UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
HNRC DISSOLUTION CO., f/k/a
Horizon Natural Resources
Company, et al. CASE NO. 02-14261
MEMORANDUM OPINION AND ORDER
The Commonwealth of Kentucky Office of Workers’ Claims (“the Office of Workers’ Claims”)and the Kentucky Coal Employers’ Self- Insurance Guaranty Fund (“the Fund”)(collectively “the Movants”) have filed a Joint Motion Requesting Order of Transfer of Claims of Frontier Insurance Company (Doc. #8178, “the Joint Motion”). Frontier Insurance Company (“Frontier”) filed a Response (Doc. #8220), and Geoffrey L. Berman, solely in his capacity as Liquidating Trustee (“the Liquidating Trustee”) filed an Objection (Doc. #8184) and a Supplemental Objection (Doc. #8221). The Movants filed a Joint Reply . . . to Objections (Doc. #8227). The Joint Motion was heard on September 13, 2007, and the parties were given additional time to file supplemental briefs. The matter is now ripe for decision.
1. Factual and procedural background
Frontier issued bonds to secure the Debtors’ performance of various obligations. Frontier filed proofs of claim relative to these bonds, identified as Claim Nos. 2465-2532. Frontier is currently, and at the time it filed its claims was, in rehabilitation under the supervision of the New York Department of Insurance. Frontier stated on its claim forms that it was filing to preserve all rights to pursue its claims, and that determination of the amount of those claims was not possible at the time of filing. Frontier has asserted that it has rights as a surety, including the right to be indemnified when it performs for a principal that defaults on its bonded obligations. It has further asserted that it is entitled to the payment of premiums on the bonds.
On March 15, 2007, the Liquidating Trustee filed his Objection to Claims of Frontier Insurance Company and Travelers Casualty and Insurance Company (Doc. #7748), and Frontier filed a Response (Doc. #8023). The Liquidating Trustee and Frontier then entered into negotiations concerning the claims dispute. On September 4, 2007 the Movants filed their Joint Motion as set out above. The Joint Motion addresses three workers compensation bonds, which the Movants refer to as the “Kentucky Coal Bonds.” As set out by the Movants, the Kentucky Coal Bonds were issued by the debtors to the Office of Workers’ Claims. Frontier was the surety on these bonds. When the Debtors defaulted on their obligations in 2004, the Office of Workers’ Claims called the bonds and delivered them to the Fund.
In August 2007 the Fund filed a motion seeking to conduct a Rule 2004 examination of Frontier. An order granting that motion was entered the next day. On August 13, 2007 Frontier filed a motion to vacate the 2004 exam order, arguing that it was not appropriate in light of Frontier’s rehabilitation proceeding pending before the New York Supreme Court, and the fact that Frontier was not asserting a claim based on the bonds at issue, the Kentucky Coal Bonds. Frontier further stated that the Office of Workers’ Claims had made claims on these bonds in the New York Supreme Court, placing the question of Frontier’s liability on the bonds in the scope and jurisdiction of the New York Supreme Court and at issue in the rehabilitation proceeding.
Frontier went on to argue that a 2004 examination was inappropriate because the bonds in question did not relate to the liabilities or financial condition of the Debtors, or to any matter affecting the Debtors’ estates. Frontier stated that although it had asserted an unsecured claim for indemnity for losses suffered as a result of issuing various bonds for the Debtors, it was not seeking indemnity for the Kentucky Coal Bonds. The court agreed with Frontier’s position and vacated the order for 2004 examination on September 14, 2007.
There is no doubt that jurisdiction of matters involving the assets of Frontier lies with the New York Supreme Court. This court affirmed that position when it vacated the order granting a 2004 examination. Specifically, this court has determined that the issue of the ownership of the claim related to the Kentucky Coal Bonds is not properly brought before this court where another court has jurisdiction over the assets of the claimant. The issue of the validity of the claim, which is the province of this court, is not in question in the present motion. Whether Frontier seeks indemnity for the Kentucky Coal Bonds or not, and whether it pursues a claim in regard thereto or not, such claim is an asset of Frontier, and the Movants are attempting to gain control of it. This effort to gain control of one of Frontier’s assets puts the matter in the jurisdictional purview of the New York Supreme Court and the New York Department of Insurance. It is inappropriate for this court to entertain the Joint Motion to Transfer Claims of Frontier Insurance Company, and the court hereby declines to do so. It is therefore hereby ordered that the Joint Motion to Transfer Claims of Frontier Insurance Company is overruled.
Stephen Barnes, Esq.
Carla Montgomery, Esq.
Erica N. Galyon, Esq.
Andrew D. Stosberg, Esq.