author: CLIFFORD SCOTT GREEN, District Judge.

text:
    Frank M. CEDRONE, Trading As “Sugarloaf Associates,” a Limited Partnership v. UNITY SAVINGS ASSOCIATION, An Illinois Corporation v. The TITLE INSURANCE CORPORATION OF PENNSYLVANIA. Frank M. CEDRONE, Trading As “Sugarloaf Associates,” a Limited Partnership v. TALMAN HOME FEDERAL SAVINGS & LOAN ASSOCIATION v. The TITLE INSURANCE CORPORATION OF PENNSYLVANIA. AMERICAN BANK & TRUST COMPANY v. TALMAN HOME FEDERAL SAVINGS & LOAN ASSOCIATION v. The TITLE INSURANCE CORPORATION OF PENNSYLVANIA.
    Civ. A. Nos. 82-0811, 82-2838 and 82-4856.
    United States District Court, E.D. Pennsylvania.
    May 21, 1985.

      Joseph A. Coffey, Jr., Lawrence A. Katz, Philadelphia, Pa., for Cedrone.
    Kathleen Milsark, Harvey Bartle, III, Philadelphia, Pa., for Unity & Taiman.
    E. Gerald Donnelly, Jr., Philadelphia, Pa., for Title Ins. Corp.
    Joseph M. Hankins, Philadelphia, Pa., for American Bank.
   CLIFFORD SCOTT GREEN, District Judge.

I

These related cases concern an aborted real estate transaction. The transaction was to include the sale of, and financing construction on, 3,500 acres of partially developed land in the Luzerne and Schuylkill counties of Northeastern Pennsylvania. A part of the land was owned by American Bank and Trust Company of Pennsylvania (“American Bank”). A second part was owned by Unity Savings and Loan Association (“Unity”). A third portion of the land, however, was the subject of a title dispute between American Bank and Unity. Also involved in the dispute was the Title Insurance Company of Pennsylvania (“TICP”) which had insured Unity’s interest in the title to the land in dispute.

In the first two of three related actions filed in this court (Civil Actions No. 82-811 and No. 82-2838), plaintiff, attempted purchaser Frank M. Cedrone, trading as Sugarloaf Associates, a Limited Partnership (“Cedrone”), has sued defendant Unity as seller and construction lender contending that Unity breached agreements to convey Unity’s land and to fund a construction loan. Unity, while denying any liability, impleaded TICP as a third party defendant in both of the Cedrone actions. Unity contends that if this court finds it liable to Cedrone in either action, TICP is in turn liable over to Unity. TICP subsequently counterclaimed against Unity (in both actions) for counsel fees incurred prior to the aborted closing and as a result of this litigation.

In the third related case (No. 82-4856), plaintiff American Bank has sued Taiman for breach of contract and tortious interference with contract arising out of the same transaction. Taiman has also impleaded the title insurance company, TICP, as a third party defendant in the American Bank action.

Presently pending before this court are several motions: Defendant Unity has filed motions for summary judgment against plaintiff Cedrone in actions No. 82-811 and No. 82-2838; it has also filed a summary judgment motion against plaintiff American Bank in action No. 82-4856; and, it has filed summary judgment motions against third party defendant TICP’s counterclaims in all three cases. Finally, third-party defendant TICP has filed cross motions for summary judgment against defendant/third-party plaintiff Unity in all three actions. For the reasons discussed infra, all of Unity’s motions will be denied, and TICP’s cross motions agáinst Unity will be denied.

After a listing of the relevant facts, as disclosed by the record, there follows a discussion of the resolution of the individual summary judgment motions.

II

In 1980 and 1981, Cedrone negotiated with both American Bank and Unity to purchase their respective interests in the land at issue. On March 25, 1981, Cedrone signed separate Agreements of Sale and Purchase with both sellers. Both sale agreements were conditioned upon the settlement and termination of all title dispute litigation between and among American Bank, TICP, and Unity with regard to the real estate at issue. Both agreements were also conditioned on each other, i.e., the sale to Cedrone by American Bank was conditioned on Cedrone’s purchase from Unity and vice versa. Additionally, Ce-drone’s agreement with Unity was further conditioned upon Cedrone’s receipt of construction loan financing from Unity.

In an attempt to close the transaction, the parties, either personally or through their respective counsel, met several times during the spring and summer of 1981. Finally, on July 17 of that year, American Bank, TICP, and Unity (through counsel) signed a “Settlement Agreement” with respect to the lawsuits regarding the title dispute between and among them. By handwritten addendum, the Settlement Agreement was also conditioned upon both the American Bank sale to Cedrone and the Unity sale to Cedrone. Thus, the American Sale Agreement, the Unity Sale Agreement, and the Settlement Agreement were all conditioned on one another.

The same day that the Settlement Agreement was signed, July 17, 1981, Cedrone and Unity, through counsel, also entered into a Construction Loan Agreement. This agreement was conditioned upon, inter alia, settlement of the title disputes and Cedrone submitting to Unity a certificate of insurance with regard to the improvements covered by the loan. The certificate was to provide, among other things, not less than thirty days notice to Unity prior to cancellation or material changes in the policies. Additionally, the company issuing the policies and the certificate(s) evidencing same had to have had an A+ rating from Best’s for that year.

All parties were present (Unity by counsel) at a meeting in Philadelphia to complete the steps necessary to close the transaction. This meeting was held on July 17, 1981 (the day that both the Construction Loan Agreement and the Settlement Agreement were signed). Various documents were signed that day, and checks for the payment of money (required to be exchanged by the Settlement Agreement) were drawn and physically present in the settlement room. Unity, however, did not fund the construction loan on that day. Nor did it fund the loan, or respond to inquiries from Cedrone regarding same, for several days thereafter. Indeed, it never funded the loan, nor sold the land to Ce-drone. It is for damages purportedly arising out of these omissions that plaintiff Cedrone has brought suit.

In the days following the July 17th attempted closing, TICP, in addition to Ce-drone and American Bank, attempted to reach representatives of Unity. Unity, however, did not respond to phone calls from any of the parties involved in the transaction. After four days of silence from Unity, TICP through counsel, sent a letter (hand delivered to counsel for Unity in Philadelphia and simultaneously federal expressed to Unity officials in Chicago) requesting that Unity furnish a statement of its position regarding the Cedrone settlement within twenty-four hours or suffer the termination of its title insurance and the destruction of the Settlement Agreement by TICP. When no response was forthcoming from either Unity or its counsel, TICP terminated Unity’s title insurance and directed the physical destruction of the Settlement Agreement. When Unity finally responded, after the time limit imposed by TICP and after TICP’s action, it declared the real estate deal with Cedrone null and void. These civil actions ensued.

Ill

A. Unity’s Summary Judgment Motions

As noted previously, Unity has moved for summary judgment: (1) against plaintiff Cedrone; (2) against plaintiff American Bank; and, (3) against third party defendant TICP’s counterclaims.

Rule 56 of the Federal Rules of Civil Procedure governs when summary judgment can be granted. That Rule precludes such a grant unless it can be shown “that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R. Civ.P. 56(c). See also Poller v. Columbia Broadcasting System, 368 U.S. 464, 467, 82 S.Ct. 486, 488, 7 L.Ed.2d 458 (1962); Brown v. Bellaplast Maschinenbau, 104 F.R.D. 585, 587 (E.D.Pa.1985); Teamsters Pension Fund v. Philadelphia Fruit Exchange, 603 F.Supp. 877, 879 (E.D.Pa.1985).

With the above listed principle in mind, I now address each motion for summary judgment individually.

1. Unity’s motion for summary judgment as to plaintiff Cedrone’s claims.

Cedrone seeks money damages for Unity’s alleged breach of the Construction Loan Agreement and Unity Sale Agreement. Unity asserts, however, that there are no genuine issues as to any material facts, and that the failure of Cedrone to satisfy certain conditions precedent contained in the allegedly breached agreements excuses its performance under the agreements. Since the sale agreement was conditioned on Cedrone’s receipt of construction loan financing, I 'will address Unity’s arguments with regard to the Construction Loan Agreement first.

As noted previously, the Construction Loan Agreement contained an insurance condition. It is undisputed that Cedrone failed to strictly comply with the terms of said condition. This fact according to Unity is enough to excuse Unity’s performance under the Construction Loan Agreement, thereby allowing it to walk away from the entire deal without liability. Ce-drone counters that Unity, by accepting the non-complying insurance binder, together with making oral representations of satisfaction, waived strict compliance with the insurance condition.

Federal courts sitting in diversity, as I do here, must apply substantive state law. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Thus, Pennsylvania contract law governs the cases sub judice. It is indeed the well-settled law of the Commonwealth that a written contract may be modified by a subsequent oral agreement, and such modification may be accomplished by words, conduct, or both. Knight v. Gulf Refining Company, 311 Pa. 357, 361, 166 A. 880, 882 (1933). See also Chung v. Park, 377 F.Supp. 524, 529 (M.D.Pa.1974), affd., 514 F.2d 382, 385 (3d Cir.), cert, denied, 423 U.S. 948, 96 S.Ct. 364, 46 L.Ed.2d 282 (1975); Betterman v. American Stores Company, 367 Pa. 193, 200, 80 A.2d 66, 71, cert, denied, 342 U.S. 827, 72 S.Ct. 49, 96 L.Ed. 625 (1951).

It is similarly well settled that the question of waiver is a question of fact ordinarily reserved for the jury. See Batchelder v. Standard Plunger Elevator Company, 227 Pa. 201, 207, 75 A. 1090, 1092 (1910). See also In re Metropolitan International, Inc., 616 F.2d 83, 86 (3d Cir.1980); Linda Coal and Supply Co. v. Tasa Coal Co., 416 Pa. 97, 101, 204 A.2d 451, 454 (1964); Hanover Construction Company v. Fehr, 392 Pa. 199, 139 A.2d 656 (1958); Cole v. Philadelphia Co., 345 Pa. 315, 26 A.2d 920 (1942). Waiver can be determined as a matter of law, however, in cases “where only one reasonable conclusion can be drawn from the undisputed facts.” In re Metropolitan International, Inc., supra at 86; Linda Coal and Supply Co. v. Tasa Coal Co., supra 416 Pa. at 181, 204 A.2d at 454. Unity claims that the Pennsylvania Statute of Frauds, Pa.Stat. Ann. Title 33 § 1 (Purdon 1984), precludes the reasonable interpretation of its actions or words as waiver. It argues that since the Statute requires any effective subsequent modification of the signed Construction Loan Agreement be in writing, there can be no reasonable conclusion that Unity waived any of the terms by actions or words as claimed by Cedrone. This argument, however, misses the mark. While the Statute does require any subsequent modification of a contract covered thereunder (e.g. a contract to convey an interest in land) to be in writing, United States v. 29.16 Acres More or Less, 496 F.Supp. 924, 928 (E.D.Pa.1980), it does not govern the subsequent modification of an agreement not within the Statute’s original coverage. See Bonczek v. Pascoe Equipment Co., 304 Pa.Super. 11, 450 A.2d 75 (1982). A construction loan agreement is ordinarily a contract to fund a loan to construct improvements on land, rather than one to convey an interest in land. Unity points to no evidence of record which would support an inference that this construction loan agreement was intended to convey such an interest. Accordingly, it is not governed by the Statute of Frauds. Cf. Atkins v. Pore, 321 Pa.Super. 57, 467 A.2d 891 (1983) (Statute not applicable, to contract to pave streets rather than convey land interest). Thus, in the instant cases, neither the Construction loan agreement nor any effective subsequent modification thereof, needed to have been in writing. Accordingly, whether Unity did in fact waive the insurance condition is properly a jury question. This question presents a genuine issue as to material fact, thereby precluding summary judgment on this issue.

Notwithstanding the above, Unity points to an “unsatisfied” condition of both the Construction Loan Agreement and the Unity Sale Agreement which it claims excuses its performance under those documents as a matter of law, i.e., the settlement of the title disputes. It is, however, undisputed that on July 17, 1981, a settlement agreement had been memorialized and signed by all parties. That agreement provided that it would not become effective until settlement for the sale of the land (by both sellers) to Cedrone was held and TICP paid $207,000 to Unity. See supra note 5. As settlement was in fact being held on that very day, the agreement was well on the way to becoming effective. The only impediment to its effectiveness was the payment of $207,000 to Unity by TICP.

It is also undisputed that TICP had drawn and tendered a check for payment of the $207,000 to Unity at the July 17, 1981 settlement meeting. See Kurtz Deposition at 144. Equally undisputed is the fact that Unity did not accept the money. See id. Basic Pennsylvania contract law provides that a party to a contract cannot escape liability under his obligation on the ground of failure of the occurrence of a condition precedent to the establishment of such liability or to the maintenance of an action upon the contract, where he, himself has caused that failure. See e.g. Arlotte v. National Liberty Insurance Co., 312 Pa. 442, 445, 167 A. 295, 296 (1933). A corollary to this principle is that the law implies in every contract a duty of good faith:

“In the absence of an express provision, the law will imply an agreement by the parties to a contract to do and perform those things that according to reason and justice they should do in order to carry out the purpose for which the contract was made and to refrain from doing anything that would destroy or injure the other party’s right to receive the fruits of the contract. Accordingly, a promise to do an act necessary to carry out the contract must be implied.” 8 P.L.E., Contracts, § 140.

D.B. Van Campen Corp. v. Building & Construction Trades Council of Philadelphia, 202 Pa.Super. 118, 122, 195 A.2d 134, 136-37 (1963).

Unity claims that it acted in good faith intending to review all of the documents required to be submitted by Cedrone in accordance with the Construction Loan Agreement before accepting the money and funding the loan. Cedrone argues that Unity’s action is indicative of its bad faith intent to get out (at any cost) of a deal to which it had already committed itself. Since summary judgment is generally inappropriate where intent is at issue, see e.g. Associated Hardware Supply Co. v. Big Wheel Distributing Co., 355 F.2d 114, 121 (3d Cir.1966), whether Unity acted in good faith raises a factual question which should properly be presented to the jury. Thus, summary judgment is precluded with regard to this issue also.

Finally, Unity argues as a matter of law that Cedrone may only recover as damages the costs incurred in certifying title to the land at issue. In support of this proposition, Unity quotes language from the sale agreement. This language reads as follows:

If title to the Real Property cannot be conveyed to Purchaser [Cedrone] at the time of settlement in accordance with the requirements of this Agreement, or if any condition set forth in Article 6 below has not been fulfilled, then Purchaser shall have the option (i) of taking such title as Seller [Unity] can convey and/or waiving the unfulfilled condition, with abatement of the purchase price only to the extent of monetary liens of an ascertainable amount; or (ii) of terminating Purchaser’s obligation under this Agreement and being reimbursed by Seller for the costs incurred by Purchaser in attempting to certify title.

Unity Sale Agreement at 3. While the above quoted language identifies options available to Cedrone if Unity did not convey title to the land as promised, it does not state that such options are Cedrone’s exclusive remedies, nor does it explicitly reject, prohibit, or prevent Cedrone’s use of other remedies. “To construe such a clause as excluding the other remedies given by law, would be converting a privilege into a burden.” Mendenhall v. The West Chester and Philadelphia Railroad Co., 36 Pa. 145 note (1860) (opinion of Lewis, C.J.). Moreover, it is a basic rule of construction that “[t]he granting of one remedy by express contract, is not an exclusion of others which the law annexes to the contract, unless they are so inconsistent with each other as plainly to imply such exclusion.” Id Finding no such plain implication here, this court cannot say as a matter of law that Cedrone is limited to the remedies set forth in the language upon which Unity relies.

For the reasons set forth above Unity’s summary judgment motion against Ce-drone will be denied.

2. Unity’s summary judgment motion against plaintiff American Bank

American Bank alleges three causes of action against Unity, two in contract and one in tort. First, it asserts that it was a third party beneficiary of the Unity Sale Agreement between Unity and Cedrone, which it claims Unity breached. Second, American Bank claims that Unity breached the Settlement Agreement to which it (along with TICP and Unity) was a party. Finally, American Bank claims that Unity tortiously interfered with its (American Sale Agreement) land sale agreement with Cedrone.

Unity asserts, for various reasons, that there are no disputed facts and it is entitled to judgment as a matter of law with regard to all three of American Bank’s claims. As noted previously, however, there is a factual question surrounding Unity’s actions regarding the Settlement Agreement upon which the Unity Sale Agreement was conditioned. This question precludes summary judgment on American Bank’s claims arising out of Unity’s purported breach of those agreements. As will be demonstrated below, a similar factual question precludes summary judgment for Unity on American Bank’s tortious interference claim.

Section 766 of the Restatement (Second) of Torts (1979), defines intentional interference with a contractual relationship as “intentionally and improperly interfering] with the performance of a contract ... between another and a third person by inducing or otherwise causing the third person not to perform the contract...” (emphasis added). Whether Unity intentionally caused Cedrone not to perform under the American Bank sale agreement raises a factual question which renders summary judgment inappropriate on this claim. See Associated Hardware Supply Co. v. Big Wheel Distributing Co., supra. Thus, Unity’s motion for summary judgment with regard to American Bank’s claims will also be denied.

3. Unity’s summary judgment motions against third-party defendant TICP’s counterclaims and TICP’s cross motions

Unity also moves for summary judgment against TICP on TICP’s counterclaims against Unity in all three actions. In its third-party complaint, Unity alleged that TICP’s repudiation of the- Settlement Agreement and title, insurance policies under which TICP insured Unity rendered TICP liable to Unity for all sums that might be awarded to Cedrone in his suit against Unity. After denying the allegations of the complaint and raising defenses, TICP counterclaimed. TICP sought damages based on Unity’s alleged breach of the Unity Sale Agreement, Construction Loan Agreement, and the Settlement Agreement. Additionally, TICP sought attorneys’ fees pursuant to 42 Pa.Cons.Stat. Ann. § 2503(9) (Purdon 1984) which provides for the recovery of counsel fees from a party whose conduct in commencing suit is “arbitrary, vexatious or in bad faith.”

Here too, Unity claims that there are no material facts at issue and that it is entitled to judgment as a matter of law. While TICP joins with Unity in asserting that there are no genuine issues as to any material fact, it differs as to the party it claims is entitled to judgment as a matter of law. Neither party’s arguments are persuasive in light of the factual questions presented with regard to the alleged breaches of the agreements at issue. Moreover, Unity’s good or bad faith action in bringing suit against TICP is no less a disputed factual question than its good or bad faith attempt to consummate or renege upon the agreements. Accordingly, the cross motions will be denied.

IV

For the reasons discussed above, all of the summary judgment motions will be denied.

      . The title dispute was the subject of several lawsuits collateral to this action between and among Unity, through TICP, and American Bank.

      . Three days before the institution of Cedrone’s first suit (No. 82-811), defendant Unity’s assets and liabilities were purchased by Taiman Home Federal Savings and Loan Association ("Taiman”). Cedrone subsequently brought suit (No. 82-2838) against Taiman. Because the second suit is virtually identical to the first, the defendants, except where specifically noted, will hereinafter be jointly referred to as Unity.

      . For the sake of continuity Taiman as defendant/third party plaintiff in the American Bank suit, will also hereinafter be referred to as Unity. See supra note 2.

      . Cedrone’s land sale agreement with American Bank will hereinafter be referred to as the American Bank Sale Agreement. Similarly, his land sale agreement with Unity will be referred to as the Unity Sale Agreement.

      . The handwritten addendum provided in substance, that the Settlement Agreement would not become effective until settlement on the sale of the land to Cedrone by both American Bank and Unity was held and TICP paid $207,000 to Unity. Additionally, the signatories to the addendum, representatives of all the parties (save Cedrone), reserved the right to call for the physical destruction of the Settlement Agreement up until the time that settlement on the land was held and TICP paid the money to Unity.

      . Best’s Insurance Reports offers comprehensive reports on the financial position, history, and transactions of insurance companies operating in the United States. Best’s also fates each insurance company according to its comparative position in the industry. See Best’s Insurance Reports (85th ed. 1984).

      . Unity also argues that even if it did breach the agreements, the Unity Sale Agreement contains a provision which would limit any damages that Cedrone could seek as a matter of law. This argument will be addressed infra.

      . He submitted an insurance binder from insurance companies which were rated only A and B+ respectively, not A+ as required by the agreement. Moreover, the binder submitted failed to provide for the mandatory cancellation notice as also required.

      . The language relied on by Unity must be compared with language of the same agreement which clearly and unambiguously limits the sellers remedies in event of purchaser's default. It reads: “In the event Purchaser [Cedrone] shall default by failing to complete settlement under this Agreement, then Seller [Unity] agrees to refrain from proceeding as against the Purchaser to require specific performance of this Agreement or to seek any other remedy [ies] provided or available at law." Unity Sale Agreement at 12 (emphasis added).

      . This section was adopted by the Pennsylvania Supreme Court in Adler, Barish, Daniels, Levin and Creskoff v. Epstein, 482 Pa. 416, 439, 393 A.2d 1175, 1181-82 (1978), appeal dismissed, 442 U.S. 907, 99 S.Ct. 2817, 61 L.Ed.2d 272 (1979).


source: Caselaw Access Project

author: CALDWELL, District Judge.

license: Public Domain

text:
    AIMS ENTERPRISES, INC., Piedmont American Life Insurance Company and David N. Levinson, Insurance Commissioner of the State of Delaware, in his capacity as Receiver of the Estate of Tara Life Insurance Company of America, Plaintiffs, v. William R. MUIR, Jr., in his capacity as Acting Insurance Commissioner of the Commonwealth of Pennsylvania and in his capacity as Ancillary Receiver of the assets of Tara Life Insurance Company of America, Defendant.
    Civ. A. No. 85-0170.
    United States District Court, M.D. Pennsylvania.
    May 22, 1985.

      Jack M. Stover, Shearer, Mette & Wood-side, Harrisburg, Pa., John Small, Prickett, Jones, Elliott, Kristol & Schnee, Wilmington, Dél., for plaintiffs.
    Beth C. Sheligo, Asst. Counsel, Legal Div., Com. of Pa. Ins. Dept., Mollie McCurdy, Deputy Atty. Gen., Harrisburg, Pa., for defendant.
   MEMORANDUM

CALDWELL, District Judge.

I. Introduction

Pursuant to Fed.R.Civ.P. 12(b), defendant, William R. Muir, Jr., Acting Insurance Commissioner of the Commonwealth of Pennsylvania, has moved to dismiss plaintiffs’ complaint on the following grounds:

(1) the court in its discretion should abstain from adjudicating this action; (2) the Eleventh Amendment divests this court of jurisdiction; and (3) the complaint fails to state a claim. We grant the motion because we believe that the correct exercise of our discretion requires us to abstain from this controversy.

II. Factual Background

This case involves a dispute between the Pennsylvania Insurance Commissioner and the Delaware Insurance Commissioner over $200,000 originally owned by Tara Life Insurance Company of America (Tara Life), a Delaware insurance corporation no longer in existence. For the purpose of the motion we accept as true the following allegations of the complaint. Plaintiffs are AIMS Enterprises, Inc. (Enterprises), Piedmont American Life Insurance Company (Piedmont), and David N. Levinson, Delaware Insurance Commissioner. Tara Life was a wholly owned subsidiary of Northeastern Fire Insurance Company of Pennsylvania (NFI), a Pennsylvania domiciled insurer. On June 1, 1984, NFI was dissolved by order of the Pennsylvania Commonwealth Court. Defendant Muir was appointed NFI’s statutory liquidator. Prior to that time, on March 25, 1983, Tara Life was placed in court administered rehabilitation in Delaware with the then Delaware Insurance Commissioner appointed as receiver of Tara Life with direction to take possession of the property of the company. On May 16, 1983, the then Pennsylvania Insurance Commissioner was appointed the temporary conservator of Tara Life by the Commonwealth Court which allegedly directed that he take possession of all of Tara Life’s assets, “although they had been previously seized and placed in receivership pursuant to the Order of the Delaware Court of Chancery.” (Compliant, If 11).

Negotiations between the Delaware Insurance Commissioner and the Pennsylvania Insurance Commissioner concerning Tara Life’s assets in Pennsylvania followed. In June of 1983, the Commissioners agreed that Pennsylvania would release all of the assets except a certificate of deposit worth $200,000 (the “Reserve Fund”). Pennsylvania petitioned the Commonwealth Court for release of the assets in conformity with this compromise, asserting that:

retention of $200,000 plus the interest thereon will be sufficient for the purpose of assuring that Pennsylvania policy holders will be paid their claims and that sufficient funds will be available to pay back the $98,000 loan given by George Town to Tara if such loan is determined to be entitled to a priority status.

(Complaint, ¶ 13).

Subsequently, during the rehabilitation of Tara Life, the Delaware Insurance Commissioner arranged for the transfer of the bulk of Tara Life’s business to Enterprises. Pennsylvania opposed the proposed Plan of Rehabilitation and Transfer in the Delaware Court of Chancery. The court dismissed Pennsylvania’s opposition to the Plan and certain of the assets of Tara Life were transferred to Enterprises. Pennsylvania did not appeal this ruling in the Delaware courts.

Thereafter, Enterprises changed Tara Life’s name to Piedmont and title to the Reserve Fund, represented by a certificate of deposit, was changed to Piedmont with the alleged consent of Pennsylvania. Throughout 1984, Pennsylvania led representatives of Piedmont to believe that Pennsylvania would release the Reserve Fund since it was no longer needed to protect Pennsylvania policy holders.

The Tara Estate was created in Delaware from those assets of Tara Life that were not transferred to Enterprises. Pennsylvania submitted proofs of claim against the estate, representing claims for the policyholders and George Town, a creditor of NFI, as set forth in paragraph 13 of the complaint, but “despite having submitted to the jurisdiction of the Delaware Court of Chancery in connection with the liquidation of the Tara Estate and having filed claims in the Delaware liquidation proceeding for the George Town Promissory Note,” (Complaint, ¶ 44), the Pennsylvania Insurance Commissioner filed a petition in the Pennsylvania Commonwealth Court on January 11, 1985, to be named as ancillary receiver of Tara Life’s assets. The Court so ordered it on January 18, 1985.

This lawsuit followed. Plaintiffs base jurisdiction on diversity of citizenship. Enterprises and Piedmont are Delaware corporations having their principal places of business in North Carolina. Levinson is a citizen of Delaware. Plaintiffs seek a declaratory judgment that, among other things, Enterprises or Piedmont or both own the Reserve Fund, that Muir is barred by res judicata and collateral estoppel from asserting any claim to the Fund, and that the orders of the Delaware Court are entitled to full faith and credit. Plaintiffs also request injunctive relief barring Muir from asserting any further claim to the Reserve Fund and from disbursing any portion of it. Plaintiffs request an order directing delivery of the Reserve Fund to Enterprises or Piedmont or both. As a federal question, they also claim their due process rights were violated when Muir was appointed ancillary receiver without notice to them or an opportunity to be heard.

III. Discussion

After careful consideration, we believe that abstention is appropriate under the following case law.

A. Burford Abstention.

In Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943), the Supreme Court held that a federal district court should decline to exercise jurisdiction in a case challenging a Texas administrative agency’s decision to permit the drilling of oil wells in the East Texas oil field. The Court noted that the agency’s action was undertaken as “part of the general regulatory system devised for the conservation of oil and gas in Texas,” Id. at 318, 63 S.Ct. at 1099, 87 L.Ed. at 1426. The regulations, devised to prevent the waste of oil and other inefficient practices in the oil field, controlled when and where the different drillers owning portions of the field could drill for oil. The Court stated:

These questions of regulation of the industry by the State administrative agency, ... so clearly involves basic problems of Texas policy that equitable discretion should be exercised to give the Texas courts the first opportunity to consider them.....
The state provides a unified method for the formation of policy and determination of cases by the Commission and by the state courts. The judicial review of the Commission’s decisions in the state court is expeditious and adequate. Conflicts in the interpretation of state law, dangerous to the success of state policies, are almost certain to result from the intervention of the lower federal courts. On the other hand, if the state procedure is followed from the Commission to the State Supreme Court, ultimate review of the federal questions is fully preserved here. Cf. Matthews v. Rodgers, 284 U.S. 521, 52 S.Ct. 217, 76 L.Ed. 447. Under such circumstances, a sound respect for the independence of state action requires the federal equity court to stay its hand.

Id. at 333-34, 63 S.Ct. at 1106-07, 87 L.Ed. at 1434-35.

The facts in Burford presented compelling reasons to abstain from adjudicating the claim. Texas was attempting by regulation to provide for the uniform exploitation of the oil field. The grant of an “exception” to drill, federal review of which was sought in Burford, was often done to insure that oil would be pumped from the ground before it was lost forever by the dissipation of the gas and water that assisted the drillers in retrieving it. The overall plan of regulation, involving “nonlegal complexities,” id. at 323, 63 S.Ct. at 1102, 87 L.Ed. at 1429, was “of vital interest to the general public,” id. at 324, 63 S.Ct. at 1103, 87 L.Ed. at 1430, and had implications for “the whole economy of the state.” Id., 63 S.Ct. at 1103, 87 L.Ed. at 1430.

Accordingly, “[i]t is difficult to distill a clear guide for abstention from Burford ____” Metropolitan Life Insurance Co. v. Board of Directors of Wisconsin Insurance Security Fund, 512 F.Supp. 460, 472 (W.D.Wis.1983) (brackets added). In Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), the Court refused to apply Burford abstention but did note significantly, citing Pennsylvania v. Williams, 294 U.S. 176, 55 S.Ct. 380, 79 L.Ed. 841 (1935), that abstention would be appropriate if the exercise of federal jurisdiction would interrupt state efforts to enforce state policy by restraining the exercise of authority vested in state officials.

Thus, the general principle of Burford has been applied in state administrative settings, including the regulation of insurance. In Levy v. Lewis, 635 F.2d 960 (2d Cir.1980), the Second Circuit Court of Appeals, relying in part upon Burford, held that a district court should have abstained from a controversy between retired employees of an insurance company and the New York Superintendent of Insurance, acting as rehabilitator and liquidator of the company. In federal court the employees had claimed that the Superintendent’s decision to terminate certain retirement benefits violated the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1381. The Superintendent had sought approval of that termination in the state courts. The Court of Appeals stated:

In keeping with Burford’s concern with noninterruption with state administrative programs, the federal courts have abstained in numerous areas where state regulation involved matters of substantial state concern and where state policies were carried out in a statutorily established regulatory program by state officials. See, e.g., Alabama Public Service Commission v. Southern Railway, 341 U.S. 341, 71 S.Ct. 762, 95 L.Ed. 1002 (1951) (state regulation of intrastate railroad passenger service); Kelly Services, Inc. v. Johnson, 542 F.2d 31 (7th 1976) (state regulation of employment agencies). Most important for our purposes, Burford abstention has been applied to state regulation of insurance. See, e.g., Smith v. Metropolitan Property and Liability Insurance Co., 629 F.2d 757 (2d Cir.1980); Meicler v. Aetna Casualty & Surety Co., 372 F.Supp. 509 (S.D.Tex. 1974) aff’d, 506 F.2d 732 (5th Cir.1975); Mathias v. Lennon, 474 F.Supp. 949 (S.D.N.Y.1979).
In this case, New York State has a complex administrative and judicial system ' for regulating and liquidating domestic insurance companies____
It is also highly significant that the state scheme has been adopted pursuant to congressional authorization. In the McCarran-Ferguson Act 15 U.S.C. § 1011-1015, Congress mandated that regulation of the insurance industry be left to the individual states____ Federal courts have therefore been slow to interrupt such schemes unless necessary particularly when federal court action would impinge upon the area in which Congress has recognized the overriding interest of the States.

Id. at 963-64.

The reasoning of Levy applies directly to the case at bar. Pennsylvania also has a complex administrative and judicial system for regulating insurance companies. See 40 P.S. § 221.1 et seq. (Purdon Supp.1984-85). The Pennsylvania Insurance Commissioner has acted pursuant to that authority in petitioning the Commonwealth Court to name him ancillary receiver of Tara Life’s assets in this state. See 40 P.S. § 221.56. Burford and Levy therefore indicate abstention is appropriate here.

Plaintiffs argue, however, that adjudicating their claim would not interfere with Pennsylvania’s interest in regulating the insurance industry within the State. In their view there is no ongoing rehabilitation or liquidation occurring here. Tara Life has already gone through that in Delaware. Plaintiffs assert they are merely trying to establish the ownership of the Reserve Fund and that full faith and credit should be accorded the Delaware court decision on the rehabilitation of Tara Life. They point out that Pennsylvania voluntarily intervened in the Delaware proceedings and failed to appeal the Delaware court’s order approving the plan of rehabilitation for Tara Life.

We do not find the situation as simple as plaintiffs describe it. While Pennsylvania did appear and argue its position in the Delaware court, its conduct during the course of the rehabilitation of Tara Life certainly indicates an intent to look to the Reserve Fund as a possible source of compensation for creditors of NFI and its policyholders. The complaint implies that Pennsylvania insurance officials eventually decided to abandon the Reserve Fund because they believed that it was no longer necessary to protect Pennsylvania policyholders. (Complaint, K 36). The subsequent action of the Commissioner, however, in petitioning the Commonwealth Court for appointment as ancillary receiver would indicate otherwise. Additionally, it is consistent with the course taken by the Pennsylvania Department from the beginning of Tara Life’s rehabilitation. Pennsylvania seized all of the company’s assets in Pennsylvania and only after negotiations with Delaware did it reduce its claim solely to the Reserve Fund.

Further, plaintiffs’ claim that the Delaware court proceedings conferred unfettered ownership of the Reserve Fund upon them does not appear to be entirely accurate. The Plan of Rehabilitation For Tara Life, approved by the court, does purport to transfer the Fund to Enterprises but paragraph 4.6 of the Agreement For Plan of Rehabilitation And Transfer of Stock, dealing with encumbrances upon Tara Life’s assets, notes that the Fund is subject to the “order of the Pennsylvania Commonwealth Court and the claims of the Pennsylvania Department of Insurance as to $200,000 plus interest in Tara’s bank accounts located in Pennsylvania.” (Complaint, Exhibit D).

Under these circumstances, if we decided to proceed with this case, we would be intruding into Pennsylvania’s regulatory processes. Pennsylvania’s position as an ancillary receiver does not involve a full scale rehabilitation or liquidation. The insurance commissioner, is, nevertheless, acting pursuant to statutory authority and in the interests of Pennsylvania policyholders and creditors.

B. Colorado River “Abstention”

In Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), the Supreme Court held that certain cases, while not coming properly within an established abstention category, should still be dismissed by a federal court when there is a concurrent state proceeding. The court stated:

It has been held, for example, that the court first assuming jurisdiction over property may exercise that jurisdiction to the exclusion of other courts, [citations omitted]____ In assessing the appropriateness of a dismissal in the event of an exercise of concurrent jurisdiction, a federal court may also consider such factors as the inconvenience of the federal forum, [citation omitted], the desirability to avoid piecemeal litigation, [citation omitted], and the order in which jurisdiction was obtained by the concurrent forums [citation omitted]. No one factor is necessarily determinative; a carefully considered judgment taking into account both the obligation to exercise jurisdiction and the combination of factors counselling against that exercise is required. [citation omitted]. Only the clearest of justifications will warrant dismissal.

Id. at 818, 96 S.Ct. at 1246-47, 47 L.Ed.2d at 498-99 (brackets added).

In Colorado River the federal government tried to assert in federal court claims to water within Colorado on its own behalf and as trustee for Indian water rights. The claims were based upon state law controlling the priority of water rights within the state. Subsequently, a defendant in the federal court action sought to join the United States in a state court proceeding adjudicating the same rights. The district court had decided that abstention was appropriate and left the parties to the state court proceedings. The Court of Appeals reversed. The Supreme Court, stating that none of the abstention doctrines applied, nevertheless held that dismissal was appropriate because the McCarran Amendment, 43 U.S.C. § 666, permitting joinder of the United States in any suit for the adjudication of rights to water, evidenced a clear federal policy of avoiding piecemeal litigation to water rights. The Court stated that this policy:

is akin to that underlying the rule that jurisdiction be yielded to the court first acquiring control of property, for the concern in such instances is with avoiding the generation of additional litigation through permitting inconsistent dispositions of property.

Id. at 819, 96 S.Ct. at 1247, 47 L.Ed.2d at 499.

In the instant case, there is the express federal policy to leave the regulation of insurance to the states. Additionally, proceedings had been instituted in the Pennsylvania Commonwealth Court prior to the filing of this action and “the court first assuming jurisdiction over property may exercise that jurisdiction to the exclusion of other courts.” Id. at 818, 96 S.Ct. 1246, 47 L.Ed.2d at 498.

Plaintiffs argue that this action is in personam and not in rem and thus the latter rule should not apply here. The same argument was raised in Metropolitan Life Insurance Co. v. Board of Directors of Wisconsin Insurance Security Fund, supra. There, the court stated:

Although plaintiffs’ compláint is brought in personam rather than in rem, and is directed to the Reliable Segregated Account the consequences of the filing are not different. Whether plaintiffs’ suit is essentially against the segregated account ... and thus an in rem proceeding or whether the suit is viewed as an in personam action which interferes with the state court’s in rem liquidation proceedings, the result is the same: this court must defer to the state court proceedings to avoid the “unseemly and disastrous conflicts” that would arise if this court were to issue rulings that reduced the funding in the account. ...

527 F.Supp. at 471; see also Levy v. Lewis, supra.

We conclude that Colorado River abstention applies to this action.

C. Younger Abstention.

In Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), the Supreme Court held that a district court could not enjoin a state criminal prosecution pursued under a possibly unconstitutional statute absent unusual circumstances. “[T]he Younger doctrine has been expanding, and presently requires that abstention be decreed in cases far removed from proceedings to which the Younger case itself originally ordered deference.” Williams v. Red Bank Board of Education, 662 F.2d 1008, 1013 (3d Cir.1981). We have no doubt that the doctrine applies here. In Middlesex County Ethics Committee v. Garden State Bar Ass’n, 457 U.S. 423, 102 S.Ct. 2515, 73 L.Ed.2d 116 (1982), the Supreme Court stated:

The policies underlying Younger are fully applicable to noncriminal judicial proceedings when important state interests are involved, [citations omitted]. The importance of the state interest may be demonstrated by the fact that the noncriminal proceedings bear a close relationship to proceedings criminal in nature____ Proceedings necessary for the vindication of important state policies or for the functioning of the state judicial system .also evidence the state’s substantial interest in the litigation, [citations omitted]. Where vital state interests are involved, a federal court should abstain “unless state law clearly bars the interposition of the constitutional claims.” Moore [v. Sims, 442 U.S. 415, 426, 99 S.Ct. 2371, 2379, 60 L.Ed.2d 994, 1005 (1979) ]. “[T]he ... pertinent inquiry is whether the state proceedings afford an adequate opportunity to raise the constitutional claims____” Id., at 430, 99 S.Ct. at 2371, 60 L.Ed.2d 994.

Id. at 432, 102 S.Ct. at 2521, 73 L.Ed.2d at 124 (brackets added).

We may paraphrase the relevant test for the application of the Younger doctrine set forth in Middlesex County Ethics Committee as follows: first, do the proceedings in the Commonwealth Court constitute an ongoing state judicial proceeding; second, do the proceedings implicate an important state interest; third, is there an adequate opportunity in the state proceedings to raise constitutional challenges. Id. at 432, 102 S.Ct. at 2522, 73 L.Ed.2d at 125.

The first two questions may be readily answered affirmatively. To vindicate the state interest in the regulation of insurance the Pennsylvania Insurance Commissioner has gone to a state court and, pursuant to statutory authority, has been named ancillary receiver of Tara Life’s assets in Pennsylvania. While he has done nothing else, plaintiffs anticipate he will seek approval from the state court to distribute the assets for the benefit of the creditors of NFI, formerly Tara Life’s parent company. They have accordingly sought an injunction against him to prevent his seizure of the Reserve Fund. Clearly, an ongoing state judicial proceeding is involved here to protect important state interests.

Additionally, plaintiffs have an adequate opportunity to present their due process claims to the state court. Although they allege that “counsel for the Department of Insurance has taken the position that it is too late for Piedmont, Enterprises, the Tara Estate or the Delaware Department of Insurance to intervene in the Commonwealth Court’s proceeding,” (Complaint, U 49) (emphasis added), we can find no legal impediment to plaintiffs’ appearing in that court and presenting the arguments they advance here. Pa.R.App.P. 106, governing procedure in the Commonwealth Court, provides as follows:

Unless otherwise prescribed by these rules the practice and procedure in matters brought before an appellate court within its original jurisdiction shall be in accordance with the appropriate general rules applicable to practice and procedure in the courts of common pleas, so far as they may be applied.

Pa.R.Civ.P. 206, 208 and 209 permit the filing of an answer to any petition. Additionally, as we read the statutory sections dealing with liquidation of insurance companies, plaintiffs have an opportunity to be heard in court before the Pennsylvania Insurance Commissioner disposes of the Reserve Fund. See 40 P.S. §§ 221.56(c), 221.-58(b), 221.37, 221.38, 221.41, 221.45, 221.46. Thus, in the instant case, plaintiffs can advance all their arguments in the Commonwealth Court and we believe that Younger abstention should be exercised. “[A] decision not too abstain would signal others that the filing of a federal lawsuit will circumvent the state’s administrative mechanisms and release them from agency proceedings.” Allegheny Land and Mineral Co. v. Pennsylvania Securities Commission, No. 82-0895, slip op. at 16 (M.D.Pa. July 25, 1983) (Herman, J.) (brackets added).

      . Accordingly, we will not address the other arguments for dismissal.
      Plaintiffs requested oral argument but, based upon our review of the briefs, we do not believe that oral argument is necessary to a proper disposition of the motion and we deny that request.

      . Actually, the order only directed that the commissioner seize Tara Life’s assets in Pennsylvania.

      . The retired employees also claimed a breach of fiduciary duty under ERISA which was disposed of on the merits by the Court of Appeals because of its prior case law establishing that claims for breach of such fiduciary duty is within the exclusive jurisdiction of the federal courts.

      . We also add that nothing has happened in this action subsequent to the filing of the complaint except the filing of the motion to dismiss. This factor weighs in favor of our decision to dismiss the complaint. Id. at 820, 96 S.Ct. at 1248, 47 L.Ed.2d at 500.

      . Defendant admits in his brief on abstention that plaintiffs have the opportunity to appear in state court and oppose any seizure of the Reserve Fund.


author: SPRIZZO, District Judge:

text:
    Martin E. HECHT, Helen Hecht and the Auravision Corporation, Plaintiffs, v. UNITED STATES of America, Commissioner of Internal Revenue, Frank Grau, Charles Vassallo, Howard Barschi, Frank R. Lulich and Rosemary Piper, Defendants. Martin E. HECHT and Helen Hecht, Petitioners, v. DISTRICT DIRECTOR, INTERNAL REVENUE SERVICE, Respondent.
    Nos. 84 Civ. 8154 (JES), 85 Civ. 3028 (JES).
    United States District Court, S.D. New York.
    May 22, 1985.

      . Schlesinger & Sussman, New York City, for plaintiffs; Michael Schlesinger, of counsel.
    Fishman Forman & Landau, New York City, for plaintiffs; Samuel J. Landau, of counsel.
    Rudolph W. Giuliani, U.S. Atty. for the S.D. of N.Y., New York City, for defendants; Frederick M. Lawrence, Asst. U.S. Atty., of counsel.
   SPRIZZO, District Judge:

Plaintiffs Martin and Helen Hecht have commenced two lawsuits in connection with actions by the Internal Revenue Service regarding the Hechts and Auravision Corp., of which the Hechts are indirectly 100% owners. In the first action, 84 Civ. 8154 (JES), plaintiffs seek to enjoin an IRS investigation and recover damages for alleged harassment and disclosure of confidential information. In the second action, 85 Civ. 3028 (JES), the Hechts challenge a jeopardy assessment issued against them by the IRS. Plaintiffs have moved for preliminary injunctive relief in the first action. The Government has moved to dismiss in both actions.

1. The Jeopardy Assessment — 85 Civ. 3028 (JES)

A jeopardy assessment is available pursuant to 26 U.S.C. § 6861 when the IRS determines that collection of taxes is jeopardized because, inter alia, a “[tjaxpaper is or appears to be designing quickly to place [his] property beyond the reach of the Government by transferring it to other persons, or by concealing it, or removing the proceeds from a sale of the properties from the United States.” See, e.g., Conforte v. United States, 80-1 U.S.Tax Cas. (CCH) ¶ 9159 (D.Nev.1980).

On March 26, 1985, jeopardy assessments in the amount of $661,052.81 were made with respect to income tax liability of the Hechts for the years 1980, 1982, and 1983. The alleged tax liability arises out of sums withdrawn by the Hechts in those years from Auravision Corp., which the Hechts maintained were loans, but which were determined by the IRS to be taxable dividends. On administrative review pursuant to 26 U.S.C. § 7429(a), the jeopardy assessment was upheld. Plaintiffs commenced this action on April 19, 1985 pursuant to 26 U.S.C. § 7429(b). In accordance with section 7429(b)(2) & (c), the Court ruled on the petition in open court on May 9, 1985. This opinion memorializes that holding.

The only issues before the Court are whether the jeopardy assessment is reasonable, as to which the Government bears the burden of proof, and whether the amount of the assessment is appropriate under the circumstances, as to which petitioners bear the burden of proof. See 26 U.S.C. § 7429(b)(2) & (g). The amount assessed is presumed to be reasonable. See, e.g., Pizzarello v. United States, 408 F.2d 579, 583 (2d Cir.1969); Loretto v. United States, 440 F.Supp. 1168, 1172.n. 7 (E.D.Pa. 1977); see also Helvering v. Taylor, 293 U.S. 507, 55 S.Ct. 287, 79 L.Ed. 623 (1935).

The Court may determine these issues in a summary proceeding, on the affidavits filed, and without a hearing, see, e.g., McAvoy v. United States, 475 F.Supp. 297, 298, 299 (W.D.Mich.1979); Haskin v. United States, 444 F.Supp. 299, 304 (C.D. Cal.1977); cf. Rogers v. United States, 511 F.Supp. 82, 84 (D.Minn.1980), and may consider evidence which might not be admissible at a trial, see, e.g., United States v. Janis, 428 U.S. 433, 447, 96 S.Ct. 3021, 3028, 49 L.Ed.2d 1046 (1976); Patrick v. United States, 524 F.2d 1109, 1115-16 (7th Cir.1975), and which may have been obtained after the assessment was made. See, e.g., McAvoy, supra, 475 F.Supp. at 298; Haskin, supra, 444 F.Supp. at 304; Loretto, supra, 440 F.Supp. at 1173-74. The standard of proof required has been described as something more than the “arbitrary and capricious” test and something less than the “substantial evidence” test. See, e.g., McAvoy, supra, 475 F.Supp. at 299; Loretto, supra, 440 F.Supp. at 1172.

Based on the affidavits submitted, both by the Government and by petitioners, the Court finds that the jeopardy assessment is reasonable. The IRS had reason to believe that the Hechts were liquidating and secreting their assets, in that the IRS had received information that bank and stock accounts had been closed, that the Hechts were attempting to sell their $1,000,000 home, that they had sold interests in two co-ventures, and that they had attempted to place funds outside the United States. The IRS was also aware that Martin Hecht had large potential liabilities as a defendant in a number of pending lawsuits.

The Hechts have disputed these facts and submitted opposing affidavits asserting that the information relied on by the IRS is inaccurate. However, the mere existence of a factual dispute is not sufficient to invalidate a jeopardy assessment. Indeed, if that were the case, few jeopardy assessments could survive, and the congressional scheme enunciated in 26 U.S.C. § 7429(b) would be effectively nullified.

The Court also finds the amount of the jeopardy assessment to be reasonable and appropriate. The amount was determined based upon the undisputed amount of funds withdrawn from Auravision Corp. by the Heehts. Although petitioners challenge the amount of tax due, that is a matter more properly to be resolved before the Tax Court or, if. the tax is paid, in a refund action before the United States District Court. See, e.g., Rogers, supra, 511 F.Supp. at 84; Loretto, supra, 440 F.Supp. at 1174 n. 11, 1175. Indeed, it is the purpose of a jeopardy assessment to keep the matter in status quo until the merits of the tax controversy can be so resolved. Therefore, the Government’s motion to dismiss the petition is granted in 85 Civ. 3028 (JES).

2. The Action for Injunctive Relief and Damages — 84 Civ. 8154 (JES)

With respect to plaintiffs’ application for an injunction against further IRS investigation, the Court grants defendants’ motion to dismiss. The Anti-Injunction Act, 26 U.S.C. § 7421(a), precludes this Court from enjoining IRS activities reasonably related to the assessment and collection of taxes. The alleged acts of harassment here clearly fall within that definition. In fact, this case is virtually identical to Black v. United States of America, 534 F.2d 524 (2d Cir.1976), in which an injunction was denied. Id. at 526-27. See also Bob Jones University v. Simon, 416 U.S. 725, 94 S.Ct. 2038, 40 L.Ed.2d 496 (1974).

However, the Black court also noted that IRS agents enjoy only qualified immunity and may be liable in damages for their actions. See 534 F.2d at 527-28. Therefore, plaintiffs’ claims for damages against the agents cannot be dismissed. However, the United States of America is absolutely immune, and the complaint is therefore dismissed as to the United States. See, e.g., Black, supra, 534 F.2d at 527 n. 4.

Defendants have moved for sanctions pursuant to Fed.R.Civ.P. 11 with respect to plaintiffs’ application for injunctive relief. The law is clear, under Black, supra, and Bob Jones, supra, that there was no reasonable basis to believe that injunctive relief was available in this case. Defendants’ motion for sanctions is therefore granted. Defendants shall submit an affidavit of costs and attorneys’ fees, not to exceed $500.00.

The parties shall complete all discovery with respect to the damage claims by September 3, 1985. A Pre-Trial Conference shall be held on September 20, 1985 at 10:00 A.M.

It is SO ORDERED.


author: GETZENDANNER, District Judge:

text:
    George W. LINDAHL, on behalf of himself and all others similarly situated, Plaintiff, v. AMERICAN TELEPHONE & TELEGRAPH CO., E.H. Crabb, Dr. J. McCahan, S.J. Huse, E. Mayfield, and R.E. Sageman, individually and in their official capacities as members of the Employee Benefits Committee of American Telephone’s Plan for Employees’ Pensions & Disability Benefits, Defendants.
    No. 82 C 480.
    United States District Court, N.D. Illinois, E.D.
    May 22, 1985.

      Stanley Eisenstein, Katz, Friedman, Schur & Eagle, Chicago, Ill., for plaintiff.
    William McKittrick, Michael G. Cleveland, Vedder, Price, Kaufman & Kammholz, Chicago, Ill., for defendants.
   MEMORANDUM OPINION AND ORDER

GETZENDANNER, District Judge:

This action under Sections 404, 405 and 406 of the Employment Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1104, 1105, and 1106, is before the court on the parties’ cross-motions for summary judgment. Plaintiff George W. Lindahl alleges that defendant American Telephone and Telegraph Co., Long Lines Division, and individual members of Long Lines’ Employee Benefits Committee (“EBC”), violated their fiduciary duties under ERISA by forcing the plaintiff into involuntary retirement. Defendants contend that plaintiff’s claims are barred by ERISA’s statute of limitations, that plaintiff is estopped from litigating the issue of fiduciary breach by virtue of a prior arbitration award in the defendant’s favor, and that plaintiff can put forth no evidence to support his allegation that defendants acted arbitrarily and capriciously so as to violate their fiduciary duty. Defendants also seek to strike plaintiff’s claim for punitive damages and to dismiss defendant Jermyn McCahan on the ground that he is not a fiduciary. Plaintiff, in turn, argues that the standard governing defendants’ actions was whether they looked after his best interests as a pension plan beneficiary, and that he is entitled to partial summary judgment due to the committee’s siding with the employer against him in a job disability dispute. Because the court finds for defendants on the limitations issue, it does not reach the other issues raised by the parties.

FACTS

Plaintiff George W. Lindahl was hired by AT & T Long Lines Division on or about October 7, 1948, until his involuntary retirement on January 22, 1977. Throughout this period, Lindahl was a participant in AT & T’s Plan for Employees’ Pensions & Disability Benefits. The responsibility for administering the plan was and is vested in the Employee Benefits Committee (EBC). Defendants Sylvester J. Huse, Ernest H. Crabb, and Edgar Mayfield, officers of Long Lines, were all members of the EBC at the time of plaintiff’s forced retirement. Defendant Jermyn McCahan, Corporate Medical Director of Long Lines, was the medical advisor to the EBC and attended, all their meetings.

In January 1976, plaintiff experienced a recurrence of ulcerated varicose veins from which he had suffered for several years, and which had necessitated several prolonged absences from work in the past. He was hospitalized from February 2 through February 17, 1976, under the care of Dr. Tom R. DeMeester. On March 11, 1976, DeMeester released plaintiff to return to work on March 22, 1976.

On March 19,1976, Dr. Daniel E. Conrad, Medical Director for Long Lines’ Central Region, examined plaintiff. Dr. Conrad had examined plaintiff previously in connection with his leg problems and concluded that plaintiff was medically unable to return to work. Conrad discussed this assessment with DeMeester and reexamined plaintiff on April 15, 1976, but reconfirmed his opinion and refused to allow plaintiff to return to work.

On September 2, 1976, DeMeester again examined Lindahl and reported to Conrad that Lindahl should be able to work. De-Meester reiterated this opinion by letter dated November 16, 1976. ' Conrad nonetheless continued to feel that plaintiff was unable to work, and discussed his opinion with McCahan. Together they arranged for plaintiff to be seen by Dr. Peter Nennhaus, a cardiovascular surgeon. Nennhaus indicated that Lindahl’s disability was not at all serious and could easily be controlled by use of Kenalog ointment and a knee-high Kendrick stocking. Nennhaus regarded the Kendrick stocking as vastly superior to the Jobst brand Lindahl had been using and as equivalent to bed rest for curing ulcerated venous problems.

On January 20, 1977, Conrad reexamined plaintiff, and found that plaintiff still had unhealed ulcers. Since a year off of work with supposed bed rest and leg elevation had not fully healed Lindahl’s condition, Conrad concluded that plaintiff’s condition could not be expected to improve by use of the Kendrick stocking. Conrad therefore recommended to plaintiff’s supervisor, Stanley Bushhouse, that plaintiff be involuntarily retired due to the likelihood of a recurrence in the near future. Bushhouse and his superiors furthered this recommendation to the EBC with the notice that both plaintiff and his personal physician disagreed with Conrad’s opinion. The EBC, on February 8, 1977, voted to place plaintiff on involuntary retirement, notwithstanding his opposition.

Plaintiff was informed by Conrad of the involuntary retirement in late January. On January 28, 1977, the Union filed a grievance on plaintiff’s behalf alleging that the company terminated him in violation of its collective bargaining agreement. After April 25, 1979, when the parties failed to reach agreement in informal grievance meetings, the Union demanded arbitration. Long Lines refused on the ground that the arbitration clause covered only dismissals and not retirements. In 1980, the Union filed suit to compel arbitration in federal district court. On September 9, 1980, Judge Hubert L. Will ordered the parties to arbitrate the issue of arbitrability. The parties proceeded to arbitration that summer, and this suit was filed the following January. On March 31, 1982, Arbitrator Zel S. Rice II determined that the dispute was not arbitrable, and rejected the Union’s arguments that the EBC had violated ERISA through its actions.

Statute of Limitations

In Count I of plaintiff’s complaint, which is the sole remaining count in this lawsuit , plaintiff seeks damages for the defendants’ breach of fiduciary duty under ERISA. This claim is governed by the limitations period under section 413 of ERISA, 29 U.S.C. § 1113(a)(2):

No action may be commenced under this subchapter with respect to a fiduciary breach of any responsibility, duty or obligation under this part ... after the earlier of
(1) six years after (A) the date of the last action which constituted a part of the breach or violation, ... or (2) three years after the earliest date (A) on which the plaintiff had actual knowledge of the breach or violation____

The present lawsuit was filed on January 26, 1982. Plaintiff testified at his deposition that he knew in January 1977 that the EBC would have final say over any company recommendation for involuntary retirement. Since the EBC’s decision was rendered on February 8, 1977, it is obvious that more than three years passed from the date plaintiff actually learned of the facts comprising the alleged ERISA violation and the present suit. Defendants therefore move that judgment be entered on limitations grounds.

In his opposition brief, plaintiff makes no argument that section 413(a)(2)’s three-year period is inapplicable to this action, nor does he argue that any factual disputes exist with regard to his knowledge of the ERISA breach back in 1977. Plaintiffs sole contention is that the limitations period should be tolled throughout the period that he exhausted his grievance and arbitration remedies. Defendants concede that exhaustion, if required as a prerequisite to this suit, would properly toll the running of the limitations period. Defendants nonetheless contend that exhaustion of plaintiffs collective bargaining remedies is not required for maintaining a statutory ERISA claim, and that resort to such remedies therefore does not toll the time for filing a claim.

In Kross v. Western Electric Co., 534 F.Supp. 251, 253 (N.D.Ill.1982), affd in part, 701 F.2d 1238 (7th Cir.1983), this court dismissed an ERISA suit under section 502(a)(3) for failure to exhaust a pension plan’s internal claims procedures. The court noted that exhaustion of claims procedures was uniformly required in actions to recover benefits under section 502(a)(1)(B) of ERISA but not in civil actions for breach of fiduciary duty under section 502(a)(2). The court concluded that the plaintiff’s claim, which alleged that the company forced him into early retirement to avoid the vesting of his pension benefits, was more like a 502(a)(1)(B) claim for benefits than like a 502(a)(2) claim for breach of fiduciary duty, and required exhaustion.

On appeal, the Seventh Circuit did not address the distinction among ERISA claims drawn by this court, but instead held that application of the exhaustion doctrine in ERISA cases is a matter generally left to the discretion of the district courts. 701 F.2d at 1244. The Kross panel nonetheless stressed a “strong federal policy expressed in case law, encouraging private resolution of ERISA-related disputes.” 701 F.2d at 1244.

Both Kross and the cases on which it relied concerned exhaustion of claim-resolution procedures set up under the pension plan itself, and not grievance arbitration procedures pursuant to a separate collective bargaining agreement. Defendants argue that the policies requiring exhaustion in Kross do not apply to the present situation. Defendants further argue, by analogy to case law concerning Title VII and the Fair Labor Standards Act, that exhaustion of arbitral remedies for unfair termination under a collective bargaining agreement is not a statutory prerequisite for an ERISA claim alleging breach of fiduciary duty. The court will address these arguments in turn.

In Amato v. Bernard, 618 F.2d 559, 567-68 (9th Cir.1980), relied on by the Seventh Circuit in Kross, the Ninth Circuit set forth several factors compelling ERISA claimants to exhaust administrative remedies before bringing suit in federal court. The Amato court noted that Congress had expressly authorized courts to develop a body of federal substantive law under ERISA comparable to that under Section 301 of the LMRA, where courts have usually required exhaustion. Id. at 567. However, the court laid particular stress on the text of ERISA itself. The court noted that section 503 of ERISA, 29 U.S.C. § 1133, requires a claims appeal procedure for every certified plan, apparently in the view that a nonadversarial method of claims settlement would minimize costs and prevent premature judicial intervention in the decision making of ERISA trustees. The court therefore concluded that not to require exhaustion of such procedures would defeat statutory policy and undermine the procedures contemplated in section 503. See also Taylor v. Bakery & Confectionary Union & Industry International Welfare Fund, 455 F.Supp. 816, 820 (E.D.N.C.1978) (broad managerial discretion given trustees under ERISA demands that they be given the opportunity to resolve an employees’ benefit eligibility before judicial review). Finally, the Amato court stressed the assistance to judicial review that would come from allowing trustees to give full consideration to their actions prior to suit. 618 F.2d at 568.

Imposition of an exhaustion requirement which goes to contractual grievance remedies rather than internal pension plan remedies, would not promote nonadversarial claims settlement and would not advance trustee discretion by allowing ERISA fiduciaries to consider their actions fully before judicial intervention. Indeed, the individual defendants in this case were not named parties to plaintiff’s grievance proceeding, which was in effect a claim for unfair termination by the company. As noted in Amato, “enforcement of a general agreement to arbitrate any dispute would be very different than the requirement imposed in this case, of exhaustion of internal administrative remedies provided by pension trusts as required by ERISA itself.” 618 F.2d at 568 n. 10. The same opinion was voiced in Brown v. Babcock & Wilcox Co., 589 F.Supp. 64, 67 (S.D.Ga.1984), where the court held that a plaintiff who had exhausted internal pension plan procedures need not submit the trustees’ adverse decision to labor arbitration before filing suit in federal court.

Set against this authority is the strong federal policy favoring arbitration of employer-employee disputes, Kross, 701 F.2d at 1244, and the rule in this circuit that arbitration procedures provided for in the pension plan itself should be exhausted prior to bringing a contractually based ERISA claim. Challenger v. Local Union No. 1 of the International Bridge, Structural and Ornamental Ironworkers, 619 F.2d 645, 648 (7th Cir.1980). This court is additionally hesitant to create a rule which would force ERISA plaintiffs to file lawsuits while still pursuing contractual grievance remedies which might moot the relief sought in court.

In the end, however, these concerns do not justify either an exhaustion requirement or a tolling rule. Pursuit of a contractual remedy which could moot subsequent judicial relief is not enough to toll the statute of limitations. See International Union of Electrical Radio & Machine Workers v. Robbins & Myers, Inc., 429 U.S. 229, 97 S.Ct. 441, 50 L.Ed.2d 427 (1976). The court further notes that any hardships to ERISA plaintiffs (or defendants) forced to litigate two remedies simultaneously can be minimized by staying the ERISA claim pending an ongoing arbitral proceeding which could provide the same relief requested. Viggiano v. Shenango China Div. of Anchor Hocking, 750 F.2d 276, 281 (3d Cir.1984); Amaro v. Continental Can, 724 F.2d 747, 752 (9th Cir. 1984). Where arbitral proceedings to resolve a factually related contract claim continue beyond the limitations period for an ERISA claim, it does not seem unreasonable for plaintiffs to file a lawsuit in order to preserve their right to judicial relief at a later date.

There is, however, a second reason for not requiring exhaustion in the present case. Plaintiff does not dispute the EBC’s contractual authority to retire him involuntarily on a service pension. That authority is manifest from Section 4.1 of the Plan (Complaint Exhibit A), which provides that “all employees regardless of age whose terms of employment have been thirty or more years shall if they so request, or may at the discretion of the Committee, be retired from active service____” Thus, plaintiff’s ERISA claim is narrowed to the question whether defendants violated their fiduciary duty by retiring plaintiff at the company’s request and against the medical opinions of the two outside physicians. Such a claim involves statutory rights beyond the competence of the arbitrator to decide, as plaintiff himself acknowledges in his argument opposing application of collateral estoppel.

Because plaintiffs statutory and contractual claims are independent remedies, it follows that exhaustion of plaintiffs contractual remedies is not required before resort to the judicial forum, and that the statute was therefore not tolled while those contractual remedies were pursued. In Alexander v. Gardner-Denver Co., 415 U.S. 36, 94 S.Ct. 1011, 39 L.Ed.2d 147 (1974) and Barrentine v. Arkansas-Best Freight System, 450 U.S. 728, 101 S.Ct. 1437, 67 L.Ed.2d 641 (1981), the Supreme Court held that exhaustion of a collectively bargained arbitration procedure is not a prerequisite to suits to enforce statutory rights under Title VII or the Fair Labor Standards Act, respectively. In International Union of Electrical Radio & Machine Workers v. Robbins & Myers, Inc., 429 U.S. 229, 97 S.Ct. 441, 50 L.Ed.2d 427 (1976), the Court found a necessary corollary of its earlier opinion in Gardner-Denver to be that pursuit of grievances under a labor agreement could not toll the time for bringing a Title VII suit.

In reliance on Gardner-Denver, most courts have not imposed an exhaustion requirement in ERISA suits alleging breach of fiduciary duties. See, e.g., Delgrosso v. Spang & Co., 586 F.Supp. 177 (W.D.Pa. 1983); Lieske v. Morlock, 570 F.Supp. 1426, 1429 (N.D.Ill.1983); Lewis v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 431 F.Supp. 271, 276-77 (E.D.Pa.1977). Analogously, other courts have concluded that substantive ERISA claims, as opposed to ERISA claims to enforce the terms of a pension plan, can be brought directly in federal court notwithstanding an agreement to arbitrate. Barrowclough v. Kidder Peabody & Co., 752 F.2d 923, 939 (3d Cir.1985); Amaro v. Continental Can Co., 724 F.2d 747, 751-52 (9th Cir.1984).

As explained in Lewis, the rule for not requiring exhaustion in ERISA fiduciary violation suits is predicated not only on the principle of Gardner-Denver, but also on sections 409(a) and 410 of ERISA. Section 410 declares void as against public policy an agreement to relieve an ERISA fiduciary of any statutory responsibility or liability. The Lewis court reasoned that answering a suit is a consequence of liability under § 409(a), and that arbitration agreements which prevent that consequence cannot be enforced. 431 F.Supp. at 276-77. Section 409(a) is applicable only to ERISA claims for breach of fiduciary duty, and does not apply to other substantive violations. Fox v. Merrill Lynch & Co., 453 F.Supp. 561, 566 (S.D.N.Y.1978).

The continuing vitality of Lewis in this circuit is far from clear. In Challenger v. Local Union No. 1, 619 F.2d 645 (7th Cir. 1980), the Seventh Circuit rejected Lewis’s analogy between ERISA and Title VII, on the ground that Title VII involves public, rights whereas Challenger’s ERISA claim involved rights arising under a private pension plan. 619 F.2d at 649 n. 4 (citing Fox, 453 F.Supp. at 566). The Challenger panel otherwise distinguished Lewis on the ground that Challenger had alleged no breach of fiduciary duty which could call § 410 into operation. Id. at 648-49. Other courts which have required exhaustion of administrative remedies under ERISA have also distinguished Lewis as a case involving a fiduciary breach. Amato, 618 F.2d at 568 n. 10; Fox, 453 F.Supp. at 566. The statutory reasoning in Lewis thus remains persuasive despite a partial rejection of Lewis in this circuit.

The court further questions whether Lewis remains good law after Kross, in which the Seventh Circuit was silent on the distinctions to be drawn among ERISA claims for purposes of exhaustion, and left the process open to district court discretion. Kross has been criticized and rejected in other circuits for failing to make this distinction, however. See, e.g., Amaro, 724 F.2d at 751-52; McClendon v. Continental Group, Inc., 602 F.Supp. 1492, 1504-05 (D.N.J.1985); Garry v. TRW, Inc., 603 F.Supp. 157, 163-64 (N.D.Ohio 1985). The court therefore concludes that the ruling in Kross should in any event not be extended beyond the context of internal pension plan remedies, and certainly not to require arbitration of fiduciary claims. See Barrowclough, 752 F.2d at 939 n. 15 (distinguishing Kross on this basis).

Because the parties have focused their attention exclusively on the exhaustion requirement, neither party has addressed the ramifications of that issue in its current context. Plaintiff suggests, without citing to any case law, that defendants’ recalcitrance in going forward with arbitration justifies any untimeliness in filing the present suit. While the company’s actions are clearly responsible for prolonging plaintiff’s grievance proceedings, the court fails to see how the company’s action is relevant to the tolling of plaintiff’s ERISA claim. Throughout the grievance, the company took the position that the dispute was nonarbitrable, in part because the EBC and not the company had effected Lindahl’s retirement. Lindahl moreover testified that he knew back in 1977 that the EBC had to give final approval over any decision on involuntary retirement. Thus, although the company’s refusal to arbitrate until ordered to do so by Judge Will protracted the arbitration process, the company in no way misled plaintiff into pursuing that remedy to the exclusion of others.

Although plaintiff has not made the argument, the court also notes that plaintiff’s conduct during arbitration further refutes the possibility of equitable tolling. The cases on which plaintiff relies for the exhaustion requirement were decided subsequent to the filing of this suit, so plaintiff cannot credibly claim reliance on case law in determining that he had to exhaust his labor-related remedies before seeking relief under ERISA. Second, plaintiff in fact filed this lawsuit before arbitrator Rice had rendered a decision, thus suggesting that his counsel understood the two remedies to be somewhat independent. Finally, plaintiff’s theory throughout arbitration — that the company had used the EBC to effect a termination which was contractually improper — reveals that the facts underlying plaintiff’s breach of fiduciary duty claim were known to him from the onset of his grievance.

Conclusion

Accordingly, the court enters judgment for defendants on Count I of plaintiff’s complaint. That count being the sole remaining claim in this case, judgment is final under Rule 54.

It is so ordered.

      . Count II was dismissed by stipulation of the parties on May 23, 1983, and this court ordered plaintiff’s class allegations stricken on March 22, 1984.


author: LUONGO, Chief Judge.

text:
    Michael J. WEINTRAUB v. The ST. PAUL FIRE AND MARINE INSURANCE COMPANY.
    Civ. A. No. 84-2870.
    United States District Court, E.D. Pennsylvania.
    May 22, 1985.

      Howard J. Kaufman, Philadelphia, Pa., for plaintiff.
    Dennis J. O’Leary, Philadelphia, Pa., for defendant!
   MEMORANDUM

LUONGO, Chief Judge.

This is a declaratory- judgment action in which plaintiff, Michael J. Weintraub, seeks an order obligating The St. Paul Fire and Marine Insurance Company (“St. Paul”) to (1) provide a defense, (2) indemnify against loss, and (3) reimburse fees and costs with respect to a legal malpractice claim against plaintiff’s former law partner in which plaintiff has been joined as an additional defendant. Plaintiff has moved for summary judgment on the ground that St. Paul has abandoned or is estopped from asserting its defenses to liability. Because I conclude that St. Paul is not estopped from asserting the “knowledge of prior incident” defense, I will deny the motion.

I.

For purposes of this motion, the relevant facts may be stated concisely: On December 7, 1983, St. Paul issued to Weintraub a Professional Liability Policy, No. 529JV5056, which covered plaintiff from the date of issuance until December 7, 1984. Coverage under the policy was on a “claims-made basis.” In December, 1983, the Community Blood Council of Mercer County, Inc. filed suit against plaintiff’s former law partner, Richard B. Gelade, charging that Gelade had been negligent in providing legal services during 1979 and 1980. In January, 1984, Gelade joined Weintraub as an additional defendant. On February 17, 1984, Weintraub notified St. Paul of the action and requested that St. Paul assume his defense and provide coverage. On March 6, 1984, St. Paul disclaimed coverage in a letter that stated that plaintiff was covered as an “individual,” not as a “partnership.” The letter also stated that St. Paul “must reserve all of its rights and conditions under this policy in addition to the reasons stated above to disclaim coverage.” After a letter from plaintiff’s attorney, St. Paul again denied coverage in essentially similar language. On June 12, 1984, plaintiff filed the instant declaratory judgment action. St. Paul’s answer, filed on August 3, 1984, denied liability for reasons previously disclosed to Weintraub. In addition, St. Paul listed as its “Second Defense” that Weintraub, at the time the policy was issued, had knowledge of the incident involving his former partner and Community Blood Council of Mercer County, Inc., and that Weintraub knew that it was reasonably foreseeable that a claim would be made against him with respect to that incident. St. Paul asserts that such prior knowledge is a defense to liability under the contract.

Plaintiff’s motion for summary judgment is premised on his contention that “an insurer’s disclaimer of coverage on a specified ground estops it from later asserting other grounds____” Plaintiff’s Memorandum of Law at 6. In essence, plaintiff argues that an insurer’s failure to base its disclaimer of coverage on a specified ground, while asserting other reasons, will, as a matter of law, preclude the insurer from relying upon the previously unspecified ground in subsequent litigation.

In support of his position, plaintiff relies primarily on McCormick v. Royal Insurance Co., 163 Pa. 184, 29 A. 747 (1894). In McCormick, the Pennsylvania Supreme Court held that a trial court erred in excluding evidence tending to prove that an agent of an insurance company told its insured that the company would not rely on a “space clause” in disclaiming liability under a fire insurance contract. The company initially asserted only that the plaintiff did not own any lumber destroyed in the blaze. The Supreme Court ruled that proof of such events would create an estoppel against the insurer. The Court reasoned that, an insurer could not, by disclaiming a .known possible defense, induce its insured to incur the expense and trouble of litigation, and then assert such a defense in subsequent proceedings.

As defendant points out, however, the Pennsylvania courts have not pursued the sweeping implications of the McCormick opinion. More recent precedent demonstrates that an insurer’s failure to assert all possible defenses when denying coverage will create an estoppel only when such failure causes the insured to act to his detriment in reliance thereon. Meth v. United Benefit Life Ins. Co., 198 F.2d 446 (3d Cir.1952); ACF Produce, Inc. v. Chubb/Pacific Indemnity Group, 451 F.Supp. 1095, 1100 & n. 2 (E.D.Pa.1978); Slater v. General Casualty Company of America, 344 Pa. 410, 25 A.2d 697 (1942); Pfeiffer v. Grocers Mutual Insurance Company, 251 Pa.Super.Ct. 1, 379 A.2d 118 (1977). See also 16C Appleman, Insurance Law and Practice § 9261 at 403 (1981).

The Third Circuit’s decision in Meth v. United Benefit Life Ins. Co., 198 F.2d 446 (3d Cir.1952) is the controlling authority in this case. In Meth, the plaintiff brought suit for disability benefits under an insurance policy. The insurance company initially denied coverage by asserting fraud in the inception. At trial the company defended on the basis that the disability arose from a disease of prior origin. The plaintiff sought to exclude the prior origin defense, advancing precisely the argument pressed in the case at bar. The court of appeals considered, and rejected that argument:

Plaintiff insists that the trial judge was in error in ruling that defendant was not estopped to assert the defense of “prior origin.” ... Plaintiff’s contention is based on the fact that the sole reason asserted by the company to Meth in support of its refusal to pay disability benefits under the policies in suit was fraud in the inception. Plaintiff considers the Pennsylvania law to be that where the insurer has refused to pay on one ground and has so informed the insured it cannot when sued set up a defense on another ground. Such construction of the rule is entirely too broad. Denial of liability on one ground does not in all cases operate as a waiver of all other grounds.

Meth, 198 F.2d at 447 (emphasis added).

Quoting Pennsylvania Supreme Court precedent subsequent to McCormick, the Third Circuit held that an estoppel would be created only where an insurer’s omission of a ground from its stated reasons for disclaimer caused detrimental reliance on the part of the insured:

The rule is correctly'stated in Welsh v. London Assurance Corp., 151 Pa. 607, at page 618, 25 A. 142, 143, 31 Am.St. Rep. 786: ‘No party is required to name all his reasons at once, or any reason at all; and the assignment of one reason for refusal to pay cannot be a waiver of any other existing reason, unless the other is one which could have been remedied or obviated, and the adversary was so far misled or lulled into security by the silence as to such reason that to enforce it now would be unfair or unjust____’

Meth, 198 F.2d at 447, quoting, Slater v. General Casualty Co. of America, 344 Pa. 410, 416, 25 A.2d 697, 699.

From this review of authorities, it is evident that plaintiff’s attempt to estop St. Paul from asserting the prior knowledge defense must fail. Plaintiff has neither alleged nor demonstrated that defendant’s failure to provide timely notice of its reliance on that defense caused him unfair prejudice. That plaintiff might have been induced to file an unsuccessful lawsuit is not sufficient. The notion that such reliance, unrelated to the underlying merits of this dispute, suffices to create an estoppel has been rejected by the more recent cases. Plaintiff’s motion for summary judgment will therefore be denied.