Osherow v. Travelers Prop. Cas., Co. of Am. (In re Legendary Field Expeditions)

637 B.R. 584

IN RE: LEGENDARY FIELD EXPEDITIONS, Debtor.

Randolph Osherow, Chapter 7 Trustee, Plaintiff.

v.Travelers Property Casualty, Company of America, Defendant.

CASE NO. 19-50900-cag

ADVERSARY NO. 21-05034-cag

United States Bankruptcy Court, W.D. Texas, San Antonio Division.

Signed February 11, 2022

Thomas Andrew Woolley, III, McCloskey Roberson & Woolley, PLLC, Houston, TX, for Plaintiff.

Patrick L. Huffstickler, Dykema Cox Smith, San Antonio, TX, for Defendant.

ORDER GRANTING IN PART, DENYING IN PART, DEFENDANT'S MOTION FOR SUMMARY JUDGMENT (ECF NO. 11)

CRAIG A. GARGOTTA, CHIEF UNITED STATES BANKRUPTCY JUDGE

Came on for consideration the above-numbered adversary proceeding and, in particular, Travelers Property Casualty Company of America's ("Travelers" or "Defendant") Motion for Summary Judgment (ECF No. 11) ("Motion or MSJ"). Randolph Osherow ("Trustee" or "Plaintiff") filed his Response (ECF No. 18), and Defendant filed its Reply (ECF No. 21).¹ The Court took the matter under advisement without the necessity of a hearing. After considering the pleadings and arguments contained therein, the Court finds that the Motion should be granted in part, and denied in part.

This Court has jurisdiction over this matter under 28 U.S.C. §§ 1334 (a) and (b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(F) because it involves a proceeding to determine, avoid, or recover a preference. Venue is proper under 28 U.S.C. §§ 1408 and 1409. This matter is referred to the Court pursuant to the District Court's Standing Order of Reference. The parties have consented to this Court's authority to enter a final order. (ECF Nos. 9 and 10).

BACKGROUND

AAF Players LLC DBA Alliance of American Football was a professional American football league founded in 2018. The league consisted of eight teams in the southern and western United States. The league played for part of the 2019 season before disbanding and filing for Chapter 7 bankruptcy protection on April 17, 2019. On April 17, 2019, AAF Players, LLC; AAF Properties, LLC; Legendary Field Exhibitions, LLC; and Ebersol Sports Media Group, Inc. (collectively, "AAF") each filed a chapter 7 bankruptcy case in this Court. After a hearing on July 3, 2019, the cases of all the AAF debtors were substantively consolidated into one lead case numbered 19-50900-cag (Case No. 19-50900, ECF No. 150).

During its brief existence, AAF was required by law to maintain workers’ compensation insurance. See Ga. Code Ann. §§ 34-9-120, 34-9-121(a) (West 2021) (workers compensation insurance required by businesses in Georgia) and Ga. Code Ann. § 34-9-126 (employer must submit evidence of workers compensation coverage to Georgia's State Board of Workers Compensation). Because AAF was unable to obtain this insurance in the voluntary market, AAF applied to Georgia's Workers’ Compensation Insurance Plan, an "assigned risk plan" established by the State of Georgia. See Ga. Code Ann. § 34-9-133. Many states, such as Georgia, have established assigned risk plans as a "market of last resort" for companies unable to obtain required insurance. Private insurers, like Travelers, are required to participate in the assigned risk system and are randomly assigned applications to issue policies. See Ga. Comp. R. & Regs. 120-2-38-.07.

AAF submitted its application to the National Council of Compensation Insurance ("NCCI"), which serves as the Administrator for Georgia's Assigned Risk Workers’ Compensation Insurance Plans. NCCI bound the assigned risk coverage and assigned the application to Travelers to issue an assigned risk workers compensation policy. See Belins Declaration, ¶ 4, at page 3, and Exhibit 1 thereto.² Thereafter, Travelers issued to AAF its Workers Compensation and Employer's Liability Policy (policy number R6EJUB-1K75553-8-18) with a policy period of December 7, 2018 through December 7, 2019 (the "Policy"). See Belins Declaration, ¶ 4, at page 3, and Exhibit 2 thereto (a copy of the Policy).

Because the Policy premium exceeded $250,000, the Policy was subject to NCCI's Loss Sensitive Rating Plan ("LSRP") requirements. See Belins Declaration, ¶ 5, at page 3, and Exhibit 2 thereto (the LSRP Endorsements and NCCI Guide included with the Policy). According to Defendant, unlike guaranteed cost assigned risk workers’ compensation policies, which have a set and established premium that does not change or adjust based on losses, an LSRP policy has premiums that adjust based on losses incurred during the policy period.

As such, the insured bears some of the risk for claims during the policy period. The LSRP requires that the insured make a "contingency deposit" equal to 20% of the premium. Per the terms of the LSRP, the contingency deposit "serves as collateral for premium that may be due to the assigned carrier as a result of losses incurred during the policy term." See Belins Declaration, ¶ 6, at page 4.

At the inception of the Policy, AAF owed a total of $3,521,671. This amount represents the initial premium and certain other charges in the amount of $2,935,452, plus the LSRP deposit in the amount of $586,219. On January 9, 2019, AAF made a down payment of the premium in the amount of $1,467,726 (equal to one half of the initial premium). See Belins Declaration, ¶ 6, at page 4. On January 14, 2019, Travelers sent an invoice for the remaining balance of $2,053,945 (equal to the remaining initial premium of $1,467,726 plus the LSRP deposit of $586,219). On January 22, 2019, AAF made a second payment in the amount of $1,467,727 (equal to the second half of the initial premium plus one dollar). See Belins Declaration, ¶ 7, at pages 4-5. Stated differently, the January 22, 2019 payment from AAF covered the remaining initial premium balance (plus one dollar), but not the LSRP contingency deposit. Defendant asserts that the policy, applicable NCCI rules and regulations, and applicable insurance law required payment of the LSRP deposit

On February 11, 2019, Defendant sent an invoice for the remaining balance of $586,218 (equal to the amount of the LSRP contingency deposit minus one dollar), stating the payment must be received by March 1, 2019 as required under applicable assigned risk policy rules. Two days later, on February 13, 2019, Defendant sent a notice of cancellation pursuant to NCCI policy and law, stating that the Policy would be cancelled effective March 25, 2019, subject to reinstatement if the $586,218 was paid on or before that date. On March 22, 2019, AAF paid the outstanding amount of the contingency deposit of $586,218 (the "Transfer"). Defendant applied the Transfer to the outstanding LSRP contingency deposit. The Policy was reinstated and full coverage under the Policy continued, protecting AAF against workers compensation claims under the Policy. See Belins Declaration, ¶ 8, at page 5. Trustee argues that the Transfer, made more than 100 days after it was due, more than 60 days after the initial premium payments were made, and only twenty-five days before Debtors voluntarily filed for chapter 7, is a preferential payment.

Trustee states that Debtors agreed to pay Travelers $3,521,671 (the "Premium"). See Policy at p. 9 of 128. Also, Trustee posits that Travelers admits the entire Premium amount was due at the inception of the Policy period. See Motion at ¶ 7 ("At the inception of the Policy, [Debtor] owed a total of $3,521,671..."); ¶ 16 (stating that Premium invoices show: "obligations owed, and amounts paid."). Trustee maintains that the Belins Declaration conclusively establishes this. ("At the inception of the Policy, ... [Debtor] owed $3,521,671...") Id . at ¶ 20 ("When [Debtor] did not pay its Policy obligations in full..."). Further, Trustee argues that Debtors might owe more (or less) than the Premium based on the policy, but that there is no dispute Debtors owed the full amount of the Premium at the Policy's inception. Moreover, Trustee argues that the "total estimated premium" included an LSRP payment which acted as a deposit until the final amount due was determined. The LSRP amount was simply one component of the total Premium, which, like the other Premium components, was due upon issuance of the Policy. Trustee also argues that Debtors’ bank statement indicates the Transfer was made on March 25, 2019. See Exhibit 1, Trustee Declaration and Exhibit 1-A, Debtors’ bank statements. At no time was coverage rescinded, changed, or interrupted.

After AAF ceased operating and filed its Chapter 7 bankruptcy, the Policy was cancelled effective May 7, 2019. In September of 2019, Travelers calculated the LSRP retrospective rating adjustment and determined total plan charges of $4,832,210 were due under the Policy and the LSRP rules governing the Policy. See Belins Declaration, ¶ 10, at page 6.³

SUMMARY JUDGMENT STANDARD

Bankruptcy Rule 7056 applies Federal Rule of Civil Procedure 56(c) to adversary proceedings. Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c) ; Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If summary judgment is appropriate, the Court may resolve the case as a matter of law. Celotex Corp. , 477 U.S. at 323, 106 S.Ct. 2548 ; Blackwell v. Barton , 34 F.3d 298, 301 (5th Cir. 1994). The Fifth Circuit has stated "[t]he standard of review is not merely whether there is a sufficient factual dispute to permit the case to go forward, but whether a rational trier of fact could find for the non-moving party based upon evidence before the court." James v. Sadler , 909 F.2d 834, 837 (5th Cir. 1990) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp. , 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ).

To prevail on summary judgment, the moving party has the burden of showing...