Opinion ID: 571457
Heading Depth: 3
Heading Rank: 2

Heading: Vitiating Effect

Text: 37 Having determined the two causes of action were substantially the same, we are left to inquire whether allowing Sure-Snap a separate judgment on the merits of its lender liability claims, would impair, destroy, challenge, or invalidate the enforceability or effectiveness of the original reorganization plan. 38 Bankruptcy Rule 1007(b)(1), which regulates the scheduling of assets and liabilities, requires a debtor to disclose contingent and unliquidated claims of every nature ... for the very reason that proof of either parties' performance under the loan agreements might affect a bankruptcy court's finding of the validity, enforceability, and extent of the secured loans in question. 39 Sure-Snap is not technically asking the district court to disturb the bankruptcy court's finding with respect to the validity of the liens. Thus, it would not necessarily be inconsistent with the bankruptcy court's finding that these liens were valid, for the district court now to find the banks liable in tort to Sure-Snap for their conduct in administering the loans. But appellants' failure to raise these claims (if valid) when they should have, almost certainly affected that prior judgment. Had the bankruptcy court found merit in appellants' lender liability claims, it probably would have structured a different disposition of Sure-Snap's assets or schedule of payments. The court might also conceivably have used its powers under 11 U.S.C. § 510 to subordinate for purposes of distribution all or part of [the banks'] allowed claim[s], 11 U.S.C. § 510(c)(1), or order that [the banks'] lien[s] securing [their] subordinated claims be transferred to the estate, 11 U.S.C. § 510(c)(2). See, e.g., In re Universal Farming Industries, 873 F.2d 1334 (9th Cir.1989) (equitable subordination appropriate when (1) the claimant who is to be subordinated has engaged in inequitable conduct; (2) the misconduct results in injury to competing claimants ... and (3) subordination is not inconsistent with bankruptcy law). 40 Since the doctrine of res judicata serves important interests other than protecting parties from inconsistent judgments, including reliev[ing] parties of the cost and vexation of multiple lawsuits [and] encourag[ing] reliance on adjudication, Allen v. McCurry, 449 U.S. 90, 94, 101 S.Ct. 411, 415, 66 L.Ed.2d 308 (1980), we agree that allowing Sure-Snap to bring lender liability claims now would violate well-established principles. 41 In Matter of Howe, the court reached a similar conclusion. As in this case, there the debtors had voluntarily filed for bankruptcy, initiated an adversary proceeding, and had their plan for reorganization confirmed, before filing lender liability claims against two of their creditors. The court held that when a confirmed plan discloses and specifically treats the creditor's claim, and the debtor has had a full opportunity to contest the creditor's claim in an adversary proceeding ... the debtor cannot collaterally attack the bankruptcy court's decision ... in an action based on the same transaction. 913 F.2d at 1147. 42 Likewise, in Southmark, the court determined that bringing a suit alleging fraudulent conduct ten years after the fact, constituted an impermissible attack on the first order of the bankruptcy court, which had confirmed the allegedly fraudulent sale of an asset as part of the original repayment plan. Appellants' attempt to distinguish their case by noting that only one facet of their loan was litigated in the bankruptcy hearing begs the question; they ought to have litigated all related facets if they could have done so. 4 43 The opportunity to litigate the lender liability claims once having been provided to these appellants, now the only way to assert those claims is through a direct attack on the judgment. Hendrick v. Avent, 891 F.2d at 587.