Is “Allowance” of a Claim Binding in the Next Case? Bankruptcy or Otherwise?

I came back from Montana with a treasure trove of tidbits, some of which will save my postier in the future.  I was bragging to Judge Jury about an appeal I am working on before the BAP (which she will never be involved in because it is the Central District).  But I told her that it is a chapter 13 case and the case may be dismissed so the issue will be moot.  She asked if it was a claims objection issue.  Yes.  Well then, she said, the creditor (us) will not be able to renew the issue if there is a subsequent filing, in bankruptcy court, or otherwise.  The next day she handed me a note with the case that says this.  Is this a great judge or what?

In Siegel v Fed Home Loan, 143 F 3rd 525 (9th cir 1998), the chapter 7 debtor sued one of his lenders post-discharge for various torts and breach of contract.  The district court granted summary judgment to the lender on the basis that the lender had filed a proof of claim in the bankruptcy case, no one objected, and that is res judicata.  The 9th Circuit said,

The gravamen [of the debtor’s complaint] is that Freddie Mac violated its duties under the notes and deeds of trust and, among other things, should not have been able to proceed against [the debtor] due to its own defaults and wrongdoing.   Clearly, Freddie Mac’s right to recover on its proofs of claim in the bankruptcy court could have been attacked on that basis.   Just as clearly, its rights established in the bankruptcy would be affected by resolution of the present action.   Similarly, the present suit and the proofs of claim stem from the same nucleus of facts, and involve similar evidence, i.e., the loan documentation and the surrounding circumstances.   Again, the interests at stake in both actions involve Freddie Mac’s right to recovery under the loan agreements.   As such, the district court correctly concluded that res judicata bars [the debtor’s] claims in the present action, if you want to know How To Get More Money With A Personal Loan click here.

The opinion does not say but it appears that this was a no asset case.

Siegel, however, argues that the proofs of claim filed by Freddie Mac are not final judgments giving rise to res judicata.   Surely the claims themselves are not, but his argument ignores the fact that we have held that a bankruptcy court’s allowance or disallowance of a claim is a final judgment.  Similarly, other circuits have assumed that allowance of a proof of claim in a bankruptcy proceeding should be treated as a final judgment for res judicata purposes.   See, e.g., In re Baudoin, 981 F.2d at 742 (“[O]ur prior holdings ․ establish that an order allowing a proof of claim is, likewise, a final judgment.”);   Giles World Mktg., Inc. v. Boekamp Mfg., Inc., 787 F.2d 746, 747-48 (1st Cir.1986) (assuming in dicta that a valid proof of claim granted by the district court is a final judgment).

We recognize that in the cases we have cited there has been an actual separate order of some kind regarding the claim in question.   We have not found significant authority addressing the necessity for a separate order before res judicata can attach.   One case has indicated that “the filing and subsequent allowance of a proof of claim is a final judgment” even if there is no formal order, but that case has been reversed, albeit on other grounds.  DePaolo v. United States (In re DePaolo), 165 B.R. 491, 493 (D.Wyo.1994), rev’d on other grounds, 45 F.3d 373 (10th Cir.1995);  see also Colorado Livestock Prod. Credit Ass’n v. Schwab (In re Schwab), 613 F.2d 1279, 1283 (5th Cir.1980).   Still, the lack of a separate order is a distinction without a difference.