In terms of Federal Rule of Civil Procedure 12(b)(3) (improper venue), the following
standard should apply:

When a defendant challenges venue, the plaintiff bears the burden of
establishing that venue is proper. A court may examine facts outside
the complaint in order to determine whether venue is proper.
Moreover, in resolving a motion to dismiss pursuant to Rule 12(b)(3),
the court must resolve any factual conflicts in the parties’ submissions
in favor of the plaintiff and draw any reasonable inferences from
those facts in the plaintiff's favor.

Moore v. AT& T Latin America Corp., 177 F. Supp. 2d 785, 788 (N.D. Ill. 2001) (citing First Health

Group Corp. v. Sanderson Farms, Inc., No. 99 C 2926, 2000 WL 139474, at *2 (N.D. Ill. Jan. 31,

2000).

Shapo and Trustees argue that this court should dismiss this case: (1) based on the abstention
doctrine espoused in Burford v. Sun Oil Co., 319 U.S. 315 (1943); and (2) the anti-suit injunction
of the liquidation court pursuant to 215 ILCS 5/189. The court does not find either of these
arguments persuasive and denies the motion to dismiss. However, the court does stay the matter
based on the underlying ongoing and advanced litigation in the Circuit Court of Cook County.
A. Burford Abstention

The Supreme Court has stated that federal courts have a strict duty to exercise the jurisdiction

conferred upon them by Congress. See Quackenbush y. Allstate Ins. Co., 517 U.S. 706, 716 (1996).

For this reason, the doctrine of abstention is “an extraordinary and narrow exception to the duty of
a District Court to adjudicate a controversy properly before it” and may be invoked only in those
“exceptional circumstances” in which surrendering jurisdiction “would clearly serve an important

countervailing interest.” International College of Surgeons vy. City of Chicago, 153 F.3d 356, 360

(7" Cir. 1998). The party requesting abstention bears the heavy burden of showing that abstention


The decision to abstain in this situation is not a close call. Shapo and the Trustees present
arguments to this court that incorrectly frame the matter in the context ofa claim against an insolvent
insurance entity that is being liquidated pursuant to a state liquidation code. However, what is truly
before the court is a contract dispute between an insurer and its insured, in this case the Trustees of
IEC as well as Shapo based on his control of IEC. None of the factors developed by the Seventh
Circuit to determine if a Burford abstention is appropriate provide support that this court should
abstain from exercising its jurisdiction. As stated before, the party requesting abstention bears the

heavy burden of showing that abstention is warranted. Morton, 18 F. Supp. 2d at 924. Shapo and

the Trustees fail to carry the burden.
B. Anti-Suit Injunction

As both parties acknowledge, a state cannot enjoin federal proceedings. General Atomic Co.
y. Felter, 434 U.S. 12, 17 (1977); Donovan v. Dallas, 377 U.S. 408, 413 (1964). Additionally, and
more significantly, Shapo and the Trustees admit that this court should not abstain based upon the
anti-suit injunction. (See Defs.’ Reply to Motion to Dismiss, p. 7.) The court hesitates to enter the
fray of reverse preemption, especially since both parties agree that abstention is not appropriate
based solely on the anti-suit injunction. Thus, this aspect of the motion is denied.
C. Stay

Despite not granting the abstention in this case, the court believes it is appropriate to stay this
case. There is no hard and fast rule on when parallel litigation should be stayed in the interest of

judicial economy. Professional Service Network, Inc. v. American Alliance Holding Co., 238 F.3d

897, 902 (7" Cir. 2001). The decision to grant the stay is a logical one when the facts are reviewed.

The underlying genesis of this case is the liquidation proceeding. It is appropriate to allow the


create special state forums to adjudicate the issues presented. Morton College Board of Trustees of

Iinois Community College District No. 527 v. Town of Cicero, 18 F. Supp. 2d 921, 925 (N.D. Ill.

1998) (also citing White & Brewer Trucking, Inc. v. Donley, 952 F. Supp. 1306, 1311 (C.D. Ill.

1997). Determining whether to abstain under Burford requires the court to make a fact-intensive

inquiry. Morton, 18 F. Supp. 2d at 925 (citing General Ry. Signal Co. v. Corcoran, 921 F.2d 700,

709 (7" Cir. 1991)).

Applying the aforementioned factors, it is clear that a Burford abstention is not appropriate

in this situation. First, the court must consider whether the suit is based on a claim for relief which
is exclusively federal. The case at bar is based primarily on state law because state law will govern
the substantive coverage issues or misrepresentations and exclusions. QBE’s claims involve
recission under 215 ILCS 5/154 as well as declaratory judgments pursuant to 28 U.S.C. § 2201 (a).
It is up to the district court to weigh the relative importance of the state and federal-law issues in the
particular case at hand. General Ry. Signal Co., 921 F.2d at 709. Although the lawsuit involves a
state law claim of rescission under 215 ILCS 5/154, it would not be inappropriate for this court to

decide this issue. See Smith v. Equitable Life Ins. Assurance Society of the United States, 67 F.3d

611, 615 (7 Cir. 1995); Methodist Medical Center v. American Medical Security, Inc., 38 F.3d 316,

319 (7" Cir. 1994); Much v. Penn-American Ins. Co., No. 99 C 7256, 2002 WL 226867, *4 (N.D.

Ill. Feb. 14, 2002). Shapo and the Trustees argue that any recission ordered by this court would
affect the liquidation proceedings in the Circuit Court of Cook County. However, rescission in the
case at bar does not affect the liquidation proceedings in state court because QBE is not seeking any

type of monetary relief, nor a prioritization of a claim in the liquidation proceedings.


is warranted. Morton College Board of Trustees of Illinois Community College District No, 527 v.

Town of Cicero, 18 F. Supp. 2d 921, 924 (N.D. Il. 1998). The decision of whether to abstain is
committed to the sound discretion of the district court. International College of Surgeons, 153 F.3d
at 359.

One form of the abstention doctrine evolved from the Supreme Court’s holding in Burford
y. Sun Oil Co., 319 U.S. 315 (1943). Under Burford and its progeny, a federal court should abstain
from deciding a case “(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 establish a coherent policy with respect to a matter of substantial public

concern.” New Orleans Public Service, Inc. v. Council of New Orleans, 491 U.S. 350, 361 (1989).

The first type of “Burford [abstention] is concerned with protecting complex state administrative

processes from undue federal interference.” Id. However, Burford “does not require abstention
whenever there exists such a process, or even in all cases where there is a potential for conflict with

state regulatory law or policy.” Id. The second situation in which abstention is espoused in Burford

requires that the state must offer some forum in which the claims may be litigated and this forum
must be special, it must stand in a special relationship of technical oversight or concentrated review
to the evaluation of those claims. See International College of Surgeons, 153 F.3d at 363 (quoting
Property & Cas. Ins. Ltd. v. Central Nat. Ins. Co. of Omaha, 936 F.2d 319, 323 (7" Cir. 1991)).
Ultimately, the court should consider: (1) whether the suit is based on a claim for relief that
is exclusively federal; (2) whether difficult or unusual state laws are at issue; (3) whether there is a

need for a coherent state doctrine in the area; and (4) whether state procedures indicate a desire to


regulating the insurance industry. Shapo v. Engle, No. 98 C 7909, 1999 WL 446853, at *9 (N.D.
Ill. June 11, 1999). Under this regulatory power, most states, including Illinois, have adopted
statutes to govern the rehabilitation and liquidation of insolvent insurers. Id. at *9. However,
Burford and its progeny does not require abstention “whenever there exists [a complex
administrative process], or even in all cases where there is a potential for conflict with state

regulatory law or policy.” New Orleans Pub. Serv., Inc., 491 U.S. at 362. In this case, any court

action or decision will not interfere with the liquidation proceedings or its prioritization of claims
in connections with the liquidation. QBE is not a creditor or IEC, and the liquidation proceeding was
not established to resolve claims of the type QBE is making in this case. The important state interest
in regulatory insurer liquidations is left undisturbed by any action in this court concerning Director

or Officers coverage for IEC’s Trustees. Again, a Burford abstention is not warranted.

Lastly, the court looks to whether state procedures indicate a desire to create special state
forums to adjudicate the issues presented. The issue presented before the court involves a simple
contract case. Shapo and the Trustees argue that the claims made by QBE involve the liquidation
process occurring in the Circuit Court of Cook County. However, as was stated previously, the
claims in this case do not interfere with the liquidation process or its prioritization of claims in
connection with the liquidation. Even if the claims of QBE might affect the liquidation process, it
still must be remembered that a Burford abstention is not required “whenever there exists [a complex
administrative process], or even in all cases where there is a potential for conflict with state

regulatory law or policy.” New Orleans Pub. Serv., Inc., 491 U.S. at 312. Once again, a Burford

abstention is inappropriate in this instance.


Minute Order Form (06/97)

United States District Court, Northern District of Illinois

Name of Assigned Judge Charles R. Norgle, Sr. Sitting Judge if Other
or Magistrate Judge . > than Assigned Judge
CASE NUMBER 01 C508 DATE 2/26/2002
CASE QBE International Ins. vs. Shapo, et al.
TITLE
[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.)
DOCKET ENTRY:
(ty) oO Filed motion of [ use listing in “Motion” box above.]
(2) im Brief in support of motion due
(3) a Answer brief to motion due. . Reply to answer brief due.
(4) im Ruling/Hearing on set for at
(5) a Status hearing[held/continued to] [set for/re-set for] on set for at
(6) im) Pretrial conference[held/continued to] [set for/re-set for] on set for at .
(7) Oo Trial[set for/re-set for] on at
(8) oq [Bench/Jury trial] [Hearing] held/continued to at
(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) (1) General Rule21  [FRCP41(a)(1) [1 FRCP41(a)(2).
ao) =f [Other docket entry] Before the court is Defendants’ motion to dismiss pursuant to Federal Rules
of Civil Procedure 12(b)(1) and 12(b)(3) [17-1]. The motion to dismiss is dj ‘attached opinion
and order. Loaerle— fe,
(1) ff [For further detail see order attached to the original minute order.]
No notices required, advised in open court.
No notices required,
umber of notices
Notices mailed by judge's staff, FEB 27 2002
Notified counsel by telephone. ate docketed
x Docketing to mail notices.
Mail AO 450 form. yenoo lh mere Sy docketing deputy initials
Copy to judge/magistrate judge. ° .
courtroom pemiggd date mailed notice
deputy’s
initials 7 ~ 4
U Datestimé received in
central Clerk's Office ‘maifing deputy initials



Circuit Court of Cook County to efficiently liquidate IEC and settle the various claims based on the
insolvency. A stay would allow the liquidation to resolve important issues previously pending. QBE
will not be heard to argue that the stay affects this case since it has argued in this motion that this
lawsuit does not or is not impacted by the liquidation proceeding. The court orders a stay of the
proceeding until the liquidation proceeding in the Circuit Court of Cook County is resolved. Cf.
Link v. Wabash R.R., 370 U.S. 626, 632 (1962) (noting the inherent power of district court’s “to
manage their own affairs so as to achieve the orderly and expeditious disposition of cases”).
TI. CONCLUSION
For the foregoing reasons, the court denies Defendants’ motion to dismiss pursuant to

Federal Rule of Civil Procedure 12(b)(1) and 12(b)(3) and the matter is stayed.

IT IS SO ORDERED.

ENTER:

Llantec Abel

CHARLES R. NORGLE, Sr., Jugge
United States District Court

DATED: A iL, O2—

10


The only potential effect ofa rescission by this court would be upon the separate lawsuit filed
in Cook County Circuit Court, by Shapo himself. Shapo filed a separate suit against the Trustees
of IEC claiming breach of fiduciary duty, negligence, negligent misrepresentation, aiding and
abetting breach of fiduciary duty, and seeking imposition of a constructive trust. Shapo cannot be
heard to argue that this suit is part of the liquidation proceeding. Neither federal or state law
dominate this case, and contrary to Shapo and Trustees’ assertions of interference in state liquidation
proceedings, there will be little effect on those proceedings. Thus, Shapo and the Trustees fail to
demonstrate the need for abstention. See Morton, 18 F. Supp. 2d at 924 (heavy burden for showing
abstention is appropriate).

Second, the case at bar does not involve difficult or unusual state laws. As QBE stated
“{s]tripped to its essence the dispute herein is a garden-variety contract matter, involving well settled
rules relating to the recission of contracts and contract interpretation.” (Plaintiff's Response to
Defs.” Mot. to Dismiss, p. 4.) Shapo and the Trustees argue that a novel issue of state law exists
because of QBE’s claim of exclusion of coverage under a “Insured v. Insured” exclusion. Again,
as QBE correctly points out, federal courts in the Northern District of Illinois are often called upon
to apply Ilinois contract law in an insurance context. The fact that the federal court may have to
apply Illinois contract law in a fact-specific situation does not make it difficult or unusual. The
potential need for the court to interpret the “Insured v. Insured” exclusion is not grounds to apply a

Burford abstention. See International College of Surgeons, 153 F.3d at 362.

The third factor is whether there is a need for a coherent state doctrine in the area. This
question has already been answered by the enactment of the McCarron-Ferguson Act, 15 U.S.C. §§

1011-1015. Under the McCarron-Ferguson Act, the states have assumed primary responsibility for


In response to the lawsuit filed by Shapo, QBE filed this lawsuit against Shapo and several
individuals who were Trustees of IEC.? QBE alleges that the renewal of the insurance policy was
based on misrepresentations by the Trustees of IEC. Based on these misrepresentations, QBE seeks
the following: (1) recission of the policy pursuant to 215 ILCS 5/154 of the Illinois Insurance Code;
(2) a declaration that the policy is null and void pursuant to 28 U.S.C. § 2201 (a); (3) a declaration
that the policy does not provide coverage for Shapo’s claims brought against the Trustees becasue
those claims fall under certain coverage exclusions. Shapo and Trustees now move, pursuant to
Federal Rules of Civil Procedure 12(b)(1) and 12(b)(3), to dismiss the first amended complaint on
the ground of abstention.

II. DISCUSSION

Federal Rule of Civil Procedure 12(b)(1) provides, in relevant part: “Every defense, in law
or fact, to a claim for relief in any pleading ... shall be asserted in the responsive pleading thereto
if one is required, except that the following defenses may at the option of the pleader be made by

motion: (1) lack of jurisdiction of the subject matter... .” “Fundamental to our law is the
understanding that ‘[f]ederal courts are not courts of general jurisdiction; they have only the power

that is authorized by Article III of the Constitution and the statutes enacted by Congress pursuant

thereto.’” Transit Express, Inc. v. Ettinger, 246 F.3d 1018, 1023 (7" Cir. 2001) (quoting Bender v.

Williamsport Area School Dist., 475 U.S. 534, 541 (1986)); see also Allen v. Wright, 468 U.S. 737,

750 (1984).

? For clarity, the court will refer to the individual defendants Charles A. Abbick, J. Mark
Harrison, Michael Hillyer, Oliver B. Fifer, and Jacqui Bradley collectively as the Trustees.

3


Earth Care Workers’ Compensation Trust (“IEC”) and its Trustees in June of 1999. IEC was a
group of workers who banded together to provide workers’ compensation, occupational disease, and
employer’s liability insurance coverage to their members. The policy provided coverage for the IEC
Trustees for any wrongful acts and was effective from June 15, 1999 until June 15, 2000.
On August 19, 1999 a complaint for conservation was filed in the Circuit Court of Cook
County by the Director of Insurance of the State of Illinois, Nathaniel S. Shapo (“Shapo”), against
IEC. An order of liquidation with a finding of insolvency was eventually entered on October 26,
2000. Asa result of that order, Shapo was vested with title to all property, contracts, and rights of
action in regard to IEC. Additionally, the liquidation order entered, pursuant to 215 ILCS 5/189,
provided an injunction of:
bringing or further prosecuting any claim, action or proceeding at law
or in equity or otherwise, whether in this State or elsewhere, against
Earth Care, or its property or assets, or the Director or Liquidator,
except insofar as those claims, actions or proceedings arise in or are
brought in the liquidation proceedings prayed for herein.

(Ex. A, J] (iv)).

Subsequent to the liquidation order entered by the Circuit Court of Cook County, Shapo filed
a separate suit. In this separate suit, filed on November 30, 2000 in the Circuit Court of Cook
County, Shapo brought claims against the former Trustees of IEC alleging breach of fiduciary duty,
negligence, and seeking the imposition of a constructive trust. Shapo’s lawsuit against the IEC

Trustees brought claims that were within the coverage of the Director’s and Officers liability policy

that QBE issued on the IEC Trustees.


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

QBE INTERNATIONAL INSURANCE
LIMITED,

Plaintiffs,

)

)

)

)

)

v. ) Case 01 C 0508
)
NATHANIEL S. SHAPO, DIRECTOR ) HONORABLE CHARLES R. NORGLE
OF INSURANCE OF THE STATE )
OF ILLINOIS, AS THE LIQUIDATOR, )
OF THE ILLINOIS EARTH CARE )
WORKERS COMPENSATION TRUST; )
CHARLES A ABBICK, JR.; J. MARK )
HARRISON; MICHAEL HILLYER; )
OLIVER B. FIFER; AND JACQUI )
)

)

)

)

BRADLEY,

DOCKETE

FEB 2 7 200

Defendants.

OPINION AND ORDER
CHARLES R. NORGLE, Sr., District Judge.

Before the court is Defendants’ motion to dismiss the first amended complaint pursuant to
Federal Rules of Civil Procedure 12(b)(1) and 12(b)(3). For the following reasons, the motion to
dismiss is denied and the matter is stayed.

I. BACKGROUND!

This diversity case involves a claim for rescission pursuant to 215 ILCS 5/154, as well as

claims for declaratory relief pursuant to 28 U.S.C. § 2201 (a). Plaintiff, QBE International Insurance

Limited (“QBE”), agreed to renew a Directors and Officets’ Liability Policy issued to the Illinois

' The facts are taken from the pleadings submitted by the parties and any disputed issues
are noted in the text.