Logan v. Westchester Fire Insurance Company (In re PRS Insurance Group, Inc.), Case No. 00-4070 (MFW), Adv. Pro. No. 11-50467 (MFW) (March 30, 2011) (J. Walrath)
PRS Insurance Group, Inc. (“PRS”), along with certain of its subsidiaries, commenced cases under Chapter 11 of the Bankruptcy Code on January 19, 2001. Sean C. Logan serves as Trustee in the cases and, subsequent to the initial filing, the Trustee commenced chapter 11 cases on behalf of certain off-shore affiliates of PRS, including Enterprise Group Insurance Company Ltd. (“EGIC”). On March 2, 2007, the Court entered an order confirming the Joint Debtors’ Plan of Liquidation, which became effective on August 24, 2007.
On March 16, 2010, the Trustee, on behalf of EGIC, filed suit in the District Court for the Northern District of Ohio against Westchester Fire Insurance Company and ACE INA Holdings, Inc. (the “Defendants”) for breach of two reinsurance agreements and bad faith refusal to pay claims. The action was transferred to the District Court for the District of Delaware on October 28, 2010. The Trustee filed a motion to refer the action to the Bankruptcy Court on December 12, 2010, and the District Court granted the Trustee’s request but limited the referral to the determination of whether the action constitutes a core proceeding under the Bankruptcy Code. Though the Trustee asserted that the matter was a core proceeding under 28 U.S.C. § 157(b)(2)(E) because it is an “[order] to turn over property of the estate,” the Bankruptcy Court agreed with the Defendants that the matter was non-core.
Discussion:
Bankruptcy court jurisdiction is divided into “core” and “non-core” jurisdiction. Cases under title 11, proceedings arising under title 11, and proceedings arising in a case under title 11 are core proceedings. However, proceedings that are merely “related to” a case under title 11 are non-core. The Defendants argued, and the Court agreed, that the proceeding at bar was not within the Court’s jurisdiction “under” title 11 or “arising under” title 11 as the action was separate from the bankruptcy petitions and did not involve any steps in the bankruptcy cases.
Defendants further argued, and the Court again agreed, that the cause of action did not fall within the Court’s “arising in” jurisdiction, citing numerous courts that had held that an action by a debtor or trustee against the debtor’s insurer is a non-core proceeding. See, e.g., In re United States Brass Corp., 110 F.3d 1261, 1268 (7th Cir. 1997); Allied Prod. Corp. v. Hartford Accident & Indem. Co., 2003 U.S. Dist. LEXIS 2596, *5 (N.D. Ill. Feb. 24, 2003); In re Ramex Int’l, Inc., 91 B.R. 313, 315 (E.D. Pa. 1988); G-1 Holdings, Inc. v. Hartford Accident & Indem. Co. (In re G-1 Holdings, Inc.), 278 B.R. 376, 380 (Bankr. D.N.J. 2002). Reasoning that the action was for breach of two reinsurance agreements and bad faith refusal to pay claims – neither of which involved a dispute that could arise only in the context of a bankruptcy case – the Court declined to find core jurisdiction.
Finally, the Court was unpersuaded by the Trustee’s argument that the action may impact the size of the liquidating trust and remarked that “the Court may not even have ‘related to’ jurisdiction over the Trustee’s action” because “a court may only exercise jurisdiction [post-confirmation] where a claim has ‘a close nexus to the bankruptcy plan or proceeding’ and the matter at issue ‘affects the interpretation, implementation, consummation, execution, or administration of a confirmed plan or incorporated litigation trust agreement.’” “The mere potential to increase the assets of a post-confirmation trust is insufficient to establish the required ‘close nexus.’”
Accordingly, for the reasons set forth above, the Court held that the proceeding was non-core.