NORTH CAROLINA LIFE & ACC. & HEALTH INS. v. Alcatel

• Decision Date: 02 February 1995
• Docket Number: No. 5:94-CV-511-BR3.,5:94-CV-511-BR3.
• Citation: 876 F. Supp. 748
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: The NORTH CAROLINA LIFE AND ACCIDENT AND HEALTH INSURANCE GUARANTY ASSOCIATION, Plaintiff, v. ALCATEL, et al., Defendants.

876 F. Supp. 748

The NORTH CAROLINA LIFE AND ACCIDENT AND HEALTH INSURANCE GUARANTY ASSOCIATION, Plaintiff, v. ALCATEL, et al., Defendants.

No. 5:94-CV-511-BR3.

United States District Court, E.D. North Carolina, Western Division.

February 2, 1995.

COPYRIGHT MATERIAL OMITTED

Michael L. Unti, Margaret Cain Lumsden, Hunton & Williams, Raleigh, NC, for The North Carolina Life and Acc. and Health Ins. Guar. Ass'n.

John L. Sarratt, Craig B. Wheaton, Hayden J. Silver, III, Petree Stockton, Curtis J. Shipley, Moore & Van Allen, Raleigh, NC, for Alcatel Network Systems, Inc., RJR Nabisco, Inc.

John L. Sarratt, Craig B. Wheaton, Petree Stockton, Raleigh, NC, for The Alcatel Inv. and Sav. Plan Trust Committee and all other defendants.

Nigle B. Barrow, Jr., James Y. Kerr, II, Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, Raleigh, NC, for Bankers Trust Co. of California, N.A.

Hayden J. Silver, III, Petree Stockton, Curtis J. Shipley, Moore & Van Allen, Raleigh, NC, for First Union Nat. Bank of North Carolina and Wachovia Bank of North Carolina, N.A.

ORDER

BRITT, District Judge.

I. BACKGROUND

This matter is before the court on motions by the defendants to dismiss or abstain from exercising jurisdiction. The motions have been fully briefed and are now ripe for decision.

The issues before the court can be best discussed as consisting of two distinct parts. The first part concerns plaintiff's first through fifth claims in which it is seeking a declaration of its liability on certain coverage issues currently pending before the North Carolina Department of Insurance (NCDOI). These claims name only defendants Alcatel Network Systems, Inc. (Alcatel); RJR Nabisco, Inc. (RJR); First Union National Bank of North Carolina (FUNB); and Wachovia Bank of North Carolina, N.A. (Wachovia). In response, these defendants have filed a motion to dismiss or abstain from exercising jurisdiction as to claims one through five.

The second part of plaintiff's action concerns plaintiff's sixth through eighth claims in which it seeks subrogation of certain claims made by certain defendants pursuant to the Employment and Retirement Income Security Act of 1974 (ERISA). These claims name the following defendants: Alcatel; The Alcatel Investment and Savings Plan Trust Committee; the individual defendants¹; RJR and Bankers Trust Company of North Carolina (Bankers Trust). They are collectively referred to as the Plan Defendants and have moved to dismiss plaintiff's sixth through eighth claims².

II. FACTS

Alcatel and RJR sponsor pension benefit programs for their employees (plans). These plans are primarily administered by current or former officers and employees of Alcatel and RJR. FUNB is the trustee for Alcatel's plans and Wachovia is the trustee of the RJR plan.

In January 1988, the Alcatel plans invested approximately $8.5 million in a guaranteed investment contract (GIC) issued by Executive Life Insurance Company of California (ELIC). In July 1988, predecessors of the current RJR plan invested approximately $27.9 million in two GICs issued by ELIC. On 11 April 1991, California's Insurance Commissioner placed ELIC into conservatorship and on 6 December 1991, ELIC was ordered liquidated.

Plaintiff is an organization created by the North Carolina Life and Health Insurance Guaranty Association Act (the Guaranty Act), N.C.Gen.Stat. § 58-62-2.³ Its purpose is to protect against the failure in the performance of specified life and health insurance policies and annuity contracts. In September 1992, Alcatel requested that plaintiff assume, reinsure or make payment on the ELIC GIC pursuant to this statutory mandate. Plaintiff denied this request on the ground that the ELIC GIC is not a covered policy under the statute. Alcatel and FUNB appealed the denial to the Commissioner of the NCDOI in February 1993.⁴ Plaintiff moved to transfer the matter to the North Carolina Office of Administrative Hearings, claiming that the Commissioner was biased against plaintiff. A hearing officer rejected these allegations and denied the motion to transfer. However, Administrative Law Judge Beecher R. Gray did hear the matter on 23 February 1994. He remanded the proceedings to the NCDOI, determining that the Office of Administrative Hearings lacked jurisdiction over the appeal.

Just prior to this remand, plaintiff and Alcatel began serious settlement negotiations, and RJR, an a North Carolina holder of ELIC GICs, was brought into the matter. All discovery was stayed during settlement discussions and no further action was taken by the NCDOI after the remand. Plaintiff filed this action on 15 July 1994.

In August 1994, plaintiff and Alcatel determined that they would be unable to reach a settlement as to the matters before the NCDOI. In September, RJR moved to intervene in the NCDOI proceedings. Plaintiff opposed and requested that the NCDOI continue all proceedings regarding Alcatel's appeal until the conclusion of this federal action.

As explained above, plaintiff asserts two distinct sets of claims. Claims one through five arise solely under North Carolina's Life and Health Insurance Guaranty Association Act. In claims one through four, plaintiff seeks a declaratory judgment on the coverage issues still pending before the NCDOI. In claim five, plaintiff seeks a declaratory judgment that the Plans' decision not to participate in ELIC's rehabilitation constitutes a defense to the coverage claims addressed in the first four counts. Defendants maintain that this court should dismiss or abstain from jurisdiction over these claims because of the parallel state administrative proceeding and the fact that these issues involve novel and complicated issues of state law.

Claims six through eight arise under ERISA. In its sixth claim, plaintiff asserts that it is entitled to subrogation to the rights of the Plans and their participants pursuant to ERISA and N.C.Gen.Stat. § 58-62-35(9). In its seventh and eighth claims, plaintiff asserts a breach of fiduciary duty and indemnification against various fiduciaries of the Plans pursuant to ERISA and North Carolina common law. The Plan defendants maintain that plaintiff has failed to satisfy the requirements of ERISA and has no standing to assert rights under that statute or North Carolina law.

III. DISCUSSION

A. Claims One Through Five

Plaintiff's first four claims concern coverage issues and its fifth claim deals with plaintiff's ability to assert the Plans' decision to opt out of ELIC's rehabilitation as an affirmative defense to coverage. All of these issues have been presented to the NCDOI and are currently under consideration by the Commissioner. This fact makes it necessary for this court to examine the propriety of abstaining from the exercise of jurisdiction over these issues.

It is a fundamental principle of federal jurisdiction that abstention is the exception, not the rule. Pomponio v. Faquier County Bd. of Sup'rs, 21 F.3d 1319, 1324, (4th Cir.), cert. denied, ___ U.S. ___, 115 S.Ct. 192, 130 L.Ed.2d 125 (1994) (quoting Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 813, 96 S.Ct. 1236, 1244, 47 L.Ed.2d 483 (1976). However, the United States Supreme Court has articulated several situations in which a federal court should decline to exercise jurisdiction and several of these situations are present in the case at bar.

1. Burford Abstention

One of the most notable of these situations was first discussed in Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943) and has come to be known as the Burford Doctrine. In Burford, the Court held that a federal district court may, in its discretion, decline jurisdiction in order to avoid conflicting with matters of important state policy. Burford at 317-18, 63 S.Ct. at 1099.

In a fairly recent application of the Burford Doctrine, the Court clarified its application and further set out its elements. In New Orleans Public Service, Inc. v. Council of New Orleans, 491 U.S. 350, 109 S.Ct. 2506, 105 L.Ed.2d 298 (1989) (NOPSI), the Court wrote:

Where timely and adequate state-court review is available, a federal court sitting in equity must decline to interfere with the proceedings or orders of state administrative agencies: (1) when there are "difficult questions of state law bearing on policy problems of substantial import whose importance transcends the result in the case at bar"; or (2) where the "exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern."

Id. at 361, 109 S.Ct. at 2514. If it is determined that an action falls within either of these two categories, the federal court must abstain. Pomponio at 1326. Defendants are correct in their assertion that the action at bar falls within both Burford categories.

Plaintiff's complaint raises issues which, by plaintiff's own admissions in a brief submitted to this court in support of a Permanent and Preliminary Injunction, are complex, substantial and serious. Further, these issues concern interpretation of North Carolina's Guaranty Act and have yet to be decided by a North Carolina court.

Specifically, in order for plaintiff to be liable for coverage, the GIC must be deemed a covered policy. This means that the contract must be within a category of those enumerated by North Carolina law. N.C.Gen.Stat. § 58-62-10(a). The NCDOI is charged with the exclusive and specific responsibility of defining, approving and regulating such contracts. N.C.Gen.Stat. §§ 58-2-40, 58-3-150. Therefore, whether the GIC is a covered policy turns primarily on the statutory definitions and the practices and interpretations of the NCDOI.

A decision on these coverage issues by this court would require an interpretation of North Carolina statutes involving issues that neither the NCDOI nor a North Carolina court has yet decided. Further, it is clear to ...