In Re: PB Life and Annuity Co., Ltd.

Background

Universal Life Insurance Company (ULICO), a Puerto Rican insurance company, sold annuities and life insurance policies. In June 2017, ULICO entered a reinsurance agreement with Private Bankers Life & Annuity Co., Ltd. (PBLA), a Bermudan insurance company. PBLA agreed to reinsure certain ULICO policies and to fund a trust account as security for its insurance obligations.

The agreement allowed PBLA to invest the trust assets under specified guidelines, but required the trust to maintain at least 105% of ULICO’s necessary statutory reserves. The complaint alleged that, under Greg E. Lindberg’s direction, PBLA transferred more than $500 million from the trust to Lindberg’s affiliated companies and other entities. Those entities allegedly loaned the funds to additional Lindberg-affiliated entities.

ULICO later arbitrated claims against PBLA, and the arbitration panel awarded ULICO more than $524 million. A district court confirmed the award and entered judgment. Meanwhile, Bermuda proceedings led to PBLA’s liquidation, and the Bankruptcy Court recognized those proceedings under Chapter 15 of the Bankruptcy Code. ULICO was described as PBLA’s largest creditor and held an unsatisfied judgment against PBLA.

The Adversary Proceeding and Bankruptcy Court Rulings

ULICO filed an adversary proceeding—an additional lawsuit connected to a bankruptcy case—against the defendants. ULICO alleged that the defendants received fraudulent transfers from PBLA and also asserted claims including unjust enrichment, breach of fiduciary duty, and fraud. ULICO claimed federal jurisdiction under both bankruptcy-related jurisdiction and diversity jurisdiction.

The Bankruptcy Court dismissed the action for lack of subject-matter jurisdiction, meaning it concluded that the court lacked legal authority to hear the case. It reasoned that the lawsuit would not directly affect PBLA’s foreign bankruptcy estate because PBLA was not a party to the adversary proceeding and the property sought was trust property. The Bankruptcy Court also denied ULICO’s request to alter or amend the dismissal. It did not decide whether ULICO had diversity jurisdiction.

District Court’s Analysis

The district court reviewed the Bankruptcy Court’s legal conclusions, including its jurisdictional ruling, without deference. Under 28 U.S.C. § 1334(b), bankruptcy-related jurisdiction includes civil proceedings that are “related to” a bankruptcy case. The applicable test asks whether resolving the lawsuit might have any conceivable effect on the bankruptcy estate. The district court explained that this jurisdiction does not require the debtor to be a party or the lawsuit to concern the same property as the bankruptcy case.

The court held that ULICO’s lawsuit could affect PBLA’s bankruptcy case. If ULICO recovered money from the defendants, that recovery would reduce ULICO’s claim against PBLA because ULICO could not obtain double recovery for the same damages. A smaller claim by ULICO could allow larger distributions to PBLA’s other creditors. The court gave as an example ULICO’s allegation that PBLA loaned more than $10 million from the trust to Flowery Branch, LLC: if ULICO successfully voided that transaction as a fraudulent transfer, the money could return to the trust while ULICO’s claim against PBLA decreased by the same amount.

Because the Bankruptcy Court had “related to” jurisdiction, the district court did not address ULICO’s alternative diversity-jurisdiction arguments. It also did not address the defendants’ remaining arguments, including whether ULICO failed to state a claim under Federal Rule of Civil Procedure 12(b)(6), whether abstention was appropriate, or whether an automatic stay applied. The court directed the Bankruptcy Court to consider those arguments first.

Disposition

The district court reversed the Bankruptcy Court’s orders dismissing the adversary proceeding and denying ULICO’s request to alter or amend the judgment. It remanded the action to the Bankruptcy Court for further proceedings. The court directed the Clerk to remand the matter and close the district court case. The stipulated dismissal between ULICO and AAPC Holdings, LLC was not affected by the reversal.