Opinion
Civil Action No. 1:03-CV-2154.
February 6, 2004
MEMORANDUM AND ORDER
Before the Court is a motion to remand filed by Plaintiff M. Diane Koken, the Insurance Commissioner of the Commonwealth of Pennsylvania, in her official capacity as Liquidator of Reliance Insurance Company. Plaintiff wishes to remand this case to the Commonwealth Court of Pennsylvania. This motion has been fully briefed and is ripe for disposition. For the reasons discussed below, the motion to remand will be granted.
I. Background
Plaintiff initiated this civil action on October 2, 2001 when she filed a complaint against Defendants P.L.D. Denis, Esquire and Others, Lloyd's Syndicate No. 1121, in the Commonwealth Court of Pennsylvania, seeking to recover $1,075,254.42 in payments received by Defendants from Reliance Insurance Company ("Reliance") as a voidable preference under 40 P.S. § 221.30(a). On November 26, 2003, the matter was removed to this Court pursuant to 28 U.S.C. § 1441. Defendants then filed a motion to dismiss under Rule 12(b)(5) for insufficiency of service of process. Plaintiff subsequently filed a motion under 28 U.S.C. § 1447(c) to have the matter remanded to the Commonwealth Court.
Upon petition of the Commissioner, Reliance was originally placed into rehabiliation by Order of the Commonwealth Court on May 29, 2001. The state court's order appointed the Commissioner as Rehabilitator of Relaince and placed all of the company's assets and business affairs under the control of the Commissioner and the Commonwealth Court. The Commonwealth Court later found Reliance insolvent and entered an order appointing the Commissioner as Liquidator of Reliance. In its liquidation order, the Commonwealth Court found all of Reliance's assets to be incustodia legis of the Court, and stated that: "this Court specifically asserts, to the fullest extent of its authority, (a)in rem jurisdiction over all assets of the Company [Reliance] wherever they may be located and regardless of whether they are held in the name of the Company or any other name; (b) exclusive jurisdiction over all determinations of the validity and amount of claims against Reliance. . . ." (Doc. No. 12, Ex. B. ¶ 5) Additionally, the Commonwealth Court ordered that all assets of Reliance be turned over to the Liquidator and vested her "with title to all property, assets, contracts and rights of action of Reliance, of whatever nature and wherever located, whether held directly or indirectly. . . ." Id. at ¶ 5, 7.
Following the liquidation order, Plaintiff alleged that Defendants and Reliance were parties to a reinsurance agreement, and that on February 7, 2001, Defendants received $1,075,254.42 from Reliance pursuant to Reliance's obligations under the agreement, which constituted a voidable preference. II. Discussion
40 P.S. § 221.30(a) defines a voidable preference:
A preference is a transfer of any of the property of an insurer to or for the benefit of a creditor, for or on account of an antecedent debt, made or suffered by the insurer within one year before the filing of a successful petition for liquidation under this article the effect of which transfer may be to enable the creditor to obtain a greater percentage of this debt than another creditor of the same class would receive. If a liquidation order is entered while the insurer is already subject to a rehabiliation order, then transfers otherwise qualifying shall be deemed preferences if made or suffered within one year before the filing of the successful petition for rehabiliation or withing two years before the filing of the successful petition for liquidation, whichever time is shorter.40 P.S. § 221.30(a).
In her motion to remand, Plaintiff asserts that this Court lacks jurisdiction because this action should not have originally been brought before this Court pursuant to 28 U.S.C. § 1441. Plaintiff reasons that the present action is not properly before this Court because the Commonwealth Court has in rem jurisdiction over all of Reliance's assets, including the rights of action for return of preferential transfers of assets at issue here. Plaintiff states that the Commonwealth Court exercised itsin rem jurisdiction over the liquidation proceedings to the exclusion of all other courts, thus precluding the removal of the present action. Plaintiff also asserts that the relief sought requires this Court to have in rem jurisdiction in conflict with state court jurisdiction.
Defendants argue that Plaintiff's motion to remand to the Commonwealth Court should be denied because the action is an in personam proceeding against individual Defendants for money damages, not a claim against a specific and identifiable piece of property. Defendants further assert that the preferential transfer action does not involve any issue central to the liquidation proceeding. Finally, Defendants assert that while the Reliance liquidation is an in rem proceeding, this action is in personam, and that the relief Plaintiff presently seeks will not require this Court to exercise control over property that is already within the control of the Commonwealth Court.
A state court has sufficient possession of an insolvent insurance company's assets through the constructive possession of the state's liquidator. Blackhawk Heating Plumbing Co., Inc. v. Geeslin, 530 F.2d 154, 158 (7th Cir. 1976) (citing Goldfine v. United States, 300 F.2d 260, 263 (1st Cir. 1962)). Where a court of competent jurisdiction has taken property into its possession through its officers, the property is thereby withdrawn from the jurisdiction of all other courts. Lion Bonding Surety Co. v. Dep't of Trade and Commerce of Neb., 262 U.S. 77, 88-89 (1923). This is known as the Princess Lida doctrine, named after the seminal case of Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456 (1939), where the United States Supreme Court held that when "two suits are in rem . . . so that the court, or its officer, has possession or must have control of the property which is the subject of the litigation in order to proceed with the cause and grant the relief sought," the first court to assume jurisdiction over the property may maintain and exercise that jurisdiction to the exclusion of other courts.Id. at 466. The doctrine is applicable not only to cases where property has been actually seized, but "applies as well where suits are brought to . . . liquidate estates . . . where, to give effect to its jurisdiction, the court must control the property."Id. In the Third Circuit, the Princess Lida doctrine applies when: (1) the litigation in both the first and second fora arein rem or quasi in rem in nature, and (2) when the relief sought requires that the second court must exercise control over the property in dispute and that such property is already under the control of the first court. Dailey v. Nat'l Hockey League, 987 F.2d 172, 176 (3d Cir. 1993). Thus, the issue is whether the preference action to void and recover the transferred property is an action in rem, one that adjudicates a right in property.
A judgment in rem affects the interests of all persons in a designated property. Hanson v. Denckla, 357 U.S. 235, 246 n. 12 (1958). Actions in rem are instituted to enforce a right to things, and adjudicate a right in specific property, while actions in personam are those in which an individual is charged personally. R.M.S. Titanic, Inc. v. Haver, 171 F.3d 943, 957 (4th Cir. 1999). In United States v. Bank of New York Trust Co., the Supreme Court explained what constituted an in rem action:
[T]hese suits are not to enforce a personal liability but to obtain possession of the respective funds. The suits are not merely to establish a debt or a right to share in property, and thus to obtain an adjudication which might be had without disturbing the control of the state court. Complainant demands that the depositaries account and pay over to the complainant, as "the sole and exclusive owner," the entire funds in their hands. Thus the object of the suits is to take the property from the depositaries and from the control of the state court, and to vest the property in the United States to the exclusion of all those whose claims are being adjudicated in the state proceedings.United States v. Bank of N.Y. Trust Co., 296 U.S. 463, 478 (1936).
The underlying liquidation proceedings under the authority of the Commonwealth Court are in rem in nature pursuant to the Commonwealth Court's liquidation order and because "[t]he appointment of a receiver and institution of liquidation proceedings . . . constitutes an action in rem." Blackhawk Heating Plumbing Co. Inc., 530 F.2d at 158. The object of the voidable preference claim here is the alleged preferential payment amount held by Defendants as re-insurer, and thus the preference action involves adjudication of the parties' respective right in the insolvent's property. This action is in rem in nature, similar to the retrieval of the funds in Bank of New York Trust Company. See 296 U.S. at 478. The claim here does not aim to enforce personal liability nor does it seek simply to obtain judgment against an individual for money damages. Instead, under the voidable preference statute, "[w]here the preference is voidable, the liquidator may recover the property or, if it has been converted, its value from any person who has received or converted the property. . . ." 40 P.S. § 221.3(a) (emphasis added). The voidable preference action is necessarily incident to the liquidation process, if not distinctly a part of the proceedings, and will affect the size of the liquidation estate. Jurisdiction in federal court over the present action would disturb and interfere with the Commonwealth Court's control and in rem jurisdiction over the underlying liquidation proceedings.
This remand issue is also not governed by Koken v. Cologne Reinsurance (Barbados), Ltd., 34 F. Supp.2d 240 (M.D. Pa. 1999) (Caldwell, J.). There, the court denied a liquidator's similar motion to remand, concluding that Burford abstention, Burford v. Sun Oil Co., 319 U.S. 315 (1943), was not appropriate in a contract claim primarily because the case presented an important federal question of enforcing arbitration agreements. Koken, 34 F. Supp.2d at 254, 255. This case does not turn on Burford abstention as Koken did, and no important issues of federal law are in question here. Rather, Plaintiff's voidable preference claim involves only issues of state law in connection with her duties as the state's liquidator of Reliance.
Remanding the voidable preference action also enhances judicial efficiency in allowing the Commonwealth Court to dispose of a matter in direct relation to the ongoing liquidation process overseen by that court, and allows the Commonwealth Court to proceed with a unified administration of Reliance's estate. Remand here comports with the strong federal policy of deferring to state regulation of the insurance industry, set forth in the McCarran-Ferguson Act, 15 U.S.C. § 1011-1015 (1945), and Pennsylvania's interest in a complete, economical, and timely liquidation of Reliance. "[T]here can be little doubt that parallel federal and state proceedings would disrupt Pennsylvania's legislative framework for the liquidation of insolvent insurers." Feige v. Sechrest, 90 F.3d 846, 847 (3d Cir. 1996).
Because the present suit is in rem, it resides within the Commonwealth Court's jurisdiction over the liquidation process. The Princess Lida doctrine attaches, requiring this Court to yield jurisdiction to the proper state court possessing control over the object of the suit, the res, here, $1,075,254.42. In order for this Court to grant Plaintiff's relief requested, this Court would have to exercise control over the alleged preferential payment amount, a tangible property under the in rem jurisdiction of the Commonwealth Court. Blackhawk Heating Plumbing Co., Inc., 530 F.2d 154. Accordingly, remand to the Commonwealth Court is proper. III. ORDER
Accordingly, IT IS ORDERED THAT Plaintiff's Motion to Remand to the Commonwealth Court of Pennsylvania (Doc. No. 10) is GRANTED. This case is REMANDED to the Commonwealth Court of Pennsylvania. The Clerk of Court shall send a certified copy of this Order to the Clerk of Court of the Commonwealth Court of Pennsylvania. The Motion to Dismiss (Doc. No. 2) is DENIED without prejudice to re-file in the Commonwealth Court of Pennsylvania. The Clerk of Court shall close the file.