Substituted plaintiff, the Pennsylvania Insurance Commissioner, moves for a stay of these two actions, which were originally filed by Corporate Life Insurance Company. In both actions, jurisdiction is diversity. 28 U.S.C. § 1332.
On February 15, 1994, the Pennsylvania Commonwealth Court issued an order of liquidation against Corporate Life.
By consent order, the actions in this court were stayed temporarily. Order, February 28, 1994. On May 16, 1994, Cynthia Maleski, as Pennsylvania's Insurance Commissioner and statutory liquidator of Corporate Life Insurance Company, was substituted as plaintiff and thereafter moved for an ongoing stay citing Burford v. Sun Oil Co., 319 U.S. 315, 87 L. Ed. 1424, 63 S. Ct. 1098 (1943). The motion is opposed by defendant DP Realty Trust.
As noted by the Insurance Commissioner, the Commonwealth court actions include all of the claims at issue here. Those actions also contain allegations of mismanagement and wrongdoing by Corporate Life. The liquidation petition asserts that Corporate Life failed to submit records and file written reports; engaged in fraudulent transfers to mislead Commonwealth regulators; and violated the Insurance Commissioner's orders, state disclosure laws, and state regulations governing insurance holding companies. Plaintiff's exhibit C, petition for liquidation, introduction, PP 81-84, 408, 531, 536, 552, 558, 564. Also, in a separate state action Maleski v. DP Realty Trust, No. 288 Civ. 1994 (Pa. Commw. Ct. June 1, 1994), Corporate Life's former principal has been sued for conspiracy with a defendant in this action, DP Realty Trust. Plaintiff's exhibit A, complaint, PP 22-38.
The propriety of a stay depends on the applicability of Burford as explicated by our Circuit in Grode v. Mutual Fire, Marine, and Inland Ins. Co., 8 F.3d 953 (3d Cir. 1993). Grode followed New Orleans Public Service, Inc. v. New Orleans, 491 U.S. 350, 359, 361, 109 S. Ct. 2506, 2513, 2514, 105 L. Ed. 2d 298 (1989) in which the Court re-affirmed the narrowness of the abstention standard.
In Grode, abstention was refused because, inter alia, there was a separate federal claim; no issue directly related to state regulation; the insurance company's assets would not be further jeopardized by allowing the federal action to continue; and claim priority was not at issue.
Grode is distinguishable. Here, the outcome of the federal actions could invalidate the grounds for the liquidation itself. Although the liquidation order is not directly contested, the factual allegations that justified its issuance would have to be litigated in this action. Moreover, federal jurisdiction is solely diversity, see Grode, 8 F.3d at 960; the action sounds in equity, University of Maryland v. Peat Marwick, 923 F.2d 265, 271-74 (3d Cir. 1991) (Burford abstention not available in suit limited to money damages); and issues of state insurance law are unavoidable.
Lac D'Amiante v. American Home Assurance, 864 F.2d 1033, 1045 (3d Cir. 1988) (regulation of insolvent insurers is type of strong state interest that justifies application of Burford abstention); General Glass v. Monsour Medical Found., 973 F.2d 197, 201 (3d Cir. 1992) (Pennsylvania has expressed strong interest in regulating insurance companies through a complex regulatory scheme and federal courts should not subject state insurance commissioner to disruption by proceeding with parallel court claims). But see Fragoso v. Lopez, 991 F.2d 878, 884-85 (1st Cir. 1993) (abstention in insurer insolvency cases generally inappropriate except where final judgment has not been entered and significant likelihood of interference with state regulatory system exists).
There are parallels to Grode - an insolvent insurance company is the original plaintiff and dissipation of assets or unfairness to policyholders has not been advanced to support abstention. These factors however, do not predominate against a stay, at least during the period of potential state reorganization of Corporate Life. See Grimes v. Crown Life Ins. Co., 857 F.2d 699, 705-06 (10th Cir. 1988) (abstention granted where insolvent insurer was original plaintiff because only state law issues involved and state should have first opportunity to decide them); Todd v. DSN Dealer Service Network, Inc., 861 F. Supp. 1531, 1994 WL 478850 at *12-*14 (D. Kan. 1994) (abstention granted where insurance commissioner suing defendant for breach of fiduciary duty, fraud and breach of contract because of lack of federal issue, disruptive nature of federal review, and the distinct possibility of inconsistent results).
The actions pending in this court necessarily involve the internal operations of Corporate Life before the takeover; the intricacies of Pennsylvania's regulation of insurance companies; and, in this instance, the validity of actions and orders of the state's insurance commissioner. These critical considerations are enough to compel Burford abstention. See NOPSI, 491 U.S. at 361, 109 S. Ct. at 2514; Grode, 8 F.3d at 959. Moreover, the state actions are particularly well suited to determine voluminous liquidation accounting matters and to consider the administrative regulation of the state's insurance industry.
Edmund V. Ludwig, J.
AND NOW, this 3rd day of October, these actions are stayed. Written reports on the status of state court proceedings are to be submitted every 60 days. A memorandum accompanies this order.
Edmund V. Ludwig, J.