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Robert Plan Corp. v. Liberty Mutual Insurance Co.

March 23, 2010

THE ROBERT PLAN CORPORATION AND THE ROBERT PLAN OF NEW YORK CORPORATION, APPELLEES,
v.
LIBERTY MUTUAL INSURANCE COMPANY AND LIBERTY MUTUAL FIRE INSURANCE COMPANY, APPELLANTS.



The opinion of the court was delivered by: Seybert, District Judge

MEMORANDUM AND ORDER

INTRODUCTION

Appellants are creditors Liberty Mutual Insurance Company and Liberty Mutual Fire Insurance Company (collectively, "Appellants" or "Liberty Mutual"). Appellees are debtors The Robert Plan Corporation and The Robert Plan of New York Corporation (collectively, "Appellees" or "Debtors").

On March 19, 2009, United States Bankruptcy Judge Robert E. Grossman granted Appellees' motion for a preliminary injunction enjoining Appellants' contempt action against third party non-debtors Philbert Nezamoodeen and Jasper J. Jackson (collectively, "Officers"). Appellants now appeal that decision. For the foregoing reasons, the Appeal is DENIED and the Bankruptcy Court's Order is AFFIRMED.

BACKGROUND

The Robert Plan Corporation ("Robert Plan") is a Delaware corporation with its principal place of business in New York. See Appellee's Compl. ¶ 5. Robert Plan's wholly owned subsidiary, the Robert Plan of New York Corporation ("Robert Plan of New York") is a New York corporation. Id. at ¶ 6. Nezamoodeen and Jackson are Robert Plan officers. Id. at ¶ 15. Appellants are both Massachusetts corporations, operating as stock insurance companies. Id. at ¶¶ 7, 8.

In August 2007, Liberty Mutual obtained a $236,989.36 judgment in the New York Supreme Court, Queens County, against Robert Plan. A balance of $173,313 is still owed. Seeking to enforce its judgment, Liberty Mutual served restraining notices on the Debtors, prohibiting Debtors from transferring their property. In addition, in April 2008, Liberty Mutual subpoenaed Robert Plan for a deposition and certain documents. Robert Plan failed to produce documents or appear for the deposition. Robert Plan contends that these failures were not willful, but resulted from the company being in distress and thus unable to comply with Liberty Mutual's demands.

Despite the restraining notices, Robert Plan paid out $322,597.51 of its assets. Most of this sum went to payroll and related expenses, such as payroll taxes and unemployment insurance. But a small portion went to third parties, including a settlement of a wrongful discharge claim.

On August 25, 2008, the Debtors filed Chapter 11 petitions in the United States Bankruptcy Court for the Eastern District of New York. Due to this filing, on September 2, 2008, the New York Supreme Court stayed proceedings, including the contempt proceedings that Liberty Mutual commenced against the Debtors. Liberty Mutual then commenced a contempt action in New York Supreme Court, Kings County against the Officers for violating the restraining notices by paying out Robert Plan's assets rather than satisfying the outstanding judgment. In this action, Liberty Mutual sought $173,313 in sanctions against the Officers. On January 22, 2009, the Debtors filed a motion in the Bankruptcy Court seeking to stay the contempt action against the Officers.

Judge Grossman conducted two days of hearings to decide if he should stay the Kings County action against the Officers. After the first hearing, Judge Grossman requested further briefing on three specific issues: (1) did the Officers have a right to seek indemnification from the Debtors?; (2) if the Officers were found in contempt, would that negate their right to indemnification?; and (3) is indemnification an administrative claim against the estate or a general unsecured claim? See Jan. 29, 2009 Hearing Tr. at 42.

Judge Grossman received this briefing and then conducted another hearing, where he listened to oral arguments. Judge Grossman then granted the Debtors' motion to extend the automatic stay to the Officers, finding that "unusual circumstance warrant the extension of the automatic stay as to the contempt action Liberty Mutual commenced against the officers." March 4, 2009 Tr. at 37. In so ruling, Judge Grossman held that the "the identity of The Robert Plan and Officers is identical" because "the debtors agree that The Officers are entitled to indemnification" for any judgment rendered against them. Id. at 43.

Appellants contend that Judge Grossman erred in granting the Debtors' motion for a stay. See Appellant's Br. at 13. Appellants posit that an injunction is only proper if there is an "absolute" right to indemnification, which -- Appellants contend -Delaware law does not provide for. Id. at 13-14. Furthermore, Appellants argue that Judge Grossman improperly based his decision on Debtors' declaration that they would indemnify the Officers. Id. at 14. On the contrary, Appellants insist, the Officers could not legally receive indemnification because they did not act in good faith when they supposedly engaged in contempt of court.

DISCUSSION

I. Standard of ...


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