Opinion
Case No. 4:02CV1719 CDP
July 31, 2003
MEMORANDUM AND ORDER
This appeal challenges the bankruptcy court's allowance of the claims of Chicago Mercantile Exchange (CME). Scott Peltz, the Plan Administrator of BIS Administration, Inc., argues that CME's claims are barred by collateral estoppel because the bankruptcy court previously granted the debtors' motion to assume and assign to third parties the contracts which formed the basis of the CME's claims. The motions assigned $0 cure value to CME's contracts, and the court approved the assignment of those contracts to Reuters and Moneyline, the parties who purchased most of the debtors' assets.
I will affirm the decision of the Bankruptcy Court. I conclude that collateral estoppel does not bar the claims because there was no final adjudication on the merits of the claims after an opportunity for a full and fair hearing on the issue.
I. Background
In a bankruptcy appeal the district court reviews the bankruptcy court's conclusions of law de novo, but may not disturb the bankruptcy court's findings of fact unless those findings are clearly erroneous. Wegner v. Grunewaldt. 821 F.2d 1317, 1320 (8th Cir. 1987). There is no disagreement among the parties as to the underlying facts of the case as found by the bankruptcy court. The disputes on appeal concern the bankruptcy court's application of the law to those facts. I will therefore review the bankruptcy court's conclusions of lawde novo. First Nat'l Bank v. Pontow (In re Pontow). 111 F.3d 604, 609 (8th Cir. 1997).
Bridge Information Systems and its related companies, the debtors in the underlying litigation, were global providers of financial information and related services. They supplied a wide range of information and news products, including real-time financial data, news, and analytical tools to international financial markets and news media in over 65 countries.
On February 15, 2001, the debtors filed their petitions for bankruptcy in the U.S. Bankruptcy Court for the Eastern District of Missouri under Chapter 11 of the United States Bankruptcy Code. Ultimately, the debtors and other parties-in-interest chose to liquidate the debtors' business. To that end, the debtors began marketing and selling their assets. Reuters and Moneyline purchased a substantial amount of the assets.
On June 28, 2001, CME filed three proofs of claims with the U.S. Bankruptcy in the Chapter 11 proceedings of Telerate, Inc., Case No. 01-41611 (Claim No. 1069), Bridge Information Systems of America, Inc., Case No. 01-41598 (Claim No. 1070), and Bridge Information Systems, Inc., Case No. 01-41593 (Claim No. 1231). These claims totaled $3,251,279.60, and they sought reimbursement for amounts due under contracts with the respective debtors.
Each proof of claim form was signed by Steve Szarmack, Assistant General Counsel for CME. The name and address on each form was as follows:
CHICAGO MERCANTILE EXCHANGE, INC. c/o Malcolm M. Gaynor, Esq. Schwartz, Cooper, Greenberger Krauss 180 North LaSalle Street, Suite 2700 Chicago, IL 60601
On August 9, 2001, and August 31, 2001, the debtors filed a motion to assume and then assign thousands of executory contracts, including the debtors' contracts with CME, to Reuters and Moneyline, In these motions, the debtors filed extensive listings of all executory contracts involved. The cure amount listed for the contracts with CME, and for many other contracts, was $0.
Notices for each of the verified assumption and assignment motions and notices for the hearing on those motions were sent to CME, on August 9 and 31, 2001, and as reflected in the certificates of service. (A. 38-45; 144-48). These notices were sent to various CME officials, to CME itself or to the attention of the "accounts payable" department. The addresses on these notices varied. However, it is undisputed that no notice was sent to attorneys Gaynor or Szarmack.
There were two principal addresses to which the notices were sent: 10S. Wacker Drive and 30 S. Wacker Drive Chicago, IL 60606. One notice went to "Chicago Mercantile Exchange, 30 S. Wacker, Chicago, IL 60604."
CME did not object to the assumption and assignment motion, and its counsel of record were not aware of the motion before the assumption and assignment orders were granted by the bankruptcy court on August 31, 2001, and September 27, 2001. In those orders granting the motions, the bankruptcy court found that the cure amount for the CME contracts was $0. After the court granted the motions, notices of the assignment of the contracts were sent at some later date. CME claims that the attorney responsible for the bankruptcy case received notice of the assumption and assignment motions only after new agreements with Reuters and Moneyline had been reached. The exact date when CME had notice of the assumption and assignment motions and subsequent orders is unclear.
The certificate of service found at A. 70-79 indicate that notices of the assignments to Reuters were mailed "On either of October 2, 2001, November 20, 2001, November 28, 2001, December 14, 2001, December 19, 2001, and December 20, 2001." A. 70.
The debtors objected to CME's pending claims on March 12, 2002, this time serving attorney Gaynor with the objections. They argued that the claims had already been "satisfied" by the assumption and assignment orders, and asked that the bankruptcy court disallow the claims. CME responded on May 3, 2002, and submitted a supplemental memorandum on August 5, 2002. The bankruptcy court held a hearing on CME's claims on July 17, 2002.
The debtors acknowledged that the issue of claims allowance was still before the bankruptcy court. In their reply to CME's response to their claims objections, the debtors claimed that they did not contend that CME's claims had already been finally and irrevocably disallowed, simply because CME did not object to the entry of the assumption orders. See Docket No. 1394 at 7.
After the hearing and supplemental briefing on the claims, the bankruptcy court overruled the debtors' objections and allowed CME's claims in an order dated October 11, 2002. In so ruling, the court ruled that the assumption orders were not finally adjudicated on the merits, a necessary requirement to invoke the doctrine of collateral estoppel. Thus, reasoned the court, the finding of $0 cure value for the CME contracts did not prevent CME from seeking payments on its claims. Additionally, because Fed.R. Bankr, P. 3001(f) provides that timely-filed claims are prima facie evidence of the validity and amount of the claims and because the debtors did not otherwise dispute the validity or amount of the claims, the court allowed CME's claims in their entirety.
II. Discussion
It is uncontested that CME did not object to the assumption and assignment of the Reuters and Moneyline contracts. What the parties disagree about is the effect of this failure to object. The debtors argue that CME is collaterally estopped from seeking payment on its claims. CME argues that the bankruptcy court was correct in allowing its claims. I agree with CME, for the reasons discussed below.
Collateral estoppel, or issue preclusion, "means simply that when an issue of ultimate fact has once been determined by a valid and final judgment, that issue cannot again be litigated between the same parties in any future lawsuit." Schiro v. Farley, 510 U.S. 222, 232 (1994) (citation omitted). In the Eighth Circuit, collateral estoppel applies when: (1) the issue to be precluded is identical to the issue previously decided; (2) the prior action resulted in a final adjudication on the merits; (3) the party sought to be estopped is either a party or in privity with a party to the prior action; and (4) the party sought to be estopped was given a full and fair opportunity to be heard on the issue. Canady v. Allstate Ins. Co. 282 F.3d 1005 (8th Cir. 2002). The bankruptcy court found that the assumption and assignment order was not a final adjudication on the merits and refused to apply collateral estoppel to disallow CME's claims. Although I disagree somewhat with the reasoning of the bankruptcy court, I agree with the result it reached — allowance of the CME claims.
The debtors' only objection to CME's claims was that CME was collaterally estopped from pursuing its claims because it failed to object to the assumption and assignment motion. Collateral estoppel technically does not apply to this action because we are only dealing with one proceeding. In general, collateral estoppel bars re-litigation of claims that have already been decided in a previous, and separate, action. See Montana v. United States. 440 U.S. 147, 153 (1979) ("Under collateral estoppel, once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation.") (emphasis added). Or, as the Supreme Court has noted inAshe v. Swenson. "when a[n] issue of ultimate fact has once been determined by a valid and final judgment, that issue cannot again be litigated between the same parties in any future lawsuit." 397 U.S. 436, 443 (1970).
The debtors claims that a district court case, Svoboda v. The Trane Co., 495 F. Supp. 367 (E. D. Mo. 1979), dictates that collateral estoppel should bar CME from seeking its claims, Svoboda cannot be read so broadly, and it does not prohibit the bankruptcy court from allowing CME's claims.
Svoboda involved separate actions, rather than two hearings in the same action, as is the case here. The plaintiff was a salesman who sued the manufacturer of the heating and air conditioning products that he sold. He had brought a prior suit seeking the same commissions against the dealer who employed him. When the dealer (the defendant in the first suit) filed for bankruptcy, the plaintiff filed a proof of claim in the bankruptcy action for what he believed he was owed. The dealer objected to the amount of the plaintiff's claim, and the bankruptcy court held a hearing. The plaintiff chose not to attend the hearing, and his attorney so notified the debtor's attorney. The bankruptcy court then adopted the dealer's smaller amount as to what was owed. In the later suit brought by the salesman against the manufacturer, the manufacturer sought to limit plaintiff's commissions to the amount previously determined by the bankruptcy court. The district court agreed, holding that the salesman was collaterally estopped from asserting that he was entitled to more than was allowed in the bankruptcy action. Svoboda is readily distinguishable from this case, as it involved two separate actions, and the plaintiff affirmatively chose not to contest the first. Here there was no final adjudication on the merits of a first action, and there was no separate attempt to litigate the matter in a second action.
Collateral estoppel also does not apply here because CME was not given a full and fair opportunity to be heard on the issue, because it was not properly notified of the assumption and assignment of the executory contracts. F.R.Bankr.P. 6006 governs assumption and assignment motions, and provides that the proceedings to assume and assign are governed by F.R.Bankr.P. 9014, which requires "reasonable notice and opportunity for hearing" to be provided to those against whom relief is sought. F.R.Bankr.P. 6006, 9014(a). F.R.Bankr.P. 9014(b) in turn adopts the manner of notice as set forth in F.R.Bankr.P. 7004. This notice must be sent to "the attention of an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process . . ." F.R.Bankr.P. 7004. CME presented evidence in support of its claims that none of the individuals to whom the debtors sent notice of the assumption and assignment motions were an officers, managing or general agents, or other agents authorized to receive service of process, as required by the rules. Similarly, even though counsel had filed claims relating to the same contracts, counsel of record was not served or sent the notice.
CME did not receive adequate notice of the assumption and assignment hearing. Service in bankruptcy proceedings is a comparatively lenient procedure, and it is of great importance that persons effecting service provide correct notice in accord with the rules. Braden v. General Motors Acceptance Corporation (In re Braden). 142 B.R. 317, 319(Bankr. E.D.Ark. 1992); In re Golden Books Family Entertainment. Inc., 219 B.R. 300, 305 (Bankr. Del. 2001). Although CME is incorrect in arguing that the bankruptcy court lacked personal jurisdiction over it-by submitting its claims to the bankruptcy court, CME submitted to the jurisdiction of the bankruptcy court,Langenkamp v. Culp, 498 U.S. 42, 45 (1990) — the notice given was not adequate to provide it with a full and fair opportunity to be heard.
In this case, notice regarding the assumption and assignment of the contracts was sent to CME's "Accounts Payable" division — once referring to CME and once by only addressing the notice to "Accounts Payable" — at two different addresses. The notice was sent to various individuals; however, none of the individuals who were sent notice of the assumption and assignment motions were officers, managing or general agents, or to any other agents authorized by appointment or by law to receive service of process, as required by the Rules.
The most that can be said of the bankruptcy court's challenged ruling is that it violates the doctrine known as the "law of the case." This discretionary doctrine "expresses the practice of courts generally to refuse to reopen what has been decided," but it does not limit their power to do so.Messinger v. Anderson. 225 U.S. 436, 444 (1912): see also Conrad v. Davis, 120 F.2d 92, 95 (8th Cir. 1997). Generally, "courts are understandably reluctant to reopen a ruling once made . . . Reluctance, however, does not equal lack of authority. The constraint is a matter of discretion. So long as a case remains alive, there is power to alter or revoke earlier rulings." Wright, Miller Cooper, Federal Practice and Procedure: Jurisdiction 2d § 4478, at 637 (2002).
A court retains the power to reconsider and modify its interlocutory rulings, such as the assumption and assignment orders at issue here, at any time when warranted prior to final judgment. See Fayetteville Investors v. Commercial Builders. Inc., 936 F.2d 1462, 1469 (4th Cir. 1991) ("An interlocutory order is subject to reconsideration at any time prior to the entry of a final judgment."). Such a power to reconsider a previous ruling is committed to the discretion of the trial court. See Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 12 (1983) (noting that "every order short of a final decree is subject to reopening at the discretion of the district judge"); see also Mallory v. Eyrich. 922 F.2d 1273, 1282 (6th Cir. 1991) ("District courts have inherent power to reconsider interlocutory orders and reopen any part of a case before entry of a final judgment. A district court may modify, or even rescind, such interlocutory orders.").
F.R.Bankr.P. 7054 explicitly adopts Fed.R.Civ.P. 54(b), which provides that interlocutory orders resolving fewer than all claims in a proceeding are "subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties." Fed.R.Civ.P. 54(b). This applies unless the court unless the court expressly determines that "there is no just reason for dlay and upon an express direction for the entry of judgment."Id. The bankruptcy court made no such express determination. And there is no dispute that the Bridge Information System bankruptcy proceedings remained alive after the assumption orders were entered. As there were matters still pending before the court — most obviously, the claims of CME that the debtors acknowledge in their filings had yet to be disallowed — the action was not yet final. See Fed.R.Civ.P. 54(b); In re Fowler. 201 B.R. 771, 777 (Bankr. E.D. Tenn. 1996) (modifying interlocutory order). Further, the debtors, in objecting to the pending CME claims, implicitly recognized that the case was not yet final. Shortly after receiving the debtors' objections to CME's claims, CME properly responded, seeking to have its proofs of claims allowed. To the extent that the bankruptcy court modified its earlier ruling by allowing the claims, it did not err when it did so.
The debtors additionally claim that CME has not adequately documented its claims. The debtors ask that, if I find collateral estoppel does not bar the bankruptcy court's action, I instruct the bankruptcy court to allow them additional time to object to the claims on grounds other than the issue of collateral estoppel — the only objection made previously. The debtors also ask that I find that allowance of the CME claims would be inequitable as to the other creditors, as payment of the CME claims would be from BIS Administration instead of Moneyline and Reuters. I will deny both of these requests because they are new arguments on appeal.
The debtors chose to object to CME's claims on the basis of collateral estoppel and not on any other grounds. They were incorrect as a matter of law on that argument, and their new arguments in this appeal are untimely. As to the request to allow them to dispute the claim further, this ignores the plain text of F.R.Bankr.P. 3001(f), which provides that a completed proof of claim provides prima facie evidence of the validity and amount of the claim. After their sole objection was overruled, CME's claims stood and were allowed. The debtors could have requested another chance to dispute the validity of CME's claims when they lodged their objections to CME's claims. They could have asked the bankruptcy court to reconsider its ruling allowing the claims on any of these additional grounds that they now advocate. However, they did not. I will not grant relief requested for the first time during these appellate proceedings. See Scallen v. Commissioner of Internal Revenue, 877 F.2d 1364, 1375 (8th Cir. 1989).
Accordingly,
IT IS HEREBY ORDERED that appellant Scott P. Peltz's appeal [#1] is denied, and the ruling of the bankruptcy court is affirmed for the reasons set forth in this opinion.
A separate judgment in accord with this Memorandum and Order is entered this same date.
United States District Court
Eastern District of Missouri www.moed.uscourts.gov
Notice of Orders or Judgments Fed.R.Civ.P. 77(d)
Date: 07/31/03
To: Dana McWay 111 S. Tenth Street Fourth Floor St. Louis, MO 63102
Re: Case Number: 4:02-cv-01719 Document: 13
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