Prudential Lines, Inc., In re

• Decision Date: 26 June 1995
• Docket Number: D,No. 1581,1581
• Citation: 33 C.B.C.2d 1174,59 F.3d 327
• Parties: 33 Collier Bankr.Cas.2d 1174, Bankr. L. Rep. P 76,540 In re PRUDENTIAL LINES, INC., Debtor. Lee DICOLA, Trustee of the PLI Disbursement Trust, Plaintiff-Appellee, Asbestosis Claimants Represented by Maritime Asbestosis Legal Clinic, Intervenor-Plaintiff-Appellee, v. AMERICAN STEAMSHIP OWNERS MUTUAL PROTECTION AND INDEMNITY ASSOCIATION, INC., Defendant-Appellant. ocket 94-5065.
• Court: U.S. Court of Appeals — Second Circuit

Page 327

59 F.3d 327

33 Collier Bankr.Cas.2d 1174, Bankr. L. Rep. P 76,540

In re PRUDENTIAL LINES, INC., Debtor.

Lee DICOLA, Trustee of the PLI Disbursement Trust, Plaintiff-Appellee,

Asbestosis Claimants Represented by Maritime Asbestosis

Legal Clinic, Intervenor-Plaintiff-Appellee, v. AMERICAN STEAMSHIP OWNERS MUTUAL PROTECTION AND INDEMNITY

ASSOCIATION, INC., Defendant-Appellant.

No. 1581, Docket 94-5065.

United States Court of Appeals, Second Circuit.

Argued May 3, 1995.

Decided June 26, 1995.

Richard H. Brown, Jr., New York City (Victor P. Corso, Salvatore A. Santoro, Kirlin, Campbell & Keating, Franklin B. Velie, Christy & Viener, of counsel), for defendant-appellant.

Leonard C. Jaques, Detroit, MI (Alan Kellman, Maritime Asbestosis Legal Clinic, Div. of the Jaques Admiralty Law Firm, P.C., of counsel), for plaintiff-appellee and intervenor-plaintiff-appellee.

Before: OAKES, MINER, and JACOBS, Circuit Judges.

MINER, Circuit Judge:

Defendant-appellant American Steamship Owners Mutual Protection & Indemnity Association, Inc. ("American Club") is a mutual insurance corporation that provides protection and indemnity ("P & I") insurance to its shipowner members. American Club underwrote P & I policies for ships belonging to Prudential Lines, Inc. ("PLI") on an annual basis from 1940 through 1970 and from 1975 through early 1986. PLI obtained Chapter 11 bankruptcy relief in November of 1986.

The Maritime Asbestosis Legal Clinic ("MALC") represents over 5,000 claimants ("the Claimants") who allege that they were injured by exposure to asbestos while serving aboard PLI ships. Each of the claimants served on a PLI vessel during one or more of the years when PLI was covered by American Club P & I policies. For the most part, each claimant also had been exposed to asbestos while serving aboard the vessels of other shipowners.

Pursuant to the Chapter 11 bankruptcy plan ("the Plan"), a PLI Disbursement Trust ("the Trust") was established to resolve asbestos-related claims and to enforce the Trust's interests under PLI's insurance policies. On December 14, 1990, the PLI Disbursement Trustee ("the Trustee") commenced an adversary proceeding in the bankruptcy court against American Club, seeking a declaratory judgment to determine the Trustee's rights under the American Club P & I policies issued to PLI. The Claimants, represented by MALC, were granted leave to intervene in that proceeding.

In December of 1992, on cross-motions for summary judgment, the bankruptcy court issued various rulings relating to the rights of the parties under the policies and entered a final judgment on January 20, 1993. See In re Prudential Lines, Inc., 148 B.R. 730 (Bankr.S.D.N.Y.1992). American Club appealed this judgment, along with an earlier order of the bankruptcy court declaring the adversary proceeding to be a "core" proceeding, to the district court.

Several months later, the Trustee and MALC entered into a settlement agreement that specified certain fixed amounts to be paid to the Claimants for certain named categories of diseases and established a procedure by which the Trustee would pay the claims. The bankruptcy court "so ordered" the agreement on March 9, 1993. However, American Club did not receive notice of the settlement until it received the Trustee's initial claims thereunder. The Trustee initially sought payment in an amount exceeding $13 million. In an order dated August 4, 1993, the bankruptcy court directed American Club to pay these claims. On September 2, 1993 the bankruptcy court ordered the Trustee to allow American Club discovery with respect to the reasonableness of the settlement with the Claimants. On September 21, 1993, the bankruptcy court entered a judgment requiring American Club to pay a total of $66,160,000 in claims. These orders were appealed to the district court and consolidated with the prior appeal pending in the district court.

The district court decided American Club's consolidated appeal on July 29, 1994. See In re Prudential Lines, Inc., 170 B.R. 222 (S.D.N.Y.1994). The district court's comprehensive opinion and order addressed seven major issues and resolved them as follows:

(1) The district court agreed with the bankruptcy court that the Trustee's adversarial proceeding against American Club was a "core" proceeding.

(2) The district court concluded that the Trustee was entitled to reimbursement for all damages caused by a claimant's exposure to asbestos under a single ship's annual P & I policy, regardless of whether the claimant served on other asbestos-contaminated vessels within the policy year or whether the claimant served on the same ship over a number of different policy years. The bankruptcy court had reached the same result.

(3) Disagreeing with the bankruptcy court, the district court found that the term "occurrence" in the policies' deductible clause was ambiguous. The district court therefore remanded for the bankruptcy court to take extrinsic evidence on the meaning of this term.

(4) The district court rejected the Liman recycling scheme incorporated in the settlement between the Trustee and MALC and "so ordered" by the bankruptcy court. ¹ A Liman-like scheme was adopted because the P & I policies contained a "pay first" provision that required the insured to pay a claimant before the insurer's duty to indemnify arose, and the bankrupt PLI had no funds with which to do so. The district court held that this arrangement did not trigger the policies' "pay first" provisions.

(5) Rejecting American Club's argument, the district court affirmed the bankruptcy court's determination that American Club was not entitled to post-petition interest on money owed to it by PLI for unpaid premiums and assessments for certain years.

(6) The district court concluded that the bankruptcy court had jurisdiction to issue the August 4th order directing the insurer to comply with the settlement agreement between the Trustee and MALC and to render the judgment ordering American Club to reimburse the Trustee for $66 million in claims.

(7) The final issue addressed on appeal was whether the procedures by which the money judgment was rendered against American Club provided it with due process. The district court found that, although American Club had no right to approve the settlement entered into by the Trustee, it did have the right to discovery to determine whether the settlement was reasonable before its duty to indemnify arose.

In a hearing held on November 29, 1994, the bankruptcy court overturned the March 9th stipulation and settlement between the Trustee and MALC. The bankruptcy court concluded that, in light of the district court's rejection of the Liman recycling scheme incorporated therein, the Claimants could not be paid and the settlement therefore was not in their best interests.

On appeal, American Club raises three challenges to the determinations made in the bankruptcy and district courts. American Club argues that: (1) its liability to indemnify PLI should be allocated pro rata over the policies covering the PLI ships on which a claimant served, according to the seaman's sea service and exposure; (2) it should be entitled, for each seaman's claim, to one deductible for each policy year that the claimant served aboard an American Club-insured PLI vessel; and (3) it is entitled to post-petition interest on unpaid past-due premiums and assessments.

Although neither side raised the issue of our authority to decide this appeal, "we are duty bound to examine this issue sua sponte." In re Chateaugay Corp., 838 F.2d 59, 61 (2d Cir.1988). Title 28, Section 158(d) provides that "[t]he courts of appeals shall have jurisdiction of appeals from all final decisions, judgments, orders, and decrees" rendered by the district courts in connection with bankruptcy appeals. "By its terms, therefore, Sec. 158(d) confers appellate jurisdiction only over a district court order that is 'final.' " In re Fugazy Express, Inc., 982 F.2d 769, 775 (2d Cir.1992). In contrast, the district court has jurisdiction to hear appeals from non-final bankruptcy orders, provided that such appeals are taken "with leave of" the district court. 28 U.S.C. Sec. 158(a).

Although section 158(d) limits our jurisdiction to final orders, a more flexible standard of finality has emerged in the context of bankruptcy proceedings. This is appropriate "[b]ecause bankruptcy proceedings often continue for long periods of time, and discrete claims are often resolved at various times over the course of the proceedings." In re Chateaugay Corp., 880 F.2d 1509, 1511 (2d Cir.1989). We therefore "allow for immediate appeal in bankruptcy cases of orders that finally dispose of discrete disputes within the larger case." In re Sonnax Indus., Inc., 907 F.2d 1280, 1283 (2d Cir.1990) (internal quotation omitted). However, "[b]y 'disputes' we do not mean merely competing contentions with respect to separable issues; rather, we apply the same standards of finality that we apply to an appeal under 28 U.S.C. Sec. 1291." Fugazy, 982 F.2d at 775.

We recently summarized this standard in In re Integrated Resources, Inc., 3 F.3d 49, 53 (2d Cir.1993):

Given the strong federal policy against piecemeal appeals, a "dispute," for appealability purposes in the bankruptcy context, means at least an entire claim on which relief may be granted. Thus, with respect to a meritorious claim for damages, the dispute is not completely resolved until the bankruptcy court determines the amount of damages to be awarded.

In sum, for a bankruptcy court order to be final within the meaning of Sec. 158(d), the order need not resolve all of the issues raised by the bankruptcy; but it must completely resolve all of the issues pertaining to a discrete claim, including issues as to the proper relief. (first emphasis added, internal quotations and citations omitted).

Moreover, even in cases where the underlying bankruptcy court decision is final and appealable, "t...