Central States, Southeast and Southwest Areas Health and Welfare Fund v. Old Sec. Life Ins. Co.

• Decision Date: 12 June 1979
• Docket Number: 78-2287,Nos. 78-2232,s. 78-2232
• Citation: 600 F.2d 671
• Parties: 1 Employee Benefits Ca 2100 CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS HEALTH AND WELFARE FUND, an Illinois Trust, et al., Plaintiffs-Appellees, and Claude Carpenter and James Adcock, Individually and on behalf of all members and beneficiaries of Central States, Southeast and Southwest Areas Health and Welfare Fund, an Illinois Trust, Proposed Intervenors-Appellants, v. OLD SECURITY LIFE INSURANCE COMPANY, a corporation, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 671

600 F.2d 671

1 Employee Benefits Ca 2100

CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS HEALTH AND

WELFARE FUND, an Illinois Trust, et al.,

Plaintiffs-Appellees,

and

Claude Carpenter and James Adcock, Individually and on behalf of all members and beneficiaries of Central States, Southeast and Southwest Areas Health and Welfare Fund, an Illinois Trust, Proposed Intervenors-Appellants, v. OLD SECURITY LIFE INSURANCE COMPANY, a corporation, et al.,

Defendants-Appellees.

Nos. 78-2232, 78-2287.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 24, 1979.

Decided June 12, 1979.

Lawrence Walner, Sidney Z. Karasik, Chicago, Ill., for proposed intervenors-appellants.

James L. Coghlan and Mairen C. Kelly, Gary M. Elden, Reuben & Proctor, Chicago, Ill., for defendants-appellees.

Before FAIRCHILD, Chief Judge, MARKEY, Chief Judge, ^* of the Court of Customs

and Patent Appeals, and SPRECHER, Circuit Judge.

MARKEY, Chief Judge.

These consolidated appeals rise out of complex litigation occasioned by alleged waste of assets and mismanagement of the Central States, Southeast and Southwest Areas Health and Welfare Fund (Fund). ¹ Before us are two different orders of the district court, each denying a motion.

In appeal No. 78-2287, defendant Old Security Life Insurance Company (Old Security) appeals the denial of its motion to dismiss. We dismiss that appeal for lack of jurisdiction.

In appeal No. 78-2232, Claude Carpenter and James Adcock (Beneficiaries), individually and on behalf of all Fund members and beneficiaries, appeal the denial of their motion to intervene. We reverse.

General Background

On August 4, 1976, the Fund, through its former trustees, brought suit in the district court against Old Security and sixty other defendants, including appellee Continental Illinois National Bank and Trust Company of Chicago (Continental), to recover $7 million in Fund assets, allegedly diverted and misappropriated by defendants' insurance fraud conspiracy. Prior to the filing of a second amended complaint, the former trustees were required to resign. New trustees filled the vacancies and were substituted as plaintiffs.

The Fund's second amended complaint charged the sixty-one defendants with breach of contract, fraud, conspiracy, and breach of fiduciary duty under state law, and with breach of statutory duties as fiduciaries under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 Et seq. (1976) (ERISA). It alleged that the Fund contracted with Old Security for insurance benefits to Fund members; that at that time Old Security failed to inform the Fund of Old Security's feeble financial condition; that the Fund transferred $7 million in premiums to Old Security; that Old Security defaulted on the contract because of its financial condition; that the failure to inform and default were part of a complex scheme in which defendants conspired to defraud the Fund of $7 million, all of which was misappropriated, diverted, and wasted by defendants. ² Old Security and various other defendants filed counterclaims and third-party claims charging trustees, officers, and agents of the Fund with complicity or actual participation in the scheme to defraud.

Because the issues are unrelated, the appeals must be separately treated.

Appeal No. 78-2287 The Motion to Dismiss

Background

In October, 1977, the Missouri Director of Insurance, Jerry B. Buxton (Buxton), petitioned the Circuit Court of Cole County, Missouri (Missouri court), for an order placing Old Security in receivership. Buxton v. Old Security Life Insurance Co., No. 29686 (Cir.Ct., Cole Cty., Mo., filed Oct. 1977) (Missouri insolvency proceeding). Buxton proceeded under Section 375.560 of the Missouri Insurance Act, Mo.Rev.Stat. § 375.560, authorizing receivership of domiciliary insurance companies for rehabilitation or liquidation. ³

By order of October 20, 1977, the Missouri court adjudged Old Security insolvent, appointed Buxton receiver, and authorized him to rehabilitate Old Security and to otherwise act in protection of Old Security's 11. All persons are enjoined and restrained from prosecuting or bringing any action, issuing any process or obtaining any judgment against the defendant, Old Security Life Insurance Company, or its properties or assets, except pursuant to the order of this Court.

                remaining assets.  4  The order included this (Missouri injunction)
                

It was after issuance of the Missouri injunction that the Fund filed its second amended complaint and moved for preliminary injunctions in the district court against Old Security. The Fund did not seek permission of the Missouri court and made no attempt to obtain modification of the Missouri injunction.

On December 27, 1977, Old Security moved to dismiss, arguing that further proceedings in the federal action were barred by the Missouri injunction. On September 1, 1978, the district court denied the motion, ⁵ stating:

Old Security also urges this court to abstain from taking jurisdiction over this controversy because it is now under liquidation or rehabilitation by defendant Jerry Buxton, the court-appointed receiver in Missouri. That court has enjoined any suits against Old Security by its order entered October 20, 1977. However, E.R.I.S.A. confers upon Federal courts exclusive jurisdiction over employee health and welfare funds, except that a beneficiary is given the right to file a civil action in a State court to enforce his claims and for similar purposes. We therefore have a "virtually unflagging obligation" to retain and exercise jurisdiction over Old Security. See Will v. Calvert, (437 U.S. 655, 98 S.Ct. 2552, 57 L.Ed.2d 504) 46 U.S.L.W. 4811, 4813 (1978).

Colorado River Water Conservation District v. United States, 424 U.S. 800 (96 S.Ct. 1236, 47 L.Ed.2d 483) (1976) does not support defendant's argument for abstention. No difficult or unusual question of state law has been raised. To the contrary, all three counts involve questions of Federal law which, as we have held, are exclusively under our jurisdiction in this particular instance.

We do not overlook the holding in Blackhawk Heating & Plumbing Co., Inc. v. Geeslin, 530 F.2d 154 (7th Cir. 1976), a diversity case where the State court had obtained jurisdiction over the Res. In that situation, it was held that the Federal court should not simultaneously proceed with liquidation of the Res, particularly when a domestic insurance company is involved. However, when the Federal suit is proceeding In personam, we see no reason why we should not proceed simultaneously with the State court liquidation proceedings. Koller v. Richmond Industrial Loan and Thrift, 407 F.Supp. 1211 (E.D.Va.1975).

The other arguments raised by Old Security for dismissal have been considered and found wanting. We will merely refer specifically only to 29 U.S.C. § 1144(b)(2)(A) which provides that:

. . . Nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance . . . .

To what extent plaintiffs may be bound by Missouri law we are not called upon to decide. They are entitled to bring an action to enforce alleged obligations under E.R.I.S.A., while at the same time Old Security is bound by the laws of the State of Missouri under the foregoing statutory provision.

As the basis for jurisdiction in this appeal, Old Security relies on the collateral order doctrine of Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949).

Issue

The dispositive issue is whether the district court's order denying the motion to dismiss is an appealable collateral order under Cohen.

OPINION

Jurisdiction of Appeals from "final decisions," 28 U.S.C. § 1291 (1976), includes jurisdiction of final "collateral orders," described in Cohen as "that small class which finally determines claims of right separable from, and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated." 337 U.S. at 546, 69 S.Ct. at 1225. Cohen was a stockholders' derivative suit, with jurisdiction based solely on diversity. Defendant corporation, entitled to do so under the law of the forum state, moved to require plaintiff to post security for defendant's costs, including attorneys' fees, and appealed the denial of that motion. The court saw "a serious and unsettled question," 337 U.S. at 547, 69 S.Ct. 1221, in whether federal courts in diversity cases must apply the state statute on posting security.

To be final and appealable, therefore, a collateral order must raise an important and unsettled question of law, the question must be separable from the merits, and delay in its resolution must result in an irretrievable loss of rights. We conclude that the denial of Old Security's motion to dismiss is not a final and appealable collateral order and that this court is, therefore, without jurisdiction.

Though Old Security variously described an alleged important and unsettled question of law in the briefs ⁶ it became clear at oral argument that the only question relied on by Old Security is whether it is an abuse of discretion not to abstain in this in personam ⁷ action alleging violation of a federal statute. Abstention, says Old Security, is required in view of the Missouri injunction The issue presents neither a legal question of first impression nor one unsettled. In McGough v. First Arlington National Bank, 519 F.2d 552 (7th Cir. 1975), the district court had stayed a federal securities claim pending resolution of related state court proceedings. This court stated:

against prosecution of claims outside the insolvency proceeding.

(I)t is manifest to us that the exclusive remedy sought under the complaint in the District court is not available to McGough in the state action. Therefore, we conclude that the District Court's stay order...