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
2
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
4
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.
6
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
7
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
8
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).
10
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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