In re Alexander Seawright Transp., LLC, CASE NO. 19-00217-NPO

IN RE: ALEXANDER SEAWRIGHT TRANSPORTATION, LLC, DEBTOR.

CASE NO. 19-00217-NPO

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF MISSISSIPPI

March 18, 2019

The Order of the Court is set forth below. The docket reflects the date entered.

CHAPTER 11

MEMORANDUM OPINION AND ORDER DENYING EMERGENCY MOTION FOR IMPOSITION OF THE AUTOMATIC STAY, FOR DAMAGES, SANCTIONS AND FOR CONTEMPT

This matter came before the Court for hearing on March 1, 2019 (the "Hearing"), on the Emergency Motion for Imposition of the Automatic Stay, for Damages, Sanctions and for Contempt (the "Emergency Motion") (Dkt. 76) filed by the debtor, Alexander Seawright Transportation, LLC (the "Debtor"); the Response to Debtor's Emergency Motion for Imposition of the Automatic Stay, for Damages, Sanctions and for Contempt (the "Premco Response") (Dkt. 93) filed by Premco Financial Corporation, Inc. ("Premco"); the Response to Emergency Motion for Imposition of the Automatic Stay, for Damages, Sanctions and for Contempt (the "Southern Response") (Dkt. 95) filed by Southern Insurance Specialist, Corp. ("Southern"); the First Light Program Managers, Inc.'s Preliminary Response and Objection to Debtor's Emergency Motion for Imposition of the Automatic Stay and Other Relief (the "First Light Response") (Dkt. 98) filed by First Light Program Managers, Inc. ("First Light"); and the First Light Program Managers's Supplemental Response and Objection to Debtor's Emergency Motion for Imposition of the Automatic Stay, for Damages, Sanctions and for Contempt (the "First Light Supplemental Response") (Dkt. 110) filed by First Light in the above-referenced bankruptcy case (the "Bankruptcy Case"). Additionally, there came before the Court for a status conference on March 1, 2019, the Motion for Abandonment and Relief from Automatic Stay, or, Alternatively, for Adequate Protection, with Respect to Premium Financing Contracts (the "Premco Motion") (Dkt. 63) filed by Premco in the Bankruptcy Case. At the Hearing, Craig M. Geno represented the Debtor; Jeffrey Ryan Barber represented Premco; William W. Busching represented Southern; and William H. Leech and Sarah Elizabeth Wilson represented First Light. During the Hearing, the Debtor introduced into evidence two (2) exhibits; Southern introduced into evidence two (2) exhibits; and First Light introduced into evidence three (3) exhibits.¹ The Debtor presented the testimony of one (1) witness: Timothy Savell ("Savell"), the Operations Manager of the Debtor,² and Southern presented the testimony of one (1) witness: Peter F. Keyes ("Keyes"), the owner of Southern.³ First Light did not present any witnesses at the Hearing. The Court ruled from the bench at the Hearing, and this Opinion memorializes and supplements the Court's bench ruling.⁴

Jurisdiction

This Court has jurisdiction over the parties to and the subject matter of this proceeding pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(G) and (O). Notice of the Hearing was proper under the circumstances.

Facts

1. On January 4, 2019, the Debtor's physical damage insurance policy and the Debtor's cargo insurance policy (the "2018 Policies") were cancelled due to non-payment of the monthly premiums.⁵

2. On January 18, 2019, at approximately 9:30 a.m., Savell arrived at Keyes' office at Southern to begin the process of obtaining physical damage insurance and cargo insurance for the Debtor (the "Prepetition Meeting"). Savell claims that he left Keyes' office at approximately 10:00 a.m. after completing an insurance application and with the understanding that the Debtor had physical damage insurance coverage⁶ and cargo insurance coverage.⁷ Nothing in the record suggests that Savell, or anyone else, disclosed to Keyes that the Debtor intended to file the Voluntary Petition for Non-Individuals Filing for Bankruptcy (the "Petition") under chapter 11 of the United States Bankruptcy Code (the "Code") less than one (1) hour after the Prepetition Meeting.

3. On January 18, 2019, at 11:13 a.m., the Debtor filed the Petition. (Dkt. 1).

4. Jon Seawright ("Seawright") is the manager of the Debtor⁸ (Dkt. 1) and a licensed practicing attorney and shareholder in the Jackson, Mississippi office of a law firm with over 700 attorneys. On January 18, 2019, at 3:30 p.m., Seawright emailed Keyes a signed copy of the Insurance Proposal for Alexander Sewright [sic] Transportation (the "Insurance Proposal"), which contains information regarding the Debtor's physical damage insurance coverage with Certain Underwriters at Lloyd's of London ("Lloyd's"); information regarding the Debtor's cargo insurance coverage with Aspen American Insurance Company ("Aspen"); a request for insurance coverage to be bound; a payment agreement between the Debtor and Southern (the "Payment Agreement"); and the Insurance Premium Finance Contract and Disclosure Statement (the "Financing Agreement") between the Debtor and Premco. (Southern Ex. 1). Nothing in the record suggests that Seawright, Savell, or anyone else on behalf of the Debtor, disclosed to Premco, Southern, or First Light that the Debtor had filed the Petition approximately (4) hours earlier.

5. On January 18, 2019, Southern issued to the Debtor the Certificate of Liability Insurance, evidencing physical damage insurance coverage (Policy No. MSAPD18076) (the "Physical Damage Insurance Policy") and cargo insurance coverage (Policy No. IM00AF219) (the "Cargo Insurance Policy") (collectively, the "2019 Policies") effective as of "1/18/2019" and expiring on "1/18/2020." (Debtor Ex. 1).

6. On February 15, 2019, First Light, on behalf of Lloyd's, issued to the Debtor the Notice of Cancellation (the "Cancellation Notice"), notifying the Debtor that its physical damage insurance coverage would terminate on "3/2/2019 Hour Standard Time: 12:01 AM" due to "nonpayment of premium." (Debtor Ex. 2).

7. On February 22, 2019, the Debtor filed the Emergency Motion, asserting that the 2019 Policies were in effect prepetition and, thus, the Court should enforce the automatic stay and reinstate the Physical Damage Insurance Policy.

8. On February 28, 2019, Premco filed the Premco Response, asserting that it should be allowed to respond to the Emergency Motion and to participate in the Hearing because of "its role in the process of financing the insurance premiums." (Dkt. 93). The Court will address Premco's concerns regarding the 2019 Policies when it considers the Premco Motion on March 19, 2019.

9. On February 28, 2019, Southern filed the Southern Response, asserting that the automatic stay provisions are inapplicable because the Debtor applied for the Physical Damage Insurance Policy and signed the Financing Agreement postpetition. Southern further asserted that Premco "forwarded the financed funds for the Debtor's [2019 Policies] to [Southern], to be held in trust, until such time as the contractual conditions had been met." (Dkt. 95). Once the Debtor satisfied its contractual conditions, "[Southern] would send the funds [to] the insurance carrier." (Id.) The Debtor did not satisfy its contractual conditions, and pursuant to the terms of The Schedule (the "Physical Damage Insurance Agreement") (First Light Ex. 2), First Light sent the Cancellation Notice to the Debtor. Premco then informed Southern that the Debtor failed to disclose its financial condition upon signing the Financing Agreement. To date, Southern "is holding, in trust, the funds financed by Premco for payment of the Debtor's premiums and will continue to hold said funds until the Court directs it to do otherwise." (Dkt. 95) Southern further asserts that the Debtor is in violation of Rule 4001(c) of the Federal Rules of Bankruptcy Procedure ("Rule 4001(c)") "by entering into post-petition financing without obtaining this Court's[a]pproval." Finally, Southern asserts that the Debtor has acted in bad faith by "obtain[ing] credit without the statutorily required approval and without the required notice to creditors." (Id.)

10. On February 28, 2019, First Light filed the First Light Response, asserting that the Court should deny the Emergency Motion because the Debtor obtained the Physical Damage Insurance Policy postpetition "without approval of this Court and without First Light's knowledge of the filing of [the Petition]." (Dkt. 98). Thus, "the automatic stay was not in effect, or in the alternative, First Light is entitled to relief from the automatic stay." (Id.)

11. On March 1, 2019, First Light filed the First Light Supplemental Response, asserting that the 2019 Policies are "void ab initio, and that the Debtor did not have any contractual rights that are or should be protected by the automatic stay." Alternatively, the Cancellation Notice does not violate the automatic stay "because insurance policies cannot be rewritten to prevent the termination of a contract by their own terms." (Dkt. 110).

Discussion

As a preliminary matter, the Court finds that it would be helpful to provide a brief discussion of the relationship between the parties involved in the Hearing. The Debtor is a trucking company. Southern serves as an insurance agent for trucking companies. Acting as the Debtor's insurance agent, Southern negotiated for and obtained physical damage insurance coverage through Lloyd's and cargo insurance coverage through Aspen. First Light operates as a coverholder for Lloyd's; it bound the Physical Damage Insurance Policy, and it has the authority, inter alia, to collect premiums and to issue a notice of cancellation when the insured fails to make a payment. Premco, an insurance premium finance company, provided financing for the Debtor's premium payments on the 2019 Policies. In accordance with the Financing Agreement, Premcoadvanced money to Southern to be held in trust until the premium payments on the 2019 Policies become due and are forwarded to Lloyd's and Aspen.

The Court scheduled the Hearing to resolve the Emergency Motion before the termination of the Property...