PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

ALFRED W. GROSS, Commissioner of
Insurance, State Corporation
Commission, as deputy receiver of
Fidelity Bankers Life Insurance
Company,
Plaintiff-Appellant,
                                    No. 98-2000
v.

ROBERT WEINGARTEN; GERRY R.
GINSBERG; LEONARD GUBAR;
SHEARSON LEHMAN BROTHERS
HOLDINGS, INCORPORATED,
Defendants-Appellees.

ALFRED W. GROSS, Commissioner of
Insurance, State Corporation
Commission, as deputy receiver of
Fidelity Bankers Life Insurance
Company,
Plaintiff-Appellee,

v.
                                    No. 98-2393
SHEARSON LEHMAN BROTHERS
HOLDINGS, INCORPORATED,
Defendant-Appellant,

and

ROBERT WEINGARTEN; GERRY R.
GINSBERG; LEONARD GUBAR,
Defendants.
ALFRED W. GROSS, Commissioner of
Insurance, State Corporation
Commission, as deputy receiver of
Fidelity Bankers Life Insurance
Company,
Plaintiff-Appellee,

v.
                                                                      No. 98-2405
ROBERT WEINGARTEN; GERRY R.
GINSBERG; LEONARD GUBAR,
Defendants-Appellants,

and

SHEARSON LEHMAN BROTHERS
HOLDINGS, INCORPORATED,
Defendant.

Appeals from the United States District Court
for the Eastern District of Virginia, at Richmond.
Richard L. Williams, Senior District Judge;
Robert R. Merhige, Jr., Senior District Judge
(Retired). (CA-92-808-3)

Argued: January 28, 2000

Decided: June 30, 2000

Before WILKINSON, Chief Judge, and MICHAEL
and TRAXLER, Circuit Judges.

_________________________________________________________________

Affirmed in part, reversed in part, and remanded by published opin-
ion. Judge Michael wrote the opinion, in which Chief Judge Wilkin-
son and Judge Traxler joined.

_________________________________________________________________

                    2
COUNSEL

ARGUED: Robert Dean Perrow, WILLIAMS, MULLEN, CLARK
& DOBBINS, Richmond, Virginia, for Appellant. Eric Neil Landau,
CHRISTENSEN, MILLER, FINK, JACOBS, GLASER, WEIL &
SHAPIRO, Los Angeles, California, for Appellees Weingarten, Gins-
berg and Gubar; Helen Lalich Duncan, LEBOEUF, LAMB, GREENE
& MACRAE, L.L.P., Los Angeles, California, for Appellee Shearson
Lehman. ON BRIEF: Howard W. Dobbins, Elizabeth Mason Hurley,
WILLIAMS, MULLEN, CLARK & DOBBINS, Richmond, Virginia;
Patrick H. Cantilo, CANTILO, BENNETT & WISENER, L.L.P.,
Austin, Texas, for Appellant. Terry Christensen, CHRISTENSEN,
MILLER, FINK, JACOBS, GLASER, WEIL & SHAPIRO, Los
Angeles, California; W. Davis Paxton, GENTRY, LOCKE, RAKES
& MOORE, Roanoke, Virginia, for Appellees Weingarten, Ginsberg
and Gubar; Allyson S. Taketa, LEBOEUF, LAMB, GREENE &
MACRAE, L.L.P., Los Angeles, California; Douglas M. Palais, Dana
J. Finberg, MEZZULLO & MCCANDLISH, Richmond, Virginia, for
Appellee Shearson Lehman.

_________________________________________________________________

OPINION

MICHAEL, Circuit Judge:

Steven T. Foster, in his capacity as the deputy receiver for Fidelity
Bankers Life Insurance Company (Fidelity Bankers), brought this
lawsuit in federal court against Robert Weingarten, Gerry R. Gins-
berg, Leonard Gubar, and Shearson Lehman Brothers Holdings, Inc.
(Shearson).1 The deputy receiver's sixteen-count complaint alleged
that Weingarten, Ginsberg, and Gubar controlled Fidelity Bankers as
directors of Fidelity Bankers itself and as directors and shareholders
of its parent company, First Capital Holdings, Inc. (First Capital), and
caused Fidelity Bankers to commit securities violations, various
forms of fraud, and violations of Virginia corporate and insurance
law. Shearson was sued on the theory that it was a controlling person
by virtue of its ownership stake in First Capital. The deputy receiver
_________________________________________________________________
1 Foster was succeeded as deputy receiver by Alfred W. Gross.

                  3
further alleged that Weingarten, Ginsberg, and Gubar breached their
fiduciary duty to Fidelity Bankers and that Shearson aided and abetted
that breach. The defendants asserted counterclaims for exoneration,
indemnification, and contribution based on their prior settlement of a
policyholder class action involving many of the same claims. The
counterclaims in this action were severed. After a twelve-day trial on
the deputy receiver's sixteen claims, the deputy receiver voluntarily
dismissed six of those claims, and the district court awarded judgment
as a matter of law to the defendants on a seventh. The jury returned
a verdict for the defendants on all nine of the remaining claims.
Thereafter, on motion of the deputy receiver, the district court dis-
missed all of the counterclaims for want of jurisdiction, holding that
the state receivership court had exclusive jurisdiction over all claims
against Fidelity Bankers.

The deputy receiver appeals the judgment in favor of the defen-
dants, arguing that the district court committed reversible error in cer-
tain evidentiary rulings and in its award of judgment to the defendants
on the one count. The defendants cross-appeal the dismissal of their
counterclaims. After considering the direct appeal, we find no revers-
ible error and therefore affirm the jury verdict and judgment in favor
of the defendants. With respect to the cross-appeal, we hold that the
district court erred in concluding that it lacked subject matter jurisdic-
tion, and we reverse on that point.

I.

We begin with the winding history of this case, which has involved
proceedings before three federal district judges and the Virginia State
Corporation Commission. The business in federal court has included
class action settlement proceedings and a twelve-day jury trial. There
was also a nine-day insolvency and rehabilitation proceeding before
the State Corporation Commission.

Defendants Weingarten, Ginsberg, and Gubar were directors and
shareholders of First Capital, a financial services and insurance hold-
ing company. In 1985 First Capital, acting through its subsidiaries,
acquired Fidelity Bankers, an insurance company based in Richmond,
Virginia, for $75 million.2 After First Capital bought Fidelity Bank-
_________________________________________________________________
2 The acquisition was brought about as follows: First Capital Insurance
Group, Inc., a wholly owned subsidiary of First Capital, bought one third

                     4
ers, Weingarten, Ginsberg, and Gubar became directors on Fidelity
Bankers' ten-member board. Fidelity Bankers and First Capital then
entered into an "Investment Advisory Agreement," in which First
Capital agreed to counsel and advise Fidelity Bankers in its invest-
ment program, to conduct research and make recommendations for
the purchase and sale of securities, and to execute buy and sell orders
for Fidelity Bankers. For these services First Capital was paid a sum
equal to 0.5 percent of Fidelity Bankers' invested assets each month.

After the change in ownership Fidelity Bankers began to empha-
size the sale of annuities. To that end, the company introduced annui-
ties featuring relatively high crediting rates (rates of return) and low
surrender charges. The purchaser of one of these annuities paid a sin-
gle premium in advance and received a guaranteed minimum rate of
return over a one-year period. Each year on the anniversary date of
the annuity, the purchaser had the option to either keep the annuity
at whatever rate Fidelity Bankers was then offering or get his money
back. A purchaser who decided to get his money back, that is, "sur-
render" his policy, paid little or no penalty. These annuities were
extremely popular, so popular, in fact, that the company's assets
increased from approximately $228 million in 1985 to approximately
$4 billion by the end of 1990.

The statutory accounting rules applicable to insurance companies
require that the entire cost of issuing a policy be charged in the year
of sale rather than amortized, so liabilities in a growing company typi-
cally increase faster than assets. In order to pay the guaranteed rate
on the annuities and to cover the expenses of writing the policies,
Fidelity Bankers (like any other insurer) took the premiums that it
_________________________________________________________________
of Fidelity Bankers' outstanding stock for $25 million. At the same time,
First Capital Insurance Group formed a subsidiary holding company cal-
led F.B. Life Insurance Co. and loaned that company $50 million. After
F.B. Life Insurance used the loan money to buy the remaining two thirds
of Fidelity Bankers' stock, F.B. Life Insurance was merged into Fidelity
Bankers. Thus, when the dust settled, First Capital owned 100 percent of
First Capital Insurance Group, which owned 100 percent of Fidelity
Bankers. And, Fidelity Bankers owed $50 million to First Capital Insur-
ance Group, its parent company.

                    5
received from annuitants and reinvested them. Acting under the
Investment Advisory Agreement, First Capital substantially increased
the percentage of high yield, non-investment grade (junk) bonds in
Fidelity Bankers' portfolio until 38 percent of Fidelity Bankers' assets
were junk bonds. These investment decisions were approved by Fidel-
ity Bankers' investment committee (Weingarten, Ginsberg, and
Edward Simon, Fidelity Bankers' president) and were ratified by the
Fidelity Bankers board.

On November 15, 1988, defendant Shearson purchased 44 percent
of the stock of First Capital, which constituted 36.6 percent of the vot-
ing stock. Under its stock purchase agreement Shearson gained the
right to appoint four of the six directors on First Capital's board, two
of whom were Shearson employees. The following year Shearson's
stock interest was diluted to 28 percent, but Shearson's four directors
remained on the board.

In April 1991 a downturn in the junk bond market and adverse pub-
licity about Fidelity Bankers' sister company in California, First Capi-
tal Life Insurance Co., sparked a substantial increase in the number
of surrender requests at Fidelity Bankers. The Virginia Bureau of
Insurance became concerned that Fidelity Bankers would be unable
to meet the surrenders as they were tendered and that a "run on the
bank" would result. Fidelity Bankers' junk bonds, if sold at that time,
would have been worth considerably less than their book value and
might have been insufficient to satisfy the surrenders.3 On May 13,
1991, the Circuit Court of the City of Richmond entered an order
placing Fidelity Bankers in receivership and appointing the State Cor-
poration Commission (Commission) as receiver. Acting in its capac-
ity as a court, see Va. Code Ann. § 38.2-1508, the Commission issued
its own order appointing a deputy receiver. In that order the Commis-
sion asserted "sole and exclusive jurisdiction over all the [property
belonging to Fidelity Bankers] and any claims or rights respecting
such Property to the exclusion of any other court or tribunal." The
Commission's order also permanently enjoined anyone with a claim
_________________________________________________________________
3 Under statutory accounting principles applicable to insurance compa-
nies, a bond is carried at original cost as long as the company intends to
hold it to maturity. If and when a decision is made to sell the bond, the
company must carry it at market value.

                    6
against Fidelity Bankers from "commencing, bringing, maintaining or
further prosecuting any action at law, suit in equity, arbitration, or
special or other proceeding against [Fidelity Bankers] or its estate, or
the Deputy Receiver and his successors in office," except as permitted
by the deputy receiver.4

In May 1991 First Capital and its subsidiary holding companies
declared bankruptcy. The predictable result was that insurance agents,
Fidelity Bankers policyholders, and First Capital securities holders
and creditors filed numerous lawsuits against Shearson, Weingarten,
Ginsberg, and Gubar, among others. Those actions, which alleged
fraud, corporate mismanagement, and violations of the federal securi-
ties laws, were transferred to the United States District Court for the
Central District of California by the Judicial Panel on Multidistrict
Litigation under Multidistrict Litigation Docket No. 901. In early
1992 the parties to those actions worked out a proposed settlement.
The deputy receiver appeared before the district court in California
and objected to the proposed settlement of the Fidelity Bankers poli-
cyholders' claims on the ground that only the deputy receiver had the
authority to litigate those claims. The district court rejected the deputy
receiver's argument, and the settlement was approved on June 10,
1992.
_________________________________________________________________
4 The relevant portion of the Commission's order states:

          The officers, directors, trustees, partners, affiliates, agents, credi-
          tors, insureds, employees and policyholders of [Fidelity Bank-
          ers], and all other persons or entities of any nature including, but
          not limited to, claimants, plaintiffs, petitioners, and any govern-
          mental agencies who have any claims of any nature against
          [Fidelity Bankers], including crossclaims, counterclaims, and
          third party claims, are hereby permanently enjoined and
          restrained from doing or attempting to do any of the following
          except in accordance with the express instructions of the Deputy
          Receiver:

          ...

          (b) commencing, bringing, maintaining or further prosecut-
          ing any action at law, suit in equity, arbitration, or special or
          other proceeding against [Fidelity Bankers] or its estate, or
          the Deputy Receiver and his successors in office, as Deputy
          Receiver thereof . . . .

                     7
Meanwhile, beginning on June 1, 1992, the Virginia Commission
conducted a nine-day hearing to determine Fidelity Bankers' financial
status and to consider the deputy receiver's proposed rehabilitation
plan. On September 29, 1992, the Commission held that as of the date
of receivership, May 13, 1991, Fidelity Bankers was insolvent by
over $200 million. At the same time, the Commission approved the
deputy receiver's rehabilitation plan, under which policyholders were
allowed to choose between accepting similar annuities with another
insurer and receiving 85 percent of the value of their Fidelity Bankers
annuities in cash, with the remaining 15 percent in a two-year annu-
ity. Policyholders were also to receive a "Plan Dividend." The Plan
Dividend was intended to compensate for any decrease in the interest
rate available on the substitute annuities and for policyholders' inabil-
ity to surrender their annuities for cash during the two-year morato-
rium imposed by the deputy receiver.

In December 1992 the deputy receiver, acting on behalf of Fidelity
Bankers, its creditors, and its policyholders, sued Shearson and the
individual defendants in the United States District Court for the East-
ern District of Virginia, alleging violations of federal and state securi-
ties laws, breach of fiduciary duty, negligence, various forms of fraud,
conspiracy, waste of corporate assets, unjust enrichment, disburse-
ment of illegal dividends, fraudulent or voidable transfers, issuance of
insurance after insolvency, and combined action to injure Fidelity
Bankers in its reputation, trade, or business. In essence, the deputy
receiver alleged that the defendants pursued a reckless investment
strategy that was inappropriate for an insurer, while deliberately caus-
ing Fidelity Bankers to inflate its surplus in order to conceal its lack
of capital and its precarious financial position. The defendants coun-
terclaimed. Weingarten, Ginsberg, and Gubar claimed an equitable
right to exoneration and contribution as well as equitable, statutory,
and contractual rights to indemnification by Fidelity Bankers (and
hence, the deputy receiver as Fidelity Bankers' successor) for their
outlays in settling the class action. Shearson likewise made claims for
equitable exoneration, indemnification, and contribution.

On February 17, 1993, the Multidistrict Litigation Panel transferred
this case to the Central District of California (Judge Davies). There,
the deputy receiver moved for partial summary judgment, arguing that
the defendants were estopped from contesting either the Commis-

                     8
sion's determination of insolvency or the Commission's finding that
the rehabilitation plan was necessary to make the policyholders
whole. The district court denied the motion, holding that since neither
the individual defendants nor Shearson were parties to the June 1992
Commission proceeding, they could not be bound by it. The defen-
dants also moved for partial summary judgment on the ground that
they had already settled (with the policyholders themselves) the dep-
uty receiver's claims on behalf of policyholders. The district court
granted that motion, holding that the deputy receiver could only pur-
sue claims on behalf of Fidelity Bankers itself or its creditors.

The Multidistrict Litigation Panel sent this case back to the Eastern
District of Virginia on December 30, 1996. The defendants then
moved for summary judgment on the damages issue, arguing that
because the policyholders' settled claims had been removed from the
case, Fidelity Bankers had sufficient assets to pay all remaining
claims against it. The district court in Eastern Virginia denied the
motion, stating that it disagreed with the California district court's
disposition of the deputy receiver's claims made on behalf of policy-
holders. Instead, the district court in Virginia reasoned that policy-
holders still had claims against Fidelity Bankers (which had not
participated in the California settlement) and that Fidelity Bankers
could sue the defendants on the theory that they had rendered the
company unable to fulfill its contractual obligations to its policyhold-
ers. The district court went on to hold that under the Rooker-Feldman
doctrine, the defendants were precluded from challenging the propri-
ety of the rehabilitation plan or the compensation it provided to poli-
cyholders.

In anticipation of trial the district court also ruled on various
motions in limine. On motion of the deputy receiver, the court
excluded (1) evidence of the financial condition of the Fidelity Bank-
ers estate that might be inconsistent with the Commission's Septem-
ber 29, 1992, order finding Fidelity Bankers insolvent by some $200
million, (2) evidence of pre-receivership acts or omissions by the Vir-
ginia Bureau of Insurance offered to show that such conduct contrib-
uted to the demise of Fidelity Bankers, and (3) evidence of the
settlement of the Fidelity Bankers policyholder claims to show that
those policyholders already had been made whole. At the same time,
the court refused to exclude (1) evidence of post-receivership acts or

                    9
omissions by the deputy receiver offered to show that such conduct
contributed to the damages suffered by policyholders and (2) evi-
dence of the junk bond market's recovery and Fidelity Bankers'
financial condition subsequent to May 13, 1991. Finally, the district
court bifurcated the trial into liability and damages phases and sev-
ered the defendants' counterclaims, staying discovery on those claims
and deferring decision on the deputy receiver's motion to dismiss. As
we said in the introduction, after a twelve-day jury trial on liability
the deputy receiver voluntarily dismissed six of his counts. The dis-
trict court granted judgment as a matter of law to the defendants on
the deputy receiver's claim for violation of the Virginia securities
laws. The jury found in favor of the defendants on the remaining nine
counts.5 The deputy receiver's motion for a new trial was denied.

Judge Merhige, who had presided over the trial, retired shortly
thereafter. This case was then transferred to Judge Williams for dispo-
sition of the defendants' counterclaims. On the deputy receiver's
motion to dismiss, the district court held that"the Commission's
receivership order establishing an exclusive forum for resolution of
all claims against Fidelity Bankers is entitled to full faith and credit
and divests this Court of subject matter jurisdiction." Gross v. Wein-
garten, 18 F. Supp.2d 616, 620 (E.D. Va. 1998). The district court
then granted judgment to the deputy receiver.

The deputy receiver appeals the jury verdict against him, claiming
that the district court committed reversible error by admitting certain
defense evidence. He also appeals the district court's judgment as a
matter of law on the Virginia Securities Act claim and its denial of
his motion for new trial. The defendants cross-appeal the dismissal of
their counterclaims.
_________________________________________________________________
5 These remaining nine counts were, as to all defendants, (1) intentional
breach of fiduciary duty, (2) fraud, (3) constructive fraud, and (4) puni-
tive damages; as to Weingarten, Ginsberg, and Gubar, (5) wilful, wanton,
and negligent breach of fiduciary duty, (6) unlawful distribution of Fidel-
ity Bankers' funds, and (7) issuance of additional insurance after insol-
vency; and, as to Shearson, (8) aiding and abetting intentional breach of
fiduciary duty and (9) negligence, gross negligence, and wilful and wan-
ton negligence in controlling Fidelity Bankers.

                    10
II.

The deputy receiver argues that the district court erred by permit-
ting the defendants to introduce (1) evidence of actions taken by the
Bureau of Insurance before Fidelity Bankers entered receivership, (2)
evidence of the financial condition of Fidelity Bankers that was
inconsistent with the Commission's September 1992 order finding
Fidelity Bankers insolvent and approving the rehabilitation plan, and
(3) evidence of the post-receivership conduct of the deputy receiver.
According to the deputy receiver, the defendants used this evidence
to blur the distinction between the deputy receiver, acting on behalf
of Fidelity Bankers, and the Bureau of Insurance, acting as a regula-
tor. As a result, the deputy receiver contends, the jury mistakenly
imputed the Bureau's misconduct to the deputy receiver and imper-
missibly found the deputy receiver contributorily negligent for the
harms suffered by Fidelity Bankers, its policyholders, and its credi-
tors. The defendants dispute this characterization of the evidence and
their use of it, arguing (1) that the evidence of the Bureau's pre-
receivership conduct was properly admitted for other purposes and (2)
that the defendants were entitled to show that it was the deputy
receiver's mismanagement of Fidelity Bankers, not their own, that left
the company unable to meet its obligations. We agree with the defen-
dants and find no error in the admission of this evidence.

A.

First, the deputy receiver complains, the defendants introduced evi-
dence that the Bureau had approved some of the transactions that the
deputy receiver claimed constituted negligence, fraud, or breaches of
fiduciary duty. Such pre-receivership conduct was inadmissible under
the district court's in limine order, the deputy receiver argues, because
it was offered to show that the Bureau's acts or omissions contributed
to the demise of Fidelity Bankers. We agree with the deputy receiver
that the negligence of the regulator is no defense to an action brought
by a receiver. See, e.g., Clark v. Milam , 891 F. Supp. 268, 271-72
(S.D. W.Va. 1995). The receiver assumes the identity of the insolvent
insurer, to whom the negligence of the regulator cannot be imputed.
See id. However, we do not believe that the evidence of pre-
receivership conduct by the Bureau was introduced to show regula-
tory negligence at all. On the contrary, our review of the entire record

                     11
reveals that the defendants offered evidence of the Bureau's knowl-
edge and approval of Fidelity Bankers' dealings in order to show that
the defendants lacked both intent to defraud and knowledge of insol-
vency and in order to show that they satisfied their fiduciary duties
by acting in good faith. Each of these issues was placed in contro-
versy by the deputy receiver's case-in-chief.

The essence of the deputy receiver's case may be distilled into two
propositions. One, the defendants placed Fidelity Bankers in a precar-
ious financial position by selling annuities with high crediting rates
and low surrender charges while investing heavily in volatile, high-
risk junk bonds. Two, instead of mitigating the riskiness of their strat-
egy, the defendants concealed it through accounting stratagems and
nondisclosures that falsely inflated the amount of capital and surplus
reported to state regulators. In support of the latter point, the deputy
receiver attempted to prove that the defendants caused Fidelity Bank-
ers to falsely inflate its reported capital and surplus by (1) obtaining
illusory surplus relief reinsurance in transactions that actually trans-
ferred little or no risk from Fidelity Bankers, (2) circumventing the
requirement that agent commissions be reported in the year a policy
is written by paying the commissions to a third-party subsidiary of
First Capital, (3) selling receivables that insurance accounting does
not recognize as assets to First Capital for cash and reporting the cash
as an asset, and (4) backdating a $20 million surplus note from 1988
to 1987.

In rebuttal, the defendants attempted to show that Fidelity Bankers'
product and investment strategies were the result of prudent business
decisions, that they had acted in good faith, and that they had con-
cealed nothing. In support of these contentions, the defendants intro-
duced evidence that they had repeatedly and openly disclosed to the
Bureau the means by which Fidelity Bankers had been acquired, the
reinsurance treaties on which the company relied, and the exact com-
position of the company's portfolio. The defendants further attempted
to show that the Bureau, armed with very much the same information
as the defendants, saw no fatal infirmity in Fidelity Bankers until May
1991, shortly before it placed the company in receivership. Similarly,
the defendants introduced evidence that other parties, such as Fidelity
Bankers' longtime actuary, a bank, a rating agency, an auditor, and
a broker, had reviewed identical information and, like the Bureau, had

                     12
perceived no cause for concern. In fact, those parties had relied on
this same information to loan First Capital money, rate Fidelity Bank-
ers highly, certify financial statements, and sell Fidelity Bankers'
products. Evidence that Fidelity Bankers appeared to be in good
shape to everyone who had a chance to examine the company prior
to May 1991 -- including, but not limited to, the Bureau -- was
directly relevant to the defendants' arguments that they acted reason-
ably and in good faith.

Reasonable action is the most obvious defense to the deputy receiv-
er's charge of negligence, and good faith is a defense to at least two
of his other counts. See O'Hazza v. Executive Credit Corp., 431
S.E.2d 318, 323 (Va. 1993) (breach of fiduciary duty requires that
defendant not have acted in good faith); 15 U.S.C.§ 78t(a) (good
faith a defense to liability as a control person under the Securities
Exchange Act of 1934). We therefore conclude that the evidence of
the Bureau of Insurance's pre-receivership knowledge and approvals
of Fidelity Bankers transactions was properly admitted.

B.

The deputy receiver next challenges the admission of evidence
concerning (1) the deputy receiver's sale of the junk bonds, (2) the
recovery of the junk bond market after May 13, 1991, and (3) the pro-
priety of the Commission's September 29, 1992, order finding Fidel-
ity Bankers insolvent and approving the rehabilitation plan. At trial
the defendants attempted to show that notwithstanding a moratorium
on payments to policyholders, the deputy receiver rapidly sold off the
bulk of Fidelity Bankers' junk bonds at a loss instead of holding those
bonds and selling other assets. Not long after the selloff, the junk
bond market began to recover. The purpose of this evidence was to
establish that the deputy receiver lacked the expertise needed to man-
age a portfolio as large as Fidelity Bankers' and that it was his
improvident sale of the junk bonds, not any wrongful act of the defen-
dants, that proximately caused the damages to Fidelity Bankers, its
creditors, and its policyholders. The deputy receiver contends that any
such evidence would be inconsistent with the Commission's finding
that Fidelity Bankers was insolvent by over $200 million as of May
13, 1991, and the Commission's confirmation of the Plan Dividend
as an appropriate measure of damages to policyholders. According to

                    13
the deputy receiver, the defendants are precluded by principles of col-
lateral estoppel from challenging the Commission's findings and
orders.

We are unpersuaded by the deputy receiver's arguments, which
reflect a fundamental misunderstanding of preclusion principles. It is
an axiom of collateral estoppel, and indeed due process, that the
defendants can be bound by the Commission's findings and order
only if they were parties, or in privity to a party, to the June 1992 pro-
ceeding before the Commission. See Richards v. Jefferson County,
517 U.S. 793, 798 (1996); First Union Commercial Corp. v. Nelson,
Mullins, Riley and Scarborough, 81 F.3d 1310, 1314-15 (4th Cir.
1996); Kesler v. Fentress, 286 S.E.2d 156, 157 (Va. 1982). They were
not. None of the defendants appeared before the Commission or oth-
erwise participated in that proceeding. Although First Capital did par-
ticipate, none of the defendants had any association with First Capital
by June of 1992. By then, Weingarten, Ginsberg, and Gubar had
resigned their positions with the company, and Shearson had written
off its entire $144 million investment.

The deputy receiver nonetheless contends that "[t]o hold that an
entity may collaterally attack a receivership proceeding because it
was not a party would disrupt the Commission's power to regulate the
insurance industry." Deputy Receiver's Reply Br. at 12-13. It is true
that "`where a special remedial scheme exists expressly foreclosing
successive litigation by nonlitigants, as for example in bankruptcy or
probate,'" the usual rule that judgments are binding only on parties
and their privies is relaxed somewhat. Richards , 517 U.S. at 799
(quoting Martin v. Wilks, 490 U.S. 755, 762 n.2 (1989)). Thus, so
long as such a scheme is otherwise consistent with due process, it
may operate to foreclose unsubmitted claims against an estate. See id.
This narrow exception to the rule permits the orderly administration
of an estate by compelling interested parties to assert their claims or
forfeit them. It does not, however, extend so far as to compel every
individual against whom the estate may later assert a claim to appear
and contest a finding of insolvency in order to preserve a defense to
liability in a subsequent action. Cf. Parklane Hosiery Co. v. Shore,
439 U.S. 322, 330 (1979) (noting that offensive use of collateral
estoppel may be unfair to a defendant who had little incentive to
defend vigorously in the prior action, particularly if future suits are

                     14
not foreseeable).6 To hold otherwise would impose unfair burdens on
potential defendants. In addition, obligating every potential defendant
to participate in and challenge the insolvency proceedings would only
undermine their efficiency.

Even if the defendants were not bound by the Commission's Sep-
tember 1992 order, the deputy receiver argues that the district court's
pretrial ruling had excluded any evidence that was inconsistent with
the Commission's findings. The defendants' use of such evidence at
trial and the district court's admission of it, the deputy receiver con-
tends, was unexpected and unfairly prejudicial. We see neither sur-
prise nor prejudice in the admission of the challenged defense
evidence. First of all, the district court stated clearly at the hearing on
the in limine motions that its pretrial evidentiary rulings were provi-
sional and subject to revision, if necessary, during the trial itself. Sec-
ond, even if the Plan Dividend approved by the Commission had been
a binding measure of the damages suffered by policyholders, the dep-
uty receiver still had to show what portion of those damages, if any,
was proximately caused by the wrongful acts of the defendants rather
than by his own negligence. Third, the in limine ruling not only
excluded evidence that was inconsistent with the Commission's find-
ings, it also admitted (1) evidence of conduct by the deputy receiver
offered to show that he contributed to the damages suffered by policy-
holders and (2) evidence of the junk bond market's recovery and
Fidelity Bankers' financial condition after May 13, 1991. The in
limine ruling thus made it clear that the contributory negligence of the
deputy receiver would be an issue at trial.
_________________________________________________________________

6 For identical reasons we reject the district court's reliance on the
Rooker-Feldman doctrine to bar the defendants from introducing evi-
dence inconsistent with the Commission's orders. Under that doctrine "a
party losing in state court is barred from seeking what in substance
would be appellate review of the state judgment in a United States dis-
trict court, based on the losing party's claim that the state judgment itself
violates the loser's federal rights." Johnson v. De Grandy, 512 U.S. 997,
1005-06 (1994). See also District of Columbia Court of Appeals v. Feld-
man, 460 U.S. 482 (1983). Rooker-Feldman does not apply, however,
when the person asserting the claim in the federal suit was not a party
to the state proceeding. See Johnson, 512 U.S. at 1005-06 (1994).

                     15
We find this last point particularly telling. There is of course some
tension between the exclusion of evidence challenging the Commis-
sion's finding that Fidelity Bankers was insolvent and the admission
of evidence suggesting that the company might have been able to sat-
isfy its obligations if the deputy receiver had not been negligent. Nev-
ertheless, the district court's pretrial ruling gave the deputy receiver
notice that the jury would hear evidence about his conduct and the
junk bond market's recovery after receivership. The deputy receiver
thus was aware that the jury would hear evidence that might call into
question the Commission's finding of insolvency. He could not rea-
sonably rely on just so much of the ruling as excluded the evidence
he objected to, while ignoring the portions of the ruling that appeared
to allow much of that same evidence.

We hold that the defendants were not be bound by findings made
by the Commission in a proceeding to which they were not parties
and at which they did not appear. We also conclude that the deputy
receiver was not unfairly prejudiced by the admission of evidence
concerning his own administration of the Fidelity Bankers estate.
Consequently, we find no error in the admission of the evidence.7

C.

The deputy receiver next argues that the district court erred when,
at the close of the defendants' case, it granted the defendants judg-
ment as a matter of law on the deputy receiver's claim for violation
of the Virginia Securities Act. The deputy receiver alleged that the
defendants, through their control of First Capital, had violated Va.
Code Ann. § 13.1-522(B), (C). These provisions impose liability on
any person who employs a device, scheme, or artifice to defraud
another person through the business of advising others in the purchase
or sale of securities.8 We agree with the deputy receiver that the evi-
_________________________________________________________________
7 The deputy receiver has also appealed the district court's denial of his
motion for a new trial. That motion raised the same evidentiary chal-
lenges that we have rejected here. Consequently, we affirm the district
court's denial of the deputy receiver's motion for a new trial.
8 The relevant portion of § 13.1-522(B) states:

          Any person who . . . receives, directly or indirectly, any consid-
          eration from another person for advice as to the value of securi-

                    16
dence presented at trial, viewed in the light most favorable to the dep-
uty receiver, see Scheduled Airlines Traffic Offices, Inc. v. Objective,
Inc. 180 F.3d 583, 588 (4th Cir. 1999), was sufficient for a jury to
have found a violation of the Virginia Securities Act, if barely so.
Consequently, it was error for the district court to grant judgment to
the defendants on that count. Nevertheless, we find the error harmless
because the jury's verdicts in favor of defendants on the remaining
counts for fraud and constructive fraud preclude the possibility that
the deputy receiver might have prevailed on his remaining claim.

A plaintiff who alleges a violation of § 13.1-522(B)(ii) must show
that the defendant employed a "device, scheme, or artifice to defraud"
the plaintiff or engaged in some "act, practice or course of business
which operates or would operate as a fraud or deceit" on the plaintiff.
Va. Code Ann. § 13.1-522(B)(ii). The deputy receiver's evidence of
fraud for purposes of the Virginia Securities Act consisted entirely of
a number of alleged misrepresentations concerning the soundness of
Fidelity Bankers' investment strategy, the market value of its portfo-
lio, First Capital's expertise in giving investment advice, and the rela-
tionship between the duration of Fidelity Bankers' investments and its
liabilities. This evidence was identical to the evidence he presented
in support of his allegations of actual and constructive fraud. The
jury, however, found in favor of the defendants on both of the fraud
claims. In rejecting the deputy receiver's allegations of fraud and con-
structive fraud, the jury would, as a matter of logical necessity, have
rejected the deputy receiver's allegation that the defendants employed
a device, scheme, or artifice to defraud or that they engaged in some
act, practice or course of business that operates or would operate as
a fraud or deceit. Consequently, the error in awarding the defendants
judgment on the state securities law count was harmless.
_________________________________________________________________
            ties or their purchase or sale, whether through the issuance of
            analyses, reports or otherwise and employs any device, scheme,
            or artifice to defraud such other person or engages in any act,
            practice or course of business which operates or would operate
            as a fraud or deceit on such other person, shall be liable to that
            person . . . .

Va. Code Ann. § 13.1-522(B)(ii).

                    17
D.

For the reasons given above, we hold that the evidence of the
Bureau's knowledge and approval of Fidelity Bankers' transactions
prior to receivership was properly admitted to show the defendants'
good faith, reasonable conduct, lack of scienter, and lack of knowl-
edge of insolvency. The evidence of the deputy receiver's conduct
during the receivership was properly admitted to prove the affirmative
defense of contributory negligence. Finally, the district court's grant
of judgment as a matter of law to the defendants on the deputy receiv-
er's Virginia Securities Act claim, though error, was harmless. We
therefore affirm the judgment in favor of the defendants on the deputy
receiver's claims.

III.

We turn now to the defendants' cross-appeal. As we have already
discussed, the defendants settled a class action brought on behalf of
Fidelity Bankers policyholders (and others), alleging fraud, misrepre-
sentation, and violations of federal securities laws. After the deputy
receiver filed this action in federal court, the defendants asserted
counterclaims for exoneration, indemnification, and contribution aris-
ing out of the settlement. The counterclaims were severed before trial.
After trial the case was reassigned to Judge Williams, who held that
the Commission's order asserting exclusive jurisdiction over claims
against Fidelity Bankers was entitled to full faith and credit and
divested the federal court of subject matter jurisdiction over the coun-
terclaims. See Weingarten, 18 F. Supp.2d at 618-20. The defendants
contend that state courts cannot alter the jurisdiction of the federal
courts and urge reversal on that ground. The deputy receiver vigor-
ously defends the judgment of dismissal, but he argues in the alterna-
tive that if federal jurisdiction over the counterclaims does exist,
abstention is warranted. For the reasons set out below, we hold that
the district court did have jurisdiction over the counterclaims and that
abstention is not appropriate on the facts of this case. We therefore
reverse the dismissal of the counterclaims and remand for further pro-
ceedings.

A.

As an initial matter, the counterclaims satisfy the requirements for
diversity jurisdiction under 28 U.S.C. § 1332. The deputy receiver is

                    18
acting on behalf of Fidelity Bankers, a Virginia corporation. The
defendants (and counterclaimants) are all of diverse citizenship:
Weingarten and Ginsberg are citizens of California, Gubar is a citizen
of New York, and Shearson is a Delaware corporation with its princi-
pal place of business in New York. The amount in controversy is in
excess of $75,000. In addition to having diversity jurisdiction, the dis-
trict court had supplemental jurisdiction under 28 U.S.C. § 1367(a)
because the counterclaims are so related to the deputy receiver's
claims that they form part of the same Article III case or controversy.
Nevertheless, the deputy receiver contends that Virginia's insurance
statutes grant the Commission jurisdiction to resolve all claims
against an insolvent insurer's estate and that the Commission's order
asserting exclusive jurisdiction is binding on all other courts. We dis-
agree.

"In determining its own jurisdiction, a District Court of the United
States must look to the sources of its power and not to the acts of
states which have no power to enlarge or contract the federal jurisdic-
tion." Markham v. City of Newport News, 292 F.2d 711, 713 (4th Cir.
1961). The Supreme Court has repeatedly and unequivocally rejected
the deputy receiver's contention that a state may oust the federal
courts of jurisdiction by creating an exclusive forum for claims
against an estate. As early as 1857 the Court noted that it had "repeat-
edly decided that the jurisdiction of the courts of the United States
over controversies between citizens of different States cannot be
impaired by the laws of the States, which prescribe the modes of
redress in their courts, or which regulate the distribution of their judi-
cial power." Hyde v. Stone, 61 U.S. (20 How.) 170, 175 (1857). See
also Clark v. Bever, 139 U.S. 96, 102 (1891) (rejecting argument that
a state could, "by legislative enactment conferring upon its own courts
exclusive jurisdiction of all proceedings or suits involving the settle-
ment and distribution of the estates of deceased persons, . . . exclude
the jurisdiction of the courts of the United States even in cases where
the constitutional requirement as to citizenship is met"); Green's
Adm'x v. Creighton, 64 U.S. (23 How.) 90, 107-08 (1859) (holding
that a creditor of diverse citizenship "may establish his debt in the
courts of the United States against the representatives of a decedent,
notwithstanding the local laws relative to the administration and set-
tlement of insolvent estates"). The existence of federal jurisdiction is
in no way affected by the potential for inconvenience to the deputy

                     19
receiver. See Hess v. Reynolds, 113 U.S. 73, 77 (1885) ("[N]either the
principle of convenience nor the statutes of a State can deprive [the
courts of the United States] of jurisdiction to hear and determine a
controversy between citizens of different states when such a contro-
versy is distinctly presented, because the judgment may affect the
administration or distribution in another forum of the assets of the
decedent's estate.").

An attempt to restrain the exercise of federal jurisdiction is no
more effective when made by a court in the form of an injunction.
"[S]tate courts are completely without power to restrain federal-court
proceedings in in personam actions . . . ." Donovan v. City of Dallas,
377 U.S. 408, 412-13 (1964). See also Baker v. General Motors
Corp., 522 U.S. 222, 236 n.9 (1998) ("This court has held it imper-
missible for a state court to enjoin a party from proceeding in a fed-
eral court . . . ." (citing Donovan)). There is a necessary corollary to
this rule for in rem and quasi in rem actions: "the court first assuming
jurisdiction over property may maintain and exercise that jurisdiction
to the exclusion of the other" court. Princess Lida of Thurn and Taxis
v. Thompson, 305 U.S. 456, 466 (1939). However, even if the initial
state action is in rem or quasi in rem, there is no bar to jurisdiction
in federal court in a case "based upon diversity of citizenship, wherein
the plaintiff seeks merely an adjudication of his right or his interest
as a basis of a claim against a fund in the possession of a state court."
Id. There is no danger of conflict in such cases because the "establish-
ment of the existence and amount of a claim against the debtor in no
way disturbs the possession of the liquidation court, in no way affects
title to the property, and does not necessarily involve a determination
of what priority the claim should have." Morris v. Jones, 329 U.S.
545, 549 (1947). See also Kline v. Burke Constr. Co., 260 U.S. 226,
230-31 (1922); Williams v. Benedict, 49 U.S. (8 How.) 107, 112
(1850). Here the defendants seek only to establish their rights to exon-
eration, contribution, or indemnification. If they are permitted to pro-
ceed in federal court and they succeed on those claims, they would
still be required to present their judgments to the Virginia Commis-
sion. The Commission would then direct the deputy receiver to pay
those judgments in accordance with the rehabilitation plan and Vir-
ginia's statutes governing the priority of claims, Va. Code Ann.
§§ 38.2-1509, 38.2-1514.

                    20
The deputy receiver suggests, however, that this analysis is altered
by the McCarran-Ferguson Act, 15 U.S.C. §§ 1011 et seq., which
declares that "[n]o Act of Congress shall be construed to invalidate,
impair, or supersede any law enacted by any State for the purpose of
regulating the business of insurance, . . . unless such Act specifically
relates to the business of insurance." 15 U.S.C.§ 1012(b). "The
McCarran-Ferguson Act thus precludes application of a federal statute
in face of state law `enacted . . . for the purpose of regulating the busi-
ness of insurance,' if the federal measure does not`specifically
relat[e] to the business of insurance,' and would `invalidate, impair,
or supersede' the State's law." Humana, Inc. v. Forsyth, 525 U.S.
299, 307 (1999). The deputy receiver argues that Va. Code Ann.
§ 38.2-1508, which confers on the Commission jurisdiction over "[a]ll
further proceedings in connection with the rehabilitation or liquida-
tion" of an insolvent insurer, establishes an exclusive state court
forum for the defendants' counterclaims. Implicit in this argument is
the assertion that federal jurisdiction would "invalidate, impair, or
supersede" Virginia law by providing an alternative forum for those
claims. See Weingarten, 18 F. Supp.2d at 618.

We are skeptical that Congress intended, through the McCarran-
Ferguson Act, to remove federal jurisdiction over every claim that
might be asserted against an insurer in state insolvency proceedings.
See Munich American Reins. Co. v. Crawford, 141 F.3d 585, 595 (5th
Cir.), cert. denied sub nom. American Reins. Co. v. Crawford, 525
U.S. 1016 (1998); Martin Ins. Agency v. Prudential Reins. Co., 910
F.2d 249, 254 (5th Cir. 1990). If nothing else, the argument proves
too much, for it would operate to divest exclusively federal jurisdic-
tion as effectively as it would diversity jurisdiction, leaving many
plaintiffs with no forum in which to assert their federal rights. In any
event, we do not believe that concurrent federal jurisdiction over the
defendants' counterclaims threatens to "invalidate, impair, or super-
sede" (as those terms are used in the McCarran-Ferguson Act) Virgin-
ia's efforts to establish a single equitable proceeding to liquidate or
rehabilitate insolvent insurers. See Humana, 525 U.S. at 307-10
(defining "impair"). As we have already noted, the Commission has
had exclusive jurisdiction of the property of Fidelity Bankers -- the
res -- since May 13, 1991. And, as we have also emphasized, the
defendants would still have to present claims to the Commission in
order to recover on any judgment in their favor. The claims based on

                     21
that judgment would be satisfied subject to the terms of the rehabilita-
tion plan and the priorities established by Virginia law. Thus, the state
forum retains exclusive jurisdiction over the liquidation of Fidelity
Bankers and the disposition of its assets.

We realize that in some limited circumstances, the exercise of fed-
eral diversity jurisdiction might in fact impair state laws establishing
exclusive claims proceedings for insurance insolvencies. This poten-
tial for conflict, however, is already contemplated in the principles
governing the exercise of jurisdiction, which provide a safety valve
through the pragmatic doctrine of abstention. Abstention gives federal
courts the flexibility to avoid exercising jurisdiction when doing so
would be "disruptive of state efforts to establish a coherent policy
with respect to a matter of substantial public concern." New Orleans
Public Serv., Inc. v. Council of New Orleans, 491 U.S. 350, 361
(1989) (NOPSI). See also Johnson v. Collins Entertainment Co., 199
F.3d 710, 718-19, 725 (4th Cir. 1999). Although"abstention from the
exercise of federal jurisdiction is the exception, not the rule," Colo-
rado River Water Conservation Dist. v. United States , 424 U.S. 800,
813 (1976), there are narrow classes of cases implicating particularly
local issues in which abstention will more frequently be appropriate.
See Johnson, 199 F.3d at 720-22. Insurance regulation has long been
recognized as an area of traditional state concern, so "there are a large
number of cases where federal courts have abstained lest they upset
ongoing state insolvency proceedings." Hartford Cas. Ins. Co. v.
Borg-Warner Corp., 913 F.2d 419, 426 (7th Cir. 1990). See also Lac
D'Amiante du Quebec, Ltee. v. American Home Assurance Co., 864
F.2d 1033, 1048 (3d Cir. 1988) (collecting such cases). Where the
exercise of federal jurisdiction would in fact "invalidate, impair, or
supersede any law enacted by any State for the purpose of regulating
the business of insurance," 15 U.S.C. § 1012(b), abstention would be
warranted. Thus, the abstention doctrine's goal of preventing "need-
less conflict with state policy," Burford v. Sun Oil Co., 319 U.S. 315,
327 (1943), maps neatly onto the McCarran-Ferguson Act's purpose
of preventing impairment of state insurance regulation.

We hold that the Commission's order purporting to assert sole and
exclusive jurisdiction over all claims against Fidelity Bankers could
not and did not divest the federal courts of the jurisdiction conferred
upon them by Congress. Furthermore, we hold that Va. Code Ann.

                     22
§ 32.1-1508, in conjunction with the McCarran-Ferguson Act, does
not preempt federal jurisdiction over the defendants' counterclaims.
Abstention needs further discussion.

B.

As we have just discussed, federal courts frequently have relied on
the abstention doctrine to avoid disruption of state insurance insol-
vency proceedings. Accordingly, the deputy receiver urges an
abstention-based dismissal of the counterclaims here. We find, how-
ever, that dismissal on abstention grounds is inappropriate on the facts
of this case. Weingarten's, Ginsberg's, and Gubar's legal claims for
money damages cannot be dismissed under the equitable doctrine of
abstention, and Shearson has asserted a claim that is subject to exclu-
sively federal jurisdiction. Moreover, the exercise of federal jurisdic-
tion over the defendants' routine counterclaims presents none of the
risk of interference in state law or policy that would normally justify
abstention.

Weingarten, Ginsberg, and Gubar claim that they are entitled to
relief on any one of four theories: (1) equitable indemnification, (2)
contractual and statutory indemnification, (3) exoneration, or (4) con-
tribution. The second of these theories presents a claim for money
damages at law. Weingarten, Ginsberg, and Gubar allege that under
Fidelity Bankers' bylaws, they are contractually entitled to indemnifi-
cation to the full extent permitted by Virginia law. Virginia Code
Ann. §§ 13.1-697 provides for the indemnification of a director who
incurs liability as a result of his actions as a director under certain cir-
cumstances. If the elements of the indemnification provision are satis-
fied, the district court would have no discretion to deny relief to the
defendants on their legal claim for indemnification. The Supreme
Court has recently made clear that a district court may abstain from
exercising its jurisdiction and dismiss a case under Burford "only
where the relief being sought is equitable or otherwise discretionary."
Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 731 (1996). Conse-
quently, dismissal of the individual defendants' legal counterclaims
under Burford would be inappropriate.

Shearson argues that it is asserting a right to contribution in part
for its settlement of class action claims asserting violations of section

                     23
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.
According to Shearson, this contribution claim is subject to exclu-
sively federal jurisdiction. As a result, Shearson argues, the state court
would be unable to hear this claim and abstention would be improper.
We agree. The Supreme Court has held that those charged with liabil-
ity in a 10b-5 action have a federal right to contribution against other
parties who have joint responsibility for the violation. See Musick,
Peeler & Garrett v. Employees Ins. of Wausau, 508 U.S. 286, 298
(1993). A direct action alleging violations of section 10(b) and Rule
10b-5 is subject to exclusively federal jurisdiction. See 15 U.S.C.
§ 78aa ("The district courts of the United States and the United States
courts of any Territory or other place subject to the jurisdiction of the
United States shall have exclusive jurisdiction of violations of this
chapter [tit. 15, ch. 2B] or the rules and regulations thereunder, and
of all suits in equity and actions at law brought to enforce any liability
or duty created by this chapter or the rules and regulations thereun-
der."). A 10b-5 contribution claim, just like a direct 10b-5 claim,
alleges a violation of the regulations promulgated under Title 15,
chapter 2B, and therefore is subject to exclusively federal jurisdiction
under 15 U.S.C. § 78aa. It would be improper to abstain from exercis-
ing that exclusively federal jurisdiction. "Where a state court lacks
jurisdiction over a plaintiff's claim, Burford abstention is clearly inap-
propriate because there can be no opportunity for timely and adequate
state court review of a claim that a court has no power to decide."
Riley v. Simmons, 45 F.3d 764, 773 (3d Cir. 1995). Thus, we hold that
under Burford abstention the district court could not dismiss Shear-
son's claim for contribution under section 10(b) and Rule 10b-5.

Finally, although a federal court may not dismiss a legal claim for
money damages on abstention grounds, the Supreme Court has left
open the possibility of a stay. See Quackenbush , 517 U.S. at 721.
However, we do not believe that a stay is warranted in this case. The
defendants' claims do not involve the "extraordinary circumstances"
required to justify abstention. Id. at 726. First, they do not present
"difficult questions of state law bearing on policy problems of sub-
stantial public import whose importance transcends the result in the
case at bar." NOPSI, 491 U.S. at 361. The individual defendants'
claims are routine contribution and indemnification claims whose sig-
nificance is entirely limited to this case. See Quackenbush, 517 U.S.
at 729 (describing defendant's claim for setoff against insolvent

                     24
insurer as "a run-of-the-mill contract dispute"). Shearson's counter-
claim for contribution under 10b-5 implicates no state law question
at all. Indeed, a stay of Shearson's claim would serve no purpose but
delay because that claim ultimately must be decided by a federal
court. Second, adjudication of the defendants' counterclaims in fed-
eral court would not "be disruptive of state efforts to establish a
coherent policy with respect to a matter of substantial public con-
cern." NOPSI, 491 U.S. at 361. As we have observed above, see part
III.A., exercise of federal jurisdiction in this case will not disturb the
Commission's exclusive jurisdiction over the property and the liqui-
dation of Fidelity Bankers. Assuming the defendants' counterclaims
are successful, any judgment obtained would still be subject to the
Commission's rehabilitation plan and Virginia's statutes governing
the priority of claims. And while we are mindful of the general desir-
ability of resolving all claims in a single forum, the Virginia receiver-
ship regime itself recognizes the need to pursue claims before other
courts and gives the receiver the authority to do so. Once the deputy
receiver forsakes the advantages of the single state forum in order to
proceed in federal court, as he has done here, exercise of federal juris-
diction over the defendants' counterclaims does not hinder Virginia's
statutory goal of a single, exclusive proceeding.

For the reasons stated above, we hold that a dismissal based on
Burford abstention is inappropriate for Weingarten's, Ginsberg's, and
Gubar's claims for contractual and statutory indemnification. Dis-
missal on abstention grounds is also inappropriate for Shearson's
claim for contribution, insofar as it is based on an allegation that
Fidelity Bankers is liable for a violation of § 10(b) and Rule 10b-5.
We also hold that a stay of the defendants' counterclaims is not war-
ranted because exercise of federal jurisdiction neither requires that a
federal court pass on difficult or novel questions of state law nor
threatens to disrupt state efforts to establish a coherent scheme with
respect to the liquidation and administration of insolvent insurance
companies.

C.

We have held that the district court had jurisdiction over all of the
defendants' counterclaims and that abstention was not warranted on
the individual defendants' claims for indemnification or Shearson's

                     25
claim for contribution under § 10(b) and Rule 10b-5. As a result, we
reverse the judgment dismissing the defendants' counterclaims.

IV.

For the reasons stated in part II, we hold that the evidence of
Bureau and deputy receiver conduct was properly admitted at trial.
We also hold that the district court's judgment as a matter of law for
the defendants on the Virginia Securities Act claim was harmless
error. Consequently, we affirm the judgment in favor of the defen-
dants on the deputy receiver's claims. For the reasons stated in part
III, we hold that the district court had jurisdiction over the defendants'
counterclaims and that abstention would be inappropriate. We there-
fore reverse the district court's dismissal of the counterclaims and
remand for further proceedings.

AFFIRMED IN PART, REVERSED IN PART,
AND REMANDED

                     26
