In re Case No. 4-86-00159-HAR
      Case No. 4-86-00160-HAR
      Case No. 4-86-00161-HAR
      In Chapter 11

SADCO ENTERPRISES; JERRY LEE
SADLER and NANCY DAWN SADLER;
JAY SADLER,

               Debtor(s)
  

SADCO ENTERPRISES, 

			  Plaintiff(s)

        v.

MUTUAL BENEFIT LIFE INSURANCE
COMPANY,

			Defendants(s)

          A pre-trial conference was held in Fairbanks on July 22, 1991, and continued to August 19, 1991 due to the insurance company receivership or rehabilitation proceeding which has been recently instituted in the New Jersey state courts concerning Mutual Benefit Life Insurance Company (MBL). The case is Docket C-91-00109, the Matter of the Rehabilitation of Mutual Benefit Life Insurance Company, a Mutual Insurance Company of New Jersey, in the Superior Court of New Jersey, Chancery Division, in Mercer County. MBL has     2 ABR 63  asked this court to honor the New Jersey court's order of July 16, 1991, which states:

All officers, directors, policyholders, agents, and employees of Mutual Benefit and all other persons or entities of any nature, including, but not limited to claimants, holders of annuity contracts, beneficiaries under any Mutual Benefit contract, plaintiffs or petitioners in any action against Mutual Benefit, physicians, hospitals or other medical or health providers, and any other governmental agencies, having claims of any nature against Mutual Benefit including crossclaims, counterclaims, and third party claims, are hereby enjoined and restrained from:

b. bringing, maintaining or further prosecuting any action at law, suit in equity, special or other proceeding against Mutual Benefit, its estate receivership or against the Commissioner and his successors in office, as Rehabilitator thereof, or against the Deputy Rehabilitator appointed pursuant to paragraph 3 above.

          I have treated MBL's notification of the New Jersey order as an informal motion to abstain. Under the 1990 amendments to the law involving bankruptcy procedure, Congress adopted the recommendation of the Federal Courts Study Committee, and permitted the Bankruptcy Court to enter a final order regarding abstention under 28 USC § 1334(c). I have held that, notwithstanding the existence of Bankruptcy Rule 5011(b), this court can enter a final order regarding abstention. See Alaska Trams Corp. v. The City and Borough of Juneau (In re Alaska Trams Corporation), 1 A.B.R. 268 (1990). See also In re Ascher, 128 B.R. 639 (Bankr.N.D.Ill. 1991) holding that a bankruptcy judge has authority to make a binding ruling on a motion for discretionary abstention.

    2 ABR 64 

          At the July 22, 1991 pre-trial conference, I advised the parties that, in an adversary proceeding related to the case of In re Thomas A. Rosson, Jr., Case No. 4-87-00130-HAR, I had abstained from an adversary proceeding against a surety in liquidation based on the Burford abstention doctrine. This doctrine is named after Burford v. Sun Oil Co., 319 U.S. 315 (1943). The Burford doctrine has been applied to situations involving a state insurance liquidation under comprehensive state legislation and regulation. It has regularly been applied to New York insurance liquidation situations. See Law Enforcement Ins. Co. v Corcoran, 807 F.2d 38 (2nd Cir. 1986).

          The Ninth Circuit decided Tucker v. First Maryland Savings & Loan, Inc., ____ F.2d ____, 1991 WL 160475 (9th Cir. 1991) a few days ago. Tucker discussed the Burford abstention doctrine extensively in relation to the Maryland savings and loan defendant in a lender liability suit.

          First Maryland Savings & Loan was in a Maryland conservatorship under state legislation which created the Maryland Deposit Insurance Fund. The legislation provided for plenary jurisdiction to be in a special Maryland state court with respect to all actions involving the assets and liabilities of an institution in conservatorship.

          Notwithstanding the comprehensive Maryland legislation, the Ninth Circuit held Burford abstention was not appropriate. The lender liability case involved Arizona state law, not Maryland law.     2 ABR 65  It was in federal court on diversity grounds, but otherwise did not involve any federal questions. The district court would have applied state law. The court said it found no authority for one state to enact legislation to deprive a state of subject matter jurisdiction to hear a case properly before it. The court said in Tucker at ____:

      In Burford, the Supreme Court determined that a federal court could decline to exercise its jurisdiction to hear a case that involved an essentially local issue arising out of a complicated state regulatory scheme. Burford, 319 U.S. at 317-18, 334. See International Bhd. of Elec. Workers, Local Union No. 1245 v. Public Serv. Comm'n, 614 F.2d 206, 211 (9th Cir. 1980). • • • •

      Under Burford, abstention may be appropriate "to avoid federal intrusion into matters which are largely of local concern and which are within the special competence of local courts." International Bhd., 614 F.2d at 212 n.1. Recently, the Supreme Court has stated that "[w]hile Burford is concerned with protecting complex state administrative processes from undue federal interference, it does not require abstention whenever there exists such a process, or even in all cases where there is a 'potential for conflict' with state regulatory law or policy." New Orleans Pub. Serv., Inc. v. Council of City of New Orleans, 491 U.S. 350, 362 (1989) (quoting Colorado River, 424 U.S. at 815-16).

      In an effort to limit the application of abstention under the Burford principle, this circuit generally requires certain factors to be present for abstention to apply: (1) that the state has concentrated suits involving the local issue in a particular court; (2) the federal issues are not easily separable from complicated state law issues with which the state courts may have special competence; and (3) that federal review might disrupt state efforts to establish a coherent policy. Knudsen Corp. v. Nevada State Dairy Comm'n, 676 F.2d 374, 377 (9th Cir. 1982). If the district court determines that Burford abstention
    2 ABR 66  is appropriate under the circumstances, dismissal rather than stay of the federal action is normally required. [FN1.] See Burford, 319 U.S. at 334; Knudsen, 676 F.2d at 377.

          Unlike the Rosson case, the case at bar does not involve an attempt to collect on a policy of insurance or a surety bond from a beleaguered insurance company. It is an adversary proceeding involving a bankruptcy issue, whether MBL over-collected on its court ordered adequate protection payments. MBL is not involved in the adversary as an insurer or a surety of the debtor, as was the insurer in the Rosson case, but as a result of its activities as a real estate lender. The existence of bankruptcy issues, as opposed to state law issues alone, tends to make abstention even less appropriate. Compare General Railway Signal Co. v. Corcoran, 921 F.2d 700, 709 (7th Cir. 1991).

          Neither the parties to this adversary proceeding nor this court are conversant with the scope of the New Jersey proceeding. It is probable that there is no special procedure to handle claims like the one involved in this adversary proceeding in the New Jersey rehabilitation case. Therefore, abstention does not appear to be appropriate in this adversary proceeding.

         DATED: August 27, 1991




                                       HERBERT A. ROSS
                                       Bankruptcy Judge
								   

Serve:
Kenneth P. Ringstad, Esq., for plaintiff  
Mark Liberman, Esq., for Defendants(Chicago)
Fred Odsen, for Defendants
M. Gingras, Adv case Mgr.