Lawski v. Frontier Insurance Group, LLC et al

FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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: 	Chapter 11
In re: 	:
: 	Case No. 05-36877 (CGM)
Frontier Insurance Group, LLC, 	:
:
Reorganized Debtor. 	:
:
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Benjamin Lawski, 	:
: 	Adv. No. 14-09022 (CGM)
Plaintiff, 	:
:
v. 	:
:
Frontier Insurance Group, LLC and 	:
County of Sullivan Industrial Development 	:
Authority, 	:
:
Defendants. 	:
:
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MEMORANDUM DECISION DENYING MOTION TO DISMISS
A P P E A R A N C E S :
ALLEGAERT BERGER
& VOGEL LLP
Attorneys for Frontier
111 Broadway
20th Floor
New York, New York 10006
By: 	Robert E. Malchman, Esq.
DUKER & BARRETT
Attorneys for Frontier
1585 Broadway
New York, NY 10036
By: 	Richard L. Crisona
DORNBUSH SCHAEFFER
STRONGIN & VENAGLIA LLP
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Attorneys for Benjamin M. Lawsky,
Superintendent of Financial Services
for the State of New York, as Liquidator
of Frontier Insurance Company
747 Third Avenue
New York, New York 10017
By: 	William F. Costigan, Esq.
CECELIA G. MORRIS
CHIEF UNITED STATES BANKRUPTCY JUDGE
As stated in the foregoing decision, the Court finds that it need not abstain from hearing
this proceeding under any of the doctrines relied upon by the Liquidator.
Jurisdiction
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. §
157(a) and the Standing Order of Reference signed by Chief Judge Loretta A. Preska dated
January 31, 2012. This is a “core proceeding” under 28 U.S.C. § 157(b)(2)(A) (matters
concerning the administration of the estate).
Background1
This is a dispute over the ownership of two parcels of real property located in Sullivan
County, New York, referred to by the parties as Parcels B and C. Together, Parcels B and C
comprise approximately one-half (15.667 acres of a total 30.897 acres) of the Debtor’s former
headquarters building and the surrounding real property, which is collectively known as the
“Rock Hill Property.” Prior to the petition date, it appears that the Rock Hill Property was used
both by the Debtor (Frontier Insurance Group, Inc. (“FIGI”)) and the Debtor’s wholly-owned
insurance subsidiary (Frontier Insurance Company (“FIC”)) as their headquarters.
1 Unless otherwise indicated, all facts are from 14-09022, ECF No. 1.
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It is undisputed that legal title to the Rock Hill Property is currently held by the County
of Sullivan Industrial Development Authority (the “Development Authority”) pursuant to a
series of agreements entered into in the 1990s. It is also undisputed that the Development
Authority’s ownership of the Rock Hill Property expired on February 28, 2014. As to Parcel A,
which comprises 15.23 acres of the headquarters compound and is the location of the actual
headquarters building, it is undisputed that the reversionary interest belongs to FIC, the insurance
subsidiary, which is currently in a state court liquidation in Albany under the New York State
Insurance Law. The parties dispute who owns the reversionary interest in Parcels B and C, the
remainder of the headquarters compound.
On the one hand, the Reorganized Debtor (Frontier Insurance Group, LLC (“FIGL”))
contends that it holds the reversionary interest. According to FIGL, the Debtor donated the Rock
Hill Property and its improvements to FIC in the 1990s, which were then conveyed to the
Development Authority for a period of 20 years in exchange for certain tax benefits. According
to FIGL, it was the Debtor—not the insurance subsidiary—that retained the reversionary interest
in Parcels B and C upon the expiration of the 20-year term. On the other hand, the
Superintendent of the State of New York (the “Superintendent” or the “Liquidator”), in his
capacity as the state court liquidator for the insurance subsidiary, asserts that FIC holds the
reversionary interest in all three parcels.
The motion currently before this Court arises out of litigation between the Superintendent
and the Reorganized Debtor over who owns the reversionary interest in Parcels B and C.
a. 	Parcel A of the Rock Hill Property
Beginning in 1991, the Development Authority agreed to assist FIC (the insurance
subsidiary) with financing the acquisition and development of real estate in Sullivan County to
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use as a corporate headquarters. In 1991, FIC purchased Parcel A to use for construction of the
headquarters. In February 1993, FIC conveyed Parcel A to the Development Authority. This
conveyance was in furtherance of an installment sale agreement executed in December 1993
between FIC and the Development Authority whereby: (i) the Development Authority would
issue bonds to be used to pay for the construction of the headquarters; (ii) FIC agreed to re-
purchase the property from the Development Authority by making the necessary bond payments;
(iii) the Development Authority would hold title to the property as security for FIC’s obligation
to make payments; and (iv) the Development Authority would re-convey the property to FIC
once all the payments were made. Construction of the headquarters on Parcel A was completed
in 1993. From that time on, the Debtor, the insurance subsidiary, and other related companies
began using the site as their headquarters.
b. 	Parcels B and C of the Rock Hill Property
Pursuant to the installment sale contract, FIC agreed to convey to the Development
Authority the ownership of Parcel A together with “such additional real estate as [FIC] and [the
Development Authority] shall mutually agree is necessary in connection with the project.” In
1993, the Debtor (not the subsidiary insurance company) purchased the 15.667 acres of land
adjacent to Parcel A (what would later become Parcels B and C). In February 1994, the Debtor
transferred 2.7 acres of the new land (what is now called Parcel B) to the Development
Authority. The deed effectuating the transfer shows that the land was transferred from the Debtor
directly to the Development Authority (i.e., it does not appear to ever have been directly owned
by the insurance subsidiary).
On February 26, 1997, the Debtor transferred the remaining 12.967-acre tract (what is
now called Parcel C) to the subsidiary insurance company. The same day, the insurance
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subsidiary conveyed Parcel C to the Development Authority. Accordingly, at that time, the
Development Authority had legal title to all three parcels. The Debtor, the insurance subsidiary,
and the Development Authority then entered into an amended and restated “Payment In Lieu Of
Taxes” agreement (the “1997 PILOT Agreement”), which provided certain tax benefits to the
Debtor and the insurance subsidiary. By its terms, the 1997 PILOT Agreement applied to all
three of the parcels that comprised the Rock Hill Property, which were all then merged into a
single tax lot.
Pursuant to the 1997 PILOT Agreement, the Development Authority and FIC agreed that
the Development Authority would take title to all three parcels subject to its obligation to re-
convey them at the conclusion of the installment sale agreement. On the same day the parties
entered into the 1997 PILOT Agreement, they all also entered into a first supplement to the
installment sale agreement, which confirmed that all three parcels were to be conveyed at the
conclusion of the installment payments.
c. 	The Pole Barn and Nana’s House
By 1999, construction had begun on a 2,400 square foot maintenance shed (the “Pole
Barn”) and a 9,300 square foot day care facility (“Nana’s House”), both of which were located
on Parcel C of the Rock Hill Property. On August 1, 1999, the Debtor, the insurance subsidiary,
and the Development Authority entered into a second amended and restated PILOT agreement
(the “1999 PILOT Agreement”) whereby the Development Authority agreed to take ownership
of the Pole Barn and Nana’s House, subject to its obligation to re-convey them along with the
rest of the Rock Hill Property.
A month later, on September 1, 1999, the Debtor, the insurance subsidiary, and the
Development Authority entered into a second supplement to the installment sale agreement. The
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second supplemental installment sale agreement provides that the re-conveyance of the Rock Hill
Property will take place no later than the termination date of the 1999 PILOT Agreement. By its
terms, the 1999 PILOT Agreement was to run for a period of 20 years beginning on February 28,
1994. Therefore, its term expired on February 28, 2014.
d. 	Rehabilitation Proceedings for FIC
In late 2001, the New York County Supreme Court entered a rehabilitation order against
FIC (the subsidiary insurance company) under the New York Insurance Law. The rehabilitation
order appointed the predecessor to the Superintendent as the rehabilitator for FIC. The
rehabilitation proceeding was later transferred to the Supreme Court in Albany County.
e. 	The Debtor’s Bankruptcy Case
The Debtor filed its chapter 11 case on June 5, 2005. In its initial Schedule A, the Debtor
listed three items that are related to the Rock Hill Property: (i) the “Headquarters Building,” (ii)
the Pole Barn, and (iii) Nana’s House. Under the heading “Nature of Debtor’s Interest in
Property,” the description for each item stated: “successor-in-interest to [the Development
Authority].” As set forth above, the Headquarters Building is located on Parcel A and both the
Pole Barn and Nana’s House are located on Parcel C. The Debtor’s Schedule A did not include
any mention of Parcel B. Approximately one month after filing its initial schedules, the Debtor
filed an amended Schedule A removing the reference to the Headquarters Building (i.e., Parcel
A), but leaving untouched the descriptions of the Pole Barn and Nana’s House.
On December 2, 2005, this Court confirmed the Debtor’s chapter 11 plan, which became
effective on September 20, 2007. On the effective date, all pre-petition claims and interests
against the Debtor were discharged except as otherwise provided in the plan. The plan vested
certain property of the Debtor—principally cash and causes of action—in a liquidating trust for
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the benefit of creditors. The remainder of the Debtor’s property was vested in the Reorganized
Debtor. According to the Reorganized Debtor, that “remaining property” included the
reversionary interests in Parcels B and C.
On August 1, 2007, this Court entered a final decree in the Debtor’s chapter 11 case. The
case was closed on October 24, 2007.
f. 	Liquidation Proceedings for FIC
On November 9, 2012, the Albany County Supreme Court converted FIC’s rehabilitation
proceeding to a liquidation proceeding styled In the Matter of the Liquidation of Frontier
Insurance Co., Index No. 97/06. Among other things, the liquidation order vested the
Superintendent with “title to all of [FIC]’s property, contracts and rights of action” and directed
the Superintendent to “liquidate [FIC]’s business and affairs in accordance with” the New York
Insurance Law. According to the Superintendent, he has concluded FIC’s operations at the Rock
Hill Property and has taken steps to prepare the property for sale. Notwithstanding, the
Reorganized Debtor continues to use the Pole Barn (located on Parcel C) for the storage of
machinery and equipment, while Nana’s House (also located on Parcel C) continues to be used
as a day care center.
On December 24, 2013, the Reorganized Debtor sent a letter to the Superintendent
(which serves as a proof of claim in the liquidation proceeding) asserting a claim against the
Rock Hill Property. In its claim, the Reorganized Debtor alleged:
In or about 1994, with the consent and approval of the New York State
Department 	of 	Insurance, 	[the 	Debtor] 	donated 	certain 	property 	and
improvements to [FIC], its wholly owned subsidiary, in order to improve [FIC’s]
surplus. Subsequently, [the Debtor] and [FIC] conveyed several parcels of real
property to [the Development Authority] in order to garner the benefit of certain
tax 	abatements 	and 	reduce 	property 	costs. 	At 	the 	time 	of 	the 	foregoing
conveyances, [the Debtor] was the owner of the southerly parcels [i.e., Parcels B
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and C] consisting of a storage barn, day care center, parking lots, and access
roads.
All parcels conveyed to the [Development Authority] were to revert back to [the
Debtor] at the February 2014 termination of the [1999 PILOT Agreement] . . . .
On January 31, 2014, the Superintendent responded to the Reorganized Debtor, stating that,
“based upon a careful review of the [] documents, the [Superintendent] cannot discern any legal
interest in the [Rock Hill Property] that [the Reorganized Debtor] still retains.”
On February 24, 2014, in light of the impending February 28 deadline for the
Development Authority to re-convey the property to someone, the Superintendent filed a petition
in the Albany County Supreme Court to resolve the Reorganized Debtor’s proof of claim and to
direct the Development Authority to convey the property to the Superintendent. On February 25,
2014, the state court entered an order directing the Reorganized Debtor and the Development
Authority to show cause why the relief requested by the Superintendent should not be granted
and set a briefing schedule leading up to a hearing on the merits on May 16, 2014. In the
meantime, the state court “so ordered” a stipulation among the parties that title to the Rock Hill
Property would remain with the Development Authority pending further order of the court.
g. 	Removal to Federal Court
On March 28, 2014, before the proceedings could go forward on the merits in the state
court, the Reorganized Debtor removed the action to the United States District Court for the
Northern District of New York. The Reorganized Debtor then filed counterclaims against the
Superintendent, including a claim for adverse possession of Parcels B and C based upon the
Reorganized Debtor’s alleged open, notorious, hostile and continuous possession of those
parcels..
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On April 28, 2014, the Superintendent filed a motion to remand the action to the Albany
County Supreme Court. In that motion, the Superintendent seeks remand of the action pursuant
to 28 U.S.C. §§ 1334(c)(1) (permissive abstention), 1334(c)(2) (mandatory abstention), 1452(b)
(equitable abstention), and the United States Supreme Court’s holding in Burford v. Sun Oil Co.,
319 U.S. 1424 (1943), which provides for abstention to avoid interference with ongoing state
court proceedings.
h. 	The Motion to Reopen the Chapter 11 Case
In May, the Reorganized Debtor requested that FIGI’s chapter 11 case be reopened so
that it can move in this Court to enforce the provisions of the confirmed chapter 11 plan, which
the Reorganized Debtor contends vests the reversionary interests in Parcels B and C in FIGL.
The Court granted this motion on May 23, 2014. See Order, No. 05-36877, ECF No. 271.
i. 	Motion to Transfer before the Northern District of New York
On June 11, 2014, the Northern District of New York transferred the case to this Court
and denied the Liquidator’s motion to remand without prejudice so that this Court could decide
whether or not to grant the Liquidator’s motion to remand the action back to state court. 	Thus,
the action was transferred to this Court and the motion to remand the action back to state court is
currently pending before the Court.
j. 	Motion to Dismiss and Remand2
The Liquidator makes this motion to remand the case back to the Supreme Court of the
State of New York, County of Albany. The Liquidator argues that this Court should (1)
permissively abstain from hearing this case under 28 U.S.C. § 1334(c)(1) or alternatively, it
should (2) equitably abstain from heaing this case under 28 U.S.C. § 1452(b). The Liquidator
argues that this Court is precluded from hearing this case by the McCarran-Ferguson Act because
2See Mot., No 14-09022, ECF No. 6.
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New York’s regulatory scheme for managing insurer insolvencies makes the Liquidation Court
the exclusive forum for resolution of the issues. Finally, the Liquidator argues that this Court
should abstain under the doctrine set forth in Burford v. Sun Oil Co., 314 U.S. 1424 (1943).
k. 	Opposition3
On September 9, 2014, the Reorganized Debtor filed opposition. The Reorganized
Debtor argues that the Liquidator is attempting to collaterally attack this Court’s Confirmation
Order. The Reorganized Debtor argues that a motion to revoke a confirmation order may only
be made on the basis of fraud within 180 days after that order was entered—that deadline ended
on May 30, 2006 and there are no allegations of fraud. The Reorganized Debtor argues that there
is no basis for abstention under any of the doctrines and asks the Court to deny the Plaintiff’s
motion.
l. 	Reply4
The Liquidator filed a reply to the Debtor’s opposition. In these papers, the Liquidator
argues that the Debtor’s argument rests on the notion that the Debtor owned a reversionary
interest in Parcels B & C when it filed for chapter 11. The Liquidator argues that Debtor did not
own such an interest.
Discussion
At the outset, the Court notes that it views the Reorganized Debtor’s request in a much
different light than has been asserted by the Liquidator. The Court believes that it is being asked
to interpret the Reorganized Debtor’s plan and this Court’s confirmation order in order to make a
determination as to whether or not the property in question was part of the Debtor’s estate and
dealth with in the plan.
3 Opp., No. 14-09022, ECF No. 10.
4 Reply, No. 14-09022, ECF No. 14.
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This Court has jurisidiction to interpret its own order. See In re Tres Hermanos Dairy,
LLC, 2014 WL 176772 (Bankr. D.N.M. Jan. 16, 2014) (citing Travelers Indemnity Company v.
Bailey, 557 U.S. 137(2009)). 	Additionally, this Court retained jurisidiction “to determine and
resolve any matters related to the assumption, assumption and assignment or rejection of any
executory contract or unexpired lease to which the Debtor is a party or with respect to which the
Debtor may be liable, and to hear, determine and, if necessary, liquidate any Claims arising
therefrom.”
The Court need not step on the toes of the state court by making a determination on
whether the various contracts between and among the parties grant a right of reversion to the
Reorhanized Debtor. The Court need only look to the plan and confirmation order to determine
whether the property was included in the plan, whether the Liquidator’s claim was dealth with in
the plan, whether the Liquidator is enjoined from proceeding against the Debtor, whether the
Reorganized Debtor is released from any liability and whether a violation of the discharge has
occurred, as was alleged by the Reorganized Debtor. The Court believes that it is in a better
position than the state court to make such determinations and that doing so would assist, rather
than hinder, the state court. 	If the Court determines that this issue was not covered by the plan,
it will send the matter back to state court so that the issue can be decided under state law. With
this in mind, the Court will now address the Liquidator’s arguments in turn.
a. 	Permissive Abstention under 28 U.S.C. § 1334(c)(1)
When determining whether to exercise discretionary abstention, bankruptcy courts
consider the following factors:
(1) the effect or lack thereof on the efficient administration of the estate if a Court
recommends abstention, (2) the extent to which [non-bankruptcy] law issues
predominate over bankruptcy issues, (3) the difficulty or unsettled nature of the
applicable 	[non-bankruptcy] 	law, 	(4) 	the 	presence 	of 	a 	related 	proceeding
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commenced in state court or other non-bankruptcy court, (5) the jurisdictional
basis, if any, other than 28 U.S.C. § 1334, (6) the degree of relatedness or
remoteness of the proceeding to the main bankruptcy case, (7) the substance
rather than form of an asserted “core” proceeding, (8) the feasibility of severing
[non-bankruptcy] law claims from core bankruptcy matters to allow judgments to
be entered in [non-bankruptcy] court with enforcement left to the bankruptcy
court, (9) the burden of [the bankruptcy court's] docket, (10) the likelihood that
the commencement of the proceeding in a bankruptcy court involves forum
shopping by one of the parties, (11) the existence of a right to a jury trial, and (12)
the presence in the proceeding of non-debtor parties.
In re Portrait Corp. of Am., Inc., 406 B.R. 637, 641-42 (Bankr. S.D.N.Y. 2009). 	Not all of
these factors must be applied in making such a determination. Id. at 642. Although the
bankruptcy court has wide discretion in deciding whether to abstain, the balance should be
“heavily weighted in favor or the exercise of jurisdiction.” In re Portrait Corp. of Am., Inc., 406
B.R. at 642.
Here, the Court has reserved jurisdiction in its confirmation order to determine issues
such as this (factor 5). The Court’s inquiries would focus primarily on bankruptcy law issues—
such as interpretation of the chapter 11 plan and confirmation order as well as whether the
discharge was violated (factors 2 and 3). While there is a pending state court proceeding
pending, some court would necessarily have to interpret this Court’s orders and it is likely that
this Court will have an easier time interpreting its own orders than the state court would. 	While
there is a pending state court proceeding, the Court will not be interpreting state law at this time
(factor 4).
For these reasons, the Court declines to abstain from these proceedings.
b. 	Equitable Remand under 28 U.S.C. § 1452(b)
“[T]he factors for equitable remand are virtually identical to the factors for discretionary
abstention.” See Fried v. Lehman Bros. Real Estate Associates III, L.P., 496 B.R. 706, 712
(S.D.N.Y. 2013) (citing and quoting Certain Underwriters at Lloyd's, London v. ABB Lummus
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Global, Inc., 2004 WL 224505, *8 (S.D.N.Y. Feb. 5, 2004). As such, the court declines to
equitably remand this case for the same reasons.
c. 	McCarran-Ferguson Act
The Liquidator argues that the McCarran-Ferguson Act precludes this Court from hearing
the case and preserves the state court’s jurisdiction and prevents the litigation of claims against
the insurance company from being litigated in federal court. That Act provides in relevant part:
“ [N]o Act of Congress shall be construed to invalidate, impair or supercede any law enacted by
any State for the purpose of regulating the business of insurance, . . . unless such Act
specifically relates to the business of insurance.” See 15 U.S.C. § 1012(b).
Congress enacted the McCarran-Ferguson Act in response to a 1944 Supreme Court
decision in United States v. South–Eastern Underwriters Ass’n, 322 U.S. 533 (1944), which held
that federal antitrust laws applied to insurance companies. Lobbying efforts by both the states
and the industry persuaded Congress that some action should be taken, apparently on the
assumption that application of the antitrust laws would preclude the states from regulating and
taxing insurance and would prohibit ratemaking by the industry. Declaring that “the continued
regulation and taxation by the several States of the business of insurance is in the public
interest,” Congress passed the McCarran–Ferguson Act. See In re Rubin, 160 B.R. 269, 278
(Bankr. S.D.N.Y. 1993) (J. Brosman).
Pursuant to the McCarran–Ferguson Act, federal law, including the Bankruptcy Code,
will be reverse preempted by state insurance law if: (i) the federal statute does not specifically
relate to insurance; (ii) the state law at issue was enacted to regulate the business of insurance;
and (iii) the federal statute at issue would invalidate, impair, or supersede the state law. In re MF
Global Holdings Ltd., 469 B.R. 177, 194 n.17 (Bankr. S.D.N.Y. 2012) (J. Glenn).
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Here, prong one and two are clearly met as the Bankruptcy Code does not specifically
relate to insurance and the state law at issue was enacted to regulate the business of insurance.
Thus, the only remaining question is whether the statute at issue would invalidate, impair, or
supersede the state law. The Supreme Court defined each of these terms in Humana Inc. v.
Forsyth (Humana), 525 U.S. 299, 311 (1999). “Invalidate” ordinarily means “to render
ineffective, generally without providing a replacement rule or law.” Id. at 307. “Supersede”
ordinarily means “to displace (and thus render ineffective) while providing a substitute rule.” Id.
Interpreting the confirmation order will neither invalidate nor supersede the state insurance
liquidation proceeding and law.
The Humana Court, in an attempt to clarify 15 U.S.C. § 1012(b) and the concept of
“impairment,” stated:
“When federal law does not directly conflict with state regulation, and when application of the
federal law would not frustrate any declared state policy or interfere with a State’s administrative
regime, the McCarran–Ferguson Act does not preclude its application.” Id. at 310.
The Liquidator’s only argument is that the state proceeding would be impaired because
the asset would be lost. But if this Court finds that the assets belongs to the Reorganized Debtor,
it would not have been FIC’s asset to liquidate anyway. Moreover, “a federal court’s ordinary
determination of property rights, interpretation of contracts, or interpretation of state statutes
does not “impair” state law, even when a federal court's decision has a financial impact on the
insolvent insurer’s estate. In re First Assured Warranty Corp., 383 B.R. 502, 541 (Bankr. D.
Colo. 2008) (discussing impairment as being broader than whether one or another entity owns
property); see also In re Agway, 357 B.R. 195, 202–05 (Bankr. N.D.N.Y. 2006) (bankruptcy
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court’s jurisdiction over liquidator’s proof of claim against bankruptcy estate did not impair state
insurance liquidation proceeding).
The Court believes that the state court insuance liquidation proceeding will not be
impaired by this Court making a finding regarding the plan and confirmation order. The
administrative regime will not be affected by a finding that this Court’s confirmation order does
or does not preclude FIC from claiming ownership of the real property in question.
d. 	Burford abstention doctrine
The Liquidator asks this Court to abstain from hearing this issue pursuant to a principle
enunciated by the Suprmee Court known as the Burford abstention doctrine. This doctrine
instructs a federal court to abstain, as follows:
“[w]here timely and adequate state-court review is available, a federal court sitting in equity
must decline to interfere with the proceedings or orders of state administrative agencies: (1)
when there are difficult questions of state law bearing on policy problems of substantial public
import whose importance transcends the result in the case then at bar; or (2) where the exercise
of federal review of the question in a case and in similar cases would be disruptive of state
efforts to establish a coherent policy with respect to a matter of substantial public concern.”
There are “three factors to consider in connection with the determination of whether
federal court review would work a disruption of a state’s purpose to establish a coherent public
policy on a matter involving substantial concern to the public.” Liberty Mut. Ins. Co. v. Hurlbut,
585 F.3d 639, 650 (2d Cir. 2009). Those factors are as follows: “(1) the degree of specificity of
the state regulatory scheme; (2) the need to give one or another debatable construction to a state
statute; and (3) whether the subject matter of the litigation is traditionally one of state concern.”
Hachamovitch v. DeBuono, 159 F.3d 687, 697 (2d Cir.1998).
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In its Reply, the Liquidator presents evidence in the form of declarations and emails in an
attempt to show that the Debtor never owned an interest in Parcels B & C at the time of filing
this petition and confirmation of the plan. The Liquidator argues that the Court should abstain
under Burford as proceeding would unnessisarily interfere with FIC’s liquidation proceeding by
wresting from the state court the determination of ownership of a multi-million dollar asset of the
estate.
The Court disagrees with this summation of its role in this proceeding. By exercising
jurisdiction over this case, the Court would not be venturing into an area of state statutory
regulation. Quite the contrary, this Court will simply interpret its own order—it will not make
any determination as to whether or not this real estate should or should not be an asset of FIC or
the Reorganized Debtor. The Court will only decide whether this land was part of the plan and
as such, whether res judicata attaches or whether the FIC is enjoined from bringing its claims
against the Reorganized Debtor. The fact that a federal action may have a financial impact on
the assets of the insolvent insurer's estate does not necessarily indicate a state's liquidation
proceeding is “impaired.” See, e.g., In re Reliance Group Holdings, Inc., 273 B.R. 374, 402
(Bankr. E.D. Pa. 2002) (“While the outcome of this matter may affect the amount of assets in the
[insurer’s] liquidation proceeding [and in the Debtor’s bankruptcy cases], it will not directly
impact the state’s regulation of insurers or the state’s ability to establish rules for the orderly
rehabilitation or liquidation of insolvent insurers”); Sevigny v. Employers Ins. of Wausau, 411
F.3d 24, 29 (1st Cir. 2005) (in the context of Burford abstention, if financial impact on a
insurance liquidation proceeding were a sufficient basis for abstention, a state insurance
commissioner “could invoke Burford in every federal suit between himself as liquidator and any
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third party who had a still-unsettled tort or contract dispute with the now-insolvent insurer,
regardless of its actual disruptive effect upon the liquidation”).
Conclusion
For the foregoing reasons, the Court denies the motion to dismiss this proceeding. The
Reorganized Debtor is directed to submit an order in accordance with this decision.
Dated: Poughkeepsie, New York
October 9, 2014 	/s/ Cecelia G. Morris 	.
. 	CECELIA G. MORRIS
CHIEF UNITED STATES BANKRUPTCY JUDGE
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