Two separate courts in the Southern District of New York have recently issued opinions relating to a complicated bankruptcy proceeding following the collapse of MF Global Holdings Ltd. in 2011. The underlying dispute involves MF Global Holdings and MF Global Assigned Assets' ("Plaintiffs") attempts to recover insurance proceeds from the defendants ("Bermuda Insurers") under certain excess errors & omissions policies following a global settlement of MDL litigation in SDNY. In August 2016, the Bankruptcy Court for the Southern District approved the global settlement.
On November 8 2016, the Bermuda Insurers filed an adversary proceeding in the Supreme Court of Bermuda ("the Bermuda action"), obtaining ex parte anti-suit injunctions prohibiting Plaintiffs from prosecuting their insurance claims in the Bankruptcy Court and requiring them to arbitrate such disputes in Bermuda. On November 22—the same day the Bankruptcy Court entered an order to show cause why the Bermuda Insurers should not be held in contempt for filing the Bermuda action—they filed a motion to compel arbitration in the Bankruptcy Court, to which the Plaintiffs were unable to respond because of the Bermuda action's anti-suit injunctions.
On December 21, 2016, the Bankruptcy Court entered a temporary restraining order barring the Bermuda Insurers from enforcing the Bermuda action's anti-suit injunctions. On January 12, 2017, the court granted a preliminary injunction extending the TRO's relief. The Southern District issued an opinion on February 10, 2017 denying the Bermuda Insurers' motion for leave to appeal the TRO, which it filed shortly after the TRO was initially granted. The district court denied the motion seeking interlocutory appeal of the Bankruptcy Court's TRO decision, because the subsequent issuance of the preliminary injunction rendered the appeal moot and because of the lack of a fully developed record.
On January 31, 2017, the Bankruptcy Court issued an opinion finding that the Bermuda Insurers violated the Barton Doctrine by initiating the Bermuda action and ordering them to dismiss that proceeding. The Barton Doctrine provides that suits may not be brought against receivers without leave of the receiver's appointing court. The Bankruptcy Court surveyed case law extending this doctrine to other contexts including, most significantly, bankruptcy proceedings. It held that Plaintiffs were entitled to the protections of the Barton Doctrine by virtue of MF Global Holdings' role as Plan Administrator, and MF Global Assigned Assets' role as a company created to retain assets assigned in satisfaction of debtor claims. The court found the Bermuda action was effectively an attempt by the Bermuda Insurers to delay Plaintiffs' administration of the bankruptcy estate, and as such, ran afoul of the Barton Doctrine. Following the Bankruptcy Court's order on January 23, the Bermuda Insurers dismissed the Bermuda action.
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