1 United States Court of Appeals,

Fifth Circuit.

No. 96-10349

Summary Calendar.

Richard W. CLARK; Clark & Company, Inc.; and John Doe, Cecil

Morgan, Plaintiffs-Appellants,

v.

Michael J. FITZGIBBONS, Individually and as Receiver for American

Bonding Company; and American Bonding Company, in receivership,

Defendants-Appellees.

Feb. 14, 1997.

A ppeal from the United States District Court for the North ern

District of Texas.

Before HIGGINBOTHAM, WIENER and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

American Bonding Co. ("ABC") is an Arizona insurance company

placed in receivership by order of the Arizona Superior Court.

Appellants asserted v arious state law claims against ABC and the

Arizona special deputy receiver, Michael J. FitzGibbons. The

district court dismissed the action on two grounds. First, the

district court gave full faith and credit to the receivership order

of the Arizon a court, which required all persons with claims

against ABC to bring those claims before the receiver. Second, the

distr ict court deferred to the Arizona receivership proceeding

under the abstention doctrine of Burford v. Sun Oil Co., 319 U.S.

315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943).

Finding Burford abstention appropriate and appellants' full

faith and credit argument unpersuasive, we affirm.1 The Texas companies, State and County Mutual Fire Insurance

Co. and Guaranty County Mutual Insurance Co., are classified as

county mutual insurance companies under Chapter 17 of the Texas

Insurance Code. A lthough county mutual companies are generally

exempt from the insurance laws of Texas, see T EX

. I NS .C ODE A NN

. art.

17.22, they are nonetheless governed by state law and subject to

the oversight of the Texas Board of Insurance Commissioners. S ee,

e.g., T EX

. I NS .C ODE A NN

. art. 17.18 (biennial exami nation).

Appel lants accuse ABC of using the county mutual companies as

"fronts" to sell insurance in Texas, virtually unregulated. It is

undisputed, however, that the Texas policies were written by the

county mutual companies. ABC contends that it was not the d e facto

insurer of the Texas policyholders, inasmuch as it contracted only

as reinsurer of the policies issued by the Texas companies.

2 I.

The complaint states that Richard W. Clark is a Texas resident

and an officer and director of Clark & C o., a Texas insurance

agency. As a managing general insurance agent, Clark & Co. entered

agreements in the early 1990s to administ er insurance policies

issued by two Texas insurance companies and reinsured by ABC. It is

undisputed that at all relevant time s, ABC was an Arizona

corporation authorized to engage in the business of i nsurance in

that state and properly subject to the regulatory oversight of the

Arizona director of insurance. ABC also was authorized to write

insurance policies in Texas as a "foreign insurance company." T EX

.

I NS .C ODE A NN

. art. 21.43 (Vernon 1981 & Sup p.1996). However, the

pol icies at issue in this appeal were issued by the two Texas

companies and not by ABC. 1 The insured under these policies were

individual Texas residents.

The complaint alleges that in 1994, ABC fell behind in its

a lleged financial obligations to the Texas policyholders. The

Arizona Department of Insurance assumed supervision of ABC and3

appointed FitzGibbons as supervisor. FitzGibbons allegedly agreed

to continue paying ABC's obligations in Texas, including claims due

to individual policyholders and fees and commissions owed to Clark

and the Clark agen cy. The complaint alleges that FitzGibbons

breached these promises.

Insurance regulators in Arizona and California, observing

ABC's slide toward insolvency, took action in early 1995. The

Arizona director of insurance initiated legal proceedings against

ABC in an effort to rehabilitate the company and safeguard the

rights of its creditors. On February 2, 1995, the Arizona Superior

Court placed ABC in receivership and appointed the state director

of insurance as receiver. The court named FitzGibbons special

deputy receiver and ordered that all claims against ABC must be

filed wi th him. The state court asserted its exclusive

jurisdiction over ABC's property and assets.

Notwithstanding the state court injunction, appellants filed

suit against ABC and FitzGibbons in United States Distric t Court

for the Northern District of Tex as on August 11, 1995. The

complaint asserted claims for breach of contract, indemnification,

breach of fiduciary duty, and breach of the duty of good faith and

fair deal ing. The action was framed in part as a putative class

actio n, 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]isappropriating4

or using fund s which should lawfully be applied to pay for the

claims incurred and damages sustained by the Doe plaintiffs."

Plaintiffs appeal the dismissal of the action.

II.

Jurisdiction in the district court was premised upon diversity

of citizenship. 28 U.S.C. § 1332. We have jurisdiction to review

the district court's final order of dismissal. 28 U.S.C. § 1291.

III.

We review a district court's decision to abstain for abuse of

d iscretion, taking care to ensure that the decision fits "wit hin

the narrow and specific limits prescribe d by the particular

abstention doctrine involved." A merican Bank and Trust Co. of

Opelousas v. Dent, 982 F.2d 917, 922 n. 6 (5th Cir.1993) (internal

citation and quotation marks omitted).

IV.

The Burford doctrine provides for abstention in deference to

complex state administrative procedures. Insurance companies are

ineligible for the protections afforded by the federal Bankruptcy

Code. 11 U.S.C. § 109. Instead, insolvent insurers are subject to

the comprehensive oversight of state administrative agencies and

courts. S ee, e.g., A RIZ .R EV .S TAT

. A NN

. § 20-611 et seq. Federal law

consigns to the states the primary responsibi lity for regulating

the insurance industry. S ee 15 U.S.C. § 1011-15 (McCarran-Ferguson

Act); B arnhardt Marine Ins., Inc. v. New England Int'l Sur. of

America, Inc., 961 F.2d 529, 531 (5th Cir.1992).

A gainst this backdrop, allowing a creditor or claimant to5

proceed against an insolvent insurer in federal court while a state

insolvency proceeding is pending would "usurp [the state's] control

over the liquidation proceeding by allowing [the claimant] to

preempt others in the distribution of [the insuranc e company's]

assets." B arnhardt, 961 F.2d at 532. This not only would violate

the policy of the McCarran-Ferguson Act, but also would undermine

"the comity rationale promoted by the Burford doctrine." Id.

In the instant case, permitting the Texas pl aintiffs to

proceed in federal court would undermine the comprehensive

apparatu s established by the state of Arizona for the orderly

disposition of claims against insolvent insurance companies.

Appellants seek to leapfrog ahead of all other claimants, who are

bound to bring their claims before the Arizona receiver. Of

course, as the district court recognized, permitting these

plaintiffs to proceed in federal court in Texas would start a race

to the courthouse in any jurisdiction where claims against ABC

might have arisen. The administrative structure established by

Arizona to reha b ilitate or liquidate insolvent insurers would

swiftly crumble.

Appellants nonetheless argue that abstention is inappropriate.

They rely primarily on New Orleans Public Service, Inc. v. Council

of New Orleans [NOPSI], 491 U.S. 350, 109 S.Ct. 2506, 105 L.Ed.2d

298 (1989), which in their view "severely curtailed the reach of

Burford abstention." N OPSI explained that under the Burford

doctrine:

Where timely and adequate state-court review is available, a

federal court sitting in equity must decline to interfere with6

the proceedings or orders of state administrative agencies:

(1) when there are "difficult questions of state law bearing

on policy problems of substantial public import whose

importance transcends the result in the case then at bar"; or (2) where the "exercise of federal review of the question in

a case and in similar cases would be disruptive of state

efforts to establis h a coherent policy with respect to a

matter of substantial public concern. "

NOPSI, 491 U.S. at 361, 109 S.Ct. at 2514 (quoting Colorado River

Water Conservation Dist. v. United States, 424 U.S. 800, 814, 96

S.Ct. 1236, 1245, 47 L.Ed.2d 483 (1976)).

Appellants' argument overl ooks the importance of a coherent

state policy to manage insolvent insurance companies. Arizona has

established a system in which a state regulatory investigation of

an insolvent insurer may culminate in the appointment of a receiver

for the rehabilitation of the company, the orderly proc essing of

claims against it, and, if necessary, its liquidation. Allowing

appellants to proceed in a separate federal court action would defy

common sense, as well as notions of comity and the national policy

embodied in the McCarran-Ferguson Act.

More to the point, appellants overlook the post- NOPSI

decisions of this court in Barnhardt and Martin Ins. Agency, Inc.,

v. Prudential Reinsurance Co., 910 F.2d 249 (5th Cir.1990). These

precedents establish that in this circuit, NOPSI has not abrogated

the rule favoring abstention in deference t o state insurance

insolvency or liquidation proceedings. S ee also Hartford Casualty

Ins . Co. v. Borg-Warner C orp., 913 F.2d 419 (7th Cir.1990); b ut

see Fragoso v. Lopez, 991 F.2d 878 (1st Cir.1993).

In Martin, the plaintiff, a Louisiana insurance agency, paid

claims that were owed to its clients by Transit Casualty Co., an7

insolvent Missouri insurance company. To recover the money paid

out to the policyholders, Martin filed suit in Louisiana state

court against Transit's reinsurers. The district court granted the

defendant reinsurers' removal motion and dismissed the action. We

affirmed in deference to Transit's ongoin g Missouri insolvency

proceedings. As we explained, under Burford,

A federal court should abstain from exercising jurisd iction

where to do so would interfere with a spe cialized, unified

state court system of adjud ication designed to avoid

inconsistent adjudication of claims arising from a comprehensive, detailed, and complex regulatory s cheme in a

subject area involving state law.

Martin, 910 F.2d at 254. We held dismissal appropriate in light of

Missouri's comprehensive regulatory oversight of insolvent

insurance companies. Id. at 255.

Similarly, in Barnhardt, we concluded that the district court

had appropriately stayed the c ase in deference to ongoing state

proc eedings. Barnhardt, an insurance broker, sought to recover

premiums from an insurance company th at was the subject of

liquidation proceedin gs in Louisiana. Relying on N OPSI 's

articulation of the Burford doctrine, we held,

Louisiana's insurance laws provide a comprehensive framework

for the liquidation of insolvent insurance companies and the

resolution of claims against them. B urford -type abstention is

appropriate in an action against an insurance company which is

the subject of a Louisiana liquidation proceeding.

Barnhardt, 961 F.2d at 531 (internal citations omitted). The same

necessarily holds true in this case, since Arizona, like Louisiana,

has adopted the Unifor m Insurers Liquidation Act. S ee generally

A RIZ .R EV .S TAT

. A NN . 20-611 et seq.

In sum, the regulatory regime adopted and enforced by the8

state of Arizona provides for the orderly and fair resolution of

claims against an insolvent insurer. Arizona requires that all

such claims be brought before the receiv er, thus avoiding the

likelihood of "inconsistent adjudication" in various jurisdictions.

Cf. Martin, 910 F.2d at 254. The district court did not abuse its

discretion by electing to abstain in these circumstances.

V.

Appellants argue additionally that the district court erred

by exten ding full faith and credit to the Arizona court's

receivership order. S ee U.S. C ONST

. art. IV, § 1; 28 U.S.C. §

1738. This claim rests in part on the premise that "Arizona does

not have an interest in this litigation." The premise is clearly

untenable, since a federal court judgment against ABC inevitably

would destabilize Arizona's efforts to manage ABC's insolvency.

Appellants also assert that their contracts with ABC include

choice of law and forum selection provisions favoring resolution of

the instant case in Texas and under Texas law. They claim that

these clauses militate against extending full faith and credit to

the Arizona receivership court's orders . However, the question

whether to exercise jurisdiction is antecedent to the choice of law

and choice of forum questions. Having found abstention

appropriate, we defer to the Arizona state courts to apply the law

correctly.

Finally, appellants argue that extending full faith and

credit to the Arizona court violates their constitutional right to

due process of law. U.S. C O NST

. amend. XIV. They argue that9

closing the federal courthouse door in Texas would compel them to

seek relief in Arizona, where they lack the "minimum contacts"

necessary to satisfy due process. C f. Burger King v. Rudzewicz,

471 U.S. 462, 474, 105 S.Ct. 2174, 2183, 85 L.Ed.2d 528 (1985).

This argument, though creative, is without merit. The minimum

contacts standard protects defendants, not plaintiffs . If a

plaintiff is unwilling to submit to the jurisdiction of the Arizona

Superior Cour t, he need not bring a claim there. As Justice

Cardozo remarked in a different context, "The timorous may stay at

home." M urphy v. Steeplechase Amusement Co., 250 N.Y. 479, 166

N.E. 173 (1929).

T he order of the district court dismissing the action in

deference to the Arizona state court proceedings is AFFIRMED.