Travelers Insurance v. H.K. Porter Co.

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
1-17-1995
Travelers Ins Co v HK Porter Co
Precedential or Non-Precedential:
Docket 94-3324
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
----------
No. 94-3324
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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
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On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil No. 93-01209)
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Argued Tuesday, November 29, 1994
BEFORE: HUTCHINSON, NYGAARD and GARTH Circuit Judges
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(Opinion filed January 17, 1995)
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Mark J. Thompson (Argued)
Simpson, Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attorney for Appellant
Joseph E. Schmitt
George T. Snyder (Argued)
Stonecipher, Cunningham, Beard
& Schmitt
125 First Avenue
Pittsburgh, Pennsylvania 15222
Attorneys for H.K. Porter
Company, Inc., Appellee
Timothy E. Eble
Frederick C. Baker (Argued)
Ness, Motley, Loadholt,
Richardson & Poole
151 Meeting Street
Suite 600
Charleston, South Carolina 29402
Attorneys for All Appellees
Except H.K. Porter Company,
Inc., and Official Committee
of Unsecured Creditors of
H.K. Porter Company, Inc.
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OPINION OF THE COURT
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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.
1
. At oral argument before us we requested supplemental
briefing from Travelers and the Claimants on the implications of
the class action certified in the "School Asbestos" cases, In re
Asbestos School Litigation, 104 F.R.D. 422 (E.D. Pa. 1984) and In
re School Asbestos Litigation, 789 F.2d 996 (3d Cir.), cert.
denied, __ U.S. __, 107 S.Ct. 182 (1986). In their brief, the
Claimants represented that the following 14 Claimants were
currently non-opted out members of the class: Aiken County Public
Schools; Anderson County Public Schools; Barnwell School District
#45; Blackwell Public Schools; Chester County Public Schools;
Dillon County Public Schools; Fairbanks North Star Borough;
Georgetown Public Schools; Greenwood School District #51; Jasper
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 claims2 and, at the urging
of the Committee and of Porter, decided not to defend against
Porter's objections. Consequently, by two "default orders" dated
(..continued)
County Public Schools; Lexington County Public Schools;
Orangeburg School District #6; and Williamsburg Public Schools.
In addition, Barnwell School District #45 is a named class
representative in the School Asbestos litigation.
It was also represented that Porter, as a debtor in the
School Asbestos litigation, had objected, and was still
objecting, to the claims of the class; that no claims had been
withdrawn in that proceeding; and that the non-opted out school
districts had filed the instant action as a protective action.
The other claimants in the present action either had
opted out or did not fall within the definition of the class.
Because of our disposition of the present litigation on
standing grounds, we do not find it necessary to address any of
the matters raised by the supplemental memoranda as they are not
at issue before us.
2
. The Committee apparently estimated that the available
dividend payable to unsecured nonpriority creditors would be
between 3% and 5%. App. 484.
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'
3
. We are informed that Porter has not withdrawn its objections
to the Claims by the following statement in the Claimants' brief
at 17: "H.K. Porter has filed objections to [the] claims. Thus,
there continues to be the fundamental controversy as to . . .
whether H.K. Porter has any liability on these claims." Neither
Porter nor Travelers has responded to, nor have they addressed,
this statement.
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.
4
. Bankruptcy Rule 9014 provides that in certain contested
matters "relief shall be requested by motion, and reasonable
notice and opportunity for hearing shall be afforded the party
against whom relief is sought. . .." (Emphasis supplied).
5
. Federal Rule of Civil Procedure 60(b), made applicable to
bankruptcy proceedings through Bankruptcy Rule 9024, provides in
part as follows:
Relief From Judgment or Order
* * * *
(b) Mistakes; Inadvertence; Excusable Neglect;
Newly Discovered Evidence; Fraud, etc. On motion and
upon such terms as are just, the court may relieve a
party . . . from a final judgment, order, or proceeding
for the following reasons: (1) mistake, inadvertence,
surprise, or excusable neglect; (2) newly discovered
evidence which by due diligence could not have been
discovered in time to more for a new trial under Rule
59(b). . ..
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.
§ 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
6
. We do not reach Travelers' principal argument that
Travelers (along with the other insurers) was the real "party
against whom relief was sought" by the Claimants and hence had to
be served with the motion papers. However, in light of our
holding that Travelers is not a "person aggrieved" by the
bankruptcy court's reinstatement order and hence lacks appellate
standing, it would clearly be anomalous to hold that Travelers
might have been considered a "party against whom relief was
sought" and that the Claimants therefore were required to serve
Travelers.
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 (2d Cir. 1988) (citations
omitted); cf. In re Chateaugay Corp., 141 B.R. 794, 799 n. 4
(S.D.N.Y. 1992), vacated as moot 988 F.2d 322 (2nd Cir. 1993).
"Person aggrieved" is, of course, a term of art: almost
by definition, all appellants may claim in some way to be
"aggrieved," else they would not bother to prosecute their
appeals. In conventional disputes, the class of potential
plaintiffs is defined by the constitutional doctrine of standing.
But in bankruptcy proceedings, which typically involve a "myriad
of parties . . . indirectly affected by every bankruptcy court
order," Kane, 843 F.2d at 642, the need to limit collateral
appeals is particularly acute. Thus, the "person aggrieved"
doctrine:
[E]xists to fill the need for an explicit
limitation on standing to appeal in
bankruptcy proceedings. This need springs
from the nature of bankruptcy litigation
which almost always involves the interests of
persons who are not formally parties to the
litigation. In the course of administration
of the bankruptcy estate disputes arise in
which numerous persons are to some degree
interested. Efficient judicial
administration requires that appellate review
be limited to those persons whose interests
are directly affected.
In re Fondiller, 707 F.2d at 443. Standing has thus been denied
to marginal parties involved in bankruptcy proceedings who, even
though they may be exposed to some potential harm incident to the
bankruptcy court's order, are not "directly affected" by that
order. See Kane, 843 F.2d at 642 n. 2; In re Chateaugay, 141
B.R. at 799 n. 4.
We recently affirmed the continuing vitality of the
"person aggrieved" doctrine in this Circuit. See In re Dykes, 10
F.3d 184 (3d Cir. 1993). In Dykes we approved the Ninth
Circuit's view that one is a "person aggrieved" if the contested
order "diminishes their property, increases their burdens, or
impairs their rights." Id. at 187 (citing In re Fondiller, 707
F.2d at 442).
There can be no contention that Travelers' property has
been diminished by the bankruptcy court's order of June 16, 1993
merely because the claims of the school district creditors were
reinstated. As we discuss infra, Travelers is at least two steps
removed from any possible diminution of its property.
Nevertheless, Travelers argues that the reinstatement of the
claims against Porter directly increased its pecuniary burdens
and impaired its rights.
Although whether someone is a "person aggrieved" is
normally a question of fact to be determined by the district
court, because the facts relevant to our analysis are clear and
undisputed, we find it unnecessary to remand the case to the
district court for additional factual findings. See In re Dykes,
10 F.3d 184, 188 (3d Cir. 1993); In re El San Juan Hotel, 809
F.2d 151, 154 n. 3 (1st Cir. 1987); In re Fondiller, 707 F.2d
441, 443 (9th Cir. 1993). Indeed, the factual predicate for our
conclusion is straightforward, and was well summarized by
Travelers itself in its brief before us:
When an insurer issues an indemnity policy to
an insured, it assumes nothing more than
derivative liability for any claim covered by
the policy. Therefore, an insurer is not
liable for a claim unless the insured is
liable first.
Traveler's Brief at 28. To this we would add that even upon the
fixing of the liability of the insured, an insurer has no
derivative liability unless and until it is determined that the
policy covers the acts for which the insured has been found
liable.
We are satisfied that Travelers is not a "person
aggrieved," as its interest is too contingent to have been
"directly affected" by the order reinstating the claims against
Porter. Travelers' potential exposure is doubly removed, turning
both on the success of the Claimants in their prosecution of
claims against Porter, and on a judicial determination that the
policy issued by Travelers covers the claims, a construction
which Travelers strenuously rejects. Further, although Porter
did not contest the vacation of the orders withdrawing and/or
defaulting the claims, it apparently has not withdrawn its
objections to the claims themselves. Even the most generous view
of these circumstances does not suggest that the order of
reinstatement directly or immediately impacts on Travelers'
pecuniary interests. See In re Fondiller, 707 F.2d at 443.
Clearly, to allow appellate standing under such
circumstances would be inconsistent with the "directly affecting"
standard and the policies which underlie this standard. Id.Here, however, Travelers has seized on the fact that
the bankruptcy court's order limited the potential recovery of
the Claimants to any insurance covering Porter. In effect, this
limitation means that any sum eventually recovered by the
Claimants will ultimately come, if at all, only from Porter's
insurers, one of which may be Travelers. Travelers urges that
"[g]iven that the Bankruptcy Court Order reinstating the Claims
is conditioned on relief being secured solely from the policies
issued to Porter by Travelers and the other insurers, it
certainly increases Travelers burdens and impairs its
rights. . .." and that "the 'contingency' of Travelers ultimate
liability on the Claims is irrelevant to the issue of its
standing." Travelers' Reply Brief at 7. We disagree with both
of these arguments.
First, we note that if, as Travelers contends, it has
no obligations to Porter under the policy, then the order cannot
affect, and thereby aggrieve, Travelers. Second, even if the one
million dollar policy allegedly issued by Travelers does oblige
it to respond to the property damage claims now asserted, then
the limiting language of the order still would have no
detrimental effect on Travelers. As an insurer covering the
claims asserted, Travelers would necessarily be required to
respond to those claims even if the order of court had not
restricted recovery to insurance proceeds. We therefore assign
no weight to the bankruptcy court's provision limiting recovery
to insurance proceeds. As to Travelers, that language is
surplusage.
Finally, we reject Travelers' contention that the
contingency of its exposure is irrelevant to the question of
standing. We are satisfied that standing is precluded if the
only interest in the bankruptcy court's order that can be
demonstrated is an interest as a potential defendant in an
adversary proceeding. Such a person, here Travelers, is not
"aggrieved." In re Fondiller, 707 F.2d at 443.
Consistent with the view that appeal from bankruptcy
proceedings is denied to "marginal parties in bankruptcy
proceedings 'who face potential harm incident to the bankruptcy
court's order but are not directly affected,'" In re Chateaugay
Corp., 141 B.R. at 799 (quoting Kane, 843 F.2d at 642 n. 3),
courts have recognized that an order which simply allows a
lawsuit to go forward does not necessarily "aggrieve" the
potential defendant for purposes of appellate standing.7
7
. Travelers, in responding to the Claimants' contention that
it has no standing, refers us to In re Record Club of America,
Inc., 28 B.R. 996 (M.D. Pa. 1983), which involved an appeal from
an order confirming the debtor's plan of arrangement. The
district court in that case accorded standing to several
corporations involved in litigation with the debtor on the ground
that the plan of arrangement might affect the rights determined
by the litigation. Without commenting on whether litigation as
such is enough to accord standing as a "person aggrieved," we
observe first that in this case Travelers is not engaged in
litigation with any of the claimants. Second, while we
acknowledge that Travelers is involved in litigation with Porter
as to its insurance coverage obligations, that involvement is
"presumably related to coverage for the reinstated Claims. . .,"
Travelers' Brief at 13, and thus has no bankruptcy nexus. That
litigation, which is wholly separate from Porter's bankruptcy
In In re Fondiller, one of the first cases to assert
the common law version of "person aggrieved" after its statutory
demise in 1978, the Ninth Circuit held that the debtor's wife
could not appeal an order of the bankruptcy court appointing
special counsel, even though there was a likelihood that the
special counsel would bring suit against the wife. The court
stated that the wife's "only demonstrable interest in the order
is as a potential party defendant in an adversary proceeding. As
such she is not a 'person aggrieved' [by the order]. The order
did not diminish her property, increase her burdens, or
detrimentally affect her rights." 707 F.2d at 443 (citations
omitted).
A similar result was reached in In re El San Juan
Hotel, which held that an order of the bankruptcy court granting
the United States leave to sue a former trustee on behalf of the
estate was not appealable by the former trustee. The First
Circuit stated that:
As in Fondiller, the bankruptcy court order
did not diminish [the trustee's] property,
increase his burdens, or detrimentally affect
his rights. The former trustee does have an
interest in defending himself against
liability, but the order in question does not
prevent [him] from doing just that, or from
asserting any claim or defenses he may have,
including a motion for summary judgment.
In re El San Juan Hotel, 809 F.2d 151, 155 (1st Cir. 1987)
(citation omitted). Here, as in In re El San Juan Hotel, while
(..continued)
proceedings, cannot suffice to satisfy the "directly affecting"
standard for standing in bankruptcy appeals.
Travelers has an interest in defending itself against liability,
it is not prevented by the bankruptcy court order from doing just
that. Nor does the order prevent Porter or Travelers from
asserting any claims or defenses that either may have. Indeed,
Travelers has steadfastly maintained that its policy does not
even cover Porter.
As the above-cited authorities recognize, a bankruptcy
court order which simply permits a claim to be lodged or a
lawsuit to go forward without passing on the merits does not
necessarily "aggrieve" the potential defendant. Here Travelers
is insisting that the bankruptcy court must vacate its order
reinstating the claims. But Travelers, as a contingent insurer,
rather than seeking to remedy the impairment of its rights or
lift a pecuniary burden, is seeking a windfall at the expense of
the Claimants. This is particularly so because if Travelers
succeeds in disclaiming coverage vis-a-vis Porter, or if Porter
succeeds in withstanding the claims asserted against it, no
liability will ever be visited upon Travelers. Hence, Travelers
can be no more "aggrieved" by the order of reinstatement than it
was "aggrieved" when the Claimants filed their claims against
Porter in the first instance.
III
In sum, we conclude that Travelers was not a "person
aggrieved" by the contested order, and thus lacked standing to
appeal, both in this Court and in the district court. We will
therefore dismiss the appeal and remand the proceedings to the
district court with directions to vacate its judgment and to
enter an order dismissing the appeal from the bankruptcy court.