Zale Corp., Matter of
| Citation | 62 F.3d 746 |
| Decision Date | 07 September 1995 |
| Docket Number | No. 94-10497,94-10497 |
| Parties | , Bankr. L. Rep. P 76,617 The Matter of ZALE CORPORATION, Debtor. Alan D. FELD, and National Union Fire Insurance Company, Inc., of Pittsburgh, Pennsylvania, Appellants, v. ZALE CORPORATION, et al., Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
Marvin S. Sloman, Russell F. Nelms, Jeffrey S. Levinger, Carrington, Coleman, Sloman & Blumenthal, Dallas, TX, Alan L. Busch, Robert Ruotolo, Busch, Ryan & Seib, Dallas, TX, for Feld.
Paul D. Schoonover, Richard G. Dafoe, Vial, Hamilton, Koch & Knox, Dallas, TX, Pat Long, Paton, Boggs & Blow, Dallas, TX, Eric C. Rowe, Greensboro, NC, for Nat. Union Fire of Pittsburgh, PA.
Kevin B. Getzendanner, J. Randolph Evans, Debra G. Buster, Arnall, Golden & Gregy, Atlanta, GA, for CIGNA Ins.
James D. McCarthy, David C. Kent, Hughes & Luce, Dallas, TX, for Jewel Recovery, L.P. and appellees.
Appeals from the United States District Court for the Northern District of Texas.
Before POLITZ, Chief Judge, and EMILIO M. GARZA and STEWART, Circuit Judges.
Alan D. Feld and National Union Fire Insurance Company ("NUFIC" or "National Union") appeal the district court's affirmance of the bankruptcy court's approval of a settlement entered in the bankruptcy proceedings of Zale Corporation and its affiliates (collectively "Zale" or "the debtor"). We reverse and remand.
More than two years prior to the approval of the settlement at issue in this case, Zale filed for protection under Chapter 11 of the Bankruptcy Code. See 11 U.S.C. Sec. 1101-1173 (1988 & West Supp. V 1994). The official creditors' committees initiated investigations of claims that they planned to assert against the debtor's directors and other third parties. After the committees threatened to file suit against the former directors--Irving R. Gerstein, Charles F. Gill, James Gillies, and Alan D. Feld, settlement discussions ensued. These negotiations included discussion of Zale's directors and officers ("D & O") liability policies. CIGNA Insurance Company ("CIGNA") had issued a D & O Liability and Company Reimbursement Liability Policy to provide primary insurance coverage for Zale's directors and officers. CIGNA's policy had a limit of $10 million. NUFIC had issued an excess D & O policy to Zale for up to $15 million. 1
Eventually, various parties to the Zale bankruptcy jointly filed a motion in the bankruptcy court seeking approval of a settlement agreement between the debtor and three of Zale's former directors--Gerstein, Gill, and Gillies--on one side and CIGNA, the primary D & O liability insurer, on the other. The settlement agreement included the following relevant provisions:
1) Gerstein, Gill, and Gillies would agree to a $32 million judgment against them, 2 to be satisfied solely out of insurance proceeds. 3
2) Gerstein, Gill, and Gillies would assign to Zale all rights under the insurance policies.
3) Gerstein, Gill, and Gillies would assign to Zale all rights of contribution or indemnification against third parties arising out of their activities as directors of Zale.
4) CIGNA would pay to Zale $10 million, ostensibly the limits of its policy.
5) CIGNA would sell to Zale all subrogation rights arising out of those rights assigned by Gerstein, Gill, and Gillies. Zale would pay CIGNA $1.5 million in cash and up to $2.5 million in proceeds from suits against other third parties. 4
The bankruptcy court scheduled a settlement hearing to coincide with the hearing on the confirmation of Zale's reorganization plan. On the evening of the first day of the hearing, the settling parties modified the settlement agreement to include a provision that conditioned the settlement on the grant of a permanent injunction that would prevent parties from suing the settling parties for their actions in relation to the settlement. 5 The desired injunction stated as follows:
[I]n order to effectuate the terms of the Settlement Agreement, any Person, including without limitation, National Union Fire Insurance Company, is forever barred and enjoined (1) from filing, commencing, asserting or continuing any and all claims, actions, causes of action, proceedings or suits, in law or equity (other than an appeal of this Order), against CIGNA, the Debtors, the Defendants [Gerstein, Gill, and Gillies], Zale Holding Corporation, Reorganized Zale, 6 the Litigation Entity, 7 their parents, subsidiaries, affiliates, shareholders, directors, officers, agents, employees, attorneys, agents, heirs, successors and assigns, or the Official Committees or their Professional Persons or the other Plan Proponents or their attorneys (collectively, the "Protected Parties"), based upon, arising out of or relating in any way to the participation of any of the Protected Parties in the negotiation, formulation, submission, approval, execution or consummation of the Settlement Agreement, or (2) from otherwise seeking to collaterally attack the Settlement Agreement, this Order, or the subject matter hereof.
The settling parties' stated purpose in seeking the injunction was to prevent NUFIC and Feld 8 from bringing or pursuing claims against CIGNA for bad faith and breach of contract. 9 The settling parties also modified the settlement agreement to include a provision under which Zale agreed to indemnify CIGNA for bad faith or other claims against CIGNA concerning the settlement.
On the second day of the hearing, the bankruptcy court confirmed the reorganization plan and two other settlements 10 before turning its attention to the so-called CIGNA settlement. NUFIC and Feld 11 both challenged the proposed injunction and settlement, arguing that the issuance of the injunction would deprive them of certain rights and that the court could not do so because NUFIC and Feld were not parties to the bankruptcy and had not received proper notice of the settlement. 12 The court refused to entertain argument or testimony on NUFIC and Feld's tort and contract claims, stating that these issues were not relevant to
Two days later, the bankruptcy court approved the modified settlement, adding the following language to the injunction:
[P]rovided, however, that nothing in this paragraph shall impair National Union from asserting defensively any issues of coverage (which are not otherwise determined by the findings of fact and conclusions of law entered by this Court on May 21, 1993) with respect to any policy of insurance issued by National Union or any other Person from defending claims against them....
As part of its approval order, the bankruptcy court made several findings of fact, only two of which are at issue here. First, the court found that "CIGNA has acted in good faith pursuant to the obligations under its policy." Second, the court found that "the CIGNA policy will be exhausted through the payment of the policy limit."
Both NUFIC and Feld appealed the bankruptcy court's settlement approval order to the district court. During the interim period between the bankruptcy's court's approval and the district court's resolution of the appeal, the parties to the bankruptcy consummated the reorganization plan. The district court affirmed the bankruptcy court's approval of the settlement in all respects. NUFIC and Feld now appeal the judgment of the district court on various grounds.
Feld and NUFIC challenge the entry of the injunction, arguing that the bankruptcy court exceeded its power under section 105 of the Bankruptcy Code. See 11 U.S.C. Sec. 105(a) (1988) (). They also challenge the bankruptcy court's factual findings with respect to the CIGNA policy. We review the bankruptcy court's factual findings for clear error, and we review issues of law de novo. Walker v. Cadle Co. (In re Walker), 51 F.3d 562, 565 (5th Cir.1995). 13
Before we address whether the bankruptcy court properly exercised Sec. 105 power to issue the injunction, we must first examine whether a basis for the bankruptcy court's subject matter jurisdiction existed.
Subject matter jurisdiction and power are separate prerequisites to the court's capacity to act. Subject matter jurisdiction is the court's authority to entertain an action between the parties before it. Power under section 105 is the scope and forms of relief the court may order in an action in which it has jurisdiction.
American Hardwoods, Inc. v. Deutsche Credit Corp. (In re American Hardwoods, Inc.), 885 F.2d 621, 624 (9th Cir.1989) (citations omitted); see also Miller v. Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784, 787 (11th Cir.1990) (); United States Dep't of Air Force v. Carolina Parachute Corp., 907 F.2d 1469, 1475 (4th Cir.1990) (). 14
Because Feld and NUFIC are not parties to the bankruptcy, the actions at issue between noncreditors--NUFIC and Feld--and a nondebtor--CIGNA--are third-party actions. Accordingly, we must determine if these actions are "related to" the bankruptcy case. See Quattrone Accountants, Inc. v. I.R.S., 895 F.2d 921, 926 (3d Cir.1990) ().
The jurisdiction of the bankruptcy courts, like that of other federal courts, is grounded in and limited by statute. Title 28 U.S.C. Sec. 1334(b) provides that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11."...
To continue reading
Request your trial
-
Hinojosa Eng'g, Inc. v. Lopez (In re Treyson Dev., Inc.), CASE NO: 14-70256
...debtor ... not affect[ing] the liability of any other entity on, or the property of any other entity for, such debt." See also In re Zale, 62 F.3d 746, 760 (5th Cir. 1995). According to Plaintiff, this Court could not have discharged or released Plaintiff's Claims against Hector Ruben Lopez......
-
Hinojosa Eng'g, Inc. v. Lopez (In re Treyson Dev., Inc.)
...... not affect[ing] the liability of any other entity on, or the property of any other entity for, such debt." See also In re Zale, 62 F.3d 746, 760 (5th Cir. 1995). According to Plaintiff, this Court could not have discharged or released Plaintiff's Claims against Hector Ruben Lopez, Jr. t......
-
In re Dow Corning Corp.
...interfere with a tort claimant's effort to vindicate her rights, if any, gives her a right to complain. Cf. Feld v. Zale Corp. (In re Zale Corp.), 62 F.3d 746 (5th Cir.1995). 23 MacArthur Co. v. Johns-Manville Corp. (In re Johns-Manville Corp.), 837 F.2d 89 (2nd Cir. 1988), cert. denied, 48......
-
In re Foundation for New Era Philanthropy
...upon the administration of the underlying bankruptcy case, unless the subject of the dispute is estate property. Matter of Zale Corp., 62 F.3d 746, 753 (5th Cir.1995); accord Matter of Walker, 51 F.3d at 569. Whether or not the third-party plaintiff obtains contribution or indemnity from th......
-
Equitable Mootness No Bar to “Slicing & Dicing” Exculpation Clause From Confirmation Order
...that occurred during the course of the bankruptcy” absent another source of authority. 584 F.3d at 252–53; see also In re Zale Corp., 62 F.3d 746, 760 (5th Cir. 1995). Pacific Lumber identified two sources of authority to exculpate non-debtors. The first is section 524(g) which channels asb......
-
Release of Chapter 11 Plan Proponent Overbroad and Impermissible
...Group, Inc.), 960 F.2d 285 (2d Cir. 1992). In re AOV Indus., Inc., 792 F.2d 1140 (D.C. Cir. 1986). Feld v. Zale Corp. (In re Zale Corp.), 62 F.3d 746 (5th Cir. In re Munford, 97 F.3d 449 (11th Cir. 1996). In re Continental Airlines, 203 F.3d 203 (3d Cir. 2000). Monarch Life Ins. Co. v. Rope......
-
Second And Seventh Circuits Issue Decisions On Third-Party Releases
...grant an involuntary third-party release where the third-party claim is not sufficiently related to the bankruptcy. See In re Zale Corp., 62 F.3d 746 (5th Cir. 1995). The Fourth and Circuits, by contrast, have permitted third-party releases in certain mass-tort cases, but only where the non......
-
Joshua M. Silverstein, Hiding in Plain View: a Neglected Supreme Court Decision Resolves the Debate Over Non-debtor Releases in Chapter 11 Reorganizations
...release fell "squarely into the section 524(e) prohibition." For the decisions in the Fifth Circuit, see Feld v. Zale Corp. (In re Zale), 62 F.3d 746, 760 (5th Cir. 1995) ("Section 524[(e)] prohibits the discharge of debts of non-debtors," and thus Sec. 105(a) may not be used to grant non-d......
-
Brad B. Erens, Scott J. Friedman & Kelly M. Mayerfeld, Bankrupt Subsidiaries: the Challenges to the Parent of Legal Separation
...of liability to a creditor "improperly insulate[s] nondebtors in violation of section 524(e)"). 212 Feld v. Zale Corp. (In re Zale Corp.), 62 F.3d 746, 756 (5th Cir. 1995) (involving third-party bad faith tort claims brought by one of the debtor's former directors and its excess D & O carri......
-
Judicial independence, autonomy, and the bankruptcy courts.
...they are in the best interests of the estate."); see also In re Healthco Int'l, Inc., 136 F.3d 45, 51 (1st Cir. 1998); In re Zale Corp., 62 F.3d 746, 754 (5th Cir. 1995); In re Energy Coop., Inc., 886 F.2d 921, 926 (7th Cir. 1989) ("Because the bankruptcy judge is 'uniquely positioned to co......