141 F.3d 585 (5th Cir. 1998), 97-10302, Munich American Reinsurance Co. v. Crawford

Docket Nº:97-10302.
Citation:141 F.3d 585
Party Name:MUNICH AMERICAN REINSURANCE COMPANY; NAC Reinsurance Corporation, Plaintiffs-Appellants, v. John P. CRAWFORD, Insurance Commissioner of the State of Oklahoma, as Receiver of Employers National Insurance Corporation, Defendant-Appellee.
Case Date:June 02, 1998
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 585

141 F.3d 585 (5th Cir. 1998)


Corporation, Plaintiffs-Appellants,


John P. CRAWFORD, Insurance Commissioner of the State of

Oklahoma, as Receiver of Employers National

Insurance Corporation, Defendant-Appellee.

No. 97-10302.

United States Court of Appeals, Fifth Circuit

June 2, 1998

Page 586

John M. Nonna, Richard J. Cairns, Patricia Anne Taylor, Werner & Kennedy, New York City, for Plaintiffs-Appellants.

Anthony J. Mormino, Washington, DC, for Reinsurance Ass'n of America, Amicus Curiae.

Billy M. Croll, Libby Hougland Banks, Linn & Neville, Orval Edwin Jones, Oklahoma Ins. Dept., Oklahoma City, OK, for Defendant-Appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before JOLLY, DUHE and PARKER, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

The dispute in this appeal is about who will decide the entitlement to a $1.5 million pile of money--arbitrators pursuant to the Federal Arbitration Act (the "FAA"), or the Oklahoma state insurance regulators and courts under the McCarran-Ferguson Act. Or, perhaps, the more specific question is who gets to decide who will decide the entitlement question--the federal courts or the state courts. There are, however, several questions we must address before we reach the ultimate disposition of this appeal. The first question is one of jurisdiction: whether the district court had jurisdiction to reconsider its initial order compelling arbitration of the dispute. We next consider whether the district court correctly invoked the Burford abstention doctrine to dismiss

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the action to compel arbitration. Finally, we consider whether state laws governing insurance company delinquency proceedings reverse pre-empt the FAA under the McCarran-Ferguson Act. Although we hold that Burford abstention was improper, we conclude that jurisdiction was proper, that the FAA was reverse pre-empted by Oklahoma law under the McCarran-Ferguson Act, and that this dispute is one for the State of Oklahoma to resolve. We, accordingly, affirm the district court's dismissal of the petition to compel arbitration.


On January 1, 1986, Employers National Insurance Corporation ("ENIC") and its parent corporation, Employers Casualty Company ("ECC"), entered into reinsurance agreements with Munich American Reinsurance Company ("Munich") and NAC Reinsurance Corporation ("NAC"). Munich and NAC entered into reinsurance agreements with ECC and ENIC to cover ENIC's potential losses under a prior insurance contract (the "umbrella policy") issued by ENIC to Jobs Building Services, Inc. ("Jobs"). Under the reinsurance agreements, Munich and NAC agreed to insure ENIC for a percentage of the net loss on claims paid by ENIC under the umbrella policy. "Net loss" was defined as "all payments by [ENIC] in settlement of claims or losses, payment or benefits, or satisfaction of judgments or awards, after deduction of salvage." "Salvage" was in turn defined as "any recovery made by [ENIC] in connection with a claim or loss, less all expenses paid by [ENIC], other than payments to any salaried employee of [ENIC] making such recovery."

In 1991, ENIC paid $2,065,000 under the umbrella policy to settle a wrongful death action against Jobs. Munich and NAC maintain that ENIC submitted the claim and that each reinsurer paid $829,250 on the reinsurance agreements. ENIC later brought an action in Texas against the underlying insurer in the Jobs wrongful death suit. The case was settled for $2.5 million following an unsuccessful appeal.

On February 14, 1994, prior to the time that the settlement was entered, an Oklahoma state court placed ENIC into liquidation. 1 John R. Crawford, the Insurance Commissioner of Oklahoma, was appointed ENIC's receiver for the ensuing delinquency proceedings. The court's liquidation order authorized and directed Crawford to take all actions necessary and appropriate to accomplish ENIC's liquidation in accordance with the Oklahoma Uniform Insurers Liquidation Act. The order vested Crawford with title to all property of ENIC and directed him to take immediate and exclusive possession of such property wherever located or thereafter discovered. It also enjoined any action against ENIC, Crawford, or any of ENIC's assets.

Consistent with the liquidation order, ENIC's attorneys remitted to Crawford $1.5 million from settlement of the wrongful death action, net of attorneys fees. Munich and NAC contacted Crawford, asserting a vested property right in the proceeds. They urged that these proceeds, as salvage under the reinsurance agreements, were not part of the ENIC estate, but being held in trust for them. Crawford insisted that the proceeds were not salvage because, based on ENIC's books and records, ENIC never sought or received reimbursement from Munich, NAC, or ECC for the underlying claims. When Crawford refused to remit the money, Munich and NAC requested that he submit the dispute to arbitration as called for by the reinsurance agreements. Crawford again refused.

Finally, on July 18, 1996, Munich and NAC filed a petition in federal district court to compel arbitration under the FAA, 9 U.S.C. § 4. On September 18, 1996, the district court entered an order finding that ENIC was a party to the reinsurance agreements and compelling the parties to submit the dispute to arbitration. Crawford moved for a new trial, a rehearing, or an amendment to the judgment under Rule 59(e) of the Federal Rules of Civil Procedure. It was on this motion that the district court first learned of the state court injunction. On October 8, 1996, the district court denied Crawford's

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motion, noting, however, that principles of comity and federalism required the state court to interpret and enforce its injunction with the appropriate contempt order if necessary. As a result, Crawford filed a motion in state court seeking specifically to enjoin the federal arbitration order and to find Munich and NAC in contempt for violating the previous injunction. Munich and NAC responded with a motion in the federal district court for an injunction forcing Crawford to comply with the arbitration order.

On November 14, 1996, the district court denied Munich's and NAC's motion. The court also took the opportunity to clarify its earlier order, stating:

[W]hether Petitioners violated the state court injunction by filing this action is a matter for the state court to determine. If the state court determines that the filing of this action violated its injunction, this Court will respect that decision by vacating the arbitration order and dismissing the case. Except in exceptional circumstances, it is the policy of this Court to refrain from interfering with an ongoing state court proceeding.

Accordingly, the district court directed Crawford to file a motion to dismiss the instant action if the state court determined that its injunction had been violated. On January 13, 1997, the state court found that Munich and NAC had violated the injunction issued at the outset of ENIC's delinquency proceedings by petitioning the federal district court to compel arbitration.

Pursuant to the district court's November 14 order, Crawford filed a motion to dismiss the action to compel arbitration. Munich and NAC argued that abstention was inappropriate in this case and that Crawford was estopped from asserting this issue by his delay in raising it. Crawford responded that the FAA was reverse pre-empted by the McCarran-Ferguson Act and that abstention was therefore appropriate. In the event dismissal was not appropriate, Crawford also requested a stay of the district court proceedings. On February 27, 1997, the district court granted Crawford's motion to dismiss under the Burford abstention doctrine. Munich and NAC appeal.


Munich and NAC first contend that the district court lacked jurisdiction to reconsider its October 8 order denying Crawford's Rule 59(e) motion because Crawford did not timely appeal or otherwise challenge that order. Crawford responds that in cases where Burford abstention is appropriate, it can be ordered at any time, even on appeal. Although we agree with Crawford that Burford abstention may be raised at any time, see Martin Ins. Agency, Inc. v. Prudential Reins. Co., 910 F.2d 249, 255 (5th Cir.1990), we ultimately conclude, as explained below, that Burford abstention was inappropriate in this case. Nevertheless, based upon our review of the district court's orders, we are confident that the district court maintained jurisdiction to issue the abstention order.

The district court's October 8 order reflects its intention to retain jurisdiction over the case until the state court resolved the injunction issue. In the October 8 order, the district court denied the Rule 59(e) motion, but altered the finality of its earlier judgment by effectively reserving the right to revisit that judgment pursuant to appropriate state court action. Having now been informed of the state court injunction, the district court concluded that principles of comity and federalism prevented it from interfering with ongoing state court proceedings and that the state court should enforce its own injunction, citing Trainor v. Hernandez, 431 U.S. 434, 97 S.Ct. 1911, 52 L.Ed.2d 486 (1977), and Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). This language evinces the district court's intent to make its September 18 order compelling arbitration conditional pending the state court's resolution of the scope and effect of its injunction.

Our conclusion in this respect is confirmed by the November 14 order, which merely clarified the district court's already-stated position. The November 14 order came as a result of a petition by...

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