NO. COA13-975

NORTH CAROLINA COURT OF APPEALS

Filed: 4 March 2014

LARRY BARROW, LOIS BARROW, AND 

DORIS MURPHREY,

Plaintiffs,

v. Greene County

No. 12 CVS 140

D.A.N. JOINT VENTURE PROPERTIES OF 

NORTH CAROLINA, LLC, CONNIE 

MURPHREY AND DONALD STOCKS,

Defendants.

Appeal by D.A.N. Joint Venture Properties of North 

Carolina, LLC from orders entered 10 May 2013 and 15 May 2013 by 

Judge Paul L. Jones in Greene County Superior Court. Heard in 

the Court of Appeals 6 January 2014.

White & Allen, P.A., by John P. Marshall and Ashley C. 

Fillippeli, for plaintiffs-appellees.

Driscoll Sheedy, P.A., by Susan E. Driscoll, for defendantappellant D.A.N. Joint Venture Properties of North 

Carolina, LLC.

Miller & Audino, LLP, by Jeffrey L. Miller, for defendantappellee Donald Stocks.

MARTIN, Chief Judge.

D.A.N. Joint Venture Properties of North Carolina, LLC

appeals from two superior court orders denying D.A.N. Joint 

Venture’s motion for summary judgment and granting Larry 
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Barrow’s, Lois Barrow’s, Doris Murphrey’s, and Donald Stocks’s 

motions for summary judgment. 

The facts relevant to appeal are that Larry Barrow, Lois 

Barrow, Doris Murphrey, Connie Murphrey, and Donald Stocks 

(guarantors) are all parties to a guaranty agreement 

guaranteeing notes issued by Wachovia Bank, N.A. to L.L. 

Murphrey Company. In 2000, L.L. Murphrey filed a Chapter 11 

petition with the United States Bankruptcy Court for the Eastern 

District of North Carolina. At the time the petition was filed, 

L.L. Murphrey was in default on several Wachovia notes that were 

guaranteed by the guarantors. On 4 May 2001, L.L. Murphrey 

filed its Fourth Amended Plan of Reorganization with the 

bankruptcy court, which was later confirmed by the bankruptcy 

court in part because the “guarantors contributed $550,000 to 

[L.L. Murphrey] to make confirmation of its plan feasible.”

The Plan of Reorganization divided L.L. Murphrey’s Wachovia 

debts into two notes: Note A and Note B. Wachovia sold Note A 

and Note B to Cadlerock Joint Venture, L.P., which later sold 

the notes to D.A.N. Joint Venture. In addition to creating two 

notes, the Plan of Reorganization provided that the “guaranties 

will remain in full force and effect for the Notes except as 

adjusted to reflect the amount of Recapitalized Debt, defined 
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herein.”

Because L.L. Murphrey and D.A.N. Joint Venture could not 

agree on the amount of the recapitalized debt, L.L. Murphrey 

filed a motion with the bankruptcy court to reopen the Chapter 

11 case on 1 April 2011. L.L. Murphrey, Larry Barrow, Lois 

Barrow, and Doris Murphrey then filed an adversary proceeding,

1

before the bankruptcy court, against D.A.N. Joint Venture. In 

the adversary proceeding, Larry Barrow, Lois Barrow, and Doris 

Murphrey sought a declaration that the guarantors were 

contingently liable for only the amount of the recapitalized 

debt. They also requested an injunction requiring D.A.N. Joint 

Venture to stop demanding payment from L.L. Murphrey and the 

guarantors in excess of the amount of the recapitalized debt.

In an order entered on 16 December 2011, the bankruptcy 

court found that the amount of the recapitalized debt was 

$6,186,362. D.A.N. Joint Venture filed a motion with the 

bankruptcy court seeking reconsideration of the 16 December 2011 

order, which was not a final order because it did not resolve 

all of the claims between the parties. The bankruptcy court 

granted D.A.N. Joint Venture’s motion. On 10 May 2012, the 

 

1 An adversary proceeding is a “lawsuit that is brought within a 

bankruptcy proceeding, governed by special procedural rules, and 

based on conflicting claims.” Black’s Law Dictionary 58 (8th 

ed. 2004).
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bankruptcy court issued a second order denying the claim for 

injunctive relief, because there was no showing of irreparable 

harm, and declaring that the liability of guarantors was capped 

at the amount of the recapitalized debt.

The present action was filed by Larry Barrow, Lois Barrow, 

and Doris Murphrey against D.A.N. Joint Venture, Connie 

Murphrey, and Donald Stocks in superior court after the 10 May 

2012 bankruptcy court order was entered. Larry Barrow, Lois 

Barrow, and Doris Murphrey assert that they are entitled to a 

declaration that the expiration of the statute of limitations 

prevents D.A.N. Joint Venture from asserting any claims against

the guarantors based on the guaranties. D.A.N. Joint Venture 

counterclaimed and crossclaimed that the guarantors were in 

breach of the guaranty agreements as modified by the Plan of 

Reorganization. The parties then filed cross-motions for 

summary judgment. D.A.N. Joint Venture appeals from the 

superior court’s grant of Larry Barrow’s, Lois Barrow’s, Doris 

Murphrey’s, and Donald Stocks’s motions for summary judgment.

_________________________

On appeal, D.A.N. Joint Venture argues that the 10 May 2012 

bankruptcy court order, which addressed the guarantors’

liability under the Plan of Reorganization, precluded the trial 
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court from granting summary judgment on the grounds that the 

statute of limitations bars all claims asserted by D.A.N. Joint 

Venture against the guarantors based on the guaranties. We 

agree.

Summary judgment is appropriate when “there is no genuine 

issue as to any material fact and . . . any party is entitled to 

a judgment as a matter of law.” In re Will of Jones, 362 N.C. 

569, 573, 669 S.E.2d 572, 576 (2008) (internal quotation marks 

omitted). We apply a de novo standard of review when evaluating 

a trial court’s grant of summary judgment. Id. Under de novo 

review, we “consider[] the matter anew and freely substitute 

[our] own judgment for that of the lower tribunal.” State v. 

Williams, 362 N.C. 628, 632–33, 669 S.E.2d 290, 294 (2008) 

(internal quotation marks omitted). 

To resolve this interjurisdictional preclusion issue, which 

involves the preclusive effect of a bankruptcy court order in 

superior court, we must first determine whether state or federal 

law applies. In Semtek International Inc. v. Lockheed Martin 

Corp., 531 U.S. 497, 506–09, 149 L. Ed. 2d 32, 41–43 (2001), the 

Supreme Court of the United States considered whether federal or 

state law controls the claim-preclusive effect of a federalcourt judgment based on diversity jurisdiction in a later state-
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court proceeding. From the outset, the Court noted that 

“[n]either the Full Faith and Credit Clause, U.S. Const., Art. 

IV, § 1, nor the full faith and credit statute, 28 U.S.C. § 

1738, address the question. By their terms they govern the 

effects to be given only to state-court judgments.” Id. at 506–

07, 149 L. Ed. 2d at 41–42. Furthermore, there is “no other 

federal textual provision, neither of the Constitution nor of 

any statute, [that] addresses the claim-preclusive effect of a 

judgment in a federal diversity action,” or “the claimpreclusive effect of a federal-court judgment in a federalquestion case.” Id. at 507, 149 L. Ed. 2d at 42. Federalquestion cases, however, have a preclusive effect on later 

proceedings because the Court “has the last word on the claimpreclusive effect of all federal judgments,” and requires that 

federal-question cases be given preclusive effect. Id. Federal 

common law, therefore, governs the claim-preclusive effect of 

federal-court judgments. See id. at 508, 149 L. Ed. 2d at 42.

In this case, defendant argues that the bankruptcy court 

order must be given preclusive effect. Therefore, we look to 

federal common law to determine the preclusive effect of the 

bankruptcy court order.2 

 

2 To assist in our determination of federal common law, we find 
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Because the terminology used to describe the preclusive 

effect of prior adjudications can be inconsistent, we begin by 

defining the terms. “[R]es judicata generally refers to the law 

of former adjudications,” In re Varat Enters., Inc., 81 F.3d 

1310, 1315 n.5 (4th Cir. 1996), and “encompasses two concepts: 

claim preclusion and issue preclusion, or collateral estoppel.” 

Id. at 1315. Both claim preclusion and issue preclusion apply 

to bankruptcy court orders. See id. (“The doctrine of res 

judicata applies in the bankruptcy context.”). 

Claim preclusion occurs when a suit——which arises from the 

same cause of action as a second suit——precludes relitigation in 

a second suit of matters actually decided and every claim that 

might have been raised in the first suit. Id. (citing Nevada v. 

United States, 463 U.S. 110, 129–30, 77 L. Ed. 2d 509, 524

(1983)). Issue preclusion on the other hand, applies when the 

first suit and the second suit involve different causes of 

action, but involve some of the same factual or legal issues. 

Id. In this situation, issue preclusion prevents relitigation, 

in the second suit, of the legal and factual issues actually and 

necessarily decided in the first suit. See id. Thus, the key 

 

the common law of the Fourth Circuit Court of Appeals persuasive 

because it is the circuit in which the United States Bankruptcy 

Court for the Eastern District of North Carolina is located. 
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difference between claim and issue preclusion is whether the 

first suit and the second suit involve the same cause of action. 

We believe that the adversary proceeding and the superior 

court proceeding involve the same cause of action and therefore 

consider whether claim preclusion applies to this case. Before 

addressing the requirements of claim preclusion, however, we 

must address whether claim preclusion applies to a declaratory 

judgment. 

Generally, the preclusive effect of declaratory judgments 

is limited to matters “actually litigated by the parties and 

determined by a declaratory judgment.” 18A Charles Allen 

Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice 

and Procedure § 4446 (2d ed. 2002). Thus, issue preclusion 

clearly applies to declaratory judgments. Federal courts, 

however, have consistently held that the general rule limiting 

the preclusive effect of declaratory judgments to issue 

preclusion “applies only if the prior action solely sought 

declaratory relief.” Laurel Sand & Gravel, Inc. v. Wilson, 519 

F.3d 156, 164 (4th Cir. 2008). As a result, if a claimant seeks 

coercive relief, like an injunction, in addition to declaratory 

relief, then the claimant forfeits the ability to limit the 

preclusive effect of a declaratory judgment to issue preclusion. 
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Id. (quoting Stericycle, Inc. v. City of Delavan, 929 F. Supp. 

1162, 1164 (E.D. Wis. 1996) (citing Cimasi v. City of Fenton,

838 F.2d 298, 299 (8th Cir. 1988) and Mandarino v. Pollard, 718 

F.2d 845, 848 (7th Cir. 1983))). Accordingly, claim preclusion 

also applies to the bankruptcy court order in this instance

because Larry Barrow’s, Lois Barrow’s, and Doris Murphrey’s 

complaint in the adversary proceeding sought injunctive relief

in addition to declaratory relief. 

Claim preclusion applies to an adjudication when (1) a 

court of competent jurisdiction enters a final judgment on the 

merits; (2) there is a second suit involving the claimants or 

parties in privity with the claimants; and (3) the claims in the 

second suit are based on the same cause of action as the first 

suit or could have been asserted in the first suit. Varat, 81 

F.3d at 1315; Bockweg v. Anderson, 333 N.C. 486, 492, 428 S.E.2d 

157, 161 (1993). In this case, all three criteria are 

satisfied.

To analyze the first criterion for claim preclusion, we 

divide it into three subparts. Subpart one requires a court of 

competent jurisdiction. Subpart two requires a final judgment. 

Subpart three mandates that the final judgment be on the merits. 

First, Larry Barrow, Lois Barrow, and Doris Murphrey assert 
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that the bankruptcy court was not a court of competent 

jurisdiction. They argue that the bankruptcy court lacked 

subject-matter jurisdiction over the claims asserted in the 

adversary proceeding because they were not core bankruptcy 

proceedings. While federal courts are courts of limited 

jurisdiction, federal courts have the power to decide whether 

they have jurisdiction; their determination of jurisdiction may 

be appealed, but it may not be collaterally attacked. In re 

Bulldog Trucking, Inc., 147 F.3d 347, 352 (4th Cir. 1998).

In the adversary proceeding, the 10 May 2012 bankruptcy 

court order stated:

[T]his adversary proceeding is a core 

proceeding within the meaning of 28 U.S.C. § 

157(b)(2). . . . Matters related to 

interpreting or implementing a plan postconformation are still considered “core” 

even in light of the Supreme Court’s ruling 

in Stern v. Marshall, __ U.S. __, 131 S. Ct. 

2594 (2011). 

Furthermore, the bankruptcy court stated: “The provisions of 

this plan modifying guaranties are completely consistent with 

applicable law at the time of confirmation, particularly since 7

contributed $550,000 to the debtor to make confirmation of its 

plan feasible.” Therefore, the bankruptcy court was a court of 

competent jurisdiction because it was conducting a core 

bankruptcy proceeding.
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Next, Larry Barrow, Lois Barrow, and Doris Murphrey assert 

that the bankruptcy court could not issue a final order because 

the adversary proceeding involved a noncore proceeding that 

required the consent of the parties before the bankruptcy court 

could issue a final order. As discussed above, the bankruptcy 

court had subject-matter jurisdiction over the adversary 

proceeding because it was a core proceeding. The bankruptcy 

court, therefore, could issue a final judgment. See Stern v. 

Marshall, __ U.S. __, __, 180 L. Ed. 2d 475, 488 (“Bankruptcy 

judges may hear and enter final judgments in all core 

proceedings arising under title 11, or arising in a case under 

title 11.” (internal quotation marks omitted)), reh’g denied, __

U.S. __, 180 L. Ed. 2d 924 (2011).

Not only did the bankruptcy court have the power to issue a 

final judgment but it entered a final judgment. “[A] judgment 

will ordinarily be considered final in respect to a claim . . . 

if it is not tentative, provisional, or contingent and 

represents the completion of all steps in the adjudication of 

the claim by the court.” Restatement (Second) of Judgments § 13 

cmnt.b (1982). The 10 May 2012 bankruptcy court order completed

all steps in the adjudication of the adversary proceeding. This 

is clear from the order for two reasons. First, it disposed of 
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all of the claims between the parties. Second, one of the 

reasons the bankruptcy court granted the motion for 

reconsideration was for the purpose of entering an “indisputably 

final [order] for purposes of appeal.” Therefore, the 10 May 

2012 order is a final judgment.

Finally, “judgment on the merits” is a term of art that 

means a judgment was “‘based on legal rights as distinguished 

from mere matters of practice, procedure, jurisdiction or 

form.’” In re Gilson, 250 B.R. 226, 236 (Bankr. E.D. Va. 2000) 

(quoting Fairmont Aluminum Co. v. Comm’r of Internal Revenue,

222 F.2d 622, 625 (4th Cir. 1955)). There is no dispute that 

the bankruptcy court order was rendered on the merits. All 

parties to the adversary proceeding were able to appear before 

the bankruptcy court at a hearing on 21 November 2011, where 

they could raise issues and make legal arguments. Thus, the 

final judgment was on the merits because it was based on the 

parties’ legal rights.

Next, we address whether the superior court suit involves 

the same claimants or those in privity with the claimants in the 

adversary proceeding. See Varat, 81 F.3d at 1315. In the 

adversary proceeding, L.L. Murphrey, Larry Barrow, Lois Barrow, 

and Doris Murphrey sued D.A.N. Joint Venture. In the superior 
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court proceeding, Larry Barrow, Lois Barrow, and Doris Murphrey 

sued D.A.N. Joint Venture and joined Connie Murphrey and Donald 

Stocks as defendants. However, for purposes of this appeal,

Donald Stocks is treated the same as Larry Barrow, Lois Barrow, 

and Doris Murphrey for determining whether claim preclusion 

applies to the statute of limitations argument. 

Larry Barrow, Lois Barrow, and Doris Murphrey asserted 

claims against D.A.N. Joint Venture in both proceedings, and 

claim preclusion should apply to them. Thus, the only issue is 

whether Donald Stocks is in privity with Larry Barrow, Lois 

Barrow, and Doris Murphrey. 

Privity exists when a non-party to a former adjudication is 

“so identified in interest with a party to former litigation 

that [the non-party has] . . . precisely the same legal right in 

respect to the subject matter involved.” Martin v. Am. 

Bancorporation Ret. Plan, 407 F.3d 643, 651 (4th Cir. 2005) 

(internal quotation marks omitted). That is, “the relationship 

between the one who is a party on the record and another is 

close enough to include that other within the res judicata.” 

Id. (internal quotation marks omitted). As discussed earlier, 

Donald Stocks, Larry Barrow, Lois Barrow, and Doris Murphrey are 

all parties to a guaranty agreement and both lawsuits address 
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the liability of guarantors. Therefore, Donald Stocks is in 

privity with Larry Barrow, Lois Barrow, and Doris Murphrey 

because they share the same legal rights with respect to the 

guaranty agreements.

Finally, we must address whether the adversary proceeding 

and the superior court proceeding involve the same cause of 

action. See Varat, 81 F.3d at 1315. The Fourth Circuit, for 

the purpose of claim preclusion, has defined a cause of action 

as all claims that arise “out of the same transaction or series 

of transactions.” Pittston Co. v. United States, 199 F.3d 694, 

704 (4th Cir. 1999) (internal quotation marks omitted). 

“Transaction” in this context “connotes a natural grouping or 

common nucleus of operative facts.” Id. (internal quotation 

marks omitted). 

We examine the adversary proceeding and the superior court 

proceeding to determine if the claims asserted or which could 

have been asserted in each case arise from a common nucleus of 

operative facts. In the adversary proceeding, Larry Barrow, 

Lois Barrow, and Doris Murphrey sought a declaration from the 

bankruptcy court that guarantors were contingently liable for 

only the amount of the recapitalized debt. Nothing precluded 

guarantors from asserting that they were absolved from liability 
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on statute of limitations grounds. The claim actually asserted 

in the adversary proceeding focused on how the Plan of 

Reorganization impacted the legal relationship between 

guarantors and D.A.N. Joint Venture. In fact, the bankruptcy 

court considered the language of the Plan of Reorganization in 

reaching its holding that guarantors were entitled to a 

declaration that “the liability of pre-petition guarantors is 

capped at the amount of the Recapitalized Debt.” 

In the superior court proceeding, Larry Barrow, Lois 

Barrow, and Doris Murphrey sought a declaration, and Donald 

Stocks relied on the affirmative defense, that the statute of 

limitations bars any claims that D.A.N. Joint venture might 

assert against guarantors based on the guaranty agreements. The 

logic of this argument is that the Plan of Reorganization 

required Wachovia to prepare new loan documents, which Wachovia 

apparently never prepared. As a result, they argue, that the 

only guaranty agreements are those executed before the Chapter 

11 bankruptcy, and the statute of limitations bars enforcement 

of the guaranty agreements because Wachovia notified guarantors 

that they were in default under the guaranty agreements sometime 

prior to the filing of the Chapter 11 bankruptcy petition. 

However, it is clear that the Plan of Reorganization has 
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some impact on the guaranty agreements because it states: 

“guaranties will remain in full force and effect for the Notes 

except as adjusted to reflect the amount of the Recapitalized 

Debt, defined herein.” Thus, the central focus of Larry 

Barrow’s, Lois Barrow’s, Doris Murphrey’s, and Donald Stocks’s 

superior court arguments is how the Plan of Reorganization 

affected the legal relationship between guarantors and D.A.N. 

Joint Venture. This statute of limitations claim could have 

been asserted in the adversary proceeding. Consequently, the 

adversary proceeding and the superior court proceeding arise 

from the same cause of action because they both focus on how the 

Plan of Reorganization affects the legal relationship between 

guarantors and D.A.N. Joint Venture and the claims that were 

available to guarantors. 

To summarize, claim preclusion applies to the 10 May 2012 

bankruptcy court order because the claimants in the adversary 

proceeding asked for an injunction in addition to declaratory 

relief. Next, the bankruptcy court was a court of competent 

jurisdiction that issued a final judgment on the merits because 

there was a hearing concerning the substance of the legal issues 

in dispute between the parties on a core proceeding as well as 

an order disposing of all claims between claimants. Also, the 
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adversary proceeding and the superior court proceeding involved 

the guarantors asserting rights against D.A.N. Joint Venture, 

thus both cases involved the same claimants. Finally, both 

cases arose from the same cause of action because both cases 

focused on how the Plan of Reorganization impacts the 

relationship of guarantors and D.A.N. Joint Venture and nothing 

prevented guarantors from asserting their statute of limitations 

claim in the adversary proceeding. Therefore, Larry Barrow’s, 

Lois Barrow’s, and Doris Murphrey’s failure to raise the statute 

of limitations issue during the adversary proceeding precludes 

us from now considering whether the statute of limitations 

prevents defendant from recovering from the guarantors. 

Accordingly, we reverse the superior court’s order and 

remand the case to the superior court for a determination of the 

amount of the guarantors’ liability.

Reversed and remanded.

Judges ERVIN and McCULLOUGH concur.