Court Opinion

ID: 29517
Source: CourtListenerOpinion
Date Created: 2010-04-25 09:39:41+00
Date Added: 2024-06-11T14:55:09.772741
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS

                       FOR THE FIFTH CIRCUIT

                       _____________________
                          Summary Calendar
                            No. 02-50273
                       _____________________

     In The Matter Of: BORDER STEEL ROLLING MILLS INC;
     METAL PROCESSING INC

                                         Debtors

     MANUEL ROMERO

                                         Appellant

          v.

     BORDER STEEL ROLLING MILLS INC;
     METAL PROCESSING INC

                                         Appellees

_________________________________________________________________

           Appeal from the United States District Court
                 for the Western District of Texas
                        No. EP-01-CV-65-GTE
_________________________________________________________________
                         November 20, 2002

Before KING, Chief Judge, and WIENER and CLEMENT, Circuit Judges.

PER CURIAM:*

     Appellant Manuel Romero appeals the Order entered by the

District Court for the Western District of Texas affirming the

     *
        Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
bankruptcy court’s Order on Motion of Manuel Romero for

Reconsideration of Order Dismissing Motion to Modify Injunction

and To Reopen Case which denied Romero’s request to modify a

bankruptcy reorganization plan so that Romero could continue to

pursue a lawsuit against the debtor.   We reverse the district

court’s order and remand to the district court with instructions

to remand to the bankruptcy court with instructions to enter an

order modifying the injunction to permit Romero’s suit against

the debtor to continue in state court.

I.   FACTS AND PROCEDURAL BACKGROUND

     On March 4, 1993, Appellees Border Steel Rolling Mills, Inc.

(“Border”) and Metal Processing, Inc., as debtors, jointly filed

a voluntary petition under Chapter 11 of the Bankruptcy Code.

Prior to that date, Romero had filed a suit in Texas state court

against Border arising out of a workplace accident that cost

Romero both of his legs.   Romero’s suit was pending at the time

Border filed for bankruptcy.   On March 17, 1993, Romero filed a

motion to lift the automatic stay in bankruptcy so that he could

continue his litigation against Border.   The court granted that

motion.   For unknown reasons, Romero did not file a proof of

claim in the bankruptcy proceeding.

     The bankruptcy court approved a Plan of Reorganization on

October 22, 1997.   Pursuant to that plan, all of Border’s assets

were purchased by a third party, and substantially all of the

proceeds from that sale have been distributed to the claim

                                 2
holders who were the beneficiaries of the plan.    Because Romero

did not file a proof of claim, he was not listed among the

creditors with allowed claims to the debtor’s proceeds.    However,

the plan did mention Romero’s claim (as well as other pending

personal injury claims), stating that:

     Debtors are non-subscribers to the Texas Workers
     Compensation laws.    In lieu of workers compensation
     insurance, Debtors carry employer’s indemnity insurance
     with deductible amounts that have ranged between $25,000
     and $250,000. Debtors must pay the deductible and then
     the employer’s indemnity policies indemnify the Debtors
     for amounts exceeding the deductible up to the maximum
     policy limits.    Debtors believe they are adequately
     insured against any liabilities that may result from the
     employee lawsuits.

The plan also provided that the bankruptcy court would retain

jurisdiction over all matters relating to the reorganization.

Included in this jurisdiction is the power to “correct any

defect, cure any omission or reconcile any inconsistency in this

Plan or Confirmation Order which may be necessary or helpful to

carry out the purposes and intent of this Plan.”

     As part of the reorganization plan, the bankruptcy court

entered an injunction prohibiting any creditor holding a Claim

(defined as it is in § 101(5) of the Bankruptcy Code) from taking

any action or continuing any action against Border.   Although the

effect of the discharge of Romero’s claim is to preclude him from

collecting against Border, Romero is concerned that this

injunction may have halted all proceedings in Romero’s suit

against Border.   To clarify the situation, on December 13, 2000,

                                 3
Romero filed a Motion to Modify Injunction in bankruptcy court.

Romero recognized that he was not able to collect from Border;

instead, he sought payment from Border’s indemnity insurer for

the amount allowable above the deductible under the policy.

Romero asserted that he wanted to continue his action against

Border only as a “nominal” defendant, for the sole purpose of

establishing the original existence of liability for Romero’s

injuries.   The bankruptcy court dismissed Romero’s motion,

finding that the Bankruptcy Code lacked a provision for the

“modification or ‘lifting’ of this injunction.”    The court stated

that “modification of the injunction effectively modifies the

plan,” an act which is expressly proscribed by 11 U.S.C. § 1127.

     Romero filed a Motion for Reconsideration in the bankruptcy

court, urging the same modification of the injunction.    The

court, while stating that the latter motion had helped clarify

what Romero wanted, reaffirmed its prior decision.    The court

concluded that “Romero must simply live with the plan as written,

and hope that he is nonetheless permitted, as a matter of law, to

still sue the insurance company.”    Romero appealed to the

district court, which affirmed the bankruptcy court’s ruling.

The district court, while recognizing the harshness of the

result, agreed that no statutory basis existed under Chapter 11

for the modification of a reorganization plan that has been

“substantially consummated.”   Romero appeals that decision to

this court, raising essentially the same issues.

                                 4
II.   MODIFICATION OF CHAPTER 11 INJUNCTIONS

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

standards of review that the district court applied to the

bankruptcy court’s decision.     In re Crowell, 138 F.3d 1031, 1033

(5th Cir. 1998).    A bankruptcy court’s conclusions of law are

reviewed de novo.    Id.   As the facts in this case are undisputed,

an issue of law remains:    whether Romero’s proposed modification

of the injunction to permit his suit to continue under these

unique circumstances qualifies as a Chapter 11 “modification.”

      Romero does not dispute that the discharge injunction may

not be modified once the plan is substantially consummated.     11

U.S.C. § 1127(b) (2000).    Instead, he argues that, because Border

is effectively only a nominal defendant since he will be unable

to collect from Border itself, continuing his state court suit

will not do any violence to the plan or diminish the assets

available for Border’s other creditors.    In other words, he

argues that modifying the injunction solely for the purpose of

permitting him to continue his suit does not rise to the level of

a “modification” that would be prohibited by § 1127(b).

      We agree.   First, we note that Romero effectively seeks only

the ability to pursue Border’s insurers and recover money owed

under the employment indemnity policy for what are serious

injuries.   Where a creditor seeks recovery against a debtor’s

liability insurance proceeds, we have previously held that those

insurance proceeds are not assets or property of the estate.      In

                                   5
re Edgeworth, 993 F.2d 51, 55-56 (5th Cir. 1993) (“When the

debtor has no legally cognizable claim to the insurance proceeds,

those proceeds are not property of the estate.”).       As such,

Romero’s suit will not be depriving the beneficiaries of the plan

of assets which might otherwise be used to satisfy their claims.1

     Second, the bankruptcy court originally lifted the stay to

permit Romero’s suit to proceed.       It is difficult to see why,

given that Romero recognizes that the discharge injunction will

preclude him from collecting from the estate or the reorganized

debtor, the logic that supported that decision would not equally

support permitting his suit to continue now.       Perhaps in

recognition of that fact, the bankruptcy court, in its Order on

Motion of Manuel Romero for Reconsideration of Order Dismissing

Motion to Modify Injunction and to Reopen Case, said:

     To the extent that the plan permits Romero to pursue a
     “direct action” proceeding against the insurance carrier
     (and to the extent Texas law permits such an action),
     Romero does not need a modification of the plan. He can
     simply file his lawsuit.     If the plan does not make
     provision for such an action, Romero might try suing the
     insurance company directly anyway, and needs no special
     permission from the court to do so, because the insurance
     company is not the debtor in this case.

     1
        Our view is confirmed by the debtor’s response to this
suit. In its response to Romero’s brief in the district court,
Border noted that Romero “has agreed with [Border] that it will
not seek any distribution against the bankruptcy estate, the
reorganized Debtor or the purchaser, Border Steel, Inc. . . . Due
to the fact that [Border] has no economic interest in the
proceeding, [we] wish[] to be relieved of the responsibility of
further participation in this appeal.” Border filed no response
brief in Romero’s appeal to our court.

                                   6
However, Texas law prohibits a third-party beneficiary to an

insurance policy from bringing a direct action against an insurer

until the insured’s liability and obligation to pay have been

“finally determined ‘either by judgment against the insured after

actual trial or by written agreement of the insured, the claimant

and the company.’”   See Great Amer. Ins. Co. v. Murray, 437

S.W.2d 264, 265 (Tex. 1969).   Thus, if Romero is not permitted to

continue his suit against Border and obtain a judgment indicating

liability, he may be unable to collect from the insurer.

     The injunction issued as part of the plan specifically gave

the bankruptcy court jurisdiction to “correct any defect, cure

any omission, or reconcile any inconsistency . . . which may be

necessary or helpful to carry out the purposes and intent of the

plan.”2   Given that the plan specifically recognized that

Romero’s personal injury claim existed and noted that Border had

insurance to deal with the claim for amounts owed above the

deductible, the bankruptcy court here should have modified the

injunction to carry out the intent and purpose of the plan.    What

Romero proposes will not take proceeds away from plan creditors,

nor will it force Border or the court to alter the substance of

the plan to accommodate Romero’s suit.

     2
        This provision is authorized by § 1142(b), which permits
the bankruptcy court to “direct the debtor and any other
necessary party . . . to perform any other act, including the
satisfaction of any lien, that is necessary for the consummation
of the plan.”

                                 7
III.        CONCLUSION

       To further the intent and purposes of the plan, the

bankruptcy court should have lifted the injunction to permit

Romero to continue his suit against Border.    Therefore, we

REVERSE the district court’s Order and REMAND to the district

court with instructions to remand to the bankruptcy court with

instructions to enter an order modifying the injunction to permit

Romero to continue to pursue his claim against Border in state

court.    Costs shall be borne by the appellees.

                                  8