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. e du/thir dc ir c uit_1996/128UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 95-1236

ROBERT FEIGE; PATRICIA FEIGE; DP REALTY TRUST , INC.; DP REALTY TRUST; FICREST RETIREMENT CORPORA TION; FICREST RETIREMENT NOMINEE TRUST; COVEST, LTD.

v.

STEVEN SECHREST; EMIL MOLIN; FREDERICK RICHA RDSON; CHARLES LUNDEN; HARRY STOKES; THE FRENCH COMPAN Y, INC.; LINDA KAISER, Insurance Commissioner of the Commo nwealth of Pennsylvania

Robert F. Feige, Patricia Feige, DP Realty Tr ust, Inc., DP Realty Trust, FiCrest Retirement Corporatio n, Ficrest Retirement Nominee Trust and CoVest, Lt d.,

A ppellants

(Caption amended as per the Clerk's 8/28/95 Order)

ON APPEAL FROM THE UNITED STATES DISTRICT C OURT

FOR THE EASTERN DISTRICT OF PENNSYLVANI A (D.C. Civ. No. 94-06738)

Argued October 31, 1995

Before: NYGAARD, ALITO and SAROKIN, Circuit Judges.

(Opinion Filed: July 29, 1996 )

Joshua Slavitt (Argued)

Alan M. Rosen Klehr, Harrison , Harvey, Branzburg & Ell ers 1401 Walnut Str eet Philadelphia, P A 19102

John H. Perten
Bowditch & Dewe y 161 Worcester R oad
6th Floor Framingham, MA 01701

Attorneys for Ap pellantsFrederick Richar dson,

Pro se

Steven Kapustin Heller, Kapustin
, Gershman & Vogel
486 Norristown R oad
Suite 230 Blue Bell, PA 19 422

Attorney for App ellee

Charles Lunden

William G. Frey

Jerome J. Shesta ck Bernard Chanin ( Argued) Wolf, Block, Sch orr & Solis-Cohen
S.E. Corner,
15th & Chestnut Streets Packard Building , 12th Floor Philadelphia, PA 19102

Attorneys for Ap pellees Harry Stokes, The French Co., Inc., Cynthia M. Males ki,
Insurance Commis sioner

of the Commonwea lth of Pennsylvania

OPINION OF THE COURT

NYGAARD, Circuit Judge.

The issue before us is whether, in the face of a statutory insurer liquidation proceeding in the Pennsylvania Commonwealth Court, the district court properly stayed this acti on under the
Burford abstention doctrine. We conclude that abst aining and retaining jurisdiction was proper, and hence we wil l affirm.

I. The allegations of this case form a tangled we b of intrigue, fraud and self-dealing. It suffices to say that Fe ige and Sechrest purchased Corporate Life Insurance Company and allegedly converted $11 million of its mortgage loan portfoli o. Corporate
Life sued them. Sechrest settled his case and was released from liability. Sechrest and Corporate Life then joined forces and sued Feige, seeking, inter alia, to have certain Fe ige-Sechrest
entities dissolved. Feige then filed this suit, alleging that Corp orate Lifefraudulently misrepresented its assets to the Penns ylvania

Insurance Department and falsely accused Feige and the FeigeSechrest entities of converting Corporate Life's mo rtgage portfolio. Shortly after the complaint was filed, however, the Pennsylvania Commonwealth Court directed the liquid ation of Corporate Life and stayed all actions against it. Cynthia Maleski, the Statutory Liquidator for Corporate Lif e, moved to stay this action under the Burford abstention doctr ine. The district court granted her motion, Feige v. Sechres t, 896 F. Supp. 403 (E.D. Pa. 1995), and this appeal followed . We have appellate jurisdiction under 28 U.S.C.  1291, even though the district court departed from the traditional applic ation of Burford abstention by staying the action rather tha n dismissing the complaint. See Moses H. Cone Mem. Hosp. v. Mer cury Construction Corp., 460 U.S. 1, 8-10 & nn. 8, 11, 1 03 S. Ct. 927, 933-34 & nn.8, 11 (1983); Richman Brothers Records, Inc. v. U.S. Sprint Communications Co., 953 F.2d 1431, 1442 (3d Cir. 1991), cert. denied, 505 U.S. 1230, 112 S. Ct. 3056 (1992) ; Hovsons, Inc. v. Secretary of the Interior, 711 F.2d 1208, 1 211 (3d Cir. 1983); Baltimore Bank for Cooperatives v. Farmers C heese Cooperative, 583 F.2d 104, 108-09 (3d Cir. 1978).

II. We recently addressed the standard governing B urfordabstention: Where timely and adequate state-court rev iew is available, a federal court sitting in equity must decline to interfere with the proceedings or orders of state administra tive agencies: (1) when there are "difficult questions of state law bearing on policy problems of substantial public import who se importance transcends the result in the c ase 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 s tate efforts to establish a coherent policy wi th respect to a matter of substantial public

concern."

Riley v. Simmons, 45 F.3d 764, 771 (3d Cir. 1995) ( quoting New Orleans Pub. Serv., Inc. v. Council of New Orleans ("NOPSI"), 109 S. Ct. 2506, 2514-15 (1989)). At this point in our jurisprudence, there can be little doubt that paral lel federal and state proceedings would disrupt Pennsylvania's legislative framework for the liquidation of insolvent insurers . See, e.g., General Glass v. Monsour Medical Found., 973 F.2d 1 97, 201 (3d Cir. 1992); Lac D'Amiante du Quebec, Ltee. v. Ameri can Home Assur. Co., 864 F.2d 1033, 1045 (3d Cir. 1988). We therefore proceed to address the two substantial issues raise d on this appeal: first, whether adequate state court review is available; and second, whether Burford abstention may be appli ed when, as here, the complaint contains claims for money damag es.
A. Appellants argue that adequate state court rev iew is not available because the Commonwealth Court has no jur isdiction overthe claims they assert in this action. The distric t court

disagreed, opining: Plaintiffs' claims against non-Corporate Life defendants, to the extent they do not arise un der the Insurance Act, are not within the original jur isdiction of the Commonwealth Court. Nevertheless, thos e involving the French Company and the Hearthsto ne bonds materially affect Corporate Life and are there fore a part of the Commonwealth Court action. All of the claims against the principals of Corporate Lif e are derivative. The remaining ones are against Se chrest for conversion of plaintiffs' assets and illeg al litigation tactics by reason of his allegedly joining forces with Corporate Life. These claims shou ld be decided as part of the original dispute betwee n Corporate Life and Feige-Sechrest or deferred until that dispute is resolved.

Feige, 896 F. Supp. at 405. By statute, the Commonwealth Court has jurisdi ction over all claims arising under the Insurance Act of 1921. 42 Pa. C.S.  761. Because any claims against Corporate Life (si nce replaced by the Statutory Liquidator) arise under the Act, a ll or parts of counts III-VIII and X-XIII are subject to timely an d adequate state court review. Indeed, there is currently an ongoing proceeding in that court regarding the liquidation of Corporate
Life. Many of appellants' remaining counts (or porti ons of counts) are derivative actions against the directors of Cor porate Life.
Because derivative claims are asserted on behalf of the corporation, and that corporation is undergoing sta tutory liquidation, they are bound up intimately with the liquidation proceeding and likewise arise under the Act. That leaves the claims against Sechrest and Th e French Co., Inc. for breach of fiduciary duty (counts I & II), rescission (count V), civil conspiracy (count VII), abuse of p rocess (count VIII), conversion (count IX), tortious interference (count XI) and indemnity (count XIII). Although these claims are certainly related to the statutory liquidation of Corporate L ife, appellants argue that they are no more than garden- variety torts
which do not arise under the Insurance Act and are not inextricably bound up with the liquidation. Under appellants' theory, these claims belong not in the Commonwealth Court, but in the Court of Common Pleas, a court where there is c urrently no pending proceeding. Thus, they argue, the liquidat ion proceedings will not provide an adequate forum in w hich to resolve their claims. This argument, however, is b elied by the fact that appellants have asserted a cross-claim ag ainst appellee Sechrest in the Commonwealth Court action, Maleski v. DP Realty Trust, raising most of the same counts listed above

. It is clear that the Commonwealth Court has ju risdiction
over counterclaims. See Commonwealth v. Frank Bris coe Co., 466 A.2d 1336, 1340 (Pa. 1983). Based on that case, ap pellees assert that there is jurisdiction over cross-claims as wel l. A casethey omit from their brief, however, appears on fir st inspection

to require a contrary result. In Commonwealth v. J oseph Bucheit & Sons, 483 A.2d 848 (Pa. 1984), the Commonwealth b rought an action against a contractor in Commonwealth Court. Defendant counterclaimed against the state and sought to join a steel supplier as an additional defendant. Another defen dant then filed a cross-claim against the first defendant. T he supreme court held that, while the counterclaim was within the jurisdiction of the Commonwealth Court, the other c laims were not, limiting the reasoning of Frank Briscoe to the context of counterclaims. Accordingly, if Joseph Bucheit is c ontrolling authority, the Commonwealth Court has no jurisdicti on over appellants' cross-claims. We do not believe that Joseph Bucheit stands f or the broad proposition that the Commonwealth Court has no juri sdiction over
cross-claims. That case was decided under 42 Pa. C .S.  761(a)(2) (jurisdiction of actions brought by the C ommonwealth),

not  761(a)(3) (actions arising under the Insurance Act ). In fact, the Joseph Bucheit court stated specifically that the involvement of the Commonwealth as a party was key to its
decision: The spectre of the Commonwealth awaiting final judgment in a case where its own right to recovery has been established, while numerous general contractor and
subcontractor defendants and additional defend ants seek to shift ultimate responsibility among themsel ves, is
sufficient to counsel the conclusion that the holding in Briscoe must not be extended beyond its fac ts.

483 A.2d at 851.

Jurisdiction in this action, however, is based on the Liquidator's case arising under the Insurance Act, as the Commonwealth Court has already held. See Maleski v . DP Realty Trust, 653 A.2d 54, 65 (Pa. Commw. Ct. 1994). As t hat court

stated: Section 221.26 of the Insurance Act provi des that the "liquidator may [. . .] institute an actio n or proceeding on behalf of the estate of the insu rer upon any cause of action" for which the statute of limitations have [sic] not expired. Additiona lly, Section 221.28 of the Insurance Act permits th e liquidator to avoid fraudulent transfers made by the insurer [. . .], and Section 221.23 of the Ins urance Act authorizes the liquidator to "collect all debts and money due and claims belonging to the insurer. Because this Court is expressly vested with "the origi nal jurisdiction of all civil actions or proceedin gs arising under Article V of the Insurance Act, and since the Complaint, filed by the Statutory Liquidat or of Corporate Life, alleges causes of action on be half of Corporate Life and also seeks to recover fraud ulently obtained assets, it arises under Article V of the Insurance Act. Accordingly, this Court has or iginaljurisdiction over the claims.

Id. Here, of course, it is not the Statutory Liqui dator who is bringing the action, but Feige. Nevertheless, a ma jor part of what Feige is seeking through this litigation is to rescind the asset transfer made by Sechrest to the estate of Co rporate Life. If Feige prevails, the effect of the judgment will be to remove those assets from the estate and affect directly an d adversely what the Liquidator is attempting to achieve throug h her proceedings: the protection of the policyholders. Thus, even though this case appears on the surface to involve "gardenvariety" torts committed by private parties, we con clude that it, too, arises under the Insurance Act. Accordingly, the Commonwealth Court has jurisdiction over the claims , which leads inexorably to the conclusion that there is adequate state court review for purposes of Burford abstention.

B.
Before we conclude that Burford abstention was applied correctly, however, we must also confront the fact that the vast majority of the claims asserted by appellants are l egal in nature and seek only money damages. Of thirteen counts pl eaded in their complaint, only counts V (rescission), VI (declarat ory judgment), and counts IX and X (seeking injunctive relief for defendants' alleged conversion) are not solely legal in nature. The district court believed that "[t]he essence of the action is that the combination formed by Corporate Life and Sechrest a gainst Feige should be set aside and penalized. These are matte rs that obviously sound in equity." Feige, 896 F. Supp. at 406. We will affirm, but on a different ground.

1. Whether Burford abstention may be applied in c ases where other than equitable relief is sought has been the source of some confusion in our caselaw. In Baltimore Bank, we he ld that
Burford was not available in an action at law. 583 F.2d 111-12. A decade later, in Lac D'Amiante du Quebec, Ltee. v . American Home Assur. Co., 864 F.2d 1033 (3d Cir. 1988), we p ermitted Burford abstention in a case where declaratory reli ef was sought, opining in dictum that "a refusal to abstain simply because the federal court is not sitting in equity makes no sen se." Id. at 1044. Then, a few years later, we reaffirmed the h olding of Baltimore Bank in University of Maryland v. Peat Ma rwick Main & Co., 923 F.2d 265 (3d Cir. 1991), denying abstentio n in a case where legal relief was sought. Id. at 271-72. A year later, however, another panel of this c ourt reached the opposite result in another insurance abstention case. In General Glass Indus. Corp. v. Monsour Med. Foundati on, 973 F.2d 197 (3d Cir. 1992), the panel read the Lac D'Amiant e dictum together with Tafflin v. Levitt, 493 U.S. 455, 110 S. Ct. 792 (1990), in which the Supreme Court appeared to upho ld sub silentio the application of Burford to an action at law. Concluding that the decisional authority was inconc lusive, it interpreted University of Maryland as only "intimat ing" that Burford abstention was not available in legal actio ns andpartially affirmed the district court's application of

abstention. Id. at 202. More recently, in Riley v. Simmons, we held th at Burfordabstention was improper, but the panel was divided as to the rationale for the decision. The opinion writer, sp eaking only for himself, believed that abstention was not avail able because there was no adequate opportunity for state court r eview of plaintiffs' securities claims, which were subject t o exclusive federal jurisdiction. See 45 F.3d at 777. The con currence, on the other hand, expressed the view that Burford can not be applied to actions at law, rejecting General Glass and rely ing on Baltimore Bank and University of Maryland. Id. at 777-79 (Nygaard, J., concurring). A district judge, sitti ng by designation, concurred in the result without explan ation. Id. at
766 n.2
2. After this case was briefed and argued before us, the Supreme Court handed down an opinion that settles t he issue. In Quackenbush v. Allstate Ins. Co., 116 S. Ct. 1712 ( 1996), the
California Insurance Commissioner sued Allstate in state court seeking damages in contract and in tort for Allstat e's alleged breach of its reinsurance agreements. Allstate rem oved the case to federal district court and sought an order compe lling
arbitration. The Commissioner then moved for a rem and to state court under Burford. The district court granted th e motion and dismissed the complaint. See id. at 1717. On appe al, the Ninth Circuit reversed, holding that Burford abstention c annot be granted in any form when the relief sought is solel y legal in nature. Garamendi v. Allstate Ins. Co., 47 F.3d 35 0, 354-56 (9th Cir. 1995). The Supreme Court affirmed. It noted that "th e power to dismiss under the Burford doctrine, as with other a bstention doctrines, . . . derives from the discretion histor ically enjoyed by courts of equity." 116 S. Ct. at 1726. Because such remedies have historically been committed to the chancellor' s discretion, in cases where the relief being sought is equi table in nature or otherwise discretionary, federal cou rts not only have the power to stay the action based o n abstention principles, but can also, in otherw ise appropriate circumstances, decline to exercise jurisdiction altogether by either dismissing t he suit or remanding it to state court. By contrast, while we have held that federal courts may stay actions for damages based on abstention principles, we hav e not held that those principles support the outrigh t dismissal or remand of damages actions. Id. at 1723. The granting of legal remedies provid ed by applicable law and proven as a factual matter has n ot traditionally been subject to the court's discretio n. Accordingly, given the "virtually unflagging obliga tion to exercise the jurisdiction given them" by Congress, see Colorado River Water Conservation Dist. v. United States, 42 4 U.S. 800, 821, 96 S.Ct. 1236, 1248 (1976), a district court m ay not abstain under Burford and dismiss the complaint when the re medy sought islegal rather than discretionary. Quackenbush, 116 S. Ct. at

1727. To the extent, then, that General Glass held that Burfordabstention may be applied to dismiss a complaint in an action at law, it has been overruled by Quackenbush. In the present case, however, while the distri ct court abstained under Burford, it stayed the action rathe r than dismiss the complaint. In Quackenbush, the Supreme Court i ndicated in dictum that such a course is proper: Unlike the outright dismissal or remand of a f ederal suit, . . . an order merely staying the action "does not constitute abnegation of judicial duty. O n the contrary, it is a wise and productive discharg e of it. There is only postponement of decision for its best
fruition." Id. at 1723 (quoting Louisiana Power & Light Co. v. Thibodaux, 360 U.S. 25, 29, 79 S.Ct. 1070, 1073 (1959)). Thus , the Court
continued: In those cases in which we have applied tradit ional abstention principles to damages actions, we h ave only permitted a federal court to withhold action u ntil the state proceedings have concluded; that is, we have permitted federal courts applying abstention p rinciples in damages actions to enter a stay, but we hav e not permitted them to dismiss the action altogethe r[.]

The per se rule described by the Ninth C ircuit is, however, more rigid than our precedents re quire. We have not strictly limited abstention to equ itable cases, but rather have extended the doctrine t o all cases in which a federal court is asked to pro vide some form of discretionary relief. Moreover, as demonstrated by our decision in Thibodaux, we have not held that abstention principles are completely inapplicable in damages actions. Burford migh t support a federal court's decision to postpone adjudic ation of a damages action pending the resolution by the state courts of a disputed question of state law. Id. at 1727-28 (citations and internal quotation ma rks omitted). We think the district court's stay order was e ntirely appropriate. Rather than abdicate its judicial dut y to exercise its jurisdiction, the district court simply postpon ed the exercise of that jurisdiction until the proceedings in the Commonwealth Court reach their conclusion. This ap proach retains the sensitivity for concerns of federalism and comi ty implicated by Burford abstention, while preserving appellants' right to litigate their claims in the federal forum should t he Pennsylvania courts, for jurisdictional or other re asons, fail to adjudicate them. The entry of a stay rather than a dismissal prevents those claims from becoming time-barred sho uld jurisdiction be somehow lacking in the Commonwealth Court, and the preclusion doctrines of res judicata and collat eral estoppel will prevent their re-litigation in the more likely event that court proceeds to judgment.

III.We will accordingly affirm the order of the di strict court.