United States v. 2006-01-12 | 03-55548 | HAWTHORNE SAVINGS VRELIANCE INSURANCE | precedential | opinion |

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
 HAWTHORNE SAVINGS F.S.B.;
HAWTHORNE FINANCIAL
CORPORATION, No. 03-55548
Plaintiffs-Appellees, D.C. No.v. CV-99-13119-
DT(AJW) RELIANCE INSURANCE COMPANY OF
ILLINOIS,
Defendant-Appellant. 
 HAWTHORNE SAVINGS F.S.B.;
HAWTHORNE FINANCIAL
CORPORATION,
Plaintiffs-Appellees,
No. 03-55611 v.
D.C. No. M. DIANE KOKEN, Insurance CV-99-13119-DT Commissioner of the Commonwealth of Pennsylvania, ORDER AND
in her capacity as Liquidator of AMENDED
Reliance Insurance Company, OPINION
Intervenor-Appellant,
RELIANCE INSURANCE COMPANY OF
ILLINOIS,
Defendant. 
Appeal from the United States District Court
for the Central District of California
Dickran M. Tevrizian, District Judge, Presiding
Argued and Submitted
December 6, 2004—Pasadena, California
629

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Filed August 24, 2005
Amended January 13, 2006
Before: James R. Browning, Harry Pregerson, and
Marsha S. Berzon, Circuit Judges.
Opinion by Judge Berzon
630 HAWTHORNE SAVINGS v. RELIANCE INSURANCE

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COUNSEL
W. Wendell Hall and Rosemarie Kanusky, Fulbright &
Jaworski L.L.P., San Antonio, Texas, Claudia Morehead and
Robert S. Schulman, Fulbright & Jaworski L.L.P., Los Ange-
les, California, and Oscar Rey Rodriguez, Fulbright & Jawor-
ski L.L.P., Dallas, Texas, for the defendant-appellant.
Pamela H. Woldow, Chief Counsel, Insurance Department,
Commonwealth of Pennsylvania, Harrisburg, Pennsylvania,
for the intervenor-appellant.
Jeffrey A. Tidus and David P. Crochetiere, Baute & Tidus
LLP, Los Angeles, California, for the plaintiffs-appellees.
ORDER
The Opinion filed on August 24, 2005 and appearing at 421
F.3d 835 (9th Cir. 2005) is hereby amended as follows:
1) 421 F.3d at 852, Slip Op. p. 11371, third to last line: after
“state court do” add “under the Uniform Insurers Liquidation
Act (UILA), CAL. INS. CODE §§ 1064.1-.12”
2) 421 F.3d at 852, Slip Op. p. 11372, lines 5-6: replace
“Uniform Insurers Liquidation Act (UILA), CAL. INS. CODE
§§ 1064.1-.12” with “UILA”
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3) 421 F.3d at 856, Slip Op. p. 11378, line 16: after “stay its
proceedings” add “under the UILA”
OPINION
BERZON, Circuit Judge:
“[F]ederal courts routinely confront the conflict between
their exercise of federal jurisdiction and state laws establish-
ing exclusive claims proceedings for insurance insolvencies.”
Callon Petroleum Co. v. Frontier Ins. Co., 351 F.3d 204, 209
(5th Cir. 2003).1 These appeals present such a conflict.
Hawthorne Savings, F.S.B. (“Hawthorne”) sued the Reli-
ance Insurance Company of Illinois (“Reliance-Illinois”) in
California state court, alleging various California state-law
contract-based claims. Reliance-Illinois removed the suit to
federal court on the basis of diversity. Shortly thereafter, Reli-
ance2 was placed in rehabilitation proceedings, and later in
liquidation proceedings, in the Commonwealth Court of Penn-
sylvania.3
The district court proceeded with this suit. The jury entered
a verdict in Hawthorne’s favor and awarded $950,000 in dam-
ages. Reliance now appeals the final judgment. Reliance’s
principal argument is that the district court erred in continuing
to exercise jurisdiction over Hawthorne’s suit once the reha-
1Insurance companies are expressly excluded from federal bankruptcy
laws. See 11 U.S.C. § 109(b)(2)-(3).
2For convenience, we hereafter refer to Reliance-Illinois and Reliance
interchangeably as “Reliance,” except where the distinction between the
two entities matters.
3The Commonwealth Court of Pennsylvania has original jurisdiction
over any civil action or proceeding arising under Article V of the Pennsyl-
vania Insurance Department Act, 40 PA. CONS. STAT. §§ 221.1-.63, includ-
ing the liquidation proceedings at issue here. See 42 id. § 761(a)(2)-(3).
635 HAWTHORNE SAVINGS v. RELIANCE INSURANCE

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bilitation proceedings began, because (1) it lacked jurisdiction
or (2) various abstention and comity-based doctrines required
the court to stay its hand. In addition, Reliance challenges the
district court’s order requiring it to post a $1.1 million litiga-
tion bond, and contests one of the jury instructions used at
trial. For the reasons that follow, we affirm on all claims in
No. 03-55548 and dismiss No. 03-55611 for failure to prose-
cute.
I. Background
This case has its roots in one of the more infamous legal
proceedings of the 1990s, the prosecution of O.J. Simpson. In
1995, Simpson, having incurred substantial litigation costs
and fees as a result of his prosecution and facing further costs
and fees for his civil trial, took out a loan from Hawthorne
secured with mortgages on his Los Angeles-area residence
(“Rockingham”) and a townhouse in New York. During
Simpson’s civil trial in 1997, the Rockingham property went
into default, leading to a widely publicized foreclosure sale.
One potential bidder, Jeff Bazyler, contacted Hawthorne Sav-
ings to obtain funds for a bid on the property. Hawthorne’s
President, Scott Braly, personally approved a loan for $2.6
million in cash, charging substantial fees and interest.4
After the period in which Bazyler could have rescinded the
loan without penalty passed, Braly decided to have Haw-
thorne bid against Bazyler at the foreclosure sale. Toward that
end, Hawthorne sent Bazyler a letter informing him that it
reserved the right to bid on the property. Braly also denied
Bazyler’s request for an additional $200,000, even though
there was no doubt that Bazyler had the necessary collateral
for the extra funds. Hawthorne outbid Bazyler at the foreclo-
sure sale, purchasing the property for $2,631,000, almost $1.2
4Except where otherwise indicated, the facts giving rise to the original
settlement between Bazyler and Hawthorne are undisputed and were stipu-
lated at trial.
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million under its market price. Hawthorne then sold the prop-
erty for $3.7 million.
Bazyler subsequently filed suit against Hawthorne and
Braly, alleging deceit, constructive fraud, and constructive
trust, in violation of California Civil Code sections 1709,
1573, and 2224, respectively. Eventually, Hawthorne settled
on its own behalf and Braly’s, agreeing to pay Bazyler
$700,000 from its own accounts.
Enter Reliance. Hawthorne was insured by a “Directors and
Officers Liability” policy issued by Reliance-Illinois, which
later merged into its parent, the Reliance Insurance Company
(“Reliance”). The policy had applicable coverage limits of
$10 million, with a “self-insured retention” of $100,000;
Hawthorne had to incur legal expenses of at least that amount
before the policy would kick in. Reliance was informed of the
Bazyler action, and participated in some of the mediation ses-
sions. Until the settlement, Reliance never indicated that it
would refuse to pay on any claim arising out of the case. Yet,
once the parties settled, Reliance, citing various provisions of
California law pertaining to intentional misconduct, compen-
sated Hawthorne for only $10,181.59 of the $364,559.53 in
legal fees incurred. Adding together the $700,000 settlement
and the fees Reliance refused to cover, Hawthorne was out of
pocket for $1,054,377.94.
In late 1999, Hawthorne filed this lawsuit against Reliance
in the California Superior Court for Los Angeles County,
alleging breach of contract and breach of the implied cove-
nant of good faith and fair dealing. The suit sought a declara-
tory judgment to the effect that Hawthorne’s policy with
Reliance obligated the insurer fully to defend Hawthorne and
to pay all of Hawthorne’s fees and expenses arising out of the
Bazyler litigation. The complaint also asked for damages aris-
ing from the breach of contract and breach of the implied cov-
enant of good faith and fair dealing.
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Reliance removed the action to the U.S. District Court for
the Central District of California under the diversity removal
provision of 28 U.S.C. § 1441(b). In late 2000, the district
court granted Reliance’s motion for summary judgment as to
Hawthorne’s second claim. The first and third claims, how-
ever, proceeded to trial.
In advance of the trial, and in light of the deteriorating
financial condition of the parent Reliance, into which
Reliance-Illinois had by then merged, Hawthorne moved, in
early 2001, for an order requiring a $1.1 million bond to
secure payment of any judgment rendered in Hawthorne’s
favor. The district court granted the motion. Reliance there-
upon posted an indemnity bond in which the Insurance Com-
pany of the State of Pennsylvania obligated itself to
Hawthorne for no more than $1.1 million should Hawthorne
prevail in its suit against Reliance.5
Shortly thereafter, M. Diane Koken, the Insurance Com-
missioner of the Commonwealth of Pennsylvania, com-
menced rehabilitation proceedings on behalf of Reliance’s
creditors in the Commonwealth Court. See Koken v. Reliance
Ins. Co., 784 A.2d 209 (Pa. Commw. Ct. 2001) (per curiam).
The petition for rehabilitation, which the Pennsylvania court
granted on May 29, 2001, placed Reliance under Koken’s reg-
ulatory supervision. See 40 PA. CONS. STAT. § 221.15(c).
In light of the rehabilitation order issued by the Pennsylva-
nia Commonwealth Court, Reliance moved to exonerate the
bond. The district court denied the motion. The following day
the Pennsylvania Commonwealth Court terminated the reha-
bilitation proceedings, declared Reliance insolvent, and
granted Koken’s petition to liquidate Reliance. Koken was
appointed as the liquidator of Reliance’s assets. See id.
§ 221.20(c). The Commonwealth Court’s liquidation order
provided, inter alia, that: “All actions, including arbitrations
5The record is silent as to how the bond was secured.
638 HAWTHORNE SAVINGS v. RELIANCE INSURANCE

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and mediations, currently pending against Reliance in the
courts of the Commonwealth of Pennsylvania or elsewhere
are hereby stayed.”
While the liquidation proceedings were ongoing, Reliance
moved to dismiss the Hawthorne lawsuit on the ground that
the liquidation order vested the Pennsylvania Commonwealth
Court with “exclusive” jurisdiction over claims against Reli-
ance and enjoined any continued prosecution of claims
against Reliance in other fora. The district court denied the
motion to dismiss. Koken then sought leave to intervene for
the limited purpose of contesting subject-matter jurisdiction.
The district court denied the intervention motion as untimely.6
Eventually, the case went to trial, culminating in January
2003 in a jury verdict for $950,000 in favor of Hawthorne.
After the verdict, the district court granted Hawthorne’s
motion to enter judgment on its claim for declaratory relief
and provided that an additional $343,018.36 in pre-judgment
interest would be added to the jury verdict, for a total award
to Hawthorne of $1,293,018.36 (not including post-judgment
interest and costs). From this final order Reliance timely
appeals.
II. The District Court’s Exercise of Jurisdiction
Reliance’s central contention is that the district court
6Although Koken filed her own notice of appeal, we consolidated her
appeal (No. 03-55611) with Reliance’s (No. 03-55548). Neither she nor
Reliance has here challenged the district court’s denial of her motion to
intervene under Federal Rule of Civil Procedure 24. Counsel for Reliance
acknowledged at oral argument that neither Reliance nor Koken has pre-
sented any argument concerning why Koken should have been allowed to
intervene. We therefore dismiss No. 03-55611 for failure to prosecute. See
9TH CIR. R. 42-1; see also FED. R. APP. P. 3(a)(2) (“An appellant’s failure
to take any step other than the timely filing of a notice of appeal does not
affect the validity of the appeal, but is ground only for the court of appeals
to act as it considers appropriate, including dismissing the appeal.”).
639 HAWTHORNE SAVINGS v. RELIANCE INSURANCE

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should not have continued to exercise jurisdiction over this
suit once the Commonwealth Court commenced liquidation
proceedings. Although we consider each of its jurisdictional
and abstention arguments supporting this contention in turn,
we begin with some preliminary observations:
This lawsuit is a simple state-law contract claim between
private parties. Federal jurisdiction is grounded solely on the
diversity of citizenship of the parties. The case only ended up
in federal court because Reliance, the party now arguing
against federal jurisdiction, removed it from state court.
Under Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938),
“ ‘federal courts sitting in diversity jurisdiction apply state
substantive law and federal procedural law.’ ” Freund v.
Nycomed Amersham, 347 F.3d 752, 761 (9th Cir. 2003) (quot-
ing Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427
(1996)). There is no question, nor do the parties contest, that
the merits of Hawthorne’s suit against Reliance turn on ques-
tions of California substantive law. Moreover, Congress has
disavowed any significant and overriding federal interest in
insurance insolvencies, exempting insolvent insurers from the
protection of federal bankruptcy laws. See 11 U.S.C.
§ 109(b)(2)-(3). The Supreme Court reiterated this point in
1993 in affirming “the supremacy of the States in the realm
of insurance regulation,” U.S. Dep’t of the Treasury v. Fabe,
508 U.S. 491, 500 (1993). A state-law contract-based claim
against an insurance company generally, and an insolvent
insurer specifically, is thus governed entirely by state substan-
tive law.
In consequence, as we summarized in a largely analogous
case,
There are no federal questions involved in this litiga-
tion. Further, it is undisputed by the parties that the
federal district court, sitting in diversity, would
apply the substantive law of Arizona. Thus, the fed-
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eral court would sit in the same posture as the Ari-
zona state court[,] and there should be no different
result in the federal proceedings than would have
been achieved in the state court proceeding.
Tucker v. First Md. Sav. & Loan, Inc., 942 F.2d 1401, 1406
(9th Cir. 1991). This animating principle — that we are, in
effect, to decide how a California state court would handle the
legal questions at issue — is central to our resolution of this
appeal.
The particular principles of preemption, abstention, and
comity on which Reliance would have us rely, have at their
core, however, concerns primarily grounded in federalism and
federal/state relations. This case, in contrast, concerns the
application of the law of different states to insolvent insurance
companies. It is therefore difficult to see how concerns war-
ranting resort to principles of federalism, in the sense of
federal-state relations, are implicated in this case. Only if we
were inclined, solely because this case was removed to federal
court, to reach a result different from the one a California
court would reach with regard to the impact of the Pennsylva-
nia insolvency proceedings would traditional issues of feder-
alism arise, requiring resolution.
With these observations in mind, we turn to the specifics of
the parties’ jurisdictional and abstention arguments.
A. McCarran-Ferguson
[1] Enacted in 1945, the McCarran-Ferguson Act, 15
U.S.C. §§ 1011 et seq., “was an effort by Congress to protect
states’ primary regulatory role over the insurance industry.”
Elliot v. Fortis Benefits Ins. Co., 337 F.3d 1138, 1142 n.3 (9th
Cir.), cert. denied, 540 U.S. 1090 (2003); see also Fabe, 508
U.S. at 500. Toward that end, the Act includes an express
reverse preemption provision, 15 U.S.C. § 1012(b). That sec-
tion provides that “[n]o Act of Congress shall be construed to
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invalidate, impair, or supersede any law enacted by any State
for the purpose of regulating the business of insurance, or
which imposes a fee or tax upon such business, unless such
Act specifically relates to the business of insurance.” See
Humana Inc. v. Forsyth, 525 U.S. 299, 306-07 (1999).
Reliance argues that the McCarran-Ferguson Act bars the
federal diversity statute, 28 U.S.C. § 1332, from preempting
or otherwise interfering with Pennsylvania’s rehabilitation
and liquidation statutes. The theory is that federal jurisdiction
necessarily “impairs” the operation of Pennsylvania’s state-
law liquidation regime. Therefore, Reliance contends,
McCarran-Ferguson divests the district court of jurisdiction
over this suit, at least while liquidation proceedings are ongo-
ing in Pennsylvania.
[2] Although the interplay between McCarran-Ferguson
and the federal diversity statute, 28 U.S.C. § 1332, raises a
question of first impression in this circuit, the Fourth Circuit,
in a persuasive opinion concerning a case with similar facts,
explained why Reliance’s position is ultimately unconvincing.
Gross v. Weingarten, 217 F.3d 208 (4th Cir. 2000), con-
fronted the argument that Virginia’s insurance insolvency
laws necessarily reverse-preempted the federal diversity juris-
diction statute because of McCarran-Ferguson. The Fourth
Circuit rejected this position, stating:
We are skeptical that Congress intended, through
the McCarran-Ferguson Act, to remove federal juris-
diction over every claim that might be asserted
against an insurer in state insolvency proceedings. If
nothing else, the argument proves too much, for it
would operate to divest exclusively federal jurisdic-
tion as effectively as it would diversity jurisdiction,
leaving many plaintiffs with no forum in which to
assert their federal rights. In any event, we do not
believe that concurrent federal jurisdiction over the
defendants’ counterclaims threatens to “invalidate,
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impair, or supersede” (as those terms are used in the
McCarran-Ferguson Act) Virginia’s efforts to estab-
lish a single equitable proceeding to liquidate or
rehabilitate insolvent insurers. As we have already
noted, the Commission has had exclusive jurisdic-
tion of the property of Fidelity Bankers — the res —
since May 13, 1991. And, as we have also empha-
sized, the defendants would still have to present
claims to the Commission in order to recover on any
judgment in their favor. The claims based on that
judgment would be satisfied subject to the terms of
the rehabilitation plan and the priorities established
by Virginia law. Thus, the state forum retains exclu-
sive jurisdiction over the liquidation of Fidelity
Bankers and the disposition of its assets.
Id. at 222 (citations omitted). The Fourth Circuit’s logic is
persuasive. The state forum here, that of Pennsylvania, retains
exclusive jurisdiction over the liquidation of Reliance and the
disposition of its assets.
Further, Reliance’s argument would not bar the exercise of
federal jurisdiction against only insolvent insurers. By neces-
sary implication, Reliance’s reading of McCarran-Ferguson
would bar the exercise of federal jurisdiction in any lawsuit
where the exercise of such jurisdiction implicates any state
law concerning the “business of insurance.” The Tenth Circuit
long ago rejected this position and more recently reaffirmed
its rejection, and the Fifth Circuit has agreed. See Atl. & Pac.
Ins. Co. v. Combined Ins. Co. of Am., 312 F.2d 513, 515 (10th
Cir. 1962) (“The McCarran Act serves to limit the authority
of federal regulatory agencies as to practices in the insurance
business in the face of state acts and in the absence of specific
federal law, but it does not follow that there is thereby a mod-
ification of diversity jurisdiction of the federal courts.” (cita-
tion omitted)); Grimes v. Crown Life Ins. Co., 857 F.2d 699,
702 (10th Cir. 1988) (“[T]he policy of the McCarran-
Ferguson Act was to leave the regulation of insurers to the
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states, it did not intend to divest federal courts of the right to
apply state law regarding the regulation of insurers in appro-
priate diversity proceedings.”); Martin Ins. Agency, Inc. v.
Prudential Reinsurance Co., 910 F.2d 249, 254 (5th Cir.
1990) (“The McCarran-Ferguson Act, 15 U.S.C. §§ 1011-15,
did not remove diversity jurisdiction from the federal courts
in insurance matters . . . .”).
[3] To these analyses, we add the following point: The nec-
essary question in cases such as this one is whether operation
of the diversity jurisdiction statute actually “invalidate[s],
impair[s], or supersede[s]” the state’s liquidation efforts. If it
is the exercise of federal jurisdiction itself that impairs Penn-
sylvania’s liquidation efforts — viz., if Reliance is correct that
the McCarran-Ferguson Act bars the district court’s exercise
of jurisdiction — then we would be obligated to remand this
suit to the California Superior Court, rather than dismiss it;
the absence of subject-matter jurisdiction would defeat Reli-
ance’s removal of this case to federal court. See 28 U.S.C.
§ 1447(c).
[4] As a consequence of the remand option, Reliance’s
McCarran-Ferguson Act argument could have merit only if its
removal of this case, itself, impaired the Pennsylvania liquida-
tion proceedings. Even if we could allow a voluntary invoca-
tion of federal jurisdiction to preclude the litigation of a case
properly brought in state court, a proposition the Supreme
Court recently rejected in the context of state sovereign immu-
nity,7 the result here is no different, as we later explain, than
the result a California state court would reach. The removal
itself therefore could not possibly impair the Pennsylvania liq-
uidation proceedings.
7In Lapides v. Board of Regents of the University System of Georgia,
535 U.S. 613 (2002), the Court held that a state could not invoke its Elev-
enth Amendment sovereign immunity to bar federal litigation of state-law
damages claims when the state had voluntarily removed the claims to fed-
eral court. Id. at 616.
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[5] We therefore hold that 28 U.S.C. § 1332 is not reverse-
preempted by the McCarran-Ferguson Act.
B. Abstention
A somewhat harder issue is Reliance’s argument that the
district court was bound to abstain.8 As the Second Circuit has
suggested, in a diversity case, “the reasons for abstention
must be strong to justify a decision to remand a case properly
removed from state court.” Minot v. Eckardt-Minot, 13 F.3d
590, 593 (2d Cir. 1994); cf. Meredith v. City of Winter Haven,
320 U.S. 228, 237 (1943) (suggesting that abstention is gener-
ally disfavored in diversity cases). The reasons must be all the
more compelling where it is the defendant — the party that
removed the case — urging abstention.
In Gross, the Fourth Circuit suggested that there are cir-
cumstances in which abstention might be appropriate to avoid
federal court interference with state insurance insolvency
laws:
We realize that in some limited circumstances, the
exercise of federal diversity jurisdiction might in fact
impair state laws establishing exclusive claims pro-
ceedings for insurance insolvencies. This potential
for conflict, however, is already contemplated in the
principles governing the exercise of jurisdiction,
which provide a safety valve through the pragmatic
doctrine of abstention.
8Whether the requirements for abstention have been met is a question
of law reviewed de novo, although the district court’s decision whether to
abstain under Burford or Colorado River is reviewed for an abuse of dis-
cretion. See S. Cal. Edison Co. v. Lynch, 307 F.3d 794, 805 (9th Cir.
2002); see also Green v. City of Tucson, 255 F.3d 1086, 1093 & n.10 (9th
Cir. 2001) (en banc), overruled in part on other grounds by Gilbertson v.
Albright, 381 F.3d 965 (9th Cir. 2004) (en banc).
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Gross, 217 F.3d at 222. Some of our other sister circuits have
also embraced the applicability of abstention to lawsuits
against insolvent insurance companies. See, e.g., Callon
Petroleum, 351 F.3d at 208-09 & n.8; Prop. & Cas. Ins. Ltd.
v. Cent. Nat’l Ins. Co. of Omaha, 936 F.2d 319 (7th Cir.
1991); Martin Ins. Agency, Inc., 910 F.2d 249; Grimes, 857
F.2d 699; Lac D’Amiante du Quebec, Ltee. v. Am. Home
Assurance Co., 864 F.2d 1033 (3d Cir. 1988). In particular,
courts facing abstention arguments similar to those that Reli-
ance raises here have looked to the principles enunciated in
Burford v. Sun Oil Co., 319 U.S. 315 (1943), giving rise to the
abstention doctrine of the same name. See, e.g., Prop. & Cas.
Ins. Ltd., 936 F.2d at 321 (“Burford has become the doctrine
of choice in analyzing whether to abstain in favor of state
insurance liquidation and rehabilitation proceedings.”); see
also Callon Petroleum, 351 F.3d at 209.
This court, however, has already declined to abstain under
Burford in Tucker, a case with remarkably similar facts. We
conclude that Tucker is controlling precedent. To help explain
why Tucker compels rejection of Reliance’s abstention argu-
ment, we begin with the basic principles of Burford absten-
tion.
1. Burford Abstention Generally
The Burford abstention doctrine arose from a case chal-
lenging actions of the Texas Railroad Commission during the
late 1930s. The Sun Oil Company brought a diversity suit in
federal district court, challenging the Railroad Commission’s
grant of certain new oil drilling permits, or, in the alternative,
seeking an injunction against operation of the new oil wells.
[6] The Supreme Court approved the district court’s dis-
missal of the case as properly belonging in Texas state court.
Emphasizing the complexities of the Texas regulatory scheme
and the fact that “the Texas legislature has established a sys-
tem of thorough judicial review by its own state courts,” Bur-
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ford, 319 U.S. at 325, the Court found conclusive the extent
to which “Texas courts . . . alone have the power to give defi-
nite answers to the questions of state law posed in these pro-
ceedings.” Id. Thus, “[c]oncentration of judicial supervision
of Railroad Commission orders permits the state courts, like
the Railroad Commission itself, to acquire a specialized
knowledge which is useful in shaping the policy of regulation
of the ever-changing demands in this field.” Id. at 327. Citing
the “confusion” that had resulted from the simultaneous exer-
cise of federal equity jurisdiction and state-court jurisdiction
over the propriety of the Railroad Commission’s orders, the
Court concluded that “[t]hese questions of regulation of the
industry by the state administrative agency . . . so clearly
involve[ ] basic problems of Texas policy that equitable dis-
cretion should be exercised to give the Texas courts the first
opportunity to consider them.” Id. at 332.
As the Supreme Court has emphasized, “Burford represents
an ‘extraordinary and narrow exception to the duty of the Dis-
trict Court to adjudicate a controversy properly before it.’ ”
Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 728 (1996)
(quoting Colo. River Water Conservation Dist. v. United
States, 424 U.S. 800, 813 (1976)) (further internal quotation
omitted). Given that admonition, it is critical to examine the
scope of that “extraordinary and narrow exception” with care,
rather than applying it as a convenient way of avoiding state
law questions.
In conducting that examination, we note that Burford did
not merely implicate the state regulatory scheme. Rather, Sun
Oil challenged the underlying structure of the scheme under
the state statute. As the Sixth Circuit has summarized this
point, “[b]ecause Burford abstention is concerned with poten-
tial disruption of a state administrative scheme, rather than the
mere existence of such a scheme, looking behind the action
to determine whether it implicates the concerns of Burford is
necessary.” AmSouth Bank v. Dale, 386 F.3d 763, 784 (6th
Cir. 2004). Therefore, “[w]hile district courts may abstain to
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avoid interfering with complex state administrative processes,
[Burford] abstention is not required ‘whenever there exists
such a process, or even in all cases where there is a “potential
for conflict” with state regulatory law or policy.’ ” City of
Tucson v. U.S. West Communications, Inc., 284 F.3d 1128,
1133 (9th Cir. 2002) (quoting New Orleans Pub. Serv., Inc.
v. Council for New Orleans, 491 U.S. 350, 362 (1989)).
Burford also emphasized that the legal dispute from which
the Fifth Circuit should have abstained was a dispute over a
question of Texas law, so that the Texas state courts were in
the best position to resolve legal questions concerning the
Railroad Commission. See, e.g., 319 U.S. at 325. Burford did
not present a case, such as this one, where the application of
one state’s substantive law was argued to interfere with anoth-
er state’s regulatory policy. See Prop. & Cas. Ins. Ltd., 936
F.2d at 322 n.5 (“[I]t makes no sense to abstain so that a
Nebraska court can decide questions of Illinois law. Abstain-
ing in favor of Illinois state courts would also seem inappro-
priate; the underlying issues require only basic principles of
contract interpretation and do not implicate the concerns that
the Supreme Court relied upon in Burford.”).9
9Louisiana Power & Light Co. v. City of Thibodaux, 360 U.S. 25
(1959), supports this conclusion. Thibodaux sustained abstention in an
eminent domain case that was removed to federal court on the basis of
diversity only because “[a] determination of the nature and extent of dele-
gation of the power of eminent domain concerns the apportionment of
governmental powers between City and State,” id. at 28, a state law issue
that had not been resolved at the time. The same day as Thibodaux, the
Supreme Court rejected abstention in a similar eminent domain case,
where the state law was clear, largely because the state court was not in
a better position to resolve the state-law questions. See County of Alle-
gheny v. Frank Mashuda Co., 360 U.S. 185, 196 (1959); see also Mere-
dith, 320 U.S. at 237.
Courts and commentators alike are split on whether Thibodaux is a sep-
arate abstention doctrine, as opposed to a special form of Burford absten-
tion. See RICHARD H. FALLON, JR. ET AL., HART AND WECHSLER’S THE
FEDERAL COURTS AND THE FEDERAL SYSTEM 1210-11 (5th ed. 2003). Either
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2. Tucker
Tucker was a dispute largely similar to that giving rise to
this suit. We held dispositive this last consideration — that
the case had initially been brought in a state court different
from the one in whose favor abstention was requested.
In Tucker, First Maryland Savings & Loan (FMSL)
acquired property that it had promised to help Tucker finance,
only to default on its obligation. Tucker sued FMSL in Ari-
zona state court for breach of contract, breach of the covenant
of good faith and fair dealing, fraud, negligent misrepresenta-
tion, and constructive fraud. FMSL removed the case to fed-
eral court on the basis of diversity jurisdiction. As the dispute
evolved, FMSL was placed into receivership proceedings in
Maryland state court. See Tucker, 942 F.2d at 1403-04. The
district court ruled that abstention was warranted, relying on
both Burford and Colorado River.10
[7] We reversed, however, finding neither basis for absten-
tion appropriate:
way, the implication of Thibodaux and County of Allegheny is that absten-
tion under Thibodaux/Burford in cases removed to federal court is inap-
propriate when the state court from which the case was removed is in no
better position to protect the state interests arguably impaired by the exer-
cise of federal jurisdiction.
10The theory underlying “Colorado River abstention” (which, as we
have suggested, is not technically an “abstention” doctrine, see Holder v.
Holder, 305 F.3d 854, 867 n.4 (9th Cir. 2002)), is that:
there are principles unrelated to considerations of proper constitu-
tional adjudication and regard for federal-state relations which
govern in situations involving the contemporaneous exercise of
concurrent jurisdictions, either by federal courts or by state and
federal courts. These principles rest on considerations of “[w]ise
judicial administration, giving regard to conservation of judicial
resources and comprehensive disposition of litigation.”
Colo. River, 424 U.S. at 817 (quoting Kerotest Mfg. Co. v. C-O-Two Fire
Equip. Co., 342 U.S. 180, 183 (1952)) (alteration in original).
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In finding the principles of Burford applicable to
this case, the district court stated that the “statute[s]
set forth a pervasive scheme designed to coordinate
actions against savings and loan institutions in Mary-
land that are involved in receivership proceedings.”
There can be no doubt that this legislation evinces
Maryland’s intent to control the rehabilitation and
liquidation of its insolvent savings and loan associa-
tions. We also recognize that this is a matter of sub-
stantial state concern. We cannot agree, however,
with the district court’s conclusion that the principles
of Burford should apply in this case to require the
federal court in Arizona to abstain from hearing
Tucker’s suit.
Initially, Tucker brought this suit in Arizona state
court alleging numerous counts arising out of a loan
agreement between the parties to acquire and
develop property located in Maricopa County, Ari-
zona. He sought the imposition of a constructive
trust on the parcel of property known as Turf Vil-
lage, as well as compensatory and punitive damages,
attorneys’ fees and costs. Subsequently, the action
was removed to the United States District Court for
the District of Arizona, based on diversity of citizen-
ship jurisdiction. There are no federal questions
involved in this litigation. Further, it is undisputed
by the parties that the federal district court, sitting in
diversity, would apply the substantive law of Ari-
zona. Thus, the federal court would sit in the same
posture as the Arizona state court and there should
be no different result in the federal proceedings than
would have been achieved in the state court proceed-
ing. If abstention were to apply in this case, in effect,
the Maryland procedure for liquidating the savings
and loan would preclude an action brought in the
State of Arizona, in which the applicable substantive
law would be Arizona state law. Thus, we do not
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have the normal type of abstention whereby a federal
court defers to the state law in which it sits. Instead,
we have, in effect, a federal court sitting in the same
posture as a state court deferring to another state pro-
ceeding.
Tucker, 942 F.2d at 1406-07 (alteration in original) (emphasis
added) (footnote omitted). Distinguishing the case before it
from the Fourth Circuit’s decision in Brandenburg v. Seidel,
859 F.2d 1179 (4th Cir. 1988), Tucker emphasized that
we do not have a situation whereby permitting
Tucker to proceed with his Arizona state causes of
action would circumvent and therefore directly inter-
fere with Maryland’s comprehensive scheme for liq-
uidation. . . . [R]esolution of this dispute under
Arizona law [will not] interfere with Maryland’s
statutory scheme in a manner that would implicate
the concerns and principles contemplated by Bur-
ford. Rather than losses suffered because of FMSL’s
mismanagement and misappropriation of depositor
assets, Tucker is merely seeking redress for a
claimed violation of a contract for a loan entered into
with FMSL. In short, Tucker’s claim does not
directly relate to depositor assets of an insolvent sav-
ings and loan as did the RICO action in Seidel.
942 F.2d at 1406 n.3.11 As Tucker concluded, “Burford
11Seidel concerned whether federal courts should abstain from deciding
questions of Maryland law raised in a damages suit brought by depositors
of an insolvent Maryland bank in a Maryland federal district court. It thus
differed from this case and Tucker in two pertinent respects: First, it was
initially filed in federal court, and it was the party that did not invoke fed-
eral jurisdiction that was seeking abstention. Second, the state court in
which the case would have otherwise been brought was in the same state
in which the insolvency proceeding was pending, so no issues of interstate
reciprocity regarding insolvency proceedings were raised. Moreover, Sei-
del was not a breach-of-contract action, but a civil RICO and damages suit
arising directly out of the bank’s insolvency. See Seidel, 859 F.2d at 1191-
92; post at 11365 n.12.
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abstention is designed to limit federal interference with the
development of state policy. It is justified where the issues
sought to be adjudicated in federal court are primarily ques-
tions regarding that state’s laws. This simply is not the situa-
tion before us . . . .” Id. at 1407.
Tucker also explained why abstention under Colorado
River was inappropriate. Emphasizing the extent to which
Colorado River abstention was based on the notion of concur-
rent jurisdiction over identical causes of action, the court con-
cluded:
While the special Maryland court has assumed juris-
diction over FMSL’s assets through the receivership
proceeding, there is no concurrent state proceeding
as contemplated by Colorado River or subsequent
cases applying that doctrine. Tucker brought suit
alleging violations by FMSL of various rights based
on state contract, tort and constructive trust theories.
There is no proceeding pending in Maryland that is
attempting to resolve these claims. Instead, there was
a case filed in an Arizona state court that was
removed to federal court on the basis of diversity
jurisdiction alone. This cause of action is the only
one pending and the parties do not dispute that Ari-
zona law controls. We can see no reason why Tucker
should not be permitted to proceed with these claims
against FMSL in Arizona state court. Thus, this case
appropriately can be decided by the federal district
court sitting in that state.
Id. at 1408 (footnote omitted).
Reliance argues against application of Tucker to the facts
of this case, maintaining that “unlike Tucker, this action
involves a direct attack against the assets of an insolvent
insurance company ordered into liquidation and subject to
Pennsylvania’s insolvency scheme.” But Tucker did not turn
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on the impact, or lack thereof, that Tucker’s suit would have
on FMSL’s assets. It, too, was a suit for damages, and the
only means of eventually recouping those damages was from
FMSL’s assets. Rather, as Tucker emphasized, Burford
abstention was only appropriate when the suit would impact
and unduly burden the state regulatory scheme, distinguishing
Seidel, the case on which Reliance relies, on that ground. See,
e.g., 942 F.2d at 1406 n.3.
[8] Tucker thus squarely forecloses Reliance’s abstention
arguments. Unlike the paradigmatic Burford and Colorado
River cases, but like Tucker, the federal suit here concerns a
state-law contract dispute that will have to be resolved under
California law. Adjudication of the pertinent issues of Califor-
nia law, including California law concerning whether to defer
to insurance insolvency proceedings in other states, will not
entail any more federal intrusion into state policy or federal
disruption of a state regulatory scheme than in any other
diversity case.12 We are not asked to resolve questions of
Pennsylvania law that may directly implicate the Pennsylva-
nia liquidation scheme. Whether California law should be
read in such a manner that requires courts applying it to defer
to the Pennsylvania liquidation proceedings is a question that
does not implicate principles of Burford abstention. Because
we find the other circuits’ decisions requiring abstention on
similar facts inapposite or unpersuasive,13 and because we
12In addition to the grounds noted earlier as to why Tucker and Seidel
presented different issues, we note that unlike Tucker, Seidel was a case
where federal law — specifically, the civil remedy provision of the RICO
statute, 18 U.S.C. § 1964 — was invoked in federal court to litigate claims
against an insolvent savings and loan association. See Seidel, 859 F.2d at
1192. Seidel thus presented a case much more directly raising Burford fed-
eralism concerns than either this case or Tucker, and, as noted above, the
Fourth Circuit relied at least in part on the extent to which the federal
action was an attempt to circumvent the state regulatory proceeding. See
id.13Several of our sister circuits’ decisions endorsing Burford abstention
with regard to state-court insolvency proceedings concern the type of
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review the district court’s decision not to abstain for an abuse
of discretion, see ante at 11356 n.8, we hold that the district
court’s refusal to abstain was not an abuse of discretion.
C. Full Faith and Credit
Reliance next argues that the district court should have
accorded full faith and credit to the stay contained in the
Pennsylvania Commonwealth Court’s rehabilitation and liqui-
dation orders. The relevant provision of the liquidation order
provides that:
intra-state claim — a federal court applying the law of the state in which
the liquidation proceedings are ongoing — that, as Tucker explained, more
directly implicates Burford. See, e.g., Grimes, 857 F.2d 699.
Only two of the decisions by our sister circuits appear to abstain on
facts analogous to those here. In Martin Insurance Agency, Inc., 910 F.2d
249, the Fifth Circuit improperly rested on Grimes, a case that, as
explained, more directly implicates Burford. Lac D’Amiante du Quebec,
Ltee., 864 F.2d 1033, on which the Fifth Circuit also relied, assumed that
Burford is appropriate in cases seeking only declaratory relief, a conclu-
sion cast into doubt by the Supreme Court’s later decision in Quacken-
bush, and fails adequately to consider, in any event, the extent to which
the New York liquidation scheme was actually disrupted by the suit at
issue. See, e.g., id. at 1045-48. More recently, the Third Circuit refused to
abstain under Burford on facts more closely related to those presented
here:
Although the regulation of insolvent insurance companies is
surely an important state interest, this case does not involve the
complex and highly regulated issues of insurance regulation;
rather, it is a simple contract action involving an allegedly unpaid
debt. The complex regulations relating to insolvent insurance
companies have to do with plans of rehabilitation and payment to
policy holders. Simple contract and tort actions that happen to
involve an insolvent insurance company are not matters of impor-
tant state regulatory concern or complex state interests.
Grode v. Mut. Fire, Marine & Inland Ins. Co., 8 F.3d 953, 959 (3d Cir.
1993) (footnote omitted).
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Unless the liquidator consents thereto in writing,
no action at law or equity, or arbitration or media-
tion, shall be brought against Reliance or the Liqui-
dator, whether in this Commonwealth or elsewhere,
nor shall any such existing action be maintained or
further prosecuted after the date of this Order. All
actions, including arbitrations and mediations, cur-
rently pending against Reliance in the courts of the
Commonwealth of Pennsylvania or elsewhere are
hereby stayed.[14]
Reliance argues that a California court would have to give full
faith and credit to such orders, and that the district court there-
fore should have done so as well. This argument fails, how-
ever, whether one views the question from the perspective of
the obligations owed by the courts of one state regarding
judgments issued by the courts of another, or from the per-
spective of a federal court’s full faith and credit obligation.
[9] First, both interstate and state-federal full faith and
credit principles concern the enforceability of judgments, and
therefore incorporate otherwise applicable limitations on
enforceability. Thus, “[a] final judgment in one State, if ren-
dered by a court with adjudicatory authority over the subject
matter and persons governed by the judgment, qualifies for
recognition throughout the land.” Baker ex rel. Thomas v.
14Along similar lines, the rehabilitation order filed on May 29, 2001,
provided that:
All persons, in the Commonwealth or elsewhere, are enjoined
and restrained from: (a) instituting or further prosecuting any
action in law or equity against Reliance or the Rehabilitator; (b)
obtaining preferences, judgments, attachments, garnishments or
liens, including obtaining collateral in any litigation, mediation,
or arbitration involving Reliance, the Rehabilitator, or Reliance’s
assets and property; (c) levying any execution process against
Reliance, the Rehabilitator or Reliance’s assets and property in
the Commonwealth of Pennsylvania or elsewhere; and (d) mak-
ing any assessments or indirectly collecting such assessments by
setting them off against amounts otherwise payable to Reliance.
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Gen. Motors Corp., 522 U.S. 222, 233 (1998) (emphasis
added);15 see also Underwriters Nat’l Assurance Co. v. N.C.
Life & Accident & Health Ins. Guar. Ass’n, 455 U.S. 691, 711
(1982) (emphasizing that decisions rendered by an Indiana
rehabilitation court were entitled to full faith and credit in
North Carolina because “the Rehabilitation Court had per-
sonal jurisdiction over all parties necessary to its determina-
tion that the North Carolina Association could not satisfy pre-
rehabilitation claims out of the North Carolina deposit”); id.
at 716-17 (White, J., concurring in the judgment) (agreeing
with the majority that the rehabilitation court “had jurisdiction
over the Association because, as the majority opinion amply
demonstrates in Part I, the Association appeared before the
court as a party and participated in the Rehabilitation Plan”).
We have read Baker as reiterating “that one state’s judgment
cannot be used to control litigation in other courts absent both
parties having been before the court in both litigations.” Tay-
lor v. Sawyer, 284 F.3d 1143, 1153 (9th Cir. 2002) (citing
Baker, 522 U.S. at 239).16
15Although the Court was divided in other respects in Baker, a majority
was persuaded that the absence of in personam jurisdiction precluded
requiring a Missouri court to accord full faith and credit to a Michigan
injunction. See, e.g., 522 U.S. at 238 (“Michigan’s judgment . . . cannot
reach beyond the Elwell-GM controversy to control proceedings against
GM brought in other States, by other parties, asserting claims the merits
of which Michigan has not considered. Michigan has no power over those
parties . . . .”); id. at 247 (Kennedy, J., concurring in the judgment) (“The
simple fact is that the Bakers were not parties to the Michigan proceed-
ings, and nothing indicates Michigan would make the novel assertion that
its earlier injunction binds the Bakers or any other party not then before
it or subject to its jurisdiction.”).
16This understanding reflects the deeper principle underlying full faith
and credit analysis, that full faith and credit concerns “do[ ] not . . . enable
one state to legislate for the other or to project its laws across state lines
so as to preclude the other from prescribing for itself the legal conse-
quences of acts within it.” Pac. Employers Ins. Co. v. Indus. Accident
Comm’n of Cal., 306 U.S. 493, 504-05 (1939); see also McElmoyle ex rel.
Bailey v. Cohen, 38 U.S. (13 Pet.) 312, 325 (1839).
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[10] Hawthorne was never a party to the Pennsylvania pro-
ceedings, nor does Reliance argue that the Commonwealth
Court on any other basis had personal jurisdiction over Haw-
thorne. Although “state proceedings need do no more than
satisfy the minimum procedural requirements of the Four-
teenth Amendment’s Due Process Clause in order to qualify
for the full faith and credit guaranteed by federal law,”
Kremer v. Chem. Const. Corp., 456 U.S. 461, 481 (1982)
(emphasis added), they can do no less, either. We therefore
will not extend full faith and credit to the rehabilitation and
liquidation orders, because the Commonwealth Court lacked
in personam jurisdiction over Hawthorne in the proceedings
in which the orders were issued.17
[11] Moreover, even if the jurisdictional prerequisites were
satisfied, and even assuming that the anti-suit injunction in the
liquidation order is a “judgment” entitled to full faith and
credit, a point we do not decide,18 state courts may never
17It is also debatable whether the Commonwealth Court had subject-
matter jurisdiction under Pennsylvania law to issue an anti-suit injunction
intended to have force outside Pennsylvania. See, e.g., Robbins v. Reliance
Ins. Co., 102 S.W.3d 739, 744-45 (Tex. App. 2001) (holding that the Reli-
ance rehabilitation order was, to the extent it enjoined out-of-state litiga-
tion, beyond the Commonwealth Court’s jurisdiction). The Pennsylvania
statutory structure supports the Texas Court of Appeals’ decision. Com-
pare, e.g., 40 PA. CONS. STAT. § 221.5(a) (prescribing the Commonwealth
Court’s jurisdiction), with id. § 221.5(b) (“The receiver may apply to any
court outside of the Commonwealth for the relief described in subsection
(a) . . . .” (emphasis added)), and id. § 221.17(a) (“The rehabilitator shall
immediately consider all litigation pending outside this Commonwealth
and shall petition the courts having jurisdiction over that litigation for
stays whenever necessary to protect the estate of the insurer.” (emphasis
added)). We need not resolve this issue, however, as the clear absence of
in personam jurisdiction is sufficient, for our purposes, to defeat Reli-
ance’s claim to full faith and credit.
18The Pennsylvania liquidation proceeding was not concluded at the
time that the rehabilitation and liquidation orders issued. Moreover, the lit-
igation stay here invoked did not determine the merits issues at stake in
the present litigation. It is not clear that the stay orders are sufficiently
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enjoin in personam proceedings in the federal courts. See
ERWIN CHEMERINSKY, FEDERAL JURISDICTION § 11.2.1, at 717
n.10 (4th ed. 2003) (“[T]he only time that state courts can
enjoin federal proceedings is when the state courts
first acquire in rem or quasi in rem jurisdiction before the fed-
eral courts.”); Donovan v. City of Dallas, 377 U.S. 408, 412-
13 (1964) (reiterating the “old and well-established judicially
declared rule that state courts are completely without power
to restrain federal-court proceedings in in personam actions”
(footnote omitted)); see also Baker, 522 U.S. at 236 n.9.
This last point is independently sufficient to defeat Reli-
ance’s full faith and credit argument. Hawthorne’s suit is an
in personam proceeding19 and the rule barring states from
enjoining in personam actions in the federal courts applies
with equal force regardless of the basis for federal jurisdic-
tion. See, e.g., Duchek v. Jacobi, 646 F.2d 415, 419 & n.4 (9th
Cir. 1981) (relying on Donovan in a diversity case). We there-
fore agree with the Tenth Circuit that “[t]he argument that a
state court could in effect enjoin a person from proceeding
further in an action previously instituted in a federal court
where the federal court admittedly has jurisdiction of both
subject matter and the parties is a bit startling and finds no
“final” adjudications of the pertinent issues to merit respect under the Full
Faith and Credit Clause. See, e.g., McInnes v. California, 943 F.2d 1088,
1092-93 (9th Cir. 1991); see also Sutton v. Leib, 342 U.S. 402, 407 (1952)
(citing Riley v. N.Y. Trust Co., 315 U.S. 343, 348-49 (1942)). Because we
ultimately conclude that the orders are not entitled to full faith and credit
in any event, we assume, without deciding, that they are “final.”
19See, e.g., R.H. GRAVESON, CONFLICT OF LAWS 98 (7th ed. 1974):
An action is said to be in personam when its object is to deter-
mine the rights and interests of the parties themselves in the
subject-matter of the action, however the action may arise, and
the effect of a judgment in such an action is merely to bind the
parties to it. A normal action brought by one person against
another for breach of contract is a common example of an action
in personam.
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sanction in the law.” Aluminum Prods. Distribs., Inc. v. Aaa-
con Auto Transp., Inc., 549 F.2d 1381, 1383 (10th Cir. 1977).
[12] We conclude that the liquidation and rehabilitation
orders issued by the Commonwealth Court are not entitled to
full faith and credit in this litigation.
D. Comity
Reliance also argues that general principles of comity
required the district court to dismiss this suit.
[13] “Under the principles of comity, federal courts of
equity should exercise their discretionary power with proper
consideration for the independence of state government in
carrying out its governmental functions. However, comity is
a doctrine of discretionary abstention.” City & County of San
Francisco v. Assessment Appeals Bd. for the City & County
of San Francisco, No. 1, 122 F.3d 1274, 1277 (9th Cir. 1997)
(citing Freehold Cogeneration Assocs. v. Bd. of Regulatory
Comm’rs, 44 F.3d 1178, 1187 n.6 (3d Cir. 1995)). It is not
clear to what extent comity remains an independent basis for
abstention, available even when none of the settled comity-
based abstention doctrines such as Burford and Colorado
River apply. Further, as we held in Assessment Appeals
Board, where, as here, a case was originally filed in state
court, comity would only warrant a remand to state court.
[14] Assuming, however, that we could create some new,
free-floating, comity-based abstention doctrine for cases of
this ilk, it could not apply in this case. As the Supreme Court
has made clear, “principles of comity and federalism do not
require that a federal court abandon jurisdiction it has prop-
erly acquired simply because a similar suit is later filed in a
state court.” Town of Lockport v. Citizens for Cmty. Action at
the Local Level, Inc., 430 U.S. 259, 264 n.8 (1977). Here, the
federal action was already pending at the time the rehabilita-
tion and liquidation orders were filed. The district court there-
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fore did not violate principles of comity by continuing to
exercise jurisdiction over this suit.
III. Application of State Law
Although the court in Tucker found abstention inappropri-
ate, its decision stopped there, reversing the district court’s
abstention decision and remanding for further proceedings.
Tucker never reached the central issue to be decided in a case
such as this one: What would a state court do under the Uni-
form Insurers Liquidation Act (UILA), CAL. INS. CODE
§§ 1064.1-.12, were it in our position? As the district court
here proceeded to judgment, we need to determine that ques-
tion.
[15] Under California law, whether California state courts
must defer to rehabilitation and liquidation proceedings com-
menced in Pennsylvania turns largely — but, critically, not
entirely — on whether Pennsylvania is a “reciprocal state”
under the terms of the UILA.20 As provided by section 1064.9
of the California Insurance Code, which mirrors section 9 of
the UILA, “[d]uring the pendency of delinquency proceedings
in this or any reciprocal state, no action or proceeding in the
nature of an attachment, garnishment, or execution shall be
commenced or maintained in the courts of this state against
the delinquent insurer or its assets.”
Whether Hawthorne’s suit is the kind of action barred by
section 1064.9 is pertinent only if Pennsylvania is a reciprocal
state. No similar statutory provision exists barring courts in
UILA states from exercising jurisdiction when the delin-
quency proceedings are ongoing in a non-reciprocal state. Cf.
20As the New York Court of Appeals has explained, “the Uniform
Insurers Liquidation Act was adopted with the main purpose in mind of
providing a uniform system for the orderly and equitable administration of
the assets and liabilities of defunct multistate insurers.” G.C. Murphy Co.
v. Reserve Ins. Co., 429 N.E.2d 111, 115 (N.Y. 1981).
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Lewis, Roca, Scoville & Beauchamp v. Inland Empire Ins.
Co., 259 F.2d 318, 320 (10th Cir. 1958).
Before resolving whether Pennsylvania is a reciprocal state
under the California UILA, we begin with two important
predicates — the definition of “reciprocal state” under the
California UILA, and the observation that Pennsylvania has
never formally adopted the UILA.
In its entirety, California law defines a “reciprocal state” as
any state other than this state in which in substance
and effect the provisions of this act are in force,
including the provisions requiring that the commis-
sioner or equivalent insurance supervisory official be
the receiver of a delinquent insurer. A “reciprocal
state” includes any state also which has, through its
commissioner or equivalent supervisory official,
entered into a binding and enforceable written agree-
ment with the commissioner of this state which pro-
vides that (1) a commissioner or equivalent
supervisory official is required to be the receiver of
a delinquent insurer; (2) title to assets of the delin-
quent insurer shall vest in the domiciliary receiver,
as of the date of any court order appointing him or
her as receiver, and he or she shall have the same
rights to recover those assets as provided under sub-
division (b) of Section 1064.3; (3) nondomiciliary
creditors may file and prove their claims before
ancillary receivers; (4) the laws of the domiciliary
state of the delinquent insurer shall be applied uni-
formly to residents and nonresidents in the allow-
ance of preference of claims, except for claims to
special deposits created under the laws of the domi-
ciliary state; (5) preferences (including attachments,
garnishments, and liens) for creditors with advance
information shall be prevented; and (6) the domicili-
ary receiver may sue in the reciprocal state to
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recover any assets of a delinquent insurer to which
he or she may be entitled under the law.
CAL. INS. CODE § 1064.1(f) (emphasis added). The six provi-
sos in the definition have elsewhere been described as the “six
central remedies” of the UILA. See Twin City Bank v. Mut.
Fire Marine & Inland Ins. Co., 646 F. Supp. 1139, 1141 &
n.5 (S.D.N.Y. 1986) (citing Kelly v. Overseas Investors, Inc.,
264 N.Y.S.2d 586, 591 (App. Div. 1965)), aff’d without opin-
ion, 812 F.2d 713 (2d Cir. 1987).
Unlike California, Pennsylvania has not expressly adopted
the UILA. Courts in various UILA states have split on the
question whether Pennsylvania is nonetheless a reciprocal
state under that state’s law, although the weight of authority
is that the answer is “yes.”21 Nor is there any published Cali-
fornia state court opinion concerning whether Pennsylvania is
a reciprocal state. We therefore must resolve this issue with-
out guidance from the California courts. See Vestar Dev. II,
LLC v. Gen. Dynamics Corp., 249 F.3d 958, 960 (9th Cir.
2001) (“When interpreting state law, federal courts are bound
by decisions of the state’s highest court. In the absence of
such a decision, a federal court must predict how the highest
state court would decide the issue using intermediate appellate
court decisions, decisions from other jurisdictions, statutes,
treatises, and restatements as guidance.” (internal quotation
marks omitted)).
21See, e.g., Massey v. Town of Windsor, 289 F. Supp. 2d 160, 166 (D.
Conn. 2003); Reliance Nat’l Indem. Co. v. Pinnacle Cas. Assurance
Corp., 160 F. Supp. 2d 1327, 1333-34 (M.D. Ala. 2001); Twin City Bank,
646 F. Supp. at 1141-42; Gruber v. Caremark, Inc., 853 So. 2d 540, 542
(Fla. Dist. Ct. App. 2003); All Star Adver. Agency, Inc. v. Reliance Ins.
Co., 898 So. 2d 369, 382-83 (La. 2005). Only a handful of courts have
concluded to the contrary. See, e.g., Reliance Ins. Co. v. Plumb Creek Tim-
ber Co., L.P., No. 99C-11-263, 2001 WL 1222090 (Del. Super. Sept. 26,
2001) (unpublished); All Star Adver. Agency, Inc. v. Reliance Ins. Co., 871
So. 2d 371, 374 (La. Ct. App. 2004), rev’d, 898 So. 2d 369; cf. Kirkland
v. Legion Ins. Co., 343 F.3d 1135, 1141 (9th Cir. 2003) (refusing to reach
whether Pennsylvania is a reciprocal state under Oregon law).
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We begin with the text of section 1064.1(f). That text
makes a formal agreement sufficient, but not necessary, for
reciprocal status. See CAL. INS. CODE § 1064.1(f) (“A ‘recipro-
cal state’ includes any state also which has, through its com-
missioner or equivalent supervisory official, entered into a
binding and enforceable written agreement with the commis-
sioner of this state . . . .” (emphases added)).
[16] The relevant inquiry, consequently, is whether Penn-
sylvania law provides for the six central remedies of the
UILA. See Twin City Bank, 646 F. Supp. at 1141 & n.5; see
also All Star Adver. Agency, 898 So. 2d at 375-83 (exhaus-
tively analyzing whether Pennsylvania law today so pro-
vides). Like the district court in Twin City Bank and the
Louisiana Supreme Court in All Star Advertising Agency, we
conclude, on reviewing the six prerequisites for reciprocal
recognition, that Pennsylvania’s law incorporates each of
them “in substance and effect.”
[17] As Twin City Bank recounted, Pennsylvania law pro-
vides: (1) that the insurance commissioner shall serve as
receiver, see 40 PA. CONS. STAT. §§ 221.12, 221.15, 221.20;
(2) authority for domiciliary receivers to proceed in non-
domiciliary states, see id. § 221.55; (3) for vesting of title to
assets in the domiciliary receiver, id. § 221.20; (4) for non-
domiciliary creditors to have the option to proceed with
claims before local ancillary receivers, see id. § 221.58; (5)
for uniform application of the laws of the domiciliary state to
the allowance of preferences among claims, see id. § 221.61;
and (6) for prevention of preferences for diligent non-
domiciliary creditors with advance information, see id.
§ 221.17. Twin City Bank, 646 F. Supp. at 1141. The Califor-
nia Supreme Court would therefore hold that Pennsylvania is
a reciprocal state under California law.
[18] Despite that conclusion, we are convinced that section
1064.1(f) does not bar the district court’s exercise of jurisdic-
tion. On this point, we find persuasive, given the absence of
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any pertinent California precedent, the cases from two state
supreme courts: the Supreme Court of Wyoming’s decision in
Hoiness-LaBar Insurance v. Julien Construction Co., 743
P.2d 1262 (Wyo. 1987), and the Supreme Court of Minneso-
ta’s decision in Fuhrman v. United America Insurors, 269
N.W.2d 842 (Minn. 1978). Both Hoiness-LaBar and Fuhrman
held that reciprocity does not apply to the determination of in
personam legal rights, as opposed to the enforcement of any
resulting judgment against the estate of an insolvent company
in state court proceedings.
In Hoiness-LaBar, the Wyoming Supreme Court was con-
fronted with a breach-of-contract suit filed by a general con-
tractor against his insurer. The insurer was subsequently
placed into receivership proceedings in Indiana. Although
both Indiana and Wyoming had adopted the UILA, and Indi-
ana was therefore a “reciprocal state,” the Wyoming Supreme
Court rejected the argument that the UILA barred the lawsuit:
A careful reading of the above-quoted statute
reveals that the uniform act enjoins the enforcement
of a judgment through attachment, garnishment or
execution proceedings. The act does not, however,
prohibit a party from maintaining an action to obtain
a judgment, or prohibit a court from entering a judg-
ment. The act only prohibits actions to enforce or
collect on a judgment. The receivership proceeding
in Indiana is more properly an issue affecting the
collectability and enforceability of any Wyoming
judgment. The uniform act does not contemplate the
discontinuance of an action to obtain a judgment
underway in Wyoming.
Hoiness-LaBar, 743 P.2d at 1268-69 (emphasis added).
Along similar lines, the Minnesota Supreme Court, in
Fuhrman, held that it need not defer resolution of a declara-
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tory judgment contract action in favor of receivership pro-
ceedings commenced in Iowa. As the court emphasized:
not every suit brought against a receivership defen-
dant is deemed to interfere with the res. The distinc-
tion is commonly made between the liquidation of a
claim and the enforcement of the claim after it has
been reduced to judgment. Thus, an action in perso-
nam to establish the extent of an insolvent’s liability
on a claim is held not to interfere with the receiver-
ship res. By the same token, any attempted attach-
ment or levy against the res made in connection with
a judgment is normally in rem and directly opposed
to the court’s dominion over the res. Accordingly, an
in personam action against the receivership defen-
dant need not be brought in the receivership court.
Fuhrman, 269 N.W.2d at 846 (citations omitted).
The text of the UILA manifests this principle. In specifying
that “no action or proceeding in the nature of an attachment,
garnishment, or execution” may be maintained, CAL. INS.
CODE § 1064.9 (emphasis added), the language suggests that
an “action or proceeding” may be maintained unless it is “in
the nature of an attachment, garnishment, or execution.”
Only one court appears to have taken a directly contrary
view. See Ex parte United Equitable Life Ins. Co., 595 So. 2d
1373 (Ala. 1992). As the Alabama Supreme Court explained:
Provision 6 of the rehabilitation order restricts all
officers and employees from paying any claims obli-
gations to United’s policyholders. Although this
does not specifically prohibit the issuance of a judg-
ment against United, the issuance of a judgment
would undermine the very policy that the [Alabama
UILA] is based on. If this case were litigated and the
[plaintiffs] obtained a judgment against United for
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the amount due under their policy, the judgment
would give them priority for payment over others
holding insurance contracts with United. The
AUILA is meant to protect the interests of all policy-
holders until the company either becomes financially
solvent again or some other form of action is taken.
Therefore, until the Illinois court makes further
determinations, the assets of United must remain
neutral.
Id. at 1375. The Alabama Supreme Court did not explain,
however, why the plaintiffs would have priority for payment
in the liquidation proceedings if all they had was a claim
reduced to judgment. Whether that is so would be a matter for
the court in which liquidation proceedings are pending; noth-
ing in the bare existence of a judgment would interfere with
the forum court’s resolution of priority issues. Pennsylvania
law has long established that judgment creditors are not enti-
tled to such priority. See Foster v. Mut. Fire, Marine & Inland
Ins. Co., 614 A.2d 1086, 1101 (Pa. 1992); see also Davis v.
Commonwealth Trust Co., 7 A.2d 3, 5-6 (Pa. 1939).
The purpose of the UILA is to bar claimants from directly
interfering with liquidation proceedings. Allowing suits such
as Hawthorne’s to go to judgment does not implicate this
underlying principle. We believe this reading of California
law is the most faithful to the California statute and is that
which the California Supreme Court would adopt.
[19] We therefore hold that, although Pennsylvania is a
reciprocal state under the UILA for purposes of California
law, a California state court would not stay its proceedings
under the UILA but would decide the merits of this dispute,
as did the district court.
IV. The Litigation Bond
Independent of its argument that this case should have been
stopped in its tracks entirely, Reliance challenges the propri-
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ety of the district court’s order requiring it to post a $1.1 mil-
lion litigation bond.
As we explained in O’Malley Lumber Co. v. Lockard (In re
Lockard), 884 F.2d 1171 (9th Cir. 1989), albeit in the context
of a bankruptcy proceeding, there is a critical difference in
insolvency proceedings between a bond and a cash deposit:
In the case of a cash deposit, the contractor puts up
his own property to guarantee his performance on
commercial or personal services contracts. By con-
trast, a contractor who instead posts a bond inter-
poses a third-party surety between himself and
contract claimants; the surety essentially agrees, in
exchange for the contractor’s promise of indemnifi-
cation or, as here, a lien on the contractor’s assets,
to pay the claims of contract creditors out of the
surety’s own funds in an aggregate amount up to the
limits of the bond in the event of the contractor’s
breach.
The basic difference is in the party, the contractor
or the surety, who puts its property directly at risk of
liability to creditors in the event of nonpayment by
the contractor. . . . [A] fundamental purpose of bank-
ruptcy proceedings is to “throw a blanket of protec-
tion on all of the property of the debtor.” In the usual
case it is unnecessary, and would be unfair to credi-
tors, similarly to shelter the property of sureties who
have undertaken obligations for the benefit of those
creditors.
Id. at 1178 (citation omitted); see also United States v. Dos
Cabezas Corp., 995 F.2d 1486, 1492 (9th Cir. 1993).
Reliance initially moved for a stipulation authorizing it to
post cash in lieu of a bond, to which Hawthorne objected. The
district court agreed with Hawthorne and ordered a bond
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posted. Shortly thereafter, but before any rehabilitation or liq-
uidation proceedings were commenced in Pennsylvania, Reli-
ance posted the indemnity bond in the amount of $1.1 million.
The bond provides that: “[t]he Insurance Company of the
State of Pennsylvania, hereby obligates itself to [Hawthorne],
to pay an amount not exceeding the sum of [$1.1 million] to
satisfy any final judgment which may be rendered in such
action against Reliance Insurance Company, as successor-in-
interest by merger to Reliance Insurance Company of Illi-
nois.”
The propriety of the bond turns on the answers to two ques-
tions: (1) Does the bond violate the UILA as codified in the
California Insurance Code? (2) If not, did the district court
have discretion to require the bond under California law?22
The answer to the first question is “no.” The bond is not an
asset of Reliance. The order requiring the bond is thus not
attaching, garnishing or executing on any asset of Reliance.
While the bonding company may have required that Reliance
post security to obtain the bond, the transaction between the
bonding company and Reliance was not the subject of any
order by the district court. Only if the bond-holder, the Insur-
ance Company of the State of Pennsylvania, were to com-
22Hawthorne argues that Reliance is collaterally estopped from chal-
lenging the propriety of the bond because of the rulings of the Central Dis-
trict bankruptcy court in First Alliance Mortgage Co. v. Reliance
Insurance Co. of Illinois, Adv. Case No. 00-01538 (Bankr. C.D. Cal.). We
disagree. Unlike this case, where the bond was ordered against Reliance,
there, the bond was originally ordered against Reliance of Illinois.
Although the bankruptcy court subsequently reaffirmed the bond after the
merger, we cannot tell whether it would have arrived at the same result ab
initio. That factual difference, given that Reliance was admitted in Califor-
nia but Reliance of Illinois was not, renders collateral estoppel on the legal
issue inappropriate. See, e.g., Steen v. John Hancock Mut. Life Ins. Co.,
106 F.3d 904, 912 (9th Cir. 1997) (“Collateral estoppel is inappropriate if
there is any doubt as to whether an issue was actually litigated in a prior
proceeding.” (quoting Eureka Fed. Sav. & Loan Ass’n v. Am. Cas. Co. of
Reading, Pa., 873 F.2d 229, 233 (9th Cir. 1989))).
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mence an action to collect on any collateral securing the bond
would section 9 of the UILA, as codified at California Insur-
ance Code section 1064.9, be implicated and preclude Califor-
nia courts from entertaining the collection action. The current
proceedings, however, do not involve any such collection
action.
[20] Even if the bond is not barred under the California
UILA, however, there is still the outstanding question as to
the district court’s authority under applicable state law to
require the bond. The relevant provision is section 1616 of the
California Insurance Code. It provides:
Before any nonadmitted foreign or alien insurer shall
file or cause to be filed any pleading in any action,
suit or proceeding instituted against it, the insurer
shall either (1) procure a certificate of authority to
transact insurance in this state; or (2) give a bond in
the action, suit or proceeding in an amount to be
fixed by the court sufficient to secure the payment of
any final judgment which may be rendered in the
action, suit, or proceeding.
The critical point, for our purposes, is that this suit is an
action filed against a “nonadmitted foreign or alien insurer”
— Reliance-Illinois. Although Reliance-Illinois subsequently
merged with parent Reliance, we believe that the comprehen-
siveness of the California statutory scheme supports our read-
ing of section 1616 as turning on the insurer against whom the
suit is filed. As we shortly explain, had the suit been filed
against the parent Reliance, Hawthorne would have had an
alternative means of securing a potential judgment. So con-
strued, the district court did not abuse its discretion in requir-
ing a bond under section 1616.
Under California law, the California Insurance Guaranty
Association (CIGA) exists for the sole purpose of providing
claimants against insolvent insurance companies with a rem-
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edy. Admitted insurers participate in CIGA, in return for
which CIGA guarantees “covered claims” against the insurers
if they are declared insolvent. See id. §§ 1063-1063.15; see
also Cole v. Cal. Ins. Guar. Ass’n, 18 Cal. Rptr. 3d 801, 804-
05 (Ct. App. 2004) (describing the background and structure
of CIGA); R.J. Reynolds Co. v. Cal. Ins. Guar. Ass’n, 1 Cal.
Rptr. 2d 405, 408 (Ct. App. 1991) (same).
As here pertinent, “covered claims” under CIGA include
the obligations assumed by an assuming insurer from
a ceding insurer where the assuming insurer subse-
quently becomes an insolvent insurer if, at the time
of the insolvency of the assuming insurer, the ceding
insurer is no longer admitted to transact business in
this state. Both the assuming insurer and the ceding
insurer shall have been member insurers at the time
the assumption was made.
CAL. INS. CODE § 1063.1(c)(2). Because Reliance-Illinois was
not a “member insurer” at the time of the merger (a point
Reliance does not contest), Hawthorne’s claim against Reli-
ance is, without question, not “covered” under CIGA.
In light of the limitations in CIGA’s definition of “covered
claims,” the point of the bond requirement in section 1616 is
to secure the claims of parties who purchase insurance from
non-admitted insurers and are therefore not within the protec-
tion of CIGA’s umbrella. Among them, then, CIGA, on the
one hand, and the bond requirement in section 1616, on the
other, are meant to assure that a party may secure an enforce-
able judgment against an insolvent insurance company, one
way or another.23 This case falls squarely into a gap between
23A third option for securing a judgment is the discretionary bond pro-
cedures prescribed by California Insurance Code section 1620. That pro-
vision, however, applies to specific categories of insurance contracts. The
contract here at issue appears to fit into none of those categories. See id.
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the two schemes — the fund established under CIGA for
admitted insurers and the bonds that can be required under
section 1616 for non-admitted insurers — solely because of
the merger between Reliance-Illinois and Reliance.
[21] We conclude that no gap in the protection made avail-
able to litigants against insolvent insurance companies was
intended. Instead, we believe that construing section 1616 as
applying to the insurance company against which the suit is
filed is the correct interpretation of California law, and that
which we believe the California Supreme Court would adopt.
The district court therefore did not abuse its discretion in
requiring Reliance to post an indemnity bond.
V. The Jury Instruction
Finally, Reliance contends that the district court erred in
instructing the jury that the settlement between Bazyler and
Hawthorne was presumptively “reasonable.” The challenged
instruction provided that:
The plaintiffs were free to negotiate the best possi-
ble settlement in the underlying Bazyler case consis-
tent with their interests. The settlement in the
Bazyler case is therefore presumed to be reasonable.
The amount of the settlement is also presumed to be
reasonable. The effect of the presumption is to shift
the burden of proof to defendant to prove that the
settlement was unreasonable or the product of fraud
or collusion between the plaintiffs and Mr. Bazyler.
Defendant must prove by a preponderance of the evi-
§ 1620(a) (“The provisions of the preceding sections of this article
[including section 1616] shall not apply to any action, suit or proceeding
against any unauthorized foreign or alien insurer arising out of any con-
tract of insurance effected in accordance with Section 1760, 1760.5, 1763,
or 1763.1 . . . .”).
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dence that the amount of the settlement was unrea-
sonable or that it was unreasonable for the plaintiffs
to enter into the settlement with Mr. Bazyler.
Reliance’s central argument is that Hawthorne was only enti-
tled to the presumption that the Bazyler settlement was rea-
sonable if Reliance “wrongfully refused to defend or settle a
claim” — that is, that the presumption only applies where the
insurance company has an established duty to defend.
This argument disregards the basic principle that we read
jury instructions as a whole to determine whether they are
accurate. See, e.g., White v. Ford Motor Co., 312 F.3d 998,
1012 & n.54 (9th Cir. 2002), as amended, 335 F.3d 833 (9th
Cir. 2003). Read in that manner, the instructions given the
jury were perfectly accurate. In the challenged jury instruc-
tion, the reasonableness of Hawthorne’s settlement with
Bazyler went to the appropriate damages in the district court.
A necessary predicate to reaching damages was Reliance’s
liability. As to liability, the jury was instructed that, “[i]f any
of the claims in the Bazyler case were covered, Reliance had
a duty to pay for the Braly defense. . . . Plaintiffs must dem-
onstrate by a preponderance of the evidence that a claim was
covered.” Only if the jury found for the plaintiffs as to the lia-
bility question was the subsequent instruction, quoted above,
pertinent. Given the sequence and wording of the instructions,
the jury would have so understood.
[22] Thus, the jury instructions as a whole did require the
jury to conclude that Reliance had a duty to defend, which it
did not perform. Once the jury so concluded, Hawthorne was
entitled to the presumption that its settlement with Bazyler
was reasonable.
VI. Conclusion
We conclude that Reliance’s jurisdictional and abstention
arguments are unavailing. The district court did not err in
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requiring a $1.1 million litigation bond, nor in issuing the
challenged jury instruction. We therefore AFFIRM in all
respects in No. 03-55548, and DISMISS for failure to prose-
cute in No. 03-55611.
AFFIRMED in part; DISMISSED in part.
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