Motor Club of America v. Weatherford
| Decision Date | 20 January 1994 |
| Docket Number | Civ. A. No. 93-4818. |
| Citation | 841 F. Supp. 610 |
| Parties | MOTOR CLUB OF AMERICA, a New Jersey corporation; and Motor Club of America Insurance Company, a New Jersey domestic insurance company, Plaintiffs, v. Cathy J. WEATHERFORD, Commissioner of Insurance for the State of Oklahoma, Defendant, and Samuel F. Fortunato, Commissioner of Insurance for the State of New Jersey, Nominal Defendant. |
| Court | U.S. District Court — District of New Jersey |
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Albert G. Besser, Joseph J. Fleischman, Stuart J. Glick, Hannoch Weisman, Roseland, NJ, for plaintiffs.
Andrew C. Jacobson, Deanne M. Wilson, Mound, Cotton & Wollan, East Hanover, NJ, for defendant Weatherford, Receiver for MCA Ins. Co.
Sharon M. Hallanan, Deputy Atty. Gen., Office of the Atty. Gen., Trenton, NJ, for Nominal defendant.
Currently before the Court is the motion of plaintiffs Motor Club of America Insurance Company's ("Motor Club") and Motor Club of America ("Holding") for summary judgment and final judgment on the complaint. Also before the Court is the cross-motion of defendant Cathy Weatherford, the Commission of Insurance for Oklahoma ("Oklahoma Commissioner"), for summary judgment dismissing the complaint. The Court having read the papers submitted in support of and in opposition to the motions and having heard arguments of counsel shall deny both the motion and the cross-motion for summary judgment, but shall abstain from exercising its jurisdiction pursuant to Burford.
A curious set of events have occurred that leads this matter to this Court: a corporate restructuring, a liquidation proceeding pending in Oklahoma, and a New Jersey action which the defendant removed and then asks the Court to abstain from exercising its jurisdiction.
At issue in this case is a corporate restructuring of MCA Insurance Company ("MCAIC"). MCAIC is an Oklahoma domestic property and casualty insurance company which is now in liquidation. There are several factual issues in dispute concerning the execution of this transaction and its goals. But, it is uncontested what the transaction was supposed to accomplish vis-a-vis the corporate structure.
Before the transfer, Holding was the parent of MCAIC (the insolvent insurer). MCAIC was the parent of Property-Casualty Company of MCA ("PCCMCA"). PCCMCA (a New Jersey company) in turn owned 100% of the outstanding stock of Motor Club.
After the transfer, Holding remained the parent of MCAIC. And, MCAIC's relationship with PCCMCA remained unchanged (i.e., MCAIC still was the sole holder of PCCMCA stock). But Motor Club was spun-off so that it became wholly owned by Holding.
The transfer was to be accomplished in three steps.1 Step one required MCAIC to transfer all of its New Jersey automobile policies to Motor Club. Simultaneously, MCAIC, which had been a New Jersey insurer, became domesticated in the State of Oklahoma. Step two required PCCMCA to dividend its interest in Motor Club to its parent, MCAIC. In exchange for the stock, MCAIC paid "substantial sums out of ... its capital surplus" Memorandum of Law of Defendant Receiver ("Defendant's Opposition Brief"), p. 3. Finally, MCAIC was to dividend the Motor Club stock to its parent Holding via an extraordinary dividend in step three.2 Once the stock was at Holding, it was to distribute the stock to its public shareholders. While the inter-corporation transfers were effectuated, the final transfer from Holding to its public shareholders never occurred.
On October 23, 1992, with the consent of MCAIC and Holding, the Oklahoma Commissioner instituted delinquency proceedings against MCAIC.3 Pursuant to Oklahoma Uniform Insurers Liquidation Act, the Oklahoma Commissioner was appointed receiver for MCAIC. During the course of the liquidation proceedings, the Oklahoma Commissioner came into physical possession of the stock certificate of Motor Club which was being held in Newark, New Jersey by Holding.
The Oklahoma court has entered at least three injunctions during the pendency of the liquidation proceedings: An Order appointing the receiver and preliminary injunction, entered on October 23, 1992; a Supplemental Order of Liquidation, dated October 30, 1992; and a Restated Supplemental Order of Liquidation, dated October 21, 1993. All three orders contained injunctions restraining the commencement or pursuit of any proceedings against the Receiver, MCAIC, or the assets of MCAIC.
On April 14, 1993, the Oklahoma Court issued an order clarifying continuing injunctions and extending the stay of actions. See Affidavit of Deanne M. Wilson ¶ 5. In that order the Court permanently enjoined "all actions to enforce or pursue claims against MCAIC, its property, the MCAIC estate and/or Receiver" except for limited claims which are not applicable here. Id. Exhibit D.
During the course of the receivership, the Oklahoma Commissioner became aware of the now alleged avoidability of the transfer pursuant to Oklahoma Statute section 1926.A. On August 9, 1993, the Oklahoma Commissioner instituted a civil action in the state court of Oklahoma on behalf of MCAIC against Holding. The suit seeks to (i) reverse the July, 1992 dividend from MCAIC to Holding, (ii) avoid her prior approval of that transaction, and (iii) effectuate the acquisition and control of Motor Club. In other words, the Oklahoma Commissioner is only trying to undo step three of the transfer. If successful, Motor Club would become a subsidiary of the insolvent MCAIC.
Defendant in that action, Motor Club, filed several applications, including an application for an extension of time to answer, an application to stay discovery and two motions to dismiss for lack of personal jurisdiction. The court noted defendant's objection in the first motion to dismiss for lack of jurisdiction and allowed the Oklahoma Commissioner to replead within ten days, or by November 15, 1993. The Oklahoma Commissioner did replead within the ten day time period, specifically setting forth jurisdictional bases in the amended petition. That action is currently pending in Oklahoma.
Despite the pendency of the Oklahoma action and the continuing injunctions, plaintiffs Holding and Motor Club filed the instant action in Superior Court of New Jersey, Chancery Division, Essex County, on September 30, 1993. They sought declaratory, injunctive and other equitable relief to prevent the Oklahoma Commissioner from seizing control and ownership of Motor Club. According to plaintiffs, the Oklahoma Commissioner is in violation of the New Jersey Holding Company Systems Act, N.J.S.A. 17:27A-1 et seq. ("New Jersey Holding Company Act"), which prohibits any person from seeking to acquire, or engaging in any activity which results in a person acquiring, directly or indirectly, any voting security of a domestic insurer if, after the consummation thereof, such person would be in control of such domestic insurer, unless that person has sent to the insurer and filed with the New Jersey Commissioner a statement containing the information required by this act and such acquisition has been approved by the New Jersey Commissioner. See Brief of Nominal Defendant New Jersey Insurance Commissioner ("NJ Commissioner's Opposition Brief), p. 7-9.
Plaintiffs seek a judgment declaring the Oklahoma Commissioner in violation of N.J.S.A. 17:27A-2a and enjoining and restraining the Oklahoma Commissioner from attempting to acquire Motor Club. In addition, plaintiffs seek a judgment declaring Holding the owner of all of the outstanding stock of Motor Club, directing the Oklahoma Commissioner to return the stock certificate of Motor Club to Holding, and enjoining and restraining the Oklahoma Commissioner pursuant to N.J.S.A. 17:27A-8c from seizing the outstanding stock of Motor Club.
Three weeks after plaintiffs filed their complaint, they filed a motion for summary judgment, returnable on November 19, 1993. On October 29, 1993, the Oklahoma Commissioner removed the action to this Court on the basis of diversity jurisdiction. In response to plaintiffs' motion, the Oklahoma Commissioner cross-moved for summary judgment dismissing the complaint.
After the Oklahoma Commissioner submitted her opposition brief and notice of cross-motion for summary judgment, she and the nominal defendant, Samuel Fortunato, the New Jersey Commissioner of Insurance ("New Jersey Commissioner") reached an agreement. In a letter brief dated December 21, 1993, the New Jersey Commissioner outlined the written accommodation made with the Oklahoma Commissioner.
The Commissioners' agreement provides that, at this time, they believe the proper forum for the litigation between Oklahoma Commissioner and Motor Club is in the Oklahoma liquidation court. According to them, Oklahoma law controls whether the transfer is voidable. Further, litigating this issue in Oklahoma would allow the Oklahoma Commissioner to fulfill her statutory responsibilities as the liquidator of MCAIC while preventing a conflict between the Commissioners. The Commissioners have agreed that if the Oklahoma court finds the transfer voidable and the Oklahoma Commissioner is declared the owner of the stock, then the Holding Company Act is implicated and New Jersey is the proper forum for any disputes arising therefrom. Conversely, if the transfer is affirmed then Holding is declared the owner of the stock and there is no further need for litigation. See December 21, 1993 Letter from Sharon Hallanan.
The origin of this action and the present dispute would whet the appetite of legal academicians for years to come. It involves novel legal issues and a potpourri of parties. Fortunately or unfortunately, as the case may be, the Court will not be addressing all of the novel legal issues here. What the Court will address is the novel issues...
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