Antonio Garcia v. Island Program Designer, Inc.

• Decision Date: 03 March 1993
• Docket Number: Nos. 92-1853,92-1889,s. 92-1853
• Citation: 4 F.3d 57
• Parties: Bankr. L. Rep. P 75,451 Juan ANTONIO GARCIA, etc., Plaintiff, Appellee, v. ISLAND PROGRAM DESIGNER, INC., Defendant, Appellee, v. UNITED STATES of America, Intervenor, Appellant. In re UNITED STATES of America, Petitioner. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 57

4 F.3d 57

Bankr. L. Rep. P 75,451

Juan ANTONIO GARCIA, etc., Plaintiff, Appellee, v. ISLAND PROGRAM DESIGNER, INC., Defendant, Appellee, v. UNITED STATES of America, Intervenor, Appellant.

In re UNITED STATES of America, Petitioner.

Nos. 92-1853, 92-1889.

United States Court of Appeals First Circuit.

Heard March 3, 1993.

Decided Sept. 14, 1993.

Steven W. Parks, Atty., Tax Div., Dept. of Justice, with whom James A. Bruton, Acting Asst. Atty. Gen., Gary R. Allen and Bruce R. Ellisen, Attys., Tax Div., Dept. of Justice, Washington, DC, were on brief, for U.S.

Carlos J. Morales-Bauza with whom Jesus R. Rabell-Mendez and Rossello-Rentas & Rabell-Mendez, San Juan, PR, were on brief for Juan Antonio Garcia, in his capacity as Ins. Com'n of PR.

Before BREYER, Chief Judge, TORRUELLA and CYR, Circuit Judges.

BREYER, Chief Judge.

This appeal requires us to resolve a conflict between 1) a federal statute that gives federal tax claims first priority to a bankrupt company's assets, 31 U.S.C. Sec. 3713, and 2) a Puerto Rico "insurance company liquidation" statute with filing deadlines that can force those federal claims to the end of the priority queue. P.R.Laws Ann., tit. 26, Sec. 4019(2). A special federal statute, governing federal pre-emption of state insurance laws, 15 U.S.C. Sec. 1012(b), would require us to resolve the conflict in favor of Puerto Rico's law--if that special federal statute applies. But, a recent Supreme Court case, interpreting that special law, indicates that it does not apply. Department of Treasury v. Fabe, --- U.S. ----, 113 S.Ct. 2202, 124 L.Ed.2d 449 (1993). Hence, given ordinary pre-emption principles, the federal statute governs. We reverse a district court determination to the contrary.

I Background

Puerto Rico's law permits the Commonwealth's Insurance Commissioner to act as trustee for an insolvent insurance company, to liquidate its assets, and to set a deadline for the filing of "proofs of claim" to those assets. P.R.Laws Ann., tit. 26, Secs. 4002, 4019. In February 1987, the Insurance Commissioner began proceedings, in a Commonwealth court, to liquidate the assets of Island Program Designer, Inc. ("IPD"), a health maintenance organization. The Insurance Commissioner set May 19, 1988, as the filing deadline for "proofs of claim."

On June 1, 1989, about one year after the filing deadline, the federal Internal Revenue Service filed with the Insurance Commissioner a formal "proof" of its claim against IPD for $53,000 (representing federal tax liens that the IRS, between 1982 and 1985, had asserted, and perfected, on IPD's assets). In May 1991, the IRS intervened in the Commonwealth court liquidation proceedings. 26 U.S.C. Sec. 7424. It asked for the $53,000, as to which a federal law gave it first priority. 31 U.S.C. Sec. 3713. It also now tells us that, without a first priority, it will be unable to collect any of the money owed.

The Insurance Commissioner opposed the IRS claim on the ground that the IRS had missed the (May 19, 1988) deadline for filing formal proofs of claim. He pointed out that Puerto Rico's insurance company liquidation statute says that claims for which proofs are filed after the deadline shall not be paid until all timely-filed claims have been "paid in full with interest." P.R.Laws Ann., tit. 26, Sec. 4019(2). And, in his view, Puerto Rico's priority system trumps the federal statute.

At this point, the IRS removed the case to federal court. 28 U.S.C. Secs. 1441(b), 1444. The Insurance Commissioner asked the district court to "abstain" from deciding the legal issues, and to remand the case to the Commonwealth court. The district court then wrote an opinion deciding the basic question and holding that Puerto Rico's priority law, not the federal priority statute, governs. It also remanded the case to the Commonwealth court. 791 F.Supp. 338. The IRS now asks us to review, and to reverse, the remand order.

II Appeal or Mandamus?

We are not completely certain why the district court, having decided the major legal issue in the case, decided to remand it. It may have done so as an administrative matter, to permit the Commonwealth court to enter a final judgment; or because it believed the controversy involved other legal issues that it should "abstain" from deciding; or simply because "remand" was the form of relief that the Insurance Commissioner had requested. Whatever the reason, the fact of remand raises a technical question about the form of review: Can the IRS simply appeal the remand order or must it seek a writ of mandamus?

The problem arises out of a Supreme Court case, Thermtron Products, Inc. v. Hermansdorfer 23 U.S. 336, 96 S.Ct. 584, 46 L.Ed.2d 542 (1976), in which the Court considered the scope of a statute, 28 U.S.C. Sec. 1447(d), that appeared to bar appellate review of all remand orders. The Court held that the statute's "review bar" applies only to a statutorily-limited, previously-mentioned set of remand orders, namely, those in which remand rests upon a defect in the removal proceeding. See 28 U.S.C. Sec. 1447(c). The Court, referring to an 1875 case, Railroad Co. v. Wiswall, 90 U.S. (23 Wall.) 507, 23 L.Ed. 103 (1875), also held that other remand orders, while reviewable, were not "final" orders and therefore were reviewable only through mandamus. Id. at 508, 23 L.Ed. 103. The remand order in this case falls outside the scope of the statutory "review bar." But, it would seem to fall within the scope of the Supreme Court's holding that review must take place through mandamus, not appeal.

The IRS points out that several appeals courts have created an exception to Thermtron for (and permitted appeal of) reviewable remand orders that amount to "collateral orders." See, e.g., McDermott Int'l Inc. v. Lloyds Underwriters of London, 944 F.2d 1199, 1204 (5th Cir.1991) (permitting appeal of remand order based on separable issue presented by a contract's "forum selection" clause), cert. denied, --- U.S. ----, 113 S.Ct. 2442, 124 L.Ed.2d 660 (1993); Foster v. Chesapeake Ins. Co., Ltd., 933 F.2d 1207, 1211 & n. 6 (3d Cir.) (same), cert. denied, --- U.S. ----, 112 S.Ct. 302, 116 L.Ed.2d 245 (1991); Karl Koch Erecting Co. v. New York Convention Ctr. Dev. Corp., 838 F.2d 656, 658-59 & n. 1 (2d Cir.1988) (same); Pelleport Investors, Inc. v. Budco Quality Theatres, Inc., 741 F.2d 273, 277-78 (9th Cir.1984) (same). It adds that we should recognize an exception permitting appeal here.

We are aware of arguments advanced for modifying, or finding exceptions to, Thermtron. Commentators have argued that the Supreme Court should have departed from its earlier, nineteenth-century practice and found remand orders "final" (hence, in principle, appealable) because 1) they finally dispose of the federal proceedings; and, 2) there is little practical reason not to permit appeal of those remand orders that fall outside section 1447(d)'s statutory bar. 15A Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure Sec. 3914.11, at 702-18 (2d ed. 1991). Critics have also pointed to anomalies. Suppose, for example, that a federal district court, wishing to abstain pending resolution of state proceedings, embodies its decision in a stay of federal proceedings. The stay is appealable. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 8-10, 103 S.Ct. 927, 932-34, 74 L.Ed.2d 765 (1983). Suppose that same court embodies its decision in a remand (and, say, the plaintiff reserves the right to return to federal court, see England v. Louisiana State Bd. of Medical Examiners, 375 U.S. 411, 84 S.Ct. 461, 11 L.Ed.2d 440 (1964)). The parties would have no appeal as of right, but would have to seek "discretionary" review through mandamus. Cf. Roche v. Evaporated Milk Ass'n, 319 U.S. 21, 25, 63 S.Ct. 938, 941, 87 L.Ed. 1185 (1943) (mandamus is discretionary). The result is anomalous. Corcoran v. Ardra Ins. Co., Ltd., 842 F.2d 31, 34-35 (2d Cir.1988). And, one can find other examples of practical review difficulties, particularly when, say, a district court couples dismissal of a removed federal claim with remand of pendent state claims. 15A Wright, Miller & Cooper, supra, Sec. 3914.11, at 710-18; see also In re Amoco Petroleum Additives Co., 964 F.2d 706 (7th Cir.1992).

Despite these difficulties, we do not believe we can find an exception that fits the present case. For one thing, the Supreme Court's language is rather absolute. It says clearly that a remand order is not "final." The Court rests its decision upon older cases that reflect the apparently then-common practice of appellate courts using mandamus, rather than appeal, to review the lawfulness of a lower court's refusal to assert jurisdiction (of which a remand is one variety). Wiswall, 90 U.S. (23 Wall.) at 508, 23 L.Ed. 103. The Court, more recently, has approved circuit court use of mandamus as a vehicle for review. Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 355-56, 108 S.Ct. 614, 621-22, 98 L.Ed.2d 720 (1988). And, lower courts, even when faced with anomalies, have concluded that the Supreme Court meant what it said. In re Amoco Petroleum Additives Co., 964 F.2d at 713; Corcoran, 842 F.2d at 34-35.

For another thing, we do not believe it possible to apply a "collateral order" exception here. See cases cited at p. 59, supra. The "collateral order" doctrine permits parties to appeal (as "final decisions," 28 U.S.C. Sec. 1291) orders that "determine" a "disputed" and "important" issue "separate from the merits of the action," which are "effectively unreviewable" on a later appeal. Coopers & Lybrand v. Livesay, 437 U.S. 463, 468, 98 S.Ct. 2454, 2458, 57 L.Ed.2d 351 (1978). The record here does not set forth the relation of the remand to any remaining issues in sufficient detail for us to say with confidence that the remand order rests on the determination of an issue "separate from the merits of the action." But, more importantly, Thermtron and Wiswall...