United States District Court, D. Delaware
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,
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.
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
M. Klayman, Cozen O'Connor, Wilmington, DE; Michael R.
Davisson, Cozen O'Connor, Los Angeles, CA - Attorneys for
Defendant Starr Indemnity & Liability Company
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
NOREIKA, U.S. DISTRICT JUDGE.
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. (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.
BACKGROUND AND PROCEDURAL HISTORY
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. (D.I. 7 at 4 (citing D.I. 1-1 ¶¶
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).
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
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 (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.
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. (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).
The Court Does Not Have “Related To” Subject
Matter Jurisdiction Over Sycamore's Insurance
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,
“[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)) ...