United States of America v. Wisconsin State Circuit Court for Dane County et al

Filing 52

MEMORANDUM stating the court's inclination to vacate earlier opinions remanding cases 10-cv-778 and 11-cv-99 to the Dane County Circuit Court. Signed by District Judge Barbara B. Crabb on 7/10/2013. (arw)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - IN THE MATTER OF THE
REHABILITATION OF AMBAC
ASSURANCE CORPORATION,
_________________________________

10-cv-778-bbc

MEMORANDUM
THEODORE K. NICKEL, COMMISSIONER
OF INSURANCE OF THE STATE OF
WISCONSIN,

(Dane Cty. Cir. Crt. Civil Case
No.: 10 CV 1576)

Petitioner,
v.
UNITED STATES OF AMERICA,

Respondent.
_________________________________________
UNITED STATES OF AMERICA,
Plaintiff,

v.

11-cv-99-bbc

WISCONSIN STATE CIRCUIT COURT
FOR DANE COUNTY;
THEODORE K. NICKEL, COMMISSIONER
OF INSURANCE OF THE STATE OF WISCONSIN,
as Rehabilitator of the Segregated Account of Ambac
Assurance Corporation; and
AMBAC ASSURANCE CORPORATION,
Defendants.

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This case is before the court on the unopposed request from the United States of
America for the court to indicate that it is inclined to grant a motion to vacate its opinion
and order of January 14, 2011, in In the Matter of the Rehabilitation of Segregated Account
of Ambac Assurance Corp., Case No. 10-cv-778-bbc, dkt. #36, reported at 782 F. Supp. 2d
743, and the court’s opinion and order of February 18, 2011, in United States v. Wisconsin
State Circuit Court for Dane County, Case No. 11-cv-99-bbc, dkt. #42, reported at 767 F.
Supp. 2d 980. Ambac Assurance Corporation and Theodore K. Nickel, Commissioner of
Insurance of the State of Wisconsin, support the request for relief. The Wisconsin State
Circuit Court for Dane County takes no position on the request and does not oppose the
relief sought by the United States.
The rehabilitation proceedings for Ambac Assurance Corporation were initiated in
early 2010 in the Circuit Court for Dane County, the designated state rehabilitation court.
The Commissioner of Insurance established a segregated account for part of Ambac’s
business that includes all policies with material anticipated losses and all other known,
potentially material non-policy liabilities of Ambac’s general account.

The segregated

account has no claim-paying assets of its own but is capitalized by a two billion dollar
secured note issued by Ambac and an aggregate excess of loss reinsurance agreement
provided by Ambac.
In November 2010, Ambac allocated to the segregated account liabilities it had arising
from its federal taxes through December 2009, including those related to a $900 million
refund it had received from the Internal Revenue Service. The Commissioner then obtained

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an injunction from the Dane County court, barring the United States from taking any action
against the segregated account or against Ambac relating to any future tax liability of Ambac.
The United States removed the state court action to this court, less any “issues and/or claims
in this rehabilitation action that are unrelated to the Internal Revenue Service.” In an order
entered on January 14, 2011, I granted the Commissioner’s motion to remand.
The United States appealed the order. Before the appeal was heard, the parties
settled the dispute. The settlement was finalized in the Southern District of New York
(where a related bankruptcy proceeding was pending) and included a provision to the effect
that the Wisconsin Commissioner of Insurance and Ambac Assurance Company would
support any motion brought by the United States seeking to vacate the January 14, 2011
order entered in this court and a later order entered on February 18, 2011 in United States
of America v. Wisconsin State Circuit Court for Dane County, case no. 11-cv-99-bbc, in
which I held that this court had no jurisdiction to consider a motion for a preliminary
injunction filed by the United States against the rehabilitation court. Order, dkt. #42.
As part of the settlement agreement, the parties agreed to seek dismissal of the
appeals of these orders pending in the Court of Appeals for the Seventh Circuit. The United
States moved to dismiss the appeals and vacate the opinions and orders of this court. On
May 15, 2013, the court of appeals ordered the United States to “comply with Circuit Rule
57 by requesting that the district court indicate whether it is inclined to vacate the orders
underlying this appeal under Fed. R. Civ. P. 60(b).” Snyder Decl., dkt. #47 (10-cv-778bbc), dkt. #57 (11-cv-99-bbc), exh. A.

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OPINION
Under the applicable law in this circuit, Marseilles Hydro Power LLC v. Marseilles
Land & Water Co., 481 F.3d 1002 (7th Cir. 2007), a district court may vacate an opinion
under Fed. R. Civ. P. 60(b), which allows the court to relieve a party from an order in a
number of different circumstances, including those in which the judgment has been satisfied,
released or discharged, Rule 60(b)(5), or for any other reason that justifies relief. Rule
60(b)(6). A showing of “exceptional circumstances” is not required. Marseilles Hydro
Power, 481 F.3d at 1003.
The parties argue that the public interest favors vacatur of both opinions. First, the
court’s opinions were limited to questions of jurisdiction as it related to the rehabilitation
proceeding, the McCarran-Ferguson Act and abstention, whereas the settlement resolves
other complex, fact-based issues that affect the success of the entire scheme of rehabilitation
and the bankruptcy case involving American Financial Group (Ambac’s parent corporation),
including the substantive accuracy of the multi-million dollar refund, the collectibility of any
attempt to collect the refund, American Financial Group’s accounting method and its multibillion dollar net operating losses. Although the bankruptcy and rehabilitation proceedings
were separate proceedings in two different courts, both are resolved by the parties’
settlement; had the parties not reached a settlement, it is questionable whether the
bankruptcy reorganization and the rehabilitation could have succeeded or whether any tax
liability could have been collected. The United States chose to relinquish its attempt to
obtain a favorable ruling on the jurisdictional issues in order to resolve the dispute, assure

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the collectibility of at least a portion of the tax to which it was entitled and protect the
rehabilitation proceedings.
Second, the parties argue, vacating this court’s opinions will allow the same or similar
issues to be relitigated in a federal forum in a future case and appealed by the United States
if the district court order is unfavorable. Without vacatur, the United States runs the risk
that it will be seen as having acquiesced in this court’s resolution of the jurisdictional issue,
which might complicate the defense and settlement of future cases.
The parties’ arguments set forth adequate reasons to support the grant of the parties’
request for vacatur of the two opinions at issue. Therefore, I am inclined to vacate the
opinions if the case is returned to this court for that purpose.
Entered this 10th day of July, 2013.
BY THE COURT:
/s/
BARBARA B. CRABB
District Judge

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