In Re: MF Global Holdings Ltd.

Filing 16

OPINION AND ORDER re: 4 MOTION for Leave to Appeal filed by MF Global Holdings Ltd., MF Global Assigned Assets LLC. The Court therefore finds no exceptional circumstances justifying a departure from the basic policy of postponing appellat e review until after a final Judgment. The motion for leave to appeal is denied. Because the Court has denied the motion for leave to appeal, there need be no stay of arbitration pending resolution of that appeal, and plaintiff's motion for a stay is denied as moot. The Clerk of Court is directed to close the case. (Signed by Judge Jed S. Rakoff on 10/30/17) (yv)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

-----------------------------------------x
In Re

FILED

MF GLOBAL HOLDINGS LTD., et al.,
Debtors

-----------------------------------------x
MF GLOBAL HOLDINGS LTD., as Plan
Administrator, and MF GLOBAL ASSIGNED
ASSETS LLC,
17-cv-7332
Plaintif fS-Appellants,

(JSR)

OPINION AND ORDER

-vALLIED WORLD ASSURANCE COMPANY, LTD,
Def endant-Appellee,
IRON-STARR EXCESS AGENCY LTD.,
IRONSHORE INSURANCE LTD., STARR
INSRUANCE & REINSURANCE LIMITED,
and FEDERAL INSURANCE COMPANY,
Defendants.

-----------------------------------------x
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")
the reasons that follow,

opposes. For

the Court denies the motions.

1

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]dJudicate, decide or resolve any

i The facts of this case are set forth in Judge Glenn's various,
excellent opinions in this adversary proceeding, familiarity
with which is here presumed. See, e.g., In re MF Glob. Holdings
Ltd., et al., No. 16-1251 (Bankr. S.D.N.Y) ("Adv. Bankr. Dkt."),
ECF No. 200 ("Arbitration Order"). Except where otherwise noted,
the facts below are taken from those opinions.

2

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. Bat 7,

In re MF Glob. Holdings Ltd.,

et al., No. 11-15059 (Bankr. S.D.N.Y)
1; Arbitration Order at 14-18

("Bankr. Dkt."), ECF No.

(holding that the arbitration

clause covered the instant dispute). Allied World has
cons:stently, even if at times a bit overzealously, sought to
have the dispute arbitrated in Bermuda pursuant to the prepetition 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

3

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

Plaintiffs made several other arguments that the bankruptcy
court also rejected but that plaintiffs recognize are
inappropriate for this interlocutory appeal. See Plaintiffs'
Motion for Leave to Appeal the Bankruptcy Court's Order Granting
AWAC's Motion to Compel Arbitration and for a Stay at 4 dated
September 26, 2017, ECF No. 4.
2

4

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 Eleam Techs. Corp. v. Am.
Ins.

Co~,

No.

Oct. 3, 2000)

Dynasty Surplus Lines

98-13343SR, 2000 WL 1470217, at *7 n.6 (E.D. Pa.
(holding that Section 16(b) bars appeal under

Section 158(a)).
Another possibility, however,

is that Section 1292(b)

is

the only listed exception because the statute only applies to
appeals from district courts to circuit courts. Neither the
statute's text nor its legislative history suggests that
Congress had in mind appeals from bankruptcy courts to district
courts when it drafted Section 16(b). In fact,

the statutory

scheme governing bankruptcy suggests just the opposite. Congress
gave district courts "original and exclusive jurisdiction of all
cases under title ll," 28 U.S.C.

§

1334(a), and provided that

"[e]ach district court may provide that any or all cases under
title 11 and any or all proceedings arising under title 11 or
arising in or related to a case under title 11 shall be referred
to the bankruptcy judges for the district." 28 U.S.C.
Furthermore, "[t]he district court may withdraw,

§

157(a).

in whole or in

part, any case or proceeding referred under this section, on its

5

own motion or on timely motion of any party,
28 U.S.C.

§

for cause shown."

157(d). Referrals to bankruptcy courts are matters

of efficiency. The cases still belong to the district court,
thus suggesting that Section 16(b) does not apply to decisions
of a bankruptcy court.
Indeed, accepting the contrary position advocated by
defendant would result in like cases being treated differently.
If a case is not referred to the bankruptcy court or the
district court withdraws the reference, the parties would have
at least one Article III court decide whether to compel
arbitration and would then the opportunity for interlocutory
appeal to another pursuant to Section 1292(b). Meanwhile the
parties in another case that is referred to the bankruptcy court
and in which the district court does not withdraw the reference
could never hope to have any Article III court hear an
interlocutory appeal at all. There is no reason to think that
Congress intended such an arbitrary outcome. Cf. Abbott Labs. v.
Gardner,

387 U.S. 136, 140-42 (1967)

(holding that courts should

narrowly construe statutes that seem to remove Article III
Jurisdiction over agency decisions).
Absent an express statement from Congress, these
discretionary referrals should not rob the referred parties of
substantive rights of review by Article III courts to which they

6

would otherwise be entitled. Section 16(b) therefore does not
bar this appeal.
Turning to the applicable standards, district courts, when
deciding whether to grant an appeal from a bankruptcy court
under 28 U.S.C.

§

158(a) (3), apply the factors listed in 28

U.S.C. § 1292(b). Specifically, the movant must show that the
appealed order "involves a controlling question of law as to
which there is substantial ground for difference of opinion and
that an immediate appeal from the order may materially advance
the ultimate termination of the litigation." 28 U.S.C.

§

1292(b). "[O]nly exceptional circumstances will justify a
departure from the basic policy of postponing appellate review
until after the entry of judgment." Klinghoffer v. S.N.C.
Achille Lauro Ed Altri-Getione Motonave Achille Lauro In
Amministrazione Straordinaria, 921 F.2d 21, 25 (2d Cir. 1990)
(internal quotation marks, alterations, and citation omitted)
The initial issue presented by this putative appeal is
whether a bankruptcy plan provision that retains jurisdiction
over future,

related disputes supersedes pre-bankruptcy

arbitration rights, even absent an express provision to that
effect and even where the adversary proceeding that the
defendants seeks to arbitrate began after confirmation. The
bankruptcy court held that it does not. Reconsideration Order at
3.

7

Though it would not terminate the action, appeal of this
issue presents a pure question of law that could be quickly
resolved and would provide important guidance for similarly
situated parties.

It thus presents a controlling question of

law. See Primavera Familienstifung v. Askin,
567, 570

(S.D.N.Y. 2001)

139 F. Supp. 2d

(citing these considerations beyond

whether reversal would terminate the litigation);
Worldcom,
June 30,

Inc., No. M-47 HB,
20C3)

In re

2003 WL 21498904, at *10

(S.D.N.Y.

(same). There is also substantial ground for

disagreement regarding the bankruptcy court's decision, as is
evident by the logic of cases from the Seventh Circuit and
Southern District of Florida, both of which found that such
prov:sions do supersede preexisting arbitration rights where the
defendant was on notice and did not object to the plan. See
Ernst & Young LLP v. Baker O'Neal Holdings,

Inc.,

756

Inc. v. AASI

(7th Cir. 2002); Sirius Computer Sols.,

304 F.3d 753,

Creditor Liquidating Tr., No. 10-cv-23406, 2011 WL 3843943, at
*3

(S.D.

Fla. Aug. 29, 2011).

However,

reversal on this issue would not alone materially

advance the ultimate termination of the litigation. Even
assuming that avoiding erroneous arbitration is sufficient to
materially advance the ultimate termination of the litigation
within the meaning of Section 1292(b), but see Murray v. UBS
Sec., LLC, No.

12-cv-5914 KPF,

2014 WL 1316472, at *4

8

(S.D.N.Y.

Apr.

1, 2014),

reversal here would not guarantee that outcome.

That is because defendant argues that this provision of the plan
should not be enforced against it for several independent
reasons, each of which would need to be resolved.
To begin with, defendant claims that it should not lose its
right to compel arbitration by failing to object to this
provision in the plan because it, unlike the defendants in Ernst
& Young and Sirius, was not similarly on notice. See Ernst&
Young,

304 F.3d at 756

(relying on the facts that the adversary

proceeding began before plan was confirmed and defendant
participated in formation of plan); In re All Am. Semiconductor,
Inc., No.

07-12963-BKC-LMI,

S.D. Fla. July 20, 2010)
were imminent,

2010 WL 2854153, at *7-*8

(Bankr.

(defendant knew adverse proceedings

knew it was a potential target, and received

sufficient documentary notice of the provision to make its
failure to review and object unreasonable); Sirius Computer
So 1 s ::_,

2011 WL 3 8 4 3 9 4 3, at * 4 (a f firming) .

Defendant also argues that the underlying insurance dispute
is not covered by the terms of the plan. Bankruptcy courts
cannot finally resolve non-core disputes absent knowing and
voluntary consent of the parties; they can only provide a report
and recommendation to the district court. See 28 U.S.C. §
157(c) (1); Wellness Int'l,

135 S. Ct. at 1940

("Absent consent,

bankruptcy courts in non-core proceedings may only submit

9

proposed findings of fact and conclusions of law, which the
district courts review de novo."). The bankruptcy court only
retained jurisdiction to "adjudicate, decide or resolve" these
matters "to the full extent legally permissible." Plan at Art.
XII. Defendant argues that the underlying insurance dispute is
non-core, and that it did not consent to the bankruptcy court's
Jurisdiction, so the plan does not reserve jurisdiction as to
this is?ue because it would violate Article III.
Defendant also contends that it is not bound by the plan
because it is not a creditor of MF Global.

(Plaintiffs respond

that defendant is a bound because it is a "holder of a claim,"
see Plan, Art. XI.B, because it holds contingent claims against
MF Global, and a "party in interest," as it had a stake in the
outcome of the reorganization.)
The Court does not here address the merits of defendant's
arguments listed above, other than to note that they are not
frivolous on their face. But if even one of defendant's
arguments is correct, then a decision on this appeal will be
wasted effort. Cf. Oneida Indian Nation of New York State v.
Oneida Cty.,

622 F.2d 624, 628

(2d Cir. 1980)

(finding the

requirements of Section 1292(b) not met where "the premise of
the certified question may be destroyed" in a later proceeding)
Moreover,

resolving these independent arguments would require

far more factual analysis than the initial question presented,

10

making them inappropriate for interlocutory appeal. See
Arbitration Order at 18-24

(engaging in such factual analysis in

holding that the underlying dispute is non-core); Wellness Int'l
Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1949 (2015)

(remanding

for a determination of consent to jurisdiction that "would
require a deeply factbound analysis of the procedural history
unique to this protracted litigation"). Rulings that depend on
specific factual findings also provide less precedential value
or guidance to third parties, making these questions even less
suitable for interlocutory appeal.
The Court therefore finds no exceptional circumstances
justifying a departure from the basic policy of postponing
appellate review until after a final Judgment. The motion for
leave to appeal is denied.
Because the Court has denied the motion for leave to
appeal, there need be no stay of arbitration pending resolution
of that appeal, and plaintiff's motion for a stay is denied as
moot. The Clerk of Court is directed to close the case.

Dated:

New York, NY
October ~CJ, 2017

11