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Scott v. AIG Property Casualty Co.

United States District Court, S.D. New York

April 17, 2017



          GREGORY H. WOODS, United States District Judge.


         Four months ago, Plaintiff-Debtor Phillip Michael Scott commenced an adversary proceeding in bankruptcy court against Defendants Great Northern Insurance Company ("Great Northern") and AIG Properly Casualty Company ("AIG"), alleging causes of action for breach of contract and breach of the covenant of good faith and fair dealing relating to homeowner's insurance policies issued to Plaintiff by Great Northern and AIG. Defendants now move pursuant to 28 U.S.C. § 157(d) to withdraw the reference of this matter to the bankruptcy court.

         The Court finds that Defendants have shown cause for permissive withdrawal. The adversary proceeding concerns a non-core pre-petition contract dispute over which the bankruptcy court does not have final adjudicative authority, and withdrawal at this early stage of the case will conserve judicial resources and will not prejudice the parties. As a result, Defendants' motion to withdraw the bankruptcy reference is GRANTED.


         Plaintiff has a long, unfortunate history with the property at 12 Inverness Road, in Scarsdale, New York. The property has been the subject of multiple foreclosure actions, discussed in detail by the bankruptcy court in Plaintiffs last bankruptcy proceeding. See In re Philip Scott, Case No. 15-cv-755 (Bankr. S.D.N.Y), Dkt. No. 11 at 2-5. The house has burnt to the ground twice since Plaintiff acquired the property. This adversary proceeding is an insurance dispute related to the second fire.

         Plaintiff purchased a homeowner's insurance policy for his property from Defendant AIG, which was effective from December 4, 2014 to December 7, 2015. Adversary Proceeding Complaint, Case No. 16-01329, Dkt. No. 1 ("Compl.") ¶ 2. Defendant purchased an additional insurance policy for the property from Defendant Great Northern, which was effective from December 8, 2014 to December 8, 2015. Id. ¶ 3. Around January 1, 2015, the property was damaged by a fire. Id. ¶ 26. Plaintiff promptly submitted an insurance claim to Defendants seeking insurance coverage for the damage to the property caused by the fire. Id. ¶ 29.

         On July 20, 2016, Plaintiff filed a voluntary bankruptcy petition seeking relief under Chapter 13 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. In re Phillip Scott, Case No. 16-12045 (Bankr. S.D.N.Y). On October 4, 2016, AIG issued a letter denying Plaintiffs insurance claim for damages resulting from the fire. PL's Opp'n, Dkt. No. 12, at 6-7. Plaintiff states that Great Northern has also not provided payment for the claim. Id. at 7.

         On December 28, 2016, Plaintiff commenced an adversary proceeding against Defendants. The adversary proceeding complaint seeks damages for breach of contract and for breach of an implied covenant of good faith and fair dealing, contending that Defendants breached their respective insurance contracts by withholding payment under the homeowner's insurance policies. On February 13, 2017, Defendant Great Northern moved this Court to withdraw the bankruptcy reference. Dkt. No. 1. Defendant AIG adopted the arguments set forth in Great Northern's motion for withdrawal. Affirmation of Michael Bono, Dkt. No. 4 ¶ 9. On March 2, 2017, Plaintiff opposed Defendants' motion. Dkt. No. 12. On March 9, 2017, Defendant AIG submitted a reply brief. Dkt. No. 14.


         District courts have original jurisdiction over bankruptcy cases and all civil proceedings "arising under" or "related to" cases under title 11. 28 U.S.C. § 1334; see In re Connie's Trading Corp., et al, No. 14-civ-376, 2014 WL 1813751, at *3 (S.D.N.Y. May 8, 2014). The Southern District of New York has a standing order that provides that "any or all proceedings arising under title 11 or arising in or related to a case under title 11" are automatically referred to the bankruptcy court. In re Standing Order of Reference Re Title 11, 12 Misc. 32 (S.D.N.Y. Feb. 1, 2012). Pursuant to 28 U.S.C. § 157(d), however, "a district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown." The Second Circuit has articulated a number of non-exhaustive factors that district courts should weigh in determining whether "cause" is shown for permissive withdrawal under § 157(d). See In re Orion Pictures Corp., 4 F.3d 1095 (2d Cir. 1993). Those factors, commonly referred to as the "Orion factors, " include: "(1) whether the claim is core or non-core, (2) what is the most efficient use of judicial resources, (3) what is the delay and what are the costs to the parties, (4) what will promote uniformity of bankruptcy administration, (5) what will prevent forum shopping, and (6) other related factors." In re Burger Boys, Inc., 94 F.3d 755, 762 (2d Cir. 1996) (paraphrasing Orion, 4 F.3d at 1101).

         Orion and subsequent cases emphasized that the first factor-whether a claim is core or non-core-was the most important consideration. See Id. However, a 2011 Supreme Court decision reoriented this analysis. In Stern v. Marshall, the Supreme Court held that Article III, Section 1 of the U.S. Constitution limits Congress's power to assign adjudicatory power to the bankruptcy court. 564 U.S. 462 (2011). As the Court explained in Stern:

When a suit is made of the stuff of the traditional actions at common law tried by the courts at Westminster in 1789, and is brought within the bounds of federal jurisdiction, the responsibility for deciding that suit rests with Article III judges in Article III courts. The Constitution assigns that job-resolution of the mundane as well as the glamorous, matters of common law and statute as well as constitutional law, issues of fact as well as issues of law-to the Judiciary.

Id. at 484 (citing Northern Pipeline Constr. Co. v. Marathon Pipe Line Co.,458 U.S. 50, 86-87 n.39, 90 (1982) (internal ...

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