Opposition Brief — Energy Cooperative, Inc. v. Phillips Petroleum Co., 108 S. Ct. 294 (1987) (No. 87-0479)

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A

No. 87-479 JOSEPH E SPANIOL, JR.

a, ee ane eee

ERILED

OCT 1 87

In The

Supreme Court of the United States

@ctober Term, 1987

ENERGY COOPERATIVE, INC.,

JAY A. STEINBERG, TRUSTEE,

Petitioner,

PHILLIPS PETROLEUM COMPANY,

Respondent.

BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

PAMELA S. HOLLIS

(Counsel of Record)

Counsel for Respondent

HINSHAW, CULBERTSON, MOELMANN,

HosBan & FULLER

69 West Washington Street

Chicago, Illinois 60602

(312) 630-4400

Pandick Technologies, inc., Chicago @ (312) 236-0200

aa

——

No. 87-479

In The

Supreme Court of the United States

@rctober Germ, 1987

ENERGY COOPERATIVE, INC.,

JAY A. STEINBERG, TRUSTEE,

Petitioner,

PHILLIPS PETROLEUM COMPANY,

Respondent.

BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

RULE 28.1 LIST

PHILLIPS PETROLEUM COMPANY’S DI-

RECT AND INDIRECT SUBSIDIARIES AND

AFFILIATES OWNED LESS THAN 100%’

Alaska Pipeline Service Company

Artic LNG Transportation Company

“Does not include companies required to issue one or more

shares to directors or officers.

ii

Canada Western Cordage Company, Limited

Canyon Reef Carriers, Inc.

Chisholm Pipeline Company

Cochin Refineries Limited

Colonial Pipeline Company

Dixie Pipeline Company

East Texas Salt Water Disposal Company

Explorer Pipeline Company

Great Yarmouth Port Labour Company Limited

Heat Transfer Research, Inc.

Iranian Marine International Oil Company—

IMINOCO

Kenai LNG Corporation

Long Beach Oil Development Company

Multinational Gas and Petrochemical Services

Limited

Norland GMBH fur Grundbesitz and

Industrieanlagen

Norpipe A.S

Norpipe Petroleum UK Limited

Norsea Gas A/S

Norsea Gas GMBH

Norsea Pipeline Limited

Oil Insurance Limited (New)

Papago Chemicals, Inc.

Phillips Carbon Black Limited

Phillips Petroleum Chemicals

Phillips Petroleum International Andina, S.A.

Phillips Petroleum Singapore Chemicals (Private)

Limited

Phillips Petroleum Tanker Management, Inc.

Phillips Petroleum Toray Inc.

iii

Phillips-Imperial Petroleum Limited

Polar L*’% Shipping Corporation

Renolit-Haus GMBH

Solar Gas, Inc.

SPODCO Limited

SPODCO-USA, Inc.

The Salk Institute Biotechnology/Industrial

Associates, Inc.

Venezoil, C.A.

Western Desert Operating Petroleum Company

(WEPCO)

White River Shale Oil Corporation

Bissendorf Biosciences GMBH

Insurance & Reinsurance Brokers (Bermuda)

Limited

Multinational Gas and Petrochemical Company

iv

TABLE OF CONTENTS

Page

Nk elk ks ks x ak wy Sao cae ke ew be es i

pe eg sy I iv

aAmeds OF AUTHORITIMS. ... 2.2... ct cca Vv

STATEMENT OF THE CASE................... 1

REASONS FOR DENYING WRIT................ 2

I. There Is No Conflict Among The Circuits As

To The Criteria Used For Defining A Cause of

on SER T EE EEE PU ee Oe ae 2

II. There is No Special or Important Reason For

Defining a Cause of Action in This Case........ 6

III. Since The Dismissal Order Provides That Cred-

itors Received Notice, ECI’s Due Process Argu-

ment Is A Collateral Attack On The Final Judg-

v

TABLE OF AUTHORITIES

Cases: Page

Baltimore Steamship Co. v. Phillips, 274 U.S. 316

CE sd cok Rae ea eden ae eae 9

Expert Electric, Inc., v. Levine, 554 F.2d 1227 (2nd

Cir.), cert. denied, 434 U.S. 903 (1977) ..... a, 2, 5, 7

Federated Dept. Stores, Inc., v. Moitie, 452 U.S. 394

CORED ys 6a 8s a eh ee ee ee ee eee 9

Gulf Oil Corp. v. Gilbert, 330 U.S. 501 (1947)........ 5

Harper Plastics v. Amoco Chemicals Corp., 657 F.2d

Se Ce ee De 5. Cie Sa a ee ee 4

Harris v. Jacobs, 621 F.2d 341 (9th Cir. 1980)... 3, 4,5

Herendeen v. Champion Intern. Corp., 525 F.2d 130

(i ee ee nc ee ee ee 3, 5

In Re Patel, 43 B.R. 500 (Dist.Ct.Ill. 1984)......... 10

Kremer v. Chemical Construction Corporation, 456

U.S. 481 (1982), reh’g denied, 458 U.S. 1133 (1982)... 7

Nash Cty. Bd. of Ed. v. Biltmore Co., 640 F.2d 484

(4th Cir.), cert. denied, 454 U.S. 878 (1981), reh’g.

Seiad GGG VW. REET COED bc heme elie ee eee» 3

Nevada v. United States, 463 U.S. 110 (1983), reh’g

dented, 464 USB. G75 (19GB) . os wc ccc es 2, 5-7

Nilsen v. City of Moss Point, Miss., 701 F.2d 556 (5th

Se ho is oe a te ae ee ea ae ae a ae 3

Purter v. Heckler, 771 F. 2d 682 (3rd Cir. 1985).. 3,5, 7

Sierra Club v. Secretary of Transp., 779 F.2d 776 (1st

er a 5 oh a ee ee ee ee ee 4

vi

Cases: Page

United States v. Memphis Cotton Oil Co., 288 U.S. 62

REA sna a es ak aa bh ee ee 2

Williamson v. Columbia Gas & Electric Corp., 186

F.2d 464, cert. denied, 341 U.S. 921 (1951) ........ 6

Bankruptcy Court Rules

ee 10

Treatises

Restatement (Second) of Judgments (1982) § 24.... 4,6

No. 87-479

In The

Supreme Court of the United States

@ctober Term, 1987

ENERGY COOPERATIVE, INC.,

JAY A. STEINBERG, TRUSTEE,

Petitioner,

Vv.

PHILLIPS PETROLEUM COMPANY,

Respondent.

BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Respondent Phillips Petroleum Company submits the

following Brief in opposition to the petitioner Energy Coop-

erative, Inc., Jay A. Steinberg, Trustee’s Petition For A

Writ Of Certiorari To The United States Court Of Appeals

For The Seventh Circuit.

STATEMENT OF THE CASE

The Petitioner’s Statement of the Case is inaccurate

in two respects. The dismissal of the first suit against

Phillips occurred in 1982 and not 1985. (Contrast page 4

of the Petition with the dismissal order at Appendix F.)

2

More significantly, the assertion on page 4 of the Petition

that “No notice or opportunity to be heard was given to all

creditors and other parties in interest . . .” is not supported

by any reference to the proceedings below and conflicts

with the dismissal order’s finding that all creditors of ECI

were present and consented to the entry of the dismissal.

See, lines 7-9 of order at Appendix F.

The District Court dismissed this second action against

Phillips on a basis independent of the doctrine of res judi-

cata, finding that ECI’s conduct in settling the first suit

equitably estopped it from bringing this second action.

Appendix B at pp. 3-4; Appendix D at p. 2.

In its briefs to the Seventh Circuit Court of Appeals,

ECI relied “. . . primarily on cases applying Illinois res judi-

cata law...” Seventh Circuit Opinion, Appendix A, p.6.

ECI’s petition for rehearing before the Seventh Circuit did

not directly challenge the federal rules for defining a cause

of action, and ECI did not seek a rehearing en banc to chal-

lenge the federal rule applied. The petition to this Court

questions the federal rule for defining a cause of action for

the first time.

REASONS FOR DENYING THE WRIT

I. There Is No Conflict Among The Circuits As

To The Criteria Used For Defining A Cause of

Action.

This Court and others have commented that the test

for determining a cause of action is not subject to any

mathematically precise definition. Nevada v. United States,

463 U.S. 110, 130-131, n. 12 (1983), reh’g denied, 464 U.S.

875 (1983); United States v. Memphis Cotton Oil Co., 288

U.S. 62, 67-68 (1933). In Expert Electric, Inc., v. Levine,

554 F. 2d 1227 (2nd Cir.), cert. denied, 434 U.S. 903 (1977),

the Second Circuit stated:

While often cast in terms of “identity of issues”,

the determination as to whether claims are

3

duplicative is not a matter of precision, nor subject

to the application of any mechanical formula.

554 F. 2d at 1234

The Ninth Circuit agreed in Harris v. Jacobs, 621

F. 2d 341 (9th Cir. 1980):

What constitutes a “cause of action” for purposes

of res judicata “cannot be defined with precision,” 1

B Moore’s Federal Practice and Procedure, 0.410[(1)

at 1154, or “determined precisely by mechanistic

application of a simple test.”

621 F. 2d at 343

Instead of applying one inflexible test, the federal

courts have adopted a uniform set of considerations or

criteria to reach a decision on whether claims constitute

the same cause of action. These common factors are (1)

whether the primary right, duty and wrong are the same

in each action; (2) whether the theory of recovery is the

same; (3) whether the same evidence would be required in

both actions and (4) whether the two suits arise out of the

same nucleus of facts or transaction.

Cases in the Second, Third, Fourth, Fifth and Ninth

Circuits recite all of these factors at once and have used

one or more in the same case when reaching their decision.

See, for example: Herendeen v. Champion Intern. Corp.,

525 F. 2d 130, 133, 134-135 (2nd Cir. 1975) and Expert

Electric, Inc., v. Levine, 554 F. 2d 1227, 1234 (2nd Cir.),

cert. denied, 434 U.S. 903 (1977); Purter v. Heckler, 771

F. 2d 682, 690 (3rd Cir. 1985); Nash Cty. Bd. of Ed. v.

Biltmore Co., 640 F. 2d 484, 488 (4th Cir.), cert. denied,

454 U.S. 878 (1981), reh’g. denied, 454 U.S. 1117 (1981);

Nilsen v. City of Moss Point, Miss., 701 F. 2d 556, 559-

560, also n.4 (5th Cir. 1983); Harris v. Jacobs, 621 F. 2d

341, 343 (9th Cir. 1980).

While cases in the remaining circuits may not have

applied all four factors at the same time, the criteria used

did not deviate from the four considerations above. For

4

example, the First Circuit in Sierra Club v. Secretary of

Transp., 779 F. 2d 776 (1st Cir. 1985) adopted the transac-

tional test espoused in the Restatement (Second) of Judg-

ments (1982) § 24, comment b, but compared evidence to

determine whether the facts in each suit were the same.

Id. at 779-780. As noted on page 9 of ECTs petition, the

Sixth Circuit has used at least three of the four factors,

including the transactional approach. The Seventh Circuit

has used at least two of the factors: whether both suits

arise out of the same basic factual situation, and whether

the right, duty and wrong are the same in both actions.

Harper Plastics v. Amoco Chemicals Corp., 657 F. 2d 939,

944 (7th Cir. 1981).

ECI’s own analysis of the remaining circuits reveals no

material deviation from the four considerations, although

not all may be used in one case. The Eighth Circuit

used the right-duty and operative facts approaches and

stated in a recent case that it recognizes the “transaction-

al” view. (Petition at pp. 10-11). The Tenth Circuit relied

on the right-duty and same evidence factors. The Eleventh

and District of Columbia Circuits employed the right-duty

method and an analysis of the similarity of the facts. The

Federal Circuit also compared similarity of facts.’ Jd. at

13.

The Courts’ reliance on the four considerations to vary-

ing degrees in each case is no more a conflict than in other

settled areas of the law which depend on multiple factors

for resolution. For example, in deciding a forum non con-

veniens issue, a court may consider the ease of access to

sources of proof, availability of compulsory process for wit-

ness attendance, enforceability of judgments, expense of

‘In Respondent’s view, no meaningful distinction can be made

between the “transactional” approach and an analysis comparing

the similarity of facts under the “operative” or “common nucleus”

of facts approach.

5

alternative locations and the location of the injury or where

the parties reside or do business. Gulf Oil Corp. v. Gilbert,

330 U.S. 501 (1947). Arguing that a court’s reliance on

compulsory witness attendance and enforceability of judg-

ments conflicts with another case relying on location of the

parties or business records, is similar to ECI’s position that

the operative fact approach conflicts with the same evi-

dence method. Analyzing rights and duties, comparing the

same evidence or facts and/or deciding if a single transac-

tion is involved are all established methods of determining

a cause of action. Depending on the context, a court may

apply one or more of these considerations.”

Many of the cases cited in ECI’s Petition expressly

refer to the above four factors as the “relevant criteria”

for determining a cause of action and not as conflicting

tests. See, Herendeen v. Champion Intern. Corp., 525 F.

2d 130, 133 (2nd Cir. 1975); Expert Electric, Inc. v. Levine,

554 F. 2d 1227, 1234 (2nd Cir.), cert. denied, 434 U.S. 903

(1977); Purter v. Heckler, 771 F. 2d 682, 690 (3rd Cir.

1985); Harris v. Jacobs, 621 F. 2d 341, 343 (9th Cir. 1980).

Two of these cases stated that all four of the considerations

are similar: “The crucial element underlying all of these

standards is the factual predicate of the several claims

asserted. For it is the facts surrounding the transaction or

occurrence which operate to constitute the cause of action,

not the legal theory upon which a litigant relies.” Expert

Electric at 1234; Harris v. Jacobs at 343. None of ECI’s

authorities recognized the four approaches as inconsistent

or in conflict.

This Court has recognized there is more than one considera-

tion in determining a cause of action. See, Nevada v. United

States, 463 U.S. 110, n.12 at 130 reh’g denied, 464 U.S. 875

(1983): “Although the ‘same evidence’ standard was ‘one of the

tests’ used at the time [Citation omitted], it was not the only

”

one.

6

Indeed, with the exception of the Tenth Circuit, ECT’s

Petition confesses that circuits using less than all four fac-

tors have employed the “broader” transactional approach

as one test. Hence, the probability that a court may bar

a case by determining that two suits arose from the same

transaction will not surprise any one who has done their

legal homework. Transactional analysis has been per-

formed in nearly all the circuits, appears in the Restate-

ment (Second) of Judgments (1982) §24 as settled law

and was approved by this Court as “a more pragmatic

approach”. Nevada v. United States, 463 U.S. 110, n.12 at

130 (1983).

II. There is No Special or Important Reason For

Defining a Cause of Action in This Case.

Increasingly, courts are deciding claim preclusion

issues by determining whether there was a full and fair

opportunity to litigate claims in the first suit as opposed to

defining a cause of action under a rigid test. In Williamson

v. Columbia Gas & Electric Corp., 186 F. 2d 464, cert.

denied, 341 U.S. 921 (1951), the Third Circuit said:

~ ? We do not think that the definition of “cause of

action” in these cases is controlling on the ques-

tion before us. The determination of the mean-

ing of “cause of action” for purposes of deciding

whether or not a person has slept on his rights is

of little aid in deciding whether a prior judgment

is a bar to the present action.

The purpose of the principle of res judicata

is to end litigation. .The theory is that parties

should not have to lit#Pate issues which they have

already litigated or had a reasonable opportunity

to litigate.

186 F. 2d at 469

This Court employed a similar analysis in Nevada v.

United States, 463 U.S. 110 (1983), reh’g denied, 464 US.

875 (1983):

7

Definitions of what constitutes the “same

cause of action have not remained static over

time. [Citations omitted] We find it unnecessary

in this case to parse any minute differences which

these differing tests might produce, because what-

ever standard may be applied the only conclusion

allowed by the record in the Orr Ditch case is that

the Government was given an opportunity to liti-

gate the Reservation’s entire water right...

463 U.S. at 131

See also Kremer v. Chemical Construction Corporation, 456

U.S. 461, 485 (1982), reh’g denied, 458 U.S. 1133 (1982) and

Purter v. Heckler, 771 F. 2d 682, 690 (3rd Cir. 1985).

A “full and fair opportunity” inquiry is more influen-

tial in determining whether a second action is barred than

the criteria used to define a cause of action. It is reveal-

ing that ECI’s petition concentrates solely on the abstract

language characterizing each test but fails to compare

the facts and results in cases using different guidelines.

Regardless of the tests employed, these cases yielded sim-

ilar results. None of the decisions permitted a plaintiff

to bring a second suit involving the same facts or transac-

tion but relying on a different legal theory. Regardless of

which of the four considerations defining a cause of action

are used, ECI had a full and fair opportunity to raise the

preference theory in the first suit. ECI’s bankruptcy had

been pending nearly a year and a half before the first suit

against Phillips was dismissed. This is more than enough

time to investigate all of its claims against Phillips.

Selecting one test to determine a cause of action would

not affect the result in this case for an additional rea-

son. The District Court’s holding that this suit was barred

under equitable estoppel principles was independent of its

decision to apply res judicata. Appendix B at pp. 3-4;

Appendix D at p. 2. Moreover, the Seventh Circuit based

its claim preclusion ruling on the right-duty factor as well

as deciding both suits were based on the same transac-

8

tion. See, Appendix A, pp. 9-12 where the Court held that

Phillips’ right to set off claims in the second action against

the first sufficiently “linked” the claims together.

None of the “parade of horribles” listed by ECI warrant

the attention of this Court. For example, ECI complains:

“Plaintiffs now must join all claims they may join.” (Pet.

at 15) This is just what res judicata is designed to promote.

ECI further protests it will have to scrape the “bottom of

the barrel” to add all its claims to the first suit. Certainly

this is more desirable than confronting ECI’s scrapings in

a series of lawsuits. If ECI insists on dredging up baseless

claims, it should reach the bottom of the barrel in the first

suit and not in this one.

Ill. Since The Dismissal Order Provides That

Creditors Received Notice, ECI’s Due Process

Argument Is A Collateral Attack On The Final

Judgment.

The dismissal order in the first action against Phillips

expressly stated that all of ECI’s creditors were present

and consented to the dismissal with prejudice:

This matter coming on to be heard at the

status report fixed herein; due notice having pre-

viously been given to all parties entitled thereto;

counsel for the plaintiff having orally advised the

court that the defendant has delivered to plain-

tiff all of the gasoline referred to in the complaint

herein and that plaintiff has sold such gasoline

for the benefit of this estate and all of its creditors

and counsel for plaintiff having orally moved for

the entry of this order; there being no objection to

the entry of this order; and the court being fully

advised in the premises;

IT IS HEREBY ORDERED that the above-

captioned adversary proceeding be and it is hereby

dismissed with prejudice, each party to bear its

own costs.

Appendix F (Emphasis added)

9

As the above order reflects, all the parties entitled to

notice received it. Significantly, the Bankruptcy Court’s

order recites that all of ECI’s creditors were present and

orally moved for entry of the dismissal. It is pure mystery

how ECI argues that no creditor received notice of the dis-

missal and thus due process rights were violated. There is

absolutely nothing in the record regarding notice except for

the above order, and ECI does not cite to any reference in

its Petition supporting its assertions that creditors received

no notice. Pet. at 4 and 17.

Even if ECI could show no notice, the dismissal order

unambiguously found notice to all of ECI’s creditors and

that they joined ECI in moving for a dismissal. Hence,

ECI’s attempt to challenge that finding is a prohibited col-

lateral attack on the judgment order. As this Court held in

Federated Dept. Stores, Inc., v. Moitie, 452 U.S. 394, 398-

399 (1981):

Nor are the res judicata consequences of a final

unappealed judgment on the merits altered by the

fact that the judgment may have been wrong or

rested on a legal principle overruled in another

case. [Citations omitted] As this Court explained

in Baltimore Steamship Co. v. Phillips, 274 U.S.

316, 325, 71 L.Ed. 1069, 47 S. Ct. 600 (1927), an

“erroneous conclusion” reached by the court in the

first suit does not deprive the defendants in the

second action “of their right to rely on the plea

of res judicata... A judgment merely voidable

because based upon an erroneous view of the law

is not open to collateral attack, but can be cor-

rected only by a direct review and not by bringing

another action upon the same cause of action.” We

have observed that “the indulgence of a contrary

view would result in creating elements of uncer-

tainty and confusion and in undermining the con-

clusive character of the judgments, consequences

which it was the very purpose of res judicata to

avert.” [Citation omitted]

10

Also assuming the dismissal order could be collater-

ally attacked by ECI’s bare assertion that there was no

notice as required under the Bankruptcy Code, there is still

no due process issue. While it may be debated whether

creditors of a bankruptcy estate have a “constitutional”

right to notice of any and all compromises, it is at least

clear that there is no constitutional right to receive notice

under the specific procedure set forth in Bankruptcy Rule

9019. This is because a bankruptcy judge may waive notice

to creditors for good cause shown, and the order approv-

ing the compromise need not contain an express finding of

good cause but may be implied. Jn Re Patel, 43 B.R. 500,

503 (Dist.Ct.Il. 1984). Consequently, the fact that ECTs

creditors had actual notice of the compromise, and orally

moved for its entry along with ECI, satisfies any due pro-

cess requirements which may be applicable.

CONCLUSION

For the foregoing reasons, the Petition For A Writ Of

Certiorari should be denied.

Respectfully submitted,

PAMELA S. HOLLIS

(Counsel of Record)

Counsel for Respondent

HINSHAW, CULBERTSON, MOELMANN,

HoBAN & FULLER

69 West Washington Street

Chicago, Illinois 60692

(312) 630-4400