Veros Energy, LLC v. GCube Ins. Servs., Inc. (In re Veros Energy, LLC)

• Citation: 587 B.R. 134
• Decision Date: 26 April 2018
• Docket Number: BK No. 15–70470–JHH11,AP No. 16–70021–JHH
• Parties: IN RE: VEROS ENERGY, LLC, Debtor. Veros Energy, LLC, Plaintiff, v. GCube Insurance Services, Inc. and Kiln Syndicate 510, Defendants.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Alabama

587 B.R. 134

IN RE: VEROS ENERGY, LLC, Debtor.

Veros Energy, LLC, Plaintiff,

v.GCube Insurance Services, Inc. and Kiln Syndicate 510, Defendants.

BK No. 15–70470–JHH11

AP No. 16–70021–JHH

United States Bankruptcy Court, N.D. Alabama, Western Division.

Signed April 26, 2018

W. Craig Hamilton, Frederick G. Helmsing, Jr., McDowell Knight Roedder & Sledge, LLC, Mobile, AL, for Plaintiff.

Franklin Peeples Brannen, Lewis Brisbois Bisgaard & Smith LLP, Atlanta, GA, Vickie L. Driver, Dallas, TX, Brenen Gene Ely, Seth Tyler Hunter, Ely & Isenberg, LLC, Birmingham, AL, for Defendants.

MEMORANDUM OPINION

JENNIFER H. HENDERSON, UNITED STATES BANKRUPTCY JUDGE

The defendants move to dismiss this adversary proceeding (the "AP") or, alternatively, to transfer venue of the AP (AP Doc. 13) (the "Motion"),¹ relying on a "jurisdiction" clause contained in the certificate of insurance that forms the basis of the alleged causes of action. (See AP Doc. 1.) The plaintiff (and debtor in a related chapter 11 bankruptcy case) opposes the Motion (AP Doc. 29) (the "Response")² and seeks to enforce two other "jurisdiction" clauses in the certificate.³ For the reasons set forth herein, the Motion is due to be denied.

FINDINGS OF FACT AND STIPULATIONS⁴

A. The Bankruptcy Filing

Plaintiff Veros Energy, LLC ("Veros") is a limited liability company organized under the laws of the state of Kansas. (See BK⁵ Doc. 8; BK Doc. 258 at 4.) Veros previously operated a biodiesel fuel plant (the "Plant") in Moundville, Alabama, its principal place of business. (See BK Doc. 60 at 8; BK Doc. 258 at 4.) Veros leased the real property, fixtures, and improvements comprising the Plant from the two Kansas entities that own and manage Veros—Allam Alternative Energy, LLC and Lies Energy, LLC (together, the "Owners"). (See BK Doc. 10; BK Doc. 59 at 38; BK Doc. 60 at 6, 11; BK Doc. 60, Ex. SOFA 14; BK Doc. 190, Ex. 1 at 7; BK Doc. 190, Ex. 2 at 3; BK Doc. 258 at 4–5.)

On March 26, 2015, a boiler at the Plant exploded. (See BK Doc. 36; BK Doc. 60 at 4; BK Doc. 60, Ex. SOFA 8; AP Doc. 48 at 2.) Following the explosion, Veros ceased production at the Plant. (See BK Doc. 12 at 2; BK Doc. 13 at 2; BK Doc. 14 at 2; BK Doc. 60 at 10; BK Doc. 83, passim ; BK Doc. 190 at 3.) Shortly thereafter (on April 6th) Veros filed a petition for relief under chapter 11 of the Bankruptcy Code⁶ with this court (BK Doc. 1) (the "Petition"), commencing case number 15–70470 (the "Bankruptcy Case").

At the time of the explosion, Veros was insured by Lloyd's of London ("Lloyd's") surplus line insurance coverage (the "Insurance") effected through defendant GCube Insurance Services, Inc. ("GCube") on behalf of members of a Lloyd's syndicate (collectively, the "Underwriters"). (See BK Doc. 70 at 1–2; BK Doc. 70, Ex. A; BK Doc. 91, passim ; AP Doc. 1, Ex. 1; AP Doc. 38; AP Doc. 48 at 2.) The certificate of insurance executed by GCube on June 5, 2004 (AP Doc. 1, Ex. 1) (the "Certificate") provided for an initial coverage term of May 22, 2014 to May 21, 2015. (See Certificate at 2.) A few weeks after the Petition date, GCube notified Veros that the Insurance would not be renewed as a consequence of Veros's bankruptcy filing. (See BK Doc. 70, Ex. B.) The nonrenewal notice purported to cancel the Insurance effective as of May 21, 2015—24 days after the date of the nonrenewal notice. (See id. )

On Veros's motion (BK Doc. 70),⁷ and after notice and a hearing,⁸ the court entered an order determining that the Insurance was effective until at least the 60th day after the date of the nonrenewal notice (as a matter of applicable state law) and that GCube's attempted, earlier cancellation violated the automatic stay imposed by the Bankruptcy Code. (See BK Doc. 91.) GCube issued a second, post–Petition, nonrenewal notice that provided for a July 20, 2015 cancellation date, and, on May 27, 2018, Veros wired GCube the sum of $13,566.00 for the unpaid premium due.⁹

(BK Doc. 91; BK Doc. 108, Bank Statement at 1; see also AP Doc. 48 at 2–3.)

A little less than two months after the Insurance expired, Veros filed a motion to sell substantially all of its assets, which the court granted, in part. (See BK Docs. 190, 258, 261, 262.) Simultaneous with Veros's closing of the court-approved sale (the "Sale"), the Owners consummated a sale of the Plant to the purchaser of Veros's assets. (See BK Doc. 296.) Several months after the Sale closing, Veros proposed a chapter 11 plan of liquidation (BK Doc. 451) (the "Plan") to administer the remaining assets of its bankruptcy estate (the "Estate"). (See Plan, passim .)

In the court-approved disclosure statement for the Plan (BK Doc. 450) (the "Disclosure Statement"), Veros disclosed that it had made demand on GCube for payment of property damage and business interruption claims under the Insurance contract and that Veros intended to "assert contractual liability and potential tort liability ... should such claims not be paid...." (See Disclosure Statement at 11–12.) The Disclosure Statement specified that Veros planned to bring an adversary proceeding before this court if it was unable to settle its Insurance claims. (See Disclosure Statement at 11.) The Disclosure Statement estimated the value of the Insurance claims at more than $11.8 million, while explaining to creditors that any recovery thereon was uncertain. (Id. at 11–12.)

No creditor or other party in interest objected to confirmation of the Plan, and the court entered an order confirming the Plan with certain modifications agreed to by Veros, the Official Committee of Unsecured Creditors, and the Office of the Bankruptcy Administrator (the "Confirmation Order"). (See BK Doc. 494.) GCube received notice of the hearing to consider the Sale, the Disclosure Statement, the hearing to consider approval of the Disclosure Statement, the Plan, the hearing to consider confirmation of the Plan, and the order confirming the Plan. (See BK Docs. 197, 397, 416, 455, 495.) To date, GCube has not appeared in the Bankruptcy Case. (See BK docket, passim .)

B. The Post–Confirmation Estate

The Plan provides for the Estate to continue in existence post-confirmation, stating: "Given that [Veros's] assets are being liquidated and [Veros] will ultimately be dissolved, assets will not re-vest in a reorganized debtor, and [Veros's] assets will remain in the Estate and not re-vest upon confirmation." (Plan § 6.6.) The Plan further provides: "[a]ny settlement or compromise of claims or sales of Estate assets shall require Court approval pursuant to Bankruptcy Rule 9019"; "[a]ny of [Veros's] rights or cause[s] of action against any party ... shall remain assets of the ... Estate"; and "[t]he Court shall retain jurisdiction of this case ... [t]o enforce all causes of action which may exist on behalf of [Veros]" and "[t]o approve compromises and settlements of any claims or controversies ... and to oversee the orderly liquidation of the Estate." (Id. §§ 6.6, 6.8, 7.6, 7.8.) "Court" is defined in the Plan as "the United States Bankruptcy Court for the Northern District of Alabama, Western Division, presiding over reorganization cases" (i.e., this court) "or if necessary the United States District Court for said district having original jurisdiction over said reorganization cases" (the "District Court"). (Id. at § 1.10.)

The Plan is a "self-liquidating" plan in that Veros, which is controlled by the Owners (not a trust or committee), is tasked with liquidating the Estate. (See Plan, passim ; Confirmation Order at 5.) The Plan appoints a post-confirmation committee (comprised of the members of the Official Committee of Unsecured Creditors in the Bankruptcy Case) "to monitor pending contested matters, adversary proceedings, litigation and to help ensure the orderly liquidation of the Estate, as well as to review proposed settlements, assets sales, and to otherwise aid [Veros] in liquidation" (the "Committee"). (See Plan § 6.4.)

Other than certain blender's tax credits, which are disputed by the Internal Revenue Service, the Insurance claims are the only known Estate assets that Veros has not liquidated. (See Disclosure Statement, passim ; Plan, passim ; Post–Confirmation Operating Reports, passim ;¹⁰ BK Doc. 514; Doc. 610.) To date, holders of (pre-confirmation) allowed priority unsecured claims have been paid in full per the terms of the Plan. (See Plan Arts. II–IV; Disclosure Statement at 15–19; BK Doc. 517, Reconcile Session Reports; BK Doc. 524, Bank Reconciliations; BK Doc. 554; BK Doc. 558; BK Doc. 571, Bank Reconciliations; see also Post–Confirmation Operating Reports, passim .) Additionally, excepting the Owners, each holder of an allowed nonpriority unsecured claim (each, a "General Unsecured Claim") has been paid fifty percent of the total allowed amount of its General Unsecured Claim (the "50% Distribution"). (See Plan Art. IV; Disclosure Statement at 19–28; BK Doc. 524, Bank Reconciliations; BK Doc. 571, Bank Reconciliations; see also Post–Confirmation Operating Reports, passim .) The unpaid balance of the (non–Owner) General Unsecured Claims totals less than $1.35 million. (See Disclosure Statement at 19–28; BK Doc. 294; BK Doc. 524, Bank Reconciliations; BK Doc. 554; BK Doc. 558; BK Doc. 571, Bank Reconciliations; see also Post–Confirmation Operating Reports, passim .)

The Owners hold General Unsecured Claims totaling more than $16 million in the aggregate. (See Disclosure Statement at 27–28; BK Doc. 59 at 19, 26.) The Plan subordinates the Owners' General Unsecured Claims to the 50% Distribution. (See Plan Art. IV.) After the 50% Distribution is achieved, the Owners are entitled to share, pro rata, in additional disbursements to holders of General Unsecured Claims under the Plan. (See id. ; Disclosure Statement at 8–9, 27–28.) Based on the size of their General Unsecured Claims, the Owners will receive more than 92% percent of each additional disbursement to holders of General Unsecured Claims. (See Disclosure Statement at 28.)

Veros's bankruptcy counsel...