General Ry. Signal Co. v. Corcoran

• Decision Date: 01 October 1990
• Docket Number: No. 89 C 9360.,89 C 9360.
• Citation: 748 F. Supp. 639
• Parties: GENERAL RAILWAY SIGNAL COMPANY, A UNIT OF GENERAL SIGNAL CORPORATION, a New York corporation, Plaintiff, v. James P. CORCORAN, Superintendent of Insurance of the State of New York, as Liquidator for American Fidelity Fire Insurance Company, and Susan S. Engeleiter, Administrator of the United States Small Business Administration, Defendants.
• Court: U.S. District Court — Northern District of Illinois

748 F. Supp. 639

GENERAL RAILWAY SIGNAL COMPANY, A UNIT OF GENERAL SIGNAL CORPORATION, a New York corporation, Plaintiff, v. James P. CORCORAN, Superintendent of Insurance of the State of New York, as Liquidator for American Fidelity Fire Insurance Company, and Susan S. Engeleiter, Administrator of the United States Small Business Administration, Defendants.

No. 89 C 9360.

United States District Court, N.D. Illinois, E.D.

October 1, 1990.

COPYRIGHT MATERIAL OMITTED

Martin M. Ruken, Stuart D. Kenney, Allan Lapidus, Vedder Price Kaufman & Kamnholz, Chicago, Ill., for plaintiff.

Linda A. Wawzenski, Asst. U.S. Atty., William I. Goldberg, Lori A. Goldstein, Michael A. Berman, Holleb & Coff, John H. Ward, Much, Shelist, Freed, Denenberg, Ament & Eiger, PC, Chicago, Ill. (David Fishman, Small Business Admin., Washington, D.C., of counsel), for defendants.

MEMORANDUM OPINION AND ORDER

ROVNER, District Judge.

I. INTRODUCTION

This is a statutory interpleader action brought to resolve conflicting claims of ownership over a judgment entered against the stakeholder in previous litigation. Pending are a motion to dismiss, a motion to intervene and cross-motions for summary judgment.

II. FACTS

Except where otherwise indicated, the underlying facts are not in dispute for purposes of the pending motions. American Fidelity Fire Insurance ("AFFI") was a surety on two performance bonds given by Transit Systems Technology, Inc. ("Transtec") in favor of Orange County Transit District, a California public transit agency, and on one performance bond given by Transtec in favor of Jamaica Buses, Inc., a private bus company in Jamaica, New York. The United States Small Business Administration ("SBA") issued Surety Bond Guarantee Agreements in connection with those performance bonds. The Guarantee Agreements provide that AFFI has the obligation to pursue all possible sources of recovery and that the SBA is entitled to a pro rata share of the net proceeds of any such recovery. Transtec defaulted on its contracts, and AFFI paid $803,500 on its performance bonds. Pursuant to the Surety Bond Guarantee Agreements, the SBA paid $732,872.28 to AFFI.

In 1984, AFFI brought an action in the Circuit Court of Cook County, Illinois, against General Railway Signal Company ("GRS"), a subsidiary of General Signal Corporation ("GSC"), alleging that GRS had breached an independent obligation to perform the Orange County and Jamaica contracts, causing AFFI to pay out on its bonds. Judgment was granted in favor of AFFI in the amount of $683,500 in February, 1987. GRS pursued the available appeals but was unsuccessful in challenging the judgment. See American Fidelity Fire Ins. Co. v. General Railway Signal Co., 184 Ill.App.3d 601, 540 N.E.2d 557, 132 Ill.Dec. 817 (1st Dist.), app. denied, 127 Ill.2d 611, 545 N.E.2d 104, 136 Ill.Dec. 580 (1989).

Meanwhile, in 1985, AFFI became insolvent and liquidation proceedings commenced in the State of New York. James S. Corcoran, the Superintendent of Insurance of the State of New York, was named liquidator of AFFI in an order entered by the Supreme Court of the State of New York, County of Nassau, pursuant to the Uniform Insurers Liquidation Act as adopted by New York. On November 21, 1989, an order was entered in the Illinois proceedings substituting the Superintendent as plaintiff. At that time, a total of $1,068,785.35 was due on the judgment against GRS.

On December 31, 1989, the SBA notified GRS that it was making a claim to the proceeds of the Illinois judgment as reimbursement for its payments to AFFI pursuant to the Surety Bond Guarantee Agreements. The SBA asserted that if GRS paid the amounts to AFFI, GRS might still be directly liable to the SBA.¹

Claiming that it was subject to multiple liability on the same funds, GRS filed this interpleader action on December 19, 1989, pursuant to 28 U.S.C. § 1335 and posted a bond with the Clerk of Court in the amount of $1,070,000. Also on December 19, 1989, pursuant to 28 U.S.C. § 2361, this Court entered an ex parte temporary restraining order enjoining the Superintendent from attempting to collect the Illinois judgment.

The Superintendent subsequently moved this Court to dismiss the interpleader action. The Superintendent raised several grounds, including that diversity of citizenship was lacking because the Administrator of the SBA is not a citizen of any state, and that the proceedings in this court violate an order entered by the Supreme Court of New York enjoining all persons from bringing suit against the Superintendent as liquidator of AFFI. The Superintendent also moved to vacate the temporary restraining order and to require GRS to deposit cash, rather than a bond, with the Clerk of Court. The Court denied both of the Superintendent's motions in a Memorandum Opinion and Order entered on March 21, 1990. General Railway Signal Co. v. Corcoran, 735 F.Supp. 265 (N.D.Ill.1990). That order is now the subject of an appeal by the Superintendent. Proceedings in this Court have not been stayed pending the appeal.

Currently pending are four additional motions which have been filed during the pendency of the Superintendent's appeal. The Superintendent has filed a supplemental motion to dismiss the action, arguing that there is no diversity of citizenship because the Superintendent is not a citizen of any state for diversity purposes and that the action is barred by the Eleventh Amendment to the United States Constitution. The Superintendent has also filed a motion for summary judgment, arguing that the Court should abstain in deference to the New York liquidation proceedings. The Administrator of the SBA has filed a motion for summary judgment, arguing that the SBA is entitled to the proceeds of the Illinois judgment. Finally, a motion to intervene has been filed by the law firm of Antonow & Fink, which asserts a right to the proceeds of the judgment pursuant to an attorney's lien arising from services which Antonow & Fink provided to AFFI.

III. DIVERSITY JURISDICTION AND SOVEREIGN IMMUNITY

Pursuant to 28 U.S.C. § 1335(a), the Court has jurisdiction over this interpleader action if there are "two or more adverse claimants, of diverse citizenship as defined in 28 U.S.C. § 1332." The stakeholder in this case alleges that the claimants are "citizens of different states," and are thus diverse as provided by 28 U.S.C. § 1332(a)(1).

For the purpose of determining diversity of citizenship, a state is not a "citizen of a state." Moor v. County of Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785, 1800, 36 L.Ed.2d 596 (1973); State Highway Comm'n v. Utah Construction Co., 278 U.S. 194, 200, 49 S.Ct. 104, 106, 73 L.Ed. 262 (1928). Accordingly, where a state is a party in a diversity action, or a claimant in a § 1335 interpleader action, diversity of citizenship is not present and the case must be dismissed. Nuclear Engineering Co. v. Scott, 660 F.2d 241, 250 (1981), cert. denied, 455 U.S. 993, 102 S.Ct. 1622, 71 L.Ed.2d 855 (1982). The same is true where a party or claimant is a state official and the state is the real party in interest. State Highway, 278 U.S. at 199-200, 49 S.Ct. at 106; Adden v. Middlebrooks, 688 F.2d 1147, 1153-54 (7th Cir. 1982). The Superintendent contends that the state is the real party in interest² and that diversity of citizenship is therefore lacking.

The Superintendent also argues that he is entitled to sovereign immunity under the Eleventh Amendment to the United States Constitution. He contends that because he is an arm of the State, he may not be sued in federal court. Whether a state official or agency is entitled to sovereign immunity depends on whether the state is the real party in interest. Oyler v. National Guard Association, 743 F.2d 545, 554 n. 9 (7th Cir.1984). The analysis is the same as it is for determining whether the state is the real party in interest for the purpose of determining diversity jurisdiction. See Adden, 688 F.2d at 1154; Skandia America Reinsurance Corp. v. Schenck, 441 F.Supp. 715, 722 (S.D.N.Y.1977). Accordingly, the Court shall combine its discussions of the issues of diversity jurisdiction and sovereign immunity.

In determining whether the state is a real party in interest, courts have examined a number of factors: whether any judgment would be paid out of the state treasury, Jensen v. State Board of Tax Commissioners, 763 F.2d 272, 276 (7th Cir. 1985); Adden, 688 F.2d at 1153; whether a judgment would interfere with public administration, Jensen, 763 F.2d at 276; whether a judgment would have the effect of forbidding or compelling the government to act, id. at 276; whether the named party is performing a normal governmental function, Adden, 688 F.2d at 1153; whether the party has the power to sue and be sued in its own name, id. at 1153; whether there is any legislative provision that the party performs an essential governmental function, id.; whether the party has the power to buy or sell property in its own name, id.; and whether the party is accorded independent status under state law, id.

No party has called the Court's attention to any case which considers whether a state insurance official is considered to be the state itself for purposes of diversity jurisdiction. The Court's research, however, has revealed a number of cases which address this issue in various contexts. Examination of those cases reveals a clear pattern: when a state officer or agency is a party in its capacity as liquidator or receiver, the state is not considered to be the real party in interest. See Finkielstain v. Seidel, 857 F.2d 893 (2d Cir.1988) (Maryland Deposit Insurance Fund Corp., rather than insurance company, was real party in interest where it was sued in its capacity as receiver, and it was not entitled to sovereign immunity); Foremost Guaranty Corp. v. Community Savings & Loan, Inc., 826 F.2d 1383 (4th Cir. 1987) (Maryland Deposit Insurance Fund Corp. was not entitled to sovereign immunity where it was sued...