Louisiana World Exposition, Inc., In re

• Decision Date: 02 December 1987
• Docket Number: Nos. 86-3839,86-3841,s. 86-3839
• Citation: 832 F.2d 1391
• Parties: 17 Collier Bankr.Cas.2d 1291, Bankr. L. Rep. P 72,124 In re LOUISIANA WORLD EXPOSITION, INC., and Contractor Creditors' Committee, Petitioners. LOUISIANA WORLD EXPOSITION, INC., Plaintiff-Appellant, and Contractor Creditors' Committee, Appellant, v. FEDERAL INSURANCE CO., et al., Defendants, John A. Alario, Jr., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1391

832 F.2d 1391

17 Collier Bankr.Cas.2d 1291, Bankr. L. Rep. P 72,124

In re LOUISIANA WORLD EXPOSITION, INC., and Contractor Creditors' Committee, Petitioners LOUISIANA WORLD EXPOSITION, INC., Plaintiff-Appellant and Contractor Creditors' Committee, Appellant, v. FEDERAL INSURANCE CO., et al., Defendants John A. Alario, Jr., et al., Defendants-Appellees.

Nos. 86-3839, 86-3841.

United States Court of Appeals Fifth Circuit.

Dec. 2, 1987.

Joseph E. Friend, Douglas S. Draper, New Orleans, La., Claude F. Reynaud, Jr., Baton Rouge, La., for petitioners.

Eugene Preas, New Orleans, La., Christopher E. Lawler, Metairie, La., Judge Peter Beer, U.S. Dist. Judge, Lawrence J. Ernst, New Orleans, La., for respondents-appellees.

F. Lee Butler, Leslie A. Lanusse, Ernest O'Bannon, John E. McAuliffe, J. Forrest Hinton, Dermot S. McGlinchey, B. Franklin Martin, III, Stephen W. Rider, Rudy J. Cerone, New Orleans, La., for National Union.

Moise S. Steeg, Jr., New Orleans, La., for Kabacoff.

John J. Weigel, New Orleans, La., for Lewis & Stapp.

Douglas Wilson, Chief Deputy City Atty., New Orleans, La., for City.

George W. Pigman, Robert S. Rooth, Patricia Krebs, New Orleans, La., for Fiddler.

Terrence C. Forstall, New Orleans, La., pro se.

John F. Whitney, New Orleans, La., for Norman Kerth.

On petition for Writ of Mandamus to the United States District Court for the Eastern District of Louisiana.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before GARZA, WILLIAMS, and GARWOOD, Circuit Judges.

GARWOOD, Circuit Judge:

Plaintiff-appellant Louisiana World Exposition, Inc. (LWE), which filed for reorganization under Chapter 11 of the Bankruptcy Code in 1984, challenges, by appeal and application for mandamus, the district court's affirmance of the bankruptcy court's dismissal of LWE's complaint seeking an injunction and to enforce the automatic stay. LWE sought to halt the payment of proceeds from certain of its directors' and officers' liability insurance policies to LWE directors and officers as legal expenses. LWE argued below, as it does here, that the liability insurance proceeds are part of the bankrupt's estate. We disagree and therefore reject the challenge to the district court's judgment.

Facts and Proceedings Below

LWE is the corporation that organized the World's Fair hosted by New Orleans in 1984. LWE purchased several insurance policies providing liability coverage for its directors and officers for liabilities and related legal expenses they personally might incur in connection with their positions. The policies also provided indemnification coverage for LWE itself to the extent it might, pursuant to the requirement of a statute or its charter or by-laws, reimburse its directors or officers for such legal expense or liability. These policies provided a combined coverage of $20 million.

The New Orleans World Fair was beset by financial difficulties. After LWE filed for reorganization, a "Contractor Creditors' Committee" (Committee) was formed, see 11 U.S.C. Sec. 1102(a), and in June of 1985, the bankruptcy court granted the Committee authority to sue various of LWE's directors, officers, managers, and insurers on behalf of and in the name of LWE. A month later the Committee filed, in the United States District Court for the Eastern District of Louisiana, a complaint in the name of LWE against various LWE directors and officers, charging them with malfeasance and mismanagement (cause No. 85-2989). The insurance companies that had issued the above-referenced policies were also named defendants in that civil action pursuant to the Louisiana direct action statute (La.Rev.Stat. 22:655). ¹ By May 1986, at least one of the insurance companies had paid or been billed almost $500,000 for the legal expenses of the directors and officers.

In April 1986, after that suit had been pending for some time, the Committee filed with the bankruptcy court the complaint which is the subject of the present appeal. This complaint, in which the insurance companies and the LWE directors and officers are defendants, seeks enforcement of the automatic stay and a preliminary and final injunction against any further payment by the insurance companies of the directors' and officers' legal expenses. The Committee also thereby sought an accounting and restoration of proceeds already paid. The complaint, which is in the name of LWE, was filed in the LWE bankruptcy proceeding and was docketed therein as adversary proceeding No. 86-0097. The Committee argues that the liability insurance proceeds are part of the bankrupt's estate, and thus subject to the stay. The Committee agrees that the directors and officers have a legitimate claim to the liability proceeds for their legal expenses. But the Committee fears that if it also becomes entitled to the liability proceeds by eventually winning its above-mentioned earlier suit in district court seeking damages from the directors and officers (cause No. 85-2989), there may not be enough liability coverage for its damages and the directors' and officers' legal expenses. In that event, the Committee contends, the $20 million liability proceeds should be divided between the directors and officers and the bankrupt estate in shares reflecting the ratio of their respective claims to the total liability. By contrast, as events were unfolding, the defendants were receiving full coverage for their legal expenses. ²

On June 3, 1986, the bankruptcy court dismissed in its entirety the Committee's complaint without giving written reasons. The Committee appealed to the district court, where the case was docketed as cause No. 86-2862. The district court in all things affirmed the bankruptcy court's dismissal on November 14, 1986, again without written reasons. The Committee then appealed to and sought writ of mandamus from this Court.

On the merits, we hold that it was not error to dismiss the complaint because the proceeds of the liability coverage afforded the LWE directors and officers are not property of the LWE bankruptcy estate. Before turning to this issue, we briefly address our power to grant relief and the Committee's standing to seek it.

Discussion

I. Jurisdiction

When a bankruptcy dispute arises in a bankruptcy court, rather than a district court, the statute creating our appellate jurisdiction is 28 U.S.C. Sec. 158. ³ This statute, enacted as part of the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 333 (1984), "clearly supersedes 28 U.S.C. Sec. 1291 ... and would inferentially appear to supersede Sec. 1292 as well." In re Barrier, 776 F.2d 1298, 1299 (5th Cir.1985); see also In re Regency Woods Apartments, Ltd., 686 F.2d 899, 901 (11th Cir.1982). ⁴ Section 158 creates jurisdiction only over "final decisions, judgments, orders, and decrees," and, at least ordinarily, our jurisdiction exists only if both the bankruptcy and district courts have entered final orders. See In re Delta Service Industries, 782 F.2d 1267, 1268 (5th Cir.1986); In re County Management, Inc., 788 F.2d 311, 313-14 (5th Cir.1986). ⁵ In this case, the district court's order simply affirmed the bankruptcy court's disposition. Either both were final or neither was.

In the usual section 1291 case, "finality" is absent unless the district court renders a decision that " 'ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.' " Coopers & Lybrand v. Livesay, 437 U.S. 463, 98 S.Ct. 2454, 2457, 57 L.Ed.2d 351 (1978) (quoting Catlin v. United States, 324 U.S. 229, 65 S.Ct. 631, 633, 89 L.Ed. 911 (1945)). However, it has been acknowledged repeatedly that "[i]n many ways, bankruptcy proceedings justify a distinctive and more flexible definition of finality." 16 C. Wright, A. Miller, E. Cooper, Federal Practice & Procedure 3926, at 82 (Supp.1987); see, e.g., In re Delta, 782 F.2d 1267, 1269 (5th Cir.1986) (noting that "courts properly view finality more flexibly under 158(d) (and its predecessor Sec. 1293(b)) than under Sec. 1291"); In re Barrier, 776 F.2d at 1299 (same). ⁶

A leading treatise states that "each adversary proceeding [and contested matter] should be considered a separate judicial unit for purposes of determining finality." 1 Collier on Bankruptcy 3.03, at 3-157 (L. King 15th ed. 1987). This Circuit has followed that analysis, at least as to adversary proceedings which are sufficiently discrete and separable from the rest of the bankruptcy, and in such instances appealability of an order finally disposing of the adversary proceeding is not precluded by the fact that the remainder of the bankruptcy proceeding remains pending. In re Moody, 817 F.2d 365, 367-68 (5th Cir.1987); In re Lift & Equipment Service, 816 F.2d 1013, 1016, reh'g granted in part on other issues, 819 F.2d 546 (5th Cir.1987); Matter of Moody, 825 F.2d 81, 84 (5th Cir.1987).

We conclude that the instant adversary proceeding forms a sufficiently discrete and separable dispute so as to come within the foregoing rule and be deemed a separate judicial unit for section 158 finality purposes. See, e.g., In re Moody, supra (turn over order); In re Lift & Equipment Service, supra (determination of validity of security interest); Matter of Moody, supra (turn over proceeding); In re Regency, supra (order granting relief from automatic stay) (cited with approval in In re Delta, 782 F.2d at 1270); In re Saco Local Development Corp., 711 F.2d 441, 445-46 (1st Cir.1983) (order determining priority dispute) (cited with approval in In re Delta, 782 F.2d at 1270). See also, e.g., In re Minoco Group of Companies, Ltd., 799 F.2d 517 (9th Cir.1986) (injunction against cancellation of insurance policies issued on ground that policies were property of the estate); Sumy v. Schlossberg, 777 F.2d 921, 923 (4th Cir.1985) (grant or denial of exemption of certain property from the estate).

Of course, even though the adversary proceeding may...