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Gulf Insurance Company v. Glasbrenner

May 22, 2006



These related cases come before the Court as appeals from a pair of decisions issued by the Bankruptcy Court for the Southern District of New York under the caption In re: Caldor, Inc., 95-B-44080 (CB) (the "Caldor Bankruptcy Case"). Both appeals are-at least superficially-related to the 1995 bankruptcy of the Caldor Corporation, which, before it collapsed, was one of the country's largest department store operators. But neither appeal has been brought to challenge the liquidation and ultimate dismissal, by order dated November 8, 2001, of the Caldor Bankruptcy Case. Indeed, Caldor has not even appeared in connection with these appeals, which is some indication of how tenuous is their connection to the underlying bankruptcy proceedings.

What connection there is can be summarized as follows. The appellant here is the Gulf Insurance Company ("Gulf"), which issued an "excess" insurance policy to Caldor in 1994, before its bankruptcy. Appellees are David and Susan Glasbrenner (collectively, the "Claimants"), who together held tort claims against Caldor that were stayed after its 1995 bankruptcy filing. In March 2001, Claimants received a lift-stay order; two years later, in late 2003, they won a multi-million dollar judgment against Caldor in New Jersey state court. Pursuant to the lift-stay order, however, that judgment was to be collected, if at all, out of Caldor's insurance, which was limited to Gulf's excess policy. Gulf responded to these events by filing for declaratory relief in the Southern District of New York in 2004 in an effort to litigate its obligations under the 1994 excess policy.

After the declaratory action was dismissed in late 2004 for improper venue, Gulf filed an adversary complaint in the Caldor Bankruptcy Case-which, as noted, had been dismissed in November 2001-against Claimants. In doing so, Gulf sought from the bankruptcy court an order vacating the lift-stay order that allowed Claimants to proceed in New Jersey; in the alternative, Gulf filed a motion to "enforce" an earlier (and lesser) award that Claimants had received in 1999 after participating in the Caldor Bankruptcy Case's mandatory alternative dispute resolution program (the "ADR Program"). In both instances, Gulf argued that Claimants failed to file a timely Notice of Intent to Litigate ("NIL") the ADR award, which, under the ADR Program rules, would mean that the award became "final and binding."

By orders dated May 3, 2004, the bankruptcy court denied Gulf's motion to enforce the ADR Program rules and dismissed the adversary complaint seeking, inter alia, to vacate the lift-stay orders. Gulf now appeals those rulings. For the reasons stated below, this Court affirms both of the Bankruptcy Court's orders.


The events relating to and preceding these appeals span several years and multiple jurisdictions, including at least one appearance before the Second Circuit, whose limited exposure to the history of these proceedings prompted use of the word "tortuous." Gulf Ins. Co. v. Glasbrenner, 417 F.3d 353, 354 (2d Cir. 2005). Although this Court would certainly concur in that characterization, proper context requires some description of the "four separate civil actions" and "one non-binding arbitration" that brought Gulf and the Claimants first to district courts in the Southern District of New York and the District of New Jersey, then to the Second Circuit, then to the Bankruptcy Court, and, now on appeal, to this Court. Id. In providing that context, citations to the amended records are included where available and appropriate.*fn1

A. Generally

Appellant Gulf is a Connecticut corporate subsidiary of Travelers Property & Casualty and has a principal place of business in New York. Appellee Claimants are New Jersey residents. Caldor is an inactive New York corporation that-as noted- owned and operated department stores throughout the Northeast before filing for bankruptcy in 1995 and being liquidated in 2001. On November 30, 1993, Gulf issued a "commercial umbrella policy" to Caldor, effective August 4, 1993 to August 4, 1994, pursuant to which Gulf agreed to an occurrence and aggregate limit of $10,000,000 (the "Policy"), but was to act as a secondary insurer. (4457 Record at 32--45).*fn2

On April 17, 1994, during the Policy's effective period, Appellee-Claimant Susan Glasbrenner was injured in a Caldor department store in New Jersey. (4457 Record at 163). Approximately ten months later, on February 1, 1995, Claimants filed a personal injury suit against Caldor in New Jersey state court. While that suit was pending, on September 18, 1995, Caldor filed for Chapter 11 bankruptcy protection in the Southern District of New York. As a result of the filing, all pre-petition claims against the company, including Claimants' personal injury lawsuit, were automatically stayed pursuant to 11 U.S.C. § 362. In June 1996, Claimants appeared in the Caldor bankruptcy case by filing a proof of claim.

Thereafter, on February 11, 1998, by order signed by Judge James L. Garrity, Jr., the bankruptcy court adopted a mandatory alternative dispute resolution program (the "ADR Program") to hear and resolve certain pre-petition claims, including Claimants', on either a binding or non-binding track. (4456 Record 74--77.) Although it is undisputed that Claimants chose the non-binding option, paragraph 40 of ADR Program rules provided that even non-binding awards would become "final and binding . . . without further action" unless a NIL was "serve[d] and file[d]" with the clerk of the bankruptcy court within ten days of being formally notified of the award. (4456 Record at 57.)

On August 12, 1999, Claimants received a non-binding ADR award of $450,000 (the "ADR Award") and, as provided by paragraph 40 of the rules, the ten-day NIL filing deadline began to run. (4456 Record at 57.) The events that followed are the focus of these appeals.

B. The August 23, 1999 "Ten Day" Deadline and the Lift-Stay Orders

On August 23, 1999, ten days after the August 12 filing deadline began to run, the ADR Program rules provided that Claimants' award was to become "final and binding." Gulf now argues on appeal, as it did below, that Claimants did not file the NIL until September 1, 1999, as evidenced by the fact that the NIL was not date stamped by the clerk of the bankruptcy court until September 1, more than ten days after the deadline expired. Claimants respond-also as they did below-that they timely filed the NIL on August 20, 1999, as evidenced by the "Acknowledgment of Service" card addressed to "Clerk, U.S. Bankruptcy Court" at "One Bowling Green," and noting "Glasbrenner" just above the address, which was signed by a deputy clerk, "F. Hayne," on August 20. (4456 Record at 272; see also Hr'g Tr. 3, Nov. 17, 2006.) Claimants counsel at the time has also testified (via sworn affidavit) that on August 19, 1999 he provided the "New Jersey Lawyers Service" (presumably a messenger service specializing in court filings) with Claimaints' NIL for filing, accompanied by a cover letter dated the same day. (Robert Fendt Aff. ¶¶ 5-6, Jan. 20, 2004 ("Fendt Aff."), 4456 Record at 206--08.)

This is the totality of the evidence on the subject, presumably because nobody questioned the filing date at the time. Indeed, all parties-including Caldor itself- appear to have proceeded on the assumption that the NIL was timely filed. Thus, on September 27, 1999 Caldor filed an "Application for an Order Granting [Claimants] Limited Relief from the Automatic Stay," pursuant to which Claimants would be allowed to pursue their tort claims against Caldor in the Southern District of New York, and, should they prevail, would be accorded status as "general unsecured" creditors. (4457 Record 82--90.) Caldor specifically notes in paragraph 14 [should be 12] of the application that Claimants "mailed a [NIL] to [their] . . . attorneys" after receiving the $450,000 ADR award. (Id. at 87.) The application further notes that "insofar as the . . . Claimant[] ha[s] satisfied the prerequisites for referral . . . in accordance with . . . the [ADR Program] . . . [Caldor] respectfully requests that their present [motion] be granted." (Id.)

By order dated October 21, 1999, the bankruptcy court granted Caldor's motion to lift the automatic stay (the "First Lift-Stay Order"), and also authorized the Claimants to seek modification of the lift stay if warranted, which they did with a second motion on January 30, 2001. (4457 Record at 91--93.) This second motion, which was granted on March 5, 2001, again represented that:

Claimants . . . timely filed proofs of claim . . . [and] participated in the . . . ADR Procedure, . . . [receiving] a non-binding arbitration award on August 12, 1999. [Claimants] mailed a Notice of Intent to Litigate to the attorneys who represented [Caldor] at the arbitration.

Once granted, the second motion also allowed claimants to pursue their claim against Caldor in New Jersey (as opposed to the Southern District of New York), as long "any . . . judgment entered in favor of [Claimants] will be limited solely to the proceeds of [Caldor's] applicable insurance coverage, and will not be collectible against or realized from [Caldor's] assets nor act as a claim against [Caldor] in the . . . Chapter 11 case" (the "Second Lift-Stay Order"). (4457 Record at 136--37.)

Approximately six months later, on October 2, 2001, the bankruptcy court issued an order authorizing Caldor's final distribution and inviting Caldor to submit an order dismissing the Chapter 11 cases (the "Final Distribution Order"). (4457 Record at 187--98.) Finding "N" of the Final Distribution Order notes that "[t]he Debtors have completed the winding up of their respective business affairs and have disposed of all claims by and against the Debtors in accordance with . . . orders of the Court." (Id. at 190.) As contemplated by the Final Distribution Order, the bankruptcy court dismissed the Caldor Bankruptcy Case on November 8, 2001. (4457 Record at 76--77.)

C. The New Jersey Action and Subsequent Events

Claimants' personal injury action against Caldor (the "New Jersey Action") commenced more than a year and a half later, on April 7, 2003, and resulted in an award of $2,647,827.91, including interest. Gulf appealed the verdict and, on April 24, filed a separate complaint against Claimants in the Southern District of New York seeking, among other things, a declaratory judgment that it could not be made to pay the New Jersey award because (i) the terms of the Policy had not been met; and (ii) Claimants failed to file a timely notice of claim with Gulf (the "New York Declaratory Action"). On June 11, 2003, Claimant filed a motion to dismiss the New York Declaratory Action, arguing improper venue, as well as lack of subject matter and personal jurisdiction.*fn3

Claimants also filed a complaint against Gulf in New Jersey state court (the "New Jersey Declaratory Action"), essentially seeking to force payment under the Policy of the award in the New Jersey Action, and also alleging claims for garnishment, declaratory relief, breach of contract and breach of good faith and fair dealing. On July 14, 2003, Gulf removed the New Jersey Declaratory Action to federal court, where it was assigned to Judge Rodriguez. By order dated November 12, 2003, Judge Rodriguez stayed the New Jersey Declaratory Action (upon Gulf's motion) pending the outcome of the first-filed New York Declaratory Action. (4457 Record at 176--83.) To this Court's knowledge, it remains stayed today.

After the stay, the focus of the dispute returned to the New York Declaratory Action, which had been (and still is) assigned to Judge Stanton. On October 3, 2003, Gulf filed a motion in the New York Declaratory Action to withdraw or enforce the "automatic bankruptcy reference." Before ruling on that request, on November 19, 2003, Judge Stanton dismissed the case on the ground that venue was improper in New York, both under 28 U.S.C. § 1391, which governs venue generally, and 28 U.S.C. §§ 1408 and 1409, which govern bankruptcy venue under Title 11. Gulf Ins. Co. v. Caldor Corp., 2003 WL 22764542 (S.D.N.Y. Nov. 20, 2003). In reaching the latter conclusion, Judge Stanton reasoned that:

[T]he Bankruptcy Court [in the Caldor Bankruptcy Case] effectively excluded Caldor's insurance coverage from its bankruptcy estate, and no relief can be sought against Caldor in the Bankruptcy Court because that Court specifically forbade claims against or recovery from the Caldor estate. There is [thus] no retained jurisdiction in the bankruptcy case on which to premise venue.

Id. at *3.

Gulf appealed Judge Stanton's ruling to the Second Circuit, and, on November 24, 2003, also filed an adversary complaint against Claimants in the original (and long since dismissed) Caldor Bankruptcy Case. The first count of the adversary complaint seeks to "revoke[], annul[], terminate[] and/or modif[y]" the Second Lift-Stay Order, pursuant to which the Claimants were allowed to bring the New Jersey ...

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