May 24, 2019

Tenth Circuit: “Reverse Preemption” Deprived District Court and Tenth Circuit of Subject Matter Jurisdiction

The Tenth Circuit Court of Appeals issued its opinion in Western Insurance Co. v. A & H Insurance Inc. on Friday, April 24, 2015.

Western Insurance is insolvent and being liquidated in Utah state court. The liquidator brought suit against several of Western’s “affiliates” to recover funds Western had transferred to them. The defendants removed the ancillary proceeding to federal court under diversity jurisdiction, and the liquidator sought a remand, which the district court granted. Defendants appealed.

Because insolvent insurers are exempt from federal bankruptcy protection, state law governs insurer insolvency proceedings. After the defendants removed the case to federal court, liquidators argued the McCarran-Ferguson Act barred removal, as it is essentially a “reverse preemption” doctrine. The district court remanded “for the reasons stated on the record.”

The Tenth Circuit first evaluated its jurisdiction and found it could only proceed to entertain the appeal if the remand order was not based on lack of subject matter jurisdiction. In its order, the district court made several contradictory statements regarding its rationale for remand, leaving it unclear whether it relied on the McCarran-Ferguson Act’s “reverse preemption” in its remand order. However, the Tenth Circuit found that the bulk of the district court’s decision focused on the McCarran-Ferguson Act. Because the district court’s remand was based to a fair degree on lack of subject matter jurisdiction, the Tenth Circuit found it lacked jurisdiction to hear the appeal.

The appeal was dismissed.

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