Winner Road Properties, LLC v. BMO Harris Bank, N.A.

Filing 162

MEMORANDUM AND ORDER -...IT IS HEREBY ORDERED that Cross Defendant Jo Ann Howard & Associates, P.C.'s Motion to Abstain or, Alternatively, Motion to Abate and Motion for More Definite Statement is GRANTED, in part. Consistent with the terms of this Memorandum and Order, Cross Defendant Jo Ann Howard & Associates, P.C.'s motion to abstain is GRANTED to the extent that the Court shall stay this matter pending resolution of the relevant matters in the Texas Receivership Li tigation. In all other respects, the motion is DENIED as moot. [Doc. 131]. IT IS FURTHER ORDERED that the Clerk of the Court shall administratively close this file, which shall be subject to reopening on motion as set forth in this Memorandum and Order. Signed by District Judge Charles A. Shaw on 6/3/2019. (MRC)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
WINNER ROAD PROPERTIES, LLC,
Plaintiff/Counter-Defendant,
v.
BMO HARRIS BANK, N.A.,
Defendant/Counter-Claimant/
Cross-Claimant
v.
JO ANN HOWARD & ASSOCIATES, P.C.,
Cross-Defendant

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No. 4:16-CV-1395 CAS

MEMORANDUM AND ORDER
This matter is before the Court on Cross Defendant Jo Ann Howard & Associates, P.C.’s
motion to abstain or, alternatively, motion to abate and motion for more definite statement. Plaintiff
Winner Road Properties, LLC and defendant BMO Harris Bank, N.A., oppose the motion. The
motion is fully briefed and ripe for review. For the following reasons, the motion is granted in part.
The Court will abstain from this case and stay the matter until resolution of the concurrent
receivership litigation in Texas state court.
Background
This case arises out of a fraud scheme perpetrated by the Cassity family. The Cassity family
owned and operated National Prearranged Services, Inc. (“NPS”), which sold pre-need funeral
contracts. The Cassity family also owned two Texas-based life insurance companies, Lincoln
Memorial Life Insurance Company (“Lincoln”) and Memorial Service Life Insurance Company
(“Memorial”).

On June 13, 2016, plaintiff Winner Road Properties, LLC (“Winner Road”) filed this action
in the Circuit Court of Jackson County, Missouri, against Defendant BMO Harris Bank, N.A.
(“BMO”), seeking declaratory relief and restitution. BMO removed the case to the United States
District Court for the Western District of Missouri on the basis of diversity jurisdiction. The case
was transferred to this district on a motion for change of venue pursuant to 28 U.S.C. § 1404(a),
based primarily on the fact that there has been ongoing, related litigation in this district, including
Jo Ann Howard & Assocs., P.C. v. Cassity, 4:09-CV-1252 ERW (E.D. Mo. filed Aug. 6, 2009) (the
“Jo Ann Howard Litigation”).
The case at bar case arises from the aftermath of the criminal prosecution of the Cassity
family and their scheme to defraud consumers through the sale of pre-need funeral contracts, and
the misuse of those proceeds. At issue in this case are three trusts from the Mount Washington
Cemetery in Kansas City, Missouri: the Third Amended and Restated Agreement for Mount
Washington Cemetery Preneed Trust (the “Merchandise and Services Trust”); the Second Amended
and Restated Agreement for Mount Washington Cemetery Endowed Care Trust (the “Endowed Care
Trust”); and the Mount Washington Forever, LLC Custody Account (5012) (the “Special Care
Trust”), together referred to as “the Mount Washington Trusts.”
In its petition, Winner Road alleges that it obtained, via a judicial foreclosure, first priority
lien rights against Mount Washington Forever, LLC’s real and personal property, and thereby
became the successor to the rights and certain obligations of Mount Washington Forever, LLC.1

1

Mount Washington Forever, L.L.C. was a Missouri limited liability company that was
comprised of a number of entities, including Forever Enterprises, Inc., a Missouri corporation
controlled by the Cassity family. Mount Washington Forever, L.L.C. owned the Mount Washington
Cemetery.
2

Thus, according to Winner Road, it is a beneficiary to the Mount Washington Trusts, for which
defendant BMO is the trustee. Winner Road claims that as to the Mount Washington Trusts, BMO
breached its fiduciary duties, failed to maintain effective operation of the trusts for their intended
purposes, failed to ensure that the trust corpuses were maintained, and failed to pay out on
contractual obligations. In its petition, Winner Road brings the following claims against BMO:
Determination of Rights in and Representation for the Merchandise and Services Trust: Request for
Restoration of Trust Assets and Other Relief (Count I); Determination of Rights in and
Representation for the Endowed Care Trust and Request for Trust Administration Rulings (Count
II); Determination of Rights in and Representation for the Special Care Trust and Request for Trust
Administration Rulings (Count III); and Petition for Restitutionary Award Against Trustees for
Breaching Trustee Duties Relating to the Mount Washington Trusts (Count IV). Winner Road seeks
to recover alleged losses to the three trusts, requests trust administration rulings with regard to the
trusts, and further requests that BMO be removed as trustee of the trusts.
In response to plaintiff’s petition, BMO filed a motion to dismiss. BMO argued Counts I and
IV of the petition were barred by the doctrine of res judicata, because BMO had already litigated and
settled the two claims in the Jo Ann Howard Litigation. BMO also argued that Counts I, III, and
IV were time barred, and Count IV should be dismissed because it fails to state any duty BMO owed
to Winner Road. The Court granted BMO’s motion to dismiss with regard to Counts I and IV.
Doc. 84.
As background, in 2008 a Texas court in State of Texas v. Memorial Service Life Insurance
Company, et al., No. D-1-GV-08-000945 (250th Dist. Ct., Travis Cnty, Tex. filed Sept. 12, 2008)
(the “Texas Receivership Litigation”), entered an order approving a joint liquidation plan with

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respect to Lincoln, Memorial, and NPS. Doc. 91 at 35. That plan and underlying Texas statutes
established the authority of the Special Deputy Receiver (“SDR”), Jo Ann Howard & Associates,
P.C. (“Jo Ann Howard”), to collect monies and pay creditors as a result of the Cassity fraud scheme.
Id. Under the liquidation plan, state guaranty associations, which had guaranteed payments under
the insurance policies, were assigned claims by present or future recipients of benefits under the
insurance policies in trust accounts, including the Merchandise and Services Trust. Doc. 51, Ex. H
at 13-14.
From the record, it appears to be undisputed that assets in the Merchandise and Services
Trust from the sale of pre-need funeral contracts were substituted for life insurance policies issued
by Lincoln, which is now insolvent. Doc. 151, Ex. 3 at 9. The Cassity family was allowed to
withdraw trust funds for the purchase of Lincoln Memorial life insurance policies, which were then
listed as non-cash assets of the trust. The SDR, as the receiver for Lincoln, continues to administer
life insurance claims submitted under the Merchandise and Services Trust. Doc. 151, Ex. 9 at 1-2.
The state guaranty associations and the SDR brought the Jo Ann Howard Litigation, a $600
million lawsuit, in this District Court against trustee bank defendants, including BMO and its
predecessors. The SDR is the court-appointed representative to bring claims on behalf of funeral
homes and consumers for losses under the trusts arising from alleged breaches of fiduciary duty by
BMO. The Jo Ann Howard plaintiffs’ claims for breach of fiduciary duty, negligence, and gross
negligence by trustee banks were brought by “the individual state guaranty associations from
Missouri . . . and the SDR on behalf of NPS, funeral homes, and consumers.” Doc. 84 at 10. The
Jo Ann Howard Litigation explicitly included claims against bank trustees for losses to the Mount
Washington Merchandise and Services Trust.

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The plaintiffs in the Jo Ann Howard Litigation and BMO reached a settlement agreement,
and on December 16, 2014, they filed a stipulation of dismissal with prejudice in that case. In ruling
on BMO’s motion to dismiss, the undersigned found that the Jo Ann Howard Litigation dismissal
was a final judgment on the merits, the SDR was in privity with Winner Road and Winner Road’s
interests were properly represented by the SDR, and both suits were based on the same claims and
causes of actions. Doc. 84. The Court, therefore, found res judicata applied and dismissed Counts
I and IV of Winner Road’s petition. Count II, Determination of Rights in and Representation for
the Endowed Care Trust and Request for Trust Administration Rulings, and Count III,
Determination of Rights in and Representation for the Special Care Trust and Request for Trust
Administration Rulings, remain in this suit.
BMO answered the petition and filed a counterclaim against Winner Road.

In its

counterclaim, BMO admits that it is trustee for the Mount Washington Trusts but asks, pursuant to
Mo. Rev. Stat. § 456.2-202, that the Court approve BMO’s accounts, remove BMO as a trustee, and
approve the appointment of a successor trustee for the three Mount Washington Trusts. BMO also
asks that the Court resolve whether Winner Road is the only beneficiary of three Mount Washington
Trusts, and whether BMO must release the trusts from any purported freeze by virtue of ongoing
litigation in the Texas Receivership Litigation.
According to BMO, representatives of the SDR have instructed BMO’s representatives that
the liquidation order in the Texas Receivership Litigation operates as a freeze on all accounts
associated with the Mount Washington Cemetery, because they are potential property of the estates
of the three Cassity-owned businesses. Doc. 98 at 4-5. BMO complied with the SDR’s instructions

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and froze the Mount Washington Trusts. Despite Winner Road’s repeated requests, BMO has not
allowed withdrawals from or deposits to any of the trust accounts.
On May 31 , 2018, defendant BMO moved for leave to join Jo Ann Howard & Associates,
P.C. as a necessary party and cross defendant. BMO maintains that the dispute between BMO and
Winner Road cannot be resolved without the involvement of the SDR.2 BMO’s motion, which was
unopposed, was granted, and BMO filed an Amended Counterclaim and Cross-claim. BMO alleges
in its pleadings that “[a]s a result of the litigation concerning the three trusts at issue, their
administration has become the subject of substantial controversy between BMO and Winner Road,
and between Winner Road and the SDR. Moreover, BMO cannot accede to Winner Road’s
demands without a substantial controversy and dispute with, and potentially liability to, the SDR.”
Doc. 116 at 12. BMO further alleges that it “hopes to obtain from this Court relief that will fully
discharge and terminate BMO’s responsibility with respect to the trusts at issue, and order their
transition to a successor trustee,” and that it is petitioning the Court “for instructions for the
administration of the trusts.” Id. BMO brings the following claims against Winner Road and the
SDR: Petition for Approval of Accounts, Removal, or Instructions for the Administration of the
Mount Washington Preneed Trust (Count I); Petition for Approval of Accounts, Removal, or
Instructions for the Administration of the Mount Washington Endowed Care Trust (Count II); and
Petition for Approval of Accounts, Removal, or Instructions for the Administration of the Mount

2

On June 19, 2018, Winner Road and BMO participated in court-ordered mediation. In the
ADR Compliance Report, the neutral noted “the parties achieved a settlement that is contingent upon
acquiescence by the Special Deputy Receiver, which the parties believe they will obtain and are
working toward.” Doc. 125.
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Washington “Special Care Trust” Custody Account (Count III). BMO also brings a claim for
attorneys’ fees pursuant to Mo. Rev. Stat. § 456.10-1004 against Winner Road.
Winner Road filed an answer to BMO’s counterclaim. The SDR entered an appearance and
filed a motion to abstain or, in the alternative, motion to abate and motion for more definite
statement, which is the motion at bar. The SDR argues that BMO is seeking relief from an order
entered in the Texas Receivership Litigation. The SDR points out that it is the appointed receiver
of insurance entities that are subject to delinquency proceedings in the Texas Receivership
Litigation. The SDR argues that Texas has established a complex regulatory scheme for the
liquidation of insolvent insurance entities, and the resolution of this case requires specialized
knowledge and the application of complicated state law and, therefore, the Court should abstain
pursuant to Burford v. Sun Oil Company, 319 U.S. 315 (1943). Alternatively, the SDR argues that
this case should be abated because BMO failed to seek relief from the automatic stay that is in place
in the Texas Receivership Litigation. Finally, in the event the Court denied the motions to abstain
or abate, the SDR moves that the Court order BMO to provide a more definite statement of its claims
and the relief it seeks.
Discussion
The SDR moves that the Court abstain from hearing this case under the discretionary
abstention doctrine first articulated in Burford, 319 U.S. 315. The Burford doctrine arose in a case
challenging the Texas Railroad Commission’s decision to grant the defendant, G.E. Burford, drilling
rights on a plot of land on the East Texas Oil Field. Id. at 317. Plaintiff, Sun Oil Company, sued the
defendant in federal court asserting a constitutional due process claim, as well as state law claims.
Id. Under Texas law at the time, the Texas Railroad Commission was charged with administering

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oil and gas regulations, which including the spacing of oil wells and the amount of production. Id.
at 320. The endeavor was complicated and required a comprehensive scheme, because oil wells tap
into a common reservoir under the surface and can drain oil located miles away under property
owned by other entities. Id. at 319. Because there was a significant amount of litigation concerning
oil wells, Texas had developed a special, exclusive system of judicial review for such cases. Id. at
325. The Supreme Court found Texas state courts’ review of commission decisions to be
“expeditious and adequate,” id. at 327, and because federal court review alongside state-court review
had repeatedly led to “[d]elay, misunderstanding of local law, and needless federal conflict with the
state policy,” id., the Court concluded that “a sound respect for the independence of state action
requir[ed] the federal equity court to stay its hand.” Id. at 334.
This doctrine of abstention has become known as the Burford doctrine. Under the doctrine,
federal courts “must decline to interfere with the proceedings or orders of state administrative
agencies: (1) when there are ‘difficult questions of state law bearing on policy problems of
substantial public import whose importance transcends the result in the case then at bar’; or (2)
where the ‘exercise of federal review of the question in a case and in similar cases would be
disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public
concern.’” New Orleans Pub. Serv., Inc. v. Council of City of New Orleans, 491 U.S. 350, 361,
(1989) (quoting Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 814
(1976)).
The Burford doctrine is applicable only when the relief being sought is “equitable or
otherwise discretionary.” Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 731 (1996). In those
cases involving damages actions, federal courts are to “withhold action until the state proceedings

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have concluded.” Id. at 730. Federal courts applying abstention principles in damages actions are
to enter a stay, and not dismiss the action altogether. Id.
The Burford doctrine is “‘the exception and not the rule,’ and should be used ‘only in the
extraordinary and narrow circumstances where it would clearly serve an important countervailing
interest.’” Melahn v. Pennock Ins., Inc., 965 F.2d 1497, 1506 (8th Cir. 1992) (quoting Bilden v.
United Equitable Ins. Co., 921 F.2d 822, 826 (8th Cir. 1990)). “[F]ederal courts have a strict duty
to exercise the jurisdiction that is conferred upon them by Congress.” Quackenbush, 517 U.S. at 716.
“While Burford is concerned with protecting complex state administrative processes from undue
federal influence, it does not require abstention whenever there exists such a process, or even in all
cases where there is a ‘potential for conflict’ with state regulatory law or policy.” New Orleans Pub.
Serv., 491 U.S. at 362. Abstention “is an extraordinary and narrow exception to the duty of a
District Court to adjudicate a controversy properly before it.” Colorado River, 424 U.S. at 813.
“Ultimately, what is at stake is a federal court’s decision, based on a careful consideration of the
federal interests in retaining jurisdiction over the dispute and the competing concern for the
‘independence of state action,’ that the State’s interests are paramount and that a dispute would best
be adjudicated in a state forum.” Quackenbush, 517 U.S. at 728 (quoting Burford, 319 U.S. at 334).
The Eighth Circuit has addressed the application of the Burford abstention doctrine in the
context of insurance insolvency where, like here, there was concurrent receivership litigation
pending. See Wolfson v. Mutual Benefit Life Ins. Co., 51 F.3d 141 (8th Cir. 1995), abrogated on
other grounds by Quackenbush, 517 U.S. at 711). The Eighth Circuit in Wolfson wrote that
determining whether abstention applies “is inherently a fact-specific inquiry,” and while the lower
courts are to consider and analyze the facts of each case, there are “at least three major categories

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of cases” involving “insurer insolvency abstention issues.” Id. at 145. The Eighth Circuit described
these categories as follows:
The first category consists of suits by the insolvent insurer’s policyholders or policy
beneficiaries against third parties in which the defendant, often supported by the
insurer’s receiver, urges abstention because recovery by the plaintiff may reduce the
receiver's ability to recover on behalf of the insurer’s insolvency estate. Not
surprisingly, abstention is usually (but not always) denied in such cases, particularly
where a federal statutory claim is being asserted. The basic reason not to abstain in
most such cases is that the state court insolvency proceeding, unlike the federal
court, cannot afford plaintiff a remedy against a third party.
The second category consists of cases in which the insolvent insurer or its receiver
has asserted a claim in the federal action which, if successful, will enhance the
insolvent’s estate . . . . Cases in this second category have arisen in a variety of
contexts. The abstention issue often turns on the relative importance to the state court
insolvency proceeding of litigating a particular claim in that proceeding. That can
vary greatly, and therefore the abstention rulings in these cases quite properly defy
generalization.
[The] third broad category, [consists of] claims by policyholders, policy
beneficiaries, and other creditors against a now-insolvent insurer. The first issue in
considering abstention in this situation is whether the state court insolvency
proceeding provides a mandatory special procedure to adjudicate claims against the
insolvent and then distribute the insolvent's inadequate assets among the various
classes of successful claimants. If there is such a concurrent state court procedure
purporting to bind the federal court plaintiff, that brings into play what is generally
referred to as the Colorado River abstention doctrine, which turns on “considerations
of wise judicial administration ... conservation of judicial resources and
comprehensive disposition of litigation” that are relevant whenever federal and state
courts are contemporaneously asked to exercise jurisdiction over the same dispute.
Colorado River, 424 U.S. at 817.
Wolfson, 51 F.3d at 145 (citations omitted).
The case at bar does not fit neatly into any of these categories. This case started out in the
first category. Winner Road, which alleges it is a beneficiary to the Mount Washington Trusts,
brought claims against BMO, a third party, seeking to recover alleged damages to the three trusts.
From the beginning the three trusts were involved in the Texas Receivership Litigation. BMO,

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however, did not argue that the Court should abstain from hearing claims because the trusts were
subject to receivership proceedings in the Texas Receivership Litigation.3 Instead, BMO moved for
dismissal, arguing that disputes involving Winner Road and the Merchandise and Services Trust had
been resolved in the Jo Ann Howard Litigation. The Court agreed with BMO and dismissed the two
counts against BMO involving the Merchandise and Service Trust.
In its counterclaim/cross claim, BMO has revived disputes involving the Merchandise and
Service Trust. 4 Count I of BMO’s counterclaim/cross claim is “Petition for Approval of Accounts,
Removal, or Instructions for the Administration of the [Merchandise and Service Trust].” BMO
alleges that the SDR and Winner Road claim competing interests in the assets of the Merchandise
and Service Trust: “In light of the Jo Ann Howard litigation, the joint liquidation plan entered in
the [Texas Receivership Litigation], and the allegations contained in Winner Road’s complaint, the
correct course for administration of the [Merchandise and Service Trust], and the distribution of trust
assets therein, are currently unresolved and disputed by the parties.” Doc. 116 at 13. BMO asks the
Court to determine whether Winner Road or the SDR is “the only statutory beneficiary and
representative” of the Merchandise and Service Trust; and whether “BMO may, or must, release the
[Merchandise and Service Trust] from any purported hold, stay, or freeze asserted by the SDR by

3

Despite having knowledge of the case at bar and Winner Road’s claims concerning the Mount
Washington Trusts, the SDR did not move to intervene arguing the three trusts at issue were subject
to the liquidation order in the Texas Receivership Litigation. Instead, the SDR moved that the court
in the Texas Receivership Litigation enjoin Winner Road from pursuing the case before this Court,
a motion the Texas court denied on the grounds that the claims were not in rem or quasi in rem. See
discussion infra at 17, n.4.
4

According to filings with this Court, Winner Road continues to be under the impression that
the Court’s Memorandum and Order granting BMO’s motion to dismiss on the grounds of res
judicata did not extinguish its claims relating to the administration of the assets in the Merchandise
and Services Trust. Doc. 139 at 4-5; Doc. 140 at 11-12.
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virtue of Texas court orders; or whether BMO to the contrary must honor the instructions of the SDR
with respect to the [Merchandise and Service Trust].” Id.

BMO’s claims are not limited to the

Merchandise and Services Trust. In Counts II and II, BMO brings nearly identical claims regarding
the Endowed Care Trust and the Special Care Trust, respectively. Alleging that the three trusts may
be subject to orders in the Texas Receivership Litigation, BMO is asking, among other things, that
the Court determine the beneficiaries of the three trusts. BMO also seeks approval of its accounts
and the appointment of a successor trustee, as well as attorney’s fees against Winner Road.
Unlike Winner Road’s claim of breach of fiduciary duties, BMO’s counterclaims and crossclaims are not brought in personam, that is, BMO is not seeking to “impose a personal liability or
obligation on one person in favor of another.” Hanson v. Denckla, 357 U.S. 235, 246 (1958).
Instead BMO brings its claims in rem and quasi in rem. “A judgment in rem affects the interests of
all persons in designated property. A judgment quasi in rem affects the interests of particular persons
in designated property.” Id. “The key to determining whether an action is in rem or in personam
is ‘whether the object of the litigation is to establish ownership rights in a defined property or simply
to recover value from a certain defendant.’” Midwest Employers Cas. Co. v. Legion Ins. Co., No.
4:07-CV-870 CDP, 2007 WL 3352339, at *2 (E.D. Mo. Nov. 7, 2007) (quoting Koken v. Amcomp
Preferred Ins. Co., 2004 U.S. Dist. LEXIS 5280, at *11 (M.D. Pa. Mar. 24, 2004)). Here, BMO is
not seeking the recovery of damages, but rather is asking the Court to determine who are the
beneficiaries of the three Mount Washington Trusts and to approve of its accountings. These claims
are in rem and quasi in rem.
It is significant that BMO’s claims are in rem and quasi in rem because at least one of the
trusts that is the subject of BMO’s in rem and quasi in rem claims, the Merchandise and Services

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Trust, is under the jurisdiction of the Texas Receivership Litigation. It is undisputed that invoking
its authority under the Texas Receivership Litigation, the SDR has instructed BMO to place a freeze
on all three of the Mount Washington Trusts because they are part of the receivership estate. BMO
states that it takes no position as to whether the freeze on the Mount Washington Trusts is justified,
but in view of the SDR’s powers pursuant to Texas Receivership Litigation, BMO asserts that it
considers itself obligated to honor the SDR’s instruction, barring any other court order or release
stating otherwise.
There is some evidence in the record that in filings in the Texas Receivership Litigation, the
SDR has disclaimed interest in the Endowed Care Trust and the Special Care Trust. There is no
evidence in the record, however, that the SDR has disclaimed interest in the Merchandise and
Services Trust, and it is the SDR’s position, as well as BMO’s, that the Merchandise and Services
Trust belongs to the receivership estate. The Court has not been provided with the current assets and
valuation of the Merchandise and Services Trust, although it appears to be undisputed that the vast
majority of the assets in the Merchandise and Services Trust are or were life insurance policies
issued by Lincoln, the company for which the SDR is the receiver. In an affidavit submitted to the
Court, Ms. Jo Ann Howard attests that under the Liquidation Plan approved in the Texas
Receivership Litigation, the SDR continues to administer life insurance policy claims on behalf of
the guaranty associations submitted under the Merchandise and Services Trust. According to the
SDR, “[I]t is estimated that the guaranty associations have over $4.6 million in remaining liability
for their Covered Obligations arising under the Liquidation Plan for policies of insurance held in the
Merchandise and Services Trust.” Doc. 151, Ex. 9 at 3. “At no time has the Receivership Court

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authorized the release of the Merchandise and Services Trust from its status as property of the
estate.” Id.
Where a judgment sought is on a claim that is strictly in personam, “both the state court and
the federal court, having concurrent jurisdiction, may proceed with the litigation at least until
judgment is obtained in one of them which may be set up as res judicata in the other.” Princess Lida
of Thurn & Taxis v. Thompson, 305 U.S. 456, 466 (1939); see also Penn Gen. Cas. Co. v.
Commonwealth of Penn. ex rel. Schnader, 294 U.S. 189, 195 (1935) (same); Bassler v. Arrowood,
500 F.2d 138, 141 (8th Cir. 1974) (“When the action is clearly in personam, federal courts have the
power to adjudicate the controversy.”). But where one court has acquired jurisdiction over a
property, a second court may not exercise in rem or quasi in rem jurisdiction over the same property.
Princess Lida, 305 U.S. at 466. The general rule is that “if the two suits are in rem, or quasi in rem,
so that the court, or its officer, has possession or must have control of the property which is the
subject of the litigation in order to proceed with the cause and grant the relief sought the jurisdiction
of the one court must yield to that of the other.” Id. See also Penn Gen. Cas. Co., 294 U.S. at 195;
Madewell v. Downs, 68 F.3d 1030, 1041 n.13 (8th Cir. 1995).
The Princess Lida doctrine is applicable to both federal and state courts, and “the court first
assuming jurisdiction over property may maintain and exercise that jurisdiction to the exclusion of
the other.” 305 U.S. at 466. Furthermore, it “is not restricted to cases where property has been
actually seized under judicial process before a second suit is instituted, but applies as well where
suits are brought to marshal assets, administer trusts, or liquidate estates, and in suits of a similar
nature where, to give effect to its jurisdiction, the court must control the property.” Id. (emphasis
added). The doctrine is the well-settled rule “with respect to suits in equity for the control by

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receivership of the assets of an insolvent corporation.” Penn Gen. Cas. Co., 294 U.S. at 195. See
also Leggett v. Green, 188 F.2d 817, 819 (8th Cir. 1951) (where the state court had first acquired
control and jurisdiction of estate of insolvent insurance company, federal courts could not remove
estate from state court's jurisdiction); Bryan v. Welsh, 72 F.2d 618, 201 (10th Cir. 1934) (where a
receiver had been appointed for a trust in state court, federal court could not take possession of the
trust estate from the state court); Safeway Trails, Inc. v. Stuyvesant Ins. Co., 211 F. Supp. 227, 230
(M.D. N.C. 1962) (where state court had appointed receiver to marshal all assets of insolvent
insurer, federal court lacked jurisdiction to hear declaratory judgment suit by insureds against
reinsurers to have reinsurance proceeds paid directly to insureds rather than the receiver). “The
doctrine is necessary to avoid unseemly and unmanageable conflicts between courts of concurrent
jurisdiction.” Matter of Tr. Created by Hill on Dec. 31, 1917 for Ben. of Schroll, 728 F. Supp. 564,
566 (D. Minn. 1990) (declining to hear in rem claims involving a trust dispute).
Because the trusts at issue in this suit are subject to the Texas Receivership Litigation and
in rem and quasi in rem claims are being brought with regard to these trusts, the Court finds that
both the principles of Burford and Princess Lida are relevant in this case. “The considerations
weighed in each branch of abstention are not mutually exclusive, and courts should not limit the
abstention inquiry to whether the case at bar fits neatly into the most analogous line of prior cases.”
Wolfson, 51 F.3d at 145–46.
Having considered the facts of this case and applicable law, the Court finds that it must
abstain from hearing the dispute at this time. First, this suit has in rem and quasi in rem claims
involving property that is under the jurisdiction of a Texas state court. Winner Road originally
brought in personam claims against BMO for damages arising from alleged mismanagement of the

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Mount Washington Trusts. BMO successfully argued that joining the SDR as a party to this suit was
necessary in order to resolve the dispute between BMO and Winner Road, an argument Winner
Road did not oppose. BMO brought the SDR into this suit with in rem and quasi in rem claims,
which ask this Court to determine ownership – in other words, the beneficiaries of the trusts – as
well as approval of BMO’s accounting. While Winner Road did not bring these claim, it is eager for
the Court to decide them as well. This case is no longer solely an in personam suit seeking to hold
an entity personally liable; the parties are asking the Court to make rulings regarding ownership and
the distribution of trust assets. The Court is being called on to decide whether the trusts at issue are
subject to the order staying litigation in the Texas Receivership Litigation, and whether Winner
Road is the beneficiary of trusts or whether the SDR, the designated receiver in Texas Receivership
Litigation, is the proper beneficiary. In effect, the Court is being asked to take control of and make
ownership determinations about property that is under the jurisdiction of the receivership court in
Texas – determinations that could affect policy holders for whom the receivership was set up to
protect. As such, the Court finds it must yield to the jurisdiction of the Texas state court in the Texas
Receivership Litigation.5 See Princess Lida, 305 U.S. at 466; Leggett, 188 F.2d at 819.
Second, Texas has developed an exclusive and complex statutory scheme to distribute the
assets of insolvent insurers so as to protect policy holders and other interested parties. This Court’s

5

The Texas court recognized the doctrine articulated in Princess Lida when it ruled on the SDR’s
motion to enforce the Permanent Injunction and Automatic Stay with regard to the present litigation.
On May 3, 2017, prior to the filing of BMO’s cross-claims and counterclaims, the Texas court held
that Winner Road could pursue in personam claims against BMO, but not in rem or quasi in rem
claims. Doc. 98, Ex. 2 at 2. Recognizing that some of Winner Road’s claims might “straddle” the
categories, the Texas court deferred to this Court to make that determination and manage its docket.
Id. With the filing of BMO’s cross-claims and counterclaims, there can be no doubt that in rem or
quasi in rem claims are being asserted and that Princess Lida applies.
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review of the dispute at hand would encroach on Texas’s comprehensive receivership scheme and
potentially frustrate the interests of those the scheme was designed to protect. The court in the
Texas Receivership Litigation has taken control of Lincoln’s, Memorial’s and NPS’s remaining
property, which includes, at a minimum, the Merchandise and Services Trust. Exercising
jurisdiction in this case could compromise Texas’s interest in the successful rehabilitation of the
insolvent estates. As the Court in Wolfson noted, “Reducing and deferring [ ] expenses in an
insolvency proceeding can greatly assist rehabilitation.” 51 F.3d at 146. Here, under the liquidation
plan in the Texas Receivership Litigation there is a comprehensive scheme for making claims to
Lincoln’s, Memorial’s, and NPS’s assets. “While ‘piecemeal litigation’ is a fact of life for solvent
insurers, the efficient adjudication and satisfaction of claims against an insolvent insurer is best
achieved in a single comprehensive proceeding.” Id. Going forward in this case risks conflicting
rulings and creates piecemeal litigation.
Third, there are no constitutional or federal issues in involved in this suit. The claims are
state law claims and jurisdiction in this Court is based on diversity of citizenship. Id.
Finally, there is the relative progress of the suits. Id. Last summer, Winner Road and BMO
reached a settlement with regard to Winner Road’s claims against BMO, although it was noted in
the Alternative Dispute Resolution Compliance Report that the settlement was “contingent upon
acquiescence by the [SDR] . . . .” Doc. 125. The SDR was joined in this suit as a necessary party
and cross-claims were assert against it by BMO. With the addition of the new defendant, this suit
is essentially at the beginning stages of the litigation.
The Court also finds that the present case is distinguishable from cases in which the Eighth
Circuit has ruled abstention under Burford was not warranted. For example, in Melahn v. Pennock

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Insurance, claims were brought by a receiver of an insolvent insurance company to recover unearned
commissions on premiums from another insurance company. 965 F.2d at 1498. The Eight Circuit
held there was no need to abstain in the case because the moving party had not shown how the
exercise of federal jurisdiction “would in any way frustrate the state’s interests” based on the facts
of the case. Id. at 1507. Unlike the present action, the claims were in personam, as the receiver in
Melahn was seeking damages from a third party that would enhance the receiverships assets. Id. at
1498. The parties were not asking the court to make determinations about a property that was
already part of the receivership estate.
This case is also distinguishable from Bilden v. United Equitable Insurance Co., 921 F.2d
at 822. In Bilden an insured prevailed at trial against an insurance company on a claim for damages
for breach of an insurance contract. Id. at 824. While the case was on appeal, the insurance
company was placed into receivership. The insurance company argued to the Eighth Circuit that
the court should abstain under Burford. Id. at 825. The Eighth Circuit found Burford abstention was
not warranted because the stay order from the receivership court did not apply to a suit that was filed
18 months before the order was issued. Id. Furthermore, it was the insurance company, not the
plaintiff, that had instigated the appeal. These facts are simply not analogous to the case at hand.

In sum, the Court has carefully weighed the factors in this case, and despite the strong
presumption in favor of retaining jurisdiction, finds that abstention is warranted under Burford and
Princess Lida. There is a complex state administrative processes in place in Texas overseeing the
disbursement of the remaining assets of the three insolvent insurance companies. Deciding the
issues before the Court in this dispute would encroach on that process and potentially frustrate the

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interests the Texas Receivership Litigation was designed to protect. Staying this action will also
conserve judicial resources and avoid conflicting rulings and piecemeal litigation, which furthers
the interest of cost-savings in insolvency proceedings. But most importantly, the Texas state court
in the Texas Receivership Litigation has already taken jurisdiction of at least one of the trusts at
issue in this case. This suit has in rem and quasi in rem claims involving the same property,
therefore, this Court must yield to the jurisdiction of the Texas state court. For these reasons and
those discussed above, the Court finds it is appropriate to abstain from hearing this case to avoid
interference with the insolvency proceedings in the Texas Receivership Litigation.
The SDR asks the Court to abstain from hearing this case and to dismiss the claims against
it. This suit, however, involves claims for declaratory relief as well as for damages. Therefore,
under Quackenbush v. Allstate Insurance Company, the Court finds it is appropriate to stay this
action rather than dismiss it. See 517 U.S. 706, 721 (1996) (“We have thus held that in cases where
the relief being sought is equitable in nature or otherwise discretionary, federal courts not only have
the power to stay the action based on abstention principles, but can also, in otherwise appropriate
circumstances, decline to exercise jurisdiction altogether by either dismissing the suit or remanding
it to state court. By contrast, while we have held that federal courts may stay actions for damages
based on abstention principles, we have not held that those principles support the outright dismissal
or remand of damages actions.”).
The Court concludes this case should be administratively closed pending resolution of the
relevant matters in the Texas Receivership Litigation. The case may be reopened upon motion of
either party, which shall include:
(a) A brief statement of the facts, procedural history, and resolution of the issues in the Texas
Receivership Litigation;
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(b) the issues, if any, remaining for determination;
(c) whether a Rule 16 scheduling conference is requested;
(d) whether it is anticipated that there will be pretrial motion practice, including the filing
of dispositive motions;
(e) when it is reasonably likely this case would be ready to proceed to trial; and
(f) the estimated length of trial.
In the event the parties are able to reach a settlement of this matter during the period of
administrative closure, the parties may file a stipulation for dismissal, a motion for leave to
voluntarily dismiss, or a proposed consent judgment, without first moving to have the case reopened.
As the Court finds that it should abstain from hearing this dispute pursuant to Burford and
Princess Lida, the Court need not address the SDR’s motion to abate and motion for more definite
statement, and denies the same as moot.
Accordingly,
IT IS HEREBY ORDERED that Cross Defendant Jo Ann Howard & Associates, P.C.’s
Motion to Abstain or, Alternatively, Motion to Abate and Motion for More Definite Statement is
GRANTED, in part. Consistent with the terms of this Memorandum and Order, Cross Defendant
Jo Ann Howard & Associates, P.C.’s motion to abstain is GRANTED to the extent that the Court
shall stay this matter pending resolution of the relevant matters in the Texas Receivership Litigation.
In all other respects, the motion is DENIED as moot. [Doc. 131]

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IT IS FURTHER ORDERED that the Clerk of the Court shall administratively close this
file, which shall be subject to reopening on motion as set forth in this Memorandum and Order.

CHARLES A. SHAW
UNITED STATES DISTRICT JUDGE

Dated this

3rd

day of June, 2019.

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