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AIMS ENTERPRISES v. MUIR

May 22, 1985

AIMS ENTERPRISES, INC., PIEDMONT, AMERICAN LIFE INSURANCE COMPANY and DAVID N. LEVINSON, INSURANCE COMMISSIONER OF THE STATE OF DELAWARE, in his capacity as Receiver of the Estate of Tara Life Insurance Company of America, Plaintiffs
v.
WILLIAM R. MUIR, JR., in his capacity as Acting Insurance Commissioner of the Commonwealth of Pennsylvania and in his capacity as Ancillary Receiver of the assets of Tara Life Insurance Company of America, Defendant



The opinion of the court was delivered by: CALDWELL

 I. Introduction

 Pursuant to Fed. R. Civ. P. 12(b), defendant, William R. Muir, Jr., Acting Insurance Commissioner of the Commonwealth of Pennsylvania, has moved to dismiss plaintiffs' complaint on the following grounds: (1) the court in its discretion should abstain from adjudicating this action; (2) the Eleventh Amendment divests this court of jurisdiction; and (3) the complaint fails to state a claim. We grant the motion because we believe that the correct exercise of our discretion requires us to abstain from this controversy. *fn1"

 II. Factual Background

 This case involves a dispute between the Pennsylvania Insurance Commissioner and the Delaware Insurance Commissioner over $200,000 originally owned by Tara Life Insurance Company of America (Tara Life), a Delaware insurance corporation no longer in existence. For the purpose of the motion we accept as true the following allegations of the complaint. Plaintiffs are AIMS Enterprises, Inc. (Enterprises), Piedmont American Life Insurance Company (Piedmont), and David N. Levinson, Delaware Insurance Commissioner. Tara Life was a wholly owned subsidiary of Northeastern Fire Insurance Company of Pennsylvania (NFI), a Pennsylvania domiciled insurer. On June 1, 1984, NFI was dissolved by order of the Pennsylvania Commonwealth Court. Defendant Muir was appointed NFI's statutory liquidator. Prior to that time, on March 25, 1983, Tara Life was placed in court administered rehabilitation in Delaware with the then Delaware Insurance Commissioner appointed as receiver of Tara Life with direction to take possession of the property of the company. On May 16, 1983, the then Pennsylvania Insurance Commissioner was appointed the temporary conservator of Tara Life by the Commonwealth Court which allegedly directed that he take possession of all of Tara Life's assets, "although they had been previously seized and placed in receivership pursuant to the Order of the Delaware Court of Chancery." *fn2" (Complaint, para. 11).

 
retention of $200,000 plus the interest thereon will be sufficient for the purpose of assuring that Pennsylvania policy holders will be paid their claims and that sufficient funds will be available to pay back the $98,000 loan given by George Town to Tara if such loan is determined to be entitled to a priority status.

 (Complaint, para. 13).

 Subsequently, during the rehabilitation of Tara Life, the Delaware Insurance Commissioner arranged for the transfer of the bulk of Tara Life's business to Enterprises. Pennsylvania opposed the proposed Plan of Rehabilitation and Transfer in the Delaware Court of Chancery. The court dismissed Pennsylvania's opposition to the Plan and certain of the assets of Tara Life were transferred to Enterprises. Pennsylvania did not appeal this ruling in the Delaware courts.

 Thereafter, Enterprises changed Tara Life's name to Piedmont and title to the Reserve Fund, represented by a certificate of deposit, was changed to Piedmont with the alleged consent of Pennsylvania. Throughout 1984, Pennsylvania led representatives of Piedmont to believe that Pennsylvania would release the Reserve Fund since it was no longer needed to protect Pennsylvania policy holders.

 The Tara Estate was created in Delaware from those assets of Tara Life that were not transferred to Enterprises. Pennsylvania submitted proofs of claim against the estate, representing claims for the policyholders and George Town, a creditor of NFI, as set forth in paragraph 13 of the complaint, but "despite having submitted to the jurisdiction of the Delaware Court of Chancery in connection with the liquidation of the Tara Estate and having filed claims in the Delaware liquidation proceeding for the George Town Promissory Note," (Complaint, para. 44), the Pennsylvania Insurance Commissioner filed a petition in the Pennsylvania Commonwealth Court on January 11, 1985, to be named as ancillary receiver of Tara Life's assets. The Court so ordered it on January 18, 1985.

 This lawsuit followed. Plaintiffs base jurisdiction on diversity of citizenship. Enterprises and Piedmont are Delaware corporations having their principal places of business in North Carolina. Levinson is a citizen of Delaware. Plaintiffs seek a declaratory judgment that, among other things, Enterprises or Piedmont or both own the Reserve Fund, that Muir is barred by res judicata and collateral estoppel from asserting any claim to the Fund, and that the orders of the Delaware Court are entitled to full faith and credit. Plaintiffs also request injunctive relief barring Muir from asserting any further claim to the Reserve Fund and from disbursing any portion of it. Plaintiffs request an order directing delivery of the Reserve Fund to Enterprises or Piedmont or both. As a federal question, they also claim their due process rights were violated when Muir was appointed ancillary receiver without notice to them or an opportunity to be heard.

 III. Discussion

 After careful consideration, we believe that abstention is appropriate under the following case law.

 A. Burford Abstention.

 In Burford v. Sun Oil Co., 319 U.S. 315, 63 S. Ct. 1098, 87 L. Ed. 1424 (1943), the Supreme Court held that a federal district court should decline to exercise jurisdiction in a case challenging a Texas administrative agency's decision to permit the drilling of oil wells in the East Texas oil field. The Court noted that the agency's action was undertaken as "part of the general regulatory system devised for the conservation of oil and gas in Texas," Id. at 318, 63 S. Ct. at 1099, 87 L. Ed. at 1426. The regulations, devised to prevent the waste of oil and other inefficient practices in the oil field, controlled when and where the different drillers owning portions of the field could drill for oil. The Court stated:

 
These questions of regulation of the industry by the State administrative agency, . . . so clearly involves basic problems of Texas policy that equitable discretion should be exercised to give the Texas ...

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