Court: United States Bankruptcy Court, D. Oregon; October 31, 1986; Us Bankruptcy; United States Bankruptcy Court
The Court, led by Bankruptcy Judge Elizabeth L. Perris, addressed the Defendant Standard Wholesale Supply Co.’s Motion to Dismiss for Lack of Jurisdiction or to Abstain in the context of a breach of contract case initiated by Plaintiff Northwest Pipe Casing Co. Northwest Pipe, which filed for Chapter 11 bankruptcy on December 3, 1985, initially brought the complaint in the District Court, citing diversity of citizenship without federal question jurisdiction. The District Court dismissed the case on May 23, 1986, due to a lack of personal jurisdiction over Standard Wholesale, a decision not appealed by Northwest Pipe.
Subsequently, on July 21, 1986, Northwest Pipe refiled the breach of contract complaint in Bankruptcy Court, omitting the diversity allegations and instead claiming federal question jurisdiction under Title 11 of the U.S. Code. The complaints were essentially identical in content apart from jurisdictional claims. Standard Wholesale’s motion argues that the earlier dismissal should prevent relitigation of the personal jurisdiction issue under the doctrine of res judicata. Northwest Pipe counters that res judicata does not apply to jurisdictional matters and asserts that the previous dismissal did not address federal question jurisdiction, thus allowing for its consideration in the current proceedings. The Court confirmed its subject matter jurisdiction but deferred ruling on personal jurisdiction until further briefs were submitted.
Res judicata principles apply to personal jurisdiction issues similarly to other legal issues. The concept includes two branches: claim preclusion, which bars subsequent litigation on claims that have been finally adjudicated, and issue preclusion, which prevents relitigation of factual or legal issues that were actually decided in a previous case. A dismissal for lack of personal jurisdiction does not constitute a final judgment on the merits of a claim, and therefore does not invoke claim preclusion. However, such a dismissal can have preclusive effects if it becomes final without appeal, leading to the application of issue preclusion in subsequent cases.
In Kendall v. Overseas Development Corp., the Ninth Circuit ruled that if parties are the same and based on the same cause of action, any new facts must be pleaded to support a different jurisdictional outcome. In the current case, the comparison of pleadings reveals no new facts have been introduced. The only new allegation pertains to federal question jurisdiction, which the Plaintiff could have asserted in the previous action but chose not to. Since the basis for federal question jurisdiction was known at the time of the initial complaint, it does not qualify as a new fact to overcome the preclusive effect of the prior judgment.
The Plaintiff contends that issue preclusion should only prevent relitigation of questions related to diversity jurisdiction, as that was the sole issue resolved in District Court. The Plaintiff urges the Court to limit the scope of preclusion to the specific legal arguments previously raised. However, the Ninth Circuit's decision in Starker v. United States established that earlier judgments can bar the relitigation of broader issues, even if new legal theories are presented. The Ninth Circuit emphasized a broad interpretation of "issue," referencing the Restatement of the Law (Second) Judgments, which supports preclusion of all legal arguments related to a particular position, regardless of whether they were previously raised.
In Kendall and Eaton, the term "issue" encompassed the entire subject of personal jurisdiction based on facts established in earlier actions. In Eaton, the court ruled that a plaintiff could not present new arguments for personal jurisdiction if those arguments could have been raised previously. The application of issue preclusion in this case does not unfairly disadvantage the Plaintiff, contrasting with the Supreme Court's ruling in Brown v. Felson, which allowed relitigation under different circumstances. In Brown, the Court found it unjust to preclude claims that had not been significant at the time of the initial litigation.
The current case differs because the personal jurisdiction issue arose after the bankruptcy petition was filed, and the Debtor-Plaintiff had a motive to fully litigate this matter. The Plaintiff was aware it could assert federal question jurisdiction but chose not to, and thus must accept the consequences of that decision. The Court advises that parties assume the risk of not presenting arguments in District Court, believing they can re-litigate in Bankruptcy Court. The cases cited by the Plaintiff, particularly Miller v. Saxbe, are deemed unpersuasive, as they conflict with the Court's preferred reasoning on issue preclusion.
Johnston v. Earle, 162 F.Supp. 149 (D.Or.1958) establishes that a judgment from a court without subject matter jurisdiction is void, and any decisions made in such a case cannot have res judicata effect. However, this case is not relevant to the current matter. The Defendant's Motion to Dismiss is granted, rendering further discussion on the abstention issue unnecessary. The Memorandum Opinion serves as Findings of Fact and Conclusions of Law under Bankruptcy Rule 7052 without separate documentation. The Defendant's counsel is instructed to file and serve a judgment aligned with these findings. The Court takes judicial notice of the complaint in District Court file Civil Number 86-49-PA. Under 28 U.S.C.A. 1334(b), district courts have original jurisdiction over civil proceedings related to Title 11. The District Court's referral of all Title 11 cases to this Bankruptcy Court does not remove its jurisdiction. The Bankruptcy Court is limited to preparing Findings and Conclusions for the District Court to review and finalize, as per 28 U.S.C.A. 157(c). The parties have consented to allow this Court to enter judgment in this non-core proceeding.
