The opinion of the court was delivered by: ILANA DIAMOND ROVNER
MEMORANDUM OPINION AND ORDER
This is a statutory interpleader action that, although over three years old, is still at its incipient stage. The issue that has occupied both this Court and the Court of Appeals for most of the protracted history of this case is whether the federal courts should abstain in deference to the New York state liquidation proceedings. In its opinion of October 1, 1990, this Court determined that abstention was inappropriate, finding that issues of federal law predominated, that the interpleader action would not significantly intrude upon the liquidation proceedings, and that it was unclear whether any other forum could adequately protect the rights of all parties. See General Railway Signal Co. v. Corcoran, 748 F. Supp. 639, 644-47 (N.D. Ill. 1990).
As the case proceeded in this Court after the refusal to abstain, the Superintendent of Insurance of the State of New York (the "Superintendent"), as liquidator for American Fidelity Fire Insurance Company ("AFFI"), one claimant to the interpled fund,
prosecuted an interlocutory appeal from the preliminary injunction issued by the Court pursuant to 28 U.S.C. §§ 1335 & 2361. The Superintendent's appeal primarily challenged the Court's jurisdiction to issue a preliminary injunction pursuant to section 2361. The Court of Appeals vacated the Court's injunction but ultimately concluded that federal jurisdiction existed over the interpleader action. See General Railway Signal Co. v. Corcoran, 921 F.2d 700 (7th Cir. 1991). In the course of its opinion, however, the Court of Appeals discussed at some length the abstention issue, which this Court had already addressed in its October 1, 1990 opinion, but which was not the subject of the Superintendent's appeal. That discussion indicated that the Court of Appeals clearly believed that this Court should abstain. Id. at 707-10. Because the Court of Appeals explicitly disagreed with much of the reasoning of the Court's October 1, 1990 opinion, the Court followed the mandate of the Court of Appeals and reconsidered its abstention ruling, determining that it was required to abstain. See General Railway Signal Co. v. Corcoran, 757 F. Supp. 911 (N.D. Ill. 1991). Accordingly, the Court dismissed the interpleader action without prejudice. Id. at 915.
Upon dismissal of the case, General Railway Signal Company ("General Railway"), the interpleader plaintiff, filed a motion to release the interpleader bond and to discharge the surety. At the hearing on that motion, the United States Small Business Administration (the "SBA") indicated that it intended to appeal the Court's abstention decision and orally moved for a stay or an injunction pending appeal. The Court denied the SBA's oral motion, finding that the Court of Appeals' discussion of abstention in its initial opinion indicated that the SBA was unlikely to succeed on the merits of its appeal. Finding any injunctive relief improper, the Court determined that it had no choice but to release the interpleader bond and to dismiss the surety.
When that occurred, General Railway paid to the Superintendent the entire amount of the underlying state court judgment, and the Superintendent executed and delivered to General Railway a release of judgment.
The SBA then appealed this Court's January 25, 1991 judgment dismissing the case on the ground of abstention. The Court of Appeals subsequently vacated the Court's judgment and again remanded for consideration of the propriety of abstention. See General Railway Signal Co. v. Engeleiter, 969 F.2d 519 (7th Cir. 1992). The Court of Appeals apparently adopted this course because it believed that the Court had "misapprehended the impact" of dicta addressing the abstention issue that was included in its earlier opinion. Id. at 520. The Court of Appeals conceded that the earlier panel had discussed, "extensively and perhaps too definitively, several aspects of Burford3 abstention" that would require the attention of this Court on remand. Id. Acknowledging, "with the benefit of hindsight," that this discussion was "clearly counterproductive" because it had "conveyed to the district court the impression that the issue was foreclosed, at least as a practical matter, from further exploration," the Court of Appeals then explicitly stated "that the entire matter of Burford abstention is open for consideration by the district court." Id. at 521. In particular, the second panel stated that
the comments in our earlier opinion about the relative importance of federal and state law issues were not intended to disapprove categorically the result reached by the district court. Nor were our remarks regarding the extent to which the interpleader action might interfere with state liquidation proceedings meant to assess this issue definitively. Moreover, all other aspects of the abstention issue are similarly open.
Id. Therefore, consistent with the Court of Appeals' suggestion, the Court has accepted further briefing on the abstention issue and now considers and adjudicates that issue de novo.4
A. The Court's October 1, 1990, Abstention Decision.
As explained both by this Court and the Court of Appeals in earlier opinions, the Burford abstention doctrine requires that a federal court abstain "where a state creates a complex regulatory scheme and an exercise of federal jurisdiction would 'be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.'" General Railway, 921 F.2d at 708 (quoting Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 814, 96 S. Ct. 1236, 1245 (1976)); see also New Orleans Pub. Serv., Inc. v. Council of City of New Orleans, 491 U.S. 350, 361, 109 S. Ct. 2506, 2514 (1989); Property & Casualty Ins. Ltd. v. Central Nat'l Ins. Co., 936 F.2d 319, 322 (7th Cir. 1991); General Railway, 748 F. Supp. at 645. The Court concluded in its October 1, 1990, Memorandum Opinion and Order that abstention was unwarranted for the following three reasons: "(1) the case involved an issue of federal law, (2) the interpleader action in this Court had little if any effect on the state liquidation proceedings, and (3) the Court was uncertain whether any other forum could adequately protect the rights of all parties." General Railway, 757 F. Supp. at 913-14; see also General Railway, 748 F. Supp. at 644-47.
First, the Court was uncertain whether the state liquidation proceedings could adequately protect the rights of all parties. Id. at 646. The SBA and General Railway maintained that it could not, whereas the Superintendent argued that the SBA could just as easily assert a claim in the liquidation proceeding. Because no party had submitted any authority on the ability of the state liquidation proceeding to protect the rights of all parties, the Court left this question unanswered, considering the uncertainty as a factor relevant to its analysis. Id.
The Court next considered whether the case involved a question of federal, as opposed to state, law. The Court explained the nature of the predominant issue as follows:
the issue on the merits is whether the SBA is entitled to collect from [General Railway] the amount which the SBA claims on the judgment before [General Railway] pays the judgment to the Superintendent. This is not an issue of how the assets of AFFI are to be distributed, but rather an issue of whether the portion of the judgment claimed by the SBA may be considered an asset of AFFI in the first place.
Id. After reviewing the nature of the SBA's claim and the defenses to that claim asserted by the Superintendent, the Court concluded that "the claims and defenses raised in connection with the motion to dismiss thus raise matters which are of federal, rather than state, concern." Id.
Finally, the Court was particularly influenced by the fact that there was no claim "against the existing estate" of the liquidated insurance company. Id. The Court explained that
this is not even a case where the liquidator is attempting to recover assets that will be distributed to [the insurance company's] creditors; the Superintendent does not dispute that the SBA will eventually be entitled to its pro rata share of the net proceeds. Some courts have abstained in circumstances where the liquidator is attempting to recover assets for the estate rather than to avoid losing assets, for the reason that the liquidator's collection of assets is an important aspect of the liquidation proceedings and affects the amount available for distribution to creditors. In this case, however, the lack of any substantial ...