1996 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

7-29-1996

Feige v. Sechrest

Precedential or Non-Precedential:

Docket 95-1236

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Recommended Citation

"Feige v. Sechrest" (1996). 1996 Decisions. Paper 128.

http://digitalcommons.law.villanova.edu/thirdcircuit_1996/128
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 

 

 No. 95-1236 

 

 

 ROBERT FEIGE; PATRICIA FEIGE; DP REALTY TRUST, INC.; 

 DP REALTY TRUST; FICREST RETIREMENT CORPORATION; 

 FICREST RETIREMENT NOMINEE TRUST; COVEST, LTD. 

 

 v. 

 STEVEN SECHREST; EMIL MOLIN; FREDERICK RICHARDSON; 

 CHARLES LUNDEN; HARRY STOKES; THE FRENCH COMPANY, INC.; 

 LINDA KAISER, Insurance Commissioner of the Commonwealth of 

 Pennsylvania 

 

 Robert F. Feige, Patricia Feige, DP Realty Trust, Inc., 

 DP Realty Trust, FiCrest Retirement Corporation, Ficrest 

 Retirement Nominee Trust and CoVest, Ltd., 

 Appellants 

 

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

 

 

 ON APPEAL FROM THE UNITED STATES DISTRICT COURT 

 FOR THE EASTERN DISTRICT OF PENNSYLVANIA 

 (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 & Ellers 

 1401 Walnut Street 

 Philadelphia, PA 19102 

 

 John H. Perten 

 Bowditch & Dewey 

 161 Worcester Road 

 6th Floor 

 Framingham, MA 01701 

 

 Attorneys for Appellants 
 

 Frederick Richardson, 

 Pro se 

 

 Steven Kapustin 

 Heller, Kapustin, 

 Gershman & Vogel 

 486 Norristown Road 

 Suite 230 

 Blue Bell, PA 19422 

 

 Attorney for Appellee 

 Charles Lunden 

 

 William G. Frey 

 Jerome J. Shestack 

 Bernard Chanin (Argued) 

 Wolf, Block, Schorr 

 & Solis-Cohen 

 S.E. Corner, 

 15th & Chestnut Streets 

 Packard Building, 12th Floor 

 Philadelphia, PA 19102 

 

 Attorneys for Appellees 

 Harry Stokes, 

 The French Co., Inc., 

 Cynthia M. Maleski, 

 Insurance Commissioner 

 of the Commonwealth 

 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 action under the 

Burford abstention doctrine. We conclude that abstaining and 

retaining jurisdiction was proper, and hence we will affirm. 

 I. 

 The allegations of this case form a tangled web of intrigue, 

fraud and self-dealing. It suffices to say that Feige and 

Sechrest purchased Corporate Life Insurance Company and allegedly 

converted $11 million of its mortgage loan portfolio. 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 Feige-Sechrest 

entities dissolved. 

 Feige then filed this suit, alleging that Corporate Life 
fraudulently misrepresented its assets to the Pennsylvania 

Insurance Department and falsely accused Feige and the FeigeSechrest entities of converting Corporate Life's mortgage 

portfolio. Shortly after the complaint was filed, however, the 

Pennsylvania Commonwealth Court directed the liquidation of 

Corporate Life and stayed all actions against it. Cynthia 

Maleski, the Statutory Liquidator for Corporate Life, moved to 

stay this action under the Burford abstention doctrine. The 

district court granted her motion, Feige v. Sechrest, 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 application of 

Burford abstention by staying the action rather than dismissing 

the complaint. See Moses H. Cone Mem. Hosp. v. Mercury 

Construction Corp., 460 U.S. 1, 8-10 & nn. 8, 11, 103 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, 1211 (3d Cir. 

1983); Baltimore Bank for Cooperatives v. Farmers Cheese 

Cooperative, 583 F.2d 104, 108-09 (3d Cir. 1978). 

 II. 

 We recently addressed the standard governing Burfordabstention: 

 Where timely and adequate state-court review 

 is available, a federal court sitting in 

 equity must decline to interfere with 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 establish a coherent policy with 

 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 parallel 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 197, 201 (3d 

Cir. 1992); Lac D'Amiante du Quebec, Ltee. v. American Home 

Assur. Co., 864 F.2d 1033, 1045 (3d Cir. 1988). We therefore 

proceed to address the two substantial issues raised on this 

appeal: first, whether adequate state court review is available; 

and second, whether Burford abstention may be applied when, as 

here, the complaint contains claims for money damages. 

 A. 

 Appellants argue that adequate state court review is not 

available because the Commonwealth Court has no jurisdiction over 
the claims they assert in this action. The district court 

disagreed, opining: 

 Plaintiffs' claims against non-Corporate Life 

 defendants, to the extent they do not arise under the 

 Insurance Act, are not within the original jurisdiction 

 of the Commonwealth Court. Nevertheless, those 

 involving the French Company and the Hearthstone bonds 

 materially affect Corporate Life and are therefore a 

 part of the Commonwealth Court action. All of the 

 claims against the principals of Corporate Life are 

 derivative. The remaining ones are against Sechrest 

 for conversion of plaintiffs' assets and illegal 

 litigation tactics by reason of his allegedly joining 

 forces with Corporate Life. These claims should be 

 decided as part of the original dispute between 

 Corporate Life and Feige-Sechrest or deferred until 

 that dispute is resolved. 

Feige, 896 F. Supp. at 405. 

 By statute, the Commonwealth Court has jurisdiction over all 

claims arising under the Insurance Act of 1921. 42 Pa. C.S. 

761. Because any claims against Corporate Life (since replaced 

by the Statutory Liquidator) arise under the Act, all or parts of 

counts III-VIII and X-XIII are subject to timely and 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 portions of counts) 

are derivative actions against the directors of Corporate Life. 

Because derivative claims are asserted on behalf of the 

corporation, and that corporation is undergoing statutory 

liquidation, they are bound up intimately with the liquidation 

proceeding and likewise arise under the Act. 

 That leaves the claims against Sechrest and The French Co., 

Inc. for breach of fiduciary duty (counts I & II), rescission 

(count V), civil conspiracy (count VII), abuse of process (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 Life, 

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 currently no 

pending proceeding. Thus, they argue, the liquidation 

proceedings will not provide an adequate forum in which to 

resolve their claims. This argument, however, is belied by the 

fact that appellants have asserted a cross-claim against 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 jurisdiction 

over counterclaims. See Commonwealth v. Frank Briscoe Co., 466 

A.2d 1336, 1340 (Pa. 1983). Based on that case, appellees assert 

that there is jurisdiction over cross-claims as well. A case 
they omit from their brief, however, appears on first inspection 

to require a contrary result. In Commonwealth v. Joseph Bucheit 

& Sons, 483 A.2d 848 (Pa. 1984), the Commonwealth brought 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 defendant then 

filed a cross-claim against the first defendant. The supreme 

court held that, while the counterclaim was within the 

jurisdiction of the Commonwealth Court, the other claims were 

not, limiting the reasoning of Frank Briscoe to the context of 

counterclaims. Accordingly, if Joseph Bucheit is controlling 

authority, the Commonwealth Court has no jurisdiction over 

appellants' cross-claims. 

 We do not believe that Joseph Bucheit stands for the broad 

proposition that the Commonwealth Court has no jurisdiction over 

cross-claims. That case was decided under 42 Pa. C.S. 

761(a)(2) (jurisdiction of actions brought by the Commonwealth), 

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 defendants seek 

 to shift ultimate responsibility among themselves, is 

 sufficient to counsel the conclusion that the holding 

 in Briscoe must not be extended beyond its facts. 

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 that court 

stated: 

 Section 221.26 of the Insurance Act provides that 

 the "liquidator may [. . .] institute an action or 

 proceeding on behalf of the estate of the insurer upon 

 any cause of action" for which the statute of 

 limitations have [sic] not expired. Additionally, 

 Section 221.28 of the Insurance Act permits the 

 liquidator to avoid fraudulent transfers made by the 

 insurer [. . .], and Section 221.23 of the Insurance 

 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 original 

 jurisdiction of all civil actions or proceedings 

 arising under Article V of the Insurance Act, and since 

 the Complaint, filed by the Statutory Liquidator of 

 Corporate Life, alleges causes of action on behalf of 

 Corporate Life and also seeks to recover fraudulently 

 obtained assets, it arises under Article V of the 

 Insurance Act. Accordingly, this Court has original 
 jurisdiction over the claims. 

Id. 

 Here, of course, it is not the Statutory Liquidator who is 

bringing the action, but Feige. Nevertheless, a major part of 

what Feige is seeking through this litigation is to rescind the 

asset transfer made by Sechrest to the estate of Corporate Life. 

If Feige prevails, the effect of the judgment will be to remove 

those assets from the estate and affect directly and adversely 

what the Liquidator is attempting to achieve through 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 conclude 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 legal in nature 

and seek only money damages. Of thirteen counts pleaded in their 

complaint, only counts V (rescission), VI (declaratory 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 against Feige 

should be set aside and penalized. These are matters 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 cases where 

other than equitable relief is sought has been the source of some 

confusion in our caselaw. In Baltimore Bank, we held 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 permitted 

Burford abstention in a case where declaratory relief was sought, 

opining in dictum that "a refusal to abstain simply because the 

federal court is not sitting in equity makes no sense." Id. at 

1044. Then, a few years later, we reaffirmed the holding of 

Baltimore Bank in University of Maryland v. Peat Marwick Main & 

Co., 923 F.2d 265 (3d Cir. 1991), denying abstention in a case 

where legal relief was sought. Id. at 271-72. 

 A year later, however, another panel of this court reached 

the opposite result in another insurance abstention case. In 

General Glass Indus. Corp. v. Monsour Med. Foundation, 973 F.2d 

197 (3d Cir. 1992), the panel read the Lac D'Amiante dictum 

together with Tafflin v. Levitt, 493 U.S. 455, 110 S. Ct. 792 

(1990), in which the Supreme Court appeared to uphold sub 

silentio the application of Burford to an action at law. 

Concluding that the decisional authority was inconclusive, it 

interpreted University of Maryland as only "intimating" that 

Burford abstention was not available in legal actions and 
partially affirmed the district court's application of 

abstention. Id. at 202. 

 More recently, in Riley v. Simmons, we held that Burfordabstention 

was improper, but the panel was divided as to the 

rationale for the decision. The opinion writer, speaking only 

for himself, believed that abstention was not available because 

there was no adequate opportunity for state court review of 

plaintiffs' securities claims, which were subject to exclusive 

federal jurisdiction. See 45 F.3d at 777. The concurrence, on 

the other hand, expressed the view that Burford cannot be applied 

to actions at law, rejecting General Glass and relying on 

Baltimore Bank and University of Maryland. Id. at 777-79 

(Nygaard, J., concurring). A district judge, sitting by 

designation, concurred in the result without explanation. Id. at 

766 n.2 

 2. 

 After this case was briefed and argued before us, the 

Supreme Court handed down an opinion that settles the 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 Allstate's alleged 

breach of its reinsurance agreements. Allstate removed the case 

to federal district court and sought an order compelling 

arbitration. The Commissioner then moved for a remand to state 

court under Burford. The district court granted the motion and 

dismissed the complaint. See id. at 1717. On appeal, the Ninth 

Circuit reversed, holding that Burford abstention cannot be 

granted in any form when the relief sought is solely legal in 

nature. Garamendi v. Allstate Ins. Co., 47 F.3d 350, 354-56 (9th 

Cir. 1995). 

 The Supreme Court affirmed. It noted that "the power to 

dismiss under the Burford doctrine, as with other abstention 

doctrines, . . . derives from the discretion historically 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 equitable in 

 nature or otherwise discretionary, federal courts not 

 only have the power to stay the action based on 

 abstention principles, but can also, in otherwise 

 appropriate circumstances, decline to exercise

 jurisdiction altogether by either dismissing the 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 have not 

 held that those principles support the outright 

 dismissal or remand of damages actions. 

Id. at 1723. The granting of legal remedies provided by 

applicable law and proven as a factual matter has not 

traditionally been subject to the court's discretion. 

Accordingly, given the "virtually unflagging obligation to 

exercise the jurisdiction given them" by Congress, see Colorado 

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

821, 96 S.Ct. 1236, 1248 (1976), a district court may not abstain 

under Burford and dismiss the complaint when the remedy sought is 
legal 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 district court 

abstained under Burford, it stayed the action rather than dismiss 

the complaint. In Quackenbush, the Supreme Court indicated in 

dictum that such a course is proper: 

 Unlike the outright dismissal or remand of a federal 

 suit, . . . an order merely staying the action "does 

 not constitute abnegation of judicial duty. On the 

 contrary, it is a wise and productive discharge 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 traditional 

 abstention principles to damages actions, we have only 

 permitted a federal court to withhold action until the 

 state proceedings have concluded; that is, we have 

 permitted federal courts applying abstention principles 

 in damages actions to enter a stay, but we have not 

 permitted them to dismiss the action altogether[.] 

 The per se rule described by the Ninth Circuit 

 is, however, more rigid than our precedents require. 

 We have not strictly limited abstention to equitable 

 cases, but rather have extended the doctrine to all 

 cases in which a federal court is asked to provide 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 might support 

 a federal court's decision to postpone adjudication 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 marks omitted). 

 We think the district court's stay order was entirely 

appropriate. Rather than abdicate its judicial duty to exercise 

its jurisdiction, the district court simply postponed the 

exercise of that jurisdiction until the proceedings in the 

Commonwealth Court reach their conclusion. This approach retains 

the sensitivity for concerns of federalism and comity implicated 

by Burford abstention, while preserving appellants' right to 

litigate their claims in the federal forum should the 

Pennsylvania courts, for jurisdictional or other reasons, fail to 

adjudicate them. The entry of a stay rather than a dismissal 

prevents those claims from becoming time-barred should 

jurisdiction be somehow lacking in the Commonwealth Court, and 

the preclusion doctrines of res judicata and collateral 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 district court.