Matter of Celotex Corp.
| Decision Date | 13 June 1991 |
| Docket Number | Bankruptcy No. 90-10016-8B1,90-10017-8B1. |
| Citation | 128 BR 478 |
| Parties | In the Matter of the CELOTEX CORPORATION, et al., Debtors. |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
Jeffrey W. Warren, for debtor.
Ketchey, Horan, Hearn & Neukamm, for Asbestos plaintiffs.
Charles M. Tatelbaum, Johnson, Blakely, Pope, Bokor, Ruppel & Burns, for The Unsecured Trade Creditors Committee.
Lipsitz, Green, Fahringer, Roll, Salisbury & Cambria, for claimant Marion George and Others.
Baron & Budd, P.C., Gillenwater, Nichol & Ames, Kazan, McLain, Edises & Simon, Ness, Motley, Lodeholt, Richardson & Poole, Jaques Admirality Law Firm, Greitzer & Locks, for Asbestos-Related Personal Injury Creditors.
William Knight Zewadski, Trenam, Simmons, Kemker, Scharf, Barkin, Frye & O'Neill, for Unofficial Asbestos Health Claim Co-Defendants' Committee.
Kozyak, Tropin, Throckmorton & Humphreys, P.A., for the Asbestos Property Damage Claimants Committee.
Gillenwater, Nichol & Ames for Danny W. Berlin.
Verrill & Dana, Portland, Me., for The American Hospital Ass'n.
B. Mills Latham, for appellees.
OMNIBUS ORDER ON MOTION TO LIFT STAY WITH REGARD TO CELOTEX APPEALS AND TO RELEASE SUPERSEDEAS BONDS THEREON
THIS CAUSE came on for consideration upon the (1) Motion Challenging Jurisdiction of Court over Property of Non-Debtors, (2) Motion to Lift Stay with Regard to Celotex Appeals and to Release Supersedeas Bonds Thereon, and (3) related issues raised by the enormous litigation in this case. By Order entered January 10, 1991, the Court denied the Motion Challenging Jurisdiction of Court over Property of Non-Debtors and granted, in part, the Motion to Lift Stay with Regard to Celotex Appeals and to Release Supersedeas Bonds Thereon. Specifically, the Court lifted the stay to enable the pending appellate actions to proceed but did not lift the stay with respect to the supersedeas bonds which Debtor posted in order to obtain stays pending appeals of the underlying litigations. One of the remaining issues is whether the supersedeas bonds posted by Debtor are property of the bankruptcy estate subject to the automatic stay and thus not available for payment to the asbestos-related bodily injury plaintiffs should their cases ultimately be affirmed on appeal. The Court finds such a determination to be a core proceeding. 28 U.S.C. § 157(b)(2)(A), (G), (O). See also LTV Corp. v. Aetna Casualty and Surety Co. (In re Chateaugay Corp.), 116 B.R. 887 (Bankr.S.D.N.Y.1990); Garrity v. Leffler (In re Neuman), 71 B.R. 567 (S.D.N.Y. 1987).
The Court, having considered the Motions, the record, and the memoranda of law submitted by the interested parties,1 finds:
The Celotex Corporation and Carey Canada Inc. (collectively referred to as "Debtor") filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code (11 U.S.C.) on October 12, 1990. At the time the petition was filed, over 141,000 asbestos-related bodily injury lawsuits were pending against Debtor.2 On that date over 100 appeals were pending in asbestos-related bodily injury cases in which Debtor and others were appealing adverse judgments. Three of those pending appeals are of particular interest to this case.
On April 3, 1989, the United States District Court for the Eastern District of Texas entered a judgment against Debtor in the total amount of $2,593,625. King v. Armstrong World Indus., No. M-85-44-CA. Debtor appealed this adverse judgment to the United States Court of Appeals for the Fifth Circuit.3 In order to stay execution of the judgment pending appeal, Debtor posted a supersedeas bond issued by Northbrook Property and Casualty Insurance Company. The bond was executed on May 17, 1989, and approved by the District Court on May 26, 1989. Insurance proceeds were used as collateral to secure the bond issued by Northbrook.
On November 1, 1989, the District Court for the Fourth Judicial District, Rusk County, Texas, entered a judgment against Debtor in the total amount of $5,379,299.50. Pool v. Fibreboard Corp., No. 86-363, and Williams v. Fibreboard Corp., No. 88-08-293. The damage award was comprised of $4,179,299.50 in compensatory damages4 and $1,200,000 in punitive damages. Debtor appealed this adverse judgment to the Court of Appeals of Texas, Sixth Judicial District, Texarkana. In order to stay execution of the judgment pending appeal, Debtor posted two supersedeas bonds issued by National Union Fire Insurance Company of Pittsburgh, Pa. Each bond was executed on February 1, 1990. A combination of cash and insurance was used as collateral to secure each bond issued by National Union.
On January 22, 1990, the United States District Court for the Eastern District of Texas entered a judgment against Debtor in the total amount of $6,417,625. Glasscock v. Armstrong Cork Co., No. M-85-158-CA. Debtor appealed this adverse judgment to the United States Court of Appeals for the Fifth Circuit. In order to stay execution of the judgment pending appeal, Debtor posted a supersedeas bond issued by National Union Fire Insurance Company of Pittsburgh, Pa. The bond was executed on February 5, 1990, and approved by the District Court on February 7, 1990. A combination of cash and insurance was used as collateral to secure the bond issued by National Union.
The genesis of any review of whether a supersedeas bond is property of the estate is the pre-Code decision of the Court of Appeals for the Third Circuit in Mid-Jersey National Bank v. Fidelity-Mortgage Investors, 518 F.2d 640 (3d Cir.1975). From that opinion black letter law has been ascribed by some: a supersedeas bond is not property of the estate, thus the automatic stay pursuant to Section 362 of the Bankruptcy Code does not preclude the judgment creditor from going against the surety bond. See W.W. Gay Mechanical Contractor v. Wharfside Two, 545 So.2d 1348 (Fla.1989); J.M. Beeson Co. v. Sartori, 553 So.2d 180 (Fla. 4th DCA 1989).
From Mid-Jersey we learn a deposit of funds by the debtor with the Clerk of the Court in lieu of a supersedeas bond is in custodia legis. The Third Circuit in Mid-Jersey determined the debtor had a "contingent reversionary interest as a potential beneficiary of the trust" in that supersedeas bond. See also Vescovo v. First State Bank (In re Vescovo), 125 B.R. 468, 471 (Bankr.W.D.Tex.1990). Such a characterization has interesting connotations as well as incongruities. First, basic property law would suggest a reversionary interest is never contingent but is vested subject to divestment. Second, since the debtor, as appellant, may be successful on appeal, the debtor must be deemed under the Mid-Jersey theorem to be a potential beneficiary under the trust.5 In such light, an argument can be made that the debtor has a property interest in a supersedeas bond. Section 541(a)(1) of the Bankruptcy Code states "all legal or equitable interests of the debtor in property as of the commencement of the case" is property of the estate "wherever located and by whomever held." Third, if the debtor holds a future interest or an equitable interest as a beneficiary of a trust under Mid-Jersey, that interest must be property of the estate even if that interest is subject to divestment.6
Parenthetically, one must remember the dichotomy between the supersedeas bond and the surety agreement and collateral securing the bond when making this analysis. The latter two are property of the estate. Whether a debtor can reject or assume the surety agreement or avoid it and thus seek return of the collateral may be an issue solely between the debtor and its surety.7 The status of the supersedeas bond is a distinct, but interconnected, issue.
This Court has reviewed Mid-Jersey and its progeny. The Mid-Jersey court, considering pre-Code law, did not have before it the expansive views established by Congress in Section 541 and Section 362 of the Bankruptcy Code. The other courts which have reviewed the issue of supersedeas bonds as property of the estate appear to have adopted the Mid-Jersey rubric without an analysis of the appellate process vis-a-vis the Bankruptcy Code. Moran v. Johns-Manville Sales Corp., 28 B.R. 376, 377-378 (N.D.Ohio 1983); Johns-Manville Corp. v. Asbestos Litigation Group (In re Johns-Manville Corp.), 26 B.R. 420, 433 (Bankr.S.D.N.Y.1983); W.W. Gay Mechanical Contractor, 545 So.2d at 1350; J.M. Beeson Co., 553 So.2d at 181.
As to federal litigation, Rule 62(d) of the Federal Rules of Civil Procedure permits an appellant to stay execution of the judgment by posting a bond.8 Thus, the judgment creditor is protected by the supersedeas bond during the pendency of the appeal. See Prudential Ins. Co. of Am. v. Boyd, 781 F.2d 1494, 1498, reh'g denied, 788 F.2d 1570 (11th Cir.1986); see also Avirgan v. Hull, 125 F.R.D. 185 (S.D.Fla. 1989). Only when the appellate process is concluded is the judgment creditor able to take action against the bond and the surety.
The act of filing a petition in bankruptcy during the pendency of an appellate case does not alter the operation of Rule 62 of the Federal Rules of Civil Procedure nor allow the judgment creditor or its agents to proceed upon some perfervid, yet fallacious, belief that it is now open season on the supersedeas bond.9 By the filing of the petition, the automatic stay is activated and all proceedings against a debtor, including appellate proceedings, are stayed. 11 U.S.C. § 362(a)(1). See O'Neill v. Continental Airlines (In re Continental Airlines), 928 F.2d 127 (5th Cir.1991); Balaber-Strauss v. Reichard (In re Tampa Chain Co.), 835 F.2d 54 (2d Cir.1987); Cathey v. Johns-Manville Sales Corp., 711 F.2d 60 (6th Cir.1983), cert. denied, 478 U.S. 1021, 106 S.Ct. 3335, 92 L.Ed.2d 740 (1986). Moreover, any act to obtain possession of, or exercise control over, any property of the estate is stayed. 11 U.S.C. § 362(a)(3).
If at the time of filing the petition the appellate process has...
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IN RE CAPTRAN CREDITORS'TRUST
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