In re Advanced Cellular Systems
| Citation | 235 BR 713 |
| Decision Date | 06 July 1999 |
| Docket Number | 98-07438. Adversary No. 98-0078.,Bankruptcy No. 97-07437 |
| Parties | In re ADVANCED CELLULAR SYSTEMS, Debtor. In re Advanced Paging Systems, Corp., Debtor. Advanced Cellular Systems, Inc., Plaintiff, v. Jaime Mayol, Liquidation Receiver of El Fenix de Puerto Rico; Receivership El Fenix de Puerto Rico. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Puerto Rico |
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Carmen D. Conde Torres & Monsita Lecároz Arribas C. Conde & Assoc., Hato Rey, PR, for plaintiff.
Juan A. Moldes Rodríguez, Hato Rey, PR, for defendants.
Before the Court is the Motion to Dismiss and Brief in Support filed by Juan Antonio García, Insurance Commissioner of Puerto Rico ("Commissioner") and appointed liquidator of El Fénix de Puerto Rico, Compañía de Seguros ("El Fénix"). The Commissioner argues that this Court does not have jurisdiction to entertain this adversary proceeding because on September 16, 1997, Puerto Rico's Court of First Instance issued an order declaring El Fénix an insolvent insurer and appointing the Commissioner as liquidator. According to Section 4021 of the Insurance Code of Puerto Rico, P.R.Laws Ann. tit. 26, § 4021, when an insurance company is declared insolvent and placed into state delinquency proceedings by the state insurance commissioner, "no action at law shall be brought against the insurer or the liquidator, whether in Puerto Rico or elsewhere." Hence, the Court of First Instance is vested with exclusive original jurisdiction over all delinquency proceedings. Based on this provision, the Commissioner contends that this Court does not have jurisdiction to entertain this matter. The Commissioner argues that Debtor/Plaintiff Advanced Cellular Systems, Inc. ("Advanced Cellular") must present its claim against El Fénix within the liquidation proceeding. Moreover, the Commissioner holds that the Bankruptcy Code does not apply to the instant case because it was reverse preempted by the Insurance Code of Puerto Rico under the McCarran-Ferguson Act.
Advanced Cellular filed an Opposition to El Fénix's Motion to Dismiss claiming that "the Complaint is merely a claim to recover a certificate of deposit property of the Debtor from the person (institution) who represents El Fénix, as actual holder of said certificate" under Sections 542 and 543 of the Bankruptcy Code. Thus, the Complaint is not a monetary claim against an insurance company covered under state insurance law and protected by the McCarran-Ferguson Act. Consequently, the Bankruptcy Court has jurisdiction over this adversary proceeding.
The controversy between the parties hinges on determining whether this Court has jurisdiction to entertain this matter and order the turnover of property under Sections 542 and 543 of the Bankruptcy Code, 11 U.S.C. §§ 542 & 543, or if such determination should be made within the liquidation process of the insurance company pursuant to the Insurance Code of Puerto Rico in an administrative proceeding.
On May 21, 1996, the Commissioner issued a financial bond in the amount of $450,000.00 in favor of the Puerto Rico Telephone Company ("PRTC") at Advanced Cellular's request. As collateral for the financial bond, Advanced Cellular tendered El Fénix a certificate of deposit in the amount of $178,738.38. The bond expired on May 21, 1997. From May 21, 1996 to May 21, 1997, PRTC did not make a claim upon the referred bond.
On September 16, 1997, Puerto Rico's Court of First Instance issued an order in the case of García v. El Fénix, supra, declaring El Fénix an insolvent insurer and appointing the Insurance Commissioner as liquidator. As liquidator, the Commissioner was authorized to take immediate possession of all the assets of the insolvent insurer and to collect all of its credits. Likewise, the Court ordered that all pending claims against El Fénix be dismissed and remanded to the liquidation proceeding. On April 3rd, 1998, PRTC filed a claim before the Commissioner for $2,232,593.27 under the bond issued by El Fénix.
On August 5th, 1998, Advanced Cellular filed a complaint against the Commissioner as liquidation receiver of El Fénix requesting the turnover of the certificate of deposit pursuant to sections 542 and 543 of the Bankruptcy Code, 11 U.S.C. §§ 542 & 543. On August 6, 1998, the Commissioner was served with the summons and copy of the complaint. On September 10, 1998, Advanced Cellular filed a Motion for Entry of Default because the Commissioner failed to file a responsive answer within thirty (30) days after issuance of the summons as required by Rule 7012 of the Federal Rules of Bankruptcy Procedure.
On September 11, 1998, the Commissioner filed a Motion to Dismiss arguing that the Bankruptcy Court does not have jurisdiction to entertain this adversary proceeding. The Commissioner contends that when an insurance company is under liquidation, it cannot be made a party in an adversary proceeding before the Bankruptcy Court because it would violate the McCarran-Ferguson Act. Moreover, El Fénix argues that the complaint disrupts the orderly and centralized liquidation of the insurance company.
On October 2, 1998, Advanced Cellular filed an Opposition to the Commissioner's Motion to Dismiss and a Request for Order Entering Default. Advanced Cellular argues that the Commissioner's motion is untimely and should be denied. Moreover, Advanced Cellular claims that the McCarran-Ferguson Act does not apply to the case at bar because the complaint "is merely a claim to recover a certificate of deposit property of the Debtor from the person (institution) who represents El Fénix, as actual holder of said certificate," and "is not an attempt to `regulate the business of insurance' nor does it deal with matters `regulated by the insurance business.'" Advanced Cellular also holds that this Court has jurisdiction because the complaint is a core proceeding. Advanced Cellular explains that the certificate of deposit is property of the bankruptcy estate because "it has been widely and repeatedly held that a cash deposit provided as collateral is and remains property of the bankruptcy estate." Finally, Advanced Cellular asserts that the recovery of said certificate is of crucial importance to the Plaintiff's bankruptcy estate.
On October 29, 1998, the Commissioner filed its Reply to Advanced Cellular's Opposition to the Motion to Dismiss. The Commissioner contends that the instant case meets the criteria set forth in U.S. Department of the Treasury v. Fabe, 508 U.S. 491, 113 S.Ct. 2202, 124 L.Ed.2d 449 (1993), for the application of the McCarran-Ferguson Act. First, the Insurance Code of Puerto Rico is a law enacted by the State for the purpose of regulating the business of insurance and thus, protected by the McCarran-Ferguson Act. Secondly, Advanced Cellular is proposing this Court to construe an act of Congress, namely the Bankruptcy Code, to invalidate, impair or supersede the state law. Third, the Bankruptcy Code was not promulgated as an act to regulate the business of insurance. Since all the factors for the application of the preemption clause of the McCarran-Ferguson Act were met, the Commissioner claims that the complaint must be dismissed.
On November 9th, 1998, Advanced Cellular filed a Surreply to the Commissioner's Reply to the Opposition to Motion to Dismiss. Advanced Cellular contends that the complaint constitutes an in rem action to recover property of the estate under sections 542 and 543 of the Bankruptcy Code. Thus, granting the Commissioner's Motion to Dismiss will constitute an illegal taking of Debtor's property. Advanced Cellular also argues that PRTC does not have a legitimate claim against the bond because it filed the claim almost a year after it had expired. Moreover, Advanced Cellular reiterates that the McCarran-Ferguson Act does not apply to the instant case because "the complaint has nothing to do with the insurance business."
On February 17, 1999, the Court held a pretrial conference and granted both parties fifteen (15) days to supplement their briefs. Accordingly, on March 25, 1999, Advanced Cellular filed a Motion to Supplement the Opposition to the Motion to Dismiss. Advanced Cellular argues that the case at bar does not meet the criteria set forth in U.S. Department of the Treasury v. Fabe, supra, for the application of the McCarran-Ferguson Act. First, the liquidation process of El Fénix will not be impaired by the turnover of Plaintiff's property to the bankruptcy estate. Second, the Insurance Code of Puerto Rico is a provision that does not directly or indirectly regulate policyholders and is not necessary for the protection of policyholders.
Finally, on March 31, 1999, the Commissioner filed a Motion to Supplement its Motion to Dismiss. The Commissioner claims that according to the terms of the agreement between it and Advanced Cellular, El Fénix was to retain whatever property or value was given as a collateral security. Moreover, El Fénix was not to be discharged from liability under the bond until proper evidence of the discharge from liability was furnished to El Fénix. The Commissioner also claims that since PRTC is the beneficiary of the bond issued by El Fénix and a claim was made against said bond before the expiration date of the same, the certificate of deposit claimed in the complaint, which serve as collateral to the bond, must be regarded as part of El Fénix estate. The Commissioner reiterated that since all three criteria for the application of the preemption clause of the McCarran-Ferguson Act were met in this case, the complaint should be dismissed.
It has been noted that bankruptcy proceedings and insurance company insolvency proceedings are ...
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