Erie Insurance Exchange v. Richard Stover

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 14-1573
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ERIE INSURANCE EXCHANGE, an unincorporated association,
by members PATRICIA R. BELTZ; JOSEPH S. SULLIVAN; ANITA SULLIVAN;
PATRICIA R. BELTZ, on behalf of herself and others similarly situated,

Appellants

v.

RICHARD L. STOVER; J. RALPH BORNEMAN, JR.;
TERRENCE W. CAVANAUGH; JONATHAN HIRT HAGEN;
SUSAN HIRT HAGAN; THOMAS B. HAGEN; C. SCOTT HARTZ;
CLAUDE C. LILLY, III; LUCIAN L. MORRISON; THOMAS W. PALMER;
MARTIN P. SHEFFIELD; ELIZABETH H. VORSHECK;
ROBERT C. WILBURN; ERIE INDEMNITY COMPANY
_____________

On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil No. 1-13-cv-00037)
District Judge: Hon. Maurice B. Cohill, Jr.
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Argued June 8, 2015

BEFORE: AMBRO and COWEN, Circuit Judges
RESTANI*, Judge

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* Honorable Jane A. Restani, Judge for the United States Court of International Trade,
sitting by designation.
 (Filed: July 16, 2015)

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OPINION**
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William M. Martin, Esq.
William M. Radcliffe, III, Esq. (Argued)
Radcliffe & DeHaas
2 West Main Street
Suite 700, P.O. Box 2012
Uniontown, PA 15401

Counsel for Appellants Erie Insurance Exchange,
Patricia R. Beltz, Joseph Sullivan, and Anita Sullivan

Matthew R. Divelbiss, Esq.
Thomas S. Jones, Esq.
Katelyn M. Matscherz, Esq.
Jones Day
500 Grant Street
Suite 4500
Pittsburgh, PA 15219

Geoffrey J. Ritts, Esq.
Jones Day
901 Lakeside Avenue
North Point
Cleveland, OH 44114

Counsel for Appellees Richard L. Stover,
J. Ralph Borneman, Jr., Terrence W. Cavanaugh,
C. Scott Hartz, Claude C. Lilly, III, Lucian L. Morrison,
Thomas W. Palmer, Martin P. Sheffield, and
Robert C. Wilburn

_______________

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**
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.

Wallace J. Knox, Esq.
Knox, McLaughlin, Gornall & Sennett
120 West Tenth Street
Erie, PA 16501

Lawrence G. McMichael, Esq.
Patrick M. Northen, Esq.
Dilworth Paxson
1500 Market Street
Suite 3500E
Philadelphia, PA 19102

Counsel for Appellee Jonathan Hirt Hagen,
Susan Hirt Hagan, and Thomas B. Hagen

Dorothy A. Davis, Esq.
Amy J. Roy, Esq.
Mark A. Willard, Esq.
Eckert, Seamans, Cherin & Mellott
600 Grant Street
44th Floor, US Steel Tower
Pittsburgh, PA 15219

Counsel for Appellee Elizabeth H. Vorsheck

Steven B. Feirson, Esq. (Argued)
Michael L. Kichline, Esq.
Donald C. Le Gower, Esq.
Dechert
2929 Arch Street
18th Floor, Cira Centre
Philadelphia, PA 19104

Ira L. Podheiser, Esq.
Burns White
106 Isabella Street
Four Northshore Center

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Pittsburgh, PA 15212

Counsel for Appellee Erie Indemnity Co.

COWEN, Circuit Judge.
The plaintiffs-appellants are Erie Insurance Exchange (“Exchange”), and four of its

policyholders (together with Exchange, “Appellants”). They have appealed a ruling by the

District Court referring certain issues to the Pennsylvania Insurance Department (“the

Department”). We conclude that we lack jurisdiction to hear the appeal because the

District Court’s order referring the matter to the Department is not final pursuant to 28

U.S.C. § 1291.

I.

Because we write solely for the parties, we will only set forth the facts necessary to

inform our analysis.

Exchange is an unincorporated Pennsylvania association that issues insurance

policies. It has no employees, officers, board, bylaws, or organizing documents and is run

by defendant Erie Indemnity Company (“Indemnity”) pursuant to a subscriber agreement

(the “Subscriber Agreement”). Exchange is a reciprocal insurance exchange created

pursuant to Pennsylvania statute. See 40 Pa. Stat. § 961 (2015). Indemnity is the attorney-

in-fact for the subscribers of Exchange and operates and manages Exchange. Both

Exchange and Indemnity are members of the Erie Insurance Group, an insurance holding

company system regulated by the Pennsylvania Insurance Holding Company Act (“IHCA”),

40 Pa. Stat. §§ 991.1401, et seq.

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 Appellants initially filed a state court action against only Indemnity in the Court of

Common Pleas of Fayette County, Pennsylvania. After Indemnity failed to successfully

remove that case to federal district court, the matter returned to state court. While that

state court action was pending, Appellants brought a diversity action in federal court against

Indemnity’s trustees (together with Indemnity, “Appellees”), asserting, inter alia, state

common law claims on behalf of Appellants for breach of fiduciary duty and breach of

contract. Although not named as a defendant in the federal lawsuit, Indemnity filed a

motion to intervene in the federal lawsuit, which was granted.

Appellants’ federal complaint alleges that in return for services Indemnity provides

as attorney-in-fact, it is paid a fixed percentage of all written and assumed premiums

received by Exchange and that it is entitled to receive a maximum of 25% of those

premiums. Despite this, Appellants claim that Indemnity’s trustees authorized or permitted

it to collect “service charges” and “added service charges” (collectively, “Service

Charges”). As a result, Indemnity allegedly received more compensation than the

determined percentage it was permitted to collect for its services pursuant to the Subscriber

Agreement and received additional compensation for services it was already required to

perform. Appellants assert that this money should have been transferred to Exchange.

Following Appellants’ decision to file in federal court, the Court of Common Pleas

of Fayette County issued a stay in Appellants’ state court action and referred certain issues

to the Department. In so doing, the state court noted the “specialized complexities involved

in insurance generally, and in the regulation of this industry in particular,” as well as the fact

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that the IHCA “provides the Department with special competence to address the subject

matter of [Appellants’] claims.” (S.A. 21, 22.) Appellees then filed a motion to dismiss

the complaint in federal court, seeking, in part, referral of the issues in that action to the

Department as well.

The District Court granted Appellees’ request to refer the case to the Department,

noting that the federal action was nearly identical to the case filed in state court and raised

the same issues. The Court accordingly entered an order that, among other things, granted

the Appellees’ motion to the extent it sought referral to the Department and authorized the

Department “to decide any and all issues within its jurisdiction.” (App. 7.) The Court then

dismissed Appellants’ case without prejudice. The current appeal followed.

Following the referral orders, the parties stipulated that there will only be one

proceeding before the Department and that, should the referral order in this case be

affirmed, the Department’s guidance in the state court matter will be applied to this case.

The Department, in accepting the state court’s referral, limited the issue for its

determination to whether Indemnity’s retention of the Service Charges meets the standards

set forth in the IHCA, including whether those transactions were fair and reasonable.

On April 29, 2015, the Department issued a declaratory order, concluding that

Indemnity “complied with applicable insurance laws and regulations” and “properly retained

charges paid by Exchange policyholders for certain installment premium payment plans,

dishonored payments, policy cancellations and policy reinstatements.” (Dep’t Declaratory

Op. at 85 (Attached to Appellees’ Letter to the Court Dated May 11, 2015).)

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 II.

As a threshold matter, we must determine if the District Court’s referral to the

Department, a state administrative agency, pursuant to the doctrine of primary jurisdiction,

constitutes a final order. Because we conclude that it is not, we lack jurisdiction over this

appeal.

We have appellate jurisdiction only over final orders of the district courts pursuant to

28 U.S.C. § 1291. Generally, a final decision is one that ends the litigation on the merits

and leaves nothing for the court to do but execute the judgment. Praxis Props., Inc. v.

Colonial Sav. Bank, S.L.A., 947 F.2d 49, 54 n.5 (3d Cir. 1991) (citing Catlin v. United

States, 324 U.S. 229, 233 (1945)). A final order for purposes of section 1291 is one that

effectively places the parties out of federal court. Moses H. Cone Mem’l Hosp. v. Mercury

Constr. Corp., 460 U.S. 1, 9 (1983).

But the Supreme Court has noted that referrals on the basis of primary jurisdiction

do not expel the parties from federal court. Rather, such referrals are better viewed as

“judicial abstention in cases where protection of the integrity of a regulatory scheme

dictates preliminary resort to the agency which administers the scheme. Court jurisdiction

is not thereby ousted, but only postponed.” United States v. Phila. Nat’l Bank, 374 U.S.

321, 353 (1963) (citation omitted); see also United States v. W. Pac. R.R. Co., 352 U.S.

59, 63-64 (1956) (noting that in cases referring issues on the basis of primary jurisdiction,

“the judicial process is suspended pending referral of such issues to the administrative body

for its views.”).

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 We have echoed these sentiments in our own jurisprudence. In Richman Bros.

Records, Inc. v. U.S. Sprint Commc’ns Co., 953 F.2d 1431, 1433 (3d Cir. 1991), we

addressed whether a district court’s order referring a discrete question to a federal agency

constituted a final order. Relying heavily on our precedent in Balt. Bank for Coops. v.

Farmers Cheese Coop., 583 F.2d 104, 108 (3d Cir. 1978), a Burford-type abstention case,

we noted the contrast between the abstention order at issue there and a referral order issued

pursuant to the doctrine of primary jurisdiction. We drew the distinction as follows:

[A]dministrative abstention orders, which completely relinquish federal
jurisdiction by giving way to state administrative agencies, are final decisions
appealable under section 1291; orders transferring discrete issues involving
regulatory expertise under the doctrine of primary jurisdiction, by giving way
to a federal administrative agency, are not final decisions appealable under
section 1291.

Richman Bros. at 1442 (all emphases in original). In concluding that the order at issue fell

into the latter category, and was therefore not final, we stressed that “[i]t is abstention’s end

to federal court proceedings in deference to state court or state agency proceedings that

underlies the general rule that a district court’s decision to abstain is appealable.” Id. at

1443 (citing Moses H. Cone, 460 U.S. at 8-10)).

Applying this principle of finality here requires us to reject Appellants’ appeal. As

an initial matter, we note that it is immaterial that the District Court opted to dismiss the

action without prejudice rather than issue a stay. Although the latter option might have

been more prudent, we generally do not consider orders dismissing without prejudice to be

final because they contemplate a return to federal court. See Ahmed v. Dragovich, 297

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F.3d 201, 207 (3d Cir. 2002) (“[A]n order dismissing a complaint without prejudice is not a

final order as long as the plaintiff may cure the deficiency and refile the complaint.”).

Indeed, Appellants’ arguments notwithstanding, the Supreme Court has specifically

sanctioned dismissal without prejudice as appropriate when referring issues to an

administrative agency on the basis of primary jurisdiction. See Reiter v. Cooper, 507 U.S.

258, 268-69 (1993) (“Referral of the issue to the administrative agency does not deprive

the court of jurisdiction; it has discretion to either retain jurisdiction or, if the parties would

not be unfairly disadvantaged, to dismiss the case without prejudice.”).

More importantly, we discern no justification for deeming the District Court’s

referral order final. First, there is no statute of limitations bar to Appellants returning to

federal court. As Appellees stated on the record at oral argument, they agree not to raise

any statute of limitations challenge regarding the period of time from the District Court’s

dismissal without prejudice to the time Appellants return to the District Court to litigate

their contract and tort claims, should Appellants choose to do so. Second, there is nothing

in the District Court’s referral order that indicates the Court transferred the entire matter to

the state agency for a dispositive ruling. To be sure, the District Court could have more

clearly articulated the precise issues that it was referring to the Department. But its failure

to do so does not automatically render the referral order final. Instead, the District Court’s

instruction that the Department decide only those issues “within its jurisdiction” evidences

its contemplation that it would be left to resolve certain remaining issues. (App. 7.) That

this was the District Court’s intent is bolstered by its decision to dismiss the action without

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prejudice, allowing Appellants to re-file their complaint and return to federal court. See

Richman Bros., 953 F.2d at 1439 (noting that the district court's decision to issue a stay

would make “no sense if the court had decided it would never have anything more to do

with the case.”).

Third, in deciding to transfer the issues to the Department, the District Court relied

solely on the state court’s decision, noting that the “instant case is nearly identical to the

case filed in the Court of Common Pleas of Fayette County and raises the same issues.”

(App. 6). But the state court referred the matter to the Department only insofar as it could

offer expertise based on its power “to regulate the business affairs and assets of Exchange

and is able to determine the fairness and reasonableness of intercompany transactions

between Exchange and Indemnity.” (S.A. 19-20.) This language suggests that while the

District Court, and the state court for that matter, were seeking guidance from the

Department as to the nature of Indemnity’s Service Charges, as well as the fairness and

reasonableness of its transactions with Exchange, in no way were the courts referring to it

questions about Appellees’ fiduciary and contractual duties.

Fourth, that the order referred only limited issues to the Department, and not the

entire matter, finds support in Appellants’ own arguments regarding whether the District

Court properly referred the matter on the basis of primary jurisdiction. Although we need

not pass judgment at this stage as to the merits of these arguments, Appellants have

consistently argued, both here and before the District Court, that the Department lacks any

authority to even decide the ultimate issues regarding whether they breached their fiduciary

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duty or violated the terms of any contract. (See Appellants’ Br. at 25-26; see also

Appellees’ Br. at 20 (conceding that Appellants “may return to the District Court to

determine the effect of the Department’s guidance, if any, on their claims.”).) Appellants

would, therefore, ostensibly agree that ultimate resolution of those issues must be decided

by the federal courts. See MCI Telecomms. Corp. v. Teleconcepts, Inc., 71 F.3d 1086,

1105 (3d Cir. 1995) (noting that primary jurisdiction applies where “the administrative

agency cannot provide a means of complete redress to the complaining party and yet the

dispute involves issues that are clearly better resolved in the first instance by the

administrative agency charged with regulating the subject matter of the dispute.”)

(quotation marks and citation omitted).

Finally, we note the existence of an additional factual reason to find here that the

referral order would not effectively end the federal litigation. The parties have stipulated

that there will only be one proceeding before the Department and that, should the referral

order in this case be affirmed, the Department’s guidance in the state court matter will be

applied to this case. It is therefore instructive that the Department, in accepting the state

court’s referral, limited the issue for its determination to whether Indemnity’s retention of

the service charges and added service charges meets the standards set forth in the IHCA,

including whether those transactions were fair and reasonable. Indeed, on April 29, 2015,

the Department issued its decision, concluding only that Indemnity’s retention of the

Service Charges complied with applicable insurance law. As the Department noted, “[t]he

sole issue before [it] is whether the transactions violated the standards contained in the

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IHCA.” (Dep’t Declaratory Op. at 47 (Attached to Appellees’ Letter to the Court Dated

May 11, 2015).) In other words, “whether Indemnity properly retained or received certain

service charges paid by Exchange subscribers for certain installment premium payment

plans, late or returned premium payments, and policy reinstatements.” (Id.)

In sum, because the District Court’s referral order does not necessarily bring an end

to the federal litigation, it is not a final order for purposes of section 1291. See Richman

Bros., 953 F.2d at 1443 (noting that, unlike the typical primary jurisdiction case, abstention

orders are final because they end the federal courts’ role in the litigation); see also In re

Kozeny, 236 F.3d 615, 619 (10th Cir. 2000) (recognizing that although the foreign action

would resolve a central issue in the federal case, because “termination of the [foreign] case

[would] not necessarily end the [federal] litigation,” the district court’s stay order was not

final).

III.

In light of the foregoing, the appeal is dismissed for lack of jurisdiction.

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