Summary
noting that bankruptcy courts in the Eastern District of Louisiana are not authorized to conduct jury trials
Summary of this case from Smith v. Lucent Technologies, Inc.Opinion
Civil Action No. 01-3387, Bankruptcy Case No. 00-10992 through 00-10995, Adversary Proceeding No. 01-1510(B), Section: "R"
January 23, 2002
ORDER AND REASONS
Before the Court is the motion by The Travelers' Indemnity Company ("Travelers Indemnity") and Travelers Casualty and Surety Company ("Travelers Casualty", and collectively "Travelers") to withdraw the reference of a certain adversary proceeding pursuant to 28 U.S.C. § 157(d). For the following reasons, the motion is GRANTED.
I. BACKGROUND
On November 5, 2001, Travelers filed an adversary proceeding in the United States Bankruptcy Court for the Eastern District of Louisiana seeking a declaratory judgment to resolve questions concerning its obligations to indemnify The Babcock Wilcox Company ("Debtor") for asbestos-related personal injury claims. Two weeks earlier, Travelers filed a declaratory judgment action in this Court against the Debtor's parent company, McDermott International, seeking similar relief.
Travelers claims that it issued insurance policies in favor of the Debtor covering liability for bodily injury and/or property damage up to certain aggregate limits. Travelers claims that in the late 1980's it was apparent that the cumulative amount paid by the Debtor or on its behalf on asbestos claims would exceed the aggregate limits of the Debtor's policies. Travelers alleges that in response to this development, Travelers Indemnity, the Debtor, and McDermott entered into an agreement on July 25, 1989 that released Travelers from any further obligations under the policies. On February 11, 1997, Travelers Casualty, the Debtor, and McDermott allegedly entered into a similar agreement. Travelers alleges that the agreements also required McDermott to indemnify Travelers for claims against Travelers by injured persons, other insurers, or BW, arising from its coverage of BW for asbestos liability.
When the Debtor filed for bankruptcy relief, it listed the policies covered by the Travelers agreements among its assets on its financial schedules. Further, Travelers alleges that the Debtor's disclosure statement improperly asserts that the Debtor may be able to obtain additional coverage from its insurers, including Travelers.
In the declaratory judgment action against the Debtor, Travelers specifically requests that the Court declare, that the 1989 agreement releases Travelers from any and all obligations to provide a defense or indemnity for asbestos liability claims against the Debtor. In the declaratory judgment action against McDermott, Travelers requests that the Court declare that McDermott is obliged under the terms of the 1989 agreement to indemnify and hold Travelers harmless for any asbestos-related claims relating to its coverage of BW. Travelers demands a jury trial of the claims in both declaratory actions. Travelers now moves the Court to withdraw the reference on the proceeding against the Debtor on the grounds that the matters presented in the declaratory judgment action are non-core proceedings that entitle Travelers to a jury trial. Debtor does not oppose the motion.
II. DISCUSSTON
A. Bankruptcy Jurisdiction
The bankruptcy jurisdiction of district courts is conferred by 28 U.S.C. § 1334. Section 1334(a) provides for exclusive jurisdiction "of all cases under title 11." 28 U.S.C. § 1334(a). Under Section 1334(b), the district courts have original, but not exclusive, jurisdiction "of all proceedings arising under title 11, or arising in or related to cases under title 11." Id. § 1334(b). Bankruptcy jurisdiction thus extends to four classes of cases: cases under title 11; proceedings arising under title 11; proceedings arising in title 11 cases; and proceedings related to cases under title 11. See In re Wood, 825 F.2d 90, 92 (5th Cir. 1987). The Fifth Circuit has explained that in determining whether jurisdiction exists, it is necessary to determine only whether a matter is at least "related to" the bankruptcy:
For the purpose of determining whether a particular matter falls within bankruptcy jurisdiction, it is not necessary to distinguish between proceedings "arising under", "arising in a case under", or "related to a case under", title 11. These references operate conjunctively to define the scope of jurisdiction. Therefore, it is necessary only to determine whether a matter is at least "related to" the bankruptcy. The Act does not define "related" matters. Courts have articulated various definitions of "related", but the definition of the Court of Appeals for the Third Circuit appears to have the most support: "whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy."Id. at 93.
The controversies at issue here are at a minimum related to a case under Title 11. Travelers seeks to determine whether it has any coverage obligations to the Debtor as a result of the 1989 and 1997 agreements. Insurance coverage will significantly affect the Debtor's estate. Therefore, there is bankruptcy jurisdiction over this action. See id. at 93-94 (explaining that to fall within bankruptcy jurisdiction a claim must have a "conceivable effect" on the debtor's estate).
B. Withdrawal of the Reference
The standard for when a district court may withdraw the reference from a bankruptcy court is outlined in Title 28, United States Code, Section 157(d). Section 157(d) provides for both mandatory and permissive withdrawal, as follows:
The district court may withdraw, in whole or in part, any case or proceeding referred [to the bankruptcy court], on its own motion or on timely motion of any party, for cause shown. The district court shall, on timely motion of a party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both Title 11 and other laws of the United States regulating organizations or other activities affecting interstate commerce.28 U.S.C. § 157(d).
Courts generally interpret this provision restrictively, granting mandatory withdrawal of the reference when the claim and defense entail material and substantial consideration of non-Bankruptcy Code federal law. See, e.g., Lifemark Hosps. of La., Inc. v. Liljeberg Enters., Inc., 161 B.R. 21, 24 (E.D. La. 1993) (withdrawing reference when case necessarily involved a determination of antitrust claims); U.S. Gypsum Co. v. Nat'l Gypsum Co., 145 B.R. 539, 541 (N.D. Tex. 1992) (withdrawing reference when case necessarily involved a determination of patent claims); In re Johns-Manville Corp., 63 B.R. 600, 603 (S.D.N.Y. 1986) (withdrawing reference when case necessarily involved a determination of Comprehensive Environmental Response Compensation and Liability Act issues); In re White Motor Corp., 42 B.R. 693, 704 (N.D. Ohio 1984) (no withdrawal of reference based on speculation about issues under Employee Retirement Income Security Act and Internal Revenue Code, which may or may not be germane to the core proceeding). Travelers does not seek mandatory withdrawal. Rather, it seeks permissive withdrawal under 28 U.S.C. § 157(d) "for cause shown."
1. Permissive Withdrawal
The Fifth Circuit has held that in determining whether to withdraw the reference for cause shown, district courts should consider whether the matter is a core or a non-core proceeding. See Holland America Ins. Co. v. Succession of Shepherd J. Roy, 777 F.2d 992, 999 (5th Cir. 1985). See also In re Babcock Wilcox Co., 2000 WL 422372, *3 (E.D. La. April 17, 2000).
Additionally, courts should consider whether the proceedings involve a jury demand and whether withdrawal would further the goals of promoting uniformity in bankruptcy administration, reducing forum shopping and confusion, fostering the economical use of the debtor's and creditors' resources, and expediting the bankruptcy process. See id.
a. Nature of Proceeding
A non-exhaustive list of core proceedings is set forth in 28 U.S.C. § 157(b)(2). The list includes allowance or disallowance of claims against the estate, estimation of claims, and counterclaims by the estate against persons filing claims against the estate. See 28 U.S.C. § 157(b)(2)(B), (C). Other than by listing examples, the statute does not define "core proceedings." Courts consider matters that arise under the Bankruptcy Code to be core. See Liljeberg Enters. Inc. v. Lifemark Hosps. of La., 2000 WL 63307, at *3 (E.D. La. Jan. 21, 2000). Additionally, courts consider a proceeding to be core if it involves substantive rights provided by Title 11 or if by its nature the proceeding could arise only in the context of a bankruptcy case. See In re Wood, 825 F.2d at 97.
Here, Travelers claims that this dispute is simply over the parties' respective rights and obligations under pre-bankruptcy contracts governed by state law. The Court finds that the contract action is a not a core proceeding. In In re United States Brass Corp., 110 F.3d 1261 (7th Cir. 1997), the Seventh Circuit held that declaratory judgment actions against bankrupts to determine insurance coverage were not core proceedings. The court reasoned that "the right to insurance coverage is a creation of state contract law and one that could be vindicated in an ordinary breach of contract suit if [the insured] were not a bankrupt." Id. at 1268. The court held that "core proceedings are actions by or against the debtor that arise under the Bankruptcy Code in the strong sense that the Code itself is the source of the claimant's right or remedy, rather than just the procedural vehicle for the assertion of a right conferred by some other body of law, normally state law." Id. The Seventh Circuit was unpersuaded by arguments that the insurance coverage was an important right to the bankrupt. "The fact that it is an important right to the bankrupt [involving $500 million in coverage] is irrelevant." Id. (emphasis in original). The Court finds the Seventh Circuit's reasoning applicable here. This contract action is a creature of state law and does not involve rights created by bankruptcy law. Hence, it is not a core proceeding.
b. Forum Shopping
Travelers filed this declaratory action against the Debtor in bankruptcy court when it also filed a similar declaratory judgment action in the district court against McDermott. Travelers has been consistent in its position that both of these actions belong in the district court, and the Court finds no evidence of forum shopping.
c. Judicial Economy
Granting the motion to withdraw will serve the interests of judicial economy. The issues before the bankruptcy court are non-core issues, with which the bankruptcy court has no greater familiarity than does this Court. In addition, the action against the non-debtor McDermott involves nearly identical facts and issues. Resolution of the insurance issues in one proceeding before this Court will obviate any need to appeal the bankruptcy court's ruling and will bring the matter to a more expeditious resolution. Therefore, the Court finds that withdrawing the reference would promote judicial economy.
d. Demand for a Jury Trial
Bankruptcy courts in this district are not authorized to conduct jury trials. Generally, the inability of a bankruptcy court to hold a jury trial in a related matter is a ground for a district court to withdraw the reference from a bankruptcy court. See I COLLIER ON BANKRUPTCY § 3.04[1] [b] (15th Ed. 1992) [hereinafter "COLLIER"]
It is clear that Travelers is entitled to a jury trial. The Court finds that its claims require the interpretation of the 1989 and 1997 contracts. Declaratory judgment actions regarding the parties' obligations under a contract are legal actions that entitle the parties to a trial by jury. See Simler v. O'Connor, 372 U.S. 221, 223, 83 S.Ct. 609, 611 (1963) (suit to enforce contract rights was legal action even though it was brought as declaratory judgment action); In re Tastee Donuts, Inc., 137 B.R. 204, 206 (E.D. La. 1992). The Fifth Circuit has ruled that when a contract is ambiguous, interpretation of the contract is a question reserved for the jury. See Ham Marine, Inc. v. Dresser Indust., Inc., 72 F.3d 454, 458 (5th Cir. 1995); Lyxell v. Vautrin, 604 F.2d 18, 20 (5th Cir. 1979); Ingalls Iron Works v. Fruehauf Corp., 518 F.2d 966, 969 (5th Cir. 1975); Greenberg v. General Mills Fun Group, 478 F.2d 254, 256 (5th Cir. 1973). Accordingly, Travelers' right to a jury trial weighs in favor of withdrawing the reference from the bankruptcy court.
The Seventh Amendment right to a jury trial exists when: (a) the cause of action is analogous to actions that could only have been brought in courts of law, rather than equity, in the courts of 18th century England; and (b) the remedy sought is legal, rather than equitable, in nature. See Granfinanciera v. Nordberg, 492 U.S. 33, 42, 109 S.Ct. 2782, 2790 (1989). If, on balance, these two factors indicate that a party is entitled to a trial by jury, the court must then consider whether Congress may assign and has assigned resolution of the relevant claim to a non-Article III adjudicative body that does not use a jury as a factfinder. See id.
III. CONCLUSION
For the foregoing reasons, the Court GRANTS Travelers' motion to withdraw the reference from the bankruptcy court.