IN RE: KENTUCKY COAL PRODUCERS CASE NO. 95-50021

UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

IN RE:

KENTUCKY COAL PRODUCERS CASE NO. 95-50021

SELF-INSURANCE FUND

DEBTOR

GENERAL REINSURANCE CORPORATION PLAINTIFF

VS. ADVERSARY NO. 95-5018

KENTUCKY COAL PRODUCERS

SELF-INSURANCE FUND DEFENDANT

and

JAY BARLOW, ET AL. PLAINTIFFS

VS.

GENERAL REINSURANCE CORPORATION, ET AL. DEFENDANTS

AND

THE OFFICIAL COMMITTEE OF MEMBERS OF

KENTUCKY COAL PRODUCERS SELF-INSURANCE

FUND, ET AL. PLAINTIFFS

VS. ADVERSARY NO. 96-5019

JERRY ROBERTS, RICHARD WILLIAMS, ET AL. DEFENDANTS

MEMORANDUM OPINION

Kentucky Coal Producers Self-Insurance Fund, an association organized pursuant to KRS 342.350 as a workers' compensation joint self-insurer, filed a petition for relief under chapter 11 of the Bankruptcy Code in this court on January 9, 1995.

The association was formed in 1981 for the purpose of qualifying to act as a group self-insurer under Kentucky law. Pursuant to 803 KAR 25:025 2(1) each member of a self-insurance group is jointly and severally liable for payment of workers' compensation claims covered by the group. Pursuant to 803 KAR 25:025 4(2), a group self-insurer that withdraws from its self-insurance program must make satisfactory arrangements for the continued payment and servicing of all outstanding claims. The Commissioner of the Department of Workers' Claims of the Labor Cabinet, Commonwealth of Kentucky, is responsible for ensuring compliance with the self-insurance provisions of the Kentucky Workers' Compensation Act. K.R.S. 342.228.

The debtor remained qualified and in good standing as a group self-insurer from 1982 until November 30, 1991 when it discontinued accepting new members and decided to wind up its affairs. At that point in time the trustees of the association became liquidating trustees. However, the association continues to transact business relating to claims incurred by employees of members prior to November 30, 1991. It settles/liquidates/pays workers' compensation claims incurred prior to November 30, 1991, collects premiums from its members who are jointly responsible for payment of such claims, and manages the Fund's assets from which such claims are paid. In this respect the association continues to transact business in much the same manner as it did prior to withdrawing from its self-insurance program. It must continue to so function until claims of employees of members that arose prior to November 30, 1991 are resolved. By continuing to function the association may protect members and former members from a multiplicity of suits for the collection of such claims.

When it sought relief under the Bankruptcy Code, Kentucky Coal Producers Self-Insurance Fund was a party to two civil actions pending in the United States District Court for this district. These civil actions, styled as indicated above, had been consolidated by the district court for pretrial purposes. These proceedings have been referred to this court because they are related to Kentucky Coal Producers' chapter 11 bankruptcy case. See Rule 20, Joint Local Rules for the United States District Courts of the Eastern and Western Districts of Kentucky. These consolidated proceedings are now denominated Adversary Proceeding 95-5018.

In U.S. District Court civil action no. 92-14 the plaintiff, General Reinsurance Corporation, a Delaware Corporation with its principal place of business at Stamford, Connecticut, seeks a declaration of rights as to the extent of its monetary liability on an "Excess Insurance Policy for Self-Insurer of Workers Compensation and Employers Liability" it issued to the defendant, Kentucky Coal Producers Self-Insurance Fund.

U.S. District Court civil action no. 92-166 was commenced in the local state circuit court and subsequently removed to the U.S. District Court. The plaintiffs in the action are Jay Barlow, Bill Terry, Robert Chadwell, Darius Sullivan, and Earl Cornett, in their capacity as Liquidating Trustees of Kentucky Coal Producers Self-Insurance Fund, as representatives of the Fund and its members, and as members of the Fund for themselves and on behalf of members. McCoy Coal Company, a member of the Fund, joined as a plaintiff for itself and in the name of and on behalf of the Fund and its members. Named defendants in the action are General Reinsurance Corporation and Genesis Underwriting Management Company. The plaintiffs seek a judgment reforming the insurance policy issued to Kentucky Coal Producers Self-Insurance Fund by General Reinsurance Corporation as well as compensatory, restitutory, and punitive damages on several grounds.

The multiplicity of plaintiffs in the latter action, which was removed from state court, is dictated by a state rule of law that an unincorporated association cannot sue or be sued solely in its own name. This rule of law can be circumvented and an unincorporated association can be made a party plaintiff or defendant in an action structured as a class action. A.M. Collectors Exchange v. Kentucky State Democratic Central Executive Committee, 566 S.W.2d 759 (Ky. Ct. App. 1978).

In U.S. District Court civil action no. 92-14 in which the plaintiff General Reinsurance Corporation had named Kentucky Coal Producers Self-Insurance Fund as sole defendant, the association asserted the defense that it lacked the capacity to be sued solely in its own name. The association also moved to dismiss the complaint on the ground it could be sued only by naming all of the members of the association as defendants, and one of its members, Coal Corporation of America, is a Delaware corporation, as is the plaintiff General Reinsurance Corporation, with the result there was a lack of diversity jurisdiction.

In response to the motion to dismiss its complaint, General Reinsurance Corporation moved for leave to file a tendered amended complaint to conform to Rule 23.2 of the Federal Rules of Civil Procedure governing class actions. The tendered amended complaint, which the district court permitted to be filed, names as the defendant McCoy Coal Company, as class representative of the members of Kentucky Coal Producers Self-Insurance Fund.

Based on the amended complaint of General Reinsurance Corporation and its order consolidating civil actions no. 92-14 and 92-166 for pretrial purposes, the district court overruled the motions of Kentucky Coal Producers Self-Insurance Fund to dismiss the complaint for lack of diversity jurisdiction, or in the alternative, to remand civil action no. 92-166, the removed action, to state court.

Subsequent to the commencement of Kentucky Coal Producers Self-Insurance Fund's bankruptcy case, the United States Trustee appointed a Committee of Employer/Members of the debtor to represent the interests of members of the association. 11 U.S.C. 1102. This committee is a committee of codebtors in that members and former members of the debtor are subject to assessment for payment of workers' compensation claims that accrued prior to November 30, 1991.

The members of the Employer/Members Committee appointed by the United States Trustee are: Diamond May Coal Company, Beech Fork Processing, Inc. & Companies, Jericoal Mining, Inc., Canada Coal Company, Inc., Sandy Fork Mining Co., Inc. and Miller Brothers Construction, Inc.

On February 20, 1996, four of the members of the Employer/Members Committee, Beech Fork Processing, Inc., Diamond May Coal Company, Jericoal Mining, Inc. and Miller Brothers Construction, Inc., for themselves and on behalf of the committee, and on behalf of all similarly situated Fund members, commenced an action against several former officers, employees and trustees of the Fund, against Willis Carroon Corporation and Willis Carroon Administrative Services Corporation, third party claims administrator and exclusive insurance broker for the Fund, against Arthur Andersen, LLP, the accounting firm employed by the Fund, and against General Reinsurance Corporation. Adversary Proceeding No. 96-5019.

Three of the present Liquidating Trustees of the Fund who are named as defendants in this new adversary proceeding are plaintiffs in the civil action commenced by the Fund in state court against General Reinsurance Corporation and Genesis Underwriting Company, which was subsequently removed to the U.S. District Court and is now before this court. The three Liquidating Trustees who are plaintiffs in the removed action and who are defendants in the new adversary proceeding are Jay Barlow, Darius Sullivan and Earl Cornett. Earl Cornett is the President of McCoy Coal Company, which also is a plaintiff in the removed civil action no. 92-166 and is the named defendant class representative of Kentucky Coal Producers Self-Insurance Fund in General Reinsurance Corporation's amended complaint in civil action no. 92-14.

This matter is presently before the court on the motion of General Reinsurance Corporation to decertify the class and to dismiss the complaint in civil action no. 92-166 on the ground that the plaintiffs therein are no longer representative of the class of members of the Kentucky Coal Producers Self-Insurance Fund. General Reinsurance Corporation alleges this is so because three of the plaintiffs have now been sued for alleged fraud, breach of fiduciary duty, etc. by the Committee of Employer/Members appointed by the United States Trustee. General Reinsurance Corporation also seeks leave to file a Second Amended Complaint for Declaration of Rights in civil action no. 92-14 to name as defendants the members of the Official Committee of Employer/Members appointed by the United States Trustee as the new class representatives of Kentucky Coal Producers Self-Insurance Fund. General Reinsurance Corporation further moves the court to consolidate the new adversary proceeding against it commenced by the Committee of Employer/Members with the proceedings previously consolidated for pretrial purposes by the United States district court.

CONCLUSIONS OF LAW:

The Kentucky Coal Producers Self-Insurance Fund, an unincorporated association, is a "person" eligible for relief under the Bankruptcy Code. 11 U.S.C. 101(9), 101(41), 109(b) and (d). Highway & City Freight Drivers v. Gordon, 576 F.2d 1285 (8th Cir. 1978), cert. denied 439 U.S. 1002 (1978); In re Cooper Properties Liquidating Trust, 61 B.R. 531 (Bankr. W.D. Tenn. 1986); In re Tru Block Concrete Products, Inc. Liquidating Trust, 27 B.R. 486 (Bankr. S.D. Cal. 1983); In re Lane County Sheriff's Officers Assn., 16 B.R. 190 (Bankr. D. Ore. 1981); see also In re Professional Air Traffic Controllers Orgn., 699 F.2d 539 (D.C. Cir. 1983).

Upon the filing of its petition for relief under chapter 11 of the Bankruptcy Code, Kentucky Coal Producers Self-Insurance Fund became a debtor in possession, 11 U.S.C. 1101(1), with all the rights and powers of a trustee, 11 U.S.C. 1107(a), including the right to sue and be sued. 11 U.S.C. 323(b).

Also, upon the commencement of Kentucky Coal Producers Self-Insurance Fund's bankruptcy case, the United States District Court acquired jurisdiction of the case, and an additional ground of jurisdiction of the related civil actions now before the court. 28 U.S.C. 1334(a) and (b).

Jurisdiction of these civil actions by and against the debtor Kentucky Coal Producers Self-Insurance Fund is no longer grounded solely on diversity of citizenship. Kentucky law governing the capacity of the debtor unincorporated association to sue and be sued is no longer relevant. The Bankruptcy Code which recognizes the right of the debtor upon becoming a debtor in possession to sue and be sued solely in its own name is now controlling. U.S. Const. art. VI. Consequently, it is not now necessary to continue to process civil actions no. 92-14 or 92-166, now consolidated as adversary proceeding no. 95-5018, as class actions.

General Reinsurance Corporation's Motion to File a Second Amended Complaint for Declaration of Rights in civil action no. 92-14 shall be overruled. The complaint may be amended to name the debtor in possession as sole defendant.

General Reinsurance Corporation's motion to decertify the class in civil action no. 92-166 is sustained. However, the motion to dismiss the complaint therein is overruled. Upon approval of a majority of the Liquidating Trustees the complaint may be amended to name Kentucky Coal Producers Self-Insurance Fund, debtor in possession, as the sole plaintiff in the action.

The complaint in adversary proceeding no. 96-5019, by certain members of the U.S. Trustee-appointed Committee of Employer/Members of the Debtor against former officers, present and former trustees of the debtor, and others, including General Reinsurance Corporation, does not purport to be an action in behalf of the debtor, although the allegations in the complaint appear to replicate some of the claims of the debtor against General Reinsurance Corporation. The complaint appears to be primarily an action for indemnity and contribution in behalf of members of the Kentucky Coal Producers Self-Insurance Fund, in the event the debtor's action against General Reinsurance Corporation and Genesis Underwriting is unsuccessful. The plaintiffs are and purport to represent codebtors of the debtor who are jointly liable with the debtor for payment of workers compensation claimants. 11 U.S.C. 509.

To the extent the plaintiffs in adversary proceeding no. 96-5019 assert claims for damages for injuries to the debtor which in turn caused injury to them, the plaintiffs may not have standing to pursue such claims. Warren v. Manufacturers Nat'l. Bank of Detroit, 759 F.2d 542 (6th Cir. 1985). The plaintiffs may have standing to assert that they were fraudulently induced by some of the third party defendants to become or remain members of Kentucky Coal Producers Self-Insurance Fund.

In any event, the court finds the motion of the plaintiffs to hold adversary proceeding no. 96-5019 in abeyance pending the outcome of the consolidated civil actions of General Reinsurance Corporation against the Fund and the Fund against General Reinsurance Corporation, et al. should be sustained. The court also shall overrule the motion of General Reinsurance Corporation to consolidate adversary proceeding no. 96-5019 with adversary proceeding no. 95-5018. The court believes the success or failure of the Fund/debtor in possession in adversary proceeding no. 95-5018 will be binding on members of the debtor association in most respects.

Dated:

By the court -

 

_______________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

Randy Shaw, Esq.

Raymond G. Smith, Esq.

Bruce D. Atherton, Esq.

Joseph M. Scott, Jr., Esq.

Laura Day DelCotto, Esq.

Tracey N. Wise, Esq.

Elizabeth Lee Thompson, Esq.

J. Key Schoen, Esq.

Walter M. Jones, Esq.

Caroline Boeh Baesler, Esq.

Robert J. Brown, Esq.

James R. Adams, Esq.

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

 

IN RE:

 

KENTUCKY COAL PRODUCERS CASE NO. 95-50021

SELF-INSURANCE FUND

 

DEBTOR

 

 

GENERAL REINSURANCE CORPORATION PLAINTIFF

 

VS. ADVERSARY NO. 95-5018

 

KENTUCKY COAL PRODUCERS

SELF-INSURANCE FUND DEFENDANT

 

 

and

 

 

JAY BARLOW, ET AL. PLAINTIFFS

 

VS.

 

GENERAL REINSURANCE CORPORATION, ET AL. DEFENDANTS

 

 

 

AND

 

 

THE OFFICIAL COMMITTEE OF MEMBERS OF

KENTUCKY COAL PRODUCERS SELF-INSURANCE

FUND, ET AL. PLAINTIFFS

 

VS. ADVERSARY NO. 96-5019

 

JERRY ROBERTS, RICHARD WILLIAMS, ET AL. DEFENDANTS

 

 

 

ORDER

 

 

In conformity with the memorandum opinion of the court this day entered, IT IS ORDERED:

1. The motion of General Reinsurance Corporation to file a second amended complaint for declaration of rights in civil action no. 92-14 is overruled. General Reinsurance Corporation may amend its complaint to name the debtor in possession as sole defendant in that action.

2. The motion of General Reinsurance Corporation to decertify the class in civil action no. 92-166 is sustained. However, the motion of General Reinsurance Corporation to dismiss the complaint in that action is overruled. The complaint in that action may be prosecuted as an action solely in the name of the debtor in possession, Kentucky Coal Producers Self-Insurance Fund.

3. The motion of the plaintiffs in adversary proceeding no. 96-5019 to hold that action in abeyance pending the outcome of the actions consolidated as adversary proceeding no. 95-5018 is sustained.

4. The motion of General Reinsurance Corporation to consolidate adversary proceeding no. 96-5019 with adversary proceeding no. 95-5018 is overruled.

Dated:

By the court -

 

_______________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

Randy Shaw, Esq. J. Key Schoen, Esq.

Raymond G. Smith, Esq. Walter M. Jones, Esq.

Bruce D. Atherton, Esq. Caroline Boeh Baesler, Esq.

Joseph M. Scott, Jr., Esq. Robert J. Brown, Esq.

Laura Day DelCotto, Esq. James R. Adams, Esq.

Tracey N. Wise, Esq.

Elizabeth Lee Thompson, Esq.

 

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

 

IN RE:

 

KENTUCKY COAL PRODUCERS CASE NO. 95-50021

SELF-INSURANCE FUND

 

DEBTOR

 

 

GENERAL REINSURANCE CORPORATION PLAINTIFF

 

VS. ADVERSARY NO. 95-5018

 

KENTUCKY COAL PRODUCERS

SELF-INSURANCE FUND DEFENDANT

 

 

and

 

 

JAY BARLOW, ET AL. PLAINTIFFS

 

VS.

 

GENERAL REINSURANCE CORPORATION, ET AL. DEFENDANTS

 

 

ORDER

 

 

This cause having come on for hearing April 17, 1996 on the debtor's motion for partial summary judgment and General Reinsurance Corporation's request to set a briefing schedule on the debtor's motion for partial summary judgment, the parties having appeared and been heard, and the court being otherwise sufficiently advised,

IT IS HEREBY ORDERED AND ADJUDGED as follows:

General Reinsurance Corporation shall have through June 3, 1996 to file a response to the debtor's motion for partial summary judgment in adversary no. 95-5018. In the event that General Reinsurance Corporation does not file a cross-motion, the debtor shall have through June 18, 1996 to file its reply memorandum. In the event General Reinsurance Corporation does file a cross-motion for summary judgment in adversary no. 95-5018, the debtor's response and reply memorandum shall be due on July 13, 1996 and General Reinsurance shall have until July 22, 1996 in which to file its reply memorandum.

Dated:

By the court -

 

_____________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

Randy D. Shaw, Esq.

Laura Day DelCotto, Esq.

Tracey N. Wise, Esq.

Elizabeth Lee Thompson, Esq.

J. Key Schoen, Esq.

Walter M. Jones, Esq.

Raymond G. Smith, Esq.

Bruce D. Atherton, Esq.

Caroline Boeh Baesler. Esq.

Robert J. Brown, Esq.

James R. Adams, Esq.

(Copies to be served by Brown, Todd & Heyburn)