Travelers Ins. Co. v. H.K. Porter Co., Inc.

Decision Date17 January 1995
Docket NumberNo. 94-3324,94-3324
Citation45 F.3d 737
Parties, 32 Collier Bankr.Cas.2d 1405, 26 Bankr.Ct.Dec. 744, Bankr. L. Rep. P 76,341 TRAVELERS INSURANCE COMPANY, Appellant v. H.K. PORTER COMPANY, INC.; The Official Committee of Unsecured Creditors, of H.K. Porter Company, Inc.; Aiken County Public Schools; Altoona Area School District; Anderson County Public Schools; Barnwell School District #45; Berea Independent School System; Blackwell Public Schools; Central Dauphin Schools; Charleston County Public Buildings; Charleston County Public Schools; Chester County Public Schools; Dillon County Public Schools; Dyersburg City Schools; Fairbanks North Star Borough; Georgetown Public Schools; Greenville Hospital System; Greenwood School District #51; Hamilton County Public Schools; Horry County Public Buildings; Horry County Public Schools; Jasper County Public Schools; Kershaw County Public Schools; Kershaw School District; Lancaster County Public Schools; Lexington County Public Schools; Mt. Lebanon School District; Natrona County Schools; Orangeburg School District #6; Orangeburg County Public Buildings; Pekin School District; Richland County School District; Rowan County Public Schools; University of South Carolina; Wake County Public Schools; Washington County Public Schools; Williamsburg Public Schools.
CourtU.S. Court of Appeals — Third Circuit

Mark J. Thompson (argued), Simpson, Thacher & Bartlett, New York City, for appellant.

Joseph E. Schmitt, George T. Snyder (argued), Stonecipher, Cunningham, Beard & Schmitt, Pittsburgh, PA, for H.K. Porter Co., Inc., appellee.

Timothy E. Eble, Frederick C. Baker (argued), Ness, Motley, Loadholt, Richardson & Poole, Charleston, SC, for all appellees except H.K. Porter Co., Inc., and Official Committee of Unsecured Creditors of H.K. Porter Co., Inc.

Before HUTCHINSON, NYGAARD and GARTH, Circuit Judges.

OPINION OF THE COURT

GARTH, Circuit Judge:

H.K. Porter Company, Inc. ("Porter"), a debtor in bankruptcy, was, and evidently is presently, insured by Travelers Insurance Company ("Travelers"). Certain school district creditors (the "Claimants") filed proofs of claims in the Porter bankruptcy alleging property damage due to asbestos installations. At some point, believing that the prosecution of their claims against Porter would be costly and without commensurate benefit, some of the creditors withdrew their claims, and others defaulted.

Thereafter, on hearing of a possibility that Travelers, as Porter's insurer, might be required to respond for damage claims against Porter, the school district creditors moved to vacate their withdrawals/defaults. Their motions were granted by the bankruptcy court, but with a restriction limiting any recoveries to insurance proceeds only.

Travelers now asserts that the bankruptcy court's order reinstating the claims, but limiting any recovery to insurance proceeds: (1) is void for lack of service on Travelers as a "party against whom relief is sought"; (2) was the product of "collusive prosecution" between Porter and the Claimants; and (3) in any event constituted an abuse of discretion because the Claimants had not shown "good cause" why their claims should be reinstated.

We neither reach nor address these contentions. Rather, we hold that Travelers was not a "person aggrieved" by the bankruptcy court's order and hence lacked standing to appeal from it, both in this Court and in the district court. We will therefore dismiss Travelers' appeal.

I

The facts relevant to our resolution of this appeal are clear and not in dispute. Thus, our normal review of factual findings made by the lower courts and conducted under the clearly erroneous standard has little relevance here.

Porter, an asbestos manufacturer, filed a voluntary petition for relief under Chapter 11 on February 15, 1991. The Official Committee of Unsecured Creditors (the "Committee"), which included the Claimants' counsel, was appointed on March 8, 1991. The bar date for proofs of claim against Porter was set for March 16, 1992. On that day, the Claimants filed 38 asbestos-related property damage claims (the "claims") against Porter totaling $8,364,330.27. 1 Porter filed objections to all of these claims.

A subsequent review by Claimants' counsel of Porter's disclosure statements revealed that there were approximately $50 million in estate assets available to satisfy claims pending against the estate. These claims included a potential $26 to $28 million priority claim from the Internal Revenue Service and as many as 100,000 asbestos-related personal injury claims. Porter's schedule of assets was silent as to any insurance available to cover the property damage claims asserted by the Claimants.

In light of the limited assets of the estate, and in particular the absence of relevant insurance coverage, the Claimants determined that the potential recovery was outweighed by the probable cost of pursuing their claims 2 and, at the urging of the Committee and of Porter, decided not to defend against Porter's objections. Consequently, by two "default orders" dated May 22, 1992, and one "default order" dated May 26, 1992, three of the Claimants allowed their claims to be dismissed by default. App. 283, 293, 308. By order dated June 9, 1992 and styled "Agreed Order Withdrawing Claims," the remaining 35 Claimants withdrew their claims. App. 334.

Sometime following these orders, however, Porter's special insurance counsel discovered the existence of several insurance policies which he believed could potentially insure up to $70-$90 million in property damage claims.

Upon learning of this potential insurance coverage, the Claimants moved in the bankruptcy court to "Vacate Default Judgments and to Reinstate Dismissed or Withdrawn Claims," naming Porter and the Committee as Respondents. App. 482.

Because both Porter and the Committee had originally prevailed upon the Claimants to withdraw their claims due to the absence of insurance, neither saw fit to contest the motion to reinstate the claims, even though Porter apparently persists in its objections to the claims. 3

However, Travelers (issuer of one of the newly discovered policies with coverage of $1 million), though not a party to the proceedings, had been closely monitoring the bankruptcy court's docket sheet. Upon learning of the Claimants' reinstatement motions, Travelers filed an "Objection of Travelers Insurance Company to [Claimants'] 'Motion to Vacate Default Judgments and to Reinstate Dismissed or Withdrawn Claims.' " App. 604.

While denying any liability to Porter or to any of the Claimants, Travelers moved in bankruptcy court against reinstatement of the claims, arguing substantially the same issues raised before the district court and before us.

Following a May 20, 1993 hearing attended by representatives of Travelers, the Claimants, the Committee and Porter, the bankruptcy court rejected Travelers' objections and, by order dated June 16, 1993, and opinion dated July 7, 1993, vacated its previous orders which approved the withdrawal of some of the claims and defaulted others. The order contained the following proviso:

[F]or the purposes of payment such claims are reinstated only to the extent that they may attempt to seek a recovery on account of insurance coverage, if any, which is or may have been owned or carried by [Porter], and no claim may otherwise be made against estate assets.

App. 690.

The order made no reference to Travelers (or to any other putative insurer), and expressly stated that the bankruptcy court "makes no determination as to whether or not the affected claims are valid and enforceable claims and this order does not in any way speak to the merits of whether or not there is any insurance coverage applicable or available to pay such claims." Id.

Travelers appealed the order to the district court which, by order of May 17, 1994, affirmed the order of the bankruptcy court, holding: (1) that Travelers was not the "party against whom relief [was] sought" under Bankruptcy Rule 9014 and therefore need not have been served; 4 (2) that it was not necessary that Porter oppose the reconsideration motion in order for there to be a justiciable "case or controversy;" and (3) that the discovery of the insurance coverage satisfied Rule 60(b)(2)'s "new evidence" ground. 5 The district court also rejected Travelers' contention that the Claimants, by not sufficiently conducting their own discovery, had failed to satisfy the "due diligence" requirement of Rule 60. The district court concluded that the Claimants could not be faulted for relying on Porter's representations that no insurance existed.

Travelers has denied throughout that it has any liability to Porter or to the Claimants, and, as earlier noted, Porter's objections to the claims apparently remain in place.

Travelers now appeals to this Court, raising much the same issues pressed below. Because we have concluded that Travelers' interest in the order reinstating the claims against Porter is too remote and contingent to satisfy the standing requirement of bankruptcy appeals, we have no occasion to address Travelers' other contentions. 6

II

Section 39(c) of the Bankruptcy Act of 1898, 11 U.S.C. Sec. 67(c) (1976) limited appellate standing in bankruptcy cases to "person[s] aggrieved by an order of a referee." Although this provision was repealed in 1978, it has been maintained by the courts as an essentially prudential requirement that only those who have been directly and adversely affected pecuniarily by an order of a bankruptcy court may bring an appeal. See In re Fondiller, 707 F.2d 441, 443 (9th Cir.1983). Notably, the standing requirement in bankruptcy appeals is more restrictive than the "case or controversy" standing requirement of Article III, which "need not be financial and need only be 'fairly traceable' to the alleged illegal action." Kane v. Johns-Manville Corp., 843 F.2d 636, 642 n. 2 ...

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