First Penn-Pacific Life Ins. Co. v. Evans

• Decision Date: 17 September 2001
• Docket Number: No. H-01-680.,H-01-680.
• Citation: 162 F.Supp.2d 423
• Parties: FIRST PENN-PACIFIC LIFE INSURANCE COMPANY, Plaintiff, v. William R. EVANS, Chartered and Maryland First Financial Services Corp., Defendants.
• Court: U.S. District Court — District of Maryland

162 F.Supp.2d 423

FIRST PENN-PACIFIC LIFE INSURANCE COMPANY, Plaintiff, v. William R. EVANS, Chartered and Maryland First Financial Services Corp., Defendants.

No. H-01-680.

United States District Court, D. Maryland.

September 17, 2001.

Jefferson L. Bloomquist, Funk & Bolton, P.A., Eric B. Myers, Funk & Bolton, Baltimore, MD, for Plaintiff.

Lee H. Ogburn, Kramon and Graham, Baltimore, MD, Peter E. Keith, Gallagher, Evelius and Jones, Thomas Christopher Dame, Law Office, Paul Stephen Caiola, Gallagher, Evelius and Jones, LLP, Baltimore, MD, for Defendants.

MEMORANDUM OPINION

ALEXANDER HARVEY II, Senior District Judge.

In this civil action, plaintiff First Penn-Pacific Life Insurance Company ("First-Penn Pacific") has here sued defendant William R. Evans, Chartered ("Evans"), seeking rescission of a life insurance policy (the "Policy"). In its Memorandum and Order of June 19, 2001, this Court granted the motion to intervene of Maryland First Financial Corp. ("Maryland First Financial" or "defendant"). Maryland First Financial has been appointed by the Circuit Court for Baltimore City (the "Circuit Court") to be the receiver of Answer Care, Inc. ("Answer Care"), and in its Order of June 19, the Court permitted Maryland First Financial to intervene in this case as the receiver for Answer Care.

Defendant Maryland First Financial has now answered the complaint and has filed a motion to dismiss.¹ In its letter to counsel of August 9, 2001, the Court granted the request of Maryland First Financial for an extension of the time for it to respond to plaintiff's discovery. The Court noted that defendant's motion to dismiss was pending and that, if the motion were granted, the case would be dismissed, and it would not be necessary for Maryland First Financial to respond to discovery. Recently, plaintiff First Penn-Pacific has filed a motion for withdrawal of the Court's letter of August 9, 2000, claiming that it should not be precluded from obtaining discovery before contesting the pending motion to dismiss.

Memoranda and exhibits have been submitted by the parties in support of and in opposition to both pending motions.² Following its review of the pleadings, memoranda and exhibits, the Court has determined that no hearing is necessary for a decision on the pending motions. See Local Rule 105.6. For the reasons stated herein, the motion to dismiss of Maryland First Financial will be granted, plaintiff's motion for withdrawal of the Court's letter of August 9, 2001 will be denied, and plaintiff's motion for leave to file a surreply memorandum will also be denied.

I Facts and Contentions of the Parties

The background facts of this litigation were discussed in some detail in the Court's Memorandum and Order of June 19, 2001 and will not be repeated here. As noted therein, defendant Maryland First Financial has previously been appointed by the Circuit Court for Baltimore City to be the receiver of Answer Care. Lubin v. Answer Care, Inc., Case No. 24-C-00-004710 (Cir.Ct. for Balt. City). That pending case is an action brought by the Securities Commissioner for the State of Maryland (the "Commissioner") against Answer Care and Mark Massoni, its owner and President. The Circuit Court has ordered Maryland First Financial, as receiver, to control, manage and account for the assets and businesses of Answer Care for the purpose of consolidating, liquidating, protecting and distributing its assets. In particular, Maryland First Financial has been authorized and directed by the Circuit Court to recover assets for the benefit of investors in Answer Care by, inter alia, filing claims against those who have received preferential treatment, against those who may be Answer Care insiders and against those who have received investor funds in an illegitimate manner.

Relying upon Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943) and Brandenburg v. Seidel, 859 F.2d 1179 (4th Cir.1988), defendant Maryland First Financial argues that this Court should invoke the Burford-type abstention doctrine and dismiss this case to avoid interference with the receivership proceedings pending in the Circuit Court.³ Defendant asserts that continuation of this action would undermine the integrity of several orders previously entered by the Circuit Court and would hinder the efforts of Maryland First Financial to marshal Answer Care's assets and distribute such assets to depositors and other creditors. It is further argued that the dispute addressed by the pleadings in this case should be adjudicated in a state forum, since the interests of the State of Maryland are paramount to any potential interests of the federal government. In support of its arguments, defendant Maryland First Financial asserts that the insurance policy at issue here is a substantial asset of the receivership estate, and defendant maintains that the State of Maryland has initiated in the Circuit Court a comprehensive scheme for administering all of Answer Care's assets pursuant to the Maryland Securities Act and Title 13 of the Maryland Rules of Procedure.

In opposing the pending motion to dismiss, plaintiff argues that this Court should continue to exercise jurisdiction in this case because Burford abstention applies only when a federal case will interfere with proceedings or orders of a state administrative agency. It is asserted that the Commissioner's action against Answer Care in Circuit Court is merely litigation between private parties and is neither a proceeding nor an order of a state administrative agency. According to the plaintiff, this Court has an obligation to exercise its jurisdiction since the State of Maryland has yet to devise a complex legislative, administrative and regulatory scheme that directly addresses viatical settlements or viatical settlement companies.

II Applicable Principles of Law

In Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 717-18, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996), the Supreme Court reiterated that the principle underlying its abstention doctrines is primarily "`the avoidance of needless friction with state policies, whether the policy relates to the enforcement of criminal law, or the administration of a specialized scheme for liquidating embarrassed business enterprises, or the final authority of a state court to interpret doubtful regulatory laws of the state....'" (quoting Railroad Commission of Texas v. Pullman Co., 312 U.S. 496, 500, 61 S.Ct. 643, 85 L.Ed. 971 (citations omitted)). In applying this general principle, the Supreme Court has recognized three distinct types of abstention whereby a federal court action may be dismissed, namely, the so-called Burford, Pullman⁴ and Younger⁵ abstentions.

Burford-type abstention is premised upon the concept of comity, which means that "[f]ederal courts should thus `exercise their discretionary power with proper regard for the rightful independence of state governments in carrying out their domestic policy.'" Johnson v. Collins Entertainment Co., Inc., 199 F.3d 710, 719 (4th Cir.1999) (quoting Burford, 319 U.S. at 318, 63 S.Ct. 1098). As further explained in Johnson:

[T]he federal judiciary should accordingly abstain from deciding cases (1) that present "difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar" or (2) whose adjudication in a federal forum "would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern." 199 F.3d at 719 (quoting New Orleans Pub. Serv., Inc. v. New Orleans, 491 U.S. 350, 361, 109 S.Ct. 2506, 105 L.Ed.2d 298 (1989)) (internal quotation marks omitted).

In Johnson, the Fourth Circuit recognized that Burford abstention "safeguards our federal system from the `[d]elay, misunderstandings of local law, and needless conflict with [a] state policy' that inevitably results from federal judicial intrusions into areas of core state prerogatives." Johnson, 199 F.3d at 719 (quoting Burford, 319 U.S. at 327, 63 S.Ct. 1098).

III Discussion

(a) Burford-type Abstention

After considering the parties' arguments, this Court has concluded that the motion to dismiss of defendant Maryland First Financial must be granted. Burford-type abstention principles are applicable in this case.

As in Brandenburg, this case concerns an entity which has been placed into receivership by order of a state court. As stated by the Fourth Circuit in that case, "[t]he liquidation process in particular is one which would be greatly impeded by the involvement of more than one decision-making authority." 859 F.2d at 1191. In reaching its conclusion that the facts before it presented a classic situation for Burford abstention, the Fourth Circuit in Brandenburg relied upon two determinations that arose from the fact that the entity forced into receivership was a savings and loan association. Id. First, the Court noted that the "Maryland legislature ha[d] set up a comprehensive scheme for the rehabilitation and liquidation of insolvent state-charted savings and loan associations," and second, it stated that "[t]he expeditious rehabilitation of the state's savings and loan industry [was] obviously a matter of substantial state concern." Id.

Although Answer Care is not a savings and loan association, it is still involved in a highly regulated state process involving the liquidation and distribution of its assets, which is indeed "a matter of substantial public concern." New Orleans Pub. Serv., Inc., 491 U.S. at 361, 109 S.Ct. 2506. Federal courts have frequently invoked the Burford doctrine to avoid interference with ongoing state receivership proceedings. Brandenburg, 859 F.2d at 1192 n. 16 (citing cases). On the record here, this Court concludes that Burford abstention is appropriate in this case to avoid "disrupt[ion] [of] the state's efforts to provide a unified method for liquidation of [Answer Care]." Id. at 1191; ...