In re Eagle-Picher Industries, Inc., 04-3747.

• Citation: 447 F.3d 461
• Decision Date: 05 May 2006
• Docket Number: No. 04-3747.,04-3747.
• Parties: In re: EAGLE-PICHER INDUSTRIES, INC., Debtor. Caradon Doors and Windows, Inc., Respondent-Appellee, v. Eagle-Picher Industries, Inc., Movant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 461

447 F.3d 461

In re: EAGLE-PICHER INDUSTRIES, INC., Debtor Caradon Doors and Windows, Inc., Respondent-Appellee, v. Eagle-Picher Industries, Inc., Movant-Appellant.

No. 04-3747.

United States Court of Appeals, Sixth Circuit.

Argued: January 25, 2006.

Decided and Filed: May 5, 2006.

ARGUED:

Debra A. Dandeneau, Weil, Gotshal & Manges, New York, New York, for Appellant. Audrey S. Trundle, Gibson, Dunn & Crutcher, New York, New York, for Appellee.

ON BRIEF:

Debra A. Dandeneau, Weil, Gotshal & Manges, New York, New York, Iris S. Rogatinsky, Weil, Gotshal & Manges, Miami, Florida, Matthew J. Calvert, Hunton & Williams, Atlanta, Georgia, for Appellant. Audrey S. Trundle, Gibson, Dunn & Crutcher, New York, New York, Christopher H. Buckley, Jr., Gibson, Dunn & Crutcher, Washington, D.C., Henry E. Menninger, Jr., Wood & Lamping, Cincinnati, Ohio, John L. Taylor, Jr., Celeste McCollough, Chorey Taylor & Feil, Atlanta, Georgia, for Appellee.

Before: SILER, SUTTON, and COOK, Circuit Judges.

SUTTON, Circuit Judge.

Eagle-Picher Industries emerged from Chapter 11 bankruptcy in November 1996, and in this case seeks to stay a $20 million patent-infringement action filed by Caradon Doors and Windows against it in May 1997. After considerable collateral skirmishing, the merits of the stay motion focused on the following disagreement. Eagle-Picher contends that the patent-infringement claim cannot proceed because the confirmation of the 1996 reorganization plan discharged Caradon's claim. Caradon responds that the patent-infringement claim arose in the ordinary course of doing business with the debtor and that the plan by its terms excepted this kind of claim from discharge. The bankruptcy court agreed with Eagle-Picher while the district court agreed with Caradon. We agree with the district court and affirm.

I.

Caradon manufactures artificial-wood doors. In 1989, Caradon (in truth, its predecessor) began purchasing fiberglass door skins (the exterior paneling used on artificial-wood doors) from Eagle-Picher for use in its door assemblies. On October 12, 1989, soon after this arrangement began, Therma Tru Corporation sued Caradon, claiming that Caradon's doors infringed a patent held by Therma Tru. Therma Tru also named Eagle-Picher in the lawsuit, but the district court dismissed the claim against Eagle-Picher for lack of venue. After the district court entered an $8 million verdict against Caradon in 1995, Therma Tru filed a second patent-infringement lawsuit against Caradon involving a different door assembly, which again used Eagle-Picher door skins. The parties settled both claims in December 1996.

Meanwhile, in the midst of this patent-infringement litigation, Eagle-Picher filed for Chapter 11 bankruptcy relief on January 7, 1991. Five and a half years later, on November 18, 1996, the bankruptcy court confirmed Eagle-Picher's reorganization plan. The bankruptcy court entered the confirmation order roughly one month before Caradon and Therma Tru settled their patent-infringement lawsuit in December 1996.

On May 8, 1997, Caradon filed a lawsuit against Eagle-Picher in the District Court for the Northern District of Georgia, claiming contributory patent infringement and breach of contract (among other claims) and seeking contribution and indemnity arising from the settlement of Therma Tru's patent-infringement claims. Caradon confined its prayer for relief to postpetition damages, which is to say damages stemming from sales between Caradon and Eagle-Picher after Eagle-Picher petitioned for bankruptcy relief in 1991. On June 6, 1997, Eagle-Picher moved for a stay of Caradon's action in the Bankruptcy Court for the Southern District of Ohio, claiming that the reorganization plan and confirmation order discharged the claim.

On December 24, 1997, the bankruptcy court concluded that Caradon had abandoned any right to assert a prepetition or preconfirmation claim by not raising the claim before confirmation of the reorganization plan. The district court, however, reversed the bankruptcy court's decision, holding that Caradon did not abandon its claim. The case then underwent lengthy discovery and several additional hearings before the bankruptcy court.

On May 9, 2002, the bankruptcy court granted the stay motion on the independent ground that Caradon did not have a cognizable claim to bring in the Northern District of Georgia. Construing § 2.1 of the reorganization plan, which preserves administrative expenses for "liabilities incurred in the ordinary course of business by any of the Debtors in possession," JA 104, the bankruptcy court reasoned that "[c]laims for contributory patent infringement, breach of contract and warranty of non-infringement, common law contribution and common law indemnification were not part of [the] day-to-day interaction" between the parties and thus "are not within the exception of [§] 2.1 of the Plan." Bankr.Ct. Op. at 30. The district court reversed. As it saw the matter, Caradon's claims arose from Eagle-Picher's core business and thus amounted to "liabilities incurred in the ordinary course of business." D. Ct. Op. at 12-13.

II.

In a bankruptcy case on appeal from a district court, we owe no special deference to the district court's decision and review "the bankruptcy court's legal conclusions de novo and uphold its factual findings unless clearly erroneous." Crowell v. United States, 305 F.3d 474, 476 (6th Cir.2002). There is some debate between the parties about the application of this legal/factual dichotomy to a bankruptcy court's interpretation of a reorganization plan over which it presided and about what Terex Corp. v. Metropolitan Life Insurance Co. (In re Terex Corp.), 984 F.2d 170, 172 (6th Cir.1993), requires in this context. Because the appropriate standard of review does not affect our analysis of this appeal, we will assume without deciding that we must give the bankruptcy court's interpretation of the confirmed reorganization plan the same "full deference" we gave it in Terex Corp.

The parties appear to share considerable common ground in their framing of this dispute. First, under the Bankruptcy Code, all claims against the debtor are discharged upon the confirmation of a Chapter 11 reorganization plan except as otherwise indicated in the plan of reorganization. See 11 U.S.C. § 1141(d)(1)(A) ("Except as otherwise provided . . . in the plan . . . the confirmation of a plan . . . discharges the debtor from any debt that arose before the date of such confirmation. . . ."); CPT Holdings v. Indus. & Allied Employees Union Pension Plan, Local 73, 162 F.3d 405, 407 (6th Cir.1998); Holstein v. Brill, 987 F.2d 1268, 1270 (7th Cir.1993).

Second, the Bankruptcy Code defines administrative expenses incurred during the pendency of the bankruptcy and payable by the debtor as the "actual, necessary costs and expenses of preserving the estate." 11 U.S.C. § 503(b)(1). In Reading Co. v. Brown, 391 U.S. 471, 485, 88 S.Ct. 1759, 20 L.Ed.2d 751 (1968), the Supreme Court held that a postpetition tort claim against a debtor constituted an "actual and necessary cost[]" of the administration of the estate under § 503. Since then, and in reliance on Reading, this circuit (like many others) has used a two-part test to determine whether a claim is an administrative expense under § 503: "[A] debt qualifies as an `actual, necessary' administrative expense only if (1) it arose from a transaction with the bankruptcy estate and (2) directly and substantially benefitted the estate." Pension Benefit Guar. Corp. v. Sunarhauserman, Inc. (In re Sunarhauserman, Inc.), 126 F.3d 811, 816 (6th Cir.1997); see, e.g., In re Jartran, Inc., 732 F.2d 584 (7th Cir.1984).

Applying Reading and this two-part test, courts have concluded that the following claims fall within the Code's definition of administrative expenses: tort, Reading, 391 U.S. at 485, 88 S.Ct. 1759; trademark infringement, Houbigant, Inc. v. ACB Mercantile (In re Houbigant, Inc.), 188 B.R. 347, 356 (Bankr.S.D.N.Y. 1995); patent infringement, Carter-Wallace, Inc. v. Davis-Edwards Pharmacal Corp., 443 F.2d 867, 874 (2d Cir.1971); and breach of contract, United Trucking Serv. v. Trailer Rental Co. (In re United Trucking Serv.), 851 F.2d 159, 162-63 (6th Cir. 1988); Nostas Assocs. v. Costich (In re Klein Sleep Prods.), 78 F.3d 18, 26 (2d Cir.1996). Under these precedents, Caradon's claims satisfy the traditional definition of "administrative expenses" so long as they arose from transactions that occurred between it and Eagle-Picher after the petition for bankruptcy—which indeed they did. See Pension Benefit Guar. Corp., 126 F.3d at 816 (noting that a claim must arise "from a transaction with the bankruptcy estate" to be an administrative expense).

Third, most confirmed Chapter 11 plans, if not all of them, provide mechanisms by which the reorganized company will assume the administrative expenses of the debtor that arose during the bankruptcy and that were not paid upon confirmation of the plan. See 11 U.S.C. § 503. While the Bankruptcy Code does not have a provision that sets a date for the general discharge of administrative-expense claims, see United States v. Ginley (In re Johnson), 901 F.2d 513, 517 (6th Cir.1990); Tex. Comptroller of Pub. Accounts v. Megafoods Stores (In re Megafoods Stores), 163 F.3d 1063, 1071 (9th Cir.1998), it does permit the parties to establish a bar date by which time all administrative expenses must be asserted against the debtor or face discharge and it permits the parties to define the kinds of administrative expenses that are recoverable after confirmation, see, e.g., Highlands Ins. Co. v. Alliance Operating Corp. (In re Alliance Operating Corp.), 60 F.3d 1174, 1177 (5th Cir.1995); Langel v. Kmart Corp. (In re Kmart Corp.), 2004 WL 756607 (N.D.Ill. Feb. 27, 2004), 2004 U.S. Dist. LEXIS 3149.

In this instance, § 2.1 of the Eagle-Picher reorganization plan permits certain administrative-expense claims to be...