113 F. Supp. 3d 769
S.D.N.Y.2015Background
- Insurers (Torus and Starr) filed a Demand for Arbitration in Hong Kong naming Karl Barth in his capacity as court-appointed Receiver for China MediaExpress Holdings, Inc. (CCME), seeking a declaration of no coverage under a 2010 D&O/Company Reimbursement policy.
- Barth moved to enjoin the arbitration, arguing the Barton doctrine requires prior leave of the appointing court before suing or naming a receiver, and that the arbitration filed without leave is void.
- Insurers sought retroactive leave to name Barth and argued Barton should not apply (or apply less strictly) to a foreign declaratory arbitration and raised FAA/Convention preemption concerns favoring arbitration.
- The Court held a conference, received letter briefs, and concluded Barton applies to receivers (including in non-bankruptcy/declaratory settings) and to arbitration, so naming Barth without prior leave violated Barton.
- The Court enjoined the pending arbitration and denied retroactive leave, but declined to enter a blanket anti-litigation/anti-arbitration injunction; it reserved whether a future arbitration (filed with prior court leave) is appropriate and ordered Barth to show cause within five days why the Court should not grant leave for such arbitration.
Issues
| Issue | Plaintiff's Argument (Barth) | Defendant's Argument (Insurers) | Held |
|---|---|---|---|
| Whether the Barton doctrine applies to bar naming a receiver in a foreign arbitration without prior court leave | Barton requires leave before suing or naming a receiver; applies broadly to protect receivers and the receivership estate | Barton should not apply (or should be limited) to non-bankruptcy declaratory/arbitration proceedings that do not seek money or directly seize estate assets | Court: Barton applies to receivers generally, including declaratory actions and arbitrations; Insurers violated Barton by naming Barth without leave |
| Whether the Court may grant retroactive leave to file the arbitration | Retroactive leave not necessary; failure to seek leave renders the action void | Request retroactive leave to cure the defect | Court: Declined to grant retroactive leave; cited jurisdictional nature of Barton and Second Circuit precedent denying retroactive cure |
| Whether the Court should issue a broad anti-litigation/anti-arbitration order to preserve the receivership assets | Such an order is necessary to permit the Receiver to marshal and preserve assets | Anti-arbitration injunction would conflict with FAA/Convention and parties’ arbitration agreement; such injunctions are disfavored | Court: Declined to issue a broad anti-litigation order because it would function as an anti-arbitration injunction and conflict with FAA/Convention protections |
| Whether the insurance-coverage dispute should be resolved by arbitration despite Barton concerns | Barton prevents current arbitration but future arbitration with prior leave may proceed; Receiver should show cause why arbitration should not go forward | Arbitration favored by FAA and the Convention; Court should not assume jurisdiction where valid arbitration agreement exists | Court: Reserved judgment on compelling arbitration with leave; ordered Barth to show cause why a future arbitration (properly filed with leave) should not proceed |
Key Cases Cited
- Barton v. Barbour, 104 U.S. 126 (establishing the doctrine that a receiver cannot be sued without leave of the appointing court)
- In re Lehal Realty Assocs., 101 F.3d 272 (2d Cir.) (discussing Barton and upholding pre-filing leave requirement)
- Crown Vantage, Inc. v. FirstEnergy Capital Corp., 421 F.3d 963 (9th Cir.) (analyzing Barton’s application outside bankruptcy)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (strong federal policy favoring enforcement of arbitration agreements)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (international arbitration and FAA principles)
- In re Am. Exp. Fin. Advisors Sec. Litig., 672 F.3d 113 (2d Cir.) (limits on district-court anti-arbitration injunctions under FAA)
- Citigroup, Inc. v. Abu Dhabi Inv. Auth., 776 F.3d 126 (2d Cir.) (anti-arbitration injunctions strongly disfavored)
- Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 460 B.R. 106 (Bankr. S.D.N.Y.) (applying Barton to enjoin declaratory actions against a receiver/trustee)