USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 92-1853
JUAN ANTONIO GARCIA, ETC.,
Plaintiff, Appellee,
v.
ISLAND PROGRAM DESIGNER, INC.,
Defendant, Appellee.
v.
UNITED STATES OF AMERICA,
Intervenor, Appellant.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
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No. 92-1889
IN RE:
UNITED STATES OF AMERICA,
Petitioner.
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ON PETITION FOR WRIT OF MANDAMUS
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[Hon. Gilberto Gierbolini, U.S. District Judge]
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Before
Breyer, Chief Judge,
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Torruella and Cyr, Circuit Judges.
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Steven W. Parks, Attorney, Tax Division, Department of Justice,
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with whom James A. Bruton, Acting Assistant Attorney General, Gary R.
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Allen and Bruce R. Ellisen, Attorneys, Tax Division, Department of
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Justice, were on brief for United States of America.
Carlos J. Morales-Bauza with whom Jesus R. Rabell-Mendez and
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Rossello-Rentas & Rabell-Mendez were on brief for Juan Antonio Garcia,
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in his capacity as Insurance Commissioner of Puerto Rico.
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September 14, 1993
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BREYER, Chief Judge. This appeal requires us to
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resolve a conflict between 1) a federal statute that gives
federal tax claims first priority to a bankrupt company's
assets, 31 U.S.C. 3713, and 2) a Puerto Rico "insurance
company liquidation" statute with filing deadlines that can
force those federal claims to the end of the priority queue.
P.R. Laws Ann., tit. 26, 4019(2). A special federal
statute, governing federal pre-emption of state insurance
laws, 15 U.S.C. 1012(b), would require us to resolve the
conflict in favor of Puerto Rico's law -- if that special
federal statute applies. But, a recent Supreme Court case,
interpreting that special law, indicates that it does not
apply. Department of Treasury v. Fabe, 113 S. Ct. 2202
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(1993). Hence, given ordinary pre-emption principles, the
federal statute governs. We reverse a district court
determination to the contrary.
I
Background
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Puerto Rico's law permits the Commonwealth's
Insurance Commissioner to act as trustee for an insolvent
insurance company, to liquidate its assets, and to set a
deadline for the filing of "proofs of claim" to those
assets. P.R. Laws Ann., tit. 26, 4002, 4019. In
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February 1987, the Insurance Commissioner began proceedings,
in a Commonwealth court, to liquidate the assets of Island
Program Designer, Inc. ("IPD"), a health maintenance
organization. The Insurance Commissioner set May 19, 1988,
as the filing deadline for "proofs of claim."
On June 1, 1989, about one year after the filing
deadline, the federal Internal Revenue Service filed with
the Insurance Commissioner a formal "proof" of its claim
against IPD for $53,000 (representing federal tax liens that
the IRS, between 1982 and 1985, had asserted, and perfected,
on IPD's assets). In May 1991, the IRS intervened in the
Commonwealth court liquidation proceedings. 26 U.S.C.
7424. It asked for the $53,000, as to which a federal law
gave it first priority. 31 U.S.C. 3713. It also now
tells us that, without a first priority, it will be unable
to collect any of the money owed.
The Insurance Commissioner opposed the IRS claim
on the ground that the IRS had missed the (May 19, 1988)
deadline for filing formal proofs of claim. He pointed out
that Puerto Rico's insurance company liquidation statute
says that claims for which proofs are filed after the
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deadline shall not be paid until all timely-filed claims
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have been "paid in full with interest." P.R. Laws Ann.,
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tit. 26, 4019(2). And, in his view, Puerto Rico's
priority system trumps the federal statute.
At this point, the IRS removed the case to federal
court. 28 U.S.C. 1441(b), 1444. The Insurance
Commissioner asked the district court to "abstain" from
deciding the legal issues, and to remand the case to the
Commonwealth court. The district court then wrote an
opinion deciding the basic question and holding that Puerto
Rico's priority law, not the federal priority statute,
governs. It also remanded the case to the Commonwealth
court. The IRS now asks us to review, and to reverse, the
remand order.
II
Appeal or Mandamus?
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We are not completely certain why the district
court, having decided the major legal issue in the case,
decided to remand it. It may have done so as an
administrative matter, to permit the Commonwealth court to
enter a final judgment; or because it believed the
controversy involved other legal issues that it should
"abstain" from deciding; or simply because "remand" was the
form of relief that the Insurance Commissioner had
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requested. Whatever the reason, the fact of remand raises a
technical question about the form of review: Can the IRS
simply appeal the remand order or must it seek a writ of
mandamus?
The problem arises out of a Supreme Court case,
Thermtron Products, Inc. v. Hermansdorfer, 423 U.S. 336
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(1976), in which the Court considered the scope of a
statute, 28 U.S.C. 1447(d), that appeared to bar appellate
review of all remand orders. The Court held that the
statute's "review bar" applies only to a statutorily-
limited, previously-mentioned set of remand orders, namely,
those in which remand rests upon a defect in the removal
proceeding. See 28 U.S.C. 1447(c). The Court, referring
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to an 1875 case, Railroad Co. v. Wiswall, 90 U.S. (23 Wall.)
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507 (1875), also held that other remand orders, while
reviewable, were not "final" orders and therefore were
reviewable only through mandamus. Id. at 508. The remand
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order in this case falls outside the scope of the statutory
"review bar." But, it would seem to fall within the scope
of the Supreme Court's holding that review must take place
through mandamus, not appeal.
The IRS points out that several appeals courts
have created an exception to Thermtron for (and permitted
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appeal of) reviewable remand orders that amount to
"collateral orders." See, e.g., McDermott Int'l Inc. v.
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Lloyds Underwriters of London, 944 F.2d 1199, 1204 (5th Cir.
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1991) (permitting appeal of remand order based on separable
issue presented by a contract's "forum selection" clause),
cert. denied, 113 S. Ct. 2442 (1993); Foster v. Chesapeake
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Ins. Co., Ltd., 933 F.2d 1207, 1211 & n.6 (3d Cir.) (same),
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cert. denied, 112 S. Ct. 302 (1991); Karl Koch Erecting Co.
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v. New York Convention Ctr. Dev. Corp., 838 F.2d 656, 658-59
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& n.1 (2d Cir. 1988) (same); Pelleport Investors, Inc. v.
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Budco Quality Theatres, Inc., 741 F.2d 273, 277-78 (9th Cir.
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1984) (same). It adds that we should recognize an exception
permitting appeal here.
We are aware of arguments advanced for modifying,
or finding exceptions to, Thermtron. Commentators have
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argued that the Supreme Court should have departed from its
earlier, nineteenth-century practice and found remand orders
"final" (hence, in principle, appealable) because 1) they
finally dispose of the federal proceedings; and, 2) there is
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little practical reason not to permit appeal of those remand
orders that fall outside section 1447(d)'s statutory bar.
15A Charles A. Wright, Arthur R. Miller & Edward H. Cooper,
Federal Practice and Procedure 3914.11, at 702-18 (2d ed.
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1991). Critics have also pointed to anomalies. Suppose,
for example, that a federal district court, wishing to
abstain pending resolution of state proceedings, embodies
its decision in a stay of federal proceedings. The stay is
appealable. Moses H. Cone Memorial Hosp. v. Mercury Constr.
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Corp., 460 U.S. 1, 8-10 (1983). Suppose that same court
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embodies its decision in a remand (and, say, the plaintiff
reserves the right to return to federal court, see England
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v. Louisiana State Bd. of Medical Examiners, 375 U.S. 411
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(1964)). The parties would have no appeal as of right, but
would have to seek "discretionary" review through mandamus.
Cf. Roche v. Evaporated Milk Ass'n, 319 U.S. 21, 25 (1943)
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(mandamus is discretionary). The result is anomalous.
Corcoran v. Ardra Ins. Co., Ltd., 842 F.2d 31, 34-35 (2d
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Cir. 1988). And, one can find other examples of practical
review difficulties, particularly when, say, a district
court couples dismissal of a removed federal claim with
remand of pendent state claims. 15A Wright, Miller & Cooper,
supra, 3914.11, at 710-18; see also In re Amoco Petroleum
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Additives Co., 964 F.2d 706 (7th Cir. 1992).
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Despite these difficulties, we do not believe we
can find an exception that fits the present case. For one
thing, the Supreme Court's language is rather absolute. It
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says clearly that a remand order is not "final." The Court
rests its decision upon older cases that reflect the
apparently then-common practice of appellate courts using
mandamus, rather than appeal, to review the lawfulness of a
lower court's refusal to assert jurisdiction (of which a
remand is one variety). Wiswall, 90 U.S. (23 Wall.) at 508.
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The Court, more recently, has approved circuit court use of
mandamus as a vehicle for review. Carnegie-Mellon Univ. v.
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Cohill, 484 U.S. 343, 355-56 (1988). And, lower courts,
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even when faced with anomalies, have concluded that the
Supreme Court meant what it said. In re Amoco Petroleum
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Additives Co., 964 F.2d at 713; Corcoran, 842 F.2d at 34-35.
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For another thing, we do not believe it possible
to apply a "collateral order" exception here. See cases
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cited at pp. 5-6, supra. The "collateral order" doctrine
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permits parties to appeal (as "final decisions," 28 U.S.C.
1291) orders that "determine" a "disputed" and "important"
issue "separate from the merits of the action," which are
"effectively unreviewable" on a later appeal. Coopers &
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Lybrand v. Livesay, 437 U.S. 463, 468 (1978). The record
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here does not set forth the relation of the remand to any
remaining issues in sufficient detail for us to say with
confidence that the remand order rests on the determination
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of an issue "separate from the merits of the action." But,
more importantly, Thermtron and Wiswall themselves seem to
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involve "collateral orders." In Thermtron, the Court
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reviewed (through mandamus) a district court order
(erroneously) remanding the case to a state court on the
ground that the state court would handle the case more
expeditiously. That remand decision determined an
important, separate, disputed issue that could not easily
have been reviewed later through appeal. Similarly, in
Wiswall, the Court reviewed (through mandamus, prior to the
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enactment of 1447(d)) a lower court's important, separate,
disputed decision to remand the case to state court for
jurisdictional reasons. The upshot is that we cannot find a
"collateral order" exception large enough to fit our case
that does not also swallow up (and thereby simply disregard)
the general rule.
Finally, and perhaps most importantly, we need not
further complicate the law with additional exceptions
because the case before us meets Thermtron's criteria for
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the issuance of mandamus. This case, like Thermtron,
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involves the "traditional use of the writ [of mandamus] in
aid of appellate jurisdiction to compel" a lower court "to
exercise" its jurisdictional "authority when it is its duty
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to do so." Roche, 319 U.S. at 26, quoted in Thermtron, 423
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U.S. at 352. Mandamus here, like mandamus in Thermtron, is
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not a substitute for appeal, cf. Roche, 319 U.S. at 26-31;
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Will v. United States, 389 U.S. 90, 97 (1967); Schlagenhauf
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v. Holder, 379 U.S. 104, 110 (1964), for Thermtron itself
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blocks immediate appeal; and eventual appeal through the
Commonwealth court system does not promise the IRS
meaningful review of the federal district court's critical
legal determination.
Of course, even where a court of appeals has the
"power" to issue mandamus, that relief is "discretionary."
16 Charles A. Wright, Arthur R. Miller, Edward H. Cooper &
Eugene Gressman, Federal Practice and Procedure 3933, at
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213 (1977). Appellate courts typically exercise this
discretion only in somewhat unusual instances, In re
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Pearson, 990 F.2d 653, 656 (1st Cir. 1993), and where the
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petitioner's rights are "clear and indisputable." Bankers
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Life & Cas. Co. v. Holland, 346 U.S. 379, 384 (1953); In re
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Pearson, 990 F.2d at 656. Nonetheless, in our view, the
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IRS's right to relief here, after the Supreme Court's
decision in Fabe, supra, is reasonably clear; its need for
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relief is fairly urgent; and, the fact that the remand falls
outside 1447(d)'s review bar itself helps to make the
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remand unusual. Taken together, these circumstances justify
exercising our "discretion" in favor of issuing the writ.
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III
Pre-emption
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The IRS argues that the federal court was wrong
not to retain the case and order payment of the $53,000
because federal law governs the case and requires that
payment. The federal law in question is a statute, 31
U.S.C. 3713, which says:
A claim of the United States Government
shall be paid first when . . . a person
indebted to the Government is insolvent
and . . . an act of bankruptcy is
committed.
The Insurance Commissioner agrees that this statute would
entitle the United States to priority (and, apparently to
payment) were it not for a Commonwealth statute that governs
insurance company liquidations. That statute, as we have
said, instructs the Insurance Commissioner to set a deadline
for presenting proofs of claims, and it adds:
Proofs of claim may be filed subsequent
to the date specified, but no such claim
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shall share in the distribution of the
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assets until all allowed claims, proofs
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of which have been filed before said
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date, have been paid in full with
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interest.
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P.R. Laws Ann., tit. 26, 4019(2) (emphasis added).
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These two statutes conflict. We cannot reconcile
the federal statute with the Commonwealth statute (say, by
reading it as limited to instances of compliance with state
procedures), for the courts have consistently interpreted
the federal statute as overriding state procedural
requirements of the sort here at issue (at least where a
trustee has appropriate notice of federal claims). See,
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e.g., Brown v. Coleman, 566 A.2d 1091 (Md. 1989) (federal
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priority cannot be superseded or impaired by state law);
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United States v. Boots, 675 F. Supp. 550 (E.D. Mo. 1987)
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(estate representative with actual, but not formal, notice
of federal government's claim must pay that claim first);
United States v. Snyder, 207 F. Supp. 189 (E.D. Pa. 1962)
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(under predecessor statute, United States could file claim
long after distribution of estate in probate court); United
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States v. Backus, 24 F. Cas. 932 (C.C.D. Mich. 1855) (No.
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14,491) (under predecessor statute, state proof of claim
statutes were not binding on United States). If ordinary
pre-emption principles apply, then the federal statute
governs. Gibbons v. Ogden, 22 U.S. 1 (1824); U.S. Const.
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Art. VI, cl.2.
The pre-emption inquiry here is more complicated,
however, because the Insurance Commissioner argues that the
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Commonwealth's law regulates insurance companies and (as we
shall assume for argument's sake) that IPD is an insurance
company. A special federal statute says:
No Act of Congress shall be construed to
invalidate, impair, or supersede any law
enacted by any State for the purpose of
regulating the business of insurance . .
. unless such Act specifically relates
to the business of insurance . . . .
McCarran-Ferguson Act 2(b), 15 U.S.C. 1012(b).
This statute, if it were to apply, would compel
the opposite result: the Commonwealth's priority system, not
the federal system, would govern. The basic legal question
before us, then, is whether or not the statute applies. Is
the Commonwealth's procedurally-linked priority rule a "law
enacted . . . for the purpose of regulating the business of
insurance"? The district court, relying on the Sixth
Circuit's holding in Fabe, decided that the answer to this
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question was "yes." Fabe v. Department of Treasury, 939
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F.2d 341 (6th Cir. 1991). The Supreme Court, however,
granted certiorari in Fabe. And, that Court has reached a
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decision that leads us to reverse the district court.
Department of Treasury v. Fabe, supra.
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The Supreme Court, in Fabe, considered separately
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individual provisions in a state insurance-company-
liquidation statute, which provisions provided sequential
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priority for (1) administrative costs; (2) specified wage
claims; (3) policyholders' claims; (4) general creditors'
claims; and (5) government claims. The Court held that some
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of these priority provisions (all comprising parts of the
larger statute) amounted to laws "enacted for the purpose of
regulating the business of insurance," but others did not.
It said that "to the extent" a priority provision "regulates
policyholders," it "is a law enacted for the purpose of
regulating the business of insurance." Fabe, 113 S. Ct. at
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2212. But to "the extent that it is designed to further the
interests of other creditors, . . . it is not a law enacted
for the purpose of regulating the business of insurance."
Id.
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The Court then found that the state statute's
first priority for "the expense of administering the
insolvency proceeding" was an insurance-regulating
provision. It said that the provision "is reasonably
necessary to further the goal of protecting policyholders"
because, without such a provision, "liquidation could not
even commence." Id. In contrast, the Court found that the
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"preferences conferred upon employees [for wage claims] and
other general creditors" were not insurance-regulating
provisions. Id. The Court said that such preferences "do
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not escape pre-emption because their connection to the
ultimate aim of insurance is too tenuous." Id.
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The Court's reasoning and examples lead us to
conclude that the federal statute pre-empts the
Commonwealth's filing-deadline-related priority provision.
The filing deadline (with its penalty of subordination for
late claims) cannot be said to directly "regulate[]
policyholders," for it is neither directed at, nor necessary
for, the protection of policyholders, as the Court required.
The provision helps policyholders only to the extent that
(and in the same way as) it helps all creditors. That is to
say, by penalizing late-filers, the Commonwealth provision
may bring about more speedy, orderly liquidation
proceedings, thereby (perhaps) reducing the risks (and
costs) of extending credit to the company.
Nor can one say that the Commonwealth's filing
deadline provision is necessary for the protection of
policyholders. The Court in Fabe found that a priority for
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"administrative expense[s]" was necessary to protect
policyholders, but, because without such a priority,
liquidation might never occur. The Commonwealth's filing
deadline at issue here, however, is not necessary for a
liquidation. Without it, liquidation would still prove
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manageable. At worst, the trustee's job would become
slightly more difficult. He would have to provide, for
example, the United States with a first priority as long as
he had, say, actual notice (or "constructive" notice through
recording) of the claim, even if he did not have formal
notice through a "proof of claim" filed directly in the
liquidation proceeding. See cases cited at p. 12, supra.
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Relieving the trustee of the burden of searching for
recorded liens provides policyholders with only indirect,
speculative benefit of the kind that the Fabe Court found
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far too tenuous to prevent pre-emption. We conclude that
the special federal pre-emption statute does not apply.
Normal pre-emption rules do apply. And, federal law must
govern.
The Insurance Commissioner makes one further
argument. He says that, even if the district court was
wrong about federal pre-emption, the court was still right
to remand the case. He says the remand rested upon the
district court's authority to "abstain" from exercising its
jurisdiction in order to allow the Commonwealth court to
conduct further insurance company liquidation proceedings.
See Burford v. Sun Oil Co., 319 U.S. 315 (1943); Gonzalez v.
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Media Elements, Inc., 946 F.2d 157 (1st Cir. 1991)
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(abstaining to permit resolution, in Commonwealth
liquidation proceeding, of a tort claim against insolvent
insurance company).
The problem with this argument lies in the record
before us. Burford holds that federal courts should abstain
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where further federal proceedings would likely decide a
"difficult" state law question or would disrupt state
efforts to establish coherent and important state policy.
Burford, 319 U.S. at 331 & n.28; Bath Memorial Hosp. v.
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Maine Health Care Fin. Comm'n, 853 F.2d 1007, 1013-14 (1st
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Cir. 1988); see also Fragoso v. Lopez, 991 F.2d 878, 882-85
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(1st Cir. 1993). Nothing in the record before us explains
how, or why, further federal proceedings would create any
such problems. Thus, it offers no justification for court
abstention based on Burford.
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For these reasons, the appeal is dismissed, and
the petition for mandamus, setting aside the district
court's remand order, is
Granted.
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