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USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 96-1395
PETITIONING CREDITORS OF MELON PRODUCE, INC.,
Appellants,
v.
JOSEPH BRAUNSTEIN, TRUSTEE, ET AL.,
Appellees.
____________________
No. 96-1406
MELON PRODUCE, INC.,
Plaintiff - Appellant,
v.
PETER KARGER,
Defendant - Appellee.
____________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Edward F. Harrington, U.S. District Judge] ___________________
____________________
Before
Selya, Circuit Judge, _____________
Campbell, Senior Circuit Judge, ____________________
and Boyle,* Senior District Judge. _____________________
_____________________
____________________
* Of the District of Rhode Island, sitting by designation.
Richard L. Blumenthal, with whom Peter L. Zimmerman and ______________________ ___________________
Silverman & Kudisch, P.C. were on brief for appellants. _________________________
Alan M. Spiro, with whom Andrew D. Cummings and Friedman & _____________ __________________ __________
Atherton were on brief for appellee Peter Karger. ________
____________________
May 8, 1997
____________________
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BOYLE, Senior District Judge. In this action, a BOYLE, Senior District Judge. _______________________
Bankruptcy Court decision allowed the unsecured claim of a
creditor who had obtained a preferential transfer. The
petitioning unsecured creditors appealed to the District Court
the Bankruptcy Court's ruling that the unsecured creditor's claim
should neither be denied nor equitably subordinated. The
District Court dismissed the petitioning unsecured creditor's
appeal for failure to prosecute. The petitioning unsecured
creditors now claim that the District Court erred in dismissing
their appeal. We affirm the Bankruptcy Court's determination.
I. BACKGROUND I. BACKGROUND
In August 1984, Karger, the unsecured creditor, loaned
$632,000 to A. Pellegrino & Son, Inc. ("Pellegrino"). Melon
Produce, Inc. ("Melon Produce") was incorporated to secure
Karger's loans to Pellegrino, then in a proceeding under Chapter
11 of the Bankruptcy Code. Karger was Melon Produce's president
and sole shareholder. The Bankruptcy Court approved Karger's
loans, the transfer of three shares of stock in the New England
Produce Center ("NEPC") and leasehold interests in three bays at
NEPC from Pellegrino to Melon Produce for the purpose of securing
Karger's loans, and Melon Produce gave a guaranty and security
interest to Karger which included all "instruments" and "all . .
. rights . . . to the payment of money" including a security
interest in "all such assets hereinafter acquired." The three
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bays and the shares of stock were not included in the security
interests identified. On February 27, 1987, Melon Produce sold
its three bays and shares of NEPC stock and paid Karger, its only
secured creditor, $430,022.39 from the proceeds.
Within a year of the payment to Karger, an involuntary
proceeding against Melon Produce under Chapter 7 of the
Bankruptcy Code was initiated by three unsecured creditors. On
March 22, 1990, Joseph Braunstein, the Chapter 7 Trustee for
Melon Produce ("Trustee"), brought an action against Karger in
the Bankruptcy Court. The complaint alleged a preferential
transfer and a fraudulent transfer of property of the estate
under the Bankruptcy Code and a fraudulent transfer under
Massachusetts state law.
The proceeding was transferred to the District Court.
On January 8, 1991, the District Court granted the Trustee's
motion for entry of final judgment as to Count I, the preference
claim, and the Trustee's motion for assessment of prejudgment
interest. The District Court entered final judgment on the
merits, awarding damages on Count I in the amount of $430,022.39
plus pre-judgment interest in the amount of $29,838.39. All
other counts were dismissed. On September 29, 1992, the final
judgment was upheld upon appeal by this Court. In re Melon ____________
Produce, Inc., 976 F.2d 71 (1st Cir. 1992). _____________
The Trustee and Karger agreed to a Stipulation of
Settlement on June 18, 1993. The Trustee had filed a post-
judgment motion to require Karger to satisfy the indebtedness,
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and sought the appointment of a Special Master for the purposes
of taking possession of and selling shares of stock held by
Karger in two unrelated corporations. The Trustee also had
brought an action seeking to set aside as a fraudulent conveyance
the interest of Karger's wife, Susan Karger, in certain real
property held by her and Karger as tenants-by-the-entirety.
The stipulation stated that Karger had asserted and
represented that he was unable financially to satisfy the
judgment in full. In support of this assertion, Karger made
certain financial disclosures to the Trustee, including
submitting to a deposition by the Trustee and producing his tax
returns and other work papers for review by the Trustee. Karger
offered to pay the sum of $400,000, in satisfaction of the
judgment and his and his wife's obligations and indebtedness to
the Trustee. Due to the uncertainty with respect to Karger's
financial situation and the question of Karger's ability to
satisfy the judgment, and given the uncertainty with respect to
the valuation of Karger's stock in the unrelated corporations,
the Trustee agreed to seek the approval of Karger's $400,000
offer from the Bankruptcy Court according to the following terms:
If the Settlement Amount is paid [by
Karger] on or before the Settlement Date,
the Trustee shall accept such payment in
satisfaction of Karger's obligations, and
the Trustee shall mark the judgment and
any execution therefor 'satisfied' and
return same to Karger. . . . If Karger
pays the Settlement Amount by the
Settlement Date, the Trustee shall not
object to the allowance of Karger's
unsecured claim in the amount of
$400,000. . . . If this settlement is not
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approved by the Bankruptcy Court or if an
appeal is taken from an order approving
this settlement and the order is stayed,
then at the sole option of the Trustee,
the Trustee may declare the Stipulation
and settlement null and void.
Thereafter, the Trustee may pursue his
rights and remedies against Karger,
including, but not limited to, the
appointment of the Special Master to sell
the [corporate] stock of Karger and the
fraudulent conveyance action against
Peter and Susan Karger.
The petitioning unsecured creditors filed an objection
to the Trustee's motion to approve the settlement stipulation,
seeking the denial of the Trustee's application for approval of
the stipulation, or, in the alternative, the equitable
subordination of Karger's unsecured claim to the claims of the
other unsecured creditors. On July 22, 1993, the Bankruptcy
Court heard the motion and approved the settlement. The
unsecured creditors argued that the settlement should not be
approved because the settlement provided that the Trustee would
not object to Karger's unsecured claim of $400,000 and Karger was
to pay less than the full amount of the preference judgment. The
trustee advised the Bankruptcy Court that he did not wish to
pursue equitable subordination of Karger's $400,000 claim
because, having succeeded on the issue of preferential transfer,
he did not want to go through ". . . another war." The
Bankruptcy Court stated that 11 U.S.C. 502(d) permits the
petitioning unsecured creditors to object to the allowance of the
claim stating that "[y]ou could press that [claim for equitable
subordination] even if the trustee rolls over and plays dead" and
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that they, the objecting unsecured creditors, "can come in and
ask for equitable subordination." The context of the court's
statement is clear that objections to Karger's unsecured claim
could be made later "and we'll have a hearing on that." The
petitioning unsecured creditors did not appeal the Bankruptcy
Court's order approving the settlement. On September 2, 1993,
Karger paid the $400,000 settlement to the Trustee.
The petitioning unsecured creditors then filed an
objection to Karger's claim in Bankruptcy Court. On November 26,
1993, the petitioning unsecured creditors filed a Motion for
Summary Judgment in Bankruptcy Court, arguing that Karger's
unsecured claim should be denied pursuant to 11 U.S.C. 502(d),
or, in the alternative, that Karger's claim should be equitably
subordinated pursuant to 11 U.S.C. 510(c). The creditors
argued that the claim should be disallowed because Section 502(d)
states that "the court shall disallow any claim of any entity
from which property is recoverable . . . unless such entity or
transferee has paid the amount, or turned over any such property,
for which such entity or transferee is liable." The unsecured
creditors argued that Karger's unsecured claim should be
disallowed because the full amount of the judgment against
Karger was in fact not paid. 11 U.S.C. 502(d).
The unsecured creditors also argued that Karger's claim
should be subordinated to their unsecured claims. This action
would increase the dividend to the unsecured creditors other than
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Karger. Section 510(c) authorizes the Bankruptcy Court to apply
equitable subordination principles to claims.
On December 28, 1993, the Bankruptcy Court denied the
Motion for Summary Judgment and entered an order allowing
Karger's unsecured claim in the amount of $400,000. See In re ___ _____
Melon Produce, 162 B.R. 386 (Bankr. D. Mass. 1993). The Court _____________
found that the petitioning unsecured creditors' Section 502(d)
argument failed on the grounds that Karger had paid the full
amount of the $400,000 settlement, that the Bankruptcy Court's
order approving the settlement stipulation had adjusted the
amount of the preference downward, and that "to rule otherwise
would deprive the settlement of its essential vitality." As to
the petitioning unsecured creditors' Section 510(c) argument, the
Court found that "[t]he claims are primarily derivative from the
same facts set forth in the Trustee's complaint seeking to avoid
a fraudulent transfer. While the Trustee did not seek equitable
subordination of Karger's claim . . . he might well have done so
based upon the facts of the matter, and res judicata bars all
available grounds for recovery, regardless of whether or not
asserted." The Bankruptcy Court cited this court's opinion in
Bezanson v. Bayside Enterprises, Inc. (In re Medomak Canning), ________ ___________________________________________________
922 F.2d 895 (1st Cir. 1990), and concluded that "the previous
settlement precludes the [petitioning unsecured creditors] from
raising the issues of equitable subordination at this time."
The petitioning unsecured creditors then appealed to
the District Court from the denial of Summary Judgment. On April
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7, 1994, the District Court affirmed the Bankruptcy Court's
ruling on the issues relating to the effect of the failure to pay
the full amount of the judgment against Karger and "remanded to
the Bankruptcy Court the issue of whether [the petitioning
unsecured creditors] should be allowed to object to Karger's
claim on equitable subordination grounds."
On July 5, 1995, the Bankruptcy Court issued a
Memorandum Decision, in which it ruled that the petitioning
unsecured creditors were precluded by the settlement from
objecting to Karger's unsecured claim. In its Decision, the
Bankruptcy Court resolved the uncertainties created by its
utterance of July 22, 1993 and its published decision of December
28, 1993. The Court stated that its initial pronouncement on
July 22, 1993, which stated that 11 U.S.C. 502(a) permits the
petitioning unsecured creditors to object to the allowance of the
claim and that the petitioning unsecured creditors could ask for
a hearing on the equitable subordination issue, was in error.
With the benefit of the motions for summary judgment, the
Bankruptcy Court had come to the opposite conclusion in its
published decision of December 28, 1993. In that decision, the
Bankruptcy Court held the petitioning unsecured creditors were
precluded from raising [the equitable subordination] issue, based
primarily upon this court's opinion in In re Medomak Canning. ______________________
The Bankruptcy Court now upheld the December 28, 1993 decision,
holding that In re Medomak Canning was controlling and that the ______________________
petitioning unsecured creditors were not entitled to pursue the
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equitable subordination issue further. The court then cited
Grella v. Salem Five Cent Savings Bank, 42 F.3d 26, 30 (1st Cir. ______ ____________________________
1994), without discussion.
On July 14, 1995, the petitioning unsecured creditors
again appealed their equitable subordination claim to the
District Court. The Bankruptcy Court gave notice to the parties
of the appeal timetable on July 17, 1995. On September 5, 1995,
the record for the case on appeal was assembled and transmitted
to the District Court. Although the District Court did not issue
a notice to the parties of the entry of the appeal on the docket,
the petitioning unsecured creditors had actual knowledge for
several months of the docketing of the appeal. Since the filing
of the appeal, the petitioning unsecured creditors had been
monitoring the status of the proceeding on the Court's computer-
operated Pacer System.
The petitioning unsecured creditors did not file and
serve a brief within fifteen days after the entry of the appeal
on the District Court docket, as required by Bankruptcy Rule
8009. On February 27, 1996, the District Court entered an order
dismissing the appeal for the petitioning creditors' failure to
prosecute the appeal. The petitioning unsecured creditors then
filed a notice of this appeal to this Court.
II. DISCUSSION II. DISCUSSION
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Although this appeal initially presents the issue of
whether actual as opposed to record notice triggers the 15 day
period for the filing and service of an appellant's brief in the
District Court, we choose to forego that issue and address the
substantive underlying issues. While it is true that federal
courts of appeal generally do not rule on issues not decided in
the district court, we do have discretion to address issues not
reached by the district court when the question is essentially
legal and the record is complete. U.S. v. L.I. Kin-Hong, No. 97- ____ _____________
1084, slip op. at 31 (1st Cir. Mar. 20, 1997) (citations
omitted). Here, the substantive underlying issues are legal in
nature and the record is complete. Furthermore, this cause has
already involved the attention of this court on an earlier
occasion. We address the substantive underlying issues in the
hope that this litigation may sooner, rather than later, come to
a conclusion.
A. Disallowance of Claim A. Disallowance of Claim
The petitioning unsecured creditors argue that Karger's
claim should be disallowed, as Karger received a judicially
determined preferential transfer and has not paid the amount for
which he is liable because of the preferential transfer. Section
502(d) of the Bankruptcy Code governs the disallowance of claims.
It reads as follows:
(d) Notwithstanding subsections (a) and (b) of
this section, the court shall disallow any claim of any
entity from which property is recoverable under section
542, 543, 550, or 553 of this title or that is a
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transferee of a transfer avoidable under section
522(f), 522(h), 544, 545, 547, 548, 549, or 724(a) of
this title, unless such entity or transferee has paid
the amount, or turned over any such property, for which
such entity or transferee is liable under section
522(i), 542, 543, 550, or 553 of this title.
In 1992, this court held that Karger was the recipient of a
voidable transfer. See In re Melon Produce, 976 F.2d at 76. ___ ___________________
The remaining issue, therefore, is to determine if
Karger, as transferee, has paid over the amount for which he is
liable under 11 U.S.C. 550. Petitioning unsecured creditors
argue that Karger did not comply with the requirements of Section
502(d) because he did not pay the full amount of the judgment of
$459,860.78 plus interest but rather settled the claim against
him by means of a payment of a lesser sum, $400,000.
The legal query presented appears to be unique since
the parties have not cited nor have we found any authority which
specifically addresses the precise issue presented here. Thus,
we are left to the task of ascertaining the legislative purpose
and intent, if possible, from the language employed by Congress.
As we have stated previously, "'the task of interpretation begins
with the text of the statute itself, and statutory language must
be accorded its ordinary meaning.'" In Re: Juraj J. Bajgar, 104 ______________________
F.3d 495, 497 (1st Cir. 1997), quoting Telematics Int'l, Inc. v. ______________________
NEMLC Leasing Corp., 967 F.2d 703, 706 (1st Cir. 1992). Wherever ___________________
possible, statutes should be construed in a commonsense manner,
avoiding absurd or counterintuitive results. U.S. v. Carroll, ____ _______
105 F.3d 740, 744 (1st Cir. 1997) (citations omitted).
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The language of Section 502(d) of the Bankruptcy Code
is not complex. A proof of claim must be disallowed unless the
preference recipient pays the amount for which he is "liable"
under 11 U.S.C. 550. See 11 U.S.C. 502(d); Max Sugarman ____________
Funeral Home, Inc. v. A.D.B. Investors, 926 F.2d 1248, 1257 (1st ___________________ ________________
Cir. 1991). Once the preference recipient complies with the
payment or turnover order of the bankruptcy court, it may file a
proof of claim. See Sugarman, 926 F.2d at 1257; see also In re ___ ________ ________ _____
First Intern. Services Corp., 37 B.R. 856, 860 (Bankr. D. Conn. ____________________________
1984) ("Pursuant to 11 U.S.C. 502(d), claims of creditors who
have received void or voidable transfers must be disallowed
unless the creditor surrenders the money or property transferred
during the preference period.").
The key phrase in this inquiry is "the amount . . . for
which such entity or transferee is liable . . ." 11 U.S.C.
502(d). The difficulty with application of the term "liable"
namely is that there are two court actions which determined that
the preference recipient is liable, the judgment of the District
Court and the Order of the Bankruptcy Court approving the
settlement of the preference claim.
The unsecured creditors argue that the legislative
history of Section 502(d) is relevant to this inquiry. The
ambiguity is not clarified by reference to the legislative
history. In part, that history states: "Subsection (d) . . .
requires disallowance of a claim of a transferee of a voidable
transfer in toto if the transferee had not paid the amount or ________
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turned over the property received as required under the sections
under which the transferee's liability arises." H.R. Rep. No.
95-595, at 354 (1977), reprinted in 1978 U.S.C.C.A.N. 5787, 6310
(emphasis added). The petitioning unsecured creditors argue that
the inclusion of the words "in toto" indicates that Congress
intended that a creditor must relinquish the original preference
amount, precluding any judicial adjustment of this figure. They
also cite a North Dakota Supreme Court case as support for this
proposition that a creditor must surrender all sums previously ___
transferred. See North Dakota Public Service Com'n v. Central ___ __________________________________ _______
Sales Grain, Inc., 371 N.W.2d 767, 780 (N.D. 1985) (emphasis __________________
added).
This opinion considered a state insolvency proceeding
brought against a grain warehouseman. The court concluded that
the claim of a creditor should be denied because the creditor had
received a vaculator machine1 as a preferential transfer and had
not returned it. The creditor claimed that he had "since" paid
for the machine (apparently after the record was closed in the
proceedings below). The court stated that the creditor could
bring an appropriate motion for relief after its mandate issued.
Although there is an obvious difference between the return of a
____________________
1 Although the term 'vaculator' is used sometimes to describe
surgical devices for the removal of fluid from the human body and
the like, in this context a 'vaculator machine' describes a
system used to extract grain from containers and transfer it to
other storage facilities. See Bunge Corp. v. American Commercial ___ ___________ ___________________
Barge Line Co., 630 F.2d 1236, 1241 (7th Cir. 1980); Mercantile ______________ __________
National Bank of Chicago v. Quest, 303 F. Supp. 926, 928 (N.D. _________________________ _____
Ind. 1969).
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tangible piece of machinery which Section 502(d) would seem to
require (although we do not now determine that issue) and the
payment of all or part of a monetary sum, there is nothing in the
court's opinion which supports the contention that an unsecured
creditor may file a claim only if the judgment against the
creditor for a preferential transfer of money is paid in full.
The legislative history thus becomes pertinent to our
analysis, even if it does not pinpoint a specific result. The
unsecured creditors place emphasis upon the use of the term "in
toto" in the House of Representatives historical record. What
the unsecured creditors have overlooked is the fact that the term
"in toto" refers to the unsecured claim of the recipient of a
preferential transfer and not, as they would have it, the amount
for which the transferee is liable. Thus, this legislative
history does not clarify the purpose of Congress.
We must ask, how would Congress have answered this
question? Guided by the actual language used, we may look to the
practical effect of the arguments made. See Dames & Moore v. ___ ______________
Regan, 453 U.S. 654, 673-74 (1981); Chapman v. Houston Welfare _____ _______ ________________
Rights Org., 441 U.S. 600, 616 (1979). There is guidance in the ___________
cogent language used by the Bankruptcy Court that to accept the
unsecured creditors' contentions would rob post-judgment
settlements of their "essential vitality." See In re Melon ___ _____________
Produce, 162 B.R. at 388. It is an unfortunate axiom that a _______
judgment does not always guarantee collection. Indeed, the
easiest judgment to obtain is usually one that will never be
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paid. The circumstances of the settlement with Karger suggest
that collection of the full amount could have been an impossible
task and could have involved the estate in lengthy, expensive
litigation to the detriment of the unsecured creditors.
Thus a construction of the statute which requires the
last penny to be paid could cause the unsecured creditors to, in
effect, submit to an all-or-nothing situation. The petitioning
unsecured creditors' argument would preclude half or any part of
the loaf from being satisfactory, thereby preventing the bankrupt
estate from being at least partially nourished. The purpose
ought to be to encourage the collection of the largest amount
possible to provide a dividend or a better dividend to the
unsecured creditors.
Experience suggests that few unsecured creditors can
expect satisfaction of their claims in whole or in substantial
part. More than two decades ago it was reported that unsecured
creditors in business bankruptcies receive an average of 8% of
the amounts proved and allowed, while general creditors in
personal bankruptcies receive an average of 7% of their allowed
claims. See David Stanley & Marjorie Girth, Bankruptcy: Problem, ___ ____________________
Process, Reform 130 (1971). There is nothing to signify that _______________
there has been any recent substantial improvement in the extent
of the recoveries of unsecured creditors. The Administrative
Office of the U.S. Courts reports a higher average dividend in
Chapter 11 reorganization cases - 32% - but that figure includes
both the amounts actually paid and the amounts that debtors
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promised to pay after the reorganization case was closed. See ___
Admin. Office of the U.S. Cts., Tables of Bankruptcy Statistics
A-32 (1978). However, the latter may be merely paper obligations
which may be discounted again in a recurrence of the debtor's
financial difficulties. See id. Despite the lack of any recent ___ ___
empirical studies, certainly it is safe to expect that in almost
every bankruptcy unsecured creditors are likely to receive only a
small percentage of their legitimate claims.
The estate is protected against manipulation because
settlements must be approved by the Bankruptcy Court after a
consideration of the circumstances of the settlement. Approval
is a discretionary function and may be reviewed for abuse.
Hence, a small settlement which results in a substantial dividend
to the preferential transferee is not likely to pass muster.
Finally, this result is consistent with the overall
purpose of Section 502, which was not "to punish, but to give
creditors an option to keep their transfers (and hope for no
action by the trustee) or to surrender their transfers and their
advantages and share equally with other creditors." Tidwell v. _______
Atlanta Gas Light Co. (In re Georgia Steel, Inc.), 38 B.R. 829, ___________________________________________________
839 (Bankr. M.D. Ga. 1984). Karger chose the latter option and
paid $400,000 to the Trustee. If faced with the option of paying
the full amount of the judgment in order to file his claim as an
unsecured creditor (apart from whether or not he had the
wherewithal to do so), the result might well have been a lengthy
and only partially successful or even an unsuccessful effort to
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obtain satisfaction of the judgment in full. The expenses
incurred to collect the judgment in full or in part could have
diminished the return to the estate to less than $400,000. The
practical effect of the position advocated by the petitioning
unsecured creditors compels us to conclude that Congress did not
intend that unsecured creditors be denied their claims, if having
received a preferential transfer, they do not satisfy a judgment
arising out of the transfer in full and with interest. We
believe that Congress intended some play in the joints and that a
court-approved settlement of such a judgment satisfies the
requirement that the preferential transferee has paid that for
which he is liable. We therefore agree with the Bankruptcy
Court. We hold that pursuant to Section 550(a)(1) Karger was
liable for the sum of $400,000 and therefore his unsecured claim
was properly allowed.
B. Equitable Subordination B. Equitable Subordination
The ultimate ruling of the Bankruptcy Court was that
the unsecured creditors were barred by the approval of the
settlement between Karger and the Trustee. Bankruptcy Court Rule
9019 requires notice to interested parties prior to approval of a
settlement. See 11 U.S.C. Part IX, Rule 9019(a). The rule was ___
complied with since the petitioning unsecured creditors had
notice of and did in fact appear and object to the proposed
settlement. The unsecured creditors vigorously pressed their
argument that Karger's unsecured claim should be subordinated to
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their unsecured claims. The Bankruptcy Court approved the
settlement which included a provision that "the Trustee shall not
object to the allowance of Karger's unsecured claim in the amount
of $400,000." The unsecured creditors did not appeal from the
approval of the settlement agreement between the Trustee and
Karger. Although the Bankruptcy Judge stated that the
petitioning unsecured creditors could ask for a later hearing on
the equitable subordination issue, this statement was in error.
Counsel should not take such a prediction by a judge as
gospel, but should act diligently to protect the record and his
or her client's right to appeal. See Morrissey v. Nat'l Maritime ___ _________ ______________
Union of America, 544 F.2d 19, 32 (2d Cir. 1976) ("While counsel ________________
seeks to excuse [the failure to make an offer of proof] on the
basis of the judge's statement on the telephone . . . this did
not relieve counsel of his duty to protect the record.").
Counsel must not rely upon the judge to make the case for him or
her. As observed in Marshak v. Tonetti, "[j]udges from time to _______ _______
time will make mistakes. Parties should not sit idly by, failing
to point out relevant authority and then hope for redress on
appeal." Marshak v. Tonetti, 813 F.2d 13, 17 (1st Cir. 1987). _______ _______
If the equitable subordination issue was to be considered at all,
it should have been addressed at the time of the settlement.
Otherwise, there is no reason for a settlement, since the
settling parties are neither protected from further unfavorable
consequences nor allowed to enjoy the safe harbor of their
settlement arrangement.
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Furthermore, the principles of res judicata dictate
that the petitioning unsecured creditors should not be permitted
to bring this issue on appeal. "Under res judicata, a final
judgment on the merits of an action precludes the parties or
their privies from relitigating issues that were or could have
been raised in that action." Allen v. McCurry, 449 U.S. 90, 94 _____ _______
(1980), citing Cromwell v. County of Sac, 94 U.S. 351, 352 ________ ______________
(1876); see also Montana v. United States, 440 U.S. 147 (1979). ________ _______ _____________
In this case, the fate of the petitioning unsecured creditors'
equitable subordination claim is affected by the fact that they
were in privity with the Trustee.
In In re Medomak Canning, this court discussed the _______________________
standard by which the relationship between a trustee in
bankruptcy and a creditor should be evaluated. A trustee in
bankruptcy is a fiduciary representing the estate and creditors.
In re Medomak Canning, 922 F.2d at 901, citing In re Thu Viet ______________________ _______________
Dinh, 80 B.R. 819, 822 (Bankr. S.D.Miss. 1987). Privity may be ____
established by identification of interests, even where
representation of those interests is not authorized. In re _____
Medomak Canning, 922 F.2d at 901, citing Meza v. General Battery ________________ ____ _______________
Corp., 908 F.2d 1262, 1267 (5th Cir. 1990). _____
Since the petitioning unsecured creditors had notice of
the hearing on the approval of the settlement agreement, and
since they participated and argued the issue, and since the issue
they now press was considered although incorrectly passed over,
their failure to appeal thereafter is fatal to their present
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appeal. The finality of court-approved settlements such as this
one is important, especially to the efficient administration of
the estate and to reassure settling parties that the trustee will
not relitigate the settled claims. See In re Medomak Canning, ___ ______________________
922 F.2d at 901.
The Trustee is ordinarily the appropriate party to seek
equitable subordination on behalf of the estate and unsecured
creditors. In re Medomak Canning, 922 F.2d at 902. As unsecured _____________________
creditors, appellants could not in these circumstances evade the
responsibility of looking to the Trustee in the first instance as
their fiduciary and representative to vindicate their interests,
including even their interest in pursuing equitable
subordination. Id. In this case, the Trustee chose not to __
petition the court for equitable subordination of Karger's claim
and that choice was approved by the Bankruptcy Court. Because
the Trustee was acting for the petitioning unsecured creditors,
they are bound by the Trustee's actions. The principles
enunciated in In re Medomak Canning, 922 F.2d 895, are _________________________
controlling. Therefore, the petitioning unsecured creditors'
equitable subordination claim is barred by the principles of res
judicata.
III. CONCLUSION III. CONCLUSION
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We affirm the District Court's judgment as to the
disallowance of Karger's claim and the dismissal of the
petitioning unsecured creditors' appeal by the District Court.
Affirmed. ________
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Document Info
Docket Number： 96-1395
Filed Date： 5/8/1997
Precedential Status： Precedential
Modified Date： 9/21/2015