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Quackenbush, Cal. Ins. Comm'r, et al. v. Allstate Ins. Co. (95-244), 517 U.S. 706 (1996)
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NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Lumber Co., 200 U.S. 321, 337.

SUPREME COURT OF THE UNITED STATES

Syllabus

QUACKENBUSH, CALIFORNIA INSURANCE COMMISSIONER, et al. v. ALLSTATE INSURANCE CO.

certiorari to the united states court of appeals for the ninth circuit

No. 95-244. Argued February 20, 1996 -- Decided June 3, 1996

Petitioner California Insurance Commissioner, as trustee over the assets of the Mission Insurance Company and its affiliates, filed a state court action against respondent Allstate Insurance Company, seeking, among other things, contract and tort damages for Allstate's alleged breach of reinsurance agreements. Allstate removed the action to federal court on diversity grounds and filed a motion to compel arbitration under the Federal Arbitration Act. The Commissioner sought remand to state court, arguing that the District Court should abstain from hearing the case under Burford v. Sun Oil Co., 319 U.S. 315, because its resolution might interfere with California's regulation of the Mission insolvency. Specifically, the Commissioner indicated that the issue whether Allstate could set off its own contract claims against the Commissioner's recovery was a question of state law currently pending before the state courts in another Mission insolvency case. Observing that the State's overriding interest in the uniform and orderly regulation of insurance insolvencies and liquidations could be undermined by inconsistent rulings from the federal and state courts, and determining that the setoff question should be resolved in state court, the District Court concluded that Burford abstention was appropriate and remanded the case to state court without ruling on Allstate's arbitration motion. After determining that appellate review of the District Court's remand order was not barred by 28 U.S.C. § 1447(d), and that the remand order was appealable under 28 U.S.C. § 1291 as a final collateral order, the Ninth Circuit vacated the decision and ordered the case sent to arbitration. Concluding that Burford abstention is limited to equitable actions, the court held that abstention was inappropriate in this damages action.

Held:

1. An abstention based remand order is appealable under 28 U.S.C. § 1291. Section 1447(d)--which provides that "[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise"--interposes no bar to appellate review of the order at issue. Only remands based on grounds specified in §1447(c) are immune from review under §1447(d), and the District Court's order in this case does not fall into either category of remand order described in §1447(c): It is not based on lack of subject matter jurisdiction or defects in removal procedure. The remand order here falls within that narrow class of collateral orders that are immediately appealable under §1291. It puts the litigants in this case effectively out of court, and its effect is precisely to surrender jurisdiction of a federal suit to a state court. Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 11, n. 11. The order also conclusively determines an issue that is separate from the merits, namely the question whether the federal court should decline to exercise its jurisdiction in the interest of comity and federalism; the rights asserted on appeal from the abstention decision are sufficiently important to warrant an immediate appeal; and the remand order will not be subsumed in any other appealable order entered by the District Court. See Moses H. Cone, supra. The decision in Thermtron Products, Inc. v. Hermansdorfer, 423 U.S. 336, 352-353, that "an order remanding a removed action does not represent a final judgment reviewable by appeal," is disavowed to the extent it would require this Court to ignore the implications of the later holding in Moses H. Cone. Pp. 4-8.

2. Federal courts have the power to dismiss or remand cases based on abstention principles only where the relief sought is equitable or otherwise discretionary. Because this was a damages action, the District Court's remand order was an unwarranted application of the Burford doctrine. Pp. 8-25.

(a) In cases where the relief sought is equitable in nature or otherwise discretionary, federal courts not only have the power to stay the action based on abstention principles, but can also, in otherwise appropriate circumstances, decline to exercise jurisdiction altogether by either dismissing the suit or remanding it to state court. See, e.g., Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 297. By contrast, federal courts may stay actions for damages based on abstention principles, but those principles do not support the outright dismissal or remand of damages actions. See, e.g., Louisiana Power & Light Co. v. Thibodaux, 360 U.S. 25, 28. Pp. 8-16.

(b) Burford allows a federal court to dismiss a case only if it presents "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 if its adjudication in a federal forum "would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern." Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 814. This power to dismiss represents an extraordinary and narrow exception to a district court's duty to adjudicate a controversy properly before it. Pp. 16-22.

(c) Applying Burford to this case, the federal interests are pronounced, as Allstate's motion to compel arbitration under the Federal Arbitration Act implicates a substantial federal concern for the enforcement of arbitration agreements. With regard to the state interests, the case appears at first blush to present nothing more than a run of the mill contract dispute: The Commissioner seeks damages for Allstate's failure to perform its obligations under a reinsurance agreement. Pp. 22-23.

(d) To the extent the Ninth Circuit held only that a federal court cannot, under Burford, dismiss or remand an action when the relief sought is not discretionary, its judgment is consistent with this Court's abstention cases. The Commissioner appears to have conceded that the relief sought is neither equitable nor otherwise committed to the court's discretion. However, by limiting Burford abstention to equitable cases, the court applied a per se rule more rigid than this Court's precedents require. Since abstention principles are not completely inapplicable in damages actions, Burford might have supported an order to stay the federal proceedings pending the outcome of the state court litigation on the setoff issue. Only the remand order which the Ninth Circuit entered is being reviewed, and, thus, it is not necessary to determine whether a more limited abstention-based stay order would have been warranted on the facts of this case. Pp. 23-24.

47 F. 3d 350, affirmed.

O'Connor, J., delivered the opinion for a unanimous Court. Scalia, J., and Kennedy, J., filed concurring opinions.