In Re Jet Florida Systems, Inc.
Bankr. L. Rep. P 73,078
In re JET FLORIDA SYSTEMS, INC. f/k/a Air Florida System,
Inc. and Airport Systems, Inc., f/k/a Air Florida,
Inc., Debtors.
Tracy OWASKI, Plaintiff-Appellee,
v.
JET FLORIDA SYSTEMS, INC., f/k/a Air Florida System, Inc.
and Airport Systems, Inc., f/k/a Air Florida,
Inc., Defendants-Appellants,
Phoenix Ventures, Inc., as successor by merger to the
reorganized debtors, Appellants.
No. 88-6033.
United States Court of Appeals,
Eleventh Circuit.
Sept. 15, 1989.
Gеrard M. Kouri, Jr., Miami, Fla., Thomas C. Woods, Miami, Fla., for Jet Florida Systems, Inc.
John K. Olson, Stearns, Weaver, Millier, Weissler, Alhadeff & Sitterson, P.A., Tampa, Fla., for Phoenix Ventures, Inc.
Wilson E. Hodge, Homestead, Fla., for Tracy Owaski.
Appeal from the United States District Court for the Southern District of Florida.
Before ANDERSON and COX, Circuit Judges, and BUTLER*, District Judge.
PER CURIAM:
The judgment of the district court is AFFIRMED on the basis of and for the reasons stated in the well-reasoned opinion rendered in this case in the district court by Judge Stanley Marcus. A copy of that opinion is appended hereto.
APPENDIX
In Re Jet Florida System, Inc., f/k/a Air Florida System, Inc.
and
In Re Airport Systems, Inc., f/k/a Air Florida, Inc., Debtors
Tracy Owaski, Appellant,
v.
Jet Florida System, Inc., f/k/a Air Florida System, Inc. and
Airport Systems, Inc., f/k/a Air Florida, Inc., Appellees.
United States District Court
Southern District of Florida
Case No. 88-152-CIV-MARCUS
Filed Sept. 27, 1988.
ORDER OF REMAND
THIS CAUSE is before the Court upon the appeal of Appellant Tracy Owaski from a bankruptcy court order denying his motion to vacate the permanent injunction established by
I. HISTORICAL BACKGROUND OF THE CASE
Appellant Tracy Owaski was employed by Appellees Jet Florida System, Inc., f/k/a Air Florida Systems, Inc. and Airрort Systems, Inc., f/k/a Air Florida, Inc. (collectively "Air Florida") as an aircraft mechanic. On or about November 30, 1981, Air Florida terminated Mr. Owaski for his purported involvement in the mechanical sabotage of an Air Florida aircraft. In December 1981, Appellant commenced an action against Air Florida in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County, Florida, alleging defamation and challenging the сonstitutionality of the federal Railway Labor Act.
In November 1983, Air Florida removed the matter to the United States District Court for the Southern District of Florida. The removal was based upon Owaski's challenge to the constitutionality of the Railway Labor Act. Jet Florida filed a petition for voluntary bankruptcy pursuant tо Chapter 11 of the Bankruptcy Code on July 3, 1984. On July 31, 1984, upon sua sponte review of the matter, the Honorable Sidney M. Aronovitz, United States District Judge, entered an Order staying all proceedings in Owaski's case.
Air Florida's reorganization subsequently commenced. The bankruptcy court set November 30, 1984 as the bar date for filing proofs of claims. While Appellant Owaski filed a proof of claim with respect to unpaid wages and benefits, he filed no proof of claim pertaining to his defamation action. On August 7, 1986, the bankruptcy court approved Air Florida's amended consolidated reorganization plan. The bankruptcy court then issued a permanent injunction pursuant to
On June 29, 1987, Owaski moved the district court to vacate the
Owaski moved to vacate the
II. BANKRUPTCY INJUNCTION
A.
Title
A discharge in a case under this title--
(1) voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liаbility of the debtor with respect to any debt discharged under section 727, 944, 1141, or 1328 of this title, whether or not discharge of such debt is waived;
(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or any act, to collect, recover or offset any such debt as a personal liability of the debtor, or from property of the debtor, whether or not discharge of such debt is waived; and
(3) operates as an injunction against the commencement or continuation of an action, the employment of process, or any act, to collect or recover from, or offset against, property of the debtor of the kind specified in section 541(a)(2) of this title that is acquired after the commencement of the case, on account of any allowable community claim, except a community claim that is excepted from discharge under section 523 or 1328(c)(1) of this title, or that would be so excepted, determined in accordance with the provisions of section 523(c) and 523(d) of this title, in a case concerning the debtor's spouse commenced on the date of the filing of the petition in the case concerning the debtor, whether or not discharge of the debt based on such community claim is waived.
Generally, in order for a creditor to retain its claim against the bankrupt, the creditor must file a notice of claim during the bankruptcy proceedings. When no such notice is filed, the creditor often waives any right against the bankrupt to which it may have been entitled. See Litton Systems, Inc. v. Frigitemp Corp. (In re Frigitemp Corp.),
The
Except as provided in subsection (a)(3) of this section, discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt.
B. Obligation of an Insurer
In the case at bar, Appellant Owaski concedes that he may not proceed against the assets of the bankruptcy estate. However, Owaski maintains that he may proceed against the debtor to establish the debtor's liability in order to recover from the debtor's insurer.
To determine whether Owaski should bе permitted to proceed with his defamation claim, we begin with an examination of
Moreover,
the provisions of 524(a) apply only with respect to the personal liability of the debtor. When it is necessary to commence or continue a suit against a debtor in order, for example, to establish liability of another, perhaps a surety, such suit would not be barred.
3 R. Babitt, A. Herzog, R. Mabey, H. Novikoff, & M. Sheinfeld, Collier on Bankruptcy p 524.01 at 524-16 (15th ed.1987) (emphasis added). Certainly, the obligation of an insurer can be viewed as such a secondary liability under the provisions of
Despite statutory language that would suggest otherwise, Appellee Jet Florida contends that because Owaski failed to file any notice of claim in the earliеr bankruptcy proceedings, he may not proceed with his defamation action. In support of this position, Jet Florida relies exclusively on Citibank, N.A. v. White Motor Corp. (In re White Motor Credit),
We are not prepared to follow the conclusion reached in White Motor regarding the preclusive effect of
We believe that the plain language of
According to Mann, when an insurer is liable for thе debtor's torts, this liability is " 'personal' within the meaning of
The Mann decision is far from alone in enabling tort claims to continue against a debtor for the purpose of insurance recovery. The district court in Montana in reviеwing a case similar to Mann concluded that:
The judgment of the state court was, as a matter of law, null and void as to [the debtor], and the order of discharge of June 7, 1977, and the subsequent order of September 23, 1977, were correct in declaring and in enjoining any action under it as to [the debtor]. If, however, as a matter of state law, the judgment in the state court has the effect of establishing some fact or fixing somе liability as to the insurance company, the state courts are free to give that judgment its proper effect to [sic] long as they do not in any way involve [the debtor] in what is done.
In re Bracy,
In yet another case similar to Mann and the case at bar, the tort victim sought to modify the injunction of
In West v. White (In re White),
Appellees have asserted that many of the cases cited above--particularly those involving uninsured motorists--are distinguishable from the case at bar because those cases involved a plaintiff seeking to determine liability of the debtor in order to recover under their own insurance policies and not the insurance policies of the debtors. We are unpersuaded by Appellee's attempt at distinguishing the cases. The analysis provided by the available case law does not hinge upon whose insurer is liable, but rather upon the condition that the debtor not be personally liable in a way that would interfere with the debtor's fresh start in economic life. The mere fact that it would be the Appellee's insurer who is potentially liable for the defamation tort is of no consequence for determining the preclusive effect of
Appellees also maintain that Appellee's insurer will be prejudiced by the continuation of Appellant's defamation suit. The reported cases, however, underscore that the purpose of
Far from holding that insurers should be protected from liability, one "court reasoned that the insurance company should not be entitled to gain a benefit that was not intended or in any way computed within the rate charged for its policy." In re Mann,
if an insurance company is as a matter of state law liable to a plaintiff in a personal injury action, subsequent discharge of the assured in bankruptcy does not alter the obligation of the insurance company. It seems clear that it is the policy of the law to discharge the bankrupt but not to release from liability those who are liable with him.
The same result must follow under the broader language of
We are, however, concerned by the prospect that reversing the decision of the bankruptcy court in this case would frustrate the fresh-start policy embodied in the Code in one way--by requiring the bankrupt to spend sums in defending this lawsuit. We are cognizant that in actions such as these, the cost of litigation can sometimes surpass the actual amount of liability. Therefore, to allow suits of this nature to go forward could possibly have the effect of draining funds that would more properly be used in the revitalization of the reorganized corрoration.
Nonetheless, this consideration alone does not require us to affirm the court below for two main reasons. First, we can determine no effective means of determining at this stage whether the bankrupt or the insurance company will pay the cost of the litigation. To have our ruling premised on that determination would provide an incentive for the debtor to claim to assume that burden. If that simple fact barred the plaintiff from going forward on his claim, there would exist no adversarial relationship between the bankrupt and insurer so that we could actually resolve this crucial question, because both of those parties would have an obvious interest in demonstrating that the debtor was liable for litigation costs.
Second, the practical and economic realities compel the insurаnce company to defend the underlying action. See Matter of Holtkamp,
III. CONCLUSION
We find that
ORDERED AND ADJUDGED that the order of the bankruptcy court denying Appellants motion for relief from the permanent injunction is REVERSED and this cause is REMANDED for further proceedings consistent with this Order.
DONE AND ORDERED in Miami, Floridа this 21st day of September, 1988.
(s) Stanley Marcus
STANLEY MARCUS
UNITED STATES DISTRICT JUDGE
SOUTHERN DISTRICT OF FLORIDA
Notes
Honorable Charles R. Butler, U.S. District Judge for the Southern District of Alabama, sitting by designation
One court noted the following in determining the liability of an insurance company for bankruptcy purposes:
It is unnecessary to determine specifically that the insurer is a co-debtor, or a guarantor, or in any manner a surety for the assured, but it is clear that the insurer falls within one of these classifications.... Consequently the liability of the [insurer] is not altered by the discharge of the bankrupt.
Wilkinson v. Vigilant Insurance Co., [