UNR Industries, Inc., Matter of

• Decision Date: 27 May 1994
• Docket Number: Nos. 93-1510 and 93-2268,s. 93-1510 and 93-2268
• Citation: 20 F.3d 766
• Parties: , Bankr. L. Rep. P 75,800 In the Matter of: UNR INDUSTRIES, INC., et al., Debtors. Appeals of Unarco Bloomington Factory Workers.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 766

20 F.3d 766

62 USLW 2629, Bankr. L. Rep. P 75,800

In the Matter of: UNR INDUSTRIES, INC., et al., Debtors Appeals of Unarco Bloomington Factory Workers.

Nos. 93-1510 and 93-2268.

United States Court of Appeals Seventh Circuit.

Argued Dec. 8, 1993.

Decided April 5, 1994.

Rehearing and Suggestion for Rehearing En Banc Denied May

27, 1994. ^*

James G. Walker, Bloomington, IL, Pamela S. Hollis (argued), Donald E. Johnson, Kimberly M. Centella, Hollis & Johnson, Chicago, IL, for Unarco Bloomington Factory Workers.

Janet S. Baer, Neal L. Wolf, Winston & Strawn, Chicago, IL, for Official Committee of Unsecured Creditors and Class 4 Disbursing Agent.

Joel R. Nathan, Asst. U.S. Atty., Chicago, IL, Neal L. Wolf, Winston & Strawn, Louis W. Levit, Robert L. Baker, Ross & Hardies, Richard G. Smolev, Sachnoff & Weaver, Robert B. Chatz, Arvey, Hodes, Costello & Burman, Kevin M. Forde, J. William Cuncannan, Defrees & Fiske, Matthew J. Botica, Hopkins & Sutter, James C. Murray, Jr., Katten, Muchin & Zavis, John F. White, McKenna, Storer, Rowe, White & Farrug, Clifford Meacham, Dept. of Justice, United States Trustee, Richard M. Bendix, Jr., Bret A. Rappaport, Asst. Atty. Gen., Malcolm M. Gaynor (argued), Paul J. Gaynor, Schwartz, Cooper, Kolb & Gaynor, James P. Hemmer, Kimberly K. Sawyer, Bell, Boyd & Lloyd, Chicago, IL, Gene Locks, Grietzer & Locks, Philadelphia, PA, James B. Burns, Office of U.S. Atty., Chicago, IL, George A. Davidson (argued), Hughes, Hubbard & Reed, New York City, David F. Heroy, Neal, Gerber & Eisenberg, Chicago, IL, for UNR Industries, Inc.

Bret A. Rappaport, Asst. Atty. Gen., Paul J. Gaynor, Schwartz, Cooper, Kolb & Gaynor, Chicago, IL, for UNR Inc., Unarco Industries, Inc., UNR-Rohn, Inc. (Alabama), Jobal Tube Co., Inc., Folding Carrier Corp., UNR-Rohn, Inc. (Indiana).

Before COFFEY and EASTERBROOK, Circuit Judges, and CURTIN, District Judge. ^**

EASTERBROOK, Circuit Judge.

Twelve years ago, claims based on exposure to asbestos UNR Industries had manufactured or sold were rolling in, with no end in sight and a correspondingly slim chance of satisfying all current and future claims. UNR commenced a reorganization in bankruptcy, the first asbestos manufacturer to do so. After some preliminary maneuvering recounted at 725 F.2d 1111 (1984), and 736 F.2d 1136 (1984), the firm and its creditors agreed on a plan of reorganization. The reorganized firm ("New UNR") endowed an Asbestos Disease Trust, which received approximately 63% of the firm's stock to supply additional income. Other creditors received the bulk of the remaining stock in lieu of cash payment. Shareholders retained only 8% of the stock. Claims relating to asbestos--whether the disease was manifest or latent at the time of the reorganization--must be presented to the Trust. After confirmation of the plan, New UNR emerged from the reorganization as a healthy business, free from enervating litigation. It has raised new capital, which would not have been possible without liberating its future endeavors from claims attributable to past wrongs. Some, albeit incomplete, compensation for asbestosis, mesothelioma, and related diseases is assured. UNR blazed a trail that other producers, such as Manville and Robins, followed. When approving an award of attorneys' fees to the debtors' attorneys, we characterized the outcome as a "notable success". 986 F.2d 207, 208 (1993).

Not everyone agrees. One group of creditors declined to approve the plan and has carried on a rear guard action since its confirmation. Although the plan of reorganization ensures full payment of all workers' compensation awards, employees of UNR's plant in Bloomington, Illinois, believe that they are entitled to more. Their additional claims have been grouped with those of UNR's customers. Accordingly, the employees must apply to the Trust for payment of any claim in excess of workers' compensation. Requests for reclassification have gotten the employees nowhere--although the district court has not foreclosed all possibility of relief. See 165 B.R. 198 (N.D.Ill.) (postponing final decision until after the disposition of this appeal). What is at stake on this appeal is nothing less than the vitality of the plan of reorganization itself. The employees took a timely appeal from the bankruptcy court's order confirming the plan. Both the district court and this court denied motions to stay implementation of the plan. The employees' request for reclassification of their claims delayed the resolution in the district court of their objections to the plan itself. (So did orders holding James Walker, their lead counsel, in contempt of court for defying the injunction that directs the employees to present their claims to the Trust rather than to the reorganized UNR and related entities.) Eventually, however, the district court dismissed as moot all challenges to the confirmation of the plan. See 124 B.R. 268 (N.D.Ill.1990), 143 B.R. 506 (N.D.Ill.1992), 1993 WL 181453, 1993 U.S.Dist. LEXIS 5111, 7219 (N.D.Ill.). The long delay between the bankruptcy court's confirmation of the plan and the district court's disposition of objections to that action laid the foundation for the conclusion that the plan is beyond challenge.

UNR urges us to join the district court in sweeping all pieces off the board. Three years after the confirmation of the plan of reorganization is simply too late to upset the applecart, it insists, making legal debate futile. (The plan was confirmed on June 1, 1989, and was implemented on March 2, 1990.) To the extent UNR and the district court believe that the case is moot in the sense that relief is impossible, so that there is no longer a case or controversy within the scope of Article III, they overstate matters. Even when it is no longer possible to restore the parties to the positions they used to occupy, the case remains live while "a court can fashion some form of meaningful relief". Church of Scientology v. United States, --- U.S. ----, ----, 113 S.Ct. 447, 450, 121 L.Ed.2d 313 (1992) (emphasis in original). We could give the employees much of what they want by holding that persons whose disease was not manifest by the date the plan was confirmed may not obtain compensation from the Trust; the employees then would have fewer competitors for the limited assets. Whether we should do any such thing is a different matter. The raw ability to do it means that the case is not moot.

Far stronger is the contention that reliance on the plan of reorganization makes it imprudent to revise things. Since the plan went into effect, more than 15 million shares of New UNR have been distributed to its creditors and pre-petition shareholders and are trading on public exchanges. Warrants for additional stock have been issued and are trading. (The Trust has received still more shares, but these have not been sold to outside investors.) Corporate acquisitions and divestitures (not to mention ordinary commercial transactions) have occurred; tax consequences (including a $90 million income tax benefit) have been realized; large insurance settlements have been disbursed; lawsuits have been dismissed. Undoing all of this is impossible. Undoing part of it--the identification of persons entitled to make claims on the assets in the Trust--is possible but has ramifications for the rest of the plan. Reducing the claims to be made on the Trust would imply a reallocation of some stock to UNR's other creditors. If persons for whom the consequences of exposure to asbestos was not manifest as of 1990 cannot make claims against the Trust, can they press them against New UNR? If the answer is yes, then the allocation of insurance proceeds must be changed--and there will be a sudden revaluation of the shares of New UNR, which current holders purchased on the assumption that all asbestos payments would be borne by the Trust.

In common with other courts of appeals, we have recognized that a plan of reorganization, once implemented, should be disturbed only for compelling reasons. E.g., In re Chateaugay Corp., 10 F.3d 944, 952-54 (2d Cir.1993); In re Specialty Equipment Cos., 3 F.3d 1043, 1047-49 (7th Cir.1993); In re Andreuccetti, 975 F.2d 413, 418 (7th Cir.1992); In re Roberts Farms, Inc., 652 F.2d 793, 797 (9th Cir.1981); Miami Center Limited Partnership v. Bank of New York, 838 F.2d 1547, 1554-55 (11th Cir.1988); In re AOV Industries, Inc., 792 F.2d 1140, 1147-50 (D.C.Cir.1986). Several provisions of the Bankruptcy Code of 1978 provide that courts should keep their hands off consummated transactions. For example, 11 U.S.C. Sec. 363(m) says that the reversal of an order authorizing the sale or lease of property of an estate "does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal". Unless the sale is stayed pending appeal, the transaction survives even if it should not have been authorized in the first place. See In re Sax, 796 F.2d 994 (7th Cir.1986); cf. In re Edwards, 962 F.2d 641 (7th Cir.1992) (concluding that Sec. 363(m) does not, however, forbid all forms of collateral attack). Another section of the Code, 11 U.S.C. Sec. 1127(b), dramatically curtails the power of a bankruptcy court to modify a plan of reorganization after its confirmation and "substantial consummation". Section 1127(b), unlike Sec. 363(m), does not place any limit on the power of the court of appeals, but the reasons underlying Secs. 363(m) and 1127(b)--preserving interests bought and paid for in reliance on judicial decisions, and avoiding the pains that attend any effort to unscramble an egg--are so plain and so compelling that courts fill the interstices of the Code with the same approach. Sometimes the doctrine goes under the banner "equitable mootness," but the name is misleading. There is a big difference between inability to alter the outcome (real mootness)...