Ranger Insurance Co v. Wolcott ( 2000 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 99-10035
_____________________
In The Matter Of: TLI INC
Debtor
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RANGER INSURANCE COMPANY
Appellant
v.
HOLTON J WOLCOTT, JR; JOHN F WOLCOTT; GEORGE M WOLCOTT;
JANET WOLCOTT DICKERSON; JOAN WOLCOTT LANE; HOLTON J
WOLCOTT, JR, in his capacity as Executor of the
Succession of Kathryn H Wolcott
Appellees
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
(3:98-CV-394-G)
_________________________________________________________________
April 24, 2000
Before KING, Chief Judge, and REAVLEY and STEWART, Circuit
Judges.
PER CURIAM:*
Appellant Ranger Insurance Company (“Ranger”) appeals from
the district court’s judgment affirming the bankruptcy court’s
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
decision to modify an injunction contained in Debtor TLI, Inc.’s
Third Amended Plan of Reorganization (the “Plan”). We AFFIRM.
The injunction in the Plan barred all tort claims against
TLI and its insurers except in accordance with its terms. If
certain conditions were met, the injunction was automatically
modified to allow tort claims against TLI’s insurers to proceed.
Appellees Holton Wolcott, Jr., in his individual capacity and as
Executor to the Succession of Kathryn Wolcott, John Wolcott,
George Wolcott, Janet Wolcott Dickerson, and Joan Wolcott Lane
(collectively, the “Wolcotts”) have a tort claim against Ranger,
based on its insuring of TLI. Rather than following the
conditions set forth in the injunction, however, the Wolcotts
simply amended a prepetition tort action against TLI in Louisiana
state court to add Ranger as a defendant. When Ranger moved the
bankruptcy court to hold the Wolcotts in contempt, the court
found that the purpose of the injunction had been served and
therefore it modified the injunction to allow the Louisiana
action to proceed. Ranger appealed the bankruptcy court’s
judgment to the district court, which affirmed. Undeterred by
adverse rulings in two courts, Ranger timely appeals.
The Plan’s injunction served a number of purposes. One
purpose was to minimize the costs incurred in processing tort
claims. To that end, the injunction allowed TLI’s insurers to
require that any tort claimant with a claim against the insurer
submit to the Plan’s Claims Resolution Procedure (“CRP”) prior to
the “commencement or continuation” of any tort action. The CRP
essentially required the parties to exchange settlement offers
and submit to mediation. If the insurer waived submission of the
claim to the CRP, or if the claim was submitted to the CRP but
the parties were unable to settle, the injunction was
automatically modified to permit the claimant to pursue his
complaint in a separate, non-bankruptcy, action in the
appropriate court.1
The injunction was also meant to provide TLI and its
insurers with notice and an accurate valuation and resolution of
all potential tort claims. Monitoring the amount of potential
liability was of particular importance to insurers such as
Ranger, who insured TLI under “fronting” policies. Under such a
policy, an insurer has a right of indemnity against TLI for one
hundred percent of any amount paid to tort claimants under the
policy. The Plan established a claims fund to satisfy, on a pro
rata basis, these types of indemnification claims by insurers.
We accept, for the purposes of this appeal, Ranger’s
1
Ranger contends that the Plan requires that any tort
proceedings against TLI’s insurers be brought in the United
States District Court for the Northern District of Texas (the
“Northern District”). Ranger misreads the language of the Plan.
Although the Plan states that its confirmation constitutes a
“recommendation and finding ... that pursuant to [28 U.S.C.
§ 157] all Tort Claims should be removed to and/or heard by the
United States District Court for the Northern District of
Texas[,]” the same section also states that a claimant may pursue
a tort claim “in an appropriate Court of competent jurisdiction.”
While the Plan’s language may have bolstered a motion by Ranger
to remove the Louisiana action to the Northern District, such
language does not bar the Wolcotts from pursuing their claim in
Louisiana. See Baumgart v. Fairchild Aircraft Corp., 981 F.2d
824, 831 (5th Cir. 1993) (holding that 28 U.S.C. § 157(b)(5)
“provides that consolidation of [personal injury] actions in the
forum where the bankruptcy is pending is permissible, but not
mandatory”).
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contention that we should review the bankruptcy court’s decision
to modify the injunction under an abuse of discretion standard
and in accordance with the principles enunciated by this court in
Sierra Club, Lone Star Chapter v. Cedar Point Oil Co., Inc., 73
F.3rd 546 (5th Cir. 1996). In that case, we held that
“[g]enerally, a court should only modify an injunction to achieve
the original purpose of the injunction, if those purposes have
not been fully achieved.” Id. at 579 (citing United States v.
United Shoe Machinery Corp., 391 U.S. 244, 248-49 (1968)). So
long as the lower court’s decision is reasonable, it will not be
found to be an abuse of discretion. See Edward H. Bohlin Co. v.
Banning Co., Inc., 6 F.3d 350, 353 (5th Cir. 1993). Given the
circumstances of this case, we find that the bankruptcy court’s
decision did not constitute an abuse of discretion.
On appeal, Ranger argues that the true purpose of the
injunction was to provide TLI and its insurers with finality by
limiting tort claims to those claimants who participated in the
bankruptcy proceedings. Ranger contends that the bankruptcy
court failed to take this purpose into account, and as a result,
the court abused its discretion in modifying the injunction.
Ranger also complains that the claims fund, from which it could
recover a portion of any money paid to the Wolcotts, is defunct.
Therefore, Ranger contends that it will be irreparably harmed if
the Wolcotts’ tort action is allowed to proceed.
Ranger’s argument is undercut by its lack of diligence in
attempting to enforce the injunction. On October 3, 1986, the
4
Wolcotts filed a tort action against TLI in Louisiana state
court. Bankruptcy proceedings were instituted against TLI on
November 10, 1987, and the Plan was confirmed on October 7, 1988.
The Wolcotts added Ranger to their Louisiana state court tort
action on April 3, 1996. Ranger filed an answer to the Wolcotts’
complaint on June 26, 1996. However, Ranger did not move the
bankruptcy court to hold the Wolcotts in contempt until February
8, 1997.
Furthermore, during the seven months between filing its
answer in Louisiana and bringing its motion for contempt, Ranger
actively defended itself and engaged in a series of settlement
negotiations with the Wolcotts.2 Ranger never attempted to
remove the case to the Northern District. Ranger offers no
explanation for why it defended the case and independently
pursued settlement negotiations with the Wolcotts rather than
immediately seeking to enforce the injunction.
The purpose of the injunction was to inform TLI and its
insurers of the nature and value of outstanding tort claims and
to encourage the prompt and efficient settlement of those claims.
Despite ample notice of the Wolcotts’ claim, Ranger did not
immediately move to enforce the injunction, but instead answered,
defended, and attempted to settle the claim -- only seeking the
protection of the injunction as a last resort. We agree with the
lower courts that, in this instance, the purpose of the
2
As the lower courts noted, these negotiations were
essentially those required by the CRP.
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injunction has been served. Therefore, the bankruptcy court did
not abuse its discretion by modifying the injunction. AFFIRMED.
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