Free Designation of Record re Bankruptcy Withdrawal - District Court of Delaware - Delaware

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UNITED STATES DISTRICT COURT DISTRICT OF DELAWARE __________________________________________ ) In re ) CHAPTER 11 ) STONE & WEBSTER, INC., et al., ) ) ) CASE NO. 00-02142 (PJW) Debtors. ) (Jointly Administered) __________________________________________) ) CONSOLIDATED SWINC ESTATE, and ) SWE&C LIQUIDATING TRUST ) ) Plaintiffs, ) ) v. ) ) ACE USA, INC., and ) CENTURY INDEMNITY COMPANY, ) ) Defendants. ) ADVERSARY NO. 07-50390 __________________________________________) REPLY TO THE SWINC ADMINISTRATOR'S AND SWE&C LIQUIDATING TRUST'S RESPONSE IN OPPOSITION TO THE MOTION OF DEFENDANT CENTURY INDEMNITY COMPANY FOR WITHDRAW OF REFERENCE PURSUANT TO 28 U.S.C. § 157(d) Defendant, Century Indemnity Company ("Century"), as successor to CCI Insurance Company as successor to Insurance Company of North America on its own behalf and as successor-in-interest to Indemnity Insurance Company of North America, by its attorneys, replies to the SWINC Plan Administrator's and the SWE&C Liquidating Trust's Response in Opposition to the Motion of Century Indemnity Company for Withdraw of Reference Pursuant to 28 U.S.C. § 157(d) (the "Response"), as follows:

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Preliminary Statement 1. The positions taken by plaintiffs, the SWINC Plan Administrator and the SWE&C

Liquidating Trust (collectively, "Plaintiffs"), in their Response seem to ignore (a) the clearly stated positions of Century in the Motion of Defendant for Withdraw of Reference Pursuant to 28 U.S.C. § 157(d) (the "Motion to Withdraw")1; (b) the record before the Bankruptcy Court in this bankruptcy case; and (c) the relevant and binding case law in this Circuit which undermines Plaintiffs' positions. Response Fails to Address the Valid Bases for Withdraw of the Reference as Set Forth in the Motion to Withdraw 2. In the Motion to Withdraw, and the accompanying motion to determine that this

Adversary Proceeding is non-core (the "Non-Core Motion"), Century agrees that the Bankruptcy Court has non-core jurisdiction over this Adversary Proceeding. See Motion at ¶ 13; Exhibit "A" to Motion to Withdraw. 3. Notwithstanding the above, the Plaintiffs dedicate five pages of the Response to

their assertion that the Bankruptcy Court has non-core jurisdiction over this Adversary Proceeding. Plaintiffs cite a number of cases to support their contention that the Bankruptcy Court may exercise "related to jurisdiction" over this Adversary Proceeding. As set forth in the Motion to Withdraw, this is the test to determine whether "non-core" jurisdiction exists. It is not clear why Plaintiffs feel the need to include five pages of legal argument just to agree with Century's assertion that non-core jurisdiction exists. 4. Where the parties differ is on the question of whether core jurisdiction exists.

All capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Motion to Withdraw. All references to the Approval Order, the Confirmation Order, the Non-Core Motion and the Settlement Order shall refer to those respective exhibits to the Motion to Withdraw which are incorporated herein by reference.
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Century correctly contends that this Adversary Proceeding, that involves a dispute over insurance coverage for pre-petition claims under pre-petition policies, is non-core. See In re U.S. Brass, 110 F.3d 1261 (7th Cir. 1997). Although the authorities cited in the Response support the existence of non-core jurisdiction, Plaintiffs are unable to cite any binding authority in support of their assertion that the issues involved in this Adversary Proceeding fall within the core jurisdiction of the Bankruptcy Court. As more fully set forth in the Motion to Withdraw and the Non-Core Motion, this insurance coverage dispute in simply not a core matter. 5. Plaintiffs' assertion that "Century suggests that cause exists to withdraw the

reference simply because the Adversary Proceeding is purportedly non-core," Response at ¶ 24, ignores Century's express contention that withdrawal of the reference of this Adversary Proceeding is appropriate because: (a) (b) This Adversary Proceeding is a non-core proceeding; Withdrawal of the reference promotes judicial economy and efficiency; and (c) Withdrawal of the reference promotes convenience and expedites the bankruptcy process. 6. Furthermore, in the Motion to Withdraw, Century expressly asserts that the other

factors considered by the Third Circuit do not militate against withdrawing the reference in this case. See Motion to Withdraw at ¶ 18. The Response Either Fails to Consider or Ignores the Record in the Bankruptcy Case 7. Perhaps because the record before the Bankruptcy Court undermines virtually all

of Plaintiffs' arguments opposing the withdrawal of the reference, Plaintiffs conveniently ignore the well established record in the Bankruptcy Court which shows that the Bankruptcy Court
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never considered, and purposefully avoided any of the issues that are the subject of this Adversary Proceeding. 8. In the Response, Plaintiffs contend that denial of the Motion to Withdraw will

promote uniformity in the bankruptcy administration because: The Bankruptcy Court is also familiar with the NEC/SU Claims and the NEC/SU Settlement, the facts of which give rise to the Claims asserted in the adversary proceeding. Specifically, the Bankruptcy Court oversaw discovery and held an evidentiary hearing in connection with the NEC/SU Settlement, which required it to address the complex issues underlying the NEC/SU Settlement and the NEC/SU Claims and to consider the objection of Defendant Century to the NEC/SU Settlement. Only after consideration of the evidence and objections raised, [sic]the Bankruptcy Court ultimately concluded that the NEC/SU Settlement was fair and reasonable and in the best interest of the Debtors' Estates. See Response at ¶ 38. Based on the foregoing unsupported assertions, Plaintiffs contend that the Bankruptcy Court has "an intimate knowledge of the Bankruptcy Case, the relevant parties to this Adversary Proceeding, the basis for the Consolidated Estates' claims against Defendants, and the insurance coverage at issue in the Adversary Proceeding." See Response at ¶ 39. Plaintiffs assertions flatly ignore the record in the Bankruptcy Case. 9. The standard that a debtor must meet to obtain court approval of a settlement in a

bankruptcy case is low. In assessing whether a compromise is reasonable, the court need not conduct a "mini trial on the merits . . . of [the] settlement." In re Drexel Burnham Lambert Group, Inc., 134 B.R. 493, 496 (Bankr.S.D.N.Y. 1991). See also In re Energy Coop., Inc., 886 F.2d 921, 927 n. 6 (7th Cir. 1989). Instead, the obligation of the court is to "canvass the issues and see whether the settlement `falls below the lowest point in the range of reasonableness.'" Drexel Burnham, 134 B.R. at 497 (quoting In re W.T. Grant Co., 669 F.2d 599, 608 (2d Cir.

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1983), cert. denied; Cosoff v. Rodman, 464 U.S. 822, 104 S.Ct. 89 (1983); In re Pennsylvania Truck Lines, Inc., 150 B.R. 595 (E.D.Pa. 1992). 10. A number of insurers opposed the motion to approve the NEC/SU Settlement (the

"Motion for Approval") because, based upon the limited and expedited discovery allowed in connection with the Motion for Approval, it appeared that the factual assertions contained in the proofs of claim filed by NEC and SU did not support the stipulated settlement amount. Rather than hear a challenge on this basis, the Bankruptcy Court chose to include a provision in the Settlement Order providing that such Order would have no binding effect on the Debtors' insurers in any subsequent coverage dispute. See Transcript of Hearing Held on December 18, 2003 on Motion for Approval (the "Transcript"), relevant portions of which are attached hereto as Exhibit "A" at pp. 164-165; Approval Order at ¶ ¶ 10,11. 11. At the hearing on the Motion for Approval, the focus of the Bankruptcy Court

was solely upon whether the NEC/SU Settlement was a good deal for the Debtors. The Bankruptcy Court indicated that it was not concerned whether the settlement is for $5 million or $15 million because the amount "is not going to come out of the Debtors' pocket." See Transcript at pp. 159-160. Thus, the Bankruptcy Court concluded, the settlement satisfied the admittedly low standard for approval of settlements in bankruptcy cases. 12. The record in this case clearly demonstrates that the objections of Century and

other insurers to the NEC/SU Settlement were never resolved but were reserved for another day in another court. The Bankruptcy Court stated: THE COURT: Let me see if I can cut through this. I've made it very clear that if the coverage litigation were before me, I absolutely would not permit anyone to argue that the allowed claim pursuant to the settlement has any relevance.

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MR. HOWARD: Yes, sir. THE COURT: So, why can't I just put that in this order, that it will not have any relevance? It will not have any res judicata effect. It will not have any collateral estoppel effect in any subsequent proceeding in which the insurance carriers, non-parties to the settlement, are the subject of a recovery claim? See Transcript at pp. 164-165; Settlement Order at ¶ 10,11. 13. Therefore, the coverage issues, of which Plaintiffs contend the Bankruptcy Court

has an "intimate knowledge", were never addressed at any stage of the Bankruptcy Case and are wholly unrelated to the issues addressed in connection with confirmation of the Debtors' Plan or approval of the NEC/SU Settlement. 14. In support of their contention that refusing to withdraw the reference in this

Adversary Proceeding will discourage forum shopping, Plaintiffs assert only that Century has been avoiding good-faith negotiation of a settlement of its liability for "claims in which their [sic] liability was made clear under the NEC/SU Settlement." See Response at ¶ 40. While Century disagrees with Plaintiffs' characterization of its conduct, Plaintiffs fail to state how an alleged refusal to engage in settlement negotiations would constitute "forum shopping" or why a bankruptcy court, rather than a district court is better suited to deal with such alleged conduct. 15. Next, Plaintiffs contend that: [T]he Bankruptcy Court is familiar with the parties to the Adversary Proceeding, the Claims underlying the Consolidated Estates' coverage demand to the Defendants, and the NEC/SU Settlement itself, which forms the basis of the Consolidated Estates' coverage demand. The Bankruptcy Court also has resolved claims against other insurance carriers in the bankruptcy case. See Response at ¶ 41. 16. Contrary to these assertions, and similar to Plaintiffs' assertions with respect to

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the uniformity issue, there is no history of insurance coverage disputes before the Bankruptcy Court. The Bankruptcy Court is certainly familiar with the parties to the Adversary Proceeding, however, it purposefully and correctly declined to make any findings whatsoever related to the availability of insurance coverage to pay the claims that were the subject of the NEC/SU Settlement. In addition, the Court did not resolve any insurance coverage disputes in the Bankruptcy Case. The Court did approve a settlement with Royal Insurance Company (the "Royal Settlement") but, in doing so, the Bankruptcy Court was only required to assure that the settlement, like the NEC/SU Settlement, exceeded the "lowest point in a range of reasonableness." In re Drexel Burnham, supra. No "mini trial" on the merits of the respective parties' positions was undertaken by the Bankruptcy Court. 17. In support of their contention that retaining the Adversary Proceeding in

Bankruptcy Court fosters an economic use of resources, Plaintiffs fail to address the duplication of effort that a de novo review of the dispute will entail and, instead, argue that this Court should allow the same court that oversaw confirmation of the Plan and approval of the NEC/SU Settlement to "interpret and apply the terms of the Joint Plan and the NEC/SU Settlement in the context of the Adversary Proceeding." See Response at ¶ 42. 18. As set forth above, it is not necessary to apply the terms of the Plan or the

NEC/SU Settlement Agreement to resolve the dispute which is at issue in the Adversary Proceeding. In fact, the Bankruptcy Court expressly included language in the Confirmation Order and in the Settlement Order expressly reserving the rights of the Debtors and their insurers under the very pre-petition policies that are at issue in this Adversary Proceeding. See Confirmation Order at ¶ 40; Settlement order at ¶¶ 10, 11. 19. Neither, as Plaintiffs contend, does the Bankruptcy Court have "unmatched

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familiarity" with the coverage issues underlying the Adversary Proceeding. The Bankruptcy Court purposely and correctly avoided deciding the non-core coverage issues that it did not need to resolve in connection with the confirmation of the Plan or approval of the NEC/SU Settlement and approval of the Royal Settlement. 20. In support of the assertion that denial of the Motion to Withdraw will expedite the

bankruptcy process, Plaintiffs contend that the Bankruptcy Court "has addressed numerous insurance-related disputes, including the analysis of insurance policies, analysis of proofs of claim asserted by various insurance companies, and approval of settlements resolving insurance claims and insurance-related disputes (including the NEC/SU Settlement)." See Response at ¶ 45. As set forth above, however, this assertion is simply not true. See Approval Order at ¶ ¶ 10, 11; Confirmation Order at ¶ 40. 21. Plaintiffs insistence that approval of the NEC/SU Settlement resolved insurance-

related issues, evidences either a lack of familiarity with the proceedings leading up to the approval of the NEC/SU settlement or a calculated attempt to mischaracterize the nature of the proceedings before the Bankruptcy Court. See Settlement Order at ¶ ¶ 10 and 11; Transcript at pp. 164-165. 22. With the exception of the NEC/SU Settlement which, as stated above, did not

resolve, but expressly left open, any insurance-related issues, Plaintiffs cite no specific instance in which the Bankruptcy Court purportedly resolved any insurance-related issues. Plaintiffs' Response Is Contrary to Controlling Third Circuit Precedent 23. Plaintiffs' Response fails to consider or purposely avoids relevant case law which

supports the Motion to Withdraw. 24. Citing provisions in the Debtors' Plan and the NEC/SU Settlement Agreement,

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Plaintiffs contend that the Bankruptcy Court expressly retained "exclusive jurisdiction" over issues raised in the Adversary Proceeding and that the Adversary Proceeding is "inextricably linked" to the Plan and the NEC/SU Settlement Agreement. See Response at ¶ 30. This assertion is contrary to both the record below and controlling Third Circuit authority. The Third Circuit has stated: Retention of jurisdiction provisions will be given effect, assuming there is Bankruptcy Court jurisdiction. But neither the Bankruptcy Court nor the parties can write their own jurisdictional ticket. Subject matter jurisdiction "cannot be conferred by consent of the parties." Where a court lacks subject matter jurisdiction over a dispute, the parties cannot create it by agreement even in a plan of reorganization. Similarly, if the court lacks jurisdiction over a dispute, it cannot create that jurisdiction by simply stating that it has jurisdiction in a confirmation or other order. In Re Resorts International, Inc., 372 F.3d 154 (3d Cir. 2004) (citations omitted). Accordingly, a bankruptcy court cannot wrest jurisdiction from a district court over non-core matters by reserving "exclusive jurisdiction" in a confirmation order or an order approving a settlement. 25. In fact, the very Plan provision cited by Plaintiffs in their Response acknowledges

such limitations on the Bankruptcy Court's powers. See Confirmation Order at ¶35 (providing that the Bankruptcy Court retains exclusive jurisdiction "to the fullest extent permitted by law"). 26. Plaintiff's reliance upon a similar provision in the Settlement Order approving the

NEC/SU Settlement is likewise misplaced. The Settlement Order provides that "this Court shall retain jurisdiction to determine the reasonableness of a proposed settlement between the Debtors and their primary insurers with regard to the allowed remediation claim to the extent that the Claimants disapprove of any such settlement." See Settlement Order at ¶ 8 (emphasis added). This narrowly tailored reservation of jurisdiction is neither applicable to the issues raised in this Adversary Proceeding nor binding on this Court. In re Resorts International,
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supra. Conclusion 27. For the foregoing reasons, and for the reasons set forth in the Motion to

Withdraw, Defendant, Century Indemnity Company, respectfully requests this Court to enter an Order withdrawing the reference with respect to this Adversary Proceeding, and for such other and further relief as is just. Respectfully submitted, Dated: April 6, 2007 WHITE AND WILLIAMS LLP

/s/ Marc S. Casarino Marc S. Casarino (No. 3613) 824 N. Market Street, Suite 902 Wilmington, DE 19801 (302) 467-4520 Thomas Going* Joseph Gibbons, pro hac vice John Lawson* WHITE AND WILLIAMS LLP 1800 One Liberty Place Philadelphia, PA 19103 (215) 864-7000 *not yet admitted pro hac vice Attorneys for Century Indemnity Company

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EXHIBIT A

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