IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

 

No. 98-41032

 

In The Matter Of: US BRASS CORP

 Debtor

THE INSURANCE SUBROGATION CLAIMANTS

Appellant

versus

US BRASS CORP; SHELL OIL COMPANY; HOECHST CELANESE

CORPORATION; OFFICIAL POLYBUTYLENE CREDITORS COMMITTEE; 

ELJER INDUSTRIES INC; ELJER PLUMBINGWARE INC

Appellees

 

Appeal from the United States District Court

for the Eastern District of Texas

 

March 12, 1999

Before HIGGINBOTHAM, BARKSDALE, and DENNIS, Circuit Judges.

HIGGINBOTHAM, Circuit Judge:

Insurance Subrogation Claimants appealed an order of

confirmation of a Chapter 11 reorganization plan proposed by U.S.

Brass, the debtor, and its direct parents, Eljer Manufacturing,

Inc., and EMI’s parent Eljer Industries, Inc. The ISC contend that

the plan violates 11 U.S.C. § 1123(a)(4), which requires all

creditors within a class be treated the same, unless the creditor
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who is being treated less favorably agrees to less favorable

treatment. The ISC also argue that the plan was not proposed in

good faith under 11 U.S.C. § 1129(a) and should not have been

approved. 

Shell and U.S. Brass have moved to dismiss ISC’s appeal as

moot. We agree, and finding the plan substantially implemented and

effective relief unattainable, dismiss the appeal.

I

On May 23, 1994, U.S. Brass filed for Chapter 11 relief in the

Eastern District of Texas. Prior to the petition date, U.S. Brass

had been sued in hundreds of cases seeking damages from alleged

defects associated with a polybutylene plumbing system. During the

pendency of the Chapter 11 case, a global settlement of the PB

litigation was fashioned in an action styled Tina Cox, et al. v.

Shell Oil Co., et al., Civil Action No. 18,844, with the Chancery

Court for Obion County, Tennessee. The Cox court certified the Cox

Plaintiffs as a national settlement class. The ISC were not

members of the settlement class. 

In November 1995, the Cox court approved a settlement

agreement between the Cox Plaintiffs and Shell and Celanese and

authorized the parties to pursue contributions from U.S. Brass. A

contribution plan was negotiated and is incorporated into the plan

as the Cox Plaintiffs’ Settlement Agreement. 
3

The Cox Plaintiffs and the ISC are designated as Class 5

claimants in the reorganization plan. The Cox Plaintiffs’

Settlement Agreement, however, provides a settlement of all Cox

Plaintiffs’ claims in exchange for a cash contribution from the

Brass Trust of $37.4 million and 80% of the Brass Trust’s

recoveries from insurance coverage to the settlement fund. The

remaining 20% is available for the other Class 5 claimants like the

ISC. 

On September 30, 1997, the bankruptcy court approved U.S.

Brass’ Fourth Amended Disclosure Statement and on January 27-29,

1998, held a confirmation hearing. The bankruptcy court overruled

the ISC’s objections and confirmed the plan and the incorporated

settlements, including the Cox Plaintiffs’ Settlement Agreement.

The Cox court in Tennessee, in turn, entered a final order on

February 5, 1998, approving the Cox Plaintiffs’ Settlement

Agreement and authorizing the Cox Plaintiffs to consummate the

transactions contemplated in the plan. 

On February 24, 1998, the bankruptcy court entered its order

confirming the reorganization plan and it became effective March 6,

1998. On the same day, the ISC filed a notice of appeal to the

district court of the confirmation order. Here begins the path to

mootness. The ISC also filed a motion for limited stay pending

appeal with the bankruptcy court requesting the bankruptcy court to

enjoin any funding from the Brass Trust to the Cox Plaintiffs or to

the Consumer Plumbing Recovery Center, the entity that administers
4

the $950 million settlement from Shell and Celanese. The ISC did

not seek emergency or expedited consideration of the bankruptcy

court’s order.

The reorganization plan proceeded, and on March 19, 1998 the

following events occurred:

(1) The Brass Trust was created pursuant to § 7.1 of

the plan;

(2) nearly $5 million was distributed to pay the

holders of allowed administrative, priority and

general unsecured claims; 

(3) Eljer wired more than $48 million into the Brass

Trust;

(4) the Brass Trust paid more than $32 million to the

CPRC for distribution to holders of allowed

plumbing claims;

(5) various global settlement agreements and releases

were signed by the major participants in the

Chapter 11 case, such as the Cox Plaintiffs’

Settlement Agreement, the Shell/Celanese Settlement

Agreement, and the Brass Settlement Agreement;

(6) the Eljer note was executed; and

(7) U.S. Brass and its parents assigned all their

right, title, and interest to certain insurance

proceeds to the Brass Trust.

On March 26, 1998, U.S. Brass filed an objection to the ISC’s

motion to stay, urging that the plan was now substantially

consummated. The bankruptcy court held a hearing on the stay

motion on May 6, 1998. Although no ruling came forth, the ISC did

nothing and on July 27, 1998, the district court affirmed the

bankruptcy court’s confirmation of the plan.
5

On August 25, 1998, the ISC filed a notice of appeal to this

court. Then finally on September 17, 1998, the ISC filed a motion

to stay and a request for expedited consideration with the district

court. The district court never ruled on the stay motion. 

The ISC did nothing until January 21, 1999, almost four months

after appealing the confirmation of the plan to this court. The

ISC requested that this court stay further proceedings pending

appeal in this court. We must determine whether this appeal is

moot considering the failure of the ISC to obtain a stay, the

action taken toward implementing the plan, and the potential effect

of the ISC’s requested relief on the plan.

II

When evaluating whether an appeal of a reorganization plan in

a bankruptcy case is moot, this court examines whether (1) a stay

has been obtained, (2) the plan has been substantially consummated,

and (3) the relief requested would affect either the rights of

parties not before the court or the success of the plan. See In re

Manges, 29 F.3d 1034, 1039 (5th Cir. 1994); In re Berryman

Products, Inc., 159 F.3d 941, 944 (5th Cir. 1998). Shell and U.S.

Brass argue that each of the factors favor finding the ISC’s appeal

moot. 

1. Failure to Obtain a Stay
6

To date, the ISC have not obtained a stay. U.S. Brass and

Shell argue that the ISC’s efforts in pursuing a stay have not been

diligent. For example, the first stay requested by the ISC, on

March 6, 1998, was made without a request for expedited

consideration even though the bankruptcy court had already

confirmed the plan on January 29, 1998. Similarly, although the

district court affirmed the plan on July 27, 1998, the ISC waited

until September 17, 1998 to seek a stay from the district court.

The district court never ruled, and the ISC never sought further

action on this second stay request until January 21, 1999, when the

ISC filed a motion for stay with this court. U.S. Brass and Shell

maintain that the ISC’s failure to obtain a stay and its lack of

diligence militates in favor of dismissal for mootness. 

This court has recognized that “the failure or inability to

obtain a stay pending appeal carries the risk that review might be

precluded on mootness grounds.” Manges, 29 F.3d at 1040. In this

case, it is undisputed that the ISC have failed to obtain a stay.

We turn to the transactions that have taken place as a consequence

to determine the extent to which the plan has been implemented.

2. Substantial Consummation of the Plan

The second question in the mootness inquiry is whether the

plan has been substantially consummated. According to 11 U.S.C.

§1102(a): 

"[S]ubstantial consummation" means-- 
7

(A) transfer of all or substantially all of the

property proposed by the plan to be transferred; 

(B) assumption by the debtor or by the successor to the

debtor under the plan of the business or of the

management of all or substantially all of the

property dealt with by the plan; and 

(C) commencement of distribution under the plan. 

 

“‘Substantial consummation’ is a statutory measure for determining

whether a reorganization plan may be amended or modified by the

bankruptcy court.” Manges, 29 F.3d at 1040. This court may

“decline to consider the merits of confirmation when a plan has

been so substantially consummated that effective judicial relief is

no longer available--even though the parties may have a viable

dispute on appeal.” Berryman, 159 F.3d at 944. 

The parties dispute whether the plan has been substantially

consummated. In the absence of a stay pending appeal, U.S. Brass,

the Brass Trust, the CPRC, and various other parties in interest

have proceeded to implement the plan. Shell and U.S. Brass argue

that the events following the March 1998 confirmation demonstrate

how extensively the plan has been implemented. The following

actions, for example, have occurred since the ISC sought a stay

pending appeal in the district court:

(1) U.S. Brass has continued to operate as a

reorganized entity;

(2) U.S. Brass has paid in full all of the outstanding

debt owed to its debtor-in-possession financing

lender;
8

(3) U.S. Brass and EII have implemented a new financing

arrangement whereby EII provides operating funds to

U.S. Brass;

(4) the bankruptcy court has entered orders providing

the final allowance to Class 4 general unsecured

claims;

(5) U.S. Brass has amended its state charter and bylaws as required by the plan;

(6) a number of state lawsuits against EMI and EII

asserting plumbing claims have been dismissed with

prejudice;

(7) the Brass Trust has transmitted checks in the sum

of $267,978.45 as offers of full settlement to the

convenience class claimants;

(8) the Brass Trust has opened bank accounts,

established an account record system, implemented

an investment program for excess funds, obtained

insurance coverage, established by-laws, and

retained professionals to carry out its duties;

(9) the Brass Trust, the CPRC, and Goldin Associates,

the financial advisors to the Brass Trust, have

established a claim resolution system to process

allowed claims;

(10) the CPRC has distributed to holders of allowed

plumbing claims all of the funds transferred by the

Brass Trust to the CPRC;

(11) Shell and Celanese, in reliance on the Confirmation

order and pursuant to the terms of the

Shell/Celanese Settlement Agreement, which was

incorporated into the plan, have released asserted

claims against U.S. Brass in excess of $1 billion

for a payment of $2.5 million and have increased

their commitment to the Cox Settlement from $850

million to $950 million. 

U.S. Brass claims that all of the elements of “substantial

consummation” have occurred because on March 19, 1998, U.S. Brass

emerged as a newly reorganized entity and, as the Closing Binders
9

make clear, “(I) distributions commenced (with the transfer of more

than $48 million to the CPRC and the payment if more than $5

million to holders of allowed administrative, priority and general

unsecured claims), and (ii) substantially all the property to be

transferred under the plan was transferred (i.e. U.S. Brass

assigned to the Brass Trust all of their right, title and interest

to certain insurance recoveries).” Shell and U.S. Brass maintain

that these transactions cannot be “unscrambled” and should weigh in

favor of mootness. 

The ISC reply that the plan has not been so substantially

consummated that effective relief is no longer available. The

relief the ISC seek would require the Brass Trust to reallocate its

future disbursements of insurance recoveries pro-rata among all

Class 5 claimants, instead of the present 80%/20% plan. In order

to effectuate this relief, the ISC propose removing the Cox

Plaintiffs’ Settlement Agreement from the plan. Shell and U.S.

Brass contend that removing the Cox Plaintiffs’ Settlement

Agreement from the plan would dismantle the plan. 

We find the transactions that have taken place to date, the

exchange of mutual releases, the disbursements already made, and

the general implementation of the plan by all the involved parties

evidence substantial consummation of the plan. This determination,

however, does not end the mootness inquiry. “‘Substantial

consummation of a reorganization plan is a momentous event, but it

does not necessarily make it impossible or inequitable for an
10

appellate court to grant effective relief.’" Manges, 29 F.3d at

1042-43 (quoting Frito-Lay, Inc. v. LTV Steel Co., Inc. (In re

Chateaugay Corp.), 10 F.3d 944, 952 (2nd Cir. 1993)). Rather, we

must also consider whether the remedy the ISC seek will affect the

success of the plan or alter the rights of third parties that have

been achieved by its substantial consummation. More specifically,

we must determine whether the plan has been implemented to a point

that the removal of the Cox Plaintiffs’ Settlement Agreement would

jeopardize the plan’s success.

3. Granting Relief Would Affect Third Parties and Plan

Shell and U.S. Brass maintain that the Cox Plaintiffs’

Settlement Agreement is an essential element of the plan, and its

removal would detrimentally affect confirmation. They argue that

the various settlement agreements between and among the major

parties with an interest in the Chapter 11 case -- U.S. Brass,

Shell, Celanese, and the Cox Plaintiffs -- were found by the

bankruptcy court to be essential to the debtor’s reorganization.

Without the inclusion of the Cox Plaintiffs’ Settlement Agreement,

Shell and U.S. Brass argue that the plan would not have been

confirmed. 

Section 13.1 of the plan expressly provides that certain

events, including the approval of the Cox Plaintiffs’ Settlement

Agreement, the Shell/Celanese Settlement Agreement, and the Brass

Settlement Agreement, are conditions precedent to confirmation of
11

the plan. These settlements reflect the negotiations of the

parties interested in the Chapter 11 case and the bargains they

secured by voting in favor of the plan. Shell and U.S. Brass argue

that if the 80%/20% split provided by the Cox Plaintiffs’

Settlement Agreement was altered, the change would affect the

interdependence of all the settlements. The plan also provides

that any of the settling parties may withdraw from the plan in the

event there are modifications to which the parties have not agreed.

In short, U.S. Brass and Shell maintain that the Cox Plaintiffs

Agreement cannot be eliminated from the plan without unraveling the

entire plan. In addition, U.S. Brass and Shell oppose any

modification of the plan by judicial fiat because 11 U.S.C. § 1127

provides that only the proponent of a plan or the reorganized

debtor may modify a confirmed plan. 

The ISC, on the other hand, contend that the plan will not

unravel if the court affords them relief by modifying the 80%/20%

split with the Cox Plaintiffs to a pro rata distribution.

According to the ISC, the only effect of removing the Cox

Plaintiffs’ Settlement Agreement would be to alter the Brass

Trust’s distribution to holders of Class 5 claims.

III

While the ISC’s proposed day surgery appears at first blush to

be possible, we are persuaded it would excise parts to which other

vitals of the plan are attached. To remove the Cox Plaintiffs’
12

Settlement Agreement from the plan at this point would dismantle a

substantially consummated plan, requiring, for example, a

restoration of the rights of the Cox Plaintiffs to pursue claims

against U.S. Brass, now a reorganized entity. In addition, the

releases and settlements that were negotiated among the parties

would have to be undone because removal of the Cox Plaintiffs’

Settlement Agreement would consequently require giving each

settling party the right to withdraw from the plan. Removal of the

Cox Plaintiffs’ Settlement Agreement would also require that the

money contributed by U.S. Brass’ parent corporations to fund the

plan be recovered. These circumstances persuade us that it would

be inequitable for this court to consider the merits of the ISC’s

appeal. Accordingly, we dismiss this appeal as MOOT. 

APPEAL DISMISSED.