In re Consolidated Industries Corp.

• Decision Date: 09 March 2004
• Docket Number: No. 02-4030.,02-4030.
• Citation: 360 F.3d 712
• Parties: In re: CONSOLIDATED INDUSTRIES CORP., Debtor. Enodis Corporation, Plaintiff-Appellant, v. Employers Insurance of Wausau, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

360 F.3d 712

In re: CONSOLIDATED INDUSTRIES CORP., Debtor.

Enodis Corporation, Plaintiff-Appellant, v. Employers Insurance of Wausau, Defendant-Appellee.

No. 02-4030.

United States Court of Appeals, Seventh Circuit.

Argued May 27, 2003.

Decided March 9, 2004.

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J. Joseph Bainton (argued), Bainton, McCarthy, New York, NY, for Appellant.

Daniel G. McNamara (argued), Miller, Carson, Boxberger & Murphy, Mark A. Warsco, Rothberg, Logan & Warsco, Fort Wayne, IN, for Appellee.

Before ROVNER, DIANE P. WOOD, and WILLIAMS, Circuit Judges.

ILANA DIAMOND ROVNER, Circuit Judge.

This case presents the odd situation of one party suing another for contempt of a bankruptcy court order to which neither was a party. Because we do not believe that appellant Enodis is the proper party to raise a contempt claim and we further do not believe that appellee Wausau acted in contempt of the order, we affirm the dismissal of Enodis's adversary complaint.

I.

The debtor in this Chapter 7 case is Consolidated Industries, Corp., a manufacturer of residential furnaces. Enodis owned Consolidated until it sold the debtor to William Hall in 1998. Under the terms of Hall's stock purchase agreement, Enodis continued to provide insurance for the debtor for three years after the sale, although Hall promised that either he or Consolidated would reimburse certain self-insurance and coverage costs that Enodis was obligated to pay under its insurance agreements. Consolidated guaranteed payment of these costs. Employer's Insurance of Wausau was one of Enodis's insurers.

At the time the debtor entered bankruptcy, it was the defendant in several product liability suits, including a California class-action entitled Salah v. Consolidated Indus. Corp., No. CV 738376 (Cal. Sup.Ct. Santa Clara Cty). On August 14, 2000, the bankruptcy court issued an order releasing the Salah plaintiffs from the automatic stay subject to certain conditions, which in relevant part stated that:

(a) Any judgment entered in favor of the Salah Class Action Plaintiffs which is not covered by insurance shall have no effect on the determination of the amount of the Salah Class Action Plaintiff's [sic] allowed claims filed in this bankruptcy.

In re Consolidated Industries Corp., No. 98-40533, at 2 (Bankr.N.D.Ind. Aug. 14, 2001) (order lifting automatic stay).

By mid-2001, the Salah plaintiffs had negotiated a settlement with Wausau and another of Consolidated's insurers in which Wausau agreed to pay more than $1.7 million dollars to settle the plaintiffs' claims against third parties who had sold furnaces manufactured by Consolidated. The insurers submitted the settlement to the bankruptcy court for approval, but the Trustee objected. The insurers overcame the Trustee's objection by chipping in an extra $100,000 to compensate the estate for expenses it had incurred fighting the insurers' defenses to coverage. At a hearing on November 14, 2001, the bankruptcy court approved the settlement, although the written order approving the settlement was not entered until November 23, 2001. In the settlement agreement, Wausau expressly reserved its rights to pursue "any other Persons for subrogation, contribution, contractual or other relief with respect to the sharing or reimbursement of defense fees and costs incurred under [its] Polic[y]." Enodis did not attend the hearing at which the bankruptcy court approved the settlement, nor did it object to the settlement.

Wausau quickly moved to recover the amount it paid under the settlement agreement from Enodis. On November 16, 2001, Wausau drew $500,000 on a letter of credit set up under the insurance agreement to secure Enodis's payment of self-insured retention expenses. Wausau also has attempted to recover from Enodis the rest of what it paid in the settlement.

Enodis instituted this adversary proceeding to recover the $500,000. Enodis's complaint raised four claims to recover the $500,000 payment. Enodis claimed first that the draw violated the automatic stay; second, that Wausau's draw was in contempt of the August 14, 2000, order releasing the Salah plaintiffs from the automatic stay; third, that Wausau acted in contempt of the court at the November 14, 2001, hearing by not disclosing its plan to seek compensation from Enodis for the amount it paid under the settlement (which under Enodis's theory would create an administrative expense when Enodis exercised its contractual rights against Consolidated); and fourth, that Wausau should be equitably estopped from seeking recompense from Enodis because of alleged misrepresentations Wausau made to the bankruptcy court in regard to the settlement.

Wausau moved to dismiss the complaint for failure to state a claim. The bankruptcy court held a hearing on the motion on March 13, 2002, and in an oral decision, dismissed the complaint. The court held that Enodis was not entitled to enforce the August 14, 2000 order because it was not a beneficiary of the order. It further held Wausau could not be held in contempt of the August 14 order because the order did not bind Wausau. The court found that even assuming that at the settlement hearing Wausau was wilfully silent about its intent to pursue Enodis, Wausau had not acted in contempt because it had expressly reserved its right to pursue third parties in the settlement agreement itself. The court found no duty for Wausau to speak of its plans, ruling that any expenses Enodis might try to bill to the estate would not be entitled to administrative priority. Finally, the court found that Enodis could not bring an equitable estoppel claim as a separate cause of action.

Enodis appealed, raising three arguments in the district court. First, it claimed that the bankruptcy judge had not properly evaluated the motion to dismiss. Second, it argued that Wausau had acted in contempt of the August 14 order by "duping" the trustee into violating the order, and third, Enodis argued that because it was a creditor of the debtor, it was a beneficiary of the August 14 order.

The district court rejected Enodis's arguments and affirmed. The court found that the bankruptcy court had properly evaluated the motion to dismiss, accepting Enodis's factual allegations as true. Further, the court found that the bankruptcy court was justified in judicially noticing prior documents in the main bankruptcy case. The district court then agreed with the bankruptcy court that the August 14 order did not prohibit Wausau's actions. Enodis now appeals to this court

II.

A Rule 12(b)(6) dismissal of an adversary complaint in bankruptcy presents an issue of law that we review de novo. Boim v. Quranic Literacy Inst., 291 F.3d 1000, 1008 (7th Cir.2002). However, the bankruptcy court's decision in this case in large part depended on its interpretation of its own earlier orders. We will not reverse a court's interpretation of its own order unless it is a "clear abuse of discretion," because a court that issued an order is in the best position to interpret it. In re VMS Securities Litigation, 103 F.3d 1317, 1323 (7th Cir.1996); In re Marrs-Winn Co., Inc., 103 F.3d 584, 595 (7th Cir.1996).

As an initial matter, an adversary...