MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE.
Pending before the Court is the Order to Show Cause Why Allied World Assurance Company Ltd., Iron-Starr Excess Agency
In response to the Second Order to Show Cause, the Bermuda Insurers filed The Bermuda Insurers' Memorandum of Law in Opposition to Order to Show Cause Dated December 29, 2016 (the "Bermuda Insurers' Brief," ECF Doc. # [—], submitted to the Court under seal on January 3, 2017). In support of their brief, the Bermuda Insurers also filed a number of exhibits under seal. 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' Brief," ECF Doc. # [—], submitted to the Court under seal on December 28, 2016). The Court granted the request to file these briefs and exhibits under seal, except to the extent that the Court references or cites to these documents in its Opinions or Orders.
Because the Bermuda Insurers took actions clearly prohibited by the TRO, the Court will hold the Bermuda Insurers in contempt for violating an order of this Court.
On August 10, 2016, this Court entered an order approving a global settlement in these chapter 11 cases (the "Global Settlement," D.I. 2282).
(Global Settlement ¶¶ 3, 7, 8.)
As noted in a brief filed earlier in this adversary proceeding (the "Allied Response," ECF Doc. # 28), in connection with the Global Settlement, Allied "tendered the full limit of liability of its separately-issued excess D & O policy, but declined to make the E & O coverage provided under the Allied [policy] available... for a settlement" as Allied's adversaries had requested. (Allied Response at 4-5.) Pursuant to the Global Settlement, the individuals ostensibly covered by the Allied E & O policy were to assign "their rights to full payment under the Allied [policy] to the Plaintiffs" and the "assignee would immediately commence action against the [Bermuda Insurers] to obtain proceeds" under the E & O policies. (Id. at 5.)
The insurance policies issued by the Bermuda Insurers each contain a mandatory arbitration provision.
Allied maintains that as early as February 11, 2016, many months before the Global Settlement was reached, Allied notified MFGAA and others "of its desire to arbitrate, pursuant to the ... arbitration clause in the Allied [policy] ...." (Allied Response at 4.) Allied further maintains that over the next eight months, "(under a reservation of rights), Plaintiffs' counsel... worked with [Allied] to empanel the arbitrators for the Bermuda Arbitration, pursuant to the terms of the Allied [policy]." (Id.) The Plaintiffs dispute Allied's assertions regarding the status of the alleged Bermuda arbitration.
On October 27, 2016, the Plaintiffs filed a complaint (the "Complaint," ECF Doc. # 1) initiating this adversary proceeding
On October 28, 2016, a summons and notice of a pretrial conference was entered on the docket in this adversary proceeding. (ECF Doc. # 2.) On November 1, 2016, the Plaintiffs requested that the Clerk of the Court mail the summons and Complaint to the Bermuda Insurers pursuant to Rule 4(f)(2)(c)(ii). (ECF Doc. # 3.) The Clerk's Office entered a Certificate of Mailing showing that the Clerk's Office mailed (by DHL overnight carrier) the summons and Complaint to each of the Bermuda Insurers on November 3, 2016. (ECF Doc. # 4.) On November 4, 2016, the Plaintiffs filed an affidavit of service noting that the summons and Complaint were mailed to the Bermuda Insurers. (ECF Doc. # 5.)
On November 8, 2016, the Bermuda Insurers obtained, ex parte, injunctive orders from the Bermuda Court, ordering that:
(ECF Doc. # 7-2 at 2.) Each of the Bermuda Insurers obtained substantially similar injunctive orders (the "Injunctive Orders"). (See ECF Doc. # # 7-2, 7-3.)
On November 22, 2016, the Plaintiffs submitted a letter to this Court informing the Court that the Bermuda Insurers had obtained these Injunctive Orders, and suggesting that the entry of the Injunctive Orders violated (i) the Bar Order in the Global Settlement, and (ii) the Barton doctrine. (ECF Doc. # 7.) After receiving the Plaintiffs' November 22, 2016 letter, the Court entered an order to show cause (the "First Order to Show Cause," ECF Doc. # 6) raising the issue whether the filing of proceedings in Bermuda (the "Bermuda Action") and the obtaining of the Injunctive Orders violated (i) the Bar Order included in the Global Settlement, or (ii) the Barton doctrine. The Bermuda Insurers submitted briefs and declarations in response, but the Plaintiffs, on account of the Injunctive Orders, were restrained from filing any papers.
On November 28, 2016, both Allied and the Iron-Starr Insurers filed motions to compel arbitration (the "Motions to Compel Arbitration," ECF Doc. # # 13-1, 20).
On December 21, 2016, this Court issued the TRO, enjoining the Bermuda Insurers from taking any action to enforce certain provisions of the Injunctive Orders issued by the Bermuda Court. 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 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:
The TRO remained in effect for fourteen days (from December 21, 2016 to January 4, 2017), but was extended by this Court for an additional fourteen days and is set to expire at 3:00 p.m. on January 18, 2017. (See ECF Doc. # 51.)
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:
(Skeleton Argument ¶¶ 12.1, 12.2 (emphasis in original).) The Skeleton Argument further explains that "the [Plaintiffs'] conduct since 8 November 2016 in pursuit of the Adversary Proceedings, especially when that conduct is assessed in conjunction with the [Plaintiffs'] actions taken before 8 November 2016, and in light of its consequences, clearly demonstrate[s] that a mandatory anti-suit injunction is now the minimum relief necessary to ensure that the [Bermuda Insurers'] contractual rights under their arbitration agreements with the [Plaintiffs] are properly protected and preserved by [the Bermuda Court.]" (Skeleton Argument ¶ 24.)
In addition to the Skeleton Argument, both Allied and the Iron-Starr Insurers submitted certain affidavits in support of their respective positions. The Iron-Starr Insurers submitted the Third Affidavit of Lawrence P. Engrissei (the "Third Engrissei Affidavit"), which was signed and dated on December 20, 2016 (before the entry of the TRO); Allied submitted the Third Affidavit of Jan Elizabeth Haylett (the "Third Haylett Affidavit," and together with the Third Engrissei Affidavit, the "Affidavits"), which is not signed or dated. Paragraphs 33 of the Affidavits are essentially identical, and set forth a number of the Bermuda Insurers' concerns that provide the basis for the relief requested from the Bermuda Court on December 22, 2016. Specifically, the Affidavits state:
(Affidavits ¶ 33.) The Affidavits also each include substantially the same requests for relief as the relief sought in the Skeleton Argument at paragraphs 12.1 and 12.2.
The Bermuda Court subsequently entered two orders (the "December 22, 2016 Orders") in the Bermuda proceedings initiated by (i) Allied and (ii) the Iron-Starr 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.) 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. The Court, however, remains unable to make a determination whether this dispute is arbitrable, and will not do so until the Court has full briefing on the issue.
The December 22, 2016 Orders, which included the above-referenced relief sought by the Bermuda Insurers in the Affidavits and Skeleton Argument, permit the Plaintiffs to address only the limited issue whether the Bar Order was breached, but still enjoin the Plaintiffs from conducting any other activity in this adversary proceeding. 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.)
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.
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 Insurance & Reinsurance Limited Should Not be Held in Contempt for violating the TRO. The Second Order to Show Cause referred to the injunctive provisions of the TRO, the relief sought by the Bermuda Insurers in the Skeleton Argument, and the subsequently entered orders, and 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 and for other relief.
On January 4, 2017, the Court held a hearing to address the Second Order to Show Cause and whether the temporary restraining order would give rise to a preliminary injunction. At the start of the hearing, the Court admitted into evidence the exhibits filed in connection with the responses to the Second Order to Show Cause and the TRO Opinion, along with the transcript from the December 22, 2016 hearing in the Bermuda Court. Neither the Plaintiffs nor the Bermuda Insurers offered any other evidence at the hearing. The Court heard argument from both the Plaintiffs and the Bermuda Insurers on whether the Bermuda Insurers willfully violated a clear and unambiguous provision in the TRO. The Court also heard argument on whether there are grounds to issue a preliminary injunction to further enjoin the Bermuda Insurers from taking any action to enforce the provisions of the Injunctive Orders.
The Plaintiffs, at the January 4, 2017 hearing, argued that the Skeleton Argument, the Affidavits, and the transcript of the December 22, 2016 hearing in Bermuda, read together, demonstrate that the Bermuda Insurers have willfully violated the TRO. Specifically, the Plaintiffs argue that the basis for the injunctive relief out-lined in the Affidavits, at least one of which is dated December 20, 2016, is materially different than the rationale set forth in court before Chief Justice Kawaley on December 22, 2016. The Plaintiffs point out that in the Affidavits, the Bermuda Insurers argue that additional relief is required because the Plaintiffs "do not intend to comply with [the Bermuda Court's] Orders and interlocutory Anti-Suit Injunction dated 8 November 2016" and "do not intend to comply with any permanent Anti-Suit Injunction which [the Bermuda Court] might grant...." (Affidavits ¶¶ 33.1, 33.2.) At the December 22, 2016 hearing, however, counsel to the Bermuda Insurers states that the very same relief requested in the Affidavits and Skeleton Arguments "is not designed to enforce the existing interlocutory relief, it's designed to enforce the Arbitration Agreement between the parties." (December 22, 2016 H'rg Tr. 210:19-22.)
The Plaintiffs argue that this inconsistency stems from the fact that the Affidavits were prepared before the issuance of the TRO, and the December 22, 2016 hearing occurred after the entry of the TRO. The Plaintiffs argue that the Bermuda Insurers were aware that the relief they were seeking from the Bermuda Court was tantamount to enforcement of the Injunctive Orders (as explained in the Affidavits) because at the December 22, 2016 hearing, counsel to the Bermuda Insurers plainly stated that this Court has "restrained [the Bermuda Insurers] temporarily from enforcing the existing anti-suit injunctions" and the Bermuda Insurers only altered the purported rationale for the relief requested in an attempt to avoid a flagrant violation of the TRO.
The Bermuda Insurers argue that they have not violated the TRO, and by seeking the relief they requested in the Bermuda Court on December 22, 2016, they were merely "prosecuting the case" they brought in Bermuda in compliance with the language of the TRO. See TRO Opinion, 561 B.R. at 630, 2016 WL 7388546, at *16 ("But, to be clear, at this stage of this case, the Court is not enjoining the Bermuda Insurers from prosecuting the case they filed in the Bermuda Court."). Specifically, the Bermuda Insurers argue that they did not take "any action to enforce" the Injunctive Orders, though in their brief, the Bermuda Insurers acknowledge that they sought an injunction ordering the Plaintiffs to move to dismiss this adversary proceeding within 28 days. (Bermuda Insurers' Brief at 4.) The Bermuda Insurers also note in their brief that in their Skeleton Argument, they state that "nothing in the [Bermuda Insurers'] ... Skeleton Argument, nor in the hearing that is scheduled to take place on 22 December 2016 either is, or is intended to be, `an action to enforce' the `Injunctive Orders' dated 8 November 2016, or any of the provisions thereof, whether directly or indirectly." (Bermuda Insurers' Brief at 4-5 (citing the Skeleton Argument ¶ 13).)
Additionally, the Bermuda Insurers argue that sanctions for contempt are not warranted because the Bermuda Insurers did not willfully violate the TRO, the Plaintiffs have not suffered any specific damages as a result of the alleged violation of
Courts have inherent power to enforce compliance with their lawful orders through civil contempt. See Spallone v. United States, 493 U.S. 265, 110 S.Ct. 625, 107 L.Ed.2d 644 (1990); Shillitani v. United States, 384 U.S. 364, 369, 86 S.Ct. 1531, 16 L.Ed.2d 622 (1966). As the Supreme Court stated in Ex parte Robinson, 86 U.S. (19 Wall.) 505, 510, 22 L.Ed. 205 (1874), "the power to punish for contempt is inherent in all courts; its existence is essential to the preservation of order in judicial proceedings, and to the enforcement of the judgments, orders and writs of the courts and, consequently, to the due administration of justice."
Courts have embraced the inherent contempt authority as a power "necessary to the exercise of all others." Int'l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 831, 114 S.Ct. 2552, 129 L.Ed.2d 642 (1994) ("Courts independently must be vested with power to impose silence, respect, and decorum, in their presence, and submission to their lawful mandates, and to preserve themselves and their officers from the approach and insults of pollution."); see also Roadway Express, Inc. v. Piper, 447 U.S. 752, 764, 100 S.Ct. 2455, 65 L.Ed.2d 488 (1980) (stating that contempt powers are "the most prominent" of court's inherent powers "which a judge must have and exercise in protecting the due and orderly administration of justice and in maintaining the authority and dignity of the court").
The power to impose civil contempt sanctions applies in Bankruptcy Court as well. Indeed, it is well established that bankruptcy courts have power to enter civil contempt orders. In re MarketXT Holdings Corp., Case No. 04-12078, 2006 WL 408317, at *1 (Bankr. S.D.N.Y. Jan. 27, 2006) ("It is well accepted, in light of the 2001 amendments to Rule 9020, that bankruptcy courts have power to enter civil contempt orders."); see also In re World Parts, LLC, 291 B.R. 248, 253 (Bankr. W.D.N.Y.2003) ("Bankruptcy courts possess the power to impose sanctions for acts of civil contempt.") (citing In re Chateaugay Corp., 920 F.2d 183, 187 (2d Cir. 1990)).
The purpose of civil contempt is to compel a reluctant party to do what a court requires of him. See Badgley v. Santacroce, 800 F.2d 33, 36 (2d Cir. 1986); see also Shillitani, 384 U.S. at 368, 86 S.Ct. 1531 (stating that the act of disobedience consisted solely "in refusing to do what had been ordered" and the judgments imposed conditional imprisonment for the purpose of compelling the witnesses to obey the orders to testify). Civil contempt sanctions may also compensate for any harm that previously resulted. See Nat'l Org. for Women v. Terry, 159 F.3d 86, 93 (2d Cir. 1998); Weitzman v. Stein, 98 F.3d 717, 719 (2d Cir. 1996) (stating that sanctions for civil contempt serve two purposes: to coerce future compliance and to remedy any harm past noncompliance caused the other party).
A court's inherent power to hold a party in civil contempt may be exercised only when (1) the order the party allegedly failed to comply with is clear and unambiguous,
The Bermuda Insurers argue that by asking the Bermuda Court to order the Plaintiffs to dismiss the adversary proceeding, they were simply following "the normal course of the already-pending Bermuda proceedings." (Bermuda Insurers' Brief at 11.) But this simplistic characterization conveniently ignores the fact that the Injunctive Orders restrained the Plaintiffs from prosecuting or otherwise pursuing litigation in the U.S. relating to the underlying insurance policy, and the Bermuda Insurers, through the Skeleton Argument, the Affidavits, and argument made at the December 22, 2016 hearing, asked the Bermuda Court to order the Plaintiffs to dismiss the adversary proceeding altogether. This is substantively indistinguishable from enforcement of the Injunctive Orders. The Bermuda Insurers have consistently undermined this Court's ability to adjudicate the issues properly before it, and in order to protect "the due and orderly administration of justice," the Court will hold the Bermuda Insurers in contempt. Roadway Express, 447 U.S. at 764, 100 S.Ct. 2455.
The TRO Opinion clearly stated that the Bermuda Insurers were restrained and enjoined from taking any action to enforce the Injunctive Orders issued by the Bermuda Court. TRO Opinion, 561 B.R. at 630, 2016 WL 7388546, at *17. The TRO Opinion did not enjoin the Bermuda Insurers from proceeding in the Bermuda Court altogether, and permitted the parties to appear and argue their respective positions before the Bermuda Court. For example, the parties were not prohibited from arguing in the Bermuda Court that the dispute is arbitrable. Put another way, the Bermuda Insurers were not completely enjoined "from prosecuting the case they filed in the Bermuda Court," but were enjoined from seeking to enforce the Injunctive Orders, which have prevented this Court and the Plaintiffs from addressing the issues raised in this adversary proceeding. Id.
The evidentiary record in this case is substantial; the affidavits, pleadings, and hearing transcripts demonstrate that the Bermuda Insurers' noncompliance with the TRO is clear and convincing.
First, the Affidavits, prepared before the issuance of the TRO Opinion, set forth the relief the Bermuda Insurers were seeking, and the reasons why they were seeking this relief. As noted above, the Affidavits explain the Bermuda Insurers'
After the issuance of the TRO Opinion, however, the Bermuda Insurers, though still seeking the same relief in the Skeleton Argument at paragraph 12 as the relief laid out in the Affidavits at paragraph 34 (an order requiring the Plaintiffs to dismiss this adversary proceeding), changed the purported rationale for the relief to a supposed desire to "preserve the status quo" and "enforce the Arbitration Agreement." (December 22, 2016 H'rg Tr. 210:21-22, 25.) The fact that the Bermuda Insurers changed their tune in this way points strongly to the fact that the Bermuda Insurers knew that the relief they were seeking was noncompliant with the TRO.
Ultimately, though, the simple fact that the Bermuda Insurers petitioned the Bermuda Court to order the Plaintiffs to dismiss this adversary proceeding after the issuance of the TRO provides sufficient grounds for this Court to find that the Bermuda Insurers violated the TRO. Through the TRO Opinion, this Court restrained and enjoined the Bermuda Insurers from taking any action to enforce the provision of the Injunctive Order that provides, in part, that the Plaintiffs shall not prosecute litigation in the United States relating to the underlying insurance policies. On December 22, 2016, the day after the TRO Opinion was issued, the Bermuda Insurers argued before Chief Justice Kawaley that the Bermuda Court should order the Plaintiffs to dismiss this adversary proceeding altogether.
Despite the Bermuda Insurers' numerous proclamations to the contrary, the evidentiary record is clear that the Bermuda Insurers have flouted the proscriptions of the TRO. If the Bermuda Insurers actually intended to comply with the TRO, they would not have asked the Bermuda Court to order the Plaintiffs to dismiss this adversary proceeding.
For the reasons set forth above, the Court holds the Bermuda Insurers in contempt and orders the following relief.
If the pleadings are stricken and a default is entered, the case will then proceed in this Court with an inquest to determine and impose damages. In addition, on a proper showing, the Court will impose monetary sanctions to compensate the Plaintiffs for any harm that resulted from the contempt.
(Complaint, Ex. B at p. 7.)
(Affidavits ¶¶ 34.1-2 (compare with Skeleton Argument ¶¶ 12.1-2).)
