Reply re Motion for Stay Pending Resolution of Motion to ...omnimgt.com/CMSVol2/pub_47282/726736_92.pdf · In response to USA Gymnastics’ Objection to Motion for Stay of the Adversary

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF INDIANA

INDIANAPOLIS DIVISION

In re:

) )

Chapter 11

) USA GYMNASTICS, Debtor.

) ) )

Case No. 18-09108-RLM-11

) USA GYMNASTICS, Plaintiff, v. ACE AMERICAN INSURANCE COMPANY f/k/a CIGNA INSURANCE COMPANY, et al., Defendants.

) ) ) ) ) ) ) ) ) )

Adv. Case No. 19-50012

)

REPLY TO USA GYMNASTICS’ OBJECTION TO MOTION FOR STAY OF THE ADVERSARY PROCEEDING

In response to USA Gymnastics’ Objection to Motion for Stay of the Adversary

Proceeding (Dkt. No. 75) (the “Objection”), and in further support of their Stay Motion,

Defendants,1 through undersigned counsel, state as follows:

BACKGROUND AND SUMMARY OF ARGUMENT

On March 5, 2019, Defendants filed a Motion to Withdraw Reference, asking the

District Court to withdraw the Adversary Proceeding from the Bankruptcy Court in an effort to

expedite the resolution of the insurance coverage dispute between USA Gymnastics (“USAG”)

and Defendants. Defendants simultaneously filed their Stay Motion, requesting that this Court

1 Capitalized terms used herein shall have the meaning ascribed to such terms in Defendants’ Stay Motion (Dkt. No. 38). “Defendants” originally included American International Group, Inc., which has since been dismissed from this Adversary Proceeding.

Case 19-50012 Doc 92 Filed 04/02/19 EOD 04/02/19 15:52:02 Pg 1 of 22

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stay the Adversary Proceeding pending a ruling by the District Court on the Motion to Withdraw

Reference. This Court should grant the Stay Motion because: (1) it is highly likely that

Defendants will prevail on the merits of the Motion to Withdraw Reference in the District Court;

(2) Defendants will suffer irreparable harm if the stay is denied; (3) no parties will be

substantially harmed by a stay while the District Court considers the Motion to Withdraw

Reference; and (4) the public interest will be served by granting the stay. See In re New Energy

Corp., No. 13-CV-205, 2013 WL 1192664, at *6 (N.D. Ind. Mar. 22, 2013); Packard Elevator v.

I.C.C., 782 F.2d 112, 115 (8th Cir. 1986).

USAG argues in its Objection that Defendants “seek to halt this process to the

detriment of both USAG and the survivors” (Dkt. No. 75, at 2), even though USAG itself

needlessly delayed the resolution of these issues by many months by unilaterally filing a notice

staying its prior District Court complaint, resulting in the administrative closure of that case, and

by waiting to refile its Adversary Complaint in this Court until two months after it sought

bankruptcy protection. Although USAG now concedes that the claims raised in its Adversary

Complaint are all non-core (having pleaded the opposite in the Adversary Complaint), it argues

that “the mere fact that a proceeding is non-core does not necessitate withdrawal.” Dkt. No. 75,

at 3. While this statement is facially true, it does not lead to the outcome urged by USAG in this

case,2 and pointedly ignores case law in this jurisdiction holding that “whether the proceeding is

core or non-core is the most important factor when deciding whether to withdraw the reference.”

Wellman Thermal Sys. Corp. v. Columbia Casualty Co., No. 1:05-cv-1191, 2005 WL 4880619,

at *3 (S.D. Ind. Oct. 5, 2005).

2 USAG acknowledges that “the permissive withdrawal analysis turns on the specific facts and circumstances of each case, not on per se rules.” Objection, Dkt. No. 75, at 5.


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Defendants acknowledge that it is not uncommon for bankruptcy courts to retain

jurisdiction in run-of-the-mill adversary proceedings that implicate bankruptcy concepts or that

can be quickly and efficiently resolved. This, however, is not such a case. This case involves

complex issues of state insurance law, the resolution of which will not require the application of

the Bankruptcy Code. Nor are the issues to be resolved “deeply entangled in the underlying

bankruptcy proceedings” as claimed by USAG. See Objection, Dkt. No. 75, at 4. To the

contrary, no bankruptcy issues are implicated at all. Rather, USAG’s Adversary Complaint asks

this Court to make findings regarding the extent of USAG’s insurance coverage for more than

one hundred claims, estimated by USAG as having “potential impact” of “between $75 million

and $150 million.”3

USAG acknowledges the complexity of the issues to be decided in this Adversary

Proceeding, conceding that there are “substantial and complex issues that the [court presiding

over this case] will have to resolve for each insurance policy and each Defendant involved in this

Adversary Proceeding.” See Objection to Motion to Withdraw Reference, Dkt. No. 76, at 5. In

order to resolve the Adversary Complaint, a court will be required to determine whether

insurance coverage exists under fifty-six (56) separate policies issued by nine (9) different

insurance companies spanning four (4) decades. The types of policies at issue include

commercial general liability, excess liability, directors and officers liability, employment

practices liability and fiduciary liability policies. The Adversary Complaint seeks rulings, inter

alia, regarding the:

a. controversy regarding defense and indemnity obligations for these various claims under each policy;

3 Declaration of James Scott Shollenbarger in Support of Chapter 11 Petition and Requests for First Day Relief, Dkt. No. 8 ¶ 16 (filed Dec. 5, 2018).


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b. controversy regarding which policies respond to which claims;

c. controversy regarding limits under each policy as it relates to the number of “occurrences”;

d. controversy regarding allocation of damages over multiple years of coverage with multiple “occurrences”; and

e. controversy regarding the [Defendants’] rights and obligations to settle claims in good faith when policy exhaustion may be at issue.

Adv. Compl. ¶ 36. Moreover, with respect to at least one of the Defendants, USAG has not

established the existence of any applicable policy.4 Thus, a court will also have to analyze

missing policy issues in addition to the aforementioned coverage issues. The Adversary

Complaint also asks this Court to determine whether Defendants committed pre-petition

breaches of all 56 of USAG’s pre-petition insurance policies. See Adv. Compl. at 11.

Defendants are entitled to a jury trial on some or all of these issues, and will not consent to a jury

trial in the Bankruptcy Court, rendering transfer to the District Court inevitable. See S.D. Ind.

Local Bankr. R. B-9015-1(c) (“Unless within thirty (30) days after the demand for jury trial is

filed the other parties to the proceeding file a consent, the Bankruptcy Judge shall request that

the District Court withdraw the reference of the matter.”) (emphasis added).

Principles of judicial economy weigh strongly in favor of both immediate

withdrawal of the reference of the entire Adversary Proceeding and a stay of this Adversary

Proceeding pending the District Court’s ruling on the Motion to Withdraw Reference. The cases

cited by USAG in support of its “judicial efficiency” argument undercut its own arguments.

4 Without identifying any issued policy, USAG has pleaded that “AIG and/or American Home and/or one of AIG’s subsidiaries or affiliates sold liability policies that may provide coverage to USAG. AIG and/or American Home and/or one of AIG’s subsidiaries or affiliates may have sold other applicable liability policies to USAG, which will be added to the Master Claims and Policies List.” Adv. Compl. ¶ 33 (emphasis added).


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Unlike in Gecker v. Marathon Fin. Ins. Co., 391 B.R. 613 (N.D. Ill. 2008), this Court has not

“gained substantial familiarity with the parties, their counsel, and the background issues of the

case,” at least insofar as the insurance coverage issues are concerned. Therefore, the question is

whether the Bankruptcy Court should proceed to do so when the District Court would then be

required to do so again afterwards. Given the complexity and sheer number of the insurance

issues that a court will need to decide, it will be much more efficient to have these issues decided

only once, in the District Court. Any judgment issued by this Court in this Adversary

Proceeding would need to be reviewed de novo by the District Court, duplicating judicial

resources that need only be expended once. See 28 U.S.C. § 158(a). Transfer of this adversary

proceeding to the District Court at this early stage of the litigation will enable the District Court

to become familiar with the parties, the dozens of potentially applicable insurance policies, the

different types of coverage, and the nature of the underlying claims—knowledge that will be

invaluable when it comes time to rule upon dispositive motions or to conduct a jury trial or trials

of the various disputes between USAG and Defendants.

For this Court to dedicate any time and effort to this massive non-core litigation

when the District Court may withdraw the reference of the claims in the near future would be a

significant hardship on the Court and potentially a tremendous waste of its resources. By staying

this Adversary Proceeding now, pending the District Court’s resolution of the Motion to

Withdraw Reference, this Court can prevent the wasteful, time-consuming, and expensive

duplication of effort that will almost certainly otherwise be required.

ARGUMENT

Factors to be considered by the Court when considering the Stay Motion include

whether: (1) the movant is likely to prevail on the merits in the District Court; (2) the movant

will suffer irreparable harm if the stay is denied; (3) the other parties will not be substantially


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harmed by the stay; and (4) the public interest will be served by granting the stay. See In re New

Energy Corp., No. 13-CV-205, 2013 WL 1192664, at *6 (N.D. Ind. Mar. 22, 2013); Packard

Elevator v. I.C.C., 782 F.2d 112, 115 (8th Cir. 1986).5 In this case, the factors weigh decidedly

in favor of granting the Stay Motion.

I. Likelihood of Success on the Merits of the Motion to Withdraw Reference

The parties agree that “permissive withdrawal is the exception, rather than the

rule.” Gecker v. Marathon Fin. Ins. Co., Inc., 391 B.R. 613, 614 (N.D. Ill. 2008) (citing In re K

& R Express Sys., Inc., 382 B.R. 443, 446 (N.D. Ill. 2007)). USAG, however, misconstrues the

Supreme Court’s ruling in Stern v. Marshall, 564 U.S. 462, 502 (2011), when it claims that the

Supreme Court held that “under the ‘division of labor’ envisioned by the Bankruptcy Code,

bankruptcy courts will hear most adversary proceedings and contested matters in the first

instance, even those on which they may not issue final judgments.” See Objection, Dkt. No. 75,

at 3. Rather, based on the unique circumstances of each case, the District Court may, on its own

initiative or on timely motion of any of the involved parties, withdraw the reference of a non-

core proceeding to the Bankruptcy Court in whole or in part “on timely motion of any party, for

cause shown.” Stern v. Marshall, 564 U.S. 462, 515 (2011) (citing 28 U.S.C. § 157(d)); Gecker,

391 B.R. at 614 (citing 28 U.S.C. § 157(d)). See also Objection, Dkt. No. 75, at 5 (“In short, the

5 “These factors mirror the factors to be considered in ruling on an application for preliminary injunction[.]” In re Forty-Eight Insulations, Inc., 115 F.3d 1294, 1300 (1997). There is Seventh Circuit precedent suggesting that, in the case of preliminary injunctions, all four factors should be considered but the plaintiff need not prevail on all four. See, e.g., Reinders Bros. v. Rain Bird Eastern Sales Corp., 627 F.2d 44, 49 (7th Cir. 1980). But see Shaffer v. Globe Protection, Inc., 721 F.2d 1121, 1123 (7th Cir.1983) (suggesting that all four elements must be proven); and Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380 (7th Cir. 1984) (holding that the first two factors must be proven and, once they are, the court then balances the relative harms considering all four factors using a "sliding scale" approach).


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permissive withdrawal analysis turns on the specific facts and circumstances of each case, not on

per se rules.”).

While 28 U.S.C. § 157(d) does not define “cause” for purposes of permissive

withdrawal, courts consider multiple factors, “including whether the claim or proceeding is core

or non-core, considerations of judicial economy, convenience, the particular court’s knowledge

of the facts, promoting the uniformity and efficiency of bankruptcy administration, reduction of

forum shopping and confusion, conservation of debtor and creditor resources, and whether the

parties request a jury trial.” Gecker, 391 B.R. at 615 (citations omitted). In this case, all of the

factors weigh in favor of withdrawing the reference of this Adversary Proceeding.

A. The Non-Core Nature of the Claims is the Most Significant Factor in the Withdrawal Analysis and Favors Withdrawal of the Reference.

In its Objection, USAG concedes that this Adversary Proceeding deals with non-

core “pre-petition breach of contract claims” as to which Defendants may assert a jury demand.

See Objection, Dkt. No. 75, at 4. While this may not itself mandate withdrawal of the reference,

“whether the proceeding is core or noncore is the most important factor when deciding whether

the withdraw the reference.” Wellman Thermal Sys. Corp. v. Columbia Casualty Co., No. 1:05-

cv-1191, 2005 WL 4880619, at *3 (S.D. Ind. Oct. 5, 2005) (“Wellman”). See also Gecker, 391

B.R. at 615 (finding that the non-core nature of at least four of the claims was “the most

significant factor” weighing in favor of withdrawing the reference); HA 2003, Inc. v. Fed. Ins.

Co. (In re HA 2003, Inc.), No. 03 C 9008, 2004 WL 609799, at *2 (N.D. Ill. Mar. 24, 2004) (“At

least one court in this district has held that the most important of the factors to consider in

determining whether permissive withdrawal is appropriate is whether the adversary proceeding

sought to be withdrawn is core or non-core.”). Determining whether a proceeding is core or non-

core may be seen as a shorthand for the analysis of efficiency, uniformity, and judicial economy


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concerns. Levin v. FDIC, No. 1:11-cv-704, 2012 WL 177392 (S.D. Ind. Jan. 19, 2012). See also

STC, Inc. v. Global Traffic Technologies, LLC, No. 15-cv-0037, 2015 WL 1042431, at*4 (S.D.

Ill. Mar. 6, 2015) (“A district court faced with a motion to withdraw ‘should first evaluate

whether the claim is core or non-core, since it is upon this issue that questions of efficiency and

uniformity will turn.’”) (quoting In re Orion Pictures Corp., 4 F.3d 1095 (2d Cir. 1993)).

As USAG and the Defendants agree that this Adversary Proceeding is entirely

non-core, the most important factor clearly weighs in favor of immediate withdrawal of the

reference, and thus Defendants are likely to prevail on the Motion to Withdraw Reference. The

only question is whether the remaining factors in the permissive withdrawal analysis tilt the scale

the other way. As set forth below, they do not.

In its Objection, USAG notably fails to cite critical and dispositive precedent in

this district that demonstrates the strong likelihood that the District Court will grant the Motion

to Withdraw Reference. In Wellman, 2005 WL 4880619, at *3 (S.D. Ind. Oct. 5, 2005), the

District Court that will rule on Defendants’ Motion to Withdraw Reference granted a motion to

withdraw the reference filed by a debtor’s insurers under analogous circumstances. In Wellman,

the debtor filed an adversary proceeding complaint against three of its insurers, seeking a

declaratory judgment that they were obligated to defend it against claims for environmental

problems allegedly caused by the debtor, to otherwise reimburse the debtor for the costs of the

defense, and to indemnify the debtor for environmental liability claims asserted against it. 2005

WL 4880619, at *1. The debtor also sought an award of damages for its costs in connection with

the environmental investigation and cleanup at the site. Id. The District Court noted that the

claims were non-core, that the Bankruptcy Code was not the source of the debtor’s rights or

remedies against the defendant insurers, and describing the damages claim as “a creature of state


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breach of contract law that could be pursued as an ordinary breach of contract action if [the

debtor] were not in bankruptcy.” Id. The District Court ruled that the right to a jury trial alone

was sufficient cause to withdraw the reference to the bankruptcy court. 2005 WL 4880619, at *3

(citing Matter of Grabill Corp., 967 F.2d 1152, 1156 (7th Cir.1992); and 1 Collier on

Bankruptcy § 3.04[a][b] (listing right to a jury trial among reasons for withdrawal of reference)).

In granting the defendant insurers’ motion to withdraw the reference of the

adversary proceeding, the District Court in Wellman specifically overruled the objections of the

debtor that it was not yet the proper stage of the litigation to withdraw the reference. The

District Court explained:

The Defendants have demanded a jury trial and assert that they will not consent to any final orders or judgment by the bankruptcy court. Wellman responds that the case is not yet ready for trial, so withdrawal of reference at this time would be premature. Though insurance coverage cases sometimes are decided at the summary judgment stage and the interpretation of an insurance policy clearly is a legal question for the court, it does appear that in this case there may be genuine issues of fact necessitating trial. Certain efficiencies would be lost were the bankruptcy court to proceed with pretrial matters; the district court would not gain a valuable familiarity with the case that could assist it leading up to and through trial. Though the bankruptcy court could issue proposed findings of fact and conclusions of law, 28 U.S.C. § 157(c)(1), in the court's view, considerations of judicial economy favor withdrawal of the reference. See Orion Pictures Corp., 4 F.3d at 1101 (“the fact that a bankruptcy court's determination on non-core matters is subject to de novo review by the district court could lead the latter to conclude that in a given case unnecessary costs could be avoided by a single proceeding in the district court”); In re Coe-Truman Tech., Inc., 214 B.R. 183, 187 (N.D. Ill. 1997) (where bankruptcy court's decision is subject to de novo review, it is a more efficient use of judicial resources to decide the case in the district court); In re Almac's, Inc., 202 B.R. 648, 659 (D.R.I. 1996) (withdrawing reference to avoid the waste of judicial resources that would result from a de novo review of bankruptcy court's findings). The bankruptcy judge's proposed findings and conclusions in this noncore proceeding would be subject to de novo review by the district court, possibly resulting in inefficient duplication by the two courts. Thus, while the bankruptcy court has gained some familiarity with this case over the past few years, that factor does not tip the scales against withdrawal in light of the other factors that favor withdrawal.


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Id. Notably, the District Court reached this decision in Wellman despite the fact that the

debtor’s bankruptcy case had been pending for more than two and a half years and the adversary

proceeding had been pending for almost eight months. Here, USAG’s bankruptcy case was filed

less than four months ago and USAG commenced this adversary proceeding less than two

months ago.

In the Stay Motion, Defendants cite multiple cases supporting the conclusion that

principles of efficiency counsel withdrawal of the reference in the case of non-core claims and

proceedings because the Bankruptcy Court cannot preside over jury trials without consent of all

parties and any dispositive judgments of the Bankruptcy Court would have to be reviewed in the

District Court de novo. See, e.g., In re United States Brass Corp., 110 F.3d 1261, 1268 (7th Cir.

1997); Wellman, 2005 WL 4880619, at *3 (S.D. Ind. Oct. 5, 2005); Diocese of Duluth v. Liberty

Mutual Grp. (In re Diocese of Duluth), Civ. No. 17-549, 2017 WL 3037412 (D. Minn. July 18,

2017); Hatzel & Buehler, Inc. v. Orange & Rockland Utilities, Inc., 107 B.R. 34, 40 (D. Del.

1989). USAG attempts to counter this argument by asserting that efficiency would be better

served by the Bankruptcy Court continuing to preside over the case up until the time of a jury

trial because of the Bankruptcy Court’s extensive knowledge of relevant facts and the assistance

to the District Court the Bankruptcy Court’s proposed findings and conclusions in the Adversary

Proceeding could provide during de novo review. See, e.g., Objection, Dkt. No. 75, at 9-10.

However, the cases cited by USAG to support that proposition can be readily

distinguished from this case and Adversary Proceeding. In Levin v. Paige (In re Stein), No.

1:17-cv-00561, 2017 WL 2418325 (S.D. Ind. June 2, 2017), an adversary proceeding complaint

was brought by a Chapter 7 Trustee to recover a fraudulent conveyance, which is a core


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proceeding pursuant to 28 U.S.C. § 157(b)(2)(H)), involving bankruptcy expertise, and the only

basis for the motion to withdraw reference was a party’s right to a jury trial.

In Official Committee of Unsecured Creditors of Country Stone Holdings Inc. v.

First Midwest Bank, No. 4:15-cv-04063. 2016 WL 1259378 (C.D. Ill. Mar. 30, 2016), also cited

by USAG in its Objection, the subject of the motion to withdraw the reference was an adversary

proceeding featuring both core and non-core claims. The movant failed to argue the potential

loss of judicial economy that would occur if the bankruptcy court continued to preside over the

adversary proceeding, and the court denied the motion to withdraw reference primarily because

the claims were “deeply entangled in the underlying bankruptcy proceedings” and the

bankruptcy case had been pending for nearly a year and a half. Similarly, in STC, Inc. v. Global

Traffic Technologies, LLC, No. 15-cv-0037, 2015 WL 1042431 (S.D. Ill. Mar. 6, 2015), the

bankruptcy court had not yet ruled on whether any of the claims in the relevant adversary

proceeding were core, the claims presented were “not wholly independent of federal bankruptcy

law,” and the bankruptcy court was already presiding over a related adversary proceeding. Here,

USAG’s bankruptcy case has been pending for only four months, the Adversary Proceeding is

entirely non-core, and the claims at issue are wholly independent of federal bankruptcy law.

Importantly, in STC, the Southern District of Illinois denied the motion for withdrawal of the

reference without prejudice to renewal “[i]f the Bankruptcy Judge determines that the matter is a

non-core proceeding and [the defendant] does not consent to final adjudication there . . . .” Id. at

*5.

HA 2003, Inc. v. Fed. Ins. Co. (In re HA 2003, Inc.), No. 03 C 9008, 2004 WL

609799 (N.D. Ill. Mar. 24, 2004), is also distinguishable from the present case despite the fact

that the adversary proceeding at issue involved insurance coverage claims, because the


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underlying bankruptcy case had been pending for almost three years prior to the District Court’s

ruling on a motion to withdraw the reference, there was a related core adversary proceeding

pending before the bankruptcy court, the bankruptcy court was already overseeing discovery in

the subject adversary proceeding and the related adversary proceeding, and the insurer

defendants had raised a post-petition compensation plan approved by the bankruptcy court as a

defense to the coverage dispute.

In Gecker, 391 B.R. 613, the court “recognized the potential benefits of

withdrawing the reference during the pre-trial stages of a case,” but it could not conclude that the

movant had held its burden of demonstrating that permissive withdrawal was appropriate

because the factors roughly balanced equally in favor of and against withdrawal. 391 B.R. at

616. Specifically, the Gecker court found that the fact that at least some of the claims were non-

core was just as important as the fact that the bankruptcy case had been pending for 15 months,

and that during that time it had presided over many relevant matters and at least one lengthy

hearing on issues bearing on the adversary case, which provided the bankruptcy court “a

significant base of knowledge from which to manage the next steps of the adversary

proceeding.” Id. at 615-16.

None of these cases cited by USAG supports keeping this case in the Bankruptcy

Court. The Adversary Proceeding in this case was filed less than two months ago; responsive

pleadings have not yet been filed; no discovery has taken place; the Bankruptcy Court has had no

cause to develop a working knowledge of the facts underlying the claims presented; and the

Bankruptcy Court is not presiding and likely will not preside over any related proceedings in

connection with USAG’s Chapter 11 case.


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Importantly, while USAG argues that the reference should be withdrawn only

when this case is ready for trial, the Gecker court voiced approval for withdrawing the reference

at an earlier stage in the case. Id. The court explained: “[A] district court may be inclined to

withdraw the reference prior to the filing of dispositive motions on non-core claims in order to

avoid the inefficiency of two different judges ruling on essentially the same motion[.]” Id. The

Gecker court denied the motion to withdraw the reference “without prejudice to renewing the

motion if and when dispositive motions on non-core claims, or a jury trial, begin to appear on the

horizon.” Id. Thus, the fact that USAG has already filed a dispositive motion in the Adversary

Proceeding on issues against one defendant, Liberty Insurance Underwriters (“LIU”) (the “LIU

Motion”) only further supports withdrawal of the reference for this Adversary Proceeding

immediately. Accordingly, there is a strong likelihood that the District Court will withdraw the

reference of this Adversary Proceeding.

II. Irreparable Harm to Movant if Stay is Not Granted

Defendants have requested that the Court stay the proceedings until the District

Court rules on the Motion to Withdraw Reference. Issues of insurance coverage and the state

laws under which those claims and defenses are asserted are of paramount importance to

Defendants. These are not issues routinely litigated and decided in bankruptcy courts. It is

appropriate, therefore, to litigate those matters in a Court having jurisdiction to enter final orders.

Under the circumstances, it would be highly burdensome for Defendants to begin to litigate the

Adversary Proceeding in this Court when de novo review is required in the District Court due to

the non-core nature of the disputed issues.

While Defendants are aware that the Supreme Court has held that “‘[m]ere

litigation expense, even substantial and unrecoupable cost, does not constitute irreparable

injury’” (FTC v. Standard Oil Co. of Calif., 449 U.S. 232 (1980) (quoting Renegotiation Bd. v.


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Bannercraft Clothing Co., 415 U.S. 1, 24 (1974))), declining to issue the stay for the period

necessary for the District Court to determine in which court the Adversary Proceeding will

proceed would cause significant and irreparable harm to Defendants, including the risk of

duplicative litigation at significant, non-recoverable expense.

III. No Substantial Harm to Other Parties

No other parties will be harmed, substantially or otherwise, by a stay of the

Adversary Proceeding. The stay is anticipated to be of short duration—only until the District

Court resolves the Motion to Withdraw Reference. The Debtors have readily agreed to stipulate

to an extension of the deadline for Defendants to file answers or other responsive pleadings to

the Adversary Complaint through at least June 7, 2019. Any assertion by USAG that harm will

befall anyone by virtue of a brief stay pending the District Court’s resolution of the Motion to

Withdraw Reference is baseless. Not only will no harm befall anyone, certainly USAG has

made no claim that “substantial harm” will be caused to anyone by virtue of staying the

Adversary Proceeding. This factor weighs decidedly in favor of granting the Stay Motion and

issuing the stay.

IV. The Public Interest Favoring a Stay

Defendants assert that the public interest will be served by issuing the stay.

Bankruptcy Courts are not the realm of significant insurance coverage disputes. Nor should they

be. Non-core issues of this kind should be determined by a court with jurisdiction to issue final

opinions in the matter. This is especially so here. As noted previously, this dispute centers

around 56 different insurance policies issued by numerous insurance carriers over decades. This

is a complex, non-core, insurance coverage matter that is better resolved in the District Court, not

the Bankruptcy Court, which should devote its resources to rehabilitating individuals and

companies coming before it.


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The fact that USAG has already filed a dispositive motion against LIU only

further supports withdrawal of the reference of this Adversary Proceeding immediately and a

stay of the Adversary Proceeding until the District Court orders withdrawal of the reference. At

issue in the LIU Motion are exclusively state law claims related to the parties’ insurance

coverage and breach of contract dispute. Similar to USAG’s disputes with its other insurers, its

dispute with LIU involves factually complex issues relating to nearly 150 underlying matters.

As USAG has conceded, the LIU Motion “highlights the type of substantial and complex issues

that the Court will have to resolve for each insurance policy and each Defendant involved in this

Adversary Proceeding.” See Objection to Motion to Withdraw Reference, Dkt. No. 76, at 5. For

this Court to dedicate any time and effort to this massive non-core litigation when it has no

ability to finally decide the matter and when the District Court may withdraw the reference of the

claims in the near future would be a significant hardship on the Court and potentially a

tremendous waste of its resources. Therefore, issuing the stay, at least for the limited time

necessary for the District Court to determine in which court the claims will proceed, is in the

public interest.

CONCLUSION

For the foregoing reasons, the Defendants respectfully request that this Court

overrule USAG’s Objection to the Stay Motion and stay all proceedings against the Defendants

in this Adversary Proceeding, including any response deadlines, scheduling conferences, pretrial

obligations of the parties, discovery, and any motions, pending the District Court’s disposition of

the Withdrawal Motion and ruling regarding in which forum USAG’s coverage and breach of

contract claims should properly proceed.


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KROGER, GARDIS & REGAS, LLP Dated: April 2, 2019

By /s/ Stephen J. Peters Stephen J. Peters, Attorney No. 6345-49

Counsel for Defendant, Defendant, ACE American Insurance Company f/k/a CIGNA Insurance Company KROGER, GARDIS & REGAS, LLP 111 Monument Circle, Suite 900 Indianapolis, IN 46204-5125 (317) 777-7418 (317) 264-6832 (Fax) [email protected]


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Pursuant to the ECF Administrative Policies and Procedures Manual (Attorney) for the United States Bankruptcy Court for the Southern District of Indiana, undersigned counsel represent the other named Defendants in the Adversary Proceeding and are authorized to represent that each of their clients consents to the stay of this Adversary Proceeding pending the District Court’s ruling on the Motion to Withdraw the Reference and that ACE American’s counsel may electronically file their signatures.

/s/ Karen M. Dixon Counsel for Great American Assurance Company, Consents to this Reply Karen M. Dixon, Attorney No. 6242799IL SKARZYNSKI MARICK & BLACK LLP 205 North Michigan Avenue, Suite 2600 Chicago, IL 60601 (312) 946-4233 (312) 946-4272 (Fax) [email protected] Michael M. Marick, Attorney No. 6183285IL SKARZYNSKI MARICK & BLACK LLP 205 North Michigan Avenue, Suite 2600 Chicago, IL 60601 (312) 946-4235 (312) 946-4272 (Fax) [email protected] James P. Ruggeri (admitted pro hac vice) SHIPMAN & GOODWIN LLP 1875 K Street NW, Suite 600 Washington, DC 20006-1251 (202) 469-7752 (202) 469-7751 (Fax) [email protected] Joshua D. Weinberg (admitted pro hac vice) SHIPMAN & GOODWIN LLP 1875 K Street NW, Suite 600 Washington, DC 20006-1251 (202) 469-7755 (202) 469-7751 (Fax) [email protected] /s/ Ginny L. Peterson Counsel for Liberty Insurance Underwriters Inc., Consents to this Reply Ginny L. Peterson, Attorney No. 20305-41 KIGHTLINGER & GRAY, LLP One Indiana Square, Suite 300


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211 North Pennsylvania Street Indianapolis, IN 46204 (317) 638-4521 (317) 636-5917 (Fax) [email protected] /s/ Hans H.J. Pijls Counsel for National Casualty Company, Consents to this Reply Hans H.J. Pijls, Attorney No. P37248 (MI) DINSMORE & SHOHL, LLP 300 N. Fifth Avenue Ann Arbor, MI 48104 (734) 773-4050 (734) 913-6007 (Fax) [email protected] Anthony M. Zelli, Attorney No. 30470-10 DINSMORE & SHOHL, LLP 101 S. Fifth Street, Suite 2500 Louisville, KY 40202 (502) 540-2300 (502) 585-2207 (Fax) [email protected] /s/ Cassandra L. Jones Counsel for RSUI Indemnity Company, Consents to this Reply Cassandra L. Jones (admitted pro hac vice) Walker Wilcox Matousek LLP One North Franklin Suite 3200 Chicago, IL 60606-3610 (312) 244-6761 (312) 244-6800 (Fax) [email protected] Jeffrey B. Fecht, Attorney No. 20875-29 RILEY BENNETT EGLOFF LLP 141 East Washington St. Fourth Floor Indianapolis, IN 46204 (317) 636-8000 (317) 636-8027 (Fax) [email protected]


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/s/ Scott P. Fisher Counsel for TIG Insurance Company, Consents to this Reply Scott P. Fisher, Attorney No. 26813-49 DREWRY SIMMONS VORNEHM, LLP 736 Hanover Place, Suite 200 Carmel, IN 46032 (317) 580-4848 (317) 580-4855 (Fax) [email protected] George R. Calhoun (admitted pro hac vice) IFRAH LAW 1717 Pennsylvania Avenue NW, Suite 650 Washington, DC 20006 (202) 524-4147 [email protected] /s/ Robert B. Millner Counsel for Virginia Surety Company Inc. Successor to Combined Specialty Insurance Company, Consents to this Reply Robert B. Millner (admitted pro hac vice) DENTONS US LLP 233 S. Wacker Drive, Suite 5900 Chicago, IL 60606 (312) 876-8000 [email protected] James P. Moloy, Attorney No. 10301-49 BOSE MCKINNEY & EVANS LLP 111 Monument Circle, Suite 2700 Indianapolis, IN 46204 (317) 684-5000 (317) 684-5173 (Fax) [email protected] Kevin P. Kamraczewski (admitted pro hac vice) LAW OFFICES OF KEVIN P. KAMRACZEWSKI 332 South Michigan Avenue, Suite 1032 K363 Chicago, IL 60604-4434 (312) 697-9768 [email protected] /s/ Bruce Kamplain Counsel for Western World Insurance Company, Consents to this Reply Bruce Kamplain, Attorney No. 5065-49 NORRIS CHOPLIN SCHROEDER LLP


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101 West Ohio Street, Ninth Floor Indianapolis, IN 46204-4213 (317) 269-9330 (317) 269-9338 (Fax) [email protected] /s/ Phillip A. Martin Counsel for Endurance American Insurance Company, Consents to this Reply Phillip A. Martin, Attorney No. 88985 Fultz Maddox Dickens PLC 101 S. Fifth Street, 27th Floor Louisville, KY 40202 (502) 588-2000 [email protected] Wendy D. Brewer, Attorney No. 22669-49 FULTZ MADDOX DICKENS PLC 333 North Alabama Street, Suite 350 Indianapolis, IN 46204 (317) 567-9048 (317) 252-0275 (Fax) [email protected] /s/ Susan N.K. Gummow Counsel for American Home Assurance Company, Consents to this Reply Susan N. K. Gummow (admitted pro hac vice) Igor Shleypak (admitted pro hac vice) FORAN GLENNON PALANDECH PONZI & RUDLOFF P.C. 222 North LaSalle Street, Suite 1400 Chicago, IL 60601 (312) 863-5000 (312) 863-5009 (Fax) [email protected] [email protected]


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CERTIFICATE OF SERVICE

I hereby certify that on April, 2, 2019, of the foregoing Appearance was filed electronically. Notice of this filing will be sent to the following parties through the Court’s Electronic Case Filing System. Parties may access this filing through the Court’s system. Steven Baldwin Tonya J. Bond Gregory M. Gotwald Christopher Kozak [email protected] [email protected] [email protected] [email protected] Melissa M. Root Catherine L. Steege [email protected] [email protected] Karen M. Dixon Michael M. Marick [email protected] [email protected] Ginny L. Peterson [email protected] Hans Pijls [email protected] Jeffrey B. Fecht [email protected]

Cassandra Jones [email protected] George Calhoun, IV Scott Patrick Fisher [email protected] [email protected] Kevin P. Kamraczewski [email protected] Ronald David Kent Robert Millner Susan Walker [email protected] [email protected] [email protected] James P. Moloy [email protected] Bruce L. Kamplain Cynthia Lasher [email protected] [email protected] Wendy D. Brewer Phillip Alan Martin [email protected] [email protected] Susan N. Gummow Igor Shleypak [email protected] [email protected]


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Robert Millner Susan Walker Ronald D. Kent [email protected] [email protected] [email protected]

United States Trustee [email protected]

KROGER, GARDIS & REGAS, LLP Dated: April 2, 2019

By /s/ Stephen J. Peters Stephen J. Peters, Attorney No. 6345-49

Counsel for Defendant, Defendant, ACE American Insurance Company f/k/a CIGNA Insurance Company KROGER, GARDIS & REGAS, LLP 111 Monument Circle, Suite 900 Indianapolis, IN 46204-5125 (317) 777-7418 (317) 264-6832 (Fax) [email protected]

4828-4755-1633, v. 1


Documents

Reply re Motion for Stay Pending Resolution of Motion to ...omnimgt.com/CMSVol2/pub_47282/726736_92.pdf · In response to USA Gymnastics’ Objection to Motion for Stay of the Adversary