Villarreal v. N.Y. Marine & Gen. Ins. Co. (In re OGA Charters, LLC)

• Decision Date: 27 July 2016
• Docket Number: ADVERSARY NO. 16–7016,CASE NO: 16–70297
• Citation: 554 B.R. 415
• Parties: In re: OGA Charters, LLC, Putative Debtor Marta Villarreal, et al, Plaintiffs v. New York Marine and General Insurance Company, et al, Defendants
• Court: U.S. Bankruptcy Court — Southern District of Texas

554 B.R. 415

In re: OGA Charters, LLC, Putative Debtor

Marta Villarreal, et al, Plaintiffs

v.New York Marine and General Insurance Company, et al, Defendants

CASE NO: 16–70297

ADVERSARY NO. 16–7016

United States Bankruptcy Court, S.D. Texas, McAllen Division.

Signed July 27, 2016

Shelby A. Jordan, Jordan Hyden Womble Culbreth & Holze, PC, Corpus Christi, TX, Michael A. McGurk, Kittleman Thomas et al., McAllen, TX, for Plaintiffs.

New York Marine and General Insurance Company, Austin, TX, pro se.

OGA Charters, LLC, San Juan, TX, pro se.

MEMORANDUM OPINION

GRANTING PETITIONING CREDITOR'S VERIFIED EMERGENCY MOTION TO ENJOIN, PURSUANT TO 11 U.S.C. § 105, AND RULE 7065, BRP, THE DISSIPATION OF ASSETS BY THE DEBTOR AND ITS INSURERS MADE OUTSIDE THE ORDINARY COURSE OF ITS OPERATIONS

AND

GRANTING IN PART, DENYING IN PART PETITIONING CREDITORS' MOTION FOR TEMPORARY RESTRAINING ORDER AND FOR PRELIMINARY DECLARATORY AND/OR INJUNCTIVE RELIEF AND MEMORANDUM OF LAW IN SUPPORT

[Resolving Case No. 16–70297, ECF No. 3 and Case No. 16–7016, ECF No. 2 ]

Eduardo V. Rodriguez

, United States Bankruptcy Judge

I. INTRODUCTION

Pending before the Court are two matters, the first is Petitioning Creditors¹ self-styled “Verified Emergency Motion to Enjoin, Pursuant to 11 U.S.C. § 105

, and Rule 7065, BRP, the Dissipation of Assets by the Debtor and its Insurers Made Outside the Ordinary Course of its Operations.” [ECF No. 3] (the “Motion ”). The second is Petitioning Creditors', as plaintiffs in the associated adversary proceeding, self-styled “Motion for Temporary Restraining Order and for Preliminary Declaratory and/or Injunctive Relief and Memorandum of Law in Support.” [Case No. 16–7016, ECF No. 2] (the “Adversary Motion ”). The Motion seeks to enjoin OGA Charters, LLC's (“OGA ” or “Putative Debtor ”) liability insurance carrier, New York Marine and General Insurance Company (the “Insurance Company ”), from finalizing any settlements on OGA's liability stemming from an accident that occurred on May 14, 2016. [Case No. 16–70297, ECF No. 3 at ¶¶ 9, 13, 31–33]. The relief sought is temporary until this Court can determine whether the Petitioning Creditors² satisfy the requirements of 11 U.S.C. § 303.³ The Petitioning Creditors are opposed by other similarly situated creditors,⁴ who for various reasons, primarily that they have entered into settlements with the Insurance Company, seek to prevent Petitioning Creditors from having this Court grant relief by enjoining their settlements or by finding that Petitioning Creditors satisfy § 303

's requirements. This Court considers the pleadings and briefs filed by the parties; the arguments presented at the hearing held July 26, 2016; all other evidence in the record; and relevant case law. This Court finds that the outcome of the looming § 303 hearing will be determinative of whether § 362 will stay any settlements with the Insurance Company and, as such, the relief sought by Petitioning Creditors merely seeks to maintain status quo until the most important issue in this matter is resolved, whether an order for relief in the involuntary bankruptcy of OGA can and will be issued by this Court.

II. FINDINGS OF FACT

This Court makes the following Findings of Fact and Conclusions of Law pursuant to Federal Rules of Bankruptcy Procedure 7052

, which incorporates Fed. R. Civ. P. 52, and 9014. To the extent that any Finding of Fact constitutes a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law constitutes a Finding of Fact, it is adopted as such. This Court made certain oral findings and conclusions on the record. This Memorandum Opinion supplements those findings and conclusions. If there is an inconsistency, this Memorandum Opinion controls.

On May 14, 2016, a bus carrying passengers, many of which are before this Court, was involved in an accident during an excursion to the Kikapoo Lucky Eagle Casino (the “Accident ”). [ECF No. 3 at ¶ 9]; [ECF No. 22 at ¶ 1]; [ECF No. 23 at ¶ 2]; [ECF No. 27 at ¶ 2]. This is undisputed by the parties.⁵ Also undisputed is as a result of the accident, the passengers, including the subsequent representative for their estates or children, respectively, before this Court became creditors of OGA. Further undisputed is that OGA maintained a liability policy with the Insurance Company that would cover a maximum of $5,000,000 in liability. [ECF No. 3–4 at 1].

On July 8, 2016, the Petitioning Creditors filed their Involuntary Petition Against a Non-Individual. [ECF No. 1]. Two days later on July 10, 2016, Petitioning Creditors filed the Motion. [ECF No. 3]. The Motion alleges that the Insurance Company had reached settlements, including having written agreements, pursuant to Tex. R. Civ. P. 11

, between certain parties and the Insurance Company, and that having executed those written agreements the entirety of OGA's liability insurance coverage had been exhausted. Id. at ¶ 13–15; [ECF Nos. 3–2, 3–3, and 3–4]. On July 11, 2016, Petitioning Creditors also filed an adversary proceeding against OGA. [Case No. 16–7016, ECF No. 1]. In the adversary, Petitioning Creditors filed a motion that is substantially similar to the instant Motion, but also requests declaratory relief. [ECF No. 2].

On July 12, 2016, this Court held a preliminary hearing on the Petitioning Creditor's Motion. At that hearing, the Petitioning Creditors presented their arguments for why a temporary restraining order, restraining the Insurance Company from finalizing any settlements, should be entered until the final hearing on the Motion. In addition, Intervenors' Counsel argued why a temporary restraining order should not be entered.

As a result of the July 12, 2016 hearing, this Court entered a temporary restraining order that enjoined certain parties from undertaking certain actions related to the Accident and the insurance policy and set a hearing for July 26, 2016. See generally [ECF No. 13] (the “TRO ”). The Court also ordered the parties to file briefing on the issue of whether the proceeds of Insurance Company's policy would be property of the Putative Debtor's estate. [ECF No. 11]. On July 21, 2016, the parties filed their respective briefs. [ECF Nos. 22–23, 25, and 27].

At the July 26, 2016 hearing (the “Hearing ”), Counsel for the Petitioning Creditors, Counsel for the Intervenors, Counsel for Garcia, and Counsel for OGA appeared before this Court. Steven Shurn, Counsel for OGA, had been recently retained and announced on the record and via stipulation submitted to the Court that service of process of the OGA could be effectuated through him. Counsel for each of the above referenced parties presented argument to this Court on the Motion and the Adversary Motion. In addition:

1. Evidence Admitted by Petitioning Creditors

a. Exhibit No. 6: New York Marine and General Insurance Company Executed Summons in Adversary 16–07016. [Case No. 16–7016, ECF No. 12].

b. Exhibit No. 7: USPS Tracker for New York Marine and General Insurance Company Adversary Summons sent by CMRR # 9414726699042959675983.

c. Exhibit No. 8: Affidavit of John David Franz dated July 11, 2016, except for ¶ E, K, and L.

d. Exhibit No. 9: Newspaper Article

e. Exhibit No. 10: Email String, but only as to evidence of the exhaustion of liability coverage.

f. Exhibit No. 11: June 21, 2016 Settlement letter to Marta Villarreal from Prosight, but only as to evidence of the exhaustion of liability coverage.

g. Exhibit No. 12: William R. Moye June 23, 2016 Rule 11

Agreement: Group Mediation and Extension of Deadlines on Settlement Demands signed by John David Franz, except as to admission(s) of liability.

h. Exhibit No. 13: William R. Moye June 23, 2016 Rule 11 Agreement: Group Mediation and Extension of Deadlines on Settlement Demands signed by Juan Ramon Alvarez, except as to admission of liability.

i. Exhibit No. 14: Affidavit of John David Franz dated July 21, 2016

j. Exhibit No. 15: Affidavit of Kraig L. Rushing dated July 21, 2016

k. Exhibit No. 16: Affidavit of Jeffrey Mark Stem dated July 21, 2016

l. Exhibit No. 17: Affidavit of Ricardo Garcia dated July 21, 2016

2. Testimony by John David Franz

a. Affirmed the nature of the claims and that amount of the claims, in excess of $15,775.00, held by five clients that he represents and that he had in his possession documents confirming the value of the claims for examination.

b. Affirmed that the signature was authentic and that he had signed the affidavit in the presence of the notary.

c. Testified as to the nature of the Rule 11

Settlement sent by Mr. William Moye, as representative of the Putative Debtor, and the fact surrounding receipt, execution, and return of said settlement. See also Exh. 12.

3. Stipulations:

a. Petitioning Creditor's Counsel presented a Stipulation entered into between Petitioning Creditors and OGA. Mr. Shurn confirmed the validity of the Stipulation, which provided certain deadlines for responding to the Involuntary Proceeding and Adversary Proceeding.

4. Mr. Shurn, OGA's Counsel, made the following statements on the record

a. He was in contact with OGA's principal who has come to a point of understanding on the Accident, the Involuntary Proceeding, and the Adversary Proceeding.

b. OGA's principal made an informed business decision in agreeing to the stipulation with Petitioning Creditors to not oppose the temporary injunction in an attempt to determine the course of OGA in this involuntary bankruptcy.

c. OGA's principal was not seeking to evade this Court's jurisdiction in any way and, as such, all service of process could be effectuated through Mr. Shurn.

d. Mr. Shurn had begun to gather information about OGA, its assets and liabilities, in order to begin creating schedules. To wit:

i. Property insurance payment of $20,000 for the damage to the bus involved in the Accident.

ii. OGA's second bus had an existing lien on it and there may be some minor equity.

e. Mr. Shurn's belief was that OGA did not have many creditors as it had probably been paying its bills on time.

f. Mr....