IN THE UNITED STATES BANKRUPTCY COURT FOR THE … · 2019. 9. 11. · in the united states...

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

INDIANAPOLIS DIVISION

In re: USA GYMNASTICS,1

Debtor.

Chapter 11 Case No. 18-09108-RLM-11

USA GYMNASTICS, Plaintiff, v. ACE AMERICAN INSURANCE COMPANY f/k/a CIGNA INSURANCE COMPANY, GREAT AMERICAN ASSURANCE COMPANY, LIBERTY INSURANCE UNDERWRITERS INC., NATIONAL CASUALTY COMPANY, RSUI INDEMNITY COMPANY, TIG INSURANCE COMPANY, VIRGINIA SURETY COMPANY, INC. f/k/a COMBINED SPECIALTY INSURANCE COMPANY, WESTERN WORLD INSURANCE COMPANY, ENDURANCE AMERICAN INSURANCE COMPANY, AMERICAN HOME ASSURANCE COMPANY, and DOE INSURERS Defendants.

Adv. Proc. No. 19-50012 in 18-09108-RLM-11

USA GYMNASTICS’ OBJECTION TO

ACE’S EMERGENCY MOTION TO CONTINUE SEPTEMBER 17 HEARING

USA Gymnastics, as debtor and debtor in possession in the above-captioned chapter 11

case (“USAG”), hereby objects (the “Objection”) to Ace American Insurance Company’s

1 The last four digits of the Debtor’s federal tax identification number are 7871. The location of the Debtor’s

principal office is 130 E. Washington Street, Suite 700, Indianapolis, Indiana 46204.

Case 19-50012 Doc 225 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 1 of 10

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Emergency Motion To Continue Hearing On USA Gymnastics’ Motion For Partial Summary

Judgment [Adv. Dkt. 220] (the “Ace Motion”), filed by Ace American Insurance Company

(“Ace”). USAG has concurrently filed objections to the Emergency Motion Of Liberty Insurance

Underwriters, Inc. To Continue Hearing On LIU Summary Judgment Motions [Adv. Dkt. 219]

(the “LIU Motion”), filed by Liberty Insurance Underwriters (“LIU”), and TIG Insurance

Company’s Emergency Motion To Continue Hearing On USA Gymnastics’ Motion For Partial

Summary Judgment [Dkt. 221] (the “TIG Motion” and, collectively with the Ace Motion and the

LIU Motion, the “Motions”), filed by TIG Insurance Company (“TIG” and, collectively with Ace

and LIU, the “Insurers”). In support of this Objection, USAG respectfully states as follows:

1. The Insurers’ Motions for a continuance are really Bankruptcy Rule 5011(c) stay

motions in disguise. Recognizing that this Court denied its prior stay motion less than four months

ago, LIU changed tact, calling its stay motion a request for a continuance. TIG and Ace quickly

followed suit, filing their own copy-cat motions. But none of the Motions offer any reason, let

alone a good reason, why the Insurers and their counsel cannot participate in the September 17

hearing. Instead, the Insurers ask for an indefinite continuance so the District Court can rule on

their motions to withdraw the reference; in other words, the Motions ask for a stay. Because the

Insurers have elected to mask what are in reality stay motions as requests for a continuance, the

Court should treat the Motions that way. Judged as continuance motions, the Motions fail. The

Insurers have not offered any reason why a hearing date of September 17 does not work for them

or why there is suddenly an emergency, given that the hearing date was set weeks ago on August

9. Accordingly, the Motions should be denied.

2. But to the extent that the Court overlooks the Insurers’ inaccurate description of

what their Motions are requesting, it should hold the Insurers to the standards developed under


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Bankruptcy Rule 5011(c). Under Rule 5011(c), the general rule is that the bankruptcy court will

continue to administer a case or adversary proceeding notwithstanding the filing of a motion to

withdraw the reference. The bankruptcy case or adversary proceeding is only halted pending the

determination of a withdrawal motion if the movant also satisfies the rigorous standards for a stay.

See Fed. R. Bankr. P. 5011(c). As a result, TIG’s suggestion that it would be inefficient not to stay

this Adversary Proceeding before the District Court rules on the renewed motions to withdraw the

reference is directly contrary to Rule 5011(c) and should be rejected. (TIG Motion, at 6.)

3. Instead, the Court must analyze whether the Insurers have established the four

factors necessary to obtain a stay: (1) that the Insurers are likely to succeed on their renewed

motions to withdraw the reference; (2) that the Insurers will suffer irreparable harm if the

Adversary Proceeding is not stayed; (3) that USAG will not be substantially harmed by the stay;

and (4) that the public interest will be served by granting the Insurers’ request for a stay. See In re

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

motion for stay). As this Court previously found, none of these factors favors a stay here.

A. The Insurers Are Not Likely To Prevail in Obtaining A Withdrawal.

4. First, for all of the reasons set forth in USAG’s objections to the Insurers’ renewed

motions to withdraw the reference [Adv. Dkts. 210, 213] (the “Objections,” attached as Exhibit

A and Exhibit B hereto), the Insurers are not likely to succeed on the merits of their requests to

withdraw the reference of the Adversary Proceeding. For starters, the primary basis for seeking

withdrawal is the Insurers’ claim that this Court cannot enter a judgment because USAG’s claims

in this Adversary Proceeding are non-core. But by filing their various cross-motions for summary

judgment [Adv. Dkts. 130, 214, 216], the Insurers have consented to the Bankruptcy Court’s

constitutional authority to enter final judgment, and waived any right to a jury trial or any


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complaints on Article III grounds about the Bankruptcy Court’s adjudication of these disputes. See

Wellness Int’l Network Ltd. v. Sharif, 135 S. Ct. 1932, 1947-48 (2015) (holding that implied

consent allows bankruptcy court to enter final order in non-core matter). And as the First Circuit

has held, “[t]here can be no clearer sign of consent” than asking a court to enter judgment. In re

G.S.F. Corp., 938 F.2d 1467, 1477 (1st Cir. 1997).2

5. Moreover, even if the Insurers had not consented to the Bankruptcy Court’s

authority to enter judgment here, as explained in USAG’s Objections, the overwhelming majority

of courts hold that the district court should not withdraw the reference of an adversary proceeding

until the case is ready for trial, which this case is not.3 Indeed, one very recent opinion

characterized an early request to withdraw the reference of an allegedly non-core adversary

proceeding as “absurd”, and then recognized that the bankruptcy court’s rulings (even if treated as

reports and recommendations) would save the judiciary and the parties an “immense amount of

time.” Lehman Brothers Holdings Inc. v. Standard Pacific Mortgage, Inc., et al., No. 19-CV-4080,

2019 U.S. Dist. LEXIS 143871, at *9-10 (S.D.N.Y. Aug. 23, 2019). Same here. It is most efficient

for this Court, which is also supervising USAG’s bankruptcy case and the attendant mediation, to

2 Ace also filed a proof of claim (Claim No. 294) and thus forfeited its right to a jury trial. See, e.g., Katchen

v. Landy, 382 U.S. 323 (1966); Langenkamp v. Culp, 498 U.S. 42 (1990); Granfinanciera, S.A v. Nordberg, 492 U.S. 33 (1989). 3 See, e.g., In re Stein, 2017 WL 2418325, at *2; Kemp v. Nelson, No. 16-CV-1546-JPS, 2016 WL 7177508,

at *3 (E.D. Wis. Dec. 9, 2016); Abrams v. DLA Piper (US) LLP, No. 12-CV-19-TLS, 2012 WL 1714591, at *4 (N.D. Ind. May 15, 2012); Southern Elec. Coil, LLC v. FirstMerit Bank, N.A., No. 11-C-6135, 2011 WL 6318963, at *4 (N.D. Ill. Dec. 16, 2011); In re Neumann Homes, Inc., 414 B.R. 383, 386-87 (N.D. Ill. 2009); Gecker v. Marathon Fin. Ins. Co., 391 B.R. 613, 616 (N.D. Ill. 2008); CDX Liquidating Trust v. Venrock Associates, No. 04-CV-7236, 2005 WL 3953895, at *4 (N.D. Ill. Aug. 10, 2005); In re Conseco Fin. Corp., 324 B.R. 50, 55-56 (N.D. Ill. 2005); ABC-NACO, Inc. v. Klos Trucking, Inc., No. 04-C-0033, 2004 WL 728190, at *2 (N.D. Ill. Mar. 31, 2004); In re Dreis & Krump Manufacturing Co., No. 94-C-4281, 1995 WL 41416, at *3 (N.D. Ill. Jan. 31, 1995); Vista Metals Corp. v. Metal Brokers Int’l Inc., 161 B.R. 454, 458-59 (E.D. Wis. 1993); Bus. Commc’ns, Inc. v. Freeman, 129 B.R. 165, 166 (N.D. Ill. 1991); In re Petters Co., Inc., 440 B.R. 805, 810-11 (Bankr. D. Minn. 2010).


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hear discrete legal issues about the Insurers’ obligations to pay certain costs in the context of the

pending motions for partial summary judgment.

B. The Equities Support Denying A Stay.

6. Second, balancing the harms also supports denying the Motions. Granting a stay

will stall the mediation and delay the resolution of USAG’s chapter 11 case, causing irreparable

harm to USAG and survivors holding allowed claims who deserve to be compensated promptly.

By contrast, the Insurers have not identified any concrete harm they will suffer if a stay is denied.

The Insurers cannot credibly claim that they will be injured if the Bankruptcy Court rules on

USAG’s motions for partial summary judgment, since they all requested, through their own cross-

motions, that the Bankruptcy Court resolve the coverage disputes in their favor and against USAG.

Further, if the Insurers disagree with this Court’s rulings, they may appeal to the District Court,

which will exercise de novo review of any decisions this Court makes. As a result, the balance of

the harms favors USAG, not the Insurers. The Court should therefore deny the Motions and their

meritless requests for a stay.

C. The Insurers’ Manufactured Emergency Harms The Public Interest.

7. Third, the Insurers’ dilatory tactics also support denying their Motions because the

public interest would be harmed if litigants are allowed to do what the Insurers have done here.

The Insurers have manufactured an emergency, and when litigants do that, it imposes unnecessary

costs on the courts and the other parties who must respond to the supposed emergency.

8. As to LIU, the Bankruptcy Court originally scheduled the September 17 hearing on

more than two months’ notice. Indeed, on July 5, LIU’s counsel wrote: “[s]ubject to LIU’s right

and intent to file a renewed motion to withdraw the reference and motion to stay with Judge Young,

LIU does not object to USAG’s noticing the hearing” on USAG’s Motion for Partial Summary

Judgment Against LIU [Adv. Dkt. 26] and LIU’s Cross-Motion For Summary Judgment Of


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Defendant Liberty Insurance Underwriters Inc. [Adv. Dkt. 130] (collectively, the “LIU Summary

Judgment Motions”). (Ex. C, attached hereto.) Based on these representations, on July 10, USAG

noticed a hearing on the LIU Summary Judgment Motions for August 14. (Adv. Dkt. 167.)

9. LIU asserts that it agreed to notice a hearing on the LIU Summary Judgment

Motions because it thought that the mediation would conclude prior to any hearing. (LIU Motion,

at ¶3 n.3.) But it was clear by the end of July that multiple mediation sessions would be necessary,

largely because of the coverage positions that LIU and the other Insurers took. Yet LIU did not

object when the hearing on the LIU Summary Judgment Motions was continued to the September

omnibus date. (Ex. D, attached hereto; see also Adv. Dkts. 171, 181.)4

10. Instead, LIU took another two weeks, until August 21, to file its renewed motion to

withdraw the reference. Even then, LIU did not concurrently file a renewed motion for a stay. It

rather waited two more weeks to file the LIU Motion on September 6, demanding expedited

consideration of its request for a continuance, a mere 11 days before the September 17 hearing.

The Court should not condone LIU’s attempts to conjure up an “emergency” out of thin air or to

mask the true purpose of its motion. Instead, the Court should proceed to hear the LIU Summary

Judgment Motions on September 17 as agreed.

11. Ace and TIG engaged in similar conduct. They contend that the September 17

hearing should not proceed because they both filed a withdrawal motion. They also highlight that

they both filed cross-motions for summary judgment on September 5 and briefing on those cross-

motions will not be completed until mid-October once USAG responds and they reply. (Ace

4 USAG first made this argument in its Objection to LIU’s Emergency Motion to Schedule a Status

Conference filed in the District Court [Dist. 18-cv-1306, Dkt. 109]. LIU has since replied to that objection (attached hereto as Exhibit E). LIU’s reply contains no explanation for why it did not immediately object to USAG’s August 7 notice setting the September 17 hearing and instead waited another month to make this “emergency” request for a stay/continuance.


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Motion, at ¶¶3-6; TIG Motion, at 7-8.) But the Court set the September 5 deadline for Ace and

TIG to respond to USAG’s own partial summary judgment motions on August 9. (Adv. Dkts. 182,

183.) Both Insurers surely knew in the month-long period between August 9 and September 5 that

they intended to move to withdraw the reference and they should have done so promptly while

also seeking a stay. They also knew that they would file cross-motions for partial summary

judgment in conjunction with their responses to USAG’s summary judgment motions. Yet they

did not request a stay/continuance prior to the September 5 response deadline. They did not even

file that request concurrently with their responses and their cross-motions. Instead, they waited

another week after September 5 to file their Motions, creating unnecessary, last-minute motion

practice only eight days prior to the September 17 hearing.

12. In light of the Insurers’ significant and prejudicial delay in seeking relief from this

Court, all of their Motions should be denied.

D. The Insurers’ Remaining Arguments In Support Of A Stay Are Without Merit.

13. Ace and TIG also have no basis for their argument that the Court should wait to

conduct a hearing on any summary judgment motion until all of the summary judgment motions

and cross-motions are fully briefed. (Ace Motion, at ¶6; TIG Motion, at 7-8.) This is a bald request

for interminable delay that will only harm USAG and its stakeholders. Moreover, the argument’s

premise is incorrect: even though the motions for summary judgment and the cross-motions

present certain overlapping legal issues, each motion can be heard separately. The Insurers had a

full and fair opportunity to respond to all of the issues presented in USAG’s summary judgment

motions on the briefing schedule this Court previously approved. (Adv. Dkts. 182, 183.) The Court

should therefore not wait to adjudicate USAG’s motions for partial summary judgment until

briefing is completed on the Insurers’ later-filed cross-motions.


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14. Relying upon decisions addressing §362’s automatic stay, Ace and TIG next claim

that their request for delay is an appropriate sanction for USAG’s allegedly wrongful violation of

the agreed stay previously entered with respect to all defendants other than LIU. (Ace Motion, at

¶ 7; TIG Motion, at 7; Adv. Dkt. 155.) But the stay had nothing to do with Ace or TIG; it was a

condition of the DIP financing from two other insurance carriers and those carriers are not

complaining. (Bankr. Dkt. 479, Ex. C, §3.2(b), Ex. D, §3.2(b); Bankr. Dkt. 513.) In any event, Ace

and TIG have not been harmed because the stay only ran through the September omnibus hearing,

exactly when USAG’s summary judgment motions will be heard. TIG’s citations to decisions

voiding actions taken in violation of the automatic stay also are completely off point, for the

obvious reason that the stay at issue here has nothing to do with §362.

15. The Insurers then incorrectly complain that USAG has “abandon[ed]” efforts to

resolve its chapter 11 case consensually through the mediation. (LIU Motion, at ¶3; see also TIG

Motion, at 8.) But as the Insurers know, the mediator has not terminated the mediation and USAG

is prosecuting the summary judgment motions to resolve discrete coverage disputes that are

blocking progress in the mediation. USAG filed its motions against the Insurers with the

expectation that a ruling will move the mediation forward by helping to determine the amount of

insurance coverage available to satisfy claims. Contrary to the Insurers’ suggestion, denying a stay

will advance the mediation; granting a stay will do the opposite.

16. Finally, LIU had no basis to represent to this Court that the requested

stay/continuance will be “brief,” pending a ruling by the District Court on the renewed motions to

withdraw the reference. (LIU Motion, at ¶9.) When the District Court held the June 10 conference

on LIU’s original motion to withdraw the reference, it stated that its busy docket would preclude

it from adjudicating this Adversary Proceeding as quickly as the Bankruptcy Court. There is thus


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no way to know how quickly the District Court will rule on the renewed motions. If a

stay/continuance is granted in the meantime, the mediation and USAG’s chapter 11 case will

languish, at severe cost to USAG’s estate and all other parties in interest.

17. In the end, the Motions are the Insurers’ latest attempt to delay the resolution of the

coverage disputes which are blocking progress in the mediation. This Court should not

countenance the Insurers’ runaround of the procedures that govern motions to stay (by masking

their requests for a stay as mere requests for a continuance) and their efforts to manufacture an

emergency. Instead, USAG respectfully requests that the Court deny the Motions and proceed with

the September 17 hearing as previously ordered.

Dated: September 11, 2019 Respectfully submitted,

JENNER & BLOCK LLP

/s/ Catherine L. Steege Catherine L. Steege (admitted pro hac vice) Dean N. Panos (admitted pro hac vice) Melissa M. Root (#24230-49) 353 N. Clark Street Chicago, Illinois 60654 (312) 923-2952 [email protected]

-and- PLEWS SHADLEY RACHER & BRAUN LLP George M. Plews (#6274-49) Gregory M. Gotwald (#24911-49) Tonya J. Bond (#24802-49) Christopher E. Kozak (#P82156) 1346 N. Delaware St. Indianapolis, IN 46202-2415 (317) 637-0700 [email protected] Attorneys for USA Gymnastics


CERTIFICATE OF SERVICE

The undersigned hereby certifies that the foregoing USA Gymnastics’ Objection To Ace’s Emergency Motion To Continue September 17 Hearing was filed electronically on September 11, 2019. Notice of this filing will be sent to all parties by operation of the Court’s electronic filing system. Parties may access this filing through the Court’s electronic filing system. Previously, on September 10, 2019, USAG filed and served via electronic mail its Objection To The Three Emergency Motions To Continue September 17 Hearing.

/s/ Catherine L. Steege

Attorney for USA Gymnastics


EXHIBIT A

USAG’s Objection To LIU’s Renewed Motion To Withdraw The Reference

Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 1 of 23




Debtor.


USA GYMNASTICS, Plaintiff, v. ACE AMERICAN INSURANCE COMPANY f/k/a CIGNA INSURANCE COMPANY, GREAT AMERICAN ASSURANCE COMPANY, LIBERTY INSURANCE UNDERWRITERS INC., NATIONAL CASUALTY COMPANY, RSUI INDEMNITY COMPANY, TIG INSURANCE COMPANY, VIRGINIA SURETY COMPANY, INC. f/k/a COMBINED SPECIALTY INSURANCE COMPANY, WESTERN WORLD INSURANCE COMPANY, ENDURANCE AMERICAN INSURANCE COMPANY, AMERICAN INTERNATIONAL GROUP, INC., AMERICAN HOME ASSURANCE COMPANY, and DOE INSURERS Defendants.

Adv. Proc. No. 19-50012 in 18-09108-RLM-11

USA GYMNASTICS’ OBJECTION TO LIBERTY INSURANCE UNDERWRITERS,

INC.’S JOINDER TO RENEWED MOTION OF ACE AMERICAN INSURANCE COMPANY, F/K/A CIGNA INSURANCE COMPANY AND TIG INSURANCE

COMPANY TO WITHDRAW THE REFERENCE AND RENEWED MOTION OF LIBERTY INSURANCE UNDERWRITERS, INC.

TO WITHDRAW THE REFERENCE OF THE ADVERSARY PROCEEDING



Case 19-50012 Doc 210 Filed 09/03/19 EOD 09/03/19 21:35:57 Pg 1 of 22Case 19-50012 Doc 225-1 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 2 of 23

USA Gymnastics, as debtor and debtor-in-possession in the above-captioned chapter 11

case (the “Debtor” or “USAG”), objects to the Joinder To Renewed Motion Of Ace American

Insurance Company, f/k/a Cigna Insurance Company And TIG Insurance Company To Withdraw

The Reference And Renewed Motion Of Liberty Insurance Underwriters, Inc. To Withdraw The

Reference Of The Adversary Proceeding [Adv. Dkt. 208] (the “LIU Renewed Withdrawal

Motion”), filed by Liberty Insurance Underwriters, Inc. (“LIU”), and states:

INTRODUCTION

Less than three months ago, the District Court denied all of the defendants’ initial motion

to withdraw the reference of this adversary proceeding. (See Adv. Dkt. 166.) The District Court’s

decision was correct then, and it is still correct now. In fact, since the District Court’s initial ruling,

the case for maintaining this adversary proceeding in the Bankruptcy Court has only grown

stronger.

LIU’s explanation for why it has renewed its request so quickly is that USAG has continued

to prosecute its partial summary judgment motion against LIU even though the mediation is still

ongoing. But LIU ignores that resolution of this partial summary judgment motion (and LIU’s own

cross motion for summary judgment) will promote discussions at the mediation, rather than impede

them. Insurance coverage disputes with LIU have hampered USAG’s ability to resolve survivors’

claims through the mediation and therefore an answer is needed to the question of how much

insurance USAG has under the LIU policies. Preferring delay to an answer, LIU has renewed its

withdrawal motion in the hope of preventing the bankruptcy court from answering these legal

questions.

Allowing the Bankruptcy Court to address these legal issues in the first instance does not

harm LIU. The issues the Bankruptcy Court will decide are legal questions, subject to the District

Court’s de novo review, should LIU disagree with the ruling. Moreover, because the partial


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summary judgment motion against LIU raises legal issues, allowing the Bankruptcy Court to

decide it in the first instance will not deprive LIU of the jury trial that it demands. And in any

event, LIU, having filed its own cmotion for summary judgment against USAG in the Bankruptcy

Court, has consented to the Bankruptcy Court’s adjudication of the adversary proceeding, even if

it is non-core. See Wellness Int’l Network Ltd. v. Sharif, 135 S. Ct. 1932, 1947-48 (2015) (holding

that implied consent allows bankruptcy court to enter final order in non-core matter).

USAG, on the other hand, will be greatly harmed if the scheduled September 17 hearing

on the partial summary judgment motion against LIU is delayed because the reference is

withdrawn. Instead of obtaining a quick answer about the extent of USAG’s coverage, LIU will

continue to use the lack of any answer to stall progress in the mediation, threatening USAG’s

reorganization. The Bankruptcy Court, which is overseeing USAG’s reorganization and the

mediation and, as a result of that oversight, has developed significant knowledge about USAG’s

insurance and the survivors’ claims, is in the best position to manage this adversary proceeding. It

should be allowed to continue to do so.

But even if there were no mediation, LIU has failed to state a case for withdrawal of the

reference at this stage of the litigation. LIU’s primary arguments in the LIU Renewed Withdrawal

Motion—that the Bankruptcy Court lacks the power to issue final judgments in non-core matters

and that LIU has demanded a jury trial—could become moot depending on what happens pre-trial.

For this reason, the overwhelming majority of courts refuse to withdraw the reference due to a jury

demand until the case is ready for the jury trial to begin. Even though LIU has made a jury demand,

allowing the Bankruptcy Court to issue a report and recommendation will greatly expedite the

District Court’s review of the legal issues. And, again, by seeking its own affirmative relief from


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the Bankruptcy Court, LIU has implicitly consented to the Bankruptcy Court’s adjudication of this

adversary proceeding.

Simply put, permitting the Bankruptcy Court to guide the parties through the pre-trial

process is the most efficient use of judicial resources and will promote uniformity of bankruptcy

administration, foster economical use of debtor and creditor resources, and accelerate the

bankruptcy process. USAG respectfully requests that the District Court deny the LIU Renewed

Withdrawal Motion without prejudice to LIU’s right to refile the motion to withdraw the reference

if the case ever becomes trial ready.

BACKGROUND

A. The Bankruptcy Case.

On December 5, 2018, USAG filed a voluntary petition for relief under chapter 11 of the

Bankruptcy Code. At the time it filed its case, hundreds of lawsuits were pending against USAG,

most arising out of sexual abuse committed by Lawrence Nassar. USAG determined that the

Bankruptcy Court provided the most efficient and equitable forum in which to determine the rights

of the hundreds of plaintiffs making claims and to distribute recoveries to those holding allowed

claims (the “Survivors”).

USAG has maintained various comprehensive general liability and directors’ and officers’

primary, excess, and umbrella insurance policies. USAG’s insurance policies are the single

greatest asset of its estate, and the coverage under those policies will fund recoveries to Survivors

holding allowed claims against USAG. See, e.g., Home Ins. Co. v. Cooper & Cooper, Ltd., 889

F.2d 746, 748 (7th Cir. 1989) (“A policy of insurance is an asset of the estate”); In re Stinnett, 321

B.R. 477, 483-85 (S.D. Ind. 2005) (holding that insurance policy and proceeds were property of

estate), aff’d, 465 F.3d 309, 312-13 (7th Cir. 2006) (same).


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USAG’s insurance policies have various coverage periods and terms. LIU has wrongfully

refused to indemnify USAG with respect to certain pre-petition lawsuits, alleging that policy

exclusions or misconstructions of policy language excuse it from performance. It is critical that

USAG determine the amount of coverage under its insurance policies so that it may move forward

in its bankruptcy case and bring resolution to the sexual abuse claims.

To that end, USAG commenced a court-approved mediation with the Additional Tort

Claimants Committee of Sexual Abuse Survivors, individual Survivors, USAG’s insurers, and

other parties in interest. The goal of the mediation is to achieve “the resolution of the sexual abuse

claims; the resolution of any disputes relating to the applicability of [USAG’s] insurance coverage

to the sexual abuse claims and [USAG’s] insurance carriers’ obligations to fund distributions on

the sexual abuse claims, and related defense costs; and the resolution of any other matters

necessary to equitably determine the rights of, and allocate recoveries to, survivors holding

allowed sexual abuse claims.” (Bankr. Dkt. 514, at ¶2; Bankr. Dkt. 452, at ¶8.).

B. This Adversary Proceeding.

USAG filed this adversary proceeding on February 1, 2019 against nine of its insurers,

including LIU. On March 1, 2019, USAG filed a Motion for Partial Summary Judgment against

LIU [Adv. Dkt. 26] (the “PSJ Motion”). The PSJ Motion seeks a declaratory judgment that LIU

has breached its duty to defend USAG under a claims-made policy covering May 16, 2016 to May

16, 2017. (PSJ Motion, at 2.) LIU has wrongfully failed to defend USAG in various matters,

including: lawsuits alleging USAG’s liability for sexual abuse committed by Nassar; a proceeding

initiated by the United States Olympic & Paralympic Committee (the “USOPC”) to decertify

USAG as an Olympic National Governing Body; investigations conducted by the USOPC, the

Indiana Attorney General, the U.S. House of Representatives Committee on Energy and


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Commerce, the U.S. House of Representatives Committee on Oversight and Government Reform,

and the U.S. Senate Committee on Commerce, Science, and Transportation; and various criminal

prosecutions of former USAG officers and employees. (Id. at 2-5.)

On March 5, 2019, all of the defendants filed a Joint Motion To Withdraw The Reference

Of The Adversary Proceeding [Adv. Dkt. 37] (the “Original Withdrawal Motion”) and a Motion

For Stay Of The Adversary Proceeding [Adv. Dkt. 38] (the “Stay Motion”). Ultimately only LIU

pressed the Stay Motion. On May 23, 2019, the Bankruptcy Court entered an order denying the

Stay Motion with respect to LIU. (Adv. Dkt. 147.)

On April 19, 2019, LIU responded to USAG’s partial motion for summary judgment by

filing its own motion in the Bankruptcy Court, seeking entry of a judgment order in its favor and

against USAG. [Adv. Dkts. 130, 131.] Briefing on both the PSJ Motion and LIU’s summary

judgment motion is now complete.

On June 7, 2019, the Bankruptcy Court entered an agreed order staying the adversary

proceeding through September 18, 2019, with respect to all defendants other than LIU. (Adv.

Dkt. 155 (the “Agreed Stay Order”).)2 The June 7 Order did not stay the adversary proceeding

pending the outcome of the mediation—indeed, it did not even reference the mediation—and it

did not bar USAG (or any other party) from filing additional summary judgment motions while

the mediation continued. Rather, the Order was entered in connection with USAG’s motion to

approve debtor-in-possession financing from Great American Assurance Company and Combined

Specialty Insurance Company, which asked for this stay as a condition to making their loans. (See

Bankr. Dkt. 479 at Ex. C, § 3.2(b), Ex. D, § 3.2(b); Bankr. Dkt. 513.) LIU did not agree to loan

2 At the time of the Agreed Stay Order the September 2019 omnibus hearing was scheduled for September

18, 2019, which is why that date was used in the Agreed Stay Order. Since that time, the September 2019 omnibus hearing has been reset for September 17, 2019.


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USAG money, and the two carriers who did offer these loans have not joined in the LIU Renewed

Withdrawal Motion. In any event, USAG also has not drawn on the loan.

On June 10, 2019, the District Court conducted a status conference on the Original

Withdrawal Motion. During that conference, the District Court noted, among other things, its busy

docket and the efficiencies of having the Bankruptcy Court preside over this adversary proceeding.

The very next day, on June 11, 2019, the District Court denied the Original Withdrawal Motion,

noting that defendants could renew the Motion “if the case does not settle.” (Dist. Dkt. 18-cv-1306,

ECF No. 101.) The District Court also denied LIU’s request for an emergency stay. (Id.)

On August 7, 2019, USAG filed its Motion For Partial Summary Judgment Against TIG

Insurance Company [Adv. Dkt. 173] (the “First TIG Motion”) and its Motion For Partial

Summary Judgment Against Chubb [Adv. Dkt. 174] (the “Chubb Motion”). On August 27, 2019,

USAG filed its Motion For Partial Summary Judgment Against TIG Insurance Company On Lost

Policies [Adv. Dkt. 204] (the “Second TIG Motion and, collectively with the PSJ Motion, the

Chubb Motion, and the First TIG Motion, the “Partial Summary Judgment Motions”). The

Bankruptcy Court has set a briefing schedule on the Partial Summary Judgment Motions and will

hear argument on September 17, 2019.

OBJECTION

I. Standard For Permissive Withdrawal Of The Reference.

The District Court has original, but not exclusive, jurisdiction over all bankruptcy

proceedings. 28 U.S.C. § 1334(b). The Bankruptcy Court exercises such jurisdiction under a

standing order of reference, as provided by 28 U.S.C. § 157(a); see also S. Dist. Ind. Local R. 83-

8 (providing for automatic referral of bankruptcy cases to the Bankruptcy Court for the Southern

District of Indiana). Once a title 11 proceeding has been referred to the Bankruptcy Court, the

District Court’s authority to withdraw the reference is governed by 28 U.S.C. § 157, which


7

provides for both mandatory and permissive withdrawal. Only permissive withdrawal is at issue

here. (LIU Renewed Withdrawal Motion, at ¶9.) Permissive withdrawal is appropriate “for cause

shown.” 28 U.S.C. § 157(d). As the movant, LIU bears the burden to show cause. In re Stein, No.

17-CV-00561-TWP-MJD, 2017 WL 2418325, at *1 (S.D. Ind. Jun. 2, 2017) (denying motion to

withdraw reference).

“A district court has broad discretion in determining whether to withdraw a reference based

on cause, but permissive withdrawal is the exception, rather than the rule.” Gecker v. Marathon

Fin. Ins. Co., 391 B.R. 613, 614-15 (N.D. Ill. 2008) (internal quotations and citations omitted). As

the Supreme Court recognized in its seminal decision, Stern v. Marshall, 564 U.S. 462 (2011),

under the “division of labor” envisioned by §157 of the Judicial Code, bankruptcy courts will hear

most adversary proceedings and contested matters in the first instance, even those in which they

may not issue judgments. Id. at 502. As one district court in the Seventh Circuit explained,

“[a]lthough withdrawal is an important component of [the statutory] scheme, the court must

employ it judiciously in order to prevent it from becoming just another litigation tactic for parties

eager to find a way out of the bankruptcy court.” STC, Inc. v. Global Traffic Technologies, LLC,

No. 15-CV-0037, 2015 WL 1042431, at *4 (S.D. Ill. Mar. 6, 2015) (quoting In re Enron Corp.,

295 B.R. 21, 28 (S.D.N.Y. 2003)).

Section 157(d) does not define cause. When making a determination whether cause exists

for permissive withdrawal, a court may consider:

a. judicial economy, convenience, and the particular court’s knowledge of the facts;

b. the promotion of uniformity and efficiency of bankruptcy administration; c. the reduction of forum shopping and confusion; d. the conservation of debtor and creditor resources; e. whether the proceeding is core or non-core; and,


8

f. whether the parties have requested a jury trial. Gecker, 391 B.R. at 615 (applying above factors and denying motion to withdraw reference).

II. Permissive Withdrawal Is Still Not Appropriate In This Adversary Proceeding.

LIU cannot satisfy its burden of establishing cause, particularly at this stage in the


A. The Core/Non-Core Determination And LIU’s Jury Demand Do Not Require Withdrawal Of The Reference.

As it did in the Original Withdrawal Motion, LIU focuses almost exclusively on two of the

“cause” factors: whether the Bankruptcy Court may enter a judgment or only a proposed ruling

(i.e., whether the case is core or non-core) and whether the parties have requested a jury trial. (LIU

Renewed Withdrawal Motion, at ¶¶8-19.)

Neither of these arguments establish cause to withdraw the reference now. As a preliminary

matter, by filing a motion asking the Bankruptcy Court to enter summary judgment on its behalf,

LIU has implicitly consented to the Bankruptcy Court entering a final order. The Bankruptcy Court

may therefore enter final judgment. As the Supreme Court instructed in Wellness International:

“Nothing in the Constitution requires that consent to adjudication by a bankruptcy court be

express.” 135 S.Ct. at 1947. And implied consent can properly be “based on actions rather than

words.” Id. at 1948. LIU consented to a final adjudication by the Bankruptcy Court when it asked

the Bankruptcy Court to enter judgment in its favor and against USAG.

But even if LIU had not consented to the Bankruptcy Court’s adjudication of this adversary

proceeding, the core/non-core determination and LIU’s jury demand still do not compel

withdrawal of the reference at this time. As one court explained, “judicial economy will be served

by allowing the claims to be considered by the bankruptcy court first. The bankruptcy court has

great expertise in dealing with claims that are, like these, deeply entangled in the underlying


9

bankruptcy proceedings. The bankruptcy court also has much greater familiarity with the facts of

this case.” Official Comm. Of Unsecured Creditors of Country Stone Holdings, Inc. v. First

Midwest Bank & Ronald Bjustrom, No. 15-CV-04063-SLD, 2016 WL 1259378, at *3 (C.D. Ill.

Mar. 30, 2016) Thus, “[w]here a proceeding is in a preliminary stage, the bankruptcy judge is

presiding over other actions that rely on the same factual and legal grounds and discovery is yet to

be conducted, the bankruptcy judge is in a better position to preside over the proceeding efficiently,

and permissive withdrawal of the reference is not warranted.” STC, Inc., 2015 WL 1042431, at *4.

“Of the courts that have considered the issue of an early withdrawal of a reference to the

bankruptcy court, the overwhelming majority have declined, post-Stern, to withdraw the reference,

recognizing the value of the bankruptcy judge’s familiarity with relevant law and the facts of the

cases before them.” Mason v. Klarchek, No. 12-CV-9971, 2013 WL 1869098, at *2 (N.D. Ill. May

2, 2013) (internal citation omitted); see also In re E & S Facilities, Inc., 181 B.R. 369, 373-74

(S.D. Ind. 1995) (refusing to permissively withdraw reference early in RICO adversary proceeding

because “the interests of judicial economy and efficient case management weigh in favor of

continued litigation at the bankruptcy court level”).

In addition, the “mere request for a jury trial is not sufficient cause for immediate

withdrawal.” In re Stein, 2017 WL 2418325, at *2. It is possible that “judicial efficiency is best

served by allowing necessary pretrial issues, some of which may obviate the need for a jury trial

altogether, to proceed in bankruptcy court.” Kemp v. Nelson, No. 16-CV-1546-JPS, 2016 WL

7177508, at *3 (E.D. Wis. Dec. 9, 2016). Accordingly, courts consistently refuse to withdraw the

reference in the early stages of an adversary proceeding, even where defendants demand a jury

trial and refuse to consent to a jury trial in the bankruptcy court. See, e.g., In re Stein, 2017 WL

2418325, at *2; Kemp, 2016 WL 7177508, at *3; Abrams v. DLA Piper (US) LLP, No. 12-CV-19-


10

TLS, 2012 WL 1714591, at *4 (N.D. Ind. May 15, 2012); Southern Elec. Coil, LLC v. FirstMerit

Bank, N.A., No. 11-C-6135, 2011 WL 6318963, at *4 (N.D. Ill. Dec. 16, 2011); In re Neumann

Homes, Inc., 414 B.R. 383, 386-87 (N.D. Ill. 2009); Gecker, 391 B.R. at 616; CDX Liquidating

Trust v. Venrock Associates, No. 04-CV-7236, 2005 WL 3953895, at *4 (N.D. Ill. Aug. 10, 2005);

In re Conseco Fin. Corp., 324 B.R. 50, 55-56 (N.D. Ill. 2005); ABC-NACO, Inc. v. Klos Trucking,

Inc., No. 04-C-0033, 2004 WL 728190, at *2 (N.D. Ill. Mar. 31, 2004); In re Dreis & Krump

Manufacturing Co., No. 94-C-4281, 1995 WL 41416, at *3 (N.D. Ill. Jan. 31, 1995); Vista Metals

Corp. v. Metal Brokers Int’l Inc., 161 B.R. 454, 458-59 (E.D. Wis. 1993); Bus. Commc’ns, Inc. v.

Freeman, 129 B.R. 165, 166 (N.D. Ill. 1991); In re Petters Co., Inc., 440 B.R. 805, 810-11 (Bankr.

D. Minn. 2010).

Wellman Thermal Sys. Corp. v. Columbia Casualty Co., No. 05-CV-1191, 2005 WL

4880619 (S.D. Ind. Oct. 5, 2005), a case LIU relies upon, is not to the contrary. There, a district

court withdrew the reference of the non-core claims, finding that “there is no indication that

withdrawal of reference will increase delay and costs to the parties.” Id. at *3. That is hardly the

case here. The Bankruptcy Court will hear three of the Partial Summary Judgment Motions in two

weeks. There is no indication that the District Court will be able to move as quickly to adjudicate

this case, given its busy docket and its comparative lack of familiarity with the parties and issues

in this case. In addition, the Wellman court withdrew the reference because one of the defendants

asserted a cross-claim over which the bankruptcy court had no jurisdiction, but which the district

court could adjudicate under its supplemental jurisdiction. Id. at *4. It therefore made good sense

to withdraw the reference in Wellman, where doing so did not impose delay and extra costs and

where it was necessary to allow the cross-claim to be heard at all. All of these factors are absent

here.


11

LIU’s other authority, Adelsperger v. 3D Holographics Medical Imaging Inc., 16-CV-759-

HAB, 2019 WL 2206091 (N.D. Ind. May 21, 2019), is similarly inapposite. Again, a district court

withdrew the reference for non-core claims subject to jury demands. Critical to the district court’s

analysis, though, was that the bankruptcy court itself recommended withdrawal of the reference.

Id. at *3; see also Bankr. S.D. Ind. Local R. 5011-1(b) (permitting the Bankruptcy Court to

recommend to the District Court that the reference to any case or proceeding be withdrawn). Here,

the Bankruptcy Court has not issued such a recommendation and is instead presiding over the

matters arising in this adversary proceeding. Further, the bankruptcy court in Adelsperger

recommended withdrawal because there was related civil litigation between the parties that was

already pending in the district court and which had proceeded through discovery. Id. at *3-4. The

parties even included discovery material from the district court litigation in their designations of

record on the motion to withdraw the reference. That is not the case here. While LIU makes much

of the pre-petition litigation USAG initiated in the District Court, no discovery occurred in that

litigation and it did not advance to the point where the District Court gained any familiarity with

it. Adelsperger does not support withdrawal of the reference in this case.

In short, courts refuse to mechanically withdraw the reference every time an adversary

proceeding asserts a claim where the bankruptcy court can only enter a proposed ruling or when

parties demand a jury trial. Instead, the inquiry focuses on whether withdrawing the reference also

promotes judicial efficiency, uniformity of bankruptcy administration, the economical use of

debtor and creditor resources, and the expeditious resolution of the underlying bankruptcy case.

See First Midwest Bank, 2016 WL 1259378, at *3. Those factors do not support withdrawal here.


12

B. Withdrawing The Reference Will Not Promote Judicial Economy Or Uniformity Of Bankruptcy Administration.

Maintaining the adversary proceeding in the Bankruptcy Court at this time will promote

judicial economy and uniformity of bankruptcy administration. The Bankruptcy Court has gained

extensive experience with USAG, its operations, and all of its stakeholders during the nine months

in which USAG’s chapter 11 case has been pending.3 The Bankruptcy Court’s expertise with

respect to USAG has only increased further in the months since the Original Withdrawal Motion

was denied. It is therefore well-equipped to promptly hear the Partial Summary Judgment Motions,

a factor the District Court noted and emphasized when it conducted its June 10, 2019 status

conference.

Nevertheless, LIU now suggests that withdrawing the reference somehow benefits

USAG’s estate and creditors. (LIU Renewed Withdrawal Motion, at ¶ 12.) Not so. Withdrawing

the reference before the Bankruptcy Court can consider and rule on the Partial Summary Judgment

Motions—even if the District Court ultimately elects to treat those rulings as reports and

recommendations—will prolong USAG’s bankruptcy case and stall USAG’s efforts to reach

agreement about a plan of reorganization and settlement.

Gecker v. Marathon Financial Insurance Company, 391 B.R. 613, 615-16 (N.D. Ill. 2008),

is instructive. There, the district court declined to withdraw the reference even though the

defendants had demanded a jury trial and the bankruptcy court could only enter a proposed ruling

because doing so would not promote judicial economy. The district court found that the bankruptcy

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

of the case” and “has a significant base of knowledge from which to manage the next steps of the

3 USAG’s main case already contains more than 740 docket entries. USAG’s Additional Designation Of

Record, filed contemporaneously herewith, identifies certain of the key filings in the Bankruptcy Court.


13

adversary proceeding.” 391 B.R. at 615-16. The district court also noted that a “jury trial remains

a distant and speculative prospect.” Id. at 616. Accordingly, it refused to withdraw the reference

because doing so would negate the work the bankruptcy court had already devoted to the

bankruptcy case and the adversary proceeding and would force the district court to familiarize

itself with the parties, their claims, and their defenses, all without an assurance that a jury trial and

final judgment would actually be necessary. Id.

The same is true here. As in Gecker, the likelihood of an actual jury trial and a final

judgment in this adversary proceeding is still “speculative” at best. 391 B.R. at 616. Under Indiana

law, “[t]he interpretation of an insurance policy is primarily a question of law for the court, and it

is therefore a question which is particularly suited for summary judgment.” Wagner v. Yates, 912

N.E.2d 805, 808 (Ind. 2009); accord Berkshire Hathaway Homestate Ins. Co. v. Basham, 113

N.E.3d 630, 635 (Ind. Ct. App. 2018) (interpreting insurance contract and affirming grant of

summary judgment in favor of policyholder). Given that fact, it is very unlikely that this adversary

proceeding will ever go to trial before a jury; instead the most likely outcome is a summary

judgment determination.

The PSJ Motion which precipitated the LIU Renewed Withdrawal Motion presents only

legal questions. USAG expects that the Bankruptcy Court’s rulings on these issues will promote

more productive settlement negotiations, eliminating the need for a trial. Regardless, if a settlement

is not reached, the most likely outcome of this adversary proceeding is a summary judgment ruling,

which the District Court would review de novo regardless of whether the ruling is characterized as

a judgment and reviewed by the District Court on appeal, or as a proposed ruling and reviewed

based upon an objection to that proposed ruling.


14

To this point, LIU argues that judicial economy is not served when a Bankruptcy Court

decides non-core issues because a district court must review the bankruptcy court’s orders de novo.

(LIU Renewed Withdrawal Motion, at ¶¶15-19.) LIU relies on language from Gecker suggesting

that the reference should be withdrawn to “avoid the inefficiency of two different judges ruling on

essentially the same” dispositive motions. 391 B.R. at 616. But if the District Court withdraws the

reference at this stage in the adversary proceeding, before discovery has commenced, “the case

would be referred to a magistrate judge for discovery purposes, requiring yet another new phase

of familiarization with the facts of this case” by a third judicial officer. STC, Inc., 2015 WL

1042431, at *4. “It is therefore not an efficient use of judicial resources to withdraw the reference

at this time.” Id.

More importantly, the logical result of LIU’s argument is that the reference should be

withdrawn in every case where the matter is non-core. But this cannot be and is not the case. If it

were, Congress would not have explicitly instructed bankruptcy courts to consider non-core claims

in the first instance and propose findings of fact and conclusions of law, subject to de novo review

in the district court. See 28 U.S.C. § 157(c). Further, the Supreme Court in Executive Benefits Ins.

Agency v. Arkison, 134 S. Ct. 2165 (2014), which post-dates both Stern and Gecker, would not

have approved this very procedure. Id. at 2172-73. This Court should therefore reject LIU’s

argument that judicial economy supports withdrawing this adversary proceeding over which the

Bankruptcy Court already has substantial familiarity. Otherwise, “the exception [i.e., withdrawal

of the reference] would swallow the rule because judicial economy and efficiency would then

never be promoted when a bankruptcy court hears a non-core issue.” In re HA 2003, Inc., No. 03-

C-9008, 2004 WL 609799, at *3 (N.D. Ill. Mar. 24, 2004) (denying motion to withdraw reference

early in non-core adversary proceeding concerning insurance coverage).


15

Simply put, “the bankruptcy court is familiar with the facts of this case and better equipped

to manage all pretrial matters and issues arising out of [USAG’s] bankruptcy estate.” In re Stein,

2017 WL 2418325, at *2; accord E & S Facilities, 181 B.R. at 374 (denying motion to withdraw

reference because “the interests of judicial economy and efficient case management weigh in favor

of continued litigation at the bankruptcy court level”). Judicial economy weighs in favor of

denying the LIU Renewed Withdrawal Motion.

C. Withdrawing The Reference Will Not Conserve Debtor And Creditor Resources. Withdrawing the reference will not conserve debtor and creditor resources and in fact will

do just the opposite. USAG is a not-for-profit entity with no significant assets other than the

insurance policies that are the subject of this adversary proceeding. It cannot afford for its chapter

11 case to be further prolonged. USAG is harmed every day that LIU persists in its dilatory

negotiation and litigation strategies. Moreover, USAG’s creditors, and in particular the Survivors,

are entitled to an efficient resolution of their claims. Keeping this adversary proceeding in the

Bankruptcy Court and on a parallel track with the chapter 11 case and the mediation will promote

efficiency, avoid duplication, and conserve creditor and debtor resources. Shifting it to the District

Court will do just the opposite.

Even if a final adjudication of this adversary proceeding by the District Court becomes

necessary, it will be more efficient to have the District Court review a report and recommendation

prepared by the Bankruptcy Court, rather than have the District Court independently duplicate

work that the Bankruptcy Court will also do to resolve the underlying bankruptcy case. Indeed,

“experience strongly suggests that having the benefit of a report and recommendation from the

Bankruptcy Court will save the District Court and the parties an immense amount of time.” Lehman

Brothers Holdings Inc. v. Standard Pacific Mortgage, Inc., et al., No. 19-CV-4080, 2019 U.S.


16

Dist. LEXIS 143871, at *10 (S.D.N.Y. Aug. 23, 2019) (denying motion to withdraw reference on

non-core claims on which parties were entitled to jury trial) (emphasis added); accord 880 S.

Rohlwing Road, LLC v. T&C Gymnastics, LLC, No. 16-CV-07650, 2017 WL 264504, at *10 (N.D.

Ill. Jan. 19, 2017) (“the bankruptcy court’s ability to handle pre-trial matters and to issue, as

necessary, proposed findings of fact and conclusions of law promotes judicial economy and weighs

against early withdrawal”). For that reason, the adversary proceeding should be maintained in the

Bankruptcy Court to conserve the resources of everyone involved.

D. USAG Has Not Engaged In Impermissible Forum Shopping.

Last, LIU incorporates by reference all of the arguments made in the Original Withdrawal

Motion and the Renewed Withdrawal Motion filed by Ace American Insurance Company and TIG

Insurance Company [Adv. Dkt. 192] (the “Ace & TIG Withdrawal Motion”). (LIU Renewed

Withdrawal Motion, at ¶10.) These motions both argue that the reference should be withdrawn as

a sanction for USAG’s alleged forum shopping. (Original Withdrawal Motion, at 15-17; Ace &

TIG Withdrawal Motion, at 17-21.) LIU contends that USAG improperly filed this adversary

proceeding in the Bankruptcy Court after the District Court closed the pre-petition litigation. The

District Court did not find this argument persuasive when considering the Original Withdrawal

Motion, and it still lacks merit now.

The focus of the forum shopping inquiry is whether a party acted with impermissible

motivations in moving litigation from one court to another. See Conseco Fin. Corp., 324 B.R. at

54-55; In re Bolen, No. 15-CV-44, 2015 WL 685869, at *2 (N.D. Ind. Feb. 18, 2015). In the Ace

& TIG Withdrawal Motion, the movants insinuate that USAG is now prosecuting this litigation in

the Bankruptcy Court rather than the District Court on the expectation that the Bankruptcy Court

is friendlier to USAG than the District Court. (Ace & TIG Withdrawal Motion, at 17-18.) But


17

nothing supports that conclusion. All the District Court had done prior to closing the pre-petition

litigation was set a case management schedule. (Id. at 18.) No defendant had filed an answer, no

discovery had been conducted, and only one defendant had filed a motion to dismiss that was

unresolved at the time USAG filed its chapter 11 case. The District Court had not ruled on any

merits issue in favor of or against USAG. Without any “adverse ruling” from the District Court,

USAG had no reason to seek out a purportedly friendlier forum. In re Bolen, No. 15-CV-44, 2015

WL 685869, at *2 (N.D. Ind. Feb. 18, 2015) (finding that party engaged in forum shopping when

it sought to move litigation between bankruptcy court and district court after receiving adverse

ruling).4

USAG also had no reason to suspect that the Bankruptcy Court would unduly favor it in

this litigation. When USAG filed this adversary proceeding, the Bankruptcy Court had not ruled

on the merits of any dispute between USAG and its insurers. Instead, the reason USAG filed the

adversary proceeding in the Bankruptcy Court was to promote judicial efficiency by having one

court administer both its bankruptcy case and this insurance coverage dispute, which proceedings

are inextricably interwoven. One cannot move forward without resolution of the other.

LIU also incorporates complaints by Ace and TIG Insurance Company that USAG engaged

in “procedural gamesmanship” by moving in the Bankruptcy Court for partial summary judgment

on some issues against some insurers, one by one. (Ace & TIG Withdrawal Motion, at 17-18.) But

no party has shown how the Bankruptcy Court’s consideration of the Partial Summary Judgment

4 USAG also disagrees with the contention in the Ace and TIG Withdrawal Motion that USAG filed an erroneous notice of stay and that the District Court erred when it administratively closed the case. (Ace & TIG Withdrawal Motion, at 17-18.) The insurers’ opposition to the declaratory judgment complaint would have constituted an act to exercise control over property of the estate—USAG’s insurance policies—and therefore the case was appropriately stayed under 11 U.S.C. § 362(a)(3). See In re Mid-City Parking, Inc., 332 B.R. 798, 807 n.7 (Bankr. N.D. Ill. 2005). Ace and TIG do nothing to rebut this argument, focusing exclusively instead on 11 U.S.C. § 362(a)(1). (Ace & TIG Withdrawal Motion, at 17-18.)


18

Motions prejudices them. Indeed, the PSJ Motion and LIU’s own cross-motion for summary

judgment have been pending and fully briefed for months. LIU cannot credibly argue that it has

not had an adequate opportunity to brief the issues that are before the Bankruptcy Court for

resolution, or that it has not been able to fully prepare for the hearing in September.

Further, USAG did not file summary judgment motions as part of a strategy to preclude

LIU or any other party from arguing that the disputes should be withdrawn to the District Court.

Instead, USAG filed the Partial Summary Judgment Motions because the parties reached impasse

on a discrete set of insurance coverage issues, which has jeopardized the resolution of this case

and progress in the mediation. Those issues need to be resolved as soon as practicable for the

benefit of USAG and all parties in interest, including LIU. Just because LIU disagrees with the

merits of USAG’s positions does not mean that USAG has sought out an undue advantage that is

the focus of the forum shopping inquiry. Conseco Fin. Corp., 324 B.R. at 54-55.

Finally, these attacks on the Partial Summary Judgment Motions misapprehend the effect

of withdrawing the reference. If the reference is withdrawn, nothing will preclude USAG (or any

other party) from moving for partial summary judgment on specific issues and against specific

parties one by one, and potentially on an expedited basis. Withdrawing the reference will simply

change the forum for those disputes to the District Court. To the extent LIU has genuine concerns

about the procedure and timeline for litigating the PSJ Motion or the other Partial Summary

Judgment Motions, those concerns can be addressed through appropriate case management orders

in the Bankruptcy Court, where considerations of judicial economy favor maintaining this


******

In the end, the LIU Renewed Withdrawal Motion overlooks LIU’s own improper


19

negotiating tactics that have delayed the resolution of USAG’s chapter 11 case, causing direct and

substantial harm to USAG, its estate, and Survivors who deserve to be compensated now. The LIU

Renewed Withdrawal Motion should be denied so that the Bankruptcy Court can promptly hear

and adjudicate the PSJ Motion and the other Partial Summary Judgment Motions, directing

USAG’s chapter 11 case to resolution.


20

CONCLUSION

For all of the foregoing reasons, USAG respectfully requests the Court deny, without

prejudice, the LIU Renewed Withdrawal Motion and grant such other relief as may be just.

Dated: September 3, 2019 Respectfully submitted,

JENNER & BLOCK LLP

By: /s/ Catherine L. Steege One of its Attorneys Catherine L. Steege (admitted pro hac vice) Melissa M. Root 353 N. Clark Street Chicago, Illinois 60654 (312) 222-9350 [email protected] [email protected]

-and-

PLEWS SHADLEY RACHER & BRAUN LLP George M. Plews Gregory M. Gotwald Tonya J. Bond 1346 North Delaware Street Indianapolis, Indiana 46202 (317) 637-0700 [email protected] [email protected] [email protected] Counsel for the Debtor


CERTIFICATE OF SERVICE

The undersigned hereby certifies that the foregoing USA Gymnastics’ Objection To Liberty Insurance Underwriters, Inc.’s Joinder To Renewed Motion Of Ace American Insurance Company, f/k/a Cigna Insurance Company And TIG Insurance Company To Withdraw The Reference And Renewed Motion Of Liberty Insurance Underwriters, Inc. To Withdraw The Reference Of The Adversary Proceeding was filed electronically this 3rd day of September, 2019. Notice of this filing will be sent to all parties by operation of the Court’s electronic filing system. Parties may access this filing through the Court’s electronic filing system.

/s/ Catherine L. Steege

Counsel for the Debtor


EXHIBIT B

USAG’s Objection To Ace And TIG’s Renewed Motion To Withdraw The Reference

Case 19-50012 Doc 225-2 Filed 09/11/19 EOD 09/11/19 19:45:09 Pg 1 of 32




Debtor.


USA GYMNASTICS, Plaintiff, v. ACE AMERICAN INSURANCE COMPANY f/k/a CIGNA INSURANCE COMPANY, GREAT AMERICAN ASSURANCE COMPANY, LIBERTY INSURANCE UNDERWRITERS INC., NATIONAL CASUALTY COMPANY, RSUI INDEMNITY COMPANY, TIG INSURANCE COMPANY, VIRGINIA SURETY COMPANY, INC. f/k/a COMBINED SPECIALTY INSURANCE COMPANY, WESTERN WORLD INSURANCE COMPANY, ENDURANCE AMERICAN INSURANCE COMPANY, AMERICAN INTERNATIONAL GROUP, INC., AMERICAN HOME ASSURANCE COMPANY, and DOE INSURERS Defendants.

Adv. Proc. No. 19-50012 in 18-09108-RLM-11

USA GYMNASTICS’ RESPONSE TO ACE AMERICAN INSURANCE COMPANY AND

TIG INSURANCE COMPANY’S RENEWED MOTION TO WITHDRAW THE REFERENCE OF THE ADVERSARY PROCEEDING




USA Gymnastics, as debtor and debtor-in-possession in the above-captioned chapter 11

case (the “Debtor” or “USAG”), responds to the Renewed Motion To Withdraw The Reference Of

The Adversary Proceeding [Adv. Dkt. 192] (the “Renewed Withdrawal Motion”), filed by Ace

American Insurance Company, f/k/a Cigna Insurance Company (“Ace”) and TIG Insurance

Company (“TIG” and, collectively with Ace American, the “Movants”), and states:

INTRODUCTION

Less than three months ago, the District Court denied all of the defendants’ initial motion

to withdraw the reference of this adversary proceeding. (See Adv. Dkt. 166.) The District Court’s

decision was correct then, and it is still correct now. In fact, since the District Court’s initial ruling,

the case for maintaining this adversary proceeding in the Bankruptcy Court has only grown

stronger.

Ace and TIG’s explanation for why they have re-filed their Renewed Withdrawal Motion

so quickly is that USAG allegedly reneged on an earlier representation that this adversary

proceeding would be stayed pending a mediation. In making this claim, Ace and TIG ignore that

the mediation is still on-going and, with the blessing of the mediator, USAG filed the pending

summary judgment motions to resolve several discrete legal issues about the extent of its coverage

under its TIG and Ace policies. The legal disputes with TIG and Ace have hampered USAG’s

ability to resolve the survivors’ claims through the mediation and therefore an answer is needed to

the question of how much insurance USAG has under the TIG and Ace policies. Preferring delay

to an answer, TIG and Ace have renewed their withdrawal motion in the hope of preventing the

bankruptcy court from answering these legal questions.

Allowing the Bankruptcy Court to address these legal issues in the first instance does not

harm Movants. The issues the Bankruptcy Court will decide are legal questions, subject to the

District Court’s de novo review, should any party disagree with the ruling. Moreover, because the


2

pending summary judgment motions raise legal issues, allowing the Bankruptcy Court to decide

them in the first instance will not deprive Ace or TIG of the jury trial they claim they will, but

have not yet, demanded. Significantly, by filing a proof of claim against USAG, Ace in fact has

no jury trial rights. See, e.g., Katchen v. Landy, 382 U.S. 323 (1966).

USAG, on the other hand, will be greatly harmed if the scheduled September 17 hearing

on its summary judgment motions is delayed because the reference is withdrawn. Instead of

obtaining a quick answer about the extent of USAG’s coverage, Ace and TIG will continue to use

the lack of any answer to stall progress in the mediation, threatening USAG’s reorganization. The

Bankruptcy Court, which is overseeing USAG’s reorganization and the mediation and, as a result

of that oversight, has developed significant knowledge about USAG’s insurance and the survivors’

claims, is in the best position to manage this adversary proceeding. It should be allowed to continue

to do so.

But even if there were no mediation, Ace and TIG have failed to state a case for withdrawal

of the reference at this early stage in this litigation. Movants’ primary arguments in support of their

Renewed Withdrawal Motion—that the Bankruptcy Court lacks the power to issue final judgments

in non-core matters and that Movants may in the future demand a jury trial—could become moot

depending on what happens pre-trial. For this reason, the overwhelming majority of courts refuse

to withdraw the reference due to a jury demand until the case is ready for the jury trial to begin.

Here, Movants have not made jury demands. And if no jury demands are made, allowing the

Bankruptcy Court to issue a report and recommendation will greatly expedite the District Court’s

review of the legal issues.

Simply put, allowing the Bankruptcy Court to guide the parties through the pre-trial process

is the most efficient use of judicial resources and will promote uniformity of bankruptcy


3

administration, foster economical use of debtor and creditor resources, and accelerate the

bankruptcy process. USAG respectfully requests that the District Court deny the Renewed

Withdrawal Motion without prejudice to the rights of Movants to refile the Renewed Withdrawal

Motion if the case ever becomes trial ready and if Movants have in fact properly demanded a jury

trial.

BACKGROUND

A. The Bankruptcy Case.

On December 5, 2018, USAG filed a voluntary petition for relief under chapter 11 of the

Bankruptcy Code. At the time it filed its case, hundreds of lawsuits were pending against USAG,

most arising out of sexual abuse committed by Lawrence Nassar. USAG determined that the

Bankruptcy Court provided the most efficient and equitable forum in which to determine the rights

of the hundreds of plaintiffs making claims and to distribute its limited insurance to those holding

allowed claims (the “Survivors”).

USAG has maintained various comprehensive general liability and directors’ and officers’

primary, excess, and umbrella insurance policies. USAG’s insurance policies are the single

greatest asset of its estate, and the coverage under those policies will fund recoveries to Survivors

holding allowed claims against USAG. See, e.g., Home Ins. Co. v. Cooper & Cooper, Ltd., 889

F.2d 746, 748 (7th Cir. 1989) (“A policy of insurance is an asset of the estate”); In re Stinnett, 321

B.R. 477, 483-85 (S.D. Ind. 2005) (holding that insurance policy and proceeds were property of

estate), aff’d, 465 F.3d 309, 312-13 (7th Cir. 2006) (same).

USAG’s insurance policies have various coverage periods and terms. TIG and Ace have

wrongfully argued that certain policy exclusions or misconstructions of policy language limit the

amount of coverage that they must provide to USAG to cover the claims of the Survivors. It is


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critical that USAG determine the amount of coverage under its insurance policies so that it may

move forward in its bankruptcy case and bring resolution to the sexual abuse claims.

To that end, USAG commenced a court-approved mediation with the Additional Tort

Claimants Committee of Sexual Abuse Survivors, individual Survivors, USAG’s insurers, and

other parties in interest. The goal of the mediation is to achieve “the resolution of the sexual abuse

claims; the resolution of any disputes relating to the applicability of [USAG’s] insurance coverage

to the sexual abuse claims and [USAG’s] insurance carriers’ obligations to fund distributions on

the sexual abuse claims, and related defense costs; and the resolution of any other matters

necessary to equitably determine the rights of, and allocate recoveries to, survivors holding

allowed sexual abuse claims.” (Bankr. Dkt. 514, at ¶2; Bankr. Dkt. 452, at ¶8.).

B. This Adversary Proceeding.

USAG filed this adversary proceeding on February 1, 2019 against nine of its insurers,

including TIG and Ace. On March 5, 2019, all of the defendants filed a Joint Motion To Withdraw

The Reference Of The Adversary Proceeding [Adv. Dkt. 37] (the “Original Withdrawal

Motion”) and a Motion For Stay Of The Adversary Proceeding [Adv. Dkt. 38] (the “Stay

Motion”). Ultimately only Liberty Insurance Underwriters, Inc. (“LIU”) pressed the Stay Motion.

On May 23, 2019, the Bankruptcy Court entered an order denying the Stay Motion with respect to

LIU. (Adv. Dkt. 147.)

On June 7, 2019, the Bankruptcy Court entered an agreed order staying the adversary

proceeding with respect to all of the defendants other than LIU through the date of the September

omnibus hearing, which at that time was scheduled for September 18, 2019, but has now been

moved to September 17. (Adv. Dkt. 155.) TIG and Ace characterize the June 7 Order as imposing

a “court-ordered Mediation Stay” (Renewed Withdrawal Motion, at 4), but that is not accurate.


5

The June 7 Order did not stay the adversary proceeding pending the outcome of the mediation, nor

did it even reference the mediation. Rather, the Order was entered in connection with USAG’s

motion to approve debtor-in-possession financing from Great American Assurance Company and

Combined Specialty Insurance Company, which asked for this stay as a condition to making their

loans. (See Bankr. Dkt. 479 at Ex. C, § 3.2(b), Ex. D, § 3.2(b); Bankr. Dkt. 513.) Neither Ace nor

TIG agreed to loan USAG money, and the two carriers who did offer these loans have not joined

the Renewed Withdrawal Motion. USAG also has not drawn on the loan.

On June 10, 2019, the District Court conducted a status conference on the Original

Withdrawal Motion. During that conference, the District Court noted, among other things, its busy

docket and the efficiencies of having the Bankruptcy Court preside over this adversary proceeding.

The very next day, on June 11, 2019, the District Court denied the Original Withdrawal Motion,

noting that defendants could renew the Motion “if the case does not settle.” (Dist. Dkt. 18-cv-1306,

ECF No. 101.) The District Court also denied LIU’s request for an emergency stay. (Id.)

On August 7, 2019, USAG filed its Motion For Partial Summary Judgment Against TIG

Insurance Company [Adv. Dkt. 173] (the “First TIG Motion”) and its Motion For Partial

Summary Judgment Against Chubb [Adv. Dkt. 174] (the “Chubb Motion”). On August 27, 2019,

USAG filed its Motion For Partial Summary Judgment Against TIG Insurance Company On Lost

Policies [Adv. Dkt. 204] (the “Second TIG Motion” and, collectively with the TIG and Chubb

Motions, the “Partial Summary Judgment Motions”). The Partial Summary Judgment Motions

ask the Bankruptcy Court resolve three discrete legal issues: (1) whether certain abuse and

molestation exclusions in TIG’s insurance policies apply to the Survivors’ claims; (2) whether TIG

supplied USAG with coverage for certain years where USAG cannot locate the complete policies;

and (3) whether USAG is entitled to coverage under each policy year for which it has evidence of


6

Chubb insurance policies. (First TIG Motion, at ¶¶1-5; Second TIG Motion at ¶¶1-5; Chubb

Motion, at ¶¶1-6.) The Bankruptcy Court has set a briefing schedule on the Partial Summary

Judgment Motions and will hear argument on September 17, 2019.

As of the date of this Response, neither of the Movants has answered USAG’s complaint

or demanded a jury trial. Ace, however, has filed a proof of claim in USAG’s case. Ace’s proof of

claim states that Ace holds an unliquidated claim arising from “certain insurance policies” Ace

issued “to the Debtor as named insured.” (Claim 294, Ex. A, attached hereto, at ¶3.) These policies

are the same insurance policies at issue in this adversary proceeding. (Id. at ¶4.)

RESPONSE

I. Standard For Permissive Withdrawal Of The Reference.

The District Court has original, but not exclusive, jurisdiction over all bankruptcy

proceedings. 28 U.S.C. § 1334(b). The Bankruptcy Court exercises such jurisdiction under a

standing order of reference, as provided by 28 U.S.C. § 157(a); see also S. Dist. Ind. Local R. 83-

8 (providing for automatic referral of bankruptcy cases to the Bankruptcy Court for the Southern

District of Indiana). Once a title 11 proceeding has been referred to the Bankruptcy Court, the

District Court’s authority to withdraw the reference is governed by 28 U.S.C. § 157, which

provides for both mandatory and permissive withdrawal. Only permissive withdrawal is at issue

here. (Renewed Withdrawal Motion, at 10-12.) Permissive withdrawal is appropriate “for cause

shown.” 28 U.S.C. § 157(d). As the movants, Ace and TIG bear the burden to show cause. In re

Stein, No. 17-CV-00561-TWP-MJD, 2017 WL 2418325, at *1 (S.D. Ind. Jun. 2, 2017) (denying

motion to withdraw reference).

“A district court has broad discretion in determining whether to withdraw a reference based

on cause, but permissive withdrawal is the exception, rather than the rule.” Gecker v. Marathon

Fin. Ins. Co., 391 B.R. 613, 614-15 (N.D. Ill. 2008) (internal quotations and citations omitted). As


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the Supreme Court recognized in its seminal decision, Stern v. Marshall, 564 U.S. 462 (2011),

under the “division of labor” envisioned by §157 of the Judicial Code, bankruptcy courts will hear

most adversary proceedings and contested matters in the first instance, even those in which they

may not issue judgments. Id. at 502. As one district court in the Seventh Circuit explained,

“[a]lthough withdrawal is an important component of [the statutory] scheme, the court must

employ it judiciously in order to prevent it from becoming just another litigation tactic for parties

eager to find a way out of the bankruptcy court.” STC, Inc. v. Global Traffic Technologies, LLC,

No. 15-CV-0037, 2015 WL 1042431, at *4 (S.D. Ill. Mar. 6, 2015) (quoting In re Enron Corp.,

295 B.R. 21, 28 (S.D.N.Y. 2003)).

Section 157(d) does not define cause. When making a determination whether cause exists

for permissive withdrawal, a court may consider:

a. judicial economy, convenience, and the particular court’s knowledge of the facts;

b. the promotion of uniformity and efficiency of bankruptcy administration; c. the reduction of forum shopping and confusion; d. the conservation of debtor and creditor resources; e. whether the proceeding is core or non-core; and, f. whether the parties have requested a jury trial.

Gecker, 391 B.R. at 615 (applying above factors and denying motion to withdraw reference).

II. Permissive Withdrawal Is Still Not Appropriate In This Adversary Proceeding.

Ace and TIG cannot satisfy their burden of establishing cause, particularly at this stage in

the adversary proceeding.

A. The Core/Non-Core Determination And Movants’ Expectation That They Will Assert A Jury Demand Do Not Require Withdrawal Of The Reference.

As they did in the Original Withdrawal Motion, Movants focus primarily on two of the

“cause” factors: whether the Bankruptcy Court may enter a judgment or only a proposed ruling


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(i.e., whether the case is core or non-core) and whether the parties have requested a jury trial.

(Renewed Withdrawal Motion, at 12-15.)

1. Ace Has Waived Its Jury Trial Rights And The Bankruptcy Court Can Enter Judgment Against Ace.

By filing a proof of claim against USAG which raises the same issue as this adversary

proceeding, Ace has forfeited both its right to a jury trial and its right to assert that the Bankruptcy

Court may not constitutionally enter a judgment in this adversary proceeding. With respect to any

future jury demand, the United States Supreme Court held in a trilogy of decisions—Katchen v.

Landy, 382 U.S. 323 (1966), Langenkamp v. Culp, 498 U.S. 42 (1990), and Granfinanciera, S.A

v. Nordberg, 492 U.S. 33 (1989)—that, by filing a proof of claim, a creditor waives its right to a

jury trial in actions brought by the bankruptcy estate against that creditor. Thus, when Ace filed

its proof of claim, Ace waived its right to trial by jury in this adversary proceeding. Id.; accord

Vlastelica v. Novoselsky, No. 15-CV-0910, 2015 WL 6393968, at *3 (Bankr. E.D. Wis. Oct. 21,

2015); see also Matter of Peachtree Lane Associates, Ltd., 150 F.3d 788, 798 (7th Cir. 1998)

(“Those creditors who had filed proofs of claim ... were not entitled to a jury trial because by filing

a claim, those creditors had brought themselves within the equitable jurisdiction of the bankruptcy

court”).

By filing its proof of claim, Ace also forfeited its right to argue that the Bankruptcy Court

may not constitutionally enter judgment in this adversary proceeding. In Stern v. Marshall, the

Supreme Court acknowledged that principles of res judicata and collateral estoppel apply in

bankruptcy cases and therefore, bankruptcy courts may constitutionally enter judgments when

deciding the bankruptcy estate’s claim against the creditor also decides the creditor’s proof of

claim. 564 U.S. at 496-98. Here, Ace argues that it is not responsible to provide coverage to USAG

for certain policy years and it makes the same argument in its proof of claim. Because USAG’s


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claims against Ace “bear[] directly on the allowance of [Ace’s] claim” against USAG, this

A

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