MF Global Holdings, Ltd. (fka MFGLQ)

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Law360, Washington (May 18, 2017, 5:23 PM EDT) -- Former MF Global excess insurer Allied World Assurance Co. Ltd. said in New York bankruptcy court Wednesday that it never violated court rules, despite the defunct company’s bid for $1.8 million in attorneys' fees over insurers' alleged failure to obtain court permission before filing an action to arbitrate a contract dispute in Bermuda.

MF Global’s trustee says Allied, Ironshore Insurance Ltd., Iron-Starr Excess Agency Ltd. and Starr Insurance & Reinsurance Ltd. should be forced to pay up to $1.8 million as a result of their violation of the so-called Barton doctrine for filing actions in Bermuda without requesting leave from the bankruptcy court and disobeying a related temporary restraining order.

Allied struck back Wednesday, contending that while it’s not challenging the “reasonableness” of an award against it totaling $926,348.95, it never violated the Barton doctrine — whose violation MF Global says cost it $463,902.50 spread across the insurers in a series of appeals — or any other court order. There’s also been insufficient process service against Allied, it said.

“Accordingly, Allied World contends that it is not liable for any fees or costs requested by plaintiffs in respect of Allied World’s alleged violation of the Barton doctrine or alleged contempt,” it said. “Allied World reserves all rights to seek appellate review of this court’s Barton and contempt holdings, and further reserves its rights to seek the elimination or reduction of attorney’s fees based upon the result of any appeal. Allied World further reserves the right to challenge any claimed fees or costs not listed in the Wittstein declaration.”

The Wittstein declaration refers to Jones Day attorney Jane Rue Wittstein, who tabulated the costs of the litigation and subsequent fees in a mid-April filing. At the time, the defunct brokerage, which claims that the insurers wrongfully refused to participate in the payment of a massive settlement in connection with its infamous collapse, said it is entitled to “all fees and costs arising from or related to the improper Bermuda actions,” including briefing and hearings in U.S. Bankruptcy Judge Martin Glenn’s court, related appeals in federal district court and appearances in Bermuda.

Allied argued Wednesday, however, that MF Global also improperly asked for it to be required to pay up within 10 days of a sanction order being entered.

“Plaintiffs provide no authority for that request, nor do they explain why such an order would comply with the applicable rules,” Allied said. “An award of attorneys’ fees, when issued as a sanction, must be set forth in a separate judgment.”

In a separate letter on Wednesday, Allied also lashed out at MF Global fears raised earlier this month that although the insurer abruptly dropped its personal jurisdiction challenge to a coverage dispute, the insurer is likely to show similar inconsistencies, particularly if the case goes to arbitration in Bermuda: a matter still under consideration.

Allied had previously argued that the court lacked personal jurisdiction over it as a Bermuda insurer, but earlier this month issued a brief notice stating that it was withdrawing its objections, save for ones based on insufficient service of process. In a letter filed with the court two days later, MF Global claimed Allied “suddenly reversed its position” when faced with the defunct brokerage’s jurisdictional discovery requests.

However, MF Global contended that Allied could continue to show inconsistent behavior, especially if its bid to compel arbitration is granted. MF Global noted that although the court found Allied and other insurers had violated the Barton doctrine, the insurers have continued to try to find caveats to that and other orders.

Allied argued Wednesday that it can still be trusted on what coverage defenses it plans to raise in arbitration, decrying MF Global’s contentions as a “non sequitur.”

“Allied World withdrew that defense in light of the significant costs that plaintiffs’ broad jurisdictional discovery requests would likely impose given the amount at stake in this litigation,” the insurer said. “Allied World’s withdrawal has nothing to do with its motion to compel arbitration, and plaintiffs have no basis to claim otherwise.”

Nor has Allied waived its arguments about New York insurance law not applying to the motion to force arbitration, it said, maintaining that the provision at issue only applies to insurance policies “issued or delivered” in New York.

In October 2011, MF Global went down in spectacular fashion and dragged along its parent company, MF Global Holdings Ltd., following the discovery of a $1.6 billion shortfall in segregated customer accounts tied to an aggressive investment strategy in European sovereign debt.

MF Global alleges that the excess insurers owe at least $25 million under their errors-and-omissions policies and damages of up to $40 million after failing to contribute any money to a $159 million multidistrict litigation settlement to resolve claims against the company’s former managers and directors, including ex-CEO Jon Corzine, a former governor and U.S. senator from New Jersey.

Requests for comment were not immediately successful Thursday.

MF Global Inc. and MF Global Holdings Ltd. are represented by Bruce Bennett, Jane Rue Wittstein and Edward Joyce of Jones Day.

The insurers are represented by Daniel Slifkin and Omid H. Nasab of Cravath Swaine & Moore LLP, Erica Kerstein of White and Williams LLP, and Maryann Taylor and Mary Jo Barry of D'Amato & Lynch LLP.

The case is MF Global v. Allied World et al., case number 1:16-ap-01251, in the U.S. Bankruptcy Court for the Southern District of New York.

https://www.law360.com/assetmanagement/articles/925762/bermuda-insurer-fights-mf-global-s-1-8m-attys-fee-bid