Universal Life Ins. Co. v. Lindberg (In re PB Life & Annuity Co.)

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In re PB LIFE AND ANNUITY CO., LTD., et al., Debtors in Foreign Proceedings

UNIVERSAL LIFE INSURANCE COMPANY, Plaintiff-Appellant, v. GREG E. LINDBERG, individually, CHRIS HERWIG, individually, AAPC HOLDINGS, LLC, ACADEMY FINANCIAL ASSETS, LLC, AGH PARENT, LLC, ALPINE CAPITAL, LLC, ASIM HOLDINGS, LLC, ASL HOLDINGS, LLC, ATKINSON, LLC, ATLANTIC COAST LIFE INSURANCE COMPANY, ATLAS FINANCIAL INVESTMENTS, LLC, AUGUSTA ASSET MANAGEMENT, INC., BEGONIA EIGHT, LLC, BLH CAPITAL, LLC, BLUE DAFFODIL, LLC, BLUE VIOLET, LLC, CAPITAL ASSETS FUND I, LLC, CAPITAL ASSETS FUND n, LLC, CAPITAL ASSET MANAGEMENT I, LLC, CAPITAL ASSETS MANAGEMENT II, LLC, CAPITAL ASSETS MANAGEMENT III, LLC, CARNATION THREE, LLC, CHATSWORTH ASSET MANAGEMENT, LLC, CHRYSANTHEMUM TWO, LLC, CSIINTERCO, LLC, DAHLIA TEN, LLC, DAISY SEVEN, LLC, DRUMMOND GROUP, LLC, DUNHILL HOLDINGS, LLC, ELI GLOBAL, LLC, ENGLERT HOLDINGS, LLC, EPPING, LLC, ERIE PROPERTIES, LLC, FLAGSHIP HOLDINGS, LLC, FLEET ASSIST INTERCO LIMITED, FLOWERY BRANCH, LLC, FORSYTH. LLC, FORTREX, LLC, GBIG CAPITAL, LLC, GBIG HOLDINGS, INC., GBI GROUP, LLC, GERANIUM TWO, LLC, GILFORD ASSET MANAGEMENT, LLC, GLOBAL BANKERS INSURANCE GROUP, LLC, GLOBAL GROWTH HOLDINGS, INC., GLOBAL INSURANCE CAPITAL, LLC, GREENFIELD CAPITAL, LLC, HAMPTON ASSET MANAGEMENT, INC., HANSEN AEROSPACE, LLC, HEALTHLINK HOLDINGS, LLC, HOOKSETT, LLC, HUTCHISON LAW GROUP, PLLC. INTEGRITY EMR HOLDINGS, LLC, INTEGRITY EMR, LLC, IRON CITY ASSET MANAGEMENT, INC., ITECH FUNDING, LLC, JACKSON ASSET MANAGEMENT, INC., KITE ASSET MANAGEMENT, INC., LILAC SIX, LLC, MACON, LLC, MORNING MOUNTAIN HOLDINGS, LLC, NETHERLANDS INSURANCE HOLDINGS, INC., NEW ENGLAND CAPITAL, LLC, NIH CAPITAL, LLC, NOM GB 2018 I, LLC, PARADIGM PARK HOLDINGS, LLC, PARALLEL CAPITAL ASSETS, LLC, PERSHING, LLC, RED BEGONIA, LLC, REVOLVERCAP PARTNERS FUND, LP, SATORI WATERS, LLC, SEDWICK, LLC, SENTINEL SECURITY LIFE INSURANCE COMPANY, SOMERSWORTH, LLC, STANDARD ADVISORY SERVICES, LTD, STANDARD FINANCIAL LIMITED, STANDARD INVESTMENT CAPITAL, LTD, TREATMENT RESOURCES OF MARGATE, INC., TRITON FINANCIAL LIMITED, TUX HOLDINGS, LLC, TYBEE ISLAND ASSET MANAGEMENT, LLC, UKAT HOLDINGS, LLC, UKAT INVESTMENT LIMITED, VERDESIAN LIFE SCIENCES, LLC, WEARE, LLC, YELLOW LOTUS, LLC, YELLOW SUNFLOWER, LLC, UBS FINANCIAL SERVICES, INC., GOLDMAN SACHS LENDING PARTNERS, LLC, CREDIT SUISSE AG CAYMAN ISLANDS BRANCH, GOLDMAN SACHS BANK USA, MORGAN STANLEY SENIOR FUNDING, INC., THE BRYN MAWR TRUST COMPANY, and DOES 1 through 10, inclusive, Defendants-Appellees.

No. 22 Civ. 5122 (AT)

United States District Court, S.D. New York

July 31, 2023

ORDER

ANALISA TORRES, District Judge

Plaintiff-Appellant Universal Life Insurance Company (“ULICO”) appeals a final judgment of the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). See ECF No. 1. The Bankruptcy Court dismissed ULICO's action against the Defendants-Appellees (“Defendants”) for lack of subject matter jurisdiction on April 15, 2022, and denied ULICO's request to alter or amend the judgment of dismissal on June 1, 2022. Id. at 8-15. For the reasons stated below, the Bankruptcy Court's orders are REVERSED, and the case is REMANDED to the Bankruptcy Court for further proceedings.

BACKGROUND^[1]

I. Factual Background

ULICO, a Puerto Rican insurance company, sells annuities and life insurance policies to individuals. App. at A-3, A-6 ¶¶ 1, 17, ECF No. 31-1. In June 2017, ULICO and Private Bankers Life & Annuity Co., Ltd. (“PBLA”), a Bermudan insurance company, entered into a reinsurance agreement, which provided that PBLA would reinsure certain policies issued by ULICO. Id. at A-3, A-23 ¶¶ 2, 119; see PB Life & Annuity Co. Ltd. v. Universal Life Ins. Co., No. 20 Civ. 2284, ECF No. 1 ¶¶ 1, 8-9 (S.D.N.Y.) (LJL). The reinsurance agreement required PBLA to fund a trust account as security for the insurance liabilities covered by the agreement. App. at A-3, A-23 ¶¶ 3, 120. Under the agreement, PBLA was permitted to invest the assets held in the trust consistent with certain investment guidelines, provided that the trust had, at all times, at least 105% of ULICO's necessary statutory reserves. Id. at A-3, A-23 ¶¶ 3, 122. If PBLA made investment decisions that resulted in a higher value in the trust than required, PBLA was permitted to withdraw the surplus under certain circumstances. Id.

In June 2017, when ULICO and PBLA entered into the agreement, PBLA was ultimately owned and controlled by Defendant Greg E. Lindberg. App. at A-3 ¶ 2. At that time, Lindberg was also the ultimate owner of many other corporations and limited liability companies, including many of the Defendant companies. Id. at A-4 ¶ 7. Under Lindberg's direction, PBLA transferred funds out of the trust to Lindberg's various affiliates and corporate entities. Id. at A-4-A-5, A-24 ¶¶ 5, 7, 123. Those companies, in turn, loaned the funds to other entities affiliated with Lindberg. Id. In total, PBLA siphoned more than $500 million from the trust to Lindberg's corporate entities. Id. at A-24 ¶ 124.

II. Procedural History

A. Related Proceedings

On February 24, 2020, pursuant to the terms of the reinsurance agreement, ULICO initiated arbitration against PBLA, claiming that PBLA had breached the agreement by making unauthorized investments. See PB Life & Annuity Co., No. 20 Civ. 2284, ECF No. 36-1 at 2. On June 2, 2020, the arbitration panel found in ULICO's favor and entered an award of over $524 million. See id. at 6-7. Thereafter, pursuant to the Federal Arbitration Act, 9 U.S.C. § 207, ULICO moved to confirm the arbitration award in district court. PB Life & Annuity Co., No. 20 Civ. 2284, ECF No. 34. The Honorable Lewis J. Liman granted the petition on July 30, 2020, and entered judgment on August 11, 2020. PB Life & Annuity Co., No. 20 Civ. 2284, ECF Nos. 47, 52.

On September 18, 2020, the Bermuda Monetary Authority petitioned the Bermuda Supreme Court to, inter alia, wind up PBLA and appoint joint provisional liquidators (“JPLs”) to take control of PBLA from Lindberg.^[2] See App. at A-5 ¶ 11. A week later, the Bermuda court appointed the JPLs as PBLA's authorized foreign representatives. Id. On December 3, 2020, the JPLs filed a Chapter 15 bankruptcy case in the Bankruptcy Court seeking recognition of the PBLA Bermuda case as a foreign main proceeding under Chapter 15 of the Bankruptcy Code.^[3] In re: PB Life & Annuity Co., No. 20-12791, ECF No. 1 (Bankr. S.D.N.Y.); see App. at A-5 ¶ 12. The next month, the Bankruptcy Court granted the request and entered a recognition order, which enjoined litigation against PBLA and directed the turnover of PBLA's assets. In re: PB Life & Annuity Co., No. 2012791, ECF No. 33; see App. at A-6 ¶¶ 13-14. To date, ULICO is PBLA's largest creditor and has a final, unsatisfied judgment in the amount of over $524 million, plus interest. See App. at A-5 ¶¶ 8-9; see also Appellant Reply at 6, ECF No. 44.

B. Adversary Proceeding

On July 6, 2021, ULICO commenced an action (the “Adversary Proceeding”) against Defendants, alleging that Defendants were recipients of fraudulent conveyances from PBLA. See Universal Life Ins. Co. v. Global Growth Holdings, Inc., No. 20-12791, ECF No. 1 (Bankr. S.D.N.Y.); App. at A-25-A-27 ¶¶ 135-49.^[4] ULICO also asserted causes of action for, inter alia, unjust enrichment, breach of fiduciary duty, and fraud. See App. at A-28-A-31 ¶¶ 150-75. In the complaint, ULICO pleaded that federal jurisdiction was provided by (1) “related to” jurisdiction under 28 U.S.C. § 1334, and (2) diversity jurisdiction under 28 U.S.C. § 1332. See id. at A-22 ¶¶ 114-15. As to § 1334, ULICO alleged that the Adversary Proceeding was “related to” the PBLA Bermuda case recognized as a foreign main proceeding under Chapter 15. See id. at A-22 ¶ 114. Because § 1334 was one of the jurisdictional statutes invoked, the Adversary Proceeding was referred to the Bankruptcy Court under this District's standing order of reference. See Am. Standing Order of Reference (“Order of Reference”), No. 12 Misc. 32 (S.D.N.Y. Feb. 1, 2012).

After Defendants filed several, separate motions to dismiss, ULICO moved to file a second amended complaint. See App. at A-397-A-413. At a hearing on the motion to amend, the Bankruptcy Court denied the motion on the ground that it lacked subject matter jurisdiction over the Adversary Proceeding. App. at A-675-A-676, 66:19-67:6. The Bankruptcy Court found that ULICO's claims were not sufficiently “related to” PBLA's insolvency case as “[r]esolution of ULICO's claims . . . would have no direct effect on PBLA foreign assets because PBLA is not a party to [the Adversary Proceeding] [and] PBLA's property is not the subject of th[e] [A]dversary [P]roceeding.” Id. at A-670, 61:13-16. The Bankruptcy Court did not address whether diversity jurisdiction was present because it concluded that it could not exercise diversity jurisdiction under the Order of Reference. Id. at A-676-A-677, 67:13-68:16. On April 28, 2022, ULICO moved to alter or amend the Bankruptcy Court's dismissal, and on June 1, 2022, the Bankruptcy Court denied that motion. See id. at A-591-A-609; A-688-A-689. ULICO timely appealed the Bankruptcy Court's final judgment. See ECF No. 1.

DISCUSSION

I. Legal Standard

A. Standard of Review

District courts exercise appellate jurisdiction over final bankruptcy court orders. See 28 U.S.C. §§ 158(a)(1), 1334. In its review of bankruptcy court decisions, the district court “sits as an appellate court.” In re Fairfield Sentry Ltd. Litig., 458 B.R. 665 674 (S.D.N.Y. 2011). A district court reviews a bankruptcy court's factual findings for clear error and its conclusions of law de novo. See In re Overbaugh, 559 F.3d 125, 129 (2d Cir. 2009). “Questions about [a] [b]ankruptcy [c]ourt's subject matter jurisdiction and questions...