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In re C.P. Hall Co.

United States Court of Appeals, Seventh Circuit

April 24, 2014


Argued, April 3, 2014

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 12 C 2978 -- John W. Darrah, Judge.

For Columbia Casualty Company, Appellant: David Clayton Christian II, David Christian Attorneys Llc, Chicago, IL.

For JOSEPH A. BALDI, Chapter 7 Trustee for C.P. Hall Company, Trustee - Appellee: Steven Bennett Towbin, Terence G. Banich, Allen J. Guon, Shaw Gussis Fishman Glantz Wolfson & Towbin Llc, Chicago, IL.

Before POSNER, FLAUM, and ROVNER, Circuit Judges.


Posner, Circuit Judge

The question presented by this appeal is whether a nonparty to a bankruptcy proceeding should be entitled to intervene in

Page 660

the proceeding. Hall, the debtor in bankruptcy, is a former distributor of asbestos and asbestos products. It quit that imperiled business in the mid-1980s but continued in corporate existence as a litigation shell. Tens of thousands of separate asbestos claims were filed against it. It sought to shift as much of the cost as possible to its liability insurers; and not until 2011 was it forced to declare bankruptcy, initially under Chapter 11 but the bankruptcy proceeding was later converted to Chapter 7 and a trustee was appointed.

Hall had $10 million remaining in insurance coverage from one of its insurers, itself bankrupt, called Integrity. But there was a question whether Integrity's policy actually covered the loss for which Hall was seeking indemnity under the policy. The parties agreed to settle for $4.125 million, and the bankruptcy judge, whose approval was necessary for the settlement to be valid, approved it.

Enter Columbia Casualty Company, the appellant. Columbia is not a creditor of Hall, but rather an excess insurer of Hall's asbestos liabilities, with maximum coverage of $6 million. It worries that Hall, by virtue of having settled its insurance claim against Integrity rather than persisting in the litigation in the hope of obtaining indemnity of the full $10 million, has increased the likelihood of Columbia's having to honor its secondary-coverage obligation. It therefore filed an objection to the settlement. The bankruptcy judge refused to consider the objection, on the ground that Columbia had no right to object. Columbia appealed and the district judge affirmed, precipitating Columbia's further appeal to this court.

The parties call the issue presented by the appeal " bankruptcy standing." That is a misnomer. Article III of the federal Constitution has been interpreted to confine the right to sue in a federal court (" standing to sue" ) to a person or firm or other entity that has suffered some tangible loss for which, if the defendant's liability is established, the court could provide a remedy. See, e.g., Lexmark Int'l, Inc. v. Static Control Components, Inc., 134 S.Ct. 1377, 1386, 188 L.Ed.2d 392 (2014). The rule thus excludes suits concerning what John Stuart Mill in On Liberty (1859) called " self-regarding acts," to distinguish them from " other-regarding acts," that is, acts that harm other people. He gave as an illustration of a self-regarding act the practice of polygamy in Utah, thousands of miles from England and hence harmless to the English. The English were " others" to the polygamous activity in Utah despite the indignation that the English people felt toward that activity. Mill thought in other words that the English had no " standing" to object to distant polygamy, because it inflicted no tangible harm on them.

Columbia's objection to Hall's settlement with Integrity is not of that character. Columbia is complaining about an imminent threat to its financial assets, a threat that is traceable to the settlement and could have been eliminated by the bankruptcy court's enjoining the settlement. The loss it fears is only probabilistic. For there can be no certainty that it would benefit from rejection of the settlement. Had Hall litigated its claim against Integrity to final judgment, which might have been a consequence of Hall's demanding more than $4.125 million, it might well have ended up with nothing, since Integrity had a strong defense on the merits. But often a probabilistic harm suffices for Article III standing even when the probability ...

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