In the Matter of National Gypsum Co.

• Decision Date: 31 March 2000
• Docket Number: No. 98-11116,98-11116
• Citation: 208 F.3d 498
• Parties: (5th Cir. 2000) In the Matter of NATIONAL GYPSUM COMPANY, Debtor, CENTURY INDEMNITY CO.; INSURANCE COMPANY OF NORTH AMERICA, Appellees v. NATIONAL GYPSUM COMPANY SETTLEMENT TRUST; ASBESTOS CLAIMS MANAGEMENT CORPORATION, Appellants,
• Court: U.S. Court of Appeals — Fifth Circuit

Page 498

208 F.3d 498 (5th Cir. 2000)

In the Matter of NATIONAL GYPSUM COMPANY, Debtor,

CENTURY INDEMNITY CO.; INSURANCE COMPANY OF NORTH AMERICA, Appellees v. NATIONAL GYPSUM COMPANY SETTLEMENT TRUST; ASBESTOS CLAIMS MANAGEMENT CORPORATION, Appellants,

No. 98-11116

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

March 31, 2000

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] On Appeal from the United States District Court For the Northern District of Texas.

Before EMILIO M. GARZA and PARKER, Circuit Judges; and FITZWATER, District Judge.¹

ROBERT M. PARKER, Circuit Judge:

Appellants,² a reorganized Chapter 11 Bankruptcy debtor, filed suit seeking a declaratory judgment that appellee's claim stemming from an assumed contract was discharged in the debtor's earlier bankruptcy proceedings. At summary judgment, the bankruptcy court determined that the claim was not discharged, but that the contract was assumed with a binding $ 0 cure amount. Both parties appealed. The district court, sitting as an appellate court, affirmed the discharge ruling but reversed as to the binding nature of the cure amount. The reorganized debtor appeals that ruling. ³ We AFFIRM

I. FACTS AND PROCEDURAL HISTORY

A. Background

1. The Wellington Agreement

National Gypsum Company ("National Gypsum") was a manufacturer of asbestos-containing products, while Insurance Company of North America ("INA") was one of its insurers, having issued liability insurance policies to National Gypsum in the 1950s. Beginning in the 1970s, National Gypsum was sued for bodily injury and property damage claims arising from the asbestos-containing products it sold. An insurance coverage dispute soon followed mirroring the litigation taking place throughout the country between other former asbestos manufacturers and their insurers.

A large part of this industry-wide litigation was ended when a number of parties reached a negotiated settlement, commonly referred to as the Wellington Agreement. This accord, signed in 1985 by numerous manufacturers and their insurers -- including National Gypsum and INA -- resolved persistent contribution and indemnity issues, thereby allowing for joint representation in thousands of pending asbestos-related lawsuits. The Wellington Agreement provided for the creation of the Asbestos Claims Facility to analyze, defend, and settle pending and future asbestos-related bodily injury claims referred to it by participating former asbestos producers. Under the agreement, funding for the payment of settlements, judgments, and legal expenses incurred in the defense of asbestos-related bodily injury claims against the party-producers was provided by the party-insurers.

But not all insurers signed the agreement, causing gaps in coverage to arise where non-signatory insurer payments were called for. Under the Wellington Agreement, party-insurers agreed to make gap-filling payments to cover the non-signatory insurers' share of defense and indemnity costs. It was recognized that this would cause the insurers to pay out their policy limits more quickly than they would if the non-signatory insurers were participating. In response, Section XX of the Wellington Agreement was designed to compensate signatory insurers for these interim payments. Under Section XX, producers are required to use their best efforts to obtain coverage from non-signatory insurers. To encourage producers to pursue non-signatory insurers, interest on gap-filler payments begins to accrue two years after payment is made. The producer must thereafter pay interest quarterly until the earlier of (a) a settlement with or final judicial determination against the non-signatory insurer, or (b) the date on which the signatory insurer would have exhausted its policy limits if the non-signatory insurer had been a participating party to the Wellington Agreement.

Some of National Gypsum's insurers did not sign the Wellington Agreement, thus INA's successor in interest, Century Indemnity Company ("Century"), allegedly made gap-filling payments on behalf of National Gypsum for amounts owed by non-signatory insurers from October 1987 through May 1990. According to Century, Section XX interest accrued on the amount due to Century through March 1994, and prejudgment interest continues to accrue. Century claims that National Gypsum has never paid any portion of the now more than five million dollars owed to Century.

2. The Reorganization of National Gypsum

National Gypsum filed a Chapter 11 bankruptcy petition October 28, 1990. As a part of its reorganization plan, National Gypsum sought to assume the Wellington Agreement, one of approximately 250 executory contracts or unexpired leases to which National Gypsum was a party. In accordance with Bankruptcy Code requirements, the National Gypsum plan detailed the cost to "cure" any existing defaults on these executory contracts or unexpired leases. National Gypsum's plan represented that the company was not in default on any payments under the Wellington Agreement, and therefore, the cost to cure all defaults was $ 0.

On March 9, 1993, the bankruptcy court entered its "Order Confirming the First Amended and Restated Joint Plan of Reorganization of National Gypsum Company and Aancor Holdings, Inc." confirming the National Gypsum plan of reorganization.

B. Procedural History

In October 1995, following attempts by Century to recover the amounts allegedly due, National Gypsum brought suit in the Bankruptcy Court for the Northern District of Texas seeking a declaration that its contract obligations to Century were discharged in the earlier Chapter 11 reorganization. Following discovery, National Gypsum moved for summary judgment claiming that any amounts previously due were discharged, pursuant to 11 U.S.C. 1141(d) (1994), for $ 0 because Century failed to file timely proof of its claim, despite having sufficient notice of the pendency of the bankruptcy to protect its interests, and that the bankruptcy court's confirmation order precluded re-litigation of this issue. After a hearing, the bankruptcy court granted summary judgment in favor of National Gypsum finding that Century was provided sufficient notice to be bound by the confirmation order which discharged Century's claims.

Century then moved the court to set aside the judgment and re-examine both issues. Ultimately, the bankruptcy court determined that confirmation of the plan did not discharge Century's right to payment under the Wellington Agreement, but that Century was precluded by res judicata from asserting that any amount other than $ 0 was due. The court reached this conclusion despite having found that there was a factual dispute as to whether Century had received the court-ordered notices that would have alerted it to the fact that the Wellington Agreement was being assumed with a $ 0 cure amount. In essence, the bankruptcy court determined that this factual question was immaterial, because mere knowledge of the pendency of the bankruptcy action was sufficient in and of itself to bind Century.

Both parties appealed to the District Court for the Northern District of Texas. The district court ruled in Century's favor on all three issues -- discharge of the claim, sufficiency of the notice, and res judicata effect of the confirmation. The district court affirmed the bankruptcy court's holding that Century's right to payment was not discharged, reasoning that the discharge provision of 1141(d) could not be so inflated as to wipe out the requirements of 11 U.S.C. 365 (1994) (the section of the Bankruptcy Code that governs executory contracts and unexpired leases) that all executory contracts be brought current as a condition of their assumption.

The district court reversed the bankruptcy court on the notice issue, holding instead that the debtor had a responsibility to assure that the non-debtor party was on notice of the debtor's specific intent to assume the contract. The court then demonstrated that National Gypsum was unable to meet this standard based on the summary judgment record for two reasons. First, there existed a fact question whether Century was sent copies of crucial notices and mailings that the bankruptcy court had ordered to be sent to all affected parties. Specifically, did Century receive either the plan or the notice enumerating which executory contracts National Gypsum intended to assume, either one of which would have alerted Century that the Wellington Agreement was being assumed with a $ 0 cure amount? Second, the summary judgment proof demonstrated only that a representative of Century knew of the commencement of National Gypsum's Chapter 11 reorganization, not of the specific intent to assume. Consequently, the district court found that Century's due process rights had been violated.

Finally, the district court held that the confirmation order was not res judicata as to the cure amount, because the bankruptcy court "unambiguously anticipated disputes regarding cure amounts and retained jurisdiction to hear them." National Gypsum took an appeal from the district court's judgment, placing all three issues before us today.

II. DISCUSSION

A. Standard of Review

Bankruptcy court rulings and decisions are reviewed by a court of appeals under the same standards employed by the district court hearing the appeal from bankruptcy court; conclusions of law are reviewed de novo, findings of fact are reviewed for clear error, and mixed questions of fact and law are reviewed de novo. See Traina v. Whitney National Bank, 109 F.3d 244, 246 (5th Cir. 1997). We review a grant of summary judgment de novo. See Exxon Corp v. Baton Rouge Oil, 77 F.3d 850, 853 (5th Cir. 1996).

B. Century's Claims Were Not Discharged

1. Contentions of the Parties

National Gypsum argues that Century is barred from recovery because Century failed to take the necessary steps to protect its claim prior to confirmation of National Gypsum's reorganization plan....