In Re: MF Global Holdings Ltd.

Filing 13

OPINION re: (3 in 1:17-cv-00106-RWS) MOTION for Leave to Appeal filed by Ironshore Insurance Ltd., Starr Insurance & Reinsurance Limited, Iron-Stan Excess Agency Ltd. Based on the findings and conclusions set forth above, the Bermuda Insurers' motion for leave to appeal the TRO is denied. (As further set forth in this Opinion.) (Signed by Judge Robert W. Sweet on 2/9/2017) (cf)

t
UNITE D STAT ES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

-------------------------------- --- - - -- -x
MF GLOBAL HOLDINGS LT D., as Pl an
Admi ni stra t or , and MF GLOBAL ASSIGNED
ASS ET S LLC,
Pla i ntif f s ,
- aga in st -

17 Ci v . 106
17 Ci v . 1 13
OP I NI ON

ALL IE D WORLD ASSURANCE CO . LT D., IRON STARR EXC ESS AGENCY LTD ., I RONSHORE INS .
LTD ., STARR INS . & RE I NSURANCE LTD ., and
FEDERAL INS. CO. ,
De f endants .

------------------------- - ---------------x
A P P E A R A N C E S:

Attorneys f or Pl aintiffs
JONES DAY
555 South Fl ower St ., 50th Fl .
Los Ange l es , CA 9007 1
By : Br u ce Benn ett , Esq .
250 Vesey St .
New York , NY 1 0281
By : Edward M. Joyce , Esq .
Jane Rue Witts t e i n , Esq .

Attorneys fo r Al l ied Wor l d Defe n dants
CRAVAT H, SWA INE & MOORE LL P
Wor l dwide Pla za
825 Eighth Avenu e
New York , NY 1 00 1 9
By : Da n ie l Sl i fkin , Esq .
Omid H. Na sab , Esq .

WHITE AND WILLIAMS LLP
7 Times Square
New York, NY 10036
By:
Erica Kerstein, Esq.

Attorneys for Iron-Starr Defendants
D'AMATO & LYNCH
Two World Financial Center
225 Liberty Street
New York, NY 102 8 1
By: Mary Jo Barry, Esq.
Maryann Ta y l or , Esq.

Sweet, 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 co ll ectively with Allied World, the
"Bermuda Insurers"), and Federal Insurance Company ("Federa l"
collectively wi th 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 , 201 1 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 -27 90
1

(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.

2

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
3

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 matteru
because of the Anti-Suit Injunction in Bermuda.

On December 21, 2016 Judge Glenn issued a Temporary
Restraining Order ("TROu) 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
requiring 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 anti4

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.

5

The

Bermuda Insurers have indicated that they will seek leave to
appeal the Bankruptcy Court ' s Barton Doctrine decision.

Judge Glenn will hold his next conference to address a
number of outstanding issues in the case on February 23, 2017 .

The interrelationship of proceedings before the Bankruptcy
Court and the District Court are complicated, and the requested
chronology describing these various motions and events has not
been produced by the parties.

The instant motion for leave to appeal the TRO was filed
with the Bankruptcy Court on January 4 , 2017.

The motion for

leave to appeal the TRO was docketed with the District Court on
January 6, 2017 .

The motion was argued and marked fully

submitted on February 2, 2017.

Applicable Standard

The Bermuda Insurers bring this motion pursuant to 28
U.S . C .

§

158(a) (3) and Federal Rule of Bankruptcy Procedure

("Fed . R. Bankr . P ." ) 8004 .

A motion for leave to appeal a

bankruptcy order under 28 U. S.C .

§

6

158(a) (3) can only be granted

when the movant establishes that the order meets the "standards
prescribed in 28 U.S.C.
228, 234

§

(S.D.N.Y. 2016).

1292(b) ."

In re Anderson, 550 B.R.

A district court may exercise its

discretion to grant leave to appeal when the order at issue
involves:

" ( l ) a contro lling question of law (2) as to which

there is a substantial ground for difference of opinion and (3)
that an immediate appeal from which may materially advance the
ultimate termination of the litigation."
§

Id.

(citing 28 U.S.C.

1292 (b)) .

Granting a permissive interlocutory appeal is appropriate
" where appellate review might avoid protracted and expens ive
litigati on."

German v . Fed. Home Loan Mortg. Corp ., 896 F.

Supp. 1 385 , 1398 (S .D.N.Y. 1995).

However, "t he party seeking

an interlocutory appea l has the burden of showing ' except i onal
circumstances ' to ' overcome the general aversion to piecemeal
litigation' and 'justify a departure from the basic policy of
postponing appellate review until after the entry of a final
judgment."'
73 -74

In re Perry H. Koplik

(S . D.N. Y. 2007)

&

Sons, Inc.,

377 B.R. 69 ,

(quoting Klinghoffer v. S.N.C. Achille

Lauro Ed Altri-Gestione Motonave,

1990)) .

7

921 F.2d 21, 24

(2d Cir.

The Bermuda Insurers' Motion for Leave to Appeal the TRO is
Denied

While the parties vigorously dispute whether the Bankruptcy
Court was correct in finding that there was personal
jurisdiction, subject matter jurisdiction, and proper service of
process, Plaintiffs argue that threshold issues such as mootness
and the§ 1292(b) factors preclude consideration of the
jurisdictional questions.

For the reasons that follow,

this

controversy is moot and the§ 1292(b) factors are not satisfied;
the Bermuda Insurers' motion for leave to appeal is denied.

The TRO is moot because the Bankruptcy Court issued a
Preliminary Injunction on January 18, 2017 .

The Second Circuit

has held, "An interlocutory appeal from a temporary stay no
longer in effect, like an interlocutory appeal from a sinceexpired or vacated temporary restraining order, is the paradigm
of a moot appeal."

Video Tutorial Services, Inc. v. MCI

Telecommunications Corp ., 79 F.3d 3 , 5 (2d Cir. 1996).

Just as

in past Second Circuit cases , here the Bankruptcy Court has
"rendered its decision on the preliminary injunction" therefore
making "the temporary restraining orders , whether va lid or not
when entered ,
moot."

[] now lapsed and any decision on them would be

Glen-Arden Commodities, Inc. v. Costantino,
8

493 F.2d

1027, 1030 (2d Cir. 1974).

The Court must dismiss a motion for

leave to appeal if it becomes moot because "we have no
jurisdiction over moot controversies."
79 F.3d at 5.

Inc.,

Video Tutorial Services,

For those reasons, the motion for leave to

appeal the TRO is dismissed as moot.

The Bermuda Insurers must establish that the "standards
prescribed in 28 U.S.C.

§

1292(b)" are satisfied in order for

this Court to grant their motion for leave to appeal the
bankruptcy order.
2016) .

In re Anderson, 550 B.R. 228, 234

(S.D.N.Y.

A district court may exercise its discretion to grant

leave to appeal when the order at issue involves:

"(1) a

controlling question of law (2) as to which there is a
substantial ground for difference of opinion and (3) that an
immediate appeal from which may materially advance the ultimate
termination of the litigation."
1292(b)).

Id.

(citing 28 U.S.C.

§

Here, an immediate appeal is not appropriate, given

the circumstances and the desirability to develop a full record
with respect to the jurisdictional facts.

At this point, Judge

Glenn has already scheduled a conference to address some of
these very issues which will take place on February 23, 2017.
Given the arbitration, contempt, and Barton issues, an immediate
appeal of the TRO would not advance the ultimate termination of
9

the action.

Therefore, the§ 1292(b) factors have not been

satisfied.

In addition to the enumerated§ 1292(b) factors, "Inherent
in the requirements of section 1292(b) is that the issue
certified be ripe for judicial determination."
Nation of N.Y. State v. Oneida Cnty.,

1980) .

Oneida Indian

622 F.2d 624, 628

(2d Cir.

Plaintiffs argue that the controversy is not yet ripe

because there was not a fully developed record before Judge
Glenn when he made his determination about jurisdiction.
Jurisdictional discovery regarding certain contacts between the
Defendants and the forum state in relation to the underlying
policies and prior litigations might make a determination on the
current undeveloped record merely an "advisory opinion rendered
on hypotheses."

Id.

Full briefing from both parties could also

aid the determination of these issues.

The record that was

before the Bankruptcy and District Courts remains incomplete
because of Defendants' Anti-Suit Injunction in Bermuda against
Plaintiffs.

10

Conclusion

Based on the findings and conc l usions set forth above , the
Bermuda Insurers ' motion for l eave to appea l the TRO is denied .

It i s so ordered .

New York, NY
February

lj ,

201 7
U.S.D.J.

11