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In re Sullivan International Group, Inc.

United States District Court, S.D. California

October 30, 2019

In Re SULLIVAN INTERNATIONAL GROUP, INC., Debtor.
v.
CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, subscribing to Professional Liability Insurance Policy No. B1216PRW167000, Appellees. CHRISTOPHER R. BARCLAY, Chapter 7 Trustee, Appellant,

          ORDER

          Hon. William Q. Hayes, United States District Court.

         The matter before the Court is the Motion for Withdrawal of Reference (ECF No. 1).

         BACKGROUND

         On March 8, 2019, Plaintiff Christopher R. Barclay, Chapter 7 Trustee, (“Trustee”) initiated this proceeding in the United States Bankruptcy Court for the Southern District of California (“Bankruptcy Court”) by filing a complaint against Defendant Brit UW Limited (“Brit”)[1] for (1) breach of contract and (2) turnover of estate property. (Ex. A to Def.'s Motion for Withdrawal of Reference, ECF No. 1 at 34, 42). Plaintiff Trustee alleges that Defendant Brit breached a professional liability insurance policy by refusing to provide coverage for a claim by Plaintiff Trustee's against 3C Advisors & Associates, Inc. (“3C”) and refusing to pay Plaintiff Trustee the amount due on the 3C Judgment. Id. at 42. Plaintiff Trustee alleges that he is entitled to the turnover of $2, 386, 535.00 under the insurance policy because the sum “is property of the Debtor's bankruptcy estate that is in Defendant [Brit's] possession” and “is matured, payable on demand, or payable on order.” Id. at 43.

         On April 22, 2019, Defendant Brit filed a Motion to Withdraw the Reference of the Adversary Proceeding. (Bankr. Court ECF No. 12). On May 9, 2019, Plaintiff Trustee filed an Opposition to Defendant Brit's Motion to Withdraw the Reference. (Bankr. Court ECF No. 17). On May 16, 2019, Defendant Brit filed a Reply in Support of the Motion to Withdraw the Reference. (Bankr. Court ECF No. 19).

         On May 29, 2019, the Clerk of the Bankruptcy Court referred and transmitted the Motion for Withdrawal of Reference to this Court. (ECF No. 1-2). On June 3, 2019, this Court issued a Minute Order directing any Responses in Opposition to be filed on or before July 8, 2019 and any Replies to be filed on or before July 15, 2019. (ECF No. 2). On July 8, 2019, Plaintiff Trustee filed an updated Response in Opposition. (ECF No. 3). On July 15, 2019, Defendant Brit filed an updated Reply. (ECF No. 4).

         FACTS

         In December 2014, the Debtor Sullivan International Group, Inc. retained 3C as its financial advisor.[2] Fewer than four months later, 3C informed the Debtor that it was unsuccessful in finding potential buyers for the Debtor's business and other sources of capital financing. 3C advised the Debtor to file for protection under Chapter 11 of the Bankruptcy Code. On April 6, 2015, the Debtor commenced a bankruptcy case under Chapter 11. (Bankr. Ct. Proc. No. 1).

         On May 5, 2015, the Debtor filed an ex parte application with the Bankruptcy Court seeking authority to employ 3C as Debtor's financial advisor in its bankruptcy case. (Bankr. Ct. Proc. No. 82). On May 29, 2015, the Bankruptcy Judge issued an Order approving of 3C's employment by Debtor in its bankruptcy case. (Bankr. Ct. Proc. No. 158).

         Fewer than three months later, Debtor's business collapsed. On September 11, 2015, the Bankruptcy Judge issued an Order converting the Debtor's case from Chapter 11 to Chapter 7. (Bankr. Ct. Proc. No. 472). On September 14, 2015, Christopher R. Barclay was appointed as Chapter 7 Trustee of the Debtor. (Bankr. Ct. Proc. No. 481).

         On February 16, 2017, Plaintiff Trustee initiated an adversary proceeding in Bankruptcy Court against 3C alleging claims for professional negligence, breach of fiduciary duty, and unjust enrichment. (Bankr. Ct. Proc. No. 846). At the time Plaintiff Trustee filed the lawsuit, 3C was insured under a policy issued by Defendant Brit for the period of July 27, 2016 to July 27, 2017. (Ex. B, ECF No 1 at 79; Barclay Decl. ¶ 6, ECF No. 1-5 at 2). On February 21, 2017, 3C tendered defense of the lawsuit to Defendant Brit after receipt of Trustee's Summons and Complaint. On March 9, 2017, Defendant Brit acknowledged the claim. On April 11, 2017, Defendant Brit declined coverage for the lawsuit under the insurance policy.

         October 8, 2018, Plaintiff Trustee and 3C entered into a Settlement Agreement, in which 3C stipulated to entry of judgment in the amount of $2, 386, 535. On December 14, 2018, the Bankruptcy Court issued an Order approving the Settlement Agreement and entering judgment in favor of Plaintiff Trustee and against 3C in the amount of $2, 386, 535.00. (Ex. B, ECF No. 1 at 73-74). On January 25, 2019, Defendant Brit requested that Defendant Brit honor the insurance policy and provide coverage for the judgment. On February 26, 2019, Defendant Brit declined insurance coverage for the judgment.

         On March 8, 2019, Plaintiff Trustee initiated this proceeding by filing a complaint against Defendant Brit in Bankruptcy Court. (Ex. A to Def.'s Motion for Withdrawal of Reference, ECF No. 1 at 34). On April 22, 2019, Defendant Brit filed a Motion to Withdraw the Reference. (Bankr. Court ECF No. 12). On May 29, 2019, the Clerk of the Bankruptcy Court referred and transmitted Defendant Brit's Motion for Withdrawal of Reference to this Court. (ECF No. 1-2).

         C ...


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