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MF Global Holdings Ltd. v. Allied World Assurance Co. Ltd.

United States District Court, S.D. New York

February 9, 2017

MF GLOBAL HOLDINGS LTD., as Plan Administrator, and MF GLOBAL ASSIGNED ASSETS LLC, Plaintiffs,
v.
ALLIED WORLD ASSURANCE CO. LTD., IRON-STARR EXCESS AGENCY LTD., IRONSHORE INS. LTD., STARR INS. & REINSURANCE LTD., and FEDERAL INS. CO., Defendants.

          Attorneys for Plaintiffs JONES DAY By: Bruce Bennett, Esq., Edward M. Joyce, Esq., Jane Rue Wittstein, Esq.

          Attorneys for Allied World Defendants CRAVATH, SWAINE & MOORE LLP By: Daniel Slifkin, Esq. Omid H. Nasab, Esq. WHITE AND WILLIAMS LLP

          Attorneys for Iron-Starr Defendants D'AMATO & LYNCH By: Mary Jo Barry, Esq. Maryann Taylor, Esq.

          OPINION

          ROBERT W. SWEET U.S.D.J.

         Defendants Allied World Assurance Co. Ltd. ("Allied World"), Iron-Starr Excess Agency Ltd., Ironshore Insurance Ltd., Starr Insurance & Reinsurance Ltd. (collectively the "Iron-Starr Defendants" and collectively with Allied World, the "Bermuda Insurers"), and Federal Insurance Company ("Federal" collectively with the Bermuda Insurers, "Defendants") seek leave to appeal the Bankruptcy Court's December 21, 2016 order granting a Temporary Restraining Order ("TRO") to plaintiffs MF Global Holdings, Ltd. ("MFGH"), MF Global Assigned Assets LLC ("MFGAA, " collectively with MFGH "Plaintiffs") against Defendants. Upon the findings and conclusions set forth below, the Bermuda Insurers' motion for leave to appeal is denied.

         Prior Proceedings

         On October 31, 2011 MFGH commenced chapter 11 bankruptcy proceedings. In re MG Global Holdings Ltd., No. 11-15059 (MG) (Bankr. S.D.N.Y.). On the same day, a trustee was appointed to liquidate MFGH's broker-dealer subsidiary, MF Global Inc. ("MFGI") under the Securities Investor Protection Act of 1970 ("SIPA"). In re MF Global Inc., No. 11-2790 (Bankr. S.D.N.Y.). Both cases were assigned to the Honorable Martin Glenn, who has adjudicated the matters since 2011. MF Global's collapse triggered claims by a number of stakeholders, including creditors, equity holders, and customers. The claims were brought against the MF Global companies as well as former managers, directors, and officers of the companies (the "Individual Insureds"). The claims against these Individual Insureds were consolidated into a multi-district litigation, and they, along with MFGH and MFGI, sought coverage under MF Global's directors and officers ("D&O") and errors and omissions ("E&O") insurance policies for the May 31, 2011 to May 31, 2012 policy period.

         The MF Global parties and Individual Insureds reached a global settlement for all of these claims in the MDL litigation, which amounted to a $159 million settlement, requiring the insurance companies to pay full policy limits to settle all of the claims. However, the three insurance companies at the top of the E&O insurance tower, which are the three Defendants in this case, refused to participate in the settlement, under which they owe a collective $25 million.

         On October 27, 2016, the MF Global parties filed their complaint in the Southern District of New York Bankruptcy Court seeking to enforce the coverage. In response to the Complaint, on November 8, 2016 the Defendants successfully obtained an Anti-Suit Injunction against the Plaintiffs in the Supreme Court of Bermuda, Civil Jurisdiction. These Anti-Suit Injunctions enjoined the Plaintiffs and their attorneys from pursuing litigation in the United States concerning Defendants' E&O policies. The Plaintiffs notified the Bankruptcy Court about the Anti-Suit Injunction on November 21, 2016.

         On November 22, 2016 the Bankruptcy Court sua sponte issued an Order to Show Cause for why the Defendants should not be held in contempt (the "First OSC"). On November 28, 2016 the Defendants moved to dismiss the Complaint for lack of personal jurisdiction, subject matter jurisdiction, and improper service of process. On the same date, the Defendants also moved for the Bankruptcy Court to compel arbitration of the claims asserted against them. It appears that earlier attempts at arbitration were not successful as the parties could not agree on a full set of arbitrators. The parties dispute whether Plaintiffs were permitted under the Anti-Suit Injunction from responding to these motions. Regardless of these competing interpretations of the Anti-Suit Injunction, Plaintiffs did not respond to the motion to dismiss for lack of jurisdiction nor the motion to compel arbitration.

         On December 14, 2016 Judge Glenn heard oral argument on the First OSC; however the Bermuda Insurers' counsel "refused to consent to allow the [Plaintiffs'] counsel an opportunity to be heard in connection with [the First OSC], or any other matter" because of the Anti-Suit Injunction in Bermuda.

         On December 21, 2016 Judge Glenn issued a Temporary Restraining Order ("TRO") prohibiting the Bermuda Insurers from taking further action to enforce the Bermuda Anti-Suit Injunction, finding Plaintiffs had established through their pleadings personal jurisdiction, subject matter jurisdiction, and proper service of process on Defendants. Then on December 22, 2016, one day after the TRO was issued, the Bermuda Insurers again sought relief from the Bermuda Courts. The relief they sought from the Bermuda Court was permanent injunctive relief reguiring Plaintiffs to terminate the bankruptcy proceedings before Judge Glenn in the Southern District of New York. On December 23, 2016 the Bermuda Court issued its Reasons for Decision explaining its ruling for entry of the ex parte anti- suit injunctions. On December 29, 2016, the Bankruptcy Court entered a Second OSC as to why the Bermuda Insurers should not be held in contempt for violating the TRO by filing the motion for injunctive relief with the Bermuda court on December 22, 2016.

         The Bankruptcy Court converted the TRO into a Preliminary Injunction on January 12, 2017. On that same date, the Bankruptcy Court also found the Bermuda Insurers in contempt for violating the TRO by seeking relief from the Bermuda court on December 22, 2016. The Bermuda Insurers have sought leave to appeal the Preliminary Injunction and Contempt Orders. That motion became fully briefed on February 7, 2017 and will not be argued until March 2, 2017.

         Allied World represented in its reply brief for the instant motion that the Bermuda Anti-Suit Injunctions have now been lifted. Def. Rep. Br. at 10. On January 23, 2017 the Bankruptcy Court issued an opinion finding that the Bermuda Insurers violated the Barton Doctrine, which requires parties to a U.S. bankruptcy proceeding to obtain leave of the Bankruptcy Court before filing an action in a foreign jurisdiction. The ...


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