946 F.

2d 1031
60 USLW 2304, 25 Collier Bankr.Cas.2d 1169,
22 Bankr.Ct.Dec. 335, Bankr. L. Rep. P 74,286

Richard BORMAN and Joanne Borman, his wife, Joanne

Borman,
Executrix of the last will of Richard Borman
v.
RAYMARK INDUSTRIES, INC., Keene Corporation, EaglePicher
Industries, Inc., Owens-Corning Fiberglas Corporation,
Owens-Illinois Glass Company, Celotex Corporation,
Fibreboard Corporation, GAF Corporation, Turner-Newall,
PLC,
Garlock, Inc.
v.
NICOLET, INC.
Celotex Corporation, Appellant.
No. 89-2110.

United States Court of Appeals,

Third Circuit.
Sur Motion March 28, 1991.
Decided Oct. 21, 1991.

Marc W. Reuben, Bruce H. Bikin, Montgomery, McCracken, Walker &

Rhoads, Philadelphia, Pa., for appellant.
Martin Greitzer, Kirk V. Wiedemer, Greitzer & Locks, Philadelphia, Pa.,
for appellee, Joanne Borman, Executrix and in her own right.
Before SLOVITER, Chief Judge, SCIRICA and ALITO, Circuit Judges.
OPINION SUR DENIAL OF MOTION
SCIRICA, Circuit Judge.

Appellant in this case is the Celotex Corporation, which is currently

undergoing voluntary reorganization under Chapter 11 of the Bankruptcy Code.
We stayed this appeal because the Code's automatic stay provisions ordinarily
apply to appeals in actions originally brought against Chapter 11 debtors. See
Association of St. Croix Condominium Owners v. St. Croix Hotel Corp., 682
F.2d 446 (3d Cir.1982). Appellee Joanne Borman now seeks reconsideration,
contending that our decision in Mid-Jersey National Bank v. Fidelity-Mortgage
Investors, 518 F.2d 640 (3d Cir.1975), decided under the Bankruptcy Act of
1898 (as amended), requires that we decide the merits of this appeal because
Celotex posted a supersedeas bond prior to its bankruptcy filing. We will deny
the motion for reconsideration because we believe Mid-Jersey is no longer an
accurate statement of the law under the expanded jurisdiction of the current
Bankruptcy Code, adopted in 1978.

I.
2

In February, 1987, Richard Borman and his wife Joanne filed a product liability
suit in district court against several manufacturers of asbestos products,
including Celotex. The suit sought damages for personal injuries allegedly
suffered by Mr. Borman as a result of exposure to asbestos. Mr. Borman died in
1988. The trial was bifurcated, with the issue of damages tried first. Only
Celotex and one other defendant remained in the suit by the end of the damages
trial. On August 24, 1989, a jury assessed damages of $532,719. Celotex then
agreed to pay a proportionate amount of the damage award, although it reserved
its right to appeal from the damages trial. The jury found the remaining
defendant not liable. On December 26, Celotex filed its notice of appeal. On
January 31, 1990, Celotex stayed execution of judgment against it by posting a
supersedeas bond. See Fed.R.Civ.P. 62(d). The Allstate Insurance Company
served as surety for the bond, which was in the amount of $88,708.

The gravamen of Celotex's appeal is that the district court should have charged
the jury on the apportionment of damages between cigarette smoking and
asbestos exposure. On August 2, 1990, this court heard argument on the appeal.
On October 12, before any disposition, Celotex filed a voluntary petition for
bankruptcy under Chapter 11 of the Bankruptcy Code. On October 29, we
notified the parties that the appeal would be stayed until either the bankruptcy
proceeding was dismissed or the bankruptcy court granted leave to proceed. On
March 28, 1991, Mrs. Borman filed a motion asking that we decide the merits
of the appeal. She contends that the automatic stay does not apply to this appeal
because Celotex posted a supersedeas bond before filing for bankruptcy.

II.

The automatic stay is a central concept in bankruptcy law. Section 362(a)

provides in part that:

5
Except
as provided in subsection (b) of this section, a petition filed under section
301, 302 or 303 of this title ... operates as a stay, applicable to all entities, of-6 the commencement or continuation, including the issuance or employment of
(1)
process, of a judicial, administrative, or other action or proceeding against the debtor
that was or could have been commenced before the commencement of the case
under this title, or to recover a claim against the debtor that arose before the
commencement of the case under this title; ...
7 any act to obtain possession of property of the estate or of property from the
(3)
estate or to exercise control over property of the estate; ....
8

11 U.S.C. 362 (1988 & Supp.1991). The automatic stay was intended to give
the debtor "a breathing spell from his creditors. It stops all collection efforts, all
harassment, and all foreclosure actions. It permits the debtor to attempt a
repayment or reorganization plan, or simply to be relieved of the financial
pressures that drove him into bankruptcy." H.R.Rep. No. 95-595, 95th Cong.,
1st Sess. 340 (1977) [hereinafter "House Report"], reprinted in 1978 U.S.Code
Cong. & Admin.News 5787, 5963, 6296-97.

In Association of St. Croix Condominium Owners v. St. Croix Hotel Corp., 682
F.2d 446 (3d Cir.1982), we held that the automatic stay under 362(a)(1)
extends to appeals in actions that were originally brought against the debtor,
regardless of whether the debtor is the appellant or the appellee. Under this
rule, this appeal is subject to the automatic stay because the action was
originally brought against Celotex.

10

Borman contends that this case is controlled instead by Mid-Jersey National

Bank v. Fidelity-Mortgage Investors, 518 F.2d 640 (3d Cir.1975). In that case,
we held that a debtor's appeal was not subject to the automatic stay provisions
of the old Bankruptcy Act, 11 U.S.C. 711 et seq. (1898) (as amended), the
predecessor to the current Bankruptcy Code, because the debtor had made a
deposit with the court to stay execution of judgment. The original action had
been brought by Mid-Jersey National Bank against Fidelity-Mortgage Investors
("FMI") and the district court granted summary judgment in favor of MidJersey. FMI appealed and posted a supersedeas bond. The district court later
allowed FMI to make a deposit with the court in lieu of the bond. While the
appeal was pending, FMI filed for bankruptcy.

11

Under the stay provisions applicable to that case, a bankruptcy filing stayed
"the commencement or the continuation of any court or other proceeding
against the debtor, or the enforcement of any judgment against him, or of any
act or the commencement or continuation of any court proceeding to enforce
any lien against his property...." Bankruptcy Rule 11-44(a) (repealed), reprinted
in 14 Collier on Bankruptcy 11-44-1 (14th ed. 1976). We noted, however, that
the Bankruptcy Rules were "exclusively procedural" and must be read in accord
with the substantive provisions of Chapter 11. 518 F.2d at 643. The Bankruptcy
Rules were not statutory, but instead had been promulgated by the Supreme
Court. Construing the jurisdictional provisions of the Bankruptcy Act, we held
that Rule 11-44(a) extended "only to proceedings which could divest the debtor
of property over which the Chapter XI court has jurisdiction." Id. We found that
this interpretation was consonant with the purpose of Rule 11-44(a), which was
" 'to prevent interference with, or diminution of, the debtor's property.' " Id.
(quoting Teledyne Indus., Inc. v. Eon Corp., 373 F.Supp. 191 (S.D.N.Y.1974)).

12

Consequently, we held that the appeal could be stayed only if FMI's deposit
with the court constituted property of the debtor over which the bankruptcy
court had exclusive jurisdiction. Id. We held that the deposit was not property
of the debtor because it constituted a trust whose beneficiaries would be
determined by the outcome of the appeal. We found that "FMI parted with its
ownership of the certificate of deposit when the certificate was entrusted to the
court. Since then, the only property interest FMI has had in the certificate is a
contingent reversionary interest as a potential beneficiary of the trust." Id. at
644. This analysis has been followed by a number of courts. See Grubb v.
Federal Deposit Ins. Corp., 833 F.2d 222 (10th Cir.1987); Carter Baron
Drilling v. Excel Energy Corp., 76 B.R. 172 (D.Colo.1987); Moran v. JohnsManville Sales Corp., 28 B.R. 376 (N.D.Ohio 1983); In re Alwan Bros. Co.,
105 B.R. 886, 892-95 (Bankr.C.D.Ill.1989), on reconsideration, 112 B.R. 294
(Bankr.C.D.Ill.1990); W.W. Gay Mechanical Contractor, Inc. v. Wharfside
Two, Ltd., 545 So.2d 1348, 1349-50 (Fla.1989); see also Atlantic Richfield Co.
v. Good Hope Refineries, 604 F.2d 865, 868-70 (5th Cir.1979) (reaching same
result without relying on Mid-Jersey ); In re North American Marketing Corp.,
24 B.R. 16 (Bankr.S.D.Fla.1982) (same).

13

Mid-Jersey has recently been criticized. In Sheldon v. Munford, Inc., 902 F.2d 7
(7th Cir.1990), the Court of Appeals for the Seventh Circuit held that the
posting of a supersedeas bond does not prevent the application of the automatic
stay to a pending appeal by a debtor. The court summarized Mid-Jersey as
relying on the proposition that "the supersedeas bond insulates the bankrupt
estate from any possibility of harm as a result of the outcome of the appeal." Id.
at 8. The court disagreed with that reasoning, noting that "[t]he supersedeas

bond merely gives the judgment creditor another debtor to go after--the

insurance company [that issued the bond]--once execution of the judgment is
possible. It is not a release of the judgment debtor." Id. The court also noted
that even if it is certain that the surety will pay the judgment, the debtor's
creditors have a stake in the appeal because of the collateral given by the debtor
to secure the bond. Id. Therefore, it found that the policy behind the automatic
stay was applicable. Id. at 8-9.
14

In In re Celotex Corp., 128 B.R. 478 (Bankr.M.D.Fla.1991), the bankruptcy

court with jurisdiction over the Celotex estate also disagreed with Mid-Jersey
and held that attempts to execute on supersedeas bonds are subject to the
automatic stay. The court had previously lifted the automatic stay to allow
certain appeals to continue, and confronted the question of whether supersedeas
bonds posted prior to some appeals constituted property of the estate that would
be unavailable to plaintiffs should their cases be affirmed. It questioned MidJersey's holding that the debtor had only a contingent reversionary interest in
the bond, stating that "basic property law would suggest a reversionary interest
is never contingent but is vested subject to divestment." Id. at 480. It also noted
that under the Mid-Jersey analysis the debtor must be considered the potential
beneficiary of a hypothetical trust, which would give the debtor an equitable
property interest in the bond. Id. at 480-81. See 11 U.S.C. 541(a)(1) (1988)
(property of the estate includes "wherever located and by whomever held ... all
legal or equitable interests of the debtor in property."). Consequently, "the
debtor still has an interest in the supersedeas bond cognizable under Section
541 of the Bankruptcy Code subject to the interest being divested if the debtor
is unsuccessful once the appellate process is completed." 128 B.R. at 482.1

15

We recognize the force of this criticism, especially in light of the expansive

definition of "property of the estate" under 541. See, e.g., United States v.
Whitting Pools, Inc., 462 U.S. 198, 202-09 & n. 13, 103 S.Ct. 2309, 2312-16 &
n. 13, 76 L.Ed.2d 515 (1983) (Bankruptcy Code adopted expansive definition
of property of the estate and extended jurisdiction to property not in possession
of the debtor); Celotex, 128 B.R. at 481 ("The Mid-Jersey court, considering
pre-Code law, did not have before it the expansive views established by
Congress in Section 541 and Section 362 of the Bankruptcy Code."); In re
Railroad Dynamics, Inc., 97 B.R. 239, 244 n. 1 (Bankr.E.D.Pa.1989) (expanded
jurisdiction of Bankruptcy Code invalidates Mid-Jersey's definition of property
of the estate). We believe Mid-Jersey's analysis of the automatic stay is
inapplicable to the current Bankruptcy Code. However, we find it unnecessary
to decide whether the Code has superseded Mid-Jersey's definition of property
of the estate, because we believe 362(a)(1) stays pending proceedings
brought directly against the debtor, regardless of whether they involve property

of the estate.
16

Under St. Croix Condominium Owners, this appeal constitutes a "proceeding

against the debtor" within the meaning of 362(a)(1) because the underlying
action was brought against Celotex. The existence of a supersedeas bond does
not alter that fact. Section 362(a)(1) stays an "action or proceeding against the
debtor ... or to recover a claim against the debtor...." (emphasis added). This
disjunctive language clearly indicates that Congress intended for 362(a)(1) to
stay actions against the debtor that are not necessarily brought to recover a
claim. See In re Johns-Manville Corp., 31 B.R. 965, 968-69 (S.D.N.Y.1983)
(disjunctive language in 362(a)(1) requires stay of declaratory judgment
action against the debtor regardless of whether such action constitutes a claim
against the debtor). As Congress noted, "[t]he scope of [subsection a(1) ] is
broad. All proceedings are stayed, including arbitration, license revocation,
administrative and judicial proceedings." House Report at 340. When a prepetition proceeding has been instituted directly against the debtor, the stay
applies unless the proceeding falls within a statutory exception or the
bankruptcy court grants relief.

17

Relying on Mid-Jersey, Borman contends that the automatic stay applies only
to actions to obtain property of the estate. But 362(a)(3) stays "any act to
obtain possession of property of the estate or of property from the estate or to
exercise control over property of the estate." Consequently, 362(a)(1) would
have no function as a separate provision if it also applied only to actions
involving property of the estate. Any action covered by subsection (a)(1) would
also be covered by subsection (a)(3). See Martin-Trigona v. Champion Federal
Savings and Loan Ass'n, 892 F.2d 575, 577 (7th Cir.1989) (automatic stay
applies to "actions against the bankrupt or to seizures of property of the
bankrupt.") (emphasis added); Credit Alliance Corp. v. Williams, 851 F.2d 119,
121 (4th Cir.1988) (same); MacArthur Co. v. Johns-Manville Corp., 837 F.2d
89, 92 (2d Cir.) (same), cert. denied, 488 U.S. 868, 109 S.Ct. 176, 102 L.Ed.2d
145 (1988). It is an "elementary canon of construction that a statute should be
interpreted so as not to render one part inoperative." Colautti v. Franklin, 439
U.S. 379, 392, 99 S.Ct. 675, 684, 58 L.Ed.2d 596 (1979).2

18

Moreover, 362(b)(2) specifically exempts from the stay "the collection of

alimony, maintenance, or support from property that is not property of the
estate." 11 U.S.C. 362(b)(2) (1988) (emphasis added). This provision
indicates that the automatic stay was intended to apply to actions that do not
necessarily involve property of the estate. See also id. 362(b)(1) (exempting
criminal actions or proceedings against the debtor); id. 362(b)(5) (exempting
enforcement of non-money judgments obtained in governmental actions to

enforce police or regulatory power). Similarly, under 362(c)(1), the stay of an

action against property of the estate continues only until the property is no
longer part of the estate, while under 362(c)(2), the "stay of any other act"
continues until the bankruptcy case is closed or dismissed, or a discharge is
granted or denied. See id. 362(c). Thus, 362(c) also contemplates that the
automatic stay applies to actions other than those to obtain property of the
estate.
19

We recognize that Mid-Jersey reached the opposite result when construing

similar automatic stay provisions. The provisions applicable to that case stayed
any "proceeding against the debtor, or the enforcement of any judgment against
him, or of any act or the commencement or continuation of any court
proceeding to enforce any lien against the property." Bankruptcy Rule 11-44(a)
(repealed), reprinted in 14 Collier on Bankruptcy 11-44-1 (14th ed. 1976).
However, we expressly held that this broad language was merely "procedural,"
and was limited by the jurisdictional provisions of the Bankruptcy Act and the
stay's purpose of preventing interference with the property of the debtor. 518
F.2d at 643.

20

By contrast, under the present Bankruptcy Code, the current automatic stay
provisions are contained in the statute itself. Before Congress provided such
statutory authorization, the power to enjoin proceedings involving debtors was
derived from the bankruptcy court's custodial jurisdiction over property of the
debtor. See generally 2 Collier on Bankruptcy p 362.01 (15th ed. 1991). Since
Mid-Jersey, bankruptcy jurisdiction has been expanded to include "all civil
proceedings arising under title 11, or arising in or related to cases under title
11." 28 U.S.C. 1334(b) (1988). We have interpreted this language broadly,
holding that a proceeding is "related to" a bankruptcy case if

21 outcome of that proceeding could conceivably have any effect on the estate
the
being administered in bankruptcy. Thus, the proceeding need not necessarily be
against the debtor or against the debtor's property. An action is related to bankruptcy
if the outcome could alter the debtor's rights, liabilities, options, or freedom of action
(either positively or negatively) and which in any way impacts upon the handling
and administration of the bankrupt estate.
22

Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984) (citations and emphasis
omitted) (interpreting predecessor to 1334(b)). Although the automatic stay
does not encompass every action that is "related to" bankruptcy, we believe the
Mid-Jersey analysis cannot stand in light of this expansive jurisdiction. The
automatic stay is now statutory, and its plain language is no longer qualified by
jurisdictional limitations.

23

Applying 362(a)(1) to actions against the debtor that do not necessarily

involve property of the estate is also consonant with the purposes of the current
automatic stay provisions. Unlike the provisions construed in Mid-Jersey,
which were directed solely at protecting property of the estate, the current
provisions provide a "breathing spell" for the debtor which stops all collection
efforts. House Report at 340. This breathing spell encompasses a stay of an
action brought directly against the debtor, even when the funds to satisfy a
judgment may ultimately come from another source. The automatic stay was
designed "to prevent certain creditors from gaining a preference for their claims
against the debtor; to forestall the depletion of the debtor's assets due to legal
costs in defending proceedings against it; and, in general, to avoid interference
with the orderly liquidation or rehabilitation of the debtor." St. Croix
Condominium Owners, 682 F.2d at 448. These concerns are implicated
whenever an action is instituted directly against the debtor, although they
arguably have more force when an action directly implicates property of the
estate. The policy behind the automatic stay is applicable even when it is clear
that another party will ultimately be responsible for payment as the result of a
supersedeas bond. See Sheldon, 902 F.2d at 9. Section 362(a)(1) stays all prepetition actions against the debtor, not merely acts to obtain property of the
debtor. If the automatic stay were concerned only with the actual effect of a
judgment on the debtor's property, it would follow that we should permit all
actions against the debtor to proceed until entry of judgment, with only
execution of judgment being stayed. We do not believe this was Congress'
intent.

24

Although we hold that this appeal is stayed under 362(a)(1), we do not imply
that it would be improper for the bankruptcy court to lift or modify the stay to
permit disposition. As we noted in St. Croix Condominium Owners, it is the
bankruptcy judge who must make that determination, taking all relevant factors
into consideration. 682 F.2d at 448.3

III.
25

We will deny the motion for reconsideration and will continue to stay this
appeal pending resolution of the bankruptcy case or action by the bankruptcy
court. We believe Mid-Jersey is no longer an accurate statement of the law to
the extent it holds that a supersedeas bond or deposit can prevent the
application of the automatic stay. We express no opinion on whether the
supersedeas bond is considered property of the estate under the Bankruptcy
Code.

It is also possible that Mid-Jersey could be distinguished from the current case
because Mid-Jersey involved a deposit with the court rather than a supersedeas
bond. In Grubb v. Federal Deposit Ins. Corp., 833 F.2d 222 (10th Cir.1987),
the appellant had posted a supersedeas bond and also deposited with the court
the collateral securing the bond. The dissent would have distinguished MidJersey as having involved an actual relinquishment of funds by the debtor,
rather than merely a deposit of collateral. Id. at 228-30 (Moore, J., dissenting).
The dissent believed that the debtor retained a property interest in the collateral
until the point of foreclosure. Here, the debtor has likewise parted with no
funds. However, in view of our holding below, we need not rely on this
distinction

There is a separate need for subsection (a)(3) notwithstanding the fact that
subsection (a)(1) also stays actions to recover pre-petition claims against the
debtor. There are actions covered by subsection (a)(3) that are not covered by
subsection (a)(1). Subsection (a)(3) applies regardless of whether the property
is in the debtor's possession, and thus applies to actions against third parties as
well as actions against the debtor. Subsection (a)(1) ordinarily does not stay
actions against parties other than the debtor. See, e.g., A.H. Robins Co. v.
Piccinin, 788 F.2d 994, 999-1001 (4th Cir.), cert. denied, 479 U.S. 876, 107
S.Ct. 251, 93 L.Ed.2d 177 (1986)

The Celotex bankruptcy court has already noted that it is generally in the best
interest of the estate to allow an appeal to go forward. Celotex, 128 B.R. at 481
n. 9 (citation omitted). See 2 Collier on Bankruptcy p 362.07 (15th ed. 1991)
(citations omitted) ("Where the claim is covered by insurance or indemnity,
continuation of the action should be permitted since hardship to the debtor is
likely to be outweighed by hardship to the plaintiff."). See also Sheldon, 902
F.2d at 9 (provided debtor is adequately represented, it is better for the estate to
allow appeal to proceed)