Monarch Life Insurance v. Ropes & Gray

November 22, 1995 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 94-2173

MONARCH LIFE INSURANCE COMPANY, ET AL.,

Appellants,

v.

ROPES & GRAY,

Appellee.

No. 94-2200

MONARCH LIFE INSURANCE COMPANY, ET AL.,

Appellees,

v.

ROPES & GRAY,

Appellant.

ERRATA SHEET

The opinion of this Court, issued September 13, 1995, is amended
as follows:

p.9, 1, l.14: "(Bankr. D.D.C. 1992))." in place of "(Bankr. D.
Colo. 1992))."

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 94-2173

MONARCH LIFE INSURANCE COMPANY, ET AL.,

Appellants,

v.

ROPES & GRAY,

Appellee.

No. 94-2200

MONARCH LIFE INSURANCE COMPANY, ET AL.,

Appellees,

v.

ROPES & GRAY,

Appellant.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Frank H. Freedman, Senior U.S. District Judge]

Torruella, Chief Judge,

Cyr and Stahl, Circuit Judges.

3

Bruce E. Baty, with whom Christopher D. Schneider, Morrison &

Hecker, Charles K. Bergin, Jr., and Robinson, Donovan, Madden & Barry,

P.C. were on brief for Monarch Life Insurance Company.

John K. Villa, with whom Nicole K. Seligman, Philip J. Deutch,

Williams & Connolly, Charles S. Cohen and Egan, Flanagan and Cohen,

P.C. were on brief for Ropes & Gray.

September 13, 1995

2

CYR, Circuit Judge. Following an unsuccessful
CYR, Circuit Judge.

intermediate appeal to the district court, Monarch Life Insurance

Co. ("Monarch Life") continues to press its challenge to a

bankruptcy court order enjoining its prosecution of a legal

malpractice action in Massachusetts Superior Court against its

former counsel, the law firm of Ropes & Gray. The bankruptcy

court determined that the Monarch Life action violated a

permanent injunction incorporated in the confirmed reorganization

plan of its parent corporation, Monarch Capital Corporation

("Monarch Capital"). We now affirm the district court on the

ground that Monarch Life is collaterally estopped from asserting

a state court challenge to the bankruptcy court's jurisdiction to

enter the permanent injunction incorporated in the confirmed

reorganization plan.

I
I

BACKGROUND
BACKGROUND

Monarch Capital, incorporated as a holding company in

1968, marketed life and disability insurance through Monarch

Life, its wholly-owned Massachusetts subsidiary,1 and developed

real estate through another group of subsidiaries ("real estate

subsidiaries"). Ropes & Gray provided simultaneous legal

representation to Monarch Capital and its subsidiaries, including

Monarch Life. In 1985, Monarch Capital established a Short-Term

1For simplicity sake, "Monarch Life" includes appellants
Springfield Life Insurance Company and First Variable Life
Insurance Company.

3

Investment Pool ("STIP"), a common bank account into which

Monarch Capital's subsidiaries agreed to make daily deposits of

their excess cash balances. The STIP agreement authorized

Monarch Capital to borrow needed funds from the STIP at an

interest rate more favorable than the market rate, and permitted

the subsidiaries to recoup their STIP deposits on demand.

Beginning in 1987, Monarch Capital's real estate

subsidiaries began experiencing serious cash flow problems due to

an abrupt economy-wide decline in real estate values. In order

to prop up its failing real estate subsidiaries, Monarch Capital

began to borrow heavily from the STIP deposits contributed by

Monarch Life. By 1990, Monarch Life's outstanding STIP

"advances" to Monarch Capital approximated $175 million. When

Monarch Life learned the extent of Monarch Capital's borrowings,

it unilaterally cancelled its participation in the STIP. Shortly

thereafter, Monarch Life discharged Ropes & Gray as its counsel.

During that same year, Monarch Capital borrowed an additional

$235 million from a group of financial institutions (hereinafter:

"the 235 Banks"), pledging its capital stock in Monarch Life as

collateral for the loan.

In May 1991, the Massachusetts Insurance Commissioner

placed Monarch Life in receivership. The receiver in turn filed

an involuntary chapter 11 petition against Monarch Capital.

After seven months of negotiation, the principal creditors of

Monarch Capital the 235 Banks and Monarch Life proposed a

plan of reorganization ("Plan"), which purported to settle or

4

release a tangle of "complex" claims and cross-claims held by and

against Monarch Capital, its subsidiaries, and other creditors.

In re Monarch Capital Corp., No. 91-41379-JFQ, slip op. at 9

(Bankr. D. Mass. June 25, 1992).2 These included Monarch Life's

claim that Monarch Capital, acting in concert with the 235 Banks,

had used the STIP to deplete Monarch Life's coffers, thereby

placing Monarch Life in violation of state insurance

regulations.3 In consideration of their mutual agreement to

release claims and to make financial contributions to fund the

Plan, the Plan proponents insisted on the inclusion of a

permanent injunction to protect them from future lawsuits arising

from or related to claims settled under the Plan.

The injunction ultimately included in the order

confirming the Plan provides as follows:

In addition to the discharge provided by
Section 1141 of the Bankruptcy Code and to
supplement the discharge provisions of
Article VI.A of the Plan, this Order
constitutes an injunction against all persons

(other than the FDIC as Receiver) from taking
any of the following actions (other than an

2Ropes & Gray was scheduled as a creditor in the chapter 11
proceeding, but asserted no claim against Monarch Capital.

3The Plan also provided, inter alia, that (1) Monarch

Capital would separate its insurance business (thereby creating
the "Life Group") from its real estate business (thereby creating
the "New Realty Group"); and (2) the 235 Banks would release
their guaranty claims against Monarch Capital's subsidiaries in
connection with the 1990 loan to Monarch Capital, and agree to
share the Monarch Life capital stock which had been pledged as
collateral for the 1990 loan with Monarch Capital's unsecured
creditors. Upon confirmation of the Plan in June 1992, the 235
Banks became Monarch Life's "parent" by acquiring a clear
majority of Monarch Life stock, and Monarch Life emerged from
receivership.

5

action brought to enforce any right or
obligation under the Plan or the Settlement
Agreement):

a. commencement or continuation of any

action or proceeding arising from or

related to a claim against [Monarch

Capital] against or affecting or [sic]
any property of [Monarch Capital], or
any direct or indirect transferee of any
property of, or direct or indirect
successor in interest to, any of the
foregoing . . . ; and

b. commencement or continuation of any

action or proceeding arising from or

related to a claim against the Debtor of

this Chapter 11 case, the [Monarch Life]
Receivership or the operations of the
Debtor against or affecting any of New
Holding Co., New Realty Co., [Monarch
Life], the Agent, the 235 Banks, the
Trustee, the Creditors' Committee (in
such capacity), the [Monarch Life]
Receiver and their respective officers,

directors, employees, attorneys, agents,

successors and assigns other than a
claim to enforce obligations under the
Plan or the Settlement Agreement . . .
.4

Id. at 19-20 (emphasis added).

After a hearing, at which the parties discussed

whether, and to what extent, Bankruptcy Code 105(a)5 empowers

a bankruptcy court to afford permanent injunctive relief which

effectively grants a "discharge" to parties other than the

chapter 11 debtor, the bankruptcy court confirmed the Plan,

4Subparagraphs (a) and (b) each list specific exceptions to
the coverage of the injunction; none are material to this appeal.

5Section 105(a) provides in relevant part: "The court may
issue any order, process, or judgment that is necessary or
appropriate to carry out the provisions of this title." 11
U.S.C. 105(a).

6

including the proposed injunction. See id. at 23-27; see also

infra Appendix at pp. i-iii (containing relevant excerpts from

confirmation order). The bankruptcy court found that absent

prompt confirmation of a chapter 11 plan, Monarch Life likely

would be forced into liquidation. In re Monarch Capital Corp.,

No. 91-41379-JFQ, slip op. at 18. Monarch Life's receiver

elected not to appeal the confirmation order.

Monarch Life soon discovered documentary evidence

allegedly establishing that Ropes & Gray simultaneously

represented both Monarch Capital and Monarch Life in

circumstances which suggested an inherent conflict of interest.

In May 1993, Monarch Life brought suit in Massachusetts Superior

Court, seeking compensatory damages for Ropes & Gray's alleged

participation in Monarch Capital's private strategy to use

Monarch Life's STIP contributions to prop up Monarch Capital's

moribund real estate investments. Monarch Life alleged, inter

alia, that Monarch Capital and Ropes & Gray, in reports to

Massachusetts insurance regulators, deliberately concealed the

nature and understated the amount of the STIP "advances" to

Monarch Capital, thereby exposing Monarch Life and its directors

to civil liability for Monarch Life's violation of Massachusetts

insurance laws which require that insurance companies keep on

hand minimum "admitted assets" to cover extant policies. Monarch

Life further alleged that Ropes & Gray had deliberately concealed

from Monarch Life the ongoing use of the STIP by Monarch Capital

to finance its long-term real estate ventures, as well as the

7

fact that Monarch Capital had no realistic prospect of ever

repaying its STIP "advances" had Monarch Life made demand.6

Ropes & Gray filed a motion for civil contempt against

Monarch Life in the bankruptcy court, claiming that its state

court action violated the injunctive provision in the confirmed

Monarch Capital chapter 11 plan. Following a hearing on the

contempt motion, the bankruptcy court determined that (1) the

Monarch Life action was barred by the broad terms of both

subparagraphs (a) and (b) of the injunction included in the Plan,

see supra p. 6; and (2) the doctrine of res judicata precluded

Monarch Life from attacking the bankruptcy court's "jurisdiction"

to enter the broad-based injunction. Ropes & Gray v. Monarch

Life Ins. Co. (In re Monarch Capital Corp.), No. 91-41379-JFQ, at

6-7 (Bankr. D. Mass. Oct. 15, 1993). The bankruptcy court held

Monarch Life in civil contempt but refused to impose sanctions

because the terms of the injunctive provision in the confirmed

Plan were not "sufficiently specific and definite" to permit a

finding that the violation had been deliberate or undertaken in

bad faith. Id. at 7. On intermediate appeal, the district court

affirmed the bankruptcy court decision. Ropes & Gray v. Monarch

Life Ins. Co. (In re Monarch Capital Corp.), 173 B.R. 31 (D.

6Ropes & Gray responded that (1) Monarch Capital, as the
parent of Monarch Life, had the unfettered legal right to use its
subsidiaries' assets as it wished; (2) Ropes & Gray had not
learned of the STIP advances until 1989, by which time the
outstanding balances were already significant; and (3) in order
to protect Monarch Life's interests, Ropes & Gray at that time
advised Monarch Capital not to "borrow" any additional STIP
funds.

8

Mass. 1994).7

II
II

DISCUSSION
DISCUSSION

Monarch Life contends, as a matter of law, that the

permanent injunctive provision included in the confirmed Plan

cannot extinguish actions against third parties such as Ropes &

Gray, since bankruptcy courts have no "jurisdiction" or power to

"discharge" (1) debts other than those of the chapter 11 debtor,

see Brief for Appellants at 12-16 (citing Bankruptcy Code

524(e), 11 U.S.C. 524(e) ("[D]ischarge of a debt of the debtor

does not affect the liability of any other entity on, or the

property of any other entity for, such debt."); American

Hardwoods, Inc. v. Deutsche Credit Corp. (In re American

Hardwoods, Inc.), 885 F.2d 621, 626 (9th Cir. 1989)), or (2)

debts of any nondebtor such as Ropes & Gray which concededly made

no financial contribution to the Plan, see id. at 16-20 (citing

In re Heron, Burchett, Ruckert & Rothwell, 148 B.R. 665, 687

7The district court relied on slightly different grounds.
First, it determined that it would be unfair to invoke res

judicata against Monarch Life, which honestly believed that the

injunctive provision was not broad enough to bar actions against
parties like Ropes & Gray. Id. at 40-41. The court also ruled

that subparagraph (b) was inapposite because Ropes & Gray was no
longer Monarch Life's "attorney" at the time of the confirmation
hearing. Id. at 43-44. Nevertheless, it concluded that subpara-

graph (a) of the injunction was broad enough to bar Monarch
Life's state court action against Ropes & Gray. Id. at 44-45.

The district court thereupon vacated the order of contempt,
inasmuch as the lack of clarity in the injunctive provision not
only made sanctions unwarranted but also undermined the
bankruptcy court's threshold finding that Monarch Life was a
contemnor. Id. at 46.

9

(Bankr. D.D.C. 1992)).

Ropes & Gray counters that Monarch Life is barred,

under the doctrines of res judicata and judicial estoppel, from

litigating the scope of the bankruptcy court's power because it

not only knowingly failed to appeal from the order confirming the

chapter 11 Plan, but in its announced role as a Plan proponent it

acquiesced in its co-proponents' arguments that the bankruptcy

court possessed broad injunctive powers under Bankruptcy Code

105(a). See Stoll v. Gottlieb, 305 U.S. 165, 172 (1938) (unless

a party in interest objects, and appeals an erroneous ruling by

the bankruptcy court that it had "jurisdiction" to confirm terms

of plan, the ruling is conclusive in subsequent proceedings);

Republic Supply Co. v. Shoaf, 815 F.2d 1046, 1052-53 (5th Cir.

1987) (same); cf. Celotex Corp. v. Edwards, 115 S. Ct. 1493, 1499

(1995) (if bankruptcy court determines that it possesses so-

called "related to" jurisdiction to enjoin under Code 105(a),

and the jurisdictional question remains open for determination,

aggrieved litigant's recourse is by appeal from bankruptcy court

decision, not by collateral attack on bankruptcy court order);

cf. also Maggio v. Zeitz, 333 U.S. 56, 69 (1948) (contempt

proceeding is not appropriate vehicle for attacking validity, or

retrying the merits, of the order contravened by alleged

contemnor).

A. Standards of Review
A. Standards of Review

Although the conclusions of law reached by the

bankruptcy court and the district court are subject to de novo

10

review, the underlying findings of fact by the bankruptcy court

are reviewed only for clear error. Western Auto Supply Co. v.

Savage Arms, Inc. (In re Savage Indus., Inc.), 43 F.3d 714, 719-

20, n. 8 (1st Cir. 1994); In re G.S.F. Corp., 938 F.2d 1467, 1474

(1st Cir. 1991). The applicability vel non of preclusion

principles is a question of law. See, e.g., Gonzalez v. Abreu,

27 F.3d 751, 755 (1st Cir. 1994). Since the judgment (viz., the

order confirming the Plan) was rendered by a federal tribunal

the bankruptcy court see FDIC v. Shearson-American Express

Inc., 996 F.2d 493, 497 (1st Cir. 1993) (bankruptcy court

decisions trigger normal res judicata principles) (citing Katchen

v. Landy, 382 U.S. 323, 334 (1966)), cert. denied, 114 S. Ct.

1054 (1994); see also, e.g., Stoll, 305 U.S. at 170 (finding

bankruptcy court order confirming reorganization plan entitled to

res judicata effect); Eubanks v. FDIC, 977 F.2d 166, 170 (5th

Cir. 1992) (similar), federal preclusion principles apply. See

Blonder-Tongue Lab., Inc. v. University of Ill. Found., 402 U.S.

313, 324-25 (1971); Recoveredge L.P. v. Pentecost, 44 F.3d 1284,

1290 (5th Cir. 1995); Orijas v. Louisiana-Pacific Corp., 31 F.3d

995, 1010 (10th Cir. 1993); Restatement (Second) of Judgments

87. In order to invoke collateral estoppel (issue preclusion),

Ropes & Gray must demonstrate that: (1) both the contempt

proceedings and the confirmation proceedings involved the same

issue of law or fact; (2) the parties actually litigated the

issue in the confirmation proceedings; (3) the bankruptcy court

actually resolved the issue in a final and binding judgment

11

(viz., its confirmation order); and (4) its resolution of that

issue of law or fact was essential to its judgment (i.e.,

necessary to its holding). See Grella v. Salem Five Cents Sav.

Bank, 42 F.3d 26, 30 (1st Cir. 1994); Piccicuto v. Dwyer, 39 F.3d

37,40 (1stCir. 1994);Restatement (Second)of Judgments 27(1982).8

B. Merits of Issue Preclusion Claim
B. Merits of Issue Preclusion Claim

8Monarch Life argues that Ropes & Gray cannot rely on res

judicata principles because it filed no chapter 11 claim and,

therefore, was not a "party" to the chapter 11 confirmation
proceedings. See, e.g., Apparel Art Int'l v. Amertex Enters.

Ltd., 48 F.3d 576, 583 (1st Cir. 1995) (claim preclusion normally

requires "identicality of parties," or at least privity).
Frequently, however, "res judicata" is used more inclusively, to

refer either to claim preclusion or issue preclusion (i.e.,

collateral estoppel). See Grella, 42 F.3d at 30-31 (noting that

basis for bankruptcy court decision was unclear, and observing
that labels "res judicata" and "collateral estoppel" are

less important than substance of parties' argumentation in light
of factual circumstances) (citing Dennis v. Rhode Island Hosp.

Trust, 744 F.2d 893, 898 (1st Cir. 1984)); Railway Labor

Executives' Ass'n v. Guilford Transp. Indus., Inc., 989 F.2d 9,

11 n.3 (1st Cir. 1993) (noting confusion prevailing over same
labels); see also Fiumara v. Fireman's Fund Ins. Cos., 746 F.2d

87, 90 n.1 (1st Cir. 1984) (noting "distinct family resemblance"

between two doctrines). Since Monarch Life seeks to relitigate
only one component "issue" arising from the confirmation order
(viz., the bankruptcy court's jurisdiction or power under
105(a)), the preclusion defense asserted by Ropes & Gray is more
exactly characterized as collateral estoppel ("issue
preclusion").
A party invoking issue preclusion need not show that it was
privy to the first proceeding. See Parklane Hosiery Co. v.

Shore, 439 U.S. 322, 326-28 (1979) (no "mutuality of parties"

rule); Blonder-Tongue Lab., 402 U.S. at 328 (same); Fiumara, 746

F.2d at 92; cf. DiPinto v. Sperling, 9 F.3d 2, 4 (1st Cir. 1993)

(Rhode Island law). It need only show that "the party against

whom issue preclusion will be applied had a fair opportunity to

litigate the issue fully." Kyricopoulos v. Town of Orleans, 967

F.2d 14, 16 (1st Cir. 1992) (Massachusetts law dispenses with
"mutuality" rule) (emphasis added). Of course, even if the
bankruptcy court had based its contempt ruling on claim
preclusion, we would have been free to affirm on any ground
supported by the bankruptcy court record. See La Electronica,

Inc. v. Capo-Roman (In re Electronica, Inc.), 995 F.2d 320, 321

n.1 (1st Cir. 1993).

12

1. "Same Issue"
1. "Same Issue"

We must first identify the precise issue Monarch Life

sought to "relitigate" in its defense against Ropes & Gray's

motion for civil contempt. We have held that Bankruptcy Code

105(a) confers ample power upon the bankruptcy court to enjoin

the initiation or continuation of judicial proceedings in a

nonbankruptcy forum against nondebtors during the pendency of a

chapter 11 case, where the court reasonably concludes that such

actions would entail or threaten adverse "impact" on the

administration of the chapter 11 estate. See In re G.S.F. Corp.,

938 F.2d at 1474. These injunctions serve simply as adjuncts to

the automatic stay, see Bankruptcy Code 362(a), which

ostensibly protects only the debtor and its property from

creditor "grab-law" tactics after the "race to the courthouse."

See Austin v. Unarco Indus., Inc., 705 F.2d 1, 4-5 (1st Cir.),

cert. dismissed, 463 U.S. 1247 (1983). Since the automatic stay

may induce creditors to refocus their recovery efforts upon the

chapter 11 debtor's co-obligors, a temporary injunction is

sometimes needed to protect nondebtors (e.g., a corporate

debtor's principals and managing officers) whose time and energy

should not be diverted to collateral lawsuits and away from the

effort to reorganize the debtor. Like the automatic stay itself,

see Bankruptcy Code 362(c), however, these accessorial

injunctions normally lapse at the latest following

confirmation of the chapter 11 plan and the closing of the

chapter 11 case, leaving the nondebtor co-obligor once again

13

exposed to pursuit by the discharged chapter 11 debtor's

creditors.

The more intricate "jurisdictional" question raised by

the confirmation order and contempt proceedings in this case is

whether Congress intended an outer temporal boundary on the

availability of injunctive relief under Bankruptcy Code 105(a).

Since the chapter 11 debtor is the only entity permanently

discharged upon confirmation of a chapter 11 plan, id. 1141(d),

its creditors usually are free to pursue all available remedies

against those undischarged entities which were obligated, along

with the chapter 11 debtor, on a prepetition debt. See id.

524(e) ("[D]ischarge of a debt of the debtor does not affect the

liability of any other entity on, or the property of any other

entity for, such debt."). Whether the Code likewise empowers

bankruptcy courts to enter permanent injunctions which

effectively confer de facto "discharge" relief upon the chapter

11 debtor's co-obligors, and if so, under what conditions and

limitations, are the topics of continuing debate and disagreement

in both case law and commentary. See, e.g., Howard C. Buschmann

III & Sean P. Madden, The Power and Propriety of Bankruptcy Court

Intervention in Actions Between Nondebtors, 47 The Business

Lawyer 913 (1992).

The case law splits along two principal lines. Some

courts hold that section 105(a) does not permit a bankruptcy

court permanently to enjoin post-confirmation lawsuits against

nondebtors, since such an order would directly contravene the

14

"more specific" proscription in section 524(e). See, e.g.,

AmericanHardwoods, 885F.2d at626; LandsingDiversified Properties-

II v. First Nat'l Bank & Trust Co. (In re Western Real Estate

Fund, Inc.), 922 F.2d 592, 600-01 (10th Cir. 1990), modified on

other grounds, 932 F.2d 898 (10th Cir. 1991). The factual cir-

cumstances in these cases did not suggest, however, that the

grant of injunctive relief was in any sense integral to the

success of the chapter 11 reorganization. See American

Hardwoods, 885 F.2d at 626 (noting no "unusual facts" warranting

permanent "discharge" of debtor's loan guarantor).

The second line of cases note that section 524(e)

cannot be construed as an absolute or per se proscription against

permanent injunctive relief for all nondebtors. See, e.g., In re

Heron, Burchette, 148 B.R. at 687 (noting that 524(e) "contains

no language of prohibition and [thus] should not be interpreted

to limit court's power under 105(a)") (emphasis added). These

courts have formulated various tests for determining when de

facto "discharges" would not be ultra vires. See, e.g., Menard-

Sanford v. Mabey (In re A.H. Robins Co.), 880 F.2d 694, 702 (4th

Cir.), cert. denied, 493 U.S. 959 (1989), cited with approval in

In re G.S.F. Corp., 938 F.2d at 1474-75; In re Master Mortgage

Inv. Fund, 168 B.R. 930, 935 (Bankr. W.D. Mo. 1994) (collecting

cases). In extraordinary circumstances, it has been held that a

bankruptcy court can grant permanent injunctive relief essential

to enable the formulation and confirmation of a reorganization

plan if, for example, nondebtors who would otherwise contribute

15

to funding the plan will not settle their mutual claims absent

"protection" from potential post-confirmation lawsuits arising

from their prepetition relationship with the chapter 11 debtor.

See, e.g., In re A.H. Robins Co., 880 F.2d at 702. These courts

have taken into consideration whether (1) the creditors have

overwhelmingly approved the plan, with the injunction; (2) the

plan contemplates full payment of all creditor claims; and (3)

the injunction would affect a relatively small class of

claimants. Id. at 698, 700-702; In re Master Mortgage, 168 B.R.

at 935.

In this second line of cases, the courts have ascribed

importance to the fact that the cooperation of essential

"contributing" parties may not have been forthcoming, and no

chapter 11 plan may have been practicable, absent an injunctive

provision affording so-called incidental "protection" to

nondebtors who do not intend to contribute directly to the

chapter 11 plan. For example, if a non-"contributing" party

holds an indirect claim against a would-be "contributing"

party,9 such as a contingent claim for indemnification or

contribution, the potential "contributing" party may decline to

accept, or contribute to, the chapter 11 plan in circumstances

9Ropes & Gray argues that it "contributed" to Monarch
Capital's chapter 11 plan to the extent it held contingent claims
for indemnification or contribution against Monarch Capital,
which it effectively "released" by refraining from filing a
claim. See supra note 2. For present purposes, however, the

term "contributing" parties is used to refer to those entities,
such as the 235 Banks and Monarch Life, which proposed and signed
onto the Plan.

16

where the non-"contributing" party remains free to implead him as

a third-party defendant in a post-confirmation lawsuit. See In

re A.H. Robins, 880 F.2d at 702. In such circumstances, these

courts have afforded the "incidental protection" of a permanent

injunction by enjoining "direct" actions against the

noncontributor in order to protect the contributor from exposure

to indirect liability.

2. Actual Litigation
2. Actual Litigation

Monarch Life represents that it had no inkling during

the confirmation proceedings that any party was contending that

section 105(a) enabled the bankruptcy court to grant the broad-

based "incidental" injunctive relief required to protect a

"noncontributing" party such as Ropes & Gray. In a memorandum

submitted prior to confirmation by the 235 Banks, however, it was

plainly stated that

the Injunction must by necessity extend not
only to parties like the 235 Banks or the
[Monarch Life] Receiver who are signatories
to, and gave actual consideration under, the
Settlement Agreement, but also to those
nonsignatory parties such as officers and
directors of those parties . . . . That
consideration will be seriously diminished
and the releases granted the signatories
worthless if the nonsignatories can continue
to be sued, since certain signatory parties
would be directly or indirectly liable to the

parties being sued. Consequently, actions

against the nonsignatories will be as
destructive to the settlement as actions
against the signatories.

(Emphasis added.) The 235 Banks memorandum repeatedly adverted

to the problem posed for both "signatories" and "nonsignatories"

unless the latter were insulated by injunctive relief from

17

post-confirmation lawsuits. Moreover, it prominently cited

cases, such as A.H. Robins, supra, involving "incidental" injunc-

tive relief for noncontributing nondebtors holding contingent

claims for indemnification or contribution.

Monarch Life argues, nonetheless, that the 235 Banks

memorandum does not establish that the section 105(a) issue was

"actually litigated," within the meaning of the collateral

estoppel doctrine, since the memorandum was not signed by Monarch

Life and therefore merely represented the 235 Banks' view of the

applicable law. We do not agree.

First, the 235 Banks and Monarch Life through its

receiver held themselves forth in the confirmation proceedings

as joint Plan proponents, frequently sharing responsibility for

presenting the merits of discrete portions of the Plan before the

bankruptcy court. See also supra note 3. Monarch Life may

disagree with the litigation stance taken by its receiver prior

to confirmation of the Plan, but it does not contend that the

receiver could not bind it for issue preclusion purposes.

Second, there is no reason to suppose that Monarch Life

itself did not expect to benefit nor indeed that it has not in

fact benefited from the protection afforded in response to the

235 Banks' invitation to confer the broadest available "incide-

ntal" protection, upon all noncontributing co-obligors, from

future lawsuits "arising from or related to a claim against

[Monarch Capital] or affecting or [sic] any property of [Monarch

Capital]." Thus, we cannot simply assume that no protected

18

noncontributor held an indirect claim for indemnification or

contribution against Monarch Life.

Third, even if Monarch Life had not yet discovered

specific grounds for its asserted cause of action against Ropes &

Gray relating to Monarch Capital's abuse of the STIP, it cannot

plausibly contend that Ropes & Gray's alleged involvement, as

Monarch Capital's counsel during the relevant time period, was so

far removed from Monarch Life's contemplation that it could not

have weighed the strategic advantages and risks involved in

advocating "incidental" injunctive relief prior to confirmation

of the Plan. See, e.g., DeCosta v. Viacom Int'l Inc., 981 F.2d

602, 605-06, 610 (1st Cir. 1992) (court may decide not to apply

collateral estoppel where there has been a "significant" change

in the law or factual circumstances since the first judgment was

entered; and finding no such "significant change"), cert. denied,

113 S. Ct. 3039 (1993). Moreover, changed circumstances will

preclude the application of collateral estoppel only if they

might have altered the decision the court made in the first

proceeding. See Montana v. United States, 440 U.S. 147, 159

(1979); EEOC v. American Airlines, 48 F.3d 164, 167 (5th Cir.

1995). And, Monarch Life cannot establish that it would not have

proposed precisely the same injunction, whereby it agreed to

release a number of viable causes of action against third parties

"arising from" claims against Monarch Capital, even if it had

known the particulars of its malpractice claim against Ropes &

Gray in June 1992. Cf. Fiumara v. Fireman's Fund Ins. Cos., 746

19

F.2d 87, 91-92 (1st Cir. 1984) (noting that "all of the events

which define the [subsequent] federal complaint occurred in the

period before the [first proceeding] and were at least generally

hinted at during that trial," and "[i]f they were not then

litigated as hotly as plaintiff would now wish, they plainly

could have been").

Finally, and most importantly, the "actual litigation"

component in the collateral estoppel analysis does not require

that Monarch Life be shown to have advocated the broad-based

"incidental" injunction, but only that the "jurisdictional" issue

was squarely raised by the 235 Banks, thus giving Monarch Life a

full and fair opportunity to interpose objection if it disagreed

with the 235 Banks' legal contentions. See Blonder-Tongue Lab.,

402 U.S. at 328 (in order to further the interests of finality

and judicial economy, collateral estoppel doctrine requires that

litigant be afforded "one full and fair opportunity for judicial

resolution" of the issue). Therefore, since the section 105(a)

"jurisdictional" issue was expressly broached in the 235 Banks'

memorandum prior to confirmation of the Plan, and by prominent

citation to decisions such as A.H. Robins, supra, Monarch Life's

silence alone satisfied the second criterion under the collateral

estoppel analysis.10

10Monarch Life argues that the 105(a) order must be
interpreted as enjoining only the noncontributors' cross-claims

impleading Plan contributors, not Monarch Life's initiation in
Massachusetts Superior Court of its principal claim against the
noncontributing Ropes & Gray. See Brief for Appellant at 21

(citing Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984)).

Even if this "severability" contention had merit, the district

20

3. Actual Resolution
3. Actual Resolution

Monarch Life argues that a genuine dispute remains as

to whether the "ambiguous" order of confirmation actually

resolved the section 105(a) "jurisdictional" issue "litigated" by

the parties prior to confirmation. See Reply Brief for Appellant

at 11 (citing Commonwealth of Mass. v. Departmental Grant Appeals

Bd., 815 F.2d 778, 788 (1st Cir. 1987) (party may challenge

interpretation of ambiguous injunction not previously interpret-

ed)); see also In re Monarch Capital Corp., 173 B.R. at 41

("Appellants do not challenge the Bankruptcy Court's authority to

enter the Injunction . . . ."). Consequently, it cannot be

presumed that the same issue was before the bankruptcy court both

in the confirmation proceedings and the contempt proceedings.

Its argument begs the question.

Monarch Life asserts a two-pronged attack against the

contempt order. Its first line of attack is that the injunctive

provision in the confirmation order cannot be "expanded" to

encompass Ropes & Gray's contingent obligations because

bankruptcy courts have no power to enter such broad-based

injunctions under section 105(a). However, it cannot be

considered a conclusive answer to Ropes & Gray's collateral

estoppel defense for Monarch Life to say that it subjectively

court properly noted that it had been waived by Monarch Life's
failure to raise it in the bankruptcy court contempt proceeding.
See In re Monarch Capital Corp., 173 B.R. at 45 (issues not

raised before the bankruptcy court are deemed waived on appeal)
(citing Juniper Dev. Group v. Kahn (In re Hemingway Transp.,

Inc.), 993 F.2d 915, 935 (1st Cir.), cert. denied, 114 S. Ct. 303

(1993)).

21

construed the confirmation order more narrowly than its language

and context warranted. See Piccicuto, 39 F.3d at 41 (rejecting

argument that prior judgment was ambiguous and used "regrettably

loose language"). Rather, Monarch Life's construction must be

evaluated against the objective import of the language in the

confirmation order itself. As the confirmation order is

dispositive, it is set out at length in the appendix. See infra

Appendix pp. i-iii.

Monarch Life mischaracterizes the obvious breadth of

the confirmation order as ambiguity. Even a cursory review of

the confirmation order demonstrates beyond doubt that the third

criterion in the collateral estoppel analysis has been met. See

Grella, 42 F.3d at 30-31 (issue may be actually litigated and

resolved "even if it is not explicitly decided," as long as it is

logically necessary to final decision).

Monarch Life emphasizes the fact that the bankruptcy

court distinguished American Hardwoods11 a case in which the

enjoined action had been against a nondebtor who would not have

contributed to the chapter 11 plan and then stated that "the

11Monarch Life points also to a decision entered earlier in
an unrelated adversary proceeding, wherein the bankruptcy court
denied the chapter 11 trustee's motion to enjoin a suit by
Monarch Capital shareholders against Monarch Life. It considers
that decision probative because it noted the bankruptcy court's
concern that such an injunction might exceed the limitations set
forth in American Hardwoods. See In re Monarch Capital Corp.,

No. 91-41379-JFQ (Bankr. D. Mass. Apr. 8, 1992). We do not
agree. First, the proposed injunction involved there was not
part of thus could not be "essential" to the reorganization
plan. Further, the bankruptcy court expressly distinguished
American Hardwoods in its final order of confirmation.

22

persons protected by the [Monarch Capital] Injunction have con-

tributed substantial amounts to the Plan . . . ." (Emphasis

added.) But the bankruptcy court did not say that Plan contribu-

tors, such as the 235 Banks and Monarch Life, were the only

entities "protected" by the injunction. Rather, it said that

this injunctive protection was the reason for entering a perma-

nent injunction. Moreover, in distinguishing American Hardwoods,

where protection for contributors was not at issue, the bankrupt-

cy court cited with approval several decisions like A.H.

Robins, supra (and provided plain parenthetical descriptions)

holding that section 105(a) empowers bankruptcy courts to grant

permanent injunctions not only against actions asserting claims

directly against plan contributors, but "incidental" injunctions

protecting plan contributors from indirect claims for indemnifi-

cation and contribution, at least where such protection is deemed

"essential" to the success of a reorganization plan. See infra

Appendix at p. i.

By citing A.H. Robins, supra, and cases of its kind,

the bankruptcy court plainly signaled its endorsement of the Plan

proponents' request for a broad injunction extending "incidental"

protection to all noncontributors who might otherwise implead

Plan contributors as third-party defendants in subsequent state

court actions. The bankruptcy court then made the required

predicate findings for a broad "incidental" injunction as enumer-

ated in A.H. Robins. It found that (1) the injunction was

"essential" to garner the Plan contributors' cooperation in

23

Monarch Capital's reorganization, and (2) Monarch Capital's

creditors overwhelmingly had approved the injunctive provision.

See infra Appendix at p. ii. Monarch Life cannot turn a blind

eye to the plain import of the injunctive provision in the

confirmation order, then under the guise of an alleged "ambigu-

ity" attempt to relitigate the "jurisdiction" of the court to

enter the injunction.

Finally, this is not a conventional "preclusion" case,

wherein the court is required to interpret a first judgment which

was entered by a different tribunal. Even though our interpreta-

tion of the confirmation order essentially presents a question of

law, see United States v. O'Rourke, 943 F.2d 180, 186 (2d Cir.

1991), the bankruptcy court in this case was interpreting its own

order of confirmation. We think customary appellate deference is

appropriate in these circumstances with respect to the bankruptcy

court's determination that the confirmation order was suffi-

ciently broad to confer "incidental" protection to noncontribut-

ing parties like Ropes & Gray.12 Similarly, because the bank-

12See, e.g., In re Weber, 25 F.3d 413, 416 (7th Cir. 1994)

(noting that bankruptcy court's interpretation of its own confir-
mation order is entitled to same deference as generally accorded
courts construing their own judgments); William B. Schnach

Retirement Trust v. Unified Capital Corp. (In re Bono Dev.,

Inc.), 8 F.3d 720, 721-22 (10th Cir. 1993) (same; interpreting

bankruptcy court's "superpriority" order); Texas N.W. Ry. Co. v.

Diamond Shamrock Ref. & Mktg. Co. (In re Chicago, Rock Island &

Pac. R.R. Co.), 865 F.2d 807, 810-11 (7th Cir. 1988) (same;

construing bankruptcy court's order approving sale); Ranch House

of Orange-Brevard, Inc. v. Gluckstern (In re Ranch House of

Orange-Brevard, Inc.), 773 F.2d 1166, 1168 (11th Cir. 1985)

(same; confirmation order); see also generally Farmhand, Inc. v.

Anel Eng'g Indus., Inc., 693 F.2d 1140, 1146 (5th Cir. 1982)

(noting that district courts are entitled to deference in inter-

24

ruptcy court was directly engaged in the give-and-take of the

confirmation proceedings and had the better vantage point for

determining whether the parties had been fairly apprised of the

"jurisdictional" issue, we likewise think it prudent to accord

some deference to its determination that the section 105(a) issue

was "actually litigated." See Ranch House of Orange-Brevard,

Inc. v. Gluckstern (In re Ranch House of Orange-Brevard, Inc.),

773 F.2d 1166, 1168 (11th Cir. 1985) ("The bankruptcy judge who

has presided over the case from its inception is in the best

position to clarify any apparent inconsistencies in the court's

rulings."); supra Section II.B.2.

Notwithstanding the numerous warning signals, Monarch

Life elected to treat the obvious breadth of the injunctive

provision as ambiguity. The record remains clear, nonetheless,

that the bankruptcy court's "jurisdiction" to enjoin enforcement

of Monarch Life's claims against the noncontributing Ropes & Gray

was actually litigated and that Monarch Life therefore was re-

quired, but failed, to object to the confirmation order and/or

appeal from the section 105(a) injunctive provision included in

it.

4. Essentiality
4. Essentiality

It follows, a fortiori, from our determination that the

confirmation order included an "incidental" injunction, that the

bankruptcy court's ruling on its section 105(a) "jurisdiction"

preting own orders); Securities and Exch. Comm'n v. Sloan, 535

F.2d 679, 681 (2d Cir. 1976) (same), cert. denied, 430 U.S. 966

(1977).

25

was essential to the effectiveness and validity of the injunctive

provision. See Stoll, 305 U.S. at 171-72 ("Every court in

rendering a judgment tacitly, if not expressly, determines its

jurisdiction over . . . the subject matter.").

III
III

CONCLUSION
CONCLUSION

We therefore hold that the issue of the bankruptcy

court's power to enter its so-called "incidental" injunction was

precluded, having been conclusively resolved in the confirmation

order which Monarch Life neither opposed nor appealed. Though

there is conflicting authority on the "jurisdictional" reach of

section 105(a), the confirmation order cited precedent for a

broad-based "incidental" injunctive provision. Cf. Restatement

(Second) of Judgments 29 cmt. j (1980) (court may refuse to

invoke collateral estoppel if first judgment was "patently

incorrect"). Accordingly, Monarch Life cannot now argue that the

confirmation order is not subject to this broad construction. We

express no view on the soundness of the precedents cited in the

confirmation order, nor on their applicability to the particular

Plan proposed by Monarch Life.13 The proper recourse for ad-

13Ropes & Gray cross-appeals from the bankruptcy court's
refusal to award it compensatory damages for Monarch Life's
contempt. See Brief for Appellee at 48 (citing Perker v. United

States, 153 F.2d 66, 70 (1st Cir. 1946) (noting that "complainant

is entitled as a matter of right to an order in civil contempt
imposing a compensatory fine")). As the district court noted,
however, the level of specificity needed to ground a finding of
contempt is not susceptible to precise quantification. We find
no abuse of discretion in the bankruptcy court's implicit deter-
mination that Monarch Life did not commit such an egregious

26

dressing those questions was by direct appeal from the order of

confirmation.

Finally, the confirmation order enjoined all post-

confirmation lawsuits "arising from" or "related to" claims

against Monarch Capital. See supra p. 6. The complaint filed

against Ropes & Gray in Massachusetts Superior Court by Monarch

Life alleges a joint scheme by Monarch Capital and Ropes & Gray

to abuse the STIP account at Monarch Life's expense plainly a

claim "arising from" Monarch Life's STIP claim against Monarch

Capital. We agree with the district court that it was not

unreasonable to expect that Ropes & Gray might attempt to assert

cross-claims against parties who "contributed" to the Monarch

Capital Plan, or cross-claims which ultimately would "affect"

Monarch Capital's property in the hands of its "direct or indi-

rect transferee[s]" or "successor[s] in interest." See supra p.

6; see also In re Monarch Capital Corp., 173 B.R. at 45 (reject-

ing Monarch Life's argument that there is absolutely no conceiv-

able ground upon which Ropes & Gray might assert a cross-claim in

the superior court action). Thus, it is academic whether the

injunction also "protects" Ropes & Gray as Monarch Life's former

"counsel."

The judgment of the district court is affirmed. The
The judgment of the district court is affirmed. The

parties shall bear their own costs.
parties shall bear their own costs.

contempt as would compel the imposition of sanctions. See, e.g.,

Johnston Envtl. Corp. v. Knight (In re Goodman), 991 F.2d 613,

620 (9th Cir. 1993) (noting that bankruptcy court has discretion
to award no damages if it finds contempt insufficiently "egre-
gious").

27

APPENDIX
APPENDIX

Section 105 of the Bankruptcy Code grants the
Court broad equitable power to issue any order, process
or judgment that is necessary or appropriate to carry
out the provisions of Title 11. In re Old Orchard

Investment Co., 31 Bankr. 599, 601 (W.D. Mich. 1983);

Menard-Sanford v. Mabey (In re A.H. Robins Co.), 880

F.2d 694, 702 (4th Cir. 1989), cert. denied, 110 S. Ct.

376 (1989) (affirming power of bankruptcy court to
enjoin suits permanently against nondebtors in a plan,
where there existed certain indemnification rights
against the debtor); In re Energy Co-op, Inc., 886 F.2d

921 (7th Cir. 1989) (permanent injunction issued pursu-
ant to settlement agreement); MacArthur Co. v. Johns-

Manville Corp. (In re Johns-Manville Corp.) 837 F.2d 89

(2d Cir. 1988), cert. denied, 488 U.S. 868 (1988)

(permanent injunction may be issued against actions
against an insurer as part of settlement incorporated
in a chapter 11 plan notwithstanding claims that this
impermissibly discharged a nondebtor); see In re CCA

Partnership, 70 Bankr. 696 (Bankr. C.D. Cal. 1985)

(judgment creditor enjoined from enforcing claims
against debtor's individual partners).

Section 105 grants bankruptcy courts "ample power
to enjoin actions excepted from the automatic stay
which might interfere in the rehabilitative process,
whether in a liquidation or in a reorganization case."
In re Johns Manville Corp., 26 Bankr. 420, 425 (Bankr.

S.D.N.Y. 1983), quoting Collier on Bankruptcy 362.05

(15th ed. 1982). Further, bankruptcy courts "may issue
or extend stays to enjoin a variety of proceedings
which will have an adverse impact on the debtor's
ability to formulate a Chapter 11 plan." In re Johns

Manville Corp., 40 Bankr. 219, 226 (S.D.N.Y. 1984).

Under section 105, this Court has the power to
issue injunctions which prevent proceedings against
nondebtor third parties where pursuit of such actions
would materially and adversely affect the estate or
creditor recoveries under a plan of reorganization.
See Codfish Corp. v. FDIC (In re Codfish Corp.), 97

B.R. 132, 135 (Bankr. D.P.R. 1988) (injunctions appro-
priate where there is clear and convincing evidence
"that the estate would be substantially and adversely
affected by the continuance of such an action"); In re

Monroe Well Serv., Inc., 67 B.R. 746, 751 (Bankr. E.D.

Pa. 1986) (injunctions appropriate to avoid anticipated
adverse impact on bankruptcy estate); G.S.F. Corp., 938

F.2d [1464,] 1474 [(1st Cir. 1991) (adverse impact on
debtor's estate required for injunction against third

i

party actions).

This Court has the power to approve the releases
and issue the Injunction with respect to the Trustee,
Temporary Receiver and creditors' Committee for matters
in connection with the chapter 11 case. In re Drexel

Burnham Lambert Group, Inc., 138 B.R. [723, 753 (Bankr.

S.D.N.Y. 1992)].

Where an injunction allows a settlement that forms
the basis of a chapter 11 plan to take effect, where
the entire settlement and hence the plan hinges on the
parties being free from the very claims that the in-
junction would prohibit, courts will order the injunc-
tive relief. See, e.g., In re A.H. Robins Co., Inc.,

880 F.2d 694 (4th Cir.), cert. denied, 493 U.S. 959

(1989); MacArthur Co., 837 F.2d [at 89]; SEC v. Drexel

Burnham Lambert, Inc. (In re Drexel Burnham Lambert

Group, Inc.), 130 B.R. 910, 928 (S.D.N.Y. 1991), aff'd,

960 F.2d 285 (2d Cir. 1992); UNARCO Bloomington Factory

Workers v. UNR Indus., Inc., 124 B.R. 268 (N.D. Ill.

1990); Republic Supply Co. v. Shoaf, 815 F.2d 1046,

1050 (5th Cir. 1987).

The opinion of the Court of Appeals in the Ninth
Circuit in In re American Hardwoods, 885 F.2d 621 (9th

Cir. 1989) is inapposite. In that case, guarantors
were protected by the provisions of a plan, although
they apparently provided no contribution to that plan.
The injunction was not shown to be essential to the
plan. The court also notes that section 524(e), on
which the Ninth Circuit relies, does not by its terms
preclude the entry of injunctive relief in favor of
nondebtors making plan contributions, particularly
where as here, creditors have overwhelmingly consented
to it. ... In this case, the persons protected by the
Injunction have contributed substantial amounts to the
Plan, creditors have agreed to the Injunction in order
to get these payments, and the Injunction is the only
basis on which to build, confirm and effectuate the
Plan.

Recent cases following American Hardwoods are

distinguishable from the facts of this case on similar
grounds. See, e.g., In re Western Real Estate Fund,

922 F.2d 592 (10th Cir. 1990). In Western, an attorney

was not enjoined from collecting all fees for work done
on behalf of the debtor. In that case, the fees at
issue were owed by a nondebtor third party who did not
contribute to the debtor's plan. The attorney was
allowed to collect against that third party. In In re

Rohnert Park Auto Parts, Inc., 113 B.R. 610 (9th Cir.

ii

BAP 1990), a creditor was time barred from asserting a
claim in the debtor's bankruptcy. The creditor was
enjoined by the bankruptcy court from collecting
against a nondebtor third party who was liable for the
debt. The [court] did not uphold that plan provision.
However, the nondebtor third party had not contributed
to the funding of the plan, nor was the injunction
shown essential to that plan. In this case, however,
the persons protected by the Injunction are the princi-
pal contributors of consideration to the Plan. Those
persons would not contribute without the Injunction.
Therefore, Western Real Estate and Rohnert Park Auto,

like American Hardwoods, are inapposite.

In re Monarch Capital Corp., No. 91-41379-JFQ, slip op. at 23-27

(Bankr. D. Mass. June 25, 1992).

iii