TIPTON v. MORRIS et al

Filing 61

ORDER STAYING re 42 Order on Motion to Stay. Therefore, the Court orders that the 90-day stay ordered in these Causes on October 30, 2013 shall be extended for 180 days commencing on January 13, 2014. Time Dispatch shall file a report on the status of the state receivership proceedings of Liberty First on or before July 13, 2014. Copy Mailed. Signed by Magistrate Judge Denise K. LaRue on 6/24/2014.(MGG)

UNITED STATES DISTRICT COURT
for the SOUTHERN DISTRICT OF INDIANA,
INDIANAPOLIS DIVISION
GREGORY LACY,
Plaintiff,
vs.
TIME DISPATCH SERVICES, INC., et
al.,
Defendant.
ZACHARY WRIGHT,
Plaintiff,
vs.
TIME DISPATCH SERVICES, INC., et
al.,
Defendants.

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) CAUSE NO. 1:12-cv-819-RLY-DKL
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) CAUSE NO. 1:12-cv-1032-SEB-DKL
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PAUL T. MORRIS, et al.,
Defendants.

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) CAUSE NO. 1:12-cv-1476-SEB-DKL
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Liberty First Risk Retention Group
Insurance Co.,
Interested Party.

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MISTIKAE ELIZABETH TIPTON, as
personal representative of the estate of
David M. Hamrick,
Plaintiff,
vs.

ORDER
Extending stay of October 30, 2013 [doc. 83/52 /42]1

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File document numbers are cited in Cause-number order.

On October 30, 2013, the Court granted defendant Time Dispatch Services, Inc.’s
motion to stay these consolidated Causes for a period of ninety days because its liability
insurer, Liberty First Risk Retention Group Insurance Co., which has a duty to defend and
indemnify it in these Causes, had commenced receivership proceedings in a Utah state
court. Order [docs. 83/52/42]. The Order also ordered Time Dispatch to report the status
of the receivership proceedings by January 16, 2014. That Status Report, [doc. 88 in 1:12-cv819-RLY-DKL only], reported that, on January 13, 2014, the Utah state court extended
Liberty First’s receivership for 180 days [doc. 88-1]. The Court allowed the court-appointed
Special Deputy Rehabilitator (“Rehabilitator”) for Liberty First to participate in these
consolidated Causes as an interested party, allowed him to file a brief providing authority
for the Court to extend its stay for the same 180-day period, and offered the parties an
opportunity to respond to the Rehabilitator’s brief. Entry from Telephonic Status Conference,
January 23, 2014 [doc. 94/64/59].

The Rehabilitator argues that the principle of Burford v. Sun Oil Co., 63 U.S. 1098
(1943), applies to these Causes and, therefore, the Court should stay them as a matter of
comity toward the state receivership proceedings. Receiver’s Memorandum in Support of
Defendants’ Motions to Stay Proceedings [doc. 95/61/56]. Plaintiffs Gregory Lacy and
Mistikae Elizabeth Tipton, in Cause nos. 1:12-cv-819-RLY-DKL and 1:12-cv-1476-SEB-DKL,
respectively, (“Plaintiffs”) have objected to Time Dispatch’s and the Rehabilitator’s
requests for an extension of the stay, emphasizing that they want to proceed with

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discovery, at least.2 They argue that proceeding with discovery would benefit the Court
and the parties and would not interfere or hinder the rehabilitation proceedings, but a stay
would cause great prejudice to Plaintiffs. The Court concludes that these Causes should
be stayed as requested by the Rehabilitator and Time Dispatch.

Liberty First is domiciled in Utah, is organized as a “Risk Retention Group” under
Utah’s Product Liability Risk Retention Act, is an “industrial insured group” under Utah
law, and has been licensed continuously with the Utah Insurance Department since May
2006. In re Liberty First Risk Retention Group Ins. Co., Civil No. 130906802, Rehabilitation
Order, and Restraining Orders (“Rehabilitation Order”) at 3 (3rd Dist. Ct., Salt Lake Co., Utah,
Oct. 11, 2013) [docs. 82-3/51-3/40-3, pp. 2-12]. The members and owners of Liberty First
are six trucking companies, one of which is defendant Time Dispatch.

All six

member/owner trucking companies are owned, directly or indirectly, by Gary Aliengena,
alone, or by him and Susan Aliengena, jointly. With the consent of a majority of the voting
shares, or a majority of the controlling individuals, of Liberty First, Utah’s Commissioner
of Insurance petitioned the Utah state court for an order of rehabilitation of Liberty First.
The state court granted the petition, appointing the Commissioner as Rehabilitator and
ordering him, inter alia, to take possession and title of Liberty First’s assets; administer its
assets under court supervision; and determine whether it should be placed into liquidation,
given back to the owners, or sold. The Rehabilitator is authorized under Utah law to, inter

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Although an objection was filed in only plaintiff Lacy’s case, it states that plaintiff Tipton joins
in it and her attorney signed the objection.

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alia, reform and revitalize Liberty First’s business, including cancelling or transferring
policies, and assume all powers of Liberty First’s directors, officers, and managers, whose
authority is suspended except as allowed by the Rehabilitator. The Rehabilitator is also
charged with pursuing all legal remedies on behalf of Liberty First and may assert all
available remedies against third parties. Rehabilitation Order at 8. The Rehabilitation Order
provides that “[a]ll actions and all proceedings against Liberty First in Utah, and elsewhere,
are stayed, pursuant to Utah Code Ann. § 31A-27a-108, subject to the limitations of Utah
Code Ann. § 31A-27a-108(4)(b).” Id. at 9. The Rehabilitator is authorized to “assume or
reject any contracts to which Liberty First is a party, pursuant to Utah Code Ann. § 31A)27a-302.” Id.

“In large part because its analysis provides the closest fit, Burford has become the
doctrine of choice in analyzing whether to abstain in favor of state insurance liquidation
and rehabilitation proceedings.” Property & Casualty Ins. Ltd. v. Central National Ins. Co. of
Omaha, 936 F.2d 319, 321 (7th Cir. 1991). A Burford abstention or stay is appropriate when
“the exercise of federal review . . . would be disruptive of state efforts to establish a
coherent policy with respect to a matter of substantial public concern.” Hartford Casualty
Insurance Co. v. Borg-Warner Corp., 913 F.2d 419, 425 (7th Cir. 1990). The two elements, or
criteria, of this type of Burford abstention are (1) “the state must offer some forum in which
claims may be litigated” and (2) that forum must be special — it must stand in a special
relationship of technical oversight or concentrated review to the evaluation of those

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claims”. Property & Casualty, 936 F.2d at 323. In light of the states’ primary responsibility
for regulating the insurance industry and rehabilitating troubled insurers, they have “the
paramount interest in an uniform insurance rehabilitation process” and that interest can
justify a federal court abstaining from hearing such cases if doing so might “upset ongoing
state insurance insolvency proceedings.” Hartford, 913 F.2d at 426.

Plaintiffs do not dispute that Liberty First’s rehabilitation is the type of state
proceeding that can justify a Burford abstention. Their opposition to a stay is that
continuing with discovery in this case will not interfere with the rehabilitation of Liberty
First or cause any prejudice to Defendants. Relying on McRaith v. American Re-Insurance
Co., No. 09-C-4027, 2010 WL 624857, 2010 U.S. Dist. LEXIS 14021 (N.D. Ill., Feb. 17, 2010),
they argue that this “simple contract and tort action” does not implicate important
regulatory concerns or complex interests of the state of Utah and would not interfere with
Utah’s receivership proceedings involving Liberty First.

However, McRaith presented a significantly different procedural posture than this
case. In McRaith, the state rehabilitator, who had been charged with marshaling the
rehabilitatee’s assets and bringing actions against any persons with respect to their dealings
with the rehabilitatee for the purpose of providing maximum distributions to the
policyholders and creditors of the rehabilitatee, had brought the original state-court suit
to collect insurance proceeds from the defendant reinsurers of the rehabilitatee. The
defendants removed the case to federal court and the rehabilitator sought to have the case
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remanded to state court under Burford. The rehabilitator did not seek to have the case
stayed but intended to proceed with it in state court after remand; he opposed only the
federal forum. The district court denied the remand motion, holding that the simple
contract action did not involve a complex matter of state regulation and would not interfere
with the pending rehabilitation or prejudice creditors because any proceeds recovered by
the rehabilitator would be added to the coffers of the rehabilitatee and eventually would
be distributed as provided in the rehabilitation proceedings.

By contrast, Utah’s Rehabilitator here did not bring the present case; he seeks a stay,
not a remand to allow the case to proceed in state court; any recovery obtained by Plaintiffs
would not be paid into Liberty First’s coffers for distribution under the receivership; and
the Rehabilitator opposes continuing with the case because of the costs to Liberty First of
providing a defense and indemnity. The Rehabilitator asserts that the receivership of
Liberty First is one of the most complex ones that he has managed; he is working diligently
to identify and marshal Liberty First’s assets and understand the litigation matters in which
it is involved; he needs time to evaluate the possibility of rehabilitating or liquidating
Liberty First; and, most importantly, that “[a]bsent a stay, the expense of pending litigation
will continue to consume limited resources and will impair if not prevent our efforts to
determine which cases present legitimate insurance obligations for the company.”
Declaration of Lennard W. Stillman [doc. 97] ¶¶ 3-7. He avers that “cases proceeding to
judgment present the risk of preferential recoveries by some claimants, to the possible

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prejudice of others.” Id. ¶ 6. If and when the decision is to liquidate, then creditors and
claimants can present their claims in the liquidation proceedings which “provides a
specialized administrative process for the determination of such claims, in order to prevent
preferences and ensure equitable treatment of all third party claimants against the
companies [sic] limited resources.” Id. ¶ 7. To these circumstances, McRaith’s discussion
has no application.

Plaintiffs also argue that a stay of this case is not warranted because Time Dispatch,
Liberty First’s insured, is a large trucking company and should be required to pay for its
own defense (or use its in-house counsel) if Liberty First’s rehabilitation prevents it
honoring its contractual duty to pay for a defense. In addition, Plaintiffs point to the facts
that Time Dispatch is one of the six trucking-company members/owners of Liberty First,
all of whom have the same ultimate owner(s), and that they are ones who put Liberty First
into receivership in the first place. Under the Burford abstention doctrine, the Court is
authorized to stay this case as a matter of comity to the Utah rehabilitation proceedings but,
because Liberty First is not a party (other than an “interested party” for the limited purpose
of the present matter), the Court is not authorized under Burford (and it has not been shown
that the Court has jurisdiction) to enjoin Liberty First’s contractual duties to Time Dispatch.

Further, this Court has found that the fact that an insurer is in rehabilitation can
justify application of a Burford stay because “the strong public interest in regulating
insurance for the protection of policyholders and principles of comity weigh in favor of
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taking reasonable steps to protect [a party’s] legitimate expectation that a liability insurer
will protect his interests in this case.” Estate of Hupp v. Howard County Sheriff, No. IP 001544-C-H/K, 2002 WL 425405, *2 (S.D. Ind., Feb. 22, 2002). Presumably, Plaintiffs’ focus
on Time Dispatch’s part ownership of Liberty First, its role in initiating Liberty First’s
receivership, and its large size is intended to dispel any idea of Time Dispatch being an
impecunious innocent party needing the Court’s protection. However, there is no evidence
that Time Dispatch has orchestrated the business of Liberty First or manipulated the
rehabilitation proceedings or this litigation for improper ends or that its actions otherwise
have not been based on legitimate and reasonable business judgments. Plaintiffs have not
presented any information on Time Dispatch’s financial resources or any reason why its
legitimate expectations of a defense by its insurer should not be protected. Finally, aside
from Liberty First’s duty to defend, Plaintiffs have not addressed how a judgment against
Time Dispatch, for which Liberty First has a duty to indemnify, would not directly
implicate the rehabilitation proceedings or and the comitious interests of Burford.

Plaintiffs argue that discovery should proceed — at least as far as a few depositions
of Time Dispatch employees and its owner that were noticed before the rehabilitation
proceedings commenced. They assert a delay will prejudice their ability to obtain accurate
information from witnesses. However, depositions entail significant attorney resources
which would directly implicate the very expenditures that the Rehabilitator seeks to avoid
with his requested extension of the stay and Plaintiffs’ assertions of prejudice are only

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conclusory; they have not shown that the requested length of stay presents a significant risk
that accurate evidence or testimony will be lost.
Conclusion
Therefore, the Court orders that the 90-day stay ordered in these Causes on October
30, 2013 shall be extended for 180 days commencing on January 13, 2014. Time Dispatch
shall file a report on the status of the state receivership proceedings of Liberty First on
or before July 13, 2014. The Special Deputy Rehabilitator of Liberty First is invited to file
a report on the status of Liberty First’s receivership proceedings and/or any appropriate
notice or motion by the same date.
SO ORDERED this date: 06/24/2014

_______________________________
Denise K. LaRue
United States Magistrate Judge
Southern District of Indiana

Distribution to all ECF-registered counsel of record via ECF-generated e-mail.
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Foster Pepper, PLLC
422 W. Riveside Ave.
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