Quackenbush v. Allstate Ins. Co.
| Decision Date | 28 August 1997 |
| Docket Number | 96-56506 and 96-56654.,No. 96-56132,96-56132 |
| Citation | 121 F.3d 1372 |
| Parties | Chuck QUACKENBUSH, Insurance Commissioner, of the State of California in his Capacity as Liquidator of Mission Insurance Company; Mission National Insurance Company; Enterprise Insurance Company; Mission Reinsurance Corporation; Holland America Insurance Company, Plaintiffs-Appellees, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellant. Chuck QUACKENBUSH, Insurance Commissioner, of the State of California in his Capacity as Liquidator of Mission Insurance Company; Mission National Insurance Company; Enterprise Insurance Company; Mission Reinsurance Corporation; Holland America Insurance Company, Plaintiffs-Appellants, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellee. Chuck QUACKENBUSH, Insurance Commissioner, of the State of California in his Capacity as Liquidator of Mission Insurance Company; Mission National Insurance Company; Enterprise Insurance Company; Mission Reinsurance Corporation; Holland America Insurance Company, Plaintiffs-Appellees, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
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Donald Francis Donovan and Carl Micarelli, Debevoise & Plimpton, New York City, and Joseph D. Lee, Munger, Tolles & Olson, Los Angeles, CA, for defendant-appellant/cross-appellee.
Karl L. Rubenstein, Dana Carli Brooks, and Melissa S. Kooistra, Rubinstein & Perry, Los Angeles, CA, and William W. Palmer, California Department of Insurance, San Francisco, CA, for plaintiff-appellee/cross-appellant.
Before: BROWNING, BRUNETTI, and TROTT, Circuit Judges.
OVERVIEW
California Insurance Commissioner Chuck Quackenbush brought this action in his role as liquidator of the Mission Group of Insurance Companies ("Mission") against Allstate Insurance Company ("Allstate") to recover monies owed by Allstate to Mission under a number of reinsurance agreements. The core dispute between the parties centers on whether, under California insurance law, Allstate should be allowed to offset its obligations to Mission with debts owed by Mission to Allstate under other reinsurance agreements, or instead should be forced to pay its debts to Mission in full and then pursue its claims against Mission in ongoing state liquidation proceedings. For the last six years, however, the parties have been litigating to determine who will be permitted to decide the underlying questions of California state law. Allstate seeks arbitration pursuant to an arbitration clause in the insurance agreements. It therefore removed this action to federal court and asked the district court to order the parties to proceed to arbitration under the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-14. Quackenbush, however, wants the California courts to decide the dispute. Thus, he asked the district court either to remand or to stay its proceedings pending a decision by the state court exercising jurisdiction over the liquidation proceedings.
The district court concluded that, because the state and federal proceedings involved different claims, both should be permitted to proceed. It therefore: 1) denied Allstate's motion to enjoin Quackenbush against litigating the set-off issue in the state liquidation proceedings; 2) denied Quackenbush's motion to stay the federal proceeding pending a decision on the underlying state-law issues by the state court; and 3) ordered the parties to proceed to arbitration.
As the district court recognized, the state liquidation proceedings, which involve Allstate's claims against Mission, are entirely distinct from the federal proceedings, which involve Mission's claims against Allstate. There is no reason to believe that the state proceedings will interfere with the district court's ability to exercise its own jurisdiction. Accordingly, the district court did not abuse its discretion in denying Allstate's motion for an injunction. Furthermore, because the reinsurance agreements include arbitration clauses which encompass the present dispute, the district court did not err in compelling arbitration.
We have jurisdiction pursuant to 28 U.S.C. § 1292(a) to review the district court's orders refusing to enjoin the state proceedings and compelling arbitration, and we affirm. However, we lack jurisdiction to review the district court's interlocutory order refusing to stay its own proceedings, and we therefore dismiss Quackenbush's cross-appeal from this order.1
Mission Insurance Company, Mission National Insurance Company, Enterprise Insurance Company, and Holland-America Insurance Company comprise the Mission Group of Insurance Companies, a group of property and casualty insurers currently in statutory liquidation proceedings in the California Superior Court (the ). Quackenbush currently is the court-appointed liquidator and trustee for the Mission Group.2
Pursuant to the California Insurance Code, creditors of an insurance company in liquidation must file proofs of claim with the liquidator in order to recover their debts. Cal. Ins.Code § 1021(a). If the liquidator rejects a claim, the creditor may apply to the Superior Court for an order to show cause why the claim should not be allowed. Id. § 1032. If the liquidator allows the claims, he then pays the claims in accordance with a statutory priority scheme. Id. § 1033.
Prior to Mission's liquidation, Allstate and Mission entered into several reinsurance contracts. Under some of the reinsurance contracts, one of the Mission companies owes money to Allstate; under the other contracts, Allstate owes money to one of the Mission companies. The reinsurance agreements include many variations of an arbitration clause, all of which broadly call for arbitration of any dispute related to the reinsurance transactions.
In 1987, pursuant to the statutory insolvency procedure described above, Allstate filed proofs of claim with the Liquidator for the amounts that Mission owes Allstate under the reinsurance agreements. In its proofs of claim, Allstate "reserved the right to offset balances on assumed contracts from companies in the Mission Group against amounts due the Allstate Group on business ceded to the Mission Group." Allstate also submitted separate proofs of claim indicating the amounts of the set-offs that it believed Mission might assert by virtue of Allstate's obligations to Mission.
In June 1990, the Liquidator filed this suit against Allstate in Los Angeles Superior Court, alleging that Allstate owes money to Mission under the reinsurance contracts. Allstate removed the action to federal court based on diversity of citizenship. Allstate then moved to stay the litigation and compel arbitration pursuant to the arbitration clause in the reinsurance agreements. The Liquidator, however, moved to remand the case to state court based on Burford abstention. See Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943) ().
On July 1, 1991, the district court granted the Liquidator's motion to remand this action to state court. It concluded that the critical issue in this action is the viability of Allstate's defense that it is entitled to a set-off for the amounts it claims Mission owes it from the reinsurance agreements. The district court believed that Burford abstention required it to remand the case to state court because deciding this state-law issue would interfere with California's comprehensive scheme for regulating the insurance industry. See Garamendi v. Allstate Ins. Co., 47 F.3d 350, 352 (9th Cir.1995), aff'd, ___ U.S. ___, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996).
This court vacated the district court's order and remanded, holding that Burford abstention is only appropriate in cases where the plaintiff seeks equitable, rather than legal, relief. Id. at 356. Because the Liquidator sought damages, Burford abstention was inappropriate. The Supreme Court granted certiorari.
In August 1995, while awaiting the Supreme Court's decision, Allstate filed amendments to its proofs of claim in the liquidation court, as it was required to do under Mission's liquidation plan. Allstate again "expressly reserved its rights to have all issues presented with respect to the Commissioner's claims against Allstate and Allstate's defenses thereto (including, without limitation, Allstate's rights of set-off) determined in that pending federal court proceeding, or in an arbitration proceeding in the event such claims are submitted to arbitration."
On April 30, 1996, Quackenbush filed a notice rejecting all of Allstate's proofs of claim (the "Rejection Notice") in the state proceeding. Quackenbush argued that Allstate's proofs of claim asserted "group-to-group" offsets (i.e., that Allstate sought to offset money owed by one of the Mission companies against money that it, or one of its group members, owed to a different Mission company). Quackenbush contends that such group-to-group offsets are impermissible under California Insurance Code section 1031 and the California Supreme Court's decision in Prudential Reinsurance Company v. Superior Court, 3 Cal.4th 1118, 14 Cal.Rptr.2d 749, 842 P.2d 48 (1992). Whether Allstate's offsets should be allowed remains the critical state-law issue underlying this procedural litigation, but that question is not before us at this time.
In response to the Rejection Notice, Allstate filed a motion for a preliminary injunction with the district court, seeking to prevent Quackenbush from litigating the set-off issue in the state liquidation proceeding. In the state proceeding, Allstate filed an order to show cause why its claims against Mission should be rejected. Thereafter, the parties stipulated to a stay of both proceedings pending a decision by the Supreme Court.
On June 14, 1996, the Supreme Court...
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