The opinion of the court was delivered by: JOHN E. SPRIZZO
Plaintiff Capitol Indemnity Corporation ("Capitol") brings this action against defendants Salvatore Curiale and Stephen Doody (collectively "defendants") seeking to recover for civil rights violations under 28 U.S.C. § 1983, conversion, negligence and breach of fiduciary duty. Capitol seeks relief against Curiale both individually, and in his capacity as Superintendent of Insurance of the State of New York (the "Superintendent") as Liquidator of three insolvent New York insurance companies and as Conservator of one insolvent California insurance company. Capitol seeks relief against Doody individually, as Deputy Superintendent of Insurance of the State of New York, and as General Counsel to the New York State Insurance Department Liquidation Bureau. The parties have cross-moved for summary judgment, and defendants have moved to dismiss under the doctrine of abstention. For the reasons that follow, the defendants' motion to dismiss is granted.
In the early 1960's, several insurance companies pooled their reserves and participated in a reinsurance pool known as the Agency Managers Casualty Reinsurance Pool (the "AMI Pool").
Plaintiff's Local Rule 3(g) Statement dated September 28, 1993 ("Pltf. Rule 3(g) St.") P 5. Managed by Agency Managers, Inc. ("AMI"), the AMI Pool reinsured portions of casualty risks originally insured by primary insurers, otherwise known as cedents. Id. P 5. In order to limit its potential liabilities, the AMI Pool obtained reinsurance through other companies known as "retrocessionaires."
Id. P 6. During its involvement in the AMI Pool, Capitol operated as a direct participant in the AMI Pool, as an individual retrocessionaire of the AMI Pool, and as a member of a group retrocessionaire of the AMI Pool. Id. P 7; Defendants' Official Capacity Local Rule 3(g) Statement dated August 16, 1993 ("Deft. Official Rule 3(g) St.") P 10; Affidavit of Al Valuntas Sworn to April 7, 1993 ("Valuntas Aff.") P 8.
In order for the AMI Pool to obtain balance sheet credit for potential reinsurance recoveries, Capitol established various trust accounts at Marine Midland Bank and Manufacturers Hanover Trust, both of which are located in New York (the "trust fund accounts"). Pltf. Rule 3(g) St. P 8; Affidavit of Paul Breitnauer Sworn to April 7, 1993 ("Breitnauer Aff.") P 3; Valuntas Aff. PP 6, 13-18. In addition, AMI established and operated its own Master Operating Account, into which it paid premiums, recoveries on salvage and subrogation claims and retrocessional recoveries. Valuntas Aff. P 6. The Master Operating Account functioned as a clearinghouse through which AMI would credit the individual operating accounts of AMI Pool members. Id. P 6. Pursuant to certain retrocessional agreements, AMI was authorized under limited circumstances to withdraw from the trust fund accounts in order to pay the reinsurance claims filed by members of the AMI Pool.
Pltf. Rule 3(g) St. P 8; Breitnauer Aff. PP 3-5. The instant action concerns the ownership of some of these funds, and the Superintendent's actions in regard thereto.
On January 10, 1978, the State of California declared a member of the AMI Pool, Imperial Insurance Co. ("Imperial"), to be insolvent and placed it into liquidation. Deft. Official Rule 3(g) St. PP 2-3; Affidavit of Elie Heffez Sworn to August 16, 1993 ("Heffez Aff.") P 5, Exh. B. On February 9, 1978, the Supreme Court for the State of New York appointed the Superintendent, or his successors, as Conservator of Imperial's assets located within the state. Deft. Official Rule 3(g) St. PP 2-3; Heffez Aff. P 5, Exh. B. Between May 1979 and August 1986, the court declared three other members of the AMI Pool, Consolidated Mutual Insurance Co. ("Consolidated"), Cosmopolitan Insurance Co. ("Cosmopolitan") and Dominion Insurance Co. of America ("Dominion") to be insolvent and placed them into liquidation. Deft. Official Rule 3(g) St. PP 4-9; Heffez Aff. PP 6-8, Exhs. D, F & H. During that period, the court also appointed the Superintendent, or his successors, as the Liquidator of the three insolvent insurance companies. Deft. Official Rule 3(g) St. PP 4-9; Heffez Aff. Exhs. D, F & H.
On August 30, 1988, the AMI Pool filed for bankruptcy protection under Chapter 7 of Title 11 of the United States Code, 11 U.S.C. § 701 et seq., and a trustee (the "AMI Trustee") assumed custody over the insolvent estate, including the trust fund accounts.
Deft. Official Rule 3(g) St. P 11; Heffez Aff. P 12. In or about May 1989, the AMI Trustee applied to the bankruptcy court for an order permitting the abandonment of certain funds. Heffez Aff. Exh. I at 3. In or about August 1989, the Superintendent applied to the bankruptcy court for an order directing that the aforesaid funds be turned over to the Superintendent. Id. On July 12, 1989, Capitol informed the AMI Trustee of its claim to a portion of the aforementioned trust fund accounts, but the AMI Trustee rejected the claim. Pltf. Rule 3(g) St. P 20; Heffez Aff. Exh. K. On August 10, August 22 and November 15, 1989, the Superintendent also rejected Capitol's claim to the funds. Heffez Aff. P 14-15, 17, Exhs. L, M, & N. On September 27, 1989, pursuant to a Stipulation between the AMI Trustee and the Liquidator, the United States Bankruptcy Court for the Southern District of New York ordered the AMI Trustee to abandon and transfer the trust fund accounts to the Superintendent. Heffez Aff. Exh. I; Valuntas Aff. Exh. A. In or about November 1989, the AMI Trustee transferred the trust fund accounts to the Superintendent in his capacity as Liquidator of Cosmopolitan, Consolidated and Dominion and as Conservator of Imperial. Pltf. Rule 3(g) St. P 16; Heffez Aff. P 16. In or around March 1990, the Superintendent allocated the transferred funds among the various insolvent estates in accordance with their entitlements as former pool participants. Pltf. Rule 3(g) St. P 23; Heffez Aff. P 16.
In or about June 1990, defendant Curiale was appointed Superintendent of Insurance for the State of New York and assumed the position as Liquidator of Cosmopolitan, Consolidated and Dominion and Conservator of Imperial pursuant to Article 74 of the New York State Insurance Law. On June 18, 1992, Capitol commenced the instant action against Curiale in his official capacity as the Superintendent. On or about March 24, 1993, the Superintendent commenced three contempt actions in the Supreme Court of the State of New York alleging that Capitol had violated the terms of the conservation order and two of the three liquidation orders.
In turn, Capitol removed the contempt actions to this Court. See Capitol Indemnity Corp. v. Curiale, 92 Civ. 2262 (JES) (Imperial); Capitol Indemnity Corp. v. Curiale, 93 Civ. 2263 (JES) (Cosmopolitan); Capitol Indemnity Corp. v. Curiale, 93 Civ. 2437 (JES) (Dominion). In response, the Superintendent moved for summary judgment or, in the alternative, for a remand to the state court. On May 27, 1993, the Court denied the Superintendent's motions, and issued an order enjoining the enforcement of any contempt proceedings related to the instant action.
In this action, Capitol claims that certain funds transferred by the AMI Trustee to the Superintendent are owned by Capitol, and that such funds were distributed by the Superintendent in violation of the retrocessional agreements. Affidavit of Terence P. Cummings Sworn to April 8, 1993 at PP 5-7; Reply Affidavit of Paul Breitnauer Sworn to May 19, 1993 at PP 2-6; Reply Affidavit of Al Valuntas Sworn to May 19, 1993 at PP 2-11. In its original complaint, Capitol asserted claims only against the Superintendent in his official capacity.
As a general rule, the federal courts have a "virtually unflagging obligation . . . to exercise the jurisdiction given them." Colorado River Water Cons. Dist. v. United States, 424 U.S. 800, 817, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976). Nevertheless, the United States Supreme Court has established at least four exceptions to this rule, under which federal courts may abstain from exercising their jurisdiction in a particular case. See, e.g., Railroad Comm'n of Texas v. Pullman Co., 312 U.S. 496, 85 L. Ed. 971, 61 S. Ct. 643 (1941) ("Pullman abstention"); Burford v. Sun Oil Co., 319 U.S. 315, 87 L. Ed. 1424, 63 S. Ct. 1098 (1943) ("Burford abstention"); Colorado River, 424 U.S. at 800 ("Colorado River abstention"); Younger v. Harris, 401 U.S. 37, 27 L. Ed. 2d 669, 91 S. Ct. 746 (1971) ("Younger abstention"). Relying upon the principles set forth by the Supreme Court in Burford and Colorado River, the Superintendent argues that the instant action "is one of those exceptional cases where the district court should decline to decide a dispute properly before it." Canaday v. Koch, 608 F. Supp. 1460, 1466 (S.D.N.Y.), aff'd, 768 F.2d 501 (2d Cir. 1985).
Based upon principles of federalism and comity, Burford abstention requires federal courts to abstain where the exercise of jurisdiction would unnecessarily interfere with the administration of a complex state regulatory system. See New Orleans Pub. Serv. Inc. v. Council of New Orleans, 491 U.S. 350, 361, 105 L. Ed. 2d 298, 109 S. Ct. 2506 (1989). By enacting the McCarren-Ferguson Act, 15 U.S.C. § 1011 et seq., Congress provided states with exclusive jurisdiction over insurance administration and regulation, thereby creating an important state interest. See Mathias v. Lennon, 474 F. Supp. 949, 951 (S.D.N.Y. 1979). Pursuant to that congressional mandate, the State of New York has established a complex regulatory scheme covering the rehabilitation, liquidation, conservation and the dissolution of insurance companies. See generally N.Y. Ins. Law Art. 74 (McKinney 1985). As recognized by the New York Court of Appeals, that regulatory scheme "is intended to and does furnish a 'comprehensive, economical, and efficient method for the winding up of the affairs' of . . . insurance ...