Idaho Trust Bank v. BancInsure, Inc. et al

Filing 234

MEMORANDUM DECISION AND ORDER RE PLAINTIFFS MOTION TO LIFT STAY AND FOR ENTRY OF PRELIMINARY INJUNCTION - Based on the foregoing, Plaintiffs Motion to Lift Stay and for Entry of Preliminary Injunction (Dkt. 216 ) is DENIED in part and GRANTED in par t as follows: (1) Plaintiffs Motion for Entry of Preliminary Injunction is DENIED; (2) Plaintiffs Motion to Lift Stay as against BancInsure is DENIED; and (3) Plaintiffs Motion to Lift Stay as against IIGA is GRANTED. Signed by Judge Ronald E. Bush. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (cjs)

UNITED STATES DISTRICT COURT
DISTRICT OF IDAHO

IDAHO TRUST BANK, an Idaho corporation,
Plaintiff,

Case No.: 1:12-cv-00032-REB
MEMORANDUM DECISION AND
ORDER RE PLAINTIFF’S MOTION
TO LIFT STAY AND FOR ENTRY
OF PRELIMINARY INJUNCTION

vs.
BANCINSURE, INC., an Oklahoma corporation;
CONTINENTAL CASUALTY COMPANY, an
Illinois corporation,

(Dkt. 216)

Defendants.
Pending is Plaintiff’s Motion to Lift Stay and for Entry of Preliminary Injunction (Dkt.
216). The Court has carefully considered the record and reviewed the briefing and affidavits
submitted in connection with this motion. The Court also conducted a hearing on this motion on
September 21, 2017. Being fully advised, the Court enters the following Memorandum Decision
and Order:
I. BACKGROUND
Plaintiff Idaho Trust Bank (“Idaho Trust”) alleges that Defendants Continental Casualty
Company (“CNA”) and BancInsure, Inc. (“BancInsure”) were required, but failed, to fully
indemnify and defend Idaho Trust from claims made against Idaho Trust by Inland Storage, Inc.
and James Hutchens. The case began in the Fourth Judicial District of the State of Idaho, in and
for the County of Ada, on December 23, 2011 (Dkt. 1-1). BancInsure removed the case to this
federal court on January 24, 2012 (Dkt. 1). Defendant CNA was dismissed with prejudice by
stipulation on July 1, 2013 (Dkts. 81, 86).

MEMORANDUM DECISION AND ORDER - 1

Subsequently, this Court denied BancInsure’s motion for summary judgment and granted
Idaho Trust’s motion for summary judgment. The effect of those rulings was to to establish
liability but not damages with respect to Idaho Trust’s claims against BancInsure. (Dkts. 95, 98,
132). A two-day trial on damages was set for September 2, 2014. (Dkt. 139). Then, less than a
month before trial, BancInsure moved for a temporary stay of this action and filed notice here
that an Oklahoma state court had placed it into liquidation and appointed a receiver. (Dkt. 152).
Reluctantly, the Court granted the initial motion to stay (Dkt. 173) and the damages trial was
vacated. (Dkt. 176). Subsequent motions to continue the stay have been granted, such that this
case has been stayed since August of 2014 – now well over three years ago. (Dkts. 176, 183,
196, 200, 211).
In 2015, Idaho Insurance Guaranty Association (“IIGA”) was permitted to intervene in
this case after its motion to substitute as defendant for BancInsure was denied. (Dkts. 180, 193).
Idaho Trust now moves to lift the stay and for entry of a preliminary injunction barring
BancInsure’s Receiver from seeking to readjudicate Idaho Trust’s claims in the Oklahoma
receivership proceeding. (Dkt. 216). Its primary basis for this motion is that, despite this
Court’s Memorandum Decision and Order granting summary judgment against BancInsure on its
liability to Idaho Trust, the Receiver has recommended in the Oklahoma liquidation proceeding
that BancInsure have no liability to Idaho Trust on the proofs of claim that correspond to the
causes of action raised here. (Dkts. 216, 216-1, 223). Through the Receiver, BancInsure
opposes the motion and defends its right and duty to make recommendations in the receivership
proceeding as to filed claims. (Dkt. 224). IIGA likewise opposes the motion. (Dkt. 225).

MEMORANDUM DECISION AND ORDER - 2

II. DISCUSSION
A. Idaho Trust’s Motion for Preliminary Injunction Is Denied.
At issue here is whether this Court is authorized to enjoin the BancInsure Receiver from
pursuing a particular legal strategy in the Oklahoma receivership proceeding. Although federal
courts have the power to issue preliminary injunctions under appropriate circumstances (FED. R.
CIV. P. 65; see also 28 U.S.C. § 636(c)(1)), in cases such as this one the authority is largely
limited by the Anti-Injunction Act, 28 U.S.C. § 2283. The Act provides that “[a] court of the
United States may not grant an injunction to stay proceedings in a State court except as expressly
authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or
effectuate its judgments.” The prohibition of the Act “cannot be evaded by addressing the order
to the parties” instead of to the state court itself. Atl. Coast Line R.R. Co. v. Bhd. of Locomotive
Eng’rs, 398 U.S. 281, 287 (1970). “Ordering the parties not to proceed is tantamount to
enjoining the proceedings.” Bennett v. Medtronic, Inc., 285 F.3d 801, 805 (9th Cir. 2002).
The exception to the Act permitting a federal court to enjoin state court proceedings to
“protect or effectuate its judgments” is known as the relitigation exception. Blalock Eddy Ranch
v. MCI Telecomms. Corp., 982 F.2d 371, 375 (9th Cir. 1992). This exception is “designed to
implement well-recognized concepts of claim and issue preclusion.” Smith v. Bayer Corp., 564
U.S. 299, 306 (2011) (quotation marks and citation omitted). It is “narrow and [is] not to be
enlarged by loose statutory construction.” Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 146
(1988) (quotation marks and citation omitted). “Deciding whether and how prior litigation has
preclusive effect is usually the bailiwick of the second court. . . . So issuing an injunction under
the relitigation exception is resorting to heavy artillery.” Smith, 564 U.S. at 307.

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The relitigation exception applies where there is the possibility of a conflict between a
state court judgment and a prior federal judgment. Montana v. BNSF Ry. Co., 623 F.3d 1312,
1315 (9th Cir. 2010). But a conflict can only exist if the federal court has decided the claims or
issues presented in the subsequent state action. Id. (citing Blalock, 982 F.2d at 376); see also
Smith, 564 U.S. at 306. Even so, however, “if no actual conflict is possible, [an] injunction could
still be proper if res judicata would bar the state court proceedings.” Blalock, 982 F.2d at 375.
“Res judicata applies when there is ‘(1) an identity of claims, (2) a final judgment on the merits,
and (3) privity between parties.’” Montana v. BNSF Ry. Co., 623 F.3d at 1316 (quoting
Tahoe–Sierra Pres. Council, Inc. v. Tahoe Reg’l Planning Agency, 322 F.3d 1064, 1077 (9th Cir.
2003)).
Finally, “the fact that an injunction may issue under the Anti-Injunction Act does not
mean that it must issue.” Chick Kam Choo, 486 U.S. at 151. Moreover, “[a]ny doubts as to the
propriety of a federal injunction against state court proceedings should be resolved in favor of
permitting the state courts to proceed in an orderly fashion to finally determine the controversy.”
Atl. Coast Line R.R. Co., 398 U.S. at 297. “[A]n injunction can issue only if preclusion is clear
beyond peradventure.” Smith, 564 U.S. at 308.
Here, Idaho Trust seeks a preliminary injunction prohibiting the Receiver from seeking to
adjudicate Idaho Trust’s claims in the Oklahoma receivership proceeding, on the grounds that
the Receiver has recommended denial of the claims in that forum despite this Court’s prior order
on summary judgment establishing liability on the very same claims. Mem. in Supp. of Mot. to
Lift Stay and for Entry of Prelim. Inj. 1–2 (Dkt. 216-1). Idaho Trust contends that by
recommending denial in the Oklahoma receivership proceeding, the Receiver is violating Idaho

MEMORANDUM DECISION AND ORDER - 4

and Oklahoma statutes and ignoring the same principles of comity upon which this Court relied
in staying the case until now. Id. at 2. It further argues that
[t]he Receiver sought to stay this action short of final judgment purportedly to let
the Oklahoma court sort out the payment of Idaho Trust’s damages from the
BancInsure estate. The Receiver apparently had no intention to do that. Instead,
after two years of delay, the Receiver gave Idaho Trust’s claims a de novo review
as if none of the events that took place in this lawsuit ever happened. The
Receiver apparently intends to proceed to judgment in Oklahoma with the goal of
wiping out the rights that Idaho Trust obtained (and the liability that BancInsure
incurred) through the Court’s Decision and Order.
Id. at 11. Idaho Trust describes the Receiver as acting with a “lack of candor.” Pl.’s
Supplemental Mem. in Supp. of Motion to Lift Stay and for Entry of Prelim. Inj. 1 (Dkt. 223).
The Receiver’s chief argument opposing entry of a preliminary injunction is that the
Anti-Injunction Act prohibits such an injunction. BancInsure’s Resp. to Idaho Trust Bank’s
Mot. to Lift Stay and for Entry of Prelim. Inj. 15–16 (Dkt. 224). It asserts that “because the
partial summary judgment entered by this Court was not a final judgment, the exception in 28
U.S.C. § 2283 of ‘protect[ing]’ or ‘effectuat[ing]’ a federal ‘judgment[]’ is inapplicable.” Id. at
16. It also argues that an injunction here would be inconsistent with the Uniform Insurer’s
Liquidation Act as enacted by both Idaho and Oklahoma. Id.
Here, this Court’s prior summary judgment decision was not a “judgment” for purposes
of the relitigation exception to the Anti-Injunction Act because it was not a final judgment.
Idaho Trust cites authority for the proposition that a judgment need not be final for the
relitigation exception to apply. Pl.’s Reply in Supp. of Mot. to Lift Stay and for Entry of Prelim.
Inj. 8 (Dkt. 228) (citing Moore’s Federal Practice - Civil § 121.08 (2017) and Sperry Rand Corp.
v. Rothlein, 288 F.2d 245, 248–249 (2d Cir. 1961)). However, such authorities do not suggest
that the relitigation exception can apply in circumstances where the party against whom
judgment was entered had no opportunity to appeal the order. Idaho Trust has not cited, and the
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Court has not found, any instance where the relitigation exception to the Anti-Injunction Act
applied to an order that was neither an interlocutory order nor a final judgment. Thus, there is no
potential conflict between this Court’s summary judgment order and any order that might be
entered in the Oklahoma liquidation proceeding because BancInsure had no opportunity to
appeal the summary judgment order here and that order was not final. For the same reason, the
relitigation exception may not be invoked on the basis of res judicata – absent a final judgment,
res judicata simply cannot apply.
The legal moat of the Anti-Injunction Act applies to these circumstances, and therefore
the Court concludes that it cannot enjoin the Oklahoma proceedings. Nonetheless, the Court is
concerned by the underlying details of this case that give rise to Idaho Trust’s argument that the
Receiver engaged in “gamesmanship” by successfully arguing for a stay here to prevent the
adverse summary judgment ruling from becoming final, while simultaneously seeking to have
BancInsure’s liability relitigated in the Oklahoma liquidation proceedings. The Court asked
BancInsure’s counsel during the hearing whether counsel had disclosed to this Court that
BancInsure would be asking the Oklahoma Receiver to rule (or, whether it was anticipated that
the Oklahoma Receiver on its own would be separately ruling) upon whether BancInsure was
liable to Idaho Trust, as distinct from only considering the amount and priority of that liability.
(This Court, as was obviously known to BancInsure at the time the stay was requested, had
already ruled that BancInsure was liable to Idaho Trust. All that remained was the question of
whether Idaho Trust had suffered damages and if so, the amount of such damages.)
In the oral and written responses to that inquiry, BancInsure provided an oblique, at best,
reference to the possibility of such a disclosure. Certainly, there was nothing in the nature of a
direct statement on the subject. If such a possibility had been made clear to this Court (regardless

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of whether such a possibility was an intended, or incidental, product of the stay of the Idaho
proceedings that was being requested), it is unlikely that this Court would have agreed to stay
these proceedings. The circumstances are inescapably troubling.
B.

Idaho Trust’s Motion to Lift Stay Is Denied as to BancInsure.

Idaho Trust moves both to lift the stay and for entry of preliminary injunction. (Dkt. 216).
Because its motion for entry of preliminary injunction is denied, the status of the case here
otherwise remains unchanged from the holding pattern it has been in since August 2014.
Notwithstanding the troubling implications of the possible reasons for seeking the stay, the same
reasoning that justified staying the case then remains valid now. Accordingly, absent a
persuasive reason to lift the stay as to BancInsure, that aspect of Idaho Trust’s motion is denied.
C.

Idaho Trust’s Motion to Lift Stay Is Granted as to IIGA.

Finally, Idaho Trust also moves to lift the stay as to intervenor IIGA.1 (Dkt. 216). Idaho
Trust seeks to obtain a final judgment against IIGA in this proceeding, which it hopes will bind
the Receiver in the Oklahoma liquidation proceeding. It asserts that “[a] ruling against IIGA will
be binding on the Receiver.” Plaintiff’s Supp. Mem. in Supp. of Mot. to Lift Stay and for Entry
of Prelim. Inj. 13 (Dkt. 223). It also seeks the stay be lifted as to IIGA because it contends a
ruling against IIGA here would prevent IIGA from relying on any contrary ruling that might be

1

Idaho Trust’s motion generically seeks “an order lifting the stay”; it “moves this Court
to lift the current stay in this matter.” Plaintiff’s Mot. to Lift Stay and for Entry of Prelim. Inj. 1,
2 (Dkt. 216). Although the motion itself did not expressly seek the stay be lifted separately as to
BancInsure and IIGA, Idaho Trust clarified its intent both in a supplemental memorandum filed
prior to any response briefs and during the hearing on the instant motion. Plaintiff’s Supp. Mem.
in Supp. of Mot. to Lift Stay and for Entry of Prelim. Inj. 13 (Dkt. 223) (“The Court can . . . lift[]
the stay and allow[] Idaho Trust to proceed on claims against the intervenor IIGA. . . . Idaho
Trust requests the Court lift the stay and allow Idaho Trust to proceed against the Receiver and
IIGA.”). Therefore, the Court will address the issue.
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entered in the Oklahoma liquidation proceeding. Plaintiff’s Reply to IIGA’s Resp. to Mot. to
Lift Stay and for Entry of Prelim. Inj. 2 (Dkt. 229).
IIGA opposes Idaho Trust’s motion and disputes the effect a ruling against it here would
have as to BancInsure in the Oklahoma liquidation proceeding. IIGA’s Resp. to Idaho Trust
Bank’s Mot. to Lift Stay and for Entry of Prelim. Inj. (Dkt. 225). The Court need not, and does
not, resolve that particular dispute at this time.
However, Oklahoma law appears to require the insolvency court to defer to this Court’s
determination about IIGA’s liability:
The determination of any dispute with respect to the statutory obligations of any
guaranty association by a court or administrative agency or body with jurisdiction
in the state of domicile of the guaranty association shall be binding and
conclusive as to the parties in a delinquency proceeding initiated in the district
court, including, without limitation, the policyholders of the insurer.
36 Okla. Stat. § 1902(E). Moreover, and as IIGA acknowledges, “UILA expressly excludes
claim litigation against guaranty associations from the jurisdiction of the receivership action.”
IIGA’s Resp. to Idaho Trust Bank’s Mot. to Lift Stay and for Entry of Prelim. Inj. 4 n. 1 (Dkt.
225) (quoting 36 Okla. Stat. § 1902(D): “Notwithstanding any other provision in this article, this
section shall not confer jurisdiction on the district court to resolve coverage disputes between
guaranty associations and those asserting claims against an association . . .”).
Lifting the stay as to IIGA might be perceived as creating the possibility of inconsistent
judgments. But that possibility already exists, and has been looming over this case at least since
the Receiver recommended a denial of Idaho Trust’s claims in the Oklahoma liquidation
proceeding, despite this Court’s prior summary judgment order holding BancInsure liable to
Idaho Trust. Lifting the stay does not exacerbate the risk of inconsistent judgments, and, if
Idaho Trust is correct that a binding ruling on IIGA here will have preclusive effect against

MEMORANDUM DECISION AND ORDER - 8

BancInsure in the Oklahoma liquidation proceeding, moving forward here against IIGA may in
fact reduce the likelihood of inconsistent judgments. Accordingly, the Court will lift the stay as
to IIGA.
The Court will issue a separate order setting a scheduling conference to discuss and
calendar further proceedings and deadlines on the Idaho Trust claims against IIGA.
III. ORDER

Based on the foregoing, Plaintiff’s Motion to Lift Stay and for Entry of
Preliminary Injunction (Dkt. 216) is DENIED in part and GRANTED in part as follows:
(1)

Plaintiff’s Motion for Entry of Preliminary Injunction is DENIED;

(2)

Plaintiff’s Motion to Lift Stay as against BancInsure is DENIED; and

(3)

Plaintiff’s Motion to Lift Stay as against IIGA is GRANTED.

DATED: February 16, 2018

Honorable Ronald E. Bush
Chief U. S. Magistrate Judge

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