[1]     

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 1995

, [5]     

Decided: August 30,1996

, [6]      IN RE CHATEAUGAY CORPORATION; REOMAR, INC.; THE LTV CORPORATION, " />

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In Re Chateaugay Corp., 94 F.3D 772 (2d Cir. 08/30/1996)

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 1995

No. 955

Docket No. 95-5062

94 F.3d 772, 1996.C02.0000436 <http://www.versuslaw.com>

Decided: August 30,1996

IN RE CHATEAUGAY CORPORATION; REOMAR, INC.; THE LTV CORPORATION,

Before: MAHONEY, WALKER and CALABRESI, Circuit Judges.

[8]    

Argued: February 14, 1996

[9]    

Debtors.

THE AETNA CASUALTY & SURETY COMPANY,

Appellant, v.

LTV STEEL COMPANY, INC.; CHATEAUGAY CORPORATION; REOMAR, INC.; LTV CORPORATION; LTV ENERGY PRODUCTS, CO.; UNITED STATES OF AMERICA,

Appellees.

Appeal from an order of the United States District Court for the Southern District of New York (Stanton, J.), 1995 WL 386483, 1995 U.S. Dist. LEXIS 8982 (June 28, 1995), affirming the final order of the United States Bankruptcy Court for the Southern District of New York (Lifland, J.). The Bankruptcy Court, determined that the appellant had no interest in certain tax refunds owing to the appellees. It therefore held that the appellant was not entitled to adequate protection against the appellees' use of those tax refunds as part of a settlement with the Internal Revenue Service.

Reversed and remanded.

CALABRESI, Circuit Judge:

BACKGROUND

Appellee LTV Steel Company, Inc. ("LTV Steel") and its predecessor in interest have, at various times, owned and operated a number of coal mines. As a coal mine operator, LTV Steel was responsible under the Federal Coal Mine Health and Safety Act of 1969, 30 U.S.C. Section(s) 901-945, for the payment of black lung disability benefits to mine employees who contracted black lung disease, as well as to certain survivors of afflicted workers who died from the disease. See 30 U.S.C. Section(s) 921-922.

The Act requires employers covered by its provisions either to self-insure or to obtain outside insurance to cover their black lung obligations. See 30 U.S.C. Section(s) 933. A mine operator choosing to self-insure must maintain a surety bond in favor of the United States, guaranteeing that if the mine operator for any reason defaults on its payments, the company issuing the bond will pay those benefits up to the value of the bond. The Act further provides that the Department of Labor (DOL) will assume the responsibility for paying black lung benefits when the surety bond is exhausted. This responsibility, however, gives the government the right to get back from the mine operator whatever payments it has made. 26 U.S.C. Section(s) 9501(d)(1); 30 U.S.C. Section(s) 934(b)(1).

LTV Steel's predecessor in interest chose to self-insure, and in 1983, appellant Aetna Casualty & Surety Co. ("Aetna") issued a $5.5 million bond on its behalf. In 1985, LTV Steel was substituted as principal on the bond.

On January 17, 1986, the LTV Corporation and its affiliates ("the LTV Corporation"), filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C. Section(s) 101-1330. As required by the Bankruptcy Code, LTV Steel stopped paying black lung benefits. For several months, the DOL paid the benefits, and soon thereafter Aetna began paying under its bond. When Aetna had paid out the $5.5 million provided by the bond, the DOL resumed making the payments.

Throughout the course of the LTV Corporation's bankruptcy proceedings, Aetna has tried to get back the funds it paid on the bond covering part of LTV Steel's black lung liabilities. The insurance company early recognized that its most likely source of recovery lay in its right to be subrogated to any claim the DOL might have to set off its black lung payments against other moneys, such as tax refunds, that the government owed to LTV Steel. In 1987, Aetna filed a proof of claim on behalf of itself (as a subrogee to the DOL) and the DOL for all amounts that Aetna and the DOL had been obligated to pay on LTV Steel's account. The DOL also filed a proof of claim with respect to its own black lung payments.

At a certain point in the bankruptcy proceedings, the DOL and LTV Steel entered into a settlement agreement that fixed the government's claims for repayment of the black lung benefits at $23.6 million. Aetna objected to the settlement on the grounds that it risked extinguishing the insurance company's right to be repaid, since that right was derived from Aetna's position as a subrogee to the DOL's right to reimbursement. Both the bankruptcy court and the district court approved the settlement over Aetna's objections. In re Chateaugay Corp., No. 92-9278A (Bankr. S.D.N.Y. Oct. 27, 1992) (unpublished order), aff'd, In re Chateaugay Corp., No. 92 Civ. 8894 (KC) (S.D.N.Y. June 28, 1993) (unpublished order). We affirmed, but expressly noted that the settlement could have no adverse effect on Aetna's rights or claims. Chateaugay Corp. v. U.S. Dep't of Labor


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