B. Finally, the Centra test for claim preclusion provides an ad ditional limit on the preclusive effect of bankruptcy confir mation orders over objections. These three intrinsic limit ations 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 s upra 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 pre viously raised a claim, we need now discuss only the restra int the Centra test provides.

Under Centra, a subsequent claim is barred only if it

arises out of "the same cause of action" as that li tigated in the first action. See Centra, 983 F.2d at 504. Wher e the first case is a bankruptcy proceeding, we "scrutini ze the totality of the circumstances in each action," Onei da, 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 lim its 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 ap plied where the two actions are not sufficiently factuall y connected. See Oneida, 848 F.2d at 422 (Stapleton, J., dissenting) (arguing that claim preclusion should n ot apply because no matter what the judgment in the second c ase,

23it 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 wo uld have been largely immaterial in a prior confirmatio n proceeding, we doubt that there will be an "essenti al similarity of the underlying events" as required to give rise to claim preclusion. See Facchiano Constr. Co. v. U nited 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 appl ies; 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" bankr uptcy jurisdiction often raise factual issues "totally un related" to the confirmation proceeding. See Martinez, supra, 6 2 Mo. L. Rev. at 26-27. Accordingly, the argument goes, clai m 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 confirmat ion 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 t o 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 essen tially

the same as those of the claims raised in the confi rmation proceeding, the latter should not have a claim prec lusive effect on the former. But, as this case demonstrate s, see infra Part IV, not all non-core claims or claims be tween creditors are factually unrelated to objections adj udicated in confirmation proceedings that assertedly preclud e them. Other courts have applied claim preclusion in situa tions that likewise provide excellent examples of the pot ential for close factual relationships between claims in bankr uptcy proceedings and non-core claims, on the one hand, a nd claims between creditors, on the other. See, e.g., Robertson, 28 F.3d at 970-71 (applying claim preclusion to non -core

24claim); 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 th e 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 Agreemen t is precluded.

A. Could CoreStates Have Raised its Present Claim i n the Bankruptcy Proceeding?

Claim preclusion does not apply unless the present claim was or could have been raised in the prior proceedi ng. See Centra, 983 F.2d at 504. Accordingly, we must inqui re whether CoreStates could have raised its claim befo re the Bankruptcy Judge. As we have suggested above, CoreS tates functionally raised the Subordination Agreement in its objection to the Reorganization Plan. Since it did not formally interpose it, however, and the parties hav e proceeded as though it did not, we begin with a dis cussion of whether the legal issue here falls within the sc ope of a bankruptcy judge's jurisdiction. We then analyze wh ether, as a factual matter, that issue could have been rai sed in the bankruptcy proceeding. We conclude that there w as no reason CoreStates could not have brought its curren t claim before the Bankruptcy Judge.15

1. Bankruptcy Jurisdiction

The question before us is whether a creditor's righ ts as against another creditor under a subordination agre ement

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15. We note that CoreStates's appellate counsel, wh en pressed by the panel at oral argument, conceded with the benefit o f hindsight, but without abandoning his legal position, that the cla im based on the Subordination Agreement probably should have been r aised by trial counsel during the bankruptcy proceeding.

25fall within the bankruptcy jurisdiction. Our circui t

precedent suggests that the enforcement of a subord ination agreement between creditors may not qualify as a co re proceeding. "[A] proceeding is core under section 1 57 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 conc erns the extent and priority of Huls's interest in the bankr uptcy estate. In fact, the Second Circuit seems to have r eached just this conclusion. In Resolution Trust Co. v. Be st Products Co. (In re Best Products Co.), 68 F.3d 26 (2d Cir. 1995), which involved a dispute over the enforcemen t of a contractual subordination agreement between credito rs of a Chapter 11 debtor, the court found that while enfor cing subordination agreements is "not listed as a core proceeding, the power to prioritize distributions h as long been recognized as an essential element of bankrupt cy law." Id. at 31. Furthermore, the court reasoned:

[T]he Subordination Agreement . . . sets for th the relative priority of Best's obligations. Mor eover, the fact that Best filed briefs and argued in favor o f enforcing the Subordination Agreement in both the dist rict court

and this court belies the claim that Best ha d no interest in the controversy. Determination o f the priority rights of various creditors to asse ts of the Debtor was necessary to administer the estat e 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 i f 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, 74 3 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 invok e 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 no t

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

property. An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, optio ns, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administra tion of the bankrupt estate." 743 F.2d at 994. We have f urther noted that the "key word in [the Pacor test] is con ceivable. 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 h andling 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 ent irely between itself and Huls -- and thus does not impact the

debtor at all -- we believe it clear that the resol ution of this dispute conceivably would have impacted upon the de btor's options in crafting a plan that met with Huls's app roval and thereby affected the handling of the bankruptcy est ate. If Huls had known that the $600,000 the Reorganization Plan set aside for it was not going to be there "up fron t," Huls might not have consented to the Plan. Indeed, we ca nnot 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 v alue and was not simply pie in the sky. Without Huls's conse nt, UCT might have had a much more difficult time having th e Plan confirmed. Likewise, if CoreStates had litigated it s rights under the Agreement in the bankruptcy proceeding an d lost, it might have fought more strenuously against ultimate confirmation of the Plan, rather than, for example, choosing not to appeal the second confirmation orde r. We conclude that CoreStates's claim is of the type tha t falls within the non-core "related," if not the core, jur isdiction 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 theor etically could be raised in a bankruptcy case, claim preclus ion only

27applies if the particular claim at issue actually c ould have

been brought in the particular bankruptcy proceedin g. 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 proceedi ng because the cause of action had not yet accrued, th e 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 cla im could have been brought in a bankruptcy confirmatio n proceeding depends on whether the claim is based on preconfirmation or post-confirmation acts. "Claims for postconfirmation acts are not barred by the res judicat a effect

of the confirmation order. . . . Creditors whose cl aims arise from and after confirmation are not barred by the e vent 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 cou ld have been raised in the bankruptcy proceeding:

The first amended plan of reorganization dat ed 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 t han CoreStates. In addition, UCT actually paid t he $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 tha t it was obligated to turn over the funds to CoreStat es. June 12 was before Huls received the $600,000 and be fore the final confirmation order. This is simply not a case where CoreStates's claim to the funds in iss ue was unknown before the bankruptcy proceeding end ed.

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

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

conclusion. Because (a) UCT gave the $600,000 to Hu ls; (b) CoreStates was aware of this; and (c) CoreStates ha d demanded the money, all before the confirmation ord er was issued, we conclude that CoreStates's cause of acti on based on the Subordination Agreement had accrued before t he confirmation was finalized. The key fact here is th at UCT paid the $600,000 to Huls before the confirmation o f the

Second Amended Plan. CoreStates's cause of action c ould not accrue until Huls received money from UCT, sinc e Huls could not breach the Agreement until it received mo ney from UCT and then refused to turn it over to CoreSt ates. If Huls had not received the $600,000 payment until af ter the Plan was confirmed, CoreStates could not have raise d its claim under the Agreement in the bankruptcy proceed ing 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 res ponse to CoreStates's demands, all before the final confirma tion of the Second Amended Plan. Therefore, we agree with t he

District Court's conclusion that CoreStates could h ave raised its present claim in the bankruptcy proceedi ng.

B. The Centra Factors

Even if CoreStates could have raised its present cl aim before the Bankruptcy Judge, claim preclusion only applies if the current claim meets the requirements of Cent ra. "Claim preclusion requires: (1) a final judgment on the merits in a prior suit involving; (2) the same part ies or their privities; and (3) a subsequent suit based on the s ame cause of action." Centra, 983 F.2d at 504. CoreStat es 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 a s CoreStates also concedes, it is settled that orders of a bankruptcy judge rejecting objections and confirmin g a plan of reorganization are final judgments to which the doctrine of claim preclusion applies. See Stoll, 30 5 U.S. at 170-71; Szostek, 886 F.2d at 1408. This does not en tirely

29settle the matter, however, because a question rema ins

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 b e a claim for claim preclusion purposes. See supra sect ion 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 payme nt

was all Huls was entitled to receive under the Reorganization Plan. A challenge to that payment am ounted 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 pre serving, since it opposed the objection extensively througho ut the bankruptcy proceedings. Furthermore, Huls filed a b rief in opposition to CoreStates's appeal in the District C ourt, and CoreStates filed a reply brief dealing almost solel y with Huls's arguments. Accordingly, the Bankruptcy Judge 's dismissal of CoreStates's objection and the subsequ ent confirmation of the Plan constitute a final judgmen t on CoreStates's claim against Huls. We thus disagree w ith the dissent that CoreStates did not assert a claim agai nst 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 Pla n. 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 differen t grounds in the two proceedings, the "same cause of action" requirement relates to the factual circumstances un derlying the claims, not their legal basis. See Athlone Indu s., 746 F.2d at 984 (looking to the "essential similarity o f 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 woul d be the Agreement itself.

30Although we ordinarily "scrutinize the totality of the

circumstances" in determining whether two claims ar e based on the same cause of action where the first c laim arose in a bankruptcy proceeding, see Oneida, 848 F .2d at 419 n.5, we think the "essential similarity" of Cor eStates's past and present claims is facially apparent. We th us need not engage in any searching scrutiny of the totalit y 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 i t provided for the payment of $600,000 to Huls. CoreStates's p resent claim concerns who is ultimately entitled to receiv e this same money. In the absence of extensive litigation of this claim in the confirmation proceeding, CoreStates wo uld not now be prevented from bringing its suit. Second, UC T paid Huls the $600,000, and CoreStates was aware of and objected to this payment, before the bankruptcy confirmation proceeding ended in a final confirmati on of the Plan over CoreStates's objection. Thus, CoreStates could have brought its claim as an ancillary to the confi rmation proceeding. In what we suspect is the more usual ca se, where payments are not made pursuant to reorganizat ion plans until they are confirmed finally, an objectin g creditor could not be expected to bring its claim alongside the confirmation proceeding. Primarily because of these two particular circumstances, we conclude that CoreStat es's claim is barred by the doctrine of claim preclusion . The

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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 re ceive the payment only in the most technical sense.

31order of the District Court granting judgment on th e

pleadings in favor of Huls will be affirmed.

32STAPLETON, Circuit Judge, Dissenting:

I agree with the Court that principles of claim pre clusion can properly be applied with respect to claims fall ing within the non-core jurisdiction, as well as the core juri sdiction, of a Bankruptcy Court. I assume, without deciding, tha t the Bankruptcy Court would have had non-core jurisdicti on over CoreStates' claim against Huls. I further agre e that principles of claim preclusion can properly be appl ied with respect to crossclaims asserted between creditors i n a bankruptcy proceeding.

I am constrained to dissent, however, because the C ourt reaches its conclusion that CoreStates' claim again st Huls is barred only by ignoring well-established princip les of claim preclusion. While purporting to apply those principles, the Court proceeds to fashion an unprec edented "entire controversy doctrine" for bankruptcy litiga tion. 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 objec ting to confirmation of a plan of reorganization against an yone who

would benefit from confirmation is barred from bein g asserted in a subsequent proceeding if the facts un derlying the objections raised in the confirmation proceedin g and the subsequent claim are "essentially similar." Thi s holding ignores the fact that under traditional principles of claim preclusion the scope of preclusion arising from a j udgment 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 princi ples of claim preclusion view the concept of a "claim" broa dly. When "a valid and final judgment rendered in an act ion extinguishes the plaintiffs' claim pursuant to the rules of merger or bar . . ., the claim extinguished include s all rights of the plaintiff to remedies against the def endant with respect to all or any part of the transaction, or s eries of connected transactions, out of which the action aro se." Restatement, Judgments 2d, S 24(1).

33Claim preclusion cannot be applied, however, withou t

reference to the party who asserted the claim under lying 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 e xample,

a defendant who fails to assert a counterclaim aris ing 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 judgm ent on her claim and successful prosecution of a second ac tion would nullify the initial judgment or would impair rights established in the initial action against the defen dant. Id. S 22(2).2 Since a judgment in the plaintiff 's favo r on a claim

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1. Section 22 of Restatement, Judgments 2d, provide s:

(1) Where the defendant may interpose a clai m as a counterclaim but he fails to do so, he is not thereby pre cluded 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, afte r the rendition of judgment in that action, from maintaining an action o n the claim if:

(a) The counterclaim is required to be inte rposed by a compulsory counterclaim statute or rule of court, or

(b) The relationship between the countercla im 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 suf ficient that the counterclaim grow out of the same transactio n or occurrence as the plaintiff's claim, nor is it sufficient that the facts constituting

a defense also form the basis of the countercl aim. 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 judgm ent (see Illustration9), or by depriving the plaintiff in the fir st action of property

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

34establishes rights only as between the plaintiff an d the

opponent of the claim, the rationale for this excep tion has no application when the defendant in the subsequent suit is not the original plaintiff. Thus, not surprising ly, there appears to be no case in which a judgment on a plai ntiff 's claim has been held to preclude by merger or bar a claim

that would have been a crossclaim if asserted in th e original action.

While a claim preclusion analysis must thus focus o n the claimant and his or her claim, the universe of "pot ential claimants" is, of course, not limited to the plaint iff in the original action. As the majority notes, if a defend ant in the original action asserts a counterclaim or a crosscl aim and a final judgment is rendered with respect to that c laim, 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, principl es of claim preclusion could properly be applied with ref erence to

that claim. See Charter Oak Fire Ins. Co. v. Sumito mo 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 cla im preclusion in the context of a bankruptcy proceedin g requires flexibility and must take into account the nature of the bankruptcy process, those principles cannot fai rly be stretched far enough to effect a preclusion of Core States' claim here. In order for claim preclusion to preclu de, there must be a final judgment in favor of a claimant int o 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, 1 9. A confirmation order may be viewed as a judgment in f avor of creditors on their claims against the debtor. To th e extent claims have been disallowed, it may also be viewed as a judgment in the debtor's favor on the disallowed cl aims. 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 pr eclusion, however, none of these judgments would extinguish a claim

35between creditors who have not raised claims agains t each

other in the bankruptcy proceeding.3

In the bankruptcy proceeding, CoreStates asserted n o right to relief from Huls. Moreover, it claimed no right to receive from the debtor's estate the $600,000 ultim ately received by Huls. It had no such right to assert. Accordingly, the only way one can conclude that Cor eStates made a claim against Huls in the bankruptcy proceed ing, as the Court does, is to hold that an objection to confirmation of a plan of reorganization constitute s a claim against anyone who has an economic interest in havi ng the plan confirmed. Since virtually all non-objecting c reditors will have such an interest, this holding will requi re that any party considering an objection canvass the entire u niverse of creditors to determine whether it has a claim ag ainst one of them that might conceivably be regarded as arisi ng 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 sa me or similar underlying events. CoreStates' objection to confirmation of the plan was not based, directly or indirectly, on its Subordination Agreement with Hul s. Rather, to the extent it was related to Huls at all

, CoreStates' objection was based on the claim that t he plan "discriminate[d] unfairly" among a class of secured creditors in violation of section 1129(b). The clai m CoreStates here seeks to assert is a breach of cont ract claim based on allegations that it entered into a Subordination Agreement with Huls which Huls breach ed when it declined to pay $600,000 to CoreStates afte r it

received that amount from UCT. The Court fails to satisfactorily explain how CoreStates' two claims c an reasonably be deemed the same cause of action for c laim preclusion purposes.

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3. An in rem judgment, of course, is"conclusive as to interests [in the res] but does not bind anyone with respect to perso nal liability." Restatement, Judgments 2d, S 30. Here, CoreStates a sserts 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 ag reement with Huls.

36The 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 iden tified class of secured creditors, their treatment under t he proposed plan, and the feasibility of alternative p lans of distribution. In contrast, the claim that CoreState s here seeks to press is based on the terms of a Subordina tion Agreement entered long before the bankruptcy and th e fact that Huls received $600,000 from UCT because of UCT debt obligations to it. I perceive no "essential similar ity of the [legally relevant] underlying events giving rise to " these claims, and, indeed, I can think of no evidence tha t would

be material to both claims. It would not be necessa ry 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 t he distinctiveness of these claims by asserting that"t he objection and CoreStates' present claim addressed t he same factual issue: who should receive and retain the $6 00,000 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 pa yment it would receive under the plan and the claim asser ted 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 ca use of action will now be an elastic one, it will be extra ordinarily

difficult for a creditor in the Third Circuit to de termine

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 holdi ng: multitudinous protective filings of claims against nondebtors and the needless complication of bankruptcy confirmation proceedings.

I would reverse the judgment of the District Court.

37A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

38