W.A. Lang Co. v. Anderberg-Lund

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 96-2752
___________
In re: Anderberg-Lund Printing *
Co., also known as Lane *
Envelope, also known as Great *
Way Publications, *
*
Debtor. *
*
_______________________ *
*
W.A. Lang Co., *
* Appeal from the United States
Appellant, * District Court for the
* District of Minnesota.
v. *
*
Anderberg-Lund Printing *
Co., also known as Lane *
Envelope, also known as Great *
Way Publications, *
*
Appellee. *
___________
Submitted: February 10, 1997
Filed: April 7, 1997
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Before MAGILL, BEAM, and LOKEN, Circuit Judges.
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BEAM, Circuit Judge.
W.A. Lang Co. (“Lang”) appeals from the district court's1
affirmance of the bankruptcy court’s2 denial of Lang’s claim for
administrative expenses pursuant to 11 U.S.C. § 503(b). We affirm.
I. BACKGROUND
Lang is a general insurance agency whose business includes the
sale of worker’s compensation insurance. Lang is a licensed agent
of General Insurance Company of America (GICA). Under the agency
agreement between Lang and GICA, Lang is allowed to chose between
two types of billing for the GICA policies it sells. Under “direct
billing,” insureds are billed by and pay premiums directly to
GICA’s parent company. Under “agency billing,” Lang pays to GICA
the premiums due, and in turn collects the premium amount and
commissions from the insured. The Lang-GICA agency agreement
obligates Lang to pay premiums due under “agency billing” policies
whether or not Lang is paid by the insured.
In 1993, Lang sold a GICA worker's compensation policy to
Anderberg-Lund Printing Company. Lang elected agency billing for
this policy, which was to run for the term of July 1, 1993, to July
1, 1994. Later in 1993, Anderberg-Lund experienced financial
difficulties, and failed to make payments to Lang. As it was
obliged to under the agency agreement, Lang continued to make
payments on the policy to GICA. As a result of Anderberg-Lund's
delinquencies, GICA issued at Lang’s request a notice of
cancellation for the policy on December 14, 1993.
1
The Honorable David S. Doty, United States District Judge for
the District of Minnesota.
2
The Honorable Nancy C. Dreher, United States Bankruptcy Judge
for the District of Minnesota.
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The next day, Anderberg-Lund filed for Chapter 11 bankruptcy,
and continued to operate the business as a debtor-in-possession.
Pursuant to 11 U.S.C. § 108(b), cancellation of the GICA policy was
deferred for sixty days. At the end of this period, Anderberg-Lund
was able to secure a replacement policy. After the filing of the
bankruptcy petition, but before Anderberg-Lund obtained the new
policy, Lang made two more premium payments to GICA. These two
payments totaled $22,364.68.
Based upon a post-cancellation audit, GICA determined that it
had been entitled to an earned premium of $67,928.20 for the period
the Anderberg-Lund policy had been in effect. GICA had, however,
received payments based on the estimated premium totaling
$89,995.44. The difference, $22,067.24, was “unearned premium”
that the policy required GICA to refund. When both Anderberg-Lund
and Lang made demands for the unearned premium, GICA filed an
interpleader complaint as an adversary proceeding in Anderberg-
Lund’s bankruptcy case.
In separate answers to GICA’s complaint, both Anderberg-Lund
and Lang laid claim to the unearned premium. Anderberg-Lund also
asserted a cross-claim against Lang for damages under section
362(h) of the bankruptcy code, based on Lang's alleged violations
of the automatic stay. Most significant to this appeal, Lang
alleged as a cross-claim against Anderberg-Lund that the two post-
petition premium payments it had made to GICA on behalf of
Anderberg-Lund were an administrative expense under 11 U.S.C. §
503(b).3 Lang claims that, deducting for that portion of the
3
Section 503(b) allows recovery from the bankruptcy estate of
"the actual, necessary costs and expenses of preserving the estate
. . . rendered after the commencement" of the bankruptcy case.
Administrative expense claims under section 503(b) are first
priority claims against the bankruptcy estate. 11 U.S.C. §
-3-
unearned premium allocable to the post-petition payments, it is
entitled to an administrative expense of $18,830, the earned
premium portion of the $22,364.68 it actually paid for post-
petition coverage. The adversary proceeding thus concerned two
sums of money: (1) the unearned premium of $22,067.24 that GICA had
been overpaid over the course of the policy; and (2) the post-
petition earned premium of $18,830 that Lang paid GICA after
Anderberg-Lund filed for bankruptcy.4
The bankruptcy court heard testimony and accepted evidence in
the adversary proceeding, and issued its findings, conclusions, and
order on December 9, 1994. The bankruptcy court’s order had three
components: (1) it determined that the policy required that the
unearned premium amount interpleaded by GICA be refunded to the
insured, Anderberg-Lund; (2) it denied Anderberg-Lund’s cross-
claims for damages; and (3) it ordered that “[t]he claims made by
[Lang] are DISMISSED with prejudice on the merits.” No. 4-93-6995,
Adv. 4-94-398, slip op. at 14 (D. Minn. Dec. 9, 1994).
Lang did not appeal from this order. On January 16, 1995,
however, Lang disregarding the adversary proceeding, filed a motion
in the core proceeding seeking 503(b) administrative expenses based
on its claim to the post-petition earned premiums. On January 26,
the bankruptcy court summarily denied Lang’s motion. Lang appealed
this denial to the district court, which concluded that the
bankruptcy court had denied the 503(b) claim in its prior order in
507(a)(1).
4
We will assume for purposes of this appeal that the $18,830
figure Lang puts forth correctly represents the post-petition
premium payments, less the amount of the unearned premium allocable
to those payments.
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the adversary proceeding, and that res judicata prevented Lang from
relitigating the claim by motion. Lang appeals.
II. DISCUSSION
The binding effect of a former adjudication, often generically
termed res judicata, can take one of two forms. Claim preclusion
(traditionally termed res judicata or "merger and bar") “‘bars
relitigation of the same claim between parties or their privies
where a final judgment has been rendered upon the merits by a court
of competent jurisdiction.’” Plough v. West Des Moines Community
Sch. Dist., 70 F.3d 512, 517 (8th Cir. 1995) (quoting Smith v.
Updegraff, 744 F.2d 1354, 1362 (8th Cir. 1984)). Issue preclusion
(or "collateral estoppel") applies to legal or factual issues
"actually and necessarily determined," with such a determination
becoming "conclusive in subsequent suits based on a different cause
of action involving a party to the prior litigation." Montana v.
United States, 440 U.S. 147, 153 (1979). The principles of res
judicata generally apply to bankruptcy proceedings. Katchen v.
Landy, 382 U.S. 323, 334 (1966).
In this case the question is one of claim preclusion since the
administrative expense claim Lang brought by motion was identical
to Lang's cross-claim in the prior adversary proceeding. Claim
preclusion will bar a subsequent suit when: "(1) the first suit
resulted in a final judgment on the merits; (2) the first suit was
based on proper jurisdiction; (3) both suits involved the same
cause of action; and (4) both suits involved the same parties or
their privies." Lovell v. Mixon, 719 F.2d 1373, 1376 (8th Cir.
1983). Furthermore, the party against whom res judicata is
asserted must have had a full and fair opportunity to litigate the
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matter in the proceeding that is to be given preclusive effect.
Plough, 70 F.3d at 517.
There is no dispute that the two proceedings at issue in this
case involved the same parties and the same cause of action.
Therefore, we need only determine: (1) whether the bankruptcy court
had jurisdiction to decide the administrative expense claim in the
adversary proceeding; (2) whether the bankruptcy court's order in
the adversary proceeding was a final judgment on the merits; and
(3) whether Lang had a full and fair opportunity to litigate the
administrative expense claim in the adversary proceeding.
A. The Bankruptcy Court's Jurisdiction
A claim for an administrative expense pursuant to section
503(b) is a core proceeding for which the bankruptcy court has
jurisdiction under 28 U.S.C. § 157(b)(2). Even when contested,
however, a 503(b) claim is not properly brought in an adversary
proceeding. See Fed. R. Bankr. P. 7001. Such claims are
appropriately brought by motion in the bankruptcy case, and relief
is typically granted in contested claims only upon notice and
hearing. Fed. R. Bankr. P. 9013, 9014; Minn. Bankr. Local Rule
1201. See also Colandrea v. Union Home Loan Corp. (In re
Colandrea), 17 B.R. 568, 583 (Bankr. D. Md. 1982) (dismissing
503(b) claim brought as a counterclaim in an adversary proceeding).
Indeed, Lang's second administrative expense claim for the earned
premium was made by motion in conformance with both the federal and
local bankruptcy rules.
Thus, Lang's initial assertion of its administrative expense
claim as a cross-claim in the adversary proceeding was unusual. We
nonetheless conclude that the claim was properly before the court
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in the adversary adjudication. Section 503(b) allows the
bankruptcy court to grant administrative claims "[a]fter notice and
a hearing." The bankruptcy code defines "after notice and a
hearing" as "after such notice as is appropriate in the particular
circumstances, and such opportunity for a hearing as is appropriate
in the particular circumstances." 11 U.S.C. § 102(1)(A). The
debtor against whom Lang brought its claim, Anderberg-Lund, was a
party to the adversary proceeding and thus had full notice of
Lang's claim. The factual and legal issues presented in the
litigation over the unearned premium were closely related to those
of the earned premium that was the subject of Lang's administrative
expense claim. Given the bankruptcy court's flexibility under
section 102(1)(A) to determine what procedures are appropriate for
particular claims, we conclude that in this instance the bankruptcy
court had jurisdiction to consider the claim in the adversary
proceeding.
B. Final Judgment on the Merits
Lang argues that even though its claim was before the
bankruptcy court in the adversary proceeding, the court's order was
not a final judgment on the merits of that claim. Lang argues that
the bankruptcy court did not mention in its order the
administrative expense claim as an issue to be decided, that the
court's factual findings do not clearly address the claim, and that
the court's order does not expressly refer to the claim in its
disposition. Lang argues that Rule 52 of the Federal Rules of
Civil Procedure (which is incorporated by Bankruptcy Rule 7052)
requires the court to "find the facts specially" with respect to
each claim before it in the adversary proceeding. Thus, Lang,
asserts, the bankruptcy court's order in the adversary proceeding
did not fully adjudicate the administrative expense claim, and was,
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therefore, not an appealable final order under Rule 54(b) of the
Rules of Civil Procedure.
We agree with Lang that it is difficult to find any discussion
of the administrative claim in the bankruptcy court's first order.
We are reluctant, however, to conclude from this that the court did
not consider or decide that question. Lang asserted that it was
entitled to the earned premium as an administrative expense in its
answer and cross-claim, elicited testimony during the adversary
proceeding about the earned premium, and made express reference to
the claim in its proposed findings, conclusions, and order. The
claim was squarely before the bankruptcy court and was actively
litigated, and we cannot conclude that the court simply ignored or
neglected that claim in issuing its order. The bankruptcy court
stated in its order that "[t]he claims made by [Lang] are DISMISSED
with prejudice on the merits," and we can only surmise from this
that the court fully intended that its order terminate the
adversary proceeding in all of its manifestations. To the extent
that the court's findings were ambiguous, Lang could have moved for
an amended order or could have appealed. Whether or not the
court's holdings were as complete as we might have expected, we
find that its disposition was an unambiguous final adjudication on
the merits of all issues before the court at that time.
C. Full and Fair Opportunity to Litigate
Finally, we note that this is not a case in which Lang did not
have a full and fair opportunity to litigate its administrative
expense claim. Not only did Lang have the opportunity, but in fact
fully litigated the issue. As noted, Lang pleaded the 503(b)
claim, presented evidence relevant to the earned premium, and
submitted proposed findings and conclusions with regard to the
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claim. Lang actively pursued this claim in the adversary
proceeding, and fairness would not be served by allowing it to
relitigate this now settled matter, even though we think the issue
may have been wrongly decided by the bankruptcy court. See Potter
v. CNA Ins. Cos. (In re MEI Diversified, Inc.), 106 F.3d 829, 832
(8th Cir. 1997).
III. CONCLUSION
The district court correctly concluded that res judicata
barred Lang from relitigating the administrative expense claim it
had previously asserted in the adversary proceedings. The judgment
of the district court, affirming the bankruptcy court's denial of
Lang's subsequent motion for a grant of an administrative expense,
is affirmed.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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