Forty-Eight Insulations, Inc., Matter of

• Decision Date: 09 June 1997
• Docket Number: No. 96-3406,FORTY-EIGHT,96-3406
• Citation: 115 F.3d 1294
• Parties: 38 Collier Bankr.Cas.2d 137, 31 Bankr.Ct.Dec. 3, Bankr. L. Rep. P 77,412, 27 Envtl. L. Rep. 21,081 In the Matter ofINSULATIONS, INCORPORATED, Debtor. Appeal of MARITIME ASBESTOS CLAIMANTS. 1
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1294

115 F.3d 1294

38 Collier Bankr.Cas.2d 137, 31 Bankr.Ct.Dec. 3,

Bankr. L. Rep. P 77,412, 27 Envtl. L. Rep. 21,081

In the Matter of FORTY-EIGHT INSULATIONS, INCORPORATED, Debtor.

Appeal of MARITIME ASBESTOS CLAIMANTS. ¹

No. 96-3406.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 16, 1997.

Decided June 9, 1997.

Leonard C. Jaques, Alan Kellman (argued), Jaques Admiralty Law Firm, Detroit, MI, Dion J. Sartorio, Tressler, Soderstrom, Maloney & Priess, Chicago, IL, for Appellant.

Brant C. Weidner, Terry John Malik (argued), Dirk W. Andringa, Winston & Strawn, Chicago, IL, for Trustee-Appellee and Debtor.

Before ESCHBACH, COFFEY and DIANE P. WOOD, Circuit Judges.

ESCHBACH, Circuit Judge.

After years of producing asbestos-containing products, Forty-Eight Insulations, Inc. ("Debtor" or "Forty-Eight") began reparations by using the proceeds of its Chapter 11 liquidation to fund a trust created to pay asbestos-related property damage and personal injury claims. Appellants, the Maritime Asbestos Claimants ("the Claimants") assert a right to these funds for alleged personal injury related to the use of Debtor's products in the maritime industry. As part of the claims processing procedure, Debtor's Trustee, Thomas J. Allison, disallowed the appellants' claims to the money on the grounds that they had not demonstrated sufficient exposure to Debtor's products. To pay those claims that were allowed, the Trustee sought and obtained an order from the bankruptcy court approving an interim distribution from the Trust to allowed claim holders. Instead of fully distributing the Trust funds at once, the Trustee kept a reserve of $1.8 million to fund disputes over disallowed claims. The Claimants disputed the Trustee's denial of their claim by filing a court action, which is still pending, against the Trustee. In addition, contending that the $1.8 million reserve would not cover their claims should they later be judged allowable, the Claimants moved the bankruptcy court to stay its order approving the interim distribution and reserve. The bankruptcy court, and later the district court, denied the stay motion. We take jurisdiction to review the district court's stay denial, and now affirm.

I. Background

From 1923 to 1970, Forty-Eight and its predecessor corporation manufactured insulation products, some of which contained asbestos. Beginning in 1982, the Debtor ceased manufacturing operations and began to manage its assets for the purpose of defending, settling, and paying asbestos-related property damage and personal injury claims arising out of claim holders' use of Debtor's products. In April of 1985, under the weight of over 26,000 asbestos-related claims against it, Forty-Eight filed a petition for relief under Chapter 11 of the United States Bankruptcy Code. After a ten-year asset liquidation process, the bankruptcy court in May of 1995 confirmed Forty-Eight's Modified Fourth Amended Plan of Liquidation ("the Plan").

The Plan allowed for the payment of claims as follows. After the Trustee paid administrative expense claims, priority claims, and non-asbestos-related unsecured claims, the Debtor's remaining assets were to be deposited in the Forty-Eight Insulation Qualified Settlement Trust ("the Trust"), which would hold assets for the payment of asbestos-related property damage and present and future personal injury claims in accordance with the Trust Agreement. The Trust Agreement provides that the Trust funds should be distributed in conformity with the Plan, from one of two accounts: Distribution Account A, consisting of approximately $39 million, would be used to pay the allowed claims of "present claimants" (those who file claims before the bar date of November 22, 1995); and Distribution Account B, consisting of approximately $15 million, would be used to pay "future claimants" (those who file claims after the bar date).

Criteria for "allowed" claims were set out in the Claims Processing Agreement ("CPA"), which, like the Trust Agreement, was incorporated into the Plan by the bankruptcy court's confirmation order. Under the CPA, the claims processor would review each claim for validity. To show that his claim was allowable, a claim holder was required 1) to demonstrate that he was exposed to asbestos products manufactured by Debtor, and 2) to submit a medical report listing the diagnosis of an asbestos-related disease as a result of that exposure. On receiving the claims processor's recommendation, the Trustee would either allow the claim and authorize payment, or deny the claim. In the event that a claim holder's claim was initially disallowed, the Trust Agreement provided that the claim holder would be notified of the reason and given a second chance to submit evidence of exposure for reevaluation. In the event that a claim holder's claim was rejected after this second review, the claim holder could bring suit to dispute the rejection in a court of competent jurisdiction.

The Claimants here are a class of workers in the maritime industry who allege personal injury from Debtor's asbestos-containing products which they believe were used aboard vessels upon which class members worked and lived. Pursuant to the Trust Agreement and the CPA, the Claimants submitted their claims before the bar date, thus asserting their right to a portion of the Trust funds for present claimants. The Trustee twice rejected their claims on the grounds that they had not demonstrated sufficient evidence of exposure to Debtor's asbestos-contaminated products. The Claimants responded to the Trustee's second denial by filing a tort class action in Cook County Circuit Court naming the Trustee as the sole defendant. In this separate action ("the class action"), the Claimants argue that their claims should not have been disallowed because Debtor supplied its products to the maritime industry. Procedural jockeying landed the class action back in the lap of Bankruptcy Judge Barliant. ²

Meanwhile, the Trustee proceeded with his task of authorizing payment to other claim holders whose claims had been allowed. Under the Plan, the Trustee was required to make payment to the holders of allowed present claims by September 30, 1996. Instead of disbursing the entire balance of Trust Account A to the allowed claim holders at that time, he decided to create a reserve account to ensure that there were adequate remaining funds available to pay the costs of defending or settling lawsuits brought by rejected claim holders and to pay initially rejected claims later deemed to be allowed. The Trustee proposed to make partial, interim payments to the allowed claimants on September 30, to use the reserved funds to cover the costs of any disputed claims, and then to distribute the remaining reserved funds, if any, to the allowed claimants after the disputes were settled. In the course of discharging this duty, the Trustee sought approval from the bankruptcy court to make a $37.5 million interim distribution to those present claimants whose claims had thus far been allowed. As part of that motion, the Trustee also sought the bankruptcy court's approval of a $1.8 million reserve, the amount that would remain in Trust Account A after the proposed interim distribution.

On September 10, 1996, the bankruptcy court issued an order approving both the interim distribution and the $1.8 million reserve ("the September 10 Order"). The Order prompted the Claimants to make two responsive filings: 1) a Notice of Appeal of the September 10 Order with the district court; and 2) an emergency motion to stay the September 10 Order with the bankruptcy court. ³ The Claimants' stay motion expressed their concern that the $1.8 million reserve would be inadequate to pay their claims should a court subsequently find that they are entitled to payouts from the Trust. The stay motion did not expressly request that the court stay all distribution of funds from Trust Account A--instead, it requested that the bankruptcy court order the Trustee to increase the reserve from $1.8 to $5.8 million, which they contend would be adequate to cover their alleged claims. On September 24, 1996, the bankruptcy court denied the stay motion. That same day, the Claimants renewed their stay request in federal district court pursuant to Bankruptcy Rule 8005. In an order dated September 26, 1996, the district court also refused to grant the stay. Before our court, the Claimants challenge this second denial. On September 27, 1996, we issued an order granting an interim stay pending appeal, specifically prohibiting the scheduled September 30, 1996 interim distribution and generally prohibiting the distribution of any Trust funds until further order.

II. Jurisdiction

Because of the often complicated issues of jurisdiction in bankruptcy appeals, we asked the parties to brief us on whether we may review the district court's order denying the stay. Debtor questions the district court's jurisdiction to review the bankruptcy court's order, and also argues that even if the district court had jurisdiction, our court does not.

We begin the jurisdictional analysis with the issue of finality. If the denials of the stay motions at both the bankruptcy and district court levels are final orders, the district court and our court would clearly have jurisdiction under 28 U.S.C. § 158(a)(1) and (d), respectively. A cousin to § 1291 finality-based jurisdiction, § 158 governs the review of cases initiated in the bankruptcy court, and provides separate bases for jurisdiction at the district court and appellate court levels. Under § 158(a)(1), final judgments, orders, and decrees of the bankruptcy court are appealable as of right to the district court. Under § 158(d), courts of appeal may hear appeals from "final" orders entered by the district court in appeals from bankruptcy court judgments. Section 158 finality differs from § 1291 finality, however. In ordinary federal litigation, a final judgment is...