562 B.R. 866
Bankr. S.D.N.Y.2017Background
- MF Global confirmed Chapter 11 plan assigned certain E&O/D&O coverage rights to Plan Administrator MF Global Holdings Ltd. (MFGH) and to MF Global Assigned Assets LLC (MFGAA) to marshal estate assets and pursue insurance recoveries.
- Plaintiffs (MFGH as Plan Administrator and MFGAA) sued five insurers to recover E&O policy proceeds after a Global Settlement; four defendants (the Bermuda Insurers) are Bermuda-based and their policies contain mandatory arbitration clauses in Bermuda.
- Bermuda Insurers sued in the Bermuda Commercial Court and obtained ex parte anti-suit injunctions preventing Plaintiffs from prosecuting this adversary proceeding and from opposing motions to compel arbitration in U.S. court.
- This Court issued a TRO and preliminary injunction enjoining enforcement of the Bermuda orders, held the insurers in contempt for violating the TRO, and ordered briefing on whether the Bermuda filings violated the Barton Doctrine and the Bar Order in the Global Settlement.
- The Court found (announced from the bench and issued in writing) that the Bermuda Insurers violated the Barton Doctrine by initiating proceedings against MFGH and MFGAA in Bermuda without first obtaining leave of this Court; insurers dismissed the Bermuda actions as ordered.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether filing proceedings in Bermuda violated the Barton Doctrine | MFGH/MFGAA are court‑appointed estate officers/functionally equivalent to a trustee and therefore protected; insurers needed leave to sue abroad | Insurers argued Barton inapplicable because proceedings defended a contractual arbitration clause and MFGH lacks direct ownership of policy proceeds | Court held Barton applies; insurers violated Barton by filing in Bermuda without leave |
| Whether Bermuda proceedings violated the Bar Order in the Global Settlement | Insurers’ demands for fees/costs and attacks on insurability/collateral challenge to settlement violate Bar Order | Insurers contend Bar Order doesn’t bar defensive proceedings or their challenge and they do not seek to undo the Global Settlement | Court found resolution unnecessary after Barton ruling and did not decide Bar Order violation |
| Whether arbitration in Bermuda is required for these disputes | Plaintiffs contend bankruptcy court must resolve scope and core/noncore nature before compelling arbitration | Insurers rely on mandatory Bermuda arbitration clauses | Court held arbitration issue remains open and must be decided here; arbitration may still be required but only after this Court resolves it |
| Proper remedy for violating Barton Doctrine | Plaintiffs sought cessation of Bermuda proceedings and related relief | Insurers had obtained and then sought to enforce Bermuda anti‑suit injunctions | Court ordered Bermuda proceedings terminated without prejudice (remedy of cessation) — insurers complied |
Key Cases Cited
- Travelers Indem. Co. v. Bailey, 557 U.S. 137 (2009) (bankruptcy court retains jurisdiction to interpret and enforce its orders)
- In re U.S. Lines, Inc., 197 F.3d 631 (2d Cir. 1999) (framework for arbitration issues in bankruptcy: agreement, scope, statutory nonarbitrability, and staying remaining claims)
- Barton v. Barbour, 104 U.S. 126 (1881) (origin of the Barton Doctrine requiring leave to sue a court‑appointed receiver)
- In re DeLorean Motor Co., 991 F.2d 1236 (6th Cir. 1993) (protecting trustee’s professionals as functional equivalents under Barton)
- Carter v. Rodgers, 220 F.3d 1249 (11th Cir. 2000) (extending Barton protection to officers appointed to assist trustee)
- In re Yellowstone Mountain Club, LLC, 841 F.3d 1090 (9th Cir. 2016) (Barton applied to creditor‑committee members as functionally similar to trustees)