Lance R. Pomerantz
Attorney at Law

Land     Title     Law

“Constructive Notice”  The  Newsletter

Excerpted from the February 28, 2018 mailing of "Constructive Notice":

Reversionary Interests in Chapter 11

When disposal to a third party of the Debtor’s reversionary interest in property was agreed upon in arm’s-length pre-petition documents, but the Confirmed Plan provides the reversion is property of the reorganized Debtor, who wins? That is the question the Bankruptcy Court had to answer in Lawski v. Frontier Insurance Group, LLC, et al (In re Frontier Insurance Group, Inc.), No. 05-36877, Adv. Pro. No. 14-9022 (Bankr. Ct., S. D. N. Y., Feb. 1, 2018).

In 1991, Frontier Insurance Company was the wholly owned subsidiary of Frontier Insurance Group and both companies maintained their headquarters in a corporate campus in Sullivan County, New York. Frontier Insurance Group owned two of the three parcels on which the campus was located, while Frontier Insurance Company owned the third. In connection with a local tax abatement program, both companies transferred their interests to the Sullivan County Industrial Development Authority (IDA). The documents governing these transfers provided that when the tax abatement program was completed, the IDA would convey all three parcels to Frontier Insurance Company, despite the fact Frontier Insurance Group originally owned two of them.

In 2001, Frontier Insurance Company went into a state rehabilitation proceeding. While that was ongoing, Frontier Insurance Group (the parent) went into Chapter 11 and the Plan was confirmed in December 2005. The original Asset Disclosure Statement listed the parcel conveyed to the IDA by Frontier Insurance Company and one of the parcels conveyed by Frontier Insurance Group, both “as ‘Successor in Interest to [the IDA].’” The Disclosure was later amended to omit the Frontier Insurance Company parcel.

The state rehabilitation proceeding was unsuccessful and was converted into a statutory liquidation proceeding in 2012, vesting the Liquidator with "title to all of Frontier Insurance Company's property" and directing him to liquidate the business in accordance with the New York Insurance Law. The tax abatement program concluded in 2014, and the reorganized Debtor asserted ownership of the reversionary rights (pursuant to the Plan), prompting the Liquidator to commence an action in state court to enforce the IDA documents.

Following a trial, the Bankruptcy found the Rehabilitator (predecessor to the Liquidator) and the Debtor had consistently treated the reversionary rights in both of the former Frontier Insurance Group parcels as property of the Estate during the Chapter 11 proceedings, even though one of the parcels wasn’t explicitly listed in the Asset Disclosure and despite all parties’ awareness of the contrary provisions in the IDA documents. Thus, under applicable provisions of the Bankruptcy Code and principles of res judicata, the Liquidator was precluded from recovery on behalf of Frontier Insurance Company.


This is a “juicy” case for both bankruptcy and land title lawyers – an insurance company in rehabilitation, then in liquidation; its parent in bankruptcy; an omission from Debtor’s asset schedule; venue, statute-of-frauds and issue-preclusion concerns; federal/state jurisdiction over property rights disputes; abstention; judicial estoppel, and more. A must-read.