in law because Wisconsin law governs the insurance policy at issue and NNIC's conduct.
However, NNIC has not demonstrated that the case involves
unsettled issues of Wisconsin state law
or any facts local to Wisconsin.
Therefore, the second
Wilson factor weighs against abstention.
See Holden v. Connex-Metalna Mgmt. Consulting GMBH, 302 F.3d 358, 363 (5th Cir. 2002).
R. Doc. No. 612, p. 9.
NNIC has not identified any unsettled issues of Wisconsin insurance law at stake. With respect to plaintiff's request to pierce NNIC's corporate veil premised on an alter ego theory, pursuant to Patin, 294 F.3d at 647, this Court will look to Wisconsin alter ego jurisprudence because NNIC is a Wisconsin corporation. However, Wisconsin alter ego jurisprudence is well established. See Olsen, 419 N.W.2d 211.
There is no argument that the applicable Louisiana law is unsettled.
The Court next considers the third Wilson factor, i.e., the importance of the state interest involved. NNIC contends that to allow plaintiff to pursue her claims against NNIC in federal court would undermine the purposes of Wisconsin's Insurers Rehabilitation and Liquidation Act ("WIRLA"). See Wisc. Stat. Ann. §§ 645.01(4)(a)-(f). The WIRLA was designed to create a comprehensive, uniform scheme to address the insolvency of insurers. See id; All Star, 898 So. 2d at 370 (describing "[u]niformity and predictability in interstate relations regarding insurer delinquency and liquidation proceedings" as the objective of the Uniform Insurers Liquidation Act and the superceding Insurers Rehabilitation and Liquidation Model Act). Pursuant to the WIRLA, a state regulatory investigation of an insolvent creditor may culminate in the appointment of a receiver for the rehabilitation of the company and the processing of claims against it and, if necessary, its liquidation. See Wisc. Stat. Ann. §§ 645.31; 645.32.
The purpose of WIRLA is:
The purpose of this chapter is the protection of the interests of insureds, creditors, and the public generally, with minimum interference with the normal prerogatives of proprietors, through:
(a) Early detection of any potentially dangerous condition in an insurer, and prompt application of appropriate corrective measures, neither unduly harsh nor subject to the kind of publicity that would needlessly damage or destroy the insurer;
(b) Improved methods for rehabilitating insurers, by enlisting the advice and management expertise of the insurance industry;
(c) Enhanced efficiency and economy of liquidation, through clarification and specification of the law, to minimize legal uncertainty and litigation;
(d) Equitable apportionment of any unavoidable loss;
(e) Lessening the problems of interstate rehabilitation and liquidation by facilitating cooperation between states in the liquidation process, and by extension of the scope of personal jurisdiction over debtors of the insurer outside this state; and
(f) Regulation of the insurance business by the impact of the law relating to delinquency procedures and substantive rules on the entire insurance business.
Wisc. Stat. Ann. §§ 645.01(4)(a)-(f).
However, as the Sixth Circuit explained in AmSouth Bank v. Dale, "[b]ecause Burford abstention is concerned with potential disruption of a state administrative scheme, rather than the mere existence of such a scheme, looking behind the action to determine whether it implicates the concerns of Burford is necessary." 386 F.3d 763, 784 (6th Cir. 2004). Although "Burford is concerned with protecting complex state administrative processes from undue federal interference, it does not require abstention whenever there exists such a process, or even in all cases where there is a `potential for conflict' with state regulatory law or policy." St. Paul Ins. Co. v. Trejo, 39 F.3d 585, 589 (5th Cir. 1994) (quoting N.O.P.S.I., 491 U.S. at 362).
"Although the regulation of insolvent insurance companies is surely an important state interest, this case does not involve the complex and highly regulated issues of insurance regulation. . . ." See Grode v. Mutual Fire, Marine and Inland Ins. Co., 8 F.3d 953, 959 (3d Cir. 1993). Instead, this case involves relatively straight forward tort claims pursuant to Louisiana law. "The complex regulations relating to insolvent insurance companies have to do with plans of rehabilitation and payment to policy holders. Simple contract and tort actions that happen to involve an insolvent insurance company are not matters of important state regulatory concern or complex state interests." Id. The Court finds that the third Wilson factor does not weigh in favor of abstention.
Plaintiff also argues that because this Court has diversity jurisdiction and "related to" bankruptcy jurisdiction there are important federal interests involved. The presence of diversity jurisdiction represents a federal interest in the administration "of impartial justice to diverse parties." Webb, 174 F.3d at 703 n. 8. The presence of "related to" bankruptcy jurisdiction similarly demonstrates a federal interest. However, the presence of diversity jurisdiction or "related to" bankruptcy jurisdiction, without more, may not be sufficient to deny abstention pursuant to Burford. See id. at 703; Wilson, 8 F.3d at 315.
The Court turns next to the fourth Wilson factor, i.e., the state's need for a coherent policy in the regulation of insolvent insurers. NNIC argues that in bringing all actions against NNIC to the rehabilitation court, NNIC has attempted to maintain uniformity pursuant to the WIRLA.
R. Doc. No. 612, p. 6.
Minimizing the burden of litigation is an important purpose of rehabilitation proceedings. See Wis. Stat. § 645.01(4)(c) (identifying the minimization of litigation as a purpose of the WIRLA). As the Third Circuit explained in Grode:
[C]ourts abstain in suits against insolvent insurance companies for the same reasons that district courts refer bankruptcy cases to the bankruptcy courts: Insurance companies tend to issue identical policies to a large number of people, rendering a single forum necessary to dispose equitably of the company's limited assets so as to avoid a race to the courthouse.
8 F.3d at 960.
NNIC argues that in the absence of this Court's stay pursuant to Burford, "NNIC, like any other insurer subject to rehabilitation, faces a tremendous risk of having its assets dissipated in defense of actions across the country." Such argument is less than convincing in light of the fact that NNIC has been content to litigate this case in federal court for nearly three years after being placed into rehabilitation, including filing a motion for summary judgment in January, 2008. See Clark v. Underwriters Mgmt Co., 2003 WL 21148420 at *7 (N.D. Ill. May 16, 2003).
Id.
As the court explained in Underwriters Mgmt:
Plaintiff argues that federal courts have recognized Illinois' regulation of the insurance industry as a special forum, justifying abstention.
See Hartford Casualty Ins. Co. v. Borg-Warner Corp., 913 F.2d 419, 426 (7th Cir. 1990). The issues in Meier's counterclaim do not invoke public policy; they are standard common law claims. Furthermore, by litigating Meier's counterclaim for three years in this court, up to and including requesting the court to enter judgment on that counterclaim, Plaintiff has fatally undermined any argument that Meier's counterclaim is a claim that should be adjudicated in a different and special forum to avoid disruption of a state policy.
2003 WL 21148420 at *7.
Moreover, this case is distinguishable from Clark v. Fitzgibbons, 105 F.3d 1049 (5th Cir. 1997), a case cited by NNIC. In Clark, Richard Clark ("Clark"), an administrator of certain insurance policies issued by two Texas insurers and reinsured by American Bonding Co. ("ABC"), filed claims in federal court against ABC and Michael FitzGibbons ("FitzGibbons"), the special deputy receiver appointed by the State of Arizona to oversee claims filed against ABC. As the Fifth Circuit summarized:
The complaint asserted claims for breach of contract, indemnification, breach of fiduciary duty, and breach of the duty of good faith and fair dealing. The action was framed in part as a putative class action, with Richard Clark as named plaintiff representing the interests of various John Doe plaintiffs, the individuals insured through the Clark agency whose policies were reinsured by ABC. The plaintiffs variously sought compensatory damages, exemplary damages, and an injunction to prevent ABC from "[m]isappropriating or using funds which should lawfully be applied to pay for the claims incurred and damages sustained by the Doe plaintiffs."
Id. at 1051. The Fifth Circuit held that
Burford abstention was appropriate because the
Clark plaintiffs sought "to leapfrog ahead of all other claimants, who are bound to bring their claims before the Arizona receiver . . . [and because] permitting these plaintiffs to proceed in federal court in Texas would start a race to the courthouse in any jurisdiction where claims against [the insolvent insurer] might have arisen. The administrative structure established by Arizona to rehabilitate or liquidate insolvent insurers would swiftly crumble."
Id. at 1051.
In this case, plaintiff is not attempting to "leapfrog ahead" of other claimants. Plaintiff filed claims against NNIC in 2002, nearly five years before NNIC was placed into rehabilitation proceedings. Subsequent to being placed into rehabilitation, NNIC defended plaintiff's claims in federal court for nearly three years before requesting a stay pursuant to Burford. NNIC has not identified any similarly situated plaintiffs who might initiate claims against NNIC in federal court should plaintiff be permitted to proceed in this forum. See Underwriters Mgmt, 2003 WL 21148420 at *7. The Court does not find that allowing plaintiff to proceed in this forum will ignite "a race to the courthouse."
In an amicus brief, the Wisconsin Commissioner of Insurance and the Special Deputy Rehabilitator of NNIC argue that this permitting the above-captioned case "could directly impact the assets of the NNIC rehabilitation estate." However, a financial effect on the rehabilitation estate is not sufficient where, as here, adjudication of this case will have at most an indirect effect on the rehabilitation by potentially giving rise to an additional claim against the insurance company. See Sevigny v. Emp'rs Ins. of Wausau, 411 F.3d 24, 29 (1st Cir. 2005); Fragoso v. Lopez, 991 F.2d 878, 884 (1st Cir. 1993). With respect to the fourth Wilson factor, NNIC has not demonstrated that allowing this plaintiff to proceed in federal court would be disruptive of Wisconsin's efforts to establish a coherent policy relative to insolvent insurers.
R. Doc. No. 531, p. 8.
Last, the Court considers the fifth Wilson factor, i.e., the presence of a special state forum for judicial review. NNIC argues that the rehabilitation court, the Dane County Circuit Court of Wisconsin, constitutes a special state forum for judicial review and that the rehabilitation court is the proper forum for plaintiff's claims. This last factor would support abstention.
Considering and balancing the above factors, the Court finds that Burford abstention is not warranted in this case. It is true that Courts frequently abstain "in deference to state insurance insolvency or liquidation proceedings." Clark, 105 F.3d at 1052; see also Callon, 351 F.3d at 209; Barnhardt Marine Ins. v. New England Int'l Sur. of Am., Inc., 961 F.2d 529, 531 (5th Cir. 1992). However, there is no per se rule requiring a federal court to abstain whenever one of the parties in the action is an insurance company involved in state liquidation or rehabilitation proceedings. See Lac D'Amiante du Quebec, Ltee v. Am. Home Assur. Co., 864 F.2d 1033, 1047 (3d Cir. 1988); see also N.O.P.S.I., 491 U.S. at 362 ("While Burford is concerned with protecting complex state administrative processes from undue federal interference, it does not require abstention whenever there exists such a process."). In the context of a lawsuit against an insolvent insurer, courts have refrained from Burford abstention when resolution of the case would not "substantially interfere in the administration of [the insurance company's] assets by . . . state authorities." Holden, 302 F.3d at 364; see also Fragoso, 991 F.2d at 884.
Moreover, although the Wisconsin state court rehabilitation proceedings may preclude enforcement of any judgment against NNIC, the Court fails to see how the adjudication of this case in this forum would substantially interfere in the administration of NNIC's assets by Wisconsin state authorities. See Holden, 302 F.3d at 364. In fact, NNIC concedes that "only after [plaintiff] filed his Fifth Amended Complaint with new claims directly attacking NNIC's rehabilitation proceedings, did it become obvious and necessary for this case to be decided in Wisconsin." The claim to annul the funds transfer has since been dismissed. The motions to stay pursuant to Burford shall be denied.
R. Doc. No. 547, p. 10 n. 7.
CONCLUSION
For the reasons stated above, IT IS ORDERED that the motion to dismiss filed by the AK defendants is GRANTED with respect to plaintiff's conspiracy claim and DENIED with respect to plaintiff's fraud claim and plaintiff's request to pierce the corporate veil.
R. Doc. No. 507.
IT IS FURTHER ORDERED that the motion to dismiss for lack of personal jurisdiction and subject matter jurisdiction filed by the AK defendants is DENIED. IT IS FURTHER ORDERED that NNIC's motion to dismiss pursuant to 12(b)(6) is DENIED. IT IS FURTHER ORDERED that the motions to stay pursuant to Burford filed by the AK defendants and NNIC are DENIED.
R. Doc. No. 507.
R. Doc. No. 519.
R. Doc. No. 507; 519.
New Orleans, Louisiana, August 2, 2010.