Everest Reinsurance Co. v. Howard

• Decision Date: 28 August 1997
• Docket Number: No. 03-97-00035-CV,03-97-00035-CV
• Parties: EVEREST REINSURANCE COMPANY/James A. HOWARD, Special Deputy Receiver of Texas Employers' Insurance Association, Appellants, v. James A. HOWARD, Special Deputy Receiver of Texas Employers' Insurance Association/Everest Reinsurance Company, Appellees.
• Court: Texas Court of Appeals

Page 800

950 S.W.2d 800

EVEREST REINSURANCE COMPANY/James A. HOWARD, Special Deputy

Receiver of Texas Employers' Insurance

Association, Appellants, v. James A. HOWARD, Special Deputy Receiver of Texas Employers'

Insurance Association/Everest Reinsurance Company,

Appellees.

No. 03-97-00035-CV.

Court of Appeals of Texas,

Austin.

Aug. 28, 1997.

Mark M. Donheiser, Strasburger & Price, L.L.P., Dallas, for Appellants.

Ellen G. Robinson, Robinson, Curley & Clayton, P.C., Chicago, IL., for Appellees.

Before POWERS, JONES and KIDD, JJ.

KIDD, Justice.

Both Everest Reinsurance Company ("Everest") and James A. Howard, challenge portions of the trial court's order allowing Everest to remove this cause to federal court, but enjoining Everest from seeking arbitration in federal court. We will affirm in part and reverse in part the trial court's judgment.

BACKGROUND

Each year from 1985 to 1990, Everest Reinsurance Company ("Everest") ¹ entered into reinsurance agreements with Texas Employers' Insurance Association ("Texas Employers"). In 1991 Texas Employers was declared insolvent, and the 201st District Court of Travis County (the "receivership court") appointed James A. Howard as its special deputy receiver (the "receiver"). The receivership court also entered a permanent injunction, part of which forms the basis of this dispute. Specifically, the injunction forbade any person from

"commencing, or prosecuting any action or appeal or arbitration ... against Defendant Texas Employers' Insurance Association ... except by doing so in the receivership proceedings herein, and from asserting any claims against Defendant Texas Employers' Insurance Association, or against the Permanent Receiver thereof, whether against or through Defendant Texas Employers' Insurance Associations' policyholders, except in the receivership proceedings herein...."

In 1996, the receiver filed a complaint against Everest in the receivership court. The receiver contended that, under the reinsurance agreements, Everest owed Texas Employers over eleven million dollars. Everest answered the receiver's complaint. In addition, Everest asserted that under the terms of its reinsurance agreements with Texas Employers it had a right to arbitrate this dispute. Everest then removed the case to federal court based on diversity of citizenship and requested that the federal court order the parties to arbitration. In response, the receiver requested that the receivership court declare Everest's removal and motion to compel arbitration violative of both the court's permanent injunction and article 21.28 of the Texas Insurance Code. See Tex. Ins.Code Ann. art 21.28, §§ 2(e), 4(h) (West 1981 & Supp.1997) (hereinafter the "Receivership Statute"). The receivership court entered a seemingly contradictory order, finding that Everest's removal to federal court did not violate the permanent injunction or Receivership Statute, but that Everest's request for federal-court-ordered arbitration did. Both parties appeal the receivership court's order. ²

DISCUSSION

Everest argues the receivership court correctly decided that Everest could remove the case to federal court; however, it contends that the court erred by finding that the injunction and statute forbade it from seeking arbitration in federal court. Conversely, the receiver contends that the court erred in finding that Everest could seek removal to federal court.

Removal to Federal Court

The receiver argues that the receivership court should have declared that Everest's removal of the case to federal court violated both the permanent injunction and the Receivership Statute. We disagree.

Initially, we address whether Everest's removal violated the receivership court's permanent injunction. This injunction forbade Everest from commencing or prosecuting any action. In this case, however, the receiver commenced an action against Everest in the receivership court. Everest merely responded to the receiver's complaint by removing the case to federal court; it did not assert any claim of its own against the receiver. This response does not constitute the commencement or prosecution of an action; therefore, by exercising its right of removal to federal court, Everest did not violate the permanent injunction.

Next, we address whether Everest's removal violated sections 2(e) and 4(h) of the Receivership Statute. Section 2(e) authorizes the receiver to conduct the business of Texas Employers subject to the direction of the receivership court. See Receivership Statute § 2(e). Section 4(h) states that the Section 4(h) does not confer exclusive jurisdiction on the receivership court; rather, it confers exclusive venue upon that court. Whitson v. Harris, 792 S.W.2d 206, 208-09 (Tex.App.--Austin 1990, writ denied). Under federal law, a defendant may remove a civil action from state court to federal court so long as the federal district court has original jurisdiction over that action. ³ 28 U.S.C.A. § 1441 (West 1994). "Federal law determines whether the elements of removal jurisdiction have been satisfied." 14A Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 3721, at 192 & n. 25 (2d ed.1985). Indeed, the procedural provisions of a state statute cannot control on the issue of whether removal to federal court is proper. See Chicago, Rock Island & Pac. R.R. Co. v. Stude, 346 U.S. 574, 580, 74 S.Ct. 290, 294, 98 L.Ed. 317 (1954). Accordingly, because section 4(h) is a venue statute, Everest could properly seek removal to federal court. ⁴

receivership court "shall have exclusive venue to hear and determine all actions or proceedings instituted after the commencement of delinquency proceedings by or against the insurer or receiver." Id. § 4(h) (emphasis added). The receiver argues that, because the Receivership Statute requires this "lawsuit be 'subject to the direction' of the Receivership Court and designat[es] the Receivership Court as the 'exclusive' venue in which to institute new actions or proceedings, all other forums, including federal district courts, are excluded."

The receiver also argues that the McCarran-Ferguson Act prevents Everest from removing this cause to federal court. See 15 U.S.C.A. § 1012(b) (West 1976 & Supp.1997). That act states that "[n]o act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance ... unless such Act specifically relates to the business of insurance." Id. The receiver contends, therefore, that the federal removal statute cannot supersede section 4(h) of the Receivership Statute. We disagree with the receiver's contention for two reasons. First, as noted above, the exclusive venue provision of section 4(h) does not conflict with the federal removal statute; therefore, there is no reason for section 4(h) to preempt the federal removal statute.

Second, even if the federal removal statute did conflict with the Receivership Statute, section 4(h) of the Receivership Statute was not enacted "for the purpose of regulating the business of insurance." The McCarran-Ferguson Act focuses upon the relationship between the insurance company and its policyholders: "The relationship between insurer and insured, the type of policy which c[an] be issued, its reliability, interpretation, and enforcement--these [are] the core of the 'business of insurance.' " United States Dep't of Treasury v. Fabe, 508 U.S. 491, 501, 113 S.Ct. 2202, 2208, 124 L.Ed.2d 449 (1993) (quoting SEC v. National Securities, Inc., 393 U.S. 453, 460, 89 S.Ct. 564, 568, 21 L.Ed.2d 668 (1969)). " '[A]ncillary activities' that do not affect performance of the insurance contract or enforcement of contractual obligations" are not included in the "business of insurance" for the purposes of the McCarran-Ferguson Act. Id. at 503, 113 S.Ct. at 2209 (citing Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 134, 102 S.Ct. 3002, 3011, 73 L.Ed.2d 647 (1982)). The exclusive venue provision of section 4(h) does not affect the relationship between insurance companies and their policyholders; it merely designates a forum in which disputes concerning insolvent insurers can be heard. The substantive rights and responsibilities...