The 2008 bankruptcy and default by fallen department store giant Mervyn’s LLC on its self-insured workers’ compensation insurance obligations represents the largest-ever for a state fund that will assume responsibility for the claims. The California Self Insurers Security Fund, believed at the time that Hayward-based Mervyn’s defaulted on almost $20 million in unpaid workers’ compensation claims, though the final total could be significantly lower because many claims are inactive.The Security Fund, a nonprofit mutual benefit corporation created by the state in 1984, is designed to ensure that workers’ comp claims are paid for workers in self-insured plans in the event of a default by their employer. In its 24 years, officials say, it has assumed liability for $160 million in claims involving 64 defaults, ultimately leaving it responsible for $90 million in net costs after accounting for about $70 million in surety bonds or deposits posted by the defaulting organizations. Prior to Mervyn’s, the last big default was National RV in late 2007, leaving $3.5 million in claims and $5 million in security deposits,

Joh Navroth II was an applicant with a pre-bankruptcy industrial injury. He is attempting to recover directly from the bankruptcy court in Delaware.The bankruptcy court issued an order deferring his claim to the WCAB.

Navroth seeks damages for alleged injuries from a work related accident (dropping a folding table on his foot). The Initial Claim includes allegations of and requests for compensation for physical and emotional suffering and demands for payment of vacation, sick and personal holiday time. The alleged incident occurred in California prior to Mervyn’s bankruptcy. Importantly, Claimant filed a statutory workers’ compensation proceeding (the “State Proceeding”) prior to the commencement of the bankruptcy case. The Amended Claims contain allegations of breaches of fiduciary duties, discrimination, employment discrimination, interference with contractual relations and interference with prospective business advantage. The Amended Claims increase the total sum Claimant seeks to in excess of $21 million. Claimant also alleges that the Amended Claims are secured.

The Amendments are untimely and therefore void, as they were filed after the General Bar Date of January 9, 2009. Claimant’s only timely filed claim is Claim No. 3283 in the amount of $671,759.86. The Amendments are clearly new claims filed after the Bar Date and are therefore void. The Court carefully reviewed the Amended Claims against the Initial Claim and it is beyond any doubt that the Amended Claims are not related to the Initial Claim.

The Initial Claim is the only remaining claim. The Court fully agrees with Debtors that the Court should abstain from hearing the Initial Claim. 28 U.S.C. § 1334(c)(I) directs the Court to consider exercising its discretion to abstain from hearing a matter arising under the Bankruptcy Code or arising in or related to a bankruptcy case, in “the interest of justice, or in the interest of comity with State courts or respect for State law.”

Abstention will limit the necessary tribunals to one, the California Workers’ Compensation Board (“CWCB”) in the State Proceeding. Were the Court to hear the Initial Claim, it could determine the validity but not the amount. The District Court would have to determine the amount. In re Amtrol, 384 B.R.686, 690 (Bankr. D. Del. 2008). The estate would therefore have to litigate in two courts, an obvious burden and waste of judicial resources.The Initial Claim, which is the sole remaining claim, raises only California workers’ compensation law. Abstention is therefore wholly proper. Fruit of the Loom, 407 B.R. at 600, 602; In re Holiday RV Stores, Inc., 362 B.R. 126, 130-31 (D. Del. 2007).

For the foregoing reasons, the Court entered an Order dismissing the Amended Claims and abstaining from hearing the Initial Claim and thereby deferring to the State Proceeding.