proceed with its seven non-contingent claims and has expressly waived its rights to the identified non-contingent claims.
A. Standards in Declaratory Judgment Actions
It is well established that while the Declaratory Judgment Act, 28 U.S.C. § 2201, granted the federal courts discretion to make a declaration, it did not impose a duty to do so. Public Affairs Assoc., Inc. v. Rickover, 369 U.S. 111, 112, 7 L. Ed. 2d 604, 82 S. Ct. 580 (1962). In determining whether declaratory relief is appropriate, the Court evaluates whether (1) the declaratory judgment will serve a useful purpose in clarifying and settling the legal issues between the parties; and (2) the declaratory judgment will afford relief from uncertainty, insecurity and controversy. Id. "It follows then when neither of these results can be accomplished, the court should decline to render the declaration prayed." Id.
In order for the Court to issue a declaratory judgment, "there must be a dispute which 'calls, not for an advisory opinion upon a hypothetical basis, but for an adjudication of present right upon established facts.'" Ashcroft v. Mattis, 431 U.S. 171, 172, 52 L. Ed. 2d 219, 97 S. Ct. 1739 (1977) (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 242, 81 L. Ed. 617, 57 S. Ct. 461 (1937)). "When all is said and done. . . 'the propriety of declaratory relief in a particular case will depend upon a circumspect sense of its fitness informed by the teaching and experience concerning the functions and extent of federal judicial power.'" Wilton v. Seven Falls Co., 515 U.S. 277, 115 S. Ct. 2137, 2143, 132 L. Ed. 2d 214 (1995) (quoting Public Serv. Comm'n v. Wycoff Co., 344 U.S. 237, 243, 97 L. Ed. 291, 73 S. Ct. 236 (1952)).
B. Summary Judgment Standards
Summary judgment is proper only if the record shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); Cincinnati Ins. Co. v. Flanders Elec. Motor Serv., Inc., 40 F.3d 146, 150 (7th Cir. 1995). A genuine issue for trial exists only when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). The court must view all evidence in a light most favorable to the nonmoving party, and draw all reasonable inferences from the evidence in the nonmovant's favor. Cincinnati Ins., 40 F.3d at 150. However, if the evidence is merely colorable, or is not significantly probative, or merely raises "some metaphysical doubt as to the material facts," summary judgment may be granted. Liberty Lobby, 477 U.S. at 261; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). In making its determination, the court's sole function is to determine whether sufficient evidence exists to support a verdict in the nonmovant's favor. Credibility determinations, weighing evidence, and drawing reasonable inferences are jury functions, not those of a judge when deciding a motion for summary judgment. Liberty Lobby, 477 U.S. at 255.
Where cross motions for summary judgment have been submitted, the court is not required to grant judgment as a matter of law for one side or the other. Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir. 1993). The court must evaluate each party's motion on its own merits, resolving factual uncertainties and drawing all reasonable inferences against the party whose motion is under consideration. Id.; Buttitta v. City of Chicago, 803 F. Supp. 213, 217 (N.D.Ill. 1992), aff'd, 9 F.3d 1198 (7th Cir. 1993).
A. Count One of Plaintiff's Complaint
After a careful evaluation of the parties' briefs and oral argument, this Court has concluded that Count One of Boozell's Complaint does not presently state a case or controversy that mandates this Court's exercise of its discretion to declare whether the federal priority statute interferes with the Illinois insurance liquidation statute. In the first instance, the only concrete claims that are involved in this claim are 128 contingent federal claims that Boozell has identified in Reserve's liquidation. However, the United States has expressly waived any right to assert these contingent claims during Reserve's liquidation proceeding. This voluntary waiver is valid and is accepted by this Court. See e.g. Aleutian Contractors v. United States, 24 Cl. Ct. 372, 384 (1991). Nevertheless, Boozell asserts that he is entitled to a declaratory judgment because the United States may one day assert further unknown claims in the Reserve liquidation. The United States strongly asserts that this future event is too speculative to justify a declaratory judgment in this case. This Court agrees and concludes that Boozell has not met his burden of establishing the need for a declaratory judgment on the waived contingent claims under the circumstances of this case. Given the government's waiver, Boozell has not established a need for this Court to consider his arguments that the long-standing federal priority statute is unconstitutional as written and as applied to Reserve's liquidation. Count One of Boozell's claim is therefore dismissed without prejudice to its refiling upon the United States' assertion of any contingent claim in the Reserve liquidation.
B. Count Two of Plaintiff's Complaint and The United States' Counterclaim
What this case essentially boils down to is Count II of Boozell's complaint, which involves six actual federal claims which total $ 580.00, and the parties' dispute about whether these claims are entitled to federal priority in view of the McCarran-Ferguson Act. The United States has filed a counterclaim for declaratory relief which seeks a declaration that: (1) the Illinois state priority statute is preempted by the federal priority statute to the extent that the state scheme purports to afford priority treatment to the claims of state law guaranty funds ahead of federal claims and (2) that even if the Illinois state priority statute has not been preempted by federal law, the federal claims are entitled to the priority afforded to policyholders of Reserve.
This Court has seriously considered whether the $ 580.00 in actual claims at issue in Boozell's Count II and the United States' Counterclaim justify discretionary declaratory judgment relief in a situation involving $ 66.4 million in funds to be distributed to entities asserting over $ 111.4 million in liabilities. Certainly a strong argument can be made that a mere $ 580.00 adjustment in claims will not come close to materially impacting Reserve's liquidation. Thus, this Court concludes that it would be well within its discretion to withhold any declaration with respect to the remaining claims in this lawsuit. This resolution would be fully consistent with the Court's ruling with respect to Boozell's Count I.
Yet, the Court is satisfied that a real controversy exists between the parties with respect to the United States' actual claims in this controversy. Therefore, in the interests of justice and judicial economy
this Court will squarely address the issues presented in Boozell's Count II and the United States' Counterclaim.
This dispute arises from inherent conflicts between the relevant state and federal statutes. The Illinois state insurance liquidation law gives sixth priority to the claims of the federal government after the claims of policyholders, insurance guaranty trust funds and others. 215 ILCS 5/205(1). On the other hand, the federal priority statute always gives first priority to the claims of the United States with respect to a bankrupt debtor's obligations. 31 U.S.C. § 3713. In the face of conflicting statutes, the general rule is that federal law preempts state law. However, the McCarran-Ferguson Act expressly provides an insurance exception to the general federal preemption rule:
No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance. . . unless such Act specifically relates to the business of insurance. . . .
15 U.S.C. § 1012(b).
The controversy among the parties is whether the Illinois Insurance Code, which creates claim priority ranks for purposes of liquidation, regulates the "business of insurance." If this issue is answered affirmatively then the Illinois statute survives federal preemption under the McCarran-Ferguson Act.
Our analysis of this issue must begin and end with the Supreme Court's decision in United States Department of the Treasury v. Fabe, 508 U.S. 491, 124 L. Ed. 2d 449, 113 S. Ct. 2202 (1993). In Fabe, the Court evaluated separate provisions of a similar Ohio insurance liquidation statute to determine whether federal preemption was appropriate under the McCarran-Ferguson Act. The Court held that an insurance liquidation priority statute regulates the "business of insurance," within the meaning of the McCarran-Ferguson Act, to the extent that the statutory provisions are found to protect insurance policyholders. In particular, the Court held that Ohio may afford priority to the insurance claims of policyholders and to the costs and expenses of administering the liquidation over the claims of the United States. Id. at 492. The Court specifically held: "the Ohio priority statute is designed to carry out the enforcement of insurance contracts by ensuring the payment of policyholders' claims despite the insurance company's intervening bankruptcy. Because it is integrally related to the performance of insurance contracts after bankruptcy, Ohio's law is one 'enacted by any State for the purpose of regulating the business of insurance.'" Id. at 502. The Court reasoned that "because the Ohio statute is 'aimed at protecting or regulating' the performance of an insurance contract, it follows that it is a law 'enacted for the purpose of regulating the business of insurance,'" within the plain meaning of the McCarran-Ferguson Act. Id. at 504 (quoting SEC v. National Securities, Inc., 393 U.S. 453, 460, 21 L. Ed. 2d 668, 89 S. Ct. 564 (1969)). The Court expressly noted that its prior opinion in SEC v. National Securities, Inc. had observed that statutes which indirectly protected the relationship between the insurer and insured constitute the "business of insurance" within the McCarran-Ferguson Act. Id. at 500.
The Fabe Court also held, however, that Ohio would not use the McCarran-Ferguson Act to avoid federal preemption when it attempted to rank other categories of non-policyholder claims above those pressed by the United States. Id. at 508. The Court stated that the general assertion that every preference accorded to the creditors of an insolvent insurer ultimately may be resolved to the benefit of policyholders by enhancing the reliability of the insurance company was too broad based to avoid preemption under the McCarran-Ferguson Act. Thus, the preferences conferred upon employees and other general creditors by Ohio did not escape preemption because their connection to the ultimate aim of insurance was too tenuous. Id. at 508.
As easily predicted by Justice Kennedy's dissent in Fabe, which was joined by Justice Scalia, Souter and Thomas, the application of Fabe has been difficult. In fact, the First and the Second Circuit Courts of Appeal have taken different approaches in their application of Fabe.
In Garcia v. Island Program Designer, Inc., 4 F.3d 57, 60-62 (1st Cir. 1993), Justice Breyer (then Chief Judge of the First Circuit) applied Fabe and concluded that 31 U.S.C. § 3713 preempted the Commonwealth of Puerto Rico's insurance liquidation filing deadline and related priority system. Thus, late-filed federal claims were still entitled to priority. Justice Breyer expressly concluded that "the filing deadline was not directed at nor necessary for the protection of insurance policyholders." 4 F.3d at 62.
Justice Breyer concluded that Puerto Rico's filing deadline (with its penalty of subordination for late claims) did not directly regulate policyholders because it was not necessary for their protection. Justice Breyer concluded that "the provision helps policyholders only to the extent that (and in the same way as) it helps all creditors." Id. Justice Breyer acknowledged that the absence of a firm deadline would make the liquidator's job more difficult. Nevertheless, he concluded that the liquidation was manageable because the trustees could simply search for potential federal claims and give them first priority even if these claims had not been formally asserted by the United States. Id. The Garcia court held that relieving the liquidator of the search for federal claims only provided policyholders with an "indirect, speculative benefit of the kind that the Fabe Court found far too tenuous to prevent pre-emption." Id.
On the other hand, the Second Circuit in Stephens v. American Intern Ins. Co., 66 F.3d 41 (2nd Cir. 1995) applied Fabe and found that an anti-arbitration provision in the Kentucky Insurers Rehabilitation and Liquidation Law was enacted "for the purpose of regulating the business of insurance" and was thus preserved by the McCarran-Ferguson Act from preemption by the Federal Arbitration Act. The Stephens court found a Kentucky statute, which regulates the liquidation of insurance companies and which renders arbitration clauses unenforceable during liquidation, was critical to the relationship between an insurance company and its policyholder because both parties know that the insurance company will be liquidated in an orderly fashion in the case of insolvency. The Stephens court rejected an overly narrow definition of protecting policyholders: " Fabe states that 'statutes aimed at protecting or5 regulating [the relationship between policyholder and insurer], directly or indirectly, are laws regulating the "business of insurance"' and that any law with the 'end, intention, or aim of adjusting, managing, or controlling the business of insurance' is a law 'enacted for the purpose of regulating the business of insurance.'" Id. at 45 (quoting Fabe, 508 U.S. at 501, 505) (emphasis in Stephens ; some internal quotation marks omitted).
With the Fabe principles in mind, we proceed to analyze the Illinois Insurance Liquidation Law challenged herein.
The Illinois priority statute provides, in pertinent part:
(1) The priorities of distribution of general assets from the company's estate is to be as follows: