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Sycamore Partners Management, L.P. v. Endurance American Insurance Co.

United States District Court, D. Delaware

July 30, 2019

SYCAMORE PARTNERS MANAGEMENT, L.P. F/K/A SYCAMORE PARTNERS MANAGEMENT, L.L.C., SYCAMORE PARTNERS, L.P., AND SYCAMORE PARTNERS A, L.P., Plaintiffs,
v.
ENDURANCE AMERICAN INSURANCE COMPANY, CONTINENTAL CASUALTY COMPANY, ZURICH AMERICAN INSURANCE COMPANY, XL SPECIALTY INSURANCE COMPANY, STARR INDEMENITY & LIABILITY COMPANY, MARKEL AMERICAN INSURANCE COMPANY, ARGONAUT INSURANCE COMPANY, GREAT AMERICAN INSURANCE COMPANY, IRONSHORE INDEMNITY INC., AND EVEREST NATIONAL INSURANCE COMPANY, Defendants.

          David J. Baldwin, Carla M. Jones, Tracey E. Timlin, Potter Anderson & Corroon LLP, Wilmington, DE; John E. Failla, Nathan R. Lander, Alyse Stach, Proskauer Rose LLP, New York, NY - Attorneys for Plaintiffs

          Barry M. Klayman, Cozen O'Connor, Wilmington, DE; Michael R. Davisson, Cozen O'Connor, Los Angeles, CA - Attorneys for Defendant Starr Indemnity & Liability Company

          Elena C. Norman, Young Conaway Stargatt & Taylor, LLP, Wilmington, DE; Michael F. Perlis, Cary J. Economou, Locke Lord LLP, Los Angeles, CA - Attorneys for Defendant Markel American Insurance Company

          MEMORANDUM OPINION

          NOREIKA, U.S. DISTRICT JUDGE.

         Before the Court is Plaintiffs Sycamore Partners Management, L.P. (f/k/a Sycamore Partners Management, L.L.C.), Sycamore Partners, L.P., and Sycamore Partners A, L.P.'s (“Plaintiffs” or “Sycamore”) Motion to Remand to Superior Court of Delaware. (D.I. 6). Sycamore moves pursuant to 28 U.S.C. § 1447(c) and/or 28 U.S.C. § 1334 to remand this action to Superior Court. (Id.). Defendant Starr Indemnity & Liability Company (“Starr”) opposes remand. (D.I. 19). Defendant Markel American Insurance Company (“Markel”) joins Starr's opposition.[1] (D.I. 23). For the reasons set forth below, Sycamore's motion will be granted, and this action will be remanded to the Delaware Superior Court.

         I. BACKGROUND AND PROCEDURAL HISTORY

         Sycamore filed this insurance coverage action in the Delaware Superior Court on September 24, 2018, seeking coverage “for Sycamore's costs in defending against and settling certain claims that were asserted against Sycamore in connection with Sycamore's investment in and transactions involving a portfolio company called Nine West Holdings, Inc.” (“Nine West”). (D.I. 7 at 1). On an annual basis, Sycamore “purchases an insurance program that provides broad ‘claims-made' protection for claims asserted against” it. (D.I. 1-1 ¶ 27). For the period of December 31, 2016 through June 30, 2018, Sycamore purchased ten insurance policies (“the Sycamore Policies”), amounting to $100 million in total coverage. (Id. ¶¶ 27-29). Defendant Endurance American Insurance Company (“Endurance”) issued Sycamore's primary insurance policy, “which provide[d] a coverage limit of $10 million in excess of a $500, 000 retention borne by Sycamore.” (Id. ¶ 28). The nine other Insurer Defendants “each issued a $10 million excess insurance policy that ‘follows-form' to the primary policy” issued by Endurance to meet the $100 million coverage amount.[2] (D.I. 7 at 4 (citing D.I. 1-1 ¶¶ 28-30)).

         In August 2017, Sycamore received a demand letter from “certain creditors of Nine West, alleging that Sycamore had engaged in various wrongful acts in connection with its investment in and transactions involving Nine West and caused damages to Nine West and its creditors as a result.” (D.I. 1-1 ¶ 41). Following the initial demand letter, Nine West's creditors asserted additional claims against Sycamore, “which demanded that Sycamore pay settlement funds to compensate for the alleged damages cause by Sycamore . . . to Nine West and its creditors.” (Id. ¶ 42). On April 6, 2018, Nine West filed a petition for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of New York. (Id. ¶ 43). Following the filing of the bankruptcy petition, “the Nine West bankruptcy estate . . . became empowered to pursue all Claims against Sycamore . . . and to negotiate potential settlements of the Nine West Claims with Sycamore.” (Id.). In September 2018, Sycamore received an additional demand letter from the creditors of Nine West, alleging various “breaches of fiduciary duties and aiding and abetting of breaches of fiduciary duties.” (Id. ¶ 44). In defending itself against the claims asserted by Nine West and its creditors, Sycamore alleges that it has incurred substantial expenses, which it asserts are covered by the Sycamore Policies. (Id. ¶¶ 45).

         On September 24, 2018, Sycamore filed suit in Delaware's Superior Court, asserting three claims against the Insurer Defendants: (1) alleging that Endurance breached its contractual obligations by failing to pay Sycamore for expenses incurred in defending itself against Nine West's claims; (2) seeking a declaratory judgment that the Insurer Defendants were required to pay for expenses incurred by Sycamore in defending itself against Nine West's claims; and (3) seeking a declaratory judgement that the Insurer Defendants were required to “provide coverage to [Sycamore] for any settlement of the Nine West Claims” (collectively, “Insurance Coverage Claims”). (D.I. 7 at 6). On October 17, 2018, Sycamore “reached an agreement, subject to the approval of the Bankruptcy Court, to compromise, settle and resolve the Nine West Claims, for a payment by Sycamore of no less than $96, 000, 000.” (Id.). On October 23, 2018, Starr filed a Notice of Removal, removing this action from Superior Court to this Court. (D.I. 1). In its notice, Starr asserted that this Court “has original jurisdiction over the instant civil action pursuant to 28 U.S.C. § 1334(b), which provides that the United States district courts shall have jurisdiction over all civil proceeding ‘related to cases under title 11 [the United States Bankruptcy Code].'” (Id. ¶ 4 (alteration in original)).

         On November 2, 2018, Sycamore filed the instant motion to remand this action to Superior Court. (D.I. 6). Shortly thereafter, on November 20, 2018, Starr filed a motion to transfer this case to the Southern District of New York[3] (D.I. 16), which Sycamore has opposed (D.I. 26). On November 30, 2018, Starr filed an opposition to Sycamore's motion to remand (D.I. 19), which Markel later joined (D.I. 23). Briefing on the instant motion was completed on December 14, 2018. (D.I. 25). On February 27, 2019, the United States Bankruptcy Court for the Southern District of New York entered an order confirming Nine West's Chapter 11 Plan. See generally In re Nine West Holdings, Inc. et al., No. 1:2018-bk-10947, D.I. 1308 (Bankr. S.D.N.Y. Feb. 27, 2019). The plan went into effect on March 20, 2019. See id., D.I. 1369.

         II. DISCUSSION

         Sycamore argues that the Court should remand this action to Superior Court because the Court does not have “related to” jurisdiction over its Insurance Coverage Claims, and even if it did, the doctrine of mandatory abstention under 28 U.S.C. § 1334(c)(2) requires the Court to abstain from hearing the case.[4] (D.I. 7 at 2). As discussed below, the Court agrees with Sycamore. Starr has not met its burden to establish that “related to” jurisdiction exists over Sycamore's Insurance Coverage Claims, and even if it had, the Court would abstain from hearing the case under 28 U.S.C. § 1334(c)(2).

         A. The Court Does Not Have “Related To” Subject Matter Jurisdiction Over Sycamore's Insurance Coverage Claims

         “[F]ederal courts are courts of limited jurisdiction and have authority to act only where a statute confers it.” Kaufman v. Liberty Mut. Ins. Co., 245 F.2d 918, 919 (3d Cir. 1957); see also Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). The exercise of removal jurisdiction is governed by 28 U.S.C. § 1441(a). The statute is strictly construed, requiring remand to state court if any doubt exists over whether removal was proper. See Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 104 (1941); see also Abels v. State Farm Fire & Cas. Co., 770 F.2d 26, 29 (3d Cir. 1985). A court will remand a removed case “if at anytime before final judgment it appears that the district court lacks subject matter jurisdiction.” 28 U.S.C. § 1447(c). “[T]he party asserting federal jurisdiction in a removal case bears the burden of showing . . . that the case is properly before the federal court.” Frederico v. Home Depot, 507 F.3d 188, 193 (3d Cir. 2007) (citing Samuel-Bassett v. Kia Motors Am., Inc., 357 F.3d 392, 396 (3d Cir. 2004)). Here, Starr asserts that subject matter jurisdiction exists over Sycamore's Insurance Coverage Claims under the “related to” prong of 28 U.S.C. § 1334(b). (D.I. 1 ¶ 4). Section 1334 provides, in pertinent part, that “. . . the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.” 28 U.S.C. § 1334(b) (emphasis added). With respect to “related to” jurisdiction, the Third Circuit has adopted an “any conceivable effect” test, stating:

“[t]he usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy . . . . An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.”

In re W.R. Grace & Co., 591 F.3d 164, 171 (3d Cir. 2009) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)) ...


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