General Glass Industries Corp. v. Monsour Medical Foundation

• Decision Date: 17 August 1992
• Docket Number: No. 91-3839,91-3839
• Citation: 973 F.2d 197
• Parties: 15 Employee Benefits Cas. 2233 GENERAL GLASS INDUSTRIES CORPORATION, on behalf of itself, and all others similarly situated, v. MONSOUR MEDICAL FOUNDATION; Monsour Medical Center, individually and as successor to Keystone Medical Management Company; William J. Monsour, M.D.; and A.V. Papa, Jr.; Constance B. Foster, Insurance Commissioner of the Commonwealth of Pennsylvania, as Statutory Liquidator of Keystone Medical Services, Inc., Intervenor in D.C., General Glass Industries Corporation, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 197

973 F.2d 197

15 Employee Benefits Cas. 2233

GENERAL GLASS INDUSTRIES CORPORATION, on behalf of itself, and all others similarly situated, v. MONSOUR MEDICAL FOUNDATION; Monsour Medical Center,

individually and as successor to Keystone Medical

Management Company; William J. Monsour,

M.D.; and A.V. Papa, Jr.;

Constance B. Foster, Insurance Commissioner of the

Commonwealth of Pennsylvania, as Statutory

Liquidator of Keystone Medical Services,

Inc., Intervenor in D.C.,

General Glass Industries Corporation, Appellant.

No. 91-3839.

United States Court of Appeals, Third Circuit.

Argued May 19, 1992.

Decided Aug. 17, 1992.

Fredric E. Orlansky (argued), Vincent A. DeFalice, Riley & DeFalice, P.C., Pittsburgh, Pa., Lewis B. Gardner, General

Glass Industries Corp., Jeanette, Pa., for appellant General Glass Industries Corp.

Jerome Cochran (argued), Alan A. Garfinkel, Klett, Lieber, Rooney & Schorling, Pittsburgh, Pa., for Monsour Medical Foundation, Monsour Medical Center, Inc. and Al Papa, Jr.

Kathryn L. Simpson (argued), Grogan, Graffam, McGinley & Lucchino, P.C., Pittsburgh, Pa., for Constance B. Foster.

Robert Pfaff, Pfaff, McIntyre, Dugas & Hartye, Hollidaysburg, Pa., for William J. Monsour, M.D.

Before: HUTCHINSON, COWEN and GARTH, Circuit Judges.

OPINION OF THE COURT

GARTH, Circuit Judge.

This appeal by General Glass Industries Corporation ("GGI") requires us to determine whether a complaint asserting causes of action, some of which are not derivative of the causes of action maintained by the intervenor, the Insurance Commissioner of the Commonwealth of Pennsylvania ("Commissioner") in state liquidation proceedings against an insolvent insurer, may be dismissed by the district court on the grounds of abstention pursuant to Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). We will vacate the district court's abstention order and remand to the district court to stay this action pending conclusion of the state court proceedings.

I.

Keystone Medical Management Company, a named defendant in the action brought by GGI, had established a health care company, Keystone Medical Services, Inc., which had sold employee health insurance coverage to GGI in December, 1987. On September 4, 1990, the Commonwealth Court of Pennsylvania granted the petition of the Commissioner and issued an amended order for the liquidation of the insolvent Keystone Medical Services, Inc. In November, 1990, GGI filed a complaint in the United States District Court for the Western District of Pennsylvania, asserting RICO, ERISA and state tort law claims against Monsour Medical Foundation, Monsour Medical Center individually and as successor to Keystone Medical Management Company, William Monsour, M.D., and A.V. Papa, Jr. ¹

On February 20, 1991, and thereafter on March 27, 1991, first Monsour, and then the Commissioner who had been granted intervention, moved to dismiss the complaint of GGI, arguing that the district court should abstain from exercising its jurisdiction, so as not to interfere with the liquidation proceedings which were continuing in state court.

GGI opposed these motions on the grounds that abstention was not warranted because GGI's claims against Monsour were not derivative of the Commissioner's actions, and were not available to, and could not be prosecuted by, the Commissioner. The Commissioner, while arguing for abstention, nevertheless stated that it had no objection to a stay of the federal action pending resolution of the state court suit.

The district court referred the motions to dismiss to a Magistrate Judge for decision. After discussing abstention under both Burford and Colorado River Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), the Magistrate Judge recommended that the motions to dismiss be granted on the basis of Burford abstention, fearing that if the plaintiff's action were allowed to continue, it would disrupt the ongoing state court liquidation proceedings. ² Those proceedings involve the acquisition, marshalling, and distribution of assets of the insolvent insurer, Keystone Medical Services, Inc. ("KMS"). The Magistrate Judge held that these same assets were the subject of GGI's complaint. On November 1, 1991, the district court granted the Commissioner's and Monsour's motions to dismiss based on the report and recommendation of the Magistrate Judge. ³ GGI filed a timely Notice of Appeal.

II.

GGI is a manufacturer of sheet glass and employs approximately 300 workers. GGI had purchased employee health insurance from Keystone Medical Services, Inc. The complaint of GGI asserted claims under federal and state law. GGI alleged, among other claims, that the defendants had wasted KMS' assets, unlawfully converted health insurance premiums, and had breached fiduciary duties owing to employee welfare benefit plans of GGI. GGI also alleged that, by the time that liquidation of KMS was ordered, KMS had unpaid medical claims of $1.7 million, of which $250,000 had been incurred by GGI employees.

GGI's complaint also charged Monsour with various misrepresentations of fact. These misrepresentations, it is alleged, caused GGI to incur higher health insurance premium costs for the remainder of its contract with KMS, and also caused damage to GGI's reputation. It was alleged as well that GGI employees suffered damages by having to pay medical claims that should have been paid by KMS, and by having health insurance benefits decrease and premium contributions increase, in order to pay for health benefits of a lesser quality.

The RICO and ERISA counts of GGI's complaint essentially stem from the activities of Monsour in its conduct of KMS' business. Similarly, the state law claims refer to the various intentional actions of Monsour which GGI contends resulted in the legal and equitable claims for which relief is sought.

The district court, adopting the Report and Recommendation of the Magistrate Judge, rejected the arguments for abstention based on Colorado River abstention. The district court recognized that GGI raised claims under ERISA, RICO and the Pennsylvania Unfair Trade Practices and Consumer Protection Law, that may not be raised by the Commissioner in state court proceedings ⁴, and thus the federal and state court proceedings were not truly duplicative as required for a district court to abstain under Colorado River. The district court held, however, that Monsour and the Commissioner had met the requirements for Burford abstention and thus dismissed GGI's complaint. It found that the regulation of an insolvent insurer and its rehabilitation presented the type of complex regulatory scheme, reflecting a policy of substantial state concern, which is among the prerequisites for Burford abstention.

Turning to other factors supporting Burford abstention, the district court contrasted GGI's claims with those presented by University of Maryland v. Peat Marwick Main & Co., 923 F.2d 265 (3d Cir.1991), which the district court found "instructive since it sets forth a framework for determining when a suit poses a danger of interfering with a state's efforts to regulate matters of public concern." (A 263). In Peat Marwick, we reversed the decision of the district court to abstain under Burford. We held, among other things, that the claims against the independent auditor, which had certified financial statements of the insurer on which the insureds had relied to their detriment, did not threaten to disrupt the regulatory scheme at issue in the ongoing liquidation proceedings.

In Peat Marwick, the plaintiffs' claims were held to be non-derivative because they were brought against an auditor of the insurance company and were based on breaches of duty to the plaintiffs and not to the insolvent insurer, id. at 274. Although the district court conceded (A 267-68) that GGI had raised claims in federal court that could not be raised in the state proceeding, and GGI sought relief to which the Commissioner was not entitled ⁵, it also found that GGI was seeking the same funds pursued by the Commissioner. The district court, by adopting the Magistrate Judge's report, held that any funds improperly converted from KMS were part of the "estate" of KMS, and GGI's action would thus interfere with the ongoing state proceedings. It concluded, therefore, that abstention was appropriate and dismissed GGI's complaint.

The Magistrate Judge, in his opinion, reported that "[b]oth defendants and intervenor [Commissioner] argue in the alternative that this case should be stayed until such time as the state court liquidation is completed." (A 260). ⁶

Because the district court dismissed GGI's complaint, we must take GGI's allegations to be true. See Monaghan v. Deakins, 798 F.2d 632 (3d Cir.1986), aff'd, 484 U.S. 193, 108 S.Ct. 523, 98 L.Ed.2d 529 (1988). We review the propriety of the district court's order which abstained from exercising jurisdiction to avoid interfering with state administrative proceedings, under a standard wherein "the underlying legal questions are subject to plenary review, although the decision to abstain is reviewed for abuse of discretion." Peat Marwick, 923 F.2d at 269.

III.

In Burford v. Sun Oil, 319 U.S. 315, 332, 63 S.Ct. 1098, 1106, 87 L.Ed. 1424 (1943), the Supreme Court considered abstention appropriate where "questions of regulation of the industry ... so clearly involves [sic] basic problems of [state] policy that equitable discretion should be exercised to give the [state] courts the first opportunity to consider them." Burford had been granted a permit by the Texas Railroad Commission to drill four wells in an East Texas oil field. Sun Oil Company attacked the validity of the Commission's order. It did so in federal district court. The court, after discussing the complexities of the Texas regulatory system, under which the spacing of wells and the rights of separate owners to a share of the common oil reservoir is...