In re Coho Resources, Inc., 02-10743.

• Decision Date: 08 September 2003
• Docket Number: No. 02-10743.,02-10743.
• Citation: 345 F.3d 338
• Parties: In the Matter of: Coho Resources, Inc., Reorganized Debtor. Marion C. Chapman, Appellee, v. Bituminous Insurance Company; Chubb Insurance Company of Canada, Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

345 F.3d 338

In the Matter of: Coho Resources, Inc., Reorganized Debtor Marion C. Chapman, Appellee, v. Bituminous Insurance Company; Chubb Insurance Company of Canada, Appellants.

No. 02-10743.

United States Court of Appeals, Fifth Circuit.

September 8, 2003.

COPYRIGHT MATERIAL OMITTED

Gerald Patrick Collier (argued), Stamps & Stamps, Jackson, MS, for Appellee.

Kristin H. Jain (argued), James E. Etri, Baker & McKenzie, Dallas, TX, Karen Korff Sawyer, Bryant, Clark, Dukes, Blakeslee, Ramsay & Hammond, Gulfport, MS, William Hollis Leech, McGlinchey Stafford, Jackson, MS, for Bituminous Ins. Co.

Russell W. Schell, Daena Goldsmith Ramsey (argued), Joyce Marie Ondich, Schell, Quillin, Mitchel & Cooley, Dallas, TX, for Chubb Ins. Co. of Canada.

Appeals from the United States District Court for the Northern District of Texas.

Before WIENER and CLEMENT, Circuit Judges, and LITTLE^*, District Judge.

WIENER, Circuit Judge:

Defendants-Appellants Chubb Insurance Company of Canada ("Chubb") and Bituminous Casualty Company ("Bituminous") appeal the district court's order granting Plaintiff-Appellee Marion Chapman's ("Chapman") motion for authority to execute a state court judgment against Chubb and Bituminous, respectively the insurer and indemnitor of discharged bankruptcy debtor Coho Resources, Inc. We affirm in part, vacate in part, and remand for transfer to the Southern District of Mississippi, from whence it came.

I. FACTS AND PROCEEDINGS

Seldom, on appeal, do we confront cases with odysseys as circuitous and tortured as this one. This bankruptcy appeal stems from a personal injury suit originally filed and tried in state court in Jones County, Mississippi. In that suit, Chapman alleged that in August 1995, he sustained permanent injuries when he fell approximately twenty feet from a platform while working on an oil well owned by Coho Resources. At the time of the accident, Chapman was employed by V.A. Sauls, Inc. ("Sauls"), which had contracted with Coho to perform repair and service work on Coho's wells. The Sauls-Coho contract included an indemnity agreement, under which Sauls agreed to "defend, indemnify, and hold [Coho] harmless from and against all claims, losses, costs, demands, damages... and causes of action ... without limit and without regard to the cause ... which are related in any way to the subject matter of" the parties' agreement. Pursuant to this provision, Sauls's general liability insurer, Bituminous, assumed the defense of Coho as the defendant in Chapman's suit.

Chapman's case was tried before a jury in May 1999. The jury returned a verdict in favor of Chapman and awarded in excess of $1.6 million in damages. A judgment in this amount was entered in Mississippi Circuit Court on June 8, 1999. On June 11, 1999, Coho timely filed several post-trial motions, seeking, inter alia, judgment notwithstanding the verdict and remittitur. On August 23, 1999, while Coho's post-trial motions were pending, Coho filed a voluntary petition for Chapter 11 Bankruptcy protection in the United States Bankruptcy Court for the Northern District of Texas.¹ Coho filed a "suggestion of bankruptcy" on September 29, 1999, notifying the Mississippi state court of the bankruptcy proceedings and the automatic stay. Chapman, too was notified of the bankruptcy petition and the deadline for filing claims, but he did not choose to file a proof of claim in those proceedings.

A week later, on October 5, 1999, the Mississippi Circuit Court ruled on Coho's post-trial motions, ordering a remittitur of the damage award to $853,930.00 and denying all other motions. The court did not acknowledge the bankruptcy proceedings, and it is unclear whether the court received notice of the stay before it issued its post-trial rulings. Regardless, Chapman accepted the remitted award on October 14, 1999. Coho appealed the judgment to the Mississippi Supreme Court in November 1999, but did not post a supersedeas bond.

On November 18, 1999, Chapman filed a garnishment action against Chubb and Bituminous in the Circuit Court of Jones County, Mississippi.² The state court issued writs of garnishment directed to Chubb and Bituminous in the amount of the remitted jury award.

Chubb and Bituminous successfully removed the garnishment action to the United States District Court for the Southern District of Mississippi, which ordered Chapman to

petition the United States Bankruptcy Court for the Northern District of Texas for permission to lift its stay, or amend its order, to authorize or permit Plaintiff to collect on the judgment entered against Coho in Plaintiff's underlying state court proceeding or to otherwise proceed in this Court or in state court in that matter, but only to the extent that proceeds of insurance are available to Coho, or to indemnify Coho, from Bituminous [Casualty] Company and/or Chubb Insurance Company of Canada.

In compliance with this court order, Chapman filed a "motion for authority to collect and/or execute on state court judgment" in the Texas bankruptcy court. In his motion, Chapman sought to execute the state judgment against Bituminous and Chubb "to the extent that insurance proceeds are available to Coho and/or to satisfy subject judgment/debt."

Following the completion of briefing and oral argument, the bankruptcy court denied Chapman's motion. The court concluded that "Chapman has no remedy, because he is not a claimant in the Chapter 11 case and is barred from going forward one way or the other, either in the Bankruptcy Court or in a Mississippi court."

Chapman appealed the bankruptcy court's ruling to the district court in Texas. After further briefing and oral argument, the district court affirmed the bankruptcy court's ruling in part, and modified it in part. First, the district court agreed that, because Chapman had failed to file a proof of claim in the bankruptcy proceedings, he was not entitled to recover from Coho, the debtor. The district court concluded further, however, that Chapman could proceed against Coho nominally to recover from third-party insurers such as Chubb, Coho's general liability insurer. The court ruled additionally that, as Bituminous is not Coho's insurer but its indemnitor, and the liability of its indemnitee, Coho, had been "extinguished" by discharge, Bituminous's liability as Coho's indemnitor was likewise "extinguished." Finally, the district court recognized that the Mississippi Circuit Court had issued its ruling on Coho's post-trial motions after the petition for bankruptcy was filed and while the automatic bankruptcy stay was in effect. The district court nevertheless declined to address whether the state court's post-petition rulings and remitted judgment were void, electing to "leave it up to the Mississippi courts to determine which judgment will be enforced." Bituminous and Chubb timely filed notices of appeal.

II. ANALYSIS

A. Standard of Review

We review the district court's decision "by applying the same standards of review to the bankruptcy court's findings of fact and conclusions of law as applied by the district court."³ Findings of fact are reviewed for clear error and conclusions of law are reviewed de novo.⁴

B. Chapman's Authority to Proceed Against Third Parties

Chubb first asserts that Chapman is forever "barred" from proceeding against Coho's insurers because he failed to file a proof of claim in Coho's Chapter 11 proceedings.⁵ Chubb's argument in this regard is based largely on perceived policy considerations. According to Chubb, Chapman's failure to file a proof of claim or otherwise notify the bankruptcy court of its debt "frustrates the very purpose of the Bankruptcy Code" and "prevents an orderly administration of the debtor's estate."

We and other courts have squarely rejected Chubb's argument; it is entirely without merit. 11 U.S.C. § 524(a) "operates as an injunction against actions against a debtor subsequent to a discharge of a debt."⁶ The bankruptcy discharge and § 524 injunction serve to "give the debtor a financial fresh start."⁷ As a general rule, a creditor must file a proof or notice of claim during bankruptcy proceedings to preserve its claim against the debtor. If a creditor neglects to file such notice, the § 524 injunction "will act to shield the debtor" from the creditor.⁸

The discharge and injunction, however, are expressly designed to protect only the debtor, and do "not affect the liability of any other entity" for the debt.⁹ Accordingly, courts are in "near unanimous agreement" that § 524(e) "permits a creditor to bring, and proceed in, an action nominally directed against a discharged debtor for the sole purpose of proving liability on its part as a prerequisite to recovering from its insurer."¹⁰ In Houston v. Edgeworth (In re Edgeworth),¹¹ we endorsed this approach, explaining that "it makes no sense to allow an insurer to escape coverage for injuries caused by its insured merely because the insured receives a bankruptcy discharge" and noting that "[s]uch a result would be fundamentally wrong."¹²

In short, even though Chapman's failure to file a proof of claim in Coho's bankruptcy proceedings is a bar to continued prosecution of claims against Coho, it does not affect his claims against non-debtors, such as general liability insurers. "The `fresh-start' policy is not intended to provide a method by which an insurer can escape its obligations based simply on the financial misfortunes of the insured."¹³ The district court properly granted Chapman's motion for authority to proceed against Coho's insurers.¹⁴

C. Status of Chapman's Remitted State Judgment

Bituminous insists that the district court erred in "implicitly" concluding that Chapman possesses a valid, final judgment executable under Mississippi law. Bituminous argues in the alternative (1) that Chapman's judgment is not final because all post-petition actions, including the state court's remittitur, are void as a result of the automatic bankruptcy...