Providence Hall Associates Ltd Partnership v. Wells Fargo Bank, N.A.

Citation:
Slip Op. Mar. 11, 2016 (Case No. 15-2378 4th Cir. 2016)
Tag(s):
Ruling:
After the district court dismissed a lender-liability action by a former Borrower against the Bank, the Court of Appeals affirmed the dismissal based on res judicata because during the time that the Debtor was in a later-dismissed chapter 11, the bankruptcy trustee, with Bankruptcy Court approval, had sold the Debtor's properties formerly subject to the Bank's liens, confirmed the closeout of an interest rate swap between the Debtor and the Bank, and dismissed the Debtor's adversary proceeding claims against the Bank without prejudice. The opinion holds that sale orders are final orders on the merits and carefully analyzes the factors giving rise to res judicata: (1) "a final judgment on the merits in a prior suit; (2) an identity of the cause of action in both the earlier and the later suit; and (3) an identity of parties or their privies in the two suits."The opinion holds that sale orders are final orders on the merits and carefully analyzes the factors giving rise to res judicata: (1) "a final judgment on the merits in a prior suit; (2) an identity of the cause of action in both the earlier and the later suit; and (3) an identity of parties or their privies in the two suits."
Procedural context:
The Court of Appeals was hearing an appeal from a grant of a motion to dismiss former debtor Providence Hall Associates' action on the basis of res judicata. Previously, the bankruptcy trustee, with Bankruptcy Court approval, had sold the Debtor's properties formerly subject to the Bank's liens, confirmed the closeout of an interest rate swap between the Debtor and the Bank, and dismissed the Debtor's adversary proceeding claims against the Bank with prejudice. The district court granted a motion to dismiss, giving preclusive effect to the bankruptcy court's sale orders. A motion for reconsideration was denied.
Facts:
The Debtor filed a chapter 11 in 2011. The Bank filed a claim. The Debtor's principals failed to file the Debtor's monthly operating reports and apparently improperly used cash collateral. The bankruptcy court denied a motion to convert or dismiss and appointed a chapter 11 trustee. The Debtor filed an adversary proceeding against the Bank. With court approval, the chapter 11 trustee sold the properties, and per the order of sale distributed the proceeds to the Bank, paying it in full and closing out an across-defaulted interest rate swap agreement, and dismissed the adversary with prejudice. The principal of the Debtor filed a motion to dismiss, which was granted with the trustee's consent. A year later, the Debtor filed suit in Virginia state court, which was removed to federal court alleging various new theories of lender liability and that the interest rate swap agreement was a sham because the LIBOR rate was illegally rigged and manipulated.
Judge(s):
Diaz, Wilkinson and Niemeyer

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