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 PRELIMINARY INJUNCTION
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 10036-6524
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, CA 90071
By: 	Bruce Bennett, Esq.
-and-
JONES DAY
250 Vesey Street
New York, NY 10281
By: 	Edward M. Joyce, Esq.
Jane Rue Wittstein, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
On December 21, 2016, this Court issued a Memorandum Opinion and Temporary
Restraining Order (the “TRO Opinion” or the “TRO,” ECF Doc. # 35),1 enjoining the Bermuda
Insurers from taking any action to enforce certain provisions of the Injunctive Orders (defined
below) issued by the Supreme Court of Bermuda, Civil Jurisdiction (Commercial Court) (the
“Bermuda Court”). See MF Global Holdings Lt. v. Allied World Assurance Co. Ltd. (In re MF
Global Holdings Ltd.), ___ B.R. ___, 2016 WL 7388546 (Bankr. S.D.N.Y. Dec. 21, 2016). The
TRO was issued for 14 days, with the preliminary injunction hearing scheduled for January 4,
2017, before the TRO expired. At the outset of the January 4, 2017 hearing, the Court extended
the TRO for an additional 14 days to permit the Court to decide whether to issue a preliminary
injunction. Now pending before the Court is the determination whether there are grounds to
issue a preliminary injunction enjoining the Bermuda Insurers from taking any action to enforce
these Injunctive Orders.
In connection with the preliminary injunction hearing, Allied World Assurance
Company, Ltd. (“Allied”) filed the Memorandum of Law in Support of Defendant Allied World
1 	Capitalized terms not defined herein shall have the meaning ascribed to them in the TRO Opinion.
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Assurance Company, Ltd.’s Opposition to Memorandum Opinion and Temporary Restraining
Order (the “Allied TRO Response,” ECF Doc. # 37). In support of the Allied TRO Response,
Allied filed the Affirmation of Erica Kerstein in Support of Defendant Allied World Assurance
Company, Ltd’s Opposition to Memorandum Opinion and Temporary Restraining Order (the
“Kerstein Affirmation,” ECF Doc. # 38). Attached as exhibits to the Kerstein Affirmation are
Allied’s Motion to Dismiss for Lack of Personal Jurisdiction and Lack of Service of Process,
Allied’s Motion to Compel Arbitration, and Allied’s December 7, 2016 Opposition to This
Court’s Order to Show Cause, along with the exhibits originally attached to each of these
motions.
The Iron-Starr Insurers2 filed the Iron-Starr Defendants’ Memorandum of Law in
Opposition to Court’s Sua Sponte Preliminary Injunction (the “Iron-Starr TRO Response,” ECF
Doc. # 36). MF Global Holdings, Ltd. (“MFGH”), as Plan Administrator, and MF Global
Assigned Assets LLC (“MFGAA” and together with MFGH, the “Plaintiffs”), filed the
Memorandum of Law on the Bermuda Defendants’ Continued Violation of This Court’s Bar
Order (the “Plaintiffs’ TRO Response,” ECF Doc. # [--], filed under seal on December 28,
2016).
For the reasons set forth below, the Court finds that there are sufficient grounds to enter a
preliminary injunction enjoining the Bermuda Insurers from taking any action to enforce the
Injunctive Orders.
2 	Iron-Starr Excess Agency Ltd., Ironshore Insurance Ltd., and Starr Insurance & Reinsurance Limited are
referred to collectively as the “Iron-Starr Insurers.”
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I. 	BACKGROUND
The facts relevant to the issue currently before the Court are set forth in the TRO Opinion
and previous opinions and orders issued by this Court. Additional relevant facts are set forth
below.
A. The Temporary Restraining Order
As noted above, through the entry of the TRO, this Court restrained and enjoined the
Bermuda Insurers from taking any action to enforce the injunctive orders (the “Injunctive
Orders,” ECF Doc. ## 7-2, 7-3) issued by the Bermuda Court on November 8, 2016.
Specifically, the TRO restrained and enjoined the Bermuda Insurers from taking any action to
enforce the following provisions of the Injunctive Orders:
1. 	[MF Global Holdings, Ltd. (“MFGH”), as Plan Administrator, and
MF Global Assigned Assets LLC (“MFGAA,” together with MFGH,
the 	“Plaintiffs” 	or 	the 	“MFG 	Parties”)] 	shall 	not, 	whether 	by
themselves 	or 	through 	their 	employees, 	servants, 	agents,
representatives, 	attorneys 	or 	otherwise, 	commence, 	prosecute 	or
otherwise pursue litigation in the United States insofar as that litigation
concerns, arises out of and/or relates to the insurance policy issued to
the [Plaintiffs] by the [Bermuda Insurers], Policy No. C007357/005
(“the 	Policy”) 	including, 	for 	the 	avoidance 	of 	doubt, 	litigation
containing allegations of breach of “good faith and fair dealing”
relating to the Policy) and/or otherwise breaches the terms of the valid
and binding Bermuda arbitration agreement between the [Plaintiffs and
the Bermuda Insurers].
2. 	The [Plaintiffs] shall not, whether by themselves or through their
employees, servants, agents, representatives, attorneys or otherwise,
seek and/or obtain an anti-suit injunction and/or an anti-anti-suit
injunction 	and/or 	a 	temporary, 	preliminary 	or 	permanent 	order
restraining and/or preventing the [Defendant] from pursuing and/or
otherwise enforcing the said valid and binding Bermuda arbitration
agreement, until trial or further order.
TRO Opinion, 2016 WL 7388546, at *17.
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B. The Skeleton Argument and the December 22, 2016 Bermuda Court Orders
On December 22, 2016, the day after this Court entered the TRO, the Bermuda Insurers
filed certain pleadings (the “Skeleton Argument”) and appeared and were heard before the
Bermuda Court. In the Skeleton Argument, the Bermuda Insurers expressly requested certain
relief from the Bermuda Court, including:
12.1 	An Order that the [Bermuda Insurers] be granted leave to
amend the Originating Summonses in these proceedings, pursuant to
RSC Order 20 rules 5 and 7, to include a further or alternative claim
for permanent injunctive relief, in the form of a permanent injunction
mandating the [Plaintiffs], acting by themselves and/or acting through
their employees, servants, agents, representatives, and attorneys, to
terminate, discontinue, withdraw and/or to apply forthwith to dismiss
(without prejudice) the Adversary Complaint proceedings commenced
by the [Plaintiffs] against the [Bermuda Insurers] in the United States
Bankruptcy Court, Southern District of New York, Case No: 11-
15059 	(MG), 	Adv. 	Proc. 	No: 	16-01251 	(MG) 	(“the 	Adversary
Proceedings”);
12.2 	An interim injunction mandating the [Plaintiffs], acting by
themselves and/or acting through their employees, servants, agents,
representatives, and attorneys, to terminate, discontinue, withdraw
and/or to apply forthwith (i.e. within the next 28 days) to dismiss
(without prejudice) the Adversary Proceedings (as defined above).
(Skeleton Argument ¶¶ 12.1, 12.2 (emphasis in original).) The Bermuda Court then entered two
orders (the “December 22, 2016 Orders”) in the Bermuda proceedings initiated by (i) Allied and
(ii) the Iron-Starr Insurers.3 The December 22, 2016 Orders provide in relevant part that:
1. 	The [Bermuda Insurers] shall be granted leave to amend the
Originating Summons in these proceedings, pursuant to RSC Order 20
rules 5 and 7, in the form of the draft Amended Originating Summons
included in Exhibit JEH-3, to include a further or alternative claim for
permanent injunctive relief, in the form of a permanent injunction
mandating the [Plaintiffs], acting by themselves and/or acting through
their employees, servants, agents, representatives, and attorneys, to
terminate, discontinue, withdraw and/or to apply forthwith to dismiss
3 	The November 8, 2016 and December 22, 2016 Orders were issued by Chief Justice Kawaley of the
Supreme Court of Bermuda, Civil Jurisdiction (Commercial Court) in the proceedings denoted as “2016: No. 393”
and “2016: No. 394.”
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(without prejudice) the adversary proceedings commenced by the
[Plaintiffs] 	against 	the 	[Bermuda 	Insurers] 	in 	the 	United 	States
Bankruptcy Court, Southern District of New York, Case No: 11-15059
(MG), Adv. Proc. No: 16-01251 (MG) (“the Adversary Proceedings”),
with associated relief.
2. 	The [Plaintiffs] shall, and are hereby mandated on an interlocutory
basis, acting by themselves and/or acting through their employees,
servants, 	agents, 	representatives, 	and 	attorneys, 	to 	terminate,
discontinue, withdraw and/or to apply forthwith (i.e. within the next 28
days) 	to 	dismiss 	(without 	prejudice) 	the 	adversary 	proceedings
commenced by the [Plaintiffs] against the [Bermuda Insurers] in the
United States Bankruptcy Court, Southern District of New York, Case
No: 11-15059 (MG), Adv. Proc. No: 16-01251 (MG) (“the Adversary
Proceedings”). 	For 	the 	avoidance 	of 	doubt, 	this 	interlocutory
injunction shall remain in force until final determination of the
[Bermuda Insurer’s] Originating Summons, or until further Order of
this Court, save that the [Plaintiffs] shall be at liberty to apply to this
Court to set aside or vary the terms of paragraph 2 of this Order on at
least 48 hours’ written notice to the [Bermuda Insurers].
(December 22, 2016 Orders ¶¶ 1‒2.)
In the December 22, 2016 Orders, the Bermuda Court also stated that the Plaintiffs “will
not be contravened by the [Bermuda Insurers] and/or their US attorneys addressing the United
States Bankruptcy Court Southern District of New York on the limited issue of whether or not
the [Bermuda Insurers have] contravened” the Bar Order. (December 22, 2016 Orders at 1
(emphasis added).) With respect to whether the Bar Order and the Barton doctrine (described
below) have been violated, the Court has set a schedule for one last round of briefs on those
issues (January 11, 2017 for the Bermuda Insurers; January 18, 2017 for the Plaintiffs), and has
scheduled argument for 10:15 a.m., January 23, 2017. Because of the December 22, 2016
Orders, the Court, however, remains unable to make a determination whether this dispute is
arbitrable. Until the Court has full briefing and argument on the issue from the Plaintiffs and the
Bermuda Insurers, the Court cannot decide the Bermuda Insurers’ motion to compel arbitration.
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Our adversary system requires that all parties must be able to address the issues, not just the
moving parties.
The December 22, 2016 Orders, which included the above-referenced relief sought by the
Bermuda Insurers, permit the Plaintiffs to address only the limited issues whether the Bar Order
and Barton doctrine prohibited the Bermuda Insurers from filing the Bermuda action, but those
orders still enjoin the Plaintiffs from conducting any other activity in this adversary
proceeding—specifically including opposing the motion to compel arbitration that the Bermuda
Insurers filed in this Court. Moreover, the December 22, 2016 Orders require that the Plaintiffs
dismiss this adversary proceeding within 28 days, without the ability to be heard on any other
issues currently pending before this Court. (December 22, 2016 Orders ¶¶ 1‒2.) The effect of
the orders obtained by the Bermuda Insurers is an intolerable interference in this Court’s ability
to exercise its authority in a case within its jurisdiction.
C. The Bermuda Court’s December 23, 2016 “Reasons for Decision”
On December 23, 2016, the day after entering the December 22, 2016 Orders, the
Bermuda Court issued its “Reasons for Decision,” a 10-page decision explaining the basis for its
rulings in issuing the ex parte anti-suit injunctions. It is helpful to read Chief Justice Kawaley’s
explanation of the rationale for entry of the anti-suit injunctions. To the extent consistent with
this Court’s responsibility to decide matters properly before this Court, the Court strives through
the exercise of international comity to avoid unnecessary conflict with foreign courts. But this
Court cannot shy away from deciding issues properly presented to it. The ex parte anti-suit
injunctions, entered after this adversary proceeding was filed, prevent this Court and the U.S.-
based Plaintiffs from addressing important issues under U.S. bankruptcy law.
An underlying issue that one of the courts will have to decide is whether the insurance
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coverage dispute between the Plaintiffs and the Bermuda Insurers must be decided in arbitration
in Bermuda or adjudicated by this Court. But the immediate issue pending in this Court is
whether the Bermuda Insurers were prohibited by applicable U.S. law and orders previously
issued by this Court from commencing the Bermuda Court proceedings. The Plaintiffs identify
two separate grounds—either one potentially legally sufficient—to bar the filing of the Bermuda
actions—namely, the Bar Order included in a global settlement approved by this Court in August
2016, or the Barton doctrine. Assuming that one of those two bases barred the Bermuda Insurers
from commencing the Bermuda action, and assuming the Bermuda Insurers made a timely
motion in this Court to compel arbitration in Bermuda, this Court would be required to decide
the question whether this dispute is arbitrable. If the Bermuda Insurers prevail and this Court
compels arbitration, an order compelling arbitration would be entered, and this adversary
proceeding would then be dismissed. If the motion to compel arbitration is denied, this
adversary proceeding would proceed in the normal manner. Essentially, then, the issue the Court
will decide after briefing is complete and argument is heard on January 23, 2017 is whether the
Bermuda Insurers were barred by applicable U.S. law from filing the Bermuda Court action.
Once the motion to compel arbitration is fully briefed (something that the Bermuda Court
Injunctive Orders currently prevents), this Court can decide whether to compel arbitration. The
decision on that question—either in the U.S. or Bermuda courts—if both were able to decide the
issue might not be the same. 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. As explained in the TRO Opinion,
Courts in this district have recognized that when a Bankruptcy
Court is presented with a motion to compel arbitration, as this
Court currently is, the Court must apply a four-part test:
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[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. 	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, 2016 WL 7388546, at *14 (internal quotation marks and citations omitted); see
also In re U.S. Lines, Inc., 197 F.3d 631, 636–37 (2d Cir. 1999).
Whether a motion to compel arbitration can be denied because arbitration conflicts with
policies of the Bankruptcy Code depends on a careful analysis of both U.S. bankruptcy law and
arbitration law. The excess E&O insurance policies issued by the Bermuda Insurers are
expressly governed by New York law and the policies were issued to New York-based MF
Global Holdings Ltd. This Court previously determined that all of the D&O and E&O insurance
policies (primary and excess) issued to MF Global Holdings Ltd. were property of the Chapter
11 Debtors’ estates. In re MF Glob. Holdings Ltd., 469 B.R. 177, 190 (Bankr. S.D.N.Y. 2012),
subsequently dismissed sub nom. Sapere Wealth Mgt. LLC v. MF Glob. Holdings Ltd., 566 F.
App’x 81 (2d Cir. 2014) (“[I]t is well-settled that a debtor’s liability insurance is considered
property of the estate.”).
In explaining his Reasons for Decision, Chief Justice Kawaley relied heavily on his
earlier decision in ACE Bermuda Insurance Ltd. v. Peers Pederson as Plan Trustee for the
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Estates of Boston Chicken Inc. [2005] Bda LR 44, a case in which he granted a similar ex parte
anti-suit injunction “by way of enforcing agreements to arbitrate insurance coverage disputes.”
(Reasons for Decision ¶ 4.)
Boston Chicken was a debtor in chapter 11 cases pending in the U.S. Bankruptcy Court
for the District of Arizona. ACE Bermuda (“ACE”) was an upper level excess insurance carrier
in Boston Chicken’s D&O insurance tower. ACE denied coverage for Boston Chicken’s officers
and directors who had been sued by Gerald K. Smith (“Smith”), the Plan Trustee under Boston
Chicken’s confirmed chapter 11 plan. The lawsuit filed by Smith in the federal district court also
named as defendants the underwriters of Boston Chicken securities, and the company’s
accountants and lawyers. With a coverage dispute clearly brewing, ACE preemptively obtained
an ex parte anti-suit injunction from the Bermuda Court before coverage litigation was
commenced by Boston Chicken in the bankruptcy court. See ACE Insurance Co., Ltd. v. Smith
(In re BCE West, L.P.), 2006 WL 8422206 (D. Ariz. Sept. 20, 2006) [hereinafter Smith].
Smith, in his capacity as Plan Trustee, reached a settlement with several of the Boston
Chicken officers and directors.4 The settlement included an assignment to Smith of the officers’
claims against the D&O insurers (including ACE) that denied coverage. Some of the non-
settling defendants in the district court action objected to approval of the settlement. The district
court overruled the objections and approved the settlement, and the Ninth Circuit affirmed. See
Smith v. Arthur Anderson LLP, 421 F.3d 989 (9th Cir. 2005). Smith then brought an action
against ACE in the bankruptcy court to recover on the insurance policy and for additional
4 	As I advised the parties during the preliminary injunction hearing, before I became a judge, I represented
one of the Boston Chicken officer defendants in Smith’s district court action, and I represented two of the officers in
negotiating a settlement with Smith of the district court action.
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damages. 5 ACE moved in the bankruptcy court to compel arbitration in Bermuda. The
bankruptcy court granted in part ACE’s motion to compel arbitration, but on different terms than
those included in the insurance contract, and granted Boston Chicken’s motion to enjoin the
Bermuda case that ACE had earlier filed. The bankruptcy court also found that ACE had
violated the Barton doctrine and awarded Smith $100,000 in damages. 6 See Smith, 2006 WL
8422206, at *2‒3.
The district court affirmed in part and reversed in part.7 Id. at *10.
The district court in Smith explained the Barton doctrine, named for the decision in
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 . . . .”). See Smith, 2006 WL 8422206, at *2 n.4. The
Barton doctrine operates independently of the Bar Order in the MF Global case, and may
provide a separate basis for barring the Bermuda Insurers’ action.8 As the district court
explained in affirming the bankruptcy court’s determination that ACE violated the Barton
5 	After the Ninth Circuit affirmed the approval of the settlement, I had no further involvement in the matter,
including in the insurance coverage case in the bankruptcy court.
6 	Unlike the MF Global case, there was no Bar Order in Boston Chicken that arguably prevented ACE from
filing its Bermuda action.
7 	The district court determined that under applicable Ninth Circuit case law, the insurance coverage dispute
in Boston Chicken was a non-core proceeding; therefore, the bankruptcy court erred “when it compelled arbitration
on terms materially different than the terms contained in the D&O policy’s arbitration clause.” Id. at *7. The
district court also reversed the bankruptcy court’s injunction barring ACE from prosecuting the Bermuda action
since the decision to compel arbitration also provided that the bankruptcy court adversary proceeding would be
dismissed. The district court, however, expressly noted that with respect to the “core/non-core determination,”
Second Circuit case law was different, see In re U.S. Lines, Inc., 197 F.3d 631 (2d Cir. 1999) (concluding that the
insurance coverage dispute was “core,” and the bankruptcy court properly denied the motion to compel
arbitration),which may have resulted in a different conclusion. Id. at *5 n.14.
8 	On January 23, 2017, following the completion of further briefing, the Court will hear argument whether
the Bar Order in this case prohibited the Bermuda Insurers from filing the Bermuda Action.
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doctrine, the Barton doctrine requires that “leave of the appointing forum must be obtained by
any party wishing to institute an action in a non-appointing forum against a trustee for the acts
done in the trustee’s official capacity and within the trustee’s authority as an officer of the
court.” Id. at *2 (quoting In re DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir. 1993)).
“There is no indication that the doctrine is limited in scope or that it is otherwise inapplicable to
a party who seeks to file suit in an international forum.” Id. at *8. 	As such, “regardless of
where ACE sought to file suit against the Trustee, the bankruptcy court correctly found that ACE
was required under the Barton doctrine to seek leave prior to filing suit.” Id.9
Reviewing the portions of his Boston Chicken decision that Chief Justice Kawaley quotes
in his Reasons for Decision, but also reviewing what transpired thereafter in the Boston Chicken
case in the U.S. Bankruptcy Court for the District of Arizona (where the Boston Chicken
bankruptcy case was pending), and, on appeal by ACE from the bankruptcy court decision, in the
U.S. District Court for the District of Arizona, provides a better understanding of the conflict
between the U.S. and Bermuda courts. With due respect to Chief Justice Kawaley, his decisions
in Boston Chicken and MF Global reflect a disregard of the applicable U.S. bankruptcy law
principles, specifically with respect to the bankruptcy court’s obligation to interpret and enforce
its own previously entered orders, and to apply applicable common law such as the Barton
doctrine. Perhaps this is so because in both Boston Chicken and in MF Global, Bermuda insurers
obtained ex parte anti-suit injunctions, without the court having the benefit of full briefing or
argument by the debtors, or their successors, on any of these issues.
Here, in part, is what Chief Justice Kawaley explained in Boston Chicken:
It is difficult to imagine any jurisdiction in the world which,
9 	The bankruptcy court and district court in Boston Chicken applied the Barton doctrine in circumstances
similar to this case: Smith, the Plan Trustee in Boston Chicken, brought suit based on claims against ACE assigned
by the officers and directors. The Plaintiffs here have done the same thing.
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statutory incorporation apart, would apply a foreign procedural law
instead of its own domestic law to an action properly commenced
under local law within the jurisdiction. 	When Bermudian estate
representatives 	seek 	the 	cooperation 	of 	the 	United 	States
bankruptcy courts, they invariably do so under the umbrella of the
provisions of section 304 of the US Bankruptcy Code [now
replaced by chapter 15], if not chapter 11. They do not apply to set
aside actions commenced in the US against Bermudian companies
in liquidation on the grounds that leave of the Bermuda court
should have been obtained by virtue of Bermuda domestic law. . . .
But even if this Court had the power to stay proceedings brought in
Bermuda in deference to a foreign bankruptcy proceeding, it seems
improbable that such jurisdiction would enable this Court to grant
the 	relief 	the 	Applicants 	presently 	seek. 	Because 	the 	only
application presently before the Court is based on the premise that
an 	extra-territorial 	doctrine 	of 	US 	bankruptcy 	law 	arguably
supersedes Bermuda statute law . . . and that US law deprives this
Court of jurisdiction expressly conferred upon it to grant leave to
serve abroad proceedings brought here to enforce a contract
governed by Bermuda law.
It is also settled this court cannot stay proceedings on forum non-
convenience grounds where the parties have agreed to arbitrate
here, which is no doubt why this doctrine (in its traditional sense)
has not, in any coherent way at least, been invoked by the
Applicants. 	Yet the doctrine is relied upon in support of the
proposition that the Arizona court is the more appropriate forum
for determining whether or not the arbitration clause should be
respected . . . .
(Reasons for Decision ¶ 4, citing Boston Chicken, [2005] Bda LR 44). Chief Justice Kawaley’s
ruling appears to conclude that a decision from this Court that the Bermuda Insurers filed the
Bermuda action in violation of the Barton doctrine will not be recognized and enforced in
Bermuda. (Id. (“But even if this Court had the power to stay proceedings brought in Bermuda in
deference to a foreign bankruptcy proceeding, it seems improbable that such jurisdiction would
enable this Court to grant the relief the Applicants presently seek. Because the only application
presently before the Court is based on the premise that an extra-territorial doctrine of US
bankruptcy law arguably supersedes Bermuda statute law . . . and that US law deprives this
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Court of jurisdiction expressly conferred upon it to grant leave to serve abroad proceedings
brought here to enforce a contract governed by Bermuda law.”).) But this Court sees the issues
differently: Did the Bar Order or the Barton doctrine prohibit the Bermuda Insurers from filing
the Bermuda action? If so, may this Court decline to recognize and enforce the Bermuda Court’s
orders that prevent this Court from deciding issues in the adversary proceeding in which the
Court concluded it has personal and subject matter jurisdiction over the Bermuda Insurers? And,
if so, may this Court order the Bermuda Insurers to dismiss their Bermuda actions?
Obviously, this Court cannot force the Bermuda Court to recognize and enforce a
decision of this Court based on a well-recognized doctrine of U.S. law, first set forth in the 1881
Supreme Court decision in Barton; but a refusal to recognize and enforce such a decision should
it be rendered is not a sufficient reason for this Court to avoid reaching a decision if the facts and
law support it (something that is still undetermined and will be heard on January 23, 2017).
Even if a decision by a U.S. court is not recognized and enforced in Bermuda, and a judgment is
entered against the Bermuda Insurers in New York, the Bermuda Insurers write insurance
policies for and collect premiums from companies in the New York and the United States, so the
Plaintiffs may well have recourse to recover on any judgment obtained in the United States, if
that eventuality comes to pass.10 Hopefully, this cross-border dispute will not come to that.
D. The Second Order to Show Cause
On December 29, 2016, this Court entered the Order to Show Cause Why Allied World
Assurance Company Ltd., Iron-Starr Excess Agency Ltd., Ironshore Insurance Ltd., and Starr
10 	To be clear, if the Court is not prevented from hearing and deciding the motion to compel arbitration based
on full briefing by the parties, the Court intends to do so. The current anti-suit injunction prevents the Plaintiffs
from briefing and arguing the motion to compel arbitration. The Court will issue a separate order determining
whether the Bermuda Insurers should be held in contempt for violating the TRO in applying for and obtaining the
December 22, 2016 Orders, with possible sanctions including striking their pleadings and entering a default.
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Insurance & Reinsurance Limited Should Not be Held in Contempt for violating the TRO (the
“Second OSC,” ECF Doc. # 41). The Second OSC referred to the injunctive provisions of the
TRO, the relief sought by the Bermuda Insurers in the Skeleton Argument after the TRO was
issued, and the orders subsequently entered by the Bermuda Court on December 22, 2016. The
Second OSC ordered the Bermuda Insurers to file a written response addressing why they should
not be held in contempt for violating the TRO by asking the Bermuda Court to order the
Plaintiffs to dismiss the adversary proceeding before this Court.11
II. 	THE PRELIMINARY INJUNCTION
A. Legal Standard
Pursuant to section 105(a) of the Bankruptcy Code, “[t]he court may issue any order,
process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 11
U.S.C. § 105(a). The traditional standards for issuance of an injunction pursuant to Rule 65 of
the Federal Rules of Civil Procedure are made applicable to adversary proceedings under
Bankruptcy Rule 7065. See Eastern Air Lines v. Rolleston (In re Ionosphere Clubs, Inc.), 111
B.R. 423, 431 (Bankr. S.D.N.Y. 1990). Moreover, the standards for a temporary restraining
order and a preliminary injunction are not materially different. See Adelphia Commc’ns Corp. v.
The American Channel, et al. (In re Adelphia Commc’ns Corp.), No. 02-41729 (REG), 2006 WL
1529357, at *4 (Bankr. S.D.N.Y. June 5, 2006). “A decision to grant or deny a preliminary
injunction is committed to the discretion of the district court.” Polymer Tech. Corp. v. Mimran,
37 F.3d 74, 78 (2d Cir. 1994).
The Second Circuit has explained that a party seeking a preliminary injunction must
show that either “he is likely to succeed on the merits; that he is likely to suffer irreparable harm
in the absence of preliminary relief; that the balance of equities tips in his favor; and that an
11 	As noted above, the disposition of the Second OSC will be addressed in a separate order.
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injunction is in the public interest,” or alternatively “show irreparable harm and either a
likelihood of success on the merits or sufficiently serious questions going to the merits to make
them a fair ground for litigation and a balance of hardships tipping decidedly toward the party
requesting the preliminary relief.” Am. Civil Liberties Union v. Clapper, 785 F.3d 787, 825 (2d
Cir. 2015) (internal citations and quotations omitted); see also Winter v. Nat. Res. Def. Council,
Inc., 555 U.S. 7, 20 (2008) (“A plaintiff seeking a preliminary injunction must establish that he is
likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of
preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the
public interest.”) (citations omitted). Because the Court (rather than the Plaintiffs) initiated the
TRO and preliminary injunction hearing to protect its jurisdiction over this adversary
proceeding, the Plaintiffs are not required to post security for the preliminary injunction as
otherwise required by Rule 65(c).
B. The Parties’ Contentions
1. 	The Plaintiffs’ Contentions
The Plaintiffs, in the Plaintiffs’ TRO Response, argue that a preliminary injunction is
necessary to address the Bermuda Insurers’ continued violations of the Bar Order, the Barton
doctrine, and the TRO.12 As noted above, in the Second Circuit there are two formulations of the
test for a preliminary injunction, and the Plaintiffs argue that a preliminary injunction is
warranted because they have demonstrated “(a) irreparable harm and (b) . . . [that there are]
sufficiently serious questions going to the merits to make them a fair ground for litigation and a
balance of hardships tip[s] decidedly toward the party requesting the preliminary relief.”
12 	A sizable portion of the Plaintiffs’ TRO Response is dedicated to arguing that the Bermuda action
continues to violate the Bar Order and the Barton doctrine.
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Christian Louboutin S.A. v. Yves Saint Laurent Am. Holdings, Inc., 696 F.3d 206, 215 (2d Cir.
2012).
In particular, the Plaintiffs argue that there are serious questions as to the merits of both
the Bermuda Insurers’ violation of the Bar Order and the Barton doctrine, as well as questions
regarding whether this dispute is arbitrable under applicable bankruptcy law, and an injunction is
necessary to permit the Court to address these issues. (Plaintiffs’ TRO Response at 16.) The
Plaintiffs also argue that they continue to suffer irreparable harm by being forced to incur
additional expense and effort in the Bermuda Court, by being unable to avail themselves of their
chosen forum, and by being restrained from filing pleadings before this Court. (Id. at 17.) The
Plaintiffs maintain that the balance of equities and public policy weigh in their favor because the
Bermuda Insurers’ actions in the Bermuda Court undermine the efficient administration of the
adversarial system in the United States, and because the Plaintiffs should not be forced to resort
to a distant forum to adjudicate their rights when they have already chosen a legitimate forum.
(Id. at 18‒19.)
2. 	The Bermuda Insurers’ Contentions
Both Allied and the Iron-Starr Insurers, in their responses to the TRO, restate that this
Court lacks specific personal jurisdiction and subject matter jurisdiction over the Bermuda
Insurers and, in particular, over this dispute. (Allied TRO Response at 5‒18; Iron-Starr TRO
Response at 7‒22.) Likewise, the Bermuda Insurers reiterate their belief that service of process
on them was improper. (Allied TRO Response at 25; Iron-Starr TRO Response at 22‒24.)
Additionally, the Iron-Starr Insurers argue that the Plaintiffs cannot establish a likelihood
of success on the merits as the coverage claims dispute here is “squarely a ‘non-core’ claim.”
(Iron-Starr TRO Response at 24.) The Iron-Starr Insurers also argue that the balance of
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hardships weighs in favor of the Bermuda Insurers, as a determination of the underlying
coverage issues in this Court would strip the Bermuda Insurers of their bargained-for contractual
rights. (Id. at 25.)
Similarly, Allied argues that the Plaintiffs cannot demonstrate imminent or irreparable
harm because the Plaintiffs have known about the invocation of the arbitration provision for ten
months. (Allied TRO Response at 19.) Allied also argues that requiring the Plaintiffs to
arbitrate does not constitute “irreparable harm” when the Plaintiffs can still argue before the
arbitration tribunal and the Bermuda Court that arbitration is improper. (Id. at 20‒21.) Allied
argues that the balance of equities tips in its favor because it will be irreparably harmed if forced
to litigate in this Court as it would be stripped of its arbitration clause and forced to submit to
jurisdiction in the United States. (Id.) Additionally, Allied argues that public policy weighs in
favor of arbitration given the strong federal policy in favor of arbitration where parties have
voluntarily agreed to arbitrate. (Id. at 22.) Relatedly, Allied argues that under the first-filed rule,
if applicable, the arbitration in Bermuda constitutes the first-filed action, and that as a matter of
comity, anti-suit injunctions should be used sparingly, particularly where no bankruptcy policy
would be frustrated if this dispute were arbitrated. (Id. at 22‒24.)
C. Discussion
In the TRO Opinion, the Court already determined that the Court has personal and
subject matter jurisdiction over the Bermuda Insurers and this dispute. The Court will not revisit
those rulings in this Opinion.
“[T]he standards for a temporary restraining order and a preliminary injunction are not
materially different,” Adelphia, 2006 WL 1529357 at *4, and though the Court set forth an
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analysis of the preliminary injunction factors in the TRO Opinion, the Court now has the benefit
of briefing from both the Plaintiffs and the Bermuda Insurers.
For the reasons set forth below, the Plaintiffs have demonstrated that a preliminary
injunction is warranted because they continue to suffer “irreparable harm and . . . [there are]
sufficiently serious questions going to the merits to make them a fair ground for litigation and a
balance of hardships tip[s] decidedly” in their favor. Christian Louboutin, 696 F.3d at 215.
Each of these elements is discussed in turn below.
1. 	Irreparable Harm
The Plaintiffs have suffered and continue to suffer from the inability to meaningfully
participate in the adversary proceeding that they commenced in the forum of their choice. The
Bermuda Insurers have filed motions to dismiss and motions to compel arbitration. (ECF Doc.
## 13-1, 14, 17, 20.) The Plaintiffs suffer the inequity of being unable to respond to any of these
motions. As such, the Plaintiffs have demonstrated that they continue to suffer irreparable harm.
2. 	Sufficiently Serious Questions Going to the Merits
Here, there are sufficiently serious questions going to the merits of both the purported
violation of the Bar Order and the Barton doctrine such that these disputes are fair grounds for
litigation. As noted in the TRO, the issue whether the Bar Order has been violated is nuanced,
and each party has non-frivolous arguments that this Court should entertain. For example, the
Plaintiffs argue that the Bermuda Insurers impermissibly seek to collaterally attack the
reasonableness of the Settlement Agreement, and that the Bermuda Insurers have asserted claims
against the Plaintiffs in violation of the Bar Order. (Plaintiffs’ TRO Response at 3‒5.) The
Bermuda Insurers maintain that the plain language of the Bar Order does not prohibit the filing
of the Bermuda action. (See Allied TRO Response at 11 n. 4, Ex. C.)
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The Court now has briefing on this issue, and will hold a hearing on the issue on January
23, 2017. Nevertheless, this factor is satisfied as the Plaintiffs have demonstrated that there are
sufficiently serious questions going to the merits of this dispute.
3. 	The Balance of Equities
While the Plaintiffs continue to suffer the inequities described above, upon the issuance
of this preliminary injunction, the Bermuda Insurers will suffer no apparent harm. The Bermuda
Insurers complain that they are being stripped of their bargained-for arbitration provision, but the
Bermuda Insurers ignore the procedural framework in which this dispute currently resides. At
this juncture, the Court has not determined whether the coverage dispute should properly be
heard in this Court or in arbitration in Bermuda. The Bermuda Insurers filed motions in this
Court to compel arbitration, but they filed the motions only after they obtained anti-suit
injunctions from the Bermuda Court, which prevented the Plaintiffs from responding to the
motions. After the TRO Opinion was entered, the Bermuda Insurers again obtained injunction
orders from the Bermuda Court handcuffing the Plaintiffs. The Bermuda Insurers will not suffer
any harm by having this Court decide the issues presented by the motions the Bermuda Insurers
themselves filed in this Court.
The Bermuda Insurers have intolerably interfered in the Court’s exercise of its authority
and undermined the Plaintiffs’ ability to participate in the proceedings properly before this Court,
and in doing so, have undercut the adversarial nature of this adversary proceeding. The balance
of equities weighs in favor of granting relief for the Plaintiffs.
4. 	The Public Interest
Additionally, public policy weighs in favor of granting injunctive relief to the Plaintiffs.
As explained in the TRO, the determination whether a claim is arbitrable is complex, as is the
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determination whether a claim is core or non-core, including in insurance coverage disputes. 	By
seeking to sidestep this entire analysis, and by taking actions that undercut this Court’s ability to
apprise itself of all relevant facts and arguments, the Bermuda Insurers have upset the adversarial
nature of the judicial system. Considerations of fairness and equity weigh in favor of granting
relief for the Plaintiffs.
III. 	CONCLUSION
For the reasons set forth above, the Plaintiffs have demonstrated that there are sufficient
grounds to issue a preliminary injunction.
By this Order, the Bermuda Insurers are hereby RESTRAINED and ENJOINED
from taking any action to enforce the following provisions in the Injunctive Orders:
1. 	The [Plaintiffs] shall not, whether by themselves or through their
employees, 	servants, 	agents, 	representatives, 	attorneys 	or
otherwise, commence, prosecute or otherwise pursue litigation in
the United States insofar as that litigation concerns, arises out of
and/or relates to the insurance policy issued to the [Plaintiffs] by
the [Bermuda Insurers], Policy No. C007357/005 (“the Policy”)
including, 	for 	the 	avoidance 	of 	doubt, 	litigation 	containing
allegations of breach of “good faith and fair dealing” relating to the
Policy) and/or otherwise breaches the terms of the valid and
binding Bermuda arbitration agreement between the [Plaintiffs and
the Bermuda Insurers].
2. 	The [Plaintiffs] shall not, whether by themselves or through their
employees, 	servants, 	agents, 	representatives, 	attorneys 	or
otherwise, seek and/or obtain an anti-suit injunction and/or an anti-
anti-suit injunction and/or a temporary, preliminary or permanent
order restraining and/or preventing the [Defendant] from pursuing
and/or otherwise enforcing the said valid and binding Bermuda
arbitration agreement, until trial or further order.
For the avoidance of doubt, the Bermuda Insurers are also RESTRAINED and
ENJOINED from taking any action to impede or obstruct the administration of this
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adversary proceeding. The Bermuda Insurers are so enjoined until further order entered
by the Court.
IT IS SO ORDERED.
Dated: 	January 12, 2017
New York, New York
_____Martin Glenn_________
MARTIN GLENN
United States Bankruptcy Judge
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