### In the



# United States Court of Appeals

For the Seventh Circuit

____________________

No. 13

‐ 1306

I N RE : C.P. H ALL C OMPANY

, Debtor

,

A PPEAL OF : C OLUMBIA C ASUALTY C OMPANY

, Objector

‐ Appellant

.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 12 C 2978

— John W. Darrah

, Judge

.

____________________

A RGUED A PRIL 3, 2014

— D ECIDED A PRIL 24, 2014

____________________

Before P OSNER

, F LAUM

, and R OVNER

, Circuit Judges

.

P OSNER

, Circuit Judge

. The question presented by this ap

‐ peal is whether a nonparty to a bankruptcy proceeding

should be entitled to intervene in the proceeding. Hall, the

debtor in bankruptcy, is a former distributor of asbestos and

asbestos products. It quit that imperiled business in the mid

‐

1980s but continued in corporate existence as a litigation

shell. Tens of thousands of separate asbestos claims were

filed against it. It sought to shift as much of the cost as pos

‐2 No. 13

‐ 1306

sible to its liability insurers; and not until 2011 was it forced

to declare bankruptcy, initially under Chapter 11 but the

bankruptcy proceeding was later converted to Chapter 7 and

a trustee was appointed.

Hall had $10 million remaining in insurance coverage

from one of its insurers, itself bankrupt, called Integrity. But

there was a question whether Integrity’s policy actually cov

‐

ered the loss for which Hall was seeking indemnity under

the policy. The parties agreed to settle for $4.125 million, and

the bankruptcy judge, whose approval was necessary for the

settlement to be valid, approved it.

Enter Columbia Casualty Company, the appellant. Co

‐

lumbia is not a creditor of Hall, but rather an excess insurer

of Hall’s asbestos liabilities, with maximum coverage of $6

million. It worries that Hall, by virtue of having settled its

insurance claim against Integrity rather than persisting in

the litigation in the hope of obtaining indemnity of the full

$10 million, has increased the likelihood of Columbia’s hav

‐ ing to honor its secondary

‐ coverage obligation. It therefore

filed an objection to the settlement. The bankruptcy judge

refused to consider the objection, on the ground that Colum

‐

bia had no right to object. Columbia appealed and the dis

‐

trict judge affirmed, precipitating Columbia’s further appeal

to this court.

The parties call the issue presented by the appeal “bank

‐

ruptcy standing.” That is a misnomer. Article III of the fed

‐

eral Constitution has been interpreted to confine the right to

sue in a federal court (“standing to sue”) to a person or firm

or other entity that has suffered some tangible loss for

which, if the defendant’s liability is established, the court

could provide a remedy. See, e.g., Lexmark Int’l, Inc. v. StaticNo. 13

‐ 1306 3

Control Components, Inc.

, 134 S. Ct. 1377, 1386 (2014). The rule

thus excludes suits concerning what John Stuart Mill in On

Liberty (1859) called “self

‐ regarding acts,” to distinguish

them from “other

‐ regarding acts,” that is, acts that harm

other people. He gave as an illustration of a self

‐ regarding

act the practice of polygamy in Utah, thousands of miles

from England and hence harmless to the English. The Eng

‐

lish were “others” to the polygamous activity in Utah de

‐ spite the indignation that the English people felt toward that

activity. Mill thought in other words that the English had no

“standing” to object to distant polygamy, because it inflicted

no tangible harm on them.

Columbia’s objection to Hall’s settlement with Integrity

is not of that character. Columbia is complaining about an

imminent threat to its financial assets, a threat that is trace

‐

able to the settlement and could have been eliminated by the

bankruptcy court’s enjoining the settlement. The loss it fears

is only probabilistic. For there can be no certainty that it

would benefit from rejection of the settlement. Had Hall liti

‐ gated its claim against Integrity to final judgment, which

might have been a consequence of Hall’s demanding more

than $4.125 million, it might well have ended up with noth

‐ ing, since Integrity had a strong defense on the merits. But

often a probabilistic harm suffices for Article III standing

even when the probability that the harm will actually occur

is small. See, e.g., Massachusetts v. EPA

, 549 U.S. 497, 525–26

(2007); Mountain States Legal Foundation v. Glickman

, 92 F.3d

1228, 1234–35 (D.C. Cir. 1996); Village of Elk Grove Village v.

Evans

, 997 F.2d 328, 329 (7th Cir. 1993). A 10 percent prob

‐ ability of obtaining $1,000 is $100; this is called an “expected

value” and is real even though not certain.4 No. 13

‐ 1306

But to become a party to the bankruptcy proceeding Co

‐

lumbia had to show not merely standing but that “a legisla

‐ tively conferred cause of action encompasses” its claim. Lex

‐

mark Int’l, Inc. v. Static Control Components, Inc.

, supra

, 134 S.

Ct. at 1387. Specifically it had to show that the Bankruptcy

Code conferred the right that it sought—the right to butt into

a settlement negotiation between other parties. Its desire to

butt in is understandable. Agreements settling lawsuits often

have third

‐ party effects. A company might pay so much in

settlement of a suit that it could no longer afford to honor its

contract to buy some input from a third party; the third

party would be harmed. The logic of Columbia’s claim to be

entitled to object to Hall’s settlement with Integrity is that

Hall received so little in the settlement that it is bound to

come after Columbia for the difference. The claim is weak.

Columbia’s lawyer would have to agree that by this logic an

employee whom the lawyer’s client had laid off because it

foresaw having to make a big payout to Hall could challenge

the settlement. That way madness lies—settlements made

impossible by crowds of objectors.

The question we need to answer is whether the Bank

‐

ruptcy Code, in providing that “a party in interest, including

the debtor, the 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 [arising] under” the

Code, 11 U.S.C. § 1109(b), confers a right to be heard on a

debtor’s insurer. The list of “parties in interest” is not

exhaustive, but does suggest that such a party is someone

who has a legally recognized interest in the debtor’s assets,

namely the debtor (or the trustee in bankruptcy, if as in this

case there is a trustee) and the creditors. In re James WilsonNo. 13

‐ 1306 5

Associates

, 965 F.2d 160, 169 (7th Cir. 1992), says that

“everyone with a claim to the res [the debtor’s assets] has a

right to be heard before the res is disposed of since that

disposition will extinguish all such claims.” Later we said

that the U.S. Trustee can be a “party in interest” too because

of his watchdog role in bankruptcy cases. In re South Beach

Securities, Inc

., 606 F.3d 366, 370–71 (7th Cir. 2010).

Even so enlarged, the list of persons having a right to

appear and be heard in a bankruptcy case can’t include

Columbia. It is not a creditor of Hall’s estate in bankruptcy,

is not the debtor, and, unlike the U.S. Trustee, is not a

guardian of conduct in bankruptcy proceedings. It is just a

firm that may suffer collateral damage from a ruling in a

bankruptcy proceeding, in this case the ruling approving the

settlement between Hall and Integrity.

A number of decisions support our conclusion that the

interest of an entity in Columbia’s position is too remote to

entitle the entity to intervene in a bankruptcy case. See In re

Teligent, Inc.

, 640 F.3d 53, 60–61 (2d Cir. 2011); In re Refco Inc.

,

505 F.3d 109, 117–19 (2d Cir. 2007); In re Alpex Computer

Corp.

, 71 F.3d 353, 356–57 (10th Cir. 1995); In re Kaiser Steel

Corp.

, 998 F.2d 783, 788 (10th Cir. 1993); cf. In re Piper Aircraft

Corp.

, 244 F.3d 1289, 1303 n. 11 (11th Cir. 2001). But Colum

‐

bia asks us to reject all of them on the authority of two recent

decisions by the Third and Ninth Circuits— In re Global In

‐

dustrial Technologies, Inc

., 645 F.3d 201 (3d Cir. 2011) (en

banc), and In re Thorpe Insulation Co

., 677 F.3d 869 (9th Cir.

2012).

Global adopted our construal of “party in interest” in the

James Wilson case, 645 F.3d at 210–11, yet concluded that in

‐

surers of the debtor were entitled to object to a settlement. Id.6 No. 13

‐ 1306

at 215. The debtor in Global had proposed a plan that would

have channeled claims against it to a trust to which the

debtor’s liability insurance policies would be assigned. The

insurers alleged that to obtain the claimants’ approval of the

plan the debtor had agreed to a large increase in the number

of claims because the cost of the additional claims would be

borne to a great extent by the insurers. 645 F.3d at 206, 214.

The insurers were thus alleging that they were targets of a

scheme between the debtor and its creditors, rather than ac

‐

cidental victims of a scheme directed against others. There is

nothing like that in this case. Hall by settling was just trying

to minimize the risk of coming up empty

‐ handed in its suit

against Integrity.

Thorpe was, like the present case, an asbestos case in

which debtor and creditors had created a trust that would

administer insurance claims; like Global it cites our opinion

in James Wilson with approval. 677 F.3d at 884. The insurers’

objection was not that the creation of the trust was a quid

pro quo for increasing the number of claims against the

debtor, as in Global

, but rather that the plan that had created,

defined, and empowered the trust had altered the terms of

the contracts between the insurance companies and the

debtor. See id

. at 885–87. Of course taking away someone’s

contractual rights in a bankruptcy proceeding is an injury to

which the victim should be allowed to object in the proceed

‐ ing.

Our case doesn’t involve a threat to Columbia’s rights,

though at oral argument there were some dark hints from

Columbia’s lawyer that there was hanky

‐ panky involved in

Hall’s settlement with Integrity. The hints are absent from

Columbia’s briefs. All we learn there is that Columbia wouldNo. 13

‐ 1306 7

have liked an opportunity to prove that Hall should have

been more aggressive in the settlement negotiations, because

had it been it might have gotten a larger settlement and if so

it would have a smaller potential claim against Columbia, its

back

‐ up insurer. That’s just like our hypothetical case of the

employee of Columbia who objects to the settlement on the

ground that it may cost him his job by increasing his em

‐ ployer’s potential liabilities.

It’s not as if, unless Columbia can sue, no secondary in

‐

surer (whether an excess insurer, as in this case, or a rein

‐

surer) can protect itself against its insureds’ making settle

‐

ments with their primary insurers that disadvantage the sec

‐ ondary insurer. An excess insurer can write a policy that

does not require it to pay until the coverage limit of the pri

‐

mary policy, $10 million in this case, has been reached. Or

the excess policy could provide that its coverage limit would

drop down if the primary insurer proved to be insolvent, as

Integrity proved to be. This would give the excess insurer a

concrete stake in the bankruptcy, thus enabling it to file an

objection to an attempt by the bankruptcy judge to disregard

the provision in the excess policy in order to maximize the

assets of the debtor available for distribution to the creditors.

It is better to leave matters to private contracting where

that is feasible than to permit parties, especially sophisti

‐

cated parties like Columbia, to ask a court to ride to its res

‐

cue from an oversight.

As an aside we note that if, contrary to what we’ve said,

Global and Thorpe are inconsistent with James Wilson and the

cases following James Wilson

, it would not follow, as Colum

‐

bia rather impertinently argues in its reply brief, that unless

we overruled James Wilson the Seventh Circuit would be8 No. 13

‐ 1306

“decid[ing] to split with its sister circuits on the proper rule

for bankruptcy court standing.” The implication is that if an

‐

other court disagrees with one of our decisions, we shall be

guilty of “splitting” if we fail to overrule our decision. If

Global and Thorpe unconsciously (for remember that both

purport to adopt our approach in James Wilson ) rejected our

decision, it would be the Third and Ninth Circuits that had

“split” with us, not us with them.

Columbia further argues that James Wilson was overruled

by a decision of ours, In re Cult Awareness Network, Inc.

, 151

F.3d 605 (7th Cir. 1998). The court in that case did not say it

was doing that (it did not even mention James Wilson ); nor

could it have overruled that decision without circulating its

opinion in advance of issuance to the full court, 7th Cir. R.

40(e), which it did not do. Nor are the two decisions incon

‐

sistent. The debtor in the Cult Awareness case objected to the

trustee’s sale of its trade name, on the ground that the pur

‐

chaser would use it to promote cults. The court noted that

“occasionally a debtor might be able to satisfy all debts with

the assets from the estate and be left with some amount re

‐ maining. If the debtor can show a reasonable possibility of a

surplus after satisfying all debts, then the debtor has shown

a pecuniary interest and has standing to object to a bank

‐

ruptcy order.” Id

. at 608. Because Cult Awareness had not

shown such an interest, it could not object to the sale of its

trade name by the trustee. There is nothing in the opinion to

suggest that non

‐ debtor, non

‐ creditor Columbia Casualty

Company has the kind of pecuniary interest in the Hall bank

‐

ruptcy that would entitle it to intervene in theNo. 13

‐ 1306 9

bankruptcy proceeding. Pecuniary interest is a necessary

rather than a sufficient condition of such a right.

A FFIRMED

.