MF Global Holdings Ltd., as Plan Administrator et v. Allied World Assurance Company Ltd. et al

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
MF GLOBAL HOLDINGS LTD., et al.,
Debtors.
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FOR PUBLICATION
Chapter 11
Case No. 11-15059 (MG)
(Jointly Administered)
MF GLOBAL HOLDINGS LTD., as Plan
Administrator, and MF GLOBAL ASSIGNED
ASSETS LLC,
Plaintiffs,
v.
ALLIED WORLD ASSURANCE COMPANY LTD.,
IRON-STARR EXCESS AGENCY LTD.,
IRONSHORE INSURANCE LTD., STARR
INSURANCE & REINSURANCE LIMITED., and
FEDERAL INSURANCE COMPANY,
Defendants.
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Adv. Proc. No. 16-01251 (MG)
MEMORANDUM OPINION AND ORDER FINDING THAT THE BERMUDA
INSURERS VIOLATED THE BARTON DOCTRINE
A P P E A R A N C E S:
WHITE AND WILLIAMS, LLP
Counsel to Allied World Assurance Company, Ltd
7 Times Square
New York, New York 10036
By: Erica Kerstein, Esq.
D’AMATO & LYNCH, LLP
Counsel to Iron-Starr Excess Agency Ltd., Ironshore
Insurance Ltd., and Starr Insurance & Reinsurance
Limited
Two World Financial Center
225 Liberty Street
New York, New York 10281
By: Mary Jo Barry, Esq.
Maryann Taylor, Esq.
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JONES DAY
Attorneys for MF Global Holdings Ltd., as Plan
Administrator, and MF Global Assigned Assets LLC
555 South Flower Street, 50th Floor
Los Angeles, California 90071
By: Bruce Bennett, Esq.
-and-
JONES DAY
250 Vesey Street
New York, New York 10281
By: Edward M. Joyce, Esq.
Jane Rue Wittstein, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
This is the fourth written opinion in this adversary proceeding since it was filed on
October 27, 2016, with each of the opinions addressing whether this Court or a court in Bermuda
can and will address the claims and defenses arising in this case, including whether the
underlying disputes must be arbitrated in Bermuda.1 The complaint names as defendants five
insurers that provided excess errors and omissions (“E&O”) insurance coverage to MF Global
Holdings Ltd. and its subsidiaries and affiliates, and their officers and directors. The plaintiffs
here are MF Global Holdings Ltd. (“MFGH”), as Plan Administrator, and MF Global Assigned
Assets LLC (“MFGAA” and together with MFGH, the “Plaintiffs”). The complaint seeks to
recover the full policy limits plus additional damages resulting from these insurers refusal to pay
policy proceeds in connection with a global settlement of MDL litigation pending in the United
States District Court for the Southern District of New York (the “Global Settlement”). The MDL
1 The first three opinions can be found at In re MF Global Holdings Ltd., 561 B.R. 608 (Bankr. S.D.N.Y.
2016) (order issuing temporary restraining order) [hereinafter “TRO Opinion”]; In re MF Global Holdings Ltd., __
B.R. __, 2017 WL 119338 (Bankr. S.D.N.Y. Jan. 12, 2017) (order granting preliminary injunction) [hereinafter
“Preliminary Injunction Opinion”]; In re MF Global Holdings Ltd., __ B.R. __, 2017 WL 113606 (Bankr. S.D.N.Y.
Jan. 12, 2017) (order holding Bermuda-based insurers in contempt) [hereinafter “Contempt Opinion”] (collectively,
the “Prior Opinions”). Familiarity with those opinions is assumed. Those opinions describe the background and
circumstances of the issues arising in this adversary proceeding. Capitalized terms not defined herein shall have the
definitions ascribed to them in the TRO Opinion.
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cases asserted claims against the officers and directors of MFGH and its affiliates (and other
defendants) for claims arising from the collapse of MF Global in October 2011. On August 10,
2016, this Court entered an order approving the Global Settlement, which included a bar order
(“Bar Order”) and an assignment of the settling officers’ and directors’ rights to coverage under
these defendants’ E&O policies. (D.I. 2282.)2
Four of the five insurer defendants in this case are based in Bermuda (the “Bermuda
Insurers”).3 The Bermuda Insurers responded to the filing of the adversary proceeding by filing
cases in the Supreme Court of Bermuda, Civil Jurisdiction (Commercial Court) (the “Bermuda
Court”) and obtaining ex parte anti-suit injunctions (the “Bermuda anti-suit injunctions”)
prohibiting the Plaintiffs from prosecuting this adversary proceeding. The Bermuda Insurers
contend and sought orders from the Bermuda Court requiring the Plaintiffs to arbitrate their
disputes in Bermuda based on arbitration clauses contained in their E&O policies. The Plaintiffs
contend that this Court, rather than arbitration in Bermuda, is the proper forum to resolve the
coverage disputes. The Bermuda Insurers filed motions in this Court to compel arbitration but
the Bermuda anti-suit injunctions prevented the Plaintiffs from opposing the motions in this
Court.
In the three earlier opinions in this case, the Court first issued a temporarily restraining
order (“TRO”) barring the Bermuda Insurers from enforcing the Bermuda anti-suit injunctions,
then issued a preliminary injunction extending the relief granted in the TRO, and issued an
opinion holding the Bermuda Insurers in contempt for violating the TRO. The Plaintiffs have
contended since the Bermuda Insurers filed the Bermuda proceedings that the commencement of
2 References to the docket in the main chapter 11 case will be denoted as “D.I.”
3 The Bermuda Insurers are Allied World Assurance Company Ltd., Iron–Starr Excess Agency Ltd.,
Ironshore Insurance Ltd., and Starr Insurance & Reinsurance Limited.
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those proceedings and the obtaining of the anti-suit injunctions violated the Barton Doctrine
(explained below) and the Bar Order contained in the August 10, 2016 order approving the
Global Settlement. The anti-suit injunctions prevented the Plaintiffs from briefing and arguing
the issues under the Barton Doctrine and the Bar Order. After the Court issued the TRO and
preliminary injunction, the Court set a briefing and argument schedule specifically focused on
those two issues. The Court heard argument during the morning of January 23, 2017, and
announced a ruling from the bench concluding that the Bermuda Insurers violated the Barton
Doctrine by filing the Bermuda proceedings.4 The Court explained the basis for its ruling from
the bench, but also indicated that a written opinion would follow. A written order was entered
requiring the Bermuda Insurers to dismiss their Bermuda actions (ECF Doc. # 78), followed the
next day by another order clarifying that the Court required that the Bermuda actions must be
dismissed without prejudice. (ECF Doc. # 82.) This Opinion elaborates on the reasons for the
relief ordered by the Court. After the entry of the two orders, the Bermuda Insurers complied
with the orders and discontinued the Bermuda actions. The Court has scheduled a case
management conference for February 23, 2017, and directed the parties to confer on a schedule
for briefing and hearing argument of the Bermuda Insurers’ motions to compel arbitration, and
other matters.
This Opinion addresses one of the central issues in this adversary proceeding—namely,
whether the Bermuda Insurers violated the Barton Doctrine by initiating proceedings against the
Plaintiffs in Bermuda without leave of this Court. In light of the decision on the Barton
4 The Court announced its decision from the bench, and promptly entered a written order granting relief,
because a hearing was scheduled for the Bermuda Court that same afternoon in which the Bermuda Insurers were
seeking additional relief.
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Doctrine, the Court concludes that it is unnecessary at this time to decide whether the Bermuda
Insurers violated the Bar Order in the Global Settlement by filing the Bermuda proceedings.
After the entry of the TRO Opinion, which enjoined the Bermuda Insurers from taking
any action to enforce certain provisions of the injunctive orders issued by the Bermuda court,
Allied World Assurance Company Ltd. (“Allied”) filed the Memorandum of Law in Support of
Defendant Allied World Assurance Company, Ltd’s Opposition to Application of the Bar Order
and Barton Doctrine (the “Allied Opposition,” ECF Doc. # 62), and Iron-Starr Excess Agency
Ltd., Ironshore Insurance Ltd., and Starr Insurance & Reinsurance Limited (“the Iron-Starr
Insurers”) filed the Iron-Starr Defendants’ Memorandum of Law in Opposition to the
Application of the Bar Order and Barton Doctrine (the “Iron-Starr Opposition,” ECF Doc. # 64).
Allied also filed the Affidavit of Erica Kerstein (the “Kerstein Affidavit,” ECF Doc. # 63) and
several exhibits; the Iron-Starr Insurers filed the Declaration of Mary Jo Barry (ECF Doc. # 65)
and several exhibits.5
The Plaintiffs filed the Memorandum of Law on the Bermuda Defendants’ Continued
Violation of This Court’s Bar Order (the “Plaintiffs’ Opening Brief,” ECF Doc. # [--], filed
under seal on December 28, 2016) along with certain exhibits, and the Omnibus Response
Memorandum of Law on the Bermuda Defendants’ Continued Violation of This Court’s Bar
Order (the “Plaintiffs’ Response,” ECF Doc. # 68), along with the affidavit of Edward Joyce (the
“Joyce Affidavit,” ECF Doc. # 69) and several exhibits.
5 Earlier in the case, on December 7, 2016, Allied filed a brief addressing the Bar Order and Barton Doctrine
issues (the “Allied Response,” ECF Doc. # 28), as did the Iron-Starr Insurers (the “Iron-Starr Response,” ECF Doc.
# 32.)
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I. BACKGROUND
The Prior Opinions describe the background of the MF Global Chapter 11 and SIPA
cases, the confirmed Chapter 11 Plan, and the Global Settlement. Additional relevant facts are
set forth below.
The Amended and Restated Joint Plan of Liquidation Pursuant to Chapter 11 of the
Bankruptcy Code (the “Plan”) was confirmed on April 5, 2013. (D.I. 1288.) Under the terms of
the Plan, MFGH, as Plan Administrator, is responsible for liquidating all property under the Plan
and making distributions to creditors.6 After the Plan was confirmed, a “Sale and Assumption
Agreement” (D.I. 2114, Ex. B) was approved on August 19, 2015. (D.I. 2123.) The Sale and
Assumption Agreement provides at section 1.1 that MF Global Inc. (or “MFGI”) agrees to assign
certain rights to MFGH, as Plan Administrator, or MFGH’s designee. Specifically, at sections
1.1 (b) and (c), the Sale and Assumption Agreement provides for MFGI to transfer to MFGH its
rights, remedies, title, and interests arising out of, or related to any and all existing claims or
recoveries arising from certain E&O and D&O policies. (Sale and Assumption Agreement §
1.1.) The order approving the Sale and Assumption Agreement provides that, following certain
other distributions, “[a]ll remaining Assigned Rights and their proceeds shall be allocated among
the Chapter 11 Debtors by the Plan Administrator . . . .” (D.I. 2123 at 8.)
MFGAA was formed under Delaware law on August 26, 2015 as a limited liability
company to retain the assets assigned in satisfaction of the Debtors’ claims. MFGH is the
managing member of MFGAA. MFGAA was assigned all claims, rights, title, and benefits of
MFGI with respect to certain assets, including with respect to certain E&O and D&O policies,
6 After confirmation of this Plan, several further amendments to the confirmed plan were made and approved
by this Court, but those changes did not materially alter the provisions relating to liquidation and distributions of
assets.
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and maintains the right to recover on all claims previously held by MFGI’s estates. (See
Plaintiffs’ Response at 10‒11.)
The E&O insurance policies issued by the Bermuda Insurers each contain a mandatory
arbitration provision. (Allied Response at 3; Iron-Starr Response at 4.) These arbitration
clauses7 provide that all disputes arising under or relating to these policies shall be fully and
finally resolved by arbitration in Bermuda. (Id.) But where arbitration law and bankruptcy law
clash, the analysis whether particular disputes must be arbitrated is more nuanced. As explained
in the TRO Opinion and the Preliminary Injunction Opinion,
Under U.S. law, the answer to the question whether particular
disputes must be arbitrated depends on the application of both
arbitration law and U.S. bankruptcy law. It is a nuanced analysis. .
. . .
Courts in this district have recognized that when a Bankruptcy Court
is presented with a motion to compel arbitration . . . the Court must
apply a four-part test:
[F]irst, it must determine whether the parties agree to
arbitrate; second, it must determine the scope of that
agreement; third, if federal statutory claims are
asserted, it must consider whether Congress intended
those claims to be nonarbitrable; and fourth, if the
court concludes that some, but not all, of the claims
in the case are arbitrable, it must then decide whether
to stay the balance of the proceedings pending
arbitration.
Naturally, [w]hen arbitration law meets bankruptcy
law head on, clashes inevitably develop.
7 For example, the Allied Policy’s arbitration clause reads in relevant part:
Any and all disputes arising under or relating to this policy, including its
formation and validity, and whether between the Insurer and the Named Insured
or any person or entity deriving rights through or asserting rights on behalf of the
Named Insured, shall be finally and fully determined in Hamilton, Bermuda under
the provisions of The Bermuda International Conciliation and Arbitration Act of
1993 (exclusive of the Conciliation Part of such Act), as may be amended and
supplemented, by a board composed of three arbitrators to be selected for each
controversy . . . .
(Complaint, Ex. B at 7.)
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Specifically, [t]he issue of waiver predominates
arbitration disputes involving bankruptcy claims,
and the first indication of waiver is whether a claim
is core or non-core. Despite what the Bermuda
Insurers may have attested to before the Bermuda
Court, the determination of whether a claim is core
or non-core can be complex, including in insurance
coverage disputes.
TRO Opinion, 561 B.R. at 627 (internal quotation marks and citations omitted); Preliminary
Injunction Opinion, 2017 WL 119338, at *4 (internal quotation marks and citations omitted); see
also In re U.S. Lines, Inc., 197 F.3d 631, 636–37 (2d Cir. 1999).
II. THE PARTIES’ ARGUMENTS
A. The Plaintiffs’ Arguments
1. The Bar Order
The Plaintiffs argue that by demanding costs and attorneys’ fees in connection with the
Bermuda proceedings, the Bermuda Insurers have plainly brought a “claim” against the Plaintiffs
in clear violation of the Bar Order.8 (Plaintiffs’ Response at 3‒4.) Additionally, the Plaintiffs
8 The Bar Order provides in relevant part:
3. [T]he plan injunction (“Plan Injunction”) as to the Debtors and their respective
property established pursuant to paragraph 75 in the Order Confirming Amended and
Restated Joint Plan of Liquidation . . . shall be modified solely to the extent necessary,
and without further order of the Bankruptcy Court, to authorize any and all actions
reasonably necessary to consummate the Global Settlement, including without
limitation, any payments under certain insurance policies required under the
Settlement . . . . Furthermore, any person or entity that is not a Party to the Settlement
Agreement is permanently barred, enjoined, and restrained from commencing,
prosecuting, or asserting any claims arising out of payments made under certain
insurance policies in accordance with the Settlement Agreement or any other
agreement referenced therein or associated therewith.
. . . .
7. Upon entry of this Order, any person or entity that is not a Party to the Settlement
Agreement, including any Dissenting Insurer, is permanently barred, enjoined, and
restrained from contesting or disputing the Reasonableness of Settlement, or
commencing, prosecuting, or asserting any claims, including, without limitation,
claims for contribution, indemnity, or comparative fault (however denominated an on
whatsoever theory), arising out of or related to the MF Global Actions . . . .
8. For the avoidance of doubt, nothing in this Order shall preclude:
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argue that the Bermuda Insurers are seeking to “collaterally attack” the reasonableness of the
MDL settlement. (Plaintiffs’ Opening Brief at 3–5.) Specifically, the Plaintiffs note that the
Bermuda Insurers have taken the position that the claims under the Global Settlement are
uninsurable claims for “disgorgement and/or restitution,” and the Bar Order expressly precludes
any insurer not a party to the Global Settlement from challenging the insurability of claims
covered under the Global Settlement. (Plaintiffs’ Opening Brief at 4.) Therefore, the Plaintiffs
reason, this is a challenge to whether the E&O tower was “properly” and “fairly” exhausted. (Id.
at 5; Plaintiffs’ Response at 6.) Relatedly, the Plaintiffs argue that, contrary to Allied’s
representations, MFGH does have rights under the Global Settlement to prosecute the assigned
claims under the E&O policies at issue here, and that Allied is incorrect in asserting that
MFGAA is the only entity entitled to pursue the disputed policy proceeds. (Plaintiffs’ Response
at 6‒7.)
2. The Barton Doctrine
The Plaintiffs argue that the Bermuda Insurers have violated the Barton Doctrine because
MFGH and MFGAA were assigned the rights of the individual insureds against the Bermuda
Insurers under the Plan, and the Plaintiffs are entitled to the protections of the Barton Doctrine in
pursuing those rights in an effort to marshal and liquidate estate assets. (Plaintiffs’ Response at
11‒12.) The Plaintiffs emphasize that MFGAA “is merely the vehicle created by MFGH under
the Plan to hold the assets assigned by MFGI,” and together with MFGH, is tasked with
. . . (iii) any claims by the Insurance Assignees to enforce the Assigned Rights; (iv)
any claim or right asserted by an MFG Plaintiff against any Dissenting Insurer on its
own behalf (as distinct from the Assigned Rights) . . . .
(Global Settlement ¶¶ 3, 7, 8.)
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marshaling and liquidating estate assets. (Plaintiffs’ Response at 10‒11.)9 As such, the Plaintiffs
maintain that both MFGH, as Plan Administrator, and MFGAA are entitled to protection under
the Barton Doctrine. Also, the Plaintiffs note that the Bermuda Insurers do not claim to have
been unaware of the Barton Doctrine, as the Bermuda Insurers cited to case law in their
submissions to the Bermuda Court that extensively discusses the Doctrine. (Plaintiffs’ Response
at 9 n. 16.)
B. The Bermuda Insurers’ Arguments
1. The Bar Order
The Bermuda Insurers maintain that the plain text of the Bar Order does not prohibit the
Bermuda anti-suit injunctions. (Allied Response at 7‒9; Iron-Starr Response at 9‒11). The
Bermuda Insurers also argue that the intent behind the Bar Order was primarily to prevent
collateral attacks against the Global Settlement, and that the filing of proceedings in Bermuda
did not violate the spirit of the Bar Order because the Bermuda Insurers do not seek to upend any
portion of the Global Settlement. (Allied Response at 10‒12; Iron-Starr Response at 11‒14.)
2. The Barton Doctrine
The Bermuda Insurers argue that the Bermuda proceedings are not a suit against a court-
appointed officer in his/her official capacity, and thus does not constitute a Barton violation
because the Bermuda proceedings were only filed to defend a pre-existing arbitration clause.
The Bermuda Insurers maintain that MFGH, though a court-appointed officer, does not directly
hold the right to pursue any recovery of the underlying insurance policy proceeds, rendering the
Barton Doctrine inapplicable. (Allied Opposition at 6.)
9 The Plaintiffs also point out that “the three remaining Debtors are the only members of MFGAA, the
[Allied and Iron-Starr policy] proceeds will flow to them, and MFGH is responsible, as both the managing member
of MFGAA and under the Sale and Assumption Agreement, for prosecuting the claims under [these policies].”
(Plaintiffs’ Response at 11.)
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Additionally, the Bermuda Insurers contend that the Barton Doctrine is typically applied
in suits against court officers in entirely different circumstances, such as where a trustee commits
malpractice, breaches a fiduciary duty, or violates an individual’s constitutional rights. (Allied
Response at 13‒19; Iron-Starr Response at 15‒20.) The Bermuda Insurers also suggest that the
Bermuda proceedings do not “interfere with creditors’ claims or the administration of the estate,”
a scenario the Barton Doctrine is designed to prevent, because MFGH is the only relevant
“estate,” and the MFGH does not hold title to proceeds of the underlying policies. (Allied Opp.
at 5.)
III. LEGAL STANDARD
A. The Bar Order
It is well settled that a bankruptcy court retains jurisdiction post-confirmation to interpret
and enforce its own orders. See Travelers Indem. Co. v. Bailey, 557 U.S. 137, 151 (2009) (“[A]s
the Second Circuit recognized . . . the Bankruptcy Court plainly had jurisdiction to interpret and
enforce its own prior orders.”); see also In re Lyondell Chem. Co., 445 B.R. 277, 287 (Bankr.
S.D.N.Y. 2011) (“The Second Circuit and other bankruptcy courts in this district have ruled that
a bankruptcy court retains core jurisdiction to interpret and enforce its own prior orders,
including and especially confirmation orders.”); In re Charter Communications, 2010 WL
502764, at *4 (Bankr. S.D.N.Y. 2010) (“All courts retain the jurisdiction to interpret and enforce
their own orders.”). Judge Peck, in Charter Communications, discussed how following plan
confirmation, a bankruptcy court’s jurisdiction “does begin to diminish in importance,” but that
when a dispute involving the interpretation of prior orders is “sufficiently close in time to
confirmation of the [p]lan and sufficiently critical to the integrity of the [p]lan’s structure,” it
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may well be appropriate for a court to “take firm control of and decide” an issue. Charter
Communications, 2010 WL 502764, at *4.
B. The Barton Doctrine
“The Barton Doctrine, developed from common law by the Supreme Court, provides that
a suit may not be brought against a receiver without leave of such receiver’s appointing court.”
McIntire v. China MediaExpress Holdings, Inc., 113 F. Supp. 3d 769, 772 (S.D.N.Y. 2015);
Barton v. Barbour, 104 U.S. 126, 136–37 (1881) (“[W]hen the court of one State has . . .
property in its possession for administration as trust assets, and has appointed a receiver to aid in
the performance of its duty by carrying on the business to which the property is adapted . . . a
court of another State has not jurisdiction, without leave of the court by which the receiver was
appointed, to entertain a suit against him . . . .”).
“The Second Circuit has recognized that the Barton Doctrine extends to bankruptcy as
well as receivership, and lower courts have applied it to declaratory judgment actions, as well as
suits seeking damages.” McIntire, 113 F. Supp. 3d at 772 (internal citations omitted); see also
Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 460 B.R. 106, 116 (Bankr.
S.D.N.Y. 2011), aff’d, 474 B.R. 76 (S.D.N.Y. 2012) [hereinafter “Madoff”] (citing Lebovits v.
Scheffel (In re Lehal Realty Assocs.), 101 F.3d 272, 276 (2d Cir.1996)) (describing the “well-
recognized line of cases” extending the Barton Doctrine to bankruptcy trustees, and its
application in the post-receivership context). The court in McIntire noted that “the rationale
underlying Barton extends to arbitrations” in holding that non-party insurers were required to
seek leave from the court to name a receiver as a party to an arbitration proceeding. McIntire,
113 F. Supp. 3d at 774.
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“In addition to protecting a court-appointed receiver from personal liability, the Barton
Doctrine is intended to protect the receivership court’s ‘overriding interest in [the] administration
of the estate.’” McIntire, 113 F. Supp. 3d. at 773 (citation omitted); see also In re DeLorean
Motor Co., 991 F.2d 1236, 1240 (6th Cir. 1993) (explaining that the Barton Doctrine “enables
the Bankruptcy Court to maintain better control over the administration of the estate”). Other
courts have noted that the Barton Doctrine can also serve to “centralize bankruptcy litigation”
and “keep a watchful eye” on court-appointed officers. In re Yellowstone Mountain Club, LLC,
841 F.3d 1090, 1094 (9th Cir. 2016) (quoting In re Yellowstone Mountain Club, LLC, 2013 WL
1099155, at *3 (Bankr. D. Mont. 2013)).
While there is a limited statutory exception to the Doctrine not applicable here,10 as this
Court recently concluded, the Barton Doctrine is not restricted to legal actions brought within the
United States, and requires that “a party who seeks to file suit in an international forum” obtain
leave of the appointing court. Preliminary Injunction Opinion, 2017 WL 119338, at *6 (quoting
ACE Insurance Co., Ltd. v. Smith (In re BCE West, L.P.), 2006 WL 8422206, at *8 (D. Ariz.
Sept. 20, 2006)).
Recently, the Ninth Circuit applied the Barton Doctrine to bar claims brought against a
member of a committee of unsecured creditors. Yellowstone, 841 F.3d at 1095 (“Because
creditors have interests that are closely aligned with those of a bankruptcy trustee, there’s good
10 The limited exception to the Barton Doctrine set forth in 28 U.S.C. § 959(a) provides in relevant part that
“[t]rustees, receivers or managers of any property, including debtors in possession, may be sued, without leave of
the court appointing them, with respect to any of their acts or transactions in carrying on business connected with
such property.” 28 U.S.C. § 959(a). Given that there is no current business being carried out in connection with this
case, this statutory exception is inapplicable. See Lehal Realty, 101 F.3d at 276 (finding that the exception in section
959 was inapplicable where “a trustee acting in his official capacity conducts no business connected with the
property other than to perform administrative tasks necessarily incident to the consolidation, preservation, and
liquidation of assets in the debtor’s estate”) (citations omitted).
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reason to treat the two the same for purposes of the Barton [D]octrine.”). The Yellowstone court
explained that because a creditors’ committee is tasked with certain statutory obligations
including, among other things, examining the debtor and participating in the formation of a
reorganization plan, a lawsuit against the committee or its members would interfere with the
bankruptcy proceedings and could cause committee members “to be timid in discharging their
duties.” Id.
Similarly, in applying the Barton Doctrine, the Sixth Circuit looks to whether an entity is
the “functional equivalent of a trustee.” DeLorean, 991 F.2d at 1241. In DeLorean, the Sixth
Circuit held that counsel for a trustee is the “functional equivalent” of the trustee for purposes of
estate administration, and is thus protected by the Barton Doctrine. Id. (“We hold, as a matter of
law, counsel for trustee, court appointed officers who represent the estate, are the functional
equivalent of a trustee, where as here, they act at the direction of the trustee and for the purpose
of administering the estate or protecting its assets.”). The DeLorean court reasoned that “[t]he
protection that the leave requirement affords the [t]rustee and the estate would be meaningless if
it could be avoided by simply suing the [t]rustee’s attorneys.” Id.
The Eleventh Circuit adopted the “functional equivalent” test articulated by the Sixth
Circuit in finding that officers appointed by the trustee and approved by the bankruptcy court to
sell estate property warranted the protection of the Barton Doctrine. See Carter v. Rodgers, 220
F.3d 1249, 1252 n.4 (11th Cir. 2000); see also Lawrence v. Goldberg, 573 F.3d 1265, 1270 (11th
Cir. 2009) (extending the protections of the Barton Doctrine to a trustee’s hired professionals
assisting to “discharge” the trustee’s duties, and to creditors who “financed the [t]rustee’s
efforts,” because these entities “functioned as the equivalent of court appointed officers”).
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Additionally, as this Court discussed in detail in the Preliminary Injunction Opinion, the
District Court of Arizona upheld a bankruptcy court’s finding that a Bermuda-based insurer
violated the Barton Doctrine by filing an action in Bermuda against the plan trustee of the
confirmed Boston Chicken chapter 11 plan. BCE West, 2006 WL 8422206, at *1. While many
courts have applied the Barton Doctrine broadly, the Second Circuit has not articulated a test for
determining the application of the Barton Doctrine to parties other than a receiver or trustee. But
at least one district court within this Circuit has affirmed a bankruptcy court’s determination that
the Doctrine’s protection extended to both the trustee and counsel for the trustee. See Peia v.
Coan, 2006 WL 798873, at *2 (D. Conn. Mar. 23, 2006).
When a court determines that the Barton Doctrine has been violated, “[t]he only
appropriate remedy . . . is to order cessation of the improper action.” Madoff, 460 B.R. at 116
(quoting Beck v. Fort James Corp. (In re Crown Vantage, Inc.), 421 F.3d 963, 970 (9th Cir.
2005)); see also In re Baptist Medical Center of New York, 80 B.R. 637, 643 (Bankr. E.D.N.Y.
1987) (discussing the Barton Doctrine, and noting that “‘[c]ontempt’ is the relief that may
properly be granted upon a showing that [a] suitor impermissibly commenced the action against
the trustee”)
IV. DISCUSSION
A. The Bar Order
As set forth above, any “entity that is not a [p]arty to the Settlement Agreement is
permanently barred, enjoined, and restrained from commencing, prosecuting, or asserting any
claims arising out of payments made under certain insurance policies in accordance with the
[Global Settlement] . . . .” (Bar Order ¶ 3.) Whether or not the Bermuda Insurers violated the
Bar Order, then, may hinge on whether by filing proceedings in Bermuda, the Bermuda Insurers
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asserted a “claim” against the Plaintiffs. Similarly, if the Court were to conclude that the
Bermuda Insurers are attacking the reasonableness of the Global Settlement, the Bermuda
Insurers would be in violation of the Bar Order. (See Bar Order ¶ 7.)
The Bermuda Insurers maintain that because the Bermuda proceedings were filed as a
“defensive action,” and because they do not seek to directly upend the Global Settlement, they
have not violated the Bar Order. Though the Bermuda Insurers originally requested indemnity
costs and fees in connection with the Bermuda proceedings, at this stage in the case, the
Bermuda anti-suit injunctions have all been vacated. In any event, the Court may resolve the
pending issues by first addressing whether the Bermuda Insurers violated the Barton Doctrine.
Because the Court concludes that the Bermuda Insurers violated the Barton Doctrine by
filing the Bermuda actions without first obtaining leave of this Court, it is unnecessary to resolve
whether the Bermuda filings also violated the Bar Order.
B. The Barton Doctrine
MFGH, as Plan Administrator, is a court-appointed entity tasked with marshaling and
liquidating assets, and by initiating this adversary proceeding against the Bermuda Insurers to
pursue funds for the benefit of creditors, MFGH was acting in its official capacity.11 Likewise,
MFGAA was created pursuant to the terms and mechanisms of the Plan and the Sale and
Assumption Agreement, both of which were approved by this Court. MFGAA, as holder of the
rights to the underlying policies issued by the Bermuda Insurers, together with MFGH, initiated
this adversary proceeding in furtherance of the goals laid out in the Plan and Sale and
Assumption Agreement with the express authorization of this Court. The proceedings brought
by the Bermuda Insurers against the Plaintiffs in Bermuda were initiated following the filing of
11 The Bermuda Insurers concede that MFGH is a court-appointed officer. (Allied Response at 14; Iron-Starr
Opposition at 11.)
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the Complaint in an attempt to circumvent the adjudication of issues properly before this Court,
and abruptly halted the Plaintiffs’ efforts to carry out their official responsibilities.
The Bermuda Insurers have undermined this Court’s and the Plaintiffs’ “overriding
interest in [the] administration of the estate” by filing suit against MFGH and MFGAA without
leave of this Court. McIntire, 113 F. Supp. 3d. at 773. The Bermuda proceedings have resulted
in disjointed and decentralized actions in multiple jurisdictions, and have delayed the
administration of this case, and ultimately, distributions to creditors. The Barton Doctrine seeks
to prevent this very type of interference. The injunctive relief originally sought by the Bermuda
Insurers in the Bermuda Court (which has now been vacated) underscores the impermissible
intrusion that the Bermuda proceedings had on the Plaintiffs’ ability to carry out its obligations,
and this Court’s ability to adjudicate the issues properly before it.
Courts have consistently applied the Barton Doctrine broadly to prevent suits against
court-appointed officers in a wide variety of circumstances, and the Barton Doctrine is directly
applicable to the facts and circumstances of this case.
For example, as noted above, the Eleventh Circuit has held that court-appointed officers
assisting a trustee in carrying out official duties are protected by the Barton Doctrine. See
Lawrence, 573 F.3d at 1270 (broadly applying the Barton Doctrine in determining that the
trustee, counsel to the trustee, and certain others who assisted the trustee to recover property of
the estate were protected under the Barton Doctrine). Here, MFGAA, as the holder of the rights
to collect on the policies issued by the Bermuda Insurers, is functionally advancing the efforts of
MFGH, as Plan Administrator, in carrying out its official duties. Just as the court in Lawrence
found that the Barton Doctrine protects parties assisting a trustee in pursuing its objectives, so
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too does this Court find that the Barton Doctrine protects both MFGH and MFGAA in
undertaking their official obligations, including the filing of the Complaint.
The facts and circumstances of this case are similar in many ways to those in the Boston
Chicken case. In Boston Chicken, as is the case here, a Bermuda-based insurance company
obtained ex parte injunction orders prohibiting a plan administrator, charged with the collection
of certain retained assets (including causes of action relating to insurance policies), from
pursuing litigation to collect on the insurance policies issued by the Bermuda insurance
company. See BCE West, 2006 WL 8422206, at *2. There, the bankruptcy court found that the
Bermuda-based insurance company, by filing suit against the Boston Chicken plan trustee
without first seeking leave of the bankruptcy court, violated the Barton Doctrine, and the district
court affirmed the bankruptcy court’s decision. Id. at *8. Similarly, MFGH, together with
MFGAA, is charged with administering certain assets, including the rights to collect on the
policies issued by the Bermuda Insurers. The Complaint reflects an effort to collect on these
policies, as was the case in Boston Chicken.
By marshaling and liquidating assets for the benefit of creditors, MFGH, together with
MFGAA, were pursuing goals substantially similar to those of a bankruptcy trustee. The
Bermuda proceedings were initiated to handcuff the Plaintiffs following the filing of the
Complaint, which the Plaintiffs filed in accordance with their mandate. But the Barton Doctrine
protects the Plaintiffs in their pursuit of court-sanctioned actions. Parties like the Plaintiffs
should not be impeded from carrying out their duties or sidetracked with vexing litigation by
frustrated litigants. Carter, 220 F.3d at 1252–53 (“If [the trustee] is burdened with having to
defend against suits by litigants disappointed by his actions on the court’s behalf, his work for
the court will be impeded. . . . Without the requirement [of leave], trusteeship will become a
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more irksome duty . . . .”) (quoting Matter of Linton, 136 F.3d 544, 545 (7th Cir. 1998)). In
order to bring arbitration proceedings against MFGH and MFGAA, the Bermuda Insurers were
required, under the Barton Doctrine, to obtain leave of this Court.
The proceedings initiated by the Bermuda Insurers were brought outside the United
States, but the Barton Doctrine requires “a party who seeks to file suit in an international forum”
to obtain leave of the appointing court. See Preliminary Injunction Opinion, 2017 WL 119338,
at *6.
V. CONCLUSION
The Court finds and concludes that by filing proceedings against MFGH and MFGAA in
Bermuda, the Bermuda Insurers violated the Barton Doctrine. Therefore, the appropriate remedy
was for this Court to order the Bermuda Insurers to terminate proceedings in Bermuda against
MFGH and MFGAA without prejudice, as they have already done. Accordingly, the Court need
not address whether the filing of proceedings in Bermuda violated the Bar Order in the Global
Settlement.
The conclusion that the Bermuda Insurers violated the Barton Doctrine does not mean
that arbitration in Bermuda may not be required. But this Court, rather than the Bermuda Court,
must resolve the arbitration issue. Once briefing is complete, the Court will hear and decide
whether the Bermuda Insurers’ motions to compel arbitration must be granted.
IT IS SO ORDERED.
Dated: January 31, 2017
New York, New York
_____Martin Glenn_________
MARTIN GLENN
United States Bankruptcy Judge
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