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Professional Insurance Management v. Ohio Casualty Group of Insurance Companies

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY


May 25, 2000

IN RE:
PROFESSIONAL INSURANCE MANAGEMENT,
DEBTOR
PROFESSIONAL INSURANCE MANAGEMENT,
PLAINTIFF-APPELLEE,
V.
OHIO CASUALTY GROUP OF INSURANCE COMPANIES, ET AL., AND HARLEYSVILLE MUTUAL INSURANCE COMPANY, ET AL,
DEFENDANTS-APPELLANTS.

[Case No. 94-13602] [Adversary No. 94-1325] [Adversary No. 96-1410]

The opinion of the court was delivered by: Jerome B. Simandle U.S. District Judge

HONORABLE JEROME B. SIMANDLE

ON APPEAL FROM AN ORDER OF THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEW JERSEY

Sat Below: Honorable Judith H. Wizmur

MEMORANDUM OPINION

SIMANDLE, District Judge

I. PROCEDURAL HISTORY

In the instant matter, the Court is called upon to decide whether it will exercise jurisdiction to revoke a decision it rendered on March 2, 1999 ordering the Bankruptcy Court for the District of New Jersey to defer to the expertise of the New Jersey Commissioner of Banking and Insurance on particular matters. For the reasons stated herein, the Court will grant its own motion to withdraw adversary numbers 94-1325 and 96-1410, which require interpretation of the Fair Automobile Insurance Reform Act of 1990 ("FAIRA"), N.J.S.A. 17:33B-1, et seq., in Bankruptcy Case number 94-13602 from the Bankruptcy Court. The Court will thus exercise jurisdiction to decide a motion by Debtor Professional Insurance Management ("PIM") asking this Court to vacate this Court's Opinion and Order of March 2, 1999. The substance of that motion will be addressed in a separate opinion.

In a March 2, 1999 Opinion and Order, this Court reviewed a May 28, 1998 Oral Opinion and June 22, 1998 Order of the Bankruptcy Court, the Honorable Judith H. Wizmur presiding, concerning whether the Bankruptcy Court had to defer to the New Jersey Commissioner of Banking and Insurance ("the Commissioner") with regard to interpretation of provisions of FAIRA that is necessary to determination of common law claims before the Bankruptcy Court between PIM and defendants Ohio Casualty Group of Insurance Companies ("Ohio Casualty") and Harleysville Mutual Insurance Company ("Harleysville"). The Bankruptcy Court had held that the Commissioner did not have exclusive jurisdiction over contract disputes between insurance companies and their agents, that PIM was not required to exhaust administrative remedies before filing breach of contract and breach of the covenant of good faith and fair dealing claims in the Bankruptcy Court, and that the Commissioner does not have primary jurisdiction over the FAIRA issues. Accordingly, the Bankruptcy Court denied defendants' motion to dismiss.

On appeal, this Court agreed with the Bankruptcy Court that the Commissioner did not have exclusive jurisdiction, that PIM need not exhaust administrative remedies, and that the case should not be dismissed. However, this Court, under the circumstances existing at that time, determined that the Bankruptcy Court should have deferred to the Commissioner's primary jurisdiction over the FAIRA issues. Accordingly, this Court affirmed the Bankruptcy Court's June 22, 1998 Order denying the motion to dismiss and remanded to the Bankruptcy Court for further proceedings consistent with that Opinion and Order.

On remand, in an order dated April 14, 1999, captioned in both Adversary Nos. 94-1325 and 96-1410 (Mandel Certif. Ex. 3), the Bankruptcy Court ordered PIM to file a declaratory judgment action with the Department of Banking and Insurance under the Administrative Procedure Act pursuant to N.J.S.A. 52:14B-8 et seq. Deputy Attorney General Heck, representing the Commissioner, participated in the telephone remand conference at which the Bankruptcy Court determined the appropriate mechanism for deferring to the Commissioner's primary jurisdiction. On June 17, 1999, PIM filed that Declaratory Judgment Complaint with the Commissioner. The Complaint, which was 64 pages long (id. at Ex. 4), names as defendants The Ohio Casualty Group of Insurance Companies, The Harleysville Group of Insurance Companies, and The Hanover Insurance Group of Insurance Companies. The Complaint was divided into three sections, first asking the Commissioner to decline jurisdiction, second asking the Commissioner to interpret FAIRA statutes and regulations, and third requesting the Commissioner to apply the specific alleged violations of the FAIRA statutes and regulations to the issues pending at bar.

The Commissioner acknowledged receipt of the Complaint in two separate letters from Jean M. Bickal, Acting Assistant Commissioner of Legislative and Regulatory Affairs, dated July 2, 1999 (id. at Ex. 5) and July 14, 1999 (id. at Ex. 6), both of which acknowledged receipt of the Complaint and notified that parties that the Department would be in touch with the parties shortly. Some question arose as to whether the insurance carriers should be filing a response to the Complaint for Declaratory Judgment, clarified in a letter dated July 14, 1999 from Rachel Hager, Esquire, attorney for defendant Hanover Insurance Group of Insurance ("Hanover") (id. at Ex. 7) to the Deputy Attorney General that no answer need be filed. Since July 14, 1999, there has been no communication from the Department of Banking and Insurance concerning the pending administrative Complaint for Declaratory Relief, whether to set up an administrative schedule or otherwise. The only action at the administrative level has been the filing of a response and counterclaim to the Complaint by Ohio Casualty arising from the same FAIRA subject matter.

On January 27, 2000, PIM filed a motion to vacate this Court's March 2, 1999 Opinion and Order. Deputy Attorney General Heck was among counsel notified of the pending motion when it was filed and served. The Commissioner has contacted neither PIM nor its counsel, but the Commissioner, through Deputy Attorney General Thalia Cosmos, contacted this Court expressing interest on the motion, apparently intending to seek leave to intervene. However, the Commissioner neither filed a written request for leave to intervene or any other argument with regard to the motion, despite the fact that this Court included Ms. Cosmos among the addressees of a February 22, 2000 letter which stated that the Court was awaiting a formal written request for leave to intervene.

II. JURISDICTION

Defendants Ohio Casualty, Hanover, and Harleysville contend that this Court lacks jurisdiction to hear PIM's motion because, in accordance with Fed. R. Bankr. P. 8016, this matter was transmitted back to the Bankruptcy Court after this Court rendered its order on the appeal of the Bankruptcy Court's June 22, 1998 order. At that time, jurisdiction returned to the Bankruptcy Court, and thus, defendants argue, this Court lacks jurisdiction to hear the Debtor's motion. PIM contends that it invokes this Court's jurisdiction in three discrete areas:

First, this Court has general jurisdiction over bankruptcy matters under 28 U.S.C. § 1334. Second, this Court has inherent judicial powers to vacate, modify, or amend its own orders in the interest of justice. Third, the inaction of the Commissioner of Banking and Insurance the matter was "referred" to it by orders of this Court and the Bankruptcy Court is "new evidence" allowing PIM to invoke Fed. R. Civ. P. 60(b)(2) and constitutes "exceptional circumstances," to invoke Fed. R. Civ. P. 60(b)(6). Contrary to Ohio's assertion, PIM's motion does not seek to withdraw the reference of the adversary proceeding to the Bankruptcy Court. (PIM's Reply Br. at 2.) The Court will address these in reverse order.

Federal Rule of Civil Procedure 60(b)(2) allows a court to relieve a party from a final judgment, order, or proceeding upon newly discovered evidence. Rule 60(b)(6) allows a court to relieve a party from its order for "any other reason justifying relief from the operation of the judgment." Those Rules are tools of operation adopted by the Supreme Court of the United States pursuant to Congressional authority. They are not, however, jurisdictional bases, which instead are set forth in the 28th chapter of the United States Code in accordance with constitutional parameters. Therefore, if this Court has jurisdiction, it might be able to use one of these tools as a vehicle for exercising that jurisdiction.

Likewise, although this Court does have certain inherent powers, those are powers to be exercised only when the Court has jurisdiction. In Eash v. Riggins Trucking, 757 F.2d 557, 562-64 (3d Cir. 1985) (en banc), the Third Circuit described the district courts' three general categories of inherent powers. The first type, the Third Circuit explained,

stems from the fact that once Congress has created lower federal courts and demarcated their jurisdiction, the courts are vested with judicial powers pursuant to Article III. This use of inherent power, which might be termed irreducible inherent authority, encompasses an extremely narrow range of authority involving activity so fundamental to the essence of a court as constitutional tribunal that to divest the court of absolute command within this sphere is really to render practically meaningless the terms "court" and "judicial power." Id. at 562.

The second category "encompasses those powers sometimes said to arise from the nature of the court...but more often thought to be the powers `necessary to the exercise of all others.'" (Id. (quoting Roadway Express v. Piper, 447 U.S. 752, 764 (1980).) This category includes powers "implied from strict functional necessity," such as the contempt sanction. Id. at 563. The third category, "implicates powers necessary only in the practical sense of being useful." Id. This includes the district courts' powers to do things such as supply themselves with "auditors," instruments, and other persons helpful in the performance of judicial duties. Id.

PIM contends that this Court has jurisdiction under either the second or third categories. PIM avers that the withdrawal of the reference would be reasonably useful to achieve justice, in accordance with the third category of inherent powers. The third category, however, encapsulates judicial use of persons, tools, and instruments when the Court is already exercising its jurisdiction. That category does not allow the Court to use tools to achieve justice when the Court lacks a jurisdictional basis for exercising its power.

PIM also argues that the reference to the Commissioner fell under the second category and that, since the Commissioner has failed to exercise the primary jurisdiction, the Court can change its order to have the case proceed in an orderly fashion. This second category may give a district court power to issue contempt or other sanctions to ensure that its orders are being followed, even if the Court has issued a final judgment that technically relieves it of jurisdiction. However, in the instant case, no one has disobeyed this Court's orders. This Court did not, and could not, order the Commissioner to exercise primary jurisdiction. This Court did not order the parties to take any action. To the contrary, it was the Bankruptcy Court that ordered PIM to file a declaratory judgment action before the Commissioner, and PIM followed the Bankruptcy Court's dictates. The only thing this Court did was order the Bankruptcy Court to defer to the Commissioner's primary jurisdiction. The Bankruptcy Court followed this Court's Order. Therefore, there is no basis for this Court to exercise its inherent power.

Finally, PIM contends that this Court should exercise its general jurisdiction over bankruptcy matters under 28 U.S.C. § 1334. This Court does have general jurisdiction over bankruptcy matters pursuant to that section. However, all bankruptcy cases and proceedings are referred in omnibus fashion by the District Courts to the bankruptcy judges of the district pursuant to 28 U.S.C. § 157(a). Specifically, this matter is before the Bankruptcy Court, and though this Court exercised appellate jurisdiction over the matter in this Court's March 2, 1999 Opinion and Order, this Court returned that jurisdiction to the Bankruptcy Court.

However, 28 U.S.C. § 157(d) provides a mechanism for the withdrawal of a reference to the Bankruptcy Court: "The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown...." Id. Thus, if this Court finds that good cause exists, this Court could withdraw part of Adversary Numbers 94-1325 and 96-1410 from the Bankruptcy Court, and exercise this Court's jurisdiction to decide PIM's motion to vacate the Court's March 2, 1999 Opinion and Order.

III. WITHDRAWAL OF THE REFERENCE

Defendants complain that if this motion is viewed as one for withdrawal of the reference to the Bankruptcy Court, it should be dismissed for failure to comply with Federal Rule of Bankruptcy Procedure 5005(a). That Rule provides that motions in bankruptcy cases shall be filed with the clerk of the bankruptcy court in the district in which the bankruptcy court sits. Id. Fed. R. Bankr. P. 5011 explains that the motion for withdrawal shall be heard by a district judge.

This Court will not dismiss the motion, however, for two reasons. First, PIM has not moved for withdrawal of reference from the Bankruptcy Court; PIM has moved for this Court to vacate one of this Court's earlier orders. Recognizing that this Court could not consider PIM's motion without withdrawing the reference from the Bankruptcy Court, however, this Court is considering withdrawal of the reference in accordance with 28 U.S.C. § 157(d). As the motion is the Court's own, rather than that of PIM, PIM committed no error in not filing its motion in the Bankruptcy Court. Second, even if the motion was PIM's own motion, the Rules provide some flexibility. Rule 5005(c) sets forth that "[a] paper intended to be filed with the clerk but erroneously delivered to ... a district judge...shall, after the dated of its receipt has been noted thereon, be transmitted forthwith to the clerk of the bankruptcy court.... In the interests of justice, the court may order that a paper erroneously delivered shall be deemed filed with the clerk...as of the date of its original delivery." See also Resolution Trust Corp. V. Overland Park Financial Corp., 182 B.R. 865 (D. Kan. 1995) (considering merits of motion to withdraw, despite fact that motion was not properly filed with clerk of bankruptcy court, in interest of judicial economy). Moreover, each interested party has been served with the present motion and has addressed the applicability of § 157(d) regarding withdrawal of the reference.

This Court now turns to the issue of whether good cause exists to withdraw the reference of those parts of Adversary Numbers 94-1325 and 96-1410 in Bankruptcy Case Number 94-13602 from the Bankruptcy Court. This Court finds that good cause does exist.

In In re Orion Pictures Corp., 4 F.3d 1095 (2d Cir. 1993), cert. dismissed, 511 U.S. 1026 (1994), the Second Circuit Court of Appeals listed a number of factors to be considered in evaluating whether there is "cause" for withdrawal of the reference. These include whether the claim or proceeding is core or non-core, whether it is legal or equitable, and considerations of efficiency, prevention of forum shopping, and uniformity in the administration of bankruptcy law." Id. at 1095. That decision also quoted from In re Kenai Corp., 136 B.R. 59, 61 (S.D.N.Y. 1992), in which the District Court for the Souther District of New York listed six factors in determining whether "cause" exists: "(1) judicial economy, (2) uniform bankruptcy administration, (3) reduction of forum shopping, (4) economical use of debtor's and creditors['] resources, (5) expediting the bankruptcy process, and (6) the presence of a jury demand." Id.

28 U.S.C. § 157(d) gives this Court permission to withdraw the reference of whole or part of a case or adversary proceeding. It is Adversary Proceeding Numbers 94-1325 and 96-1410 that concern these FAIRA issues. Moreover, this Court would only withdraw the reference for the purposes of deciding the motion to vacate this Court's March 2, 1999 Opinion and Order, and assuring compliance with today's Order, at which point this Court would re-refer these adversary proceedings to the Bankruptcy Court. Therefore, considerations of whether the matter is core or non-core and the presence (or lack of presence) of a jury demand do not come into play.

Focusing on efficiency, judicial economy, and economical use of the parties' resources, there is cause for withdrawal of the reference of parts of these adversary proceedings for the purposes of deciding PIM's motion. If this Court declined to exercise jurisdiction over PIM's motion, the result would be that PIM files a motion before the Bankruptcy Court asking the Bankruptcy Court to vacate its earlier order which directed Ohio Casualty to file a declaratory judgment action with the Commissioner. If the Bankruptcy Court denied that motion, being bound by this court's prior Order of March 2, 1999, FAIRA issues between these adversaries would remain before the Commissioner. If the Bankruptcy Court granted the motion, there is no doubt that these defendants would again appeal that order as well. This Court would then address, on appeal, the very same arguments that PIM now asks the Court to address. From the standpoint of judicial economy and efficiency and preventing further waste of the parties' resources, it makes good sense for this Court to use 28 U.S.C. § 157(d) to withdraw the reference from the Bankruptcy Court in order to address the merits of PIM's motion now, rather than later, as appears to be inevitable.

For the foregoing reasons, upon its own motion pursuant to 28 U.S.C. § 157(d), this Court will withdraw the reference to the Bankruptcy Court of adversary proceedings numbered 94-1325 and 96-1410.

IV. CONCLUSION

This Court concludes that it has jurisdiction to determine the merits of the debtor's motion to reconsider this Court's Order of March 2, 1999, because this Court finds that it is appropriate to withdraw the reference of these matters from the Bankruptcy Court pursuant to 28 U.S.C. § 157(d). The debtor's motion will be addressed in a separate Opinion. The accompanying Order for Withdrawal of Reference is entered.

ORDER

This matter having come before the Court upon its own motion, pursuant to 28 U.S.C. § 157(d), to withdraw the reference of Adversary Nos. 94- 1325 and 96-1410 within Bankruptcy Case No. 94-13602 from the Bankruptcy Court for the District of New Jersey, the Honorable Judith H. Wizmur presiding; and the Court finding, in accordance with 28 U.S.C. § 157(d), that there is cause for withdrawal of the reference for the purpose of reaching a motion by Debtor to vacate this Court's March 2, 1999 Order; and for the reasons expressed in a Memorandum Opinion of today's date;

IT IS this 25th day of May, 2000 hereby

ORDERED that the reference of Adversary Nos. 94-1325 and 96-1410 within Bankruptcy Case No. 94-13602 from the Bankruptcy Court for the District of New Jersey, the Honorable Judith H. Wizmur presiding, be, and hereby is, WITHDRAWN.

The Clerk of this Court is directed to deliver a true copy of this Memorandum Opinion and Order to the Clerk of the Bankruptcy Court for the District of New Jersey.

JEROME B. SIMANDLE U.S. District Judge

20000525

© 2000 VersusLaw Inc.



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