Alexander v. The Travelers Indem. Co.

• Decision Date: 02 September 2022
• Docket Number: Civil Action 22-2177
• Parties: JOSEPHINE ALEXANDER v. THE TRAVELERS INDEMNITY COMPANY, et al.
• Court: U.S. District Court — Eastern District of Louisiana

JOSEPHINE ALEXANDER v. THE TRAVELERS INDEMNITY COMPANY, et al.

Civil Action No. 22-2177

United States District Court, E.D. Louisiana

September 2, 2022

SECTION M (1)

ORDER & REASONS

BARRY W. ASHE UNITED STATES DISTRICT JUDGE

Before the Court is a motion to remand filed by plaintiff Josephine Alexander.^[1] Defendants Century Indemnity Company (as successor to CCI Insurance Company, as successor to Insurance Company of North America) and Pacific Employers Insurance Company (collectively, the “Century Parties”), as the insurers of Reilly-Benton Company, Inc. (“Reilly-Benton”), respond in opposition.^[2] Alexander replies in further support of her motion.^[3] Having considered the parties' memoranda, the record, and the applicable law, the Court issues this Order & Reasons denying the motion to remand.

I. BACKGROUND

This case arises from personal injuries allegedly caused by exposure to asbestos. In June 2021, Alexander was diagnosed with asbestosis.^[4] Alexander alleges that she was secondarily exposed to asbestos fibers that her husband brought home on his clothing when he worked as an insulator for The Cajun Company at various industrial sites from 1970 through 1988.^[5] On May 27, 2022, Alexander filed this suit in the 29^th Judicial District Court, Parish of St Charles, State of Louisiana, against various premises owners and asbestos contractors, suppliers, manufacturers, and professional vendors, along with several insurance companies, asserting claims for negligence and strict liability.^[6] The Century Parties are named as the insurers of Reilly-Benton, which was a supplier of asbestos-containing construction materials to customers in the maritime and aerospace industries.^[7] On July 7, 2022, Alexander filed an amended petition adding claims for fraud and breach of good faith against the Century Parties and other insurers, alleging that agreements reached in Reilly-Benton's bankruptcy case among Reilly-Benton and its “liability insurers” altered the insurance contracts to the detriment of injured third-parties, like her.^[8] That same day, Alexander moved in state court to sever her claims against the Century Parties from the rest of her case, citing other cases in which the Century Parties moved for a stay or removed the action due to Reilly-Benton's bankruptcy, In re Reilly-Benton Co., No. 17-12870 (Bankr. E.D. La. filed Oct. 25, 2017).^[9]

On July 14, 2022, the Century Parties removed Alexander's claims against them to federal court pursuant to 28 U.S.C. § 1452(a) and Rule 9027 of the Federal Rules of Bankruptcy Procedure as related to Reilly-Benton's pending bankruptcy case within the meaning of 28 U.S.C. § 1334(b).^[10] The Century Parties also assert that the proceeds of their polices are property of Reilly-Benton's bankruptcy estate over which the federal court has jurisdiction pursuant to 28 U.S.C. § 1334(e).^[11]

II. PENDING MOTION

Alexander filed the instant motion to remand arguing that remand is required because the claims against the Century Parties do not fall within the scope of “related-to” subject-matter jurisdiction of 28 U.S.C. § 1334.^[12] Alexander argues that even if the claims are related to the Reilly-Benton bankruptcy case, mandatory abstention under the statute applies because (1) the action could not have been commenced in a United States court absent bankruptcy jurisdiction and (2) the action can be timely adjudicated in a state forum of appropriate jurisdiction.^[13] In the alternative, Alexander argues that equitable remand and permissive abstention should apply to this case.^[14]

In opposition, the Century Parties argue that this Court has subject-matter jurisdiction over the action under 28 U.S.C. § 1334.^[15] Specifically, the Century Parties contend that the Court has “related to” jurisdiction within the meaning of § 1334(b) because the limited proceeds of the liability policies issued to Reilly-Benton may be overcome by competing claims; therefore, the proceeds should be considered property of the bankruptcy estate.^[16] The Century Parties argue that mandatory abstention under § 1334(c) is not applicable because the automatic bankruptcy stay resulting from Reilly-Benton's chapter 7 bankruptcy case would preclude timely adjudication of the state-court action.^[17] Additionally, the Century Parties argue that, pursuant to § 1334(e)(1), the Court also has jurisdiction over the case because the proceeds of the policies they issued to Reilly-Benton are property of the estate.^[18]

III. LAW & ANALYSIS

A. “Related to” Jurisdiction and the Remand Standard

In bankruptcy cases, 28 U.S.C. § 1452(a) provides that a party may remove a claim in a civil action to a federal district court if that court has jurisdiction of such claim under 28 U.S.C. § 1334. Section 1334 states 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) (emphasis added). Although broad, the scope of “related to” jurisdiction is not “limitless.” Celotex Corp. v. Edwards, 514 U.S. 300, 307-08 (1995).

Prior to the confirmation of the bankruptcy plan, a proceeding is “related to” the bankruptcy case if the “‘outcome could conceivably have any effect on the estate being administered in bankruptcy.'” In re Galaz, 841 F.3d 316, 322 (5th Cir. 2016) (quoting In re Spillman Dev. Grp., Ltd., 710 F.3d 299, 304 (5th Cir. 2013)); see also In re GenOn Mid-Atlantic Dev., L.L.C., 42 F.4th 523, 534 (5th Cir. 2022) (“A proceeding relates to a bankruptcy case if ‘the outcome of that proceeding could conceivably have any effect' on the debtor's estate.”) (quoting In re Bass, 171 F.3d 1016, 1022 (5th Cir. 1999)). “‘“Related to” jurisdiction includes any litigation where the outcome could alter, positively or negatively, the debtor's rights, liabilities, options, or freedom of action or could influence the administration of the bankrupt estate.'” In re KSRP, Ltd., 809 F.3d 263, 266 (5th Cir. 2015) (quoting Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 386 (5th Cir. 2010)). A purpose of “related to” jurisdiction “‘is to force into the bankruptcy court suits to which the debtor need not be a party but which may affect the amount of property in the bankrupt estate.'” In re Zale Corp., 62 F.3d 746, 752 (5th Cir. 1995) (quoting Zerand-Bernal Grp., Inc. v. Cox, 23 F.3d 159, 161-62 (7th Cir. 1994)) (emphasis omitted).

Because federal courts have limited jurisdiction, the removal statute is strictly construed, and any ambiguities are construed against removal and in favor of remand. Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002). The party seeking removal has the burden of establishing that federal subject-matter jurisdiction exists and that removal was proper. Id.

B. Removal is Proper Because the Limited Proceeds of the Liability Policies May Be Overcome by Competing Claims and So They Are “Related to” the Bankruptcy Case

The determination whether the proceeds of an insurance policy belong to a debtor's bankruptcy estate must be made on a “fact-specific,” case-by-case basis. In re OGA Charters, L.L.C., 901 F.3d 599, 603 (5th Cir. 2018) (citing In re Edgeworth, 993 F.2d 51, 56 (5th Cir. 1993); In re Sfuzzi, Inc., 191 B.R. 664, 668 (Bankr. N.D. Tex. 1996)). The Fifth Circuit has held that when “a siege of tort claimants threaten[s] the debtor's estate over and above the policy limits” of liability insurance policies, the proceeds are classified as property of the estate. OGA Charters, 901 F.3d at 604. Such circumstances “give[] rise to an equitable interest of the debtor in having the proceeds applied to satisfy as much of those claims as possible.” Id. (citing Sosebee v. Steadfast Ins. Co., 701 F.3d 1012, 1022-23 (5th Cir. 2012); MacArthur Co. v. Johns-Manville Corp., 837 F.2d 89, 91-92 (2d Cir. 1988); In re Taylor Agency, Inc., 281 B.R. 354, 362-63 (Bankr. S.D. Ala. 2001)). To permit the opposite result “would ‘prevent the bankruptcy court from marshalling the insurance proceeds, and, along with the other assets, arranging for their distribution so as to maximize their ability both to satisfy legitimate creditor claims and to preserve the debtor's estate.'” Id. at 604-05 (quoting Tringali v. Hathaway Mach. Co., 796 F.2d 553, 560 (1st Cir. 1986)) (alteration omitted).

In OGA Charters, the Fifth Circuit concluded that the proceeds of a capped liability insurance policy constituted property of the debtor's estate when the competing claims of 49 tort claimants threatened to exhaust the limits of the liability insurance policy and impinge upon the debtor's estate. 901 F.3d at 904-05; see also Roe v. Cath. Charities Archdiocese, 2020 WL 6042327, at *4 (E.D. La. Oct. 13, 2020) (holding insurance proceeds to be property of the debtor's estate when the claims of 15 tort claimants, “with the potential for even more such claims,” threatened to exceed the aggregate limits of the four liability insurance policies at issue).

In the instant case, the Century Parties indicate that more than 18,600 asbestos claims were pending against Reilly-Benton at the time it filed bankruptcy.^[19] The Century Parties also represent that Reilly-Benton has been subject to more than 20,000 personal injury and wrongful death claims stemming from alleged exposure to asbestos or asbestos-containing products that the company sold.^[20] Alexander does not dispute these numbers. Like Alexander's claims here these tort claims are based on alleged exposure to asbestos or asbestos-containing products sold by Reilly-Benton.^[21]According to Reilly-Benton's bankruptcy trustee, of the nine applicable insurance policies issued by the Century Parties to Reilly-Benton, three have been exhausted,...