Matter of All-Star Ins. Corp.

• Decision Date: 26 February 1980
• Docket Number: Civ. A. No. 79-C-419,79-C-621.
• Citation: 484 F. Supp. 623
• Parties: In the Matter of the Liquidation of ALL-STAR INSURANCE CORPORATION, a Wisconsin Corporation. Roderick B. McNAMEE, Special Deputy Commissioner of Insurance of the State of Wisconsin for the Liquidation of All-Star Insurance Corporation, Plaintiff, v. JAMES F. JACKSON & ASSOCIATES, INC., Defendant. Roderick B. McNAMEE, Special Deputy Commissioner of Insurance of the State of Wisconsin for the Liquidation of All-Star Insurance Corporation, Plaintiff, v. NORTH SUBURBAN INC., Defendant and Third-Party Plaintiff, v. SIC GENERAL AGENCY, Third-Party Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

484 F. Supp. 623

In the Matter of the Liquidation of ALL-STAR INSURANCE CORPORATION, a Wisconsin Corporation.

Roderick B. McNAMEE, Special Deputy Commissioner of Insurance of the State of Wisconsin for the Liquidation of All-Star Insurance Corporation, Plaintiff, v. JAMES F. JACKSON & ASSOCIATES, INC., Defendant.

Roderick B. McNAMEE, Special Deputy Commissioner of Insurance of the State of Wisconsin for the Liquidation of All-Star Insurance Corporation, Plaintiff, v. NORTH SUBURBAN INC., Defendant and Third-Party Plaintiff, v. SIC GENERAL AGENCY, Third-Party Defendant.

Civ. A. Nos. 79-C-419, 79-C-621.

United States District Court, E. D. Wisconsin.

February 26, 1980.

James A. Urdan and Matthew J. Flynn, Milwaukee, Wis., for plaintiff.

John H. Wessel, Milwaukee, Wis., for SIC General Agency.

Roger C. Minahan, Don S. Peterson and Richard G. Chandler, Milwaukee, Wis., for defendant in No. 79-C-41.

Michael E. Husmann, Milwuakee, Wis., and Sheldon O. Collen, Chicago, Ill., for defendant North Suburban Inc.

DECISION AND ORDER

REYNOLDS, Chief Judge.

The above-entitled two actions, one of which is assigned to me and the other to Judge Robert W. Warren, are consolidated and are being considered together by me only for purposes of this decision on the pending motions to remand to state court. The motions raise identical issues, and for the following reasons, the motions will be granted.

All-Star Insurance Corporation ("All-Star"), a domestic insurance corporation, was ordered into liquidation on March 1, 1977, pursuant to Ch. 645, Wis.Stats., the Insurers Rehabilitation and Liquidation Act, under the jurisdiction of the Milwaukee County Circuit Court. The appointment of Special Deputy Commissioner of Insurance of the State of Wisconsin Roderick B. McNamee as liquidator for All-Star was approved by the Circuit Court on September 9, 1977. Section 645.42(1), Wis. Stats. Pursuant to § 645.46(6), Wis.Stats., which authorizes him to commence actions to collect debts and moneys due and claims belonging to the insurer, Mr. McNamee on March 1, 1979 and July 6, 1979, respectively, commenced actions against the defendants James F. Jackson & Associates, Inc., and North Suburban Inc., in Milwaukee County Circuit Court. The defendants are foreign corporations which were allegedly agents for All-Star and owe to it certain sums pursuant to their agency contracts. The state court actions were removed by the defendants to this court pursuant to 28 U.S.C. § 1441 on the basis of diversity of citizenship.

The plaintiff has moved the court to remand the actions to state court. He argues, first, that the State of Wisconsin is the real party-plaintiff in interest and, therefore, that diversity of citizenship is lacking; second, that the court lacks subject matter jurisdiction because these actions are in rem and the res, which is the corpus of All-Star's assets, is under the prior jurisdiction of the Milwaukee County Circuit Court; and third, that if it has jurisdiction, the Court should abstain from exercising it because in doing so it would interfere with the ongoing state court liquidation proceeding and would undermine the State's interest in the orderly regulation and liquidation of domestic insurance companies.

The Court is not persuaded that the State of Wisconsin is the real party-plaintiff in interest, nor that these actions are in rem. While the Special Deputy Commissioner of Insurance is an officer of the State, he is authorized in a liquidation proceeding to bring and to defend suits in his own name, § 645.49, Wis.Stats.; title to the insurance company's assets vests in him and not in the State of Wisconsin, § 645.42(1), Wis.Stats.; and he functions at least in part for the protection of the creditors of the insured and not merely for the protection of the public generally, § 645.01(4), Wis.Stats. Geeslin v. Merriman, 527 F.2d 452 (6th Cir. 1975). While the assets of All-Star are a res within the possession of the Milwaukee County Circuit Court, and claims against the res must be raised in that court in the liquidation proceedings, § 645.47, Wis. Stats.; Blackhawk Heating & Plumbing Company Inc. v. Geeslin, 530 F.2d 154 (7th Cir. 1976) (finding no subject matter jurisdiction because "* * * the appointment of a receiver and institution of liquidation proceedings * * * constitutes an action in rem * * * and Blackhawk's the creditor's petition in federal court to turn over assets belonging to the insurer was also clearly an action in rem. * *" 530 F.2d at 158), an action by the liquidator to add to the res by collection of a debt owing to the insured is an in personam action and need not be brought in the court wherein the liquidation proceeding is pending. Section 645.46(6), Wis.Stats.; Section 645.49, Wis.Stats. As stated in Barrett v. International Underwriters, Inc., 346 F.2d 345, 348-349 (7th Cir. 1965):

"While it is true that as between state and federal courts the court whose jurisdiction is first invoked by the filing of a suit is treated as having constructive possession of the res to the exclusion of other courts, citations omitted, this does not mean that all other courts are thereby precluded from deciding every question which might concern the property involved. Citation omitted. The rule is that other courts may not render any judgment or decree which will interfere with the constructive possession of the court which first took jurisdiction. Citations omitted. In the Lubbock Hotel Co. v. Guaranty Bank and Trust Co., 77 F.2d 152 (5th Cir. 1935) case the federal court foreclosed a mortgage on property that was under a state court receivership, but declined to order a sale of the property, since this would have been an interference with the state court's possession. Similarly, the district court in the case before us merely declared that the levies of execution created valid liens against the property of the Exchange in custody of the garnishees. The district court noted that the property is in custodia legis, subject to the supervision of the Circuit Court of Marion County and not subject to sale by the United States Marshal. The court expressly abstained from granting any further relief to Barrett beyond declaring the validity and time of attaching of the execution liens, stating that plaintiff's `complete relief' was in the Marion Circuit Court liquidation proceedings.

"There was no invasion of the state court's jurisdiction here. The federal court's jurisdiction was properly invoked to determine rights as between the parties and so long as the district court did not interfere with, or impede, the state court's constructive possession, there was no invasion of jurisdiction."

Similarly in this case, this Court could limit its relief to a declaration of the debts owing, if any, from the defendants to All-Star and the amount of said debts, and leave to the Milwaukee County Circuit Court the matter of enforcement.

Abstention is appropriate in this case, however. In Rice v. Rice Foundation, 610 F.2d 471 (7th Cir. 1979), discussing abstention in the context of state probate matters, the Seventh Circuit stated:

"* * * Even where a particular probate-like case is found to be outside the scope of the probate exception to federal subject

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