In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 01-3057

IN RE: WILLIAM L. HALL,

Debtor-Appellee.

APPEAL OF: ENODIS CORPORATION

____________

Appeal from the United States District Court 

for the Northern District of Indiana, Hammond Division.

No. 01 C 20—Allen Sharp, Judge.

____________

ARGUED JANUARY 14, 2002—DECIDED SEPTEMBER 18, 2002

____________

Before POSNER, RIPPLE, and DIANE P. WOOD, Circuit

Judges.

DIANE P. WOOD, Circuit Judge. Only four months after

filing for relief under Chapter 11 of the Bankruptcy Code,

William L. Hall filed a motion to dismiss his petition. One

of his creditors, Enodis Corporation (to which we will refer

by its former name, Welbilt) believed that Hall had abused

the bankruptcy process and accordingly asked the bankruptcy court to take the extra steps of making the dismissal one with prejudice and awarding monetary sanctions

against Hall. The bankruptcy court promptly granted the

motion to dismiss, but it reserved the right to modify the

dismissal in accordance with Welbilt’s motion if the facts

warranted such an action. After an evidentiary hearing, the
2 No. 01-3057

bankruptcy court denied Welbilt’s requests; the district

court affirmed. Finding no abuse of discretion, we in turn

affirm the decision of the district court. 

I

Consolidated Industries Corporation (Consolidated), a

manufacturer and retailer of residential furnaces in

Lafayette, Indiana, was once a subsidiary of Welbilt. Among

the furnaces it designed and manufactured were two

similar horizontal furnaces. In 1994, it became involved in

costly and lengthy class action litigation over horizontal

furnaces manufactured between 1982 and 1989. See Salah

v. Consolidated Indus., Inc., CV 738376 (hereinafter the

Salah action). By May 1995, Consolidated’s furnace design

was also under investigation by the Consumer Product

Safety Commission.

Many people might not want to purchase a company

embroiled in so much controversy, but Hall was not one of

them. In 1998, after several years of negotiation, Hall

purchased Consolidated from Welbilt, becoming its sole

shareholder. As a part of this purchase, Consolidated took

out a loan from FINOVA Capital Corporation (FINOVA), a

commercial lender, for $7.5 million, and Hall personally

guaranteed the debt. Under the terms of the sale, Consolidated assumed the ultimate risk of loss on all tort litigation,

although Welbilt continued its existing insurance coverage.

Approximately four months after the purchase, on May

28, 1998, Consolidated filed a Chapter 11 petition. Consolidated claimed that it could not afford the time and litigation expense of the Salah action. Furthermore, Consolidated was also involved in a number of other lawsuits,

including one that it had filed against some 24 insurance

companies concerning coverage for the defective furnaces,

and one against Welbilt and associated parties claiming

that Welbilt was responsible for Consolidated’s debts and
No. 01-3057 3

that various frauds and breaches of fiduciary duty had

occurred. Hall also had an individual action against the

Welbilt parties. At the time of the bankruptcy filing, Consolidated’s largest outstanding debt was the remaining $4.5

million due on the FINOVA note. 

Before the Consolidated bankruptcy proceeding was completed, Hall filed a personal Chapter 11 petition in which he

claimed that his outstanding debt was approximately $5.1

million. That number reflected Hall’s direct debts as well as

his exposure through his guarantee of Consolidated’s debt.

The petition automatically stayed all litigation against Hall

(much of which had to do with Consolidated) and prevented

any attempts to commence collection of debts from Hall. 11

U.S.C. § 362. The bankruptcy court scheduled a mediation

designed to resolve all of the claims against Hall, but it was

unsuccessful because Hall could not persuade the insurance

companies to contribute to a comprehensive settlement

(that also would have resolved Consolidated’s bankruptcy).

FINOVA then stated that it would not renew the Consolidated loan agreements, which naturally affected Consolidated’s ability to secure additional loans. Without the cooperation of FINOVA and the insurance companies, Hall

realized there could be no “global” reorganization of his

personal assets. At that point, he filed the motion to dismiss

the Chapter 11 action that led to the present dispute.

Welbilt responded by filing a cross motion to dismiss with

prejudice along with a request for costs and attorneys’ fees.

It argued that Hall had filed his bankruptcy petition in bad

faith. According to Welbilt, the record showed that Hall’s

personal liabilities were actually zero at the time of his

filing, and so there was no basis for claiming protection

under the bankruptcy laws. Furthermore, Welbilt claimed,

the fraud action that Hall had filed against Welbilt prior to

the bankruptcy was meritless. Welbilt also argued that Hall

had filed the bankruptcy petition for the impermissible

purpose of slowing down the resolution of the fraud case.
4 No. 01-3057

Finally, Welbilt argued that Hall had engaged in other

sanctionable conduct. For instance, it alleged that Hall

provided FINOVA with a false affidavit to induce it to lend

him the $7.5 million; Hall committed perjury in the Consolidated bankruptcy proceeding by lying about a prior bankruptcy in 1990; and Hall committed perjury by filing a

complaint in his own bankruptcy proceeding, in which he

claimed that Welbilt violated the automatic stay and a

bankruptcy court order. Welbilt maintained that this conduct, individually and cumulatively, amounted to an abuse

of the bankruptcy process and rendered appropriate both

monetary sanctions and a dismissal with prejudice.

II

No one is claiming that Hall’s personal bankruptcy petition should not have been dismissed. The only question is

whether there should have been punitive elements to that

dismissal, by making it with prejudice and ordering sanctions. We review the bankruptcy court’s finding that Hall

did not act in bad faith for clear error, Covey v. Commercial

Nat’l Bank of Peoria, 960 F.2d 657, 662 (7th Cir. 1992), and

its dismissal of the bankruptcy petition for an abuse of

discretion, In re Leavitt, 171 F.3d 1219, 1223 (9th Cir.

1999). Normally, a dismissal of a bankruptcy petition has

no long-term consequences for the debtor’s ability to re-file.

Umbenhauer v. Wong, 969 F.2d 25, 30 (3d Cir. 1992). There

is an exception, however, if the court “for cause” orders that

the dismissal of the case is with prejudice. See 11 U.S.C.

§ 349(a). In that instance, the order may either bar the later

dischargeability of debts that would have been dischargeable in the dismissed proceeding, or it may preclude the

debtor from filing a subsequent petition related to those

debts. Id. Dismissals with prejudice are therefore generally

reserved for extreme situations, such as when a debtor

conceals information from the court, violates injunctions,
No. 01-3057 5

files unauthorized petitions, or acts in bad faith. Id.; In re

Tomlin, 105 F.3d 933, 937 (4th Cir. 1997) (filing six bankruptcy petitions in seven years); In re Martin-Trigona, 35

B.R. 596, 601 (Bankr. S.D.N.Y. 1983). 

Welbilt argues that Hall is exactly the kind of debtor that

a dismissal with prejudice was designed for. According to

Welbilt, Hall used the bankruptcy process to manipulate

the course of the other lawsuits with which he and Consolidated were enmeshed, and that his bad faith was patent.

Hall’s sole motive for filing the Chapter 11 petition, in

Welbilt’s view, was to “slow down” meritless litigation in

which he was a plaintiff. But there are some immediate

problems with Welbilt’s position. Much of that litigation

involved Consolidated or Hall as a plaintiff, and the

automatic stay of 11 U.S.C. § 362 does not apply to suits by

the debtor. See Maritime Elec. Co. v. United Jersey Bank,

959 F.2d 1194, 1204 (3d Cir. 1991); Martin-Trigona v.

Champion Fed. Sav. & Loan & Ass’n, 892 F.2d 575, 577

(7th Cir. 1989). On the other hand, “[a]ll proceedings in a

single case are not lumped together for purposes of automatic stay analysis.” Maritime Elec. Co., 959 F.2d at 1204.

Thus, while the bankruptcy filing did not automatically stay

Hall’s own actions, nor did Hall’s personal filing have

any effect on Consolidated’s suits, Welbilt’s counterclaim

against Hall (which it was admittedly aggressively pursuing) and the Salah action were automatically stayed. A

greater problem with Welbilt’s position here is that the

bankruptcy court believed Hall’s explanation for his course

of action. Hall repeatedly testified that he filed the bankruptcy petition in an attempt to achieve a “global settlement.” That is a common motive for debtors, not one that

immediately raises concerns about bad faith.

Hall was attempting to gather before one court parties

that represented both his and Consolidated’s liabilities (as

to which he definitely had a personal stake stemming from

his guarantee) as well as their potential assets, permitting
6 No. 01-3057

a discussion among parties whose claims were interrelated.

The starkest example of the entanglement between Hall

and Consolidated’s financial success was that Consolidated’s largest liability, the remaining $4.5 million debt to

FINOVA, was personally guaranteed by Hall. While it is

true that a debtor does not have to file bankruptcy to

negotiate with creditors, as Hall explained at argument, the

global settlement was merely the method he was trying to

use to achieve a critical purpose—settling the FINOVA

debt. Undoubtedly Hall hoped that one of his potential

assets at the settlement table, Consolidated’s claim against

the insurance companies, or even the claims against Welbilt, could help in resolving that debt.

We do not find this strategy so far out-of-bounds that the

bankruptcy court was required as a matter of law to label

it as bad faith. To the contrary, Chapter 11 is normally used

to restructure or achieve a financial settlement with creditors and potential creditors. Although Welbilt may have

been frustrated by this tactic, particularly considering that

the global settlement failed, there is no evidence that Hall

used the settlement to frustrate creditors or even that it

failed because of Hall; both parties maintain that the settlement failed when the insurance companies refused to

contribute any funding for the settlement. Cf. In re MartinTrigona, 35 B.R. 596, 602 (dismissed with prejudice after,

among other things, the debtor refused to cooperate in

meeting with creditors). Once it became clear that there

would be no settlement, Hall immediately dismissed his

Chapter 11 proceeding, further supporting his contention

that the purpose for filing the petition was to reach a

settlement rather than prolong meritless litigation. On this

record, we do not believe the district court clearly erred in

finding Hall did not act in bad faith.

Welbilt also claims that Hall’s action was meritless because he was not a true debtor, and instead was a millionaire with potential assets of $7 million, largely based on
No. 01-3057 7

Hall’s fraud claim against Welbilt, and liabilities of only

$5.1 million. In fact, Welbilt insists that Hall was not

actually insolvent, relying on Covey v. Commercial Nat’l

Bank of Peoria, 960 F.2d at 660. In Covey, this court posed

the following question for courts when defining insolvency

in the bankruptcy code: “What would a buyer be willing to

pay for the debtor’s entire package of assets and liabilities?”

Because Hall paid over $7 million for Consolidated approximately four months prior to filing Consolidated’s Chapter

11 petition, Welbilt maintains that neither Consolidated

nor Hall by definition may be insolvent. Welbilt is overreading Covey. Covey does not stand for the proposition that

as a matter of law companies that command a positive sum

on the market are always and forever solvent. Four months

after Hall purchased it, Hall caused it to file its own

Chapter 11 proceedings, indicating either that Hall had

sorely misjudged the company when he bought it, or that

Consolidated had suffered a terrible four months. Nothing

in Covey holds that Consolidated, or Hall for that matter,

could not have had a negative net worth in those circumstances.

Furthermore, contrary to Welbilt’s assertion that Hall

was really rolling in money when he filed his personal

bankruptcy petition, the record can support the opposite

conclusion. At the time Hall filed, he faced $4.5 million in

contingent liabilities, the payment of which depended on

Consolidated’s successful resolution of its own Chapter 11

case. Hall’s personal worth was intimately tied up with

Consolidated’s fortunes, and both looked grim.

This case also differs from Covey in that the liabilities as

well as the assets are contingent and both must be discounted accordingly. In re Xonics Photochemical, Inc., 841

F.2d 198, 200 (7th Cir. 1988). We are not saying that legal

claims are not assets, see In re Polis, 217 F.3d 899, 903 (7th

Cir. 2000), only that they are contingent assets whose value

must be assessed in light of the probability that they will
8 No. 01-3057

be realized. Even if the Welbilt actions were pending, there

would still only be a possibility that Hall would have

emerged victorious in the lawsuit and received a $7 million

award. Indeed, Welbilt maintained throughout its brief that

the fraud actions Consolidated and Hall commenced against

it were entirely without merit. Presumably this means that

Welbilt places the value of the plaintiffs’ “assets” in the

lawsuit near zero.

Suppose, however, that Welbilt believed that Hall had

even a 10 percent probability of success. In that case, we

would discount the $7 million by 90 percent. The value of

the contingent asset would then be $700,000—the total

claim times the probability that it could occur. If Hall’s

assets could be as little as $700,000 or even zero, then it is

possible (indeed, likely) that his potential liabilities would

ultimately outweigh his assets. Moreover, as we already

noted, the $7 million purchase price reflected only the

market value of Consolidated at the time of Hall’s purchase,

not what it was worth later on, when Hall filed his bankruptcy petition. In today’s world, it should go without

saying that the value of a company can fluctuate in a short

period of time—sometimes dramatically. Although we

would have to discount Hall’s potential liabilities as well,

they might carry a smaller discount rate given that Hall

had personally guaranteed a debt that was dischargeable

for Consolidated because of Consolidated’s bankruptcy. Of

course the likelihood that Hall would not ultimately be

responsible for the $4.5 million debt would increase if

Consolidated reorganized and survived its financial woes.

Welbilt has one more important arrow in its quiver,

however. Hall, it argued, committed perjury in one of the

Welbilt cases. Specifically, Hall testified falsely in a deposition in Consolidated v. Welbilt, about whether he had

previously filed for bankruptcy in 1990. Hall even lied about

the earlier bankruptcy to FINOVA when he first secured

the loan to purchase Consolidated. Such behavior, it as-
No. 01-3057 9

serts, is reprehensible (as well as illegal) and cries out for

severe sanctions. Neither the bankruptcy court nor the

district court disagreed with the general thought that

perjury is highly undesirable behavior. But the question is

whether those courts abused their discretion when they

refused to give the particular remedies that Welbilt was

seeking here. Although they certainly might have come to

the opposite conclusion, we cannot find an abuse of discretion in the decision not to grant Welbilt’s motions here.

Although a district court may dismiss a bankruptcy petition

with prejudice because of a debtor’s perjury, see 11 U.S.C.

§ 727(a)(4)(A), dismissal with prejudice is not invariably

required. To warrant dismissal with prejudice, the false

oath must be material. In re Senese, 245 B.R. 565, 574

(Bankr. N.D. Ill. 2000). Hall’s false statements to FINOVA,

or even in the Welbilt deposition, did not relate to his

disclosure regarding the amount or location of his assets or

liabilities in this bankruptcy. See In re Charfoos, 979 F.2d

390, 392 (6th Cir. 1992). Moreover, his prior bankruptcy

had no bearing on his ability to file the present bankruptcy

petition. Under § 727(a)(8) of the Bankruptcy Code, Hall

had to wait at least six years between the petition dates. He

waited even longer than that: his current bankruptcy petition was filed after almost eight years. 

On this record, we cannot find that the district court

abused its discretion when it refused to dismiss the petition

with prejudice. The district court reasonably could have

concluded that Hall’s conduct, while hardly admirable, was

not the sort of egregious conduct that warranted dismissal

with prejudice.

III

In light of our finding that the district court did not abuse

its discretion in failing to dismiss with prejudice, we also

find that it did not abuse its discretion in refusing to award
10 No. 01-3057

monetary sanctions covering Welbilt’s attorneys’ fees and

costs. Although a district court is authorized to sanction a

party by requiring her to pay costs and attorneys’ fees, In re

Volpert, 110 F.3d 494, 499-500 (7th Cir. 1997), it is not

required to award them if it determines the party did not

abuse the bankruptcy process. That is what the court

decided here. It was therefore entitled to refuse Welbilt’s

demand for monetary sanctions.

We AFFIRM the decision of the district court.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-97-C-006—9-18-02