Kerr v. Am. Alt. Ins. Corp. (In re One World Adoption Servs., Inc.)

• Decision Date: 10 April 2017
• Docket Number: ADVERSARY PROCEEDING NO. 16–5057–BEM,CASE NO. 14–63554–BEM
• Citation: 571 B.R. 474
• Parties: IN RE: ONE WORLD ADOPTION SERVICES, INC., Debtor. Jeffrey K. Kerr, Chapter 7 Trustee for One World Adoption Services, Inc., Plaintiffs, v. American Alternative Insurance Corporation, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

571 B.R. 474

IN RE: ONE WORLD ADOPTION SERVICES, INC., Debtor.

Jeffrey K. Kerr, Chapter 7 Trustee for One World Adoption Services, Inc., Plaintiffs,

v.American Alternative Insurance Corporation, Defendant.

CASE NO. 14–63554–BEM

ADVERSARY PROCEEDING NO. 16–5057–BEM

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

Signed April 10, 2017

Andrew M. Beal, Buckley Beal LLP, Stuart F. Clayton, Jr., Lamberth, Cifelli, Ellis & Nason, Atlanta, GA, for Plaintiff.

Scott F. Bertschi, Clyde & Co. U.S. LLP, Atlanta, GA, for Defendant.

PROPOSED STATEMENT OF UNDISPUTED MATERIAL FACTS & PROPOSED CONCLUSIONS OF LAW GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

Barbara Ellis–Monro, U.S. Bankruptcy Court Judge

This Court submits this Proposed Statement of Undisputed Material Facts and Proposed Conclusions of Law to the United States District Court for the Northern District of Georgia pursuant to 28 U.S.C. § 157(c)(1).

Pursuant to Federal Rule of Bankruptcy Procedure 9033(a), the Clerk shall serve this document on all parties forthwith. The parties shall have 14 days after being served to file and serve written objections. Fed. R. Bankr. Proc. 9033(b). If a party files objections, the other party shall have 14 days after being served with the objections to respond. Id.

I. Introduction

The plaintiff in this proceeding is Jeffrey K. Kerr, chapter 7 trustee for the bankruptcy estate of One World Adoption Services, Inc., ("Trustee" and "Debtor," respectively). On March 7, 2016, Trustee filed a complaint [Doc. 1] against American Alternative Insurance Corporation ("AAIC") alleging AAIC failed to pay certain management liability claims in breach of contract. On April 25, 2016, AAIC filed Motion to Dismiss for Failure to State a Claim [Doc. 4]. Trustee filed an Amended Complaint [Doc. 6] on May 12, 2016, to add a request for a declaratory judgment that AAIC has a duty under the insurance policy at issue to defend and reimburse Trustee as to the management liability claims.

The matter before the Court is AAIC's Motion to Dismiss Amended Complaint for Failure to State a Claim [Doc. 10] ("Motion to Dismiss Amended Complaint"), which was filed on May 26, 2016, and which the Court converted to a Motion for Summary Judgment on November 18, 2016 [see Doc. 23]. For the reasons below, the Court concludes that AAIC is entitled to judgment as a matter of law.¹

II. Statement of Jurisdiction and Statutory Authority

Bankruptcy jurisdiction extends to "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. §§ 157(a), 1334(b). A proceeding "arises under title 11" when it "invok[es] a substantive right created by the Bankruptcy Code." Continental Nat'l Bank of Miami v. Sanchez (In re Toledo ), 170 F.3d 1340, 1345 (11th Cir. 1999) (citations omitted). A proceeding "arises in a case under title 11" when it "involve[s] administrative-type matters" or "matters that could arise only in bankruptcy." Id. (citations and internal quotation marks omitted). A proceeding is "related to a case under title 11" when the outcome "could conceivably have an effect on the estate being administered in bankruptcy." Miller v. Kemira, Inc. (In re Lemco Gypsum, Inc. ), 910 F.2d 784, 787 (11th Cir. 1990) (quoting Pacor, Inc. v. Higgins , 743 F.2d 984, 994 (3d Cir. 1984) ).

Under 28 U.S.C. § 157(b)(1), proceedings "arising under title 11" and proceedings "arising in a case under title 11" are core proceedings—proceedings in which bankruptcy courts can enter final orders and judgments.

Under 28 U.S.C. § 157(c)(1), proceedings "related to a cause under title 11" are non-core proceedings. Bankruptcy courts can hear non-core proceedings but must submit proposed findings of fact and conclusions of law to the district court. Bankruptcy courts, however, are statutorily authorized to enter final orders and judgments in non-core proceedings with the consent of all parties. See 28 U.S.C. § 157(c)(2).

This is a non-core proceeding. This proceeding is an insurance coverage dispute where the only causes of action are breach of a pre-petition contract and a request for declaratory judgment regarding the parties' rights under that contract. Neither cause of action invokes a substantive right created by the Bankruptcy Code, is an administrative-type matter, or is a matter that could arise only in bankruptcy. The outcome of this proceeding, however, will affect administration of the estate because the outcome will determine how much money is available to estate creditors. Because this proceeding is non-core, the Court cannot enter a final order or judgment without the parties' consent.

Neither party has explicitly consented. Explicit consent (or non-consent) is typically found in pleadings. Under the Bankruptcy Rules in effect when this proceeding was filed, a complaint and responsive pleading were required state (1) whether the proceeding is core or non-core, and (2) if non-core, whether the party consents to the bankruptcy court's entry of a final order or judgment.² Trustee pleaded this matter as a core proceeding [Complaint ¶ 3; Amended Complaint ¶ 3] but did not (and was not required to at the time) make a statement as to consent. AAIC denied that this matter is core in its Memorandum of Law in Support of Motion to Dismiss. [Doc. 4–2 at 13]. AAIC did not, however, otherwise state whether it consents to this Court's entry of a final order or judgment.

Parties can impliedly consent to a bankruptcy court's entry of a final order or judgment in a non-core proceeding, see Wellness Int'l Network, Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015). The boundaries of implied consent in a non-core proceeding, however, are relatively new and undefined. The Court hesitates to find implied consent when the defendant has not yet filed an answer and when this matter is at the summary judgment stage on the Court's own initiative, thus the Court is entering this Proposed Statement of Undisputed Material Facts and Proposed Conclusions of Law.

III. Summary Judgment Standard

Motions for summary judgment are governed by Federal Rule of Civil Procedure 56, made applicable in adversary proceedings by Federal Rule of Bankruptcy Procedure 7056. Federal Rule 56 requires the Court to grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." When, as in this proceeding, "the nonmoving party bears the burden of proof at trial, the moving party may discharge this ‘initial responsibility’ by showing that there is an absence of evidence to support the nonmoving party's case or by showing that the nonmoving party will be unable to prove its case at trial." Hickson Corp. v. Northern Crossarm Co., Inc. , 357 F.3d 1256, 1260 (11th Cir. 2004). The respondent "may not rest upon the mere allegations or denials in its pleadings" but "must set forth specific facts showing that there is a genuine issue for trial. A mere ‘scintilla’ of evidence supporting the opposing party's position will not suffice[.]" Walker v. Darby , 911 F.2d 1573, 1576–77 (11th Cir. 1990) (citing Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 252, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986) ). Any material facts not controverted by the respondent are deemed admitted. BLR 7056–1(a)(2).

The Court will only grant summary judgment when the evidence, viewed in the light most favorable to the nonmoving party shows no genuine dispute of material fact. Tippens v. Celotex Corp. , 805 F.2d 949, 954 (11th Cir. 1986). A fact is material if it "might affect the outcome of the suit under the governing law." Anderson , 477 U.S. at 248, 106 S.Ct. at 2510. A dispute of material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. "The court may consider any admissible facts and disregard any inadmissible statements occurring in the same affidavit." Devan v. Zamoiski Southeast, Inc. (In re Merry – Go – Round Enter., Inc.) , 272 B.R. 140, 145 (Bankr. D. Md. 2000) ; see also Peterson v. Board of Trustees of the Univ. of Ala. , 644 Fed.Appx. 951, 954 (11th Cir. 2016). At the summary judgment stage the Court "must not resolve factual disputes by weighing conflicting evidence." Tippens , 805 F.2d at 953 (quoting Lane v. Celotex Corp. , 782 F.2d 1526, 1528 (11th Cir. 1986) ).

IV. Undisputed Facts, Disputed Facts, and Policy Provisions in Dispute

A. Undisputed Facts

AAIC's Statement of Undisputed Material Facts [Doc. 25] ("SMF") and Trustee's Response to Defendant's Statement Of Undisputed Material Facts [Doc. 28] (the "Trustee's Response") show the following facts to be undisputed.

Pre-petition, Debtor provided adoption services that included expediting adoption of infants from the Congo for various clients in the United States. [SMF ¶¶ 1, 2; Trustee Response ¶¶ 1, 2]. Beginning in 2011, Debtor became embroiled in allegations of wrongdoing in facilitating adoptions when three of Debtor's Congolese adoptions purportedly "resulted in accusations that Debtor improperly documented the orphan status of the Congolese child involved." [SMF ¶¶ 3, 4; Trustee Response ¶¶ 3, 4]. Due to these allegations Debtor was investigated by the Council on Accreditation for Children and Family Services, Inc. ("COA") an "entity designated by the United States to accredit adoption agencies." [SMF ¶ 6; Trustee Response ¶ 6]. Debtor sued COA in federal court seeking a temporary restraining order to prevent suspension. [SMF ¶ 8; Trustee Response ¶ 8]. Debtor disputed COA's finding of any wrongdoing and argued that the suspension of accreditation was unsupported by fact or law. [SMF ¶ 8; Trustee Response ¶ 8]. Notwithstanding, Debtor's accreditation was ultimately suspended. [SMF ¶ 7; Trustee Response ¶ 7]. Forty creditors of Debtor have filed proofs of claim in Debtor's bankruptcy case, none of which reflect or reference a suit or judgment against Debtor. [SMF ¶¶ 11, 12; ...