MF Global Holdings Ltd. v. Allied World Assurance Co. (In re MF Global Holdings Ltd.)

• Decision Date: 12 January 2017
• Docket Number: Adv. Proc. No. 16–01251 (MG),Case No. 11–15059 (MG) (Jointly Administered)
• Citation: 562 B.R. 41
• Parties: IN RE: MF GLOBAL HOLDINGS LTD., et al., Debtors. MF Global Holdings Ltd., as Plan Administrator, and MF Global Assigned Assets LLC, Plaintiffs, v. Allied World Assurance Company Ltd., Iron–Starr Excess Agency Ltd., Ironshore Insurance Ltd., Starr Insurance & Reinsurance Limited., and Federal Insurance Company, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

562 B.R. 41

IN RE: MF GLOBAL HOLDINGS LTD., et al., Debtors.

MF Global Holdings Ltd., as Plan Administrator, and MF Global Assigned Assets LLC, Plaintiffs,

v.Allied World Assurance Company Ltd., Iron–Starr Excess Agency Ltd., Ironshore Insurance Ltd., Starr Insurance & Reinsurance Limited., and Federal Insurance Company, Defendants.

Case No. 11–15059 (MG) (Jointly Administered)

Adv. Proc. No. 16–01251 (MG)

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

Signed January 12, 2017

WHITE AND WILLIAMS, LLP, Counsel to Allied World Assurance Company, Ltd, 7 Times Square, New York, New York 10036–6524, By: Erica Kerstein, Esq.

D'AMATO & LYNCH, LLP, Counsel to Iron–Starr Excess Agency Ltd., Ironshore Insurance Ltd., and Starr Insurance & Reinsurance Limited, Two World Financial Center, 225 Liberty Street, New York, New York 10281, By: Mary Jo Barry, Esq., Maryann Taylor, Esq.

JONES DAY, Attorneys for MF Global Holdings Ltd., as Plan Administrator, and MF Global Assigned Assets LLC, 555 South Flower Street, 50th Floor, Los Angeles, CA 90071, By: Bruce Bennett, Esq.

JONES DAY, 250 Vesey Street, New York, NY 10281, By: Edward M. Joyce, Esq., Jane Rue Wittstein, Esq.

MEMORANDUM OPINION AND ORDER HOLDING THE BERMUDA INSURERS IN CONTEMPT

MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE

Pending before the Court is the Order to Show Cause Why Allied World Assurance Company Ltd., Iron–Starr Excess Agency Ltd., Ironshore Insurance Ltd., and Starr Insurance & Reinsurance Limited Should Not be Held in Contempt (the "Second Order to Show Cause," ECF Doc. # 41) for violating the Memorandum Opinion and Temporary Restraining Order (the "TRO Opinion" or the "TRO," ECF Doc. # 35) (see MF Global Holdings Lt. v. Allied World Assurance Co. Ltd. (In re MF Global Holdings Ltd.) , 561 B.R. 608, 2016 WL 7388546 (Bankr. S.D.N.Y. Dec. 21, 2016) ) issued by this Court on December 21, 2016. The TRO enjoined Allied World Assurance Company Ltd., Iron–Starr Excess Agency Ltd., Ironshore Insurance Ltd., and Starr Insurance & Reinsurance Limited (together, the "Bermuda Insurers") from taking any action to enforce certain injunctive orders issued by a Bermuda court. Following this Court's issuance of the TRO Opinion, the Bermuda Insurers submitted pleadings to the Supreme Court of Bermuda, Civil Jurisdiction (Commercial Court) (the "Bermuda Court"), and appeared before the Bermuda Court at a hearing on December 22, 2016, seeking relief tantamount to the enforcement of the injunctive orders.

In response to the Second Order to Show Cause, the Bermuda Insurers filed The Bermuda Insurers' Memorandum of Law in Opposition to Order to Show Cause Dated December 29, 2016 (the "Bermuda Insurers' Brief," ECF Doc. # [––], submitted to the Court under seal on January 3, 2017). In support of their brief, the Bermuda Insurers also filed a number of exhibits under seal. MF Global Holdings, Ltd. ("MFGH"), as Plan Administrator, and MF Global Assigned Assets LLC ("MFGAA" and together with MFGH, the "Plaintiffs") filed the Memorandum of Law on the Bermuda Defendants' Continued Violation of this Court's Bar Order (the "Plaintiffs' Brief," ECF Doc. # [––], submitted to the Court under seal on December 28, 2016). The Court granted the request to file these briefs and exhibits under seal, except to the extent that the Court references or cites to these documents in its Opinions or Orders.

Because the Bermuda Insurers took actions clearly prohibited by the TRO, the Court will hold the Bermuda Insurers in contempt for violating an order of this Court.

I. BACKGROUND

A. The Bar Order in the Global Settlement

On August 10, 2016, this Court entered an order approving a global settlement in these chapter 11 cases (the "Global Settlement," D.I. 2282).¹ The Global Settlement included a bar order (the "Bar Order") which provides in relevant part:

3. To the extent not previously authorized by this Court, the plan injunction ("Plan Injunction") as to the Debtors and their respective property established pursuant to paragraph 75 in the Order Confirming Amended and Restated Joint Plan of Liquidation entered by this Court on April 5, 2013, to the extent applicable, shall be modified solely to the extent necessary, and without further order of the Bankruptcy Court, to authorize any and all actions reasonably necessary to consummate the Global Settlement, including without limitation, any payments under certain insurance policies required under the Settlement .... Furthermore, any person or entity that is not a Party to the Settlement Agreement is permanently barred, enjoined, and restrained from commencing, prosecuting, or asserting any claims arising out of payments made under certain insurance policies in accordance with the Settlement Agreement or any other agreement referenced therein or associated therewith.

....

7. Upon entry of this Order, any person or entity that is not a Party to the Settlement Agreement, including any Dissenting Insurer, is permanently barred, enjoined, and restrained from contesting or disputing the Reasonableness of Settlement, or commencing, prosecuting, or asserting any claims, including, without limitation, claims for contribution, indemnity, or comparative fault (however denominated an on whatsoever theory), arising out of or related to the MF Global Actions ....

8. For the avoidance of doubt, nothing in this Order shall preclude:

... (iii) any claims by the Insurance Assignees to enforce the Assigned Rights; (iv) any claim or right asserted by an MFG Plaintiff against any Dissenting Insurer on its own behalf (as distinct from the Assigned Rights) ....

(Global Settlement ¶¶ 3, 7, 8.)

As noted in a brief filed earlier in this adversary proceeding (the "Allied Response," ECF Doc. # 28), in connection with the Global Settlement, Allied "tendered the full limit of liability of its separately-issued excess D & O policy, but declined to make the E & O coverage provided under the Allied [policy] available ... for a settlement" as Allied's adversaries had requested. (Allied Response at 4–5.) Pursuant to the Global Settlement, the individuals ostensibly covered by the Allied E & O policy were to assign "their rights to full payment under the Allied [policy] to the Plaintiffs" and the "assignee would immediately commence action against the [Bermuda Insurers] to obtain proceeds" under the E & O policies. (Id. at 5.)

B. The Arbitration Clauses

The insurance policies issued by the Bermuda Insurers each contain a mandatory arbitration provision.² These arbitration clauses provide that all disputes arising under or relating to these policies shall be fully and finally resolved by arbitration in Bermuda. (Complaint, Ex. B at 7.)

Allied maintains that as early as February 11, 2016, many months before the Global Settlement was reached, Allied notified MFGAA and others "of its desire to arbitrate, pursuant to the ... arbitration clause in the Allied [policy] ...." (Allied Response at 4.) Allied further maintains that over the next eight months, "(under a reservation of rights), Plaintiffs' counsel ... worked with [Allied] to empanel the arbitrators for the Bermuda Arbitration, pursuant to the terms of the Allied [policy]." (Id. ) The Plaintiffs dispute Allied's assertions regarding the status of the alleged Bermuda arbitration.

C. The Complaint and the Injunctive Orders

On October 27, 2016, the Plaintiffs filed a complaint (the "Complaint," ECF Doc. # 1) initiating this adversary proceeding against the Bermuda Insurers and Federal Insurance Company.³ The defendants had issued the top four layers of excess E & O insurance policies to MFGH. All other insurers in MFGH's D & O and E & O insurance towers paid their policy limits (to the extent not already exhausted) as part of the Global Settlement. The Plaintiffs brought this action to recover the $25 million policy proceeds under the defendants' E & O insurance policies.

On October 28, 2016, a summons and notice of a pretrial conference was entered on the docket in this adversary proceeding. (ECF Doc. # 2.) On November 1, 2016, the Plaintiffs requested that the Clerk of the Court mail the summons and Complaint to the Bermuda Insurers pursuant to Rule 4(f)(2)(c)(ii). (ECF Doc. # 3.) The Clerk's Office entered a Certificate of Mailing showing that the Clerk's Office mailed (by DHL overnight carrier) the summons and Complaint to each of the Bermuda Insurers on November 3, 2016. (ECF Doc. # 4.) On November 4, 2016, the Plaintiffs filed an affidavit of service noting that the summons and Complaint were mailed to the Bermuda Insurers. (ECF Doc. # 5.)

On November 8, 2016, the Bermuda Insurers obtained, ex parte , injunctive orders from the Bermuda Court, ordering that:

[The Plaintiffs] shall not, whether by themselves or through their employees, servants, agents, representatives, attorneys or otherwise, commence, prosecute or otherwise pursue litigation in the United States insofar as that litigation concerns, arises out of and/or relates to the insurance policy issued to the [Plaintiffs] by the [Bermuda Insurers], Policy No. C007357/005 ("the Policy") including, for the avoidance of doubt, litigation containing allegations of breach of "good faith and fair dealing" relating to the Policy) and/or otherwise breaches the terms of the valid and binding Bermuda arbitration agreement between the [Plaintiffs and the Bermuda Insurers] set out in Clause IX of the Policy, until trial or further order.

The [Plaintiffs] shall not, whether by themselves or through their employees, servants, agents, representatives, attorneys or otherwise, seek and/or obtain an anti-suit injunction and/or an anti-anti-suit injunction and/or a temporary, preliminary or permanent order restraining and/or preventing the [Defendant] from pursuing and/or otherwise enforcing the said valid and binding Bermuda arbitration agreement, until trial or further order.

(ECF Doc. # 7–2 at 2.) Each of the Bermuda Insurers obtained substantially similar injunctive orders (the "Injunctive Orders"). (See ECF Doc. ##...