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Feld v. Zale Corp. (in Re Zale Corp.)

Feld v. Zale Corp. (in Re Zale Corp.)

United States Court of Appeals for the Fifth Circuit

September 7, 1995, Decided

No. 94-10497

Opinion

 [*749]  EMILIO M. GARZA, Circuit Judge:

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. § 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 [**2]  ("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 [**3]  judgment against them,[2 ] to be satisfied solely out of insurance proceeds.[3 ]

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62 F.3d 746 *; 1995 U.S. App. LEXIS 25272 **; Bankr. L. Rep. (CCH) P76,617

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.

Subsequent History:  [**1]  As Amended.

Prior History: Appeals from the United States District Court for the Northern District of Texas. D.C. DOCKET NUMBER 3:93-CV-1486-H. JUDGE Barefoot Sanders.

Disposition:  The judgment was reversed and remanded because the bankruptcy court did not have jurisdiction to enjoin appellants' potential tort claims against the settling nondebtor insurer, lacked authority to permanently enjoin appellants' contract claims, and failed to conduct the requisite procedures for temporarily enjoining appellants' contract claims.

CORE TERMS

settlement, bankruptcy court, injunction, adversary proceedings, rights, third-party, parties, contract claim, nondebtor, property of the estate, third party, proceedings, courts, district court, proceeds, cases, permanent injunction, bankruptcy case, confirmation, enjoin, court's jurisdiction, settlement agreement, no effect, reorganization plan, bankrupt estate, indemnification, reorganization, Proponents, provisions, waived

Insurance Law, Types of Insurance, Excess Insurance, Following Form Policies, General Overview, Bankruptcy Law, Bankruptcy, Case Administration, Bankruptcy Court Powers, Procedural Matters, Judicial Review, Standards of Review, Clear Error Review, De Novo Standard of Review, Civil Procedure, Appeals, Clearly Erroneous Review, De Novo Review, Subject Matter Jurisdiction, Jurisdiction Over Actions, Jurisdiction, Exclusive Jurisdiction, Governments, Legislation, Overbreadth, Debtor Benefits & Duties, Remedies, Injunctions, Permanent Injunctions, Preliminary & Temporary Injunctions, Jurisdictional Sources, Estate Property, Commercial General Liability Insurance, Persons Insured, Plans, Postconfirmation Effects, Contracts Law, Equitable Relief, Injunctions, Conversion & Dismissal, Reorganizations, Discharge & Dischargeability, Effect of Discharge, Protection of Debtors, Effect on Third Parties, Judgments, Relief From Judgments, Administrative Powers, Automatic Stay, Entry of Judgments, Stays of Judgments, Automatic Stays, Adversary Proceedings, Causes of Action, Real Property Law, Mobilehomes & Mobilehome Parks, Responses, Defenses, Demurrers & Objections, Waiver & Preservation of Defenses, Parties, Joinder of Parties, Grounds for Injunctions, Public Interest