Opinion
18-33707 Adversary Proc. 18-03094
03-15-2022
In re: Diocese of Winona-Rochester, Debtor. v. United States Fire Insurance Company, Defendant. DW Harrow & Assoc., LLC, as Trustee of the Diocese of Winona-Rochester Settlement Trust, Plaintiff,
BURNS BOWEN BAIR LLP Timothy W. Burns (admitted pro hac vice) Jeff J. Bowen (admitted pro hac vice) Jesse J. Bair (admitted pro hac vice) Robert T. Kugler Andrew J. Glasnovich Edwin H. Caldie STINSON LLP Counsel for the Trustee
Chapter 11 Case
BURNS BOWEN BAIR LLP Timothy W. Burns (admitted pro hac vice) Jeff J. Bowen (admitted pro hac vice) Jesse J. Bair (admitted pro hac vice)
Robert T. Kugler Andrew J. Glasnovich Edwin H. Caldie STINSON LLP Counsel for the Trustee
PLAINTIFF'S BRIEF REGARDING ABSTENTION AND REMAND
Pursuant to the Court's request, Plaintiff DW Harrow & Assoc., LLC, as Trustee of the Diocese of Winona-Rochester Settlement Trust (the "Trust") submits this brief addressing whether permissive abstention and/or remand is appropriate for this matter. As explained below, in light of (1) the regularity with which federal courts decide state law insurance issues; and (2) the inefficiency of having to start this insurance case from scratch-three and one-half years after it was initiated-neither abstention nor remand are appropriate here.
ARGUMENT
28 U.S.C. § 1334(c)(1) provides that a district court, "in the interest of justice, or in the interest of comity with State courts or respect for State law," may abstain "from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11." Critically, however, "[b]ecause federal courts have an obligation to exercise the jurisdiction properly given to them, 'there is a presumption in favor of the exercise of federal jurisdiction and against abstention.'" In re WP Realty Acquisition III, LLC, 626 B.R. 154, 162 (Bankr. S.D.N.Y. 2021) (quoting Rahl v. Bande, 316 B.R. 127, 135 (S.D.N.Y. 2004)) (emphasis added); see also Matter of Chicago, Milwaukee, St. Paul & Pac. R. Co., 6 F.3d 1184, 1189 (7th Cir. 1993) ("[W]e are mindful that federal courts generally should exercise their jurisdiction if properly conferred and . . . abstention is the exception rather than the rule.").
As noted by the Court in its February 16, 2022 Order, bankruptcy courts often consider some combination of twelve factors when deciding whether permissive abstention is appropriate. (See Adversary Proceeding ("AP") Dkt. No. 132 (citing In re Williams, 256 B.R. 885, 894 (B.A.P. 8th Cir. 2001)). Nevertheless, a court need not consider all twelve factors in every case. Rather, these factors should be applied "'flexibly'" because "'their relevance and importance will vary with the particular circumstances of each case, and no one factor is necessarily determinative.'" In re Williams, 256 B.R. at 894 (quoting Matter of Chicago, Milwaukee, St. Paul & Pac. R. Co., 6 F.3d at 1189); see also In re Tronox, 603 B.R. 712, 726 (Bankr. S.D.N.Y. 2019) ("The analysis 'is not a mechanical or mathematical exercise' and the court 'need not plod through a discussion of each factor in the laundry lists developed in prior decisions.'") (quoting In re Janssen, 396 B.R. 624, 636 (Bankr. E.D. Pa. 2008)). Ultimately, when considering abstention, "the pursuit of 'equity,' 'justice' and 'comity' involves a thoughtful, complex assessment of what makes good sense in the totality of the circumstances.'" Id. (internal citations omitted); see also Winstar Holdings, LLC v. Blackstone Grp. L.P., No. 07 CIV. 4634 (GEL), 2007 WL 4323003, at *6 (S.D.N.Y. Dec. 10, 2007) ("Under all these circumstances, common sense dictates the conclusion that the Bankruptcy Court is the proper forum for resolving these disputes[.]") (emphasis added). Here, efficiency, as well as the straight-forward nature of the Trust's insurance claims, show that "equity," "justice," and "comity" favor this Court retaining jurisdiction over the insurance case.
I. The insurance case does not present novel issues of state law
Federal courts regularly adjudicate state law insurance issues, and this case is no different. Factor three of the 12-factor abstention analysis considers "the difficult or unsettled nature of the applicable law." Here, this factor counsels strongly in favor of retention.
The Trust's claims concerning the existence and terms of the U.S. Fire policies (i.e., the "lost policies" issue) and the enforceability of the Miller-Shugart Agreements are "straightforward common-law claims that do not involve arcane or idiosyncratic provisions of [state] law." Winstar Holdings, LLC, 2007 WL 4323003, at *5.
See also In re LaRoche Indus., Inc., 312 B.R. 249, 254 (Bankr. D. Del. 2004) ("The state law issues involved here are straightforward breach of contract issues. They are not unsettled. 'Abstention is best when novel or unsettled issues of state law are involved.'") (internal citations omitted); In re Tronox, 603 B.R. at 727 ("While Pennsylvania law might provide Waleski with a cause of action, he points to no complex or unsettled area of Pennsylvania law that would counsel in favor of remand, nor does he imply that this Court is somehow hamstrung from applying whatever points of Pennsylvania law might be relevant.").
In fact, the two cases primarily relied upon by U.S. Fire to support its denial of coverage for the Adamson claims are federal decisions: "[t]here are two decisions from two Minnesota federal courts involving the Diocese and its insurers that previously decided the issue of a lack of a covered 'occurrence' under the Diocese's liability policies as to claims arising out of sexual abuse by Father Adamson." See Joint Disclosure Statement, Bankruptcy Dkt. No. 317, at 25 (containing a statement prepared by U.S. Fire that cited Diocese of Winona v. Interstate Fire & Cas. Co., 89 F.3d 1386 (8th Cir. 1996) & U.S. Fire v. Diocese of Winona, 503 F.Supp.2d 1129 (D. Minn. 2007)).
Simply put, insurance claims, including claims involving "lost policies" and Miller-Shugart agreements are regularly adjudicated in federal court. The result should be no different here, particularly in light of the efficiency arguments outlined below.
See, e.g., Zurich Am. Ins. Co. v. NewMech Companies, Inc., No. CIV. 12-1568 RHK/JSM, 2014 WL 241760, at *3 (D. Minn. Jan. 22, 2014) ("The enforceability of an insurance policy is not dependent on its physical integrity; missing or destroyed policies may nonetheless be enforceable."); .A.P.I., Inc. Asbestos Settlement Tr. v. Atl. Mut. Ins. Co., No. CV 09-665 (JRT/JJG), 2010 WL 11537474, at *3 (D. Minn. May 3, 2010) (allowing discovery into a similarly situated insured's policies in a lost policy case where circumstances indicated the policies would be comparable, having the same title and policy number prefix); Bell Lumber & Pole Co. v. U.S. Fire Ins. Co., 847 F.Supp. 738, 743 (D. Minn. 1994) (concluding that a policyholder may "establish a prima facie case of coverage through circumstantial evidence," though acknowledging that the precise standard of proof under Minnesota law had not been articulated), aff'd, 60 F.3d 437 (8th Cir. 1995); Am. States Ins. Co. v. Mankato Iron & Metal, Inc., 848 F.Supp. 1436, 1440 (D. Minn. 1993) (same).
E.g., Interlachen Properties, LLC v. State Auto Ins. Co., 275 F.Supp.3d 1094, 1109 (D. Minn. 2017) (assessing enforceability of Miller-Shugart agreement); Am. Family Mut. Ins. Co. v. Donaldson, 820 F.3d 374, 379 (8th Cir. 2016) (same); Nelson v. Am. Home Assur. Co., 702 F.3d 1038, 1041-43 (8th Cir. 2012) (same); cf. In re RFC & ResCap Liquidating Tr. Action, 399 F.Supp.3d 804, 813 (D. Minn. 2019) (discussing Miller-Shugart requirements when analyzing similar arrangement).
Because the state court proceeding has been dormant for over three years, and because the state court issued no substantive decisions during the time in which the insurance case remained in state court, factor four ("the presence of a related proceeding commenced in state court or other nonbankruptcy court") also weighs against abstention.
II. Efficiency counsels strongly in favor of retention
The first factor of the 12-factor abstention analysis considers "the effect or lack thereof on the efficient administration of the estate if a Court recommends abstention."
The Fifth Amended Joint Chapter 11 Plan of Reorganization of the Diocese of Winona-Rochester (the "Plan") created the Trust to, among other purposes, pursue recoveries against Non-Settling Insurers, receive settlement amounts, and make distributions to the Diocese's primary creditors-the sexual abuse survivors. (Plan, § 6.2). The Plan specifically directs the Trust to carry out these duties with "the aim of preserving, managing, and maximizing Trust Assets to pay" the sexual abuse survivors. (Id.).
As explained at length in the Trust's Opposition to U.S. Fire's motion to dismiss, (AP Dkt. No. 122), and at the parties' oral argument, the insurance coverage questions to be resolved in this case are absolutely fundamental to the operation and implementation of the Plan, and, ultimately, to recovery by the sexual abuse survivors. The sexual abuse survivors have been waiting years to receive compensation for their injuries, and that delay should not be extended further by remanding this case to state court.
As the Court is aware, the parties have made good progress before this Court in narrowing the insurance dispute and in resolving preliminary motion practice. Moreover, there is a trial ready date set for early November 2022, with dispositive motions due by September 15, and fact discovery completed by July 29. This is a tight schedule that will enhance efficiency and conserve resources. It will also lead (one way or the other) to quicker resolution of the insurance case, which bears directly on the survivors' ultimate recovery under the Plan.
If this case is remanded to state court, however, the current schedule will be lost. It could take months to get another case schedule set, let alone a trial date, which could be years in the future.
By contrast, allowing this Court to continue to guide the parties through the pre-trial process will ensure the most efficient use of both judicial and party resources. Indeed, the district court has already recognized the increased efficiency of this Court handling pre-trial proceedings through its denials of the insurers' prior motions to withdraw the reference. (See AP Dkt. No. 48 at 10) (the "First Order").
Id. ("In fact, courts in this district have recognized the referral process 'as a means of increasing, not decreasing, judicial efficiency' in denying a motion to withdraw reference.") (quoting Kelley v. Opportunity Fin., LLC, No. 14-3375, 2015 WL 321536, at *3 (D. Minn. Jan. 26, 2015)); see also id. at 11 ("[T]he continued referral of pretrial proceedings to the bankruptcy court increases judicial efficiency.").
At bottom, this case is about insurance claims being pursued for the benefit of sexual abuse survivors under the Plan. Some of these survivors are elderly. And, unfortunately, some of them have passed away during the pendency of the bankruptcy. The Trust respectfully submits that the most efficient way to implement and administer the Plan for the benefit of survivors is to retain the insurance case for pre-trial proceedings before this Court.
CONCLUSION
For the foregoing reasons, this Court should retain jurisdiction over this case. For the same reasons that abstention is inappropriate, the closely-related doctrine of equitable remand, 28 U.S.C. § 1452(b), is also inapplicable here.