US SUPREME COURT DECISIONS

Petitioner, an Indiana stock insurance corporation, as required by law to do business in North Carolina, was a member of respondent North Carolina Life and Accident and Health Insurance Guaranty Association (North Carolina Association), which, under a North Carolina statute, is ultimately responsible for fulfilling the policy obligations of members that become insolvent or otherwise fail to meet their policy obligations. Because of its questionable financial condition, petitioner was required by respondent North Carolina Commissioner of Insurance to post a $100,000 deposit for the benefit of its North Carolina policyholders. Subsequently, rehabilitation proceedings were brought against petitioner in an Indiana state court (Rehabilitation Court), in which the North Carolina Association intervened and in which the court certified a class consisting of all past and present policyholders. The Rehabilitation Court ultimately ruled in 1978 that all pre-rehabilitation claims to the deposit were compromised, settled, and dismissed by the court's 1976 order which adopted a rehabilitation plan and which ruled that the court had jurisdiction over the subject matter and over the parties. In the meantime, when a dispute arose between petitioner and the North Carolina Association as to the rehabilitation plan's effect on use of the North Carolina deposit, the North Carolina Association filed suit in a North Carolina state court, seeking a declaratory judgment that it was entitled to use the deposit to fulfill the pre-rehabilitation contractual obligations to North Carolina policyowners that had been compromised in the rehabilitation proceeding. Holding that the North Carolina statutes governing the North Carolina Association and the $100,000 deposit deprived the Rehabilitation Court of subject matter jurisdiction to determine rights in the deposit, the North Carolina court refused to honor the Rehabilitation Court's prior ruling as to claims to the deposit. The North Carolina Court of Appeals affirmed.

Held: Under the Full Faith and Credit Clause, a judgment of a court in one State is conclusive upon the merits in another State only if the court in the first State had power to pass on the merits -- that is, had jurisdiction chanrobles.com-red

Page 455 U. S. 692

over the subject matter and the relevant parties. Cf. Durfee v. Duke, 375 U. S. 106. In this case, the North Carolina courts violated the Full Faith and Credit Clause by refusing to treat the Rehabilitation Court's prior judgments as res judicata. Pp. 455 U. S. 703-716.

(a) Regardless of the validity, under North Carolina law, of the North Carolina courts' holding that the Rehabilitation Court did not have subject matter jurisdiction to determine the rights in the deposit, it is not an appropriate ground for refusing to accord the Indiana judgments full faith and credit. The principles of res judicata apply to questions of jurisdiction, and

"a judgment is entitled to full faith and credit -- even as to questions of jurisdiction -- when the second court's inquiry discloses that those questions have been fully and fairly litigated and finally decided in the court which rendered the original judgment."

Durfee v. Duke, supra, at 375 U. S. 111. The record here establishes that the Rehabilitation Court fully and fairly considered whether it had subject matter jurisdiction to settle the pre-rehabilitation claims of the parties before it to the North Carolina deposit. As an intervening party, the North Carolina Association was obliged to advance its argument that the court did not have authority to settle pre-rehabilitation claims to the deposit when it was given the opportunity to do so. Pp. 455 U. S. 705-710.

(b) The North Carolina courts' refusal to give the Indiana judgments full faith and credit cannot be supported on the asserted ground that the Rehabilitation Court lacked in personam jurisdiction over North Carolina policyowners, because no policyowner actually appeared in the rehabilitation proceedings and because the class representatives could not adequately represent the policyowners in both deposit and nondeposit States. Respondents have not identified any current interest in the North Carolina deposit that a policyowner might have, independent of the interests asserted by the North Carolina Association. North Carolina law requires the Association to provide North Carolina policyowners with pre-rehabilitation coverage even if it cannot use the deposit to finance this obligation. Therefore, these policyowners have no current interest in whether the Association is allowed to liquidate the deposit. Pp. 455 U. S. 711-713.

(c) Nor can refusal to give full faith and credit to the Rehabilitation Court's judgments be supported on the asserted ground that the court lacked in personam jurisdiction over North Carolina officials. Although the Rehabilitation Court did not attempt to exercise jurisdiction over the North Carolina trustees of the deposit, it did purport to exercise jurisdiction over the trust corpus; its 1978 order specified that the 1976 rehabilitation plan determined that the deposit was an asset of petitioner, subject to the court's jurisdiction. Regardless of whether this conclusion chanrobles.com-red

Page 455 U. S. 693

might have been erroneous as a matter of North Carolina law, the jurisdictional issue was fully and fairly litigated and finally determined by the Rehabilitation Court, and the North Carolina courts were required to honor the Rehabilitation Court's determination. A court of competent jurisdiction can settle the claims of two competing parties to specific property even though a third party may claim an interest in the same res. Pp. 455 U. S. 713-715.

(d) There may be merit, as a matter of insurance law, in respondent's arguments that honoring the Rehabilitation Court's determination that the deposit was an asset of petitioner would negate North Carolina' comprehensive statutory scheme to ensure protection of North Carolina policyowners, and that a State has a right to segregate assets of a foreign insurance company to be used for the sole benefit of that State's policyowners. However, the only forums in which respondents may challenge the Rehabilitation Court's assertion of jurisdiction on such grounds are in Indiana, not North Carolina. Pp. 455 U. S. 715-716.

48 N.C.App. 508, 269 S.E.2d 688, reversed and remanded.

MARSHALL, J., delivered the opinion of the Court, in which BURGER, C.J.,and BRENNAN, BLACKMUN, REHNQUIST, and O'CONNOR, JJ., joined. WHITE, J., filed an opinion concurring in the judgment, in which POWELL and STEVENS, JJ., joined, post, p. 455 U. S. 716.