In re Agway, Inc.
| Decision Date | 15 December 2006 |
| Docket Number | No. 02-65872.,No. 02-65873.,No. 02-65877.,No. 02-65876.,No. 02-65875.,No. 02-65874.,02-65872.,02-65873.,02-65874.,02-65875.,02-65876.,02-65877. |
| Citation | 357 B.R. 195 |
| Parties | In re AGWAY, INC., Debtor. In re Agway General Agency, Inc., Debtor. In re Brubaker Agronomic Consulting Service LLC, Debtor. In re Country Best Adams, LLC, Debtor. In re Country Best-Deberry LLC, Debtor. In re Feed Commodities International LLC, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of New York |
Obermayer Rebmann Maxwell & Hippel, LLP, Deirdre M. Richards, Lawrence J. Tabas, of counsel, Philadelphia, PA, for Reliance Insurance Company.
Menter, Rudin & Trivelpiece, P.C., Jeffrey A. Dove, of counsel, Syracuse, NY, for Debtor.
MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
Before this Court is a motion filed by Reliance Insurance Company (In Liquidation) and its Statutory Liquidator (collectively, "Reliance")1 on March 23, 2006, seeking an The Liquidating Trustee filed its objection to Reliance's motion on April 27, 2006.
The Court heard the motion at its regular motion term in Utica, New York on July 20, 2006. Upon conclusion of the July 20th hearing, the Court indicated that it would take the matter under submission without the need for further briefing.
The Court has core jurisdiction over the parties and subject matter of this contested matter pursuant to 28 U.S.C. §§ 1334, 157(a),(b)(1), (b)(2)(A), (B), and (0).
Agway, headquartered in DeWitt, New York, was founded as an agricultural cooperative in 1964. On October 1, 2002, Agway filed for bankruptcy protection pursuant to chapter 11 of the Unites States Bankruptcy Code, 11 U.S.C. §§ 101-1330 ("Code"). In an Order dated March 6, 2003, the Court established May 30, 2003 as the last day on which creditors could file proofs of claim in this case. On May 30, 2003, Reliance filed an allegedly partially-secured proof of claim (no. 4179) against the Debtors in the amount of $20,704,546. The Agway Liquidating Trust was established by this Court's Order, dated April 28, 2004, which also confirmed the Debtors' Second Amended Joint Plan of Liquidation, and appointed D. Clark Ogle as Liquidating Trustee ("LT").
On August 24, 2004, the LT filed its motion for an order expunging Reliance's claim, maintaining that Reliance was oversecured to the extent of $11,010,541.50, and that Reliance had no basis for an unsecured claim against Agway.2 On March 23, 2006, Reliance filed the motion currently before this Court, and the LT filed its opposition thereto on April 27, 2006.
Both parties appear to agree that Reliance provided insurance coverage to the Debtors between June 30, 1996 and June 30, 2000 for workers compensation, liability, primary casualty and property. Each of the policies issued by Reliance to Agway contained a $1 million deductible provision. For any, claims that Reliance paid within or below the $1 million deductible amount, as well as any unpaid premiums and other expenses, Reliance would draw down upon various letters of credit and surety bonds Agway provided as security to Reliance for that purpose. On its proof of claim (no. 4179), Reliance listed property with a value of $18,319,481.00 available to secure its $20,704,546.00 claim. See LT's objection to Reliance's motion, Ex. "A".
Reliance asserts that pursuant to 15 U.S.C. §§ 1011-1015 (2006) (known as the "McCarran-Ferguson Act"), the Pennsylvania Insurance Law reverse-preempts section 502 of the Code and 28 U.S.C. § 157, thus depriving this Court of jurisdiction to rule on the LT's motion to expunge Reliance's claim against the Debtors.3
Reliance argues that, following the four-part test set out in In re Rubin, 160 B.R. 269, 279 (Bankr.S.D.N.Y.1993), a federal statute will be reverse-preempted by a state insurance law (in this case the Pennsylvania Insurance Law) pursuant to the McCarran-Ferguson Act, if (a) the federal statute does not specifically relate to the business of insurance, (b) the state law was enacted for the purpose of regulating insurance activities, (c) the activities which brought about the cause of action are the "business of insurance," and (d) application of the federal statute would impair or supersede the state law regulating insurance. Each of these criteria must be met in order for the federal statute to be precluded, or reverse-preempted, by a state insurance law pursuant to the McCarran-Ferguson Act. See Id.
Reliance argues that the four-part McCarran-Ferguson Act test is met here, and the Pennsylvania Insurance Law reverse-preempts or precludes the federal law in this case because (a) the Code does not specifically relate to the business of insurance, (b) the Pennsylvania Insurance Law was enacted for the purpose of regulating insurance activities, (c) Reliance's claim is based upon Agway's failure to perform on its insurance contract with Reliance. It asserts that failure to perform on an insurance contract is the business of insurance and, hence, the activities which brought about the cause of action are the business of insurance, and (d) that application of Code § 502 and 28 U.S.C. § 157, which mandate jurisdiction in this Court, would impair the Pennsylvania Insurance Law, which confers jurisdiction over the claim in the Pennsylvania Court.
Reliance also maintains that the doctrine of "first assuming jurisdiction," as set out in Penn General Casualty Co. v. Pennsylvania ex rel. Schnader, 294 U.S. 189, 55 S.Ct. 386, 79 L.Ed. 850 (1935), dictates that the Pennsylvania Commonwealth Court has jurisdiction in this matter. In Penn General Casualty Co., the Supreme Court held that "to protect the judicial process of the court first assuming jurisdiction, the principle, applicable to both federal and state courts, is established that the court first assuming jurisdiction over the property may maintain and exercise that jurisdiction to the exclusion of the other." Id. at 195, 55 S.Ct. 386.
In October 2001, prior to Agway's Chapter 11 petition, the Commonwealth Court of Pennsylvania first assumed jurisdiction over this matter by terminating Reliance's statutory rehabilitation, and placing it into liquidation. The Commonwealth Court also appointed Ms. Koken as liquidator, asserted in rem jurisdiction over all assets of Reliance, and imposed exclusive jurisdiction over all determinations of the validity and amount of claims against Reliance. See ¶ 15, Order of Liquidation, October 3, 2001, Commonwealth Court of Pennsylvania, Reliance Mem. of Law, Ex. "B." Reliance maintains that the Pennsylvania court's assertion of jurisdiction in the Reliance Order of Liquidation mandates that this Court yield to the Pennsylvania court's jurisdiction pursuant to the doctrine of "first assuming jurisdiction" as set forth in Penn General Casualty Co.
Reliance also argues that "when it has appeared before this Court, Reliance has always contended that this Court does not have jurisdiction over the claim" and that it only filed its claim in order to fulfill its "fiduciary obligations and responsibility in the face of a bar date." Reliance Mem. of Law, ¶ 41.
In the alternative, Reliance argues that even if this Court has jurisdiction over the claim, it should abstain from ruling on the LT's motion. Under Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943), abstention is proper when it would avoid "delay, misunderstanding of local law, and needless federal conflict with the state policy . . ." Id. at 327, 63 S.Ct. 1098.
Under the Burford doctrine, where timely and adequate state court review is available, a federal court must not interfere with state administrative proceedings: (1) when there are difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case at bar; or (2) where the exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.
American Centennial Ins. Co. v. Armco, Inc., (S.D.N.Y.1990) 746 F.Supp. 350, 354-55 (quoting New Orleans Pub. Serv. v. Council of New Orleans, 491 U.S. 350, 361, 109 S.Ct. 2506, 105 L.Ed.2d 298 (1989)).
Reliance argues that the Burford test is met in this case because for this Court to exercise jurisdiction over Reliance's claim would "violate the public policy of Pennsylvania and would hinder the effectiveness of Pennsylvania's comprehensive regulation of the insurance industry." Reliance Mem. of Law, ¶ 49. It also argues that for this Court not to abstain would "hinder the economy of Reliance's liquidation." Id. at ¶ 50.
The LT uses the same four-part McCarran-Ferguson Act test to determine whether section 502 of the Code and 28 U.S.C. § 157 are reverse-preempted by the Pennsylvania Insurance Law. The LT admits that part (a) of the test is met, because the Code does not specifically relate to the business of insurance.
The LT challenges Reliance's contention that part (b) of the test is met, maintaining that the Pennsylvania law at issue was not enacted "for the purpose of regulating insurance activities." The LT argues that the three-pronged test contained in Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982), used to determine whether a statute was enacted for the purpose of regulating insurance activities, demonstrates that the Pennsylvania law was not enacted for that purpose. The Pireno test requires...
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