## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it
N o. 08

- 1881 I N RE : I NGERS OLL , I NC . et a l., D ebto rs-A pp ellees, A PPE AL OF : B AISE & M IL LER, P
. C.

A pp eal from the United S t ates Di strictC our t fo r the N o rthernDi stricto f Illino is, We stern Div isi on. No . 07 C50098

—Phi li p G . Rei nhar d, Judg e.
A RG UE D J AN UA RY 23, 2009

— D ECI DE D A PRI L 15, 2009

Befo re B AUER, E VANS, a nd W I L L I A MS, C ircu it Judges . E VANS, Cir cu i tJudg e . Al th o ug h many ha ve t r i ed to put a s tak e th ro u gh the hear t o fthi s fee dispute w hi ch r efus es t o di e, a l l ha ve f ai l ed to do the t r i ck

. W e, a s th e si xth f or um to ta ke a s tab at it, a re n ex t in l i ne. N ow cre eping al o ng as a ba nk r upt cy appe al, th e ca se i s here afte r s to ps at th e Di st r i ct o fCo l um bi a BarAtt o r ne y / Cl i en t A rbi tr ati on Boar d, the S uperi orCourto fthe Dist ri ct o f Col um bi a, the Superi orCou rto fDel aw ar e, the federa l ba nk r upt cyc o ur t f o r th e N o r th ern Di st r i cto fI l l i no i s, a nd2 N o. 08

- 1881 fi nal l y the federa l tr i alco urt f orthatdi str i ct. Ba ise & M i l l er, P. C., the W ashi ngto n, D.C. l aw fi rm i n thi s d i sp u te , i s h er e to d ay ap p ea lin g a n ord er ba rrin g its cla im f oraddit i onalfees under 11 U
. S. C . § 1 05 ofthe bankruptcy code. I n re sol vi ng the fi rm ’ s a pp eal, we m u st go ba cki n t i m e to whenthi s sa g a al l b eg an . The Ing er sol l Cutti ng Too l Com pany ( I CT C), since i ts i nc ept i on in t he l at e 18 00 s, was a t th e f o r efr o nto fthe m eta l cutt i ng to oli nd ustr y. Fo r th e v astm aj or i ty ofthat t i me i twa s a f a mi l y - o wn e d e n t e r p r i s e , ha nde d d o wn f ro m i ts f ounder, W i nthro p I nger sol l, to future gener ations. Bu t tha t c h a n ged i n 20 01, w he n Israeli -based I scar, Ltd. t o o k o ve r i n a s al e al l eg edl y “ m as te r m i nde d” bythe f i r s t o ut s i de b o a r d memb e r s i n I CT C’ s hi s t o r y . Pr i or to the s al e, I CT C w as own ed by the Gayl or ds, d esce nd ants of M r. I n g er so ll an d th e a p p elle es in t h is c as e. T h ey cla im they had no desi re t o se l l the com pany but were du ped bythe no nf ami l y CEO a nd c er ta i n di r ec tor s. Acco r di ng to t h e m , a co rp or at e c h au ffeu r ov er h ea rd th es e in d ivi dual s sc he m i nga nd l au g hi ngi n a l i m o us ine, r ev el i ng i n thei r pla n to “tak e d own ” I CT C and shi p i t “ ove rs eas w h er e itbe lon ge d .” W h et h e r t h is a c tu ally oc c u rre d is u n k n o wn

— the Gayl or d s neverm anage d to geta sta tem en t f r o m the c ha uff eu r

—bu t it d oesn ’t m ake m uc h of a di ffe r e nc e . Wha ti s i mpo r t a nti s tha twhen th e Ga y l o r ds ca ug htwi nd of th is pl an, the y t r i ed wi tha l l the i r might to st op th e s ale , ret ain in g B ais e & M i l l e r t o a c t o n th eir beh alf

. A nd w he n th e law firm f ail ed to m ake a d iffere nce

— and sought m or e m oneyf ori ts ser vi ces

— th e Gayl or ds f ound them se lves tr adingo ne bat tl e ( ove r th eir com p an y) for anoth er (over l egal fees).N o. 08

- 1881 3 The Gayl or ds fi rs t co ntacte d Bais e & M i l l eri n l ate N ov em b er 20 00 . Th ey ex p lain ed to p ar tn er M ar sh all M i l l erthattheyneede d to s top the sa l e, and M i l l er ag r ee d t o he l p b y f i l i nga mot i o n f o r a t empor ar y r es tr ainin g ord er an d a p re lim in ar y inj u n c tio n . M iller a l l e ge d ly tol d th em notto worr y; he was fri ends w i th a j ud ge in D ela w ar e w h o “ ow ed h im a fav or ,” so ge tt in g t h e s ale e nj o i ne d wa s n o b i gde a l

. Wha t ’ s mo r e , Mi l l e r s up po se dl y sa i d he ha d co nt ac ts i n the medi a who co ul d s l i ng m ud atI scar . H e eve n s ai d he spok e with a three

- sta r l i eutenant gener al(Jim W i l l i am s) wh o w as re ady to i nvest i gat e the co m pany on inter n at ionalse curi ty gr ounds. S o M i l l erco uld handl e th is th ing, no sw eat
. B u t h e w ou ld n ee d h elp from an ot h er law ye r, D a vid M argu les ofBou ch ard , M argu les & Fri ed land er. M i l l era nd M ar g ul es he l d a pho ne co nfer en ce wi ththe Gayl or ds on Decem ber1 . (The Gayl or ds l i ved i n I l l i noi s; M i l l er in W as h in gt on , D .C .; an d M ar gu les in D ela w ar e.) M ar g ul es i nt r o duce d hi m se l f, de sc r ibe d hi s ba ck g r o und an d exp er i ence, and to l d the Gayl or ds that thi s s or t o f thi ng was hi s “ bre ad and butter

. ” Bouch ar d M argul e s an d Fried la nd er v. G a ylo rd, 200 5 W L 26 60 04 3, *2 (Su p . C t. D el. A ug. 31, 2005 )
. Bu t despit e a l l that

— and M i l l er ’ s “ f ri ends” i n hi gh pl aces

— the Ga y l o r ds we r e n’ ts o l d. The deal wasn’t sea l ed unti l the tw o att or n ey s fl ew to Rock f or d, I l l i noi s, and m et the Gayl or ds i n pers on. You see , the Gayl or ds w er e o l d-school to a f aul t: f ace- to- f ace m eet i ngs were i m port an t, b ut i ftheywent w el l, they wer e ha ppy t o t r ust a n ag r ee m en t to a ha nds ha k e an d a pro m i se. I n f ac t, R ob ert Gayl or d, w ho was m or e o r l ess4 N o. 08

- 1881 i n c ha r g e be f o r e he pa ss ed aw ay dur i ngthi s l i ti g at i o n, conduct ed “mul ti

- m i l l i o n do l l ar ” dea l s o n th i s ba si s. So he tho ught nothi ng o fr eachi ng an or alag re em ent t o pay M i l l era $100 , 000 re tai ner, with the und er sta nd i ng tha t M ar gu les w ou ld be p aid ou t o f th os e fu n d s a s w ell. A few d ay s l ate r, M i l l erse nt the Gayl or ds a l ett er
“ me mo r i a l i z i n g ” th e i r o r a l a g r e e me n t
. I tc o n t a i n e d s o me surpri ses . A fte r re ci ti ng the $1 00, 000 re tai ner and the f act th atM ar g ul es woul d s ubmi t his fees t o M i l l er( no t th e Gay l o r ds) , th e l et te r di sc us se d a co nt i ng en cy fee. The Gay l o r ds wer e sh o ck ed. Think i ngthe y had a n ag r ee m en t f o r a c appe d fee o f$ 10 0, 00 0, the y refused to s i g n the contr act. I n the me a nt i me, Mar g ul e s de c i de d h e n e e de d a b i g g e rp i e ce o fthe a c t i o n. Mar g ul e s p r e v i o us l y r e a c he d a dea l wi th M il l erwher e he woul d r ec ei ve $ 25 , 00 0 o fthe re tai ner base d on the expectancy that he would d o a quarte r ofthe w or k. H owever, as a prel i m i naryi njuncti on hea rin g drew clo ser

—by thi s point the y had fi l ed sui t in Del aw ar e’ s Chancery Court, a cour t o fequi ty known m ainl y fori ts deci si ons on cor p or ate m atters

— M argu l es saw that he was doi ng a gr eat er per c e nt a g e o f the wo r k

. S o M a r g ul e s a s k e d M i l l e r f or m or e m oney, and “M i l l er a rb itr ar i l y deci ded o n a ne w r et aine r f i g ur e, $2 50 , 00 0, bec au se tha t was the ne xt‘ no tc h’ u p . ” B o uc ha rd M a rgu les an d F riedla nd er, 20 05 W L 26600 43 at * 2. Back atthe nego ti ati ng tabl e with t h e Gayl or ds, M i l l er as su r ed th em th at$ 25 0, 00 0 was the o ut si de fi g ur e, a nd that he would r etur n any unu sed por ti on o f t h e fe e.N o. 08

- 1881 5 Rober t Gayl or d agr eed to the dealr el uctantl y; he was w illing to p ay $2 50 ,00 0 if n ee d b e, “b u t no t a p en n y m or e.” Id. at*3. U n fo r t u n at ely , th e a gr ee m en t w as n ev er p u t in w ri ti ng, and thi s ca used headaches as the fees es cal ate d we l l b e y o nd the $ 2 5 0 , 0 0 0 c a p. Fora ll t h at, the l i ti gat i on was unsuccess ful. The Del aw ar e courtdeni ed i nj uncti ve re l i ef, and the sal e was c o ns ummat e d. T he n c a me the fe e di spu t e . As a g r e e d, th e G aylords de p osited $250,000 into B aise & M ill er’s e s c r o w a c c o u n t
. B u t w e l l a ft e r th e r e p r e s e n t a t i o n c a me to a cl ose , the Gayl or ds hadn’t re cei ved any i nvoi ces from M il ler d etailing th e costs an d fees. I t tu rns ou t th ere w as a l ogi cal( i funrea sonab le) ex p l anati on f orthe del ay: th e t o t a l fe e s fr o m Mi l l e r a n d Ma r g u l e s o u t s t r i p p e d t he es c r o w fu n d

. Whe n th e Ga y l o r d s fi n a l l y r e c e i v e d t he i nvoi ces f ro m b oth atto rney s

— M ar g ul es ha d b ee n b i l l i ng M i l l era l l a l o ngb utr ec ei ve d o nl y p ar ti alpa y m en t

— th e tot alcam e to al m ost $390 , 000. Ou tr age d b y the r equest f or an o ther $1 40, 00 0 o n t o p o fthe “ o ut si de fi g ur e, ” th e Gayl or ds w ro te M i l l erand insi ste d he had it w ro ng. They expla i ned that the a gr eem ent was f orno m or e than $250 , 000, and i f M il ler an d M argu les had t r o ub le app ortioning th e m o n e y, th at w as th eir p roblem

. M il ler d idn ’t backdow n. W hi l e continuing to dem and m or e m oney, th ou gh , he p ar tia lly sa tis fied M ar gu les by p a y i n g h im $134, 205. 13

— r o ughl y $ 6 0 , 0 0 0 s ho r to fthe t o t a l c l a i med

. W he n the Ga y l o r ds a l s o r e fus e d t o b ud g e , Bai se & M i l l erfi l ed ana ct i o n in the D. C. S upe r i o r Court. The c o ur ts t a y e d the c a s e , h o we v e r, b e c a us e the Gayl or ds ag r e e d t o a rb i t r a t i o n b e f o r e th e D
. C
. At t o r n e y / C l i en t6 N o. 08

- 1881 A rbi tr ati on Boar d. The boa rd issued i ts rul i ng i n l ate 2 0 0 4 , b utu nfo r t un a t e l y i tf a i l e d t o de c i de the c r i ti cal i ss ue

— w h et h er $2 50 ,00 0 re p re se n te d th e G ay lord s’ m ax im um l iabil ity to both l aw firm s . T his is w ha t the board s a i d: The t o ta l fee s an d c o st s to b e ( o rt o ha ve b ee n) payab l e b y [ the Ga y l o r ds ] t o [ Ba i s e & Mi l l e r ] t ota l $199 , 514. 44. [ The Gayl or ds] paid $ 25 0, 000 to [ Bais e & M i l l er ’ s] tr ust/ escr ow account. [ Bais e & M i l l er ] has pa i d $ 1 3 4 , 2 0 5
. 1 3 ( o fth e $ 2 5 0 , 0 0 0 ) t o Bo uc ha r d, M ar gul es & Fr i ed lan der. [ Bais e & M i l l er ] pai d to i tse l fthe re m ai ni ng sum o f$1 15, 794. 87. This aw ar d does no t re sol ve the i ssues o fwh ether [ Bais e & M i l l er ] ’ s a cti on i n payi ng $1 34, 205. 13 to B ou c h ar d , M a r gu les & Frie d lan d er w as rea so n ab le orappropr i ate and expres ses no op in i on a s t o how th at issue sh ou ld be resolved

. I n a d d it io n, this aw ard do es no t r es o l ve , no r e xpr es s an y o pi ni on a s to , the re aso nabl eness or re cove rabi l i ty ofany fees o r cos ts ass ess ed by the l aw fi rm of B ouchar d, M ar gul es & Friedlan d er to [ th e G aylords ] or to [ B aise & M il ler]

. T h is d ec isio n w as n otex ac tly a m od el of c lar ity , an d it cau sed prob lem s d ow n th e road

. Th e f airest i nt erp r e t a t i o n, h o we v e r, i s th a tth e Gay l o r d s d i d n ’ to we M i l l erany m or e m oney( they w ere se em i ngl y e nti tl ed to a r efund ) ; to the extent M i l l err eta i ned l ess than hi s due, he c o ul dn’ t l o o kt o t he Ga y l o r ds f o r c o m pen sa ti o n; a nd M ar g ul es woul d e i th erha ve t o l o o kt o M i l l erf o r a ny shor tf al l o r bring hi s o w n cl ai m ag ai nst the Gayl or ds.N o. 08

- 1881 7 Des pi te o urr ea d, M i l l er s aw thi ng s di ffer en tly . I n a mo t i o n t o c o n fi r m th e a wa r d fi l e d wi th the D. C. Sup er i o r Co ur t, M i l l erc o nt en ded th atthe b o ar d’s d e c i s i o n me a n tth e G a y l o r d s o we d h i m m o remo n e y . We fi nd that a r g u m en t baffl ing, bu t the Sup erior C ou rt’s r es po ns e se ems e ve n mor e s o. Thatc o ur t sa i d tha t “the aw ar d m ake s cl earthat[ the Gayl or ds] owe [ Bais e & M iller ] $1 99, 514. 44 and that the [ arbi tr ati on bo ar d] i s ta k i ng no po si ti o n o n th e amoun ts o wed by [ th e Ga y l o r ds] t o [ Ma r g u l e s ]
. ” F a i r e n o u g h ( th o u g h we mi g htquib b l e wi th the wo r d “ o we , ” s i nc e the Ga y l o r ds alr eady pai d M i l l erwello verthatsum )
. But then we ge t th i s: “I t i s no t chal l enged that [ the Gayl or ds] have p aid [ Bai se & M i l l er ] $ 11 5, 79 4. 87
. De duct i ngtha t amoun t fro m th e a w ar d yield s a b a l an c e o f $8 3,7 19 .57, w h ich is the pr operj u d gm en t a m ount her e. ” S o the S up er i or Cou r t order ed th e Gay l o r ds to pa y a n addi t i onal $8 3, 71 9. 57
. W e se e no way to s qua r e th atwi ththe boar d ’ s deci si on a nd the f act that the Gayl or ds had al re ady pai d M i l l er$2 50, 000. M i l ler m ay have been en ti tl ed to ne ar l y $ 20 0, 00 0 of th ats um , b uti t was n’ t th e Gaylor d s fa ulthe r em i tte d so m uch to M ar gul es that j ust o ve r $ 115 , 00 0 r emai ne d. I n pur po r tingt o e nf o r ce the arbi tr ati on, the Superi orCourteffecti vel y dete rm i ned ( w i tho uta na l y s i s a nd wi tho utme a ningt o ) tha tMil l er was j us tifi ed i n pa y i ngM ar g ul es s o m e $1 35 , 00 0 an d that ther e was no fee agr eem ent c apped a t$ 2 50, 000

— i ssues that the a rbi tr ati on bo ar d express l y decl i ned to re solv e. Tho ug h the y v i g o r o us l y di sa g r ee d wi ththe de ci si o n, the G ay lord s pai d M i l l erthe add i ti onal$8 3, 719. 57 to pu t the m att erto r est
.8 N o. 08

- 1881 A s ifthat w ere not com p li cation enou gh, the D elaw are Superi or C ou rtal so had som ethi ng to sa y. M ar gul es bro ught sui t a gainst the Gayl or ds i n that f or um to re c ov er th e e x tr a $ 60 ,00 0 th at h e h ad u n su c c es s fu lly so ug ht fr o m M i l l er . The Ga y l o r ds m aint aine d the po si ti o n tha t th eyha d o nl y c o nt r ac te d wi thM i l l er, a nd for a fi xe d fee at th at. U n lik e the D.C
. cou rt, how ever, the Del aw are co urt produced a r uling tha t was atl eas t facial ly reason a b le. Fol low ing a ben ch tri al, the cou rt f o un d tha tthe r e was no c o nt r a c tb e t we e n the Ga y l o r ds an d M argu les, bu t tha t the re was “a capped fee agr eem en t between the Gayl or ds and Bais e [ & ] M i l l erf or $250 , 000. ” B o uc ha rd M a rgu les an d F riedla nd er, 2 0 0 5 WL 26 60 04 3 a t *6 . Ta kin g in to ac c ou n t t h e arb itr at ion d ec isi on, the cour t s um m ed up as f ol l ows: [M argu les] w as a su bcon tracto r to B aise [ & ] M il ler’ s contrac t w ith the Gayl or ds.

. . . I fthe DC arbi tr ati on boar d a w ar ded Bais e [ & ] M i l l er $199 , 514. 44 for its w or k under the $ 250, 000 re tai ne r, then $50, 485. 56 r emai ns i n the Ba i se [ &] M i l l ere sc r o w ac co unt
. The C ourtfi nd s that a ny m oneyo w ed to [ M ar gul es] wo u l d h a v e t o b e a d d r e s s e d d i r e c t l y wi th B a i s e [ &] M il ler, the gen eral contrac tor. Id. T ha t m a k es sen se. Y et th e D elaw are Sup erior C ou rt dism i sse d the Gayl or ds’ cro ss- cl ai m ag ain st Bai se & M i l l e r . Ev e n tho ugh the f acts sho we d tha tthe Ga y l o r ds had i nd eed o ver pai d Bais e & M i l l er, the cour t hel d thatN o. 08

- 1881 9

At l ea s tthatappe ar s t o be the c as e. The reco rd be f or e us 1 d oe sn’t con tain the D elaw are Su p erio r C ou rt’ s ord er o f d ism is sal, but u n contes ted pleadings st ate the cros s- cl aim w as indeed d is m is se d on t h is basi s. An d the bankru ptcy court e c ho e d tha tr ul i ng d own the r oa d. Al tho ug h the Ga yl or ds s t i l l m ai nt ai n thatthey ov erpa i d Bai s e & M i l l er, the i r pos i t i on on appe al doe s no tr es tonthatas s er t i on. T ha t is pr obabl y f or the be t t er, be c aus e the s c ope ofthis ap p eal doe s no tpe rm i tus to r ule on t h a t issue. In any event, w e c onsi der the m att er s et t l ed a nd, e veni fwe cou ld, do n otpur por tt o di s t urb the ea rl i erdec isions ofthe s t at e c our t s . Ofc our s e, thatdoe s no t s t op u s f ro m c ri t i qui ng the D. C. c our t ’ s dec i s i on whic h, ag ai n, we fi nd r athe r t ro ubl i ng. a s pe c to fthe di s pu t e wa s res judic ata
. De spi te the 1 possibl e inj usti ce, thatse em s co rr ect. The doctr in e of cl ai m pr ec l us i o n i s p re m i se d o n the i dea tha t, whena cl ai m has been fully l i ti gat ed and c om e to j ud gm ent o n th e m er its , fin alit y t ru m p s. See N eva da v. U nited S t a tes , 46 3 U .S. 1 1 0, 12 9-3 0 (1 98 3); H icks v. M idwestTransit, Inc. , 479 F.3d 468, 471-72 (7th Cir. 2007). Bu t s hel ve th e inconsi ste ncy f ornow, w hi l e we tur n to the b ankr up tcy cou rt’ s r ol e in thi s s aga . W hen I CT C w as sol d to I scar, the Gayl or ds f ound th em selv es i n a t ough spot. I CT C w as the “ cro w n j ew el ” o fI nger sol lI nter nati onal, I nc. ( I nger so ll), the par ent c om pany st i l l hel d by the Gayl or ds. A ccor ding to the Gayl or ds, I CT C accounted f o r o ve r 9 0 per ce nto fthe pr o fi t o fI ng er so l l. S o wi th o ut I C T C , I ng ersollw as a sh ellof its f orm e r se lf; i t cou ldn ’t kee p up wit h it s c re dit or s, and bef or e l ong i t fi l ed f or ba nk r upt cy . And be ca us e th e Gay l o r ds di dn’ t se e “o ne10 N o. 08

- 1881 dim e” f ro m the sal e o fI CT C, they had no m eans to l aunch a r escue att em pt. I ng er so l l a nd i ts s ubs i di ar i es fi l ed a pet i ti o n f o r v o l unta ry ban k r upt cyunde r Cha pte r 1 1 i n Apr i l 2 00 3. The G aylord s w e r e not d ebtors i n th at cas e, bu t the y w ere i nti m ate l y invol ved i n the proce edi ngs insofar a s I nger sol l was th e fam i l y c om pany. A nd wh en the bank

r u p t c y c o u r tc o n fi r me d a l i q u i d a t i o n p l a n i n S e p t e mbe r 2 00 5, the Ga y l o r ds g aine d a m ea su r e o fpr o te ct i o n. S e c t i o n 9
. 1 o fthe p l a n pr o v i de d tha tthe Ga y l o r ds shal l be re l eas ed fro m any and al l cla i m s and cause s o f acti on byal l cr edi tor s, part i es- i n-inter es t, dir ecto rs , offi cer s, shar ehol ders, ag ents, affi l i ate s, pare nt ent i ti es, succes so rs, as si gns, pre decesso rs , m em ber s, partners , m anage rs , em plo yee s, insi ders, ag ents and repr ese ntati ves ofthe Debtor s a nd thei r est at es a ri si ng fro m o r r el at i ngt o th e Gay l o r d Act i o ns , i nc l udi ng, wi th

o utl i m i ta ti o n, a ny c l ai m s, ca us es o f ac ti o n, an d c o unter cl ai m s byany pr es en t o r f or m erparty t o any o f the Gayl or d A cti ons. The “Gaylord A cti ons” w er e i denti fi ed as the “ non-bankr up t c y c a us e s of a c t i o n c a pt i o ne d G a ylo rd, et al. v. D o a r, etal. , C.A. 1854 2- N C and thatpor ti on o fthe law su it c a pt i o ne d G aylord, eta l. v. Ba rne s & Th ornburg, etal. , N o. 03 L 000 023 w hi ch i s a deri vati ve acti on on b eh al fo f th e D eb to rs .” T h e firstca se , G aylord, etal. v. D oar, etal. , C
. A
. 18542 -N C , w as th e inj u n c t ive case in th e D elaw are c ou rtw h er e M iller a n d M ar gu les se rv ed as co u n se l. W hen the pla n w as confi rm ed ( f ol l owing an o bj ecti on p eriod), th e d ebtors se rved c op ies ofthe p lan on cred itorsN o. 08

- 1881 11

an d pa r ti es - i n- i nt er es t. M i l l err ec ei ve d a c o py a s ap ar ty
- i ni nter est
. Ea r l i e r, tho ugh, i n Apr i l 2 0 0 5 , Mi l l e r fi l e d a no thercla im i n th e D. C
. S u p e r i o r C o u r t
. T h i s t i me , Mi l l e r s o ug ht con s e qu e nt i a l da mag e s f o r the Ga y l o r ds ’ a l l e g e d b r e a ch o fthe D. C. a rb i t r a t i o n a g r e e men t
. Be c a us e the Ga y l o r ds continu ed to l i ti gat e thei r case ag ai nst M i l l eri n the Dela

war e S upe r i o r Co ur t afte r the y ha d a g r ee d t o b i ndi ng and e xc l us i v e a rb i t r a t i o n i n D. C. , Mi l l e r c o nt e nd e d tha t th ey w er e re sp o n s ible for c os ts an d fee s w ro n gfu lly i ncurr ed i n Del aw ar e. W hi ch, fi nal l y, br i ngs us to the i ssu e that prom pted th is a p p ea l. W h en M ill er failed to d ism iss h is lat es t s u it f o l l o wi ng co nfi r m at i o n o fthe b an k r upt cypl an, the Gay l o r ds fi led a m o ti o n in the b an k r upt cyc o ur t se ek i ng i nj uncti ve re l i efand sanct i ons. P ro ceedi ng under 1 1 U
. S. C. § 1 05

— w hic h gi ves a ba nkruptcy cour t the power to i ss ue a ny “ ne ce ss ar y o r a ppr o pr i at e” o r dert o c ar ry o utthe p r o v i s i o ns of the b a nk r up t c y c o de

— the Ga y l o r ds as k ed th e co ur t to e nj o i n Mil l erfr o m ma intai ni ng fu rt h er l i ti gat i on a nd to hol d him i n conte m pt. They conte nd ed that M i l l ervi ol ate d th e r el eas e l anguage co n t a i n e d i n s e c t i o n 9
. 1 o fth e b a n k r u p t c y p l a n, o n the theo rythatM i l l er ’ s cl ai m “a ro se f ro m ” o r w as “r el ate d to” one ofthe Gayl or d A cti ons. M i l l erdi sag re ed , of co urse , ar gui ng tha t hi s ca se w as onl y ind i rec tly connect ed wi ththe De l awar e ac ti o n. T h e b a n k r u p t c y co u r tr u l e d o n th e ma t t e r i n D e c e mber 2005 , i denti fyi ng the centr al i ssue as w hether M i l l er ’ s cl ai m w as go ve r ne d by the re l ea se pro vi si o n. The12 N o. 08

- 1881

cour t deci ded thati t was . N ot i ng tha t the r el eas e was in te n d ed to b e a sh ield for th e G ay lord s, th e cou rth eld that i t was suffi ci ent “ to encom pass the dispute” betw een th e Gay l o r ds an d M i l l er . And the c o ur t foun d i t o fno m om ent “ w hetherthatdi spute i s char acte ri zed as a fee dispute ora bre ach o farbi tr ation a greem ent di spute” becau se i t “i s r el at ed to the de r i va ti ve a ct i o n. ” But th at w asn ’t the en d of th e m atter, becau se t h e cou rt al so had to deci de w hether§ 105 author i zed the re l eas e. The cour t a cknowle dged that thi s wa s a uni que si tuati on i n that nondebtor s ( the Gayl or ds) w er e bein g r el eas ed from a no nc r edi to r ( M i l l er ) o fthe b an k r upt( I ng er so l l)

. Re l y i ngo n In re M et rom edia Fi be r N et w ork, Inc. , 41 6 F. 3d 136 (2d Ci r. 20 05) , however, the cour t hel d the r el eas e va l i d b e c a u s e i t wa s c e n t r a l t o th e n e g o t i a t i o n a nd ultim at e su cc es s o fthe pl an . S o the b an k r upt cyc o urt enj oi ned M i l l erfro m pursui ng hi s br each- of

- arbi tr ati on claim ( th ou gh i t d eclined to i m p ose san ctions ). M i l l erappeal ed to the dist ri ct cour t. H e see m ed to have bett er l uc k the re

— at l eas t a t fi rs t

— as t h e d istri ct cou rt im p lied th at th e ru lin g b elo w co u ld on ly b e s u st ain ed if M i l l erwas i nde ed a cr edi to r o fo ne o fthe deb to r s. The dist ri ct j ud ge ask ed the bankr up tcy cour t t o re sol ve tha ti s s ue o n r e man d. Bu t o n re m an d the ba nkruptcy cour t a rguabl y s tr aye d f ro m the dis tr ict cour t’ s o rder

. The bank ruptcy j ud ge ex p lai ne d that his prior ruli ng w as bas ed not on M il ler’ s sta tus a s a cr edi tor

— w hi ch i n hi s v i ew M i l l erwas not

—but ra th ero n the i dea tha t th e r el ea se was ne ede d t o e nsure th e su cc es s o fthe b ankrupt cypl an . Apar t f r o m theN o. 08

- 1881 13

cre dit ori ssue, the j ud ge fel t hi s o ri gi nal r ati onal e, r oo ted in § 105, rem ained ad eq ua te to su p p ort his de cis io n . So he stuck with i t. The di st r i ctc o ur t ha d no p r o bl em wi ththi s. Ev eni fthe ba nk r up tcy cour t wentb ey o nd the s tr i ctl et te r o fthe r e ma n d o r d e r, th e d i s t r i c t c o u r t wa s s a t i s fi e d b e c a us e th e bankr up tcy j ud ge p ro vi ded the “cl ar i fi cati on” i t was see ki ng. The co urt rej ecte d M i l l er ’ s a rgum ent o n appe altha t th e b ank r upt cyj udg e ha d i m pr o per l y g o ne b ey on d th e s c op e o ft h e re m an d ord er an d vio lat ed h is due pr o ce ss r i gh ts, a nd s o a ffi r m ed th e r ul i ngwi th o ut furtherado. The case now find s i t way t o us, hopefull y th e la st j ud ges to chi m e in. “W e r evi ew a dist ri ct c ourt ’ s deci si on to affi rm the b ankr up tcy cour t deno vo , whi cha l l o ws us t o ‘ a s s e s s th e b a n k r u p t c y c o u r t ’ s j u d g me n ta n e w, e mp loyi ng the sam e stan d ard of re view the d istri ct cou rt i ts el fused. ’ ” In reBooneCounty Uti l i t i e s , LL C, 50 6 F
. 3d 541, 54 2 ( 7th Ci r. 2007 ) ( quoti ng In reKm ar tCorp. , 38 1 F
. 3d 709, 712 (7th C ir. 2004)). M i ll ermake s two a r g um en ts
. F i r st, he r en ews hi s co ntenti on that the r el eas e i s inapp l i cabl e t o hi s cl ai m f or bre ach o fthe arbi tr ati on a gr eem ent. S eco nd , he arg ues th atthe di st r i ctc o ur t er r ed as a m at te r o fl aw i n a ffi r m i ng th e b a n k r u p t c y c o u r twh e n th a tc o u r twe n tb e y o n d the call of the rem an d order. W e ta k e th es e ar g um en ts i n r ev er se o r der

. I n U nited St at e s v. H us b and, 3 1 2 F
. 3 d 2 4 7, 25 1 ( 7 th C i r . 2 0 0 2 ) , we m ade the unr emar k ab l e o bserv at i o n tha t wher e th e rem an d ing cou rt i d en tifies a “discrete ” or “pa rticular”14 N o. 08

- 1881 i ss ue , the l o werc o ur t i s g en er al l y l i m i te d t o tha t que st i o n. Bu t on the othe r hand , w e affi rm ed our previ ou s stat em ent that the “s cope of the r em and i s dete rm i ned not by f or m ula, but b y inf er ence f ro m the opi ni on a s a w hol e. ” Id. ( quoti ng U nited Sta tes v. P a rker, 10 1 F .3d 52 7, 528 ( 7th Ci r. 19 96) )
. I n o th er w or ds, “[ t] he co urt m ay expli ci tl y r em and certain i ssues excl usi ve ofal l o ther s; b u t t h e s am e re su lt m ay als o b e a c c om p lish ed im p licit ly.” I t f o l l o ws a s a co r o l l ar y tha t a co urt m ayi m pl i ci tly i ss ue a non excl usi ve rem and or der. Thi s m i ght ha pp en wh en a c ourtse eks cl ar i fi cati on a nd i denti fi es w hat i t be l i eve s (b u t is n otce rt ain ) is t h e d isp os itiv e is su e, w h ich is w hat happened h er e. T h e way we re ad i t, the dist ri ct c ou rt doubted the bank ruptcy rul i ng co uld be sustai ned if M i l l erwas not a cr edi tor, so i t a ske d the ba nkr upt cyj udg e to r es o l ve tha t i ss ue , whi chhe d id. Bu t th e dist ri ct c ourtdi d not rul ethatt h e § 105 ra ti onal e was fl aw ed, so the bankr up tcy j ud ge w as w i thi n hi s r igh ts to expand upon that ra ti onal e, e xplai ni ng exac tl y what h e m ea n t. See U nite d State s v. M o rris , 25 9 F
. 3d 894, 89 8 ( 7th Ci r. 20 01) (st ati ng that a l ower co urt i s g ener al l y “ f re e to add re ss i ssues thatthe appell ate c ourtl eft undeci ded” )
. T his vi ew o fe ve nt s se ems pa r ti cul ar l y c o nvinc i ngi n l i g hto fthe di st r ic t co ur t’ s r ea ct i o n. The di strict cou r t, c l ea r l y i n the b es t po si ti o n t o kno w the sc op e o f its ow n rem an d ord er , said it rec eiv ed th e “ c lar ificati on” i t s ought. W e s ee no ba si s t o disa gr ee. On, then, to the m eat o fthe m att er : Did the bank

rup tcy co u r t prop erly d eterm ine th at M il ler’ s breac h-ofarbi tr ati on cl ai m was bar re d b y the r el eas e in the bankruptcy pla n? W e see two sub- i ssues i n thi s quest i on. Fi rs t,N o. 08

- 1881 15 as th e ban krup tcy cou rt i tself not ed , w e hav e to de termi n e wh e th e r th e r e l e a s e ( v a l i d o r n o t ) i s b y i t s t e r ms b ro ad en ou gh to c o v e r M iller’s cla im . W e t h in k it c lea rly i s . Un d e r t h e r e l e a s e , Mi l l e r ’ s c l a i m n e e d o n l y “ a r i s e fr o m” or“r el ate to ” o ne o fthe Gayl or d A cti ons. Beca u se M i l l er w as cou ns el in on e of th ose cas e s , a n d the brea ch -of

arbi tr at i o n c l ai m w as pr edi ca te d o n a fee di spu te a r i sing f r o m th a tl i t i g a t i o n, i ti s a c o v e r e d c l a i m. The ne xts ub- i ss ue

— deter m i ni ng wh etherthe re l eas e is leg ally va lid

— i s the tr i cki ero fthe two. S ecti on 1 05 of T itl e 11 au th orizes a bank rup tcy cou rt to “issu e any order, proce ss, o r j ud gm ent that i s nec ess ar y o r approp ria te to carry out the provi si ons of[ the b ankr up tcy code]

. ” 1 1 U. S
. C. § 1 05 ( a)
. Thi s “r esi d ua l au th o r i ty ” i s co ns i st en t w ith a b an kr u p tc y c ou rt ’s “ tr ad itio n ally br oa d ” e q u ita b le p ow er s, In reAi r adigm C om m . , Inc. , 5 1 9 F
. 3 d 6 4 0 , 65 7 (7t h C ir. 20 08 ), w h i c h als o m ak e a n ap p ea ra n c e w ith in th e c on text ofr eor gani zati on pl ans. S i m i l arto § 105, 11 U. S
. C. § 11 23 ( b) ( 6) a l l o ws a c o ur t to i nc l ude i n a pl an“ an y o th era ppr o pr i at e pr o vi si o n n o t i nc ons i st en t w i th the appli cabl e pr ovis i ons of[ the b ankr up tcy co de]

. ” I n Airadigm , w e he ld th at th es e tw o p r o visi o ns

— an d the “r esi du alautho ri ty” to wh i ch they speak

— “p erm it[ ] th e ban k r u p tcy cou rt to rel ease th ird par ti es f r o m l i ab i l i ty to par ti ci pat i ng cr edi to r s ifthe r el ea se i s ‘ap pr o pr i at e’ a nd no t i nc o ns i st en t wi tha ny provi si on o fthe bankr uptcy co de. ” Ai r a d igm , 5 19 F. 3d at 657. The r el eas e in that case

— whi c h s hi e l ded a no nde bt o r fr o m th e c l ai m s o fa c r edi to r o ve r the cre dit or ’ s obj ecti on

— fi t the bill bec ause i t was nar ro w a n d e s s e n t i a l t o th e r e o r g a n i z a t i o n p l a n a s a w h o l e . We16 N o. 08

- 1881

em phasi zed thatthe re l eas e di d not am ount t o “ ‘ bl anket i m m unity’ foral l ti m es, al l tr ansgr ess i ons, and al l o m i ssi ons. ” Id. Ra th er, i t appl i ed “on ly to c l ai m s ‘ ar i singo ut o fo r i n c o nne ct i o n wi th ’ the r eor g an i za ti o n i ts el fa nd d [i d] no t incl ud e ‘ w i l l ful m i sco nd uct. ’ ” Id. J us t as i m po rtantl y, w e note d that the thi rd party w oul d no t ha ve parti ci pated w i thout the r el eas e, and its par ti ci pati on w as “e ss en tia l” t o t h e p lan ’s s u c c es s. Id. Ourde ci si o n in Airadigm ech oed the Sec ond Circu it’ s ea r l i err ul i ngi n M et rom edia , the c as e rel i ed o n b y the bankr up tcy j ud ge. A l though the S eco nd Ci rcui t r ej ecte d th e r el ea se i n M e t r om e di a, i t hel d that b ankr up tcy cour ts have the a uthor i ty

— i n lim i ted cas es

— to bar nonconse nt ing cr edi tor s fro m sui ng thi rd part i es. M et rom edia , 41 6 F
. 3d at 141. The c ourti denti fi ed si m i l ar c on sid er at ion s a n d , l ike u s, p re ac h ed ca u tio n . Seei d. at 143 ( “A nondebto r re l eas e in a plan ofr eor gani zati on sh oul d no t be approve d absent the fi nd i ng that tr u ly u n u s u a l c i r c u ms t a nc e s r e nd e r t he r e l e a s e t e r ms i m port ant t o suc c es s o fthe pla n . . . . ”)
. A nondebto r r el ea se s ho ul d o nly be a ppr o ve d i n “ r ar e ca se s, ” th e cour t expla i ned, bec ause i t i s “ a devi ce that l ends i tse l fto abuse. ” Id. a t 14 1, 1 42
. Thi s i s es pec i al ly tr ue whenthe re l eas e pr ovi des bl anketi m m unity: “In f orm , i t i s a re lea se ; i n effect, i t m ay oper ate as a bankr up tcy discharg e a rr anged witho ut a filing and w i thout the s afeguar ds ofthe Code. ” Id. at14 2. I n thi s ca s e , h o we v e r, the r e l e a s e do e s n o tp r o v i de bl an k eti m m uni ty
. As in Airadigm

— and i n contr astto M et ro m edia

— i t i s na r r o wl y t ai l o r ed an d c r i ti ca l t o theN o. 08

- 1881 17 pl ana s a whol e. The r el ea se on lyc o ve r s cl ai m s ar i sing fro m or r ela tin g t o t w o c as es (th e G ay lord A c tio n s), so it i s f arfro m a full

- fl edged “bank ruptcy disc harg e ar ra nged w i thout a fi l i ng and w ith ou t the sa feguar ds of th e Code

. ” The Ga y l o r ds ca n s ti l l b e su ed bya ny num bero fcr edi tor s with i nd ependent cl ai m s. Just a s i m port antl y, the bankr upt c y c ourtf ound that the r el eas e w as an “e ss enti alco m ponent” o fthe pla n, the f rui t o f “l ong- ter m nego ti ati ons” and achi eve d by the exch an ge o f“ g o o d a nd v a l uab l e c o ns i de r a t i o n” b y the Ga y l o r ds that “w i l l enabl e unsec ured cr edi tor s t o re ali ze dist r ib u t i o n i n th i s c a s e . ” Aft e r r e v i e wi n gth e r e c o r d , we agr ee. On the other hand , we ackno w l edge t h at this i s no t a straight forw ard a p p li cation of A i r a d ig m a nd M et rom edia

. Those c ase s were differ ent in that the pl ans s hi eld ed no nde bt o r s f r o m s ui t byc r edi to r s o fthe b an k r upt
. As the bankr up tcy cour t s ta te d , the cas e be f or e us i s o ne st ep re m ove d

— the Gayl or ds are n on debtor s, but M i l l eri s no t a c re d ito r of In ge rs oll. B u t w e d on ’t t h in k t h at is di spo si ti ve whenthe p artywho se c l ai m was e xt i ngui shed re cei ved f ai r noti ce an d an opportunity t o obj ect. A nd ther e i s no thi ng i n the bankr up tcy code that t el ls us otherwis e. Yet, i t i s i m port ant to note i n al l thi s w h at w e are not saying. W e ar e n ot saying th at a ban krup tcy p lan p urport i ng to r el eas e a cl ai m l i ke M i l l er ’ s i s a l w ays

— orev en n or m ally

— va lid . In th e u n iq u e c irc u m st an c e s o f th is case , however, w e b elie ve i t i s. W e g o no furtherthan to a ppl y the r ul e we a do pte d i n Airadigm to the f acts at18 N o. 08

- 1881

The m oti on to i nter vene fil ed by trust ee Chri st oph er G. Bryan 2 is denied as m oot. B ry a n o nly s oug ht t o int ervene t o fil e a m oti on to dis m is s the app eal because he feared reversal wo u ld di s ru ptthe ban kr upt c y pl an. Si nc e we m ai nt ai n the statu s qu o, B ry an effectiv ely ge ts w ha t he w an ts.

4- 15- 09 h an d . In m os t in st an c es , relea se s l i k e t h e o n e h er e w ill not pass m usterunder that r ule

. Bankruptcy l itig ants sh o ul d k ee p tha t i n mi nd whe n the y s it do wn atthe nego ti ati ng tabl e. B u t p e rh ap s t h er e is a b ro ad er les so n in t h is c as e, a l e s s o n f o r l i t i g a nt s o f a l l t y pe s : Go o d a dv o c a c y do e s not exi st i n a v acuum ; i t m ust be bal anced w i th a w i l l i ngness to com prom i se, to behav e r eas onabl y, an d , so m etim es, to leav e w ellenou gh alone. I f th ese cou nt erw ei ghts ar e negl ecte d, thi ngs can get ugl y i n a hurr y. T h is c as e illu s t r a t e s th e p oin t. W h at st ar te d as a sim p le fee dispute ended as a m ult i

- yea r, m u lti-co urt m onst er that, as f aras we can te l l, bene fi tte d no one

. Bai se & M i l l erhad a num bero fo pp or tuni ti es to avo i d thi s r esul t. The j ud gm ent o fthe dist ri ct c ourti s A FF I R MED. 2