Alleghany Corp. v. Haase

• Decision Date: 07 March 1989
• Docket Number: No. 88-C-368-C.,88-C-368-C.
• Citation: 708 F. Supp. 1507
• Parties: ALLEGHANY CORPORATION, Plaintiff, v. Robert D. HAASE, Commissioner of Insurance of the State of Wisconsin, Defendant.
• Court: U.S. District Court — Western District of Wisconsin

708 F. Supp. 1507

ALLEGHANY CORPORATION, Plaintiff, v. Robert D. HAASE, Commissioner of Insurance of the State of Wisconsin, Defendant.

No. 88-C-368-C.

United States District Court, W.D. Wisconsin.

March 7, 1989.

COPYRIGHT MATERIAL OMITTED

Jeffrey B. Bartell, Donald K. Schott, William J. Toman, Erica M. Eisinger, Quarles & Brady, Madison, Wis., Thomas W. Tinkham, Richard L. Bond, David R. Abrams, Dorsey & Whitney, Minneapolis, Minn., for plaintiff.

Peter L. Gardon, Whyte & Hirschboeck, Madison, Wis., for intervenor St. Paul Fire & Cas. Ins. Co. and St. Paul Companies, Inc.

Daniel D. Stier, Asst. Atty. Gen., Madison, Wis., for defendant.

James A. Strain, Peter J. Rusthoven, Barnes & Thornburg, Indianapolis, Ind., for American Council of Life Ins. American Ins. Ass'n, amici curiae.

ORDER AND OPINION

CRABB, Chief Judge.

Plaintiff brings this action for declaratory judgment seeking a determination that Wis.Stat. ?? 611.72 and 617.12 violate the Commerce Clause, the Supremacy Clause, and the Fifth and Fourteenth Amendments of the United States Constitution, and Title 42, Section 1983 of the United States Code, and for injunctive relief to prohibit defendant from enforcing those sections of the Wisconsin statutes. Those sections prohibit the execution of any plan for the acquisition of control (as defined in Wis.Stat. ? 600.03(13)) of any domestic stock insurance company, or its parent holding company wherever organized, without the approval of defendant.

Plaintiff, a Delaware corporation with its principal executive office in New York, owns approximately 9.2 percent of the outstanding common stock of the St. Paul Companies, Inc., a publicly-traded insurance holding company domiciled in Minnesota. Plaintiff seeks to acquire presumptive control (in excess of ten percent of the common stock, Wis.Stat. ? 600.03(13))) of the St. Paul Companies, Inc., through purchases on the open market. St. Paul Companies' principal and wholly-owned subsidiary is St. Paul Fire & Marine Insurance Company, a Minnesota corporation. St. Paul Fire & Marine has a wholly-owned subsidiary incorporated in Wisconsin, St. Paul Fire and Casualty Insurance Company. St. Paul Fire and Casualty accounts for one-tenth of one percent of the statutory admitted assets and three percent of the premium income of the St. Paul holding company system.

St. Paul Companies has insurance company subsidiaries incorporated in eight states other than Wisconsin. In four of those states, and in Minnesota, approval of plaintiff's proposed acquisition has been either granted or recommended, and in three of those states plaintiff's proposal has been denied (the outcome in the eighth state is not stated in the record).

On November 24, 1987, plaintiff filed with defendant an Insurance Holding Company Registration Statement, seeking approval to acquire in excess of ten percent of the common stock of St. Paul Companies. Defendant held a hearing on plaintiff's proposed acquisition in February 1988, and denied plaintiff's application for approval of the proposed acquisition on April 7, 1988.

Plaintiff had a right to judicial review of defendant's decision under Wis.Stat. ch. 227, and was advised in writing of that right by defendant. Plaintiff did not seek state court review, and the time to seek review expired on May 9, 1988. On April 28, 1988, plaintiff filed this action which is now before the court on defendant's motion to dismiss the complaint under the abstention doctrines of Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971) and Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943).

The magistrate filed a report recommending that the motion be granted on the ground that the elements requisite to Younger abstention are present: (1) there is a pending state proceeding, (2) that implicates important state interests, (3) and provides an adequate opportunity for plaintiff to raise its constitutional claims. Like the magistrate, I find that the state proceedings set in motion by plaintiff's application and the hearing called by defendant involve important state interests in the regulation of the domestic insurance industry, and that these proceedings provide plaintiff with an adequate opportunity to pursue the federal claims raised in this action.

I find it a very close question whether there is a "pending" state proceeding where, as here, the proceeding being challenged is an administrative hearing that has ended and resulted in a final order. I conclude, however, that recent rulings of the United States Supreme Court direct a finding that a state proceeding is pending if an administrative proceeding has been initiated before a federal action is filed whether or not the proceeding itself is ongoing at the time the federal action is filed, and thus, I am constrained to find that state proceedings were pending when plaintiff filed this suit.

This result follows from the Supreme Court's steady expansion of the Younger doctrine, as discussed below in this order. This result also makes manifest the far-reaching implications of such expansion, namely that however important a plaintiff's interest in having a federal forum to hear important issues of federal constitutional law, the federal courts are closed to plaintiffs in any case in which a state administrative or judicial proceeding has been held, even if the plaintiff did not initiate the state proceeding or if the case would not be ripe until the state had acted to give the plaintiff a federal claim.

Nevertheless, I conclude that Younger abstention, as extended by the United States Supreme Court, is appropriate in this case, and I will adopt the magistrate's findings of fact and conclusions of law pertaining to Younger abstention, supplemented by the findings of fact and conclusions of law set forth in this order.¹

Supplementary Findings of Fact

Of the eight states other than Wisconsin that have asserted a statutory right to approve plaintiff's proposed purchase of over ten percent of St. Paul Companies' shares, California, Minnesota and New York have approved the proposal; in Texas approval has been recommended; Indiana, Nebraska and North Dakota have denied the proposal; and the record does not disclose the outcome in Delaware.

In response to the federal court challenges to the state statutes' constitutionality that plaintiff filed in Indiana, Nebraska and North Dakota, motions to dismiss on Younger and Burford abstention grounds were denied in Indiana and North Dakota, and granted in Nebraska. See Alleghany Corporation v. Eakin, No. I.P. 88-561-C (S.D.Ind. Jan. 30, 1989); Alleghany Corporation v. Pomeroy, 698 F.Supp. 809 (D.N. D.1988); Alleghany Corporation v. McCartney, No. CV99-L-235 (D.Neb. Oct. 18, 1988).

Opinion

The doctrine of abstention was established in Younger and expanded in subsequent cases to protect state processes from premature federal interference.² Younger, 401 U.S. at 44, 91 S.Ct. at 750 (principle of federalism requires that federal court "not unduly interfere with the legitimate activities of the states"); Bethune Plaza, Inc. v. Lumpkin, 863 F.2d 525, 528 (7th Cir.1988). In Younger, the United States Supreme Court held that under principles of comity, equity, and federalism, the federal courts should refrain from enjoining state criminal prosecutions. Jacobson v. Village of Northbrook Municipal Corporation, 824 F.2d 567, 569 (7th Cir.1987). In Samuels v. Mackell, 401 U.S. 66, 91 S.Ct. 764, 27 L.Ed.2d 688 (1971), the Court extended the holding in Younger to prevent federal courts from issuing declaratory judgments regarding state statutes that are subject to ongoing state criminal prosecutions. Middlesex County Ethics Committee v. Garden State Bar Ass'n, 457 U.S. 423, 431 n. 10, 102 S.Ct. 2515, 2521 n. 10, 73 L.Ed.2d 116 (1982). The contours of the Younger doctrine have since been steadily expanded to encompass pending quasi-criminal and civil judicial and administrative proceedings that implicate important state interests and provide a forum competent to vindicate constitutional challenges to those proceedings. See, e.g., Pennzoil Company v. Texaco, Inc., 481 U.S. 1, 10-11, 107 S.Ct. 1519, 1525-26, 95 L.Ed.2d 1 (1987).

In Huffman v. Pursue, Ltd., 420 U.S. 592, 95 S.Ct. 1200, 43 L.Ed.2d 482 (1975) (civil nuisance proceeding), the Supreme Court extended Younger abstention principles to include state-initiated civil proceedings in aid of and closely related to state criminal statutes. In Juidice v. Vail, 430 U.S. 327, 97 S.Ct. 1211, 51 L.Ed.2d 376 (1977) (civil contempt order), the Court applied the Younger abstention doctrine to important state civil actions that may be analogous to criminal proceedings but that are not intricately bound up with the state's criminal statutes, and in Trainor v. Hernandez, 431 U.S. 434, 97 S.Ct. 1911, 52 L.Ed.2d 486 (1977) (civil attachment proceeding), the Court confirmed that Younger is not confined to the criminal context but applies also to civil actions brought by the state to vindicate important state policies. In Middlesex, 457 U.S. at 423, 102 S.Ct. at 2515, the Court held definitively that Younger policies are fully applicable to state civil judicial proceedings when important state interests are involved, and in Pennzoil, 481 U.S. at 1, 107 S.Ct. at 1519, the Court held the implication of important court interests factor to be controlling for Younger abstention purposes where the state was not even a party to the state proceeding (but where the state plaintiff was a private party acting as a state actor). Lemon v. Tucker, 664 F.Supp. 1143, 1146 (N.D.Ill.1987).

In Middlesex, 457 U.S. at 432-33, 102 S.Ct. at 2521-22, the Court also ruled that administrative proceedings that are "judicial in nature" are within the category of civil judicial proceedings to which Younger applies when important state interests are involved and when there is an adequate opportunity in those proceedings to raise...