2015 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

7-16-2015

Erie Insurance Exchange v. Richard Stover

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Recommended Citation

"Erie Insurance Exchange v. Richard Stover" (2015). 2015 Decisions. Paper 750.

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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 14-1573

_____________

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.

_______________

Argued June 8, 2015

BEFORE: AMBRO and COWEN, Circuit Judges

RESTANI*, Judge

_______________

* Honorable Jane A. Restani, Judge for the United States Court of International Trade, 

sitting by designation.
2

(Filed: July 16, 2015)

______________

OPINION**

______________

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

_______________
3

** 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
4

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 attorneyin-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.
5

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 
6

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).) 
7

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.”). 
8

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 
9

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 
10

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 
11

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 
12

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.