But, the Court faces the question of which law should be applied in its abstention analysis. The Oklahoma Commissioner posits that the public interests underlying the two insurance regulatory schemes of concern in this action -- the New Jersey Holding Company Act and the Oklahoma Liquidation Act-- require that one takes precedence over the public interests of the other. Specifically, she argues that the public interests underlying the Liquidation Act take precedence over the public interests underlying the Holding Company Act.
The Oklahoma Commissioner argues that "the interest to be served by an unflinching application of the . . . [Oklahoma Liquidation Act] is obviously the emergent management of the assets of the insolvent insurer to bring value back into the receivership estate to pay claims and protect policyholders (citations omitted)." Memorandum of Law of Defendant Receiver in Opposition to Plaintiffs' Motion for Summary Judgment ("Oklahoma Commissioner's Opposition Brief"), p. 8. The Oklahoma Commissioner submits that the public interests underlying the Oklahoma Liquidation Act and the need for delinquency proceedings situated in the insolvent insurer's domiciliary state to be the exclusive means of resolving disputes in the context of an insurer insolvency are "extraordinary and overwhelming" and should therefore take precedence over the Holding Company Act.
Second, the Oklahoma Commissioner points to the injunction issued by the Oklahoma state court to demonstrate that the Liquidation Act should take precedence. The state court of Oklahoma has issued three injunctions restraining all persons from commencing or prosecuting any action against the Receiver or MCAIC or its assets. The injunctions were issued to serve the interests underlying the Liquidation Act: to allow the liquidator and the court to apply their expertise to the issues presented; to avoid outside interference with liquidation proceedings; to eliminate the possibility of conflicting rules, piecemeal litigation and unequal treatment of claimants; and to reduce the delay, inefficiency and waste of limited assets attendant to defending claims in multiple fora. While the injunctions may not be binding restraints on federal proceedings, the Oklahoma Commissioner suggests that it would thwart the purposes of the Act to allow plaintiffs to side-step the injunctions by filing here.
Additionally, pursuant to the New Jersey version of the Liquidation Act, the Oklahoma Commissioner submits that the state courts of New Jersey would apply the Liquidation Act and decline to rule on the Holding Company Act issue. The New Jersey adoption of the Uniform Liquidation Act incorporates a prohibition of any action or proceeding in the state in the nature of an attachment, garnishment or execution during the pendency of delinquency proceedings in another state, N.J.S.A. 17:30C-22, and provides for restraints against commencement of any actions against an insolvent insurer or its assets. Id. § 17:30C-5(a). New Jersey state courts have recognized that an injunction issued by a receivership court in another state prohibiting litigation against the receiver or the insolvent insurer should operate to deprive the New Jersey state courts of jurisdiction. See, e.g., Murphy v. Ambassador Ins. Co., 195 N.J. Super. 274, 282, 478 A.2d 1243 (Ch. Div. 1984) (declining to adjudicate because domiciliary state of Vermont proper forum for all proceedings concerning assets of insolvent insurer); Zullo Lumber v. King Construction, 146 N.J. Super. 88, 93-94, 368 A.2d 987 (Law Div. 1976). The federal courts of New Jersey have also supported the concept of unification of proceedings against insolvent insurers. See Ballesteros v. N.J. Prop. Liab. Ins. Guar. Ass'n, 530 F. Supp. 1367, 1371 (D.N.J. 1982). The coalescence of both the state and federal courts of New Jersey in the view that the claims of residents against insolvent foreign insurers should be brought in the domiciliary state militates towards applying Oklahoma law first.
Finally, she asserts the common sense of this situation suggests that the Holding Company Act may never be implicated. The only time the New Jersey law would come into play is if the Oklahoma Commissioner were to ultimately prevail on her arguments regarding the stock of Motor Club. If she is allowed to set aside the transfer, then and only then would she need to comply with the requirements of the Holding Company Act. The interstate compact between the two Commissioners reflects this approach. The essence of the Oklahoma Commissioner's argument is that the breadth of the objectives of the Oklahoma Liquidation Act dictates that it should take precedence over the New Jersey Holding Company Act.
Plaintiffs argue that this is not an issue of when should the New Jersey law apply. Rather, plaintiffs posit the issue is whether the New Jersey Holding Company Act applies. Plaintiffs point to the language of the Holding Company Act to argue that it is applicable right now. The Holding Company Act states that any activity directed towards the acquisition of a domestic insurer -- not just the actual acquisition of an insurer -- falls within the purview of the act. Just this past August, the New Jersey legislature underscored this by amending the statute to provide that "the effectuation of, or any attempt to effectuate, an acquisition of control of, or merger with, a domestic insurer" without the New Jersey Commissioner's approval is a violation of the Holding Company Act. See N.J.S.A. 17:27A-2g, as amended by New Jersey P.L. 1993, Chapter 241, 1993 Assembly Bill No. 82 (amendment underlined).
Plaintiffs view the interstate compact, which embodies the approach to prioritize one statute, as an apparent attempt of the New Jersey Commissioner to exempt the Oklahoma Commissioner from compliance with the New Jersey Holding Company Act. While the Act provides that the New Jersey Commissioner can exempt a party from compliance, according to plaintiffs, the New Jersey Commissioner has not followed the letter of the law concerning exemptions. N.J.S.A. 17:27A-2(f)(2) provides:
Any offer, request, invitation, agreement or acquisition which the commissioner by order shall exempt therefrom as (a) not having been made or entered into for the purpose and not having the effect of changing or influencing the control of a domestic insurer, or (b) as otherwise not comprehended within the purposes of this section . . . .
Unfortunately, the New Jersey Commissioner has not complied with the terms of the statute: he has not entered an order waiving the Oklahoma Commissioner's compliance. More significantly, according to plaintiffs, the New Jersey Commissioner cannot enter such an order here. Plaintiffs, however, are not specific as to why, but rather note that "the Oklahoma Commissioner's continuing attempt to acquire control of a New Jersey domestic insurer [Motor Club] on behalf of an insolvent Oklahoma Insurer [MCAIC] is not the kind of activity which even could be considered for exemption under N.J.S.A. 17:27A-2f(2)." See Dec. 23, 1993 letter from Joseph Fleischman, Esq.
Thus, the Court is faced with a dilemma: which law should be applied in determining whether abstention is proper. The Court has found no law to guide it in making this Solomon-like choice. And, besides the arguments detailed above, the parties have not provided any law. The Court concludes that suppletive rules are necessary.
See Dome Petroleum Ltd. v. Employers Mut. Liab. Ins. Co., 776 F. Supp. 970 (D.N.J. 1991). Such rules suggest that while this is not a choice of law problem, it is analogous to one. Hence, this court should apply a governmental interest analysis-type test as it would to a clear choice of law analysis.
The governmental interest analysis applied in the choice of law context was clearly explained by the New Jersey Supreme Court in Veazey v. Doremus, 103 N.J. 244, 248, 510 A.2d 1187 (1986). This Court must first decide if there is a conflict between the laws of the interested states. If there is, the next step is to identify the governmental policies underlying the competing laws, and how those policies would be affected by applying one law before the other with a view to determining which law should be the basis for abstaining.
The Court will start by looking at the Oklahoma Liquidation Act. The Oklahoma Liquidation Act is based on the Uniform Liquidation Act. The Uniform Liquidation Act, adopted by the National Conference of Commissioners on Uniform State Laws and the American Bar Association in 1939, was prompted by problems of interstate rehabilitation and liquidation of insolvent insurers. See Prefatory Note to the Uniform Insurers Liquidation Act, 13 U.L.A. 322 (1986 & Supp. 1991). The stated purpose of the Uniform Liquidation Act was to lessen the problems incurred when an insolvent insurer has assets and liabilities in multiple states by providing a uniform act with reciprocal provisions that could be adopted by all states. Id. at 323. The Uniform Liquidation Act was designed to remedy six areas of concern:
(1) the designation of the insurance commissioner of the domicile state as the receiver for an insurer; (2) authority for domiciliary receivers to proceed in non-domiciliary states; (3) vesting of title to assets in the domiciliary receiver; (4) provision for non-domiciliary creditors to have the option to proceed with claims before local ancillary receivers; (5) uniform application of the laws of the domiciliary state to the allowance of preferences among claims; and (6) prevention of preferences for diligent non-domiciliary creditors with advance information. See Twin City Bank v. Mutual Fire Marine & Inland Ins. Co., 646 F. Supp. 1139, 1141 (S.D.N.Y. 1986), aff'd, 812 F.2d 713 (2d Cir. 1987). See also Uniform Insurers Liquidation Act, Prefatory Note.
Matter of Mutual Benefit Life Ins. Co., 258 N.J. Super. 356, 368, 609 A.2d 768 (App. Div. 1992).
Thus, the purpose of the Uniform Liquidation Act is to "provide for a uniform, orderly and equitable method of making and processing claims against financially trouble insurers and to provide for fair procedures for rehabilitating the business of such insurers and, if necessary, distributing their assets." Id. at 368 (citations omitted). In order to effectuate this purpose, the Uniform Liquidation Act, and the Oklahoma version of it, grant the insurance commissioner and the state court broad powers. As the express powers have been enumerated supra, they will not be repeated here.
The Court is mindful that the statute which the Oklahoma Commissioner is using to recover the stock -- 36 Oklahoma Statute section 1926 -- is not part of the Uniform Liquidation Act or the Oklahoma Liquidation Act. Plaintiffs would have this Court hold that because of this, the policy concerns underlying either the Uniform or Oklahoma Liquidation Act are inapplicable. What plaintiffs have overlooked is that but for the liquidation proceedings, the Oklahoma Commissioner would be unable to attempt to recover the stock pursuant to 36 Oklahoma Statute section 1926. Section 1926 states that every transfer made by an insurer within one year of its insolvency may be avoided. That the Oklahoma Commissioner's action is intimately related and intertwined in the liquidation of MCAIC finds support in the fact that that action is assigned to the same court and the same judge as is overseeing the liquidation.
By applying the Oklahoma Liquidation Act first, the Court will be protecting the Oklahoma Commissioner's regulatory position. She will be allowed to marshall the assets of MCAIC with a view to bringing value into the receivership to pay claims and protect policyholders.
Now, the Court turns its attention to the New Jersey Holding Company Act. The goal of the Holding Company Act is to promote disclosure and approval of changes in control of insurers domiciled in New Jersey to protect policyholders within the state. The Holding Company Act, like the Liquidation Act, recognizes that most policyholders are ignorant of the financial health of an insurer and thus vests the New Jersey Commissioner with the ability to control mergers and acquisitions for their benefit.
The language of the Holding Company Act is clear and thus should be given its ordinary meaning. See e.g., Merin v. Maglaki, 126 N.J. 430, 434, 599 A.2d 1256 (1992) (construction of any statue begins with consideration of its plain language); Town of Morristown v. Woman's Club, 124 N.J. 605, 610, 592 A.2d 216 (1991) (such language should be given its ordinary meaning, absent a legislative intent to the contrary). It should apply whenever there is any attempt to change control of a New Jersey insurer.
Nevertheless, if the Court were to start its analysis based on the New Jersey Holding Company Act it would thwart the objectives of the Oklahoma Liquidation Act. The policies underlying N.J.S.A. 17:27A-2a would restrain the Oklahoma Commissioner from attempting to acquire Motor Club. Accordingly, it would inevitably interfere with the liquidation proceedings and the Oklahoma Commissioner's ability to marshal the assets of MCAIC wherever they are located.
Conversely, if the Court were to start its analysis premised on the Oklahoma Liquidation Act, it would not make the New Jersey law a nullity. In fact, such a disposition is in keeping with New Jersey's policy favoring the insurance commissioner's recovery of assets of an insolvent.
Coequivalent with the New Jersey Holding Company Act's requirements concerning application and approval for changes in ownership are provisions in the New Jersey statute that allow the New Jersey Commissioner to recover an avoidable transfer. See N.J.S.A. 17:27A-9, P.L. 1993, C 41. These provisions which, like the Oklahoma avoidance provision is not part of the Uniform Act, do not mandate that the New Jersey Commissioner must have approval to recover a distribution. In fact, the provisions -- unfettered by notice, application or approval requirements -- highlight New Jersey's policy favoring recovery powers of the insurance commissioner in the context of an insolvency proceeding over the interests to be served by compliance with the Holding Company Act's approval and notice requirements.
Finally, as the interstate compact suggests, avoidability is the key issue. The policies underlying the New Jersey Holding Company Act may not be implicated if the stock is not recoverable. If the Oklahoma Commissioner is allowed to set aside the transfer and recover the Motor Club stock, then and only then would New Jersey's concerns about regulating and controlling acquisitions of domestic insurers be of concern. Thus, common sense dictates that the Holding Company Act should give way to the Liquidation Act for the purpose of this Court's abstention analysis.
2. Burford Abstention
The Burford abstention doctrine provides for the exercise of equitable discretion by federal courts to refrain from deciding questions involving basic problems of state policy pertaining to the regulation of important state concerns. In Burford, the plaintiff sought to enjoin the Texas Railroad Commission's decision to grant the right to drill four oil wells to a competitor. Burford, 319 U.S. at 316-317, 63 S. Ct. at 1098-1099. The Supreme Court upheld the district court's decision refusing to review the grant of the permit and dismissing the case. Id. at 324, 63 S. Ct. at 1102. The Court reasoned that because the state of Texas (i) had created an elaborate regulation system to deal with the geological complexities of oil and gas fields, and (ii) had centralized judicial review in a single state district court which had developed the "specialized knowledge which is useful in shaping the policy of regulation of the ever-changing demands in this field," id. at 327, 63 S. Ct. at 1104, the action could not be resolved without impermissibly disrupting and unduly intruding into the state's well organized system of regulation and review. Id. at 334, 63 S. Ct. at 1107. If the federal court heard this case it would only create unnecessary confusion and "as a practical matter, the federal courts can make small contribution to" this complex state regulatory system. Id. at 327, 63 S. Ct. at 1104. The Court concluded that under these circumstances "a sound respect for the independence of state action requires the federal equity court to stay its hand." Id. at 334, 63 S. Ct. at 1107.
As read in subsequent cases, Burford limits "interference by the federal courts in determinations of inherently local matters made by state courts pursuant to a complex state regulatory scheme." University of Maryland v. Peat Marwick Main & Co., 923 F.2d 265, 270 (3d Cir. 1991). Where a complex regulatory scheme is established and is central to state interests, abstention is appropriate if "the district court's exercise of jurisdiction would interfere with ongoing proceedings pursuant" to that regulatory mechanism, General Glass Industries Corp. v. Monsour Medical Foundation, 973 F.2d 197, 201 (3d Cir. 1992), or if the federal court had to deal primarily with state law issues where exercise of such jurisdiction will disrupt the state's efforts to "establish a coherent policy with respect to a matter of substantial public concern." Lac D'Amiante du Quebec v. American Home Assur. Co. ("LAQ"), 864 F.2d 1033, 1043 (3d Cir 1988), quoting Colorado River, 424 U.S. at 814, 96 S. Ct. at 1245. Thus, a federal court sitting in equity must decline to interfere with proceedings or orders of state administrative agencies
where timely and adequate state court review is available . . . [and] (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 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.'