Court Opinion

ID: 2962091
Source: CourtListenerOpinion
Date Created: 2015-09-21 20:52:33.202099+00
Date Added: 2024-06-11T11:42:25.981216
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USCA1 Opinion

	

                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________        No. 92-1853                              JUAN ANTONIO GARCIA, ETC.,                                 Plaintiff, Appellee,                                          v.                            ISLAND PROGRAM DESIGNER, INC.,                                 Defendant, Appellee.                                          v.                              UNITED STATES OF AMERICA,                                Intervenor, Appellant.                                      __________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF PUERTO RICO                                   _______________        No. 92-1889                                        IN RE:                              UNITED STATES OF AMERICA,                                      Petitioner.                                     ___________                           ON PETITION FOR WRIT OF MANDAMUS                                _____________________                   [Hon. Gilberto Gierbolini, U.S. District Judge]                                              ___________________                                 ____________________                                        Before                                 Breyer, Chief Judge,                                         ___________                          Torruella and Cyr, Circuit Judges.                                             ______________                                 ____________________            Steven W.  Parks, Attorney, Tax  Division, Department  of Justice,            ________________        with whom James A. Bruton,  Acting Assistant Attorney General, Gary R.                  _______________                                      _______        Allen  and Bruce  R. Ellisen,  Attorneys, Tax Division,  Department of        _____      _________________        Justice, were on brief for United States of America.            Carlos  J. Morales-Bauza  with  whom  Jesus  R. Rabell-Mendez  and            ________________________              _______________________        Rossello-Rentas & Rabell-Mendez were on brief for Juan Antonio Garcia,        _______________________________        in his capacity as Insurance Commissioner of Puerto Rico.                                 ____________________                                  September 14, 1993                                 ____________________                       BREYER, Chief Judge.   This appeal requires  us to                               ___________             resolve a conflict  between 1) a federal  statute that gives             federal  tax claims first  priority to a  bankrupt company's             assets, 31  U.S.C.   3713,  and 2) a Puerto  Rico "insurance             company liquidation" statute with  filing deadlines that can             force those federal claims to the end of the priority queue.             P.R.  Laws Ann.,  tit. 26,     4019(2).   A special  federal             statute, governing  federal pre-emption  of state  insurance             laws, 15 U.S.C.    1012(b), would require us  to resolve the             conflict in  favor of Puerto  Rico's law -- if  that special             federal statute applies.  But,  a recent Supreme Court case,             interpreting  that special law,  indicates that it  does not             apply.   Department  of Treasury  v. Fabe,  113 S.  Ct. 2202                      _______________________     ____             (1993).   Hence, given  ordinary pre-emption principles, the             federal  statute governs.    We  reverse  a  district  court             determination to the contrary.                                          I                                      Background                                      __________                       Puerto  Rico's  law   permits  the  Commonwealth's             Insurance  Commissioner to act  as trustee for  an insolvent             insurance  company, to  liquidate its assets,  and to  set a             deadline  for  the filing  of  "proofs  of claim"  to  those             assets.   P.R.  Laws Ann.,  tit.  26,     4002,  4019.    In                                         -2-                                          2             February 1987, the Insurance Commissioner began proceedings,             in a Commonwealth  court, to liquidate the  assets of Island             Program  Designer,  Inc.   ("IPD"),  a  health   maintenance             organization.   The Insurance Commissioner set May 19, 1988,             as the filing deadline for "proofs of claim."                       On  June 1, 1989, about  one year after the filing             deadline,  the federal Internal  Revenue Service  filed with             the Insurance  Commissioner a  formal "proof"  of its  claim             against IPD for $53,000 (representing federal tax liens that             the IRS, between 1982 and 1985, had asserted, and perfected,             on IPD's assets).   In May 1991, the  IRS intervened in  the             Commonwealth  court liquidation  proceedings.   26 U.S.C.                7424.   It asked for the $53,000, as  to which a federal law             gave  it first  priority.  31  U.S.C.    3713.  It  also now             tells us that,  without a first priority, it  will be unable             to collect any of the money owed.                       The Insurance  Commissioner opposed the  IRS claim             on the ground  that the IRS  had missed the  (May 19,  1988)             deadline for filing formal proofs  of claim.  He pointed out             that  Puerto Rico's  insurance  company liquidation  statute             says  that claims  for  which  proofs  are filed  after  the                                                               _____             deadline shall  not be  paid until  all timely-filed  claims                      _____  ___ __  ____             have been  "paid in  full with interest."   P.R.  Laws Ann.,                                         -3-                                          3             tit.  26,    4019(2).    And,  in  his view,  Puerto  Rico's             priority system trumps the federal statute.                       At this point, the IRS removed the case to federal             court.    28  U.S.C.       1441(b),  1444.    The  Insurance             Commissioner  asked the  district  court  to "abstain"  from             deciding the  legal issues,  and to remand  the case  to the             Commonwealth  court.   The  district  court  then  wrote  an             opinion  deciding the basic question and holding that Puerto             Rico's priority  law,  not  the  federal  priority  statute,             governs.   It  also remanded  the  case to  the Commonwealth             court.  The IRS now asks  us to review, and to reverse,  the             remand order.                                          II                                 Appeal or Mandamus?                                 ___________________                       We are  not completely  certain  why the  district             court,  having decided  the major  legal issue in  the case,             decided  to  remand  it.    It  may  have  done  so   as  an             administrative matter,  to permit the Commonwealth  court to             enter  a  final   judgment;  or  because  it   believed  the             controversy  involved  other  legal  issues  that it  should             "abstain"  from deciding; or simply because "remand" was the             form   of  relief   that  the  Insurance   Commissioner  had                                         -4-                                          4             requested.  Whatever the reason, the fact of remand raises a             technical question  about the form  of review:  Can  the IRS             simply appeal  the remand order  or must  it seek a  writ of             mandamus?                         The  problem arises out  of a Supreme  Court case,             Thermtron  Products,  Inc. v.  Hermansdorfer,  423  U.S. 336             __________________________     _____________             (1976),  in  which  the  Court  considered  the scope  of  a             statute, 28 U.S.C.   1447(d), that appeared to bar appellate             review  of all  remand  orders.   The  Court  held that  the             statute's  "review  bar"  applies  only  to  a  statutorily-             limited, previously-mentioned set of remand orders,  namely,             those in  which remand  rests upon a  defect in  the removal             proceeding.  See 28 U.S.C.    1447(c).  The Court, referring                          ___             to an 1875 case, Railroad Co. v. Wiswall, 90 U.S. (23 Wall.)                              ____________    _______             507  (1875), also  held  that  other  remand  orders,  while             reviewable, were  not  "final"  orders  and  therefore  were             reviewable only through  mandamus.  Id. at 508.   The remand                                                 __             order in this case falls  outside the scope of the statutory             "review bar."  But, it would  seem to fall within the  scope             of the Supreme  Court's holding that review  must take place             through mandamus, not appeal.                       The  IRS points  out  that several  appeals courts             have  created an exception  to Thermtron for  (and permitted                                            _________                                         -5-                                          5             appeal  of)   reviewable  remand  orders   that  amount   to             "collateral orders."   See,  e.g., McDermott  Int'l Inc.  v.                                    ___   ____  _____________________             Lloyds Underwriters of London, 944 F.2d 1199, 1204 (5th Cir.             _____________________________             1991)  (permitting appeal of remand order based on separable             issue presented  by a contract's "forum  selection" clause),             cert.  denied, 113 S. Ct.  2442 (1993); Foster v. Chesapeake             _____________                           ______    __________             Ins. Co., Ltd., 933 F.2d 1207, 1211 & n.6 (3d  Cir.) (same),             ______________             cert. denied, 112 S. Ct.  302 (1991); Karl Koch Erecting Co.             ____________                          ______________________             v. New York Convention Ctr. Dev. Corp., 838 F.2d 656, 658-59                ___________________________________             &  n.1 (2d Cir.  1988) (same); Pelleport  Investors, Inc. v.                                            __________________________             Budco Quality Theatres, Inc., 741 F.2d 273, 277-78 (9th Cir.             ____________________________             1984) (same).  It adds that we should recognize an exception             permitting appeal here.                         We are aware of arguments advanced  for modifying,             or  finding exceptions  to,  Thermtron.   Commentators  have                                          _________             argued that the Supreme Court should have  departed from its             earlier, nineteenth-century practice and found remand orders             "final" (hence,  in principle,  appealable) because  1) they             finally dispose of the federal proceedings; and, 2) there is                                    _______             little practical reason not to permit appeal of those remand             orders  that fall outside  section 1447(d)'s  statutory bar.             15A Charles A. Wright, Arthur  R. Miller & Edward H. Cooper,             Federal Practice and Procedure   3914.11, at 702-18  (2d ed.             ______________________________                                         -6-                                          6             1991).   Critics have  also pointed to  anomalies.  Suppose,             for  example,  that  a federal  district  court,  wishing to             abstain pending  resolution of  state proceedings,  embodies             its decision in a stay of federal proceedings.   The stay is             appealable.  Moses H. Cone Memorial Hosp. v. Mercury Constr.                          ____________________________    _______________             Corp., 460  U.S. 1,  8-10 (1983).   Suppose that  same court             _____             embodies its decision in a  remand (and, say, the  plaintiff             reserves the right to  return to federal court, see  England                                                             ___  _______             v. Louisiana State  Bd. of Medical  Examiners, 375 U.S.  411                __________________________________________             (1964)).  The parties would have no appeal as of right,  but             would have to seek  "discretionary" review through mandamus.             Cf. Roche v.  Evaporated Milk Ass'n, 319 U.S.  21, 25 (1943)             __  _____     _____________________             (mandamus  is  discretionary).    The result  is  anomalous.             Corcoran v.  Ardra Ins.  Co., Ltd., 842  F.2d 31,  34-35 (2d             ________     _____________________             Cir. 1988).   And, one can find other  examples of practical             review  difficulties,  particularly  when, say,  a  district             court  couples dismissal  of a  removed  federal claim  with             remand of pendent state claims. 15A Wright, Miller & Cooper,             supra,   3914.11, at 710-18;  see also In re Amoco Petroleum             _____                         ________ _____________________             Additives Co., 964 F.2d 706 (7th Cir. 1992).             _____________                       Despite  these difficulties, we  do not believe we             can  find an exception that fits the  present case.  For one             thing, the Supreme Court's language is rather absolute.   It                                         -7-                                          7             says clearly that a remand order is not  "final."  The Court             rests  its  decision  upon  older  cases  that  reflect  the             apparently then-common  practice of  appellate courts  using             mandamus, rather than appeal, to  review the lawfulness of a             lower court's  refusal to  assert jurisdiction  (of which  a             remand is one variety).  Wiswall, 90 U.S. (23 Wall.) at 508.                                      _______             The Court, more recently, has approved circuit  court use of             mandamus as  a vehicle for review.  Carnegie-Mellon Univ. v.                                                 _____________________             Cohill, 484 U.S.  343, 355-56  (1988).   And, lower  courts,             ______             even  when faced  with anomalies,  have  concluded that  the             Supreme Court  meant what  it said.   In re  Amoco Petroleum                                                   ______________________             Additives Co., 964 F.2d at 713; Corcoran, 842 F.2d at 34-35.             _____________                   ________                       For another thing,  we do not believe  it possible             to apply  a "collateral order"  exception here.   See  cases                                                               ___             cited at pp.  5-6, supra.   The "collateral order"  doctrine                                _____             permits parties to appeal (as "final decisions," 28 U.S.C.               1291) orders that "determine"  a "disputed" and  "important"             issue "separate from  the merits of  the action," which  are             "effectively unreviewable"  on a  later appeal.   Coopers  &                                                               __________             Lybrand v.  Livesay, 437 U.S.  463, 468 (1978).   The record             _______     _______             here does not set  forth the relation  of the remand to  any             remaining issues  in sufficient  detail for  us to  say with             confidence  that the remand order rests on the determination                                         -8-                                          8             of an issue "separate from the merits of  the action."  But,             more importantly, Thermtron  and Wiswall themselves  seem to                               _________      _______             involve  "collateral  orders."    In  Thermtron,  the  Court                                                   _________             reviewed   (through  mandamus)   a   district  court   order             (erroneously) remanding  the case to  a state  court on  the             ground  that  the state  court  would handle  the  case more             expeditiously.     That   remand   decision  determined   an             important, separate,  disputed issue that  could not  easily             have  been reviewed  later through  appeal.   Similarly,  in             Wiswall,  the Court reviewed (through mandamus, prior to the             _______             enactment of   1447(d)) a lower court's important, separate,             disputed decision  to remand  the  case to  state court  for             jurisdictional reasons.  The upshot is that we cannot find a             "collateral  order" exception large  enough to fit  our case             that does not also swallow up (and thereby simply disregard)             the general rule.                       Finally, and perhaps most importantly, we need not             further  complicate  the  law   with  additional  exceptions             because  the case before  us meets Thermtron's  criteria for                                                _________             the  issuance of  mandamus.    This  case,  like  Thermtron,                                                               _________             involves the  "traditional use of the writ  [of mandamus] in             aid of appellate  jurisdiction to compel" a  lower court "to             exercise"  its jurisdictional "authority when it is its duty                                         -9-                                          9             to do so."  Roche, 319 U.S. at 26, quoted in  Thermtron, 423                         _____                  _________  _________             U.S. at 352.  Mandamus  here, like mandamus in Thermtron, is                                                            _________             not a substitute  for appeal, cf. Roche, 319  U.S. at 26-31;                                           __  _____             Will v. United States, 389  U.S. 90, 97 (1967); Schlagenhauf             ____    _____________                           ____________             v. Holder,  379 U.S. 104,  110 (1964), for  Thermtron itself                ______                                   _________             blocks  immediate  appeal; and  eventual appeal  through the             Commonwealth   court  system  does   not  promise   the  IRS             meaningful review  of the federal  district court's critical             legal determination.                         Of course, even  where a court of appeals  has the             "power" to  issue mandamus, that relief  is "discretionary."             16 Charles A.  Wright, Arthur R. Miller, Edward  H. Cooper &             Eugene Gressman, Federal  Practice and Procedure    3933, at                              _______________________________             213  (1977).    Appellate  courts  typically  exercise  this             discretion  only  in  somewhat  unusual  instances,  In   re                                                                  _______             Pearson, 990  F.2d 653, 656  (1st Cir. 1993), and  where the             _______             petitioner's rights are "clear  and indisputable."   Bankers                                                                  _______             Life & Cas. Co. v. Holland, 346  U.S. 379, 384 (1953); In re             _______________    _______                             _____             Pearson, 990  F.2d at  656.  Nonetheless,  in our  view, the             _______             IRS's  right to  relief  here,  after  the  Supreme  Court's             decision in  Fabe, supra, is reasonably clear;  its need for                          ____  _____             relief is fairly urgent; and, the fact that the remand falls             outside    1447(d)'s  review  bar itself  helps to  make the                                         -10-                                          10             remand unusual.  Taken together, these circumstances justify             exercising our "discretion" in favor of issuing the writ.                                           -11-                                          11                                         III                                     Pre-emption                                     ___________                       The  IRS argues that  the federal court  was wrong             not  to retain  the case  and order  payment of  the $53,000             because  federal  law  governs the  case  and  requires that             payment.   The  federal law  in  question is  a statute,  31             U.S.C.   3713, which says:                       A claim of the United States  Government                       shall be paid first when  . . . a person                       indebted to the  Government is insolvent                       and  . .  .  an  act  of  bankruptcy  is                       committed.             The Insurance  Commissioner agrees that  this statute  would             entitle  the United States  to priority (and,  apparently to             payment) were it not for a Commonwealth statute that governs             insurance  company liquidations.   That statute, as  we have             said, instructs the Insurance Commissioner to set a deadline             for presenting proofs of claims, and it adds:                       Proofs of claim  may be filed subsequent                       to the date specified, but no such claim                                                  _____________                       shall share  in the distribution  of the                       ________________________________________                       assets until all  allowed claims, proofs                       ________________________________________                       of  which  have been  filed  before said                       ________________________________________                       date,  have  been  paid  in  full   with                       ________________________________________                       interest.                       ________             P.R. Laws Ann., tit. 26,   4019(2) (emphasis added).                                         -12-                                          12                       These two statutes conflict.  We cannot  reconcile             the federal statute  with the Commonwealth statute  (say, by             reading it as limited to instances of compliance with  state             procedures),  for the  courts have  consistently interpreted             the   federal  statute   as   overriding  state   procedural             requirements of  the sort  here at issue  (at least  where a             trustee has  appropriate notice  of federal  claims).   See,                                                                     ___             e.g., Brown  v. Coleman, 566  A.2d 1091 (Md.  1989) (federal             ____  _____     _______             priority cannot  be superseded  or impaired  by state  law);                                             ___________             United States  v. Boots,  675 F. Supp.  550 (E.D.  Mo. 1987)             _____________     _____             (estate representative  with actual, but not  formal, notice             of  federal government's claim  must pay that  claim first);             United States  v. Snyder, 207  F. Supp. 189 (E.D.  Pa. 1962)             _____________     ______             (under  predecessor statute, United  States could file claim             long  after distribution of estate in probate court); United                                                                   ______             States v.  Backus, 24 F.  Cas. 932 (C.C.D. Mich.  1855) (No.             ______     ______             14,491)  (under predecessor  statute, state  proof  of claim             statutes were not  binding on United  States).  If  ordinary             pre-emption  principles  apply,  then  the  federal  statute             governs.   Gibbons v. Ogden,  22 U.S. 1 (1824);  U.S. Const.                        _______    _____             Art. VI, cl.2.                       The pre-emption inquiry  here is more complicated,             however,  because the Insurance Commissioner argues that the                                         -13-                                          13             Commonwealth's law regulates insurance companies and (as  we             shall assume for  argument's sake) that IPD  is an insurance             company.  A special federal statute says:                       No 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 . . . .              McCarran-Ferguson Act   2(b), 15 U.S.C.   1012(b).                       This  statute, if it  were to apply,  would compel             the opposite result: the Commonwealth's priority system, not             the federal system,  would govern.  The basic legal question             before us, then, is whether or  not the statute applies.  Is             the Commonwealth's procedurally-linked priority rule a  "law             enacted . .  . for the purpose of regulating the business of             insurance"?   The  district  court,  relying  on  the  Sixth             Circuit's holding in  Fabe, decided that the  answer to this                                   ____             question  was "yes."   Fabe v.  Department of  Treasury, 939                                    ____     _______________________             F.2d  341 (6th  Cir.  1991).   The  Supreme Court,  however,             granted certiorari in  Fabe.  And, that Court  has reached a                                    ____             decision  that leads  us  to  reverse  the  district  court.             Department of Treasury v. Fabe, supra.             ______________________    ____  _____                       The Supreme Court, in Fabe, considered  separately                                             ____             individual   provisions   in  a   state   insurance-company-             liquidation  statute, which  provisions provided  sequential                                         -14-                                          14             priority for  (1) administrative costs;  (2) specified  wage             claims; (3)  policyholders' claims;  (4) general  creditors'             claims; and (5) government claims.  The Court held that some                                                                     ____             of  these priority provisions  (all comprising parts  of the             larger statute) amounted to laws "enacted for the purpose of             regulating the business  of insurance," but others  did not.             It said that "to the extent" a priority provision "regulates             policyholders," it  "is a  law enacted  for  the purpose  of             regulating the business of insurance."   Fabe, 113 S. Ct. at                                                      ____             2212.  But to "the extent that it is designed to further the             interests of other  creditors, . . . it is not a law enacted             for  the purpose of  regulating the business  of insurance."             Id.               __                       The Court  then  found that  the  state  statute's             first  priority  for  "the  expense  of  administering   the             insolvency   proceeding"    was   an    insurance-regulating             provision.   It  said  that  the  provision  "is  reasonably             necessary to  further the goal of  protecting policyholders"             because, without  such a  provision, "liquidation  could not             even commence."  Id.  In contrast,  the Court found that the                              __             "preferences conferred upon employees [for wage  claims] and             other  general  creditors"   were  not  insurance-regulating             provisions.  Id.   The Court said that  such preferences "do                          __                                         -15-                                          15             not  escape  pre-emption  because  their  connection  to the             ultimate aim of insurance is too tenuous."  Id.                                                         __                       The  Court's  reasoning  and examples  lead  us to             conclude   that   the    federal   statute   pre-empts   the             Commonwealth's  filing-deadline-related priority  provision.             The filing deadline  (with its penalty of  subordination for             late   claims)  cannot  be   said  to  directly  "regulate[]             policyholders," for it is neither directed at, nor necessary             for, the protection of policyholders, as the Court required.             The  provision helps policyholders  only to the  extent that             (and in the same way as) it helps all creditors.  That is to             say, by penalizing  late-filers, the Commonwealth  provision             may   bring   about   more   speedy,   orderly   liquidation             proceedings,  thereby  (perhaps)  reducing  the  risks  (and             costs) of extending credit to the company.                       Nor can  one say  that  the Commonwealth's  filing             deadline  provision  is  necessary  for  the  protection  of             policyholders.  The Court in  Fabe found that a priority for                                           ____             "administrative   expense[s]"  was   necessary  to   protect             policyholders,  but,   because  without  such   a  priority,             liquidation  might never occur.   The  Commonwealth's filing             deadline  at issue  here, however,  is not  necessary for  a             liquidation.    Without it,  liquidation  would still  prove                                         -16-                                          16             manageable.   At  worst,  the  trustee's  job  would  become             slightly  more difficult.   He  would have  to provide,  for             example, the United States with  a first priority as long as             he had, say, actual notice (or "constructive" notice through             recording)  of the  claim, even  if he  did not  have formal             notice  through a  "proof of  claim" filed  directly  in the             liquidation  proceeding.  See  cases cited at  p. 12, supra.                                       ___                         _____             Relieving  the  trustee  of  the  burden  of  searching  for             recorded liens  provides policyholders  with only  indirect,             speculative  benefit of the  kind that the  Fabe Court found                                                         ____             far too  tenuous to prevent  pre-emption.  We  conclude that             the  special federal  pre-emption  statute  does not  apply.             Normal pre-emption  rules do apply.   And, federal  law must             govern.                       The  Insurance  Commissioner   makes  one  further             argument.   He  says that,  even if  the district  court was             wrong about federal  pre-emption, the court was  still right             to  remand the  case.  He  says the  remand rested  upon the             district court's authority to  "abstain" from exercising its             jurisdiction in  order to  allow the  Commonwealth court  to             conduct further  insurance company  liquidation proceedings.             See Burford v. Sun Oil Co., 319 U.S. 315 (1943); Gonzalez v.             ___ _______    ___________                       ________             Media  Elements,  Inc.,   946  F.2d  157  (1st   Cir.  1991)             ______________________                                         -17-                                          17             (abstaining   to   permit    resolution,   in   Commonwealth             liquidation  proceeding, of  a tort claim  against insolvent             insurance company).                       The  problem with this argument lies in the record             before us.  Burford holds that federal courts should abstain                         _______             where  further  federal proceedings  would  likely  decide a             "difficult"  state  law  question  or  would  disrupt  state             efforts to  establish coherent and  important state  policy.             Burford,  319 U.S.  at 331  & n.28;  Bath Memorial  Hosp. v.             _______                              ____________________             Maine Health Care  Fin. Comm'n, 853 F.2d 1007,  1013-14 (1st             ______________________________             Cir. 1988); see also Fragoso  v. Lopez, 991 F.2d 878, 882-85                         ________ _______     _____             (1st Cir. 1993).   Nothing in the record  before us explains             how,  or why, further  federal proceedings would  create any             such  problems.  Thus, it offers  no justification for court             abstention based on Burford.                                 _______                       For  these reasons,  the appeal is  dismissed, and             the  petition  for  mandamus,  setting  aside  the  district             court's remand order, is                        Granted.                       ________                                         -18-                                          18