In re Petition of Board of Directors of Hopewell Intern. Ins., Ltd.

• Decision Date: 27 June 2002
• Docket Number: No. 98-B-45440 (ALG).,98-B-45440 (ALG).
• Citation: 281 B.R. 200
• Parties: In re PETITION OF THE BOARD OF DIRECTORS OF HOPEWELL INTERNATIONAL INSURANCE, LTD., as Scheme Administrators of Hopewell International Insurance, Ltd., Debtor in a Foreign Proceeding.
• Court: U.S. Bankruptcy Court — Southern District of New York

281 B.R. 200

In re PETITION OF THE BOARD OF DIRECTORS OF HOPEWELL INTERNATIONAL INSURANCE, LTD., as Scheme Administrators of Hopewell International Insurance, Ltd., Debtor in a Foreign Proceeding.

No. 98-B-45440 (ALG).

United States Bankruptcy Court, S.D. New York.

June 27, 2002.

COPYRIGHT MATERIAL OMITTED

Chadbourne & Parke, LLP, New York City, Howard Seife, Marjorie L. Cohen, Andrew Rosenblatt, Of Counsel, Counsel for the Board of Directors of Hopewell International Insurance Ltd.

Allen & Overy, New York City, Ken Coleman, Steve Doody, Ingrid Bagby, Of Counsel, Counsel for Gold Medal Insurance Company.

Seward & Kissel, LLP, New York City, Ronald L. Cohen, Of Counsel, Zelle, Hofmann, Voelbel, Mason & Gette, LLP, Minneapolis, MN, Lawrence Zelle, Lawrence T. Hofmann, Of Counsel, Co-counsel for General Mills, Inc.

MEMORANDUM OF DECISION

ALLAN L. GROPPER, Bankruptcy Judge.

This is a motion by Gold Medal Insurance Company ("Gold Medal") for a modification of the permanent injunction (the "Permanent Injunction") issued by this Court in August of 1999 granting the petition by Hopewell International Insurance Ltd. ("Hopewell") for ancillary relief under § 304 of the United States Bankruptcy Code. The Permanent Injunction, which has since been affirmed by the District Court, prohibited the commencement or continuation of any action or proceeding against Hopewell or its United States assets in violation of Hopewell's Bermuda Scheme of Arrangement. For the reasons set forth below, this Court finds that there is insufficient cause to warrant the requested modification of the Permanent Injunction.

I Background

The history of these parties and the proceedings before this Court and the Bermuda Court is more fully set forth in the previous reported decisions in this case: (i) In re Board of Directors of Hopewell International Insurance Ltd., 238 B.R. 25, 64 (Bankr.S.D.N.Y.1999) ("Hopewell I"), the comprehensive opinion of Chief Judge Brozman, issued after eight days of hearings, and now affirmed in all respects by the District Judge Chin at 275 B.R. 699, 701 (S.D.N.Y.2002) ("Hopewell II"); and (ii) an opinion of this Court, In re Board of Directors of Hopewell International Insurance Ltd., 272 B.R. 396 (Bankr.S.D.N.Y.2002) ("Hopewell III"), that dealt with an injunction that Hopewell obtained from the Bermuda Court prohibiting Gold Medal from bringing this very motion seeking a modification of the Permanent Injunction.

To recapitulate the facts, briefly, Gold Medal is a "captive" insurer of its affiliate, General Mills, which claimed to have suffered substantial insured losses arising from a 1994 incident in which cereal oats were tainted with a pesticide. Gold Medal reinsured its losses with Hopewell, and Hopewell, in turn, ceded most of the liability to other reinsurers, called "retrocessionaires," who are Hopewell's shareholders and apparently control its Board.

Hopewell suffered substantial reverses in the late 1980's and in 1995 adopted a Scheme of Arrangement to wind up its operations. Under Bermuda law, a Scheme of Arrangement is a contractual adjustment of rights between a company and its shareholders and creditors (collectively, "stakeholders"). In this case, the Scheme of Arrangement was a run-off, in which Hopewell would pay its stakeholders from amounts on hand and from recoveries from the retrocessionaires. Bermuda law requires that a Scheme be approved by a meeting of creditors representing more than 75% of the value of actual and contingent claims. Gold Medal's claim was unliquidated at the time of the meeting, but it did not object to the Scheme and Judge Brozman found that it had in fact voted to approve the Scheme (a finding that Gold Medal disputes but that the District Court specifically affirmed). In any event, the Scheme was adopted and on June 30, 1995, Hopewell began its run-off.

The Scheme provided for a distribution of Hopewell's assets in two waves: first, to Class A creditors, whose claims were established (liquidated or unliquidated) by June 1, 1995, in a distribution to be paid to holders of liquidated claims no later than June 30, 1999; and second, to Class B creditors, whose claims were not established as of June 1, 1995, in a distribution to be paid on June 30, 2001. If Hopewell became insolvent before the distribution of Class A creditors, then all creditors of both classes would be paid pari passu. If Hopewell's insolvency occurred after the payment of Class A creditors, but prior to the payment to Class B creditors, Class B creditors would receive less than the 100% distribution made to Class A creditors. Gold Medal was a Class A creditor. The Scheme also provided that if a claim was not liquidated by June 30, 2001, the creditor would lose any right of recovery against Hopewell, but would receive an assignment of Hopewell's rights against the retrocessionaires. Thus, the projected "cut-off" date for the establishment of claims and a final distribution of Hopewell's cash was June 30, 2001. Hopewell's principal assets in the United States were its contractual rights to recover against the retrocessionaires.

In order to liquidate its claim, General Mills commenced proceedings in Minnesota against Gold Medal that eventually resulted in a settlement on liability and a "baseball" style arbitration to determine an appropriate amount. This arbitration was scheduled to take place in August 1998. Hopewell, however, informed Gold Medal that it would not honor a settlement between General Mills and Gold Medal and would reject any claim by Gold Medal on the basis thereof. Hopewell contended that its Scheme required that all disputed claims with Hopewell be resolved by arbitration in Bermuda to be commenced prior to January 31, 2000. After Gold Medal apparently threatened suit against Hopewell's U.S.-based retrocessionaires, based on the results in Minnesota, Hopewell sought and obtained an order from the Bermuda Court enjoining Gold Medal from commencing any action inconsistent with the Scheme of Arrangement (the "Bermuda Injunction"). In July of 1998, Hopewell then sought to enforce the Scheme and the Bermuda Injunction in this country by commencing an ancillary proceeding under 11 U.S.C. § 304, contending that the Scheme of Arrangement was a "foreign proceeding," that its Board of Directors was a "foreign representative," and that this Court should recognize and grant comity to the Bermuda Scheme and Injunction. As noted, Chief Judge Brozman of this Court held that the Bermuda Injunction and the Bermuda Scheme of Arrangement were entitled to comity and that Gold Medal would not be unfairly prejudiced by entry of the Permanent Injunction, prohibiting it from pursuing its claims against Hopewell in the United States other than through the Scheme, and requiring that it arbitrate any dispute with Hopewell under Bermuda law, despite the fact that the contract between Gold Medal and Hopewell provided for arbitration in Minnesota. Hopewell I, 238 B.R. at 64. The Bankruptcy Court's decision was subsequently affirmed by the District Court. Hopewell II, 275 B.R. at 701.

While the § 304 proceedings were awaiting decision in this Court, General Mills filed a motion to rescind the settlement in Minnesota with Gold Medal, which was granted in June 1999, two months prior to the entry of the 1999 Injunction. After the settlement was rescinded, the Minnesota court referred the pending case to a retired judge, who reviewed cross motions for summary judgment and recommended that judgment be entered in favor of General Mills and against Gold Medal in the sum of approximately $203 million. The Minnesota District Court adopted the report and entered final judgment against Gold Medal on June 23, 2000, a judgment that was affirmed by an opinion of the Minnesota Court of Appeals on February 6, 2001, reported at General Mills, Inc. v. Gold Medal Ins. Co., 622 N.W.2d 147 (Minn.App.2001), with review denied by the Minnesota Supreme Court. These proceedings, however, were not recognized by Hopewell as conclusive and in late January, 2000, bound by the 1999 Injunction, Gold Medal commenced arbitration proceedings in Bermuda. Arbitration between Gold Medal and Hopewell regarding procedural matters began in June 2000, and the panel issued an Interim Award in December 2000, concluding that Hopewell was not bound by the judgment of the Minnesota courts. Hearings on substantive matters began in May of 2001.

It became obvious in early 2001 that the panel would not issue a final award prior to Hopewell's final meeting of creditors and the Scheme's June 30, 2001 cut-off date. Gold Medal, therefore, requested a postponement of the meeting. Hopewell objected, and on March 22, 2001, the Bermuda Court determined that Hopewell would be permitted, in accordance with the express terms of the Scheme, to hold its final meeting and make a final distribution to creditors no later than June 30, 2001, whether or not the Gold Medal/General Mills claim had been liquidated by then. Any remaining cash would then be distributed in a final dividend to Hopewell's shareholders. Thereafter, Gold Medal would not have a claim to Hopewell's liquidated assets or Hopewell's retained share of the liability, and its only remaining recourse would be an assignment of Hopewell's rights against the retrocessionaires. The parties dispute responsibility for the fact that Gold Medal's claim was not liquidated by the time of the final meeting of creditors, and the arbitration between Gold Medal and Hopewell has not concluded, even now. Gold Medal does not, however, challenge the fact that it has apparently lost any right under the Scheme to recover against Hopewell for Hopewell's retained portion of the liability.¹

The Bermuda arbitration panel issued a second interim award, this time on substantive matters, on October 19, 2001. That award, based on Minnesota law, appears to limit Hopewell's maximum liability to General Mills' losses from...