Opinion ID: 194735
Heading Depth: 2
Heading Rank: 2

Heading: Relevancy of Burford Abstention.

Text: In the alternative, the Commissioner urges that we abstain from hearing the instant appeal under the rule of Burford v. Sun Oil Co., 319 U.S. 315 (1943). In its most recent discussion of Burford abstention, see New Orleans Pub. Serv., Inc. v. City Council of New Orleans [NOPSI], 491 U.S. 350, 360-64 (1989), the Supreme Court explained that the doctrine counsels federal courts sitting in equity to refrain from interfering with proceedings or orders of state administrative agencies 9 when timely and adequate state court review is available and: (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.' Id. at 361 (quoting Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 814 (1976)). In sum, NOPSI cabins the operation of the Burford doctrine. Post-NOPSI Burford applies only in narrowly circumscribed situations where deference to a state's administrative processes for the determination of complex, policy-laden, state-law issues would serve a significant local interest and would render federal-court review inappropriate. Abstention will be the exception, not the rule. Id. at 359 (citation and internal quotation marks omitted); accord County of Allegheny v. Frank Mashuda Co., 360 U.S. 185, 188-89 (1959). In light of this recent characterization of Burford abstention, we have three reasons for questioning whether the doctrine is at all relevant here. In the first place, Burford commands federal courts sitting in equity to abjure interference with certain state fora. NOPSI, 491 U.S. at 361. Although enjoining an action in deference to a state proceeding is an exercise of equitable power, the case at hand is a tort action. When, as now, the only equitable power a court is asked to exercise constitutes the very act of abstaining under Burford, 10 we think it is highly questionable whether the court is one sitting in equity to which Burford abstention might be available.6 In the second place, NOPSI characterizes Burford abstention as a doctrine shielding state administrative agencies from federal court interference. Id. While Puerto Rico's tailored revision of the Rehabilitation and Liquidation Model Act, see P.R. Laws Ann. tit. 26, 4001-4054, sets in place a comprehensive framework for the liquidation of insolvent insurance companies and the resolution of claims against them, Gonzalez v. Media Elements, Inc., 946 F.2d 157, 157 (1st Cir. 1991)(per curiam), we question whether the scheme creates a state administrative agency, as opposed to a judicial structure,7 to 6Prior to NOPSI, the Third Circuit considered whether Burford abstention is appropriate when a court is not being asked to provide equitable relief. Lac D'Amiante Du Quebec v. American Home Assurance Co., 864 F.2d 1033, 1044 (3d Cir. 1988). In rejecting the proposition that Burford abstention may turn on the type of relief sought, the court noted that the Supreme Court's discussion of Burford abstention in Colorado River failed to mention the relevancy of equitable relief. Id. But, the NOPSI Court specifically described the doctrine as one available to a federal court sitting in equity. 491 U.S. at 361. Because we believe that this reference cannot be dismissed as language languorously loosed, we conclude that the NOPSI Court's distillation of Burford abstention shines a different light on this issue. We note, moreover, that the Third Circuit, in NOPSI's wake, seems similarly inclined. See University of Md. v. Peat Marwick Main & Co., 923 F.2d 265, 271-72 (3d Cir. 1991). 7The estates of insolvent insurance companies are exempt from the operation of the federal bankruptcy laws. See 11 U.S.C. 109(b)(2) (1988). Thus, the Puerto Rico Insurance Code fashions a format for regulating insurers' insolvencies, rehabilitations, and liquidations, centralizing proceedings into a single court analogous to a federal bankruptcy court wherein the Commissioner, as an agent of the court, functions as a 11 which deference under Burford may be paid. While the Insurance Code regulates insolvent insurers doing business in Puerto Rico, it is not at all clear that it sets up the functional equivalent of an administrative agency. In the third place, Burford abstention is implicated when the federal courts are asked to interfere with state processes by reviewing the proceedings or orders of state administrative agencies, ergo, the requirement of timely and adequate state-court review. NOPSI, 491 U.S. at 361. In Burford, for example, the Supreme Court abstained in the face of a demand that it review a state railroad commission's order allocating oil drilling rights. See Burford, 319 U.S. at 316-17; see also NOPSI, 491 U.S. at 352-53 (discussing abstention in the context of a challenge to a ratemaking order); Alabama Public Serv. Comm'n v. Southern Ry. Co., 341 U.S. 341, 342 (1951) (approving abstention from review of a commission order prohibiting the discontinuance of certain local train service). Here, however, we are not being asked to review the actions or decisions of any state body, be it judicial or administrative. Thus, the relevancy of Burford abstention is equally questionable from this standpoint. C. Applying Burford Abstention. C. Applying Burford Abstention. Even assuming, for argument's sake, that Burford remains relevant to this genre of litigation, the current situation affords no occasion for abstention. We explain receiver. See P.R. Laws Ann. tit. 26, 4008 (1976). 12 briefly. This appeal frames no difficult question[] of state law bearing on significant public policy issues such as would prompt abstention. NOPSI, 491 U.S. at 361 (quoting Colorado River, 424 U.S. at 814). The action merely entails the application of a Puerto Rico statute of limitations, frequently interpreted in the past, to an idiocratic set of facts. Thus, the first avenue to Burford abstention is a dead end. And, moreover, even if difficult or unresolved questions of local law were present and we descry none the presence of such questions, without more, would not justify abstention by a federal court properly sitting in diversity. See Bergeron v. Estate of Loeb, 777 F.2d 792, 800 (1st Cir. 1985), cert. denied, 475 U.S. 1109 (1986); Construction Aggregates Corp. v. Rivera de Vicenty, 573 F.2d 86, 91 (1st Cir. 1978). We turn, then, to the second roadway to Burford abstention: when federal review will disrupt state efforts to establish a coherent policy with respect to a matter of substantial public concern. NOPSI, 491 U.S. at 361 (quoting Colorado River, 424 U.S. at 814). Several circuits have considered whether deciding cases involving insolvent insurance companies would inflict a sufficiently profound dislocation of a state's efforts to develop policies of substantial local concern as to merit abstention, see, e.g., Bilden v. United Equitable Ins. Co., 921 F.2d 822, 825-27 (8th Cir. 1990), and some have approved abstention in such circumstances. See Barnhardt Marine 13 Ins., Inc. v. New Eng. Int'l Sur. of Am., Inc., 961 F.2d 529, 531-32 (5th Cir. 1992) (upholding abstention in an action to recover premiums on canceled policies); Martin Ins. Agency, Inc. v. Prudential Reinsurance Co., 910 F.2d 249, 254-55 (5th Cir. 1990) (upholding abstention in an action to retrieve reinsurance proceeds); Lac D'Amiante Du Quebec v. American Home Assurance Co., 864 F.2d 1033, 1042-49 (3d Cir. 1988) (finding abstention appropriate and vacating declaratory judgment); Law Enforcement Ins. Co. v. Corcoran, 807 F.2d 38, 43-44 (2d Cir. 1986) (finding abstention appropriate in declaratory judgment action), cert. denied, 481 U.S. 1017 (1987). We, ourselves, heretofore abstained in an appeal against an insolvent insurance company so as not to disrupt Puerto Rico's regulatory system. Media Elements, 946 F.2d at 157.8 Be that as it may, we do not believe, in general, that federal court decisionmaking of the kind that exists alongside state insurance liquidation proceedings so significantly disrupts state regulatory frameworks to call for abstention. After NOPSI, Burford abstention is only appropriate where federal decisionmaking demands significant familiarity with . . . distinctively local regulatory facts or policies. NOPSI, 491 U.S. at 364. The doctrine's function is to allow a state to develop, where necessary, the uniformity needed to achieve important local interests. Deciding appeals like Fragoso's, 8In Media Elements, no one opposed the request for abstention. We granted it by summary order, without extensive analysis. 14 which will have at most an indirect effect on the liquidator's claims process by potentially giving rise to an additional claim against the insolvent insurance company, will neither discombobulate local proceedings nor frustrate the Commonwealth's regulatory system. Just as the federal courts would not abstain from deciding legal issues pertaining to a party involved in a federal bankruptcy proceeding, see, e.g., Picco v. Global Marine Drilling Co., 900 F.2d 846, 850 (5th Cir. 1990) (The automatic stay of the bankruptcy court does not divest all other courts of jurisdiction to hear every claim that is in any way related to the bankruptcy proceeding.), we can see no reason for Burford abstention simply because the judicial bankruptcy proceedings happen to be before a state court. We believe, therefore, that the circuit court cases favoring abstention in insurer insolvency matters are suspect in light of NOPSI.9 At any rate, they are distinguishable from 9This view is neither original nor exclusive to us. See Erwin Chemerinsky, Federal Jurisdiction 111-12 (Supp. 1990) (concluding that NOPSI reins in several . . . lower court decisions expansively interpreting Burford abstention). One decision specially mentioned by Professor Chemerinsky is Lac D'Amiante, 864 F.2d 1033 a Third Circuit decision on which Media Elements relies. See Media Elements, 946 F.2d at 157. We agree with Professor Chemerinsky that Lac D'Amiante is no longer good law. Burford, as explicated by the NOPSI Court, involves the protection of complex state administrative processes from undue federal interference, [but] it 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. NOPSI, 491 U.S. at 362 (citation and internal quotation marks omitted); see also Chemerinsky, supra, at 112. Indeed, we read the Third Circuit's post-NOPSI caselaw as signalling the demise of Lac D'Amiante. See University of Md. v. Peat Marwick Main & Co., 923 F.2d 265, 272 (3d Cir. 1991); see also Melahn v. Pennock Ins., Inc., 965 F.2d 1497, 1505 (8th Cir. 1992) 15 the instant case for a number of reasons. First, in nearly all of those cases, insolvency intervened before the trial court had entered final judgment. Ordinarily, the more embryonic a case, the more significant an interference with the state framework for handling insurance liquidation if the federal tribunal does not yield. A case such as Fragoso's, where a trial is complete and solely legal questions suitable for federal appellate resolution are pending on appeal, is a very weak candidate for abstention. As we have remarked before, abstention serves the interests not only of federalism, but of comity and judicial efficiency. Medical Malpractice Joint Underwriting Ass'n v. Pfeiffer, 832 F.2d 240, 244 (1st Cir. 1987). Once a federal court has rendered a final judgment, it is questionable whether abstention is an efficient or practical move. After all, the liquidator's forum has no mechanism for reviewing a federal court decision. What would become of the original judgment is a puzzle. In Bilden, where the district court rendered its judgment before the insurance company entered liquidation proceedings, see Bilden, 921 F.2d at 824, the Eighth Circuit held that an appeals court's decision on the merits would not interfere with the rehabilitator's control of the insurance company or with the proper operation of the state's regulatory format. See id. at 826. It is difficult to fault so level-headed an approach. Second, the concerns animating abstention in Media (observing that the Third Circuit has cast doubt on the vitality of [Lac D'Amiante] as a result of the Supreme Court's more recent holding in NOPSI) (citing Peat Marwick Main). 16 Elements, the one case cited supra where the Burford issue became relevant only on appeal and the court nevertheless abstained, do not apply here. The appeal in Media Elements involved a coverage issue and, therefore, the court reasoned that abstention would lessen the risk of inconsistent coverage interpretations. See Media Elements, 946 F.2d at 157. Fragoso's appeal, however, requires that we decide a question of law unrelated to coverage. The case is idiocratic and fact-specific. Passing on this appeal could not possibly impair uniformity in the interpretation of CIS's insurance policies, nor could doing so obstruct the adjudication of claims against CIS in the liquidator's forum. This is a singularly important difference. See Grimes v. Crown Life Ins. Co., 857 F.2d 699, 704 (10th Cir. 1988) (stating that abstention is less desirable where a suit does not require the court to determine issues which are directly relevant to the liquidation proceeding or to state policies), cert. denied, 489 U.S. 1096 (1989). In fact, it seems more likely that processing the appeal, with the result that the district court's judgment will be affirmed or vacated, would help the Commissioner, for it is totally unclear how the commonwealth forum would resolve the appellate matter, or that it could. The Media Elements panel also observed that compliance with Puerto Rico's process would reduce the funds which the insurer would have to spend on litigation. See 946 F.2d at 157. Resolving this appeal in the ordinary course, however, would not cost CIS money. The briefs are already filed, and, as previously 17 pointed out, see supra p.7, there is no need for oral argument. Therefore, the concerns that may have warranted abstention in Media Elements are not present here. We are, therefore, comfortable in limiting Media Elements to its own facts.10 We need go no further. NOPSI makes clear that Burford abstention requires more than a desire to avoid every inconvenience to, or disruption of, a state's regulatory systems. Otherwise, abstention would be proper in any instance where a matter was within an administrative body's jurisdiction. Chemerinsky, supra, at 112. That cannot be the rule. It follows, then, that the mere existence of state procedures, or even the existence of a complex state apparatus designed to handle a specific class of problems, does not necessarily justify abstention. See Melahn v. Pennock Ins., Inc., 965 F.2d 1497, 1505 (8th Cir. 1992). In the final analysis, abstention here would be inconsistent with the policies underlying the constitutional grant of diversity jurisdiction and would render a substantial injustice to those litigants seeking to avail themselves of their statutory right to a federal forum. See Allegheny County, 360 U.S. at 188 (observing that abstention is an extraordinary and narrow exception to the duty of a District Court to adjudicate a controversy properly before it). We, 10We note in passing that, while Media Elements was decided after NOPSI, the order for abstention neither cited NOPSI nor acknowledged its suzerainty. 18 therefore, decline the invitation to abstain.11