* District Judge for the Western District of Louisiana,

sitting by designation. United States Court of Appeals

Fifth Circuit



## FILED

September 8, 2003

Charles R. Fulbruge III

Clerk IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

__________________________

No. 02-10743

__________________________

In The Matter Of: COHO RESOURCES , INC.

Re-Organized Debtor

-----------------------------

MARION C. CHAPMAN,

Appellee,

versus

BITUMINOUS INSURANCE COMPANY;

CHUBB INSURANCE COMPANY OF CANADA

Appellants.

___________________________________________________

Appeals from the United States District Court

for the Northern District of Texas

___________________________________________________

Before WIENER and CLEMENT, Circuit Judges, and LITTLE *

, District

Judge.

WIENER, Circuit Judge:

Defendants-Appellants Chubb Insurance Company of Canada

(“Chubb”) and Bituminous Casualty Company “(“Bituminous”) appeal

the district court’s order granting Plaintiff-Appellee Marion

Chapman’s (“Chapman”) motion for authority to execute a state court

judgment against Chubb and Bituminous, respectively the insurer and2

indemnitor of discharged bankruptcy debtor Coho Resources, Inc. We

a ffirm in part, vacate in part, and remand for transfer to the

Southern District of Mississippi, from whence it came.

I. FACTS AND PROCEEDINGS

Seldo m, on appeal, do we confront cases with odysseys as

circuitous and tortured as this one. This bankruptcy appeal stems

from a personal injury suit originally filed and tried in state

court in Jones County, Mississippi. In that suit, Chapman alleged

that in August 1995, he sustained permanent injuries when he fell

approximately twenty feet from a platform while working on an oil

well owned by Coho Resources. At the time of the accident, Chapman

was employed by V.A . Sauls, Inc. (“Sauls”), which had contracted

with Coho to perform repair and service work on Coho’s wells. The

Sauls-Coho contract included an indemnity agreement, under which

Sauls agreed to “defend, indemnify, and hold [Coho] harmless from

and against all claims, losses, costs, demands, damages . . . and

causes of action

. . . without limit and without rega rd to the

cause

. . . which are related in any way to the subject matter of”

the parties’ agreement. Pursuant to this provision, Sauls’s

general liability insurer, Bituminous, assumed the defense of Coho

as the defendant in Chapman’s suit.

Chapman’s case was tried before a jury in May 1999. The jury

returned a verdict in favor of Chapman and awarded in excess of

$1.6 million in damages. A judgment in this amount was entered in1 Coho’s Chapter 11 plan of reorganization was eventually

confirmed in March 2000.

3 Mississippi Circuit Court on June 8, 1999. On June 11, 1999, Coho

timely filed several post-trial motions, seeking, i nter alia

,

judgment notwithstanding the verdict and remittitur. On August 23,

1 999, while Coho’s post-trial motions were pending, Coho file d a

voluntary petition for Chapter 11 Bankruptcy protection in the

United States Bankruptcy Court for the Northern District of Texas. 1

Coho filed a “suggestion of bankruptcy” on September 29, 1999,

notifying the Mississippi state court of the bankruptcy proceedings

and the automatic stay. Chapman, too was notified of the

bankruptcy petition and the deadline for filing claims, but he did

not choose to file a proof of claim in those proceedings.

A week later, on October 5, 1999, the Mississippi Circuit

Court ruled on Coho’s post-trial motions, ordering a remittitur of

the damage award to $853,930.00 and denying all other motions. The

court did not acknowledge the bankruptcy pro ceedings, and it is

unclear whether the court received notice of the stay before it

issued its post-trial rulings. Regardless, Chapman accepted the

remitted award on October 14, 1999. Coho appealed the judgment to

the Mississippi Supreme Court in November 1999, but did not post a

supersedeas bond.

On November 18, 1999, Chapman filed a garnishment action

against Chubb and Bituminous in the Circuit Court of Jones County,2 Even though Chubb and Bituminous repeatedly assert that

Chapman named Coho in the garnishment action, a stipulation of

undisputed facts, signed by attorneys for Chapman, Chubb, and

Bituminous, states unequivocally that “[o]n November 18, 1999,

[Chapman] commenced garnishment actions against Chubb and

Bituminous.”

4 Mississippi. 2 The state court issued writs of garnishment directed

to Chubb and Bituminous in the amount of the remitted jury award.

Chubb and Bituminous successfully removed the garnishment

action to the United States District Court for the Southern

District of Mississippi, which ordered Chapman to

petition the United States Bankruptcy Court for the

Northern District of Texas for permission to li ft its

stay, or amend its order, to auth orize or permit

Plaintiff to collect on the judgment entered against Coho

in Plaintiff’s unde rlying state court proceeding or to

otherwise proceed in this Court or in state court in that

matter, but only to the extent that proceeds of insurance

are available to Coho, o r to indemnify Coho, from

Bituminous [Casualty] Company and/or Chubb Insurance

Company of Canada.

In compliance with this court order, Chapman filed a “motion for

authority to collect and/or execute on state court judgment” in the

Texas bankruptcy court. In his motion, Chapman sought to execute

the state judgment against Bituminous and Chubb “to the extent that

insurance proceeds are available to Coho and/or to satisfy subject

judgment/debt.”

Following the completi on of briefing and oral argument, the

bankruptcy court denied Chapman’s motion. The court concluded that

“Chapman has no remedy, because he is not a claimant in the Chapter

11 case and is barred from goin g forward one way or the other,5

either in the Bankruptcy Court or in a Mississippi court.”

Chapman appealed the bankruptcy court’s ruling to the district

court in Texas. After further briefing and oral argument, the

district court affirmed the bankruptcy court’s ruling in part, and

modified it in part. First, the district court agreed that,

because C h apman had failed to file a proof of claim in the

bankruptcy proceedings, he was not entitled to recover from Coho,

the debtor. The district court concluded further, however, that

Chapman could proceed against Coho nominally to recover from thirdparty insurers suc h as Chubb, Coho’s general liability insurer.

The court ruled additionally that, as Bituminous is not Coho’s

insurer but i ts i ndemnitor

, and the liability of its indemnitee,

Coho, had been “extinguished” by discharge, Bituminous’s liability

a s Coho’s indemnitor was likewise “extinguished.” Finally, the

district co urt recognized that the Mississippi Circuit Court had

issued its ruling on Coho’s post-trial motions after the petition

for bankruptcy was filed and wh ile the automatic bankruptcy stay

was in effect. The district court nevertheless declined to address

whether the state court’s p ost-petition rulings and remitted

judgment were void, electing to “leave it up to the Mississippi

courts to determine which judgment will be enforced.” Bituminous

and Chubb timely filed notices of appeal.

II. ANALYSIS

A. Standard of Review3 Gulf City Seafoods, Inc. v. Ludwig Shrimp Co. ( In re Gulf

City Seafoods, Inc.) , 296 F.3d 363, 367 (5th Cir. 2002)

(quotations omitted).

4 Crowell v. Theodore Bender Accounting, Inc. ( In re

Crowell) , 138 F.3d 1031, 1033 (5th Cir. 1998).

5 Bituminous raised this argument in the district court, but

does not reurge it on appeal.

6 Owaski v. Jet Florida Sys., Inc. (In re Jet Florida Sys.,

Inc.) , 883 F.2d 970, 972 (11th Cir. 1989)(emphasis added).

6 We review the district court’s decision “by applying the same

standards of review to the bankruptcy court’s findings of fact and

conclusions of law as applied by the district court.” 3 Findings of

fact are reviewed for clear error and conclusions of law are

reviewed de novo

. 4

B. Chapman’s Aut hority to Proceed Against Third Parties

Chubb first asserts that Ch apman is forever “barred” from

proceeding against Coho’s insurers because he failed to file a

proof of claim in Coho’s Chapter 11 proceedings. 5 Chubb’s argument

in this regard is based largely on perceived policy considerations.

According to Chubb, Chapman’s failure to file a proof of claim or

otherwise notify the bankruptcy court of its debt “frustrates the

very purpose of the Bankru ptcy Code” and “prevents an orderly

administration of the debtor’s estate.”

We and other courts have squarely rejected Chubb’s argument;

it is entirely without merit. 11 U.S.C. § 524(a) “operates as an

injunction against actions against a deb tor subsequent to a

discharge o f a debt.” 6 The bankruptcy discharge and § 5247 Id. (emphasis added).

8 Id. at 973 (emphasis added).

9 11 U.S.C. § 524(e).

10 In re Jason Pharms., Inc. , 224 B.R. 315, 321 (Bankr. D.

Md. 1998) (emphasis omitted)(citing cases).

11 993 F.2d 51 (5th Cir. 1993).

12 Id. at 54 (quoting In re Lembke , 93 B.R. 701, 703 (Bankr.

D.N.D. 1988)).

7 injunction serve to “give the debtor a financial fresh start.” 7 As

a general rule, a creditor must file a proof or notice of claim

during bankruptcy proceedings to preserve its claim against the

debtor

. If a creditor neglects to file such notice, the § 524

injunction “will act to shield the debtor ” from the creditor. 8

The discharge and injunction, however, are expressly designed

to protect only the debtor

, and do “not affect the liability of any

other entity” for the debt. 9 Accordingly, courts are in “near

unanimous agree ment” that § 524(e) “permits a creditor to bring,

and proceed in, an action nominally directed against a discharged

debtor for the sole purpose of proving liability on its part as a

prerequ isite to recovering from its insurer.” 1 0 In H ouston v.

Edgeworth ( In re Edgeworth)

, 11 we endorsed this approach, explaining

that “it makes no sense to allow an insurer to escape coverage for

injuries caused by its insured merely because the insured receives

a bankruptcy discharge” and noting that “[s]uch a result would be

fundamentally wrong.” 1213 Jet Florida , 883 F.2d at 975.

14 Courts vary in their procedural approaches to such suits.

See Green v. Welsh , 956 F.2d 30, 33-34 (2d Cir. 1992)(citing

cases and noting that some courts have simply concluded that

discharge injunction is not a bar, others have modified the

injunction to allow such suits, and others have granted relief

from the automatic stay); see also 4 C OLLIER ON B ANKRUPTCY ¶ 524.05,

at 524-46 (Lawrence P. King ed., 15th ed. rev. 2003) (explaining

that “[i]t is generally agreed that the debtor’s discharge does

not affect the liability of the debtor’s insurer for damages

caused by the debtor” but noting that “[t]here is disagreement

about whether relief from the discharge injunction must be sought

when an action must be brought against the debtor to collect from

another entity or whether the injunction simply does not apply to

an action in which the plaintiff explicitly waives any right to

collect a monetary recovery from the debtor”).

8 In short, even though Chapman’s failure to file a proof of

claim in Coho’s bankruptc y proceedings i s a bar to continued

prosecution of claims against Coho , it does not affect his claims

against non-debtors, such a s general liability insurers. “The

‘fresh-start’ policy is not intended to provide a method by which

an insurer can escape its obligations based simply on the financial

misfortunes of the insured.” 13 The district court properly granted

Chapman’s motion for authority to proceed against Coho’s insurers. 14

C. Status of Chapman’s Remitted State Judgment

Bituminous insists that the district court erred in

“implicitly” concluding that Chapman possesses a valid, fi n al

judgment executable under Mississippi law. Bituminous argues in

t he alternative (1) that Chapman’s judgment is not final beca use

all post-petition actions, including the state court’s remittitur,15 Chubb also raises this argument, asserting that Chapman

“willfully ignored the stay imposed by Coho’s bankruptcy and

proceeded to obtain a judgment” and “any act violative of that

stay should be deemed void.”

16 11 U.S.C. § 362(a)(1). A debtor’s discharge will

extinguish the § 362 automatic stay and substitute a § 524(a)

permanent injunction. See

, e.g.

, Green , 956 F.2d at 32; see also

H ENRY J. S OMMER

, 1 C OLLIER B ANKRUPTCY M ANUAL ¶ 362.06, at 362-48 (3d

ed. rev. 2002)(explaining that the stay expires when case is

closed or dismissed or when debtor receives a discharge).

17 Soares v. Brockton Credit Union ( In re Soares) , 107 F.3d

969, 975 (1st Cir. 1997).

9 are void as a result of the automatic bankruptcy stay; 15 (2) that

even if the post-petition actions are not void, b ut merely

voidable , Chapman failed to seek to annul or retroactively ratify

the post-petition actions in the bankruptcy court; and (3) that the

district court impermissibly “delegated” authority to the

Mississippi state courts to determine whether the judgment is void

or merely voidable. As we shall demonstrate, each of these

arguments fails.

Section 362 of the Bankruptcy Code provides that the filing

of a bankruptcy petition operates as a stay of the “commencement or

continuation” of all non-bankruptcy judicial proceedings against

the debtor. 16 This stay is automatic and “springs into being

immediately upon the filing of a bankruptcy petition.” 1 7 Courts

disagree, however, as to the effect of violations of this automatic

stay. Some courts hold that acts in violation of the stay are void18 Helfrich v. Thompson ( In re Thompson ), 273 B.R. 143, 144

(Bankr. S.D. Ohio 2001).

19 Sikes v. Global Marine, Inc. , 881 F.2d 176, 178 (5th Cir.

1989) (explaining that “characterization of every violation of

section 362 as being absolutely void is inaccurate and overly

broad”)(quotations omitted).

20 Id. (“The power to annul authorizes the court to validate

actions taken subsequent to the impressing of the section 362(a)

stay.”).

21 Soares , 107 F.3d at 976.

10 ab initio and incurable. 18 We adhere to the view that violations

are merely “voidable” and are subject to discretionary “cure.” 1 9

This position rests on the bankruptcy court’s statutory power to

annul the automatic stay, 20 i.e., to “lift the automatic stay

retroactively and thereby validate actions which otherwise would be

void.” 21

In this case, the parties complain of several actions taken in

violation of the automatic stay. First, the first —— and pivotal

—— “violation” occurred when the Mississippi Circuit Court ruled on

Coho ’s post-trial motions (and granted a remittitur) days after the

“suggestion of bankruptcy” was filed in that court. Second, both

Chapman and Coho acted

—— with the knowledge of the bankruptcy

proceedings

—— in response to the remitted judgment : Chapman

formally accepted the reduced judgment; Coho filed a notice of

appeal challeng ing the remitted judgment and the state court’s

rulings on the pending post-trial motions.

In spite of these patent violations of the automatic stay, the22 The parties do not address, for example, the procedural

posture of Chapman’s judgment and Coho’s appeal, if this court

agrees that the remitted judgment is void ab initio . It seems

that if all post-petition actions are void (as Bituminous and

Chubb now assert) Chapman is left with the original $1.6 million

judgment.

23 Bituminous’s argument in this regard is slightly more

principled and is based on the fact that Chapman’s judgment

“remains in dispute” and is not final.

11 parties’ “voidness” arguments fail for three reasons. First, as a

threshold matter, we agree with the district court that the

validity and procedural posture of Chapman’s Mississippi state

judgment should be resolved by the Mississippi courts. In the

bankruptc y court, Chapman filed a motion seeking “authority to

execute on/or collect the sub ject State court judgment” from

Bituminous and Chubb “to the extent that insurance proceeds are

available.” He apparently did not ask for total annulment of the

automatic stay or retroactive “validation” of the remitted

judgment.

Although Bituminous raised the alleged “voidness” of the state

court judgment in opposition to Chapman’s motion, on appeal neither

Bituminous nor Chubb addresses any of the thorny procedural issues

needed to resolve conclusively the void-voidable dichotomy. 22

Incredibly, Chubb summarily asserts that because the remitted

judgment was issued in violation of the stay, it is void as a

matter of law, and Chapman recovers nothing. 23 Given that Chapman

had prevailed at trial two months before Coho’s petition was filed,

and that both Chapman and Coho took steps to preserve their rights24 We have previously noted that “other [federal] district

courts retain jurisdiction to determine the applicability of the

stay to litigation before them, and to enter orders not

inconsistent with the terms of the stay.” Picco v. Global Marine

Drilling Co. , 900 F.2d 846, 850 (5th Cir. 1990); see also Siskin

v. Complete Aircraft Servs.( In re Siskin) , 258 B.R. 554, 561-664

(Bankr. E.D.N.Y. 2001)(noting that the majority of jurisdictions

have held that state courts have concurrent jurisdiction to

decide whether the bankruptcy stay applies to pre-petition state

court actions).

25 569 So. 2d 303 (Miss. 1990); see also Estelle v.

Robinson , 805 So. 2d 623, 626 (Miss. Ct. App. 2002) (refusing to

enforce default judgment granted during automatic stay because

plaintiff did not attempt to “obtain relief from the automatic

stay”).

12 post-petition (Chapman by accepting the remittitu r, Coho by

appealing it), this argument is feckless. Chapman may be required

to seek retroactive annulment of the stay before executing his

judgment in Mississippi, but this is not the relief that he sought

in the bankruptcy court. Consequently, this issue is not properly

before us on appeal, and we decline Bituminous and Chubb’s

invitation to issue an advisory opinion on the question.

Second, Bituminous’s assertion that the distric t court has

improperly “delegated appellate authority” to the Mississippi

courts is without merit. State courts, including those of

Mississippi, routinely rule on the applicability of a bankruptcy

stay or permanent injunction to state judicial pro ceedings. 2 4 In

Overbey v. Murray

, 25 the Mississippi Supreme Court explained that

“courts of this state have jurisdiction to determine whether a

pending action is stayed by a ruling of the bankruptcy court,” yet

cautioned that state courts should “consider deferring close26 Overbey , 569 So. 2d at 307-08. Both Chubb and Bituminous

repeatedly cite Overbey for its holding that, under Mississippi

law, any act taken in violation of the automatic bankruptcy stay

is void. Id. at 307 (describing this as a “general rule” and

noting that “[w]e do not imply . . . that [an] equitable

exception will never be applied to uphold an otherwise void

judgment”).

13 questions involving the applicability of exceptions to the

automatic stay” to the bankruptcy court. 26 Bituminous’s argument

that only the bankruptcy court can make this voidness determination

is unpersuasive.

Third, as Bituminous acknowledges, the district court did not

conclusively determine that Chapman’s state judgment is valid.

According to Bituminous, the court “made findings of fa ct and

r eached conclusions of law that indicate that [it] believed,

although it did not rule that, Chapman currently possesses a valid

final judgment” enforceable in Mississippi state courts. A review

of the district court’s order, however, reveals that the court

specifically avoided this issue, expressly leaving its resolution

to the Mississippi cour ts. Whether the remitted Mississippi

judgment is void, and whether Coho’s failure to post a supersedeas

bond allows Chapman to execute the judgment, are complex procedural

issues of Mississippi law that the district court prudently left to

the Mississippi courts. Any “beliefs” that the district court

might have “implied” are simply irrelevant.

D. Bituminous’s Indemnification Obligation

Chubb contends that the district court erred in c oncluding27 Hopton Bldg. Maint., Inc. v. United Parcel Serv. , 559 So.

2d 1012, 1013 (Miss. 1990).

28 Id. at 1014.

14 that Coho’s bankruptcy discharge effectively discharged any

obligation of Bituminous, as Coho’s indemnitor. According to

Chubb, Bituminous’s liability attached when Coho submitted a claim

u nder the indemnity agreement (i.e., when Chapman filed suit and

Bituminous assumed Coho’s defense) and is not contingent on a

judicial determination of Coho’s “legal liability.”

Mississippi common law provides that, as a general rule,

“there must be legal liability before a claim o f indemnity

arises.” 2 7 Parties may, however, “extend the liability of the

indemnitor by the language of their contract.” 28 The Sauls-Coho

indemnity agreement provided that Sauls

shall defend, indemnify, and hold [Coho] harmless . . .

from and against all claims, los ses, costs, demands,

damages, penalties, liabilities, debts, expenses and

causes of action of wha t soever nature or character,

including but not limited to, reasonable attorney’s fees

and other costs and expenses, without limit and without

regard to the causes or cause thereof, which are related

in any way to the subject matter of this Agreement which

are asserted by or arise in favor of such party or any of

such party’s employees

. . . due to personal injury,

death, or loss or damage of property whether or not

caused by sole, joint, and/or concurrent negligence of

the party seeking indemnity, and/or claim of strict

liability and/or any cause whatsoever, whether predating

this Agreement or not.

Given the comparatively broad indemnification language in this

particular agreement, it may well be that, as a matter of law,29 In light of our ruling, we do not reach Bituminous’s

contention that Chubb, in failing to appear or argue before the

district court, has waived this argument. We emphasize that, in

general, we do not consider issues raised for the first time on

appeal “except in extraordinary circumstances.” Vogel v. Veneman

, 276 F.3d 729, 733 (5th Cir. 2002). We also note that in this

unusual case, Bituminous had fully assumed and handled the

defense of Chapman’s suit against Coho, thus raising the specter

of estoppel.

30 Both Chubb and Bituminous complain on appeal that the

district court erred in making a “factual finding” that Chapman’s

injuries were “substantial.” This argument does not warrant

lengthy discussion. The district court noted, in the “background

and procedural history” section of its memorandum opinion, that

“Marion C. Chapman . . . was involved in an accident on August

18, 1995, as a result of which he suffered substantial injuries.”

In context, it is obvious that the court was merely explaining

the facts giving rise to this bankruptcy appeal and was not

“determin[ing] the nature and extent of Chapman’s alleged

injuries” as Bituminous alleges. In any event, we clarify that

the district court was merely reciting the facts as alleged in

Chapman’s original complaint.

15 Sauls and Coho have contractually expan ded Sauls’s (and thus

Bituminous’s) indemnification obligation beyond the common-law

rule. It may also be that the judgment rendered in Mississippi

state court before Coho filed its petition for bankruptcy

constitutes “legal liability” sufficient to satisfy the common law

requirement without additional contractual expansion. As this

complex issue of Mississippi law is so entwined with the larger

question of the validity and procedural posture of the state court

judgment, we conclude that the courts of Mississippi are bestequipped to resolve it. 29 We therefore vacate the district court’s

ruling on the issue of Bituminous’s liability, if any, and leave

its resolution to the proper Mississippi court. 3016 III. CONCLUSION

Bituminous and Chubb consistently (and conveniently) assert

that Marion Chapman is responsible for the procedural quagmire they

find themselves in today. As we view the situation, however, it is

not Chapman so much as Bituminous and Chubb who have wrapped this

one around the axle. The internecine bickering between these two

l arge insurers —— neither disputing coverage but both seeking to

avoid payment as a result of Coho’s fortuitous bankruptcy

—— has

unnecessarily prolonged and complicated this otherwise

straightforward, eight-year old personal injury c ase. We hold

today that Chapman may pursue his judgmen t against third parties

such as Coho’s insurers. As the status of Chapman’s judgment and

the question of Bituminous’ s continuing liability are issues of

Mississippi law, however, we gladly leave to the Mississippi courts

the unenviable task of untying

—— or cutting

—— this Gordian knot.

AFFIRMED in part; VACATED in part; and REMANDED with instructions

to transfer this case to the United States District Court for the

Southern District of Mississippi for further proceedings consistent

with this opinion.

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