The United States Bankruptcy Court for the Southern District of New York recently held a group of insurers in contempt for violating a temporary restraining order (“TRO”) aimed at preventing the insurers from using a Bermuda Court to block litigation in the U.S. regarding settlement payments in connection with the collapse of MF Global.
Last summer, the Bankruptcy Court entered an order approving a global settlement in MF Global’s chapter 11 cases. Pursuant to the global settlement, the MF Global Entities1 became assignees to the rights to payment under certain E&O policies. Also pursuant to the global settlement, the MF Global Entities commenced an adversarial action against the E&O insurers in the Bankruptcy Court to obtain proceeds under those policies. The global settlement contained a Bar Order that enjoined the insurers from asserting any claims arising out of or related to the MF Global actions.The E&O policies required mandatory arbitration to be held in Bermuda. In November 2016, the insurers obtained, ex parte, orders from a Bermuda Court effectively enjoining the MF Global Entities from litigating the adversarial action. The MF Global Entities notified the Bankruptcy Court, which entered a show cause order raising the issue of whether the filings in the Bermuda Court and the Injunctive Orders violated the Bar Order in the global settlement or the doctrine set forth in Barton v. Barbour, 104 U.S. 126 (1881), which prohibits lawsuits against a bankruptcy estate’s representative in its official capacity unless prior permission is first obtained from a bankruptcy court.
Following a hearing on a second show cause order, the Bankruptcy Court, clearly perturbed2, held the insurers in contempt, finding that their efforts to secure enforcement of the Injunctive Orders undermined the Bankruptcy Court’s ability to adjudicate the issues properly before it.The Bankruptcy Court gave the insurers a week to vacate the various Bermuda Court orders, and failing to do so, threatened to strike the insurers’ pleadings in the adversary proceeding, enter a default in favor of the MF Global Entities and proceed with an inquest to determine and impose damages. The Bankruptcy Court warned that, on proper showing, it would also impose monetary sanctions to compensate the MF Global Entities for any harm resulting from the contempt.
1. MF Global Assigned Assets LLC and MF Global Holding Ltd. (the Plan Administrator under the confirmed liquidation plan, collectively the “MF Global Entities”)
2. But it didn’t issue a Tweet
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