In re Seatrain Lines, Inc.
| Citation | 198 BR 45 |
| Decision Date | 25 March 1996 |
| Docket Number | Bankruptcy No. 92B 46393 (CB),95 Civ. 6954 (SS) and 95 Civ. 6955 (SS). Adv. No. 94-9066A.,95 Civ. 1503 (SS) |
| Parties | In re SEATRAIN LINES, INC., Debtor. Hal M. HIRSCH, as Trustee of the Estate of Seatrain Lines, Inc., Plaintiff, v. The LONDON STEAMSHIP OWNERS' MUTUAL LIFE INSURANCE ASSOCIATION LIMITED, The Travelers Companies, National Union Fire Insurance Company of Pittsburgh, Pennsylvania, The Insurance Company of the State of Pennsylvania and ABC Corporation "1" through ABC Corporation "10," Defendants. |
| Court | U.S. District Court — Southern District of New York |
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Gainsburg & Hirsch, Purchase, N.Y. (David M. Pollak, Mark B. Moburg, of counsel), for Plaintiff.
Simpson Thacher & Bartlett, New York City (Mark Thompson, of counsel), for Defendants The Travelers Insurance Company, The Travelers Indemnity Company, and The Travelers Indemnity Company of Connecticut (formerly The Travelers Indemnity Company of Rhode Island).
McMahon, Martine & Gallagher, New York City (Timothy D. Gallagher, of counsel), for Defendants National Union Fire Insurance Company of Pittsburgh, Pennsylvania and The Insurance Company of the State of Pennsylvania.
This motion to withdraw the reference arises from the Chapter 7 bankruptcy case of debtor Seatrain Lines, Inc. ("Seatrain"). Seatrain has filed an adversary proceeding in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), seeking coverage and defense for asbestos-related personal injury claims that have been filed in various courts against Seatrain. The moving defendants, the Travelers Insurance Company, the Travelers Indemnity Company, the Travelers Indemnity Company of Connecticut (formerly the Travelers Indemnity Company of Rhode Island) (collectively "Travelers"), the National Union Fire Insurance Company of Pittsburgh, Pennsylvania, and the Insurance Company of the State of Pennsylvania (collectively the "Pennsylvania Defendants")1 move for an order pursuant to 28 U.S.C. § 157(d) withdrawing the reference of this action to the Bankruptcy Court.2 Travelers separately appeals two Bankruptcy Court Orders issued against it in connection with the adversary proceeding.
For the following reasons, the Motion to Withdraw the Reference is DENIED and Travelers' appeals of Orders of the Bankruptcy Court are also DENIED.
Seatrain, founded in 1931, was once a robust shipping line engaged in three maritime businesses: worldwide shipping of containerized cargo, ship chartering, and the construction of supertanker oil carriers. Many of Seatrain's ships contained asbestos (Adversary Proceeding Cplt. ¶ 10), and thousands of Seatrain's sailors and shipbuilders were exposed to the hazardous substance. (Pl.'s Mem. of Law in Opp. to Travelers' Motion for Withdrawal of Ref. at 4.)
Seatrain filed its first bankruptcy petition in 1981 under Chapter 11 of the Bankruptcy Code (the "Chapter 11 Proceeding"). Travelers filed a proof of claim against the bankruptcy estate, seeking to collect unpaid insurance premiums, and eventually stipulated to a claim of $1 million (the "1981 Claim"). The Bankruptcy Court allowed the 1981 Claim in 1984. Seatrain emerged from Chapter 11 bankruptcy in 1987, but it did not repay the money it owed to Travelers.
Seatrain's financial difficulties did not abate, and the shipping line filed for Chapter 7 bankruptcy protection on November 17, 1992. Approximately 110 personal injury claims, including asbestos exposure claims, filed in various courts were pending against Seatrain as of the petition date. (Adversary Proceeding Cplt. ¶ 11.)
The Trustee of the Chapter 7 estate, Hal M. Hirsch, faced an immediate problem in determining the extent of Seatrain's insurance coverage. Virtually all of Seatrain's books and records, including its insurance policies, had been destroyed pre-petition. Seatrain had stored its books and records in a commercial warehouse and had then neglected to pay the storage fees, prompting the warehouse to dispose of the property. (Adversary Proceeding Cplt. ¶ 12.) Of necessity, Hirsch began discovery proceedings to determine the identity of Seatrain's insurers.
Travelers, meanwhile, filed a proof of claim against the estate, seeking to collect on the $1 million 1981 Claim allowed by the bankruptcy court in the prior Chapter 11 proceeding. The parties do not dispute the validity of this Claim, but they dispute its legal impact on the instant motion to withdraw the reference.
On November 16, 1994, Hirsch filed Seatrain's adversary proceeding against its major insurers, seeking a declaration of Seatrain's rights under its insurance policies and a turnover of estate property in the form of insurance proceeds. Jurisdiction was predicated on § 542 of the Bankruptcy Code, which provides for the recovery of property to the estate. 11 U.S.C. § 542. The Complaint further alleged that the proceeding was core and sought coverage and defense for both current and future personal injury claims against the estate.3
Travelers denied liability, asserted affirmative defenses, demanded a jury trial, and filed a motion in bankruptcy court for permissive abstention under 28 U.S.C. § 1334(c)(1).
The abstention motion was heard on May 23, 1995, before Bankruptcy Judge Francis Conrad. Judge Conrad denied the motion on several grounds, including his findings that (1) no state court litigation on the matter was pending; (2) the bankruptcy court had jurisdiction over the proceeding; (3) the bankruptcy judges in the Southern District of New York possessed ample expertise in resolving insurance liability disputes under state law; and (4) efficiency favored non-abstention because Travelers had already filed a proof of claim.4 (Tr. of Hearing before Judge Conrad at 13-16.) On the jurisdictional issue, Judge Conrad declined to rule on whether the proceeding was core or non-core,5 but opined that the proceeding was core. "I think it's clear law in this circuit that . . . insurance policies are property of the estate," he observed. "If they are property of the estate, they clearly come under the core jurisdiction of this Court to administer claims and to administer the assets of the estate." (Id. at 16-17.)
Judge Conrad's Order denying the abstention motion was signed and docketed on June 16, 1995. Under Fed.R.Bankr.P. 8002(a), Travelers had the right to appeal this Order within 10 days of its entry. Travelers inadvertently missed the filing deadline, and on July 10, 1995, brought an Order to Show Cause in the bankruptcy court seeking to extend the appeal period. In the interim, the adversary proceeding had been transferred to Judge Cornelius Blackshear, who was on vacation, and the Order to Show Cause was reassigned to Judge Jeffry Gallet. Judge Gallet declined to extend Travelers' time to appeal, holding that Travelers had only itself to blame for its oversight. (Tr. of Hearing before Judge Gallet passim.)
Travelers promptly appealed the Orders of both Judge Conrad and Judge Gallet to this Court. I consolidated these appeals with Travelers' motion to withdraw the reference.
The Pennsylvania Defendants entered the case in August, 1995, when Hirsch on behalf of Seatrain filed an Amended Complaint in the adversary proceeding naming them as defendants. The Pennsylvania Defendants denied liability, asserted affirmative defenses, demanded a jury trial and moved for abstention and withdrawal of the reference.
At a bankruptcy court hearing on September 19, 1995, Judge Blackshear ruled that the adversary proceeding is non-core. (Tr. of Hearing before Judge Blackshear at 4-7.) Although counsel for the parties did not apprise Judge Blackshear of Judge Conrad's earlier comments on the core/non-core issue, (see id. at 5), these comments would not have bound Judge Blackshear because they were not made in the form of a final ruling. Judge Blackshear held that: (Id. at 6-7.)
A district court may withdraw the reference of any case "for cause shown." 28 U.S.C. § 157(d). The Second Circuit has set forth a number of factors to be used in evaluating "cause," including whether the proceeding is core or non-core, whether it is legal or equitable, and "considerations of efficiency, prevention of forum shopping, and uniformity in the administration of bankruptcy law." Orion Pictures Corp. v. Showtime Networks, Inc., 4 F.3d 1095, 1101 (2d Cir. 1993), cert. dismissed, ___ U.S. ___, 114 S.Ct. 1418, 128 L.Ed.2d 88 (1994); see also In re Kenai Corp., 136 B.R. 59, 61 (S.D.N.Y. 1992) (Wood, J.) ().
A district court considering whether to withdraw a reference must first decide whether the proceeding is core or non-core, "since it is upon this issue that questions of efficiency and uniformity will turn." Orion, 4 F.3d at 1101. In this case, because Judge Blackshear has ruled that the proceeding is non-core, I review his conclusion of law de novo.
Under the Bankruptcy Amendments and Federal Judgeship Act of 1984, the bankruptcy courts have jurisdiction to hear both core and non-core matters.6 28 U.S.C. § 157. The sole relevance of the core/non-core distinction is the scope of the bankruptcy court's authority, particularly with regard to the jury trial demanded by defendants. When adjudicating core matters, the bankruptcy court may issue final orders and judgments, 28 U.S.C. § 157(b)(1), and may...
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