June 4, 2015
Judge Carey Denies Motion to Enforce Plan Injunction
By Evan T. Miller
On May 28, 2015, Judge Kevin J. Carey, of the United States Bankruptcy Court for the District of Delaware, issued a Memorandum Denying Debtors’ Motion to Enforce the Permanent Injunction in In re SelectBuild Illinois, LLC, et al., Case No. 09-12085 (KJC). The decision permits The Ryland Group, Inc. (“Ryland”) to seek indemnification under an insurance policy through ACE American Insurance Company (“ACE”), notwithstanding SelectBuild Illinois, LLC’s (“Debtor”) argument that doing so would violate the discharge injunction provided by their confirmed plan.
In January 2005, the Debtor and Ryland entered into a construction contract under which the Debtor was to work as a subcontractor for Ryland. The contract and its addendums (collectively, the “Contract”) provided that the Debtor would indemnify Ryland in certain situations and was therefore required to maintain minimum insurance, naming Ryland as an additional insured. In compliance therewith, the Debtor maintained such a policy through ACE, securing their obligations to ACE by two irrevocable standby letters of credit (the “LOCs”). Thereafter, three employees (the “Employees”) of the Debtor were injured at a Ryland construction site for which the Debtor was providing subcontractor services under the Contract. The employees subsequently filed workers’ compensation claims against the Debtor which were paid in full by the Debtor.
On June 16, 2009 (the “Petition Date”), the Debtor and its affiliates (collectively, the “Debtors”) filed for protection under chapter 11 of the Bankruptcy Code. The bar date for filing proofs of claim (“POCs”) was set as August 31, 2009, but Ryland failed to file such a claim. In December 2009, the Court entered an order confirming the Debtors’ joint plan of reorganization (the “Confirmation”), a plan (the “Plan”) which provided for a discharge injunction (the “Injunction”) pursuant to, inter alia, section 524 of the Bankruptcy Code. In December 2011, the Court entered a final decree closing the Debtors’ cases.
Prior to the closure of the Bankruptcy Cases but following Confirmation, the Employees filed a state court complaint against Ryland with respect to their injuries. Accordingly, Ryland sent letters to the Debtor and ACE to tender Ryland’s defense in the state court proceeding, which the Debtor ultimately agreed to do and has compensated Ryland’s counsel since.
In August 2013, ACE advised Ryland that it qualified as an “additional insured” subject to a reservation of rights. Ryland committed to pay $100,000 towards the resolution of the claims asserted in the state court action, which would purportedly satisfy the Retained Limit in the policy. In July 2013, the Debtor filed a motion to reopen its chapter 11 case, which was granted. The Debtors then filed the Motion to Enforce the Injunction Against Ryland (the “Motion”), which forms the basis for the instant opinion.
In the Motion, the Debtors argue that
On May 28, 2015, Judge Kevin J. Carey, of the United States Bankruptcy Court for the District of Delaware, issued a Memorandum Denying Debtors’ Motion to Enforce the Permanent Injunction in In re SelectBuild Illinois, LLC, et al., Case No. 09-12085 (KJC). The decision permits The Ryland Group, Inc. (“Ryland”) to seek indemnification under an insurance policy through ACE American Insurance Company (“ACE”), notwithstanding SelectBuild Illinois, LLC’s (“Debtor”) argument that doing so would violate the discharge injunction provided by their confirmed plan.
In January 2005, the Debtor and Ryland entered into a construction contract under which the Debtor was to work as a subcontractor for Ryland. The contract and its addendums (collectively, the “Contract”) provided that the Debtor would indemnify Ryland in certain situations and was therefore required to maintain minimum insurance, naming Ryland as an additional insured. In compliance therewith, the Debtor maintained such a policy through ACE, securing their obligations to ACE by two irrevocable standby letters of credit (the “LOCs”). Thereafter, three employees (the “Employees”) of the Debtor were injured at a Ryland construction site for which the Debtor was providing subcontractor services under the Contract. The employees subsequently filed workers’ compensation claims against the Debtor which were paid in full by the Debtor.
On June 16, 2009 (the “Petition Date”), the Debtor and its affiliates (collectively, the “Debtors”) filed for protection under chapter 11 of the Bankruptcy Code. The bar date for filing proofs of claim (“POCs”) was set as August 31, 2009, but Ryland failed to file such a claim. In December 2009, the Court entered an order confirming the Debtors’ joint plan of reorganization (the “Confirmation”), a plan (the “Plan”) which provided for a discharge injunction (the “Injunction”) pursuant to, inter alia, section 524 of the Bankruptcy Code. In December 2011, the Court entered a final decree closing the Debtors’ cases.
Prior to the closure of the Bankruptcy Cases but following Confirmation, the Employees filed a state court complaint against Ryland with respect to their injuries. Accordingly, Ryland sent letters to the Debtor and ACE to tender Ryland’s defense in the state court proceeding, which the Debtor ultimately agreed to do and has compensated Ryland’s counsel since.
In August 2013, ACE advised Ryland that it qualified as an “additional insured” subject to a reservation of rights. Ryland committed to pay $100,000 towards the resolution of the claims asserted in the state court action, which would purportedly satisfy the Retained Limit in the policy. In July 2013, the Debtor filed a motion to reopen its chapter 11 case, which was granted. The Debtors then filed the Motion to Enforce the Injunction Against Ryland (the “Motion”), which forms the basis for the instant opinion.
In the Motion, the Debtors argue that