ROBERTSON v. FRANCO et al

Filing 72

ENTRY ON MOTION TO REMAND - For the reasons set forth, Plaintiff's Motion (Dkt. 27 ) is GRANTED and this case is REMANDED to the Marion County circuit court. In light of this decision, the outstanding motions in this action are DENIED AS MOOT. Signed by Judge Tanya Walton Pratt on 5/25/2011.(JD)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
STEPHEN W. ROBERTSON, the
Commissioner of the Department of Insurance
of the State of Indiana, in his role as
REHABILITATOR of Standard Life Insurance
Company of Indiana and on behalf of its
policyholders
Plaintiff,
vs.
JOHN FRANCO, WARREN FOSS, SETH
HENDON, CARLOS SALAS, DOUGLAS
DETHY, DAN GUNTHER, VANDERBILT
CAPITAL ADVISORS, LLC, and
VANDERBILT AVENUE ASSET
MANAGEMENT LLC
Defendants.

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Cause No. 1:10-cv-01663-TWP-MJD

ENTRY ON MOTION TO REMAND
This matter is before the Court on Plaintiff Stephen Robertson’s Motion to Remand.
Plaintiff makes three separate arguments why this case should be remanded back to the Marion
Circuit Court (“State Court”), some of which are stronger than others. Regardless, the Court
finds one argument dispositive. That is, this case is not removable because, as evidenced by Ind.
Code § 27-9-1-3, it is inextricably tied to a nonremovable delinquency proceeding that has been
pending in State Court for over two years. Accordingly, Plaintiff’s Motion to Remand (Dkt. 27)
is GRANTED.
A.

Background
Plaintiff Stephen Robertson is the acting Commissioner of the Indiana Department of

Insurance (“Plaintiff,” “Commissioner,” or “Rehabilitator”). The Standard Life Insurance

Company of Indiana (“Standard Life”) is an insurance company organized under the laws of
Indiana. On December 18, 2008, the State Court granted the Commissioner’s Verified Petition
for Rehabilitation, which appointed the Commissioner as the Rehabilitator of Standard Life and
allowed him to take possession of Standard Life’s assets. The purpose of these proceedings was
to rehabilitate Standard Life, which was in dire straits financially and thus unable to meet its
obligations to policyholders.
In his capacity as Rehabilitator, Plaintiff learned that Standard Life’s precarious financial
position was allegedly due to Defendants’ reckless investment and sales strategies. Accordingly,
pursuant to the powers vested in him by the Indiana Insurance Code, Plaintiff filed a complaint
(“Complaint”) against Defendants seeking recovery on behalf of Standard Life and its
policyholders. Plaintiff’s Complaint contends that Defendants breached contracts, breached
fiduciary duties, and violated Indiana securities laws. On December 20, 2010, Defendants
removed the Complaint – but not the underlying delinquency proceeding – to federal court.
B.

Discussion
The Court must now determine whether remand is warranted. Defendants base removal

on 28 U.S.C. § 1441, which permits removal of “any civil action” over which federal diversity
jurisdiction exists, as long as the defendants are not citizens of the forum state. 28 U.S.C. §
1441(a) and (b). Here, the underlying delinquency proceeding itself is not removable, given that
there is no diversity between the Rehabilitator and Standard Life and the claims arise squarely
under state law. In fact, Ind. Code § 27-9-1-3 speaks directly to the appropriate forum for
delinquency proceedings, providing in relevant part:

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(a) A delinquency proceeding under this chapter may only be commenced by
the commissioner. A court may not entertain, hear, or determine a proceeding
commenced by any other person.
...
(d) If it appears to a receiver appointed in a proceeding under this article that
there has been criminal or tortious conduct, breach of any contractual or
fiduciary obligation, or other unlawful conduct detrimental to the insurer by
any director, officer, manager, insurance producer, broker, employee, or other
person or entity, the receiver may pursue all appropriate legal remedies on
behalf of the insurer.
...
(f) All action authorized by this section must be brought in the Marion County
circuit court.
(Emphasis added). According to Plaintiff, “[b]ecause the Complaint was brought as part of the
delinquency proceeding, removal jurisdiction does not exist and remand is required . . .”. (Dkt.
28 at 6). Defendants vigorously disagree, countering that the Complaint is, both procedurally
and substantively, a separate and independent lawsuit that is eligible for removal as a stand-alone
action. Procedurally, it has all the hallmarks of a new lawsuit – a complaint, summonses,
appearances, and motions practice. Substantively, Defendants argue, this action covers different
terrain than the delinquency proceeding because a claim for damages against third parties on
behalf of an insurer in rehabilitation is distinct from the underlying rehabilitation proceeding
itself.
The law is well-settled that “only independent lawsuits are removable,” meaning that a
“supplementary proceeding, a proceeding which is substantially a continuation of a prior suit, is
not removable.” Fed. Sav. & Loan Ins. Corp. v. Quinn, 419 F.2d 1014, 1018 (7th Cir. 1977)
(citations omitted). “The question of whether or not a controversy is a separate suit for removal
purposes is ultimately a federal question involving the interpretation and application of the
removal statutes.” Id. (citation omitted). Thus, this motion essentially turns on whether the
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present action is “separate and independent.” If it is, removal was appropriate. If, however, this
case is merely part and parcel of the delinquency proceeding, remand is warranted. In this
analysis, the Court should avoid elevating form over substance. Id. at 1019.
The Court finds that the Complaint in this action is merely a continuing and
supplementary part of the underlying delinquency proceeding, thus warranting remand. On this
point, Florida Dept. of Ins. v. Chase Bank of Tex. Nat’l Assoc., 243 F. Supp. 2d 1293 (N.D. Fla.
2002) (hereafter, “Chase Bank”) is particularly instructive. In Chase Bank, the Florida
Department of Insurance (“FDOI”) filed a delinquency proceeding against Western Star
Insurance Company, Ltd. in Florida state court, which appointed the FDOI to be Western Star’s
receiver. Id. at 1294. In its capacity as receiver, FDOI filed an action against Chase Bank
attempting to recover the face value of a certificate of deposit. Id. at 1295. Chase Bank removed
the action to the federal district court pursuant to 28 U.S.C. § 1441. Id. The FDOI moved for
remand and the district court granted the receiver’s motion “on the ground that the claim . . . is
but a part of a delinquency proceeding.” Id. at 1294. The Chase Bank ruling bolsters the
proposition that when a third-party complaint is filed as part of a larger case that is not itself
removable, the third-party complaint is also not removable, even if it is between citizens of
different states and thus would have been removable standing alone.
As a practical matter, this conclusion makes sense in the present context. Here, Plaintiff
alleges that Defendants’ actions created a shortfall for Standard Life, meaning Standard Life will
not be able to pay all policyholders and creditors with its remaining assets. The only means of
paying claims in the delinquency proceeding would be through a recovery against Defendants.
However, these policyholder and creditor claims will be adjudicated in the delinquency
proceedings in State Court. Thus, removal would have the effect of segregating the
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adjudication of liability and the adjudication of damages into different forums , when, in reality,
the two cannot be cleanly disassociated.
Admittedly, this is a tough call, but the Court’s decision is strongly reinforced by the
language of Ind. Code § 27-9-1-3(d) and (f), which make clear that actions like the present one
“must be brought in the Marion County circuit court.” In this sense, the cases relied upon by
Defendants are inapposite because, in those cases, the operative state statute either did not apply
or did not specify that a state court had exclusive jurisdiction over cases against third parties
brought on behalf of the insurer. See Suter v. Munich Reinsurance Co., 223 F.3d 150, 161 (3d
Cir. 2000) (analyzing N.J. Stat. Ann. § 17:30C-3, which although similar to Ind. Code § 27-9-13(a), has no language comparable to Ind. Code § 27-9-1-3(d) and (f)); Florida Dept. of Financial
Services v. Midwest Merger Mgmt., Inc., No. 4:07-cv-207, 2008 WL 3259045, at *3-4 (N.D. Fla.
Aug. 6, 2008) (ruling that Fla. Stat. § 631.021(6) – “the exclusive venue provision” – does not
apply under the circumstances, meaning “there is no conflict between the federal removal statute
and Florida laws regulating the business of insurance”); Koken v. Viad Corp., 307 F. Supp. 2d
650, 655-57 (E.D. Pa. 2004) (did not consider statutory language, but operative statute, 40 Pa.
Stat. § 221.4, does not address claims against third parties); In re Lewis, 512 F. Supp. 1146, 1148
(S.D.N.Y. 1981) (did not consider language of N.Y. Ins. Law § 7421, which does not grant state
court exclusive jurisdiction over the rehabilitation of an insurer).
The applicable Indiana statute, by contrast, is clear that the Rehabilitator’s claims on
behalf of Standard Life against a “director, officer, manager, insurance producer, broker,
employee, or other person or entity . . . must be brought in the Marion County circuit court.”
This Court believes the present Complaint clearly falls within the ambit of Ind. Code § 27-9-13(d) and (f). Seizing upon the word “brought,” Defendants argue that the statute does not forbid
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removal of the lawsuit, even if, initially, it must be brought in State Court. However, this Court
is not persuaded by this somewhat semantic argument. Instead, the Court interprets the Indiana
statute as meaning that the case must be (a) filed in Marion County circuit court and (b) litigated
in Marion County circuit court. In other words, the Court finds that the language in § 27-9-13(f) is synonymous with exclusive jurisdiction. Accordingly, this action must be remanded.
C.

Conclusion
For the reasons set forth above, Plaintiff’s Motion (Dkt. 27) is GRANTED and this case

is REMANDED to the Marion County circuit court. In light of this decision, the outstanding
motions in this action are DENIED as moot.
SO ORDERED: 05/25/2011

________________________
Hon. Tanya Walton Pratt, Judge
United States District Court
Southern District of Indiana

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Copies to:
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ICE MILLER LLP
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Jeffrey B. Bailey
BOSE MCKINNEY & EVANS, LLP
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BAKER & McKENZIE, LLP
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Fred R. Biesecker
ICE MILLER LLP
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James L. Petersen
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Alan S. Brown
FROST BROWN TODD LLC
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Thomas E. Satrom
FROST BROWN TODD LLC
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Reid M. Figel
KELLOG HUBER HANSEN TODD
EVANS & FIGEL, PLLC.
[e-mail]

Peter L. Simmons
FRIED FRANK HARRIS SHRIVER &
JACOBSON LLP
[e-mail]

Derek T. Ho
KELLOG HUBER HANSEN TODD
EVANS & FIGEL, PLLC
[e-mail],[e-mail],rfigel@
khhte.com

Aaron T. Tucker
FRIED FRANK HARRIS SHRIVER &
JACOBSON LLP
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@friedfrank.com

Jennifer Marie Johnson
ICE MILLER LLP
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Wayne C Turner
BINGHAM MCHALE LLP
[e-mail],gpsmith@bi
nghammchale.com

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BOSE MCKINNEY & EVANS, LLP
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m

Paul D. Vink
BOSE MCKINNEY & EVANS, LLP
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Nathan Lee Lundquist
BINGHAM MCHALE LLP
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Scott A. Weathers
THE WEATHERS LAW OFFICE
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Winston E. Miller
FROST BROWN TODD
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Philip A. Whistler
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