Court Opinion

ID: 9773748
Source: CourtListenerOpinion
Date Created: 2023-08-29 17:57:34.647264+00
Date Added: 2024-06-11T07:31:56.924647
License: Public Domain

BAKER, Justice,
joined by HECHT and OWEN, Justices, dissenting.
The Court concludes that Surety Bank’s interpleader action in this case is not within the scope of the Tennessee liquidation order. To the contrary, I believe that it is and that the liquidation order should be afforded full faith and credit. Accordingly, I dissent.
I. SCOPE OF TENNESSEE LIQUIDATION ORDER
The Court concedes that it would have no difficulty in stating that had the Bank or USI proceeded against Anchorage or the Liquidator, the full faith and credit clause may have very well necessitated dismissal of the suit. The Court concludes that the full faith and credit clause does not apply here because the interpleader action that is part of the USI suit is not within the scope of the liquidation order. The Court reasons that the ownership of the interpleader funds is in dispute and that the liquidation order only applies to claims against Anchorage’s assets. However, I do not believe that the record supports the Court’s reasoning. The Court simply mischaraeterizes the record to reach its conclusion.
In its analysis, the Court ignores the fact that the record clearly shows that the accounts the Bank interpleaded were held in Anchorage’s name. While the Bank may have been concerned about other parties claiming certain funds in the account, they *32were clearly held in Anchorage’s name. Accordingly, on the face of the record, the funds at issue belong to Anchorage. I do not express an opinion on the true ownership of the funds held in Anchorage’s name or whether USI or McGregor have a legitimate claim to the funds. Rather, my sole intent is to point out that, on their face, the accounts were Anchorage’s property, and that any claim a party may have against Anchorage to the funds in the account fall within the scope of the liquidation order.
The record shows that after the Bank in-terpleaded the Anchorage accounts into court, USI amended its pleadings to join Anchorage and the Liquidator as parties and to allege that it was entitled to the funds in the Anchorage accounts because
it is entitled to recover from Anchorage or its Liquidator all sums that would otherwise be due MacGregor under any claim or any reinsurance agreement.... Any claim that Anchorage may have to the funds on deposit should be subordinated to USI’s claim because any contract upon which Anchorage or its Liquidator may base a claim was not supported by consideration or failed in its consideration or was materially breached by Anchorage or its Liquidator or was in fraud of creditors of MacGregor ... and represent the fruits of such wrongful transfer.
This is the precise evil the liquidation order seeks to prevent — claims against Anchorage’s assets outside of the receivership proceeding. Notably, USI dropped its claims against Anchorage and the Liquidator when the trial court rendered summary judgment awarding USI the funds. However, the court of appeals has reversed on that issue and USI may seek to reinstate its claims. Accordingly, there may be an issue about whether USI can assert a claim against Anchorage or the Liquidator. In Bard v. Charles R. Myers Ins. Agency, Inc., 839 S.W.2d 791 (Tex.1992), the Court held that a party could not file a counterclaim against a receiver, even though the receiver initiated the suit. Thus, if USI has a claim against Anchorage, it may be precluded from asserting its claim in the interpleader action.
The record also shows that the Bank had actual knowledge of the Tennessee receivership proceedings. Over a month before the Bank filed its interpleader action, the Liquidator domesticated the Tennessee receivership order and served it on the Bank. Yet, despite the fact that the Bank knew Anchorage was in receivership, that proceedings were pending in Tennessee, and that any claims to Anchorage’s assets had to be brought in the Tennessee receivership court, the Bank still chose to file its action in a Texas court.
In Bard this Court reinforced its strong commitment to enforce sister state’s injunctions against interference with receivership proceedings. We expressly recognized “the benefit, if not the practical necessity, of requiring that all claims against the insolvent insurer’s estate be adjudicated in the receivership proceedings to ensure the fair and consistent treatment of all claims.” Bard, 839 S.W.2d at 797 (emphasis omitted). Requiring parties to make claims against receivers in a single receivership proceeding is instrumental in ensuring that all policyholders, claimants, and creditors are treated equally. See Bard, 839 S.W.2d at 796-97. The Court’s conclusion that the Bank’s inter-pleader action is not within the scope of the liquidation order does violence to this policy. Under the Court’s interpretation of the liquidation order, parties could merely bypass receivership orders by filing interpleader actions instead of direct claims. Yet, this would “defeat the goal of state insurance insolvency statutes and would greatly increase the expense and complexity of insurance insolvency proceedings.” Bard, 839 S.W.2d at 796.
The argument that the interpleader action is not within the scope of the liquidation order does not hold up under scrutiny. The Bank’s interpleader action in this ease clearly interferes with Anchorage’s assets by allowing parties to attack Anchorage’s ownership interest in its accounts. I conclude that the Bank’s interpleader action is within the scope of the liquidation order.
II. FULL FAITH AND CREDIT
As the Court correctly notes, both the United States Supreme Court and our Court *33have recognized that fall faith and credit applies to receivership orders. See Underwriters Nat’l Assurance Co. v. North Carolina Life & Accident & Health Ins. Guar. Ass’n, 455 U.S. 691, 102 S.Ct. 1357, 71 L.Ed.2d 558 (1982); Bard, 839 S.W.2d 791. However, in Underwriters, the United States Supreme Court concluded that full faith and credit only requires courts to give judgments the same credit, validity, and effect that the judgment would have in the rendering state. See Underwriters Nat’l Assurance Co., 455 U.S. at 704 n. 10, 102 S.Ct. 1357 n. 10. Thus, if a judgment is void and unenforceable in the rendering state, it void and unenforceable in all states.
Here, the Bank and USI claim that Texas courts should not give full faith and credit to the liquidation order because it is void. The Bank and USI contend that the Tennessee Chancery Court lacked jurisdiction to issue any order affecting Anchorage’s assets that are outside Tennessee. The Liquidator responds that this is an impermissible collateral attack on the liquidation order.
The liquidation order here has already been challenged in two other suits. See Bryant v. Shields, Britton & Fraser, 930 S.W.2d 836 (Tex.App.—Dallas 1996, writ denied); Tennessee ex rel. Sizemore v. Surety Bank, N.A., 939 F.Supp. 511 (N.D.Tex.1996). In Bryant, Shields, Britton & Fraser sued the Liquidator to recover on a sworn account. The Liquidator asserted that the trial court should afford full faith and credit to the liquidation order and dismiss the action. SBF countered by claiming that the liquidation order was not final or enforceable, and that the order did not enjoin foreign proceedings. The court of appeals disagreed with SBF and afforded the liquidation order full faith and credit. See Bryant, 930 S.W.2d at 844. I agree with the Court, however, that this case is distinguishable and of little help because SBF did not attack the Tennessee Chancery Court’s jurisdiction to enjoin parties from interfering with assets outside of the state of Tennessee.
However, I again part ways with the Court because I believe that Sizemore is dispositive of this case. The Court’s quote from Size-more, 939 F.Supp. 511, shows that the Court seriously misreads what Sizemore stands for. In Sizemore, the district court does not assume that the assets are Anchorage’s property. Rather, the district court, as evident by the Court’s quote, merely assumes that the Tennessee Chancery Court erred in liquidating Anchorage’s out of state assets. Moreover, the district court recognized that there was a potential dispute over the ownership of the funds and that the accounts were held in Anchorage’s name. See Sizemore, 939 F.Supp. at 512-13. Yet, the district court still concluded that a collateral attack was not allowed. See Sizemore, 939 F.Supp. at 516. Thus, the Court’s conclusion that “unlike the issue presented in Sizemore, the issue in this case is precisely whether the funds in the Texas court’s registry are Anchorage’s assets,” is simply incorrect. 939 F.Supp. 511. Sizemore is directly on point. In Sizemore, not only did the district court review the exact issue presented here— whether the Bank can collaterally attack the liquidation order — but the case also involves the same interpleader action, the same liquidation order, and virtually the same parties. In Sizemore the district court conducted a thorough and extensive analysis on whether the Bank can collaterally attack the liquidation order. See Sizemore, 939 F.Supp. at 513-17.
In determining the validity of another state’s judgments, courts looks to the rendering state’s law. See Bard, 839 S.W.2d at 795. Tennessee Insurers Rehabilitation Act section 56-9-402(a) states that “the commissioner may apply to the [Tennessee Chancery Court] by verified petition for an order directing the commissioner to liquidate the assets found in this state of a foreign insurer or an alien insurer not domiciled in this state.” Tenn.Code Ann. § 56-9-402(a) (1994). There is no dispute that Anchorage is a foreign insurer and that the assets involved in this ease are outside the state of Tennessee. The court of appeals held that because the liquidation order did not strictly adhere to the statute, the Tennessee Chancery Court did not have jurisdiction to liquidate assets that were outside Tennessee and the order is void. However, it simply cannot be the case that any noncompliance with the *34TIRLA statutory scheme causes an order to be void. If that were true, then even the most insignificant errors could be used to invalidate receivership proceedings. See Sizemore, 939 F.Supp. at 514.
Instead, the focus should be on whether Tennessee law allows collateral attacks on liquidation orders. The statute does not specify the grounds for collaterally attacking liquidation orders. Therefore, common law controls. Under Tennessee common law, court orders “may be subject to collateral attack when the court exceeds the powers conferred upon it by law.” Sizemore, 939 F.Supp. at 515 (reviewing Tennessee case law). This does not mean though that a party can collaterally attack a judgment when a court erroneously exercises its power. Rather, the court must usurp power where none existed. See Sizemore, 939 F.Supp. at 515.
There does not appear to be Tennessee precedent drawing the distinction between an erroneous exercise of power and a usurpation of power. However, in an analogous case, the Seventh Circuit reasoned that only an egregious error results in a void judgment. See Sizemore, 939 F.Supp. at 515-16 (citing In re Edwards, 962 F.2d 641, 644 (7th Cir.1992)). When the error is reasonable, the rendering court has jurisdiction to determine its own jurisdiction. See Sizemore, 939 F.Supp. at 516. Thus, in this case, to collaterally attack the liquidation order, the Bank and USI must show that the Tennessee Chancery Court committed an egregious error when it allowed for the liquidation of Anchorage’s assets outside Tennessee. See Sizemore, 939 F.Supp. at 516.
TIRLA provides that “[i]f it appears to the court that the best interests of creditors, policyholders and the public so require, the [Tennessee Chancery Court] may issue an order to liquidate in whatever terms it deems appropriate.” Tenn.Code Ann. § 56-9-402(c). Moreover, TIRLA states that the Act should be liberally construed to protect the public. See Tenn.Code Ann. § 56-9-101(e) — (d). In liberally construing the Act, the Liquidator insists that the Tennessee Chancery Court had the authority to order the liquidation of assets “in whatever terms it deems appropriate,” including liquidating assets outside Tennessee. Additionally, the Liquidator points out that under TIRLA courts have the authority to issue conservation orders affecting out-of-state assets. Thus, it does not make sense to limit courts’ authority to issue liquidation orders affecting out-of-state assets. See Sizemore, 939 F.Supp. at 516.
The Bank and USI counter that TIRLA’s specific language limits the Tennessee Chancery Court’s authority to liquidating only assets inside Tennessee. While this is a strong argument, it is not necessary to decide which party is correct. Instead, the focus is whether, assuming it was error to allow liquidation of assets outside Tennessee, the error was egregious. See Sizemore, 939 F.Supp. at 516.
The Liquidator’s arguments have credence and the extent of the Tennessee Chancery Court’s jurisdiction is not clearly defined. Accordingly, I cannot conclude that the Tennessee Chancery Court’s error, if any, was egregious. See Sizemore, 939 F.Supp. at 516. Thus, I would hold that any error by the Tennessee Chancery Court involves a mistaken interpretation of law, not a usurpation of power. The liquidation order is entitled to full faith and credit. The Bank and USI must to challenge the liquidation order in Tennessee.
III. CONCLUSION
The Bank’s interpleader action in this case is within the scope of the liquidation order. The Bank and USI cannot collaterally attack the validity of the order. Therefore, I would afford the liquidation order full faith and credit and dismiss the action.