Property & Cas. Ins. Ltd. v. Central Nat. Ins. Co. of Omaha

• Decision Date: 08 July 1991
• Docket Number: No. 90-1801,90-1801
• Citation: 936 F.2d 319
• Parties: PROPERTY & CASUALTY INSURANCE LIMITED, Plaintiff-Appellant, v. CENTRAL NATIONAL INSURANCE COMPANY OF OMAHA and William H. McCartney, Director of Insurance of the State of Nebraska, as Rehabilitator for Central National Insurance Company of Omaha, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 319

936 F.2d 319

PROPERTY & CASUALTY INSURANCE LIMITED, Plaintiff-Appellant, v. CENTRAL NATIONAL INSURANCE COMPANY OF OMAHA and William H McCartney, Director of Insurance of the State of Nebraska as Rehabilitator for Central National Insurance Company of Omaha, Defendants-Appellees.

No. 90-1801.

United States Court of Appeals Seventh Circuit.

Argued Jan. 8, 1991.

Decided July 8, 1991.

Thomas W. Conklin, Linda E. Unger, Diane Karp, Conklin & Roadhouse, Chicago, Ill., for plaintiff-appellant.

Alan J. Martin, Thomas A. Gauza, Michael J. Gill, Nancy K. Linnerooth, Mayer, Brown & Platt, Chicago, Ill., for defendants-appellees.

Before BAUER, Chief Judge, WOOD, Jr., Circuit Judge, and ESCHBACH, Senior Circuit Judge.

HARLINGTON WOOD, Jr., Circuit Judge.

Property & Casualty Insurance, Ltd. ("PCIL"), appeals from the dismissal without prejudice of its complaint and raises the issue of whether the district court acted properly in abstaining under the doctrine of Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). Unable to discern whether Burford applies under these facts, we find it necessary to remand this case for further consideration by the district court.

I.

On May 2, 1989, PCIL filed this diversity action against Central National Insurance Company of Omaha ("Central National"). The three-count complaint sounded in contract; PCIL sought amounts allegedly owed under a reinsurance agreement and damages arising out of the failure to pay those amounts. ¹ Significant amounts of discovery produced no factual issues and the dispute boiled down to what both PCIL and Central National characterize as a straightforward question of contract interpretation involving one sentence of a reinsurance certificate. ² The parties filed cross-motions for summary judgment and were in the middle of the briefing schedule when an outside force intervened.

While PCIL and Central National had been litigating in Illinois, Nebraska's director of insurance had placed Central National under supervision. When that measure was not deemed sufficient, the director sought to place the company into rehabilitation. A Nebraska state court was petitioned and on March 9, 1990, that court appointed the director of insurance as the rehabilitator ("Rehabilitator") of the troubled insurer. One portion of the rehabilitation order, mimicking the language of Nebraska's insurance rehabilitation statute, NEB.REV.STAT. Sec. 44-4815(1), instructed the Rehabilitator to consider immediately all litigation involving Central National that was pending outside of the state and to "petition the courts having jurisdiction over that litigation for stays whenever necessary to protect the estate of Central National."

With the state court order in hand, and nothing else, the Rehabilitator petitioned the district court to either stay or dismiss this action. The district court, delivering its opinion from the bench, concluded that the principles announced in Burford required abstention.

II.

Jurisdiction, if properly conferred is meant to be exercised. ³ As the Supreme Court reiterated in New Orleans Pub. Serv., Inc. v. Council of New Orleans, 491 U.S. 350, 109 S.Ct. 2506, 2512, 105 L.Ed.2d 298 (1989) [hereinafter "NOPSI "], "federal courts lack the authority to abstain from the exercise of jurisdiction that has been conferred." NOPSI also reminds us of "the undisputed constitutional principle that Congress, and not the judiciary, defines the scope of federal jurisdiction within the constitutionally permissible grounds." Id. 109 S.Ct. at 2513 (citing Kline v. Burke Constr. Co., 260 U.S. 226, 234, 43 S.Ct. 79, 82, 67 L.Ed. 226 (1922)).

Those principles being stated, federal courts do maintain some discretion in determining whether to grant certain types of relief. This discretion, "a discretion that was part of the common-law background against which the statutes conferring jurisdiction were enacted," includes the ability to abstain. Id. (citing Shapiro, Jurisdiction and Discretion, 60 N.Y.U. L.Rev. 543, 570-77 (1985)); see also Burford, 319 U.S. at 317-18, 63 S.Ct. at 1098-99. Our discretion is carefully defined, however; abstention remains " 'the exception, not the rule.' " Hawaii Hous. Auth. v. Midkiff, 467 U.S. 229, 236, 104 S.Ct. 2321, 2327, 81 L.Ed.2d 186 (1984) (quoting Colorado River Water Conserv. Dist. v. United States, 424 U.S. 800, 813, 96 S.Ct. 1236, 1244, 47 L.Ed.2d 483 (1976)).

In reviewing the district court's decision to abstain, the underlying legal questions are subject to de novo review. University of Md. v. Peat Marwick Main & Co., 923 F.2d 265, 269-70 (3d Cir.1991). The decision itself is reviewed for abuse of discretion. A.G. Edwards & Sons, Inc. v. Public Bldg. Comm'n, 921 F.2d 118, 121 (7th Cir.1990); see also Will v. Calvert Fire Ins. Co., 437 U.S. 655, 665, 98 S.Ct. 2552, 2558, 57 L.Ed.2d 504 (1978). There is little or no discretion, however, to abstain in a case that does not meet traditional abstention requirements, and that determination is a question of law. See, e.g., Schneider Nat'l Carriers, Inc. v. Carr, 903 F.2d 1154, 1156 (7th Cir.1990) (before using Colorado River balancing test, court must first find parallel state and federal actions); see also University of Md., 923 F.2d at 269-70.

Here, we concentrate on the rationale for abstention announced by the Supreme Court in Burford, 319 U.S. 315, 63 S.Ct. 1098. In large part because its analysis provides the closest fit, Burford has become the doctrine of choice in analyzing whether to abstain in favor of state insurance liquidation and rehabilitation proceedings. See General Ry. Signal Co. v. Corcoran, 921 F.2d 700, 708 (7th Cir.1991) (collecting cases). We cannot forget the teachings of the other abstention cases (the dividing lines between various types of abstention are by no means impermeable), but the fit is not as good. ⁴ As such, our analysis generally follows Burford but will borrow from other abstention analyses when appropriate.

In Burford, the Texas legislature had created a complex administrative mechanism for addressing issues concerning local oil well drilling. All direct review of orders arising out of that mechanism was concentrated in a designated state court, which permitted that court, like the underlying administrative body, "to acquire a specialized knowledge" of the administrative regulations and the oil industry. Id., 319 U.S. at 327, 63 S.Ct. at 1104. That concentration was also justified under the theory that the dispersal of review among various state courts " 'would lead to intolerable confusion. If all [state courts] had jurisdiction of such matters, different courts of equal dignity might reach different and conflicting conclusions as to the same rule.' " Id. (quoting Alpha Petroleum Co. v. Terrell, 122 Tex. 257, 273, 59 S.W.2d 364, 372 (1933)).

It was under this Texas scheme that Burford received an administrative order permitting four oil wells to be drilled. Sun Oil protested that order, not in the designated state court but in federal district court, on the ground that it violated the fourteenth amendment's promise of due process. And the Supreme Court, in determining that abstention was appropriate, found that judicial review in the designated state court was "expeditious and adequate," id., 319 U.S. at 334, 63 S.Ct. at 1107, whereas review in the comparatively unsophisticated federal courts had caused "[d]elay, misunderstanding of local law, and needless federal conflict with the state policy." Id. at 327, 63 S.Ct. at 1104. Moreover, review by federal courts would give rise to the "intolerable confusion" that the Texas scheme sought to avoid by confining review to a designated court. See id. at 327, 333-34, 63 S.Ct. at 1104, 1107.

Subsequent cases, including those from our own circuit, describe Burford abstention as appropriate when either of its dual concerns is present. Thus, "we should abstain from deciding difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the present case." Hartford Cas. Ins. Co. v. Borg-Warner Corp., 913 F.2d 419, 425 (7th Cir.1990) (citing NOPSI, 109 S.Ct. at 2514). We should also abstain "from the exercise of federal review that would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern." Id. (citing NOPSI, 109 S.Ct. at 2514). Only the second type of Burford abstention concerns us here. ⁵

In addition to serving as a restatement of the principles of Burford, Hartford Casualty serves as a springboard for our application of Burford to the present situation. In Hartford Casualty, an Illinois court placed a captive insurance company into rehabilitation and also issued an order enjoining all actions against the insurance company, its directors, officers, or stockholders (except, of course, those claims that were filed in a specialized proceeding the purpose of which was to marshal assets and liabilities and determine how much the creditors would receive). Id. at 421. Hartford at that time filed a claim in the centralized proceeding to recover various reinsurance obligations owed by the captive. When the rehabilitation court later modified its injunction to allow outside actions against the captive's directors, officers, or stockholders, Hartford took advantage of that modification and filed an action in federal court against the captive's parent and the parent's other subsidiaries for their role in the captive's demise. Id.

Guided by principles of ripeness and standing as well as abstention, we affirmed the district court's decision to abstain. Id. at 424. Illinois, we noted, had a paramount interest in developing a uniform insurance rehabilitation process. Id. at 426 (citing Blackhawk Htg. & Plumbing Co. v. Geeslin, 530 F.2d 154, 159-60 (7th Cir.1976)). And because the liability, if any, of the federal court defendants hinged upon a...