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In re MF Global Holdings Ltd.

United States District Court, S.D. New York

October 30, 2017

In Re MF GLOBAL HOLDINGS LTD., et al., Debtors
v.
ALLIED WORLD ASSURANCE COMPANY, LTD, Defendant-Appellee, MF GLOBAL HOLDINGS LTD., as Plan Administrator, and MF GLOBAL ASSIGNED ASSETS LLC, PlamtiffS-Appellants, IRON-STARR EXCESS AGENCY LTD., IRONSHORE INSURANCE LTD., STARR INSRUANCE & REINSURANCE LIMITED, and FEDERAL INSURANCE COMPANY, Defendants.

          OPINION AND ORDER

          JED S. RAKOFF, U.S.D.J.

         Plaintiffs MF Global Holdings Limited ("MF Global"), as Plan Administrator, and MF Global Assigned Assets LLC move for leave to appeal an order from the bankruptcy court (Glenn, J.) compelling arbitration and for a stay of the arbitration proceedings pending a ruling on that appeal. Defendant Allied World Assurance Company Limited ("Allied World") opposes. For the reasons that follow, the Court denies the motions.

         MF Global, a holding company incorporated in Delaware, purchased errors and omissions insurance policies for the period May 31, 2011 to May 31, 2012 from, among others, Allied World, a company headquartered and incorporated in Bermuda. The policy obligated Allied World to contribute up to $15 million in the event of a covered loss.[1] In October 2011, MF Global collapsed and filed for bankruptcy, triggering a wave of lawsuits from customers whose deposits it had misappropriated. These claims were consolidated in a multi-district litigation before the bankruptcy court, and a global settlement was reached. Plaintiffs sought coverage under the errors and omissions insurance policies, and every other provider has since settled, with the vast majority paying the full policy limit. Allied World, however, declines to pay, on the ground that repayment of misappropriated funds is not a covered loss.

         The liquidation plan, which the bankruptcy court confirmed in April 2013, provides that "the Bankruptcy Court shall retain such jurisdiction over the Chapter 11 Cases on and after the Effective Date to the full extent legally permissible, including jurisdiction to . . . [a]d]udicate, decide or resolve any motions, adversary proceedings, contested or litigated matters and any other matters." Bankr. Dkt., ECF No. 1382 ("Plan") at Art. XII.e. On October 27, 2016, MF Global filed an adversary complaint in the bankruptcy court against, among others, Allied World, seeking these insurance payments. Complaint, Adv. Bankr. Dkt., ECF No. 1.

         The underlying insurance contract, however, required any disputes arising from the policy to be resolved by arbitration in Bermuda. Complaint, Ex. B at 7, In re MF Glob. Holdings Ltd., et al., No. 11-15059 (Bankr. S.D.N.Y) ("Bankr. Dkt."), ECF No. 1; Arbitration Order at 14-18 (holding that the arbitration clause covered the instant dispute). Allied World has consistently, even if at times a bit overzealously, sought to have the dispute arbitrated in Bermuda pursuant to the pre-petition contract. See Memorandum Opinion and Order Holding the Bermuda Insurers in Contempt, Adv. Bankr. Dkt. ECF No. 67.

         Consistent with this approach, Allied World filed a motion to compel arbitration roughly a month after the complaint was filed in this adversary proceeding. Adv. Bankr. Dkt., ECF No. 13. In opposition, plaintiffs argued, among other things, that the reservation of the bankruptcy court's jurisdiction in the plan superseded the insurance policy's arbitration clause. The bankruptcy court rejected this argument, holding that, "[i]f the Debtors in this case wanted to attempt to modify pre-petition contract rights to arbitrate disputes that had not resulted in a pre-confirmation adversary proceeding, at a minimum they should have said so explicitly." Order Granting Plaintiffs' Motion for Reconsideration but Denying Request to Modify Prior Decision or to Stay Arbitration in Bermuda at 3, Adv. Bankr. Dkt., ECF No. 202 ("Reconsideration Order"). Plaintiffs seek leave to appeal that decision.[2]

         Defendant first argues that this appeal is barred by 9 U.S.C. § 16(b). Section 16(b) states:

(b) Except as otherwise provided in section 1292(b) of title 28, an appeal may not be taken from an interlocutory order-
(1) granting a stay of any action under section 3 of this title;
(2) directing arbitration to proceed under section 4 of this title;
(3) compelling arbitration under section 206 of this title; or
(4) refusing to enjoin an arbitration that is subject to this title.

         The bankruptcy court's order is indisputably interlocutory, and by its express terms it "compel[s] arbitration" and "stays this adversary proceeding pending the outcome of the Bermuda arbitration." Arbitration Order at 26. Section 1292(b) permits district courts to certify interlocutory orders for appeal to circuit courts. That exception, however, does not apply to this appeal from a bankruptcy court to a district court under 28 U.S.C. § 158(a) .

         Defendants argue that Congress's enumeration of a single exception suggests there are no others, so appeals under 158(a) are barred. See Elcom Techs. Corp. v. Am. Dynasty Surplus Lines Ins. Co., No. 98-13343SR, 2000 WL 1470217, at *7 n.6 (E.D. Pa. ...


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