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Pine Top Receivables of Ill., LLC v. del Estado

United States Court of Appeals, Seventh Circuit

November 7, 2014

PINE TOP RECEIVABLES OF ILLINOIS, LLC, Plaintiff-Appellant,
v.
BANCO DE SEGUROS DEL ESTADO, Defendant-Appellee

Argued October 30, 2013.

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 12 C 6357 -- Marvin E. Aspen, Judge.

For PINE TOP RECEIVABLES OF ILLINOIS, LLC, a limited liability company, Plaintiff - Appellant (13-1364): Mary Cannon Veed, Attorney, MARY CANNON VEED & ASSOCIATES, Hinsdale, IL.

For BANCO DE SEGUROS DEL ESTADO, a statutory coporation wholly owned by the Sovereign Republic Oriental of Uruguay, Defendant - Appellee (13-1364): Robert A. Badgley, Attorney, KARBAL, COHEN, ECONOMOU, SILK & DUNNE, Chicago, IL; Ernesto R. Palomo, Attorney, LOCKE LORD LLP, Chicago, IL.

For PINE TOP RECEIVABLES OF ILLINOIS, LLC, a limited liability company, Plaintiff - Appellant (13-2331): Mary Cannon Veed, Attorney, MARY CANNON VEED & ASSOCIATES, Hinsdale, IL.

For BANCO DE SEGUROS DEL ESTADO, a statutory coporation wholly owned by the Sovereign Republic Oriental of Uruguay, Defendant - Appellee (13-2331): Robert A. Badgley, Attorney, KARBAL, COHEN, ECONOMOU, SILK & DUNNE, Chicago, IL; Ernesto R. Palomo, Attorney, LOCKE LORD LLP, Chicago, IL.

Before EASTERBROOK and WILLIAMS, Circuit Judges.[1]

OPINION

Page 981

Per Curiam.

Pine Top Receivables (" Pine Top" ) brought this action against Banco de Seguros del Estado, an entity wholly owned by Uruguay. Pine Top claimed that Banco owes $2,352,464.08 under reinsurance contracts. Pine Top's complaint sought to compel arbitration but alternately proposed that the court enter judgment for breach of contract. Banco answered the complaint, and Pine Top moved to strike the answer for failure to post security under Illinois insurance law. The district court denied the motion, and Pine Top took an immediate appeal in reliance on the collateral order doctrine, which applies to orders about the posting of security. See Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949); Habitat Education Center v. United States Forest Service, 607 F.3d 453, 455 (7th Cir. 2010).

The district court later denied Pine Top's motion to compel arbitration, and Pine Top took a second interlocutory appeal on the authority of 9 U.S.C. § 16. We discuss later some jurisdictional questions related to that appeal. For now it is enough to say that we affirm both of the district court's decisions.

I. BACKGROUND

A.

According to the allegations of the complaint, from 1977 to 1984 Banco entered into contracts under which it reinsured Pine Top Insurance Company (" Pine Top Insurance" ). The complaint in this suit alleges that Banco still owes more than $2 million to the primary insurer.

Pine Top Insurance became insolvent and, in 1986, was placed into liquidation under the supervision of an Illinois court. After completing an accounting, its Liquidator sent a demand letter to Banco on July 31, 2008, seeking the claimed overdue balances on various reinsurance contracts. The Liquidator then sold Pine Top Insurance's accounts receivable to Pine Top, which was established for the purpose of acquiring those rights. As the debt's new

Page 982

owner, Pine Top sought to collect. Banco disputed the amounts claimed, and Pine Top filed the present action.

B.

In moving to strike Banco's answer, Pine Top contended that, under the Unauthorized Insurers Process Act as adopted in Illinois, 215 ILCS 5/123, Banco must post pre-answer security in the full amount of the disputed debt. Banco opposed the motion, contending among other things that the Foreign Sovereign Immunities Act (" FSIA" ) bars any requirement of prejudgment security. Pine Top acknowledges that Banco's status as an entity wholly owned by Uruguay brings it within the FSIA.

The district court denied the motion to strike. It concluded that the FSIA's prohibition on attaching a foreign state's property prevents application of the Illinois security requirement. The court concluded that the security would be an " attachment" within the meaning of the FSIA. It relied principally on Stephens v. National Distillers & Chemical Corp., 69 F.3d 1226 (2d Cir. 1995), which held that a similar security requirement under New York law is equivalent to an attachment. The district court also held that Banco had not waived its FSIA immunity.

The district court later determined that Pine Top has no right to arbitrate under the terms of the reinsurance treaties, because the assignment executed by the Liquidator gave Pine Top only limited rights to the collections of certain debts, not all rights and duties under the treaties.

II. DISCUSSION

Two orders of the district court are before us. The first order, in appeal No. 13-1364, denied Pine Top's motion to strike Banco's responsive pleading for failure to comply with the security requirement of 215 ILCS 5/123(5). The second, the subject of appeal No. 13-2331, denied Pine Top's motion to compel arbitration and dismissed those counts of the complaint that demanded arbitration. We address these matters in turn.

A. Motion to Strike, Appeal No. 13-1364

Under 215 ILCS 5/123(5), before an insurer that is not specifically authorized to do business in Illinois may file any responsive pleading in a suit against it, it must first deposit with the clerk of the court security sufficient to satisfy any final judgment in the action. Although this is phrased as a pleading rule, the parties treat it as substantive and we do likewise without deciding whether the parties' assumption is correct. (If it is procedural, federal rules would control, see Walker v. Armco Steel Corp., 446 U.S. 740, 100 S.Ct. 1978, 64 L.Ed.2d 659 (1980), and federal law does not require out-of-state insurers to post security.)

Banco does not contend that it is " authorized" for the purpose of § 5/123(5), but it does contend, and the district court held, that the FSIA blocks enforcement of Illinois's requirement. Pine Top raises several arguments in reply: (1) that the prejudgment security is not an attachment within the meaning of the FSIA; (2) that, if the security would otherwise be an attachment and be prohibited by the FSIA, Banco waived its immunity; and (3) that the McCarran-Ferguson Act, 15 U.S.C. § § 1011-15, prevents application of the FSIA. We address these contentions in turn.

1. " Attachments" Prohibited by the FSIA

One section of the FSIA provides:

Subject to existing international agreements to which the United States is a party at the time of enactment of this

Page 983

Act the property in the United States of a foreign state shall be immune from attachment arrest and execution except as provided in sections 1610 and 1611 of this chapter.

28 U.S.C. § 1609 (emphasis added). The parties dispute whether the security requirement in the Illinois Code is an " attachment" within the meaning of § 1609. In Pine Top's view, the term refers to a historical procedure to obtain jurisdiction over a foreign sovereign; Banco contends that it is not so restricted and covers all security requirements designed to ensure that a judgment can be enforced.

No case from this circuit addresses whether prejudgment security is an " attachment" for FSIA purposes.[2] We therefore must begin with the text of the statute. Argentina v. NML Capital, Ltd., 134 S.Ct. 2250, 2256, 189 L.Ed.2d 234 (2014) ( " [A]ny sort of immunity defense made by a foreign sovereign must stand on the Act's text. Or it must fall." ); see also Senne v. Village of Palatine, 695 F.3d 597, 601 (7th Cir. 2012) (en banc). The FSIA does not define the term " attachment arrest and execution", nor does § 1609 make any other reference that would clarify whether it covers only jurisdictional attachments or attachments to secure judgments. However, the following section provides important guidance about the term's likely breadth.[3] Section 1610 defines exceptions to the general rule of immunity set forth in § 1609; it explains when property, which otherwise would be immunized under § 1609, is not immune from attachment under the Act:

(d) The property of a foreign state, as defined in section 1603(a) of this chapter, used for a commercial activity in the United States, shall not be immune from attachment prior to the entry of judgment in any action brought in a court of the United States or of a State, or prior to the elapse of the period of time provided in subsection (c) of this section, if--
(1) the foreign state has explicitly waived its immunity from attachment prior to judgment, notwithstanding any withdrawal of the waiver the foreign state may purport to effect except in accordance with the terms of the waiver, and
(2) the purpose of the attachment is to secure satisfaction of a judgment that has been or may ultimately be entered against the foreign state, and not to obtain jurisdiction.

28 U.S.C. ยง 1610 (emphasis added). Section 1610(d) shows that several conditions must be met before prejudgment attachment of a foreign sovereign's property is allowable: (1) the property must be used for a commercial purpose; (2) there must be an explicit waiver; and (3) the purpose of the attachment must be to secure satisfaction of a judgment rather than ...


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