The importance of a lawsuit to the more successful outcome of the Purdue Pharma LP chapter 11 case did not turn an adversary proceeding into a “core proceeding,” according to District Judge Vincent L. Briccetti of White Plains, N.Y.
Although Judge Briccetti denied a motion to withdraw the reference without prejudice, his November 8 opinion suggests that he will withdraw the reference when the suit is ready for trial, absent a settlement in the meantime.
Purdue and its affiliates filed chapter 11 petitions in 2019 to deal with potential liability of more than $140 trillion arising from the manufacture, promotion and sale of opioids, Judge Briccetti said in his November 8 opinion. The debtors confirmed a chapter 11 plan in mid-September 2021.
The plan created a trust to handle personal injury opioid claims. The trust will be funded with a minimum of about $750 million. The plan also provides that the trust will be funded with up to an additional $450 million from the prosecution of suits against insurance companies.
Eight months before confirmation, the official creditors’ committee joined with the debtors in filing an adversary proceeding in bankruptcy court against foreign and domestic insurance companies seeking a declaratory judgment regarding the scope of coverage from prepetition policies.
The policy limits aggregate more than $3.3 billion, Judge Briccetti said.
Foreign insurers previously filed a motion to stay the suit in favor of mandatory arbitration. The bankruptcy judge granted the stay, observing that the suit was non-core.
Trumpeting the non-core nature of the suit and their right to a jury trial, the insurance companies filed a motion before Judge Briccetti for withdrawal of the reference under 28 U.S.C. § 157(d).
Judge Briccetti focused on permissive withdrawal because the insurance companies did not argue that withdrawal was mandatory.
Ruling on permissive withdrawal is a two-step process, Judge Briccetti said. First, the court must decide whether the suit is core or non-core and then evaluate the additional factors laid out in In re Orion Pictures Corp., 4 F.3d 1095 (2d Cir. 1993).
“Ultimately,” Judge Briccetti said, “the permissive withdrawal analysis comes down to whether efficiency and uniformity would be better served by litigating in the district court,” citing Orion, supra, at 1101.
Regarding core versus non-core, the debtors relied on a Second Circuit summary order where the appeals court said that a contract dispute can be core if it would have a potentially “significant impact on the administration of the estate and [would] undercut the creditor relief provided by the” chapter 11 plan. In re Relativity Fashion, LLC, 696 F. App’x 26, 29 (2d Cir. 2017) (summary order). [N.B.: Summary orders are not precedential in the Second Circuit.]
With $3.3 billion at stake, the debtors argued that the suit represented “a very substantial asset” affecting the distribution of the estate.
Judge Briccetti countered by saying that the trust will be funded regardless of the outcome of the suit. Moreover, even $3.3 billion would not be the debtors’ primary asset.
Because the suit was not the only source of cash, Judge Briccetti concluded that “the adversary proceeding does not affect a core bankruptcy function.”
Fundamentally a contract dispute governed by state or foreign law, Judge Briccetti also said that the suit was “not unique or uniquely affected by the bankruptcy proceeding.”
Although the suit was non-core, other Orion factors favored denying the motion to withdraw the reference, Judge Briccetti said. First, retaining the suit in bankruptcy court would be more efficient because the bankruptcy judge is “intimately familiar” with the parties, the facts and the issues.
Judge Briccetti said he would “benefit” from the bankruptcy court’s recommendation on a motion for summary judgment.
Finally, Judge Briccetti said that the defendants’ right to a jury trial did not require immediate withdrawal because “declaratory judgment actions involving insurance policies are routinely resolved on summary judgment, in which case a jury trial would be unnecessary.”
Judge Briccetti denied the withdrawal motion “without prejudice to renewal if and when the adversary proceeding is trial ready.”
The importance of a lawsuit to the more successful outcome of the Purdue Pharma LP chapter 11 case did not turn an adversary proceeding into a “core proceeding,” according to District Judge Vincent L. Briccetti of White Plains, N.Y.
Although Judge Briccetti denied a motion to withdraw the reference without prejudice, his November 8 opinion suggests that he will withdraw the reference when the suit is ready for trial, absent a settlement in the meantime.
Purdue and its affiliates filed chapter 11 petitions in 2019 to deal with potential liability of more than $140 trillion arising from the manufacture, promotion and sale of opioids, Judge Briccetti said in his November 8 opinion. The debtors confirmed a chapter 11 plan in mid-September 2021.