Empire Stat Group, LLC v. Coalition, Inc.

Background

Empire Stat Group, LLC (ESG) operated a medical insurance consulting business. In 2020, ESG purchased an insurance policy covering business-interruption losses caused by cyber-attacks. After a December 2020 cyber-attack affected its operations, ESG submitted one claim for $700,164, which the Insurers agreed to cover. ESG later submitted a second claim for $2,310,594, alleging that the attack led Government Employees Insurance Company to terminate its contract with ESG. The Insurers denied coverage for the second claim.

ESG filed for Chapter 7 liquidation on October 29, 2021, and Angela Tese-Milner was appointed trustee. The bankruptcy court approved a settlement concerning the first claim. In April 2024, Tese-Milner brought an adversary proceeding against Coalition, Inc., Coalition Insurance Solutions, Inc., North American Capacity Insurance Company, and Peleus Insurance Company, seeking a declaration about the policy’s coverage and damages for breach of contract based on the denial of the second claim.

The Insurers moved under 28 U.S.C. § 157(d) to withdraw the proceeding’s reference to the bankruptcy court. The motion asked the district court to handle the proceeding rather than leave it with the bankruptcy court.

Legal standard

The court applied the framework from In re Orion Pictures Corp., as modified by Stern v. Marshall. It first considered whether the bankruptcy court had constitutional authority to enter a final judgment and whether the claims were “core” bankruptcy claims under the statute. It then considered judicial efficiency, uniformity in bankruptcy administration, the parties’ jury-trial rights, and possible forum shopping.

Analysis

The court concluded that the bankruptcy court lacked constitutional authority to enter a final judgment. The claims involved private insurance-contract rights, not public rights. The Insurers had not filed proofs of claim in the bankruptcy case, and they had not consented to final judgment by the bankruptcy court. If the proceeding remained there, the bankruptcy court could submit proposed findings and legal conclusions for review by the district court.

The court also held that the claims were non-core. The insurance policy predated ESG’s bankruptcy filing, and resolving the dispute required interpreting the policy rather than administering the bankruptcy estate. Any insurance recovery would increase the assets available for general distribution, but the trustee did not show that the dispute would affect how assets were allocated among creditors. The court distinguished cases in which insurance coverage was central to paying tort claimants or was the debtor’s only asset and involved provisions that complicated access to the proceeds.

The efficiency factor favored withdrawal because the bankruptcy court had not performed substantial work on the newly filed adversary proceeding and lacked specialized familiarity with the disputed contract issues. The uniformity factor was neutral because the claims did not arise under bankruptcy law and were distinct from the underlying bankruptcy administration. The Insurers had demanded a jury trial on claims triable by a jury, which favored withdrawal, although the court gave that factor little weight because the case was still in its early stages and might be resolved without a trial. The court found no indication of forum shopping.

Disposition

The court held that the relevant factors favored withdrawal of the bankruptcy reference and granted the Insurers’ motion. The court directed the Clerk of Court to terminate the motion. The opinion did not decide whether the insurance policy covered ESG’s second claim or whether the Insurers breached the contract.

Judge

The opinion was issued by Judge Edgardo Ramos.