A district judge in New York takes an expansive view of “related to” jurisdiction. Specifically, District Judge Analisa Torres held that the bankruptcy court has “related to” jurisdiction in a lawsuit between two nondebtors if the outcome might diminish the claims against the debtor.
An insurance company purchased reinsurance from an offshore reinsurer. The deal required the reinsurer to keep $500 million in a trust account to cover the reinsurer’s potential liabilities.
The individual who owned and controlled the reinsurer allegedly transferred the $500 million from the trust to other companies he controlled. The insurance company won a $524 million judgment in New York district court against the reinsurer.
Regulators put the reinsurer into liquidation abroad. The liquidators filed a chapter 15 petition in New York and won recognition for the liquidation as the foreign main proceeding.
The insurance company filed a lawsuit in federal court in New York against the individual who owned the reinsurer and also against the companies that allegedly received fraudulent transfers from the trust. The suit was transferred to the bankruptcy court in New York under the standing order of reference, because the suit related to the chapter 15 case.
When the insurance company-plaintiff filed a motion to amend the complaint, the bankruptcy court dismissed the adversary proceeding for lack of subject matter jurisdiction. The bankruptcy judge reasoned that there was no “related to” jurisdiction because she saw no sufficient effect on the bankrupt estate of the reinsurance company.
The insurance company-plaintiff appealed and won in a July 31 opinion by District Judge Torres.
Judge Torres recited the usual mantra that “related to” jurisdiction exists under 28 U.S.C. § 1334(b) if the suit “might have any conceivable effect on the bankrupt estate,” citing SPV Osus Ltd. v. UBS AG, 882 F.3d 333, 339–40 (2d Cir. 2018). She went on to cite SPV for saying that “related to” jurisdiction “includes suits between third parties which have an effect on the bankruptcy estate.” Id.
Judge Torres characterized the bankruptcy court as having reasoned that there was no direct effect on the estate because the chapter 15 debtor was not a party, and the plaintiff was aiming to recover property of the trust, not property of the debtor.
Judge Torres again cited SPV for saying that “related to” jurisdiction “does not depend on whether the debtor is a party to the action or whether the property sought is identical to that sought in the bankruptcy case.” Applying the “conceivable effects” standard, she cited courts in the district for having held there is jurisdiction if the suit would directly impact the distribution to creditors.
In the appeal before her, Judge Torres said that any recovery by the plaintiff “will necessarily reduce its claim as a creditor of [the reinsurer] because [the plaintiff] may not receive double recovery for the same damages.” She said that the suit “might have” a conceivable effect on the reinsurer’s bankruptcy if the plaintiff were to succeed on its claims, thereby reducing the plaintiff’s claim in the reinsurer’s bankruptcy.
Finding “related to” jurisdiction, Judge Torres reversed and remanded.
A district judge in New York takes an expansive view of “related to” jurisdiction. Specifically, District Judge Analisa Torres held that the bankruptcy court has “related to” jurisdiction in a lawsuit between two nondebtors if the outcome might diminish the claims against the debtor.
An insurance company purchased reinsurance from an offshore reinsurer. The deal required the reinsurer to keep $500 million in a trust account to cover the reinsurer’s potential liabilities.
The individual who owned and controlled the reinsurer allegedly transferred the $500 million from the trust to other companies he controlled. The insurance company won a $524 million judgment in New York district court against the reinsurer.
Regulators put the reinsurer into liquidation abroad. The liquidators filed a chapter 15 petition in New York and won recognition for the liquidation as the foreign main proceeding.
The insurance company filed a lawsuit in federal court in New York against the individual who owned the reinsurer and also against the companies that allegedly received fraudulent transfers from the trust. The suit was transferred to the bankruptcy court in New York under the standing order of reference, because the suit related to the chapter 15 case.