Celotex Corp. v. Edwards, 514 U.S. 300 (1995)

Celotex Corporation v. Edwards

No. 93-1504

Argued December 6, 1994
Decided April 19, 1995
514 U.S. 300

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Syllabus

The United States District Court for the Northern District of Texas entered a judgment in favor of respondents and against petitioner Celotex Corp. To stay execution of the judgment pending appeal, petitioner posted a supersedeas bond, with an insurance company (Northbrook) serving as surety. After the Fifth Circuit affirmed the judgment, Celotex filed for Chapter 11 bankruptcy in the Bankruptcy Court for the Middle District of Florida. Exercising its equitable powers under 11 U.S.C. § 105(a), the Bankruptcy Court issued an injunction, which, in pertinent part, prohibited judgment creditors from proceeding against sureties without the Bankruptcy Court’s permission. Respondents thereafter filed a motion pursuant to Federal Rule of Civil Procedure 65.1 in the Northern District of Texas seeking permission to execute against Northbrook on the bond. The District Court granted the motion. The Fifth Circuit affirmed and later denied Celotex’ petition for rehearing, rejecting the argument that its decision allowed a collateral attack on the Bankruptcy Court order.

Held: Respondents must obey the Bankruptcy Court’s injunction. The well established rule that

persons subject to an injunctive order issued by a court with jurisdiction are expected to obey that decree until it is modified or reversed, even if they have proper grounds to object to that order,

GTE Sylvania, Inc. v. Consumers Union of United States, Inc., 445 U.S. 375, 386, applies to bankruptcy cases, Oriel v. Russell, 278 U.S. 358. A bankruptcy court has jurisdiction over proceedings "arising under," "arising in," or "related to" a Chapter 11 case. 28 U.S.C. §§ 1334(b) and 157(a). The "related to" language must be read to grant jurisdiction over more than simply proceedings involving the debtor’s property or the estate. Respondents’ immediate execution on the bond is at least a question "related to" Celotex’ bankruptcy. While the proceeding against Northbrook does not directly involve Celotex, the Bankruptcy Court found that allowing respondents and other bonded judgment creditors to execute immediately on the bonds would have a direct and substantial adverse effect on Celotex’ ability to undergo a successful Chapter 11 reorganization. The fact that Federal Rule of Civil Procedure 65.1 provides an expedited procedure for executing on supersedeas bonds does not mean that such a procedure cannot be stayed by a lawfully entered injunction. Board of Governors v. MCorp Financial, 502 U.S. 32, distinguished. The issue whether the Bankruptcy Court properly issued the injunction need not be addressed here. Since it is for the court of first instance to determine the question of the validity of the law, and since its orders are to be respected until its decision is reversed, respondents should have challenged the injunction in the Bankruptcy Court rather than collaterally attacking the injunction in the Texas federal courts. Pp. 306-313.

6 F.3d 312, reversed.

REHNQUIST, C.J., delivered the opinion of the Court, in which O’CONNOR, SCALIA, KENNEDY, SOUTER, THOMAS, and BREYER, JJ., joined. STEVENS, J., filed a dissenting opinion, in which GINSBURG, J., joined, post, p. 313.