Edwards v. Armstrong World Industries, Inc.

United States Court of Appeals,

Fifth Circuit.

No. 92-1557.

Bennie EDWARDS and Joann Edwards, Plaintiffs-Appellees,

v.

ARMSTRONG WORLD INDUSTRIES, INC., et al., Defendants,

The Celotex Corporation, Defendant-Appellant.

Nov. 5, 1993.

Appeal from the United States District Court for the Northern District of Texas.

Before POLITZ, Chief Judge, GOLDBERG and JONES, Circuit Judges.

GOLDBERG, Circuit Judge:

This case epitomizes the way that toxic tort litigation has corroded our judicial system. Here

we have an asbestos poisoning dispute in which the defendant has sought the protection of the

bankruptcy laws to shield itself from the multitude of claims generated by this one-time miracle fabric

turned cancer-causing nightmare. To the bankruptcy court now falls the herculean task of managing

the problems generated by the unprecedented magnitude of these disputes. It is this court's duty to

insure that the case management tools the bankruptcy court utilizes to control these conflicts do not

overwhelm its primary obligation to dispense justice.

The precise question before us centers around the power of bankruptcy courts to stay

proceedings pending in other courts which might have some effect on the ability of the bankruptcy

judge to manage the estate. The Bankruptcy Code provides judges with those equitable powers

essential to serving the twin aims of bankruptcy law; protecting the debtor from the tentacles of his

or her creditors and, fair distribution of the estate. See H.R.Rep. No. 95-595, 95th Cong., 1st Sess.

340 (1977), reprinted in 1978 U.S.C.C.A.N. 5787, 5963, 6296-97. We must decide what limits must

be placed on the bankruptcy court's power to insure that both debtors and creditors remain adequately

protected.

No usurpation is intended in this decision to denigrate the powers of the bankruptcy court, nor did I intend any trespass upon the metes and bounds of bankruptcy courts' treasured turfs.

Indeed, neither side to this controversy has a perpetual lease or any tenure of ownership that is

infrangible and indestructible. It is not a struggle between any potential usurpers. Instead, both the

district court and the bankruptcy court should both use what they think are appropriate transits and

calipers in surveying their jurisprudential turfs.

While cognizant of the repercussions that our opinion may have on other disputes, parties,

etc., we should be careful to make decisions based only upon the merits of the particular cases before

us. In the instant case, plaintiffs wish to execute a supersedeas bond against a non-bankrupt surety.

Because the appeal for which the bond was posted has terminated, the bankrupt and therefore also

the bankruptcy court have lost any control over this asset. Consequently, we decline to extend the

reach of the bankruptcy court's authority to stay these proceedings and we affirm the ruling of the

district court in releasing the supersedeas bond to the plaintiffs.

I. Facts

In April of 1989, the United States District Court for the Northern District of Texas entered

a $281,025.80 judgment in favor of Bennie and Joann Edwards and against the Celotex Corporation

("Celotex") for asbestos-relat ed injuries. To stay execution on this judgment while pursuing an

appeal, Celotex posted a supersedeas bond for $294,987.88. Northbrook Property and Casualty

Insurance Company ("Northbrook") served as surety on the bond. Northbrook, also Celotex' insurer,

secured their participation in the bond using insurance proceeds remaining to be paid to Celotex under

a settlement agreement resolving coverage disputes between Northbrook and Celotex.

In an opinion issued on September 20, 1990, this court affirmed the plaintiff's judgment

against Celotex. Edwards v. Armstrong World Indus., Inc., 911 F.2d 1151 (5th Cir.1990). Celotex

did not move for rehearing or a stay of the mandate and, on October 12, 1990, the mandate issued.

That same day, Celotex filed a pet ition for relief under Chapter 11 of the Bankruptcy Code in the

United States Bankruptcy Court for the Middle District of Florida.

The filing of Celotex' Chapter 11 petition automatically stayed the continuation of all

"proceedings against any of the Debtors" and the commencement of "any act to obtain possession of property of any of the Debtors."11 U.S.C. §§ 362 (a)(1) and (3). On October 17, 1990, the

bankruptcy judge augmented the protection afforded the Debtors by the automatic stay, employing

the broad equitable powers available to bankruptcy judges under 11 U.S.C. § 105. The bankruptcy

judge issued an order staying all proceedings against Celotex, including those proceedings where "the

matter is on appeal and a supersedeas bond has been posted by the Debtors."1

On May 3, 1991, the plaintiffs filed a motion in the district court seeki ng to enforce the

supersedeas bond against Northbrook as surety on the bond. See Fed.R.Civ.P. 65.1.2 Northbrook

and Celotex opposed this motion, asserting that any proceeding to execute the bond was stayed by

the Celotex bankruptcy.

However, let us be absolutely clear that the bankruptcy court's order does not, on its face,

apply to the proceedings to execute the supersedeas bond against Northbrook. A careful reading of

the bankruptcy court's order reveals that it forbids all proceedings or claims involving the debtor, and

makes no reference to proceedings against third parties. Thus the section 105 stay would no as t,

written, prevent the district court from executing the bond against Northbrook.3

The district court entered the Bond Order on May 27, 1992 granting execution against

1 See Order Granting Emergency Motion for Determination of Applicability of § 362 Stay to Pending Matters Or, in the Alternative, for Extension of § 362 Stay Pending Matters. The pertinent section of this order reads: "3. Notwithstanding any exceptions or limitations to the automatic stay contained in § 362(b) of the Code, all Entities are hereby jointly and severally stayed, restrained and enjoined from commencing or continuing any judicial, administrative or other proceeding involving any of the Debtors regardless of (a) who initiated the proceeding, (b) whether the matter is on appeal and a supersedeas bond has been posted by the Debtors or (c) the appellant in an appeal is one of the Debtors." 2 Federal Rule of Civil Procedure 65.1 states, "Whenever these rules ... require or permit the giving of security by a party, and security is given in the form of a bond or stipulation or other undertaking with one or more sureties, each surety submits to the jurisdiction of the court and irrevocably appoints the clerk of the court as the surety's agent upon whom any papers affecting the surety's liability on the bond or undertaking may be served. The surety's liability may be enforced on motion without the necessity of an independent action." 3 As a relevant aside, we take note of the fact that the bankruptcy court in this case held that the stay as issued does apply to the proceedings in this case. See In re Celotex Corp., 128 B.R. 478, 484 (Bankr.M.D.Fla.1991) ("[w]here bankruptcy courts in "mega' cases such as this are required to deal with complex litigation involving numerous parties, joint and several liability, and multi-million dollars in claims and assets, not to mention potential conflicts with other judicial determinations, the powers of the bankruptcy court under Section 105 must in the initial stage be absolute.") Northbrook on the bond. Thereafter, Celotex filed its notice of appeal.

II. Jurisdiction

The threshold question in this appeal is whether the district court had jurisdiction to

determine the applicability of the bankruptcy court 's stay. Celotex argues that the district court

lacked jurisdiction to consider the plaintiffs' motion to execute the supersedeas bond because the

bankruptcy court in Florida, where Celotex' Chapter 11 case is pending, has exclusive jurisdiction

over all issues related to the bankruptcy. 28 U.S.C. § 1334 (a) and (d). The difficulty underlying the

determination of whether the district court had jurisdiction to hear the plaintiffs' motion is that this

issue turns on the question of whether the bond is part of the Debtor's estate. However, this question

is bound up in the merits of appellant's claim.

The jurisdictional grant of 28 U.S.C. § 1334 (d) gives the bankruptcy court "exclusive

jurisdiction of all of the property, wherever located, of the debtor as of the commencement of such

case."4 This jurisdictional grant is limited by section 1334(b) which provides that the bankruptcy

court only has "original but not exclusive jurisdiction of all civil proceedings ... related to cases under

title 11." 28 U.S.C. 1334(b) (emphasis added). Thus we can rephrase the first question presented

in this appeal as follows: whether the district court's order implicates property of the estate and

therefore falls under the exclusive jurisdiction of the bankruptcy court or i nstead is considered a

merely a related matter over which the district court could properly exercise jurisdiction.

This court has previously held that district courts have jurisdiction to determine whether a

bankruptcy court stay applies to proceedings before it. In Hunt v. Bankers Trust Co., this court ruled

that the issue of whether "the stay applies to litigation otherwise within the jurisdiction of a district

court or court of appeals is an issue of law within the competence of both the court within which the

litigation is pending ... and the bankruptcy court."799 F.2d 1060, 1069 (5th Cir.1986) (citing In re

Baldwin-United Corp. Litigation, 765 F.2d 343, 347 (2d Cir.1985)); see also, Picco v. Global

Marine Drilling Co., 900 F.2d 846, 850 (5th Cir.1990) (district courts retain jurisdiction to determine

4 The bankruptcy courts sit under the auspices of the district court in the jurisdiction for which they operate. 28 U.S.C. § 157 (a). applicability of stay of litigation pending before them). The district court had jurisdiction to evaluate

whether the motion to execute the supersedeas bond would fall under the exclusive jurisdiction of the

bankruptcy court.

III. Automatic Stay

We now turn to whether the automatic stay, 11 U.S.C. 362(a), prevents the district court

from proceeding with the execution of the supersedeas bond. The automatic stay provisions of the

Bankruptcy Code enable bankruptcy courts to take control of all of the assets of the debtor giving

the court opportunity to survey the landscape of debtor's financial condition before reorganizing the

estate. Hunt v. Bankers Trust Co., 799 F.2d at 1069.

A victorious plaintiff who obtains a bare judgment against a defendant becomes an unsecured

judgment creditor of that defendant. The judgment is payable immediately, but a defendant may

obtain stay of execution on the judgment by posting a supersedeas bond. See Fed.R.Civ.P. 62(d).

A defendant who posts a supersedeas bo nd ret ains a reversionary interest in the bond subject to

divestment.

In many cases, t he supersedeas bond will be posted by a third party. See e.g. Southmark

Corp. v. Riddle (In re Southmark Corp.) 138 B.R. 820, 824-25 (Bankr.N.D.Tex.1992). In exchange

for agreeing to post the supersedeas bond, the third party normally takes some sort of security from

the judgment debtor. Id. In this case, Northbrook acted as surety on the bond securing its interest

with insurance proceeds from Celotex' policy with Northbrook. See In re Celotex Corp., 128 B.R. at 480.

Celotex argues that as the judgment debtor, it has an identity of interest with Northbrook as

the surety of the supersedeas bond. Therefore, they reason that the bankruptcy court was justified

in applying section 362 to stay any proceeding against Northbrook. Celotex cites the Fourth Circuit

decision in A.H. Robbins Co. v. Piccinin (In re A.H. Robbins) in which the court held that " "there

are cases [under 362(a)(1) ] where a bankruptcy court may properly stay the proceedings against

non-bankrupt co-defendants'.... [This occurs] when there is such identity between the debtor and the

third-party defendant that the debtor may be said to be the real party defendant and that a judgment against the third-party defendant will in effect be a judgment or finding against the debtor."788 F.2d 994, 999 (4th Cir.1986) cert. denied 479 U.S. 876, 107 S.Ct. 251, 93 L.Ed.2d 177 (1986) (citing

Johns-Manville Sales Corp., 26 B.R. 405, 410 (Bankr.S.D.N.Y.1983)).

Celotex argues that because Northbrook received a security interest in the insurance proceeds,

releasing the bond to the plaintiffs will allow Northbrook to automatically recover its rights to those

proceeds. This result would diminish the total amount available to be paid out to the remaining

claimants. Therefore, appellants ask us to allow the bankruptcy court to stay execution on the

supersedeas bonds in order to preserve as much of the debtor's estate as possible.

The wording of section 362(a) belies Celotex' argument. The statute states that the

automatic stay is applicable to "(1) the commencement or continuation, including the issuance or

employment of process, of a judicial, administrative or other action or proceeding against the debtor

... (3) any act to obtain possession of property of the estate." Thus the statute limits the bankruptcy

court to stays in only those proceedings in which the debtor or his or her property is in controversy.

Because this is suit against Northbrook, not the bankrupt, the only way the automatic stay could

apply is if the court finds that the bond is property of the debtor's estate.

We recognize that the Bankruptcy Code defines property of the estate quite broadly to include

"all legal or equitable interests of the debtor in property as of the commencement of the case." 11

U.S.C. 541(a)(1). See U.S. v. Whiting Pools, Inc., 462 U.S. 198, 204, 103 S.Ct. 2309, 2313, 76 L.Ed.2d 515 (1983). (holding that the definition of property of the estate includes property in which

debtor no longer has a possessory interest). Nevertheless, we do not believe that this definition is so

broad as to include the kind of interest under consideration in the present case.

In considering the same issue in a case involving another asbestos claimant to the Celotex

estate, the court in Willis v. Celotex Corp. rejected Celotex' reasoning, stating that the guarantor has

a duty "separate from and independent of Celotex' duty to pay the judgments."978 F.2d 146, 148

(4th Cir.1992) cert. denied --- U.S. ----, 113 S.Ct. 1846, 123 L.Ed.2d 470 (1993). Because there

was no identity of interest between Celotex and its guarantor, the proceedings against the guarantor

of the supersedeas bond were not stayed under § 362(a)(1). Id. at 149. The obligations of a surety are sufficiently independent to provide the basis of an action by the judgment creditor to collect on

the bond unfettered by the automatic stay provisions of the Bankruptcy Code.

In an analogous case this court decided that any payments made under a secured letter of

credit do not constitute property of the debtor. Kellogg v. Blue Quail Energy Inc. (In re Compton

Corp.) 831 F.2d 586, 589 (5th Cir.1987), modified on other grounds, 835 F.2d 584 (1988) ("When

the issuer honors a proper draft under a letter of credit, it does so from its own assets and not from

the assets of [the debtor] who caused the letter of credit to be issued."). Because the letter of credit

is not part of the Debtor's estate, we ruled that the bankruptcy court could not enjoin a payment of

funds from the letter of credit to the beneficiary. Id. This court reasoned that central to the letter of

credit is the independence principle in which the "issuers obligation to the letter of credit beneficiary

is independent from any obligation between the beneficiary and the issuer's customer."Id. at 590.

The concerns which the court considered relevant to the letter of credit are similarly relevant

to the surety-debtor relation at issue here. In re Southmark, 138 B.R. at 828 ("the supersedeas bond

or undertaking on appeal resembles the secured letter of credit"). The promise of the bank to pay on

a letter of credit is indistinguishable from Northbrook's promise to act as surety on the supersedeas

bond. In both cases the promise is to perform an obligation of the debtor when and if the debtor

becomes unable to do so itself. The surety's obligation on a supersedeas bond once the appeal has

been completed is as separate and independent from the principal's obligation, as is the bank's

obligation on a letter of credit. Thus the automatic stay provisions of § 362(a) do not apply to the

guarantor of a supersedeas bond because the bond is not property of the bankrupt's estate once the

bond has matured and become enforceable. It was therefore proper for the district court to allow the

judgment plaintiffs to execute the supersedeas bond against the surety as a separate and independent

obligor on the debt.

The bankruptcy court holding jurisdiction over Celotex' bankruptcy itself admitted that

"[w]here a debtor, upon the filing of the bankruptcy petition, is an unsuccessful appellant in the total

appellate process, or during the bankruptcy case is unsuccessful in its appeal, its property interest in

the bond can be divested and any efforts by the debtor to prevent the judgment creditor from proceeding against the supersedeas bond must be sought under Section 105 of the Bankruptcy code."

In re Celotex Corp., 128 B.R. at 482. In this case, because the appeal has been completed and

mandate issued, the claim Celotex may have once had on the supersedeas bond has thereby

terminated.

This opinion should not be read to infer that the bankruptcy court lacked authority to issue

a stay order over supersedeas bonds generally. Our decision today is limited to the holding that the

bankruptcy court lacked authority over this particular supersedeas bond. Because the appellate

process had been completed and Celotex no longer had an interest, reversionary or otherwise, in this

particular supersedeas bond the automatic stay provisions will not prevent Northbrook from fulfilling

its obligation.

While we need not state the precise reach of § 362(a) to third parties, we hold that the

automatic stay cannot be invoked to paralyze judgment creditors from pursuing the surety of a

supersedeas bond once the debtor has lost the appeal for which the bond was posted.

IV. Section 105 Stay

Turning now to the more difficult issue raised by this appeal, we confront the question of

whether the equitable powers granted bankruptcy courts apply to the type of non-debtor third parties

present here.

Celotex argues that section 105 of the Bankruptcy Code gives bankruptcy courts virtually

limitless ability to bring parties to heel to its authority. Section 105(a) states, in part, that the

bankruptcy "court may issue any order, process, or judgment that is necessary or appropriate to carry

out the provisions of this title." In In re S.I. Acquisition, Inc. this court recognized that a bankruptcy

court has broad discretionary power under section 105 to affirmatively stay proceedings in other

courts. 817 F.2d 1142, 1146 n. 3 (5th Cir.1987); Wedgeworth v. Fibreboard Corp. 706 F.2d 541, 545 (5th Cir.1983).

The jurisdiction of bankruptcy courts has been extended to include stays on proceedings

involving third parties under the auspices of 28 U.S.C. § 1334 (b) which provides for jurisdiction of the bankruptcy court for matters "related to a case under title 11."5 Appellant argues that under this

jurisdictional grant, the equitable powers of the bankruptcy court are sufficient to stay a proceeding

to release the supersedeas bond.

The Fourth Circuit in Willis, examining the very same section 105(a) order at issue in this

case, decided that the bankruptcy court's power was sufficient to stay proceedings against third

parties on supersedeas bonds. The court based its reasoning upon the "magnitude of the task [the

bankruptcy court] faced in attempting to oversee the bankruptcy proceedings, resulting from the sheer

number of pending personal injury cases in which supersedeas bonds had been posted." 978 F.2d at

149. The number of cases against Celotex is, in fact, quite staggering. Over 141,000 asbestos related

bodily injury claims were pending against the debtor Celotex at the time it filed for bankruptcy. In

re Celotex Corp., 128 B.R. at 480. Of those, over 100 cases had appeals pending, in support of

which Celotex claims to have posted over $70 million in supersedeas bonds. Id. In light of the

"extraordinary facts presented by the Celotex bankruptcy" 978 F.2d at 147, the Willis court

concluded that a stay of proceedings to prevent enforcement of supersedeas bonds was a proper

exercise of the bankruptcy court's authority under section 105(a).

It is important to remember that the section 105 stay issued by the bankruptcy court does not,

on its face, reach to third parties. Thus, taking the bankruptcy court at its word, we are unable to see

how the section 105 order could reasonably be applied to the present proceedings which involve a

separate and independent third party obligation. The bankruptcy court stay was written to apply only

to the debtor and its property. As we have shown in the preceding section, the property of the debtor

cannot be extended to include the separate obligations of a non-bankrupt surety. Our decision in Blue

Quail is particularly relevant as to the separateness of guaranty obligations from the property of a

debtor's estate.

However, this court has at times found it appropriate to broadly construe bankruptcy court

5 In considering the question of whether co-defendants are included within a § 105 stay, this court held that § 105 "does empower the bankruptcy court to stay proceedings against non-bankrupt entities." In re S.I. Acquisition, 817 F.2d at 1146 n. 3. See also MacArthur Co. v. Johns-Manville Corp., 837 F.2d 89, 93 (2nd Cir.1988) (section 105 allows stays against third party insurers). stays to apply beyond the property of the debtor. In re Davis, 730 F.2d 176, 183 (5th Cir.1984)

(exercising the bankruptcy court's stay powers against non-debtor third parties when the proceedings

in question "pose a significant threat to the estate.") Indeed, the bankruptcy court in this case has

ruled that the stay, in its present state, would apply to enjoin the Edward's proceedings against

Northbrook to execute the supersedeas bond. In re Celotex Corp., 128 B.R. at 484. The court has

decided that even when, "the judgment creditor has been successful throughout the appellate process,

the judgment creditor is not able to proceed against the supersedeas bond without seeking to vacate

the section 105 stay in this Court."Id.

Therefore, we cannot simply assume that because Northbrook does not appear to be included

on the face of the stay, the bankruptcy court will exempt it from the reach of the stay. The issue

presented in this appeal must then be sharpened to the question of whether prudential (or other)

considerations justify extending the bankruptcy court's jurisdiction to the point where it includes the

power to stay the proceedings in question here.

The Supreme Court has made clear the importance of placing definite limits on the equity

powers of bankruptcy courts. See Northern Pipeline Construction Co. v. Marathon Pipe Line Co.,

458 U.S. 50, 80-81, 102 S.Ct. 2858, 2876, 73 L.Ed.2d 598 (1982) (plurality opinion) (holding that

because bankruptcy courts are non-Article III courts they must be limited in function and authority).

This court has itself previously limited the powers of bankruptcy courts in Wedgeworth v. Fibreboard

Corp. where we held that, "[a]lthough we recognize the court's broad discretion in this area, such

control is not unbounded. Proper use of this authority calls for the exercise of judgment, which must

weigh competing interests and maintain an even balance.' "706 F.2d at 545 (citing Landis v. North

American Co., 299 U.S. 248, 254-55, 57 S.Ct. 163, 165-6, 81 L.Ed. 153 (1936)).

While we recognize the burdens which have been placed upon the bankruptcy court by the

immensity of litigation pending in this case, we disagree with the Fourth Circuit's proposed solution

in Willis. We believe that we cannot afford to shut down the dispensation of justice simply because there is a bankruptcy.6 Although the idea of using the bankruptcy court as a clearing house for all

of these cases may seem desirable as a policy matter, section 105(a) simply does not give bankruptcy

courts authority over assets that are not property of the debtor's estate and in which the debtor has

no interest. We cannot globalize the bankruptcy court's authority in this manner.

Celotex made a promise to the prevailing plaintiffs (and the court) by posting the supersedeas

bond that the bond would "secure[ ] the prevailing party against any loss sustained as a result of being

forced to forgo execution on a judgment during the course of an ineffectual appeal." Poplar Grove

Planting and Refining Co., v. Bache Halsey Stuart, Inc., 600 F.2d 1189, 1191 (5th Cir.1979);

Federal Prescription Service, Inc. v. American Pharmaceutical Association 636 F.2d 755

(D.C.Cir.1980) (describing the purpose of supersedeas bond to secure appellee in cases where there

is some chance of the judgment debtor being unable or unwilling to satisfy the judgment).

Supersedeas bonds serve as an obligation on an appellant to insure that an appellee who is deprived

of the immediate opportunity to collect his or her judgment will not be prejudiced by the delay.

Allowing appellant to file for bankruptcy and stay of execution on the supersedeas bond

would eviscerate the very purpose of these bonds. Once the appeal is decided and mandate has

issued, the judgment creditor has an enforceable right to collect that which the trial court has

previously determined is rightfully his or her own. The supersedeas bond was posted to cover

precisely the type of eventuality which occurred in this case, insolvency of the judgment debtor. It

is manifestly unfair to force the judgment creditor to delay the right to collect with a promise to

protect the judgment only to later refuse to allow that successful plaintiff to execute the bond because

the debtor has sought protection under the laws of bankruptcy.

Furthermore, this argument is buttressed by the fact that it is the purpose of the surety relation

to provide creditors with another avenue to pursue the debt. Becoming the surety on the supersedeas

bond, Northbrook took the place of the judgment creditor in bearing the risk that Celotex would be

unable to pay the debt. See Blue Quail, 831 F.2d at 589-90. (holding that for letters of credit, "the

6 The court in Willis expressed the hope that the bankruptcy court will quickly rule on the motion for relief from the stay. 978 F.2d at 149 n. 5. At this point, aspirations for an expeditious resolution appear quixotic at best. shifting of liability to the bank rather than to the [creditor] is the main purpose of the letter of credit.

After all, the bank is in a much better position to assess the risk of its customer's insolvency."). If we

permit Northbrook to escape its liability by taking refuge under the protective umbrella of Celotex'

Title 11 bankruptcy proceedings, we would thereby doubly disappoint the Edwards plaintiffs by first

delaying their judgment under a supersedeas bond which they can no longer execute and then,

second, failing to enforce the promise made by Northbrook to guarantee that bond. We should not,

unless absolutely compelled, let such an unjust result stand. There are no such compulsions here.

Section 105 authorizes a bankruptcy court to enjoin litigants from pursuing actions pending

in other courts that threaten the integrity of a bankrupt's estate. In re Davis, 730 F.2d at 184.

However, the integrity of the estate is not implicated in the present case because the debtor has no

present or future interest in this supersedeas bond.7 Whatever the ultimate scope of section 105, it

does not extend so far as to give the bankruptcy court authority over a supersedeas bond in which

the debtor has no interest. Because the appeal has terminated and mandate issued, the surety's

liability on the bond matured and the judgment creditors should be allowed to collect.

In coming to the opposite conclusion from the decision we reach today, the Willis court held

that the "hiatus from execution on the bonds was necessary to permit the bankruptcy court to take

control of the immense litigation." 978 F.2d at 150. The idea of hiatus employed by the Fourth

Circuit parallels the intent Congress manifested in providing equitable powers to the bankruptcy court

in the first place. The power to stay proceedings in other courts was intended as a provisional

measure to afford "the debtor a breathing spell from his creditors. It stops all collection efforts, all

7 The status of the surety agreement which allegedly gives Northbrook a collateralized interest in insurance proceeds due to the debtor Celotex is not sufficiently demonstrated to suggest that Northbrook and Celotex indeed have an identity of interest such that executing against Northbrook would be the same as proceeding against the property of the debtor. In this respect, the bankruptcy court was correct when it held that "whether a debtor can reject or assume the surety agreement or avoid it and thus seek return of the collateral may be an issue solely between the debtor and its surety. In re Celotex, 128 B.R. 481.

In addition, we lack evidence of the effect of the agreement between Celotex and Northbrook other than generalized statements by Celotex unrelated to the situation of these plaintiffs. We cannot base a decision on a document that was not presented to the court. harassment, and all foreclosure actions." 1978 U.S.C.C.A.N. at 6296-97. In order that this breathing

spell not suffocate the creditor's claims, we must take care to insure that the hiatus not extend to the

point where it becomes a permanent vacation.

In this case, the judge granted the original stay almost three years ago. The complexities of

this litigation make it likely that a satisfactory and fair dispensation of Celotex' assets will be a long

time coming. We cannot allow the concern for resolving the monstrous tangle of conflict and

contradiction to overwhelm our duty to do justice to these plaintiffs. Due to the likelihood of any

stay becoming a perpetual prohibition on plaintiffs collecting their judgment, we hold that the stay

is not within the equitable powers of the bankruptcy court for the situation at bar.

These plaintiffs have survived many long years fighting through the system. On October 12,

1990, they emerged with what appeared to be a final victory in this protracted litigation. Greeting

them was Celotex, postponing the plaintiff's relief with the claim that because there are so many other

victims of this terrible poison, the Edwards will have to postpone yet again the day in which they

receive what is their due. It is our job to see that they wait no longer. The Edwards were specifically

promised by the court and by Celotex that they could look to the supersedeas bonds if they won on

appeal and we should be careful to see that their expectations are not nullified because of a

generalized and theoretical concern for the bankrupt's estate.

We conclude by calling attention one last time to the fact that this circuit in Blue Quail did

not bow in complete obeisance to a bankruptcy court stay. Fairness and equity require that we also

not bow in this case where the Edwards' claim is all the more compelling. Having completed the

appellate process before the debtor went into bankruptcy, the supersedeas bond matured, and the

district court acted properly in executing the bond against Northbrook.

V.

For the reasons stated above, we AFFIRM.

EDITH H. JONES, Circuit Judge, specially concurring:

I agree wholeheartedly with Judge Goldberg's analysis showing the inapplicability of the § 362

stay to this case and with his interpretation of the plain meaning of the Celotex bankruptcy court's § 105 stay order. Because the § 105 stay order did not purport to reach the di strict court's order

against Northbrook in this case, however, I would not reach the question of the bankruptcy court's

power to issue such an order.