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The Collaborative Clearinghouse for Lawsuits and Other Claims Against ACE Group Insurance Companies

MF GLOBAL HOLDINGS LTD., AS PLAN ADMINISTRATOR AND CORZINE

ATTENTION: It is possible that this information may no longer be current and therefore may be inaccurate. The index contains both open and closed cases and is not a complete list of cases in which an ACE Insurance Group company is involved. This information is provided to give interested persons an idea of the issues disputed in the indexed cases. For a full understanding of a case, one should read the rest of the court file, including the response. For the most up-to-date and complete information on a case, visit www.pacer.gov or contact the clerk of the relevant court.

Case Number: 
15-01362-mg Search Pacer
ACE Group party(s): 
Opposing Party: 
MF Global Holdings Ltd.,
Court Type: 
Federal
US District Court: 
Southern District of New York
Date Filed: 
Oct 19 2015

ADVERSARY COMPLAINT FOR INJUNCTIVE RELIEF

MF Global Holdings Ltd., as Plan Administrator (the “Plan Administrator”! in the above-
captioned Chapter 11 Cases pursuant to the Debtors' confirmed plan of liquidation [Ch. 11
Docket No. 1382] (the "Plan"! and Nader Tavakoli in his capacity as the duly appointed trustee
of the litigation trust created pursuant to the Plan (the “Litigation Trustee": collectively with the
Plan Administrator, the "Adversary Plaintiffs"!, by and through their undersigned counsel, allege
for their complaint as follows:

PRELIMINARY STATEMENT

  1. As discussed more fully below, the Adversary Plaintiffs commence this action to
    enjoin the named defendants from continuing to take actions to obtain final approval of the
    current form of the Stipulation and Agreement of Settlement with Individual Defendants [MDL
    Docket No. 969-1] (the "Securities Settlement" or "Settlement Agreement"! a copy of which is
    annexed hereto as Exhibit A, between the Lead Plaintiffs2 and the Individual Defendants3 in the
    Securities Actions pending as part of the MDL before Judge Victor Marrero of the United States
    District Court for the Southern District of New York (the "District Court"), pending resolution
    of the remaining estate-related claims asserted in the MDL (the “Estate MDL claims.” as defined
    below). This relief is necessary to prevent imminent harm to creditors of the Chapter 11 estates
    that will result if the Securities Settlement is approved in its current form, specifically the
    irremediable loss of $25 million in D&O coverage otherwise available to satisfy claims in the
    MDL, and the violation of the Plan Injunction by the Individual Defendants and Insurer
    Defendants named herein who have committed to pay out amounts under the Side ABC D&O
    policies that if permitted would invade the $13.06 million of Side B indemnification coverage
    (the “Side B Claims”! which the Court previously ruled constitute property of the estate. See
    Memorandum Opinion And Order Lifting Automatic Stay To Permit Payments Of Defense Costs

The "Lead Plaintiffs" are the lead plaintiffs in the securities actions (the "Securities Actions") consolidated
under the cases captioned In re MF Global Holdings Limited Securities Litigation, No. 1:1 l-cv-07866-VM
(S.D.N.Y.) (the "MDL"). The Lead Plaintiffs are not named herein as defendants since the Plan
Administrator and Litigation Trustee do not oppose the amount of the Securities Settlement, but only the
sources of funding and timing separately agreed to by Individual Defendants and Insurer Defendants named
herein, and therefore only seek to prevent the Securities Settlement from becoming final until the provision
regarding funding are addressed to prevent the loss of $25 million in D&O policy proceeds.

The “Director Defendants” who are named only in the securities-related actions and not in the Estate MDL
claims, are David P. Bolger, Eileen S. Fusco, David Gelber, Martin J. Glynn, Edward L. Goldberg, David
I. Schamis, and Robert S. Sloan. The Director Defendants, collectively with Jon S. Corzine, J. Randy
MacDonald, and Henri J. Steenkamp (the “Officer Defendants”), are the "Individual Defendants".

3

Under Certain Insurance Policies dated September 4, 2014 [Ch. 11 Docket No. 1988 at 22]

(“Lift Stay Ruling”). The District Court’s Order Preliminarily Approving Proposed Settlement
with Individual Defendants and Providing for Notice (MDL Docket No. 975 at 5 ]f 6) expressly
provided that adjournments of the settlement hearing and modifications to the Securities
Settlement could be agreed to by the parties without requiring further notice to the Individual
Defendant Settlement Class; as such, the relief sought herein does not unduly harm any party and
should be granted in the interests of justice.

JURISDICTION AND VENUE

  1. The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C.

§ 1334(b) and (e), and 157(b)(1). This adversary proceeding is a core proceeding pursuant to 28
U.S.C. §§ 157(b)(2)(A) and (O). The Court also expressly retained broad jurisdiction under
Article XII of the Plan [Chapter 11 Docket No. 1382 at 73-74] and in the Order Confirming
Amended and Restated Joint Plan of Liquidation [Ch. 11 Docket No. 1288 at 42 ^ 89] (the
“Confirmation Order”).

  1. Venue of this action in this District is proper pursuant to 28 U.S.C. §§ 1408 and

1409.

  1. This adversary proceeding has been brought in accordance with §§ 105(a) and
    1142 of the Bankruptcy Code and Bankruptcy Rules 7001(7) and 7065.
  2. This adversary proceeding also seeks relief against the Individual Defendants and
    Insurer Defendants under the Plan Injunction which, inter alia, enjoins "any actions to interfere
    with the implementation or consummation of the Plan." See Plan at Article XI, Section D
    [Chapter 11 Docket No. 1382 at 72-73]; Confirmation Order at If 37 [Ch. 11 Docket No. 1288 at
    22],

THE PARTIES

  1. The Plan Administrator, on behalf of the Debtors’ estates and on behalf of MF
    Global Assigned Assets LLC (“MFGAA”), and the Litigation Trustee are the named plaintiffs in
    this action (“Adversary Plaintiffs”). The Plan Administrator is responsible under the Plan for
    liquidating all property under the Plan and making distributions to creditors of the Debtors’
    estates, except for the prosecution of certain claims on behalf of the creditors expressly vested in
    the Litigation Trustee under the Plan. As relevant here, the Litigation Trustee is prosecuting
    claims in the MDL proceeding, Tavakoli v. Corzine, et al. (the “Litigation Trust claims’”) against
    certain of the same defendants as named in the Securities Actions, with the recoveries on such
    claims flowing back to the creditors of the Debtors’ estates. Also pending in the MDL are
    certain claims on behalf of former customers of MF Global Inc. (“MFGI”) for Net Equity claims
    brought by class representatives, the Commodity Customer Class Action (the “Customer Class
    Action claims”), which through a series of assignments approved by this Court are held by
    MFGAA4 (the “MFGAA claims”; and together with Litigation Trust claims, the “Estates’ MDL
    claims”). The Estate MDL claims are one of the major remaining sources of expected recoveries
    for creditors in the Chapter 11 cases.
  2. The “Individual Defendants” named herein are the same parties as the Individual
    Defendants in the Securities Action who are seeking final approval of the Securities Settlement:
  1. Defendant Jon S. Corzine (“Corzine’”) was Chairman of the Board of
    Directors and Chief Executive Officer of MF Global Holdings Ltd. from March 23, 2010 to
    November 4, 2011. 
  1. Defendant J. Randy MacDonald (“MacDonald”") was Chief Financial
    Officer of MF Global Holdings Ltd. from April 2008 through March 2011.
  2. Defendant Henri J. Steenkamp (“Steenkamp”) was Chief Financial Officer
    of MF Global Holdings Ltd. beginning in April, 2011. Defendants Corzine, MacDonald, and
    Steenkamp are the “Officer Defendants”.
  3. Defendants David P. Bolger, Eileen S. Fusco, David Gelber, Martin J.
    Glynn, Edward L. Goldberg, David I. Schamis, and Robert S. Sloan served on the Board of
    Directors of MF Global Holdings Ltd., and are all named as the “Director Defendants” in the
    Securities Actions (collectively with the Officer Defendants, the “Individual Defendants”).
  1. The “Insurer Defendants” named herein are certain of the insurers under directors
    and officers insurance policies (the "D&O Policies" or "D&O Coverage") issued to the Debtors
    whose policies are implicated in the Securities Settlement and/or in providing coverage for the
    Side B Claims:
  1. Defendant U.S. Specialty Insurance Company (“U.S. Specialty”) is the
    primary D&O insurer; on information and belief, while U. S. Specialty’s coverage limits on the
    primary policy have been paid out, U.S. Specialty remains involved in its role as the lead D&O
    insurer and is also one of the three D&O insurers issuing excess Side A Independent Director
    Liability policies at the top of the D&O tower, as discussed below.
  2. Defendants AXIS Insurance Company, ACE American Insurance
    Company, Illinois National Insurance Company, Federal Insurance Company, New Hampshire
    Insurance Company, Ironshore Indemnity, Inc., Westchester Fire Insurance Company, Hartford
    Accident & Indemnity Company are the eight insurers who, on information and belief, have
    reached an undisclosed agreement with the Individual Defendants to fund the Securities

Settlement from the 2nd through part of the 7th Excess Side ABC insurance layers (the “Funding

Insurers”!

  1. Defendants St. Paul Mercury Insurance Company, Starr Insurance &
    Reinsurance Limited, and Ironshore Insurance Ltd., are the three insurers providing excess Side
    ABC coverage from $135 million to $150 million that are subject to the Debtors’ Side B Claims
    (the “Side ABC Cushion Insurers.” and collectively with U S. Specialty and the Funding
    Insurers, the “Insurer Defendants”). Defendant Iron-Star Excess Agency Ltd. is the company
    that issued the policy for and on behalf of Starr Insurance & Reinsurance Limited and Ironshore
    Insurance Ltd. as the co-insurers subscribing to a shared layer of coverage.

BACKGROUND

  1. The parties to this proceeding are key players in the efforts of the Plan
    Administrator and Litigation Trustee to prosecute claims and marshal assets for the benefit of the
    creditors of the MF Global estates. The Individual Defendants are among the officers and
    directors named in the Securities Actions and/or the Estates’ MDL claims for their roles in
    bringing about the demise of the Debtors, and the D&O insurers and Individual Defendants have
    previously appeared in this Court to lift the automatic stay and Plan Injunction with respect to
    payments by certain of the D&O insurers for the Individual Defendants’ defense costs.
  2. The facts relevant to the instant proceeding are limited and believed to be largely,
    if not entirely, undisputed. The proceeds of the Debtors' insurance policies remain critical to
    creditor recoveries in the Chapter 11 Cases, through claims being pursued by the Litigation Trust
    established pursuant to the Plan and through the Customer Representatives’ Net Equity claims in
    the MDL which flow through a series of assignments (approved by the Court) into the Debtors’
    estates. While the Plan Administrator expects to also recover funds from other sources


(including, for example, claims against MF Global UK Ltd. and affdiated entities), among the
Plan Administrator's best opportunities to materially increase creditor recoveries are the Estates’
MDL claims against certain of the Individual Defendants and others in the MDL, and those
recoveries are expected to come largely from the Debtors' insurance policies under which the
Individual Defendants are named insureds.

  1. The D&O Policies are part of an insurance "tower," as is typical of such policies.
    The total D&O tower purchased by the Debtors and in place for the 2011-12 policy year relevant
    to the MDL proceedings was $225 million in primary and excess policies.
  2. The issuers and coverage under the D&O tower is as follows:

Coverage

Limits

Attachment

Insurer

$150 Million Combined Side A, B, and C5

Primary

$25 million

 

U S. Specialty Insurance Co.

1st Excess

$25 million

$25 million

XL Speciality Insurance Co.

2nd Excess

$ 15 million

$50 million

AXIS Insurance Co.

3rd Excess

$10 million

$65 million

ACE American Insurance Co.

4th Excess

$10 million

$75 million

Illinois National Insurance Co.

5th Excess

$5 million

$85 million

Federal Insurance Co.

6th Excess

$15 million p/o
$35 million

$90 million

New Hampshire Insurance Co.

6th Excess

$10 million p/o
$35 million

$90 million

Ironshore Indemnity, Inc.

6th Excess

$10 million p/o
$35 million

$90 million

Westchester Fire Insurance Co.

7th Excess

$10 million

$125 million

Hartford Accident & Indemnity Co.

8th Excess

$5 million

$135 million

St. Paul Mercury Insurance
C ompany

9th Excess

$7 million p/o
$10 million

$140 million

Ironshore Insurance Ltd.

9th Excess

$3 million p/o
$10 million

$140 million

Starr Insurance & Reinsurance Ltd.

$50 Million Side A Only6

 

The $150 million combined Side A, B, and C policies are referred lo herein as the "Side ABC Policies" or
the "Side ABC Coverage."

 

 


 

The $50 million Side A only policies are referred to herein as the "Side A Excess D&O Policies" or the
"Side A Excess D&O Coverage."

8


10th Excess

$10 million

$150 million

Allied World Assurance Co. Ltd.

11th Excess

$15 million

$160 million

AXIS Specialty Ltd. Bermuda

12th Excess

$10 million

$175 million

Catlin Insurance Co. Inc.

13th Excess

$5 million p/o
$15 million

$185 million

Federal Insurance Co.

13th Excess

$5 million p/o
$15 million

$185 million

Continental Casualty Co.

13th Excess

$5 million p/o
$15 million

$185 million

Everest National Insurance Co.

$25 Million Side A - Independent

director Liability7

14th Excess

$10 million p/o
$15 million

$200 million

Scottsdale Indemnity Co.

14th Excess

$5 million p/o
$15 million

$200 million

New Hampshire Insurance Co.

15th Excess

$10 million

$215 million

U S. Specialty Insurance Co.

 


 

  1. Side A of the Side ABC Policies provides coverage for non-indemnifiable losses
    of individual insured, including a requirement that the applicable insurers pay losses that the
    insured entity cannot pay on behalf of the individual insureds because of insolvency. Side B of
    the Side ABC Policies reimburses the company for indemnifiable losses incurred by it, and Side
    C provides coverage for securities claims only and reimburses loss to the company. The $50
    million Side A Excess D&O Policies cover all officers and directors of MF Global, whereas the
    $25 million Excess Director Policies provide Side A coverage only for the directors who were
    not officers or employees of the Company (i.ethe Director Defendants).
  2. As such, while a total tower of $225 million in D&O coverage had been put in
    place by the Debtors for 201 1 -2012, only the first $ 150 million offers combined Side ABC
    coverage (including coverage for the Debtors’ Side B Claims). The next $50 million provides
    Side A coverage for all claims against the Individual Defendants in the MDL, and the top $25

The $25 million Side A independent dircclor liability policies at the top of the D&O lower are referred to
herein as the "Excess Director Policies.’'

9

 

million in Excess Director Policies provides coverage only for the Director Defendants, who are
currently named only in the Securities Actions in the MDL.

  1. The Debtors' D&O policies are rapidly wasting assets. In September 2014, this
    Court granted the Individual Defendants’ motion to lift the automatic stay to remove the “Soft
    Cap” previously imposed on the D&O insurers’ reimbursement of defense costs. At the same
    time, the Court explicitly put in place a restriction “on $13.06 million of the D&O proceeds
    [that] should not be spent absent further relief from the Court” for the Debtors’ Side B Claims.
    Lift Stay Ruling, Ch. 11 Docket No. 1988, at 4 (emphasis added).
  2. The Lift Stay Ruling was ambiguous about whether the stay was lifted only for
    payment of defense costs—the title of the Lift Stay Ruling lifted the stay “To Permit Payments
    Of Defense Costs” (emphasis added), and similarly narrow language was used in the order: “The
    Court concludes the Individual Insureds are entitled to access the full amount of the D&O
    Proceeds for defense costs, except for $13.06 million.” Lift Stay Ruling, Ch. 11 Docket No.

1988, at 22 (emphasis added). Notwithstanding this language, the Individual Defendants and
Insurer Defendants have viewed the Lift Stay Ruling as providing them with carte blanche to use
(or waste) the D&O policies without any further oversight—even to the point, it appears, of
exercising control over the last $13.06 million of Side ABC Coverage which the Court explicitly
determined was still “property of the estate.”

  1. At the time of the Lift Stay Ruling in September 2008—just a little over a year
    ago—the total amounts disbursed to reimburse for defense costs under both the D&O and Errors
    & Omissions (“E&O”) policies had reached just over $48 million. See Lift Stay Ruling at 3. Yet
    remarkably, in a letter dated July 22, 2015 (the “July 2015 D&O Letter”], a copy of which is

annexed hereto as Exhibit C, the D&O Insurers represented to the Plan Administrator that at
most $68 million of the original $225 million in D&O policy limits would be available to satisfy
all remaining claims under those policies if the Securities Settlement becomes final. July 2015
D&O Letter, Ex. C, at 2. The basis for this calculation is not fully disclosed by the insurers,
begging the question: how can only $68 million (and diminishing by the day) be left from a
$225 million D&O tower, even with a $64.5 million Securities Settlement?

  1. From the July 2015 D&O Letter and from public filings in the MDL proceedings,
    the picture becomes clear. The primary and 1st excess layers have already been exhausted and
    the 2nd excess layer has been partially exhausted by the payment of defense costs. See July 2015
    D&O Letter, Ex. C, at 2. The insurers further represented that, if consummated, the Securities
    Settlement (taken together with other undisclosed settlements) would exhaust the 2nd through
    6th excess layers in their entirety and the 7th excess layer in part. Id. Based on this, the insurers
    estimated that the remaining coverage under the D&O tower was approximately $68 million as
    of July 22. Id.
  2. Basic math shows that this $68 million is comprised of the $50 million in Side A
    D&O Coverage, the $10 million 9th excess policies, the $5 million 8th excess policy, and
    approximately $3 million out of the $10 million 7th excess policy. The July 2015 D&O Letter

makes no mention of the $25 million Excess Director Policies at the top of the D&O tower in
stating what is left under the D&O program.

  1. From the July 2015 D&O Letter, it also can be pieced together how these policies
    have been eroded since the Lift Stay Ruling. Subtracting the $64.5 million earmarked for the
    Securities Settlement plus the $68 million remaining for other claims as of July 22nd (i.e., $132.5
    million) from the $200 million in Side ABC and Side A Excess coverage confirms that $67.5
    million has already been spent by the D&O insurers alone in defense costs and to fund
    settlements other than the $64.5 million currently in escrow for the Securities Settlement. In
    other words, since the Court entered the Lift Stay Ruling—at which time approximately $48
    million in combined E&O and D&O spending had been court-authorized, of which $33.75 was
    accrued or paid in defense costs under the D&O policies only (see Transcript of 8/22/2014
    Hearing dated 9/12/14 [Ch. 11 Docket No. 1991] at 45)—the D&O insurers alone have spent an
    additional $33.75 million on defense costs or settlements through July 2015 (excluding the $64.5
    million for the Securities Settlement at issue here).
  2. From this record, it is clear that in the year since the Lift Stay Ruling, the
    Individual Defendants and Insurer Defendants chose to focus on settling the Securities Actions
    ahead of the Estates’ MDL claims (and other MDL claims) against the Individual Defendants,
    and also agreed to “fix” which layers of insurance would fund settlements of the Securities
    Actions based on the dates they elected to enter into settlements of those claims—even though
    the Securities Settlement is conditioned on final approval of the District Court in the MDL
    (which is not scheduled for hearing until November 20, 2015) and even though payments will

 

not be made to the class members (even assuming, arguendo, the Securities Settlement is
approved in its current form), until months later.11

  1. The Insurer Defendants and Individual Defendants earmarked funds from Side
    ABC coverage to cover the entirety of these claims instead of having these claims be satisfied, in
    part, by the $25 million in Excess Director Policies, apparently without any agreement to require
    contribution from the Excess Director Policies if exhaustion of the underlying policies was met
    by competing demands on the policies (even if it occurred prior to the effective date of the
    settlement). This agreement to effectively throw away $25 million in D&O proceeds should not
    be countenanced. The Excess Director Policies were purchased by the Debtors to provide up to
    $225 million of protection based on total claims against policies. It would cause the estates
    irreparable harm to allow $25 million in D&O proceeds to be wasted when total claims well
    exceeding the D&O policies limits will clearly be reached,12 but have not at this time simply
    because the Insurer Defendants and Individual Defendants have stipulated to have the Securities
    Settlement be funded prior to resolving other MDL claims and months prior even to the
    Securities Settlement becoming final.
  2. To avoid this harm to creditor recoveries, the Plan Administrator and Litigation
    Trustee initiate this adversary proceeding to object not to the amount of the Securities Settlement

According to the limited information provided in the Securities Setdement, the Funding Insurers were
required to escrow the funds for the Securities Settlement within 30 days of the preliminary approval, but
all funds except those to cover the notice expenses are held in escrow until the settlement becomes
effective, which is no earlier than after the final hearing, currently scheduled for November 20, 2015. See
Securities Settlement [MDL Docket No. 969-1], Ex. A at 22, H 9. Payments to class members will not
follow until after a claims submission process followed by a separate apphcation for a Class Distribution
Order. Id. at 32-36,1H| 27-32.

Damages for the Litigation Trust claims exceed $1.8 billion and the Shortfall Amounts for the Customer
Representative claims assigned to MFGAA exceed $484 million. While this is not the place to detail
efforts to resolve the Estates’ MDL claims, suffice it to say that demands meeting the underlying
exhaustion requirements to trigger the Excess Director Policies could easily be met.

agreed to by the Individual Defendants and Lead Plaintiffs, but only to take issue with the timing
and sources of proposed funding agreed to by the Individual Defendants and Insurer Defendants.

  1. In addition, the Plan Administrator brings this action to protect the $13.06 million
    in Side B Claims which the Court’s Lift Stay Ruling deemed property of the estate. The July
    2015 D&O Letter makes no mention of any reserve being held for these claims, and as discussed
    above, Side B coverage terminates at $150 million. To ensure that $13.06 million is available
    for the Side B Claims, the insurers cannot pay out sums within the last Side ABC layers from
    $136.94 to $150 million “absent further relief from the Court” by the express terms of the Lift
    Stay Ruling. See Lift Stay Ruling [Ch. 11 Docket No. 1988] at 4.
  2. Notwithstanding the restrictions placed by the Lift Stay Ruling, it appears Insurer
    Defendants and Individual Defendants have completely disregarded this Court’s directive to seek
    relief before spending the last $13.06 million of Side ABC coverage. Specifically, by (i)
    acknowledging that the Securities Settlement would require funding well into the 7th excess
    layer (i.e., $132.5 million); and (ii) providing information on defense costs paid since the Lift
    Stay Ruling that reflect a burn rate of in excess of $2 million per month, it is almost certain that
    approval of the Securities Settlement in its current form (scheduled for the final hearing on
    November 20, 2015) would cause the Funding Insurers and Side ABC Cushion Insurers to
    invade the 8th and 9th Excess Layers that are protected as property of the estate on account of
    the Side B Claims, all without seeking leave of this Court. Therefore, the Securities Settlement
    in its current form should not be approved on the independent grounds that it provides for
    spending that, combined with defense costs and amounts already committed under the Side ABC
    coverage, would violate the Plan injunction and Lift Stay Ruling.

14

COUNT I
INJUNCTIVE RELIEF UNDER
SECTION 105(A) OF THE BANKRUPTCY CODE

  1. The Adversary Plaintiffs repeat and reallege the allegations contained in
    paragraphs 1 through 25 as if fully set forth herein.
  2. Section 105(a) of the Bankruptcy Code provides that "[t]he court may issue any
    order, process, or judgment that is necessary or appropriate to carry out the provisions of this
    title."
  3. If the Securities Settlement in its current form is permitted to become final prior
    to the resolution of other claims in the MDL, $25 million in D&O proceeds will be rendered
    unavailable to satisfy the MDL Estates' claims, reducing recoveries to the creditors of the
    Chapter 11 Debtors' estates and benefitting no one but the issuers of the Excess Director Policies.
  4. The Adversary Plaintiffs are entitled to an injunction under Section 105(a) of the
    Bankruptcy Code enjoining the final approval of the Securities Settlement pending either the
    resolution of the Estates’ MDL claims or modifications to the Securities Settlement to prevent
    this waste of the D&O policies and consequent harm to the creditors of the Chapter 11 estates.

COUNT II

DECLARATORY AND INJUNCTIVE RELIEF UNDER THE
THE PLAN INJUNCTION AND THE COURT’S
LIFT STAY RULING

  1. The Adversary Plaintiffs repeat and reallege the allegations contained in
    paragraphs 1 through 29 as if fully set forth herein.
  2. $ 13.06M of proceeds from Side ABC coverage was found to be property of the

Chapter 11 Debtors' bankruptcy estates pursuant to the Court's Lift Stay Ruling.

  1. Section XI.D of the Chapter 11 Debtors' Second Amended and Restated Joint
    Plan of Liquidation (the "Plan Injunction11!. Docket No. 1382, enjoins, among other things.

"acting or proceeding in any manner, in any place whatsoever, that does not conform to or
comply with the provisions of this Plan" and "taking any actions to interfere with the
implementation or consummation of this Plan."

  1. Consummation of the Securities Settlement, combined with defense spending and
    other commitments by the Funding D&O Insurers and Side ABC Cushion Insurers, are at
    imminent risk of dissipating the D&O Policies' Side ABC coverage such that less than $13.06M
    of proceeds would remain available as a reserve for the Side B Claims, in violation of the Plan
    Injunction and this Court’s Lift Stay Ruling.
  2. Accordingly, the Adversary Plaintiffs are entitled to declaratory and injunctive
    relief preventing the defendants from accessing D&O proceeds in the Side ABC 8th and 9th
    excess layers.

COUNT III

DECLARATORY AND INJUNCTIVE RELIEF UNDER THE
THE PLAN INJUNCTION AND THE COURT'S
LIFT STAY RULING

  1. The Adversary Plaintiffs repeat and reallege the allegations contained in
    paragraphs 1 through 34 as if fully set forth herein.
  2. The Court’s Lift Stay Ruling by its express terms only permitted the use of D&O
    proceeds for reimbursement of defense costs.
  3. Accordingly, the Adversary Plaintiffs are entitled to declaratory and injunctive
    relief preventing the defendants from entering into or consummating settlements which deplete
    the D&O policies without seeking leave of this Court to ensure that the policies are used in an
    equitable manner.
  4. The Adversary Plaintiffs also are entitled to reimbursement for the costs of this
    proceeding to enforce the Court’s Lift Stay Ruling.

WHEREFORE, for all the foregoing reasons, the Plan Administrator and
Litigation Trustee respectfully requests entry of:

  1. An order enjoining final approval of the Securities Settlement either (i) until the
    Estates’ MDL claims are resolved, or (ii) until the Individual Defendants and Insurer Defendants
    modify the timing or sources of funding the Securities Settlement to prevent the waste of the
    Excess Director policies and consequent harm to the creditors of the Chapter 11 estates; and
  2. An order declaring that approval of the Securities Settlement violates the Plan
    Injunction and the Court’s Lift Stay Ruling to the extent that less than $13.06M of Side ABC
    D&O proceeds would remain available as a reserve for the Side B Claims if the Securities
    Settlement is consummated;
  3. An order enjoining the defendants from permitting dissipation of the Side ABC
    policies without leaving a reserve for the Side B Claims;
  4. An order preventing the defendants from entering into or consummating
    settlements which deplete the D&O policies without seeking leave of this Court to ensure that
    the policies are used in an equitable manner;
  5. An order reimbursing Adversary Plaintiffs for the costs of this proceeding; and
  6. An order granting Adversary Plaintiffs such other and further relief as is just.


The MFGAA claims include any recoveries by the Customer Representatives for the Net Equity claims,
which were assigned by MFGI through a series of agreements approved by this Court to MFGAA; any
such recoveries will be distributed to the Debtors’ estates in proportion to their pro rata claims against
MFGI. See Letter to the Honorable Victor Marrero from Jane Rue Wittstein dated September 11, 2015,
with Exhibits (MDL Docket No. 996), attached hereto as Exhibit D.

 

The July 2015 D&O Letter was sent in response to a letter dated July 13, 2015, by which David W. Steuber
of Jones Day wrote to the D&O insurer representatives to inquire about the Securities Settlement, a copy of
which is annexed hereto as Exhibit B.

In fact, it appears that the Individual Defendants and Insurer Defendants entered into settlements of
undisclosed amounts funded by the D&O policies of the AG Oncon Action and with another opt-out,

Cadian Capital Management, using the Side ABC coverage in July 2015. See Securities Settlement [MDL
Docket No. 969-1], Ex. A at 9 H 22; Judgment of Dismissal Against Individual Defendants dated July 10,
2015 [MDL Docket No. 980], As such, on information and belief, the only claims still pending against the
Director Defendants appear to be opt outs from the Securities Settlement, if any—which are unlikely to be
material since the Lead Plaintiffs and Individual Defendants reached an undisclosed side agreement, as is
typical in class settlements, providing the terms on which the parties may terminate the settlement based on
opt-outs. See Securities Settlement [MDL Docket No. 969-1], Ex. A at 40, Tf 41.

On information and belief, these undisclosed settlements include combined amounts totaling $10.75

million, which would mean that $23 million has been spent on defense costs in D&O alone in the eleven-
month period from August 2014 to July 2015 (for a bum rate on just the D&O policies of over $2 million
per month in defense spending since the Soft Cap was removed).

 

 

The provided text is an excerpt from a document filed in this case. For a full understanding of the case, one should read the complete court file, including the response.

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