Opposition Brief — Virginia State Corp. Commission v. National Home Insurance
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Bupreme Court, U.9
FILED
| DEC 14 1994
No. 94-883 OFFICE OF THE CLERK
— eee ;
<< J
In The
Supreme Court of the United States
October Term, 1994
COMMONWEALTH OF VIRGINIA AT THE RELATION
OF THE
STATE CORPORATION COMMISSION,
Plaintiff-Petitioner,
Vv.
NATIONAL HOME INSURANCE COMPANY
(A Risk Retention Group),
Defendant-Respondent.
On Petition for a Writ of Certiorari to
the Supreme Court of Virginia
BRIEF IN OPPOSITION TO THE PETITION
FOR A WRIT OF CERTIORARI
Harvey B. Cohen
Counsel of Record
R. Scott Caulkins
John C. Pasierb
Cohen, Gettings, Dunham &
Harrison, P.C.
2200 Wilson Boulevard, Suite 800
Arlington, Virginia 22201
(703) 525-2260
(703) 525-2489(Fax)
Counsel for Respondent
Balmar Legal Publishing Services, Washington, D.C. (202) 682-9800
i
QUESTIONS PRESENTED
I. Whether the Petition should be granted where the issues
presented are inconsistent with the positions asserted by the
Petitioner below and where, under state procedural law, the
Petitioner was prohibited in the proceeding below from rais-
ing the inconsistent issues for the first time in the petition for
rehearing.
Il. Whether this Court should decline review of this matter
where there is no Tenth Amendment issue raised by the Vir-
ginia Supreme Court’s ruling and where there is no conflict
among the United States courts of appeals, a United States
court of appeals and a state court of last resort, and the under-
lying facts are so limited and unique that any decision from
this Court would provide little guidance to lower federal
courts.
——— ) oe ere en
il
TABLE OF CONTENTS
QUESISUNS PRESEIVIED «00... ..054..
PR EE tt tt ee
REASONS FOR DENYING THE PETITION
FOR WRIT OF CERTIORARI. ...........
I. The Commission is Estopped from Raising
its New and Contradictory Arguments in the
Petition under the State Procedural Doctrine
of Estoppel by Inconsistent Positions.
Il. This Case does not Present a Tenth
Amendment Issue...............
ce ac a a ae a
13
13
17
19
TABLE OF AUTHORITIES
Cases
Banker’s Life & Casualty Co. v. Crenshaw,
ee Ss Fe OE ab ed oe hh a
Gregory v. Aschcroft, 501 U.S. 452 (1991) ....
Hathorn v. Lovorn, 457 U.S. 255 (1982). .....
Leech v. Beasley, 203 Va. 955 (1962) .......
Leonard v. Vicksburg, Shreveport & Pacific R.R.,
Soe a Gs ks ek ee 6 ee 8 oh
New York v. U.S., ___ U.S. ___, 112 S.Ct. 2408
CR rari 5 Bk tia hat ee tak eri ee ioe 8
Radio Station WOW v. Johnson, 326
ie Bf
Rohanna v. Vazzana, 196 Va. 549 (1954) .....
U.S. v. Munsingwear, 340 U.S. 36 (1950) .....
United Fuel Gas Company v. Railroad Commission
of Kentucky, 278 U.S. 300 (1929).......
Williams v. Georgia, 349 U.S. 375 (1955) .....
STATUTES AND RULES
Rules of the Supreme Court, Rule 10........
op ae ee
pep es ee ee ee ee
hg Sek | ee
pe pie Sa po 0 le
Rule 5:39, Rules of the Supreme Court of Virginia
We, Ce ss he ee deo ee’
Va. Code § 12.1-16 (1950, as amended) ......
Va. Code § 12.1-39 (1950, as amended) ......
Va. Code § 38.2-200 (1950, as amended) .....
17,19
eS ee ee ne ee ee ee
No. 94-883
In The
Supreme Court of the United States
October Term, 1994
COMMONWEALTH OF VIRGINIA AT THE RELATION
OF THE STATE CORPORATION COMMISSION,
Plaintiff-Petitioner,
Vv.
NATIONAL HOME INSURANCE COMPANY
(A Risk Retention Group),
Defendant-Respondent.
On Petition for a Writ of Certiorari to
the Supreme Court of Virginia
BRIEF IN OPPOSITION TO THE PETITION
FOR A WRIT OF CERTIORARI
STATEMENT OF THE CASE
In the Petition For a Writ of Certiorari, Petitioner, the State
Corporation Commission of the Commonwealth of Virginia
(“Commission”), asserts positions which are totally inconsistent
with positions it took before the Virginia Supreme Court and the
United States Court of Appeals for the Fourth Circuit. The most
notable inconsistency is the Commission’s assertion in the
Petition that the Virginia Supreme Court should not have de-
cided the issue of whether the Commission is a “court of
competent jurisdiction” under the Federal Risk Retention Act,
15 U.S.C. § 3901 et seg. (“Risk Retention Act”) (Pet. App.
72a-88a), and that, in deciding the issue, the Virginia Supreme
Court violated the Tenth Amendment to the United States
2
Constitution. The Risk Retention Act’s general pre-emption of
state law contains an exception permitting a state to seek an
injunction from a court of competent jurisdiction. 15 U.S.C.
3902(a)(1)(H). Until the Virginia Supreme Court found that the
Commission was not a court of competent jurisdiction, the
Commission asserted that the Virginia Supreme Court not only
could, but should decide whether the Commission is a court of
competent jurisdiction. Further, the Commission took the posi-
tion that the Federal District Court decision was not binding on
the Virginia Supreme Court. The Commission is precluded
from taking contradictory positions before this Court in its
Petition.
The reason the Commission has abruptly changed its posi-
tion in the Petition is transparent--it is groping for a constitu-
tional question that it hopes will create a reviewable issue under
Rule 10 of the rules of this Court. There are no special or
important reasons for this Court to grant the Commission’s
Petition. The Commission, contrary to its contention in the
Petition (Pet. 12 -13), was not impermissibly “forced” by the
Virginia Supreme Court to litigate before that Court the question
of whether the Commission is a court of competent jurisdiction
under the Risk Retention Act. In fact, the Commission urged
the Fourth Circuit to hold the parallel federal appeal on this
question in abeyance so that the Virginia Supreme Court could
decide it. Simply because the Virginia Supreme Court ruled
against the Commission, the Commission cannot now justifi-
ably claim that it was improperly forced by the Virginia Su-
preme Court to litigate the issue.
The Virginia Supreme Court ruled that an agency of the
Commonwealth -- the Commission -- is not a court of competent
jurisdiction because it is not independent under the unique
structure created by Virginia’s Constitution and laws. There is
no Tenth Amendment question that arises from this finding.
I. Nature of the Case
The Risk Retention Act was enacted by Congress to allow
businesses with similar liability risks to form insurance coop-
eratives called “risk retention groups”(“RRGs’”). The Risk Re-
tention Act was intended to encourage the formation of RRGs
by eliminating the multistate regulation of these entities, leaving
primary regulatory authority with the RRGs’ “domiciliary state”
and prohibiting non—domiciliary states from regulating RRGs
except in limited circumstances. Respondent National Home
Insurance Company (a Risk Retention Group)(“National
Home”)' is an RRG. Its domiciliary state is Colorado. The Risk
Retention Act provides that a state’s insurance regulator, here
the Commission, can only enjoin National Home’s operations
if it petitions an independent court of competent jurisdiction for
an injunction under 15 U.S.C. § 3902(a)(1)(H).
The Commission is vested with regulating insurance in
Virginia under Va. Code § 38.2-200 (1950, as amended). Va.
Code § 12.1-16 (1950, as amended) allows the Commission to
delegate certain duties and responsibilities to the Commissioner
of Insurance. The Commission appoints the Commissioner of
Insurance who in turn runs the Bureau of Insurance. The
Bureau of Insurance reports to the Commissioner of Insurance.
The Commissioner of Insurance reports to the Commission.
The Commission reviews the performance of the Commissioner
of Insurance and the Bureau of Insurance. The Commission sets
the policies followed by the Commissioner of Insurance and the
Bureau of Insurance. If the Commission is unhappy with the
performance of the Commissioner of Insurance or the staff of
the Bureau of Insurance, it simply replaces them. Most impor-
tantly, the Commission is the entity that creates policies by
| National Home is 95% owned by Holden Construction Management,
Inc. which is 100% owned by Home Buyers Warranty Corp. National Home
has no subsidiaries.
4
legislating and regulating Risk Retention Groups. The Com-
missioner of Insurance and the Bureau of Insurance have no
powers other than those delegated to them by the Commission
and all regulatory insurance powers flow through the Commis-
sion to its staff.
Il. The Proceeding before the Commission
On April 9, 1993, the Office of General Counsel for the
Commission, acting in the name of the Commission, petitioned
the Commission for an injunction against National Home. Es-
sentially, the Commission’s staff petitioned the Commission for
an injunction. The initial Motion requested an injunction for
ninety (90) days so the Bureau of Insurance could determine
whether to seek a permanent injunction.
A hearing was held before the Commission on the Motion
for Temporary Injunction on June 29 and 30, 1993. Before the
hearing, National Home filed a motion to dismiss and argued,
among other things, that the Risk Retention Act prohibited the
Commission from issuing an injunction because it was not a
court of competent jurisdiction as required by the Risk Retention
Act. The Commission rejected these arguments and proceeded
with the hearing.
According to its Chairman, the Honorable Theodore V.
Morrison, Jr., the Commission held the hearing in its legislative
Capacity:
CHAIRMAN MORRISON: We’re sitting, I
guess, fundamentally in our legislative function, and
the rules regarding hearsay evidence are somewhat
relaxed as our administrative practice typically al-
lows. We admit some things that are technically
hearsay, but we do rule as to their probative value.
(emphasis added). At the conclusion of the legislative hearing,
the Commission issued the Injunction Order. (Pet. App. 47a-
48a).
_—
>
The Injunction Order enjoined National Home from issu-
ing any new policies or new certificates or other evidence of
coverage in Virginia until National Home restored its surplus to
the minimum amount required by National Home’s state of
domicile, which was determined at the hearing to be $1.2
million. (Pet. App. 47a-48a). Although the Injunction Order
allowed for several limited exceptions, it effectively prohibited
National Home from writing insurance in Virginia after Septem-
ber 1, 1993, unless National Home met Colorado’s minimum
capital and surplus requirements.
Because of the irreparable injury caused by the Injunction
Order, National Home filed a Petition for Suspension of Effec-
tiveness of Order with the Commission on July 8, 1993, pursuant
to Va. Code. §§ 12.1-39 and 8.01-676.1 (H). On July 21, 1993,
the Commission denied the Petition for Suspension. National
Home filed a notice of appeal with the Virginia Supreme Court
and, in its subsequent petition for appeal filed on August 2, 1993,
it requested suspension of the effectiveness of the Injunction
Order.
Il. The District Court Proceeding
When National Home filed its petition for appeal of the
Injunction Order to the Virginia Supreme Court, the Virginia
Supreme Court was just beginning its August recess and the
Justices would not be available to rule on the request to suspend
the Commission’s order until September.
Virginia is National Home’s fifth largest market. If Na-
tional Home was prohibited from doing business in Virginia for
any period because of the Injunction Order, National Home
would suffer irreparable harm. Consequently, time was of the
essence to National Home to be heard on its objections to the
Commission’s actions prior to the effective date of the Injunc-
tion Order of September 1, 1993. In August 1993, the District
Court was the only timely source of relief available to National
6
Home and its affiliate Home Buyers Warranty Corp. (“HBW’”’)
to remedy the irreparable harm to National Home and HBW
caused by the issuance of the Injunction Order contrary to the
mandate of the Risk Retention Act.
National Home and HBW filed a complaint for a declara-
tory judgment and injunctive relief in the United States District
Court for the Eastern District of Virginia on August 2, 1993,
requesting a declaration that the Commission was not an inde-
pendent court of competent jurisdiction as required by the Risk
Retention Act and that, therefore, it lacked the authority under
the Risk Retention Act to issue the injunction. The Complaint
originally named the Commission as a Defendant. It was
amended before the filing of responsive pleadings to add the
Commissioners as defendants in their individual and official
capacities and to add a cause of action arising under 15 U.S.C.
§ 1983.
The Commission, and subsequently the Commissioners,
responded with a motion requesting, inter alia, that the District
Court abstain from exercising its jurisdiction or, in the alterna-
tive, stay the proceeding for an indefinite period. The basis of
the Commission’s motion was the ongoing proceeding before
the Virginia Supreme Court. Notably, the Commission stated:
“(a]bstention is appropriate because the exercise of jurisdiction
interferes with ongoing state proceedings of substantial impor-
tance and interferes with the important and complex state regu-
latory framework by which Virginia regulates insurance
companies conducting business within Virginia.”
On August 26, 1993, National Home and HBW filed a
Motion for a Temporary Restraining Order and Preliminary
Injunction in the District Court case. On August 27, 1993, the
District Court heard the first of three oral arguments. The
District Court denied the request for a temporary restraining
order on September 3, 1993, but set a hearing on the merits and
on the motions filed by the Commission and the Commissioners.
7
The parties submitted several supplemental briefs requested by
the District Court on various issues including abstention.
In the Virginia Supreme Court appeal, the petition for
suspension of effectiveness of the Commission’s order was
denied on September 1, 1993. National Home and HBW con-
tinued with the proceeding before the District Court as it ap-
peared unlikely at the time that the Virginia Supreme Court
would hear and decide the appeal before it for at least a year.
On December 3, 1993, the District Court issued the Memo-
randum Opinion. (Pet. App. 17a-45a). In its analysis of the
phrase “court of competent jurisdiction,” the District Court
stated:
Because the Act does not define “court of competent
jurisdiction,” it seems apparent that Congress ex-
pected this determination to be made by reference to
state law, for it is state law that typically defines a
“state court of competent jurisdiction.”
(Pet. App. 34a).
The District Court cited to the legislative history through-
out its opinion (see Pet. App. 25a-26a), but it did not look to the
legislative history of the phrase “court of competent jurisdic-
tion” even though there is legislative history on point which
reflects that the phrase refers to an independent judicial officer.
The District Court ruled that the Commission could be a court
of competent jurisdiction but declined to decide whether the
Commission was acting in that capacity when it issued the
injunction. (Pet. App. 45a) National Home and HBW appealed
the District Court’s decision to the United States Court of
Appeals for the Fourth Circuit.
On January 11, 1994, the Commission filed its opposition
to National Home’s appeal in the Virginia Supreme Court. (Res.
App. F1) The Commission represented to the Virginia Supreme
Court that it was not bound by the U.S. District Court Decision
8
and it could rule differently based on the arguments presented
by the parties.?
Apparently expecting a ruling in its favor from the Virginia
Supreme Court, the Commission made an all out attempt to stop
the Fourth Circuit litigation so that the Virginia Supreme Court
could decide whether the Commission was a “court of compe-
tent jurisdiction.” The Commission filed a motion asking the
Fourth Circuit to abstain, stay the appeal or place the appeal in
~ abeyance because the issues before the Fourth Circuit were
identical to the issues before the Virginia Supreme Court. (Res.
App. Al-C9). The Commission argued that the Virginia Su-
preme Court should decide all issues.
Excerpts from the Commission’s motion clearly show that
the Commission knew the Virginia Supreme Court would be
deciding the issue of whether the Commission was a court of
competent jurisdiction, and that it wanted the Virginia Supreme
Court to decide the issue. The Commission asked the Fourth
Circuit to stay its proceeding to give the Virginia Supreme Court
a free hand to decide the issue. Specifically, the Commission
represented to the Fourth Circuit that:
9. In the State Appeal, NHIC raises, among
others, the question of whether the Commission erred
in entering the Injunction Order because the Commis-
sion is not a court of competent jurisdiction under the
Federal Risk Retention Act. In essence, NHIC is
2 In its Opposition filed in the Virginia Supreme Court, the Commission
stated:
The major issues in this case have already been decided by the United
States District Court for the Eastern District of Virginia. Although that
Court’s decision is not absolutely binding on this one, the Commission
submits that it is extraordinarily persuasive here. NHIC should bear a heavy
burden to explain to this Court why a different result should be reached in this
appeal, which burden it has failed to meet. (Emphasis Added)(Res. App. F2)
9
asking the Virginia Supreme Court to decide whether
the Commission is a court of competent jurisdiction
for purposes of the Federal Risk Retention Act.
* * *
21. OnJanuary 10, 1994, NHIC filed its Dock-
eting statement with this Court. In its Docketing
Statement, NHIC raises one of the specific issues
raised in the State Appeal; to wit:
Whether the State Corporation Commission is an
independent court of competent jurisdiction as
required by the Federal Risk Reteation Act, 15
U.S.C. § 3901 et seq.
* * *
22. NHIC has presented three questions to the
Virginia Supreme Court in the State Appeal. One of
these questions is the sole issue raised before this
Court in the Federal Appeal. Thus, even if this Court
were to consider NHIC’s Federal Appeal, a complete
disposition could not be had. Only the Virginia
Supreme Court, before which all three issues have
been joined and briefed, can provide an orderly,
efficient, and complete disposition of NHIC’s con-
current appeals.
. - *
24. This Court should abstain from exercising
its jurisdiction because NHIC has failed to exhaust its
State remedies inasmuch as it is currently pursuing an
appeal from the Injunction to the Supreme Court of
Virginia, which appeal is not yet complete. These
pending, concurrent proceedings in Virginia im-
plicate matters of substantial state interest where
10
NHIC’s claim will and should, be resolved. (em-
phasis added)(Res. App A3-A6 ).
The Commission also made the following representations:
The only conceivable way in which the Virginia Su-
preme Court can resolve the issue presented in the
State Appeal is by determining whether the Commis-
sion is a court of competent jurisdiction as required
by the Federal Risk Retention Act — the sole and
identical issue raised before this Court. Accordingly,
the Virginia Supreme Court’s decision will be dis-
positive of the sole basis of NHIC’s Federal Appeal.
(emphasis added)(Res. App C-7).
Acknowledging that the Virginia Supreme Court would be
deciding whether the Commission was a court of competent
jurisdiction under the Risk Retention Act, the Commission
strenuously argued before the Fourth Circuit that the Virginia
Supreme Court could and should decide all issues. (Res. App.
B6). National Home joined in the Commission’s Motion to
Abstain. (Res. App. D1-D9). The Fourth Circuit placed the
appeal in abeyance to allow the Virginia Supreme Court to
decide all issues and ordered that it be informed of any action
taken by the Virginia Supreme Court. (Res. App. E1-E2).
IV. The Virginia Supreme Court Appeal
The Virginia Supreme Court heard oral argument on Feb-
ruary 23, 1994 on all issues before it, including whether the
Commission was a court of competent jurisdiction.
While the matter was on appeal to the Virginia Supreme
Court, National Home was able to report to the Commission that
it met the minimum surplus and capital requirements of the State
of Colorado. The Commission, however, did not lift the injunc-
tion and refused three requests by National Home for a hearing.
Finally, the Commission lifted its Injunction Order, effective
March 31, 1994, in an order dated April 1, 1994.
11
On June 10, 1994, the Virginia Supreme Court entered an
order that the Commission’s order was erroneous and accord-
ingly reversed and annulled that order, and dismissed the pro-
ceeding with leave for the Commission to bring an action in a
court of competent jurisdiction if it be so advised. In the
accompanying opinion, the Court, after analyzing state law and
the Commission’s procedural rules, found:
The Commission is empowered to regulate insur-
ance in Virginia, Code § 38.2-200, and pursuant to
Code § 12.1-16, the Commission delegates certain
duties and responsibilities to the Commissioner of
Insurance, who is also an employee of the Commis-
sion and serves at its pleasure. Here, the Bureau of
Insurance, a division of the Commission, sought the
injunction. The hearing was conducted by the Com-
mission, and its counsel participated. Moreover, the
Commission is a party in this appeal urging an affir-
mance of its actions and rulings.
In contrast to the constitutional and statutory frame-
work in which proceedings under state law are con-
ducted and decided, we believe that, in drafting the
Act, Congress intended that there be an institutional
separation between the state insurance commissioner
and the decisional body considering the insurance
commissioner’s request for an injunction. Thus, we
hold, that for purposes of the Act only, the Commis-
sion, as a regulatory tribunal, is neither an“inde-
pendent judicial officer” nor a court of competent
jurisdiction as contemplated by Congress. (Pet. App.
10a-1 1a).
If the Commission wanted an injunction against National Home,
the Virginia Supreme Court stated that it could have petitioned
any one of a number of independent state courts with jurisdic-
tion, or federal district courts (Pet. App.11a), which it chose not
12
to do. Such a court would be the state Circuit Court for the City
of Richmond or the United States District Court for the Eastern
District of Virginia, several city blocks from the Commission in
Richmond.
Following the Virginia Supreme Court’s ruling that the
Commission was not a court of competent jurisdiction, the
Commission filed a petition for rehearing.” In this petition, the
Commission raised new arguments which contradicted the po-
sitions it had previously taken. These new, inconsistent argu-
ments are the sole issues which the Commission has presented
in its Petition to this Court. In other words, the Commission
realized it had previously failed to raise any novel constitutional
or federal issues which could be appealed to this court, so the
Commission attempted to overcome this defect in its petition for
rehearing. The Virginia Supreme Court denied the petition for
rehearing in a one sentence order without any opinion. (Pet.
App. 49a).
Once the Virginia Supreme Court ruled on all issues as
requested by the Commission, the Fourth Circuit was informed
of the decision and the Fourth Circuit remanded the federal
appeal to the U.S. District Court with directions to dismiss as
moot.
> Under Rule 5:39, Rules of the Supreme Court of Virginia, a petition
for rehearing will not be granted unless one of the justices who decided the
case adversely to the applicant is of opinion that there is good cause for such
rehearing. National Home did not have the right to file a written opposition
to the petition for rehearing; a party only has the right to file an opposition if
the petition for rehearing is granted.
‘ National Home requested that the District Court’s decision be vacated
under the established practice of federal courts in handling civil cases which
have become moot on appeal. The proper procedure “. . . is to reverse or
vacate the judgment below and remand with a direction to dismiss.” U.S. v.
Munsingwear, 340 U.S. 36, 39-40 (1950) and cases cited therein. The Fourth
Circuit did not vacate the District Court’s decision as required by this
established practice.
13
REASONS FOR DENYING THE PETITION
FOR WRIT OF CERTIORARI
I. The Commission is Estopped from Raising its New and
Contradictory Arguments in the Petition under the
State Procedural Doctrine of Estoppel by Inconsisent
Positions.
Prior to the adverse ruling against it, the Commission never
asserted that the Virginia Supreme Court was barred from
hearing the appeal because of the District Court decision. Fur-
ther, the Commission did not assert that the Virginia Supreme
Court was prohibited by the Tenth Amendment from deciding
that the Commission is not a court of competent jurisdiction. In
fact, the Commission asserted just the opposite. The Commis-
sion said the District Court decision was not binding and that
the Virginia Supreme Court could resolve all issues before it.
(Res. App. F2) Under well established precedent of this Court
and state law, the Commission is barred from asserting incon-
sistent positions in its Petition in an effort to create a novel,
reviewable issue.
Whether the Commission waived any right it may have had
to assert the District Court decision as a bar to the Virginia
Supreme Court’s consideration of all issues before it is a ques-
tion of state law. Leonard v. Vicksburg, Shreveport & Pacific
R.R., 198 U.S. 416, 422-423 (1905). A state x es rule
which forbids the raising of federal questions at late stages in
the case is a valid exercise of state power. Williams v. Georgia,
349 U.S. 375, 382-383 (1955). Virginia’s consistent and strict
application of the state procedural bar of estoppel by inconsis-
tent positions prevents this Court from reviewing the issues
raised by the Commission in the Petition. See Radio Station
WOW v. Johnson, 326 U.S. 120, 128-129 (1945)(state’s consis-
tently applied procedural bar prevents review by this Court).°
5 Hathorn v. Lovorn, 457 U.S. 255, 262-63 (1982), a case cited by the
Commission, affirms the general rule that questions first raised before the
14
The Virginia Supreme Court has consistently ruled that a
party is estopped from taking inconsistent positions in litigation:
In Virginia, we have . . . approved the general rule that
a party is forbidden to assume successive positions in
the course of a suit, or series of suits, in reference to
the same fact or state of facts, which are inconsistent
with each other or mutually contradictory. A litigant
is estopped from taking a position which is inconsis-
tent with one previously assumed, either in the course
of litigation for the same cause of action, or in dealings
in pais. This wise and salutary policy has been repeat-
edly followed. Chesapeake & Ohio Railway Com-
pany v. Rison, 99 Va. 18, 37 S.E. 320; Canada v. C.
H. Beasley & Brothers, 132 Va. 166, 111 S.E.2; 251,
252; Arwood v. Hill’s Adm’r, 135 Va. 235, 117 S.E.
603; Alexander v. Commonwealth, 137 Va. 477, 120
S.E. 296; Fitchett v. Parsons, 142 Va. 163, 128 S.E
457; Title, etc., Bank v. Clifton Forge National Bank,
149 Va. 168, 140 S.E. 272; Nagle v. Syer, 150 Va.
508, 143 S.E. 690; Byrd v. Pennsylvania Railroad
Company, 151 Va. 954, 961, 145 S.E. 722.”
Leech v. Beasley, 203 Va. 955, 961-962 (1962). “A party cannot
either in the course of litigation or in dealings in pais, occupy
inconsistent positions. Upon that rule election is founded; ‘a
state’s highest court on a petition for a rehearing are not reviewable by this
Court. The decision recognizes an exception where the state procedural rule
prohibiting review under such circumstances is inconsistently applied.
Hathorm involved a case where the petitioners had raised a federal question
for the first time in the petition for appeal and, looking at Mississippi law, this
Court concluded that the Mississippi Supreme Court does not consistently
preclude consideration of issues raised for the first time in a petition for
rehearing. In the instant case, the Commission is not just raising new issues,
it is taking inconsistent positions by raising those issues. Taking inconsistent
positions in the same litigation is something that the Virginia Supreme Court
has consistently not permitted.
15
man shall not be allowed’ in the language of the Scotch law’ to
approbate and reprobate’ and where a man has an election
between several inconsistent courses of action, he will be con-
fined to that which he first adopts; the election if made with
knowledge of the facts is in itself binding.” Rohanna v. Vaz-
zana, 196 Va. 549, 553 (1954). The only reason the Commis-
sion has changed its position on collateral estoppel is that the
opinion of the Virginia Supreme Court came down against the
Commission.
The Commission’s current position contradicts the position
it took in the Fourth Circuit and the Virginia Supreme Court.
Arguably, the Commission could have gone to either court to
ask for a stay. It chose to urge the Fourth Circuit to abstain, stay
the federal appeal or place the federal appeal in abeyance
because the issues before the Fourth Circuit and the Virginia
Supreme Court were identical. (Res. App. A3-A6, B5-B6, and
C7). The Virginia Supreme Court was informed that the Fourth
Circuit had placed the federal appeal in abeyance at the request
of the Commission pending the Virginia Supreme Court’s deci-
sion. Having persuaded the Fourth Circuit not to review the
District Court’s decision upon the representation that the Vir-
ginia Supreme Court’s decision would be dispositive of the issue
of whether the Commission is a court of competent jurisdiction
under the Risk Retention Act, the Commission cannot now
complain about the Virginia Supreme Court’s ruling on that
issue. The Commission’s statement (Pet. 12-13) that it was
forced by the Virginia Supreme Court to litigate the issue twice
is inexplicable. It should not be allowed to rewrite the facts of
this case in an effort to create an issue to present to this Court.
National Home would be prejudiced by allowing the Com-
_ mission to change positions. After the Commission told the
Virginia Supreme Court that the District Court decision was not
binding, National Home joined in the Commission’s motion to
the Fourth Circuit to abstain from deciding the federal appeal.
16
The Fourth Circuit ultimately stayed the appeal because of the
pending appeal to the Virginia Supreme Court. Following the
Virginia Supreme Court ruling, the Fourth Circuit dismissed the
appeal as moot. If the Commission is allowed to change its
position on the binding effect of the federal case, National Home
would be prejudiced because the federal appeal has been dis-
missed and National Home can no longer have the merits of the
appeal heard by the Fourth Circuit.
The relief requested by National Home below was a ruling
that the Commission was not a court of competent jurisdiction.
There is no reason why the Commission could not have raised
a Tenth Amendment argument before the ruling from the Vir-
ginia Supreme Court. The Commission invoked the jurisdic-
tion of the Virginia Supreme Court to decide all issues without
limitation. The Commission never contended, until after the -
ruling, that the Virginia Supreme Court was barred by the Tenth
Amendment from finding that the Commission is not a court of
competent jurisdiction. In an analogous situation where a peti-
tioner had attempted to change positions, this Court stated: “The
sound discretion which controls the exercise of the extraordinary
powers of the Federal Court...should not permit them to be
exerted to relieve suitors...from the very action of state authori-
ties which they have invoked.” United Fuel Gas Company v.
Railroad Commission of Kentucky, 278 U.S. 300, 308
(1929)(petitioner challenged statute it had invoked).®
© The Virginia Supreme Court’s order denying the petition for rehearing
does not indicate whether the merits of the new, inconsistent issues raised in
that petition were passed upon by the Virginia Supreme Court. Under the
Virginia Supreme Court’s rule, National Home could not file an opposition
to that petition fo: rehearing, therefore, the merits of the new, inconsistent
issues were not fully briefed. This Court restricts its review of federal issues
which have not teen “pressed or passed upon below.” Banker's Life &
Casualty Co. v. Crenshaw, 486 U.S. 71, 79 (1987). The Virginia Supreme
Court had an independent basis to deny the petition for rehearing based upon
17
II. This Case does not Present a Tenth Amendment Issue.
The Commission’s new, inconsistent arguments are with-
out merit. The Commission’s Tenth Amendment claim that the
Virginia Supreme Court’s decision imposes“ . . .on the States
federal requirements in establishing regulatory tribunals in each
state” (Pet. 15) is a gross mischaracterization of the decision.
Nowhere in the Virginia Supreme Court decision does the Court
say that the Risk Retention Act imposes federal requirements in
establishing regulatory tribunals in each state. The Virginia
Supreme Court decision describes which state tribunals can
issue injunctions against an RRG.
The two cases relied upon by the Commission, New York
v. U.S., __ U.S. __, 112 S.Ct. 2408 (1992) and Gregory v.
Aschcroft, 5 501 U. 5.4 452 (1991) do not support the Commis-
sion’s argument that the Virginia Supreme Court ruling violated
the Tenth Amendment by ruling against the Comission. In New
York v. U.S., the Court addressed the Low-Level Radioactive
Waste Policy Act of 1985. This Act, in part, required states to
either take title to contaminated property or regulate according
to the instructions of Congress. This Court found that the Act
commandeers the legislative processes of the States by directly
proscribing that they enact and enforce a federal regulatory
program. New York v. U.S., ___ U.S. ___, 112 S.Ct. at 2428-
2429. The Virginia Supreme Court did not find that the Com-
mission was compelled to enact or enforce a federal regulatory
program.
In Gregory v. Aschcroft, this Court was presented with a
suit brought by Missouri state court judges challenging a Mis-
souri state constitution provision requiring that they retire at a
certain age. The state court judges claimed that the age provi-
the doctrine of inconsistent positions. There is no reason in this case to discard
this Court’s rule that review should be denied where the issue was “not pressed
or passed upon below.” Id.
18
sion violated the federal Age Discrimination in Employment
Act of 1967 (“ADEA”). This Court found that the ADEA was
ambiguous as to whether it applied to judges and, in light of such
ambiguity and the Tenth Amendment, it ruled that the ADEA
did not proscribe regulations for the ages of state court judges.
In Gregory, this Court recognized the authority of the states
under the Tenth Amendment to establish qualifications of their
government officials. Gregory v. Aschcroft, 501 U.S. at 460.
The Risk Retention Act has nothing to do with the establishment
of qualifications of state officials. Moreover, the Virginia Su-
preme Court’s decision does not reflect an interpretation of the
Risk Retention Act which establishes qualifications for officials
of the Commission. The Virginia Supreme Court ruled that the
Commission was not a court of competent jurisdiction as con-
templated in the Risk Retention Act and the Commission was
preempted from issuing the injunction.
The Risk Retention Act does not attempt to directly regu-
late the states, it merely preempts contrary state regulations.
Congress left the primary responsibility for regulating RRGs
with the RRG’s state of domicile (domiciliary state”) under that
state’s existing laws. See 15 U.S.C. § 3902(a)(1) (“... the
jurisdiction in which [a risk retention group] is chartered may
regulate the formation and operation of such a group.”). The
Act expressly exempts risk retention groups from regulation by
non-domiciliary states except in certain very limited circum-
stances. The pre-emption of non-domiciliary state regulation is
found in Section 3(a)(1) of the Act which provides:
[A] risk retention group is exempt from any State law,
tule, regulation, or order to the extent that such law,
rule, regulation, or order would ... make unlawful, or
regulate, directly or indirectly, the operation of a risk
retention group except that the jurisdiction in which
it is chartered may regulate the formation and opera-
tion of such a group.
19
15 U.S.C. § 3902(a)(1) (emphasis added).
In New York v. U.S.,___ U.S. ___, 112 $.Ct. 2408, 2429,
this Court found that Congress has the authority to preempt state
regulation under the Tenth Amendment:
The Constitution instead gives Congress the authority
to regulate matters directly and to pre-empt contrary
state regulation. Where a federal interest is suffi-
ciently strong to cause Congress to legislate, it must
do so directly; it may not conscript state governments
as its agents.
By pre-empting state regulation by the Commission, Congress
exercised its powers granted under the Constitution and did not
violate the Tenth Amendment. The Risk Retention Act tells the
states which entities can and cannot issue injunctions against
RRG’s. It does not proscribe qualifications for officials of state
tribunals. The Commission is wrong to characterize this pre-
emption as unconstitutional.
CONCLUSION
The Virginia system for regulating insurance is unique. Un-
like the entities of other states charged with regulating insurance,
the Commission is given certain powers of a court under Virginia’s
constitution. In this case, this unique body has attempted to regulate
a RRG domiciled in Colorado. RRGs constitute only a small
percentage of insurance companies. It is unlikely that the issues
decided by the Virginia Supreme Court will ever arise in any other
state because they have different regulatory structures. This case
does not present special and important issues under Rule 10 which
would give the Court an opportunity to provide guidance within the
federal judicial system on issues where there is a split between
United States courts of appeals, a split between a United States court
of appeals and a state court of last resort, or an important issue of
federal law.
20
Unlike other cases, the party seeking review has not been
harmed. The Virginia Supreme Court ruled that the Commission
could seek an injunction from the courts of general jurisdiction in
the Commonwealth or that it could go to a United States District
Court. There is no harm worthy of this Court’s review.
The Commission lifted the injunction in question on April 1,
1994. There is no important or compelling reason for this Court to
review the issuance of an injunction which has been dissolved. The
Petition for a Writ of Certiorari should be denied.
Respectfully submitted this 14th day of December, 1994.
Harvey B. Cohen
R. Scott Caulkins
John C. Pasierb
Cohen, Getting, Dunham & Harrison, P.C.
2200 Wilson Boulevard
Arlington, VA 22201
(703) 525-2260
(703)525-2489 (FAX)
Attorneys for Respondent National Home
CERTIFICATE OF SERVICE
I hereby certify that on December 14, 1994, I sent three
copies of the foregoing Opposition via first class mail, postage
prepaid, to each of the following offices:
Patrick H. Cantilo
Randolph N. Wisener
Cantilo, Maisel & Hubbard, L.L.P.
111 Congress Avenue, Suite 1700
Austin, Texas 78701
(512) 478-6000
Drew S. Days, Ii
Solicitor General of the
United States
Department of Justice
Washington, D.C. 20530
Counsel of Record for Petitioner
I further certify that all parties required to be served have been
served.
ls/
Harvey B. Cohen
.
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A-1
Docket No. 94-1039
IN THE
United States Court Of Appeals
FOR THE FOURTH CIRCUIT
NATIONAL HOME INSURANCE COMPANY;
HOME BUYERS WARRANTY CORPORATION I,
Plaintiffs - Appellants,
Vv.
STATE CORPORATION COMMISSION
OF THE COMMONWEALTH OF VIRGINIA;
THEODORE V. MORRISON, JR.
individually and as Chairman of the State Corporation
Commission of the Commonwealth of Virginia;
PRESTON C. SHANNON, individually
and as a Member of the State Corporation Commission
of the Commonwealth of Virginia;
HULLIHEN W. MOORE, individually and as a
Member of the State Corporation Commission
of the Commonwealth of Virginia,
Defendants - Appellees.
District Court No. 93-1006-A
On Appeal from the United States District Court for the
Eastern District of Virginia, Alexandria Division
Pee SAAT Le a a OA
A-2
MOTION TO ABSTAIN OR STAY
The State Corporation Commission of the Commonwealth
of Virginia (the “Commission’”), Theodore V. Morrison, Jr.,
Preston C. Shannon, and Hullihen W. Moore (collectively, the
“Commissioners”), individually and as Commissioners of the
State Corporation Commission of the Commonwealth of Vir-
ginia, by counsel, respectfully submit their Motion to Abstain
or Stay in response to the Appeal filed by National Home
Insurance Company (“NHIC”) and Home Buyers Warranty
Corporation II (““HBWC’”).
BACKGROUND
1.NHIC is a risk retention group domiciled in the state of
Colorado and operating in the Commonwealth of Virginia pur-
suant to 15 U.S.C. §§ 3901 et seq. (the “Federal Risk Retention
Act”) and §§ 38.2-5100 et seq. of the Code of Virginia (the
“Virginia Risk Retention Act”).
2. In proceedings in Colorado, where it is domiciled, and
before the Commission in Richmond, NHIC has been found to
be impaired, insolvent, and/or operating in a hazardous financial
condition.
3. Proceedings against NHIC were commenced before the
Commission on or about April 9, 1993, by Steven T. Foster,
Commissioner of Insurance (the “Commissioner’”), in the name
of the Bureau of Insurance, of which the Commissioner is in
charge. Pursuant to both the Virginia Risk Retention Act and the
Federal Risk Retention Act, the Commissioner caused a Motion
for Temporary Injunction to be filed seeking an order from the
Commission partially enjoining the operation of NHIC in Vir-
ginia.
4. After extensive proceedings, and following notice and a
hearing, on July 2, 1993, the Commission entered its Order
Granting Motion for Temporary Injunction (the “Injunction’”)
partially enjoining the operations of NIZIC within the Common-
A-3
wealth of Virginia subject to certain qualifications therein set
forth. (A true and correct copy of the Order Granting Motion for
Temporary Injunction is attached to the Memorandum in Sup-
port of this Motion as Exhibit “1,” and is incorporated herein by
reference.)
5. On July 6, 1993, NHIC filed its Notice of Appeal of the
Injunction to the Supreme Court of Virginia (the “State Ap-
peal”). (A true and correct copy of NHIC’s Notice of Appeal to
the Virginia Supreme Court is attached to the Memorandum in
Support of this Motion as Exhibit “2,” and is incorporated herein
by reference.)
6. On July 30, 1993, NHIC filed its Supplemental Notice
of Appeal to the Virginia Supreme Court.
7. On August 2, 1993, NHIC filed its Request for Suspen-
sion of Effectiveness of the Commission’s Order (the “Request
for Suspension”) in the State Appeal. In connection with the
Request for Suspension, the parties briefed extensively the issue
of whether the Commission is a court of competent jurisdiction
for purposes of the Federal Risk Retention Act.
8. Also on August 2, 1993, NHIC filed its Petition for
Appeal in the State Appeal.
9. In the State Appeal, NHIC raises, among others, the
question of whether the Commission erred in entering the In-
junction because the Commission is not a court of competent
jurisdiction under the Federal Risk Retention Act. In essence,
NHIC is asking the Virginia Supreme Court to decide whether
the Commission is a court of competent jurisdiction for purposes
of the Federal Risk Retention Act.
10. On August 3, 1993, while its State Appeal was pending,
NHIC filed a Complaint for Declaratory Judgment (the “Com-
plaint”) in the United States District Court of the Eastern District
of Virginia, Alexandria Division (the “District Court”) seeking
|
A-4
declaratory and injunctive relief against enforcement of the
Injunction against NHIC.
11. On August 20, 1993, before the Commission answered
the Complaint, NHIC filed its Amended Complaint adding
Theodore V. Morrison, Jr., Preston C. Shannon, and Hullihen
W. Moore, individually, and as members of the Commission, as
defendants.
12. On August 26, 1993, NHIC filed its Motion for Tem-
porary Restraining Order and Preliminary Injunction with the
District Court. Following briefing and a hearing before the
District Court, the Motion for Temporary Restraining Order was
denied.
13. On September 1, 1993, after receiving briefs from both
sides, the Virginia Supreme Court denied NHIC’s Request for
Suspension. (A true and correct copy of the Virginia Supreme
Court’s order denying the Request for Suspension is attached to
the Memorandum in Support of this Motion as Exhibit “3,” and
is incorporated herein by reference.)
14. The Virginia Supreme Court granted NHIC’s Petition
for Appeal and entered its order granting the appeal on October
28, 1993.
15. On November 10, 1993, NHIC filed its Assignments
of Error with the Virginia Supreme Court raising, among others,
the precise issue that it has now raised before this Court. (A true
and correct copy of the Assignments of Error is attached hereto
as Exhibit “4,” and is incorporated herein by reference.)
16. After the submission of numerous additional briefs and
several additional hearings before the District Court, Judge Ellis
entered his order dismissing NHIC’s action on the Amended
Complaint on December 3, 1993.
17. On December 12, 1993, NHIC filed its Opening Brief
in the State Appeal.
A-5
18. On January 11, 1994, the Commission filed its Brief in
the State Appeal.
19. The sole issue presented to this Court has been squarely
joined in the State Appeal. NHIC has requested oral argument
which probably will take place before the Virginia Supreme
Court during either its February or March Term.
20. On December 27, 1993, NHIC filed its Notice of
Appeal in the District Court (the “Federal Appeal’).
21. On January 10, 1994, NHIC filed its Docketing State-
ment with this Court. In its Docketing Statement, NHIC raises
one of the specific issues raised in the State Appeal; to wit:
Whether the State Corporation Commission is an
independent court of competent jurisdiction as
required by the Federal Risk Retention Act, 15 U.S.C.
§ 3901 et seg.?
(A true and correct copy of NHIC’s Docketing Statement is
attached to the Memorandum in Support of this Motion as
Exhibit “4,” and is incorporated herein by reference.)
22. NHIC has presented three questions to the Virginia
Supreme Court ia the State Appeal. One of these questions is
the sole issue ised before this Court in the Federal Appeal.
Thus, even if this Court were to consider NHIC’s Federal
Appeal, a complete disposition could not be had. Only the
Virginia Supreme Court, before which all three issues have been
joined and briefed, can provide an orderly, efficient, and com-
plete disposition of NHIC’s concurrent appeals.
A-6
MOTION TO ABSTAIN OR STAY
23. The Commission and the Commissioners hereby incor-
porate paragraphs 1 through 22, supra, as if fully set forth herein.
24. This Court should abstain from exercising its jurisdic-
tion because NHIC has failed to exhaust its state remedies
inasmuch as it is currently pursuing an appeal from the Injunc-
tion to the Supreme Court of Virginia, which appeal is not yet
complete. These pending, concurrent proceedings in Virginia
implicate matters of substantial state interest where NHIC’s
claim will, and should, be resolved.
25. This Court should abstain from exercising its jurisdic-
tion as to NHIC’s Appeal under the principles announced in
Colorado River Water Conservation District v. United States,
424 U.S. 800 (1976) and its progeny.
26. This Court should abstain from exercising its jurisdic-
tion as to NHIC’s Appeal under the principles announced in
Younger v. Harris, 401 U.S. 37 (1971) and its progeny.
27. This Court should abstain from exercising its jurisdic-
tion as to NHIC’s Appeal under the principles announced in
Burford v. Sun Oil Company, 319 U.S. 315 (1943) and its
progeny.
28. Alternatively, a stay of the Federal Appeal as a matter
of comity is warranted under the facts and inherent equitable
powers of this Court.
Wherefore, Premises Considered, the Commission and
the Commissioners respectfully pray that this Court stay or
abstain from adjudicating NHIC’s Federal Appeal and for such
other relief, legal or equitable, to which they may be justly
entitled.
A-7
Respectfully submitted,
The State Corporation
Commission of the Common-
wealth of Virginia, and
Theodore V. Morrison, Jr.,
Preston C. Shannon, and
Hullihen W. Moore, individually
and as Commissioners of the
State Corporation Commission
of the Commonwealth of
Virginia
By Counsel
Cantilo, Maisel & Hubbard, L.L.P.
Patrick H. Cantilo
Randolph N. Wisener
Steven E. Adkins (Va. Bar No. 32834)
111 Congress Avenue, Suite 1700
Austin, Texas 78701
(512) 478-6000
Attorneys for Appellees
A-8
CERTIFICATE OF CONFERENCE
On January 20, 1994, the undersigned, on behalf of the
Commission and the Commissioners, contacted Mr. Harvey
Cohen, counsel to NHIC and HBWC, and informed him of the
anticipated filing of this Motion to Stay or Abstain. Mr. Cohen
stated that he would not consent to the relief sought, and would
file a response in opposition to this Motion to Stay or Abstain.
Randolph N. Wisener
B- 1
Docket No. 94-1039
IN THE
United States Court Of Appeals
FOR THE FOURTH CIRCUIT
NATIONAL HOME INSURANCE COMPANY;
HOME BUYERS WARRANTY CORPORATION I,
Plaintiffs - Appellants,
v.
STATE CORPORATION COMMISSION
OF THE COMMONWEALTH OF VIRGINIA;
THEODORE V. MORRISON, JR.,
individually and as Chairman of the State Corporation
Commission of the Commonwealth of Virginia;
PRESTON C. SHANNON, individually and as a
Member of the State Corporation Commission
of the Commonwealth of Virginia;
HULLIHEN W. MOORE, individually and as a
Member of the State Corporation Commission
of the Commonwealth of Virginia,
Defendants - Appellees.
District Court No. 93-1006-A
On Appeal from the United States District Court for the
Eastern District of Virginia, Alexandria Division
B-2
MOTION TO PLACE APPEAL IN ABEYANCE
The State Corporation Commission of the Commonwealth
of Virginia (the “Commission”), Theodore V. Morrison, Jr.,
Preston C. Shannon, and Hullihen W. Moore (collectively, the
“Commissioners”), individually and as Commissioners of the
State Corporation Commission of the Commonwealth of Vir-
ginia, by counsel, respectfully submit their Motion to Place in
Abeyance the Appeal filed by National Home Insurance Com-
pany (“NHIC”) and Home Buyers Warranty Corporation II
(““HBWC’”).
BACKGROUND
1. NHIC is a risk retention group domiciled in the state of
Colorado and operating in the Commonwealth of Virginia pur-
suant to 15 U.S.C. §§ 3901 et seq. (the “Federal Risk Retention
Act”) and §§ 38.2-5100 et seq. of the Code of Virginia (the
“Virginia Risk Retention Act”).
2. In proceedings in Colorado, where it is domiciled, and
before the Commission in Richmond, NHIC has been found to
be impaired, insolvent, and/or operating in a hazardous financial
condition.
3. Proceedings against NHIC were commenced before the
Commission on or about April 9, 1993, by Steven T. Foster,
Commissioner of Insurance (the “Commissioner’”), in the name
of the Bureau of Insurance, of which the Commissioner is in
charge. Pursuant to both the Virginia Risk Retention Act and the
Federal Risk Retention Act, the Commissioner caused a Motion
for Temporary Injunction to be filed seeking an order from the
Commission partially enjoining the operation of NHIC in Virginia.
4. After extensive proceedings, and following notice and a
hearing, on July 2, 1993, the Commission entered its Order
Granting Motion for Temporary Injunction (the “Injunction”)
partially enjoining the operations of NHIC within the Common-
wealth of Virginia subject to certain qualifications therein set
B-3
forth. (A true and correct copy of the Order Granting Motion for
Temporary Injunction is attached to the Memorandum in Sup-
port of this Motion as Exhibit “1”, and is incorporated herein by
reference.)
5. On July 6, 1993, NHIC filed its Notice of Appeal of the
Injunction to the Supreme Court of Virginia (the “State Ap-
peal”). (A true and correct copy of NHIC’s Notice of Appeal to
the Virginia Supreme Court is attached to the Memorandum in
Support of this Motion as Exhibit “2”, and is incorporated herein
by reference.)
6. On July 30, 1993, NHIC filed its Supplemental Notice
of Appeal to the Virginia Supreme Court.
7. On August 2, 1993, NHIC filed its Request for Suspen-
sion of Effectiveness of the Commission’s Order (the “Request
for Suspension”) in the State Appeal. In connection with the
Request for Suspension, the parties briefed extensively the issue
of whether the Commission is a court of competent jurisdiction
for the purposes of the Federal Risk Retention Act.
8. Also on August 2, 1993, NHIC filed its Petition for
Appeal in the State Appeal.
9. In the State Appeal, NHIC raises, among others, the
question of whether the Commission erred in entering the In-
junction because the Commission is not a court of competent
jurisdiction under the Federal Risk Retention Act. In essence,
NHIC is asking the Virginia Supreme Court to decide whether
the Commission is a court of competent jurisdiction for purposes
of the Federal Risk Retention Act.
10. On August 3, 1993, while the State Appeal was pend-
inz, NHIC filed a Complaint for Declaratory Judgment (the
“Complaint”) in the United States District Court for the Eastern
District of Virginia, Alexandria Division (the “District Court”),
seeking declaratory and injunctive relief against enforcement of
the Commission’s Injunction against NHIC.
B-4
11. On August 20, 1993, prior to the Commission’s having
answered the Complaint, NHIC filed its Amended Complaint
adding Theodore V. Morrison, Jr., Preston C. Shannon, and
Hullihen W. Moore, individually, and as members of the Com-
mission, as defendants.
12. On August 26, 1993, NHIC filed its Motion for Tem-
porary Restraining Order and Preliminary Injunction with the
District Court. Following briefing and a hearing before the District
Court, the Motion for Temporary Restraining Order was denied.
13. On September 1, 1993, after receiving briefs in oppo-
sition and in support of NHIC’s Request for Suspension, the
Virginia Supreme Court denied the Request for Suspension. (A
true and correct copy of the Virginia Supreme Court’s order
denying the Request for Suspension is attached to the Memo-
randum in Support of this Motion as Exhibit “4”, and is incor-
porated herein by reference.)
14. The Virginia Supreme Court granted NHIC’s Petition for
Appeal, entering its order granting the appeal on October 28, 1993.
15. On November 10, 1993, NHIC filed its Assignments
of Error with the Virginia Supreme Court raising the precise
issue, among others, that it has now raised before this Court. (A
true and correct copy of the Assignments of Error is attached
hereto as Exhibit “5”, and is incorporated herein by reference.)
16. After the submission of numerous additional briefs and
additional hearings before the District Court, Judge Ellis entered
an order dismissing NHIC’s action without prejudice on Decem-
ber 3, 1993.
17. On December 12, 1993, NHIC filed its Opening Brief
in the State Appeal.
18. On January 11, 1994, the Commission filed its Brief in
the State Appeal.
se eS ee, ee ee ey eee ae
at la NtIR A te dei th
B-5
19. The sole issue presented to this Court has been squarely
joined in the State Appeal. NHIC has requested oral argument
which will probably take place before the Virginia Supreme
Court during either its February or March Term.
20. On December 27, 1993, NHIC filed its Notice of
Appeal in the District Court (the “Federal Appeal’’).
21. On January 10, 1994, NHIC filed its Docketing State-
ment with this Court. In its Docketing Statement, NHIC raises
one of the specific issues raised in the State Appeal; namely:
Whether the State Corporation Commission is an
independent court of competent jurisdiction as re-
quired by the Federal Risk Retention Act, 15 U.S.C.
§ 3901 et seq.?
(A true and correct copy of NHIC’s Docketing Statement is
attached to the Memorandum in Support of this Motion as
Exhibit “6”, and is incorporated herein by reference.)
22. NHIC has presented three questions to the Virginia
Supreme Court in the State Appeal. One of these questions is
the sole issue raised before this Court in the Federal Appeal.
Thus, even if this Court were to consider NHIC’s Federal
Appeal, a complete disposition could not be had. Only the
Virginia Supreme Court, before which all three issues have been
joined and briefed, can provide an orderly, efficient, and com-
plete disposition of NHIC’s concurrent appeals.
MOTION FOR ABEYANCE
23. The Commission and the Commissioners hereby incor-
porate paragraphs 1 through 22, supra, as if fully set forth herein.
24. Pursuant to Internal Operating Procedure 12.5, the
Commission and the Commissioners move this Court to place
the Federal Appeal in abeyance while the sole basis of the
Federal Appeal, which has been presented to and briefed before
the Virginia Supreme Court, may be resolved. The disposition
B-6
of this matter by the Virginia Supreme Court will have an effect
on the Federal Appeal because NHIC has asked both this Court
and the Virginia Supreme Court to determine whether the Com-
mission is a court of competent jurisdiction under the Federal
Risk Retention Act.
25. When the Virginia Supreme Court resolves the issue
presented to it in the State Appeal, which is the sole basis of
NHIC’s Federal Appeal, the Commission and the Commission-
ers will promptly advise this Court pursuant to Internal Operat-
ing Procedure 12.5.
WHEREFORE, PREMISES CONSIDERED, the Com-
mission and the Commissioners respectfully pray that this Court
hold this Federal Appeal in abeyance until final disposition of
the State Appeal by the Virginia Supreme Court and for such
other relief, legal or equitable to which they may be justly
entitled.
Respectfully submitted,
The State Corporation Commis-
sion of the Commonwealth of
Virginia, and Theodore V. Morri-
son, Jr., Preston C. Shannon, and
Hullihen W. Moore, individually,
and as Commissioners of the State
Corporation Commission of the
Commonwealth of Virginia
By Counsel
Cantilo, Maisel & Hubbard, L.L.P.
Patrick H. Cantilo
Randolph N. Wisener
Steven E. Adkins (Va. Bar No. 32834)
111 Congress Avenue,Suite1700
Austin, Texas 78701
(512)478-6000
Attorney for Appellees
j
:
:
B-7
CERTIFICATE OF CONFERENCE
On January 20, 1994, the undersigned, on behalf of the
Commission and the Commissioners, contacted Mr. Harvey
Cohen, counsel to NHIC and HBWC, and informed him of the
anticipated filing of this Motion to Place Appeal in Abeyance.
Mr. Cohen stated that he would not consent to the relief sought,
and would file a response in opposition to this Motion to Place
Appeal in Abeyance.
Randolph N. Wisener
B-8
CERTIFICATE OF SERVICE
One copy of the foregoing MOTION TO PLACE APPEAL
IN ABEYANCE was served on NHIC and HBWC, through their
counsel, Harvey B. Cohen, by overnight delivery, this 20th day
of January, 1994, addressed as follows:
Cohen Gettings, Dunham &
Harrison, P.C.
2200 Wilson Blvd., Suite 800
Arlington, Virginia 22101
Randolph N. Wisener
C-1
Docket No. 94-1039
IN THE
United States Court Of Appeals
FOR THE FOURTH CIRCUIT
NATIONAL HOME INSURANCE COMPANY;
HOME BUYERS WARRANTY CORPORATION II,
Plaintiffs - Appellants,
Vv.
STATE CORPORATION COMMISSION OF THE
COMMONWEALTH OF VIRGINIA; THEODORE V.
MORRISON, JR., individually and as Chairman of the State
Corporation Commission of the Commonwealth of Virginia;
PRESTON C. SHANNON, individually and as a Member of
the State Corporation Commission of the Commonwealth of
Virginia, HULLIHEN W. MOORE, individually and as a
Member of the State Corporation Commission of the
Commonwealth of Virginia,
Defendants - Appellees.
District Court No. 93-1006-A
On Appeal from the United States District Court for
the Eastern District of Virginia, Alexandria Division
Memorandum In Support Of Motion to Place
Appeal In Abeyance
CANTILO, MAISEL & HUBBARD, L.L.P.
Patrick H. Cantilo
Randolph N. Wisener
Steven E. Adkins
(Va. Bar No. 32834)
111 Congress Ave., Suite 1700
Austin, Texas 78701
(512)478-6000
PREM Ree Mt Nar NLR. esa hls oo
C-2
MEMORANDUM IN SUPPORT OF MOTION TO
PLACE APPEAL IN ABEYANCE
The State Corporation Commission of the Commonwealth of
Virginia (the “Commission”), Theodore V. Morrison, Jr., Pre-
ston C. Shannon, and Hullihen W. Moore (the “Commission-
ers”), by counsel, respectfully submit this Memorandum in
Support of their Motion to Place in Abeyance the Appeal of
National Home Insurance Company (“NHIC”) and Home Buy-
ers Warranty Corporation II (““HBWC’’).
I. NATURE OF THE CASE
This case implicates material questions of federalism and
comity because, prior to filing this appeal, NHIC has been
pursuing (and continues to pursue) another appeal before the
Virginia Supreme Court which is considering, among others, the
sole question which is raised before this Court. The appeal
before the Virginia Supreme Court is at a well-advanced stage.
In its blatant forum shopping, NHIC desires to have this Court
provide a stop-gap measure in the event the Virginia Supreme
Court decides the very issue presented here adversely to NHIC.
The Commission, as authorized by both state and federal
law, entered the injunction against NHIC (the “Injunction’’)
because of NHIC’s financially hazardous condition. (A true and
correct copy of the Injunction is attached hereto as Exhibit “1",
and is incorporated herein by reference.) After noticing an
appeal of the Injunction to the Virginia Supreme Court (the
“State Appeal”), as well as petitioning to have the effectiveness
of the Injunction suspended by the Virginia Supreme Court,
NHIC filed an action seeking declaratory and injunctive relief
from the Injunction in the United States District Court for the
Eastern District of Virginia, Alexandria Division (the “District
Court”). On December 3, 1993, the District Court dismissed
NHIC’s action without prejudice. From this decision by the
District Court, NHIC now presents its appeal to this Court (the
“Federal Appeal’) raising one of the very issues which it has
C-3
raised in its State Appeal and which is now being considered by
the Virginia Supreme Court. The Commission respectfully re-
quests that this Court place this proceeding in abeyance pending
the disposition of the sole question raised here by the Virginia
Supreme Court.
ll. BACKGROUND
A. The Commission.
The Commission is a department of government of the
Commonwealth of Virginia, created and empowered by consti-
tutional and legislative authority. See Va. Const. art. IX, §§ 1
and 2; Va. Code §§ 12.1-12 and -13. The Commission is vested
with legislative, executive, and judicial powers, and is the means
by which the Commonwealth exercises its police power to
regulate various industries, including insurance. See Va. Code
§ 38.2-200.
B. NHIC and HBWC.
NHIC is a Colorado corporation conducting the business
of insurance in Virginia. HBWC, an affiliate of NHIC, is also a
Colorado corporation authorized to do business in Virginia.
C. Prior Proceedings.
1. The Proceedings Before the Commission.
After determining that NHIC was in a hazardous financial
condition, the Bureau of Insurance (the “Bureau”) instituted an
action in the Commission against NHIC. A hearing on the
Bureau’s request for an injunction was held in Richmond before
the Commission for two days in June of 1993, during which the
Bureau and NHIC offered and cross-examined witnesses, intro-
duced documentary evidence, and presented and argued various
motions.
After considering testimony, evidence, and arguments of
counsel, the Commission found NHIC to be financially im-
paired, and entered the Injunction generally enjoining NHIC
C-4
from conducting the business of insurance in Virginia.! On
July 6, 1993, NHIC filed its Notice of Appeal of the Injunction
to the Virginia Supreme Court. (A true and correct copy of
NHIC’s Notice of Appeal in the state proceedings is attached
hereto as Exhibit “2”, and is incorporated herein by reference.)
2. The Proceedings Before the District Court.
With its State Appeal pending before the Virginia Supreme
Court, NHIC filed an action against the Commission and the
Commissioners in the District Court raising the same issues that
it had raised in its State Appeal and requested declaratory and
injunctive relief which would annul the Injunction. On Decem-
ber 3, 1993, Judge Ellis entered an order dismissing NHIC’s
action without prejudice. See National Home Ins. Co. v. State
Corp. Comm’n, No. 93-1006-A 1993 WL 497011 (E.D. Va.
Dec. 3, 1993). (A true and correct copy of Judge Ellis’s decision
is attached hereto as Exhibit “3”, and is incorporated herein by
reference.) On December 27, 1993 — more than six months after
filing its Notice of Appeal to the Virginia Supreme Court —
NHIC filed its Notice of Appeal of Judge Ellis’s decision to this
Court.
3. The Current Duplicative Proceeding Before the
Virginia Supreme Court.
As noted earlier, NHIC filed its Notice of Appeal to the
Virginia Supreme Court in July of 1993. NHIC filed its Supple-
mental Notice of Appeal to the Virginia Supreme Court on July
30, 1993. On August 2, 1993, NHIC filed its Request for
Suspension of Effectiveness of the Commission’s Order (the
“Request for Suspension”) with the Virginia Supreme Court. In
connection with the Request for Suspension, NHIC and the
' No relief was sought, and no order entered, against HBWC in the
Commission. Indeed, HBWC was not, and is not, a party in the state proceed-
ing. Nonetheless, disposition by the Virginia Supreme Court of the issues
pending before it would dispose of all issues presented by HBWC as well.
C-5
Commission briefed the issue of whether the Commission is a
court of competent jurisdiction for purposes of the Federal Risk
Retention Act. After receiving briefs in opposition and in sup-
port of the Request for Suspension, the Virginia Supreme Court
denied the Request for Suspension on September 1, 1993. (A
true and correct copy of the Virginia Supreme Court’s order
denying the Request for Suspension is attached hereto as Exhibit
“4”, and is incorporated herein by reference.)
The sole issue presented to this Court has been squarely
joined before the Virginia Supreme Court. On August 2, 1993,
NHIC filed its Petition for Appeal in the Virginia Supreme
Court. NHIC’s petition was granted by the Virginia Supreme
Court on October 28, 1993. NHIC filed its Assignments of Error
on November 10, 1993.2 On December 14, 1993, NHIC filed
its Opening Brief to the Virginia Supreme Court. On January
11, 1994, the Commission filed its Brief with the Virginia
Supreme Court. The precise question raised here was assigned
as error by NHIC and briefed by both parties in the State Appeal.
NHIC has requested oral argument, and it is anticipated that
these arguments will take place before the Virginia Supreme
Court during its February or March Term.
Il. ARGUMENT
This Appeal Should be Placed in Abeyance
Pending Resolution by the Virginia Supreme Court of
the Precise Issue now Before this Court.
It is axiomatic that there is a “power inherent in every court
to control the disposition of the causes on its docket with
economy of time and effort for itself, for counsel, and for
litigants.” Landis v. North American Co., 299 U.S. 248, 254
(1936). Moreover, it is a well established principle that:
A true and correct copy of NHIC’s Assignments of Error to the Virginia
Supreme Court is attached hereto as Exhibit “S”, and is incorporated herein
by reference.
C-6
a court may, in its discretion, defer or abate proceed-
ings where another suit, involving the identical issues,
is pending either in federal or state court, and it would
be duplicative, uneconomical and vexatious to
proceed.
Blinder, Robinson & Co.. Inc. v. SEC, 692 F.2d 102, 106 (lOth
Cir. 1982), cert. denied, 471 U.S. 1125 (1985), (citing Will v.
Calvert Fire Ins. Co., 437 U.S. 655 (1978), and Brillhart v.
Excess Insurance Co. of America, 316 U.S. 491 (1942)). These
time-honored principles are manifested in this Court’s Internal
Operating Procedure 12.5 which provides that:
In the interest of docket control the Court may,
either on its own motion or upon request, place a case
in abeyance pending disposition of matters before this
Court or other courts which may affect the ultimate
resolution of an appeal.
In its State Appeal, NHIC has raised the following
issue:
The Commission erred in that it had no juris-
diction to enter the Injunction Order against NHIC
under the Federal Risk Retention Act because the
Commission is not a “court of competent jurisdiction”
within the meaning of the Federal Risk Retention Act.
Appellant’s Assignments of Error (Exhibit “5”) at 1-2.
In its Federal Appeal, NHIC presents the following
question:
Whether the State Corporation Commission is
an independent court of competent jurisdiction as
required by the Federal Risk Retention Act, 15 U.S.C.
§ 3901, et seq.
C-7
NHIC’s Docketing Statement at 2.3 The only conceivable way
in which the Virginia Supreme Court can resolve the issue
presented in the State Appeal is by determining whether the
Commission is a court of competent jurisdiction as required by
the Federal Risk Retention Act — the sole and identical issue
raised before this Court. Accordingly, the Virginia Supreme
Court’s decision will be dispositive of the sole basis of NHIC’s
Federal Appeal. Naturally, the Virginia Supreme Court’s deci-
sion will affect the ultimate resolution of the Federal Appeal. A
more appropriate candidate for abeyance is difficult to imagine.
Consequently, NHIC’s Federal Appeal should be placed in
abeyance pursuant to this Court’s Internal Operating Procedure
12.5.
This Court has held appeals in abeyance on facts which
were much less compelling than those presented in the case at
bar. See. e.g., Vincent v. Reynolds Memorial Hospital, 728 F.2d
250 (4th Cir. 1984) (appeal held in abeyance while West Vir-
ginia Supreme Court determined appeal of validity of settlement
agreement); Briley v. Bass, 750 F.2d 1238, 1240 (4th Cir. 1984)
(appeal of district court decision in habeas corpus proceeding
remanded and placed in abeyance pending disposition of habeas
corpus proceeding in Virginia court).
In the case at bar, an appeal has been perfected and almost
completely briefed by the parties in the Virginia Supreme Court.
Indeed, the State Appeal was perfected even before the District
Court action was ever filed. Thus, the case at bar presents a much
more compelling situation for abeyance than did Vincent where
the state appeal was granted only after the federal court action
had been filed. Just as this Court properly refused to waste
judicial resources by placing the Vincent and Briley appeals in
abeyance pending resolution by the state court, so should it now
3 A true and correct copy of the Docketing Statement filed by NHIC on
January 10, 1994, is attached hereto as Exhibit “6””, and is incorporated herein
by reference.
C-8
refuse to waste judicial resources on this duplicative adjudica-
tion.
_ As this Court has noted:
[A] federal court is not precluded, in the exer-
cise of its discretion, from staying proceedings in the
action before it pending a decision by a state court,
with a view to avoiding wasteful duplication of judi-
cial resources and having the benefit of the state
court’s views.
Suggs v. Brannon, 804 F.2d 274 (4th Cir. 1986) (quoting Giulini
v. Blessing, 654 F.2d 189, 193 (2d Cir. 1981)). This reasoning
from Giulini, where the Second Circuit ordered that a claim be
held in abeyance until the state court had resolved certain
constitutional issues, is equally compelling here. In the case at
bar, NHIC has raised precisely the same issue as it has raised,
among others, in its State Appeal. Thus, judicial resources
would be wastefully duplicated by allowing NHIC’s Federal
Appeal to proceed concurrently with the State Appeal. The
opportunity for contradictory results and piecemeal litigation is
great here. Moreover, by placing this matter in abeyance until
the Virginia Supreme Court has ruled on the question of whether
the Commission is a court of competent jurisdiction, this Court
will have the benefit of the state court’s views.* These factors
counsel heavily in favor of placing NHIC’s Federal Appeal in
abeyance until its State Appeal is resolved.
4 Notably, and as pointed out by Judge Ellis, since the Federal Risk
Retention Act does not define “court of competent jurisdiction,’” “it seems
apparent that Congress expected this determination to be made by reference
to state law, for it is state law that typically defines a “ ‘state court of competent
jurisdiction. ’” National Home Ins. Co. v. State Corp. Comm'n, No. 93-1006-
A 1993 WL 497011 at *7 (E.D. Va. Dec. 3, 1993) (citing Hill v. Martin, 296
U.S. 393, 397-98 (1935), and Roudebush v. Hartke, 405 U.S. 15, 21 (1972)).
Under this settled law, surely no tribunal would be better equipped to make
this determination than the Supreme Court of Virginia.
‘
IV. CONCLUSION
NHIC is “hedging its bet” by appealing precisely the same
issue simultaneously to this Court and to the Virginia Supreme
Court. This Federal Appeal is merely NHIC’s safety measure to
be used if the Virginia Supreme Court’s disposition of the very
same issue raised here is unfavorable to NHIC. Such blatant
playing of one court system against the other must not be
countenanced by this Court. For these compelling reasons, the
Federal Appeal should be placed in abeyance pending resolution
of the sole basis of this appeal by the Virginia Supreme Court.
Respectfully submitted,
The State Corporation Commission of the
Commonwealth of Virginia, and Theodore V.
Morrison, Jr., Preston C. Shannon, and Hulli-
hen W. Moore, individually, and as Commis-
sioners of the State Corporation Commission
of the Commonwealth of Virginia
By Counsel
Cantilo, Maisel & Hubbard, L.L.P.
Patrick H. Cantilo
Randolph N. Wisener
Steven E. Adkins (Va. Bar No. 32834)
111 Congress Avenue, Suite 1700
Austin, Texas 78701
(512) 478-6000
Attorneys for Appellees
D-1
Docket No. 94-1039
IN THE
United States Court Of Appeals
FOR THE FOURTH CIRCUIT
NATIONAL HOME INSURANCE COMPANY
(A Risk Retention Group)
and
HOME BUYERS WARRANTY CORPORATION I,
Plaintiffs-Appellants
v.
STATE CORPORATION COMMISSION
OF THE COMMONWEALTH OF VIRGINIA, et aL,
Defendants-Appellees,
Filed: January 28, 1994
District Court No. 93-1006-A
APPELLANTS’ JOINDER IN MOTION TO ABSTAIN
Harvey B. Cohen, Va. Bar #6440
R. Scott Caulkins, Va. Bar #23583
John C. Pasierb, Va. Bar #27446
COHEN, GETTINGS, DUNHAM
& HARRISON, P.C.
Arlington, Virginia, 22201
(703) 525-2260
(703) 525-2489 (fax)
Counsel for the Appellants, NHIC and HBW
D-2
APPELLANT’S JOINDER IN MOTION TO ABSTAIN
National Home Insurance Company (a Risk Retention
Group) (“NHIC”) and Home Buyers Warranty Corporation II
(“HBW"), hereby join in the motion to abstain filed by the State
Corporation Commission (“the Commission”) and the Commis-
sion’s individual members, Theodore V. Morrison, Jr., Preston
C. Shannon, and Hullihen W. Moore (hereinafter, the individual
members of the Commission will be collectively referred to as
the “Commissioners”), and request that this Court abstain and
therefore, that the decision of the District Court be vacated and
the case remanded with instructions to await the outcome of the
State court proceedings.
SUMMARY OF POSITION
By motion, rather than by cross appeal, the Commission
and the Commissioners have resurrected their motion to abstain
considered and denied by the District Court. The District Court’s
decision on abstention was correct at the time it was made, but
since then, and since the filing of this appeal, circumstances have
changed. Only recently, the Virginia Supreme Court notified
counsel that it will hear oral argument on the state appeal during
the third week of February 1994. Based on the current status of
the Virginia Supreme Court appeal, and the case authority of
this Court, the appropriate disposition of the appeal before this
Court is to vacate the District Court’s opinion and remand the
case to the District Court with instructions to retain jurisdiction
over the case should anything prevent a prompt state court
determination. An explanation of the procedural background
reflects the current status of both appeals and the reasons why
this relief is now appropriate.
PROCEDURAL HISTORY
NHIC, a “risk retention group” under the Risk Retention
Act, 15 U.S.C. § 3901, et seq. (“the Federal Act’), writes
casualty insurance to insure the product liability risks of builders
|
|
j
D-3
in connection with the construction of new residential housing.
NHIC is composed of builder members who have joined to-
gether to self insure themselves under the Federal Act. The
Federal Act was intended to insure uniform regulation of risk
retention groups by preempting the authority of non-domiciliary
States to exercise regulatory authority over risk retention groups
operating in their jurisdictions but domiciled in another state.
Colorado is NHIC’s domiciliary and regulatory state.
From 1986 until 1992, NHIC employed a well-known,
independent actuarial firm to determine and certify the adequacy
of its reserves. Insurance rates were based upon this professional
advice, and as of September 30, 1992, NHIC’s reserves had been
certified by the firm to be adequate. Based upon the firm’s
advice, NHIC had been projecting that by the end of 1992 there
would be capital and surplus of $3.5 million to $4 million.
During the preparation of the 1991 audited financial statements
by an accounting firm engaged by NHIC, the accounting firm’s
staff actuaries performed their own actuarial analysis and re-
ported that NHIC was under-reserved for unearned premiums
under this different analysis. A third actuarial study was con-
ducted by a third independent firm to review those findings.
NHIC reported this deficit in unearned premium reserves to the
Colorado Division of Insurance.
As a result of this change in actuarial models and the
resulting under-reserve, NHIC is operating under the direct
supervision of the Colorado Division of Insurance and pursuant
to an Abatement Plan. NHIC reported the under-reserve to the
Commission.
Even though the Commission can only enjoin NHIC’s
operations if it petitions an independent court of competent
jurisdiction for an injunction under 15 U.S.C. 3902(a)(1)(H), the
Bureau of Insurance at the relation of the Commission brought
an action before the Commission, with the Commissioners as
the triers of fact, against NHIC entitled Commonwealth of
D-4
Virginia at the Relation of the State Corporation Commission
v. National Home Insurance Company (A Risk Retention Group)
seeking to enjoin NHIC’s operations even though NHIC’s domi-
ciliary and primary regulatory state under the Federal Act,
Colorado, was allowing NHIC to continue operations under a
plan of abatement. On July 2, 1993, the Commission entered an
Order granting the Commission’s motion for temporary injunc-
tion (“Injunction Order"), without a petition being filed or a
hearing before an independent court of competent jurisdiction.
NHIC’s objection to the jurisdiction of the Commission to hear
the matter pursuant to the Federal Act was made before the
Commission and denied. The Injunction Order was to take effect
on September 1, 1993.
Following the issuance of the Injunction Order, NHIC
petitioned the Commission to suspend the effectiveness of the
Injunction Order and offered to post a bond in the amount of
$1 million to cover any claims made on warranties in Virginia.
The basis of this motion was the absolute lack of any testimony
that NHIC was unable to pay any of its obligations as they
became due. In fact, the only testimony was that NHIC could
pay claims for the next eight years even if no steps were taken
under the plan of abatement. The bond offered by NHIC was in
an amount sufficient to pay all claims arising in Virginia for
several years even without any further infusion of capital called
for in Colorado’s Abatement Plan. That petition was denied by
the Commission and the Commissioners on July 23, 1993.
Virginia is NHIC’s fifth largest market. If NHIC were
unable to do business in Virginia for any period of time as a
result of the Injunction Order, NHIC would suffer irreparable
harm. Consequently, time was of the essence to NHIC to be
heard on its objections to the Commission’s actions prior to the
effective date of the Injunction Order of September 1, 1993.
NHIC filed its Notice of Appeal of the Injunction Order on July
6, 1993. In its Petition for Appeal, NHIC petitioned for the
D-5
suspension of the effectiveness of the Injunction Order until the
Supreme Court decided the appeal. Due to the delay in the
Court’s consideration of the Petition for Suspension occasioned
by the Court’s August recess, NHIC and HBW filed a complaint
for a declaratory judgment and injunctive relief in the United
States District Court on August 2, 1993, requesting that the
District Court declare that the Commission was not an inde-
pendent court of competent jurisdiction as required by the
Federal Act and that, therefore, it lacked the authority under the
Federal Act to issue the injunction. The Complaint originally
named the Commission as a Defendant. It was amended before
the filing of responsive pleadings to add the Commissioners as
defendants in their individual and official capacities and to add
a cause of action arising under 15 U.S.C. § 1983. The District
Court was the only timely source of relief available to NHIC and
HBW in August 1993 to remedy the irreparable harm to NHIC
and HBW caused by the issuance of the Injunction Order
contrary to the Federal Act.
The Commission, and subsequently the Commissioners,
responded with a motion requesting, inter alia, that the District
Court abstain from exercising its jurisdiction or, in the alterna-
tive, stay the proceeding for an indefinite period of time. The
basis of the Commission’s motion was the ongoing proceeding
before the Virginia Supreme Court.
On August 26, 1993, NHIC and HBW filed a Motion for
Temporary Restraining Order and Preliminary Injunction in the
District Court case. On August 27, 1993, the District Court heard
the first of three oral arguments. The District Court denied the
request for a temporary restraining order on September 3. 1993.
but set a hearing on the merits and on the motions filed by the
Commission and the Commissioners. The parties submitted
several supplemental briefs requested by the District Court on
various issues including abstention.
a
D -6
In the Supreme Court Appeal, the petition for suspension
of effectiveness of order was denied by the Supreme Court of
Virginia on September 7, 1993. The Commission delayed trans-
mitting the record to the Virginia Supreme Court, delaying the
appeal before that Court. NHIC and HBW continued the pro-
ceeding before District Court as it appeared unlikely at that time
that the Virginia Supreme Court would hear and decide the
appeal before it for at least a year.
On December 3, 1993, the District Court issued the Memo-
randum Opinion which is the subject of this appeal. The District
Court decided not to abstain from ruling on whether the Com-
mission was a court of competent jurisdiction under the Federal
Act, but did abstain under Younger v. Harris, 401 U.S. 37 (1971)
from reviewing the proceeding before the Commission to deter-
mine if the Commission was sitting in its legislative or judicial
capacity during the proceeding. Because NHIC and HBW be-
lieve the District Court erred in ruling that the Commission
could act as a court of competent jurisdiction under the Federal
Act, NHIC and HBW appealed the District Court’s opinion to
this Court on December 28, 1993. Neither the Commission nor
the Commissioners filed a cross appeal on the District Court’s
rulings.
After the Commission and Commissioners filed the Mo-
tions for Abstention or Abeyance presently before this Court
NHIC and HBW received notice from the Virginia Supreme
Court tentatively setting oral argument on the appeal pending
before it for the week of February 21 through 25, 1994.
D-7
ARGUMENT
APPELLANTS JOIN IN THE MOTION TO ABSTAIN
FROM HEARING THIS APPEAL AND REQUEST
UPON ABSTENTION, THE DISTRICT COURT’S
DECISION BE VACATED AND THE CASE BE
REMANDED TO THE DISTRICT COURT.
NHIC and HBW believe that the District Court made the
correct decision not to abstain below and that issue was not
appealed or cross appealed. We recognize, however, that this
Court has previously stated that even if the District Court’s
decision on abstention is not appealed, it can “ex mero motu"
consider the issue of abstention. Front Royal and Warren
Industrial Park Corp. v. Town of Front Royal, Va., 945 F.2d
760, 763 (4th Cir. 1991); Caleb Stowe Associates, Ltd v. County
of Albemarle, Va., 724 F.2d 1079, 1080 (4th Cir. 1984); AFA
Distributing Co. Inc., v. Pearl Brewing Co., 470 F.2d 1210,
1213 (4th Cir. 1973). Contra, Winston v. Children and Youth
Services of Delaware County, 948 F.2d 1380, 1384 (3rd Cir.
1991). Accordingly, it is appropriate to consider whether absten-
tion is proper at this time.
We agree that the changed circumstances since the District
Court heard this matter now warrant abstention. Five and one
half months have passed since the suit was filed. The Virginia
Supreme Court has advised all parties that it will hear oral
argument during the third week of February 1994 instead of the
one year anticipated when the suit was filed before the District
Court. Under these circumstances, the length of delay and the
resulting irreparable harm to NHIC and HBW appear greatly
reduced. Therefore, as a matter of comity and judicial economy,
NHIC and HBW agree that abstention would be proper provided
that the District Court decision is vacated.
The case law is clear—if this Court abstains, then the
decision of the District Court should be vacated. See Front
D-8
Royal, 945 F.2d at 765; Caleb, 724 F.2d at 1081; and AFA
Distributing, 470 F.2d at 1214. If the lower court decision is not
vacated and this Court abstains, then the District Court decision
would become final and NHIC and HBW would be deprived of
their right of appeal of that decision. On each occasion where
this Court has abstained from determining the merits of an
appeal of a district court’s decision it vacated the judgment
below. Id.
In addition to vacating the judgment below, it is appropriate
for this Court to remand the case to the District Court. In Caleb,
this court did exactly that:
Although neither the plaintiffs nor the defendants
contend that the case cannot be fully disposed of in
Virginia state courts, we think it is appropriate for the
district court to retain jurisdiction over the case
“should anything prevent a prompt state court deter-
mination.” Louisiana Power & Light Co. v. City of
Thibodaux, 360 U.S. 25, 31, 79 S.Ct. 1070, 1074, 3
L.Ed.2d 1058 (1959); Fralin & Waldron, Inc. v. City
of Martinsville, 493 F.2d at 483. In addition, the
plaintiffs may wish to preserve their right to have their
federal claims decided in federal court in the event of
an adverse state determination of the questions of state
and local law. England v. Louisiana State Board of
Medical Examiners, 375 U.S. 411, 419-422, 84 S.Ct.
461, 466-468, 11 L.Ed.2d 440 (1964).
724 F.2d at 1080-1081. Here, although the argument is sched-
uled for the week of February 21-25, 1994, there may be some
unforseen delay and the District Court should retain jurisdiction
in that event. The District Court noted this possibility when,
although entering a final appealable judgment, it stated:
“{s]hould delay occur, however, NHIC has leave to return to this
Court to pursue its claim.” (Memorandum Opinion, p. 33.) If
D-9
this Court abstains, the decision below must be vacated and
remanded to the District Court.
CONCLUSION
If this Court decides to abstain as a result of the joint
motion, it must also vacate the District Court’s decision and
remand the matter to the District Court with instruction to retain
jurisdiction pending the outcome in the state court proceedings.
Respectfully submitted,
COHEN, GEITINGS,
DUNHAM &, HARRISON,P .C.
Harvey B. Cohen, Va. Bar #6440
R. Scott Caulkins, Va. Bar #23583
John C. Pasierb, Va. Bar #27446
2200 Wilson Boulevard, Suite 800
Arlington, Virginia, 22216
(703) 525-2260
(703) 525-2489 (fax)
Counsel for the Plaintiffs,
NHIC and HBW
CERTIFICATE OF SERVICE
I hereby certify that this day of January, 1994, I mailed,
first class mail, postage prepaid, a copy of the foregoing to the
following offices:
Patrick H. Cantilo
Randolph N. Wisener
Cantilo, Maisel & Hubbard, L.L.P.
111 Congress Avenue, Suite 1700
Austin, Texas 78701
(512) 478-6000
E- 1
No. 94-1039
IN THE
United States Court Of Appeals
FOR THE FOURTH CIRCUIT
(CA-93-1006-A)
NATIONAL HOME INSURANCE COMPANY;
HOME BUYERS WARRANTY CORPORATION I,
Plaintiffs - Appellants,
VS.
STATE CORPORATION COMMISSION OF
THE COMMONWEALTH OF VIRGINIA;
THEODORE V. MORRISON, JR., individually and as
Chairman of the State Corporation Commission of the
Commonwealth of Virginia; PRESTON C. SHANNON, indi-
vidually and as a Member of the State Corporation Commis-
sion of the Commonwealth of Virginia; HULLIHEN W.
MOORE, individually and as a Member of the State
Corporation Commission of the Commonwealth of Virginia,
Defendants - Appellees.
Filed: February 22, 1994
ORDER
Appellees filed a motion to place case in abeyance, appel-
lants filed a response to the motion and appellees filed a reply
in support of the motion.
E-2
The Court places this case in abeyance pending decision
by the Virginia Supreme Court in National Home Insurance
Company v. State Corporation Commission, record number
931052. The parties are directed to immediately notify this
Court in that case.
For the Court
/s/ Bert M. Montague
Clerk
F-1
Record No. 931052
IN THE
SUPREME COURT OF VIRGINIA
AT RICHMOND
(S.C.C. Case No. INS930072)
NATIONAL HOME INSURANCE COMPANY
(A Risk Retention Group),
Appellant
v.
STATE CORPORATION COMMISSION,
Appellee.
BRIEF OF APPELLEE
STATE CORPORATION COMMISSION
Stewart E. Farrar
Solicitor General
Anthony Gambardella
General Counsel
Peter B. Smith
Senior Counsel
Michael D. Thomas
_ Assistant General Counsel
State Corporation Commission
Office of General Counsel
P.O. Box 1197
Richmond, Virginia 23209
F-2
(EXCERPT)
ARGUMENT
The major issues in this case have already been decided by
the United States District Court for the Eastern District of
Virginia. Although that Court’s decision is not absolutely bind-
ing on this one, the Commission submits that it is extraordinarily
persuasive here. NHIC should bear a heavy burden to explain to
this Court why a different result should be reached in this appeal,
which burden it has failed to meet.
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.