in Re Caesars Entertainment Operating Company, Inc. v. Bokf, N.a.

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 15‐3259
IN RE C AESARS ENTERTAINMENT O PERATING C OMPANY, I NC.,
et al.,
Debtors.
____________________
C AESARS ENTERTAINMENT OPERATING C OMPANY, I NC.,
et al.,
Plaintiffs‐Appellants,
v.
BOKF, N.A., et al.,
Defendants‐Appellees.
______________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 15 C 6504 — Robert W. Gettleman, Judge.
____________________
A RGUED D ECEMBER 10, 2015 — D ECIDED D ECEMBER 23, 2015
____________________
Before P OSNER , MANION, and SYKES, Circuit Judges.
P OSNER , Circuit Judge. This is an immense, and immense‐
ly complicated, bankruptcy proceeding, but the issue pre‐
sented by the appeal is straightforward, enabling us to spare
the reader a mountain of details. For both the bankruptcy

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2 No. 15‐3259
judge, and the district judge to whom the bankruptcy
judge’s ruling was unsuccessfully appealed, based their de‐
cisions on a question of statutory interpretation. We must
decide simply whether their interpretation was correct.
Caesars Entertainment Operating Company, which the
parties call CEOC, owns and operates a chain of casinos and
is the leading debtor in a Chapter 11 bankruptcy proceeding.
It is the only debtor we need discuss because the others are
subsidiaries of CEOC. (In other words, to simplify our opin‐
ion we pretend that CEOC is the sole debtor.) CEOC used to
be wholly owned by Caesars Entertainment Corp. (CEC),
which remains its principal owner. Beginning in the mid‐
2000s and continuing in recent years, CEOC borrowed bil‐
lions of dollars to finance its operations, issuing notes to the
lenders that were guaranteed by CEC. As CEOC’s financial
position worsened, CEC tried to eliminate its guaranty obli‐
gations by selling assets of CEOC to other parties and termi‐
nating the guaranties that it had issued. Creditors of CEOC
who had received the guaranties challenged CEC’s repudia‐
tion of them by filing suits in state and federal courts against
CEC. The suits sought damages in toto of approximately $12
billion. See, e.g., MeehanCombs Global Credit Opportunities
Funds, LP v. Caesars Entertainment Corp., 80 F. Supp. 3d 507,
509–11 (S.D.N.Y. 2015); BOKF, N.A. v. Caesars Entertainment
Corp., No. 15‐CV‐1561 (SAS), 2015 WL 5076785, at *2
(S.D.N.Y. Aug. 27, 2015); Wilmington Savings Fund Society,
FSB v. Caesars Entertainment Corp., No. CV 10004‐VCG, 2015
WL 1306754, at *2–3 (Del. Ch. March 18, 2015). Further com‐
plicating the picture, CEOC in its bankruptcy proceeding has
asserted claims against CEC alleging that CEC caused CEOC
to transfer highly valuable assets to CEC at less than fair
value, leaving CEOC saddled with billions of dollars of debt;

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No. 15‐3259 3
the transfers had therefore allegedly been fraudulent trans‐
fers—part of a scheme by CEC to snatch CEOC’s most valu‐
able assets while ensuring that the guaranty plaintiffs could
not recover on their notes.
CEOC fears that those guaranty suits will “thwart[]
[CEOC’s] multi‐billion‐dollar restructuring effort, which de‐
pends on a substantial contribution from CEC in settlement
of [CEOC’s] claims against it,” and thus will “let [the guar‐
anty plaintiffs] jump the line in front of other creditors, in‐
cluding more senior ones,” of the bankrupt estate. CEOC
therefore asked the bankruptcy judge to enjoin the guaranty
suits until 60 days after a bankruptcy examiner, appointed
by the judge to make an independent assessment of the
bankruptcy claims, completes his report. The hope was that
the report might help the parties negotiate a reorganization
of the bankrupt estate. The bankruptcy judge, seconded by
the district judge, to whom CEOC appealed the first judge’s
ruling, refused to issue the injunction. The bankruptcy
judge’s exercise of jurisdiction over these other suits would
have been constitutional, see In re Quigley Co., Inc., 676 F.3d
45, 52–53 (2d Cir. 2012), but he thought he lacked statutory
authority to enter an injunction under the relevant provision
of the Bankruptcy Code, section 105(a), which provides, so
far as relates to this case, that “the [bankruptcy] court may
issue any order, process, or judgment that is necessary or
appropriate to carry out the provisions of this title.” 11
U.S.C. § 105(a) (emphasis added). Despite this broad grant of
power, the bankruptcy judge thought that for litigation
against a non‐debtor to be enjoinable it must arise out of the
“same acts” of the non‐debtor that gave rise to disputes in
the bankruptcy proceeding. The disputes in CEOC’s bank‐
ruptcy arise out of CEC’s alleged fraudulent transfers, while

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4 No. 15‐3259
the claims being pressed against CEC in the lawsuits that
CEOC is endeavoring to enjoin arise from CEC’s alleged re‐
pudiation of the guaranties that it issued to the firms that
lent money to CEOC. They are not the same claims. (The
guaranty plaintiffs also have claims against CEOC, but those
claims are automatically stayed pursuant to 11 U.S.C.
§ 362(a).)
But nothing in 11 U.S.C. § 105(a) authorizes the limitation
on the powers of a bankruptcy judge that CEC’s creditors
(the guaranty plaintiffs) successfully urged on the judges be‐
low. (Notice too that 28 U.S.C. § 1334(b), provides that “the
district courts shall have original but not exclusive jurisdic‐
tion of all civil proceedings arising under title 11, or arising
in or related to cases under title 11” (emphasis added).)
Though section 105(a) does not give the bankruptcy court
carte blanche—the court cannot, for example, take an action
prohibited by another provision of the Bankruptcy Code,
Law v. Siegel, 134 S. Ct. 1188, 1194 (2014); In re Kmart Corp.,
359 F.3d 866, 871 (7th Cir. 2004)—it grants the extensive eq‐
uitable powers that bankruptcy courts need in order to be
able to perform their statutory duties.
The question that the bankruptcy judge and the district
judge failed to address because of their cramped interpreta‐
tion of section 105(a) is whether the injunction sought by
CEOC is likely to enhance the prospects for a successful res‐
olution of the disputes attending its bankruptcy. If it is, and
its denial will thus endanger the success of the bankruptcy
proceedings, the grant of the injunction would, in the lan‐
guage of section 105(a), be “appropriate to carry out the pro‐
visions” of the Bankruptcy Code, since successful resolution
of disputes arising in bankruptcy proceedings is one of the

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No. 15‐3259 5
Code’s central objectives. See Zerand‐Bernal Group, Inc. v.
Cox, 23 F.3d 159, 162–63 (7th Cir. 1994). If before CEOC’s
bankruptcy is wound up CEC is drained of capital by the
lenders’ suits to enforce the guaranties that CEC had given
them, there will be that much less money for CEOC’s credi‐
tors to recover in the bankruptcy proceeding. CEOC seeks
on behalf of the creditors to recover from CEC assets that
CEC caused to be fraudulently transferred to it from CEOC,
and to use the recovered assets to pay the creditors. The less
capital CEC has for CEOC to recapture through prosecution
or settlement of its fraudulent‐transfer claims, the less mon‐
ey its creditors will receive in the bankruptcy proceeding.
Those creditors, and CEOC as their debtor, thus have a di‐
rect and substantial interest in the litigation between CEC
and the firms to which it has issued guaranties. That interest
would be furthered by a temporary injunction staying the
lenders’ lawsuits against CEC.
One can envision a situation in which CEC, having both
obligations on the guaranties it issued to CEOC’s lenders,
and obligations to CEOC arising from the latter’s fraudulent‐
transfer claims, would lack the money to satisfy all its obli‐
gees, and would thus become the badminton birdie in a con‐
test between the two groups of claimants. CEOC contends
that if the guaranty litigation against CEC can be frozen for a
time by an order issued by the bankruptcy judge, the bank‐
ruptcy examiner’s report analyzing the disputed transac‐
tions will provide the parties with information they need to
have a clear shot at negotiating an overall settlement of what
amounts to a three‐cornered battle among CEC, its direct
creditors via CEC’s guaranties to them, and CEOC’s credi‐
tors, some of whom are also CEC’s creditors by virtue of
CEC’s guaranteeing CEOC’s debts.

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6 No. 15‐3259
If this analysis is correct, there is nothing in section 105(a)
to bar the order sought by CEOC; for the statute, to repeat,
authorizes “any order … that is … appropriate to carry out
the provisions of” the Bankruptcy Code. Whether the tem‐
porary injunction sought by CEOC is such an “appropriate”
order is a factual issue that remains to be determined.
Earlier we questioned the “same acts” limitation that the
bankruptcy judge and the district judge placed on section
105(a). But the guaranty plaintiffs (CEC’s creditors) argue
that two decisions by this court have endorsed that limita‐
tion: Fisher v. Apostolou, 155 F.3d 876 (7th Cir. 1998), and In re
Teknek, LLC, 563 F.3d 639 (7th Cir. 2009). The issue in Fisher
was “whether claims that the defrauded investors have
against the accomplices [of the fraudster, whose corporation
was in bankruptcy] and against the futures commission
merchant through which they conducted much of their
business may be stayed for the duration of the [corpora‐
tion’s] bankruptcy proceeding.” 155 F.3d at 877. The bank‐
ruptcy court stayed (i.e., enjoined) the investors’ suits under
11 U.S.C. § 105(a). Id. at 878. We approved, saying that
while the [investor] Plaintiffs’ claims are not “property of”
the estate [and so were not subject to an automatic stay
under 11 U.S.C. § 362], it is difficult to imagine how those
claims could be more closely “related to” it [under 28
U.S.C. § 1334(b)]. They are claims to the same limited pool
of money, in the possession of the same defendants, as a
result of the same acts, performed by the same individuals,
as part of the same conspiracy. We can think of no hypo‐
thetical change to this case which would bring it closer to a
“property of” case without converting it into one.
Id. at 882. That was a more clear‐cut case for relief under sec‐
tion 105(a) than this one, given that “both parties were pur‐

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No. 15‐3259 7
suing the same dollars from the same defendants to redress
the same harms.” Id. at 879. But it doesn’t follow that a less
clear‐cut case is necessarily beyond the reach of section
105(a). In both Fisher and the present case the issuance of a
temporary injunction against a class of creditors could well
facilitate a prompt and orderly wind‐up of the bankruptcy.
Teknek approves Fisher, remarking that in that case “even
though the investor‐creditors’ fraud claims were personal
and distinct from claims that could be brought by other cred‐
itors, they were so related to the bankruptcy proceeding
that, if not temporarily enjoined, they would have derailed
those proceedings’ efforts to recover for the class of creditors
as a whole.” 563 F.3d at 648. But Teknek in contrast was a
case involving “separate acts, which caused separate injuries
to two separate companies, only one of which is in bank‐
ruptcy.” Id. at 649. The plaintiff had won a patent‐
infringement case against two companies—one of which lat‐
er filed for bankruptcy—and subsequently obtained an en‐
largement of the judgment to reach shareholders (called “al‐
ter egos”) of the defendants. The plaintiff claimed that the
alter egos had looted the two companies by moving the
companies’ assets into a holding company in order to avoid
having to pay the judgment. The bankruptcy trustee sought
to enjoin the plaintiff from enforcing its judgment against
the shareholders, arguing that they and the holding compa‐
ny had indeed looted the bankrupt entity; thus the trustee
was seeking recovery from the same pool of money as the
patent plaintiff. We ruled that the patent claims were not
sufficiently related to the debtor’s bankruptcy to allow such
an injunction to be issued. Id. at 649–50. The patent holder’s
suit had been against both Teknek (the bankrupt company)
and a firm called Electronics (the non‐bankrupt company).

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8 No. 15‐3259
We noted that the “alter egos [had] looted both Teknek and
Electronics[,] … [which were] separate acts, which caused sep‐
arate injuries to two separate companies, only one of which is in
bankruptcy.” Id. at 649 (emphasis added). Because the entire
judgment could be collected from the non‐bankrupt entity,
Electronics, there was no reason to allow Teknek to obtain
an injunction that would prevent the patent holder from go‐
ing after Electronics. In the present case, in contrast, the mis‐
conduct alleged in the third‐party litigation (misconduct by
CEC) directly harms the debtor, and concerns transactions
that are closely related to, and sometimes overlapping with,
those challenged in the bankruptcy.
Furthermore, the patent holder was Teknek’s only major
creditor, so allowing the third‐party action of that creditor to
proceed would not affect a larger group of creditors in the
bankruptcy. Id. at 651. (Indeed we were puzzled why the
case was even in bankruptcy, given what was effectively a
creditor class consisting of only one creditor. Id. at 650. The
usual purpose of bankruptcy is to allocate the distribution of
the bankrupt’s assets among creditors.) In our case the po‐
tential injuries to the numerous creditors in the bankruptcy
(whose prospects depend on CEOC’s assets), and to the
guaranty plaintiffs (whose loans CEC has guaranteed), are
not readily separable. Both injuries, according to CEOC,
stem from CEC’s broad scheme to transfer CEOC’s assets to
itself. Indeed, some of the same creditors have claims against
both CEOC and CEC for repayment of the same loans, and
so their ability to recover from CEC (the guarantor) may de‐
pend on the amount they can recover directly from CEOC,
their borrower. And were guarantor liability to be imposed
on CEC, CEC’s ability to satisfy CEOC’s fraudulent‐

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No. 15‐3259 9
conveyance claims against it—and thus pay other credi‐
tors—would be impaired.
We don’t say that the stay sought by CEOC must be
granted—that’s an issue for the bankruptcy judge to resolve
in the first instance—but only that both he and the district
judge erred in thinking that section 105(a) as interpreted in
Fisher and Teknek foreclosed such a procedure. That was a
misreading of the statute and our cases. The denial of the in‐
junction sought by CEOC is therefore vacated and the case
remanded for further proceedings consistent with this opin‐
ion.
VACATED AND R EMANDED

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