Court Opinion

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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Precedential or Non-Precedential: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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Recommended Citation
"Travelers Ins Co v HK Porter Co" (1995). 1995 Decisions. Paper 12.
http://digitalcommons.law.villanova.edu/thirdcircuit_1995/12

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              UNITED STATES COURT OF APPEALS
                  FOR THE THIRD CIRCUIT

                        ----------

                       No. 94-3324

                        ----------

               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

                        ----------

     On Appeal from the United States District Court
      for the Western District of Pennsylvania
              (D.C. Civil No. 93-01209)

                      ----------

          Argued Tuesday, November 29, 1994

BEFORE:   HUTCHINSON, NYGAARD and GARTH Circuit Judges

                      ----------

           (Opinion filed January 17, 1995)

                      ----------

                           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.

                       ----------
                        OPINION OF THE COURT

                             ----------

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.