PIPE BOILER INSULATION INC BY AND THROUGH PROTOPAPAS v. CONTINENTAL INSURANCE COMPANY USA (2023)

ORDER

This matter is before the court on Plaintiff Pipe & Boiler Insulation, Inc., by and through its duly appointed Receiver Peter D. Protopapas's motion to remand. [ECF No. 114.] For the reasons below, the court grants the Receiver's motion and remands this case to the Richland County Court of Common Pleas.

BACKGROUND

This is an insurance coverage dispute that arises out of ongoing asbestos litigation pending in a South Carolina state court. Pipe & Boiler is a defunct South Carolina corporation whose operations included the installation, repair, replacement, removal, or disturbance of thermal insulation and other building materials. [ECF No. 1-1, Compl. ¶ 13.] Pipe & Boiler's operations allegedly exposed individuals to asbestos, who then sued Pipe & Boiler for alleged resulting bodily injuries. Id. The Richland County Court of Common Pleas (“Receivership Court”) appointed Peter D. Protopapas as receiver for Pipe & Boiler after it failed to answer in one of the cases. [ECF No. 1-1, Order Appointing Receiver (“Receivership Order”) at 1.] The Receivership Court authorized the Receiver to “fully administer all assets of Pipe & Boiler, accept service on behalf of Pipe & Boiler, engage counsel on behalf of Pipe & Boiler[,] and take any and all steps necessary to protect the interests of Pipe & Boiler whatever they may be.” Id.

The Receivership Order also references insurance coverages. The order includes “the right and obligation to administer any insurance assets of Pipe & Boiler as well as any claims related to the actions or failure to act of Pipe & Boiler's insurance carriers.” Id. Indeed, the Receivership Court explicitly ruled it “expects the Receiver to investigate the existence of all insurance coverages potentially available to the company in receivership.” Id. at 1-2. It ordered the Receiver to provide specific information to potential insurers to aid with the insurers’ searches for coverage, and “expects all insurers to comply with subpoenas issued by this Court and its Receiver in effectuating these thorough searches.” Id. at 2. Finally, the Receivership Court “further order[ed] that, as the Receiver Court, that the Receiver or Pipe & Boiler Insulation, Inc. may not be sued outside this Court without obtaining the Receiver's consent or an order of this Court prior to doing so.” Id.

The Receiver later sued several insurance companies in the Receivership Court seeking defense and coverage in suits the Receivership Court is overseeing. [See ECF No. 1-1, Compl.] One of the insurers, Amerisure Mutual Insurance Company, removed the matter under the court's diversity jurisdiction in September 2021, and several defendants asserted counterclaims against the Receiver. [See ECF No. 1; see, e.g., ECF No. 75 (Continental Insurance Company's Answer to Amended Complaint and Counterclaim); ECF No. 76 (Liberty Mutual Insurance Company's Answer to Amended Complaint and Counterclaim).]

The Receiver has attempted to get back to state court since Amerisure removed the matter. In this attempt, the Receiver argues the court does not have subject matter jurisdiction over the claims under Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881). [See ECF No. 114.] According to the Receiver, the Barton doctrine holds “the state court that appoints a receiver maintains exclusive jurisdiction over all claims filed by and against that receiver—subject only to the state court's own waiver of that exclusive jurisdiction.” Id. at 1. The Receiver also submits the Supreme Court has “expanded” the Barton doctrine over time and, in Porter v. Sabin, 149 U.S. 473, 13 S.Ct. 1008, 37 L.Ed. 815 (1893), confirmed the doctrine applies to claims filed by and against a receiver. Id. at 6. Because defendants did not seek the Receivership Court's permission to remove this action or counterclaim, the Receiver urges, we must remand the matter to the Receivership Court. [See ECF No. 114.]

Defendants Continental Insurance Company and Liberty Mutual Insurance Company, the last two defendants opposing the motion, disagree.¹ They argue that Barton does not trump a defendant's right to remove an action to federal court. [ECF No. 118 at 4-7.] They also argue that the doctrine does not apply here because the Receiver began the action, there are no claims against the Receiver, and the action concerns the rights and obligations of the parties. Id. at 7-14. Finally, the Receiver filed a reply in support of his motion to remand. [ECF No. 120.]

The motion is fully briefed and is ripe for resolution.

LEGAL STANDARD

Defendants have a heavy burden to defeat the Receiver's motion. Federal courts are courts of limited jurisdiction, “constrained to exercise only the authority conferred by Article III of the Constitution and affirmatively granted by federal statute.” In re Bulldog Trucking, Inc., 147 F.3d 347, 352 (4th Cir. 1998). When a defendant removes a case to federal court, he bears the burden of establishing jurisdiction. Strawn v. AT&T Mobility LLC, 530 F.3d 293, 296 (4th Cir. 2008). The weight of the burden differs depending on whether removal is challenged. The “notice of removal ․ need only allege federal jurisdiction with a short plain statement.” Id. at 297 (emphasis in original). If removal is challenged, however, “the removing party bears the burden of demonstrating that removal jurisdiction is proper.” Id. In assessing whether removal is proper, this court must “construe removal jurisdiction strictly because of the ‘significant federalism concerns’ implicated.” Md. Stadium Auth. v. Ellerbe Becket, Inc., 407 F.3d 255, 260 (4th Cir. 2005) (citing Mulcahey v. Columbia Organic Chems. Co., 29 F.3d 148, 151 (4th Cir. 1994)). Thus, “[i]f federal jurisdiction is doubtful, remand is necessary.” Mulcahey, 29 F.3d at 151. Finally, if at any time before the court enters final judgment it appears the court lacks subject matter jurisdiction, the court must remand the case. See 28 U.S.C. § 1447(c).

DISCUSSION

As discussed above, the Receiver argues the court does not have jurisdiction over this matter under the Barton and Porter. In light of recent guidance from this district, we agree and remand this matter to the Receivership Court.

The question before us is a narrow one: whether the Barton doctrine prevents Defendants from removing this matter, filed by a Receiver, to federal court. The parties agree this precise question is unprecedented. [ECF No. 118 at 2; ECF No. 120 at 13.] To the extent the Fourth Circuit has examined Barton, it has done so in the bankruptcy context. See McDaniel v. Blust, 668 F.3d 153, 157 (4th Cir. 2012). Barton unquestionably protects bankruptcy trustees appointed by federal courts—neither party disputes that. But neither McDaniel, nor any other case the parties discuss in their submissions, holds Barton and Porter do not apply where, as is the case here, a defendant pulls a receiver out of the receivership court into federal court.

The court is not without guidance, though: Mr. Protopapas is the receiver for another insolvent corporation involved in ongoing asbestos litigation (Payne & Keller Company). Protopapas v. Zurich Am. Ins. Co., No. 3:21-4086-DCC, 2022 WL 17668402 (D.S.C. Oct. 20, 2022) (“Payne & Keller”). Payne & Keller is a defunct corporation facing personal injury suits by claimants who were allegedly exposed to asbestos. Id. at *1. The Richland County Court of Common Pleas—the Receivership Court in this matter—appointed Mr. Protopapas receiver of Payne & Keller. Id. The receiver later sued several defendants in the receivership court seeking defense and coverage in the asbestos suits. Id. One of the insurer defendants removed the matter to the district court under the court's diversity jurisdiction, and the receiver moved to remand on several grounds. Id. One of those grounds is that the Barton doctrine requires the action to be litigated in the receivership court. Id. at *2.

The magistrate judge issued a report recommending the district court decline the receiver's motion to remand on that basis, though she recommended the court remand the matter on other grounds. Id. at *6. The receiver objected to the magistrate judge's report, and the district judge, Judge Coggins, later issued an order declining to adopt that section of the report. Protopapas v. Zurich Am. Ins. Co., No. 3:21-4086-DCC, 2023 WL 2206640 (D.S.C. Feb. 24, 2023). Instead, Judge Coggins sustained the receiver's objections and remanded the matter back to the receivership court. Id. at *2.

Acknowledging that Barton, as applied in Porter, is “old law,” Judge Coggins nonetheless found the Supreme Court's directive clear:

[I]t is in the appointing court's discretion “to decide whether it will determine for itself all claims of or against the receiver, or will allow them to be litigated elsewhere” and that the appointing court “may direct claims in favor of the corporation to be sued on by the receiver in other tribunals, or may leave him to adjust and settle them without suit․Porter further states “[t]he reasons are yet stronger for not allowing a suit against a receiver appointed by a state court to be maintained, or the administration by that court of the estate in the receiver's hands to be interfered with, by a court of the United States, deriving its authority from another government, though exercising jurisdiction over the same territory.”

Id. at *2 (internal citations omitted).

Judge Coggins noted the receivership court appointed a receiver who attempted to preserve and collect assets of Payne & Keller as part of his fiduciary duty. Id. Finding “that Barton, and its subsequent application in Porter, act as a limitation on federal jurisdiction when a state court has previously exercised its authority by appointing a receiver to handle the administration of property,” he concluded allowing the matter to continue in federal court “would directly interfere with the exclusive jurisdiction of the receivership court over the dispute.” Id. He thus sustained the receiver's objections, respectfully declined to adopt that section of the report, and remanded the case to the receiver court. Id. at *2, 5.

This recent guidance from our district weighs in favor of remand. As in Payne & Keller, the Richland County Court of Common Pleas appointed a receiver for Pipe & Boiler, a defunct corporation. The Receivership Court specifically authorized the Receiver to locate all insurance coverage potentially available to Pipe & Boiler, administer any insurance assets of Pipe & Boiler, administer any claims related to “the actions or failure to act” of Pipe & Boiler's insurers, and “take any and all steps necessary to protect the interests of Pipe & Boiler, whatever they may be.” [ECF No. 1-1, Receivership Order, at 1-2.] The Receiver then sued Pipe & Boiler's insurers in the Receivership Court seeking a defense and coverage in accordance with his fiduciary duties. Given these facts, we agree with Judge Coggins that allowing this litigation to proceed in federal court would directly interfere with the Receivership Court's jurisdiction over the dispute.

Moreover, while Porter is unquestionably “old law,” the Receiver has pointed to more recent authority that also favors remanding this matter. In McIntire v. China MediaExpress Holdings, Inc., 113 F. Supp. 3d 769 (S.D.N.Y. 2015), a securities fraud class action pending in the Southern District of New York, the court appointed a receiver for China MediaExpress Holdings (“CCME”) and authorized him to marshal CCME's assets, including pursuing claims against its former insurers. Id. at 773-74. Some of those insurers filed a demand for arbitration in Hong Kong, naming the receiver in his capacity as court-appointed receiver for CCME's assets. Id. at 771. The insurers did not obtain permission from the Southern District of New York, the receiver court, before naming the receiver in the arbitration demand. Id.

When the receiver moved to enjoin the arbitration under Barton, the insurers objected, arguing it was “questionable” that Barton applied in this scenario: a non-bankruptcy proceeding where they only sought a declaration that CCME wasn't covered by a liability policy written by the insurers. Id. The insurers also argued that Barton is intended to protect receivers from personal liability for actions taken in the course of their duty and to prevent some claimants to a bankrupt estate from gaining an advantage as to assets controlled by the receiver. Id. at 772-73. Neither of those justifications applied, they argued, because the arbitration proceeding did not seek any money damages from the receiver or directly impact CCME's assets. Id. at 773.

The Southern District of New York rejected these arguments. First, it noted that Barton “clearly applies to all proceedings involving receivers—not bankruptcy alone.” Id. Second, Barton is not limited to suits against a receiver for damages. While Barton does protect a receiver from personal liability, it “is intended to protect the receivership court's ‘overriding interest in [the] administration of the estate.’ ” Id. (quoting In re Lehal Realty Assocs., 101 F.3d 272, 277 (2d Cir. 1996)). Indeed, the court described one of Barton’s “central purpose[s]” as “ensur[ing] the receiver's appointing court control over the receivership assets,” and courts enforce “the jurisdictional requirement that plaintiffs seek leave before filing suit ․ ‘because [it] implement[s] major policies deemed to be of overriding importance.” Id. at 775 (citation omitted). Finally, the court pointed out that pursuing claims against CCME's former insurers is within the receiver's powers. The declaratory relief the insurers sought involved “the very assets that the Receiver was appointed to marshal.” Id. at 773-74. The insurers’ claim that the arbitration did not impact CCME's assets, then, was incorrect. The court thus found Barton applied to the case and prohibited the insurers from naming the receiver in his capacity as court-appointed receiver.

To be sure, McIntire does not answer our precise question, as the receiver did not invoke Barton to avoid a court's removal jurisdiction. But, like Porter, it points to a “central concern” of Barton: the receivership court's “overriding interest” in administration of the estate in receivership. The court “assumes the administration of the estate” when it “appoints a receiver of all the property of a corporation.” Porter, 149 U.S. at 479, 13 S.Ct. 1008. And like in Payne & Keller, the Receiver's claims—and, here, Defendants’ counterclaims—involve “the very assets that the Receiver was appointed to marshal.” See McIntire, 113 F. Supp. 3d at 774.

As discussed above, Defendants have a heavy burden in proving the court has subject matter jurisdiction. In light of Judge Coggins’ order in Payne & Keller, and the Southern District of New York's decision in McIntire, we cannot say with certainty that Barton, as applied in Porter, does not apply here. Indeed, these decisions weigh in favor of remanding the matter to the Receivership Court. It appears to the court that remanding the matter will also aid in efficiently managing the parties’ remaining claims; indeed, the Receiver and Defendant Arrowood have informed us that their settlement agreement is not final until the Receivership Court approves the settlement. [ECF No. 148.]

For these reasons, and considering recent guidance issued in this district, we grant the Receiver's motion to remand. The court thus remands this matter to the Receivership Court. We leave it to the Receivership Court to resolve the remaining pending motions.

CONCLUSION

For the reasons discussed above, the court GRANTS the Receiver's motion to remand, ECF No. 114, and remands this case to the Court of Common Pleas for Richland County.

As a result, we are without jurisdiction to hear and decide Defendants’ motion to strike, ECF No. 74, or the Receiver's motion to amend complaint, ECF No. 87.

IT IS SO ORDERED.

FOOTNOTES

1.   All but two of the original defendants (Continental Insurance and Liberty Mutual) have either resolved the Receiver's claims or been dismissed since Amerisure removed this matter. See ECF Nos. 36 (voluntary dismissal of Amerisure), 128 (stipulation of dismissal of Aon Corporation and Aon Insurance Managers (USA) Inc.), 148 (notice of settlement with Arrowood Indemnity Company). The Aon parties and Arrowood opposed the motion to remand, but since they have either been dismissed from this action or settled the Receiver's claims, the court focuses only on Continental Insurance and Liberty Mutual's opposition to the motion.The Receiver added defendant United States Fire Insurance Company as a party when he filed his amended complaint. [ECF No. 70.] Defendants Continental Insurance and Liberty Mutual and Arrowood promptly moved to strike the amended complaint or dismiss or drop the improperly joined parties, including United States Fire Company. [ECF Nos. 74 (Continental Insurance and Liberty Mutual), 77 (Arrowood).] The Receiver then moved to amend his complaint. [ECF No. 87.] Although Arrowood withdrew its motion, ECF No. 148, Continental Insurance and Liberty Mutual's motion, and the Receiver's motion to amend, all remain pending. United States Fire Insurance Company did not respond to the Receiver's motion to remand.

Sherri A. Lydon, United States District Judge