IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 98-41032
In The Matter Of: US BRASS CORP
Debtor
THE INSURANCE SUBROGATION CLAIMANTS
Appellant
versus
US BRASS CORP; SHELL OIL COMPANY; HOECHST CELANESE
CORPORATION; OFFICIAL POLYBUTYLENE CREDITORS COMMITTEE;
ELJER INDUSTRIES INC; ELJER PLUMBINGWARE INC
Appellees
Appeal from the United States District Court
for the Eastern District of Texas
March 12, 1999
Before HIGGINBOTHAM, BARKSDALE, and DENNIS, Circuit Judges.
HIGGINBOTHAM, Circuit Judge:
Insurance Subrogation Claimants appealed an order of
confirmation of a Chapter 11 reorganization plan proposed by U.S.
Brass, the debtor, and its direct parents, Eljer Manufacturing,
Inc., and EMI’s parent Eljer Industries, Inc. The ISC contend that
the plan violates 11 U.S.C. § 1123(a)(4), which requires all
creditors within a class be treated the same, unless the creditor
who is being treated less favorably agrees to less favorable
treatment. The ISC also argue that the plan was not proposed in
good faith under 11 U.S.C. § 1129(a) and should not have been
approved.
Shell and U.S. Brass have moved to dismiss ISC’s appeal as
moot. We agree, and finding the plan substantially implemented and
effective relief unattainable, dismiss the appeal.
I
On May 23, 1994, U.S. Brass filed for Chapter 11 relief in the
Eastern District of Texas. Prior to the petition date, U.S. Brass
had been sued in hundreds of cases seeking damages from alleged
defects associated with a polybutylene plumbing system. During the
pendency of the Chapter 11 case, a global settlement of the PB
litigation was fashioned in an action styled Tina Cox, et al. v.
Shell Oil Co., et al., Civil Action No. 18,844, with the Chancery
Court for Obion County, Tennessee. The Cox court certified the Cox
Plaintiffs as a national settlement class. The ISC were not
members of the settlement class.
In November 1995, the Cox court approved a settlement
agreement between the Cox Plaintiffs and Shell and Celanese and
authorized the parties to pursue contributions from U.S. Brass. A
contribution plan was negotiated and is incorporated into the plan
as the Cox Plaintiffs’ Settlement Agreement.
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The Cox Plaintiffs and the ISC are designated as Class 5
claimants in the reorganization plan. The Cox Plaintiffs’
Settlement Agreement, however, provides a settlement of all Cox
Plaintiffs’ claims in exchange for a cash contribution from the
Brass Trust of $37.4 million and 80% of the Brass Trust’s
recoveries from insurance coverage to the settlement fund. The
remaining 20% is available for the other Class 5 claimants like the
ISC.
On September 30, 1997, the bankruptcy court approved U.S.
Brass’ Fourth Amended Disclosure Statement and on January 27-29,
1998, held a confirmation hearing. The bankruptcy court overruled
the ISC’s objections and confirmed the plan and the incorporated
settlements, including the Cox Plaintiffs’ Settlement Agreement.
The Cox court in Tennessee, in turn, entered a final order on
February 5, 1998, approving the Cox Plaintiffs’ Settlement
Agreement and authorizing the Cox Plaintiffs to consummate the
transactions contemplated in the plan.
On February 24, 1998, the bankruptcy court entered its order
confirming the reorganization plan and it became effective March 6,
1998. On the same day, the ISC filed a notice of appeal to the
district court of the confirmation order. Here begins the path to
mootness. The ISC also filed a motion for limited stay pending
appeal with the bankruptcy court requesting the bankruptcy court to
enjoin any funding from the Brass Trust to the Cox Plaintiffs or to
the Consumer Plumbing Recovery Center, the entity that administers
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the $950 million settlement from Shell and Celanese. The ISC did
not seek emergency or expedited consideration of the bankruptcy
court’s order.
The reorganization plan proceeded, and on March 19, 1998 the
following events occurred:
(1) The Brass Trust was created pursuant to § 7.1 of
the plan;
(2) nearly $5 million was distributed to pay the
holders of allowed administrative, priority and
general unsecured claims;
(3) Eljer wired more than $48 million into the Brass
Trust;
(4) the Brass Trust paid more than $32 million to the
CPRC for distribution to holders of allowed
plumbing claims;
(5) various global settlement agreements and releases
were signed by the major participants in the
Chapter 11 case, such as the Cox Plaintiffs’
Settlement Agreement, the Shell/Celanese Settlement
Agreement, and the Brass Settlement Agreement;
(6) the Eljer note was executed; and
(7) U.S. Brass and its parents assigned all their
right, title, and interest to certain insurance
proceeds to the Brass Trust.
On March 26, 1998, U.S. Brass filed an objection to the ISC’s
motion to stay, urging that the plan was now substantially
consummated. The bankruptcy court held a hearing on the stay
motion on May 6, 1998. Although no ruling came forth, the ISC did
nothing and on July 27, 1998, the district court affirmed the
bankruptcy court’s confirmation of the plan.
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On August 25, 1998, the ISC filed a notice of appeal to this
court. Then finally on September 17, 1998, the ISC filed a motion
to stay and a request for expedited consideration with the district
court. The district court never ruled on the stay motion.
The ISC did nothing until January 21, 1999, almost four months
after appealing the confirmation of the plan to this court. The
ISC requested that this court stay further proceedings pending
appeal in this court. We must determine whether this appeal is
moot considering the failure of the ISC to obtain a stay, the
action taken toward implementing the plan, and the potential effect
of the ISC’s requested relief on the plan.
II
When evaluating whether an appeal of a reorganization plan in
a bankruptcy case is moot, this court examines whether (1) a stay
has been obtained, (2) the plan has been substantially consummated,
and (3) the relief requested would affect either the rights of
parties not before the court or the success of the plan. See In re
Manges, 29 F.3d 1034, 1039 (5th Cir. 1994); In re Berryman
Products, Inc., 159 F.3d 941, 944 (5th Cir. 1998). Shell and U.S.
Brass argue that each of the factors favor finding the ISC’s appeal
moot.
1. Failure to Obtain a Stay
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To date, the ISC have not obtained a stay. U.S. Brass and
Shell argue that the ISC’s efforts in pursuing a stay have not been
diligent. For example, the first stay requested by the ISC, on
March 6, 1998, was made without a request for expedited
consideration even though the bankruptcy court had already
confirmed the plan on January 29, 1998. Similarly, although the
district court affirmed the plan on July 27, 1998, the ISC waited
until September 17, 1998 to seek a stay from the district court.
The district court never ruled, and the ISC never sought further
action on this second stay request until January 21, 1999, when the
ISC filed a motion for stay with this court. U.S. Brass and Shell
maintain that the ISC’s failure to obtain a stay and its lack of
diligence militates in favor of dismissal for mootness.
This court has recognized that “the failure or inability to
obtain a stay pending appeal carries the risk that review might be
precluded on mootness grounds.” Manges, 29 F.3d at 1040. In this
case, it is undisputed that the ISC have failed to obtain a stay.
We turn to the transactions that have taken place as a consequence
to determine the extent to which the plan has been implemented.
2. Substantial Consummation of the Plan
The second question in the mootness inquiry is whether the
plan has been substantially consummated. According to 11 U.S.C.
§1102(a):
"[S]ubstantial consummation" means--
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(A) transfer of all or substantially all of the
property proposed by the plan to be transferred;
(B) assumption by the debtor or by the successor to the
debtor under the plan of the business or of the
management of all or substantially all of the
property dealt with by the plan; and
(C) commencement of distribution under the plan.
“‘Substantial consummation’ is a statutory measure for determining
whether a reorganization plan may be amended or modified by the
bankruptcy court.” Manges, 29 F.3d at 1040. This court may
“decline to consider the merits of confirmation when a plan has
been so substantially consummated that effective judicial relief is
no longer available--even though the parties may have a viable
dispute on appeal.” Berryman, 159 F.3d at 944.
The parties dispute whether the plan has been substantially
consummated. In the absence of a stay pending appeal, U.S. Brass,
the Brass Trust, the CPRC, and various other parties in interest
have proceeded to implement the plan. Shell and U.S. Brass argue
that the events following the March 1998 confirmation demonstrate
how extensively the plan has been implemented. The following
actions, for example, have occurred since the ISC sought a stay
pending appeal in the district court:
(1) U.S. Brass has continued to operate as a
reorganized entity;
(2) U.S. Brass has paid in full all of the outstanding
debt owed to its debtor-in-possession financing
lender;
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(3) U.S. Brass and EII have implemented a new financing
arrangement whereby EII provides operating funds to
U.S. Brass;
(4) the bankruptcy court has entered orders providing
the final allowance to Class 4 general unsecured
claims;
(5) U.S. Brass has amended its state charter and by-
laws as required by the plan;
(6) a number of state lawsuits against EMI and EII
asserting plumbing claims have been dismissed with
prejudice;
(7) the Brass Trust has transmitted checks in the sum
of $267,978.45 as offers of full settlement to the
convenience class claimants;
(8) the Brass Trust has opened bank accounts,
established an account record system, implemented
an investment program for excess funds, obtained
insurance coverage, established by-laws, and
retained professionals to carry out its duties;
(9) the Brass Trust, the CPRC, and Goldin Associates,
the financial advisors to the Brass Trust, have
established a claim resolution system to process
allowed claims;
(10) the CPRC has distributed to holders of allowed
plumbing claims all of the funds transferred by the
Brass Trust to the CPRC;
(11) Shell and Celanese, in reliance on the Confirmation
order and pursuant to the terms of the
Shell/Celanese Settlement Agreement, which was
incorporated into the plan, have released asserted
claims against U.S. Brass in excess of $1 billion
for a payment of $2.5 million and have increased
their commitment to the Cox Settlement from $850
million to $950 million.
U.S. Brass claims that all of the elements of “substantial
consummation” have occurred because on March 19, 1998, U.S. Brass
emerged as a newly reorganized entity and, as the Closing Binders
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make clear, “(I) distributions commenced (with the transfer of more
than $48 million to the CPRC and the payment if more than $5
million to holders of allowed administrative, priority and general
unsecured claims), and (ii) substantially all the property to be
transferred under the plan was transferred (i.e. U.S. Brass
assigned to the Brass Trust all of their right, title and interest
to certain insurance recoveries).” Shell and U.S. Brass maintain
that these transactions cannot be “unscrambled” and should weigh in
favor of mootness.
The ISC reply that the plan has not been so substantially
consummated that effective relief is no longer available. The
relief the ISC seek would require the Brass Trust to reallocate its
future disbursements of insurance recoveries pro-rata among all
Class 5 claimants, instead of the present 80%/20% plan. In order
to effectuate this relief, the ISC propose removing the Cox
Plaintiffs’ Settlement Agreement from the plan. Shell and U.S.
Brass contend that removing the Cox Plaintiffs’ Settlement
Agreement from the plan would dismantle the plan.
We find the transactions that have taken place to date, the
exchange of mutual releases, the disbursements already made, and
the general implementation of the plan by all the involved parties
evidence substantial consummation of the plan. This determination,
however, does not end the mootness inquiry. “‘Substantial
consummation of a reorganization plan is a momentous event, but it
does not necessarily make it impossible or inequitable for an
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appellate court to grant effective relief.’" Manges, 29 F.3d at
1042-43 (quoting Frito-Lay, Inc. v. LTV Steel Co., Inc. (In re
Chateaugay Corp.), 10 F.3d 944, 952 (2nd Cir. 1993)). Rather, we
must also consider whether the remedy the ISC seek will affect the
success of the plan or alter the rights of third parties that have
been achieved by its substantial consummation. More specifically,
we must determine whether the plan has been implemented to a point
that the removal of the Cox Plaintiffs’ Settlement Agreement would
jeopardize the plan’s success.
3. Granting Relief Would Affect Third Parties and Plan
Shell and U.S. Brass maintain that the Cox Plaintiffs’
Settlement Agreement is an essential element of the plan, and its
removal would detrimentally affect confirmation. They argue that
the various settlement agreements between and among the major
parties with an interest in the Chapter 11 case -- U.S. Brass,
Shell, Celanese, and the Cox Plaintiffs -- were found by the
bankruptcy court to be essential to the debtor’s reorganization.
Without the inclusion of the Cox Plaintiffs’ Settlement Agreement,
Shell and U.S. Brass argue that the plan would not have been
confirmed.
Section 13.1 of the plan expressly provides that certain
events, including the approval of the Cox Plaintiffs’ Settlement
Agreement, the Shell/Celanese Settlement Agreement, and the Brass
Settlement Agreement, are conditions precedent to confirmation of
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the plan. These settlements reflect the negotiations of the
parties interested in the Chapter 11 case and the bargains they
secured by voting in favor of the plan. Shell and U.S. Brass argue
that if the 80%/20% split provided by the Cox Plaintiffs’
Settlement Agreement was altered, the change would affect the
interdependence of all the settlements. The plan also provides
that any of the settling parties may withdraw from the plan in the
event there are modifications to which the parties have not agreed.
In short, U.S. Brass and Shell maintain that the Cox Plaintiffs
Agreement cannot be eliminated from the plan without unraveling the
entire plan. In addition, U.S. Brass and Shell oppose any
modification of the plan by judicial fiat because 11 U.S.C. § 1127
provides that only the proponent of a plan or the reorganized
debtor may modify a confirmed plan.
The ISC, on the other hand, contend that the plan will not
unravel if the court affords them relief by modifying the 80%/20%
split with the Cox Plaintiffs to a pro rata distribution.
According to the ISC, the only effect of removing the Cox
Plaintiffs’ Settlement Agreement would be to alter the Brass
Trust’s distribution to holders of Class 5 claims.
III
While the ISC’s proposed day surgery appears at first blush to
be possible, we are persuaded it would excise parts to which other
vitals of the plan are attached. To remove the Cox Plaintiffs’
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Settlement Agreement from the plan at this point would dismantle a
substantially consummated plan, requiring, for example, a
restoration of the rights of the Cox Plaintiffs to pursue claims
against U.S. Brass, now a reorganized entity. In addition, the
releases and settlements that were negotiated among the parties
would have to be undone because removal of the Cox Plaintiffs’
Settlement Agreement would consequently require giving each
settling party the right to withdraw from the plan. Removal of the
Cox Plaintiffs’ Settlement Agreement would also require that the
money contributed by U.S. Brass’ parent corporations to fund the
plan be recovered. These circumstances persuade us that it would
be inequitable for this court to consider the merits of the ISC’s
appeal. Accordingly, we dismiss this appeal as MOOT.
APPEAL DISMISSED.
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