Pennsylvania Property & Casualty Insurance Guaranty Ass'n v. Pompelia (In re Pompelia)

Citations: 560 B.R. 422; 2016 Bankr. LEXIS 3818; 63 Bankr. Ct. Dec. (CRR) 83Docket: Bankruptcy No. 15-24477-CMB; Adv. No. 16-2121-CMB

Court: United States Bankruptcy Court, W.D. Pennsylvania; October 25, 2016; Us Bankruptcy; United States Bankruptcy Court

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Debtors Larry and Brenda Pompelia seek dismissal of an adversary proceeding filed by the Pennsylvania Property and Casualty Insurance Guaranty Association (PPCI-GA) for lack of jurisdiction. PPCI-GA seeks a declaratory judgment to establish it has no obligation to defend or indemnify the Pompelias or their business, BLP, LLC, in two wrongful death lawsuits arising from an incident where minors served alcohol at their establishment led to fatal car accidents. The Court finds that PPCI-GA’s action does not affect the bankruptcy case, thus lacking jurisdiction to grant relief. Even if jurisdiction were established, the Court would abstain from hearing the case. The Pompelias challenge the jurisdictional basis of the complaint, which outlines that PPCI-GA may be liable under an insurance policy with Regis Insurance Company, now under PPCI-GA after Regis's liquidation. The wrongful death lawsuits were stayed due to the Pompelias' Chapter 7 filing, but stay relief was granted to allow the suits to proceed. PPCI-GA argues it is not liable for damages due to liquor liability exclusions in the policy. The Court will grant the Motion to Dismiss based on these findings.

The Titus Estate responded to a Complaint while the Pompelias filed a Motion to Dismiss. PPCIGA claims the Court has "related-to" jurisdiction over the adversary proceeding, whereas the Pompelias argue it lacks jurisdiction and should be dismissed. The Court agrees with the Pompelias, concluding that the proceeding's outcome would not impact the bankruptcy estate. The determination of "related-to" jurisdiction follows the Pacor, Inc. v. Higgins standard, which assesses whether a civil proceeding could affect the bankruptcy estate. Jurisdiction is limited; thus, the burden is on the party asserting it (PPCIGA) to prove the Court's jurisdiction over the matter.

PPCIGA argues two ways the adversary affects the bankruptcy estate: first, that the Pompelias' insurance coverage under the Policy is estate property; second, that limiting this coverage could hinder the estate’s ability to satisfy creditor claims, especially those of the Brink Estate and the Titus Estate. The Court finds these arguments unconvincing. Regarding the first argument, although insurance policies can be considered property of the estate under 11 U.S.C. 541(a)(1), the key is whether the proceeds from the Policy benefit the Pompelias. Here, the proceeds would not benefit the Pompelias directly but only the Brink Estate or the Titus Estate if a judgment is rendered against them in State Court, meaning the proceeds are not estate property.

For the second argument, PPCIGA claims the proceeding relates to the bankruptcy case as it might affect payments to the Titus Estate and Brink Estate. This assertion relies on the occurrence of two events: a judgment in favor of those Estates and a favorable outcome for PPCIGA in its declaratory judgment action. The Court finds these dependencies too speculative to establish jurisdiction.

The adversary proceeding lacks a sufficiently strong connection to the bankruptcy estate to establish related-to jurisdiction, necessitating its dismissal. Even if jurisdiction existed, the court would choose to abstain in favor of state court proceedings, which are more suitable for addressing the substantive issues raised by PPCIGA's Complaint. According to Title 28 U.S.C. 1334, a bankruptcy court may permissively abstain from hearing cases in the interest of justice, comity, or state law considerations. 

Twelve factors guide the decision for permissive abstention: 
1. The adversary proceeding does not significantly affect the efficient administration of the estate, favoring abstention.
2. The case pertains to an insurance dispute governed by Pennsylvania law, with no bankruptcy code provisions involved, favoring abstention.
3. The issues involve straightforward insurance coverage, and since state law predominates, this also favors abstention.
4. Related state court proceedings are already underway, allowing PPCIGA to address its Complaint in those forums, favoring abstention.
5. The court lacks jurisdiction over the underlying matter and PPCIGA has not established any alternative federal jurisdiction basis, favoring abstention.

The overall assessment of these factors strongly supports the decision to abstain from this adversary proceeding.

The Court has determined that the adversary proceeding has no impact on the underlying bankruptcy case, favoring abstention. PPCIGA has not claimed this proceeding is "core" under 28 U.S.C. § 157(b), and the Court lacks "non-core" jurisdiction under § 157(c). The dispute concerns insurance coverage, separate from the bankruptcy case, which also supports abstention. There are no core bankruptcy issues that would necessitate severing state law claims. While the adversary proceeding does not burden the Court's calendar, it does not indicate forum shopping as the bankruptcy case was filed here. Neither party has requested a jury trial, although PPCIGA's claims are typically jury-triable, which also favors abstention. The presence of non-debtor parties further supports this decision. Overall, the majority of factors indicate abstention is appropriate, as the adversary proceeding does not facilitate efficient bankruptcy estate administration, involves significant state law issues, and is ongoing in state court, which is deemed a more suitable venue. Consequently, the Court concludes it lacks jurisdiction to proceed and will abstain, directing that issues be handled in state court. An Order reflecting this decision will be issued.

The Court granted the Motion to Dismiss filed by Defendants Larry and Brenda Pompelia, as detailed in the accompanying Memorandum Opinion. The Final Score Sports Saloon, identified as BLP, LLC, is also a defendant in this case, with the Pompelias being its owners. The Brink and Titus Estates have filed claims related to state court litigation involving the Pompelias, with the Brink Estate not having submitted a claim before the claims bar date, while the Titus Estate's claim remains contingent. Importantly, prior Orders granting relief from stay for both estates limit any judgment against the Pompelias to the amount of available insurance coverage. The excerpt references various legal precedents regarding jurisdiction and liability, emphasizing that the determination of the debtors' liability requires separate proceedings. The document cites multiple cases to support its findings and conclusions.