Amsouth Bank v. Dale

Decision Date21 September 2004
Docket NumberNo. 03-5521.,No. 03-5517.,03-5517.,03-5521.
Citation386 F.3d 763
PartiesAMSOUTH BANK (03-5517); First Tennessee Bank (03-5521), Plaintiffs-Appellees, v. George DALE et al., Defendants-Appellants.
CourtU.S. Court of Appeals — Sixth Circuit

Appeal from the United States District Court for the Middle District of Tennessee, William J. Haynes, Jr., J.

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Anthony J. McFarland (briefed), David R. Esquivel (briefed), Catherine A. Colley (briefed), Bass, Berry & Sims, Nashville, TN, Randall D. Quarles (briefed), Larry B. Childs (argued and briefed), Walston, Wells, Anderson & Bains, Birmingham, AL, for Plaintiffs-Appellees.

Alan F. Curley (briefed), C. Philip Curley, Robert L. Margolis (briefed), Robert S. Michaels (argued and briefed), Robinson, Curley, & clayton, Chicago, IL, Douglas J. Schmidt, Kansas, City, MO, Susan B. Loving, Lester, Loving & Davies, Edmond, CA, for Defendants-Appellants.

Before: BOGGS, Chief Judge; MOORE, Circuit Judge; QUIST, District Judge.*

MOORE, J., delivered the opinion of the court, in which QUIST, D. J., joined. BOGGS, C. J., concurred in the judgment only.

OPINION

KAREN NELSON MOORE, Circuit Judge.

Defendants-Appellants George Dale ("Dale"), Scott B. Lakin, Carroll Fisher, and Mike Pickens,1 all commissioners of insurance or the equivalent for their respective states, who were sued in their official capacity as receivers for various insolvent insurance companies (collectively, "Receivers"), appeal from the district court's grant of a preliminary injunction barring them from pursuing their coercive action originally filed in Mississippi state court in these ongoing declaratory judgment suits brought by Plaintiffs-Appellees AmSouth Bank ("AmSouth") and First Tennessee Bank ("FTB") (collectively, "Banks"). The Receivers argue that the district court improperly entertained this action, because it lacked jurisdiction or because it should have declined jurisdiction in its discretion. Because the district court abused its discretion in entertaining these declaratory actions, we DISSOLVE the injunction, REVERSE the district court's decision, and REMAND the case to the district court with instructions to dismiss the actions.

I. BACKGROUND

This case concerns the latest effort of the Receivers to recover some of the funds embezzled from a number of southern insurance companies by the infamous Martin Frankel ("Frankel"). See, e.g., Lakin v. Prudential Sec., Inc., 348 F.3d 704 (8th Cir.2003); United States v. Peoples Benefit Life Ins. Co., 271 F.3d 411 (2d Cir.2001); Dale v. Ala Acquisitions, Inc., 203 F.Supp.2d 694 (S.D.Miss.2002); Dale v. Frankel, 206 F.Supp.2d 315 (D.Conn.2001). Frankel had purchased seven insurance companies in five states through various entities, while at the same time controlling the unregistered brokerage that was supposedly investing the large cash reserves that insurance companies typically have on hand. Instead, he was funneling the money to overseas bank accounts. Dale, insurance commissioner for Mississippi, became suspicious and placed the Frankel-controlled insurance companies under state supervision, and in May 1999, Frankel fled the country as his scheme dissolved. Frankel was the subject of a four-month, world-wide manhunt, culminating in his capture in Germany. Frankel pleaded guilty to numerous charges in the United States District Court for the District of Connecticut.

Bank accounts used in Frankel's money-laundering scheme were held by the insurance companies at both AmSouth, from 1991 to 1999, and FTB, from 1997 to 1999. Essentially, the Receivers argue that the Banks were negligent in not realizing the massive fraud that those accounts were being used to commit. In the course of the receivership proceedings, the Receivers concluded they might have claims against AmSouth, and contacted AmSouth to begin settlement discussions. On June 28, 2001, attorneys for AmSouth and the Receivers executed on behalf of their clients a tolling agreement through August 27, 2001. That tolling agreement was extended six times, through July 31, 2002. During the pendency of that tolling agreement negotiations were ongoing; on September 27, 2001, explicitly "for settlement purposes," the Receivers sent draft allegations to AmSouth. Joint Appendix No. 03-5517 ("J.A.AmS") at 566. On June 28, 2002, the Receivers' counsel sent a draft complaint that they intended to file "on or before July 31, 2002" if that "effort at compromise [was] unsuccessful," including a "written, pre-filing demand" that AmSouth had "asked [the Receivers] to make," and indicating that the settlement offer would expire on July 10. J.A. AmS at 567-68. On July 10, 2002, AmSouth's counsel sent a letter to the Receivers' counsel indicating that AmSouth's counsel had discussed settlement and litigation options with their client, but requested 1) a meeting "among the parties and their counsel"; 2) an insurance-company-by-insurance-company breakdown of damages suffered; and 3) an extension of the time for response through July 19. J.A. AmS at 570. A phone conversation between counsel took place on July 15, 2002, the contents of which are contested, but which likely led to some sort of agreement that the extension had been approved. On July 17, 2002, AmSouth's counsel sent a letter regarding the Receivers' ongoing concerns with respect to Federal Rule of Evidence 408, governing the disclosure of settlement discussions, in which the last paragraph stated that AmSouth was "still considering" the Receivers' demand and AmSouth's options, and that counsel would "be in touch in the near future concerning a written response and a possible meeting on July 24." J.A. AmS at 572. On July 18, 2002, counsel for the Receivers sent a letter formalizing their approval of the extension to July 19, 2002, for a response to their settlement offer, indicating their openness to a meeting on July 24, and including a detailed breakdown of damages by bank account. Unbeknownst to the Receivers, on July 18, 2002, AmSouth had filed a complaint for declaratory relief in the U.S. District Court for the Middle District of Tennessee. On July 19, 2002, AmSouth sent a letter formally rejecting the settlement offer, but failing to mention the suit they had filed the previous day. The Receivers learned of the filing through the call of a newspaper reporter on July 19.

Negotiations with FTB took place in a shorter period of time, but followed a similar track. In May 2002, the Receivers' counsel initiated negotiations with FTB through phone conversations; to this end, they signed a tolling agreement that extended from May 3 through May 31, 2002. This agreement was extended once, on May 24, 2002, through July 31, 2002 (the same date as the final date of the AmSouth tolling agreement). In July 2002, FTB requested a formal settlement demand; while Receivers' counsel was drafting this demand, they learned that FTB had filed the instant declaratory judgment action in the Middle District of Tennessee.

On July 31, 2002, at the end of the tolling period, the Receivers filed an action in Mississippi state court against both AmSouth and FTB ("the Mississippi litigation"). AmSouth removed the action to the U.S. District Court for the Southern District of Mississippi with FTB's consent on September 5, 2002, based on alleged improper joinder of FTB, and asserted complete preemption of the Receivers' claims under Federal Reserve Board Regulation J, 12 C.F.R. § 210.25 et seq. ("Regulation J"), governing wire transfers. FTB then filed a motion to dismiss for improper venue, or in the alternative to transfer the case, on September 26, 2002. On October 7, 2002, the Receivers filed a remand motion. When the Middle District of Tennessee ("district court") decided in the instant actions to enjoin the further prosecution of the Mississippi litigation the Mississippi litigation was stayed by the federal district court in Mississippi.

In the instant actions (collectively, "the Tennessee litigation"), AmSouth and FTB ask for declaratory relief that they are not liable to the Receivers, relying both on federal law and state law defenses, and both complaints ask the district court to enjoin the Receivers from bringing any future lawsuits and require them instead to bring all claims as counterclaims in the Tennessee litigation. The Receivers filed motions to dismiss both FTB's and AmSouth's actions on August 23, 2002. A hearing was held on that motion on January 13, 2003, and the district court issued its decision and orders denying the motions to dismiss and enjoining further prosecution of the Mississippi litigation on March 31, 2003. A timely notice of appeal was filed in each case on April 4, 2003.

Subsequently, the Mississippi litigation was stayed on April 16, 2003. In mid-2003, apparently out of concern for risking mounting legal fees for a limited potential recovery, Paula Flowers, Commissioner of Commerce and Insurance for the State of Tennessee, then a defendant in the Tennessee litigation and a plaintiff in the Mississippi litigation, decided that Tennessee should withdraw from the Mississippi litigation, and in response, FTB and AmSouth agreed to dismiss her from the Tennessee litigation. See Getahn Ward, Tennessee Pulls Out of Suit Against 2 Banks, The Tennessean, July 29, 2003, at 4E. On June 23, 2003, Flowers filed a motion to dismiss her appeals in this court which we granted on June 25, 2003; on June 26, 2003, Flowers's claims in the Mississippi litigation were dismissed with prejudice; on July 18, 2003, FTB and AmSouth's claims against Flowers in the Tennessee litigation were dismissed in the district court. Finally, in the district court below, which has continued proceedings during this interlocutory appeal, having denied Receivers' motions to stay same, FTB and AmSouth have moved...

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