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Church Mutual Insurance Co. v. Mount Calvary Baptist Church

November 13, 1995

IN THE MATTER OF

MOUNT CALVARY BAPTIST CHURCH ALSO KNOWN AS MOUNT CALVARY BAPTIST CHURCH & SCHOOL,

DEBTOR.

CHURCH MUTUAL INSURANCE COMPANY,

PLAINTIFF-APPELLEE,

v.

MOUNT CALVARY BAPTIST CHURCH ALSO KNOWN AS MOUNT CALVARY BAPTIST CHURCH & SCHOOL AND SEAWAY NATIONAL BANK,

DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 94-C-673--Ann Claire Williams, Judge.

Before BAUER, COFFEY, and EVANS, Circuit Judges.

EVANS, Circuit Judge.

ARGUED SEPTEMBER 8, 1995

DECIDED NOVEMBER 13, 1995

This case boils down to one question: Should the Church Mutual Insurance Company be allowed to cash a check intended to cover premiums due on three specifically identified insurance policies and apply the proceeds not to the policies but to other debts of the insured? The bankruptcy court said no; the district court, on review, said yes. We think the bankruptcy court got the right answer so we reverse the decision of the district court and remand for the entry of judgment in favor of Mount Calvary Baptist Church and its mortgagee, the Seaway National Bank.

A fire destroyed the Mount Calvary Baptist Church on September 11, 1989. A week later the church filed for relief under Chapter 11 of the United States Bankruptcy Code. Two months later, in November of 1989, the Church Mutual Insurance Company, which had been providing several types of insurance to Mount Calvary, filed this case in the United States District Court for the Northern District of Illinois, seeking a declaratory judgment that a multi-peril insurance policy previously issued to the church was not in effect when the blaze ignited.

Church Mutual's suit for declaratory relief was referred to the bankruptcy court. Bankruptcy Judge David H. Coar *fn1 conducted a trial in the case during September of 1993. In a decision entered on December 29, 1993, Judge Coar concluded that the multi-peril policy was in force at the time of the fire. The matter was then ready to move to the district court for further proceedings.

Church Mutual's declaratory judgment action was, the parties agreed, referred to the bankruptcy court pursuant to 28 U.S.C. sec. 157(a). The parties seemed to have disagreed, however, as to whether Judge Coar's decision was made pursuant to 28 U.S.C. sec. 157(b)(1), in which case he was issuing a final order, or whether his decision was in the nature of proposed findings of fact and conclusions of law, the scheme announced in sec. 157(c)(1).

In the former case, a district court's review of a decision by a bankruptcy judge would have been pursuant to Bankruptcy Rule 8013. That rule provides in part that upon appeal to the district court, the "[f]indings of fact [of the bankruptcy court], whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous . . . ." In the latter case--if the decision was made pursuant to sec. 157(c)(1)--review would be under Bankruptcy Rule 9033. Rule 9033 provides that the bankruptcy judge makes "proposed findings of fact and conclusions of law" and that the district judge then makes a "de novo review upon the record or, after additional evidence, of any portion of the bankruptcy judge's findings of fact or conclusions of law to which specific written objection has been made . . . ."

How was Judge Coar proceeding? His decision was framed as "proposed findings of fact and conclusions of law"--a point for Church Mutual--but his conclusion read more like a final order--a counterpoint for Mount Calvary. Mount Calvary, the winner in the bankruptcy court, wanted Judge Coar's findings of fact upheld unless they were clearly erroneous. Church Mutual thought otherwise; de novo review in the district court was required.

To determine just how Judge Coar was proceeding, Church Mutual filed a motion under 28 U.S.C. sec. 157(b)(3) seeking clarification in the bankruptcy court. Judge Coar revisited the matter in a short order issued on January 13, 1994. In his encore, Judge Coar quickly got to the core of the matter, noting that the proceeding before him was non-core and that further proceedings in the district court would be under Bankruptcy Rule 9033.

After the clarification order was issued, the case moved to the district court, where objections by Church Mutual to Judge Coar's proposed findings were entertained. The district court, proceeding de novo under rule 9033, adopted Church Mutual's view of the case, holding that the multi-peril policy was not in effect at the time of the fire. This appeal by Mount Calvary followed.

On appeal to this court, Mount Calvary again argues that the district court was obligated to review Judge Coar's findings under a clearly erroneous standard. Mount Calvary even adds a new wrinkle to its argument, contending that Church Mutual consented to the bankruptcy court's consideration of the case under sec. 157(c)(2). Consent under that section would, like a proceeding under sec. 157(b)(1), obligate the district court to review the bankruptcy court findings under a deferential "clearly erroneous" standard.

We agree with Church Mutual and the judges below on the standard of review. Judge Coar acted under sec. 157(c)(1). Church Mutual, by mere silence, did not consent to proceed in the bankruptcy court under sec. 157(c)(2). See Home Insurance Co. v. Cooper & Cooper, Ltd., 889 F.2d 746 (7th Cir. 1989). The district court properly reviewed the case de novo, and its findings of fact can ...


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