United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT September 8, 2003
__________________________ Charles R. Fulbruge III
Clerk
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 and
*
District Judge for the Western District of Louisiana,
sitting by designation.
indemnitor of discharged bankruptcy debtor Coho Resources, Inc. We
affirm in part, vacate in part, and remand for transfer to the
Southern District of Mississippi, from whence it came.
I. FACTS AND PROCEEDINGS
Seldom, 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 regard 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 in
2
Mississippi Circuit Court on June 8, 1999. On June 11, 1999, Coho
timely filed several post-trial motions, seeking, inter alia,
judgment notwithstanding the verdict and remittitur. On August 23,
1999, while Coho’s post-trial motions were pending, Coho filed 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 proceedings, 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,
1
Coho’s Chapter 11 plan of reorganization was eventually
confirmed in March 2000.
3
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 lift its
stay, or amend its order, to authorize or permit
Plaintiff to collect on the judgment entered against Coho
in Plaintiff’s underlying 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, or 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 completion 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 going forward one way or the other,
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
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 Chapman 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 third-
party insurers such as Chubb, Coho’s general liability insurer.
The court ruled additionally that, as Bituminous is not Coho’s
insurer but its indemnitor, and the liability of its indemnitee,
Coho, had been “extinguished” by discharge, Bituminous’s liability
as Coho’s indemnitor was likewise “extinguished.” Finally, the
district court recognized that the Mississippi Circuit Court had
issued its ruling on Coho’s post-trial motions after the petition
for bankruptcy was filed and while the automatic bankruptcy stay
was in effect. The district court nevertheless declined to address
whether the state court’s post-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 Review
5
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 Authority to Proceed Against Third Parties
Chubb first asserts that Chapman 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 Bankruptcy 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 debtor subsequent to a
discharge of a debt.”6 The bankruptcy discharge and § 524
3
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
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 agreement” 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
prerequisite to recovering from its insurer.”10 In Houston 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.”12
7
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
In short, even though Chapman’s failure to file a proof of
claim in Coho’s bankruptcy proceedings is a bar to continued
prosecution of claims against Coho, it does not affect his claims
against non-debtors, such as 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, final
judgment executable under Mississippi law. Bituminous argues in
the alternative (1) that Chapman’s judgment is not final because
all post-petition actions, including the state court’s remittitur,
13
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 COLLIER ON BANKRUPTCY ¶ 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
are void as a result of the automatic bankruptcy stay;15 (2) that
even if the post-petition actions are not void, but 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.”17 Courts
disagree, however, as to the effect of violations of this automatic
stay. Some courts hold that acts in violation of the stay are void
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
HENRY J. SOMMER, 1 COLLIER BANKRUPTCY MANUAL ¶ 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
ab initio and incurable.18 We adhere to the view that violations
are merely “voidable” and are subject to discretionary “cure.”19
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 challenging 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, the
18
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
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
bankruptcy court, Chapman filed a motion seeking “authority to
execute on/or collect the subject 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 rights
22
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
post-petition (Chapman by accepting the remittitur, 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 district 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 proceedings.24 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 close
24
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
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 fact and
reached 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 courts. 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 concluding
26
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
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
under 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 of indemnity
arises.”27 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, losses, costs, demands,
damages, penalties, liabilities, debts, expenses and
causes of action of whatsoever 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,
27
Hopton Bldg. Maint., Inc. v. United Parcel Serv., 559 So.
2d 1012, 1013 (Miss. 1990).
28
Id. at 1014.
14
Sauls and Coho have contractually expanded 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 best-
equipped 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.30
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
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
large 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 case. We hold
today that Chapman may pursue his judgment 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.
S:\OPINIONS\PUB\02\02-10743-cv0
4/28/04 10:51 am
16