Appendix — Webb v. B. C. Rogers Poultry, Inc.

Supreme Court brief1999

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APPENDIX A — OPINION OF THE UNITED STATES

COURT OF APPEALS FOR THE FIFTH CIRCUIT

DATED MAY 21, 1999

Jack M. WEBB, Special Deputy Receiver for

Employers National Insurance Company

in Receivership, Plaintiff-Appellee,

B.C. ROGERS POULTRY, INC., and B.C.

Rogers Processors, Inc., Defendants-

Appellants.

No. 98-50527.

United States Court of Appeals,

Fifth Circuit.

May 21, 1999.

* * *

. Before REAVLEY, POLITZ and SMITH, Circuit

A Judges.

JERRY E. SMITH, Circuit Judge:

B.C. Rogers Poultry, Inc., and B.C. Rogers Processors,

Inc. (collectively, “B.C. Rogers”), appeal a remand to state

court ordered pursuant to the Burford abstention doctrine.

Concluding that the court acted without the doctrine’s

strictures as defined by the Supreme Court, we reverse.

Appendix A

The State of Texas brought Employers National

Insurance Company (“ENIC”), an insurance company

regulated under Texas law, into state court, where it was

declared insolvent and placed in receivership. Pursuant to

the Texas Insurance Code, the state obtained a permanent

injunction and order, appointing Jack Webb as Special

Deputy Receiver (“SDR”) for ENIC and enjoining any person

from interfering with the state receivership court proceedings

or the lawful acts of the SDR and from taking any action

involving the SDR outside of the State receivership court.

Webb, carrying out his duties as SDR, brought suit in

state court against B.C. Rogers, as ENIC policyholders, to

collect assets — unpaid workers’ compensation premiums

— allegedly belonging to ENIC. Webb asserts three

alternative causes of action: (1) breach of contract, (2)

quantum meruit, and (3) suit on sworn account. He seeks

$674,335 in damages, plus interest and attorney’s fees.

B.C. Rogers removed to federal court pursuant to 28

U.S.C. § 1441, alleging original jurisdiction based on

diversity of citizenship. See 28 U.S.C. § 1332. Webb sought

remand, advancing three grounds: (1) B.C. Rogers had failed

to comply with the removal] Statute, (2) the permanent

injunction enjoined B.C. Rogers from litigating the dispute

in a forum other than the receivership court, and (3) under

the Burford abstention doctrine, the district court should

refrain from exercising jurisdiction.' The district court

|. See Burford v. Sun Oil Co., 319 U.S. 315, 63 §.Ct. 1098, 87

L.Ed. 1424 (1943).

——E

Appendix A

summarily rejected the first two bases but elected Burford

abstention and remanded, holding that

[a]bstention is appropriate in this case, for if this

Court were to exercise federal jurisdiction, it

could well interfere with the State of Texas’

efforts to effect a coherent policy on a matter of

public concern, that is, the collection of assets of

an insolvent insurer through a state district court

receivership proceeding wherein the state district

court retains continuing jurisdiction over the

liquidation proceedings.

II.

We always must be certain that our limited jurisdiction

encompasses the appeal before us. See Castaneda v. Falcon,

166 F.3d 799, 801 (Sth Cir.1999); Jones v. Collins, 132 F.3d

1048, 1051 (Sth Cir.1998). We sua sponte requested briefing

on the issue and now clarify our jurisdiction.

The order abstaining under Burford and remanding is a

final order disposing of all issues. We have jurisdiction,

therefore, pursuant to 28 U.S.C. § 1291. See Quackenbush

v. Allstate Ins. Co., 517 U.S. 706, 715, 116 S.Ct. 1712, 135

L.Ed.2d 1 (1996); Munich Am. Reinsurance Co. y. Crawford,

141 F.3d 585, 589 (Sth Cir.1998), cert. denied. __US._,

119 S.Ct. 539, 142 L.Ed.2d 448 (1998).

In 28 U.S.C. § 1334(d), Congress has denied us

jurisdiction over an appeal from a decision to abstain under

§ 1334(c) (allowing abstention, in the interest of comity or

Appendix A

respect for state law, from state law causes of action arising

under, or related to, title 11). Here, the receivership

proceedings in state court arose under the Texas Insurance

Code, not the Bankruptcy Code. See Clark v. F itzgibbons,

105 F.3d 1049, 1051 (5th Cir.1997) (“Insurance companies

are ineligible for the protections afforded by the federal

Bankruptcy Code. 11 U.S.C. § 109.”). The district court,

therefore, did not exercise jurisdiction over the removed

action under 28 U.S.C. § 1452(a) (providing for removal of

any action over which the court has jurisdiction under 28

U.S.C. § 1334) and 28 U.S.C. § 1334(b) (providing for

original jurisdiction in the district courts “of all civil

proceedings arising under title 11, or arising in or related to

cases under title 11.”). Rather, it based its jurisdiction on

diversity of citizenship, found in 28 U.S.C. § 1332. The

court’s decision to abstain, then, did not fall within 28 U.S.C.

§ 1334(c), so § 1334(d) is inapposite.

Similarly, in 28 U.S.C. § 1447(d), Congress denied us

jurisdiction over remands pursuant to 28 U.S.C. § 1447(c),

which requires a district court to remand if it lacks subject

matter jurisdiction or if the removal was defective;

conversely, § 1447(d) does not preclude review of remands

on other grounds.’ Neither party argues that the district court

2. See Things Remembered, Inc. v. Petrarca, 516 U.S. 124,

127, 116 S.Ct. 494, 133 L.Ed.2d 461 (1995); Thermtron Products,

Inc. v. Hermansdorfer, 423 U.S. 336, 345-52, 96 S.Ct. 584, 46

L.Ed.2d 542 (1976); see also, e.g., Angelides v. Baylor College of

Med., 117 F.3d 833, 835-36 (Sth Cir.1997); Soley v. First Nat'l Bank

of Commerce, 923 F.2d 406, 407-08 (Sth Cir.1991). Our inability to

review a § 1447(c) remand obtains even if the order was erroneous.

See Thermtron, 423 U.S. at 351, 96 S.Ct. 584; Angelides, 117 F.3d

at 836.

Appendix A

lacked subject matter jurisdiction. Rather, they dispute

whether the court abused its discretion in abstaining from

exercising its jurisdiction. Section 1447(d), therefore, is also

inapposite, and we have jurisdiction to consider the appeal.

II.

The Burford doctrine allows a federal court to abstain

from exercising its jurisdiction in deference to complex state

administrative procedures. The Supreme Court has described

the Burford doctrine as follows:

Where timely and adequate state-court review is

available, a federal court sitting in equity 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 New Orleans

(“NOPST’), 491 U.S. 350, 361, 109 S.Ct. 2506, 105 L.Ed.2d

298 (1989) (quoting Colorado River Water Conservation

Dist. v. United States, 424 U.S. 800, 814, 96 S.Ct. 1236, 47

L.Ed.2d 483 (1976)).’ Essentially, Burford instructs a district

3. See also Baran v. Port of Beaumont Navigation Dist., 57

F.3d 436, 441 (Sth Cir.1995).

Appendix A

court to weigh the federal interests in retaining jurisdiction

over the dispute against the state’s interests in independent

action to uniformly address a matter of state concern, and to

abstain when the balance tips in favor of the latter. See

Quackenbush, 517 U.S. at 728, 116 S.Ct. 1712; NOPS/, 491

U.S. at 363, 109 S.Ct. 2506; Burford, 319 U.S. at 334, 63

S.Ct. 1098. But this “balance only rarely favors abstention.”

Quackenbush, 517 U.S. at 728, 116 S.Ct. 1712. Typically,

“federal courts have a virtually unflagging obligation... to

exercise the jurisdiction given them.” Colorado River, 424

U.S. at 821, 96 S.Ct. 1236 (quotation omitted).

In Quackenbush, the Court determined that an action

seeking damages never warrants abstention. The Court

examined the foundation and history of abstention doctrines,

and Burford abstention in particular, finding that the power

to abstain originated in “the discretion federal courts have

traditionally exercised in deciding whether to provide

equitable or discretionary relief.” Quackenbush, 517 U.S. at

730, 116 S.Ct. 1712. The Court disagreed with the Ninth

Circuit’s limitation of abstention to equitable cases, instead

extending the doctrine “to all cases in which a federal court

is asked to provide some form of discretionary relief.” /d.*

A damages action, however, allows the court no discretion

and may not be remanded. /d. at 731, 116 S.Ct. 1712.5

4. See also Quackenbush, 517 U.S. at 718, 116 S.Ct. 1712

(recognizing that “the authority of a court to abstain from exercising

its jurisdiction extends to all cases in which the court has discretion

to grant or deny relief.”).

5. See id. at 731, 116 S.Ct. 1712 (“[F]ederal courts have the

power to dismiss or remand cases based on abstention principles

(Cont'd)

Appendix A

We review an abstention for abuse of discretion. See

Clark, 105 F.3d at 1051; see also Burford, 319 U.S. at 318,

63 S.Ct. 1098 (describing court’s choice of whether to abstain

as a matter of discretion). The exercise of discretion must

“fit{ ] within the narrow and specific limits prescribed by

the particular abstention doctrine involved.” Clark, 105 F.3d

at 1051 (quotation omitted). A court necessarily abuses its

discretion when it abstains outside of the doctrine’s strictures.

B.C. Rogers presents a simple argument for reversal:

Under Quackenbush, a court may not remand pursuant to

Burford abstention if the plaintiff seeks damages. Webb seeks

damages, so a Burford abstention remand is not permitted.

Webb counters with three ultimately unsuccessful

arguments. First, he cites precedent no longer applicable after

Quackenbush and argues to support an exercise of discretion

where no discretion exists. He next incorrectly avers that

the Quackenbush rule on which B.C. Rogers relies is not

ironclad. He finally contends that, because one of his causes

(Cont’d)

only where the relief being sought is equitable or otherwise

discretionary. Because this was a damages action, we conclude that

the District Court’s remand was an unwarranted application of the

Burford doctrine.”). Although remanding a damages case is

inappropriate, the Court noted that a court could stay an action

pending resolution in state court of an issue relevant to the federal

case if the Burford doctrine called for abstention. /d.

Appendix A

of action sounds in the equitable doctrine of quantum meruit,

Burford abstention is appropriate within Quackenbush’s

limitations.* We conclude that, because Quackenbush denies

the legal authority to remand, the district court abused its

discretion.

Webb vigorously argues that the usual Burford

considerations support remand. The McCarran-F erguson Act,

15 U.S.C. §§ 1011-1015, assigns primary responsibility for

regulating the insurance industry to the states. Texas has

enacted an extensive regulatory scheme for dealing with

insolvent insurers and has an interest in applying its law to

marshal efficiently all the assets of such insurers in a uniform

manner. Webb contends that the federal government, on the

other hand, has a “complete absence” of interest in this

dispute. The causes of action sound solely in state law; no

federal statutes or interests are involved.

Webb buttresses this argument by citing several of our

decisions in which we have affirmed abstention and have

mentioned the strong interests states have in addressing

insolvent insurers.’ But these cases indicate only that we

6. This argument relies on two premises: (1) A quantum meruit

claim falls within the set of cases from which the Supreme Court

has found a district court may abstain, and (2) a court may abstain

and remand an entire case, including damages actions, so long as

one cause of action falls within that set Quackenbush approved.

Because we reject the first premise, we do not reach the second.

7. See, e.g., Barnhardt Marine Ins., Inc. v. New England Int'l

Sur. of Am., Inc., 961 F.2d 529, 531-32 n. 4 (Sth Cir. 1992) (affirming

(Cont’d)

<< coi ee

Appendix A

probably would find the remand to be within the court’s

discretion if it had acted within the bounds of the Burford

doctrine.* The analysis ignores B.C. Rogers’s argument that

the district court had no discretion.

Relatedly, Webb overlooks that these cited cases precede

Quackenbush and the limits it imposed on abstention.’ As

(Cont’d)

remand and noting near unanimity among the circuit courts that

Burford abstention is appropriate in cases rejated to a state’s

administration of an insolvent insurer); Martin Ins. Agency, Inc. v.

Prudential Reinsurance Co., 910 F.2d 249 (Sth Cir.1990).

8. This is true even though Webb overstates his case in

declaring the “complete absence” of federal interest. The district

court assumed removal jurisdiction based on diversity pursuant to

28 U.S.C. § 1332. The Constitution, in Art. II], § 2, allows for federal

court jurisdiction in cases and controversies “between Citizens of

different States.” When Congress first created lower federal courts

in the Judiciary Act of 1789, Act of Sept. 24, 1789, 1 Stat. 73, it

included diversity jurisdiction as one basis for original federal court

jurisdiction — a basis that has survived since. The presupposition

for diversity jurisdiction is to provide diverse parties with a federal

forum in which an out-of-state party might escape local bias. See,

e.g., Jerome B. Grubart, Inc. v. Great Lakes Dredge & Dock Co.,

513 U.S. 527, 546 n. 6, 115 S.Ct. 1043, 130 L.Ed.2d 1024 (1995)

(noting this purpose). By this grant of jurisdiction, Congress has

expressed a federal interest in administering impartial justice to

diverse parties.

9. Webb cites one case, Clark, in which we affirmed an

abstention remand in an insurance case post-Quackenbush. See

Clark, 105 F.3d at 1052. Clark does not control our outcome, because

we did not confront the issue we face here. We did not discuss

whether the damages sought precluded remand under Quackenbush

and, indeed, we did not cite Quackenbush.

10a

Appendix A

we explained in Munich American, we previously had

approved abstention remands in cases related to insolvent

insurers involved in state proceedings; but this changed with

Quackenbush’s prohibition on remanding damages action.

See Munich American, 141 F.3d at 589. Now a court may

abstain “only when the district court has discretion to grant

or deny relief.” Id. Accordingly, we found that the court

abused its discretion by invoking Burford, because it had no

discretion in the relief sought. /d. at 590."°

Webb’s argument and the cited precedent would provide

a sound basis for affirming the district court’s application of

the Burford doctrine if it were within its discretion. Because,

however, we find that the nature of Webb’s claims precludes

Burford abstention, we do not reach whether the Burford

doctrine otherwise favors abstention on these facts.

Webb’s contention that Quackenbush does not impose

an ironclad, per se bar to remanding damages action lacks

merit. Webb quotes a passage'' from a section in which the

10. Webb attempts to distinguish Munich American by

comparing the alleged lack of federal interest here to the federal

interest in the Federal Arbitration Act (“FAA”) on which the Munich

American plaintiffs relied. But our discussion of the FAA focused

on the lack of discretion in the relief sought, which bars a remand;

we did not reference, even in passing, a federal interest.

11. “Ultimately, what is at stake is a federal court’s decision,

based on a careful consideration of the federal interests in retaining

(Cont'd)

lla

Appendix A

Court explained the roots and purpose of abstention. See

Quackenbush, 517 U.S. at 727-28, 116 S.Ct. 1712. It also

noted that prior caselaw does “not provide a formulaic test

for determining when dismissal [or remand] under Burford

is appropriate.” Id. at 727, 116 S.Ct. 1712. But the Court

had not even begun its application of these general principles

to the case before it. When it did reach its holding, it left no

exceptions: abstention is appropriate “on/y where the relief

being sought is equitable or otherwise discretionary.” /d. at

731, 116 S.Ct. 1712 (emphasis added).'”

Webb makes the superficially appealing argument that

the “equitable nature” of quantum meruit brings the case

(Cont'd)

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, 116 S.Ct. 1712 (internal

citation omitted).

12. See also id. at 730, 116 S.Ct. 1712 (noting that staying a

damages action is permissible, “but we have not permitted [courts]

to dismiss the action altogether”). Webb also resourcefully quotes a

decision interpreting Quackenbush to mean “that abstention, under

Burford or otherwise, may be appropriate in suits for damages.”

See DeMauro v. DeMauro, 115 F.3d 94, 98 (1st Cir.1997). Although

true, this lends no support to Webb’s position. The court further

explained that a “district court may only order a stay pending

resolution of state proceedings; it cannot invoke abstention to dismiss

the suit altogether.” Jd. Here, the court did not stay the action; it

remanded, the functional equivalent of dismissal in this context.

12a

Appendix A

within Quackenbush and allows for remand. “Quantum

meruit is an equitable doctrine based on the principle that

one who benefits from another’s labor and materials should

not be unjustly enriched thereby.” SMP Sales Management,

Inc. v. Fleet Credit Corp., 960 F.2d 557, 560 n. 3 (5th

Cir.1992). Texas courts also have noted the equitable nature

of quantum meruit.'* Because the case includes this claim

for equitable relief, the argument goes, it falls within

Quackenbush and may be remanded.

13. See, e.g., Heldenfels Bros., Inc. v. City of Corpus Christi,

832 S.W.2d 39, 41 (Tex.1992) (“Quantum meruit is an equitable

theory of recovery which is based on an implied agreement to pay

for benefits received.”); Vortt Exploration Co. v. Chevron U.S.A.,

Inc., 787 S.W.2d 942, 944 (Tex.1990) (“Quantum meruit is an

equitable remedy which does not arise out of a contract, but is

independent of it.”); see also, e.g., Brankline v. Capuano, 656 So.2d

1,5 (La.App. 3d Cir.1995) (“Quantum meruit is an equitable remedy

founded upon the principle that no one who benefits from the labor

or materials of another should be unjustly enriched at the other’s

expense.”); McGee v. McGee, 277 N.J.Super. 1, 648 A.2d 1128,

1133 (1994) (describing “equitable remedies such as .. . quantum

meruit,” “invocable for equitable reasons”); Feingold v. Pucello,

439 Pa.Super. 509, 654 A.2d 1093, 1094 (1995) (“Quantum meruit

is an equitable remedy.”); Castelli v. Lien, 910 S.W.2d 420, 428

(Tenn.Ct.App.1995) (“quantum meruit is an equitable remedy”

available if the contract is no longer enforceatle); Po River Water

& Sewer Co. v. Indian Acres Club, Inc., 255 Va. 108, 495 S.E.2d

478, 482 (1998) (describing relief under quantum meruit theory as

equitable); Bowles v. Sunrise Home Ctr., Inc., 847 P.2d 1002, 1004

(Wyo.1993) (“Unjust enrichment (or quantum meruit) is an equitable

remedy which implies a contract”).

~ bb.

awe ae

13a

Appendix A

Webb reads Quackenbush too simply and fails to

comprehend the complexity of quantum meruit. For Burford

to apply, a federal court must be sitting in equity with the

discretion to deny relief. See Quackenbush, 517 U.S. at 728,

116 S.Ct. 1712 (explaining that the power to abstain “derives

from the discretion historically exercised by courts of

equity.”). As part of the Court’s formulation of when

abstention doctrines apply, the court must be sitting in

equity."

In Quackenbush, the Court emphasized a court of

equity’s discretion to grant or deny relief, holding that

abstention based remands or dismissals are appropriate “only

where the relief being sought is equitable or otherwise

14. See Quackenbush, 517 U.S. at 728, 116 S.Ct. 1712: id. at

717, 116 S.Ct. 1712 (“[I]t has long been established that a federal

court has the authority to decline to exercise jurisdiction when it ‘is

asked to employ its historic powers as a court of equity.” ”) (quoting

Fair Assessment in Real Estate Ass'n, Inc. v. McNary, 454 U.S.

100, 120, 102 S.Ct. 177, 70 L.Ed.2d 271 (1981) (Brennan, J.,

concurring)); NOPS/, 491 U.S. at 361, 109 S.Ct. 2506 (explaining

that in certain circumstances “a federal court sitting in equity must

decline to interfere with the proceedings or orders of state

administrative agencies”); see also Tribune Co. v. Abiola, 66 F.3d

12, 16 (2d Cir.1995) (“We find it significant that the Supreme Court

[in NOPS/] traced the origin of abstention doctrines to the federal

court’s discretion to withhold equitable relief, and reformulated the

Burford doctrine to require federal courts “sitting in equity’ to abstain

from exercising their jurisdiction in certain circumstances.” (citation

omitted)); id. at 15-16 (“When a federal court sits in equity[,]”

abstention may be warranted).

l4a

Appendix A

discretionary.” Quackenbush, 517 U.S. at 731, 116 S.Ct.

1712.'° The source of the power to abstain confirms the

centrality of the court’s sitting in equity and hence possessing

discretion in the relief afforded. See Quackenbush, 517 U.S.

at 728, 116 S.Ct. 1712. That discretion allows it to deny

relief; the abstention doctrines merely add that “the exercise

of this discretion must reflect principles of federalism and

comity.” Jd. When a court considers these factors, balancing

state and federal interests, discretion may favor withholding

relief by way of abstention-based remand or dismissal.'°

15. The use of “or otherwise” rather than simply “or

discretionary” in “equitable or otherwise discretionary” implies that

the Court assumed that the equitable relief to which it referred also

was discretionary. See also Quackenbush, 517 U.S. at 730, 116 S.Ct.

1712 (holding abstention extends “to all cases in which a federal

court is asked to provide some form of discretionary relief”); Munich

Am., 141 F.3d at 589 (“Burford abstention is permissible only when

the district court has discretion to grant or deny relief.”).

16. The higher degree of interference with state proceedings

that injunctive or declaratory relief imposes, as opposed to a damages

award, also favors allowing abstention when a court sits in equity,

but not in an action at law. See Quackenbush, 517 U.S. at 717-18,

116 S.Ct. 1712 (“The history of equity jurisdiction is the history of

regard for public consequences in employing the extraordinary

remedy of the injunction. . . . Few public interest have a higher claim

upon the discretion of a federal chancellor than the avoidance of _

needless friction with state policies [by means of abstention]... .”);

Tribune Co., 66 F.3d at 16 (holding that abstention is available only

when the court sits in equity, because “[i]njunctions are the most

intrusive sort of judicial relief, and may directly interfere with the

proceedings or orders of state administrative agencies.” (quotation

omitted)).

;

15a

Appendix A

This withholding of extraordinary relief by courts

having authority to give it is not a denial of the

jurisdiction which Congress has conferred on the

federal courts. ... On the contrary, it is but a

recognition . . . that a federal court of equity . ..

should stay its hand in the public interest when it

reasonably appears that private interests will not

suffer. . . . It is in the public interest that federal

courts of equity should exercise their discretionary

power to grant or withhold relief so as to avoid

needless obstruction of the domestic policy of the

States.

Alabama Pub. Serv. Comm'n vy. Southern R.R., 341 U.S. 341,

350-51, 71 S.Ct. 762, 95 L.Ed. 1002 (1951).

When a court hears a claim for quantum meruit, it neither

sits in equity nor possesses discretion. Courts frequently refer

to quantum meruit as an equitable doctrine and even as

seeking equitable relief. Despite its equitable nature, however,

quantum meruit is an action at law — a legal cause of action

seeking money damages. Indeed, courts recognize that they do

not sit in equity when they hear a quantum meruit claim," and

17. See American Nat'l Ins. Co. v. Warnock, 131 Tex. 457,

114 S.W.2d 1161, 1165 (1938) (holding that, although “courts of

equity will not enforce” the statute of frauds if doing so would work

a fraud, specific performance will not be granted for land contract

barred by statute of frauds, “since the value of the consideration

may be recovered in an action at law on a quantum meruit.”); Upson

(Cont’d)

l6a

Appendix A

they recognize that a division between equity and law places

quantum meruit on the law side.'®

(Cont'd)

v. Fitzgerald, 129 Tex. 211, 103 S.W.2d 147, 150 (1937) (same);

Richardson y. Iley, 299 §.W.2d 187, 188 (Tex.Civ.App. — San

Antonio 1957, writ ref’d n.r.e.) (same); see also, e.g., Tompkins vy.

Hoge, 114 Cal.App.2d 257, 250 P.2d 174, 178 (1952) (denying

equitable relief of specific performance because, the services being

compensable “in quantum meruit, the remedy at law is adequate”);

Frontier Properties Corp. v. Swanberg, 488 N.W.2d 146, 147 (lowa

1992) (“[A]ctions for amounts due under a contract or for quantum

meruit recovery based on implied contract are actions at law.”);

Campbell v. Welsh, 54 Md.App. 614, 460 A.2d 76, 82 (1983)

(referencing cases that permit “recovery at law, ona quantum meruit

basis”); Van Horn y. DeMarest, 76 N.]J. Eq. 386, 77 A. 354, 367-68

(1910) (referring to “an action at law upon a quantum meruit”);

Ogletree, Deakins, Nash, Smoak & Stewart P.C. y. Albany Steel

Inc., 243 A.D.2d 877, 663 N.Y.S.2d 313, 315 (1997) (rejecting

Categorization of claim as equitable because a “quantum meruit

action is essentially an action at law, inasmuch as it seeks money

damages in the nature of a breach of contract, notwithstanding that

the rationale underlying such causes of action is fairness and

equitable principles in a general rather than legal sense.”) (quotation

omitted); Cordrey vy. Cordrey, 579 P.2d 209, 213 (Okla.App. Div. 2

1978) (describing quantum meruit action as “one at law and not

equity”); Welch v. Webb, 47 Or.App. 771, 615 P.2d 391, 393 n. 3

(1980) (“This case, brought as a suit in equity, has become an action

at law for quantum meruit.”); Tri State Home Improvement Co. y.

Mansavage, 77 Wis.2d 648, 253 N.W.2d 474, 479 (1977) (“A cause

of action for quantum meruit, while equitable in nature, is an action

at law” usually heard by jury, and not by court sitting in equity).

18. See, e.g., Allen v. Peachtree Airport Park Joint Venture,

231 Ga.App. 549, 499 S.F.2d 690, 691 (1998) (rejecting argument

(Cont'd)

OE te en Sie all Pi ln te

17a

Appendix A

Furthermore, in a quantum meruit action, the court lacks

discretion to balance interests between the state and federal

governments. Relief turns not on a weighing of the equities

but on a straightforward application of law to facts. If the

facts justify relief under the legal standard — a question often

answered by jury — the court has no discretion to wei gh the

equities and decide against relief."

(Cont'd)

that district court lacked jurisdiction “to determine equitable issues

such as quantum meruit” because “state courts have subject matter

jurisdiction of quantum meruit claims, which are considered actions

at law”); Ordon v. Johnson, 346 Mich. 38, 77 N.W.2d 377, 383

(1956) (affirming transfer of cause by chancery judge to law side to

allow hearing on quantum meruit claim); Craig v. Jo B. Gardner,

Inc., 586 S.W.2d 316, 325 (Mo.1979) (holding court of equity could

hear quantum meruit claim, “a suit at law,” but only because equity

court already had “rightful possession” of case because of equitable

claim); Galloway v. Eichells, 1 N.J.Super. 584, 62 A.2d 499, 502

(1948) (transferring action to Law Division because only possible

relief would be damages “at law upon quantum meruit”); Turcott v.

Gilbane Bldg. Co., 94 R.1. 225, 179 A.2d 491, 493 (1962) (holding

that quantum meruit action, “a remedy at law,” must be brought “in

an action at law” and not in a court of equity); Lanmor C orp. v. BM

& K Builders, Inc., 1990 WL 751279, *3, 1990 Va. Cir. LEXIS

443, at *7 (Va.Cir.Ct. Sept. 10, 1990) (denying leave to amend bill

of equity to add quantum meruit, which “involves legal principles

cognizable at law, not in equity,” because sustaining demurrer on

equitable claims left no basis for equitable jurisdiction).

19. Cf. Knebel v. Capital Nat'l Bank, 505 S.W.2d 628, 631

(Tex.Civ.App. — Austin 1974) (describing the “equitable concept”

of unjust enrichment, “enforced through the common law courts as

Quantum meruit,” which “obligated the common law courts” to

enforce certain implied promises) (emphasis added), aff'd in part

and rev'd in part on other grounds, 518 S.W.2d 795 (Tex.1974).

18a

Appendix A

Sitting at law, without discretion to deny relief, a court

cannot remand a quantum meruit claim under Quackenbush.

The state’s interests must yield to the federal court’s “strict

duty to exercise the jurisdiction that is conferred upon [it]

by Congress.” Quackenbush, 517 U.S. at 716, 116 S.Ct. 1712.

Because the district court lacked discretion to remand these

damages actions, we REVERSE and REMAND for further

proceedings consistent with this opinion.

5 plenited,

a sR ai Beane ie AE Cn Ub. Kiet <A

19a

Appendix A

POLITZ, Circuit Judge, dissenting:

My colleagues in the majority have issued a forceful

opinion from which I respectfully must dissent.

My colleagues conclude that the district court abused

its discretion by abstaining under Burford' because the nature

of Webb’s claims precludes abstention. According to the

Burford abstention doctrine, a federal court may abstain and

remand a case to state court “only where the relief being

sought is equitable or otherwise discretionary.”? After

determining that Webb’s claim for quantum meruit is an

action at law — a determination that in part spurs my dissent

— the majority concludes that the district court was not

sitting in equity and did not possess discretion to grant or

deny relief. Thus, they opine, the district court acted outside

the strictures of the doctrine by abstaining. I dissent,

concluding that quantum meruit more appropriately should

be considered an equitable action, and fully convinced that

the district court’s abstention order should be affirmed.

The nature of quantum meruit is, indeed, “complex{ ].””

The majority describes quantum meruit as an action at law

1. Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87

L.Ed. 1424 (1943).

2. Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 731, 116

S.Ct. 1712, 135 L.Ed.2d 1 (1996).

3. Supra, at 703. Cf. 5 ALAN Linton Corsin, CorBIN ON

Contracts § 1103, at 557 (1964) (“The remedy of restitution

(Cont’d)

20a

Appendix A

— a legal cause of action seeking money damages — and

cites numerous cases in support thereof. There is contrary

jurisprudence describing quantum meruit as an equitable

action.* “The battle of the string citations [, however,] can

have no winner.”° Thus, reflection on the Supreme Court’s

discussion in Quackenbush v. Allstate Insurance Company®

is appropriate.

Congress imposed upon the federal courts a duty to

exercise their jurisdiction, but the statutes conferring

(Cont'd)

[, a broad remedy within which quantum meruit has been classified, }

cannot properly be described as either ‘legal’ or ‘equitable’ in any

narrowly restricted signification of those terms. It was once a remedy

that was created and applied by both the Judges and the

Chancellors... .”).

4. See supra, at 707 n. 13; FDIC v. Plato, 981 F.2d 852, 858

n. 14 (Sth Cir.1993) (treating quantum meruit damages as equitable

relief); see also United States Gypsum Co. v. National Gypsum Co.,

352 U.S. 457, 478, 77 S.Ct. 490, 1 L.Ed.2d 465 (1957) (Black, J.,

dissenting) (hinting that quantum meruit is an action in equity by

stating that recovery under that theory runs counter to the equitable

doctrine of “unclean hands”). But see Mertens v. Hewitt Assocs.,

508 U.S. 248, 255, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993) (“Money

damages are, of course, the classic form of legal relief.”); cf. Reich

v. Continental Cas. Co., 33 F.3d 754, 756 (7th Cir.1994) (dictum)

(In seeking restitution, “[plaintiff] was seeking not a profit, but

merely a receipt, an insurance premium, net of some expenses; to

call this a ‘profit,’ it could be argued, would convert every suit for

the price of a contract into a suit for restitution, contrary to the law.”).

5. Smith v. Wade, 461 U.S. 30, 93, 103 S.Ct. 1625, 75 L.Ed.2d

632 (1983) (O’Connor, J., dissenting).

6. 517 U.S. 706, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996).

a ony

2la

Appendix A

jurisdiction were enacted against a background of traditional

principles that included a court’s ability to abstain in certain

circumstances.’ Thus, “it has long been established that a

federal court has the authority to decline to exercise its

jurisdiction when it is asked to employ its historic powers

as a court of equity.”* And more specifically, “the power to

dismiss under the Burford doctrine ... derives from the

discretion historically enjoyed by courts of equity.”” Thus,

the appropriate issue to be resolved is whether courts of

equity historically heard claims of guantum meruit.

Given the Supreme Court’s historical emphasis, it is my

perception that the focus should be upon the origin of the

relief and its position at the time the federal judicial system

was created, not how the cause of action has since evolved.'”

The roots of quantum meruit are in the courts of equity;''

claims for quantum meruit appeared in those courts before

the cause of action could be pursued at law. Claims for

7. Id., at 716-17, 116 S.Ct. 1712.

8. /d., at 717, 116 S.Ct. 1712 (internal quotations omitted).

9. Id., at 727-28, 116 S.Ct. 1712.

10. It appears that courts competed for jurisdiction, see Joun

P. DAWSON ET AL., CASES AND COMMENT ON CONTRACTS 107 (6th ed.

1993) (“Since judges derived their income from litigants’ fees, it is

not surprising that competition for judicial business developed

...."), 80 emphasis on the evolution of the cause of action does not

seem appropriate.

11. James Barr Ames, Lectures on LeGAt History 156 (1913).

22a

Appendix A

quantum meruit were pursued in the courts of equity at the

birth of our judicial system.'? Thus, despite some indications,

historically speaking, that quantum meruit was a legal cause

of action,’® I am not prepared to dispositively rule that

quantum meruit is a legal cause of action.

Il.

Having personally concluded that a federal court sits in

equity when hearing a claim for quantum meruit,'* I continue

12. Morton J. Horwitz, The Historical Foundations of Modern

Contract Law, 87 Harv. L.Rev. 917, 934 (1974) (“As late as the

turn of the century, it was also the prevailing practice in America to

sue in indebitatus assumptsit for an express contract and for counts

in both indebitatus and quantum meruit to be ‘usually joined in the

declaration; so that on failure of proof of an express debt or price,

the PIf. may resort ad debitum equitatis,’ that is, to an equitable

action in quantum meruit.”) (footnote omitted, italics added) (quoting

AMERICAN PRECEDENTS OF DECLARATIONS 95 (B. Perham ed. 1802)).

13. See J.L. Barton, Contract and Quantum Meruit: The

Antecedents of Cutter v. Powell, 8 J. Legal Hist. 48 (1987); Horwitz,

supra note 12, at 936 (discussing the jury 's power to set a reasonable

price in quantum meruit); see also RESTATEMENT OF RESTITUTION:

Quasi CONTRACTS AND CONSTRUCTIVE TRUSTS § 4 cmt. e, at 21 (1937)

(“Although ordinarily such money judgment is obtained by an action

at law, a decree for money will sometimes be rendered by a court of

equity.”).

14. Besides quantum meruit, Webb also pursued causes of

action for breach of contract and for suit on sworn account, but

these /egal claims do not undermine the conclusion that the district

court was sitting in equity. Quackenbush, 517 U.S. at 730, 116 S.Ct.

(Cont'd)

ee ee en es

se Baer

OS AIO be oe Ne Ra an RP Ulg ade te

23a

Appendix A

with the Burford analysis. The Supreme Court describes the

Burjord abstention doctrine as follows:

Where timely and adequate state court review is

available, a federal court sitting in equity 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 substantia! 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.'®

The district court abstained under the second noted

circumstance,'® and, in doing so, in my opinion, it did not

abuse its discretion.

(Cont'd)

1712 (“We have not strictly limited abstention to equitable cases,

... but rather have extended the doctrine to all cases in which a

federal court is asked to provide some form of discretionary relief.”)

(internal quotations and citations omitted).

15. New Orleans Pub. Serv., Inc. v. Council of New Orleans,

491 U.S. 350, 361, 109 S.Ct. 2506, 105 L.Ed.2d 298 (1989) (internal

quotations and citations omitted).

16. Webb v. B.C. Rogers Poultry, Inc., No. A-98-CA-005-SS

(W.D.Tex. Feb. 19, 1998) (“Abstention is appropriate in this case,

for if this Court were to exercise federal jurisdiction, it could well

interfere with the State of Texas’ efforts to effect a coherent policy

(Cont’d)

24a

Appendix A

Prior to Quackenbush, this court and other courts

consistently had approved Burford abstention in actions

involving an insurance company that, in turn, was involved

in ongoing state delinquency proceedings.'’ Being persuaded

that the holding of Quackenbush does not torpedo the district

court’s decision to abstain, | briefly reflect only on the

remaining analysis because of the solid background of

precedent upholding Burford abstention in similar situations.

Texas’ regulation of the insurance industry is “‘a matter

of substantial public concern.” Congress manifestly considers

such regulation a matter of public concern.'* Precedent

teaches that this concern is substantial.'®

(Cont'd)

on a matter of public concern, that is, the collection of assets of an

insolvent insurer through a state district court receivership

proceeding wherein the state district court retains continuing

jurisdiction over the liquidation proceedings. Failure to abstain could

lead to removal of cases to federal court and possible changes of

venue, leaving the receiver facing litigation in several forums and

under different circumstances. This would be detrimental to the

overall scheme of the liquidation proceedings in Texas when an

insurance company becomes insolvent.”).

17. Munich Am. Reins. Co. v. Crawford, 141 F.3d 585, 589 n.

2 (Sth Cir.1998) (collecting cases), cert. denied, Se Bee

S.Ct. 539, 142 L.Ed.2d 448 (1998).

18. 15 U.S.C. § 1011 (“Congress hereby declares that the

continued regulation ... by the several States of the business of

insurance is in the public interest. . . .”).

19. See Martin Ins. Agency, Inc. v. Prudential Reins. Co., 910

F.2d 249, 255 (Sth Cir.1990) (necessarily finding the concern

(Cont’d)

;

25a

Appendix A

Texas has established a coherent policy regulating the

insurance industry. It has formulated a complex and

comprehensive scheme involving numerous actors, including

the Department of Insurance, the Commissioner of Insurance,

as well as the District Court of Travis County. Under Texas

law, the governor, with the advice and consent of the senate,

appoints a Commissioner of Insurance who is charged with

the primary responsibility of administering, enforcing, and

executing provisions of the Insurance Code.”° Decisions by

the Commissioner may be challenged by interested parties

in the District Court of Travis County, “and not elsewhere.””!

The Attorney General for the State of Texas is charged with

representing and advising the Commissioner in all legal

matters.”?

Texas’ comprehensive scheme also quite appropriately

covers matters concerning those insurance companies that

become insolvent.” Particular financial considerations must

(Cont’d)

“substantial” because it was “appropriate to abstain on Burford

abstention grounds”); see also Lac D’Amiante du Quebec, Ltee v.

American Home Assurance Co., 864 F.2d 1033, 1045 (3d Cir.1988)

(“essential state concern”).

20. Tex. INs.Cope ANN. art. 1.09(a), (b).

21. Tex. INs.Cope ANN. art. 1.04(a).

22. Tex. INs.CopE ANN. ArT. 1.09-1(a).

23. See generally Tex. INs.Cone ANN. ARTS. 21.28, 21.28-A; El

Paso Elec. Co. v. Texas Dep't of ins., 937 S.W.2d 432, 434-35

(Cont’d)

26a

Appendix A

be met before an insurance company may be incorporated in

Texas,” and the Department of Insurance is charged with

monitoring the continuing performance of insurance

companies.” If the department determines that an insurance

company’s financial position has dipped below a prescribed

level, the Commissioner must notify the company of this

determination and provide the company with a list of

requirements, compliance with which will absolve the earlier

departmental determination.” If, after a specified period of

time, the company has not met the requirements set forth by

the Commissioner and other criteria have not been met, the

Commissioner must notify the Attorney General who may

apply to any Travis County court for remedial action,

including the appointment of a receiver.”’ Texas law charges

an appointed receiver with the duty of conducting the

(Cont'd)

(Tex.1996) (“Article 21.28 of the Texas Insurance Code sets forth a

comprehensive scheme for the liquidation, rehabilitation, and

reorganization of insolvent insurers.”); see also Tex. Ins.CopE ANN.

ART. 21.28 § 16 (“In the event of conflict between the provisions of

this Article and the provisions of any existing law, the provisions

of this Article shall prevail, and all laws, or parts of law, in conflict

with the provisions of this Article, are hereby repealed to the extent

of such conflict.”).

24. Tex. INs.Cope ANN. ART. 2.02.

25. Tex. INs.CopE ANN. ART. 1.10.

26. Tex. INs.CopE ANN. ART. 21.28-A.

27. Tex. INs.CopE ANN. ART. 21.28-A.

27a

Appendix A

business of the delinquent insurer and conserving the assets

and protecting the rights of policyholders and claimants.”°

Additionally, Texas law specifies where the proceeds

collected by the receiver shall be held.”’ Finally, Texas law

specifies that the exclusive venue for delinquency

proceedings shall be in Travis County.” It is abundantly clear

that Texas indeed has established a coherent policy in this

area.

I find no basis for suggesting that the district court

abused its discretion in concluding that federal review of

the questions presented in this case and similar cases would

be disruptive of Texas’ efforts to effectuate its coherent

policy. Congress delegated the regulation of the business of

insurance to the states,*' and Texas has created a complex

28. Tex. Ins.CopE ANN. art. 21.28 § 2(e).

29. Tex. INs.Cope ANN. ArT. 21.28 § 2(h) (“Except as provided

by this subsection, all money collected by the receiver shall be

forthwith deposited into the Texas Treasury Safekeeping Trust

Company... .”).

30. Tex. INs.Cope ANN. ArT. 21.28 § 2(i) (“Exclusive venue of

delinquency proceedings shall be in Travis County, Texas.”).

31. 15 U.S.C. § 1012(a) (“The business of insurance, and every

person engaged therein, shall be subject to the laws of the several

States which relate to the regulation or taxation of such business.”).

But see 15 U.S.C. § 1012(b) (“No Act of Congress shall be construed

to invalidate, impair, or supercede any law enacted by any State for

the purpose of regulating the business of insurance . . . unless such

Act specifically relates to the business of insurance. . . .”).

28a

Appendix A

and comprehensive scheme to do exactly that. The Texas

legislature has concentrated judicial review of insurance

proceedings in Travis County, and consequently those courts,

like the Department of Insurance and the Commissioner of

Insurance, have developed a specialized knowledge regarding

these proceedings.* In my view, reversing the district court

and allowing this case to continue in federal court

inappropriately “usurp[s]” Texas’ control over the liquidation

proceeding.*

Finally, Texas requires the receiver to “take such steps

as may be necessary to conserve the assets . . . for the purpose

of liquidating .. . the affairs of the insurer.’”4 By holding

that the federal district court possessed jurisdiction over this

case, the majority potentially sacrifices one of the chief

purposes of the Texas regulatory scheme by effectively

requiring the “dissipation of the insolvent company’s

funds”*’ likely to result from litigation conducted outside

Travis County and away from the court with the

responsibility for this insurance company salvage operation.

32. See Burford, 319 U.S. at 325-27, 63 S.Ct. 1098.

33. Barnhardt Marine Ins., Inc. v. New England Int'l Surety

of Am., Inc., 961 F.2d 529, 532 (Sth Cir. 1992),

34. Tex. INs.Cope ANN. ArT. 21.28 § 2(e) (emphasis added).

35. Munich Am. Reins. Co., 141 F.3d at 593 (“[C]onsolidation

prevents the unnecessary and wasteful dissipation of the insolvent

company’s funds that would occur if the receiver had to defend

unconnected suits in different forums across the country.”).

ees

29a

Appendix A

Splintering a portion of this on-going proceeding and

insisting on jurisdiction herein for the federal district court

unduly threatens the scheme enacted by Texas as specifically

authorized by Congress. As our courts have so forcefully

noted: “ ‘in instances, where states have ... formulat[ed]

complex and specialized administrative and judicial schemes

to regulate insurers, especially the liquidation of insolvent

insurers,’ the federal court should abstain from exercising

jurisdiction in disputes occurring in the larger context of state

liquidation proceedings.” I am in absolute agreement with

this statement.

ITI.

In sum, we should conclude that quantum meruit

historically was, and therefore should be deemed to be, an

equitable action and that the district court did not abuse its

discretion in abstaining under Burford. I would affirm the

judgment appealed.

36. Martin Ins. Agency, Inc., 910 F.2d at 254 (quoting Grimes

v. Crown Life Ins. Co., 857 F.2d 699, 703 (10th Cir.1988)); cf Sierra

Club v. City of San Antonio, 112 F.3d 789, 796 (Sth Cir.1997)

(“Burford abstention is particularly appropriate where by proceeding

the district court would have risked reaching a different answer than

the state institutions with greater interest in and familiarity with

such matters.”) (internal quotations and citations omitted). True,

the district court noted that “the case at bar may be a simple

determination of what, if any, premium is owed by the defendants

to the receiver acting through his appointed authority.” Webb v. B.C.

Rogers Poultry, Inc., No. A-98-CA- 005-SS (W.D.Tex. Feb. 19,

1998). Our precedent, nonetheless, reveals that “disruption” may

stem either from unsettled law or from the application of settled

law to complex, local facts. Wilson v. Valley Elec. Membership

Corp., 8 F.3d 311, 314-15 (Sth Cir.1993). And on the record before

- @ this court, I cannot conclude that the district court abused its

discretion in abstaining.

30a

APPENDIX B — ORDER OF THE UNITED STATES

DISTRICT COURT FOR THE WESTERN DISTRICT

OF TEXAS, AUSTIN DIVISION, DATED AND

FILED FEBRUARY 19, 1998

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

AUSTIN DIVISION

NO. A 98 CA 005 SS

JACK M. WEBB, SPECIAL DEPUTY RECEIVER

FOR EMPLOYERS NATIONAL INSURANCE

COMPANY IN RECEIVERSHIP

VS.

B.C. ROGERS POULTRY, INC. and B.C. ROGERS

PROCESSORS, INC.

ORDER

BE IT REMEMBERED on this the 19th day of February

1998 the Court reviewed the file in the above-styled cause

and specifically the Motion to Abstain and Remand [#6] filed

by the plaintiff Jack M. Webb, Special Deputy Receiver for

Employers National Insurance Company in Receivership and

the response of the defendants [#7 filed February 17, 1998],

and thereafter the Court makes the following findings and

orders:

On February 11, 1994, the 53rd Judicial District Court

of Travis County, Texas, in cause number 94-00950 styled

The State of Texas, Plaintiff v. Employers National Insurance

3la

Appendix B

Company, Defendant, entered a permanent injunction and

order appointing permanent receiver. The 53rd Judicial

District Court’s order was made pursuant to the specific

provisions of the Texas Insurance Code and the order

appointed the Commissioner of Insurance of the State of

Texas as the permanent receiver of Employers National

Insurance Company and Jack Webb as the Special Deputy

Receiver. The order further found that the defendant

Employers National Insurance Company was “insolvent and

in a hazardous financial condition” and entered specific

injunctive relief relating, inter alia, to policy holders of

Employers National Insurance Company. It is alleged that

the defendants in this case would constitute policy holders

and, therefore, the injunctive relief applied directly to them

requiring a disclosure of all properties of Employers National

Insurance Company and the immediate surrender of all

properties to the permanent receiver. The injunctive order

of the 53rd Judicial District Court continues jurisdiction in

that court authorizing the permanent receiver to, inter alia,

take over and collect all assets of Employers National

Insurance Company and the court retained jurisdiction

through final liquidation of Employers National Insurance

Company, including the sale of its charter.

Pursuant to the order of the 53rd Judicial District Court,

Jack M. Webb, Special Deputy Receiver for Employers

National Insurance Company in Receivership, filed suit

against the defendants herein in the 53rd Judicial District

Court of Travis County in an effort to collect assets of

Employers National Insurance Company, specifically

premiums for insurance coverage allegedly owed by the

defendants for policies issued by Employers National

32a

Appendix B

Insurance Company. Jack Webb, the Special Deputy

Receiver, may have filed other lawsuits in the 53rd Judicial

District Court to obtain assets of the insolvent insurer; this

case at bar may be one of many lawsuits filed in the 53rd

Judicial District Court of Travis County to comply with the

liquidation order entered by the 53rd Judicial District Court

of Travis County.

The defendants were served on December 9, 1997, with

process out of the 53rd Judicial District Court of Travis

County, and on January 5, 1998, filed a notice of removal in

the state court and subsequently filed the removal of this

cause to this Court.

The receiver seeks abstention and remand under three

theories. First, he contends the Court should abstain from

exercising jurisdiction over this insurance receivership matter

under the doctrine of Burford v. Sun Oil Co., 63 S. Ct. 1098

(1943). The defendants counter that this lawsuit does not

involve complex issues of a complicated regulatory scheme

and is simply a matter of contract between parties wherein a

determination of an amount of insurance premiums, if any,

are owed by the defendants.

The second ground for remand is that the defendants

technically failed to comply with the removal statute, but

the Court finds this argument is totally without merit and

dismisses this contention offhand.

The third theory for remand is that this Court should

avoid any conflict with a permanent injunction entered

by the receivership court. Again, the Court rejects this

contention out of hand.

ests anit

33a

Appendix B

As the parties both specifically point out, the Court

has heretofore held, in dicta, that a case under these

circumstances should be remanded to the state court. See,

Georgia D. Flint, as Permanent Receiver of Texas Employers

Insurance Association v. Nolan H. Brunson, Inc., A 93 CA

651. It may well be that the only issue in the case at bar may

be a simple determination of what, if any, premium is owed

by the defendants to the receiver acting through his appointed

authority. However, this lawsuit is simply one of many efforts

the receiver engages in to obtain the assets of an insolvent

insurance company and to protect the policyholders and the

citizens of the State of Texas from injury. The State of Texas

is the primary authority for regulating the insurance industry

in the State of Texas, and the plaintiff Jack Webb, as Special

Deputy Receiver, has the court-appointed authority to protect

the State of Texas from the insolvency of Employers National

Insurance Company, which includes the obtaining of

any assets of Employers National Insurance Company.

Abstention is appropriate in this case, for if this Court were

to exercise federal jurisdiction, it could well interfere with

the State of Texas’ efforts to effect a coherent policy on a

matter of public concern, that is, the collection of assets of

an insolvent insurer through a state district court receivership

proceeding wherein the state district court retains continuing

jurisdiction over the liquidation proceedings. Failure to

abstain could lead to removal of cases to federal court and

possible changes of venue, leaving the receiver facing

litigation in several forums and under different

circumstances. This would be detrimental to the overall

scheme of the liquidation proceedings in Texas when an

insurance company becomes insolvent. Therefore, the Court

will remand this case to the 53rd Judicial District Court of

34a

Appendix B

Travis County wherein the liquidation orders have been

entered and all suits for collection of assets are to be

maintained.

IT IS ORDERED that the Motion to Abstain and

Remand is GRANTED for the reasons stated in this

opinion and this cause is remanded to the 53rd Judicial

District Court of Travis County, and each party shall

absorb his or its own costs.

SIGNED on this the 19th day of February 1998.

s/ Sam Sparks

UNITED STATES DISTRICT

JUDGE

35a

APPENDIX C — PERMANENT INJUNCTION AND

ORDER APPOINTING PERMANENT RECEIVER

OF THE DISTRICT COURT OF TRAVIS COUNTY,

TEXAS FOR THE 53RD JUDICIAL DISTRICT

DATED FEBRUARY 11, 1994

No. 94-00950

IN THE DISTRICT COURT OF

TRAVIS COUNTY, TEXAS

53RD JUDICIAL DISTRICT

THE STATE OF TEXAS,

Plaintiff

VS.

EMPLOYERS NATIONAL INSURANCE COMPANY,

Defendant

PERMANENT INJUNCTION AND ORDER

APPOINTING PERMANENT RECEIVER

On this day came to be heard the Application for

PERMANENT INJUNCTION AND ORDER APPOINTING

PERMANENT RECEIVER filed by the State of Texas. The

State of Texas appeared by and through its Attorney General,

Dan Morales, and EMPLOYERS NATIONAL INSURANCE

COMPANY (sometimes hereinafter referred to as

“DEFENDANT”), though properly served and cited to

appear, did not appear.

36a

Appendix C

The Application requests that a Permanent Injunction

be issued against DEFENDANT and that the Commissioner

of Insurance be appointed as the Permanent Receiver for

EMPLOYERS NATIONAL INSURANCE COMPANY.

FINDINGS

1) The Court finds that it has jurisdiction of the parties and

over the subject matter herein, and the Court, after

considering the Plaintiff's verified claim, is of the opinion

and finds that the law and the facts are what the Plaintiff

has alleged in its duly verified claim and that Plaintiff is

entitled toa PERMANENT INJUNCTION AND ORDER

APPOINTING PERMANENT RECEIVER as granted

herein.

2) The Court finds that the Plaintiff, through its Attorney

General, Dan Morales, under the authority granted to him

by the Constitution and laws of this State and at the

request of the Commissioner of Insurance of the State of

Texas, has a probable right and probably will prevail upon

final hearing of this action and that without the issuance

of this Permanent Injunctive relief, the Plaintiff will

probably suffer irreparable injury as set forth herein.

There is no adequate remedy at law.

3) The Court finds that DEFENDANT is insolvent and in a

hazardous financial condition and is not in compliance

with TEX. INS. CODE ANN. arts. 1.10, §5, 2.01, 2.02,

and 2.20 (Vernon Supp. 1993). The Court further finds

that the continued operation of DEFENDANT will be

ee ee

37a

Appendix C

hazardous to its insureds and creditors, and that unless

permanently enjoined, it will continue to operate in

violation of the laws of this State and that it will continue

to create debts and obligations and to deplete the assets

of DEFENDANT, all contrary to the best interests of its

policyholders, creditors and the general public and that

by reason of these premises, immediate and irreparable

injury, loss and damage will result to the policyholders

and creditors.

4) The Court further finds that unless DEFENDANT is

permanently enjoined, the assets of DEFENDANT may

be subjected to claims or illegal preferences, to the

immediate and irreparable injury of its policyholders and

creditors.

5) Because of the foregoing, the Court finds that there exists

an imperative and immediate necessity to enjoin

DEFENDANT from conducting any business of

DEFENDANT as enjoined herein and to appoint the

Commissioner of Insurance of the State of Texas as

Permanent Receiver of the affairs of EMPLOYERS

NATIONAL INSURANCE COMPANY in order to

manage, maintain, and preserve the affairs of

DEFENDANT during the pendency of these proceedings

and to wind-up and liquidate the property and busiiess

of DEFENDANT.

6) The Court further finds that the Permanent Receiver is

vested by operation of law with title to all property and

assets of DEFENDANT, and that the Permanent Receiver

succeeds to all rights of DEFENDANT, including, but

38a

Appendix C

not limited to, the rights of DEFENDANT as customer

of any financial institutions.

The Court further finds that DEFENDANT was duly and

properly served and notified of this hearing.

It is the intent of this Court, by entry of this Order, that

this is a Final Order of Liquidation, based on this Court’s

finding of insolvency. The purpose of this Order is

to allow a determination that the hazard caused

by DEFENDANT’S insolvency warrants this Final

Liquidation Order.

Should this Final Order of Liquidation be rescinded at

any time, and the institution of receivership proceedings

be reversed, all Insurance Guaranty Association’s will

be required to be repaid in full for all administrative

expenses and all covered claims paid. This

reimbursement will need to be prior to a release from

receivership.

II.

PERMANENT INJUNCTION

Itis ORDERED that the Clerk of this Court shall issue a

Permanent Injunction against the persons and entities named

below, with the following force and effect:

TO EMPLOYERS NATIONAL

INSURANCE COMPANY, ITS

DIRECTORS AND FORMER

DIRECTORS (INCLUDING, BUT NOT

39a

Appendix C

LIMITED TO, Wirt Davis, II, William

Burres Head, III, Tyrus Raymond John,

James Price Mitchell, Stephen Blancett

Caswell Lanier Dunlap, John Clifton

Holmgreen, William Thomas Jones,

Charles Bascom Peterson, Jr., Gerald

Wayne Fronterhouse, William Henry Huff,

III, William Charles McCord and Benjamin

Johnson Pittman, Jr.); and ITS OFFICERS

AND FORMER OFFICERS (INCLUDING,

BUT NOT LIMITED TO, William Henry

Huff, III, Thomas Reddick Coffield, Jr.,

Kevin Wayne Uzzle, Harry Travis Bowen,

Jr., Michael James Klink, Kenneth Anthony

Perez, Patrick Lewis Whatley, Allen

Charles McDonald, William Henry Propes,

Joseph Hector Willems, William Howard

Haun and Randell Travis Mickan);

ATTORNEYS; ACCOUNTANTS;

MANAGERS; MANAGING GENERAL

AGENTS; REPRESENTATIVES; LOCAL

RECORDING AGENTS; EMPLOYEES:

SERVANTS; STOCKHOLDERS;

THIRD PARTY ADMINISTRATORS:

ADJUSTERS; MEMBERS; TRUSTEES;

POLICYHOLDERS; ASSOCIATES;

AGENTS (ALL OF SUCH PERSONS

HEREINAFTER CALLED “AGENTS”);

AND THOSE ACTING IN CONCERT

WITH THEM;

40a

Appendix C

YOU AND EACH OF YOU are hereby DIRECTED

AGAINST:

1) Doing, operating, and conducting any business of

DEFENDANT under any charter, permit, license, power

or privilege, belonging to, or heretofore issued by, or to

DEFENDANT, or exercising any direction, control or

influence over said business of DEFENDANT:

2) Wasting, disposing of, using, transferring, selling,

assigning, canceling, hypothecating, withdrawing, or

allowing to be withdrawn or concealing, in any manner,

or in any way, any property of DEFENDANT, also

including, but not limited to, that property which has been

acquired, purchased or paid for by DEFENDANT,

whether such property is real, personal, or mixed, of any

kind, or nature, wheresoever located, all of which

property is hereby placed in custodia legis. Such property

shall also include any claims or causes of action

belonging to, owned by, in the possession of, or claimed

by DEFENDANT which DEFENDANT might have

against any person, firm, association, or corporation, all

of which property is hereby placed in custodia legis;

3) Disposing of any account, debt, deposit, share account,

trust account, or any other property you may own, owe

to, or hold for the benefit of DEFENDANT, or any

account held individually, jointly, or severally for

DEFENDANT, whether such account, debt, deposit,

share account, trust account, or any other asset is owned,

or held for DEFENDANT in the name of, or for the

benefit of DEFENDANT, or under any other name, all

of which property is hereby placed in custodia legis;

4la

Appendix C

Removing from the jurisdiction of this Court, or from

the place of business of DEFENDANT, any office

equipment, furniture or fixtures, books, records, or any

other property of any kind or nature whatsoever, real and

personal, belonging to, claimed, or owned by

DEFENDANT, all of which property is hereby placed in

custodia legis;

Doing anything, directly or indirectly, to prevent the

Permanent Receiver or his designees from gaining access

to, acquiring, examining or investigating any books,

documents, records or other materials concerning

DEFENDANT or its affairs and property under whatever

name they may be found. Such documentary material

shall include, but not be limited to, records and property

held by banks, savings and loan associations, trust

companies, credit unions or any other entity or depository

institution; and

Interfering, in any way, with these proceedings or the

lawful acts of the Permanent Receiver or his designees,

and from commencing, or prosecuting any action or

appeal or arbitration, including administrative

proceedings or obtaining any preference, judgment,

attachment, garnishment, or other lien, or from the

making of any levy against DEFENDANT, or against its

property, or any part thereof, except by doing so in the

receivership proceedings herein, and from asserting any

claims against DEFENDANT or against the Permanent

Receiver thereof, except through these receivership

proceedings.

42a

Appendix C

YOU AND EACH OF YOU are further specifically

ORDERED to make available and disclose to the Permanent

Receiver or his designees the nature, amount, and location

of any and all of the property of DEFENDANT, including,

but not limited to, any of the property listed in subparagraphs

3 through 6 above, and to immediately surrender all such

property to the Permanent Receiver or his designees.

TO ANY AND ALL BANKS,

(INCLUDING, BUT NOT LIMITED TO,

NationsBank of Texas; Texas Commerce

Bank; Frost National Bank; BancCentral;

American Bank; Security Pacific National

Bank, Pasadena, California; Bank of

America, Concord, California; Bank One:

Liberty National Bank & Trust, Oklahoma

City, Oklahoma; Overton Park National

Bank; TEAM Bank; First State Bank:

First City Bank; and Bank of America,

Los Angeles, California); ALL OTHER

BANKS, SAVINGS AND LOAN

ASSOCIATIONS; TRUST COMPANIES.

CREDIT UNIONS, WELFARE TRUSTS

OR ANY OTHER’ FINANCIAL

INSTITUTIONS;

YOU AND EACH OF YOU are hereby DIRECTED

AGAINST:

1) Disposing of, using, releasing, transferring, selling,

withdrawing, allowing to be withdrawn, assigning,

canceling, hypothecating, or concealing, in any manner,

43a

Appendix C

Or in any way, any property of DEFENDANT, including,

but not limited to, any books, records, equipment, money,

accounts receivable, stocks, bonds, assets, policies of

insurance, notes, and funds of DEFENDANT, whether

such property is real, personal, or mixed, of any kind, or

nature, wheresoever located, all of which property is

hereby placed in custodia legis;

Disposing of any account, debt, deposit, share account,

trust account, or any other property you may own, owe

to, or hold for the benefit of DEFENDANT, or any

account held individually, jointly, or severally for

DEFENDANT, whether such account, debt, deposit,

share account, trust account, or any other asset is owned,

or held for DEFENDANT, in the name of, or for the

benefit of DEFENDANT, or under any other name, all

of which property is placed in custodia legis;

Doing anything, directly or indirectly, to prevent the

Permanent Receiver or his designees from gaining access

to, acquiring, examining or investigating any books,

documents, records or other material concerning

DEFENDANT, or its affairs and property under whatever

name they may be found. Such documentary material

shall include, but is not limited to, records and property

held by banks, savings and loan associations, trust

companies, credit unions or any other entity or depository

institution, as well as any bank accounts, or any other

assets into which have been transferred, deposited, and

or placed funds, or other assets belonging to or payable

to DEFENDANT, or to which DEFENDANT may have

claim or title regardless of whatever name such accounts,

44a

Appendix C

debts, deposits, share accounts, safe deposit boxes, trust

accounts, or other assets are held;

Interfering, in any way, with these proceedings or the

lawful acts of the Permanent Receiver or his designees,

and from commencing, or prosecuting any action or

appeal or arbitration, including administrative

proceedings or obtaining any preference, judgment,

attachment, garnishment, or other lien, or from the

making of any levy against DEFENDANT, or against its

property, or any part thereof, except by doing so in the

receivership proceedings herein, and from asserting any

claims against DEFENDANT or against the Permanent

Receiver thereof, except in the receivership proceedings

herein; and

Transacting any business of the DEFENDANT in any

manner whatsoever except pursuant to the specific

instructions of the Permanent Receiver or his designees;

provided, however, that, pursuant to TEX. INS. CODE

ANN. art. 21.28. §3(A) (Vernon Supp. 1993), all drafts

or checks written or issued on bank account number

139-000-1594 with NationsBank of Texas - Dallas, N.A.

shall be processed and paid as usual, and this one bank

account shall not be frozen as a result of this Injunction

Order.

YOU AND EACH OF YOU are further specifically

DIRECTED to make available and disclose to the Permanent

Receiver or his designees the nature, amount, and location

of any and all of the property of DEFENDANT, all

information relating to the property and the account(s) of

45a

Appendix C

DEFENDANT including, but not limited to, any of the

property listed in subparagraphs 1 and 2 above, and to

immediately surrender all such property to the Permanent

Receiver or his designees. The Court further specifically

finds and orders that the Permanent Receiver is vested by

operation of law with title to the rights of DEFENDANT as

the customer of any financial or depository institution.

TO ANY AND ALL OTHER PERSONS,

ASSOCIATIONS, CORPORATIONS, OR

ANY OTHER LEGAL ENTITIES

INCLUDING, BUT NOT LIMITED TO,

CLAIMANTS, ATTORNEYS AND THE

U.S. POSTMASTER;

YOU AND EACH OF YOU are hereby DIRECTED

AGAINST:

1) Disposing of, using, releasing, transferring, selling,

withdrawing, allowing to be withdrawn, assigning,

canceling, hypothecating, or concealing, in any manner,

or in any way, any property of DEFENDANT, including,

but not limited to, any books, records, equipment, money,

accounts receivable, stocks, bonds, assets, policies of

insurance, notes, and funds of DEFENDANT, whether

such property is real, personal, or mixed, of any kind, or

nature, wheresoever located, all of which property is

hereby placed in custodia legis;

. 2) Disposing of any account, debt, deposit, share account,

trust account, or any other property you may own, owe

to, or hold for the benefit of DEFENDANT, or any

46a

Appendix C

account held individually, jointly, or severally for

DEFENDANT whether such account, debt, deposit, share

account, trust account, or any other asset is owned, or

held for DEFENDANT, in the name of, or for the benefit

of DEFENDANT or under any other name, all of which

property is placed in custodia legis;

Doing anything, directly or indirectly, to prevent the

Permanent Receiver or his designees from gaining access

to, acquiring, examining or investigating any books,

documents, records or other material concerning

DEFENDANT or its affairs and property under whatever

name they may be found. Such documentary material

shall include, but is not limited to, records and property

held by banks, savings and loan associations, trust

companies, credit unions, depository institutions,

attorneys or any other entity, as well as any bank accounts

or any other assets into which have been transfered,

deposited, and or placed funds, or other assets belonging

to or payable to DEFENDANT, or to which may have

claim or title regardless of under whose name such

accounts, debts, deposits, share accounts, safe deposit

boxes, trust accounts, or other assets are held;

Interfering, in any way, with these proceedings or the

lawful acts of the Permanent Receiver or his designees,

and from commencing, or prosecuting any action or

appeal or arbitration, including administrative

proceedings, or obtaining any preference, judgment,

attachment, garnishment, or other lien, or from the

making of any levy against DEFENDANT, or against its

property, or any part thereof, except by doing so in the

47a

Appendix C

receivership proceedings herein, and from asserting any

claims against DEFENDANT, the Permanent Receiver

thereof, or against or through DEFENDANT'S

policyholders, except in the receivership proceedings

herein; and

5) Transacting any business of the DEFENDANT in any

manner whatsoever.

YOU AND EACH OF YOU are further specifically

DIRECTED to make available and disclose to the Permanent

Receiver or his designees the nature, amount, and location

of any and all of the property of DEFENDANT, including,

but not limited to, any of the property listed in subparagraphs

| and 2 above, and to immediately surrender all such property

to the Permanent Receiver or his designees.

IT.

APPOINTMENT OF PERMANENT RECEIVER

IT IS FURTHER ORDERED, ADJUDGED, and

DECREED that the Commissioner of Insurance of the State

of Texas, P. O. Box 2800, Austin, Texas 78768-2800, be,

and he is hereby, appointed as Permanent Receiver of

EMPLOYERS NATIONAL INSURANCE COMPANY, and

granted the following duties and powers:

1) The Permanent Receiver is authorized and directed

to take possession of all property and assets of the

DEFENDANT as previously described herein, of

whatsoever nature and wheresoever located, of any

Statutory or special deposits made by or for the

48a

Appendix C

DEFENDANT with any officer or agency of any state or

the federal government, banks, savings and loan

associations, and other depositories, any and all bank

deposits, collateral or the contents of any safe deposit

boxes in the name of or belonging to the DEFENDANT,

and to take charge of all books and records in the

possession of or belonging to the DEFENDANT,

including those related to the subsidiaries;

The Permanent Receiver is hereby granted and given all

equitable powers and authority under any and all statutes

and under the common law of this State authorizing the

appointment of a Receiver, and particularly all of the

powers and authority granted in TEX. INS. CODE ANN.

art. 21.28 (Vernon Supp. 1993) and TEX. CIV. PRAC.

& REM. CODE art. 64.001 et seg., (Vernon Supp. 1993)

and as representative of the DEFENDANT, the

policyholders, claimants and creditors, to preserve,

protect, and recover any assets or property of the

DEFENDANT, including claims or causes of action

belonging to or that may be asserted by the

DEFENDANT;

The Permanent Receiver is further authorized and

directed to file, prosecute and defend or settle any suit

or suits heretofore filed or which may hereafter be filed

by or against the DEFENDANT deemed by the

Permanent Receiver to be necessary to protect any of the

interests of the DEFENDANT or any property affected

thereby, and to preserve all property and assets of the

DEFENDANT;

49a

Appendix C

As provided by TEX. INS. CODE ANN. art. 21.28

(Vernon Supp. 1993), the Permanent Receiver is

empowered to conduct the business of the DEFENDANT,

to administer the business and operations of the

DEFENDANT and to employ and pay or compensate any

legal counsel, any accountants, clerks, and such

assistants, as he deems necessary, and to authorize the

payment of and to pay the administrative expenses of

the receivership estate out of the funds or assets of the

DEFENDANT in the possession of the Permanent

Receiver or coming into his possession. The Permanent

Receiver is additionally empowered to open any and

all mail addressed to the DEFENDANT, intended for

the DEFENDANT, or arriving at the address of the

DEFENDANT or DEFENDANT'S Agents;

It is ORDERED that the Permanent Receiver appointed

herein, shall be authorized to supervise, suspend, exclude

or terminate any or all of the employees, officers and/or

directors of the DEFENDANT, or any one of them, and

to employ such necessary employees, and to pay their

salaries and related reasonable and necessary fees out of

the funds or assets of the DEFENDANT in the possession

of the Permanent Receiver or coming into his possession,

as he deems necessary in the enforcement of his duties;

—~+—

It is ORDERED that the Permanent Receiver appointed

herein shall be authorized to remove from the premises

of the DEFENDANT or from the premises of any

AGENT, CONTRACTOR, MANAGING AGENT OR

MANAGING GENERAL AGENTS, all books and/or

records which relate to or are connected with the business

50a

Appendix C

of the DEFENDANT and which belong to or are in the

possession of the DEFENDANT, and to secure the

premises of the DEFENDANT as he deems necessary to

preserve and protect the assets, books and/or records of

the DEFENDANT; and

7) As provided by TEX. INS. CODE ANN. art. 21.28, §3(A)

(Vernon Supp. 1993), the Permanent Receiver is

empowered to immediately continue the processing and

issuance of checks or drafts on bank accounts of the

DEFENDANT to cover those obligations described in

said statutory provisions.

The Court does not require that the Commissioner of

Insurance file a bond as permitted by TEX. INS. CODE

ANN. art. 21.28, §2(d) (Vernon Supp. 1993). Upon the filing

of an oath that he will faithfully perform the duties of

Receiver in this cause, the Permanent Receiver will be fully

qualified and empowered to take charge of all of the assets

and other properties of the DEFENDANT in the manner

herein provided and to function as Permanent Receiver

herein.

IT IS FURTHER ORDERED that this Order directing

the Permanent Receiver to take possession of the affairs and

assets of the DEFENDANT shall continue in full force and

effect until further order of this Court. This Order shall also

continue in full force and effect if and when a successor to

the Commissioner of Insurance is appointed, and the new

Commissioner of Insurance shall automatically become the

Permanent Receiver.

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Appendix C

IT IS FURTHER ORDERED that the Commissioner of

Insurance, as Permanent Receiver, has designated Jack M.

Webb as Special Deputy Receiver to coordinate the takeover

of the assets and affairs of EMPLOYERS NATIONAL

INSURANCE COMPANY, and to coordinate the liquidation

of the assets and affairs of EMPLOYERS NATIONAL

INSURANCE COMPANY. Pursuant to TEX. INS. CODE

ANN. art. 21.28, §2(a) (Vernon Supp. 1993), Jack M. Webb

as Special Deputy Receiver has all the powers of the Receiver

under this PERMANENT INJUNCTION AND ORDER

APPOINTING PERMANENT RECEIVER upon the filing

of an oath of Special Deputy Receiver.

IT IS FURTHER ORDERED that any unexpired policies

or contracts of insurance issued by DEFENDANT are

canceled by entry of this Order.

IT IS FURTHER ORDERED that a claims filing

deadline for all claims against the DEFENDANT is set for

11:59 p.m., C.S.T., on July 31, 1995, and all claimants are

ordered to file or postmark their claims to the Special Deputy

Receiver designated in this Order no later than that date and

time.

IT IS FURTHER ORDERED that the Special Deputy

Receiver is required to send, by first class mail to all persons

reflected in the books and records of DEFENDANT as having

a claim, notice of the requirement that each claimant file a

proof of claim within the claims filing deadline.

IT IS FURTHER ORDERED that the Special Deputy

Receiver’s mailing of this notice is deemed sufficient proof

of notice.

52a

Appendix C

IT IS FURTHER ORDERED that the Special Deputy

Receiver is authorized to publish notice of his designation

as Snecial Deputy Receiver of DEFENDANT, of the claims

filing deadline, and of the right to file claims at least once in

a newspaper of general circulation in all States where

DEFENDANT was licensed in order to notice unknown

claimants whose names are not reflected in the books and

records of DEFENDANT.

IT IS FURTHER ORDERED that this publication is

deemed sufficient notice, of the claims filing deadline and

the necessity of filing a proof of claim, to all unknown

claimants, whose names and addresses are not reflected in

the books and records of DEFENDANT.

IV.

OTHER ORDERS

IT IS * JRTHER ORDERED that anyone over the age

of 18 who is not a party to nor interested in the outcome of

this suit may serve all citations and notices in this cause.

No bond being required by the State of Texas, this

Permanent Injunction shall issue and become effective

immediately after the filing of the oath, and the

Commissioner of Insurance, as Permanent Receiver, shall

carry out his duties in accordance with the terms of this Order.

IT IS FURTHER ORDERED that the State of Texas and

the Attorney General of Texas recover all reasonable

attorneys’ fees and Court costs, as class 3 claim under TEX.

INS. CODE ANN. art. 21.28, §8, pursuant to TEX. CIV.

53a

Appendix C

PRAC. & REM. CODE ANN. §66.003 and TEX. GOV’T.

CODE §402.006; such fees and costs being in the amount of

five hundred and no/100 dollars.

IT Is FURTHER ORDERED that the Court grants the

Texas Property and Casualty Insurance Guaranty Association

access to all books, documents, records or other materials

necessary for the processing and payment of claims for which

they are statutorily responsible.

IT IS FURTHER ORDERED that the Permanent

Receiver is authorized to negotiate and enter into one or more

contracts to sell the charter and any related rights of

DEFENDANT, on terms acceptable to him in his sound

discretion, and to consummate such sale(s) upon and subject

to the approval of this Court pursuant to hearing in this

receivership case and of the Texas Department of Insurance,

with this Court further retaining jurisdiction to determine

all rights, titles, liens, and interests in such charter(s) and

related rights and likewise in any proceeds of sale(s).

All of the foregoing is subject to further orders of this

Court.

SIGNED, at Austin, Travis County, Texas on this the

11th day of February, 1994, at 1:35 o’clock p.m.

s/ Margaret A. Cooper

DISTRICT JUDGE PRESIDING

S4a

APPENDIX D — RELEVANT STATE STATUTE

Tex. Ins. Cope art 21.28

Art. 21.28. Liquidation, Rehabilitation, Reorganization

or Conservation of Insurers

Definitions

Sec. 1. For the purposes of this Article:

(a) “Insurer” means and includes capital stock

companies, reciprocal or interinsurance exchanges, Lloyd’s

associations, fraternal benefit societies, mutual and mutual

assessment companies of all kinds and types, state-

wide assessment associations, local mutual aids, burial

associations, county and farm mutual associations, fidelity,

guaranty and surety companies, trust companies organized

under the provisions of Chapter 7 of Texas Insurance Code

of 1951, and all other organizations, corporations, or persons

transacting an insurance business, unless such insurers are

by statute specifically, by naming this Article, exempted from

the operation of this Article.

(b) “Delinquency proceeding” means any proceeding

commenced in any court of this State against an insurer for

the purpose of liquidating, rehabilitating, reorganizing or

conserving such insurer.

whether specifically mortgaged, pledged, deposited, or

otherwise encumbered for the security or benefit of specified

persons, or a limited class or classes of persons. The word

“assets,” as used in this Article, includes all deposits and

funds of a special or trust nature.

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Appendix D

(d) “Liquidator” means “receiver.” The term includes

the commissioner of insurance or the person designated by

the commissioner of insurance to act as special deputy

receiver.

(e) “Board” means the State Board of Insurance of the

State of Texas, or the Commissioner of Insurance as

applicable under Article 1.02 of this code.

(f) “Court,” unless the same clearly appears to the

contrary from the text of this article, means the court in which

the delinquency proceeding is pending.

(g) “Person” means an individual, association,

corporation, partnership, or other private legal entity.

General procedures

Sec. 2. (a) Receiver Taking Charge; Commissioner and

Powers and Duties. Whenever under the law of this State a

court of competent jurisdiction finds that a receiver should

take charge of the assets of an insurer domiciled in this State,

the commissioner of insurance or a person designated by

the commissioner under contract shall act as receiver. The

receiver shall forthwith take possession of the assets of such

insurer and deal with the same in the person’s own name as

receiver or in the name of the insurer as the court may direct.

The receiver has the powers specified in this code. A person

designated by the commissioner to act as special deputy

receiver under contract is subject to the performance

standards imposed by this subsection. It is the intent of the

legislature that oversight of the special deputy receivers

56a

Appendix D

and guaranty associations shall be conducted by the

commissioner. The commissioner shall use a competitive

bidding process in the selection of special deputy receivers

and shall establish specifications for the position of special

deputy receiver. The special deputy receiver shall submit

monthly written reports to the court and commissioner

that state the special deputy receiver’s business plan for

receivership, including expenses incurred in administering

the receivership during the preceding month and an estimate

of those expenses for the succeeding month. The report must

include a cost-benefit analysis on the expenditure of funds

other than funds spent for the payment of claims. The

business plan report must include a budget of monthly

expenses that explains any variation from the original

projection. The business plan report must include a list of

any lawyers or law firms that offered to or did represent the

special deputy receiver in relation to its duties under this

article, and any hours billed or fees paid to a lawyer or law

firm that represented the special deputy receiver. The special

deputy receiver shall submit the business plan report to the

attorney general on a quarterly basis, and the attorney general

may make recommendations to the commissioner based on

the report. In addition to the business plan report, the special

deputy receiver shall submit a monthly report to the

commissioner relating to the special deputy receiver’s

activities in administering the receivership. Upon written

application by the special deputy receiver and with approval

of the commissioner, the court may suspend the requirement

for monthly reports or require reports less frequently based

upon a showing that the costs of such reports exceed the

benefit derived from their filing.

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Appendix D

(b) Title in Receiver. The property and assets of such

insurer shall be in the custody of the court as of the date of

the commencement of such delinquency proceedings. The

said receiver and his successors in office shall be vested by

operation of law with the title to all of the property, contracts,

and rights of action of such insurer, wherever located, as of

the date of entry of the order directing possession to be taken.

Such title of the receiver shall relate back to the date of the

commencement of the delinquency proceedings unless the

court shall otherwise provide. A contractual lien or statutory

landlord’s lien under Chapter 54, Property Code, that arises

after the date of the commencement of the delinquency

proceedings is secondary and inferior to the rights of the

receiver and his successors in office. The filing or recording

of such an order in any record office of the State shall impart

the same notice as would be imparted by a deed, bill of sale,

or other evidence of title duly filed or recorded by such

insurer.

insurer and of its creditors, policyholders, members, officers,

directors, stockholders, agents, and all other persons

interested in its estate, shall, unless otherwise directed by

the court, be fixed as of the date of the commencement of

the delinquency proceedings, subject, however, to the

provisions of Section 3 with respect to the rights of claimants

holding unliquidated or undetermined claims or demands and

as otherwise expressly provided in this Article.

(d) Bonds. The receiver shall be responsible for all

assets coming into his possession. The court may require a

bond, or bonds, from the said receiver, and, if deemed

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Appendix D

desirable for the protection of the assets, may require a bond,

or bonds, of any special deputy receiver, or other assistant

or employee appointed by or under the authority of this

Article.

(e) Conducting of Business. Upon taking possession

of the assets of a delinquent insurer the receiver shall, subject

to the direction of the court, immediately proceed to conduct

the business of the insurer, or to take such steps as may be

necessary to conserve the assets and protect the rights of

policyholders and claimants for the purpose of liquidating,

rehabilitating, reinsuring, reorganizing or conserving the

affairs of the insurer. Notwithstanding the foregoing

requirements or the terms of any insurance contract issued

by a delinquent insurer, the receiver is not required to defend

any action against an insured of a delinquent insurer.

(f) Inventory. An inventory in duplicate of the insurer’s

assets shall be prepared forthwith by the receiver, one of

which shall be filed in the office of the Board and one in the

office of the clerk of the court having jurisdiction, which

inventories shall be open to inspection.

(g) Disposal of Property; Settling Claims. The receiver

may, subject to the approval of the court, (1) sell or otherwise

dispose of the real and personal property, or any part thereof,

of an insurer against whom a proceeding has been brought

under this Article, and (2) sell or compound all doubtful or

uncollectible debts, or claims owed by or owing to such

insurer, including claims based upon an assessment levied

against a member of a mutual insurer, reciprocal exchange,

or an underwriter at Lloyds. Whenever the amount of any

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Appendix D

such debt or claim owed by or owing to such insurer or the

value of any item of property of the insurer does not exceed

Ten Thousand Dollars ($10,000), exclusive of interest, the

receiver may compromise or compound such debt or claim

or sell such property upon such terms as the receiver may

deem for the best interests of said insurer without obtaining

the approval of the court. The receiver may, subject to the

approval of the court, sell or agree to sell, or offer to sell,

any assets of such an insurer to such of its creditors who

may desire to participate in the purchase thereof, to be paid

for, in all or in part, out of dividends payable to such

creditors, and, upon the application of the receiver, the court

may designate representatives to act for such creditors in

the purchase, holding and/or management of such assets, and

the receiver may, subject to the approval of the court, advance

the expenses of such representatives against the security of

the claims of such creditors. The receiver may, subject to

the approval of the court and the commissioner, as required

by this code, sell or otherwise dispose of the charter or license

of the insurer separate and apart from its outstanding

liabilities.

(h) Depositories. Except as provided by this subsection,

all money collected by the receiver shall be forthwith

deposited into the Texas Treasury Safekeeping Trust

Company in accordance with procedures established by the

comptroller. The receiver may deposit the money in any bank,

banks, or savings and loan association or associations in this

State insured by a federal agency that provides for deposit

insurance if the receiver, in the exercise of sound financial

judgment, determines that it would be advantageous to do

so. The funds collected or realized from the assets of each

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insurer for which the receiver has been appointed shall be

accounted for by the receiver separately from all other funds.

Whenever any account in a bank or savings and loan

association exceeds the maximum amount insured by the

appropriate federal agency, the receiver is hereby authorized

and directed to make such contracts and require such security

as it may deem proper for the safeguarding of such deposit

without approval of the court.

(i) Venue. Exclusive venue of delinquency proceedings

shall be in Travis County, Texas.

(j) Immunity. There is no liability on the part of, and a

cause of action does not arise against, the receiver, a special

deputy receiver, the commissioner, or an agent or employee

of the receiver, a special deputy receiver, or the commissioner

for a good faith action or failure to act in the performance of

powers and duties under this article.

(k) Representation by Attorney General. The attorney

general shall defend an action to which Subsection (j) of

this section applies that is brought against the receiver, a

special deputy receiver, the commissioner, or an agent or

employee of the receiver, a special deputy receiver, or the

commissioner. This subsection continues to apply to an

action that is brought after the defendant’s service with the

receiver, a special deputy receiver, the commissioner, or the

department has terminated or after the close of the

receivership out of which the action arises. This subsection

does not require the attorney general to defend any person

with respect to an issue other than the applicability or effect

of the judicial immunity codified by Subsection (j) of this

section.

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Appendix D

(1) Actions by Receiver. When performing the duties

of receiver under this Article, the commissioner, a special

deputy receiver, or an agent or employee of the

commissioner, or a special deputy receiver shall be

considered to be acting on behalf of the receivership estate,

and the provisions of Chapter 105, Civil Practice and

Remedies Code, shall not apply to any actions taken pursuant

to this Article.

Claims

Sec. 3. (a) Time for Filing. Where a liquidation,

rehabilitation, or conservation order has been entered in a

proceeding against an insurer under this Article, all persons

who may have claims against such insurer as set out in

Subsection (a) of Section 8 of this Article, including

claimants with secured claims and claims based on trust or

escrow funds, shall present proof of the same to the receiver

at a place specified by him within a period of time to be

specified by the court, in no event, however, less than ninety

(90) days after the date of the entry of the order specifying

such time. The receiver shall notify all persons who may

have claims against such insurer as disclosed by its books

and records, to present proof of the same to him within the

time as fixed. The last day for the filing of proofs of claim

shall be specified in the notice. Such notice shall be given in

a manner determined by the court. Receipt of the required

proof of claim by the receiver is a condition precedent to the

payment of any claim, and except as provided by Subsection

(b) of this section, claims that are not filed within the time

specified by the court shall not participate in any distribution

of the assets by the receiver.

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(b) Late Filing. Subject to court approval, the receiver

may accept claims filed after the date specified by the court

if the claims are filed with the receiver not later than the

ninetieth (90th) day after the date notice of the claimant’s

right to file a proof of claim is mailed to the claimant.

of a written statement signed by the claimant that includes

the following:

(A) the claim;

(B) the consideration for the claim; and whether any,

and if so, what securities are held for the consideration for

that claim;

other specific rights asserted by the claimant;

(D) whether any payments have been made on the claim,

and if so, what payments have been made on the claim and

from what sources;

(E) a statement that the sum claimed is justly owed by

the insurer to the claimant; and

(F) any other matters that are required by the court in

which the receivership is pending.

(2) A proof of claim shall be in a form designated by

the receiver, except that the receiver may accept a proof of

claim on a form:

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Appendix D

(A) used for proof of claim by the insurer before the

receivership; or

(B) prepared or accepted by a receiver or a guaranty

fund in another state, if the receiver in this state is an ancillary

receiver.

(3) A proof of claim shall be filed under oath, unless

the oath is waived by the receiver.

(4) Ifaclaim is founded upon an instrument in writing,

such instrument, unless lost or destroyed, shall be filed with

the proof of claim. After the instrument is filed, the receiver

may in his discretion permit the claimant to substitute a true

copy of the instrument, until the final disposition of the claim.

If the instrument is lost or destroyed, a statement of that fact

and of the circumstances of the loss or destruction shall be

filed under oath with the claim.

(5) The receiver may accept a single proof of claim from

each properly authorized insurance guaranty association

combining all claims and related administrative expenses

assigned to that association. A proof of claim submitted by

a guaranty association must set forth any other information

the receiver may require.

(d) Unliquidated or Undetermined Claims or

Demands. Claims based on unliquidated or undetermined

demands must be filed within the time limit provided in this

Article for the filing of claims, but claims based on those

demands shall not share in any distribution to claimants until

those claims are definitely liquidated, determined, and

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allowed. Thereafter, the claims shall share ratably with the

claims of the same class in all subsequent distributions. An

unliquidated or undetermined claim or demand under this

Article is any claim or demand on which a right of action

has accrued at the date of the commencement of the

delinquency proceedings, or the insurance policy cancellation

date if applicable, and on which the liability has not been

determined or the amount of the claim or demand liquidated.

If the receiver in all other respects is in a position to close

the receivership proceedings, the proposed closing is

sufficient grounds for the rejection of any remaining

unliquidated or undetermined claim or demand. The receiver

shall notify those claimants of his intention to close the

proceedings and shall allow a 60-day period for liquidation

and determination of those claims. If the remaining claims

are not liquidated or determined within the 60-day period,

the receiver may reject the claims and the provisions of

Subsection (h) of this section apply.

(e) Third Party Claims. Where a liquidation,

rehabilitation or conservation order has been entered in a

proceeding against an insurer under this Article, any person

who has a cause of action against an insured of such insurer

under a liability insurance policy issued by such insurer, shall

have the right to file a claim with the receiver, regardless of

the fact that such claim may be unliquidated or undetermined,

and such claim may be approved (1) if it may be reasonably

inferred from the proof presented upon such claim that such

person would be able to obtain a judgment upon such cause

of action against such insured; and (2) if such persons shall

furnish suitable proof that no further valid claims against _

such insurer arising out of his cause of action other than

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Appendix D

those already presented can be made; and (3) if the total

liability of such insurer to all claimants arising out of the

same act of its insured shall be no greater than its total

liability would be were it not in liquidation, rehabilitation

or conservation. A judgment entered against an insured or

insurer before the date on which the delinquency proceedings

commenced may not be accorded higher than a Class 3

priority under Subsection (a) of Section 8 of this Article

unless the judgment creditor proves to the receiver’s

satisfaction the allegations supporting the judgment. No

judgment against an insured taken after the date of the

commencement of the delinquency proceedings shall be

considered in the proceedings as evidence of liability, or of

the amount of damages, and no judgment against an insured

taken by default or by collusion prior to the commencement

of the delinquency proceedings shall be considered as

conclusive evidence in the proceeding, either of the liability

of such insured to such person upon such cause of action, or

of the amount of damages to which such person is therein

entitled.

(f) Offsets. In all cases of mutual debts or mutual

credits, whether arising out of one or more contracts between

the insurer and another person in connection with any claim

or proceeding under this Article, such credits and debts shall

be set off and the balance only shall be allowed or paid,

except as provided in subsection (g).

(g) No Offsets. No offsets shall be allowed in favor of

any person where (1) the obligation of the insurer to such

person would not at the date of the commencement of the

delinquency proceedings or as otherwise provided in Section

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Appendix D

2(c), entitle him to share as a claimant in the assets of such

insurer, or (2) the obligation of the insurer to such person

was purchased by or transferred to such person subsequent

to the commencement of the delinquency proceedings or for

the purpose of increasing offset rights, or (3) the obligation

of such person is to pay an assessment levied against the

members of a mutual insurer, or reciprocal exchange,

or underwriters at Lloyds, or to pay a balance upon a

subscription to the capital stock of a stock insurance

corporation, or (4) the obligation of such person is as a trustee

or fiduciary, or (5) the obligations between the person and

the insurer arise from reinsurance transactions in which either

the person or the insurer has assumed risks and obligations

from the other party and then has ceded back to that party

substantially the same risks and obligations. The receiver

shall provide persons with accounting statements identifying

all debts that are due and payable. If a person owes the insurer

amounts that are due and payable, against which the person

asserts offset of mutual credits that may become due and

payable from the insurer in the future, the person shall

promptly pay to the receiver the amounts due and payable.

Notwithstanding Section 8, or any other provision of this

Article, the receiver shall promptly and fully refund, to the

extent of the person’s prior payments, any mutual credits

that become due and payable to the person by the insurer.

(h) Action on Claims. The receiver shall have the

discretion to approve or reject any claim filed against the

insurer. Objections to any claim not rejected may be made

by any party interested, by filing the objections with the

receiver, who shall forthwith present them to the court for

determination after notice and hearing. Upon the rejection

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of each claim either in whole or in part, the receiver shall

notify the claimant of such rejection by written notice. Action

upon a claim so rejected must be brought in the court in

which the delinquency proceeding is pending within three

(3) months after service of notice; otherwise, the action of

the receiver shall be final and not subject to review. Such

action shall be de novo as if originally filed in said court

and subject to the rules of procedure and appeal applicable

to civil cases. This action shall be a separate action from the

delinquency proceeding, and a claimant’s attempt to appeal

the action of the receiver by way of intervening in

the delinquency proceeding does not comply with this

subsection.

(1) Notwithstanding any other provision of this article,

if a claim is covered by a guaranty fund created under Article

9.48, 21.28-C, or 21.28-D of this code, the receiver shall

refer the claim to the appropriate guaranty association for

processing.

Workers’ compensation carrier: notification of

Texas Workers’ Compensation Commission

Sec. 3A. (a) The liquidator shall notify the Texas

Workers’ Compensation Commission immediately upon a

finding of insolvency or impairment upon any insurance

company which has in force any workers’ compensation

coverage in Texas.

(b) The Texas Workers’ Compensation Commission

shall, upon said notice, submit to the liquidator a list of active

cases pending before the Texas Workers’ Compensation

Commission in which there has been an acceptance of

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Appendix D

liability by the carrier, where it appears that no bona fide

dispute exists and where payments were commenced prior

to the finding of insolvency or impairment and where future

Or past indemnity or medical payments are due.

Article, the liquidator is authorized to commence or continue

the payment of claims based upon the list submitted in

Subsection (b) above.

(d) In order to avoid undue delay in the payment of

covered workers’ compensation claims, the liquidator shall

contract with the Texas Workers’ Compensation Pool or any

other qualified organization for claims adjusting. Files and

information delivered by the Texas Workers’ Compensation

Commission to the liquidator may be delivered to the Texas

Workers’ Compensation Pool or any organization with which

the liquidator has contracted for claims adjusting services.

(e) The Texas Workers’ Compensation Commission

shall report to the State Board of Insurance any occasion

when a workers’ compensation insurer has committed acts

that may indicate insurer financial impairment, delinquency

or insolvency.

Actions

Sec. 4. (a) Injunctions. Upon an application by the

receiver, the receivership court may, with or without notice,

issue an injunction restraining the insurer named in the order,

its officers, directors, stockholders, members, trustees,

agents, servants, employees, policyholders, attorneys,

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Appendix D

managers, attorneys-in-fact, associate, deputy, substitute

attorneys-in-fact, and all other persons from the transaction

of its business or the waste or disposition of its property, or

requiring the delivery of its property and/or assets to the

receiver subject to the further order of the court.

(b) Other Orders. Such court may at any time during a

proceeding under this Article issue such other injunctions

or orders as may be deemed necessary to prevent interference

with the receiver or the proceeding, or waste of the assets of

the insurer, or the commencement or prosecution of any

actions, or the obtaining of preferences, judgments,

attachments, garnishments, or other liens, or the making of

any levy against the insurer or against its assets or any part

thereof.

preference against the insurer or its receiver obtained, after

the date of receivership, in derogation of the terms of any

such injunction or order of the receivership court may be

denied by the receiver until proof of the justness of such

claim, judgment, lien, preference or demand is made before

and approved by the receivership court.

(d) Subpoenas. In addition to the authority granted by

law to the receiver relating to the taking of depositions of

witnesses in civil actions, the receiver may request the court

€x parte to issue a subpoena to compel the attendance and

testimony of witnesses before the receiver and the production

of any books, accounts, records, papers, and correspondence

or other records relating to any matter that pertains to a

receivership estate, and for this purpose the receiver or his

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Appendix D

designated representative may administer oaths and

affirmations, examine witnesses, and receive evidence. In

this connection the court has statewide subpoena power and

may compel attendance and production of records before the

receiver at his offices in Austin, Texas. Any person served

with a subpoena under this subsection may file a motion with

the court for a protective order as provided by Rule 166b of

the Texas Rules of Civil Procedure. In a case of disobedience

of a subpoena, or of the contumacy of a witness appearing

before the receiver or his designated representative, the

receiver may invoke the aid of the court, and the court may

issue an order requiring the person subpoenaed to obey the

subpoena or give evidence or produce books, accounts,

records, papers, and correspondence or other records

respecting the matter in question. Any failure to obey such

an order of the court may be punished as contempt by the

court.

Each witness who is not a party and who is required to

attend before the receiver is entitled to receive:

(1) reimbursement for travel in the same amount per

mile as the mileage travel allowance for state employees for

going to and returning from the place where his presence is

required, if the place is more than 25 miles from the witness’s

place of residence; and

(2) a fee of not less than Ten Dollars ($10) a day for

each day or part of a day the witness is necessarily present

as a witness, but in lieu of such Ten Dollar ($10) fee, a

witness will receive a fee equal to the per diem travel

allowance of a state employee if the amount exceeds Ten

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Appendix D

Dollars ($10). All disbursements made in the payment of

these fees shall be included and paid in the same manner as

provided for the payment of other expenses in Section 12 of

this Article.

The sheriff's or constable’s fee for serving the subpoena

shall be the same as those paid the sheriff or constable for

similar services. Any subpoena issued under this subsection

may be served, at the receiver’s discretion, by the receiver,

his authorized agent, a sheriff, or a constable.

On certification by the receiver or the State Board of

Insurance under official seal, any books, accounts, records,

papers, correspondence, and other records and documents

produced or testimony taken pursuant to this Article and held

by the receiver are admissible in evidence in all cases without

prior proof of their correctness and without other proof except

the certificate of the receiver or the State Board of Insurance

that the books, accounts, records, papers, correspondence,

documents, and testimony were received from the person

producing the material or testifying. The certified books,

accounts, records, papers, correspondence, and other records

and documents or certified copies of them are prima facie

evidence of the facts they disclose. This section may not be

construed to limit any other provision of this Article or any

law that provides for the admission of evidence or for its

evidentiary value.

(e) Records with Third Parties. All officers, directors,

stockholders, members, trustees, managing general agents,

agents, administrators, claims adjusters, managers, attorneys-

in-fact, or associate, deputy, or substitute attorneys-in-fact

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Appendix D

of the delinquent insurer shall immediately deliver to the

possession of the receiver all properties, books, records,

accounts, documents, and other writings of the delinquent

insurer or that relate to the business of the delinquent insurer

without cost to the receiver; however, if by contract or

otherwise any of the properties, books, records, accounts,

documents, and other writings belong to or are the property

of those persons, they shall be copied, the copy delivered to

the receiver, and the original retained by the owner until

notification that it is no longer required in the administration

of the insurer’s estate or at any other time as the court, after

notice and hearing, shall direct. The copies are deemed to

be records of the delinquent insurer under Section 11 of this

Article.

(f) Pending Lawsuits. No judgment or order rendered

by any court of this State or of any other jurisdiction in any

action pending by or against the delinquent insurer after the

commencement of delinquency proceedings shall be binding

upon the receiver unless the receiver shall have been made a

party to such suit.

A receiver and his agents and employees are not liable

for and a cause of action may not be brought against any of

them for an action taken or not taken by them relating to the

adjustment, negotiation, or settlement of claims.

(g) One Year Extension. The receiver shall not be

required to plead to any suit in which he may be a proper

party plaintiff or defendant, in any of the courts in this State

until one (1) year after the date of his appointment as receiver,

and the provisions of Sections 64.033, 64.052, 64.053, and

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Appendix D

64.076, Civil Practice and Remedies Code, as amended,

shall not apply to insolvent insurance companies being

administered under this Article.

(h) New Lawsuits. The court of competent jurisdiction

of the county in which the delinquency proceedings are

pending under this Article shall have exclusive venue to hear

and determine all actions or proceedings instituted after the

commencement of delinquency proceedings by or against

the insurer or receiver.

(1) Repealed by Acts 1993, 73rd Leg., ch. 790, § 46(18),

eff. Sept. 1, 1993.

All criminal history information records obtained by the

receiver are privileged information and are for the exclusive

use of the receiver. Except on court order or with the consent

of the person being investigated, the records may not be

released to any other person or agency. The receiver may

destroy the criminal history information records after the

records are used for the purposes authorized by this

subsection. A person commits an offense if the person

releases or discloses any information received under this

subsection without the authorization provided by this

subsection. An offense under this subsection is a Class A

misdemeanor.

Voidable transfers

Sec. 5. (a) Transfers or Liens Voidable. Any transfer

or lien upon the property or assets of an insurer which is

made or created within four (4) months prior to the

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Appendix D

commencement of delinquency proceedings under this

Article, with the intent of giving to any creditor or enabling

him to obtain a greater percentage of his debt than of any

other creditor of the same class, and which is accepted by

such creditor, having reasonable cause to believe that such

preference will occur, shall be voidable.

(b) Personal Liability. Every director, officer, agent,

employee, stockholder, member, attorney-in-fact, associate,

substitute or deputy attorney-in-fact, underwriter, subscriber,

and any other person acting on behalf of such insurer, who

shall be concerned in any such prohibited act or deed, and

every person receiving thereby property of such insurer, or

the benefit thereof, shall be personally liable therefor, and

shall be bound to account to the receiver for the benefit of

the creditors of the insurer.

proceeding under this Article, may avoid any transfer of, or

lien upon the property or assets of an insurer which any

creditor, stockholder or member of such insurer mi ght have

avoided, and may recover the property so transferred or its

value from the person to whom it was transferred, unless he

was a bona fide holder for value prior to the date of the

commencement of proceedings under this Article. Such

property or its value may be recovered from anyone who

has received it, except a bona fide holder for value as above

specified.

Employees

Sec. 6. The receiver shall pay wages actually owed to

employees of an insurer against whom a temporary

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Appendix D

restraining order has been issued under this Article for

services rendered during the period covered by the temporary

restraining order as a Class | claim as provided by Section

8(a) of this Article. Payment for those services must be made

at the rate and in the same manner as if paid by the insurer.

The receiver may pay wages actually owed to employees of

an insurer against whom a temporary injunction has been

issued under this Article for services rendered after the

issuance of the temporary injunction. Payment for those

services is made at the discretion of the receiver and as an

expense of administration.

Assessments

Sec. 7. (a) Application. Within four (4) years from the

date of an order of rehabilitation, or liquidation, of a domestic

insurer, the receiver may make an application to the court to

levy an assessment against the members of a mutual insurer,

members of a reciprocal exchange, or the insureds of a Lloyds

who have been issued an insurance policy that provides that

the policy is subject to assessment. Such application shall

set forth the reasonable value of the assets of such insurer,

its probable liabilities, and the probable necessary

assessment, if any, to pay all possible claims and expenses

in full, including expenses of administration and collection.

(b) Levy. After notice to each member or insured in

the manner designated by the court, the court shall proceed

to consider such report and may levy one or more

assessments. Such assessment or assessments shall cover the

excess of the probable liabilities over the reasonable value

of the assets, together with the estimated cost of collection

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Appendix D

and percentage of uncollectibility thereof. An assessment

shall not be levied against any such member or insured with

respect to a policy that does not contain an express provision

that the policy is an assessable policy.

assessment and the expiration of the time for appeal, the

receiver shall proceed to collect such assessments, and for

the purpose of such collection may bring suit for the same in

any court of competent jurisdiction in the county in which

such delinquency proceeding is pending.

(d) Provisions Cumulative. The provisions of this

Section are cumulative of any other remedies for the levy

and collection of assessments.

Early access distribution

Sec. 7A. (a) Within 120 days of the commencement of

the insolvency proceeding against an impaired insurer, the

liquidator or a special deputy receiver appointed under this

Article may make application to the court for approval of a

proposal to disburse assets out of marshaled assets, from

time to time as such assets become available, to a guaranty

association or foreign guaranty association having Class |

or Class 2 claims against the estate of the impaired insurer

because of such insolvency. If the receiver or special deputy

receiver fails to make such application within 120 days, the

guaranty association may submit an application to the court

requesting that the receiver or special deputy receiver submit

a proposal to disburse assets. If the liquidator or special

deputy receiver determines that there are insufficient assets

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Appendix D

to disburse, the application required by this section shall be

considered satisfied by a filing by the liquidator or special

deputy receiver stating the reasons for this determination.

(b) Such proposal shall, at a minimum, include

provisions for:

(1) reserving amounts sufficient to allow the payment

of Class | claims, and to the extent the assets of the insolvent

insurer will allow any payment to be made on Class 2 claims,

reserving amounts sufficient to provide equal pro-rata

distributions to the Class 2 claimants other than the guaranty

associations;

(2) disbursement of the assets marshaled to date and

the subsequent distribution of assets as they become

available;

(3) equitable allocation of disbursements to each of the

guaranty associations and foreign guaranty associations

entitled thereto;

(4) the securing of the liquidator or special deputy

receiver from each of the associations entitled to

disbursements pursuant to this section of an agreement to

return to the liquidator upon request and approval by the

court such assets, together with income on assets previously

disbursed, as may be required to pay Class 1 claimants and

any federal claimants asserting priority claims. No bond shall

be required of any such association; and

(5) a full report to be made by each association to the

liquidator or special deputy receiver, as requested by the

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Appendix D

liquidator or special deputy receiver, but no more frequently

than quarterly, accounting for the assets so disbursed to the

association, all disbursements made therefrom, any interest

earned by the association on such assets and any other matter

as the court may direct.

deputy receiver shall provide for disbursements to the

associations in amounts estimated at least equal to the claim

payments made or to be made thereby for which such

associations could assert a claim against the liquidator, and

shall further provide that if the assets available for

disbursement from time to time do not equal or exceed the

amount of such claim payments made or to be made by the

association, then disbursements shall be made for the pro-

rata amount of the association’s Class 2 claim.

(d) The proposal submitted by the liquidator or special

deputy receiver shall, with respect to an insolvent insurer

writing life or health insurance or annuities, provide for

disbursement of assets to any guaranty association or foreign

guaranty association covering life or healih insurance or

annuities or to any other entity or organization reinsuring,

assuming, or guaranteeing policies or contracts of insurance

under the acts creating such associations.

(e) Notice of the application shall be given to the

association in and to the commissioners of insurance in each

of the states. Notice shall be considered to have been given

when deposited in the United States certified mail, first class

postage prepaid, at least 30 days prior to the submission of

the application to the court. Action of the application may

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Appendix D

be taken by the court if notice has been given and if the

liquidator’s or special deputy receiver’s proposal complies with

the requirements of this section. Notice of the application shall

be given to those Class 1 and Class 2 claimants that are

reasonably ascertainable in a manner deemed appropriate by

the court, including notice by publication.

Distribution of assets

Sec. 8. (a) Priority of Distribution of Assets. (1) In order

to provide for the orderly liquidation of a receivership estate

and to further the protection of policyholders and those making

claims under insurance policies, the following priorities are

established. The priority of distribution of assets from the

insurer’s estate shall be in accordance with the disbursement

plan approved by the court under Section 7A of this Article,

and in accordance with the order of each class as provided by

this subsection. Every claim in each class shall be paid in full

or adequate funds retained for such payment before the members

of the next class receive any payment. No subclasses shall be

established within any class.

(2) Classes of claims:

(A) Class 1:

(i) All of the receiver’s, conservator’s, and supervisor’s

costs and expenses of administration, including repayment of

funds advanced to the receiver from the abandoned property

fund of the department.

(ii) All of an insurance guaranty association’s or foreign

insurance guaranty association’s costs and expenses of

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Appendix D

administration related to a receivership estate and all of the

expenses of an insurance guaranty association or foreign

insurance guaranty association in handling claims. For the

purpose of this subparagraph, attorney’s fees incurred by an

insurance guaranty association or foreign insurance guaranty

association in the defense of an insured under a policy issued

by an impaired insurer constitute an expense incurred in

handling claims.

(iii) Secured creditors to the extent of the value of the

security as provided by Section 8(c) of this Article.

(B) Class 2:

(i) All claims by policyholders, beneficiaries, insureds,

and liability claims against insureds covered under insurance

policies and insurance contracts issued by the insurer.

(11) All claims by an insurance guaranty association or

a foreign insurance guaranty association that are payments

of proper policyholder claims.

included in Class 2, above.

(D) Class 4: All other claims of general creditors not

falling within any other priority under this section including

claims for taxes and debts due any state or local government

which are not secured claims.

(E) Class 5: Claims of surplus or contribution note

holders, holders of debentures or holders of similar

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Appendix D

obligations and proprietary claims of shareholders, members,

or other owners according to the terms of the instruments.

(3) Ifany provision of this subsection or the application

of any provision of this subsection ‘o any person or

circumstance is held invalid, that invalidity does not affect

the other provisions or applications of this subsection.

(b) Dividend Payments. On the direction and approval

of the court and pursuant to the priorities provided by this

section, the receiver may make periodic dividend payments,

including payments of policyholder claims, for the purpose

of facilitating the rehabilitation, liquidation, conservation,

or dissolution of an insurer. The receiver at all times shall

reserve sufficient assets for the payment of the expenses of

administration.

(1) The owner of a secured claim against an insurer for

which a receiver has been appointed in this or any other state

may surrender his security and file his claim as a general

creditor, or the claim may be discharged by resort to the

security, in which case the deficiency, if any, shall be treated

as a claim against the general assets of the insurer on the

same basis as claims of unsecured creditors. If the amount

of the deficiency has been adjudicated in ancillary

proceedings as provided in this chapter, or if it has been

adjudicated by a court of competent jurisdiction in a

proceeding in which the domiciliary receiver has had notice

and an opportunity to be heard, such amount shall be

conclusive; otherwise the amount shall be determined in the

delinquency proceeding in the domiciliary state.

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(2) The value of any security held by a secured creditor

shall be determined under supervision of the court by:

(A) converting the security into money according to the

terms of the agreement pursuant to which the security was

delivered to the creditor; or

(B) by agreement, arbitration, compromise, or litigation

between the creditor and the receiver.

(d) Interest. Interest shall not accrue on any claim

subsequent to the date of the commencement of delinquency

proceedings.

(e) Foreign Claimants. If any claimant of another state

or foreign country shall be entitled to or shall receive a

dividend upon his claim out of a Statutory deposit or the

proceeds of any bond or other asset located in such other

State or foreign country, then such claimants shall not be

entitled to any further dividend from the receiver until and

unless all other claimants of the same class, irrespective of

residence or place of the acts or contracts upon which their

claims are based, shall have received an equal dividend upon

their claims; and after such equalization, such claimants shall

be entitled to share in the distribution of further dividends

by the receiver, along with and like all other creditors of the

same class, wheresoever residing.

(f) Setoff by Receiver. Upon the declaration of a

dividend, the receiver shall apply the amount of such

dividend against any indebtedness owed to the insurer by

the person entitled to such dividend.

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(g) Unclaimed Funds. Unclaimed dividends on

approved claims, unclaimed returned assessments, and all

other unclaimed funds subject to distribution to claimants,

policyholders or other persons, remaining in the receiver’s

hands after payment of the final dividend shall be delivered

to the Board at the time the receivership is closed, or in the

event a final dividend is paid less than ninety (90) days prior

to the closing of the receivership, the receiver may continue

the bank account or accounts of such receivership from which

such funds might be paid, for a period of time not to exceed

ninety (90) days from the date of the closing of said

receivership, before the same are so delivered to the Board.

Such funds shall be deposited by the Board in trust in a

special account to be maintained with the comptroller.

(h) Recovery by Owner. On receipt of satisfactory

written and verified proof of ownership within two (2) years

from the date such funds are deposited with the comptroller,

the Board shall certify such facts to the Comptroller, who

shall issue proper warrant therefor in favor of the parties

respectively entitled thereto, drawn on the State Treasury.

(i) Declaration of Abandonment. After such funds have

remained unclaimed for two (2) years, the Liquidator may

initiate action to have them declared to be abandoned, and

the property of the State Board of Insurance. Such action

shall be commenced by the filing by the Liquidator, in the

court of competent jurisdiction in the county in which the

delinquency proceeding is, or was pending, of a notice of

his intention to declare such funds to be abandoned, and that

he is claiming the same as the property of the State Board of

Insurance. Such action may be for all or any part of such

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funds accumulated in any one particular receivership. Such

notice shall state the name or names of the person or persons

entitled thereto, his or their last known address, and the nature

or source and amount of the fund or funds. Upon the filing

of such notice by the Liquidator, the court shall set a date

for the hearing of the application, and shall make notation

thereon of the date of such hearing, which date shall be at

least twenty (20) days subsequent to the date of the filing of

said notice. A copy of said notice, with the judge’s notation

thereon shall be posted on the courthouse door of said court

for at least twenty (20) days before a hearing is had thereon.

Notice of the filing of the application shall be published at

least once, and at Jeast ten (10) days prior to the date set for

such hearing, in a newspaper of general circulation in the

county where the application is pending. Such notice shall

be addressed to the true owners of unclaimed funds in the

particular receivership involved in the application and shall

State generally that a hearing shall be had on the date

specified for the purpose of declaring such funds to be

abandoned and the property of the State Board of Insurance.

Upon the hearing on such application of the Liquidator, proof

to the satisfaction of the court:

(1) That such funds, or the checks therefor, had

previously been sent by the Receiver to the last known

address of the person or persons entitled thereto;

(2) That such funds, or the checks therefor, had been

returned unclaimed or that the check or checks therefor had

not been cashed;

(3) That the funds had been delivered to the Board as

required by Subsection (g) above;

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(4) That such money remained unclaimed with the

Board for two (2) years; and

(5) That notice of filing of the application has been

published as herein provided, shall be prima facie evidence

of the intention of the person or persons entitled thereto to

abandon the same, and that the Board is the rightful owner

thereof. Upon such finding by the court, the court shall be

authorized to render judgment accordingly. Upon receipt of

such judgment, the Board shall certify such fact to the

Comptroller of Public Accounts, who shall issue proper

warrant therefore to the State Board of Insurance. The Board

shall forthwith deposit such funds in accordance with the

provisions of Section 2(h) of this Article, except that such

funds derived through any one insurer need not be kept

separate from such funds derived through any other insurer.

(j) Use of Abandoned Funds. Such funds so deposited

by the Board in accordance with Subsection (i) above may

be expended by the Liquidator, with the consent of the Board,

for the purpose of paying expenses of the office of the

Liquidator and/or Receiver that are not properly chargeable

to any one receivership or conservatorship estate, and for

the purpose of financing continued operation of any

receivership or conservatorship then being administered by

the Liquidator as Receiver or Conservator, when in the

discretion of the Board it appears to be in the best interest of

such receivership or conservatorship estate that it not be

closed, and that additional administration be had thereon.

Any funds so applied from this source to another receivership

or conservatorship estate are to be repaid from the assets of

the receivership or conservatorship estate to which they were

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applied before additional dividends, including policyholder

and other claims, are paid in any such receivership, or before

the conservatorship is released for continued operation.

(k) Every claim under a separate account established

under Article 3.75 of this code, providing that the income,

gains, and losses, realized and unrealized, from assets

allocated to the separate account shall be credited to or

charged against the account, without regard to other income,

gains, or losses of the life insurance company, shall be

satisfied out of the assets in the separate account equal to

the reserves maintained in such account for the contracts.

To the extent provided under contrxcts established under

Article 3.75 of this code, that portiwn of the assets of any

separate account equal to the reserves and other contract

liabilities for the separate account is not chargeable with

liabilities arising out of any other business of the company.

To the extent, if any, reserves maintained in the separate

account are in excess of the amounts needed to satisfy claims

under the separate account contracts, the excess shall be

treated as general assets of the life insurance company.

Settlement of claims; abandoned funds;

re-opening of receiverships

Sec. 8A. Any and all assets other than cash remaining

in the receiver’s hands after payment of the final dividend

may be conveyed, transferred or assigned to the

commissioner to be handled as a trust. The commissioner

shall have authority to convey, transfer, and assign any assets,

including causes of action, judgments, and claims, and to

settle or release causes of action, judgments, claims, and liens

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on such terms and for such amounts as he deems for the best

interest of such trust, whether such assets have heretofore or

may hereafter come into his hands. From proceeds derived

from any such assets the commissioner or the special deputy

receiver shall defray the costs incident to the sale, settlement,

release or other transaction whereby such proceeds are

obtained, and deliver the remainder to the Board to be

deposited by it in trust in a special account to be maintained

with the comptroller to be handled, disposed of and used as

follows:

An order directing disposition of such funds may be

made by a court of competent jurisdiction of Travis County,

Texas, upon application of the commissioner, after notice

and hearing. Notice shall be posted on the courthouse door

of said court for at least twenty (20) days before a hearing is

had on the commissioner’s application, and notice shall be

published at least once, and at least ten (10) days prior to the

date set for such hearing, in a newspaper of general

circulation in Travis County. Such notice shall state the

amount of the funds and the receivership from which they

were derived. It shall be addressed to all persons having an

interest, as claimant or otherwise, in the assets of the

particular receivership involved in the application, and shall

State generally that a hearing shall be had on the date

specified for the purpose of determining the disposition to

be made of such funds, including a declaration that such

funds are abandoned and the property of the State Board of

Insurance.

If the court finds that funds derived from any

receivership are sufficient to justify reopening of the

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receivership and payment of a dividend, then such may be

ordered, but otherwise, if such funds are insufficient for that

purpose, the court may declare such funds abandoned and a

certified copy of such judgment will be authority for the

comptroller to issue a Warrant therefor to the State Board of

Insurance. The Board shall forthwith deposit such funds in

accordance with the provisions of Section 2(h) of this Article,

except that funds derived from one insurer need not be kept

separate from funds derived through any other insurer.

Such funds may be used as provided in Section 8(j) of

this Article.

Closing

Sec. 9. (a) Excess Assets — Stock Companies. When

the receiver shall have made provision for unclaimed

dividends and all of the liabilities of a stock insurance

company, he shall call a meeting of the stockholders of the

insurer by giving notice thereof in one (1) or more

newspapers in the county where the principal office of the

insurer was located, and by written notice to the stockholders

of record at their last known address. At such meeting, the

stockholders shall appoint an agent or agents to take over

the affairs to continue the liquidation for benefit of the

stockholder. Voting privileges shall be governed by the

insurer’s bylaws. A majority of the stock shall be represented

at the agent’s appointment. Such agent or agents shall

execute and file with the court such bond or bonds as shall

be approved by it, conditioned on the faithful performance

of all the duties of the trust. Under order of the court the

receiver shall then transfer and deliver to such agent or agents

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for continued liquidation under the court’s supervision all

assets of insurer remaining in his hands, whereupon the

receiver and the Board, and each member and employee

thereof, shall be discharged from any further liability to such

insurer and its creditors and stockholders; provided, however,

that nothing herein contained shall be so construed as to

permit the insurer to continue in business as such, but the

charter of such insurer and all permits and licenses issued

thereunder or in connection therewith shall be ipso facto

revoked and annulled by such order of the court directing

the receiver to transfer and deliver the remaining assets of

such insurer to such agent or agents.

(b) Excess Assets — Other Companies. After the

receiver shall have made provision for unclaimed dividends

and all of the iiabilities of any insurer other than a stock

insurance company, he shall dispose of any remaining assets

as directed by the receivership court.

Notwithstanding any other provisions of this article in closing

an estate, a special deputy receiver, on approval of the court,

may transfer any remaining assets, causes of action asserted

on behalf of the impaired insurer, judgment, claims, or liens

to the appropriate guaranty association and this transfer shall

not be a preference or voidable transfer but shall be

considered a distribution under Section 8(a)(1) of this article.

In the event the sum realized by the guaranty association is

materially larger than the amount loaned to the estate by the

guaranty association, the court may order reopening of the

estate to disburse the excess funds. Nothing in this section

shall be construed as a transfer of any liability of an impaired

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insurer to the guaranty association that would not constitute

a claim payable under Articles 9.48, 21.28-C, or 21.28-D of

this code.

(d) Limitation. Except as otherwise provided by

this subsection, each receivership or other delinquency

proceeding prescribed by this Article shall be administered

in accordance with Section 64.072, Civil Practice and

Remedies Code. To the extent a receivership or delinquency

proceeding initiated against an insurer applies to claims

against a workers’ compensation insurance policy or a title

insurance policy, the receivership or delinquency proceeding

shall be administered continuously for whatever length of

time is necessary to effectuate its purposes, and no arbitrary

period prescribed elsewhere by the laws of Texas limiting

the time for the administration of receiverships or of

corporate affairs generally shall be applicable thereto. Instead

of the winding up and distribution of a receivership estate of

an insurer without capital stock, the court shall order revival

and reinstatement of the charter, permits, licenses, franchises,

and management contracts or other control instruments of

the insurer if the insurer’s remaining cash on hand and on

deposit, less any outstanding valid and enforceable liabilities,

exceeds the minimum amount of capital and surplus

prescribed for that insurer under Article 2.02 or Section | of

Article 3.02 of this code.

(e) Reopening. If after the receivership shall have been

closed by final order of the court, the liquidator shall discover

assets not known to him during receivership, he shall report

his findings to the court. It shall be within the discretion of

the court as to whether the value of the after-discovered assets

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shall justify the reopening of the receivership for continued

liquidation.

Reinsurance

Sec. 10. (a) Reinsurer’s Liability. If the receiver has

claims under policies covered by reinsurance, there shall be

no diminution of the liability of the reinsurer to the receiver

under the contracts reinsured because of the delinquency

proceeding against the delinquent company, regardless of

any provisions in the reinsurance contract to the contrary,

except: (i) where the contract or other written agreement

entered into prior to the delinquency proceeding and

otherwise permitted by law specifically provides another

payee of such reinsurance in the event of the insolvency of

the ceding insurer; or (ii) where the assuming insurer, with

the consent of the direct insured, has assumed such policy

obligations of the ceding insurer pursuant to an assumption

reinsurance agreement as direct obligations of the assuming

insurer to the payees under policies and in substitution for

the obligations of the ceding insurer to such payees. With

the sole exception of (i) or (ii) above, any reinsurance shall

be payable to the receiver under a contract reinsured by the

assuming insurer on the basis of approved claims under

Section 3(h) of this Article and claims paid under Articles

9.48, 21.28-C, and 21.28-D of this code or the guaranty

associations of other states.

(b) Notice to Reinsurer. The liquidator or receiver shall

give written notice to the affected reinsurers of the pendency

of a claim against the receiver under a policy covered by

reinsurance within a reasonable time after such claim is filed

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in the delinquency proceeding. During the pendency of such

claim any affected reinsurer may investigate such claim and

interpose, at its own expense, in the proceeding where the

claim is to be adjusted any defense or defense which it may

deem available to the delinquent company, the liquidator or

the receiver. Subject to court approval, the expense thus

incurred shall be chargeable against the delinquent company

as part of the expense of liquidation to the extent of a

proportionate share of the benefit which may accrue to the

delinquent company solely as a result of the defense

undertaken by the assuming insurer. Where two or more

assuming insurers are involved in the same claim and a

majority in interest elect to interpose a defense to such claim,

the expense shall be apportioned in accordance with the terms

of the reinsurance agreement as though such expense had

been incurred by the ceding insurer.

Code of 1951, Acts Regular Session of the Fifty-second

Legislature, 1951, Chapter 491, page 868, shall remain in

full force and effect and shall govern as to those insurance

companies affected thereby.

Evidence in records

Sec. 11. (a) Records Admitted. All books, records,

documents and papers of any delinquent insurer received by

the receiver and held in the course of the delinquency

proceedings, or certified copies thereof, under the hand and

official seal of the Board and/or receiver, shall be received

in evidence in all cases without proof of the correctness of

the same and without other proof, except the certificate of

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the Board and/or receiver that the same was received from

the custody of the delinquent insurer or found among its

effects.

(b) Certificates. The receiver shall have the authority

to certify to the correctness of any paper, document or record

of the receiver’s office, including those described in (a) of

this section, and to make certificates under seal of the Board

and certified by the receiver certifying to any fact contained

in the papers, documents or records of the Texas Department

of Insurance; and the same shall be received in evidence in

all cases in which the originals would be evidence.

documents and papers, or certified copies thereof, or any

part thereof, when received in evidence shall be prima-facie

evidence of the facts disclosed thereby.

(d) Maintenance of Records. The receiver may devise

a method for the effective, efficient, and economical

maintenance of the records of the delinquent insurer and of

the liquidator’s office including maintaining those records

on any medium approved by the Records Management

Division of the Texas State Library. A copy of an original

record or any other record that is maintained on any medium

approved by the Records Management Division of the Texas

State Library within the scope of this section that is produced

by the receiver or his authorized representative under this

Article shall have the same force and effect as the original

record and may be used the same as the original record in

any judicial or administrative proceeding in this state. In

order to maintain the records of delinquent insurers after the

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closing of the receivership proceedings, the receiver may

reserve assets of an estate to be deposited in an account to

be used for the specific purpose of maintenance, storage,

and disposal of records in closed receivership estates.

(e) Disposition of Records. On approval by the court,

the receiver may dispose of any records of the delinquent

insurer that are obsolete and unnecessary to the continued

administration of the receivership proceedings.

(f) Open records. Chapter 552, Government Code, shall

not apply to any records of a receivership estate, or to the

records of an insurance company prior to its receivership,

held by the receiver or by a special deputy receiver under

this Article.

Liquidator, assistants, expense accounts

Sec 12. (a) Special Deputy Receiver, Bond. A special

deputy receiver appointed by the commissioner under this

article shall file with the commissioner a bond in an amount

established by the commissioner, payable to the

commissioner for the benefit of injured parties, and

conditioned on the faithful performance of the special deputy

receiver’s duties and the proper accounting for all moneys

and properties received or administered by the special deputy

receiver.

(b) Appointments, Expenses. The commissioner may

appoint, set the compensation of, and contract with one or

more qualified special deputy receivers to act for the

commissioner under this code. In making an appointment

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under this section, the commissioner shall attempt to reflect

the ethnic, racial, and geographic diversity of the state. A

special deputy receiver has all the powers of the receiver

granted by this code, unless limited by the commissioner.

The payment of such compensation and all expenses of

liquidation shall be made by the commissioner or special

deputy receiver out of funds or assets of the insurer.

An itemized report of such expenses, sworn to by the

commissioner or a special deputy receiver, shall be presented

on a monthly basis to the court, which account shall be

approved by the court unless objection is filed thereto within

ten (10) days after the presentation of the account. The

objection, if any, must be made by a party at interest and

shall specify the item or items objected to and the ground of

such objection. The court shall set the objection down for

hearing, notifying the parties of the setting. The burden of

proof shall be upon the party objecting to show that the items

objected to are improper, unnecessary or excessive.

the Board upon its request showing the operation, receipts,

expenditures, and general condition of any organization of

which the receiver may have charge at that time, and, upon

request, shall file a copy of said report with the court in which

said receivership proceeding is pending. The receiver shall

also file a final report of each organization which has been

liquidated or handled showing all receipts and expenditures,

and giving a full explanation of the same and a true statement

of the disposition of all of the assets of each organization.

(d) Audit. The state auditor may conduct an audit of

the liquidator in accordance with the audit plan reviewed

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Appendix D

and approved by the legislative audit committee. The audits

authorized by this subsection shall be conducted in the

manner provided by Chapter 321, Government Code.

(e) Contents of Auditor’s Report. The state auditor’s

report of the audit authorized by Subsection (d) of this section

may include:

(1) an analysis of the overall performance of the

liquidator;

(2) an analysis of the liquidator’s financial operations

and condition;

(3) an analysis of receipts and expenditures made in

connection with each audited receivership and an analysis

of the adequacy of the receiver’s bond in relation to assets,

receipts, and expenditures;

(4) the amount of funds made available to the liquidator

by a guaranty association in connection with each audited

receivership and a detail of the purpose and manner of

expenditure of such funds;

(5S) the ratio of the total amount of claims paid to

the total costs incurred in connection with each audited

receivership;

(6) the ratio of the liquidator’s administrative expenses

to the total costs incurred in connection with each audited

receivership; or

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(7) an analysis of the feasibility of using attorneys who

are employees of the liquidator in all litigation.

(f) Filing of Auditor’s Reports. Copies of the auditor’s

report shall be filed in the manner required by Section

321.014, Government Code. An additional copy of the report

shall be filed with the board and the commissioner.

(g) Court-Ordered Audit. A court in which a

receivership action is pending may order an audit of the books

and records of the liquidator as they relate to the receivership.

A report of an audit ordered under this subsection shall be

filed with the board, the commissioner, and the appropriate

guaranty association. The liquidator shall make the books

and records relating to the receivership available to the

auditor as required in the court order. The liquidator shall

pay the expenses of an audit ordered under this subsection.

(h) Authority of Special Deputy Receiver. A special

deputy receiver appointed by the commissioner serves at the

pleasure of the commissioner. Unless restricted by the

commissioner, a special deputy receiver may perform any

act on behalf of the commissioner. If expressly authorized

by the commissioner, a special deputy receiver may employ

employees and agents, legal counsel, actuaries, accountants.

appraisers, consultants, and other personnel as the special

deputy receiver considers necessary to assist in the

performance of the receiver’s duties. The expenses of

employing those persons are expenses of the receivership

payable out of funds or assets of the insurer.

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Appendix D

(1) Reports of Fraudulent Activities. The special deputy

receiver shall report to the insurance fraud unit any

information relating to possible fraudulent, deceptive, or

unlawful conduct by an insurer discovered in administration

of the receivership.

(j) The Board shall adopt rules prescribing the audit

coverage required for the receiver, each special deputy

receiver appointed under this section, and each guaranty

association established under Article 9.48, 21.28-C, or

21.28-D of this code. Such rules shall include, but not be

limited to, provisions relating to the scope, frequency,

reporting requirements, and cost of audits, and shall be

submitted to the state auditor for review and comment prior

to adoption.

(k) The state auditor is authorized to conduct audits, as

defined by Sections 321.0131 through 321.0136,

Government Code, of the receiver, each special deputy

receiver appointed under this section, and each guaranty

association established under Article 9.48, 21.28-C, or

21.28-D of this code, as the commissioner or the state auditor

determines to be necessary to supplement audits conducted

under Subsection (j) of this section. Costs associated with

any such audit shall be reimbursed to the state auditor by

the audited entity.

Legislative appropriations

Sec. 12A. (a) Expired January 1, 1994.

(a-1) The provisions of this Act are cumulative of

existing law and in the event of conflict the provisions of

this Act shall govern.

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Appendix D

(b) The Liquidator and the employees working for the

Liquidator or in the liquidation division of the State Board

of Insurance are employees of the State Board of Insurance

for the purpose of:

(1) reporting payroll information to the uniform

statewide accounting system; and

(2) submitting vouchers to the comptroller for the

payment of the salaries of the Liquidator and the employees.

Ancillary delinquency proceedings

Sec. 13. A court of competent jurisdiction in this State

shall, on the petition of the State Board of Insurance, appoint

the liquidator herein provided as ancillary receiver in this

State of an insurer domiciliary in another state or jurisdiction

when under the laws of this State a receiver should be

appointed. The Board shall file such a petition on its own

initiative or if ten (10) or more persons resident in this State,

having claims against such insurer, file a petition or petitions

in writing with the Board, requesting the appointment of such

ancillary receiver. Such ancillary receiver shall have the right

to sue for and reduce to possession the assets of such insurer

in this State, and shall have the same powers and be subject

to the same duties with respect to such assets, as are

possessed by a receiver of a domiciliary insurer under the

laws of this State. On commencement of the delinquency

proceedings in this State, the ancillary receiver in this State

immediately is entitled to possession and control of any

special or statutory deposits of the delinquent insurer located

within this State. The ancillary receiver may use those special

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Appendix D

or statutory deposits first towards the payment of expenses

of the administration of the receivership proceedings then

towards the payment of approved claims against the deposits.

The remaining provisions of this Article shall be applicable

to the conduct of such ancillary proceedings.

Contracts with foreign receiver

Sec. 14. In cases where a receiver of any delinquent

insurer has been appointed both in Texas and in some other

state, the Texas receiver, either domiciliary or ancillary, may,

under supervision of the Texas receivership court, contract

with the receiver in such other state for the administration

of the affairs of their respective receiverships in any manner

consistent with this Article which will enable the respective

receivers to coordinate their activities in the interest of

efficiency and economy.

Borrowing on the pledge of assets

Sec. 15. For the purpose of facilitating the rehabilitation,

liquidation, conservation or dissolution of an insurer pursuant

to this Article the receiver may, subject to the approval of

the court, borrow money and execute, acknowledge and

deliver notes or other evidences of indebtedness therefor and

secure the repayment of the same by the mortgage, pledge,

assignment, transfer in trust, or hypothecation of any or all

of the property whether real, personal or mixed of such

insurer, and the receiver, subject to the approval of the court,

shall have power to take any and all other action necessary

and proper to consummate any such loans and to provide for

the repayment thereof. The receiver shall be under no

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obligation personally or in his official capacity as receiver

to repay any loan made pursuant to this section.

Conflicts of law

Sec. 16. In the event of conflict between the provisions

of this Article and the provisions of any existing law, the

provisions of this Article shall prevail, and all laws, or parts

of law, in conflict with the provisions of this Article, are

hereby repealed to the extent of such conflict.

* * * x

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.