IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 97-10302
_____________________
MUNICH AMERICAN REINSURANCE COMPANY;
NAC REINSURANCE CORPORATION,
Plaintiffs-Appellants,
versus
JOHN P. CRAWFORD, Insurance Commissioner
of the State of Oklahoma, as Receiver of
Employers National Insurance Corporation,
Defendant-Appellee.
_________________________________________________________________
Appeal from the United States District Court for the
Northern District of Texas
_________________________________________________________________
June 2, 1998
Before JOLLY, DUHÉ, and PARKER, Circuit Judges.
E. GRADY JOLLY, Circuit Judge
The dispute in this appeal is about who will decide the
entitlement to a $1.5 million pile of money--arbitrators pursuant
to the Federal Arbitration Act (the “FAA”), or the Oklahoma state
insurance regulators and courts under the McCarran-Ferguson Act.
Or, perhaps, the more specific question is who gets to decide who
will decide the entitlement question--the federal courts or the
state courts. There are, however, several questions we must
address before we reach the ultimate disposition of this appeal.
The first question is one of jurisdiction: whether the district
court had jurisdiction to reconsider its initial order compelling
arbitration of the dispute. We next consider whether the district
court correctly invoked the Burford abstention doctrine to dismiss
the action to compel arbitration. Finally, we consider whether
state laws governing insurance company delinquency proceedings
reverse pre-empt the FAA under the McCarran-Ferguson Act. Although
we hold that Burford abstention was improper, we conclude that
jurisdiction was proper, that the FAA was reverse pre-empted by
Oklahoma law under the McCarran-Ferguson Act, and that this dispute
is one for the State of Oklahoma to resolve. We, accordingly,
affirm the district court’s dismissal of the petition to compel
arbitration.
I
On January 1, 1986, Employers National Insurance Corporation
(“ENIC”) and its parent corporation, Employers Casualty Company
(“ECC”), entered into reinsurance agreements with Munich American
Reinsurance Company (“Munich”) and NAC Reinsurance Corporation
(“NAC”). Munich and NAC entered into reinsurance agreements with
ECC and ENIC to cover ENIC’s potential losses under a prior
insurance contract (the “umbrella policy”) issued by ENIC to Jobs
Building Services, Inc. (“Jobs”). Under the reinsurance
agreements, Munich and NAC agreed to insure ENIC for a percentage
of the net loss on claims paid by ENIC under the umbrella policy.
2
“Net loss” was defined as “all payments by [ENIC] in settlement of
claims or losses, payment or benefits, or satisfaction of judgments
or awards, after deduction of salvage.” “Salvage” was in turn
defined as “any recovery made by [ENIC] in connection with a claim
or loss, less all expenses paid by [ENIC], other than payments to
any salaried employee of [ENIC] making such recovery.”
In 1991, ENIC paid $2,065,000 under the umbrella policy to
settle a wrongful death action against Jobs. Munich and NAC
maintain that ENIC submitted the claim and that each reinsurer paid
$829,250 on the reinsurance agreements. ENIC later brought an
action in Texas against the underlying insurer in the Jobs wrongful
death suit. The case was settled for $2.5 million following an
unsuccessful appeal.
On February 14, 1994, prior to the time that the settlement
was entered, an Oklahoma state court placed ENIC into liquidation.1
John R. Crawford, the Insurance Commissioner of Oklahoma, was
appointed ENIC’s receiver for the ensuing delinquency proceedings.
The court’s liquidation order authorized and directed Crawford to
take all actions necessary and appropriate to accomplish ENIC’s
liquidation in accordance with the Oklahoma Uniform Insurers
Liquidation Act. The order vested Crawford with title to all
1
ECC had also been placed in receivership by its state
insurance commissioner.
3
property of ENIC and directed him to take immediate and exclusive
possession of such property wherever located or thereafter
discovered. It also enjoined any action against ENIC, Crawford, or
any of ENIC’s assets.
Consistent with the liquidation order, ENIC’s attorneys
remitted to Crawford $1.5 million from settlement of the wrongful
death action, net of attorneys fees. Munich and NAC contacted
Crawford, asserting a vested property right in the proceeds. They
urged that these proceeds, as salvage under the reinsurance
agreements, were not part of the ENIC estate, but being held in
trust for them. Crawford insisted that the proceeds were not
salvage because, based on ENIC’s books and records, ENIC never
sought or received reimbursement from Munich, NAC, or ECC for the
underlying claims. When Crawford refused to remit the money,
Munich and NAC requested that he submit the dispute to arbitration
as called for by the reinsurance agreements. Crawford again
refused.
Finally, on July 18, 1996, Munich and NAC filed a petition in
federal district court to compel arbitration under the FAA, 9
U.S.C. § 4. On September 18, 1996, the district court entered an
order finding that ENIC was a party to the reinsurance agreements
and compelling the parties to submit the dispute to arbitration.
Crawford moved for a new trial, a rehearing, or an amendment to the
4
judgment under Rule 59(e) of the Federal Rules of Civil Procedure.
It was on this motion that the district court first learned of the
state court injunction. On October 8, 1996, the district court
denied Crawford’s motion, noting, however, that principles of
comity and federalism required the state court to interpret and
enforce its injunction with the appropriate contempt order if
necessary. As a result, Crawford filed a motion in state court
seeking specifically to enjoin the federal arbitration order and to
find Munich and NAC in contempt for violating the previous
injunction. Munich and NAC responded with a motion in the federal
district court for an injunction forcing Crawford to comply with
the arbitration order.
On November 14, 1996, the district court denied Munich’s and
NAC’s motion. The court also took the opportunity to clarify its
earlier order, stating:
[W]hether Petitioners violated the state court injunction
by filing this action is a matter for the state court to
determine. If the state court determines that the filing
of this action violated its injunction, this Court will
respect that decision by vacating the arbitration order
and dismissing the case. Except in exceptional
circumstances, it is the policy of this Court to refrain
from interfering with an ongoing state court proceeding.
Accordingly, the district court directed Crawford to file a motion
to dismiss the instant action if the state court determined that
its injunction had been violated. On January 13, 1997, the state
court found that Munich and NAC had violated the injunction issued
5
at the outset of ENIC’s delinquency proceedings by petitioning the
federal district court to compel arbitration.
Pursuant to the district court’s November 14 order, Crawford
filed a motion to dismiss the action to compel arbitration. Munich
and NAC argued that abstention was inappropriate in this case and
that Crawford was estopped from asserting this issue by his delay
in raising it. Crawford responded that the FAA was reverse
pre-empted by the McCarran-Ferguson Act and that abstention was
therefore appropriate. In the event dismissal was not appropriate,
Crawford also requested a stay of the district court proceedings.
On February 27, 1997, the district court granted Crawford’s motion
to dismiss under the Burford abstention doctrine. Munich and NAC
appeal.
II
Munich and NAC first contend that the district court lacked
jurisdiction to reconsider its October 8 order denying Crawford’s
Rule 59(e) motion because Crawford did not timely appeal or
otherwise challenge that order. Crawford responds that in cases
where Burford abstention is appropriate, it can be ordered at any
time, even on appeal. Although we agree with Crawford that Burford
abstention may be raised at any time, see Martin Ins. Agency, Inc.
v. Prudential Reins. Co., 910 F.2d 249, 255 (5th Cir. 1990), we
ultimately conclude, as explained below, that Burford abstention
6
was inappropriate in this case. Nevertheless, based upon our
review of the district court’s orders, we are confident that the
district court maintained jurisdiction to issue the abstention
order.
The district court’s October 8 order reflects its intention to
retain jurisdiction over the case until the state court resolved
the injunction issue. In the October 8 order, the district court
denied the Rule 59(e) motion, but altered the finality of its
earlier judgment by effectively reserving the right to revisit that
judgment pursuant to appropriate state court action. Having now
been informed of the state court injunction, the district court
concluded that principles of comity and federalism prevented it
from interfering with ongoing state court proceedings and that the
state court should enforce its own injunction, citing Trainor v.
Hernandez, 431 U.S. 434 (1977), and Younger v. Harris, 401 U.S. 37
(1971). This language evinces the district court’s intent to make
its September 18 order compelling arbitration conditional pending
the state court’s resolution of the scope and effect of its
injunction.
Our conclusion in this respect is confirmed by the November 14
order, which merely clarified the district court’s already-stated
position. The November 14 order came as a result of a petition by
Munich and NAC--not a tardy motion by Crawford or a sua sponte
7
reconsideration by the district court--to enforce what they
apparently believed was a final order compelling arbitration. As
the district court explained, however, “[a]fter considering the
[petition], the Court is of the opinion that it should be denied
and that the Court’s position regarding a previous state court
injunction should be clarified.” The petition prompted the
district court to make explicit what it thought was clear in its
October 8 order, namely, that if the state court’s injunction had
been violated, the district court would respect that decision by
vacating the arbitration order and dismissing the case. Thus, when
the court finally abstained and dismissed this action on
February 27, 1997, it was in compliance with and in fulfillment of
its previous orders. For these reasons, we conclude that the
district court had not relinquished jurisdiction over this matter
when it compelled arbitration on September 18.
Because the district court’s order of abstention and dismissal
is a final order disposing of all issues pending in the federal
suit between the present parties, we have jurisdiction to hear this
appeal under 28 U.S.C. § 1291. See Clark v. Fitzgibbons, 105 F.3d
1049, 1051 (5th Cir. 1997). We review the district court’s
decision to abstain for abuse of discretion, taking care to ensure
that the decision fits within the specific limits prescribed by the
particular abstention doctrine involved. Id.
8
III
Munich and NAC contend that the district court erred by
invoking Burford abstention and dismissing the present action
because the FAA does not vest the district court with discretion to
deny arbitration, which is a prerequisite to Burford abstention.
They further contend that, even if the Burford abstention doctrine
were available in this case, arbitration of the dispute between
Munich, NAC, and Crawford would not unnecessarily interfere with
ENIC’s ongoing state court delinquency proceedings, thus, making
Burford abstention inappropriate. Crawford, on the other hand,
argues that the district court had no power to compel arbitration
because, to the extent the FAA impedes Oklahoma’s efforts in
regulating the business of insurance and the liquidation of
insurance companies, it is reverse pre-empted by the McCarran-
Ferguson Act.
A
We first consider whether the district court properly invoked
the Burford abstention doctrine to dismiss the reinsurers’ petition
to compel arbitration. Burford abstention is appropriate in two
circumstances: (1) cases involving difficult questions of state law
bearing on policy problems of substantial public import whose
importance transcends the result in the case, or (2) where federal
adjudication of the case would disrupt state efforts to establish
9
a coherent policy with respect to matters of substantial public
importance. See New Orleans Public Serv., Inc. v. Counsel of City
of New Orleans, 491 U.S. 350, 361 (1989) (“NOPSI”). Furthermore,
it is true, as argued by Munich and NAC, that Burford abstention is
permissible only when the district court has discretion to grant or
deny relief. See Quackenbush v. Allstate Ins. Co., 116 S.Ct. 1712,
1721-22 (1996).2
Here, the relief Munich and NAC sought from the district court
was neither equitable nor otherwise committed to its discretion.
Munich and NAC petitioned the district court under the FAA for a
determination that their dispute with Crawford was subject to an
arbitration clause and for an order compelling the parties to
submit the matter for arbitration. The FAA provides that written
agreements to arbitrate controversies arising out of an existing
contract “shall be valid, irrevocable, and enforceable, save upon
2
Prior to Quackenbush, we and other courts had consistently
approved Burford abstention in actions against an insurance company
involved in ongoing state delinquency proceedings. See, e.g.,
Barnhardt Marine Ins., Inc. v. New England Int’l Sur. of Am., Inc.,
961 F.2d 529 (5th Cir. 1992); Martin Ins. Agency, Inc. v.
Prudential Reins. Co., 910 F.2d 249 (5th Cir. 1990); Gonzalez v.
Media Elements, Inc., 946 F.2d 157 (1st Cir. 1991); Law Enforcement
Ins. Co. v. Corcoran, 807 F.2d 38 (2d Cir. 1986); Lac D’ Amiante du
Quebec, Ltee v. American Home Assurance Co., 864 F.2d 1033 (3d Cir.
1988); Wolfson v. Mutual Benefit Life Ins. Co., 51 F.3d 141 (8th
Cir. 1995); Grimes v. Crown Life Ins. Co., 857 F.2d 699 (10th Cir.
1988). Moreover, these cases upheld Burford abstention in such
actions without regard for the type of relief being sought in
federal court. See, e.g., Wolfson, 51 F.3d at 147; Lac D’ Amiante,
864 F.2d at 1044.
10
such grounds as exist at law or in equity for the revocation of any
contract.” 9 U.S.C. § 2. “By its terms, the [FAA] leaves no place
for the exercise of discretion by a district court, but instead
mandates that district courts shall direct the parties to proceed
to arbitration on issues as to which an arbitration agreement has
been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213,
218 (1985) (citing 9 U.S.C. §§ 3 & 4). Having determined that the
reinsurance agreements contained valid and binding arbitration
clauses, the district court had no discretion under the FAA to deny
Munich and NAC their right to an order compelling arbitration, at
least as to an interpretation of the rights and remedies provided
under the reinsurance agreements. The district court, therefore,
abused its discretion in invoking Burford abstention in this case.3
B
The question remains, then, whether dismissal was nonetheless
required because, as Crawford contends, the FAA is reverse
pre-empted by the McCarran-Ferguson Act.4 Congress enacted the
3
We do not reach the question whether, if arbitrators were to
determine that the nature of the relief Munich and NAC seek in the
underlying claim is equitable, the district court may abstain from
enforcing the award.
4
Munich and NAC argue that Quackenbush disposes of this case
in Munich’s favor. That case, however, never addressed the
McCarran-Ferguson Act. Nor does it appear that the lower courts
ever considered the applicability of the McCarran-Ferguson Act or
that the parties even raised the issue in Quackenbush. See
Garamendi v. Allstate Ins. Co., 47 F.3d 350 (9th Cir. 1995).
11
McCarran-Ferguson Act, 15 U.S.C. § 1101, et seq., for the specific
purpose of consigning to the States broad and primary
responsibility for regulating the insurance industry. See SEC v.
National Sec., Inc., 393 U.S. 453, 458 (1969); Barnhardt Marine
Ins., Inc. v. New England Int’l Sur. of Am., Inc., 961 F.2d 529,
531 (5th Cir. 1992). In relevant part, the Act provides:
No Act of Congress shall be construed to invalidate,
impair, or supersede any law enacted by any State for the
purpose of regulating the business of insurance . . .
unless such Act specifically relates to the business of
insurance.
15 U.S.C. § 1012(b). Ordinarily, federal law pre-empts conflicting
state law by virtue of the Supremacy Clause. See U.S. Const. art.
VI, cl. 2. The McCarran-Ferguson Act reverses that effect in the
narrow range of cases involving state regulation of the insurance
industry.
By its terms, the Act permits a state law to reverse pre-empt
a federal statute only if: (1) the federal statute does not
specifically relate to the “business of insurance,” (2) the state
law was enacted for the “purpose of regulating the business of
insurance,” and (3) the federal statute operates to “invalidate,
impair, or supersede” the state law. There is no question that the
FAA does not relate specifically to the business of insurance.
Thus, we need only address the last two requirements.
12
(1)
The category of laws enacted “for the purpose of regulating
the business of insurance” is broad and consists of those laws
“that possess the ‘end, intention, or aim’ of adjusting, managing,
or controlling the business of insurance.” United States Treasury
Depot v. Fabe, 508 U.S. 491, 505 (1993) (quoting Black’s Law
Dictionary 1236, 1286 (6th ed. 1990)). Statutes that focus on
protecting the relationship between the insurer and insured are
laws regulating the business of insurance. Id. at 501. The three
criteria relevant in determining whether a regulated practice
properly involves the relationship between the insurer and insured
include whether: (1) the practice has the effect of transferring or
spreading a policyholder’s risk; (2) the practice is an integral
part of the policy relationship between the insurer and the
insured; and (3) the practice is limited to entities within the
insurance industry. Union Labor Life Ins. Co. v. Perino, 458 U.S.
119, 129 (1982). None of these criteria is dispositive. Id.
(a)
In this case, the Oklahoma laws in question are the provisions
of the Oklahoma Uniform Insurers Liquidation Act (“OUILA”), which
regulate delinquency proceedings in connection with insolvent
insurance companies. See 36 Okl. St. Ann. § 1901, et seq. When an
Oklahoma insurance company is declared insolvent and placed into
13
state delinquency proceedings by the state insurance commissioner,
the district court of Oklahoma County is vested with “exclusive
original jurisdiction” over all delinquency proceedings. See
§§ 1903 & 1902(A). These proceedings are intended to be “the sole
and exclusive method of liquidating, rehabilitating, reorganizing,
or conserving” the insurance company. § 1902(B). The insurance
commissioner, as receiver of the estate, is directed to take
immediate possession of all of the insurance company’s assets and
is “vested by operation of law with title to all of the property,
contracts, and rights of action . . . of the insurer, wherever
located.” §§ 1914(A) & (B). To assure orderly disposition of
these assets and management of the company’s affairs, OUILA further
provides comprehensive procedures for the resolution and
prioritization of claims against the company. See §§ 1903-20.
OUILA also provides Oklahoma courts with broad powers to
enforce the provisions governing delinquency proceedings, such as
the power to make “all necessary and proper orders to carry out the
purposes of [OUILA].” See § 1902(A). Once delinquency proceedings
have commenced, the court may issue an injunction to prevent
interference with the receiver, waste of the insurer’s assets, or
the “commencement or prosecution of any actions, or the obtaining
of preferences, judgments, attachments or other liens, or the
making of any levy against the insurer or against its assets or any
14
part thereof.” § 1904(B). The Oklahoma court in this case issued
just such an injunction, precluding Munich from commencing or
prosecuting the FAA action in federal district court. The
existence of this injunction later served as the basis for the
district court’s decision to dismiss Munich’s FAA petition.
(b)
Crawford argues that OUILA serves the purpose of regulating
the business of insurance and, therefore, falls within the scope of
the McCarran-Ferguson Act. His position draws substantial support
from the Second Circuit’s decision in Stephens v. American Int’l
Ins. Co., 66 F.3d 41 (2d Cir. 1995). On facts that run parallel to
those in this case, the Second Circuit held that the Kentucky
Liquidation Act reverse pre-empted the FAA by operation of the
McCarran-Ferguson Act. See id. at 45. Kentucky had enacted a
comprehensive scheme for the liquidation of insolvent insurance
companies, including a provision nullifying the effect of
arbitration clauses against the receiver. The appellees,
reinsurance companies seeking to compel arbitration regarding their
rights of setoff under the reinsurance agreements, argued that the
anti-arbitration provision was not enacted to protect policyholders
and deprived them of their bargained-for right to arbitration. See
id. The Second Circuit refused to limit its focus to the anti-
arbitration provision, but instead, examined the Kentucky
15
Liquidation Act as a whole. It concluded that the Act protected
policyholders “by assuring that an insolvent insurer will be
liquidated in an orderly and predictable manner and the anti-
arbitration provision is simply one piece of that mechanism.” Id.
Like Kentucky, Oklahoma “has formulated a complex and
comprehensive scheme of insurance regulation which contains the
Uniform Insurers Liquidation Act for the liquidation of an
insolvent insurer.” Grimes v. Crown Life Ins. Co., 857 F.2d 699,
705 (10th Cir. 1988) (ordering Burford abstention in case against
insurance company involved in delinquency proceedings in Oklahoma
state court). It, like most States, enacted these laws under the
shield provided by the McCarran-Ferguson Act. Cf., e.g., Hartford
Cas. Ins. Co. v. Borg-Warner Corp., 913 F.2d 419, 426 (7th Cir.
1990) (Illinois law); Law Enforcement Ins. Co. v. Corcoran, 807
F.2d 38, 43 (2d Cir. 1986) (New York law). Oklahoma courts, whom
we must recognize in our federal system as the primary expositors
of Oklahoma law and public policy, have expressly declared that
“Oklahoma’s Uniform Insurers Liquidation Act is designed to protect
the public in general, and policyholders of an insolvent insurer in
particular.” Cockrell v. Grimes, 740 P.2d 746, 749 (Okl. Ct. App.
1987) (emphasis added); accord Motor Club of Am. v. Weatherford,
841 F. Supp. 610, 618 (D.N.J. 1994) (“[OUILA’s] breadth reflects
the need to fully protect the insolvent insurer’s policyholders,
16
who are generally unfamiliar with the financial condition of the
insurer and rely on state regulation to ensure that the promise of
payment on their insurance policies at some future date will come
to fruition.”).
Furthermore, at least two of the three Perino factors suggest
that this comprehensive regulatory scheme, viewed in its entirety,
regulates the business of insurance. First, it is crucial to the
relationship between the insurance company and its policyholders
for both parties to know that, in the event of insolvency, the
insurance company will be liquidated in an organized fashion. See
Stephens, 66 F.3d at 44-45; Lac D’ Amiante du Quebec, Ltee v.
American Home Assurance Co., 864 F.2d 1033, 1041 n.9 (3d Cir.
1988); Blackhawk Heating & Plumbing Co. v. Geeslin, 530 F.2d 154,
159-60 (7th Cir. 1976). Second, OUILA is limited to entities in
the insurance industry. It does not apply to insolvent companies
generally, but only to insolvent insurance companies. See 36 Okl.
Stat. Ann. §§ 1901-1903. In short, “[r]ecognition by this Court of
the effectuation of the liquidation of [ENIC] by the State of
[Oklahoma] is in accordance with federal policy which directs that
the control over the insurance business remain in the hands of the
states.” Anshutz v. J. Ray McDermott Co., Inc., 642 F.2d 94, 95
(5th Cir. Unit A Mar. 1981) (staying appeal as result of state
17
court injunction restraining interference with ongoing liquidation
of insurance company).
(c)
Munich and NAC contend, however, that Fabe rejected the notion
that we may consider OUILA as a whole in determining whether it was
enacted for the purpose of regulating the business of insurance.
Fabe indeed offers some support for their position. There, the
issue was whether, under the McCarran-Ferguson Act, a federal
priority statute was reverse pre-empted by a conflicting Ohio
priority statute that was part of a “complex and specialized
administrative structure” designed for the regulation of insurance
company insolvency. See 508 U.S. at 493-94. The Ohio statute
provided sequential priority for (1) administrative costs, (2)
specified wage claims, (3) policyholders’ claims, (4) general
creditors’ claims, and (5) government claims. See id. at 495. The
federal statute gave the federal government first priority. See
id. Examining each priority provision of the Ohio statute
separately, the Court held that the priorities for administrative
costs and policyholder claims displaced the federal priority, but
that the federal priority trumped all other claims. See id. at
509. The Court reasoned that the Ohio statute was enacted for the
purpose of regulating the business of insurance to the extent it
regulated policyholder interests. Id. at 508. But to the extent
18
that the statute was designed to further the interests of other
claimants, it did not have such a purpose. See id.
Certainly, Fabe’s holding and analysis suggest that a statute
may require parsing to determine the extent of its pre-emptive
power under the McCarran-Ferguson Act. At the same time, however,
the Court stopped short of directing that this approach be taken in
every case. See id. at 509 n.8. Fabe’s holding in this respect is
simply unclear. Compare Antonio Garcia v. Island Program Designer,
Inc., 4 F.3d 57, 61-62 (1st Cir. 1993) (every provision must be
parsed), with Stephens, 66 F.3d at 45 (statutory scheme may be
considered in its entirety).
This uncertainty need not concern us today, however, because
even if we are required to parse OUILA, the specific provisions of
the statute at issue here--vesting exclusive original jurisdiction
of delinquency proceedings in the Oklahoma state court and
authorizing the court to enjoin any action interfering with the
delinquency proceedings--are laws enacted clearly for the purpose
of regulating the business of insurance. These provisions give the
state court the power to decide all issues relating to disposition
of an insolvent insurance company’s assets, including whether any
given property is part of the insolvent estate in the first place.
Thus, as the Tenth Circuit has recognized, “Oklahoma has not only
adopted a comprehensive scheme to oversee the liquidation of
19
insolvent insurers, it has provided a particular court . . . to
oversee liquidation proceedings. The effect of this provision
grants the Oklahoma County District Court a special relationship of
cooperation, technical oversight and concentrated review with the
Oklahoma Commissioner of Insurance in the process of liquidating
insurers.” Grimes, 857 F.2d at 705; see also Lac D’ Amiante, 864
F.2d at 1045 (identifying same interests in New York insolvency
proceedings). This special relationship contributes markedly to
the orderly liquidation or rehabilitation of the insurance company
and the adjudication of claims against it.
Oklahoma’s policy of placing ultimate control over all issues
relating to the insolvency proceedings in a single court is aimed
at protecting the relationship between the insurance company and
its policyholders. Insurance companies are ineligible for the
protections afforded by the federal Bankruptcy Code, see 11 U.S.C.
§ 109; such protections instead are provided by state laws, which
are shielded from federal interference by the McCarran-Ferguson
Act. Clark, 105 F.2d at 1051; see also Wolfson v. Mutual Benefit
Life Ins. Co., 51 F.3d 141, 147 (8th Cir. 1995). The experience of
the federal bankruptcy courts, which evidences the importance of
consolidating all of the assets of an insolvent company and the
claims against those assets in a single forum, supports the
legitimacy of the Oklahoma scheme in protecting the interests of
20
policyholders. See Levy v. Lewis, 635 F.2d 960, 964 (2d Cir.
1980). In addition to the interests served by orderly adjudication
of claims, which we have already discussed, consolidation prevents
the unnecessary and wasteful dissipation of the insolvent company’s
funds that would occur if the receiver had to defend unconnected
suits in different forums across the country. Gonzalez v. Media
Elements, Inc., 946 F.2d 157, 157 (1st Cir. 1991) (per curiam); Lac
D’ Amiante, 864 F.2d at 1045. Consolidation also eliminates the
risk of conflicting rulings, piecemeal litigation of claims, and
unequal treatment of claimants, all of which are of particular
interest to insurance companies and policyholders, who are often
relying on policies with the same or similar provisions. See
Gonzalez, 946 F.2d at 157; Lac D’ Amiante, 864 F.2d at 1047 n.16;
cf. also Martin, 910 F.2d at 253-54 (approving Burford abstention
to avoid risk of inconsistent adjudications). Thus, consolidation,
enforced through injunctions, conserves the insurance company’s
assets for ultimate payment to policyholders as well as other
creditors. See Anshutz, 642 F.2d at 95 (approving of injunctions
by state receivership courts to consolidate claims against
insolvent insurance companies); U.S. Fin. Corp. v. Warfield, 839
F. Supp. 684, 689 (D. Ariz. 1993).
Munich and NAC counter that the OUILA provisions requiring
consolidation benefit all creditors in addition to policyholders
21
and, therefore, should not be considered under Fabe as enacted for
the purpose of regulating the business of insurance. We disagree.
The Court in Fabe found that the Ohio provision granting a
preference to expenses in administering delinquency proceedings was
enacted for the purpose of regulating the business of insurance
because it was “reasonably necessary” to further the goal of
protecting policyholders. See 508 U.S. at 509. The Court reasoned
that “[w]ithout payment of administrative costs, liquidation could
not even commence.” Id. Surely, the ability of a state and
receiver to administer delinquency proceedings inures to the
benefit of all creditors, not just policyholders. But this fact
alone did not alter the insurance-related character of the Ohio
provision in Fabe. As the Court explained in SEC v. National Sec.,
Inc., 393 U.S. 453 (1969), “[s]tatutes aimed at protecting this
relationship [between an insurance company and its policyholders],
directly or indirectly are laws regulating the ‘business of
insurance.’” Id. at 460 (emphasis added), quoted in Fabe, 508 U.S.
at 501.
The same logic applies to the provisions of OUILA requiring
consolidation of all claims related to the delinquency proceedings
in Oklahoma state court. For the many reasons we have just
identified, these laws are reasonably necessary to further the goal
of protecting policyholders, even though they may also benefit
22
other creditors. Some of these benefits fall more directly on
policyholders than others, but none are insignificant or
attenuated. In these respects, the provisions of OUILA at issue
here are indistinguishable from the Ohio provision giving a
preference to administrative expenses in Fabe. Thus, we hold that
these provisions were enacted for the purpose of regulating the
business of insurance.
(2)
We must next consider whether the FAA operates to “invalidate,
supersede, or impair” OUILA--specifically those provisions vesting
exclusive original jurisdiction of delinquency proceedings in
Oklahoma state court and authorizing the court to enjoin any action
interfering with the insolvency proceedings. Munich and NAC
contend that arbitration of their dispute with Crawford would not
in any way interfere with the delinquency proceedings in Oklahoma
state court. They maintain that if they have a vested property
right to the settlement funds as salvage under the reinsurance
agreements, the funds were never an asset of the insolvent estate,
and ENIC’s creditors never had a right to any portion of the funds.
Thus, they argue, this dispute is not within the scope of the
delinquency proceedings committed to the exclusive jurisdiction of
the Oklahoma state court, and arbitration of the dispute presents
no conflicts with Oklahoma law. Alternatively, they assert that if
23
they have only a nonvested interest in damages for breach of
contract, they would merely acquire a judgment lien and be forced
to stand in line with the rest of ENIC’s creditors. This result,
they contend, is contemplated by OUILA itself.
Munich and NAC maintain, and we agree, that whether they have
a vested property interest or nonvested contractual interest in the
settlement proceeds is a question committed to arbitration under
the reinsurance agreements.5 We shall not, in resolving this
appeal, make our own interpretation of the agreements and thereby
deny the parties their right to have this issue ultimately decided
in arbitration. Cf. Folse v. Richard Wolf Med. Instruments Corp.,
56 F.3d 603 (5th Cir. 1995) (refusing to address dispute committed
to arbitration until final award entered, despite acknowledged
failings of arbitration process). Nor need we, because neither
5
Munich and NAC argue that the existence of the Oklahoma
Arbitration Act, which upholds the enforceability of arbitration
clauses in contracts between insurance companies, see 15 Okl. Stat.
Ann. § 802, suggests that arbitration under the FAA presents no
conflict with Oklahoma law. We disagree. The Oklahoma Arbitration
Act makes no reference to arbitration of disputes with an insurance
company in delinquency proceedings. Moreover, we do not hold in
this opinion that Munich and NAC have no right to arbitration; we
only hold that the district court had no authority to compel it
under the FAA. The Oklahoma state court might well decide to order
arbitration of this dispute.
24
alternative leads us to the conclusion that the district court had
the power to compel arbitration under the FAA.6
Regardless of the nature of the reinsurers’ action, ordering
it resolved in a forum other than the receivership court
nevertheless conflicts with the Oklahoma law giving the state court
6
We note at the outset that Munich and NAC invite us to adopt
the approach taken by the Ninth Circuit in Bennett v. Liberty Nat’l
Fire Ins. Co., 968 F.2d 969, 972 (9th Cir. 1992). There, in a case
very similar to the instant case, the Ninth Circuit rejected a
receiver’s argument that state insurance insolvency laws were
impaired by having the dispute arbitrated under the FAA. See id.
at 972-73. The court reasoned that “[o]nly if a court or
arbitrator determines that the funds belong to [the insolvent
company] does that money become part of the estate that the
liquidator will distribute” and does the receiver’s authority vest.
See id. at 972. We decline the invitation to follow Bennett,
however, because it contravenes the well established rule,
applicable to both federal and state courts, that if two competing
actions are in rem or quasi in rem, the court first assuming
jurisdiction over the property in question exercises that
jurisdiction to the exclusion of the other. See Penn Gen. Cas. Co.
v. Commonwealth of Pennsylvania ex rel. Schnader, 294 U.S. 189, 195
(1935).
To the extent Munich and NAC, like the petitioner in Bennett,
claim a vested property interest in identifiable proceeds and seek
an adjudication of ownership in those proceeds, the nature of their
action is quasi in rem. See Shaffer v. Heitner, 433 U.S. 186, 199
n.17 (1977); Carney v. Sanders, 381 F.2d 300, 302-03 (5th Cir.
1967). Likewise, the delinquency proceedings in Oklahoma state
court are in rem or quasi in rem proceedings. See H.H. Sumrall v.
Moody, 620 F.2d 548, 550 (5th Cir. 1980), cert. denied, 450 U.S.
1026 (1981); Geeslin, 530 F.2d at 158. Because the Oklahoma state
court first obtained jurisdiction over the proceeds in question, it
alone has the power to determine ownership of those funds. See
United States v. Bank of New York & Trust Co., 296 U.S. 463, 477-79
(1936) (federal court has no jurisdiction to decide in rem action
for property involved in ongoing state court insurance company
liquidation proceedings).
25
the power to enjoin any action interfering with the delinquency
proceedings. Under section 1904(B) of OUILA, a provision with
breadth similar to sections 105 and 362 of the federal bankruptcy
code, see 11 U.S.C. §§ 105 & 362, the state court is authorized to
issue any injunction “deemed necessary to prevent interference with
the Insurance Commissioner or the proceedings, or . . . the
commencement or prosecution of any actions, or the obtaining of
preferences, judgments, attachments or other liens, or the making
of any levy against the insurer or against its assets or any part
thereof.” The Oklahoma court in this case ordered just such an
injunction, precluding Munich and NAC from commencing or
prosecuting an action against the receiver, ENIC, or the assets of
the insolvent estate. Munich and NAC, however, invoked the FAA to
obtain what the state court injunction expressly prohibited--an
action against ENIC’s receiver to be adjudicated in a forum outside
the Oklahoma state court. Although the precise degree to which a
state statute may be impaired so as to trigger the McCarran-
Ferguson Act is not well-settled, see Doe v. Norwest Bank of
Minnesota, 107 F.3d 1297, 1307-08 (8th Cir. 1997), we find
impairment sufficient to trigger it here.
IV
Finally, Munich and NAC argue that we should disregard the
state court injunction in this case because state courts have no
26
power to enjoin parties from pursuing federal remedies in federal
court, citing cases such as Moses H. Cone Memorial Hosp. v. Mercury
Constr. Corp., 460 U.S. 1 (1983), General Atomic Co. v. Felter, 434
U.S. 12 (1977), and Donovan v. City of Dallas, 377 U.S. 408 (1964).
But none of these cases considered the effect of the McCarran-
Ferguson Act or the broad power bestowed on States when acting, as
here, pursuant to a law enacted for the purpose of regulating the
business of insurance. Authority to relax the “judicially declared
rule that state courts are completely without power to restrain
federal-court proceedings in in personam actions” remains, of
course, with Congress. See Donovan, 377 U.S. at 412-13. Congress
has evinced a strong federal policy in favor of deferring to state
regulation of insolvent insurance companies as reflected in the
McCarran-Ferguson Act and the express exclusion of insurance
companies from the federal Bankruptcy Code. See Wolfson, 51 F.3d
at 147. These laws symbolize the public interest in having the
States continue to serve their traditional role as the preeminent
regulators of insurance in our federal system and indicates the
special status of insurance in the realm of state sovereignty. See
Lac D’ Amiante, 864 F.2d at 1045 (citing Levy v. Lewis, 635 F.2d
960, 963-64 (2d Cir. 1980)); Hartford Casualty, 913 F.2d at 426.
The provisions of OUILA vesting the state court with broad
injunctive authority to prevent interference with delinquency
27
proceedings grant no more power than that which Congress has deemed
necessary to the parallel disposition of bankruptcies in federal
court.
We surely are not saying that a State has the power to enjoin
a party generally from pursuing federal remedies in federal court.
Nor are we saying that Oklahoma law divested the district court of
its diversity jurisdiction. See Martin, 910 F.2d at 254 (rejecting
the argument that McCarran-Ferguson Act removes diversity
jurisdiction from federal courts in insurance matters). What we
are saying is that, by operation of the McCarran-Ferguson Act, a
federal act that permits states to exert broad power over the
insurance industry, state laws regulating the business of insurance
may suspend federal remedies based on conflicting federal
statutes--here, the FAA. We therefore hold that the FAA is reverse
pre-empted under the McCarran-Ferguson Act, thereby leaving the
district court without the power to compel arbitration in this
case. Munich and NAC, however, remain free to petition the
Oklahoma state court for an order compelling arbitration of their
dispute with Crawford.
V
In summary, we hold that Burford abstention was improper
because the district court did not have discretion under the FAA to
deny Munich and NAC their right to an order compelling arbitration
28
in this case. We also hold, however, that the provisions of
Oklahoma law vesting exclusive original jurisdiction of insurance
company delinquency proceedings in Oklahoma receivership court and
authorizing the court to enjoin any action interfering with such
proceedings are laws enacted for the purpose of regulating the
business of insurance and, therefore, fall within the scope of the
McCarran-Ferguson Act. As a result, dismissal of the action was
required because, by operation of the McCarran-Ferguson Act, the
FAA is reverse pre-empted to the extent it permits Munich and NAC
to bring an action against assets of a delinquent insurance company
in a forum other than the Oklahoma receivership court. For these
reasons, the judgment of the district court is
A F F I R M E D.
29