Opinion
01 Civ. 6638 (HBP)
December 11, 2002
MEMORANDUM OPINION AND ORDER
By notice of motion dated November 26, 2002, defendants move to stay the trial of this matter, which is currently scheduled to commence on December 16, 2002, pending the completion of their insurer's reorganization proceedings. For the reasons set forth below, the motion is denied.
This is a diversity action arising out of an automobile accident. Plaintiff is currently 87 years old. The Court's subject matter jurisdiction is predicated on diversity of citizenship. Plaintiff is alleged to be a citizen of New York, defendants are all alleged to be citizens of New Jersey and the alleged accident occurred in New York.
The matter was assigned to me for all purposes with the consent of all parties on April 12, 2002. Defendants' insurer has been in state reorganization proceedings in Pennsylvania since the matter was referred to me.
After consulting with counsel for all parties and hoping that the reorganization proceedings would be promptly resolved, I took no action in this matter until October 8, 2002 when I scheduled the trial. Despite the fact that almost eight months have elapsed since the matter was referred to me, the reorganization proceedings are still pending, and no one appears to have any idea when they will be completed.
Defendants claim that I am obligated by the Full Faith and Credit Clause of Article IV of the United States Constitution and 28 U.S.C. § 1738 to give full faith and credit to an Order issued by the Commonwealth Court of Pennsylvania which purports to stay all proceedings against persons insured by defendants insurer. There are several answers to this argument. First, it is beyond question that a state court cannot enjoin a person or corporation from prosecuting an inpersonam action, such as this, in a federal court that has jurisdiction over the persons and subject matter. Donovan v. City of Dallas, 377 U.S. 408, 412-13 (1964) ("[S]tate courts are completely without power to restrain federal-court proceedings in In personam actions."). See also General Atomic Co. v. Felter, 434 U.S. 12, 17 (1977) ("[T]he rights conferred by Congress to bring . . . actions in federal courts are not subject to abridgement by state-court injunctions
Second, although the Full Faith and Credit Clause of the United States Constitution does not, by its terms, apply to federal courts, Title 28, United States Code, Section 1738 "places upon federal courts the same burden as the Constitutions Full Faith and Credit clause places upon states courts." Stone v. Williams, 970 F.2d 1043, 1054 (2d Cir. 1992). However, both the Full Faith and Credit Clause and Section 1738 require that full faith and credit be given only to a final judgment. Kulko v. Superior Court, 436 U.S. 84, 95 n. 9 (1978) (Full Faith and Credit Clause); Conopco v. Roll Int'l, 231 F.3d 82, 87 (2d Cir. 2000) (Section 1738); Welt v. Abrams, 832 F. Supp. 88, 92 (S.D.N.Y. 1993) (Section 1738). In this case, the Commonwealth Court's (Order is clearly interlocutory, and is apparently intended to preserve the insolvent insurer's assets until the reorganization proceedings are complete.
Third, in order to be entitled to full faith and credit, the proceeding that gave rise to the final judgment must comply with due process. See Marrese v. American Acad. of Orthopaedic Surgeons, 470 U.S. 373, 380 (1985); Kremer v. Chemical Constr. Corp., 456 U.S. 461, 481 (1982);Conopco, Inc. v. Roll Intern., supra, 231 F.3d at 87. Given that the Due Process Clause of the Fourteenth Amendment requires that a defendant have certain minimum contacts with a forum before the forum can assert jurisdiction over the person of the defendant, International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945), the Order in issue here is entitled to full faith and credit only if it is final and only if the Commonwealth Court had personal jurisdiction over the persons or entities sought to be stayed. There is not a scintilla of evidence in the record that suggests any connection between plaintiff and Pennsylvania, and, given the nature of this litigation, there is no substantial likelihood that any such connection exists.
Thus, there is clearly no principle of law that requires me to stay this proceeding.
Finally, defendants claim that a stay of the trial and all other proceedings in this matter is appropriate pursuant to the abstention doctrine enunciated in Burford v. Sun Oil Co., 319 U.S. 315 (1943). The controlling principles applicable to the Burford abstention doctrine were summarized by the Court of Appeals in Hachamovitch v. DeBuono, 159 F.3d 687, 697 (2d Cir. 1998):
The Supreme Court has identified two circumstances in which a federal court should apply Burford abstention:
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.
New Orleans Public Serv., Inc. v. Council of the City of New Orleans, 491 U.S. 350, 361, 109 S.Ct. 2506, 2514, 105 L.Ed.2d 298 (1989) (quoting Colorado River, 424 U.S. at 814, 96 S.Ct. at 1244-45)
As this Court and numerous others have emphasized, however, "[a]bstention is the exception, exercise of jurisdiction the rule." United Fence Guard Rail Corp. v. Cuomo, 878 F.2d 588, 593 (2d Cir. 1989). In New Orleans Public Service, Inc., the Supreme Court cautioned the lower federal courts to limit their invocation of Burford abstention:
We have carefully defined, however, the areas in which such "abstention" is permissible, and it remains "the exception, not the rule." . . . [F]ederal courts' obligation to adjudicate claims within their jurisdiction [is] "virtually unflagging."491 U.S. at 359, 109 S.Ct. at 2513 (citation omitted)
Nonetheless, Burford abstention is appropriate 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.
Colorado River, 424 U.S. at 814, 96 S.Ct. at 1245. This Court has identified three factors pertinent to this determination: (1) the degree of specificity of the state regulatory scheme; (2) the need to give one or another debatable construction to a state statute; and (3) whether the subject matter of the litigation is traditionally one of state concern. See Bethphage Lutheran Serv., 965 F.2d at 1243.
The issues raised in the present action simply have nothing to do with the issues raised in the Pennsylvania reorganization proceedings. The present case involves no issues concerning the liquidity of defendants' insurer, no issue concerning the valuation of its assets and no issue as to the future management of the insurer's assets. In short, there is no factual or legal overlap whatsoever between the issues in this case and the issues in the Pennsylvania reorganization proceedings, and the outcome of the case before me will have no impact whatsoever on the issues before the Commonwealth Court or its right to regulate insurance companies incorporated in Pennsylvania.
Defendants rely primarily on two cases in support of their application: General Glass Indus. Corp. v. Monsour Med. Found., 973 F.2d 197 (3rd Cir. 1991) and Feige v. Sechrest, 90 F.3d 846 (3rd Cir. 1996). Assuming that General Glass still has some continuing vitality, both are distinguishable. Both General Glass and Feige involved claims asserted directly against the insurer that raised factual issues identical to those raised in the state liquidation proceedings. In this case, there is no claim directly against defendants' insurer and no claim that even arguably implicates the internal management or accounting practices of defendants' insurer.
The Court in General Glass affirmed the dismissal of an action for damages under the Burford abstention doctrine. The Court of Appeals for the Third Circuit has recognized that this aspect of General Glass was overruled by Ouackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996). See Feige v. Sechrest, supra, 90 F.3d at 850.
I do not doubt that it would be more convenient for the Commonwealth Court if this action were stayed, and in other circumstances, a stay might be appropriate. However, given plaintiff's age, staying this action might make it impossible for plaintiff to assert his claim. Weighing the convenience of the Commonwealth Court with the practical problems plaintiff might face if the action were stayed, I conclude that the balance of equities favors the denial of the stay.
Finally, I have also considered the impact on defendants of the denial of a stay. There is little question that the apparent insolvency of defendants' insurer may deprive defendants of insurance coverage they bought and paid for. Nevertheless, there is no basis for shifting this loss (or potential loss) to plaintiff. Defendants chose their insurance carrier; plaintiff did not. Since defendants unilaterally chose their insurance carrier, there is simply no reason in law, logic or common sense to shift the burden of the insurer's insolvency to plaintiff.
Accordingly, defendants' application for a stay is denied in all respects. The trial of this matter will commence as scheduled at 10:00 a.m. on December 16, 2002 in Courtroom 6A, United States Courthouse, 500 Pearl Street, New York, New York.
The media are reporting the possibility of a transit strike in New York City on December 16, 2002. Because such a strike may make it impossible for jurors to travel to the courthouse, if, and only if, there is a strike, counsel should call my Courtroom Deputy, Mr. Daniel Ortiz, at (212) 805-6112, on the morning of December 16, 2002 for further instructions. If there is no transit strike on December 16, 2002, counsel should report to Courtroom 6A at 10:00 a.m. on December 16, 2002 prepared to commence the trial.