In The "Unique Circumstances" Of The Case, Court Approves Release In Bankruptcy In Favor Of Non-Debtor From Claim By Non-Creditor
IN RE: INGERSOLL, INC. (April 15, 2009)
Winthrop Ingersoll founded the Ingersoll Cutting Tool Company (ICTC) in the late 1800s. It remained a family- owned leader in its industry through the year 2000. In 2001, Iscar, Ltd. acquired ICTC. The then-owners and descendents of Winthrop Ingersoll, the Gaylords, alleged that they never intended to sell but were duped into it by outside directors. They contacted attorney Marshall Miller to assist them in blocking the sale. He agreed to do so and enlisted the help of David Margules. The Gaylords reached an agreement to pay Miller and Margules $100,000 for the representation. The litigation proceeded apace. Miller soon asked for an retainer increase to $250,000. The litigation was unsuccessful, the sale was consummated and the Gaylords paid the $250,000. Then things got interesting: a) the attorneys sent invoices totaling $390,000, b) Miller and the Gaylord's submitted their fee dispute to arbitration, c) the arbitrator apparently ruled that the Gaylords did not owe any more to Miller and didn't decide whether they owed anything to Margules, d) the D. C. Superior Court ordered the Gaylords to pay an additional $83,000 to Miller (which they did), and e) Margules brought an action in Delaware to recover the $60,000 he claimed he was owed, which was denied. In the meantime ICTC's parent, Ingersoll International Inc., petitioned for bankruptcy. Although the Gaylords were not debtors in that case, the bankruptcy court confirmed a liquidation plan that released the Gaylords from claims "arising from" or "relating to" their original case to enjoin the sale of the company. The Gaylords sought relief in the bankruptcy court from another claim filed in the D. C. Superior Court by Miller. Although recognizing that the Gaylords were not debtors and that Miller was not a creditor, the bankruptcy court held that the release was valid because it was key to the ultimate negotiation and success of the plan. The district court, after a remand for clarification, affirmed the bankruptcy court. Miller appeals.
In their opinion, Judges Bauer, Evans and Williams affirmed. First, the Court agreed with the lower court that the release was broad enough to cover Miller's claim. Since the claim related to a breach of the arbitration award, which arose out of a fee dispute in the identified litigation, the Court concluded that it was clearly covered. As for the validity of the release, the Court noted that releases of non-debtors should rarely be approved. Here, however, the release was narrowly tailored, only covered claims relating to two cases, and was, according to the bankruptcy court, essential to the success of the plan. Although the Court approved the use and validity of the release in this case, it warned that releases like it will usually not pass muster.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select