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BILL GREEVER CORPORATION, ET AL v. TAZEWELL NATIONAL BANK


BILL GREEVER CORPORATION, ET
AL v. TAZEWELL NATIONAL BANK


September 18, 1998
Record No. 972543

BILL GREEVER CORPORATION, ET AL.

v.

TAZEWELL NATIONAL BANK

OPINION BY JUSTICE ELIZABETH B. LACY
FROM THE CIRCUIT COURT OF TAZEWELL COUNTY
Keary R. Williams, Judge

Present: All the Justices

In this action by a debtor against a former creditor, we consider
whether a bankruptcy court’s prior order confirming the debtor’s
reorganization plan containing a reservation of rights clause was
a final disposition of all disputes between the debtor and the
creditor.
In 1992, Bill B. Greever, Sr., filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the Western District of
Virginia. Greever listed Tazewell National Bank (Tazewell) as a
creditor. In Schedule B of his bankruptcy petition, Greever was
required to list "contingent and unliquidated claims of
every nature, including . . . counterclaims of the
debtor." Greever responded "NONE." In his
"Disclosure Statement Relating to Bill Greever and Plan of
Reorganization" (the reorganization plan), however, Greever
included the following reservation language
nothing in this plan would waive any and all of the debtors [sic] rights to bring in [sic] action against any party or parties
which the debtor believes may be indebted to the debtor for any
causes of action that may exist pre-petition. The purpose of this
Chapter 11 plan is not to settle or waive any of those causes of
action but to preserve all of those if bringing the same is
determined by the debtor to be necessary in the future.

On December 10, 1992, the bankruptcy court entered an order
confirming Greever’s reorganization plan. Tazewell did not note
any objections and did not appeal the confirmation order.
On April 24, 1994, Greever and the Bill Greever Corporation,
wholly owned by Greever, (collectively "Greever") filed
a motion for judgment against Tazewell in the Circuit Court for
the County of Tazewell.[1] Greever asserted tortious
interference with business expectancy, breach of contract, and
various other lender liability claims against Tazewell arising
out of the parties’ pre-bankruptcy relationship. Tazewell filed a
motion for summary judgment, arguing, inter alia,
that the bankruptcy confirmation order was a final disposition of
all disputes between Greever and Tazewell, and the doctrine of res
judicata, therefore, precluded Greever’s claims.[2] The
trial court agreed and granted summary judgment in favor of
Tazewell. Greever then filed a motion for reconsideration, citing
additional authority, which the trial court denied. We awarded
Greever an appeal.

I.

We begin our consideration of this appeal by reviewing the
doctrine of res judicata, the rule against
claim-splitting, and the finality of bankruptcy orders. The
judicially created doctrine of res judicata rests
upon public policy considerations which favor certainty in the
establishment of legal relations, demand an end to litigation,
and seek to prevent the harassment of parties. Bates v. Devers,
214 Va. 667, 670, 202 S.E.2d 917, 920 (1974)(citations omitted).
The doctrine prevents "relitigation of the same cause of
action, or any part thereof which could have been litigated,
between the same parties and their privies." Id. at
670-71, 202 S.E.2d at 920-21. A claim which "could have been
litigated" is one which "if tried separately, would
constitute claim-splitting." Id. at 670 n.4, 202
S.E.2d at 920 n.4.
"Claim-splitting" is bringing successive suits on the
same cause of action where each suit addresses only a part of the
claim. Jones v. Morris Plan Bank of Portsmouth, 168 Va.
284, 291, 191 S.E. 608, 610 (1937). Courts have imposed a rule
prohibiting claim-splitting based on public policy considerations
similar to those underlying the doctrine of res judicata:
avoiding a multiplicity of suits, protecting against vexatious
litigation, and avoiding the costs and expenses associated with
numerous suits on the same cause of action. Id. at 291-92,
191 S.E. at 610.
Applying the doctrine of res judicata enforces the
rule against claim-splitting by barring further litigation of
claims which "could have been litigated" between the
parties in an earlier proceeding. The rule against
claim-splitting is not absolute, however. A defendant may waive
the rule by express or implied consent. Gary Steel Products
Corp. v. Kitchin
, 197 Va. 471, 474, 90 S.E.2d 120, 123
(1955). If this exception to the rule against claim-splitting is
applicable, res judicata will not bar the
subsequent suit.
Federal courts which have considered the application of res
judicata in the context of bankruptcy confirmation orders
have not discussed "claim-splitting" as such, but have
generally held that claims against creditors which could have
been brought in a bankruptcy proceeding and which might have
affected the parameters of the bankruptcy proceeding may not be
litigated in a subsequent proceeding in another court. Eubanks
v. Federal Deposit Ins. Corp.
, 977 F.2d 166, 170 (5th
Cir. 1992); Sure-Snap Corp. v. State Street Bank and Trust Co.,
948 F.2d 869, 870 (2nd Cir. 1991). In seeking the
protection of the bankruptcy court, the debtor is required to
list all its assets and liabilities, including contingent and
unliquidated claims "of every nature, including
counterclaims of the debtor." Id. at 873. This
requirement is designed to allow creditors to take an informed
position on the debtor’s proposed reorganization plan. Thus, when
the bankruptcy court enters an order confirming a proposed
reorganization plan, that order disposes of all matters between
the debtor and the creditors in the manner prescribed by the
confirmed plan. See In Re Grimm, 168 B.R. 102,
110-11 (Bankr. E.D. Va. 1994)(bankruptcy confirmation order final
judgment on the merits for res judicata purposes).
Any attempt by the debtor to resurrect a claim against a creditor
which could have been brought in a prior bankruptcy proceeding,
therefore, is barred by the doctrine of res judicata.
Eubanks, 977 F.2d at 174-75; Sure-Snap, 948 F.2d at
877.
On appeal, Greever does not dispute the general principle
that the doctrine of res judicata is applicable to
bankruptcy confirmation orders. Greever seeks to avoid its
application, however, based on "exceptions" to the rule
against claim-splitting contained in ? 26 of the
Restatement (Second) of Judgments (1982) (the Restatement).
First, Greever argues that by failing to note an objection to the
claim reservation language confirmed by the bankruptcy court’s
order, Tazewell "acquiesced" to
"claim-splitting," and cannot now assert the defense of
res judicata. Second, Greever argues that by
confirming a reorganization plan which contained claim
reservation language, the bankruptcy court expressly preserved
Greever’s right to maintain later actions against creditors.
Finally, Greever claims that application of res judicata
to the instant case would defeat the public policies of
"fairness, justice and judicial economy." We address
these arguments in order.

II.

Greever first seeks to avoid the application of res judicata
by applying Subsection (1)(a) of ? 26 of the Restatement,
which states that the general rule prohibiting claim-splitting
set out in ? 24 of the Restatement does not apply when
The parties have agreed in terms or in effect that the plaintiff
may split his claim, or the defendant has acquiesced
therein . . . .

Greever argues that under this rule, res judicata
should not be applied in this case because Tazewell acquiesced in
Greever’s splitting of his claims by failing to object to the
reservation language in the reorganization plan. Thus, Greever
concludes, he is entitled to proceed with the instant litigation
and is not barred by res judicata.
Applying this subsection, other courts have uniformly held that a
defendant can acquiesce to claim-splitting by failing to object
to a reservation clause in a prior consent decree, settlement
agreement, or confirmed bankruptcy reorganization plan. See
e.g., Keith v. Aldridge, 900 F.2d 736, 740-42 (4th
Cir. 1990); Medina v. Wood River Pipeline Co., 809 F.2d
531, 533-34 (8th Cir. 1987); Terrebonne Fuel &
Lube v. Placid Refining Co.
, 666 So.2d 624, 632-34 (La.
1996). These decisions generally require, however, that the
reservation language expressly preserve specific claims or that
the facts and circumstances clearly show that the parties
intended to preserve specific claims for later adjudication. Keith,
900 F.2d at 740-42; Medina, 809 F.2d at 533-34; Shelar
v. Shelar
, 910 F. Supp. 1307, 1313 n.4 (N.D. Ohio 1995); Terrebonne,
666 So.2d at 634-36. See also Kelly v. Merrill
Lynch, Pierce, Fenner & Smith, Inc.
, 985 F.2d 1067,
1069-70 (11th Cir. 1993).
We have not adopted ? 26(1)(a) of the Restatement. However,
the decisions based on this subsection are instructive because
they interpret "acquiescence" under the Restatement in
a manner similar to our standard for waiving the rule against
claim-splitting. Gary Steel, 197 Va. at 474, 90 S.E.2d at
123.
The requirements for finding "acquiescence" reflect the
general principle that waiver requires both knowledge of the
facts basic to exercise of the right waived and an intent to
waive the right. Employers Commercial Union Ins. Co. of
America v. Great American Ins. Co.
, 214 Va. 410, 412-13, 200
S.E.2d 560, 562 (1973); May v. Martin, 205 Va. 397, 404,
137 S.E.2d 860, 865 (1964). Therefore, we agree that a defendant
may waive the claim-splitting rule by failing to object to
reservation language if the reservation clause clearly expresses
the parties’ intent to preserve specific claims or if the
circumstances of the case make it clear that the defendant was
aware that additional claims could be asserted against him later.

Here, the language
used by Greever in his reorganization plan's reservation clause
was generic and did not identify any specific creditors or
claims. Nevertheless, Greever, relying on
Terrebonne, asserts that the claim
reservation language was sufficiently explicit to put Tazewell
and the bankruptcy court "on notice of Mr. Greever's intent
to reserve causes of action which he might have, presumably to be
asserted at a later date."

In Terrebonne, the claim reservation language in a
debtor’s reorganization plan was similar to the language Greever
included in his plan. 666 So.2d at 627. After the plan was
confirmed, the debtor filed a state court breach of contract
claim against one of its former creditors. Id. at 628. The
Supreme Court of Louisiana held that by failing to appeal the
confirmation of the reorganization plan, the creditor had
"acquiesc[ed] [to] the reservation of claims." Id.
at 634. Greever argues, therefore, that Tazewell’s failure to
object to similar claim reservation language here can constitute
a waiver of the rule against claim-splitting.
In Terrebonne, however, the Supreme Court of Louisiana
relied on facts and circumstances in addition to the reservation
language in concluding that the creditor had acquiesced to
claim-splitting. During the Terrebonne bankruptcy
proceeding, the debtor attempted to raise its breach of contract
claim against the creditor. The bankruptcy court declined to
exercise jurisdiction over the breach of contract claim and
directed the debtor to bring the claim in state court. Id.
at 627-28. The Supreme Court of Louisiana concluded that under
these circumstances, the parties "were aware" that the
specific claims at issue would be asserted later. Id. at
634.
The facts in this case differ significantly from those underlying
the holding in Terrebonne. Here, Greever did not attempt
to raise any claims against Tazewell in the bankruptcy
proceeding. Greever acknowledged that he "never disclosed to
the bankruptcy court or to his creditors the nature or existence
of any of the specific claims asserted" in the instant
litigation. Furthermore, Greever represented in Schedule B of his
bankruptcy petition that he did not have any additional claims or
counterclaims against his creditors. The trial court specifically
found that Tazewell "had no knowledge of any claims or
potential claims against them by [Greever] at the time the
confirmed plan was approved." These facts do not show either
that the reservation language expressly preserved specific claims
or that the parties intended to preserve specific claims for
later adjudication. Accordingly, there is no basis to conclude
that Tazewell "acquiesced in" or waived the rule
against claim-splitting by express or implied consent.

III.

Greever, relying on
Subsection (1)(b) of ? 26 of the Restatement, next asserts
that the trial court erred in failing to hold that the bankruptcy
court "expressly reserved" Greever's right to maintain
later actions against creditors when it confirmed the
reorganization plan containing the reservation clause. That
subsection of the Restatement provides that the rule against
claim-splitting does not apply if "[t]he court in the first
action has expressly reserved the plaintiff's right to maintain
the second action." Restatement (Second) of Judgments
? 26(1)(b)(1982).

Unlike the provisions of Subsection (1)(a) of the Restatement
rule, there is no Virginia counterpart for Subsection (1)(b).
Rather, we have held that the rule against claim-splitting
"exists for the benefit and protection of the
defendant." Gary Steel, 197 Va. at 474, 90 S.E.2d at
122. Thus, the right to waive the rule has been limited to the
defendant.
Assuming without deciding that an exception to the rule against
claim-splitting can occur by virtue of court action, we cannot
say that the bankruptcy court’s action confirming the reservation
of claims clause in Greever’s reorganization plan was in any way
an "express" preservation of those claims. The
bankruptcy court in this case merely confirmed a plan containing
generic claim reservation language which did not identify any
specific claims or any specific creditors. It would be
inconsistent to conclude that, although the reservation clause
was insufficiently explicit to charge Tazewell with
"knowledge" of Greever’s claims for the purpose of
waiving the rule against claim-splitting, the language was
sufficiently clear to constitute an "express"
preservation of Greever’s claims by the bankruptcy court. In
addition, as the trial court noted, the confirmed reorganization
plan also contained language preserving the bankruptcy court’s
jurisdiction over any disputes "regarding the interpretation
of any provision(s) of the Plan," or any "cause(s) of
action . . . referenced . . . in this
plan." Therefore, there is nothing in this record that would
support a conclusion that the bankruptcy court
"expressly" preserved Greever’s right to file a
subsequent state court action against Tazewell.

IV.

Greever’s final argument is that applying res judicata
in the instant case defeats "the public policies of
fairness, justice and judicial economy," citing
Subsection (1)(e) of ? 26 of the Restatement.
[3] Like this subsection of the
Restatement, Virginia recognizes that applying the doctrine of res
judicata may not be appropriate when it conflicts with
more important public policies. Bates, 214 Va. at 670 n.2,
202 S.E.2d at 920 n.2. The facts of this case, however, do not
justify overriding the doctrine of res judicata on
this basis.
The purpose of the res judicata doctrine, as we
have noted, is to establish certainty in legal relations, to
demand an end to litigation, and to prevent the harassment of
parties. Bates, 214 Va. at 670, 202 S.E.2d at 920. In a
bankruptcy proceeding, there is an especially strong interest in
finality. Sure-Snap, 948 F.2d at 877. One seeking
bankruptcy protection has a duty to schedule, for the benefit of
creditors, all his interests and property rights. Oneida Motor
Freight, Inc. v. United Jersey Bank
, 848 F.2d 414, 416 (3rd
Cir. 1988). In the instant case, Greever failed to disclose his
claims against Tazewell either as required by Schedule B of his
bankruptcy petition or otherwise, thereby representing to the
bankruptcy court and to Tazewell that he had no counterclaims
against Tazewell.
The principles underlying the doctrine of res judicata
are fully implicated in this case. We see no reason why
"fairness, justice and judicial economy" should
preclude application of the doctrine to Greever’s cause of
action.
For the above reasons, we affirm the trial court’s conclusion
that Greever’s lender liability claims against Tazewell are
barred by the doctrine of res judicata.
Affirmed.

 

FOOTNOTES:

[1] Greever also asserted claims
against another former creditor, Citizens Bank of Tazewell.
Greever’s claims against Citizens Bank were later severed from
the instant cause of action and are not at issue in this
appeal.
[2] At
the hearing on Tazewell’s motion for summary judgment, Greever
conceded that Bill Greever, Sr., and the Bill Greever Corporation
are privies, and that if res judicata bars Bill
Greever, Sr.’s, personal claims against Tazewell, it also bars
the corporation’s claims.
[3]
Subsection (1)(e) provides that the general rule prohibiting
claim splitting set out in ? 24 does not apply when [f]or
reasons of substantive policy in a case involving a continuing or
recurrent wrong, the plaintiff is given an option to sue once for
the total harm, both past and prospective, or to sue from time to
time for the damages incurred to the date of suit, and chooses
the latter course.
Restatement (Second) of Judgments ? 26(1)(e)(1982).

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