Hawthorne Savings F.S.B. v. Reliance Insurance Co. of Illinois

“[Fjederal courts routinely confront the conflict between their exercise of federal jurisdiction and state laws establishing exclusive claims proceedings for insurance insolvencies.” Callon Petroleum Co. v. Frontier Ins. Co., 351 F.3d 204, 209 (5th Cir.2003). These appeals present such a conflict.

Hawthorne Savings, F.S.B. (“Hawthorne”) sued the Reliance Insurance Company of Illinois (“Reliance-Illinois”) in California state court, alleging various California state-law contract-based claims. Reliance-Illinois removed the suit to federal court on the basis of diversity. Shortly thereafter, Reliance was placed in rehabilitation proceedings, and later in liquidation proceedings, in the Commonwealth Court of Pennsylvania.

The district court proceeded with this suit. The jury entered a verdict in Hawthorne’s favor and awarded $950,000 in damages. Reliance now appeals the final judgment. Reliance’s principal argument is that the district court erred in continuing to exercise jurisdiction over Hawthorne’s suit once the rehabilitation proceedings began, because (1) it lacked jurisdiction or (2) various abstention and comity-based doctrines required the court to stay its hand. In…