Page 13 - John Hundley 2009

Sharp Thinking

No. 22 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. July 2009

Bankruptcy Court Can Release Third

Parties’ Claims, Seventh Circuit Says

By David J. Grindle, Dgrindle@lotsharp.com, 618-242-0246
The Seventh Circuit Court of Appeals in Chicago has given a boost to the “broad equitable powers” of
the nation’s bankruptcy courts and to those courts’ ability to enter “any order, process, or judgment that is
necessary or appropriate to carry out the provisions of” the Bankruptcy Code.

Indeed, In re Ingersoll, Inc., 562 F.3rd 856 (7th Cir. 2009), holds that the Bankruptcy Code gives
bankruptcy courts the authority to issue orders binding on non-debtors and non-creditors when
necessary to further a bankruptcy reorganization plan.

The background for the ruling is lengthy, but likely relevant to the result. In 2001, outside directors
allegedly masterminded a sale of Ingersoll Cutting Tool Co. (ICTC), long a
family-owned business, to a foreign company. To prevent the sale, the family
consulted an attorney, Miller, who advised seeking an injunction in Delaware
with a Delaware attorney, Margules, also involved. The family orally agreed to
pay Miller $100,000, understanding Margules would be paid from that sum, but
Miller then sent it a proposed agreement for a fee of $100,000 plus a contin-
gency amount. The family refused to sign, but the lawyers filed the injunction
case anyway. After Margules decided he was doing too much work and asked
for more money, Miller decided the family should pay $250,000. The family
agreed so long as that was the cap, but the agreement was not reduced to
writing. The suit failed, and the lawyers submitted a bill of almost $390,000,
claiming the $250,000 was not a cap but a retainer deposit toward hourly rates.
The family paid part of the additional sum but refused to pay the rest. Grindle
Miller sued in the District of Columbia, where he practiced, and the action was stayed while the parties
arbitrated the matter before an Attorney/Client Arbitration Board. The Board failed to decide a number of
questions clearly, with the result that Miller argued to the D.C. court that the ruling meant the family owed
him more money. The D.C. court agreed and ordered the family to pay Miller an additional $89,000. The
family paid that amount in order to end the litigation, or so they thought.
Margules then sued the family in Delaware for $60,000 that Miller failed to pay
him. That court ruled that the fee contract was between the family and Miller and
was capped at $250,000. It said Margules had to look to Miller for his fees.
Meanwhile, the sale was completed. ICTC had accounted for 90% of the profit
of a parent company, which the family continued to own and which now could not
pay its creditors. The parent and its remaining subsidiaries filed for Chapter 11
bankruptcy, and when the plan was confirmed it released family members from all claims arising out of
certain actions, which included the injunctive case filed by Miller and Margules. Miller received notice of

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Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
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