In the
United States Court of Appeals
For the Seventh Circuit
No. 08-1881
IN RE:
INGERSOLL, INC. et al.,
Debtors-Appellees,
A PPEAL OF:
B AISE & M ILLER, P.C.
Appeal from the United States District Court
for the Northern District of Illinois, Western Division.
No. 07 C 50098—Philip G. Reinhard, Judge.
A RGUED JANUARY 23, 2009—D ECIDED A PRIL 15, 2009
Before B AUER, E VANS, and W ILLIAMS, Circuit Judges.
E VANS, Circuit Judge. Although many have tried to put
a stake through the heart of this fee dispute which
refuses to die, all have failed to do the trick. We, as the
sixth forum to take a stab at it, are next in line. Now
creeping along as a bankruptcy appeal, the case is here
after stops at the District of Columbia Bar Attorney/Client
Arbitration Board, the Superior Court of the District of
Columbia, the Superior Court of Delaware, the federal
bankruptcy court for the Northern District of Illinois, and
2 No. 08-1881
finally the federal trial court for that district. Baise &
Miller, P.C., the Washington, D.C. law firm in this dis-
pute, is here today appealing an order barring its claim
for additional fees under 11 U.S.C. § 105 of the bank-
ruptcy code. In resolving the firm’s appeal, we must go
back in time to when this saga all began.
The Ingersoll Cutting Tool Company (ICTC), since
its inception in the late 1800s, was at the forefront of the
metal cutting tool industry. For the vast majority of that
time it was a family-owned enterprise, handed down
from its founder, Winthrop Ingersoll, to future genera-
tions. But that changed in 2001, when Israeli-based Iscar,
Ltd. took over in a sale allegedly “masterminded” by the
first outside board members in ICTC’s history. Prior to
the sale, ICTC was owned by the Gaylords, descendants of
Mr. Ingersoll and the appellees in this case. They claim
they had no desire to sell the company but were duped
by the nonfamily CEO and certain directors. According
to them, a corporate chauffeur overheard these indi-
viduals scheming and laughing in a limousine, reveling
in their plan to “take down” ICTC and ship it “overseas
where it belonged.” Whether this actually occurred is
unknown—the Gaylords never managed to get a state-
ment from the chauffeur—but it doesn’t make much of a
difference. What is important is that when the Gaylords
caught wind of this plan, they tried with all their might
to stop the sale, retaining Baise & Miller to act on their
behalf. And when the law firm failed to make a differ-
ence—and sought more money for its services—the
Gaylords found themselves trading one battle (over
their company) for another (over legal fees).
No. 08-1881 3
The Gaylords first contacted Baise & Miller in late
November 2000. They explained to partner Marshall
Miller that they needed to stop the sale, and Miller
agreed to help by filing a motion for a temporary restrain-
ing order and a preliminary injunction. Miller allegedly
told them not to worry; he was friends with a judge
in Delaware who “owed him a favor,” so getting the sale
enjoined was no big deal. What’s more, Miller sup-
posedly said he had contacts in the media who could sling
mud at Iscar. He even said he spoke with a three-star
lieutenant general (Jim Williams) who was ready to
investigate the company on international security
grounds. So Miller could handle this thing, no sweat.
But he would need help from another lawyer, David
Margules of Bouchard, Margules & Friedlander.
Miller and Margules held a phone conference with the
Gaylords on December 1. (The Gaylords lived in Illinois;
Miller in Washington, D.C.; and Margules in Delaware.)
Margules introduced himself, described his background
and experience, and told the Gaylords that this sort of
thing was his “bread and butter.” Bouchard Margules and
Friedlander v. Gaylord, 2005 WL 2660043, *2 (Sup. Ct. Del.
Aug. 31, 2005). But despite all that—and Miller’s “friends”
in high places—the Gaylords weren’t sold.
The deal wasn’t sealed until the two attorneys flew to
Rockford, Illinois, and met the Gaylords in person. You
see, the Gaylords were old-school to a fault: face-to-face
meetings were important, but if they went well, they
were happy to trust an agreement to a handshake and
a promise. In fact, Robert Gaylord, who was more or less
4 No. 08-1881
in charge before he passed away during this litigation,
conducted “multi-million dollar” deals on this basis. So
he thought nothing of reaching an oral agreement to pay
Miller a $100,000 retainer, with the understanding that
Margules would be paid out of those funds as well.
A few days later, Miller sent the Gaylords a letter
“memorializing” their oral agreement. It contained some
surprises. After reciting the $100,000 retainer and the fact
that Margules would submit his fees to Miller (not the
Gaylords), the letter discussed a contingency fee. The
Gaylords were shocked. Thinking they had an agreement
for a capped fee of $100,000, they refused to sign the
contract.
In the meantime, Margules decided he needed a
bigger piece of the action. Margules previously reached a
deal with Miller where he would receive $25,000 of the
retainer based on the expectancy that he would do a
quarter of the work. However, as a preliminary injunc-
tion hearing drew closer—by this point they had filed
suit in Delaware’s Chancery Court, a court of equity
known mainly for its decisions on corporate mat-
ters—Margules saw that he was doing a greater
percentage of the work. So Margules asked Miller for
more money, and “Miller arbitrarily decided on a new
retainer figure, $250,000, because that was the next ‘notch’
up.” Bouchard Margules and Friedlander, 2005 WL 2660043
at *2.
Back at the negotiating table with the Gaylords, Miller
assured them that $250,000 was the outside figure, and
that he would return any unused portion of the fee.
No. 08-1881 5
Robert Gaylord agreed to the deal reluctantly; he was
willing to pay $250,000 if need be, “but not a penny more.”
Id. at *3. Unfortunately, the agreement was never put in
writing, and this caused headaches as the fees escalated
well beyond the $250,000 cap.
For all that, the litigation was unsuccessful. The Dela-
ware court denied injunctive relief, and the sale was
consummated. Then came the fee dispute. As agreed,
the Gaylords deposited $250,000 into Baise & Miller’s
escrow account. But well after the representation came
to a close, the Gaylords hadn’t received any invoices
from Miller detailing the costs and fees. It turns out there
was a logical (if unreasonable) explanation for the delay:
the total fees from Miller and Margules outstripped the
escrow fund. When the Gaylords finally received the
invoices from both attorneys—Margules had been billing
Miller all along but received only partial payment—the
total came to almost $390,000. Outraged by the request for
another $140,000 on top of the “outside figure,” the
Gaylords wrote Miller and insisted he had it wrong. They
explained that the agreement was for no more than
$250,000, and if Miller and Margules had trouble appor-
tioning the money, that was their problem. Miller didn’t
back down. While continuing to demand more money,
though, he partially satisfied Margules by paying him
$134,205.13—roughly $60,000 short of the total claimed.
When the Gaylords also refused to budge, Baise &
Miller filed an action in the D.C. Superior Court. The
court stayed the case, however, because the Gaylords
agreed to arbitration before the D.C. Attorney/Client
6 No. 08-1881
Arbitration Board. The board issued its ruling in late
2004, but unfortunately it failed to decide the critical
issue—whether $250,000 represented the Gaylords’ maxi-
mum liability to both law firms. This is what the board
said:
The total fees and costs to be (or to have been)
payable by [the Gaylords] to [Baise & Miller] total
$199,514.44. [The Gaylords] paid $250,000 to [Baise &
Miller’s] trust/escrow account. [Baise & Miller] has
paid $134,205.13 (of the $250,000) to Bouchard,
Margules & Friedlander. [Baise & Miller] paid to
itself the remaining sum of $115,794.87.
This award does not resolve the issues of whether
[Baise & Miller]’s action in paying $134,205.13 to
Bouchard, Margules & Friedlander was reasonable
or appropriate and expresses no opinion as to how
that issue should be resolved. In addition, this award
does not resolve, nor express any opinion as to, the
reasonableness or recoverability of any fees or costs
assessed by the law firm of Bouchard, Margules &
Friedlander to [the Gaylords] or to [Baise & Miller].
This decision was not exactly a model of clarity, and it
caused problems down the road. The fairest inter-
pretation, however, is that the Gaylords didn’t owe
Miller any more money (they were seemingly entitled to
a refund); to the extent Miller retained less than his due,
he couldn’t look to the Gaylords for compensation; and
Margules would either have to look to Miller for any
shortfall or bring his own claim against the Gaylords.
No. 08-1881 7
Despite our read, Miller saw things differently. In a
motion to confirm the award filed with the D.C.
Superior Court, Miller contended that the board’s
decision meant the Gaylords owed him more money. We
find that argument baffling, but the Superior Court’s
response seems even more so. That court said that “the
award makes clear that [the Gaylords] owe [Baise &
Miller] $199,514.44 and that the [arbitration board] is
taking no position on the amounts owed by [the
Gaylords] to [Margules].” Fair enough (though we
might quibble with the word “owe,” since the Gaylords
already paid Miller well over that sum). But then we get
this: “It is not challenged that [the Gaylords] have paid
[Baise & Miller] $115,794.87. Deducting that amount
from the award yields a balance of $83,719.57, which is
the proper judgment amount here.” So the Superior
Court ordered the Gaylords to pay an additional
$83,719.57. We see no way to square that with the
board’s decision and the fact that the Gaylords had
already paid Miller $250,000. Miller may have been
entitled to nearly $200,000 of that sum, but it wasn’t the
Gaylords fault he remitted so much to Margules that just
over $115,000 remained. In purporting to enforce the
arbitration, the Superior Court effectively determined
(without analysis and without meaning to) that Miller
was justified in paying Margules some $135,000 and
that there was no fee agreement capped at $250,000—issues
that the arbitration board expressly declined to resolve.
Though they vigorously disagreed with the decision,
the Gaylords paid Miller the additional $83,719.57 to
put the matter to rest.
8 No. 08-1881
As if that were not complication enough, the Delaware
Superior Court also had something to say. Margules
brought suit against the Gaylords in that forum to
recover the extra $60,000 that he had unsuccessfully
sought from Miller. The Gaylords maintained the
position that they had only contracted with Miller, and
for a fixed fee at that. Unlike the D.C. court, however,
the Delaware court produced a ruling that was at least
facially reasonable. Following a bench trial, the court
found that there was no contract between the Gaylords
and Margules, but that there was “a capped fee agree-
ment between the Gaylords and Baise [&] Miller for
$250,000.” Bouchard Margules and Friedlander, 2005 WL
2660043 at *6. Taking into account the arbitration deci-
sion, the court summed up as follows:
[Margules] was a subcontractor to Baise [&] Miller’s
contract with the Gaylords. . . . If the DC arbitration
board awarded Baise [&] Miller $199,514.44 for its
work under the $250,000 retainer, then $50,485.56
remains in the Baise [&] Miller escrow account. The
Court finds that any money owed to [Margules]
would have to be addressed directly with Baise [&]
Miller, the general contractor.
Id.
That makes sense. Yet the Delaware Superior Court
dismissed the Gaylords’ cross-claim against Baise &
Miller. Even though the facts showed that the Gaylords
had indeed overpaid Baise & Miller, the court held that
No. 08-1881 9
aspect of the dispute was res judicata.1 Despite the
possible injustice, that seems correct. The doctrine of
claim preclusion is premised on the idea that, when a
claim has been fully litigated and come to judgment on
the merits, finality trumps. See Nevada v. United States,
463 U.S. 110, 129-30 (1983); Hicks v. Midwest Transit, Inc.,
479 F.3d 468, 471-72 (7th Cir. 2007).
But shelve the inconsistency for now, while we turn to
the bankruptcy court’s role in this saga. When ICTC was
sold to Iscar, the Gaylords found themselves in a tough
spot. ICTC was the “crown jewel” of Ingersoll Interna-
tional, Inc. (Ingersoll), the parent company still held by
the Gaylords. According to the Gaylords, ICTC accounted
for over 90 percent of the profit of Ingersoll. So without
ICTC, Ingersoll was a shell of its former self; it couldn’t
keep up with its creditors, and before long it filed for
bankruptcy. And because the Gaylords didn’t see “one
1
At least that appears to be the case. The record before us
doesn’t contain the Delaware Superior Court’s order of dis-
missal, but uncontested pleadings state the cross-claim was
indeed dismissed on this basis. And the bankruptcy court
echoed that ruling down the road. Although the Gaylords
still maintain that they overpaid Baise & Miller, their position
on appeal does not rest on that assertion. That is probably for
the better, because the scope of this appeal does not permit us
to rule on that issue. In any event, we consider the matter
settled and, even if we could, do not purport to disturb the
earlier decisions of the state courts. Of course, that does not
stop us from critiquing the D.C. court’s decision which, again,
we find rather troubling.
10 No. 08-1881
dime” from the sale of ICTC, they had no means to launch
a rescue attempt.
Ingersoll and its subsidiaries filed a petition for volun-
tary bankruptcy under Chapter 11 in April 2003. The
Gaylords were not debtors in that case, but they were
intimately involved in the proceedings insofar as
Ingersoll was the family company. And when the bank-
ruptcy court confirmed a liquidation plan in Septem-
ber 2005, the Gaylords gained a measure of protection.
Section 9.1 of the plan provided that the Gaylords
shall be released from any and all claims and causes of
action by all creditors, parties-in-interest, directors,
officers, shareholders, agents, affiliates, parent entities,
successors, assigns, predecessors, members, partners,
managers, employees, insiders, agents and representa-
tives of the Debtors and their estates arising from
or relating to the Gaylord Actions, including, with-
out limitation, any claims, causes of action, and coun-
terclaims by any present or former party to any of
the Gaylord Actions.
The “Gaylord Actions” were identified as the “non-bank-
ruptcy causes of action captioned Gaylord, et al. v. Doar,
et al., C.A. 18542-NC and that portion of the lawsuit
captioned Gaylord, et al. v. Barnes & Thornburg, et al.,
No. 03 L 000023 which is a derivative action on behalf of
the Debtors.” The first case, Gaylord, et al. v. Doar, et al.,
C.A. 18542-NC, was the injunctive case in the Delaware
court where Miller and Margules served as counsel.
When the plan was confirmed (following an objection
period), the debtors served copies of the plan on creditors
No. 08-1881 11
and parties-in-interest. Miller received a copy as a party-in-
interest.
Earlier, though, in April 2005, Miller filed another claim
in the D.C. Superior Court. This time, Miller sought
consequential damages for the Gaylords’ alleged breach
of the D.C. arbitration agreement. Because the Gaylords
continued to litigate their case against Miller in the Dela-
ware Superior Court after they had agreed to binding
and exclusive arbitration in D.C., Miller contended that
they were responsible for costs and fees wrongfully
incurred in Delaware.
Which, finally, brings us to the issue that prompted
this appeal. When Miller failed to dismiss his latest suit
following confirmation of the bankruptcy plan, the
Gaylords filed a motion in the bankruptcy court seeking
injunctive relief and sanctions. Proceeding under 11
U.S.C. § 105—which gives a bankruptcy court the power
to issue any “necessary or appropriate” order to carry
out the provisions of the bankruptcy code—the Gaylords
asked the court to enjoin Miller from maintaining
further litigation and to hold him in contempt. They
contended that Miller violated the release language
contained in section 9.1 of the bankruptcy plan, on the
theory that Miller’s claim “arose from” or was “related to”
one of the Gaylord Actions. Miller disagreed, of course,
arguing that his case was only indirectly connected
with the Delaware action.
The bankruptcy court ruled on the matter in Decem-
ber 2005, identifying the central issue as whether
Miller’s claim was governed by the release provision. The
12 No. 08-1881
court decided that it was. Noting that the release was
intended to be a shield for the Gaylords, the court held
that it was sufficient “to encompass the dispute” between
the Gaylords and Miller. And the court found it of no
moment “whether that dispute is characterized as a fee
dispute or a breach of arbitration agreement dispute”
because it “is related to the derivative action.” But
that wasn’t the end of the matter, because the court
also had to decide whether § 105 authorized the release.
The court acknowledged that this was a unique situation
in that nondebtors (the Gaylords) were being released
from a noncreditor (Miller) of the bankrupt (Ingersoll).
Relying on In re Metromedia Fiber Network, Inc., 416 F.3d
136 (2d Cir. 2005), however, the court held the release
valid because it was central to the negotiation and
ultimate success of the plan. So the bankruptcy court
enjoined Miller from pursuing his breach-of-arbitration
claim (though it declined to impose sanctions).
Miller appealed to the district court. He seemed to have
better luck there—at least at first—as the district court
implied that the ruling below could only be sustained if
Miller was indeed a creditor of one of the debtors. The
district judge asked the bankruptcy court to resolve
that issue on remand.
But on remand the bankruptcy court arguably strayed
from the district court’s order. The bankruptcy judge
explained that his prior ruling was based not on Miller’s
status as a creditor—which in his view Miller was not—but
rather on the idea that the release was needed to ensure
the success of the bankruptcy plan. Apart from the
No. 08-1881 13
creditor issue, the judge felt his original rationale, rooted
in § 105, remained adequate to support his decision. So
he stuck with it.
The district court had no problem with this. Even if the
bankruptcy court went beyond the strict letter of the
remand order, the district court was satisfied because the
bankruptcy judge provided the “clarification” it was
seeking. The court rejected Miller’s argument on
appeal that the bankruptcy judge had improperly gone
beyond the scope of the remand order and violated his
due process rights, and so affirmed the ruling without
further ado.
The case now finds it way to us, hopefully the last
judges to chime in. “We review a district court’s decision
to affirm the bankruptcy court de novo, which allows us
to ‘assess the bankruptcy court’s judgment anew, em-
ploying the same standard of review the district court
itself used.’ ” In re Boone County Utilities, LLC, 506 F.3d
541, 542 (7th Cir. 2007) (quoting In re Kmart Corp., 381 F.3d
709, 712 (7th Cir. 2004)).
Miller makes two arguments. First, he renews his con-
tention that the release is inapplicable to his claim for
breach of the arbitration agreement. Second, he argues
that the district court erred as a matter of law in affirming
the bankruptcy court when that court went beyond the
call of the remand order.
We take these arguments in reverse order. In United
States v. Husband, 312 F.3d 247, 251 (7th Cir. 2002), we
made the unremarkable observation that where the
remanding court identifies a “discrete” or “particular”
14 No. 08-1881
issue, the lower court is generally limited to that question.
But on the other hand, we affirmed our previous state-
ment that the “scope of the remand is determined not
by formula, but by inference from the opinion as a
whole.” Id. (quoting United States v. Parker, 101 F.3d 527,
528 (7th Cir. 1996)). In other words, “[t]he court may
explicitly remand certain issues exclusive of all others;
but the same result may also be accomplished implicitly.”
It follows as a corollary that a court may implicitly issue
a nonexclusive remand order. This might happen when
a court seeks clarification and identifies what it believes
(but is not certain) is the dispositive issue, which is
what happened here. The way we read it, the district
court doubted the bankruptcy ruling could be sus-
tained if Miller was not a creditor, so it asked the bank-
ruptcy judge to resolve that issue, which he did. But the
district court did not rule that the § 105 rationale was
flawed, so the bankruptcy judge was within his rights
to expand upon that rationale, explaining exactly what
he meant. See United States v. Morris, 259 F.3d 894, 898
(7th Cir. 2001) (stating that a lower court is generally “free
to address issues that the appellate court left unde-
cided”). This view of events seems particularly con-
vincing in light of the district court’s reaction. The
district court, clearly in the best position to know the
scope of its own remand order, said it received the “clarifi-
cation” it sought. We see no basis to disagree.
On, then, to the meat of the matter: Did the bank-
ruptcy court properly determine that Miller’s breach-of-
arbitration claim was barred by the release in the bank-
ruptcy plan? We see two sub-issues in this question. First,
No. 08-1881 15
as the bankruptcy court itself noted, we have to deter-
mine whether the release (valid or not) is by its terms
broad enough to cover Miller’s claim. We think it clearly
is. Under the release, Miller’s claim need only “arise from”
or “relate to” one of the Gaylord Actions. Because Miller
was counsel in one of those cases, and the breach-of-
arbitration claim was predicated on a fee dispute arising
from that litigation, it is a covered claim.
The next sub-issue—determining whether the release
is legally valid—is the trickier of the two. Section 105 of
Title 11 authorizes a bankruptcy court to “issue any order,
process, or judgment that is necessary or appropriate to
carry out the provisions of [the bankruptcy code].” 11
U.S.C. § 105(a). This “residual authority” is consistent
with a bankruptcy court’s “traditionally broad” equitable
powers, In re Airadigm Comm., Inc., 519 F.3d 640, 657
(7th Cir. 2008), which also make an appearance within
the context of reorganization plans. Similar to § 105,
11 U.S.C. § 1123(b)(6) allows a court to include in a
plan “any other appropriate provision not inconsistent
with the applicable provisions of [the bankruptcy
code].” In Airadigm, we held that these two provi-
sions—and the “residual authority” to which they
speak—“permit[] the bankruptcy court to release third
parties from liability to participating creditors if the
release is ‘appropriate’ and not inconsistent with any
provision of the bankruptcy code.” Airadigm, 519 F.3d
at 657. The release in that case—which shielded a
nondebtor from the claims of a creditor over the
creditor’s objection—fit the bill because it was narrow
and essential to the reorganization plan as a whole. We
16 No. 08-1881
emphasized that the release did not amount to “ ‘blanket
immunity’ for all times, all transgressions, and all omis-
sions.” Id. Rather, it applied “only to claims ‘arising out
of or in connection with’ the reorganization itself and
d[id] not include ‘willful misconduct.’ ” Id. Just as impor-
tantly, we noted that the third party would not have
participated without the release, and its participation
was “essential” to the plan’s success. Id.
Our decision in Airadigm echoed the Second Circuit’s
earlier ruling in Metromedia, the case relied on by the
bankruptcy judge. Although the Second Circuit rejected
the release in Metromedia, it held that bankruptcy
courts have the authority—in limited cases—to bar
nonconsenting creditors from suing third parties.
Metromedia, 416 F.3d at 141. The court identified similar
considerations and, like us, preached caution. See id. at
143 (“A nondebtor release in a plan of reorganization
should not be approved absent the finding that truly
unusual circumstances render the release terms
important to success of the plan . . . .”). A nondebtor
release should only be approved in “rare cases,” the
court explained, because it is “a device that lends itself to
abuse.” Id. at 141, 142. This is especially true when the
release provides blanket immunity: “In form, it is a
release; in effect, it may operate as a bankruptcy dis-
charge arranged without a filing and without the safe-
guards of the Code.” Id. at 142.
In this case, however, the release does not provide
blanket immunity. As in Airadigm—and in contrast to
Metromedia—it is narrowly tailored and critical to the
No. 08-1881 17
plan as a whole. The release only covers claims arising
from or relating to two cases (the Gaylord Actions), so it
is far from a full-fledged “bankruptcy discharge
arranged without a filing and without the safeguards of
the Code.” The Gaylords can still be sued by any
number of creditors with independent claims. Just as
importantly, the bankruptcy court found that the release
was an “essential component” of the plan, the fruit of
“long-term negotiations” and achieved by the exchange
of “good and valuable consideration” by the Gaylords
that “will enable unsecured creditors to realize dis-
tribution in this case.” After reviewing the record, we
agree.
On the other hand, we acknowledge that this is not a
straightforward application of Airadigm and Metromedia.
Those cases were different in that the plans shielded
nondebtors from suit by creditors of the bankrupt. As the
bankruptcy court stated, the case before us is one step
removed—the Gaylords are nondebtors, but Miller is not
a creditor of Ingersoll. But we don’t think that is
dispositive when the party whose claim was extin-
guished received fair notice and an opportunity to object.
And there is nothing in the bankruptcy code that tells
us otherwise.
Yet, it is important to note in all this what we are not
saying. We are not saying that a bankruptcy plan pur-
porting to release a claim like Miller’s is always—or even
normally—valid. In the unique circumstances of this
case, however, we believe it is. We go no further than
to apply the rule we adopted in Airadigm to the facts at
18 No. 08-1881
hand. In most instances, releases like the one here will
not pass muster under that rule. Bankruptcy litigants
should keep that in mind when they sit down at the
negotiating table.
But perhaps there is a broader lesson in this case, a
lesson for litigants of all types: Good advocacy does not
exist in a vacuum; it must be balanced with a willing-
ness to compromise, to behave reasonably, and, some-
times, to leave well enough alone. If these counter-
weights are neglected, things can get ugly in a hurry.
This case illustrates the point. What started as a simple
fee dispute ended as a multi-year, multi-court monster
that, as far as we can tell, benefitted no one. Baise &
Miller had a number of opportunities to avoid this result.
The judgment of the district court is A FFIRMED.2
2
The motion to intervene filed by trustee Christopher G. Bryan
is denied as moot. Bryan only sought to intervene to file a
motion to dismiss the appeal because he feared reversal
would disrupt the bankruptcy plan. Since we maintain the
status quo, Bryan effectively gets what he wants.
4-15-09