On June 2, 2017, the Fifth Circuit Court of Appeals issued its decision in Asarco LLC v. Montana Resources Inc., affirming an order on appeal from the U.S. District Court for the Southern District of Texas. It held that neither an adversary proceeding litigated by the parties in Asarco’s chapter 11 case, nor its failure to disclose its partnership-interest claim to the bankruptcy court, prevented Asarco’s post-bankruptcy claim to cure and reinstate its partnership interest with Montana Resources. The ruling presents an interesting and important application of the judicial estoppel and res judicata doctrines in the bankruptcy context.

Asarco and Montana Resources were partners in a copper mine.  When Asarco failed to pay five consecutive cash calls that were required by the partnership agreement (totaling more than $5 million), Montana Resources covered the same.  In so doing, Montana Resources diluted Asarco’s interest in the partnership from 49.9 percent to 0 percent.  Shortly thereafter, Asarco and its affiliates filed for chapter 11.

Bankruptcy practitioners across the circuits understand these categories of adversary proceedings or contested matters, involving state law claims, that could potentially be subject to bankruptcy jurisdiction: core and non-core proceedings.  For core proceedings, a bankruptcy court may enter “final” orders and judgments.

On the other hand, in non-core proceedings, a bankruptcy court may enter a final appealable order and a judgment, but only if the parties consent.  Without this consent, a bankruptcy court may only submit pro- posed findings of fact and conclusions of law to the applicable district court, and any final order or judgment may be entered by the district court after considering the bankruptcy judge’s proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected. A list of core proceedings is set forth in 28 U.S.C. §§ 157(b)(2)(A)-(P). The analysis of whether a proceeding is core is reviewed on a claim-by-claim basis.