Source: https://law.justia.com/cases/federal/appellate-courts/F3/217/208/495036/
Timestamp: 2019-02-20 21:27:13
Document Index: 217829358

Matched Legal Cases: ['§ 13', '§ 13', '§ 38', '§ 1011', '§ 1012', '§ 38', '§ 13', '§ 13']

Alfred W. Gross, Commissioner of Insurance, State Corporation Commission, As Deputy Receiver of Fidelity Bankers Life Insurance Company, Plaintiff-appellant,v.robert Weingarten; Gerry R. Ginsberg; Leonard Gubar; Shearson Lehman Brothers Holdings, Incorporated, Defendants-appellees.alfred W. Gross, Commissioner of Insurance, State Corporation Commission, As Deputy Receiver of Fidelity Bankers Life Insurance Company, Plaintiff-appellee,v.shearson Lehman Brothers Holdings, Incorporated, Defendant-appellant,androbert Weingarten; Gerry R. Ginsberg; Leonard Gubar, Defendants.alfred W. Gross, Commissioner of Insurance, State Corporation Commission, As Deputy Receiver of Fidelity Bankers Life Insurance Company, Plaintiff-appellee,v.robert Weingarten; Gerry R. Ginsberg; Leonard Gubar, Defendants-appellants,andshearson Lehman Brothers Holdings, Incorporated, Defendant, 217 F.3d 208 (4th Cir. 2000) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Fourth Circuit › 2000 › Alfred W. Gross, Commissioner of Insurance, State Corporation Commission, As Deputy Receiver of Fide...
Alfred W. Gross, Commissioner of Insurance, State Corporation Commission, As Deputy Receiver of Fidelity Bankers Life Insurance Company, Plaintiff-appellant,v.robert Weingarten; Gerry R. Ginsberg; Leonard Gubar; Shearson Lehman Brothers Holdings, Incorporated, Defendants-appellees.alfred W. Gross, Commissioner of Insurance, State Corporation Commission, As Deputy Receiver of Fidelity Bankers Life Insurance Company, Plaintiff-appellee,v.shearson Lehman Brothers Holdings, Incorporated, Defendant-appellant,androbert Weingarten; Gerry R. Ginsberg; Leonard Gubar, Defendants.alfred W. Gross, Commissioner of Insurance, State Corporation Commission, As Deputy Receiver of Fidelity Bankers Life Insurance Company, Plaintiff-appellee,v.robert Weingarten; Gerry R. Ginsberg; Leonard Gubar, Defendants-appellants,andshearson Lehman Brothers Holdings, Incorporated, Defendant, 217 F.3d 208 (4th Cir. 2000)
U.S. Court of Appeals for the Fourth Circuit - 217 F.3d 208 (4th Cir. 2000)
Argued: January 28, 2000. June 30, 2000
Richard L. Williams, Senior District Judge; Robert R. Merhige, Jr., Senior District Judge (Retired). (CA-92-808-3) [Copyrighted Material Omitted] [Copyrighted Material Omitted]
Judge Merhige, who had presided over the trial, retired shortly thereafter. This case was then transferred to Judge Williams for disposition of the defendants' counterclaims. On the deputy receiver's motion to dismiss, the district court held that"the Commission's receivership order establishing an exclusive forum for resolution of all claims against Fidelity Bankers is entitled to full faith and credit and divests this Court of subject matter jurisdiction." Gross v. Weingarten, 18 F. Supp. 2d 616, 620 (E.D. Va. 1998). The district court then granted judgment to the deputy receiver.
The deputy receiver nonetheless contends that " [t]o hold that an entity may collaterally attack a receivership proceeding because it was not a party would disrupt the Commission's power to regulate the insurance industry." Deputy Receiver's Reply Br. at 12-13. It is true that "`where a special remedial scheme exists expressly foreclosing successive litigation by nonlitigants, as for example in bankruptcy or probate,'" the usual rule that judgments are binding only on parties and their privies is relaxed somewhat. Richards, 517 U.S. at 799 (quoting Martin v. Wilks, 490 U.S. 755, 762 n.2 (1989)). Thus, so long as such a scheme is otherwise consistent with due process, it may operate to foreclose unsubmitted claims against an estate. See id. This narrow exception to the rule permits the orderly administration of an estate by compelling interested parties to assert their claims or forfeit them. It does not, however, extend so far as to compel every individual against whom the estate may later assert a claim to appear and contest a finding of insolvency in order to preserve a defense to liability in a subsequent action. Cf. Parklane Hosiery Co. v. Shore, 439 U.S. 322, 330 (1979) (noting that offensive use of collateral estoppel may be unfair to a defendant who had little incentive to defend vigorously in the prior action, particularly if future suits are not foreseeable).6 To hold otherwise would impose unfair burdens on potential defendants. In addition, obligating every potential defendant to participate in and challenge the insolvency proceedings would only undermine their efficiency.
A plaintiff who alleges a violation of § 13.1-522(B) (ii) must show that the defendant employed a "device, scheme, or artifice to defraud" the plaintiff or engaged in some "act, practice or course of business which operates or would operate as a fraud or deceit" on the plaintiff. Va. Code Ann. § 13.1-522(B) (ii). The deputy receiver's evidence of fraud for purposes of the Virginia Securities Act consisted entirely of a number of alleged misrepresentations concerning the soundness of Fidelity Bankers' investment strategy, the market value of its portfolio, First Capital's expertise in giving investment advice, and the relationship between the duration of Fidelity Bankers' investments and its liabilities. This evidence was identical to the evidence he presented in support of his allegations of actual and constructive fraud. The jury, however, found in favor of the defendants on both of the fraud claims. In rejecting the deputy receiver's allegations of fraud and constructive fraud, the jury would, as a matter of logical necessity, have rejected the deputy receiver's allegation that the defendants employed a device, scheme, or artifice to defraud or that they engaged in some act, practice or course of business that operates or would operate as a fraud or deceit. Consequently, the error in awarding the defendants judgment on the state securities law count was harmless.
We turn now to the defendants' cross-appeal. As we have already discussed, the defendants settled a class action brought on behalf of Fidelity Bankers policyholders (and others), alleging fraud, misrepresentation, and violations of federal securities laws. After the deputy receiver filed this action in federal court, the defendants asserted counterclaims for exoneration, indemnification, and contribution arising out of the settlement. The counterclaims were severed before trial. After trial the case was reassigned to Judge Williams, who held that the Commission's order asserting exclusive jurisdiction over claims against Fidelity Bankers was entitled to full faith and credit and divested the federal court of subject matter jurisdiction over the counterclaims. See Weingarten, 18 F. Supp. 2d at 618-20. The defendants contend that state courts cannot alter the jurisdiction of the federal courts and urge reversal on that ground. The deputy receiver vigorously defends the judgment of dismissal, but he argues in the alternative that if federal jurisdiction over the counterclaims does exist, abstention is warranted. For the reasons set out below, we hold that the district court did have jurisdiction over the counterclaims and that abstention is not appropriate on the facts of this case. We therefore reverse the dismissal of the counterclaims and remand for further proceedings.
"In determining its own jurisdiction, a District Court of the United States must look to the sources of its power and not to the acts of states which have no power to enlarge or contract the federal jurisdiction." Markham v. City of Newport News, 292 F.2d 711, 713 (4th Cir. 1961). The Supreme Court has repeatedly and unequivocally rejected the deputy receiver's contention that a state may oust the federal courts of jurisdiction by creating an exclusive forum for claims against an estate. As early as 1857 the Court noted that it had "repeatedly decided that the jurisdiction of the courts of the United States over controversies between citizens of different States cannot be impaired by the laws of the States, which prescribe the modes of redress in their courts, or which regulate the distribution of their judicial power." Hyde v. Stone, 61 U.S. (20 How.) 170, 175 (1857). See also Clark v. Bever, 139 U.S. 96, 102 (1891) (rejecting argument that a state could, "by legislative enactment conferring upon its own courts exclusive jurisdiction of all proceedings or suits involving the settlement and distribution of the estates of deceased persons,... exclude the jurisdiction of the courts of the United States even in cases where the constitutional requirement as to citizenship is met"); Green's Adm'x v. Creighton, 64 U.S. (23 How.) 90, 107-08 (1859) (holding that a creditor of diverse citizenship "may establish his debt in the courts of the United States against the representatives of a decedent, notwithstanding the local laws relative to the administration and settlement of insolvent estates"). The existence of federal jurisdiction is in no way affected by the potential for inconvenience to the deputy receiver. See Hess v. Reynolds, 113 U.S. 73, 77 (1885) (" [N]either the principle of convenience nor the statutes of a State can deprive [the courts of the United States] of jurisdiction to hear and determine a controversy between citizens of different states when such a controversy is distinctly presented, because the judgment may affect the administration or distribution in another forum of the assets of the decedent's estate.").
An attempt to restrain the exercise of federal jurisdiction is no more effective when made by a court in the form of an injunction. " [S]tate courts are completely without power to restrain federal-court proceedings in in personam actions...." Donovan v. City of Dallas, 377 U.S. 408, 412-13 (1964). See also Baker v. General Motors Corp., 522 U.S. 222, 236 n.9 (1998) ("This court has held it impermissible for a state court to enjoin a party from proceeding in a federal court...." (citing Donovan)). There is a necessary corollary to this rule for in rem and quasi in rem actions: "the court first assuming jurisdiction over property may maintain and exercise that jurisdiction to the exclusion of the other" court. Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456, 466 (1939). However, even if the initial state action is in rem or quasi in rem, there is no bar to jurisdiction in federal court in a case "based upon diversity of citizenship, wherein the plaintiff seeks merely an adjudication of his right or his interest as a basis of a claim against a fund in the possession of a state court." Id. There is no danger of conflict in such cases because the "establishment of the existence and amount of a claim against the debtor in no way disturbs the possession of the liquidation court, in no way affects title to the property, and does not necessarily involve a determination of what priority the claim should have." Morris v. Jones, 329 U.S. 545, 549 (1947). See also Kline v. Burke Constr. Co., 260 U.S. 226, 230-31 (1922); Williams v. Benedict, 49 U.S. (8 How.) 107, 112 (1850). Here the defendants seek only to establish their rights to exoneration, contribution, or indemnification. If they are permitted to proceed in federal court and they succeed on those claims, they would still be required to present their judgments to the Virginia Commission. The Commission would then direct the deputy receiver to pay those judgments in accordance with the rehabilitation plan and Virginia's statutes governing the priority of claims, Va. Code Ann. §§ 38.2-1509, 38.2-1514.
The deputy receiver suggests, however, that this analysis is altered by the McCarran-Ferguson Act, 15 U.S.C. §§ 1011 et seq., which declares that " [n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance,... unless such Act specifically relates to the business of insurance." 15 U.S.C.§ 1012(b). "The McCarran-Ferguson Act thus precludes application of a federal statute in face of state law `enacted... for the purpose of regulating the business of insurance,' if the federal measure does not`specifically relat [e] to the business of insurance,' and would `invalidate, impair, or supersede' the State's law." Humana, Inc. v. Forsyth, 525 U.S. 299, 307 (1999). The deputy receiver argues that Va. Code Ann. § 38.2-1508, which confers on the Commission jurisdiction over " [a]ll further proceedings in connection with the rehabilitation or liquidation" of an insolvent insurer, establishes an exclusive state court forum for the defendants' counterclaims. Implicit in this argument is the assertion that federal jurisdiction would "invalidate, impair, or supersede" Virginia law by providing an alternative forum for those claims. See Weingarten, 18 F. Supp. 2d at 618.
The relevant portion of § 13.1-522(B) states: Any person who... receives, directly or indirectly, any consideration from another person for advice as to the value of securities or their purchase or sale, whether through the issuance of analyses, reports or otherwise and employs any device, scheme, or artifice to defraud such other person or engages in any act, practice or course of business which operates or would operate as a fraud or deceit on such other person, shall be liable to that person.... Va. Code Ann. § 13.1-522(B) (ii).