Opinion ID: 547618
Heading Depth: 2
Heading Rank: 2

Heading: Could The Action Have Been Brought in the Earlier Proceedings?

Text: 33 The four factors listed by the Nilsen court do not conclude the question of whether res judicata bars the Howes' claims, however. Even if the two actions are the same under the transactional test, res judicata does not bar the instant action unless the Howes could and should have brought their claims in the former proceedings. 16 34 In D-1 Enterprises v. Commercial State Bank, 17 this court noted the important procedural differences between the 1898 Bankruptcy Act, under which Southmark was decided, and the new Bankruptcy Code. 18 Under Rule 701(6) of the Bankruptcy Rules applicable to Chapter X cases under the Act, a proceeding to obtain relief from a stay was an adversary proceeding and was governed by Part VII of the Bankruptcy Rules. 19 Rule 713 provided that if the trustee or receiver was the defendant, the trustee or receiver had to assert any compulsory counterclaims unless the failure to assert the counterclaim arose through oversight, inadvertence, excusable neglect, or when justice required. 20 Under the Code, however, a hearing on relief from stay is a contested matter; and, as the D-1 Enterprises court noted, [c]ounterclaims are compulsory only in 'adversary proceedings.'  21 Under the quick motion-and-hearing style of contested matters, the court reasoned, a party may not be required, or even allowed, to bring all of his claims. 22 35 The specific issue that the D-1 Enterprises court considered was whether an agreed order lifting a stay and abandoning certain assets of the debtor to a creditor, entered in a contested hearing on relief from stay, was res judicata of various tort claims against that creditor for bad faith acceleration of a note, wrongful foreclosure and the like; and if not, whether these claims were compulsory counterclaims to the creditor's motion to lift the stay. The court held that it was not. In a Chapter X proceeding, the court observed, the debtor could assert a claim against the creditor, even on a largely unrelated matter, as an affirmative defense to the creditor's efforts to foreclose. The Code, however, provides an expedited procedure for obtaining relief from the automatic stay. 36 The court noted that [t]he legislative history of Sec. 362(e) [of the Code] makes clear that counterclaims against a creditor seeking to lift the stay on largely unrelated matters are not to be handled in the summary fashion required by the expedited nature of the proceeding. 23 The court further noted that [c]onsistent with the legislative history, the courts have held that 'indirect defenses,' such as breach of contract, fraud and the like, would be severed from the expedited stay litigation if raised in an effort to defeat the creditor's motion. 24 37 This court's decision in D-1 Enterprises is not a broad retrenchment from Southmark as the Howes claim; rather, it applies the same well established principles of res judicata to the changed nature of proceedings under the Bankruptcy Code. The D-1 Enterprises court merely decided that when a claim cannot be litigated effectively, it is not precluded. 25 38 Applying the principles of res judicata in the bankruptcy context which we have set forth, we note that the Howes disclosed and specifically treated Premier in their confirmed plan, and Premier was their only significant creditor. 26 Premier, Vaughan and the Howes in the instant case were diametrically opposed from the inception of the reorganization proceedings, and the Howes had, and took full advantage of, the right to be heard in the reorganization proceedings. 27 The Howes instituted adversary proceedings 28 against Premier in which they contested the validity of Premier's lien and charged that the loan was usurious. 29 Every facet of Premier's loan was the subject of litigation and negotiation. 30 Under the circumstances, the Howes not only had the opportunity to bring the present claims against Premier but the obligation to do so. 31 39 The Howes argue that they should be allowed to pursue their claims because, although they may have been aware of the basic facts underlying their claims, they were not aware of the significance of those facts. We find the Howes' ignorance an inadequate excuse for their failure to raise their claims in the earlier proceedings. They do not suggest that the facts forming the basis of those claims were undiscoverable until after those proceedings. Nor do they suggest that the adversary proceedings lacked the procedural mechanisms that would have allowed them to bring their claims. 40 The Howes argue that if we find their claims barred by res judicata we will, in effect, hold that no debtor who has had a plan of reorganization confirmed can subsequently raise an action against a creditor for any actions which occurred prior to the filing of the bankruptcy petition. We do not so hold. We decide only 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 that is, in effect, settled in the plan, the debtor cannot collaterally attack the bankruptcy court's decision five years later in an action based on the same transaction. 41