Lone Star Industries, Inc. v. Liberty Mut. Ins.

• Decision Date: 26 August 1991
• Docket Number: Civ. A. No. 91-449 LON.
• Citation: 131 BR 269
• Parties: LONE STAR INDUSTRIES, INC., Debtor, v. LIBERTY MUTUAL INSURANCE, et al., Appellants.
• Court: U.S. District Court — District of Delaware

131 B.R. 269 (1991)

LONE STAR INDUSTRIES, INC., Debtor, v. LIBERTY MUTUAL INSURANCE, et al., Appellants.

Civ. A. No. 91-449 LON.

United States District Court, D. Delaware.

August 26, 1991.

Somers S. Price, Jr., Potter Anderson & Corroon, Wilmington, Del., David I. Goldblatt, Bruce E. Loren, Proskauer Rose Goetz & Mendelsohn, New York City, for plaintiff.

Lawrence S. Drexler, Elzufon, Austin & Drexler, P.A., Wilmington, Del., for Liberty Mut. Ins. Co. and Joint Defense Coordinator.

Robert C. O'Hara, Peter J. Walsh, Wilmington, Del., for Republic Ins. Co.

ORDER

LONGOBARDI, Chief Judge.

WHEREAS on July 9, 1991 the Bankruptcy Court issued a Report and Recommendation in an Adversary Proceeding entitled Lone Star Industries, Inc. v. Liberty Mutual Insurance Company, et al., Adversary No. 91-23, and said Report and Recommendation recommended that said Adversary Proceeding be remanded to the Superior Court of the State of Delaware in and for New Castle County; and

WHEREAS no party has filed exceptions to the aforesaid Report and Recommendation; and

WHEREAS the Court has reviewed the July 9, 1991 Report and Recommendation.

NOW THEREFORE it is HEREBY ORDERED that the above-captioned action is hereby REMANDED to the Superior Court of the State of Delaware in and for New Castle County.

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In the Matter of Lone Star Industries, Inc., a Delaware Corporation, Plaintiff,

v.

Liberty Mutual Insurance Company, The Aetna Casualty and Surety Company, Agricultural Excess and Surplus Insurance Company, American Excess Insurance Association, the American Insurance Company, Cigna Insurance Company, the Continental Insurance Company, Employers Insurance of Wausau, Federal Insurance Company, First Insurance Company, Gibraltar Casualty Company, Government Employees Insurance Company, Granite State Insurance Company, Harbor Insurance Company, Hartford Accident and Indemnity Company, Highlands Insurance Company, International Insurance Company, Lexington Insurance Company, Meadows Syndicate, Inc., National Casualty Company, National Union Fire Insurance Company, of Pittsburgh, Pa., New England Insurance Company, Republic Insurance Company, Transco Syndicate # 1, Ltd., Twin City Fire Insurance Company, Western Employers Insurance Company, Zurich International Ltd., Defendants.

REPORT AND RECOMMENDATION

HELEN S. BALICK, Bankruptcy Judge.

There is presently in this court an adversary proceeding, Lone Star Industries, Inc. versus Liberty Mutual Insurance Company et al. (No. A91-23). This proceeding was removed by Lone Star to this court from Superior Court for the State of Delaware on February 19, 1991 pursuant to 28 U.S.C. § 1452. The plaintiff Lone Star now moves this court to transfer venue of this proceeding to the Southern District of New York where Lone Star's chapter 11 bankruptcy is being administered. The defendants move to remand the proceeding, or to abstain from hearing the proceeding, and for a determination whether plaintiff's change of venue motion is a core or a non-core matter.

Among the many disputes between the parties is whether the court's rulings on these matters will be a final order or only a report and recommendation to the District Court. To the extent that the court rules on the issues the parties raise, the rulings take the form of a Report and Recommendation. Bankr.R. 9027(e). If objections are filed to the Report and Recommendation, a review by the District Court is governed by Rule 9033.

I. Background to the removal of the Superior Court action

The following background history is undisputed. Lone Star manufactures concrete ties for railroads. On July 10, 1989, several railroad companies filed separate products liability actions against Lone Star in the United States District Court for the District of Maryland. Each action alleged Lone Star's ties installed in railroad tracks were defective and sought in the aggregate over $150,000,000 in actual damages, plus an unspecified amount in consequential damages. On September 25, 1989, Lone Star filed a complaint for breach of contract and declaratory relief ("the contract action") against Liberty Mutual Insurance Company and 26 excess insurers in Superior Court for the State of Delaware in and for New Castle County (Wilmington, Delaware). Potter Anderson and Corroon, a Wilmington-based firm, and a New York law firm signed the complaint. The contract action alleged that, pursuant to liability insurance policies they issued, the defendant insurers were obligated to defend Lone Star and indemnify Lone Star for any judgment against it in the products liability actions.

On October 27, 1989, Richard E. Poole, Esq. of Potter Anderson and Corroon, wrote to then-President Judge Albert J. Stiftel of Superior Court requesting that the contract action be specially assigned. Mr. Poole's letter observed that the action involved "numerous defendants and the application of millions of dollars of insurance during a period of many years," and that "numerous issues may arise that could be resolved more efficiently if they were all heard by the same judge, who would be more familiar with the case." The request was granted on December 11, 1989 and the case was assigned to the Honorable Vincent A. Bifferato.

After moving for a more definite statement, the defendants finally answered Lone Star's complaint in early January 1990. In addition to denying liability, seventeen of the defendants requested a jury trial. Discovery requests began soon thereafter, but the defendants moved for a protective order. On February 20, 1990, Judge Bifferato issued a confidentiality order concerning documents produced as part of the litigation. On August 28, 1990, he granted in part and denied in part Lone Star's motion for partial summary judgment for several of the defendant insurers to pay certain legal fees. On September 7, 1990, he issued a 14 page case management order that, among other things, directed a litigation schedule, designated defense coordinators, discovery and motions procedures, and established a special filing system at the Superior Court Prothonotary's Office. On November 13, 1990, he granted Cigna Insurance Company's motion for summary judgment. The central issue raised by Cigna's motion was whether the Superior Court could consider the intent of the parties in interpreting an unambiguous "claims made" policy.

Lone Star filed its Chapter 11 petition in the Southern District of New York on December 10, 1990. An equity security holders committee and an unsecured creditors committee have been appointed. The plaintiffs in the products liability actions obtained limited relief from stay on March 20, 1991, for the purpose of moving for summary judgment.

II. The motions before this court

Lone Star wishes to have the contract action heard in the Southern District of New York. Lone Star removed the contract action to this court only as a jurisdictional prerequisite to changing venue. Towards that end, concurrent with its removal of the Superior Court contract action to this court, Lone Star moved for a change of venue pursuant to 28 U.S.C. § 1412 and Bankruptcy Rule 7087. Lone Star concedes the contract action is non-core. On March 14, 1991, defendants moved this court to determine the nature of the change of venue motion, as well as to abstain from hearing pursuant to 28 U.S.C. § 1334(c)(2) (mandatory abstention) or 28 U.S.C. § 1334(c)(1) (discretionary abstention), or to remand the adversary proceeding to Superior Court pursuant to 28 U.S.C. § 1452(b). In a footnote in a memorandum of law in support of its motion, defendants raised for the first time the suggestion that Lone Star's application to remove was improper and should be stricken. While the court does not approve of this method of presenting a motion to strike, cf. Bankr.R. 7010 & 7012, Lone Star has responded to the motion, and this court considers the motion to strike also before it.

The parties disagree as to the order in which these motions should be decided. The court's jurisdiction over a matter must be established before non-jurisdictional issues can be addressed. E.g., Shendock v. Director, Office of Worker's Compensation Programs, 893 F.2d 1458, 1466-67 (3d Cir.) (en banc), cert. den., ___ U.S. ___, 111 S.Ct. 81, 112 L.Ed.2d 53 (1990). This principle dictates that the court first determine, as a preliminary matter, whether the Superior Court case was properly removed.

III. Discussion

A. Lone Star's application to remove was properly filed.

Section 1452(a) of Title 28, United States Code provides in relevant part: "A party may remove any . . . cause of action . . . to the district court for the district where such civil action is pending. . . ." Defendants argue that because the contract action was removed to the United States Bankruptcy Court for the District of Delaware, and not the United States District Court for the District of Delaware, the removal was improper. While there may be support for this argument in other jurisdictions, e.g., BancOhio National Bank v. Long (In re Long), 43 B.R. 692 (Bankr. N.D.Ohio 1984), in this jurisdiction all Title 11 proceedings are automatically referred to the United States Bankruptcy Court, In Re Referral of Title 11 Proceedings To The United States Bankruptcy Judge For This District, (D.Del. July 23, 1984) (order), and removal applications are properly filed in the bankruptcy court. Gorse v. Long Neck, Ltd., 107 B.R. 479 (D.Del.1989); In re Convent Guardian Corp., 75 B.R. 346 (Bankr.E.D.Pa.1987) (order).

B. The order of resolution of the remaining motions.

As among the other motions before this court, defendants argue that mandatory abstention is also jurisdictional and should therefore be addressed before the other motions. See In re Engra, 86 B.R. 890, 893 (S.D.Tex.1988). Lone Star counters that mandatory abstention is not applicable in a removal context. See e.g., In re 666 Assocs., 57...