Bill Greever Corp. v. Tazewell National Bank

Present: All the Justices

BILL GREEVER CORPORATION, ET AL.

v. Record No. 972543 OPINION BY JUSTICE ELIZABETH B. LACY
September 18, 1998
TAZEWELL NATIONAL BANK

FROM THE CIRCUIT COURT OF TAZEWELL COUNTY
Keary R. Williams, Judge

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,

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

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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

bars Bill Greever, Sr.'s, personal claims against Tazewell, it
also bars the corporation's claims.

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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

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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

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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.

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 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

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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

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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

9
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).

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 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

11
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

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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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.

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