The debtor in this case formerly owned an assisted living facility in Missouri. The State closed the facility due to structural issues, and the building sustained damage on a number of occasions while vacant. The debtor subsequently was authorized by the bankruptcy court to sell the property. The building’s insurer filed this adversary proceeding seeking to interplead the amount of the insurance proceeds for the initial damage claim. In the meantime, the debtor confirmed a Chapter 11 plan and filed a state court lawsuit in Missouri against the insurer and the buyer for damages under the insurance policies.
The insurance company filed a motion to amend its complaint to remove the interpleader claim and seek only declaratory relief, and to add a party who may claim an interest in the insurance proceeds. The debtor filed a motion for this court to abstain and let the state court decide the case.
The bankruptcy court dismissed the interpleader claim and granted the motion to abstain. The court ruled the plaintiff had not established grounds for interpleading the funds, in part because the plaintiff instead seemed to be attempting to limit the loss to the amount of the initial claim, instead of the total $5 million that the debtor is seeking in the state court lawsuit. “Interpleader being a remedy solely for the protection of the stakeholder, it may not be used by the stakeholder as a weapon to defeat recovery from funds other than the one before the court.”
The bankruptcy court found that abstention was appropriate because state law issues predominate over bankruptcy issues, there are no bankruptcy claims to resolve, this court’s ability to adjudicate the rights of non-debtor parties against each other is not certain, and the adversary complaint seeks only to limit the insurer’s liability rather than determine the debtor’s actual damages. Accordingly, the adversary proceeding was stayed pending the outcome of the Missouri lawsuit.