Claremont McKenna College v. Asbestos Settlement Trust (In Re Celotex Corp.)

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT
FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 09-12000 AUGUST 11, 2010
JOHN LEY
CLERK
D.C. Docket Nos. 08-02343-CV-T-24-EAJ, 90-BK-10016-PMG

In Re: THE CELOTEX CORPORATION,
THE ASBESTOS SETTLEMENT TRUST,

Debtors.
__________________________________________________________________

CLAREMONT MCKENNA COLLEGE, et al.,

Plaintiffs-Appellants,

versus

ASBESTOS SETTLEMENT TRUST, et al.,

Defendants-Appellees.

Appeal from the United States District Court
for the Middle District of Florida

(August 11, 2010)
Before EDMONDSON and CARNES, Circuit Judges, and GOLDBERG,* Judge.

GOLDBERG, Judge:

The Appellants are six colleges1 (“the Colleges”) who brought asbestos-

related property damage claims against the Asbestos Settlement Trust (“the

Trust”). The Trust originally disputed the Colleges’ request for payment on

certain claims and commenced adversary proceedings in bankruptcy court.

Eventually, the Trust made payments to the Colleges and moved to dismiss the

proceedings. The Colleges opposed dismissal, arguing that they were entitled to a

payment of post-judgment interest on their claims at the federal judgment rate

prescribed by 28 U.S.C. § 1961 (“judgment-rate interest”). See 28 U.S.C. § 1961

(2006). The bankruptcy court rejected the Colleges’ argument and granted the

Trust’s motion for dismissal. The district court affirmed the bankruptcy court’s

order of dismissal. As explained further below, we AFFIRM the order of

dismissal.

BACKGROUND

A. Establishment of the Trust

* Honorable Richard W. Goldberg, Judge, United States Court of International Trade,
sitting by designation.
1
Claremont McKenna College, Michigan State University, Prince George’s Community
College, Rochester Institute of Technology, the University of Cincinnati, and Fairfield
University.

2
 Lawsuits based on exposure to asbestos led Celotex Corporation, and its

then wholly-owned subsidiary Carey Canada Inc., (collectively “Debtors”) to file

for protection under Chapter 11 of the Bankruptcy Code. In re Celotex Corp., 204

B.R. 586, 589-90 (Bankr. M.D. Fla. 1996). In December 1996, after years of

negotiations between the Debtors and other interested parties and multiple

proposed reorganization plans, the bankruptcy court entered an order confirming

the Debtor’s reorganization plan. Id. at 616. A principal feature of the Plan was

the creation of the Trust. The Trust was established in accordance with section

524 (g) of the Bankruptcy Code, a provision specifically applicable to Chapter 11

reorganizations involving asbestos tort liabilities, to resolve and pay asbestos-

related claims. See 11 U.S.C. § 524(g)(2)(B)(i).

The Plan Documents2 establish the process by which claims are determined

and paid by the Trust. Under the Plan Documents, property damage claims (“PD

claims”) are administered by a Property Damage Claims Administrator (“the

Administrator”). Plan art. 4.2(a)(8), (b)(8); Trust Agreement arts. 1.2, 3.3(c);

2
The documents that govern the resolution of the issue are: 1) The Modified Joint Plan of
Reorganization Under Chapter 11 of the United States Bankruptcy Code for the Celotex
Corporation and Carey Canada Inc. (the “Plan”); 2) The Second Amended and Restated Asbestos
Settlement Trust Agreement (the “Trust Agreement”); and 3) The Third Amended and Restated
Asbestos Property Damage Claims Resolution Procedures (“APDCRP”), (collectively, “The Plan
Documents”). The APDCRP is annexed to and incorporated by reference within the Trust
Agreement, and along with the Trust Agreement, is in turn incorporated within the Plan. Plan
arts. 1.26, 1.106, 1.143, 1.146; Trust Agreement art. 1.2. In the event of inconsistencies, the Plan
controls. Trust Agreement art. 9.13.

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APDCRP § IV(A)(34). If the Administrator allows a PD claim, the allowed claim

is then submitted to the Trustees for payment to the claimant.

Because the Trust’s current and future liabilities for asbestos claims exceed

the Trust assets, the Trust operates as a limited fund that pays PD claimants a

fraction of the value of their allowed claims. The Plan directs the Trustees to pay

all allowed PD claims according to a “payment percentage,” which the Trustees

may adjust from time to time to ensure substantially equal treatment of all present

and future claims. See Plan art 5.1; Trust Agreement arts. 3.3(c), 3.4(a). In the

event of a dispute under the Plan, the bankruptcy court has jurisdiction to enforce

and interpret the provisions of the Plan Documents. Plan art. 13.3(c)-(e); accord

Trust Agreement arts. 9.13-9.14.

B. Disputes over Certain PD Claims

Seven PD claims filed by the Colleges and allowed by the Administrator

(the “Allowed Claims”) are at issue in this proceeding. When the Administrator

submitted the Allowed Claims to the Trust for payment, the Trustees originally

refused to pay on grounds that the Colleges failed to satisfy the legal prerequisites

for payment. The Trust then commenced adversary proceedings against the

Colleges in bankruptcy court. In opposing motions, each party sought an order

from the bankruptcy court upholding its respective interpretation of the Plan

4
Documents. The dispute largely related to the relative authority of the

Administrator and the Trustees over PD claims. On April 1, 2004, the bankruptcy

court granted the Colleges’ motion for summary judgment and directed the Trust

to pay the Colleges’ Allowed Claims. See generally Asbestos Settlement Trust. v.

Claremont McKenna College (In re Celotex Corp.), Adv. No. 02-522(Bankr. M.D.

Fla. April 1, 2004).

While the Trust did not pay the Colleges after the bankruptcy order, the

Trustees’ later decision to pay the Allowed Claims was in response to this Court’s

decision in a dispute between the Trust and another PD claimant, the City of New

York. See generally Asbestos Settlement Trust v. City of New York (In re Celotex

Corp.), 487 F.3d 1320 (11th Cir. 2007) (“NYC Appeal”). The Trust had disputed

certain allowed PD claims of the City of New York (the “NYC Claims”). The

bankruptcy court ultimately granted summary judgment in favor of the City of

New York and ordered the Trust to pay the NYC Claims.

In connection with the bankruptcy court’s determination, the court approved

an agreement between the Trust and the City of New York regarding the

calculation of the liquidated amount for the NYC Claims. Under the terms of the

agreement, if payment of the NYC Claims was ultimately directed by a final non-

appealable order, the Trust’s payment amount to the City of New York would

5
include an additional amount based upon the rate of return earned by the Trust on

its investment portfolio during the pendency of the appeal. Meanwhile, the Trust

and the Colleges never reached a similar agreement as to the actual amounts to be

paid on the Colleges’ Allowed Claims.

After the district court affirmed the bankruptcy court’s order requiring the

Trust to pay the NYC Claims, the Trust appealed to this Court. See generally

NYC Appeal, 487 F.3d 1320. The Colleges’ Allowed Claims remained in the

bankruptcy court during the pendency of the NYC Appeal. On appeal, this Court

considered the relative powers of the Trustees and the Administrator under the

Plan Documents. See generally NYC Appeal, 487 F.3d 1320. This Court

determined, among other matters, that the Plan Documents did not confer to the

Trustees the power to independently review and overrule the Administrator’s

decisions in resolving PD claims. Id. at 1329-30, 1332, 1334. Furthermore, this

Court found that the Administrator’s actions and decisions were subject to review

only for abuse of discretion. Id. at 1337-38.

C. The Trust’s Payments on the Colleges’ Allowed Claims

In July 2007, after evaluating this Court’s decision in the NYC Appeal, the

Trust determined that it should no longer withhold payment of the Colleges’

Allowed Claims and paid the Colleges. The payments did not include judgment-

6
rate interest on the Allowed Claims. Instead, to calculate the amount paid to the

Colleges, the Trust used the same formula that had been used, per agreements, to

determine the amount paid to the City of New York and other PD claimants on

their allowed claims. Accordingly, the Trust sent payments to the Colleges in

amounts that were based upon the total allowed costs determined for each claim,

subject to the payment percentage, plus an additional amount calculated pursuant

to a formula that factors into account the rate of return earned by the Trust on its

investment portfolio during the time that the Colleges’ Allowed Claims were

under judicial review.

The Trust then moved to dismiss the adversary proceedings against the

Colleges on the basis that the issues had been resolved by the payments on the

Colleges’ Allowed Claims. The Trust reasoned that its payments were in full

satisfaction of the Colleges’ Allowed Claims. The Colleges opposed dismissal,

asserting that they were entitled to judgment-rate interest on their Allowed Claims

pursuant to 28 U.S.C. § 1961 rather than the rate of return on the Trust’s

investment. 28 U.S.C. § 1961 provides that “[i]interest shall be allowed on any

money judgment in a civil case recovered in a district . . . at a rate equal to the

weekly average 1-year constant maturity Treasury yield, as published by the Board

of Governors of the Federal Reserve System, for the calendar week preceding the

7
date of judgment.” 28 U.S.C. § 1961. According to the Colleges, application of

judgment-rate interest would require an additional payment from the Trust slightly

exceeding $100,000.

The bankruptcy court interpreted the Plan Documents and determined that

the Colleges were not entitled to judgment-rate interest on their claims. Order on

Motion for Dismissal with Prejudice, Adv. No. 02-522, 6-10 (Bankr. M.D. Fla.

March 31, 2008) (“Bankruptcy Court Dismissal Order”). The bankruptcy court

therefore granted the Trust’s motion to dismiss and denied the College’s request

for additional payment. Id. at 14-16. The district court affirmed the bankruptcy

court’s order of dismissal. Claremont McKenna College v. Asbestos Settlement

Trust (In re Celotex Corp.), No. 08-2343 (M.D. Fla. March 18, 2009) (“District

Court Dismissal Order”). The Colleges appeal to this Court, which has

jurisdiction pursuant to 28 U.S.C. § 1291.

STANDARD OF REVIEW

In the bankruptcy context, this Court sits as a “second court of review . . .”

and employs the same standards of review as the district court.” In re Issac

Leaseco, Inc., 389 F.3d 1205, 1209 (11th Cir. 2004). Legal conclusions by either

the bankruptcy court or the district court are reviewed de novo and findings of fact

8
are reviewed for clear error. In re Optical Technologies., Inc., 425 F.3d 1294,

1300 (11th Cir. 2005).

DISCUSSION

The only issue before this Court is whether the Colleges have a legal right

to judgment-rate interest pursuant to 28 U.S.C. § 1961. A money judgment in a

civil case recovered in federal district court carries the federal judgment-rate

interest. 28 U.S.C. § 1961.3

The Colleges contend that, under the Plan Documents, when a PD claim

achieves “allowed claim” status, it becomes a judgment against the Trust that

carries the same right to judgment-rate interest as a judgment in the federal court

system. Accordingly, the Colleges maintain that the district and bankruptcy courts

erred as a matter of law in determining that the Colleges were not entitled to

judgment-rate interest on their Allowed Claims. This Court rejects the Colleges’

claim because the express provisions of the Plan Documents and the fundamental

purpose of the Trust do not establish that the Colleges are entitled to judgment-

rate interest.

3
Courts have found that judgment-rate-interest pursuant to 28 U.S.C. § 1961 applies to
the judgments entered by a bankruptcy court. See, e.g., In re Am. Way Serv. Corp., 229 B.R.
496, 538 (Bankr. S.D. Fla. 1999); In re Pester Refining Co., 964 F.2d 842, 849 (8th Cir. 1992)
(“Because a bankruptcy court is part of the district court, the statute applies to bankruptcy
proceedings.”)); Ocasek v. Manville Corp. Asbestos Disease Comp. Fund, 956 F.2d 152, 154
(7th Cir. 1992).

9
 A. The Plan Documents do not establish a legal right to judgment-rate
interest

The Plan Documents “set forth the entire agreement” and state that “[n]o

entity shall be bound by any terms . . . other than as expressly provided for

[t]herein.” Plan art. 13.10; accord Trust art. 9.9; see NYC Appeal, 487 F.3d at

1335. A confirmed plan’s provisions are binding on its debtors as well as its

creditors, in this case, the Colleges. 11 U.S.C. § 1141(a); see 11 U.S.C § 1142(a).

The Plan Documents, therefore, bind the Trust and the Colleges, and their

provisions control as to the allowance and payment of PD claims. To determine

whether the Colleges are entitled to judgment-rate interest, we must independently

interpret the terms of the Plan Documents. See Firestone Tire & Rubber Co. v.

Bruch, 489 U.S. 101, 112, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989) (“As they do

with contractual provisions, courts construe terms in trust agreements without

deferring to either party’s interpretation.”).

The plain language of the Plan Documents negates the claim that the

Colleges are legally entitled to judgment-rate interest. The Colleges rely upon

provisions in the Plan Documents stating that an allowed asbestos claim is a “final,

nonappealable judgment against the Trust,” Plan art. 1.9, and that an allowed

claim is deemed “a judgment against the Trust.” APDCRP § IV(A)(5)(6).

However, these provisions never mention interest, let alone state a right to
10
judgment-rate interest on allowed claims. Meanwhile, other provisions in the Plan

Documents speak directly to interest on PD claims. The Plan Documents state

that, “[e]xcept as expressly stated in the Plan or otherwise [a]llowed by Final

Order of the Bankruptcy Court, no interest . . . shall be [a]llowed on any [c]laim

. . .” Plan art. 13.15. The following provision reiterates that “[n]o...interest shall

be paid with respect to any [c]laim...except as specified herein or as [a]llowed by a

Final Order of the Bankruptcy Court.” Plan art. 13.16 (emphasis added). In

addition, the APDCRP defines the costs that may be included in the calculation of

“allowed costs” for PD claims; the definition expressly excludes pre-judgment and

post-judgment interest. APDCRP § IV(A)(6). Nowhere do the Plan Documents

mention the inclusion of interest in payments on allowed claims.

The Colleges attempt to circumvent the provisions in the Plan Documents

expressly prohibiting interest payments by arguing that they refer to earlier phases

of claims processing. The Colleges maintain that there are three distinct phases of

claims processing: submission, evaluation, and payment. According to the

Colleges, the provisions in the Plan Documents expressly prohibiting interest

payments refer to the earlier submission and evaluation phases of claims

processing before a claim is allowed by the Administrator. In contrast, in the

payment stage, when a claim becomes an “allowed claim,” the Colleges contend

11
that the claim assumes a special status as a “judgment,” and the plain meaning of

the term “judgment” carries statutory interest.

Although the Colleges’ interpretation has some force, we do not find that an

“allowed claim” under the Plan Documents carries the same legal rights as a

money judgment in the federal court system, and specifically, the right to

judgment-rate interest. “The Plan Documents must be construed as a whole with

each provision given reasonable meaning and effect.” NYC Appeal, 487 F.3d at

1333. The Colleges focus on part of the Plan’s definition of “allowed” in

isolation, stating that an allowed asbestos claim constitutes a “final, non-

appealable judgment against the Trust.” Plan art 1.9. This same provision states

in pertinent part that “‘[a]llowed’ means . . . any [a]sbestos [c]laim that is

liquidated and allowed pursuant to the applicable Asbestos Claims Resolution

Procedures or, if applicable, pursuant to a Final Order of the Bankruptcy Court”

but only to the extent so allowed. Id. (emphasis added); see also APDCRP

§IV(A)(5) (“Allowed [c]laim shall mean and refer to any [c]laim allowed for

payment . . .”) (emphasis added). Thus, despite the Colleges’ argument that an

“allowed claim” is distinct from a “claim,” an “allowed claim” is nevertheless a

type of claim. The Plan Documents clearly state that “no... interest shall be paid

with respect to any [c]laim . . . except as specified or as [a]llowed by” a

12
bankruptcy court order. Plan art. 13.16 (emphasis added). Provisions in the Plan

Documents generally likening “allowed claims” to “judgments,” do not override

the plain terms of the Plan Documents which expressly preclude a right to interest.

“The confirmed Plan Documents are ‘the result of extensive arms length

negotiations’ among the interested parties and embody ‘various settlements and

compromises.’” NYC Appeal, 487 F.3d at 1335 (quoting In re Celotex Corp., 204

B.R. at 597). If “allowed claim” status was intended to trigger the accrual of

judgment-rate interest, the Plan Documents could have expressly so provided.

The Colleges’ attempt to read a legal right to judgment-rate interest into this

Court’s decision in the NYC Appeal is also unpersuasive. See generally NYC

Appeal, 487 F.3d 1320. This Court referred to provisions in the Plan Documents

likening allowed claims to judgments against the Trust in connection with

establishing the binding nature of allowed claims on the Trust. See id. at 1329-30.

The question of interest, and specifically the question of whether the Plan

Documents required the payment of interest on allowed claims, was not an issue

before this Court in that case. Nor did this Court read a right to interest into the

Plan provisions referring to the enforceability of allowed claims. See id.,(stating

that “[d]eeming a claim ‘allowed’ is not just a procedural formality; it also affects

the claim’s enforceability”); Plan art. 1.9; APDCRP § IV(E)(2). In fact, this Court

13
recognized that, despite the binding nature of allowed claims, the Trust has a right

to invoke judicial review if it believes the Administrator abused its discretion in

allowing a claim. See NYC Appeal, 487 F.3d at 1337.4 The characterization of

allowed claims as “judgments” in the Plan Documents to establish the binding

nature of an allowed claim does not suggest that judgment-rate interest accrues.

Therefore, the Plan Documents, construed as a whole, do not establish that

the Colleges are entitled to judgment-rate interest pursuant to 28 U.S.C. 1961.

B. The method of payment is consistent with the Trust’s purpose

We also reject the Colleges’ claim that the equities support awarding the

Colleges judgment-rate interest. Once the judicial process resolved the dispute

concerning the extent of the Trustee’s authority over allowed claims, the Trust

paid the Colleges’ Allowed Claims. Included in the payment to the Colleges was

an additional amount representing their ratable share of the return on the Trust’s

investments that had accrued during the duration of the litigation over the

Colleges’ Allowed Claims.

This method of payment to the Colleges is consistent with the Trust’s

mandate of equal and fair treatment to all claimants. Trust Agreement arts. 2.2

4
In fact, this Court upheld the Trust’s decision to withhold payment on an illustrative
patent claim, reversing and remanding the bankruptcy court’s grant of summary judgment to the
City of New York on the claim. NYC Appeal, 487 F.3d 1338-39. .

14
(stating that a purpose of the Trust is to ensure that all holders of similar PD

claims are paid in substantially the same manner), 3.1(a), 3.4(a); see 11 U.S.C. §

524(g)(2)(B)(ii)(V) (the Bankruptcy Code provision under which the Trust was

established which states that the Trustee must pay all claimants with similar claims

in a substantially equivalent manner). The Colleges’ argument that the payment

rate was imposed on the Colleges without an express agreement does not

adequately consider the Trustees’ responsibility to pay “all claimants with similar

claims in a substantially equivalent matter.” Trust Agreement 3.4(e)(iii). The

Trust has not paid statutory judgment-rate interest to any other PD claimant. Even

if no other claimant would benefit from the application of judgment-rate interest

because the additional amount they received from the Trust was greater, the Trust

acted consistent with its mandate by using the same method of computation in

making additional payments to all similarly situated PD claimants, including the

Colleges.

Awarding judgment-rate interest would frustrate the Trust’s purpose to

ensure, to the extent possible that funds are available to pay present claims and

future demands that involve similar claims in substantially the same manner. See

Trust Agreement art. 2.2, 3.4(e)(iii); see also In re Celotex Corp., 204 B.R. at 605.

A stated purpose of the Trust is to “preserve, hold, manage, and maximize the

15
Trust Assets for use in paying Allowed Asbestos Claims.” Plan art. 5.1.

However, the Plan Documents recognize that, when the Trust was established, the

total number and amount of claims that ultimately may be allowed was unknown.

Trust Agreement art. 3.4(a); see Bankruptcy Dismissal Order,Adv. No. 02-522 at

9. The Trust consequently pays claimants only a percentage of their allowed claim

amounts. Plan art. 5.1; Trust Agreement art 3.4(a).

Given that PD claimants receive only a percentage of their allowed claim

amounts, and given that the Trust’s resources are not unlimited, the bankruptcy

court correctly reasoned that “the Plan Documents do not contemplate the accrual

of post-judgment interest on [a]llowed [c]laims at the federal statutory rate.”

Bankruptcy Dismissal Order, Adv. No. 02-522 at 10. Unlike the method of

payment used by the Trust, the federal statutory rate is not linked to the Trust’s

return on investments and thus, additional payments on certain allowed claims at

such a rate could potentially deplete the pool of money from which all claimants

obtain money damages. Therefore, as the bankruptcy court reasoned, awarding

judgment-rate interest to the Colleges would be “inconsistent with the purpose of

the Trust to preserve its assets for use in paying all present and future Claims in

substantially the same manner.” Id. at 10.

C. The Additional Payment to the Colleges Does Not Establish that the
Colleges are Legally Entitled to Judgment-Rate Interest.
16
 The Colleges also erroneously claim that the only way to harmonize the

Trust’s actions with the Plan Documents is to recognize that the Plan does not

prohibit interest on allowed claims, and that, in fact, the Trust’s failure to pay

judgment rate interest violates provisions in the Plan Documents. Despite the

Colleges’ argument to the contrary, the act of paying an additional amount to the

Colleges does not lead to the conclusion that the Plan Documents trigger a right to

judgment-rate interest.

The Trustees stand as fiduciaries to all claimants. The Trustees, therefore,

must consider their responsibilities to both PD claimants and personal injury

claimants, including present and future claimants of both types, and must pay

similar claims in substantially the same manner. See Trust Agreement arts. 2.2,

3.1(a), 3.4(a); see also 11 U.S.C. § 524(g)(2)(B)(ii)(V).

Under the Plan Documents, once a claim is allowed, the Trustees have

“complete discretion to determine the timing and the appropriate method for

making payments,” subject to the requirements of the Plan Documents. Trust

Agreement art. 3.4(c).

As the bankruptcy court explained, the Plan Documents do not contemplate

a considerable lapse of time between the Administrator’s determination to allow a

claim and payment by the Trust. Bankruptcy Dismissal Order, Adv. No. 02-522 at
17
12; see Trust Agreement arts. 3.3(a); 3.4(e)(iii) (providing for prompt payment by

the Trust once an Administrator allows a claim). Consequently, when the Trustees

finally paid the disputed claims to the City of New York, the payment included an

additional amount based upon the Trust’s return on the City of New York’s share

of the Trust’s assets that were not distributed to the City of New York during the

course of adversary proceedings.

By using this method of calculating the additional payment, the Trustees did

not deplete the Trust of assets that it otherwise would have retained had it paid the

claimants promptly after their claims were allowed. Nor did this method permit

other recipients to benefit from the delay in payment on certain allowed claims.

The Trust made similar additional payments, based upon the same formula,

to other delayed payment recipients. The Trust, therefore, made an additional

payment to the Colleges, using the same method of computation, for the

significant period of judicial review during which the Trust withheld payment on

the Colleges’ Allowed Claims.

This additional payment does not necessitate the conclusion that the Plan

Documents require judgment-rate interest. The payments were within the

Trustees’ discretion and are consistent with the Trust’s obligation to pay similar

18
claims in substantially the same manner. See Trust Agreement arts. 2.2, 3.1(a),

3.4(a); see also 11 U.S.C. § 524(g)(2)(B)(ii)(V).

CONCLUSION

Based on the foregoing reasons, we uphold the district court’s decision

affirming the bankruptcy court’s order of dismissal.

AFFIRMED.

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