UNR Industries, Inc., Matter of

• Decision Date: 18 January 1984
• Docket Number: No. 83-1746,83-1746
• Citation: 725 F.2d 1111
• Parties: 9 Collier Bankr.Cas.2d 1169, 11 Bankr.Ct.Dec. 662, Bankr. L. Rep. P 69,589 In the Matter of UNR INDUSTRIES, INC., et al., Debtors-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1111

725 F.2d 1111

9 Collier Bankr.Cas.2d 1169, 11 Bankr.Ct.Dec. 662,

Bankr. L. Rep. P 69,589

In the Matter of UNR INDUSTRIES, INC., et al., Debtors-Appellants.

No. 83-1746.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 10, 1983.

Decided Jan. 17, 1984.

As Corrected Jan. 18, 1984.

Malcolm M. Gaynor, Schwartz, Cooper, Kolb & Gaynor, Chtd., Chicago, Ill., for debtors-appellants.

James C. Murray, Jr., Katten, Muchin, Zavis, Pearl & Galler, J. William Cuncannan, Defrees & Fiske, Norman H. Nachman, Nachman, Munitz & Sweig, Ltd., Chicago, Ill., for appellee.

Before ESCHBACH, POSNER and FLAUM, Circuit Judges.

POSNER, Circuit Judge.

The district court in a bankruptcy proceeding refused to appoint a representative to file claims on behalf of individuals who may develop asbestosis or other lung diseases in the future from past exposure to asbestos manufactured and sold by the bankrupt, 29 Bkrtcy. 741 (N.D.Ill.1983), and the bankrupt has appealed. The first and last issue we consider is the appealability of the judge's order.

In 1982 a group of affiliated corporations (collectively, UNR) petitioned under Chapter 11 of the Bankruptcy Code, 11 U.S.C. Secs. 1101 et seq. The ground for the petition (as for Johns-Manville's, pending in the Southern District of New York, and Amatex's, pending in the Eastern District of Pennsylvania) is that UNR cannot satisfy its enormous tort liability, actual and potential, resulting from the thousands of asbestosis suits that have been or will be brought against it by shipyard workers and others who have inhaled fibers from asbestos that it manufactured. See Note, The Manville Bankruptcy: Treating Mass Tort Claims in Chapter 11 Proceedings, 96 Harv.L.Rev. 1121 (1983); Special Project, An Analysis of the Legal, Social, and Political Issues Raised by Asbestos Litigation, 36 Vand.L.Rev. 573, 806-07, 845 (1983); Note, Manville: Good Faith Reorganization or "Insulated" Bankruptcy, 12 Hofstra L.Rev. Sec. 121 (1983). Although UNR represents that it stopped manufacturing asbestos in 1970, some of its asbestos remained (and no doubt remains to this day) in shipyards and other places where people are exposed to airborne asbestos fibers; and in any event it is sometimes not until many years after last inhaling the fibers that one develops a diagnosable case of asbestosis (a term we use broadly to refer to any asbestos-related disease). Already a defendant in more than 17,000 asbestosis suits, UNR expects to be sued by 30,000 to 120,000 new asbestosis victims as their disease manifests itself and is diagnosed. Compare Walker et al., Projections of Asbestos-Related Disease 1980-2009, 25 J. Occupational Med. 409 (1983).

Believing that its ability to formulate a workable plan of reorganization might depend on its being able somehow to remove the enormous cloud of potential tort liability represented by the prospective suits, UNR in October 1982 filed in the bankruptcy court an "Application for the Appointment of a Legal Representative for Unknown Putative Asbestos-Related Claimants." UNR's hope was that if such a representative were appointed, he might, under the supervision of the bankruptcy court, negotiate with UNR some arrangement whereby all potential asbestosis claims could be fixed and discharged in the final plan of reorganization, along with the claims of UNR's existing asbestosis and other tort and contract creditors. See Note, Mass Tort Claims and the Corporate Tortfeasor: Bankruptcy Reorganization and Legislative Compensation Versus the Common-Law Tort System, 61 Tex.L.Rev. 1297, 1314 (1983). UNR might set up a revolving fund out of which the representative would pay possible future plaintiffs a fraction of their tort claims as they accrued, or it might purchase annuities for them. And it then could operate free of the threat to solvency posed by the prospective claims.

At about the same time that UNR's application was filed, the Supreme Court handed down its decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), invalidating the provision of the Bankruptcy Reform Act of 1978, Pub.L. 95-598, that vests the exercise of the district courts' bankruptcy jurisdiction in bankruptcy judges who do not enjoy the guarantees of judicial independence in Article III of the Constitution. Interpreting the Supreme Court's decision as invalidating only the subsection of the new Act that provides, "The bankruptcy court ... shall exercise all of the jurisdiction conferred by this section on the district courts," 28 U.S.C. Sec. 1471(c), and not the preceding subsections, 28 U.S.C. Secs. 1471(a) and (b), which vest original jurisdiction over bankruptcy in the district courts, the United States District Court for the Northern District of Illinois, by direction of the Seventh Circuit Judicial Council acting pursuant to 28 U.S.C. Sec. 332(d)(1), adopted on December 20, 1982, as a General Order, a proposed rule drafted by the Judicial Conference of the United States under authority of 28 U.S.C. Sec. 331. The rule, so far as it bears on this case, allows the district court to hear any part of a bankruptcy case. (The rule is printed in 1 Collier on Bankruptcy, insert preceding ch. 3 (15th ed. 1983). The background of the rule is described, and its validity defended, in White Motor Corp. v. Citibank, N.A., 704 F.2d 254, 259-62 (6th Cir.1983).) It was pursuant to the General Order that Judge Hart considered and denied UNR's application to appoint a representative. His ground for denial was that people who have not yet developed asbestosis do not have claims that can be proved in bankruptcy. See 11 U.S.C. Sec. 101(4)(A).

If this appeal had been filed before the passage of the Bankruptcy Reform Act of 1978, there would be no doubt about appealability; for section 24(a) of the previous Bankruptcy Act, 11 U.S.C. Sec. 47(a) (1976 ed.), with qualifications not material to this case, explicitly allowed appeals to be taken from interlocutory bankruptcy orders of district judges to the courts of appeals. See 1 Collier on Bankruptcy, supra, p 3.03[b] at pp. 3-289 to 290. But the 1978 Act repealed section 24(a) in regard to proceedings, such as this Chapter 11 proceeding, begun after October 1, 1979. Bankruptcy Reform Act of 1978, Pub.L. 95-598, Title IV, Secs. 401(a), 402(a), 403(a), 92 Stat. 2549, 2682-83. It also created a new system of appellate review of bankruptcy orders. This system involves three routes for appealing final orders of bankruptcy judges: to panels consisting of three bankruptcy judges; to the district court, in districts where no such panels are created; and directly to the court of appeals, if the parties agree. See 28 U.S.C. Secs. 160(a), 1293(b), 1334(a), 1482(a). An interlocutory order of a bankruptcy judge may also be appealed--to a panel of three bankruptcy judges or to the district court, as the case may be--but only with leave of the panel or court. See 28 U.S.C. Secs. 1334(b), 1482(b). The new system of appellate review of bankruptcy orders is not to be fully effective, however, till April 1, 1984. Until then, during the "transition period" as it is called, "the jurisdiction of the district courts, the courts of appeals, and panels of bankruptcy judges to hear appeals shall be the same as the jurisdiction of such courts and panels granted under the amendments [that the new Act makes to the Judicial Code, see 28 U.S.C. Secs. 1293, 1334, 1482] to hear appeals from the judgments, orders, and decrees of the bankruptcy courts ...." Bankruptcy Reform Act of 1978, Pub.L. 95-598, Title IV, Sec. 405(c)(2), 92 Stat. 2685. The appeal in this case was taken during the transition period.

A threshold question is whether Judge Hart, in denying UNR's application, was acting as a bankruptcy judge or as a district judge. If the former, his order, even if final, could be appealed to us only with the consent of the parties, and some of the parties have not consented. But it is evident that the General Order does not make district judges bankruptcy judges but rather shifts some of the bankruptcy judges' jurisdiction back to the district judges, pursuant to the grant of jurisdiction to the district courts in 28 U.S.C. Secs. 1471(a) and (b). Cf. Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190, 199-200 (3d Cir.1983). Any other interpretation would make no sense from the standpoint of creating an orderly system of appellate review. During the transition period as afterward, orders of bankruptcy judges can be appealed only to a bankruptcy panel or the district court, unless the parties agree to come to this court. It would be weird to have an order of a district judge appealed to a panel of bankruptcy judges--quite apart from constitutional objections based on the Marathon decision--or to another district judge; and there is no provision, statutory or otherwise, for having a district judge's order reviewed by a panel of district judges.

The validity of the General Order revesting original bankruptcy jurisdiction in district judges is supported by decisions in several circuits. See Gold v. Johns-Manville Sales Corp., 723 F.2d 1068, 1075 (3d Cir.1983); Kaiser v. Salomon, 722 F.2d 1574 at 1578 (2d Cir.1983); White Motor Corp. v. Citibank, N.A., supra, 704 F.2d at 262-64; In re Hansen, 702 F.2d 728, 729 (8th Cir.1983) (per curiam); In re Braniff Airways, Inc., 700 F.2d 214, 215 (5th Cir.1983) (per curiam); but see Countryman, Emergency Rule Compounds Emergency, 57 Am.Bankr.L.J. 1 (1983). Although this court has not yet considered the validity of the General Order in an adjudicative setting, we must determine our own jurisdiction to review the district judge's order before we can decide his jurisdiction to issue it; and for the limited purpose of determining whether the district judge's order is appealable, we need only decide whether the General Order vests jurisdiction in the district judges as district...