Jenner & Block

Settlement in Consolidated Industries Bankruptcy Paves Way For Funds to Reach Homeowners

For over a decade, tens of thousands of homeowners, developers, and intermediaries who had purchased defective and potentially unsafe furnaces manufactured by the now bankrupt Consolidated Industries Corp. have been wondering whether they would ever receive funds from the company to recoup their repair and replacement expenses.

On Friday, those claimants, as well as other creditors, moved a step closer to receiving some of those funds because of a settlement that ends the long running dispute between the Chapter 7 Bankruptcy Trustee of Consolidated, Daniel Freeland, against Enodis Corporation.  Jenner & Block has represented Mr. Freeland since 2000 to assist him in prosecuting claims against the former owners of Consolidated, who had taken in excess of $38 million from the company, nearly all of its capital, in fraudulent transfers to Enodis at a time when Consolidated was insolvent and facing significant exposure for warranty, products liability and other claims.

Under the terms of the settlement, Enodis will pay the Trustee $69.5 million plus 5% interest on the settlement amount until it is paid and release claims against the bankruptcy estate that it asserted and that it bought from other creditors totaling over $20 million. The settlement is subject to approval by the United States Bankruptcy Court for the Northern District of Indiana, which is hoped will occur by late March.

In May 2008, the court approved an over $50 million settlement of the 1998 class action lawsuit between the Trustee and a nation-wide class of consumers who had purchased defective Consolidated.  Some of the funds from Friday’s settlement should go toward the class action settlement.  Consolidated first filed for Chapter 11 bankruptcy in May 1998, and it was converted to a Chapter 7 bankruptcy in August 2000.

In 2004, the Bankruptcy Court entered a judgment in favor of the Trustee on his fraudulent transfer claims, ruling that Consolidated Industries had made actual fraudulent transfers to Enodis Corporation.  The fraudulent transfers were conducted involving an unusual system of “dividend notes” that declared dividends in excess of the company’s value with high interest payments tied to the company’s centralized cash management system.

After multiple appeals by Enodis, in September 2008, the Seventh Circuit affirmed most of the bankruptcy court's judgment.  The appeals court also remanded the case for a number of issues, including a ruling on the Trustee’s alter ego claims, which he had lost on jurisdictional grounds in the Bankruptcy Court, but were reinstated by the Seventh Circuit.

In another appeal in 2005, Jenner & Block obtained a favorable ruling before the Seventh Circuit when it dismissed an appeal by Enodis Corporation that sought to force the Trustee to settle an $8 million personal injury suit in Alabama under terms that were objectionable to the Trustee and creditors.

The case was tried by Jenner & Block Partners Joel T. Pelz and Catherine L. Steege, with assistance from Partner Ronald R. Peterson and Associate Christie Childers.  Partner Barry Levenstam and Associate Andrew J. Olejnik assisted with the appeals.  Associates David H. Hixson and Landon S. Raiford have worked on the post-remand proceedings.  Partner Carter H. Klein assisted with documenting the settlement and the letters of credit that secured the original judgment and will pay most of the settlement amount.