UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF ILLINOIS 

EASTERN DIVISION

In re:

C.P. HALL CO.,

Debtor.

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COLUMBIA CASUALTY COMPANY,

 Appellant,

v.

C.P. HALL CO., 

Appellee.

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Case No. 12 C 2978 

Judge John W. Darrah

MEMORANDUM OPINION AND ORDER

Appellant Columbia Casualty Company (“Columbia”) brings this appeal from an

order of the Bankruptcy Court, granting Debtor/Appellee C.P. Hall Co.’s (“Debtor”)

motion to approve a settlement agreement between the Debtor and Integrity Insurance

(“Integrity”) under Federal Rule of Bankruptcy Procedure 9019. 

BACKGROUND

Relevant Facts

The Debtor was a former distributor of Johns Manville raw asbestos. (R. at 1.) 

The Debtor terminated its operations in 1986. (R. at 4.) Since the late 1980s, the Debtor

has been named as a defendant in thousands of underlying asbestos claims in Illinois and

elsewhere. (R. at 15.) The Debtor had primary and excess liability coverage that paid for

its defense and indemnity of these claims. (Id.) Columbia issued the Debtor a single

second-layer excess liability insurance policy in effect from October 1, 1984 to

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October 1, 1985. (R. at 4.) The Columbia insurance policy has aggregate limits of $6

million, which remains unpaid, in excess of two underlying policies with limits of at least

$5 million. (Id.) 

Since 2005, the Debtor has submitted asbestos claims to Integrity, an insurance

company in liquidation in New Jersey. (R. at 1.) The Debtor has received over

$25 million in payments from Integrity for covered claims and alleges that it has proven

up and identified approximately $10 million in remaining coverage under the Integrity

policy. (Id.) But the recovery of the $10 million in claims is possible if the Debtor is

successful on its appeal in New Jersey state court, contending that the liquidator for the

Integrity Estate should have applied state law other than New Jersey in allocating

asbestos claims. (R. at 18.) Other policyholders that are further along in the appeals

process have not been successful with this argument. (Id.) In light of the uncertainty of

litigation, the Debtor negotiated a settlement with Integrity for $4.125 million.

Procedural Posture

On June 24, 2011, the Debtor filed a voluntary petition for relief under chapter 11

of title 11 of the United States Code, 11 U.S.C. § 101, et seq. (the “Bankruptcy Code”). 

On January 5, 2011, the Debtor filed its Motion to Enter into Settlement with the

Integrity Insurance estate (the “Settlement Motion”), in which it sought Bankruptcy

Court approval to settle a potential $10 million claim for approximately $4.1 million. (R.

at 5, 11-19.) On January 26, 2012, Columbia filed its Omnibus Objection to the

Settlement Motion. (R. at 5.) Columbia argued that the settlement might have the effect

of increasing Columbia’s own liability to the Debtor and its creditors. (R. at 41-47.) 

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On February 27, 2012, the Bankruptcy Court held a hearing on the Settlement

Motion. (R. at 121-32.) In an oral ruling, the Bankruptcy Court held that Columbia

lacked standing, overruled Columbia’s objection, and granted the Settlement Motion (the

“Integrity Settlement”). (R. at 123-25.) 

The issues presented on appeal are as follows:

(1) Did the Bankruptcy Court err in applying the “direct pecuniary interest

standard” rather than the “party in interest standard” in determining whether

Columbia has standing to object to the Integrity Settlement?

(2) Did the Bankruptcy Court err in holding that Columbia lacked a direct

pecuniary interest sufficient to confer standing on Columbia to object to the

Integrity Settlement?

(3) Did the Bankruptcy Court err in granting the Debtor’s Settlement Motion?

LEGAL STANDARD

The Bankruptcy Court's determinations of law are reviewed de novo, while its

findings of fact are reviewed for clear error. See Wiese v. Cmty. Bank of Cent. Wis., 552

F.3d 584, 588 (7th Cir. 2009) (Wiese) (citing In re ABC-Naco, Inc., 483 F.3d 470, 472

(7th Cir. 2007)). However, where the Bankruptcy Code commits a decision to the

discretion of the bankruptcy court, that decision is only reviewed for an abuse of that

discretion. See Wiese, 522 F.3d at 588 (citing In re Fortney, 36 F.3d 701, 707 (7th Cir.

1994)). 

Consequently, whether the Bankruptcy Court properly applied the “direct

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pecuniary interest standard” rather than the “party in interest standard” is a question of

law subject to de novo review. Whether the Bankruptcy Court erred in finding that

Columbia lacked a direct pecuniary interest is a question of fact subject to a clear errorreview. Whether the Bankruptcy Court erred in granting the Settlement Motion is

subject to an abuse-of-discretion standard.

ANALYSIS

As a preliminary issue, the Debtor argues that this appeal is moot because

Columbia did not seek a stay of the Bankruptcy Court’s order and the Debtor and

Integrity have consummated the Integrity Settlement. Columbia does not address why it

did not seek a stay of the Bankruptcy Court’s order. Instead, Columbia argues that the

Court could fashion an equitable remedy or unwind the settlement. 

This case does not concern section 363(m) of the Bankruptcy Code, which

requires that when a trustee sells estate property to a good faith purchaser, a party

challenging the sale order must obtain a stay pending appeal or the appeal becomes moot

once the sale is made. 11 U.S.C. § 363(m); In re GCI Indus., Inc., 27 F.3d 296 (7th Cir.

1994); In re Sax, 796 F.2d 994 (7th Cir. 1986). 

Some courts have held that the failure to obtain a stay of a settlement order moots

the appeal, particularly where the settlement agreement has been substantially honored. 

See In re Mega-C Power Corp., 295 Fed.Appx. 242, 244 (9th Cir. 2008) (holding that

“failure of the Shareholders to obtain a stay allowed the settlement plan to be

‘substantially consummated’” and “it would be ‘inequitable to consider the merits of the

appeal.’”) (internal citation omitted); Rev Op Group v. ML Manager, LLC, No. 10-

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1665, 2011 WL 334292, at *7 (D. Ariz. Jan. 31, 2011) (“holding that with regard to the

Grace Entities settlements, the appeal is moot because the appellants failed to obtain a

stay of the bankruptcy order and because the transactions that have transpired as a result

cannot be unraveled.”).

Neither party has cited persuasive case law for their position, nor does there

appear to be controlling case law from the Seventh Circuit regarding this issue. In any

event, even if the appeal were not moot, the Bankruptcy Court’s order would be affirmed

on other grounds.1

Pecuniary Interest Standard

Columbia argues that the Bankruptcy Court incorrectly applied the “direct

pecuniary interest standard,” which it argues applies only to “appellate standing.” 

(Appeal at 7.) Columbia argues that the Bankruptcy Court should have used the “party in

interest standard,” embodied in Section 1109(b). (Id. at 7.) Specifically, Columbia

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argues that the Bankruptcy Court relied on Seventh Circuit opinions that conflate the two

standards. 

Columbia in effect asks the Court to disregard the firmly established precedent of

this Circuit. As the Seventh Circuit recently held, “To have standing to challenge a

bankruptcy order, the challenger must be a ‘person aggrieved’ by that order; in other

 Debtor also asserts that Columbia’s appeal must fail because it waived the 1

arguments for reversal of the Bankruptcy Order because they were not properly raised

before the Bankruptcy Court and not fully developed before this Court. (Resp. at 10.) 

This argument is not addressed for the same reason.

 Section 1109(b) provides that: “A party in interest, including the debtor, the 2

trustee, a creditors' committee, an equity security holders' committee, a creditor, an

equity security holder, or any indenture trustee, may raise and may appear and be heard

on any issue in a case under this chapter.” 11 U.S.C. § 1109(b). 5

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words, he must demonstrate that he has ‘a pecuniary interest in the outcome of the

bankruptcy proceedings.’” In re Holly Marine Towing, Inc., 669 F.3d 796, 800 (7th Cir.

2012) (In re Holly Marine Towing) (internal citations omitted). “The pecuniary interest

rule is certainly the rule of this Circuit.” In re Cult Awareness Network, Inc., 151 F.3d

605, 608 (7th Cir. 1998). Furthermore, the Seventh Circuit held that Section 1109(b)

“was intended to waive other limitations on standing.” Matter of James Wilson

Associates, 965 F.2d 160, 169 (7th Cir. 1992); In re Rimsat, 193 B.R. 499, 503 (Bankr.

N.D. Ind. 1996) (“the right to appear and be heard is not the same as standing and

§ 1109(b) does not necessarily mean that every party in interest can seek relief on every

issue.”).

Next, whether the Bankruptcy Court properly held that Columbia lacked a

pecuniary interest sufficient to confer standing is a question of fact that is reviewed for

clear error. In re Holly Marine Towing, 669 F.3d at 800. The Bankruptcy Court held the

following:

Only parties with a pecuniary interest in a dispute have

standing. And there is a further qualification that's

pertinent here. The pecuniary interest must be one that is

directly and adversely affected. In this situation, I think

Columbia Casualty has identified a pecuniary interest

certainly, but it's not one that is directly affected by the

motion that the debtor has brought. 

What Columbia Casualty says on page four of its objection

is that it is at least possible that funds not paid by Integrity

will increase Columbia's indemnity obligations. So that’s

an indirect effect, it’s not a direct one.

(2/27/12 Hr’g Tr. at 4.)

There is no clear error in the Bankruptcy Court’s ruling. Columbia has no direct

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interest in the Integrity Settlement. Columbia’s sole interest with respect to the Debtor is

its potential liability to the Debtor as an insurer. 

Granting of Settlement Motion

The Bankruptcy Court’s approval of the Settlement Agreement is reviewed for

abuse of discretion. Depoister v. Mary M. Holloway Foundation, 36 F.3d 582, 586-87

(7th Cir. 1994). “If the decision demonstrates a command of the case, [the Court] will

not engage in second-guessing; the bankruptcy court is in a better position ‘to consider

the equities and reasonableness of a particular compromise.’” In re Doctors Hosp. of

Hyde Park, Inc., 474 F.3d 421, 426 (7th Cir. 2007) (quoting In re Am. Reserve Corp., 841

F.2d 159, 162 (7th Cir.1987)). An abuse of discretion occurs when a court’s decision “is

premised on an incorrect legal principle or a clearly erroneous factual finding, or when

the record contains no evidence on which the court rationally could have relied.” In re

Airadigm Comm., Inc., 616 F.3d 642, 652 (7th Cir. 2010).

Columbia argues that the Bankruptcy Court erred in granting the Debtor’s

Settlement Motion because it held that Columbia did not have standing to object to the

Integrity Settlement and the Debtor did not establish a sufficient record. The first

argument is rendered moot by the Court’s ruling above. As to the second argument, the

Debtor set forth a sufficient factual record to warrant approval of the settlement. Not

only did the Debtor identify sufficient facts in its brief, the Debtor submitted the

Declaration of Stephen Hoke, the Debtor’s special insurance counsel. Hoke’s declaration

provided additional evidence that the proposed settlement with Integrity was within the

reasonable range of litigation outcomes and was in the best interests of the estate. In re

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Doctors Hosp. of Hyde Park, Inc., 474 F.3d 421, 426 (7th Cir. 2007) (“Bankruptcy courts

may approve adversary litigation settlements that are in the best interests of the estate.”). 

Therefore, the Bankruptcy’s Court’s determination was not an abuse of discretion. 

CONCLUSION

For the foregoing reasons, the Bankruptcy Court’s approval of the Integrity

Settlement is affirmed. 

Date: 1/10/13 ______________________________

JOHN W. DARRAH

United States District Court Judge

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