Summary
This memorandum opinion and order addresses a motion by aircraft transaction depositors to abstain from hearing an adversary proceeding involving Acrisure’s alleged negligent procurement of crime insurance policies. The Bankruptcy Court analyzes its jurisdiction under 28 U.S.C. § 1334 and the factors governing permissive abstention, emphasizing that the remaining dispute is between non-debtor parties and would have no economic effect on the nearly completed bankruptcy estate.
Topics
Practice areas
Questions Presented
- Whether the bankruptcy court had related-to jurisdiction over a dispute between Acrisure and non-debtor depositors when the outcome could not affect the bankruptcy estate.
- Whether the court should permissively abstain under 28 U.S.C. § 1334(c)(1) from hearing the depositors' state-law negligence claims that were already pending in Florida.
- Whether the debtor's potential prepetition claim for negligent procurement of insurance constituted a core proceeding.
Holdings
- The bankruptcy court lacked related-to jurisdiction because the dispute between Acrisure and the depositors could not alter the debtor's rights, liabilities, options, or freedom of action or otherwise affect administration of the bankruptcy estate.
- Permissive abstention was appropriate because state-law issues predominated, related litigation was pending in Florida, the parties were non-debtors, the depositors demanded a jury trial that the bankruptcy court could not conduct, and adjudication in bankruptcy would burden an estate nearing closure without providing an estate benefit.
- The debtor's potential prepetition state-law claim for negligent procurement of insurance was not a core proceeding merely because a successful claim might increase the bankruptcy estate.
Key quotations
“Related proceedings are civil proceedings that, in the absence of a bankruptcy petition, could have been brought in a district court or state court. The test for determining whether a civil proceeding is related in bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.” (at 14)
“Related to jurisdiction is not present here because the outcome of the litigation between IPA and the Depositors could have no possible effect in altering the Debtor’s rights, liabilities, options or freedom of action in any way, thereby impacting the handling and administration of the bankruptcy estate.” (at 16)
Factual background
Wright Brothers Aircraft Title, Inc. operated as an escrow agent in aircraft purchase transactions and was involved in a large Ponzi scheme and related criminal conduct. The debtor obtained first-party crime insurance policies through Acrisure, but the policies were later declared rescinded and void ab initio because the debtor procured them through fraudulent misrepresentations. The depositors reserved claims against Acrisure and continued Florida litigation alleging that Acrisure negligently failed to procure appropriate insurance coverage. The bankruptcy estate had substantially completed its administration, with assets reduced to cash or abandoned and distributions being prepared, so the court found that the Florida negligence dispute would not affect the estate.
Procedural history
Wright Brothers Aircraft Title, Inc. was the subject of an involuntary Chapter 7 bankruptcy case. Certain depositors had previously sued Underwriters and Acrisure in Florida, and after settling with Underwriters and obtaining a consent judgment declaring the crime policies void ab initio, they continued to pursue negligence claims against Acrisure. Acrisure filed this adversary proceeding seeking declarations that the depositors' claims were derivative of claims belonging to the bankruptcy estate or that the debtor had no negligence claim against Acrisure. The bankruptcy court concluded that the dispute between the non-debtor parties could not affect the estate, granted permissive abstention, found that it lacked subject-matter jurisdiction, and dismissed without prejudice.