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SUPREME COURT OF THE UNITED STATES

No. 93–1504

CELOTEX CORPORATION, PETITIONER v. BENNIE EDWARDS et ux.

on writ of certiorari to the united states court of appeals for the fifth circuit

[April 19, 1995]

Chief Justice Rehnquist delivered the opinion of the Court.

The United States Court of Appeals for the Fifth Circuit held that respondents should be allowed to execute against petitioner's surety on a supersedeas bond posted by petitioner where the judgment which occasioned the bond had become final. It so held even though the United States Bankruptcy Court for the Middle District of Florida previously had issued an injunction prohibiting respondents from executing on the bond without the Bankruptcy Court's permission. We hold that respondents were obligated to obey the injunction issued by the Bankruptcy Court.

In 1987 respondents Bennie and Joann Edwards filed suit in the United States District Court for the Northern District of Texas against petitioner Celotex (and others) alleging asbestos-related injuries. In April 1989 the District Court entered a $281,025.80 judgment in favor of respondents and against Celotex. To stay execution of the judgment pending appeal, Celotex posted a supersedeas bond in the amount of $294,987.88, with Northbrook Property and Casualty Insurance Company serving as surety on the bond. As collateral for the bond, Celotex allowed Northbrook to retain money owed to Celotex under a settlement agreement resolving insurance coverage disputes between Northbrook and Celotex.

The United States Court of Appeals for the Fifth Circuit affirmed, issuing its mandate on October 12, 1990, and thus rendering "final" respondents' judgment against Celotex. Edwards (Edwards I) v. Armstrong World Industries, Inc., 911 F. 2d 1151 (1990). That same day, Celotex filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Middle District of Florida. The filing of the petition automatically stayed both the continuation of "proceeding[s] against" Celotex and the commencement of "any act to obtain possession of property" of Celotex. 11 U. S. C. §§362(a)(1) and (3).

On October 17, 1990, the Bankruptcy Court exercised its equitable powers under 11 U. S. C. §105(a) and issued an injunction (the "Section 105 Injunction") to augment the protection afforded Celotex by the automatic stay. In pertinent part, the Section 105 Injunction stayed all proceedings involving Celotex "regardless of . . . whether the matter is on appeal and a supersedeas bond has been posted by [Celotex]." App. to Pet. for Cert. A—28. Respondents, whose bonded judgment against Celotex had already been affirmed on appeal, filed a motion pursuant to Federal Rule of Civil Procedure 65.1 in the District Court seeking permission to execute against Northbrook on the supersedeas bond. Both Celotex and Northbrook opposed this motion, asserting that all proceedings to enforce the bonds had been enjoined by the Bankruptcy Court's Section 105 Injunction. Celotex brought to the District Court's attention the fact that, since respondents had filed their Rule 65.1 motion, the Bankruptcy Court had reaffirmed the Section 105 Injunction and made clear that the injunction prohibited judgment creditors like respondents from proceeding against sureties without the Bankruptcy Court's permission:

"Where at the time of filing the petition, the appellate process between Debtor and the judgment creditor had been concluded, the judgment creditor is precluded from proceeding against any supersedeas bond posted by Debtor without first seeking to vacate the Section 105 stay entered by this Court." In re Celotex (Celotex I), 128 B. R. 478, 485 (Bkrtcy. Ct. MD Fla. 1991).

Despite the Bankruptcy Court's reaffirmation and clarification of the Section 105 Injunction, the District Court allowed respondents to execute on the bond against Northbrook.

Celotex appealed, and the Fifth Circuit affirmed. Edwards (Edwards II) v. Armstrong World Industries, Inc., 6 F. 3d 312 (1993). It first held that, because the appellate process for which the supersedeas bond was posted had been completed, Celotex no longer had a property interest in the bond and the automatic stay provisions of 11 U. S. C. §362 therefore did not prevent respondents from executing against Northbrook. Edwards II, supra, at 315–317. The Court then acknowledged that "[t]he jurisdiction of bankruptcy courts has been extended to include stays on proceedings involving third parties under the auspices of 28 U. S. C. §1334(b)," 6 F. 3d, at 318, and that the Bankruptcy Court itself had ruled that the Section 105 Injunction enjoined respondents' proceeding against Northbrook to execute on the supersedeas bond. Ibid. The Fifth Circuit nevertheless disagreed with the merits of the Bankruptcy Court's Section 105 Injunction, holding that "the integrity of the estate is not implicated in the present case because the debtor has no present or future interest in this supersedeas bond." Id., at 320. The Court reasoned that the Section 105 Injunction was "manifestly unfair" and an "unjust result" because the supersedeas bond was posted "to cover precisely the type of eventuality which occurred in this case, insolvency of the judgment debtor." Id., at 319. In concluding that the Section 105 Injunction was improper, the Fifth Circuit expressly disagreed with the reasoning and result of Willis v. Celotex Corp., 978 F. 2d 146 (CA4 1992), cert. denied, 507 U. S. ___ (1993), where the Court of Appeals for the Fourth Circuit, examining the same Section 105 Injunction, held that the Bankruptcy Court had the power under 11 U. S. C. §105(a) to stay proceedings against sureties on the supersedeas bonds. 6 F. 3d, at 320.

Celotex filed a petition for rehearing, arguing that the Fifth Circuit's decision allowed a collateral attack on an order of the Bankruptcy Court sitting under the jurisdiction of the Court of Appeals for the Eleventh Circuit. The Fifth Circuit denied the petition, stating in part that "we have not held that the bankruptcy court in Florida was necessarily wrong; we have only concluded that the district court, over which we do have appellate jurisdiction, was right." Id., at 321. Because of the conflict between the Fifth Circuit's decision in this case and the Fourth Circuit's decision in Willis, we granted certiorari. 511 U. S. ___. We now reverse.

Respondents acknowledge that the Bankruptcy Court's Section 105 Injunction prohibited them from attempting to execute against Northbrook on the supersedeas bond posted by Celotex. Brief in Opposition 6, n. 2 (recognizing that the Section 105 Injunction "was intended to, and did, enjoin collection attempts like those made by [respondents] against Northbrook in this case"). In GTE Sylvania, Inc. v. Consumers Union of United States, Inc., 445 U. S. 375, 386 (1980), we reaffirmed 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 the order." In GTE Sylvania, we went on to say:

"There is no doubt that the Federal District Court in Delaware had jurisdiction to issue the temporary restraining orders and preliminary and permanent injunctions. Nor were those equitable decrees challenged as only a frivolous pretense to validity, although of course there is disagreement over whether the District Court erred in issuing the permanent injunction. Under these circumstances, the CPSC was required to obey the injunctions out of respect for judicial process." Id., at 386–387 (internal quotation marks, citations, and footnote omitted).

This rule was applied in the bankruptcy context more than 60 years ago in Oriel v. Russell, 278 U. S. 358 (1929), where the Court held that turnover orders issued under the old bankruptcy regime could not be collaterally attacked in a later contempt proceeding. Respondents acknowledge the validity of the rule but contend that it has no application here. They argue that the Bankruptcy Court lacked jurisdiction to issue the Section 105 Injunction, though much of their argument goes to the correctness of the Bankruptcy Court's decision to issue the injunction rather than to its jurisdiction to do so.

The jurisdiction of the bankruptcy courts, like that of other federal courts, is grounded in and limited by statute. Title 28 U. S. C. §1334(b) provides that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U. S. C. §1334(b). The district courts may, in turn, refer "any or all proceedings arising under title 11 or arising in or related to a case under title 11 . . . to the bankruptcy judges for the district." 28 U. S. C. §157(a). Here, the Bankruptcy Court's jurisdiction to enjoin respondents' proceeding against Northbrook must be based on the "arising under," "arising in," or "related to" language of § §1334(b) and 157(a).

Respondents argue that the Bankruptcy Court had jurisdiction to issue the Section 105 Injunction only if their proceeding to execute on the bond was "related to" the Celotex bankruptcy. Petitioner argues the Bankruptcy Court indeed had such "related to" jurisdiction. Congress did not delineate the scope of "related to" jurisdiction, but its choice of words suggests a grant of some breadth. The jurisdictional grant in §1334(b) was a distinct departure from the jurisdiction conferred under previous acts, which had been limited to either possession of property by the debtor or consent as a basis for jurisdiction. See S. Rep. No. 95–-989, pp. 153–154 (1978). We agree with the views expressed by the Court of Appeals for the Third Circuit in Pacor, Inc. v. Higgins, 743 F. 2d 984 (1984), that "Congress intended to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate," id., at 994; see also H. Rep. No. 95–-595, pp. 43–48 (1977), and that the "related to" language of §1334(b) must be read to give district courts (and bankruptcy courts under §157(a)) jurisdiction over more than simply proceedings involving the property of the debtor or the estate. We also agree with that Court's observation that a bankruptcy court's "related to" jurisdiction cannot be limitless. See Pacor, supra, at 994; cf. Board of Governors v. MCorp Financial, 502 U. S. 32, 40 (1991) (stating that Congress has vested "limited authority" in bankruptcy courts).

We believe that the issue of whether respondents are entitled to immediate execution on the bond against Northbrook is at least a question "related to" Celotex' bankruptcy. Admittedly, a proceeding by respondents against Northbrook on the supersedeas bond does not directly involve Celotex, except to satisfy the judgment against it secured by the bond. But to induce Northbrook to serve as surety on the bond, Celotex agreed to allow Northbrook to retain the proceeds of a settlement resolving insurance coverage disputes between Northbrook and Celotex. The Bankruptcy Court found that allowing respondents—and 227 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 reorganization. It stated:

"[I]f the Section 105 stay were lifted to enable the judgment creditors to reach the sureties, the sureties in turn would seek to lift the Section 105 stay to reach Debtor's collateral, with corresponding actions by Debtor to preserve its rights under the settlement agreements. Such a scenario could completely destroy any chance of resolving the prolonged insurance coverage disputes currently being adjudicated in this Court. The settlement of the insurance coverage disputes with all of Debtor's insurers may well be the linchpin of Debtor's formulation of a feasible plan. Absent the confirmation of a feasible plan, Debtor may be liquidated or cease to exist after a carrion feast by the victors in a race to the courthouse." In re Celotex (Celotex II), 140 B. R. 912, 915 (MD Fla. 1992).

In light of these findings by the Bankruptcy Court, it is relevant to note that we are dealing here with a reorganization under Chapter 11, rather than a liquidation under Chapter 7. The jurisdiction of bankruptcy courts may extend more broadly in the former case than in the latter. Cf. Continental Illinois Nat. Bank & Trust Co. v. Chicago, R. I. & P. R. Co., 294 U. S. 648, 676 (1935). And we think our holding—that respondents' immediate execution on the supersedeas bond is at least "related to" the Celotex bankruptcy—is in accord with representative recent decisions of the Courts of Appeals. See American Hardwoods, Inc. v. Deutsche Credit Corp., 885 F. 2d 621, 623 (CA9 1989) (finding "related to" jurisdiction where enforcement of state court judgment by creditor against debtor's guarantors would affect administration of debtor's reorganization plan); cf. MacArthur Co. v. Johns-Manville Corp., 837 F. 2d 89, 93 (CA2) (noting that a bankruptcy court's injunctive powers under §105(a) allow it to enjoin suits that "might impede the reorganization process"), cert. denied, 488 U. S. 868 (1988); In re A. H. Robins Co., 828 F. 2d 1023, 1024–1026 (CA4 1987) (affirming bankruptcy court's §105(a) injunction barring products liability plaintiffs from bringing actions against debtor's insurers because such actions would interfere with debtor's reorganization), cert. denied sub nom., 485 U. S. 969 (1988).

Respondents, relying on our decision in Board of Governors v. MCorp Financial, 502 U. S. 32 (1991), contend that §1334(b)'s statutory grant of jurisdiction must be reconciled and harmonized with Federal Rule of Civil Procedure 65.1, which provides an expedited procedure for executing on supersedeas bonds. In MCorp, we held that the grant of jurisdiction in §1334(b) to district courts sitting in bankruptcy did not authorize an injunction against a regulatory proceeding, but there we relied on "the specific preclusive language" of 12 U. S. C. §1818(i)(1) which stated that "no court shall have jurisdiction to affect by injunction or otherwise the issuance or enforcement of any [Board] notice or order." MCorp, supra, at 39, 42. There is no analogous statutory prohibition against enjoining the maintenance of a proceeding under Rule 65.1. That Rule provides:

"Whenever these rules . . . require or permit the giving of security by a party, and security is given in the form of a bond or stipulation or other undertaking with one or more sureties, each surety submits to the jurisdiction of the court and irrevocably appoints the clerk of the court as the surety's agent upon whom any papers affecting the surety's liability on the bond or undertaking may be served. The surety's liability may be enforced on motion without the necessity of an independent action. . . ." Fed. Rule Civ. Proc. 65.1.

This rule outlines a streamlined procedure for executing on bonds. It assures judgment creditors like respondents that they do not have to bring a separate action against sureties, and instead allows them to collect on the supersedeas bond by merely filing a motion. Just because the rule provides a simplified procedure for collecting on a bond, however, does not mean that such a procedure, like the more complicated procedure of a full-fledged law suit, cannot be stayed by a lawfully entered injunction.

Much of our discussion dealing with the jurisdiction of the Bankruptcy Court under the "related to" language of §§1334(b) and 157(a) is likewise applicable in determining whether or not the Bankruptcy Court's Section 105 Injunction has "only a frivolous pretense to validity." GTE Sylvania, 445 U. S., at 386 (internal quotation marks and citation omitted). The Fourth Circuit has upheld the merits of the Bankruptcy Court's Section 105 Injunction, see Willis, 978 F. 2d, at 149–150, and even the Fifth Circuit in this case did not find "that the bankruptcy court in Florida was necessarily wrong." See Edwards II, 6 F. 3d, at 321. But we need not, and do not, address whether the Bankruptcy Court acted properly in issuing the Section 105 Injunction.

We have made clear that "`[i]t is for the court of first instance to determine the question of the validity of the law, and until its decision is reversed for error by orderly review, either by itself or by a higher court, its orders based on its decision are to be respected.'" Walker v. Birmingham, 388 U. S. 307, 314 (1967) (quoting Howat v. Kansas, 258 U. S. 181, 189–190 (1922)). If respondents believed the Section 105 Injunction was improper, they should have challenged it in the Bankruptcy Court, like other similarly situated bonded judgment creditors have done. See Celotex II, 140 B. R., at 912. If dissatisfied with the Bankruptcy Court's ultimate decision, respondents can appeal "to the district court for the judicial district in which the bankruptcy judge is serving," see 28 U. S. C. §158(a), and then to the Court of Appeals for the Eleventh Circuit. See §158(d). Respondents chose not to pursue this course of action, but instead to collaterally attack the Bankruptcy Court's Section 105 Injunction in the Federal Courts in Texas. This they cannot be permitted to do without seriously undercutting the orderly process of the law.

The judgment of the Court of Appeals, accordingly, is reversed.

It is so ordered.