MF Global Holdings Ltd. v. Allied World Assurance Co. (In re MF Global Holdings Ltd.)
Docket: 17–CV–7332 (JSR)
Court: District Court, S.D. Illinois; October 30, 2017; Federal District Court
Plaintiffs MF Global Holdings Limited, MF Global as Plan Administrator, and MF Global Assigned Assets LLC have filed a motion for leave to appeal a bankruptcy court order compelling arbitration and for a stay of arbitration pending the appeal, opposed by Defendant Allied World Assurance Company Limited. The court denies both motions. MF Global, a Delaware-incorporated holding company, obtained errors and omissions insurance from Allied World, which is based in Bermuda, covering losses up to $15 million for the period of May 31, 2011, to May 31, 2012. Following MF Global's bankruptcy in October 2011 due to customer deposit misappropriation, claims were consolidated, resulting in a global settlement with most insurers, except Allied World, which contends that misappropriated funds do not constitute a covered loss. The bankruptcy court's confirmed liquidation plan retains jurisdiction over related matters. MF Global filed an adversary complaint against Allied World in the bankruptcy court for insurance payments, but the insurance contract mandates arbitration in Bermuda for disputes. Allied World has consistently sought arbitration, filing to compel it shortly after the complaint was lodged. Plaintiffs argued that the bankruptcy court's jurisdiction supersedes the arbitration clause, but this was rejected by the bankruptcy court, which noted that any modification of pre-petition contract rights should have been explicitly stated. Plaintiffs now seek to appeal this decision, but Allied World argues that the appeal is barred by 9 U.S.C. § 16(b), which restricts appeals from certain interlocutory orders regarding arbitration.
The bankruptcy court's order compels arbitration and stays the related adversary proceeding until the arbitration's conclusion. While Section 1292(b) allows district courts to certify interlocutory orders for appeal to circuit courts, this does not apply to appeals from bankruptcy courts to district courts under 28 U.S.C. § 158(a). Defendants contend that Congress's specific exceptions imply that others do not exist, thereby barring appeals under Section 158(a). However, it can be argued that Section 1292(b) is the sole exception because it pertains to appeals from district courts to circuit courts, not from bankruptcy courts. The legislative framework indicates that district courts have original and exclusive jurisdiction over bankruptcy cases, and they can refer matters to bankruptcy judges for efficiency, retaining ultimate authority. Consequently, if a case is not referred or the reference is withdrawn, parties can have an interlocutory appeal in a different context than those whose cases remain with bankruptcy courts, potentially leading to unequal treatment. There is no indication that Congress intended such disparities. Therefore, Section 16(b) does not prohibit this appeal. For appeals under 28 U.S.C. § 158(a)(3), district courts must apply the criteria from 28 U.S.C. § 1292(b), requiring a showing of a controlling legal question with substantial disagreement and that an immediate appeal could significantly progress the case's resolution. Appeals before final judgment are only warranted in exceptional circumstances.
The central issue in this appeal is whether a bankruptcy plan provision that maintains jurisdiction over future disputes overrides pre-bankruptcy arbitration rights, even if not explicitly stated and despite the adversary proceeding starting post-confirmation. The bankruptcy court ruled that it does not. This legal question is significant as it could guide similar cases, qualifying it as a controlling question of law. There is notable disagreement regarding the bankruptcy court's ruling, supported by case law from the Seventh Circuit and Southern District of Florida, which suggests that such provisions can supersede existing arbitration rights if the defendant was aware and did not object to the plan.
However, reversing this decision would not necessarily lead to a resolution of the underlying litigation, as the defendant presents multiple independent reasons against enforcing the plan's provision. Specifically, the defendant contends it was not adequately notified about the provision, unlike the defendants in prior cited cases. Additionally, the defendant argues that the underlying insurance dispute is non-core and requires consent for the bankruptcy court to resolve it. The court can only issue recommendations in non-core matters, which the district court reviews de novo. The defendant claims not to be bound by the plan as it is not a creditor of MF Global, while plaintiffs assert it is bound due to holding contingent claims and being a "party in interest." The court does not decide on the merits of these arguments, noting they are not frivolous.
If any of the defendant's arguments hold merit, pursuing this appeal would be futile, as highlighted by the precedent in **Oneida Indian Nation of New York State v. Oneida Cty.** where the appeal's foundation could be undermined in subsequent proceedings. Addressing these independent arguments necessitates extensive factual analysis, rendering them unsuitable for interlocutory appeal. This is further supported by **Wellness Int'l Network, Ltd. v. Sharif**, which involved a fact-intensive inquiry regarding jurisdiction. Rulings reliant on specific factual determinations offer limited precedential value, making them less appropriate for immediate appellate review. Consequently, the Court finds no extraordinary circumstances warranting an exception to the principle of deferring appellate scrutiny until a final judgment is reached. The motion for leave to appeal is denied, negating any need for a stay of arbitration pending this appeal, leading to the denial of the plaintiff's request for a stay as moot. The Clerk of Court is instructed to close the case, with the understanding that relevant case facts are detailed in Judge Glenn's prior opinions, which are assumed to be familiar to the parties. Additional arguments raised by the plaintiffs were also dismissed by the bankruptcy court and acknowledged as unsuitable for this interlocutory appeal.
