AIG Eur., S.A. v. Sears Holding Corp. (In re Sears Holding Corp.)

• Docket Number: Case No. 18-23538 (SHL) (Jointly Administered),Adv. Pro. No. 23-07004 (SHL)
• Decision Date: 03 April 2024
• Citation: 659 B.R. 236
• Parties: IN RE SEARS HOLDING CORPORATION, et al., Debtors. AIG Europe, S.A. and American International Group UK Limited, Plaintiffs, v. Sears Holding Corporation, Transform Holdco LLC, and Santa Rosa Mall, LLC, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

659 B.R. 236

IN RE SEARS HOLDING CORPORATION, et al., Debtors.

AIG Europe, S.A. and American International Group UK Limited, Plaintiffs, v. Sears Holding Corporation, Transform Holdco LLC, and Santa Rosa Mall, LLC, Defendants.

Case No. 18-23538 (SHL) (Jointly Administered)

Adv. Pro. No. 23-07004 (SHL)

United States Bankruptcy Court, S.D. New York

Signed April 3, 2024

ZEICHNER ELLMAN & KRAUSE LLP, Attorneys for AIG Europe, S.A. and American International Group UK Limited, 1211 Avenue of the Americas, New York, New York 10036, By: Michael S. Davis, Esq., Bryan D. Leinbach, Esq.

HINSHAW & CULBERTSON LLP, Attorneys for AIG Europe, S.A. and American International Group UK Limited, 800 Third Avenue,13th Floor, New York, New York 10022, By: Courtney Murphy, Esq.

WEIL, GOTSHAL & MANGES LLP, Attorneys for Sears Holding Corporation, 767 Fifth Avenue, New York, New York 10153, By: Garret A. Fail, Esq., Gregory Silbert, Esq., Jennifer Brooks Crozier, Esq., Fredrick T. Rhine, Esq., Patrick Lyons, Esq.

FERRAIUOLI, LLC, Attorneys for Santa Rosa Mall, LLC, 221 Ponce de León Avenue, 5^th Floor, San Juan, Puerto Rico 00917, By: Sonia E. Colón, Esq., Gustavo A. Chico-Barrios, Esq.

RIOS GAUTIER & CESTERO, C.S.P Attorneys for Santa Rosa Mall, LLC, 27 Calle González Giusti Suite 300, Guaynabo, Puerto Rico 00968-3076, By: Carlos R. Rios Gautier, Esq.

ORLANDO FERNÁNDEZ LAW OFFICES, P.S.C., Attorneys for Santa Rosa Mall, LLC, 27 Calle González Giusti, Suite 300, Guaynabo, Puerto Rico 00968-3076, By: Orlando Fernández, Esq.

MEMORANDUM OF DECISION

SEAN H. LANE, UNITED STATES BANKRUPTCY JUDGE

Before the Court is the motion of AIG Europe, S.A. ("AESA") and AIG UK Limited ("AIG UK" and, together with AESA, the "Plaintiffs") seeking a preliminary injunction against Defendant Santa Rosa Mall, LLC ("SRM") to enjoin SRM from commencing or prosecuting litigation against Plaintiffs in any court other than this one. See Motion for Preliminary Injunction and Preliminary Restraining Order [ECF No. 2] (the "PI Motion").¹ SRM has opposed the PI Motion and requested dismissal of Plaintiffs' complaint or, in the alternative, to transfer venue for this dispute to Puerto Rico.² See SRM Venue Motion. Defendant Sears Holding Corporation ("Sears") supports Plaintiffs' request for injunctive relief.³ See Sears Mem. in Support. Both Plaintiffs and Sears filed replies in further support of the PI Motion and in opposition to the Venue Motion.⁴ See Plaintiffs' Reply; see also Sears Reply. SRM then filed its own reply.⁵ See SRM Reply.

For the reasons set forth below, the Court grants the PI Motion and denies the SRM Venue Motion.

Background

The history of the dispute between these parties is lengthy, and the Court will recite only so much of the background of the dispute that is relevant to the current motions. Sears, Roebuck de Puerto Rico Inc. (now known as SR - Rover de Puerto Rico) is a joint Debtor in the main bankruptcy proceeding. Many decades before these bankruptcies, Santa Rosa Shopping Center Inc. ("Landlord")⁶ and Sears, Roebuck de Puerto Rico, Inc. ("Tenant") entered into a lease under which the Tenant agreed to lease premises from the Landlord to build and operate a department store, identified as Store No. 1915, in Bayamón, Puerto Rico. SRM Venue Motion, Ex. 5; First Amended Adversary Complaint [ECF No. 6] (the "Complaint") ¶ 20.⁷ The terms of the lease provided, among other things, that the Tenant was required to maintain insurance for the premises (which included insurance to cover losses due to windstorm) "for the benefit of [SRM] and Tenant." SRM Venue Motion Ex. 5, Section 6.01. If damage rendered the building unable to be occupied, the Tenant had an obligation to restore or rebuild the building. SRM Venue Motion Ex. 5, Section 6.03(b)(2). The lease also required that the sums recovered by SRM or the Tenant under the insurances policies obtained by SRM or the Tenant were to be paid into a special account in the name of the Landlord. SRM Venue Motion Ex. 5, Section 6.03.

In the fall of 2017, Hurricanes Irma and Maria caused extensive damage to the premises. Compl. ¶ 36. At the time of the hurricanes, Sears had a contract of insurance, policy number PTNAM1701557 (the "Policy"), to cover all risk of physical loss or damages up to a limit of $440 million.⁸ See generally, Compl. Ex. B. The Policy was issued by a market of insurers (the "Underwriters"), a group which included the Plaintiffs. Id. at ¶ 7, 25. The Policy listed as named insured "[t]he Sears Holding Corporation and any subsidiary . . . and any other party for which the insured has the responsibility for providing insurance." Compl. Ex. B. The Policy contract further stated that "[l]oss, if any, shall be adjusted with and payable to Sears Holding Corporation or as directed by it." Id. In conjunction with the Policy, Aon Risk Services Central, Inc. ("Aon") issued a Certificate of Property Insurance that listed as the insured Sears Holding Corporation but also stated that "Santa Rosa Mall, LLC, 3 Pals Carib, LLC and Commercial Centers Management, LLC are included as loss payee in accordance with the policy provisions of the property policy." Id., SRM Venue Motion Ex. 6. Asserting that it was a loss payee or additional insured under the Policy, SRM attempted to secure payment under the Policy for damage caused by the hurricanes and repeatedly requested information regarding the status of the claim under the Policy. See SRM Venue Motion Ex. 2, Ex. 3.

In October 2018, Sears and affiliated entities filed these chapter 11 cases. See, e.g., ECF No. 1, Case No. 18-23538. After the commencement of these bankruptcy cases, SRM continued its efforts to obtain payment under the Policy, contacting Plaintiffs directly to assert SRM's right to payment and requesting information about claims under the Policy. See, e.g., SRM Venue Motion Ex. 3 (including emails and letters to Plaintiffs from SRM requesting the status of the claim). In April 2019, Sears opted to reject its lease with SRM as part of the bankruptcy proceedings. See Notice of Rejection of Certain Unexpired Leases of Nonresidential Real Property [ECF No. 3449, Case No. 18-23538]. The Court subsequently approved that rejection. See Order Approving the Rejection of Unexpired Leases of Nonresidential Real Property [ECF No. 3884, Case No. 18-23538].

During the pendency of these bankruptcy cases, SRM sought various relief to protect its rights relating to the Policy on the premises. For example, SRM filed motions for relief from the automatic stay imposed by the bankruptcy proceedings so that it could proceed in litigation elsewhere or, in the alternative, to declare that the insurance proceeds from the Policy are not part of the bankruptcy estates. See ECF Nos. 3475, 5124, Case No. 18-23538; see also Motion for Entry of Order for the Debtor to: (I) Disclose Status of Insurance Claim; (II) Deposit Any Insurance Proceed Into Separate Account to be Used Exclusively to Repair the Insured Demised Premises; and (III) Alternatively, Find the Automatic Stay Inapplicable To the Insurance Proceeds [ECF No. 1240, Case No. 18-23538]. SRM's motions for relief from the automatic stay were ultimately resolved by stipulation between Sears and SRM, under which the parties agreed to allow SRM to proceed with any action against Aon while SRM would withdraw its motions for stay relief. See Stipulation, Agreement, and Order between the Debtors and Santa Rosa Mall, LLC Granting Limited Relief from the Automatic Stay [ECF No. 5537, Case No. 18-23538]. SRM also initiated an adversary proceeding against Sears and the Tenant to seek damages for breach contract, unjust enrichment, aiding and abetting fraudulent misrepresentation, and to seek a declaratory judgment that the insurance proceeds are not part of the estate or that SRM had an equitable lien on the proceeds. See Santa Rosa Mall LLC v. Sears Holding Corp., Adv. Pro. No. 19-08266 (the "SRM Adversary"). SRM and Sears ultimately entered into a Stipulation of Voluntary Dismissal without Prejudice to discontinue the SRM Adversary. See ECF No. 11, Case No. 19-08266.

Ultimately, Sears received payment in the amount of $46,332,916 under the Policy. Compl. ¶ 55. To resolve a dispute regarding the extent of certain losses, the Underwriters entered into a settlement agreement with Sears in or around January 2019. Id. ¶ 51; Ex. A (the "Settlement Agreement"). Under the Settlement Agreement, the Underwriters agreed to pay an additional $13,260,122 in exchange for Sears' agreement to release the Underwriters from liability for any and all claims that were made or could be made under the Policy related to the hurricanes. Id. ¶ 54, Ex. A. In addition, Sears agreed to indemnify the Underwriters for any claims made under the Policy. Id. In the Settlement Agreement, Sears also represented that it was the only party in interest with regard to the hurricane losses and claims under the Policy. Id. ¶ 53. SRM objected to the Settlement Agreement, arguing that the settlement was not valid because it had not first been approved by the Bankruptcy Court under Bankruptcy Rule 9019. See Hr'g Tr. 66:25-67:3 (February 24, 2020) [ECF No. 8464, Case No. 18-23538]. But this Court rejected that argument, ruling that the Settlement Agreement was valid and properly entered into as an ordinary course transaction. Id. at 67:5-69:8; see also Hr'g Tr. 123:11-19 (April 23, 2020) [ECF No. 7892, Case No. 18-23538]. This conclusion was affirmed by the District Court. See Santa Rosa Mall, LLC v. Sears Holdings Corp., 2021 WL 4429507 at *4 (S.D.N.Y. Sept. 27, 2021).

In October 2019, the Court entered an order (the "Confirmation Order") confirming Sears' Modified Second Amended Joint Chapter 11 Plan of Sears Holding Corporation and Its Affiliated Debtors (the "Plan"). See ECF No. 5370, Case No. 18-23538. The Plan specifically provided that assets of the Debtor would vest in a liquidating trust; those assets would then be used to make distributions to creditors. Plan §§...