IN THE UNITED STATES BANKRUPTCY COURT FOR THE … · 2019. 9. 11. · in the united states...
Transcript of IN THE UNITED STATES BANKRUPTCY COURT FOR THE … · 2019. 9. 11. · in the united states...
-
IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
In re: USA GYMNASTICS,1
Debtor.
Chapter 11 Case No. 18-09108-RLM-11
USA GYMNASTICS, Plaintiff, v. ACE AMERICAN INSURANCE COMPANY f/k/a CIGNA INSURANCE COMPANY, GREAT AMERICAN ASSURANCE COMPANY, LIBERTY INSURANCE UNDERWRITERS INC., NATIONAL CASUALTY COMPANY, RSUI INDEMNITY COMPANY, TIG INSURANCE COMPANY, VIRGINIA SURETY COMPANY, INC. f/k/a COMBINED SPECIALTY INSURANCE COMPANY, WESTERN WORLD INSURANCE COMPANY, ENDURANCE AMERICAN INSURANCE COMPANY, AMERICAN HOME ASSURANCE COMPANY, and DOE INSURERS Defendants.
Adv. Proc. No. 19-50012 in 18-09108-RLM-11
USA GYMNASTICS’ OBJECTION TO
ACE’S EMERGENCY MOTION TO CONTINUE SEPTEMBER 17 HEARING
USA Gymnastics, as debtor and debtor in possession in the above-captioned chapter 11
case (“USAG”), hereby objects (the “Objection”) to Ace American Insurance Company’s
1 The last four digits of the Debtor’s federal tax identification number are 7871. The location of the Debtor’s
principal office is 130 E. Washington Street, Suite 700, Indianapolis, Indiana 46204.
Case 19-50012 Doc 225 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 1 of 10
-
2
Emergency Motion To Continue Hearing On USA Gymnastics’ Motion For Partial Summary
Judgment [Adv. Dkt. 220] (the “Ace Motion”), filed by Ace American Insurance Company
(“Ace”). USAG has concurrently filed objections to the Emergency Motion Of Liberty Insurance
Underwriters, Inc. To Continue Hearing On LIU Summary Judgment Motions [Adv. Dkt. 219]
(the “LIU Motion”), filed by Liberty Insurance Underwriters (“LIU”), and TIG Insurance
Company’s Emergency Motion To Continue Hearing On USA Gymnastics’ Motion For Partial
Summary Judgment [Dkt. 221] (the “TIG Motion” and, collectively with the Ace Motion and the
LIU Motion, the “Motions”), filed by TIG Insurance Company (“TIG” and, collectively with Ace
and LIU, the “Insurers”). In support of this Objection, USAG respectfully states as follows:
1. The Insurers’ Motions for a continuance are really Bankruptcy Rule 5011(c) stay
motions in disguise. Recognizing that this Court denied its prior stay motion less than four months
ago, LIU changed tact, calling its stay motion a request for a continuance. TIG and Ace quickly
followed suit, filing their own copy-cat motions. But none of the Motions offer any reason, let
alone a good reason, why the Insurers and their counsel cannot participate in the September 17
hearing. Instead, the Insurers ask for an indefinite continuance so the District Court can rule on
their motions to withdraw the reference; in other words, the Motions ask for a stay. Because the
Insurers have elected to mask what are in reality stay motions as requests for a continuance, the
Court should treat the Motions that way. Judged as continuance motions, the Motions fail. The
Insurers have not offered any reason why a hearing date of September 17 does not work for them
or why there is suddenly an emergency, given that the hearing date was set weeks ago on August
9. Accordingly, the Motions should be denied.
2. But to the extent that the Court overlooks the Insurers’ inaccurate description of
what their Motions are requesting, it should hold the Insurers to the standards developed under
Case 19-50012 Doc 225 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 2 of 10
-
3
Bankruptcy Rule 5011(c). Under Rule 5011(c), the general rule is that the bankruptcy court will
continue to administer a case or adversary proceeding notwithstanding the filing of a motion to
withdraw the reference. The bankruptcy case or adversary proceeding is only halted pending the
determination of a withdrawal motion if the movant also satisfies the rigorous standards for a stay.
See Fed. R. Bankr. P. 5011(c). As a result, TIG’s suggestion that it would be inefficient not to stay
this Adversary Proceeding before the District Court rules on the renewed motions to withdraw the
reference is directly contrary to Rule 5011(c) and should be rejected. (TIG Motion, at 6.)
3. Instead, the Court must analyze whether the Insurers have established the four
factors necessary to obtain a stay: (1) that the Insurers are likely to succeed on their renewed
motions to withdraw the reference; (2) that the Insurers will suffer irreparable harm if the
Adversary Proceeding is not stayed; (3) that USAG will not be substantially harmed by the stay;
and (4) that the public interest will be served by granting the Insurers’ request for a stay. See In re
New Energy Corp., No. 13-CV-205, 2013 WL 1192664, at *6 (N.D. Ind. Mar. 22, 2013) (denying
motion for stay). As this Court previously found, none of these factors favors a stay here.
A. The Insurers Are Not Likely To Prevail in Obtaining A Withdrawal.
4. First, for all of the reasons set forth in USAG’s objections to the Insurers’ renewed
motions to withdraw the reference [Adv. Dkts. 210, 213] (the “Objections,” attached as Exhibit
A and Exhibit B hereto), the Insurers are not likely to succeed on the merits of their requests to
withdraw the reference of the Adversary Proceeding. For starters, the primary basis for seeking
withdrawal is the Insurers’ claim that this Court cannot enter a judgment because USAG’s claims
in this Adversary Proceeding are non-core. But by filing their various cross-motions for summary
judgment [Adv. Dkts. 130, 214, 216], the Insurers have consented to the Bankruptcy Court’s
constitutional authority to enter final judgment, and waived any right to a jury trial or any
Case 19-50012 Doc 225 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 3 of 10
-
4
complaints on Article III grounds about the Bankruptcy Court’s adjudication of these disputes. See
Wellness Int’l Network Ltd. v. Sharif, 135 S. Ct. 1932, 1947-48 (2015) (holding that implied
consent allows bankruptcy court to enter final order in non-core matter). And as the First Circuit
has held, “[t]here can be no clearer sign of consent” than asking a court to enter judgment. In re
G.S.F. Corp., 938 F.2d 1467, 1477 (1st Cir. 1997).2
5. Moreover, even if the Insurers had not consented to the Bankruptcy Court’s
authority to enter judgment here, as explained in USAG’s Objections, the overwhelming majority
of courts hold that the district court should not withdraw the reference of an adversary proceeding
until the case is ready for trial, which this case is not.3 Indeed, one very recent opinion
characterized an early request to withdraw the reference of an allegedly non-core adversary
proceeding as “absurd”, and then recognized that the bankruptcy court’s rulings (even if treated as
reports and recommendations) would save the judiciary and the parties an “immense amount of
time.” Lehman Brothers Holdings Inc. v. Standard Pacific Mortgage, Inc., et al., No. 19-CV-4080,
2019 U.S. Dist. LEXIS 143871, at *9-10 (S.D.N.Y. Aug. 23, 2019). Same here. It is most efficient
for this Court, which is also supervising USAG’s bankruptcy case and the attendant mediation, to
2 Ace also filed a proof of claim (Claim No. 294) and thus forfeited its right to a jury trial. See, e.g., Katchen
v. Landy, 382 U.S. 323 (1966); Langenkamp v. Culp, 498 U.S. 42 (1990); Granfinanciera, S.A v. Nordberg, 492 U.S. 33 (1989). 3 See, e.g., In re Stein, 2017 WL 2418325, at *2; Kemp v. Nelson, No. 16-CV-1546-JPS, 2016 WL 7177508,
at *3 (E.D. Wis. Dec. 9, 2016); Abrams v. DLA Piper (US) LLP, No. 12-CV-19-TLS, 2012 WL 1714591, at *4 (N.D. Ind. May 15, 2012); Southern Elec. Coil, LLC v. FirstMerit Bank, N.A., No. 11-C-6135, 2011 WL 6318963, at *4 (N.D. Ill. Dec. 16, 2011); In re Neumann Homes, Inc., 414 B.R. 383, 386-87 (N.D. Ill. 2009); Gecker v. Marathon Fin. Ins. Co., 391 B.R. 613, 616 (N.D. Ill. 2008); CDX Liquidating Trust v. Venrock Associates, No. 04-CV-7236, 2005 WL 3953895, at *4 (N.D. Ill. Aug. 10, 2005); In re Conseco Fin. Corp., 324 B.R. 50, 55-56 (N.D. Ill. 2005); ABC-NACO, Inc. v. Klos Trucking, Inc., No. 04-C-0033, 2004 WL 728190, at *2 (N.D. Ill. Mar. 31, 2004); In re Dreis & Krump Manufacturing Co., No. 94-C-4281, 1995 WL 41416, at *3 (N.D. Ill. Jan. 31, 1995); Vista Metals Corp. v. Metal Brokers Int’l Inc., 161 B.R. 454, 458-59 (E.D. Wis. 1993); Bus. Commc’ns, Inc. v. Freeman, 129 B.R. 165, 166 (N.D. Ill. 1991); In re Petters Co., Inc., 440 B.R. 805, 810-11 (Bankr. D. Minn. 2010).
Case 19-50012 Doc 225 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 4 of 10
-
5
hear discrete legal issues about the Insurers’ obligations to pay certain costs in the context of the
pending motions for partial summary judgment.
B. The Equities Support Denying A Stay.
6. Second, balancing the harms also supports denying the Motions. Granting a stay
will stall the mediation and delay the resolution of USAG’s chapter 11 case, causing irreparable
harm to USAG and survivors holding allowed claims who deserve to be compensated promptly.
By contrast, the Insurers have not identified any concrete harm they will suffer if a stay is denied.
The Insurers cannot credibly claim that they will be injured if the Bankruptcy Court rules on
USAG’s motions for partial summary judgment, since they all requested, through their own cross-
motions, that the Bankruptcy Court resolve the coverage disputes in their favor and against USAG.
Further, if the Insurers disagree with this Court’s rulings, they may appeal to the District Court,
which will exercise de novo review of any decisions this Court makes. As a result, the balance of
the harms favors USAG, not the Insurers. The Court should therefore deny the Motions and their
meritless requests for a stay.
C. The Insurers’ Manufactured Emergency Harms The Public Interest.
7. Third, the Insurers’ dilatory tactics also support denying their Motions because the
public interest would be harmed if litigants are allowed to do what the Insurers have done here.
The Insurers have manufactured an emergency, and when litigants do that, it imposes unnecessary
costs on the courts and the other parties who must respond to the supposed emergency.
8. As to LIU, the Bankruptcy Court originally scheduled the September 17 hearing on
more than two months’ notice. Indeed, on July 5, LIU’s counsel wrote: “[s]ubject to LIU’s right
and intent to file a renewed motion to withdraw the reference and motion to stay with Judge Young,
LIU does not object to USAG’s noticing the hearing” on USAG’s Motion for Partial Summary
Judgment Against LIU [Adv. Dkt. 26] and LIU’s Cross-Motion For Summary Judgment Of
Case 19-50012 Doc 225 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 5 of 10
-
6
Defendant Liberty Insurance Underwriters Inc. [Adv. Dkt. 130] (collectively, the “LIU Summary
Judgment Motions”). (Ex. C, attached hereto.) Based on these representations, on July 10, USAG
noticed a hearing on the LIU Summary Judgment Motions for August 14. (Adv. Dkt. 167.)
9. LIU asserts that it agreed to notice a hearing on the LIU Summary Judgment
Motions because it thought that the mediation would conclude prior to any hearing. (LIU Motion,
at ¶3 n.3.) But it was clear by the end of July that multiple mediation sessions would be necessary,
largely because of the coverage positions that LIU and the other Insurers took. Yet LIU did not
object when the hearing on the LIU Summary Judgment Motions was continued to the September
omnibus date. (Ex. D, attached hereto; see also Adv. Dkts. 171, 181.)4
10. Instead, LIU took another two weeks, until August 21, to file its renewed motion to
withdraw the reference. Even then, LIU did not concurrently file a renewed motion for a stay. It
rather waited two more weeks to file the LIU Motion on September 6, demanding expedited
consideration of its request for a continuance, a mere 11 days before the September 17 hearing.
The Court should not condone LIU’s attempts to conjure up an “emergency” out of thin air or to
mask the true purpose of its motion. Instead, the Court should proceed to hear the LIU Summary
Judgment Motions on September 17 as agreed.
11. Ace and TIG engaged in similar conduct. They contend that the September 17
hearing should not proceed because they both filed a withdrawal motion. They also highlight that
they both filed cross-motions for summary judgment on September 5 and briefing on those cross-
motions will not be completed until mid-October once USAG responds and they reply. (Ace
4 USAG first made this argument in its Objection to LIU’s Emergency Motion to Schedule a Status
Conference filed in the District Court [Dist. 18-cv-1306, Dkt. 109]. LIU has since replied to that objection (attached hereto as Exhibit E). LIU’s reply contains no explanation for why it did not immediately object to USAG’s August 7 notice setting the September 17 hearing and instead waited another month to make this “emergency” request for a stay/continuance.
Case 19-50012 Doc 225 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 6 of 10
-
7
Motion, at ¶¶3-6; TIG Motion, at 7-8.) But the Court set the September 5 deadline for Ace and
TIG to respond to USAG’s own partial summary judgment motions on August 9. (Adv. Dkts. 182,
183.) Both Insurers surely knew in the month-long period between August 9 and September 5 that
they intended to move to withdraw the reference and they should have done so promptly while
also seeking a stay. They also knew that they would file cross-motions for partial summary
judgment in conjunction with their responses to USAG’s summary judgment motions. Yet they
did not request a stay/continuance prior to the September 5 response deadline. They did not even
file that request concurrently with their responses and their cross-motions. Instead, they waited
another week after September 5 to file their Motions, creating unnecessary, last-minute motion
practice only eight days prior to the September 17 hearing.
12. In light of the Insurers’ significant and prejudicial delay in seeking relief from this
Court, all of their Motions should be denied.
D. The Insurers’ Remaining Arguments In Support Of A Stay Are Without Merit.
13. Ace and TIG also have no basis for their argument that the Court should wait to
conduct a hearing on any summary judgment motion until all of the summary judgment motions
and cross-motions are fully briefed. (Ace Motion, at ¶6; TIG Motion, at 7-8.) This is a bald request
for interminable delay that will only harm USAG and its stakeholders. Moreover, the argument’s
premise is incorrect: even though the motions for summary judgment and the cross-motions
present certain overlapping legal issues, each motion can be heard separately. The Insurers had a
full and fair opportunity to respond to all of the issues presented in USAG’s summary judgment
motions on the briefing schedule this Court previously approved. (Adv. Dkts. 182, 183.) The Court
should therefore not wait to adjudicate USAG’s motions for partial summary judgment until
briefing is completed on the Insurers’ later-filed cross-motions.
Case 19-50012 Doc 225 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 7 of 10
-
8
14. Relying upon decisions addressing §362’s automatic stay, Ace and TIG next claim
that their request for delay is an appropriate sanction for USAG’s allegedly wrongful violation of
the agreed stay previously entered with respect to all defendants other than LIU. (Ace Motion, at
¶ 7; TIG Motion, at 7; Adv. Dkt. 155.) But the stay had nothing to do with Ace or TIG; it was a
condition of the DIP financing from two other insurance carriers and those carriers are not
complaining. (Bankr. Dkt. 479, Ex. C, §3.2(b), Ex. D, §3.2(b); Bankr. Dkt. 513.) In any event, Ace
and TIG have not been harmed because the stay only ran through the September omnibus hearing,
exactly when USAG’s summary judgment motions will be heard. TIG’s citations to decisions
voiding actions taken in violation of the automatic stay also are completely off point, for the
obvious reason that the stay at issue here has nothing to do with §362.
15. The Insurers then incorrectly complain that USAG has “abandon[ed]” efforts to
resolve its chapter 11 case consensually through the mediation. (LIU Motion, at ¶3; see also TIG
Motion, at 8.) But as the Insurers know, the mediator has not terminated the mediation and USAG
is prosecuting the summary judgment motions to resolve discrete coverage disputes that are
blocking progress in the mediation. USAG filed its motions against the Insurers with the
expectation that a ruling will move the mediation forward by helping to determine the amount of
insurance coverage available to satisfy claims. Contrary to the Insurers’ suggestion, denying a stay
will advance the mediation; granting a stay will do the opposite.
16. Finally, LIU had no basis to represent to this Court that the requested
stay/continuance will be “brief,” pending a ruling by the District Court on the renewed motions to
withdraw the reference. (LIU Motion, at ¶9.) When the District Court held the June 10 conference
on LIU’s original motion to withdraw the reference, it stated that its busy docket would preclude
it from adjudicating this Adversary Proceeding as quickly as the Bankruptcy Court. There is thus
Case 19-50012 Doc 225 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 8 of 10
-
9
no way to know how quickly the District Court will rule on the renewed motions. If a
stay/continuance is granted in the meantime, the mediation and USAG’s chapter 11 case will
languish, at severe cost to USAG’s estate and all other parties in interest.
17. In the end, the Motions are the Insurers’ latest attempt to delay the resolution of the
coverage disputes which are blocking progress in the mediation. This Court should not
countenance the Insurers’ runaround of the procedures that govern motions to stay (by masking
their requests for a stay as mere requests for a continuance) and their efforts to manufacture an
emergency. Instead, USAG respectfully requests that the Court deny the Motions and proceed with
the September 17 hearing as previously ordered.
Dated: September 11, 2019 Respectfully submitted,
JENNER & BLOCK LLP
/s/ Catherine L. Steege Catherine L. Steege (admitted pro hac vice) Dean N. Panos (admitted pro hac vice) Melissa M. Root (#24230-49) 353 N. Clark Street Chicago, Illinois 60654 (312) 923-2952 [email protected]
-and- PLEWS SHADLEY RACHER & BRAUN LLP George M. Plews (#6274-49) Gregory M. Gotwald (#24911-49) Tonya J. Bond (#24802-49) Christopher E. Kozak (#P82156) 1346 N. Delaware St. Indianapolis, IN 46202-2415 (317) 637-0700 [email protected] Attorneys for USA Gymnastics
Case 19-50012 Doc 225 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 9 of 10
-
CERTIFICATE OF SERVICE
The undersigned hereby certifies that the foregoing USA Gymnastics’ Objection To Ace’s Emergency Motion To Continue September 17 Hearing was filed electronically on September 11, 2019. Notice of this filing will be sent to all parties by operation of the Court’s electronic filing system. Parties may access this filing through the Court’s electronic filing system. Previously, on September 10, 2019, USAG filed and served via electronic mail its Objection To The Three Emergency Motions To Continue September 17 Hearing.
/s/ Catherine L. Steege
Attorney for USA Gymnastics
Case 19-50012 Doc 225 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 10 of 10
-
EXHIBIT A
USAG’s Objection To LIU’s Renewed Motion To Withdraw The Reference
Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 1 of 23
-
IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
In re: USA GYMNASTICS,1
Debtor.
Chapter 11 Case No. 18-09108-RLM-11
USA GYMNASTICS, Plaintiff, v. ACE AMERICAN INSURANCE COMPANY f/k/a CIGNA INSURANCE COMPANY, GREAT AMERICAN ASSURANCE COMPANY, LIBERTY INSURANCE UNDERWRITERS INC., NATIONAL CASUALTY COMPANY, RSUI INDEMNITY COMPANY, TIG INSURANCE COMPANY, VIRGINIA SURETY COMPANY, INC. f/k/a COMBINED SPECIALTY INSURANCE COMPANY, WESTERN WORLD INSURANCE COMPANY, ENDURANCE AMERICAN INSURANCE COMPANY, AMERICAN INTERNATIONAL GROUP, INC., AMERICAN HOME ASSURANCE COMPANY, and DOE INSURERS Defendants.
Adv. Proc. No. 19-50012 in 18-09108-RLM-11
USA GYMNASTICS’ OBJECTION TO LIBERTY INSURANCE UNDERWRITERS,
INC.’S JOINDER TO RENEWED MOTION OF ACE AMERICAN INSURANCE COMPANY, F/K/A CIGNA INSURANCE COMPANY AND TIG INSURANCE
COMPANY TO WITHDRAW THE REFERENCE AND RENEWED MOTION OF LIBERTY INSURANCE UNDERWRITERS, INC.
TO WITHDRAW THE REFERENCE OF THE ADVERSARY PROCEEDING
1 The last four digits of the Debtor’s federal tax identification number are 7871. The location of the Debtor’s
principal office is 130 E. Washington Street, Suite 700, Indianapolis, Indiana 46204.
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 1 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 2 of 23
-
USA Gymnastics, as debtor and debtor-in-possession in the above-captioned chapter 11
case (the “Debtor” or “USAG”), objects to the Joinder To Renewed Motion Of Ace American
Insurance Company, f/k/a Cigna Insurance Company And TIG Insurance Company To Withdraw
The Reference And Renewed Motion Of Liberty Insurance Underwriters, Inc. To Withdraw The
Reference Of The Adversary Proceeding [Adv. Dkt. 208] (the “LIU Renewed Withdrawal
Motion”), filed by Liberty Insurance Underwriters, Inc. (“LIU”), and states:
INTRODUCTION
Less than three months ago, the District Court denied all of the defendants’ initial motion
to withdraw the reference of this adversary proceeding. (See Adv. Dkt. 166.) The District Court’s
decision was correct then, and it is still correct now. In fact, since the District Court’s initial ruling,
the case for maintaining this adversary proceeding in the Bankruptcy Court has only grown
stronger.
LIU’s explanation for why it has renewed its request so quickly is that USAG has continued
to prosecute its partial summary judgment motion against LIU even though the mediation is still
ongoing. But LIU ignores that resolution of this partial summary judgment motion (and LIU’s own
cross motion for summary judgment) will promote discussions at the mediation, rather than impede
them. Insurance coverage disputes with LIU have hampered USAG’s ability to resolve survivors’
claims through the mediation and therefore an answer is needed to the question of how much
insurance USAG has under the LIU policies. Preferring delay to an answer, LIU has renewed its
withdrawal motion in the hope of preventing the bankruptcy court from answering these legal
questions.
Allowing the Bankruptcy Court to address these legal issues in the first instance does not
harm LIU. The issues the Bankruptcy Court will decide are legal questions, subject to the District
Court’s de novo review, should LIU disagree with the ruling. Moreover, because the partial
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 2 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 3 of 23
-
2
summary judgment motion against LIU raises legal issues, allowing the Bankruptcy Court to
decide it in the first instance will not deprive LIU of the jury trial that it demands. And in any
event, LIU, having filed its own cmotion for summary judgment against USAG in the Bankruptcy
Court, has consented to the Bankruptcy Court’s adjudication of the adversary proceeding, even if
it is non-core. See Wellness Int’l Network Ltd. v. Sharif, 135 S. Ct. 1932, 1947-48 (2015) (holding
that implied consent allows bankruptcy court to enter final order in non-core matter).
USAG, on the other hand, will be greatly harmed if the scheduled September 17 hearing
on the partial summary judgment motion against LIU is delayed because the reference is
withdrawn. Instead of obtaining a quick answer about the extent of USAG’s coverage, LIU will
continue to use the lack of any answer to stall progress in the mediation, threatening USAG’s
reorganization. The Bankruptcy Court, which is overseeing USAG’s reorganization and the
mediation and, as a result of that oversight, has developed significant knowledge about USAG’s
insurance and the survivors’ claims, is in the best position to manage this adversary proceeding. It
should be allowed to continue to do so.
But even if there were no mediation, LIU has failed to state a case for withdrawal of the
reference at this stage of the litigation. LIU’s primary arguments in the LIU Renewed Withdrawal
Motion—that the Bankruptcy Court lacks the power to issue final judgments in non-core matters
and that LIU has demanded a jury trial—could become moot depending on what happens pre-trial.
For this reason, the overwhelming majority of courts refuse to withdraw the reference due to a jury
demand until the case is ready for the jury trial to begin. Even though LIU has made a jury demand,
allowing the Bankruptcy Court to issue a report and recommendation will greatly expedite the
District Court’s review of the legal issues. And, again, by seeking its own affirmative relief from
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 3 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 4 of 23
-
3
the Bankruptcy Court, LIU has implicitly consented to the Bankruptcy Court’s adjudication of this
adversary proceeding.
Simply put, permitting the Bankruptcy Court to guide the parties through the pre-trial
process is the most efficient use of judicial resources and will promote uniformity of bankruptcy
administration, foster economical use of debtor and creditor resources, and accelerate the
bankruptcy process. USAG respectfully requests that the District Court deny the LIU Renewed
Withdrawal Motion without prejudice to LIU’s right to refile the motion to withdraw the reference
if the case ever becomes trial ready.
BACKGROUND
A. The Bankruptcy Case.
On December 5, 2018, USAG filed a voluntary petition for relief under chapter 11 of the
Bankruptcy Code. At the time it filed its case, hundreds of lawsuits were pending against USAG,
most arising out of sexual abuse committed by Lawrence Nassar. USAG determined that the
Bankruptcy Court provided the most efficient and equitable forum in which to determine the rights
of the hundreds of plaintiffs making claims and to distribute recoveries to those holding allowed
claims (the “Survivors”).
USAG has maintained various comprehensive general liability and directors’ and officers’
primary, excess, and umbrella insurance policies. USAG’s insurance policies are the single
greatest asset of its estate, and the coverage under those policies will fund recoveries to Survivors
holding allowed claims against USAG. See, e.g., Home Ins. Co. v. Cooper & Cooper, Ltd., 889
F.2d 746, 748 (7th Cir. 1989) (“A policy of insurance is an asset of the estate”); In re Stinnett, 321
B.R. 477, 483-85 (S.D. Ind. 2005) (holding that insurance policy and proceeds were property of
estate), aff’d, 465 F.3d 309, 312-13 (7th Cir. 2006) (same).
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 4 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 5 of 23
-
4
USAG’s insurance policies have various coverage periods and terms. LIU has wrongfully
refused to indemnify USAG with respect to certain pre-petition lawsuits, alleging that policy
exclusions or misconstructions of policy language excuse it from performance. It is critical that
USAG determine the amount of coverage under its insurance policies so that it may move forward
in its bankruptcy case and bring resolution to the sexual abuse claims.
To that end, USAG commenced a court-approved mediation with the Additional Tort
Claimants Committee of Sexual Abuse Survivors, individual Survivors, USAG’s insurers, and
other parties in interest. The goal of the mediation is to achieve “the resolution of the sexual abuse
claims; the resolution of any disputes relating to the applicability of [USAG’s] insurance coverage
to the sexual abuse claims and [USAG’s] insurance carriers’ obligations to fund distributions on
the sexual abuse claims, and related defense costs; and the resolution of any other matters
necessary to equitably determine the rights of, and allocate recoveries to, survivors holding
allowed sexual abuse claims.” (Bankr. Dkt. 514, at ¶2; Bankr. Dkt. 452, at ¶8.).
B. This Adversary Proceeding.
USAG filed this adversary proceeding on February 1, 2019 against nine of its insurers,
including LIU. On March 1, 2019, USAG filed a Motion for Partial Summary Judgment against
LIU [Adv. Dkt. 26] (the “PSJ Motion”). The PSJ Motion seeks a declaratory judgment that LIU
has breached its duty to defend USAG under a claims-made policy covering May 16, 2016 to May
16, 2017. (PSJ Motion, at 2.) LIU has wrongfully failed to defend USAG in various matters,
including: lawsuits alleging USAG’s liability for sexual abuse committed by Nassar; a proceeding
initiated by the United States Olympic & Paralympic Committee (the “USOPC”) to decertify
USAG as an Olympic National Governing Body; investigations conducted by the USOPC, the
Indiana Attorney General, the U.S. House of Representatives Committee on Energy and
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 5 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 6 of 23
-
5
Commerce, the U.S. House of Representatives Committee on Oversight and Government Reform,
and the U.S. Senate Committee on Commerce, Science, and Transportation; and various criminal
prosecutions of former USAG officers and employees. (Id. at 2-5.)
On March 5, 2019, all of the defendants filed a Joint Motion To Withdraw The Reference
Of The Adversary Proceeding [Adv. Dkt. 37] (the “Original Withdrawal Motion”) and a Motion
For Stay Of The Adversary Proceeding [Adv. Dkt. 38] (the “Stay Motion”). Ultimately only LIU
pressed the Stay Motion. On May 23, 2019, the Bankruptcy Court entered an order denying the
Stay Motion with respect to LIU. (Adv. Dkt. 147.)
On April 19, 2019, LIU responded to USAG’s partial motion for summary judgment by
filing its own motion in the Bankruptcy Court, seeking entry of a judgment order in its favor and
against USAG. [Adv. Dkts. 130, 131.] Briefing on both the PSJ Motion and LIU’s summary
judgment motion is now complete.
On June 7, 2019, the Bankruptcy Court entered an agreed order staying the adversary
proceeding through September 18, 2019, with respect to all defendants other than LIU. (Adv.
Dkt. 155 (the “Agreed Stay Order”).)2 The June 7 Order did not stay the adversary proceeding
pending the outcome of the mediation—indeed, it did not even reference the mediation—and it
did not bar USAG (or any other party) from filing additional summary judgment motions while
the mediation continued. Rather, the Order was entered in connection with USAG’s motion to
approve debtor-in-possession financing from Great American Assurance Company and Combined
Specialty Insurance Company, which asked for this stay as a condition to making their loans. (See
Bankr. Dkt. 479 at Ex. C, § 3.2(b), Ex. D, § 3.2(b); Bankr. Dkt. 513.) LIU did not agree to loan
2 At the time of the Agreed Stay Order the September 2019 omnibus hearing was scheduled for September
18, 2019, which is why that date was used in the Agreed Stay Order. Since that time, the September 2019 omnibus hearing has been reset for September 17, 2019.
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 6 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 7 of 23
-
6
USAG money, and the two carriers who did offer these loans have not joined in the LIU Renewed
Withdrawal Motion. In any event, USAG also has not drawn on the loan.
On June 10, 2019, the District Court conducted a status conference on the Original
Withdrawal Motion. During that conference, the District Court noted, among other things, its busy
docket and the efficiencies of having the Bankruptcy Court preside over this adversary proceeding.
The very next day, on June 11, 2019, the District Court denied the Original Withdrawal Motion,
noting that defendants could renew the Motion “if the case does not settle.” (Dist. Dkt. 18-cv-1306,
ECF No. 101.) The District Court also denied LIU’s request for an emergency stay. (Id.)
On August 7, 2019, USAG filed its Motion For Partial Summary Judgment Against TIG
Insurance Company [Adv. Dkt. 173] (the “First TIG Motion”) and its Motion For Partial
Summary Judgment Against Chubb [Adv. Dkt. 174] (the “Chubb Motion”). On August 27, 2019,
USAG filed its Motion For Partial Summary Judgment Against TIG Insurance Company On Lost
Policies [Adv. Dkt. 204] (the “Second TIG Motion and, collectively with the PSJ Motion, the
Chubb Motion, and the First TIG Motion, the “Partial Summary Judgment Motions”). The
Bankruptcy Court has set a briefing schedule on the Partial Summary Judgment Motions and will
hear argument on September 17, 2019.
OBJECTION
I. Standard For Permissive Withdrawal Of The Reference.
The District Court has original, but not exclusive, jurisdiction over all bankruptcy
proceedings. 28 U.S.C. § 1334(b). The Bankruptcy Court exercises such jurisdiction under a
standing order of reference, as provided by 28 U.S.C. § 157(a); see also S. Dist. Ind. Local R. 83-
8 (providing for automatic referral of bankruptcy cases to the Bankruptcy Court for the Southern
District of Indiana). Once a title 11 proceeding has been referred to the Bankruptcy Court, the
District Court’s authority to withdraw the reference is governed by 28 U.S.C. § 157, which
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 7 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 8 of 23
-
7
provides for both mandatory and permissive withdrawal. Only permissive withdrawal is at issue
here. (LIU Renewed Withdrawal Motion, at ¶9.) Permissive withdrawal is appropriate “for cause
shown.” 28 U.S.C. § 157(d). As the movant, LIU bears the burden to show cause. In re Stein, No.
17-CV-00561-TWP-MJD, 2017 WL 2418325, at *1 (S.D. Ind. Jun. 2, 2017) (denying motion to
withdraw reference).
“A district court has broad discretion in determining whether to withdraw a reference based
on cause, but permissive withdrawal is the exception, rather than the rule.” Gecker v. Marathon
Fin. Ins. Co., 391 B.R. 613, 614-15 (N.D. Ill. 2008) (internal quotations and citations omitted). As
the Supreme Court recognized in its seminal decision, Stern v. Marshall, 564 U.S. 462 (2011),
under the “division of labor” envisioned by §157 of the Judicial Code, bankruptcy courts will hear
most adversary proceedings and contested matters in the first instance, even those in which they
may not issue judgments. Id. at 502. As one district court in the Seventh Circuit explained,
“[a]lthough withdrawal is an important component of [the statutory] scheme, the court must
employ it judiciously in order to prevent it from becoming just another litigation tactic for parties
eager to find a way out of the bankruptcy court.” STC, Inc. v. Global Traffic Technologies, LLC,
No. 15-CV-0037, 2015 WL 1042431, at *4 (S.D. Ill. Mar. 6, 2015) (quoting In re Enron Corp.,
295 B.R. 21, 28 (S.D.N.Y. 2003)).
Section 157(d) does not define cause. When making a determination whether cause exists
for permissive withdrawal, a court may consider:
a. judicial economy, convenience, and the particular court’s knowledge of the facts;
b. the promotion of uniformity and efficiency of bankruptcy administration; c. the reduction of forum shopping and confusion; d. the conservation of debtor and creditor resources; e. whether the proceeding is core or non-core; and,
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 8 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 9 of 23
-
8
f. whether the parties have requested a jury trial. Gecker, 391 B.R. at 615 (applying above factors and denying motion to withdraw reference).
II. Permissive Withdrawal Is Still Not Appropriate In This Adversary Proceeding.
LIU cannot satisfy its burden of establishing cause, particularly at this stage in the
adversary proceeding.
A. The Core/Non-Core Determination And LIU’s Jury Demand Do Not Require Withdrawal Of The Reference.
As it did in the Original Withdrawal Motion, LIU focuses almost exclusively on two of the
“cause” factors: whether the Bankruptcy Court may enter a judgment or only a proposed ruling
(i.e., whether the case is core or non-core) and whether the parties have requested a jury trial. (LIU
Renewed Withdrawal Motion, at ¶¶8-19.)
Neither of these arguments establish cause to withdraw the reference now. As a preliminary
matter, by filing a motion asking the Bankruptcy Court to enter summary judgment on its behalf,
LIU has implicitly consented to the Bankruptcy Court entering a final order. The Bankruptcy Court
may therefore enter final judgment. As the Supreme Court instructed in Wellness International:
“Nothing in the Constitution requires that consent to adjudication by a bankruptcy court be
express.” 135 S.Ct. at 1947. And implied consent can properly be “based on actions rather than
words.” Id. at 1948. LIU consented to a final adjudication by the Bankruptcy Court when it asked
the Bankruptcy Court to enter judgment in its favor and against USAG.
But even if LIU had not consented to the Bankruptcy Court’s adjudication of this adversary
proceeding, the core/non-core determination and LIU’s jury demand still do not compel
withdrawal of the reference at this time. As one court explained, “judicial economy will be served
by allowing the claims to be considered by the bankruptcy court first. The bankruptcy court has
great expertise in dealing with claims that are, like these, deeply entangled in the underlying
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 9 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 10 of 23
-
9
bankruptcy proceedings. The bankruptcy court also has much greater familiarity with the facts of
this case.” Official Comm. Of Unsecured Creditors of Country Stone Holdings, Inc. v. First
Midwest Bank & Ronald Bjustrom, No. 15-CV-04063-SLD, 2016 WL 1259378, at *3 (C.D. Ill.
Mar. 30, 2016) Thus, “[w]here a proceeding is in a preliminary stage, the bankruptcy judge is
presiding over other actions that rely on the same factual and legal grounds and discovery is yet to
be conducted, the bankruptcy judge is in a better position to preside over the proceeding efficiently,
and permissive withdrawal of the reference is not warranted.” STC, Inc., 2015 WL 1042431, at *4.
“Of the courts that have considered the issue of an early withdrawal of a reference to the
bankruptcy court, the overwhelming majority have declined, post-Stern, to withdraw the reference,
recognizing the value of the bankruptcy judge’s familiarity with relevant law and the facts of the
cases before them.” Mason v. Klarchek, No. 12-CV-9971, 2013 WL 1869098, at *2 (N.D. Ill. May
2, 2013) (internal citation omitted); see also In re E & S Facilities, Inc., 181 B.R. 369, 373-74
(S.D. Ind. 1995) (refusing to permissively withdraw reference early in RICO adversary proceeding
because “the interests of judicial economy and efficient case management weigh in favor of
continued litigation at the bankruptcy court level”).
In addition, the “mere request for a jury trial is not sufficient cause for immediate
withdrawal.” In re Stein, 2017 WL 2418325, at *2. It is possible that “judicial efficiency is best
served by allowing necessary pretrial issues, some of which may obviate the need for a jury trial
altogether, to proceed in bankruptcy court.” Kemp v. Nelson, No. 16-CV-1546-JPS, 2016 WL
7177508, at *3 (E.D. Wis. Dec. 9, 2016). Accordingly, courts consistently refuse to withdraw the
reference in the early stages of an adversary proceeding, even where defendants demand a jury
trial and refuse to consent to a jury trial in the bankruptcy court. See, e.g., In re Stein, 2017 WL
2418325, at *2; Kemp, 2016 WL 7177508, at *3; Abrams v. DLA Piper (US) LLP, No. 12-CV-19-
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 10 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 11 of 23
-
10
TLS, 2012 WL 1714591, at *4 (N.D. Ind. May 15, 2012); Southern Elec. Coil, LLC v. FirstMerit
Bank, N.A., No. 11-C-6135, 2011 WL 6318963, at *4 (N.D. Ill. Dec. 16, 2011); In re Neumann
Homes, Inc., 414 B.R. 383, 386-87 (N.D. Ill. 2009); Gecker, 391 B.R. at 616; CDX Liquidating
Trust v. Venrock Associates, No. 04-CV-7236, 2005 WL 3953895, at *4 (N.D. Ill. Aug. 10, 2005);
In re Conseco Fin. Corp., 324 B.R. 50, 55-56 (N.D. Ill. 2005); ABC-NACO, Inc. v. Klos Trucking,
Inc., No. 04-C-0033, 2004 WL 728190, at *2 (N.D. Ill. Mar. 31, 2004); In re Dreis & Krump
Manufacturing Co., No. 94-C-4281, 1995 WL 41416, at *3 (N.D. Ill. Jan. 31, 1995); Vista Metals
Corp. v. Metal Brokers Int’l Inc., 161 B.R. 454, 458-59 (E.D. Wis. 1993); Bus. Commc’ns, Inc. v.
Freeman, 129 B.R. 165, 166 (N.D. Ill. 1991); In re Petters Co., Inc., 440 B.R. 805, 810-11 (Bankr.
D. Minn. 2010).
Wellman Thermal Sys. Corp. v. Columbia Casualty Co., No. 05-CV-1191, 2005 WL
4880619 (S.D. Ind. Oct. 5, 2005), a case LIU relies upon, is not to the contrary. There, a district
court withdrew the reference of the non-core claims, finding that “there is no indication that
withdrawal of reference will increase delay and costs to the parties.” Id. at *3. That is hardly the
case here. The Bankruptcy Court will hear three of the Partial Summary Judgment Motions in two
weeks. There is no indication that the District Court will be able to move as quickly to adjudicate
this case, given its busy docket and its comparative lack of familiarity with the parties and issues
in this case. In addition, the Wellman court withdrew the reference because one of the defendants
asserted a cross-claim over which the bankruptcy court had no jurisdiction, but which the district
court could adjudicate under its supplemental jurisdiction. Id. at *4. It therefore made good sense
to withdraw the reference in Wellman, where doing so did not impose delay and extra costs and
where it was necessary to allow the cross-claim to be heard at all. All of these factors are absent
here.
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 11 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 12 of 23
-
11
LIU’s other authority, Adelsperger v. 3D Holographics Medical Imaging Inc., 16-CV-759-
HAB, 2019 WL 2206091 (N.D. Ind. May 21, 2019), is similarly inapposite. Again, a district court
withdrew the reference for non-core claims subject to jury demands. Critical to the district court’s
analysis, though, was that the bankruptcy court itself recommended withdrawal of the reference.
Id. at *3; see also Bankr. S.D. Ind. Local R. 5011-1(b) (permitting the Bankruptcy Court to
recommend to the District Court that the reference to any case or proceeding be withdrawn). Here,
the Bankruptcy Court has not issued such a recommendation and is instead presiding over the
matters arising in this adversary proceeding. Further, the bankruptcy court in Adelsperger
recommended withdrawal because there was related civil litigation between the parties that was
already pending in the district court and which had proceeded through discovery. Id. at *3-4. The
parties even included discovery material from the district court litigation in their designations of
record on the motion to withdraw the reference. That is not the case here. While LIU makes much
of the pre-petition litigation USAG initiated in the District Court, no discovery occurred in that
litigation and it did not advance to the point where the District Court gained any familiarity with
it. Adelsperger does not support withdrawal of the reference in this case.
In short, courts refuse to mechanically withdraw the reference every time an adversary
proceeding asserts a claim where the bankruptcy court can only enter a proposed ruling or when
parties demand a jury trial. Instead, the inquiry focuses on whether withdrawing the reference also
promotes judicial efficiency, uniformity of bankruptcy administration, the economical use of
debtor and creditor resources, and the expeditious resolution of the underlying bankruptcy case.
See First Midwest Bank, 2016 WL 1259378, at *3. Those factors do not support withdrawal here.
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 12 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 13 of 23
-
12
B. Withdrawing The Reference Will Not Promote Judicial Economy Or Uniformity Of Bankruptcy Administration.
Maintaining the adversary proceeding in the Bankruptcy Court at this time will promote
judicial economy and uniformity of bankruptcy administration. The Bankruptcy Court has gained
extensive experience with USAG, its operations, and all of its stakeholders during the nine months
in which USAG’s chapter 11 case has been pending.3 The Bankruptcy Court’s expertise with
respect to USAG has only increased further in the months since the Original Withdrawal Motion
was denied. It is therefore well-equipped to promptly hear the Partial Summary Judgment Motions,
a factor the District Court noted and emphasized when it conducted its June 10, 2019 status
conference.
Nevertheless, LIU now suggests that withdrawing the reference somehow benefits
USAG’s estate and creditors. (LIU Renewed Withdrawal Motion, at ¶ 12.) Not so. Withdrawing
the reference before the Bankruptcy Court can consider and rule on the Partial Summary Judgment
Motions—even if the District Court ultimately elects to treat those rulings as reports and
recommendations—will prolong USAG’s bankruptcy case and stall USAG’s efforts to reach
agreement about a plan of reorganization and settlement.
Gecker v. Marathon Financial Insurance Company, 391 B.R. 613, 615-16 (N.D. Ill. 2008),
is instructive. There, the district court declined to withdraw the reference even though the
defendants had demanded a jury trial and the bankruptcy court could only enter a proposed ruling
because doing so would not promote judicial economy. The district court found that the bankruptcy
court “has gained substantial familiarity with the parties, their counsel, and the background issues
of the case” and “has a significant base of knowledge from which to manage the next steps of the
3 USAG’s main case already contains more than 740 docket entries. USAG’s Additional Designation Of
Record, filed contemporaneously herewith, identifies certain of the key filings in the Bankruptcy Court.
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 13 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 14 of 23
-
13
adversary proceeding.” 391 B.R. at 615-16. The district court also noted that a “jury trial remains
a distant and speculative prospect.” Id. at 616. Accordingly, it refused to withdraw the reference
because doing so would negate the work the bankruptcy court had already devoted to the
bankruptcy case and the adversary proceeding and would force the district court to familiarize
itself with the parties, their claims, and their defenses, all without an assurance that a jury trial and
final judgment would actually be necessary. Id.
The same is true here. As in Gecker, the likelihood of an actual jury trial and a final
judgment in this adversary proceeding is still “speculative” at best. 391 B.R. at 616. Under Indiana
law, “[t]he interpretation of an insurance policy is primarily a question of law for the court, and it
is therefore a question which is particularly suited for summary judgment.” Wagner v. Yates, 912
N.E.2d 805, 808 (Ind. 2009); accord Berkshire Hathaway Homestate Ins. Co. v. Basham, 113
N.E.3d 630, 635 (Ind. Ct. App. 2018) (interpreting insurance contract and affirming grant of
summary judgment in favor of policyholder). Given that fact, it is very unlikely that this adversary
proceeding will ever go to trial before a jury; instead the most likely outcome is a summary
judgment determination.
The PSJ Motion which precipitated the LIU Renewed Withdrawal Motion presents only
legal questions. USAG expects that the Bankruptcy Court’s rulings on these issues will promote
more productive settlement negotiations, eliminating the need for a trial. Regardless, if a settlement
is not reached, the most likely outcome of this adversary proceeding is a summary judgment ruling,
which the District Court would review de novo regardless of whether the ruling is characterized as
a judgment and reviewed by the District Court on appeal, or as a proposed ruling and reviewed
based upon an objection to that proposed ruling.
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 14 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 15 of 23
-
14
To this point, LIU argues that judicial economy is not served when a Bankruptcy Court
decides non-core issues because a district court must review the bankruptcy court’s orders de novo.
(LIU Renewed Withdrawal Motion, at ¶¶15-19.) LIU relies on language from Gecker suggesting
that the reference should be withdrawn to “avoid the inefficiency of two different judges ruling on
essentially the same” dispositive motions. 391 B.R. at 616. But if the District Court withdraws the
reference at this stage in the adversary proceeding, before discovery has commenced, “the case
would be referred to a magistrate judge for discovery purposes, requiring yet another new phase
of familiarization with the facts of this case” by a third judicial officer. STC, Inc., 2015 WL
1042431, at *4. “It is therefore not an efficient use of judicial resources to withdraw the reference
at this time.” Id.
More importantly, the logical result of LIU’s argument is that the reference should be
withdrawn in every case where the matter is non-core. But this cannot be and is not the case. If it
were, Congress would not have explicitly instructed bankruptcy courts to consider non-core claims
in the first instance and propose findings of fact and conclusions of law, subject to de novo review
in the district court. See 28 U.S.C. § 157(c). Further, the Supreme Court in Executive Benefits Ins.
Agency v. Arkison, 134 S. Ct. 2165 (2014), which post-dates both Stern and Gecker, would not
have approved this very procedure. Id. at 2172-73. This Court should therefore reject LIU’s
argument that judicial economy supports withdrawing this adversary proceeding over which the
Bankruptcy Court already has substantial familiarity. Otherwise, “the exception [i.e., withdrawal
of the reference] would swallow the rule because judicial economy and efficiency would then
never be promoted when a bankruptcy court hears a non-core issue.” In re HA 2003, Inc., No. 03-
C-9008, 2004 WL 609799, at *3 (N.D. Ill. Mar. 24, 2004) (denying motion to withdraw reference
early in non-core adversary proceeding concerning insurance coverage).
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 15 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 16 of 23
-
15
Simply put, “the bankruptcy court is familiar with the facts of this case and better equipped
to manage all pretrial matters and issues arising out of [USAG’s] bankruptcy estate.” In re Stein,
2017 WL 2418325, at *2; accord E & S Facilities, 181 B.R. at 374 (denying motion to withdraw
reference because “the interests of judicial economy and efficient case management weigh in favor
of continued litigation at the bankruptcy court level”). Judicial economy weighs in favor of
denying the LIU Renewed Withdrawal Motion.
C. Withdrawing The Reference Will Not Conserve Debtor And Creditor Resources. Withdrawing the reference will not conserve debtor and creditor resources and in fact will
do just the opposite. USAG is a not-for-profit entity with no significant assets other than the
insurance policies that are the subject of this adversary proceeding. It cannot afford for its chapter
11 case to be further prolonged. USAG is harmed every day that LIU persists in its dilatory
negotiation and litigation strategies. Moreover, USAG’s creditors, and in particular the Survivors,
are entitled to an efficient resolution of their claims. Keeping this adversary proceeding in the
Bankruptcy Court and on a parallel track with the chapter 11 case and the mediation will promote
efficiency, avoid duplication, and conserve creditor and debtor resources. Shifting it to the District
Court will do just the opposite.
Even if a final adjudication of this adversary proceeding by the District Court becomes
necessary, it will be more efficient to have the District Court review a report and recommendation
prepared by the Bankruptcy Court, rather than have the District Court independently duplicate
work that the Bankruptcy Court will also do to resolve the underlying bankruptcy case. Indeed,
“experience strongly suggests that having the benefit of a report and recommendation from the
Bankruptcy Court will save the District Court and the parties an immense amount of time.” Lehman
Brothers Holdings Inc. v. Standard Pacific Mortgage, Inc., et al., No. 19-CV-4080, 2019 U.S.
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 16 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 17 of 23
-
16
Dist. LEXIS 143871, at *10 (S.D.N.Y. Aug. 23, 2019) (denying motion to withdraw reference on
non-core claims on which parties were entitled to jury trial) (emphasis added); accord 880 S.
Rohlwing Road, LLC v. T&C Gymnastics, LLC, No. 16-CV-07650, 2017 WL 264504, at *10 (N.D.
Ill. Jan. 19, 2017) (“the bankruptcy court’s ability to handle pre-trial matters and to issue, as
necessary, proposed findings of fact and conclusions of law promotes judicial economy and weighs
against early withdrawal”). For that reason, the adversary proceeding should be maintained in the
Bankruptcy Court to conserve the resources of everyone involved.
D. USAG Has Not Engaged In Impermissible Forum Shopping.
Last, LIU incorporates by reference all of the arguments made in the Original Withdrawal
Motion and the Renewed Withdrawal Motion filed by Ace American Insurance Company and TIG
Insurance Company [Adv. Dkt. 192] (the “Ace & TIG Withdrawal Motion”). (LIU Renewed
Withdrawal Motion, at ¶10.) These motions both argue that the reference should be withdrawn as
a sanction for USAG’s alleged forum shopping. (Original Withdrawal Motion, at 15-17; Ace &
TIG Withdrawal Motion, at 17-21.) LIU contends that USAG improperly filed this adversary
proceeding in the Bankruptcy Court after the District Court closed the pre-petition litigation. The
District Court did not find this argument persuasive when considering the Original Withdrawal
Motion, and it still lacks merit now.
The focus of the forum shopping inquiry is whether a party acted with impermissible
motivations in moving litigation from one court to another. See Conseco Fin. Corp., 324 B.R. at
54-55; In re Bolen, No. 15-CV-44, 2015 WL 685869, at *2 (N.D. Ind. Feb. 18, 2015). In the Ace
& TIG Withdrawal Motion, the movants insinuate that USAG is now prosecuting this litigation in
the Bankruptcy Court rather than the District Court on the expectation that the Bankruptcy Court
is friendlier to USAG than the District Court. (Ace & TIG Withdrawal Motion, at 17-18.) But
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 17 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 18 of 23
-
17
nothing supports that conclusion. All the District Court had done prior to closing the pre-petition
litigation was set a case management schedule. (Id. at 18.) No defendant had filed an answer, no
discovery had been conducted, and only one defendant had filed a motion to dismiss that was
unresolved at the time USAG filed its chapter 11 case. The District Court had not ruled on any
merits issue in favor of or against USAG. Without any “adverse ruling” from the District Court,
USAG had no reason to seek out a purportedly friendlier forum. In re Bolen, No. 15-CV-44, 2015
WL 685869, at *2 (N.D. Ind. Feb. 18, 2015) (finding that party engaged in forum shopping when
it sought to move litigation between bankruptcy court and district court after receiving adverse
ruling).4
USAG also had no reason to suspect that the Bankruptcy Court would unduly favor it in
this litigation. When USAG filed this adversary proceeding, the Bankruptcy Court had not ruled
on the merits of any dispute between USAG and its insurers. Instead, the reason USAG filed the
adversary proceeding in the Bankruptcy Court was to promote judicial efficiency by having one
court administer both its bankruptcy case and this insurance coverage dispute, which proceedings
are inextricably interwoven. One cannot move forward without resolution of the other.
LIU also incorporates complaints by Ace and TIG Insurance Company that USAG engaged
in “procedural gamesmanship” by moving in the Bankruptcy Court for partial summary judgment
on some issues against some insurers, one by one. (Ace & TIG Withdrawal Motion, at 17-18.) But
no party has shown how the Bankruptcy Court’s consideration of the Partial Summary Judgment
4 USAG also disagrees with the contention in the Ace and TIG Withdrawal Motion that USAG filed an erroneous notice of stay and that the District Court erred when it administratively closed the case. (Ace & TIG Withdrawal Motion, at 17-18.) The insurers’ opposition to the declaratory judgment complaint would have constituted an act to exercise control over property of the estate—USAG’s insurance policies—and therefore the case was appropriately stayed under 11 U.S.C. § 362(a)(3). See In re Mid-City Parking, Inc., 332 B.R. 798, 807 n.7 (Bankr. N.D. Ill. 2005). Ace and TIG do nothing to rebut this argument, focusing exclusively instead on 11 U.S.C. § 362(a)(1). (Ace & TIG Withdrawal Motion, at 17-18.)
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 18 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 19 of 23
-
18
Motions prejudices them. Indeed, the PSJ Motion and LIU’s own cross-motion for summary
judgment have been pending and fully briefed for months. LIU cannot credibly argue that it has
not had an adequate opportunity to brief the issues that are before the Bankruptcy Court for
resolution, or that it has not been able to fully prepare for the hearing in September.
Further, USAG did not file summary judgment motions as part of a strategy to preclude
LIU or any other party from arguing that the disputes should be withdrawn to the District Court.
Instead, USAG filed the Partial Summary Judgment Motions because the parties reached impasse
on a discrete set of insurance coverage issues, which has jeopardized the resolution of this case
and progress in the mediation. Those issues need to be resolved as soon as practicable for the
benefit of USAG and all parties in interest, including LIU. Just because LIU disagrees with the
merits of USAG’s positions does not mean that USAG has sought out an undue advantage that is
the focus of the forum shopping inquiry. Conseco Fin. Corp., 324 B.R. at 54-55.
Finally, these attacks on the Partial Summary Judgment Motions misapprehend the effect
of withdrawing the reference. If the reference is withdrawn, nothing will preclude USAG (or any
other party) from moving for partial summary judgment on specific issues and against specific
parties one by one, and potentially on an expedited basis. Withdrawing the reference will simply
change the forum for those disputes to the District Court. To the extent LIU has genuine concerns
about the procedure and timeline for litigating the PSJ Motion or the other Partial Summary
Judgment Motions, those concerns can be addressed through appropriate case management orders
in the Bankruptcy Court, where considerations of judicial economy favor maintaining this
adversary proceeding.
******
In the end, the LIU Renewed Withdrawal Motion overlooks LIU’s own improper
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 19 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 20 of 23
-
19
negotiating tactics that have delayed the resolution of USAG’s chapter 11 case, causing direct and
substantial harm to USAG, its estate, and Survivors who deserve to be compensated now. The LIU
Renewed Withdrawal Motion should be denied so that the Bankruptcy Court can promptly hear
and adjudicate the PSJ Motion and the other Partial Summary Judgment Motions, directing
USAG’s chapter 11 case to resolution.
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 20 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 21 of 23
-
20
CONCLUSION
For all of the foregoing reasons, USAG respectfully requests the Court deny, without
prejudice, the LIU Renewed Withdrawal Motion and grant such other relief as may be just.
Dated: September 3, 2019 Respectfully submitted,
JENNER & BLOCK LLP
By: /s/ Catherine L. Steege One of its Attorneys Catherine L. Steege (admitted pro hac vice) Melissa M. Root 353 N. Clark Street Chicago, Illinois 60654 (312) 222-9350 [email protected] [email protected]
-and-
PLEWS SHADLEY RACHER & BRAUN LLP George M. Plews Gregory M. Gotwald Tonya J. Bond 1346 North Delaware Street Indianapolis, Indiana 46202 (317) 637-0700 [email protected] [email protected] [email protected] Counsel for the Debtor
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 21 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 22 of 23
-
CERTIFICATE OF SERVICE
The undersigned hereby certifies that the foregoing USA Gymnastics’ Objection To Liberty Insurance Underwriters, Inc.’s Joinder To Renewed Motion Of Ace American Insurance Company, f/k/a Cigna Insurance Company And TIG Insurance Company To Withdraw The Reference And Renewed Motion Of Liberty Insurance Underwriters, Inc. To Withdraw The Reference Of The Adversary Proceeding was filed electronically this 3rd day of September, 2019. Notice of this filing will be sent to all parties by operation of the Court’s electronic filing system. Parties may access this filing through the Court’s electronic filing system.
/s/ Catherine L. Steege
Counsel for the Debtor
Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 22 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 23 of 23
-
EXHIBIT B
USAG’s Objection To Ace And TIG’s Renewed Motion To Withdraw The Reference
Case 19-50012 Doc 225-2 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 1 of 32
-
IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
In re: USA GYMNASTICS,1
Debtor.
Chapter 11 Case No. 18-09108-RLM-11
USA GYMNASTICS, Plaintiff, v. ACE AMERICAN INSURANCE COMPANY f/k/a CIGNA INSURANCE COMPANY, GREAT AMERICAN ASSURANCE COMPANY, LIBERTY INSURANCE UNDERWRITERS INC., NATIONAL CASUALTY COMPANY, RSUI INDEMNITY COMPANY, TIG INSURANCE COMPANY, VIRGINIA SURETY COMPANY, INC. f/k/a COMBINED SPECIALTY INSURANCE COMPANY, WESTERN WORLD INSURANCE COMPANY, ENDURANCE AMERICAN INSURANCE COMPANY, AMERICAN INTERNATIONAL GROUP, INC., AMERICAN HOME ASSURANCE COMPANY, and DOE INSURERS Defendants.
Adv. Proc. No. 19-50012 in 18-09108-RLM-11
USA GYMNASTICS’ RESPONSE TO ACE AMERICAN INSURANCE COMPANY AND
TIG INSURANCE COMPANY’S RENEWED MOTION TO WITHDRAW THE REFERENCE OF THE ADVERSARY PROCEEDING
1 The last four digits of the Debtor’s federal tax identification number are 7871. The location of the Debtor’s
principal office is 130 E. Washington Street, Suite 700, Indianapolis, Indiana 46204.
Case 19-50012 Doc 213 Filed 09/04/19 EOD 09/04/19 14:06:32 Pg 1 of 22Case 19-50012 Doc 225-2 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 2 of 32
-
USA Gymnastics, as debtor and debtor-in-possession in the above-captioned chapter 11
case (the “Debtor” or “USAG”), responds to the Renewed Motion To Withdraw The Reference Of
The Adversary Proceeding [Adv. Dkt. 192] (the “Renewed Withdrawal Motion”), filed by Ace
American Insurance Company, f/k/a Cigna Insurance Company (“Ace”) and TIG Insurance
Company (“TIG” and, collectively with Ace American, the “Movants”), and states:
INTRODUCTION
Less than three months ago, the District Court denied all of the defendants’ initial motion
to withdraw the reference of this adversary proceeding. (See Adv. Dkt. 166.) The District Court’s
decision was correct then, and it is still correct now. In fact, since the District Court’s initial ruling,
the case for maintaining this adversary proceeding in the Bankruptcy Court has only grown
stronger.
Ace and TIG’s explanation for why they have re-filed their Renewed Withdrawal Motion
so quickly is that USAG allegedly reneged on an earlier representation that this adversary
proceeding would be stayed pending a mediation. In making this claim, Ace and TIG ignore that
the mediation is still on-going and, with the blessing of the mediator, USAG filed the pending
summary judgment motions to resolve several discrete legal issues about the extent of its coverage
under its TIG and Ace policies. The legal disputes with TIG and Ace have hampered USAG’s
ability to resolve the survivors’ claims through the mediation and therefore an answer is needed to
the question of how much insurance USAG has under the TIG and Ace policies. Preferring delay
to an answer, TIG and Ace have renewed their withdrawal motion in the hope of preventing the
bankruptcy court from answering these legal questions.
Allowing the Bankruptcy Court to address these legal issues in the first instance does not
harm Movants. The issues the Bankruptcy Court will decide are legal questions, subject to the
District Court’s de novo review, should any party disagree with the ruling. Moreover, because the
Case 19-50012 Doc 213 Filed 09/04/19 EOD 09/04/19 14:06:32 Pg 2 of 22Case 19-50012 Doc 225-2 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 3 of 32
-
2
pending summary judgment motions raise legal issues, allowing the Bankruptcy Court to decide
them in the first instance will not deprive Ace or TIG of the jury trial they claim they will, but
have not yet, demanded. Significantly, by filing a proof of claim against USAG, Ace in fact has
no jury trial rights. See, e.g., Katchen v. Landy, 382 U.S. 323 (1966).
USAG, on the other hand, will be greatly harmed if the scheduled September 17 hearing
on its summary judgment motions is delayed because the reference is withdrawn. Instead of
obtaining a quick answer about the extent of USAG’s coverage, Ace and TIG will continue to use
the lack of any answer to stall progress in the mediation, threatening USAG’s reorganization. The
Bankruptcy Court, which is overseeing USAG’s reorganization and the mediation and, as a result
of that oversight, has developed significant knowledge about USAG’s insurance and the survivors’
claims, is in the best position to manage this adversary proceeding. It should be allowed to continue
to do so.
But even if there were no mediation, Ace and TIG have failed to state a case for withdrawal
of the reference at this early stage in this litigation. Movants’ primary arguments in support of their
Renewed Withdrawal Motion—that the Bankruptcy Court lacks the power to issue final judgments
in non-core matters and that Movants may in the future demand a jury trial—could become moot
depending on what happens pre-trial. For this reason, the overwhelming majority of courts refuse
to withdraw the reference due to a jury demand until the case is ready for the jury trial to begin.
Here, Movants have not made jury demands. And if no jury demands are made, allowing the
Bankruptcy Court to issue a report and recommendation will greatly expedite the District Court’s
review of the legal issues.
Simply put, allowing the Bankruptcy Court to guide the parties through the pre-trial process
is the most efficient use of judicial resources and will promote uniformity of bankruptcy
Case 19-50012 Doc 213 Filed 09/04/19 EOD 09/04/19 14:06:32 Pg 3 of 22Case 19-50012 Doc 225-2 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 4 of 32
-
3
administration, foster economical use of debtor and creditor resources, and accelerate the
bankruptcy process. USAG respectfully requests that the District Court deny the Renewed
Withdrawal Motion without prejudice to the rights of Movants to refile the Renewed Withdrawal
Motion if the case ever becomes trial ready and if Movants have in fact properly demanded a jury
trial.
BACKGROUND
A. The Bankruptcy Case.
On December 5, 2018, USAG filed a voluntary petition for relief under chapter 11 of the
Bankruptcy Code. At the time it filed its case, hundreds of lawsuits were pending against USAG,
most arising out of sexual abuse committed by Lawrence Nassar. USAG determined that the
Bankruptcy Court provided the most efficient and equitable forum in which to determine the rights
of the hundreds of plaintiffs making claims and to distribute its limited insurance to those holding
allowed claims (the “Survivors”).
USAG has maintained various comprehensive general liability and directors’ and officers’
primary, excess, and umbrella insurance policies. USAG’s insurance policies are the single
greatest asset of its estate, and the coverage under those policies will fund recoveries to Survivors
holding allowed claims against USAG. See, e.g., Home Ins. Co. v. Cooper & Cooper, Ltd., 889
F.2d 746, 748 (7th Cir. 1989) (“A policy of insurance is an asset of the estate”); In re Stinnett, 321
B.R. 477, 483-85 (S.D. Ind. 2005) (holding that insurance policy and proceeds were property of
estate), aff’d, 465 F.3d 309, 312-13 (7th Cir. 2006) (same).
USAG’s insurance policies have various coverage periods and terms. TIG and Ace have
wrongfully argued that certain policy exclusions or misconstructions of policy language limit the
amount of coverage that they must provide to USAG to cover the claims of the Survivors. It is
Case 19-50012 Doc 213 Filed 09/04/19 EOD 09/04/19 14:06:32 Pg 4 of 22Case 19-50012 Doc 225-2 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 5 of 32
-
4
critical that USAG determine the amount of coverage under its insurance policies so that it may
move forward in its bankruptcy case and bring resolution to the sexual abuse claims.
To that end, USAG commenced a court-approved mediation with the Additional Tort
Claimants Committee of Sexual Abuse Survivors, individual Survivors, USAG’s insurers, and
other parties in interest. The goal of the mediation is to achieve “the resolution of the sexual abuse
claims; the resolution of any disputes relating to the applicability of [USAG’s] insurance coverage
to the sexual abuse claims and [USAG’s] insurance carriers’ obligations to fund distributions on
the sexual abuse claims, and related defense costs; and the resolution of any other matters
necessary to equitably determine the rights of, and allocate recoveries to, survivors holding
allowed sexual abuse claims.” (Bankr. Dkt. 514, at ¶2; Bankr. Dkt. 452, at ¶8.).
B. This Adversary Proceeding.
USAG filed this adversary proceeding on February 1, 2019 against nine of its insurers,
including TIG and Ace. On March 5, 2019, all of the defendants filed a Joint Motion To Withdraw
The Reference Of The Adversary Proceeding [Adv. Dkt. 37] (the “Original Withdrawal
Motion”) and a Motion For Stay Of The Adversary Proceeding [Adv. Dkt. 38] (the “Stay
Motion”). Ultimately only Liberty Insurance Underwriters, Inc. (“LIU”) pressed the Stay Motion.
On May 23, 2019, the Bankruptcy Court entered an order denying the Stay Motion with respect to
LIU. (Adv. Dkt. 147.)
On June 7, 2019, the Bankruptcy Court entered an agreed order staying the adversary
proceeding with respect to all of the defendants other than LIU through the date of the September
omnibus hearing, which at that time was scheduled for September 18, 2019, but has now been
moved to September 17. (Adv. Dkt. 155.) TIG and Ace characterize the June 7 Order as imposing
a “court-ordered Mediation Stay” (Renewed Withdrawal Motion, at 4), but that is not accurate.
Case 19-50012 Doc 213 Filed 09/04/19 EOD 09/04/19 14:06:32 Pg 5 of 22Case 19-50012 Doc 225-2 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 6 of 32
-
5
The June 7 Order did not stay the adversary proceeding pending the outcome of the mediation, nor
did it even reference the mediation. Rather, the Order was entered in connection with USAG’s
motion to approve debtor-in-possession financing from Great American Assurance Company and
Combined Specialty Insurance Company, which asked for this stay as a condition to making their
loans. (See Bankr. Dkt. 479 at Ex. C, § 3.2(b), Ex. D, § 3.2(b); Bankr. Dkt. 513.) Neither Ace nor
TIG agreed to loan USAG money, and the two carriers who did offer these loans have not joined
the Renewed Withdrawal Motion. USAG also has not drawn on the loan.
On June 10, 2019, the District Court conducted a status conference on the Original
Withdrawal Motion. During that conference, the District Court noted, among other things, its busy
docket and the efficiencies of having the Bankruptcy Court preside over this adversary proceeding.
The very next day, on June 11, 2019, the District Court denied the Original Withdrawal Motion,
noting that defendants could renew the Motion “if the case does not settle.” (Dist. Dkt. 18-cv-1306,
ECF No. 101.) The District Court also denied LIU’s request for an emergency stay. (Id.)
On August 7, 2019, USAG filed its Motion For Partial Summary Judgment Against TIG
Insurance Company [Adv. Dkt. 173] (the “First TIG Motion”) and its Motion For Partial
Summary Judgment Against Chubb [Adv. Dkt. 174] (the “Chubb Motion”). On August 27, 2019,
USAG filed its Motion For Partial Summary Judgment Against TIG Insurance Company On Lost
Policies [Adv. Dkt. 204] (the “Second TIG Motion” and, collectively with the TIG and Chubb
Motions, the “Partial Summary Judgment Motions”). The Partial Summary Judgment Motions
ask the Bankruptcy Court resolve three discrete legal issues: (1) whether certain abuse and
molestation exclusions in TIG’s insurance policies apply to the Survivors’ claims; (2) whether TIG
supplied USAG with coverage for certain years where USAG cannot locate the complete policies;
and (3) whether USAG is entitled to coverage under each policy year for which it has evidence of
Case 19-50012 Doc 213 Filed 09/04/19 EOD 09/04/19 14:06:32 Pg 6 of 22Case 19-50012 Doc 225-2 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 7 of 32
-
6
Chubb insurance policies. (First TIG Motion, at ¶¶1-5; Second TIG Motion at ¶¶1-5; Chubb
Motion, at ¶¶1-6.) The Bankruptcy Court has set a briefing schedule on the Partial Summary
Judgment Motions and will hear argument on September 17, 2019.
As of the date of this Response, neither of the Movants has answered USAG’s complaint
or demanded a jury trial. Ace, however, has filed a proof of claim in USAG’s case. Ace’s proof of
claim states that Ace holds an unliquidated claim arising from “certain insurance policies” Ace
issued “to the Debtor as named insured.” (Claim 294, Ex. A, attached hereto, at ¶3.) These policies
are the same insurance policies at issue in this adversary proceeding. (Id. at ¶4.)
RESPONSE
I. Standard For Permissive Withdrawal Of The Reference.
The District Court has original, but not exclusive, jurisdiction over all bankruptcy
proceedings. 28 U.S.C. § 1334(b). The Bankruptcy Court exercises such jurisdiction under a
standing order of reference, as provided by 28 U.S.C. § 157(a); see also S. Dist. Ind. Local R. 83-
8 (providing for automatic referral of bankruptcy cases to the Bankruptcy Court for the Southern
District of Indiana). Once a title 11 proceeding has been referred to the Bankruptcy Court, the
District Court’s authority to withdraw the reference is governed by 28 U.S.C. § 157, which
provides for both mandatory and permissive withdrawal. Only permissive withdrawal is at issue
here. (Renewed Withdrawal Motion, at 10-12.) Permissive withdrawal is appropriate “for cause
shown.” 28 U.S.C. § 157(d). As the movants, Ace and TIG bear the burden to show cause. In re
Stein, No. 17-CV-00561-TWP-MJD, 2017 WL 2418325, at *1 (S.D. Ind. Jun. 2, 2017) (denying
motion to withdraw reference).
“A district court has broad discretion in determining whether to withdraw a reference based
on cause, but permissive withdrawal is the exception, rather than the rule.” Gecker v. Marathon
Fin. Ins. Co., 391 B.R. 613, 614-15 (N.D. Ill. 2008) (internal quotations and citations omitted). As
Case 19-50012 Doc 213 Filed 09/04/19 EOD 09/04/19 14:06:32 Pg 7 of 22Case 19-50012 Doc 225-2 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 8 of 32
-
7
the Supreme Court recognized in its seminal decision, Stern v. Marshall, 564 U.S. 462 (2011),
under the “division of labor” envisioned by §157 of the Judicial Code, bankruptcy courts will hear
most adversary proceedings and contested matters in the first instance, even those in which they
may not issue judgments. Id. at 502. As one district court in the Seventh Circuit explained,
“[a]lthough withdrawal is an important component of [the statutory] scheme, the court must
employ it judiciously in order to prevent it from becoming just another litigation tactic for parties
eager to find a way out of the bankruptcy court.” STC, Inc. v. Global Traffic Technologies, LLC,
No. 15-CV-0037, 2015 WL 1042431, at *4 (S.D. Ill. Mar. 6, 2015) (quoting In re Enron Corp.,
295 B.R. 21, 28 (S.D.N.Y. 2003)).
Section 157(d) does not define cause. When making a determination whether cause exists
for permissive withdrawal, a court may consider:
a. judicial economy, convenience, and the particular court’s knowledge of the facts;
b. the promotion of uniformity and efficiency of bankruptcy administration; c. the reduction of forum shopping and confusion; d. the conservation of debtor and creditor resources; e. whether the proceeding is core or non-core; and, f. whether the parties have requested a jury trial.
Gecker, 391 B.R. at 615 (applying above factors and denying motion to withdraw reference).
II. Permissive Withdrawal Is Still Not Appropriate In This Adversary Proceeding.
Ace and TIG cannot satisfy their burden of establishing cause, particularly at this stage in
the adversary proceeding.
A. The Core/Non-Core Determination And Movants’ Expectation That They Will Assert A Jury Demand Do Not Require Withdrawal Of The Reference.
As they did in the Original Withdrawal Motion, Movants focus primarily on two of the
“cause” factors: whether the Bankruptcy Court may enter a judgment or only a proposed ruling
Case 19-50012 Doc 213 Filed 09/04/19 EOD 09/04/19 14:06:32 Pg 8 of 22Case 19-50012 Doc 225-2 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 9 of 32
-
8
(i.e., whether the case is core or non-core) and whether the parties have requested a jury trial.
(Renewed Withdrawal Motion, at 12-15.)
1. Ace Has Waived Its Jury Trial Rights And The Bankruptcy Court Can Enter Judgment Against Ace.
By filing a proof of claim against USAG which raises the same issue as this adversary
proceeding, Ace has forfeited both its right to a jury trial and its right to assert that the Bankruptcy
Court may not constitutionally enter a judgment in this adversary proceeding. With respect to any
future jury demand, the United States Supreme Court held in a trilogy of decisions—Katchen v.
Landy, 382 U.S. 323 (1966), Langenkamp v. Culp, 498 U.S. 42 (1990), and Granfinanciera, S.A
v. Nordberg, 492 U.S. 33 (1989)—that, by filing a proof of claim, a creditor waives its right to a
jury trial in actions brought by the bankruptcy estate against that creditor. Thus, when Ace filed
its proof of claim, Ace waived its right to trial by jury in this adversary proceeding. Id.; accord
Vlastelica v. Novoselsky, No. 15-CV-0910, 2015 WL 6393968, at *3 (Bankr. E.D. Wis. Oct. 21,
2015); see also Matter of Peachtree Lane Associates, Ltd., 150 F.3d 788, 798 (7th Cir. 1998)
(“Those creditors who had filed proofs of claim ... were not entitled to a jury trial because by filing
a claim, those creditors had brought themselves within the equitable jurisdiction of the bankruptcy
court”).
By filing its proof of claim, Ace also forfeited its right to argue that the Bankruptcy Court
may not constitutionally enter judgment in this adversary proceeding. In Stern v. Marshall, the
Supreme Court acknowledged that principles of res judicata and collateral estoppel apply in
bankruptcy cases and therefore, bankruptcy courts may constitutionally enter judgments when
deciding the bankruptcy estate’s claim against the creditor also decides the creditor’s proof of
claim. 564 U.S. at 496-98. Here, Ace argues that it is not responsible to provide coverage to USAG
for certain policy years and it makes the same argument in its proof of claim. Because USAG’s
Case 19-50012 Doc 213 Filed 09/04/19 EOD 09/04/19 14:06:32 Pg 9 of 22Case 19-50012 Doc 225-2 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 10 of 32
-
9
claims against Ace “bear[] directly on the allowance of [Ace’s] claim” against USAG, this
A