In the

United States Court of Appeals

For the Seventh Circuit

No. 07-1973

ALEX D. MOGLIA, Trustee for

Outboard Marine Corporation and

related debtors,

Plaintiff-Appellant,

v.

PACIFIC EMPLOYERS INSURANCE COMPANY,

INDEMNITY INSURANCE COMPANY OF

NORTH AMERICA, and ACE AMERICAN

INSURANCE COMPANY,

Defendants-Appellees.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 05 C 1366—Milton I. Shadur, Judge.

ARGUED OCTOBER 24, 2008—DECIDED NOVEMBER 6, 2008

Before EASTERBROOK, Chief Judge, and POSNER and

ROVNER, Circuit Judges.

EASTERBROOK, Chief Judge. Pacific Employers and two

other insurers issued policies to Outboard Marine Corpora-
2 No. 07-1973

tion covering workers’ compensation, automobile

liability, and general liability. These policies (which the

parties call “program agreements”) require Outboard

Marine to post irrevocable letters of credit as security

for its obligations to pay premiums and reimburse the

insurers for specified outlays.

After Outboard Marine entered proceedings under

Chapter 7 of the Bankruptcy Code, its Trustee filed an

adversary action against the insurers. The Trustee contended that the letters of credit give the insurers more

security than they are entitled to, and he asked the bankruptcy court to order the insurers to release these letters

to the extent of the excess. The insurers denied that the

letters of credit give them too much security, and they

also invoked clauses in each policy that require

Outboard Marine to arbitrate disputes arising out of the

policies. The Trustee resisted, but in October 2003 Bankruptcy Judge Squires granted the insurers’ motions to

stay the adversary proceeding and compel arbitration.

Five years have gone by, and the arbitration has yet to

get under way. The Trustee decided to undermine the

bankruptcy court’s order by refusing to cooperate. The

arbitrators saw that the Trustee was being difficult, and

they thought it prudent to protect themselves by

requiring the parties to sign a hold-harmless agreement

that not only forbids suit against the arbitrators (a contractual supplement to the immunity that arbitrators

enjoy at common law, see Tamari v. Conrad, 552 F.2d 778,

780 (7th Cir. 1977)) but also requires indemnification of

arbitrators sued in the teeth of that immunity, should they
No. 07-1973 3

incur legal expenses to defend themselves. Rules of the

American Arbitration Association, under which the

arbitration was being conducted, allow arbitrators to

require the parties to make hold-harmless promises.

The insurers signed; the Trustee refused. He asserted

that the indemnity clause would create an unwarranted

contingent claim against the bankruptcy estate. The

Trustee then asked Judge Squires to rescind the arbitration

order, which he did, stating that “if the trustee doesn’t

want to grant [indemnity] for the exercise of his business

judgment, . . . that is, I think, a matter within his discretion.” The bankruptcy judge did not cite any legal authority for the proposition that a Trustee may thwart arbitration by unilateral refusal to cooperate.

The insurers appealed to the district court, which

reversed. 365 B.R. 863 (N.D. Ill. 2007). The district judge

explained that Outboard Marine had promised to

arbitrate and that the Trustee must take any steps

required to fulfill that promise. The district judge

directed the Trustee to sign the hold-harmless agreement

and proceed with the arbitration; the matter was

remanded to the bankruptcy court to be held in abeyance

until the arbitration had been completed.

In this court the Trustee insists that the hold-harmless

agreement would create a contingent claim against the

estate. Why that should matter is obscure. The obligation

to pay the arbitrators creates a direct claim against the

estate; why should a contingent claim arising from the

same pre-bankruptcy contract be worse? The size of this

claim surely is small: Unless someone sues the arbitrators
4 No. 07-1973

there will be no outlay. The probability of suit is minuscule, and the legal fees needed to fend off frivolous litigation also are small. It is hard to see how the actuarial

value of this contingent claim could exceed $100. Yet the

Trustee has spent many thousands of dollars in legal fees,

and delayed this case by five years, to avoid a trivial

chance of exposure to a modest claim. That’s a sign of

irrationality; no wonder the arbitrators thought that

they needed extra protection.

The Trustee also maintains that the policies, as

executory contracts, were automatically rejected under

11 U.S.C. §365(d)(1) when they were not assumed within

60 days after the bankruptcy began, and that rejection

enables the estate to avoid all of Outboard Marine’s

promises, including the promise to arbitrate. The insurers

acknowledge that this is so if the policies have been

rejected, but they interpret the Trustee’s argument as an

attempt to avoid only Outboard Marine’s obligations

under the policies, while holding the insurers to their

own—in other words, to get back the security while

leaving the insurers exposed to future claims for indemnity.

If the policies have been rejected, then they are

cancelled. There will be no future indemnity, any more

than a tenant could “reject” a lease while continuing to

occupy the premises rent-free. A Trustee can’t have

things both ways. After rejection, the bankruptcy court

rather than an arbitrator should settle accounts between

Outboard Marine and the insurers—for rejection does not

avoid the debtor’s obligations but simply replaces specific
No. 07-1973 5

performance with damages. See Douglas G. Baird, Elements

of Bankruptcy 130–40 (4th ed. 2006); Michael T. Andrew,

Executory Contracts in Bankruptcy: Understanding “Rejection",

59 U. Colo. L. Rev. 845 (1988). Damages then may be

written down according to their priority vis-à-vis

other claims against the estate.

Whether these policies have been rejected, or the arbitration clause otherwise avoided, is a question that we

may decide only if the appeal is within our jurisdiction.

And it is not. The district judge remanded for further

proceedings. That makes the decision interlocutory

and non-appealable. See In re Comdisco, Inc., 538 F.3d 647

(7th Cir. 2008).

This conclusion is fortified by the nature of the remand:

for a stay of proceedings pending arbitration. A proarbitration decision, coupled with a stay (rather than a

dismissal) of the suit, is not appealable. See Green Tree

Financial Corp. v. Randolph, 531 U.S. 79, 87 n.2 (2000).

Indeed, 9 U.S.C. §16(b) positively forbids appeal. It says

that “an appeal may not be taken” from an order

staying litigation in favor of arbitration “[e]xcept as

otherwise provided in section 1292(b) of title 28”, which

allows appeal of controlling questions by joint

permission of the district and appellate courts. Other

possible sources of appellate jurisdiction, including 28

U.S.C. §158(d) (final decisions in bankruptcy), §1291 (final

decisions in civil suits), and §1292(a) (injunctions), are

superseded for orders to arbitrate.

According to the Trustee, the district judge’s order to

sign the hold-harmless promise is an injunction, which
6 No. 07-1973

may be appealed under §1292(a); the Trustee contends

that we may review the arbitration order under the doctrine of “pendent appellate jurisdiction.” This line of

argument is full of holes.

The order to sign the hold-harmless promise is no

more an “injunction” than is the order to arbitrate itself.

Judges routinely direct parties to do things—provide

discovery, make witnesses available for medical exams,

pay arbitrators, draw up plans for compliance with some

legal obligation—without thereby entering injunctions

that may be immediately appealed.

An injunction is an order of specific performance on

the merits, a remedy for a legal wrong. An order “to do”

in the course of litigation is not an injunction unless it

effectively resolves the merits in a way that would escape

review later. See, e.g., Gulfstream Aerospace Corp. v.

Mayacamas Corp., 485 U.S. 271, 279 (1988); In re Springfield,

818 F.2d 565 (7th Cir. 1987). Treating case-management

orders as injunctions would permit not one appeal per

suit, but dozens, and make a mockery of the final-decision

requirement. It would allow litigation to be dragged out

interminably, as this has been—for although Outboard

Marine entered bankruptcy in 2000, resolution of the

parties’ substantive dispute has yet to begin! Arbitration

is supposed to be a quick and cheap substitute for

litigation (gaining the benefits of expertise in the process,

since many arbitrators are specialists), yet the Trustee

has succeeded in multiplying the time and expense required.

If the order to sign were an injunction, still §16(b) would

forbid appeal. The only exception to §16(b) is an appeal
No. 07-1973 7

by permission under §1292(b), and that section does not

help the Trustee. (The district judge did not certify his

order for appeal under §1292(b).) As for the collateralorder doctrine, see Cohen v. Beneficial Industrial Loan

Corp., 337 U.S. 541 (1949): this elaborates on the phrase

“final decision” in 28 U.S.C. §1291, and §16(b) prevents

litigants from using §1291 to get review of orders

staying litigation in favor of arbitration.

Even if all of this were wrong, the doctrine of “pendent

appellate jurisdiction” would not permit us to review the

order to arbitrate. Section 16(b) blocks resort to that

doctrine, in common with all sources of appellate jurisdiction other than §1292(b). So we held in IDS Life Insurance

Co. v. SunAmerica, Inc., 103 F.3d 524, 528 (7th Cir. 1996).

What’s more, pendent appellate jurisdiction is a discretionary doctrine, and judges ought not use discretion to

get ’round statutes such as §16(b). Although the Trustee

is right to say that Swint v. Chambers County Commission,

514 U.S. 35, 43–51 (1995), left open the possibility that

appellate courts might assert pendent appellate jurisdiction, “the Court made clear that only the most extraordinary circumstances could justify the use of whatever

power the courts of appeals possess—and that even

when circumstances are exceptional the availability of

pendent appellate jurisdiction is doubtful.” McCarter v.

Retirement Plan for American Family Insurance Group, 540

F.3d 649, 653 (7th Cir. 2008).

Since Swint the Justices have approved the use of pendent appellate jurisdiction only once. They deemed the

President’s status as a defendant a compelling circum-
8 No. 07-1973

stance. See Clinton v. Jones, 520 U.S. 681, 707 n.41 (1997). But

the Trustee of Outboard Marine Corporation is not the

President, and there is nothing extraordinary about this

commercial litigation. Pendent appellate jurisdiction

would not be available even if §16(b) were not an independent bar to its use. Although National Railroad

Passenger Corp. v. Expresstrak, LLC, 330 F.3d 523 (D.C. Cir.

2003), and Quackenbush v. Allstate Insurance Co., 121 F.3d

1372 (9th Cir. 1997), invoke “pendent appellate jurisdiction” to review mundane arbitration orders, those decisions go in the teeth of both Swint and §16(b). We shall

adhere to IDS Life Insurance.

It is long past time to carry through with the arbitration

that was ordered in 2003. Whether or not the contract

has been rejected, the Trustee must stop dragging his

heels. If the arbitration ends in the insurers’ favor, the

Trustee will be entitled to renew in the bankruptcy court

his argument that the policies have been rejected. The

Trustee’s intransigence has greatly increased the insurers’ costs of litigation. The policies contain feeshifting clauses. The bankruptcy judge may think it

prudent to consider, once the arbitration has been completed, whether any attorneys’ fees awarded under these

policies should be borne by the Trustee personally rather

than by the creditors of Outboard Marine. See Maxwell

v. KPMG LLP, 520 F.3d 713, 718–19 (7th Cir. 2008).

The appeal is dismissed for want of jurisdiction.

11-6-08