Alleghany Corp. v. Haase, s. 89-1655

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Writing for the CourtBefore POSNER and EASTERBROOK, Circuit Judges, and DUMBAULD; POSNER; EASTERBROOK
Citation896 F.2d 1046
PartiesALLEGHANY CORPORATION, Plaintiff-Appellant, v. Robert D. HAASE, Commissioner of Insurance of the State of Wisconsin, Defendant-Appellee, and St. Paul Companies, Inc. and St. Paul Fire and Casualty Insurance Company, Intervening Defendants-Appellees. ALLEGHANY CORPORATION, Plaintiff-Appellee, v. John J. DILLON, Commissioner of Indiana Department of Insurance, Defendant-Appellant, and St. Paul Companies, Inc. and St. Paul Fire and Casualty Insurance Company, Intervening Defendants-Appellants.
Docket Number89-2055 and 89-2056,Nos. 89-1655,s. 89-1655
Decision Date05 April 1990

Terry G. Duga, Dist. Atty. Gen., Office of Attorney General, Indianapolis, Ind., Daniel D. Stier, Office of the Attorney General, Wisconsin Dept. of Justice, Madison, Wis., Stuart D. Smith, Richard L. Bond, and John G. Rainey, Dorsey & Whitney, New York City, Donald K. Schott, Erica M. Eisinger, William J. Toman, Jeffrey B. Bartell, Quarles & Brady, Madison, Wis., Thomas W. Tinkham, Michael J. Wahoske, David R. Abrams, Dorsey & Whitney, Minneapolis, Minn., Phillip A. Terry, Brian W. Welch, McHale, Cook & Welch, Indianapolis, Ind., for Alleghany Corp.

Daniel D. Stier, Office of the Attorney General, Wisconsin Dept. of Justice, Madison, Wis., Peter J. Rusthoven, James Strain, Barnes & Thornburg, Indianapolis, Ind., Peter Gardon, Whyte & Hirschboeck, Madison, Wis., for Robert D. Haase.

Kathleen M. Rivera and Joseph C. Branch, Foley & Lardner, Milwaukee, Wis., Joe C. Emerson, Baker & Daniels, Indianapolis, Ind., Richard J. Urowsky, John L. Hardiman, Sullivan & Cromwell, New York City, for intervenors.

Linley E. Pearson, Atty. Gen., Office of the Attorney General, Indianapolis, Ind., for Harry E. Eakin.

Before POSNER and EASTERBROOK, Circuit Judges, and DUMBAULD, Senior District Judge. *

POSNER, Circuit Judge.

These three appeals arise from two closely related suits brought by Alleghany Corporation to invalidate, on federal constitutional grounds, portions of the insurance holding company statutes of Wisconsin and Indiana. Acting under the authority of Wis.Stat. Secs. 600.03(13), 611.72, 617.11(1), and Ind.Code Secs. 27-1-23-1 et seq., respectively, the insurance commissioners of these states turned down Alleghany's application for permission to acquire 20 percent of the common stock of The St. Paul Companies, Inc., an insurance holding company. Alleghany could have sought review of the commissioners' decisions in the courts of the respective states, but it did not do so. The appeals present the single question whether, because of this omission, the doctrine of Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), forbids the federal courts to entertain Alleghany's suits. A district judge in Wisconsin said yes and dismissed Alleghany's suit, 708 F.Supp. 1507 (W.D.Wis.1989), precipitating Alleghany's appeal (No. 89-1655). A district judge in Indiana said no but certified his ruling for immediate appeal under 28 U.S.C. 1292(b), and we accepted appeals from his ruling by both the Indiana insurance commissioner (No. 89-2055) and St. Paul (No. 89-2056). St. Paul had been permitted to intervene in both suits--on the commissioners' side. Its management does not want to be taken over by Alleghany, and fears that a takeover bid may ensue if Alleghany obtains 20 percent of its stock.

St. Paul owns insurance companies incorporated in ten separate states, each of which is among the 47 states that have nearly identical statutes requiring anyone who wants to acquire more than ten percent of the stock of either an insurance company incorporated in the state, or the parent of such a company, to obtain the approval of the state insurance commissioner. The commissioner is to render a written decision after a full hearing, the decision to be based on specified criteria including the applicant's integrity and financial strength and the competitive effects of the proposed acquisition. Alleghany filed applications in all ten states. Four granted the application. Four--including Wisconsin and Indiana--turned it down. It is pending in one (Delaware). And it was withdrawn in another (Illinois) pending the determination, in proceedings already begun to challenge the rulings by the insurance commissioners in the other states, of the constitutionality of the insurance company holding statutes. Proceedings there are--galore. The four approvals gave rise to two appeals to state courts by St. Paul from the commissioners' ruling. In one, a state supreme court reversed the decision of the lower courts not to review the commissioner's approval, and remanded for that review, St. Paul Cos. v. Hatch, 449 N.W.2d 130 (Minn.1989); the other is pending. The four rejections gave rise to four suits by Alleghany challenging the constitutionality of insurance holding company statutes--the two on appeal to us plus two on appeal to the Eighth Circuit. In one of the Eighth Circuit cases a district court had abstained under Younger. In the other the district court had refused to abstain, proceeded to the merits, and held North Dakota's statute unconstitutional as an unreasonable burden on commerce. Alleghany Corp. v. Pomeroy, 698 F.Supp. 809, 700 F.Supp. 460 (D.N.D.1988). Although the McCarran-Ferguson Act provides "that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States," 15 U.S.C. Sec. 1011--thus eliminating, one might suppose, any challenge to the insurance holding company statutes based on congressional silence (the predicate for invoking the "dormant" commerce clause)--the court in Pomeroy, citing SEC v. National Securities, Inc., 393 U.S. 453, 459-61, 89 S.Ct. 564, 568-69, 21 L.Ed.2d 668 (1969), distinguished between the business of insurance and the ownership of an insurance company, and held that state regulation of the ownership was not insulated by the Act. Whether this interpretation is correct is not an issue on this appeal; the defendants do not contend that it is frivolous.

The controversy between Alleghany and the insurance commissioners is a live one. Even though Alleghany has already been turned down by several of the commissioners, and it needs the permission of all to go ahead with the acquisition, this is only if the statutes are constitutional. If they are not, Alleghany does not require permission under these statutes.

If Alleghany had sought judicial review of the Wisconsin or the Indiana commissioner's ruling in a state court, as it could have done, Wis.Stat. Sec. 227.53(1); Ind.Stat. Sec. 4-21.5-5-3(a), and had lost, it could not have maintained a suit in federal district court to invalidate the ruling, whether on constitutional or any other grounds--provided only that the state courts would have had jurisdiction to consider Alleghany's federal claims, and they would have. Wis.Stat. Sec. 227.57(8); Ind.Code Sec. 4-21.5-5-14(d)(2). The qualification is essential, but if it is satisfied the suit in federal court would be barred by res judicata. Button v. Harden, 814 F.2d 382, 384 (7th Cir.1987). The commissioners and St. Paul argue that Alleghany should not be permitted to obtain access to a federal forum by refusing to exercise its unquestioned right to judicial review of the commissioners' rulings in state court, review that would encompass any federal as well as state grounds for questioning the rulings and that would keep Alleghany in state court.

It will help in analyzing the issue to step back a pace and ask, could these two federal court suits be maintained if Alleghany had not applied to the commissioners for approval? Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908), implies an affirmative answer. It holds that federal courts have the power to enjoin threatened state action that, if carried out, would violate the plaintiff's federal rights. True, there is always a potential question of "ripeness" (on which see generally Pacific Gas & Electric Co. v. State Energy Resources Conservation & Development Comm'n, 461 U.S. 190, 200-01, 103 S.Ct. 1713, 1720-21, 75 L.Ed.2d 752 (1983)) in an attack on merely threatened action. Is the threat sufficiently imminent and probable to create a real controversy between the plaintiff and the state officials? Only if the plaintiff can show that it is can he maintain a federal suit. Wooley v. Maynard, 430 U.S. 705, 710, 97 S.Ct. 1428, 1433, 51 L.Ed.2d 752 (1977); Steffel v. Thompson, 415 U.S. 452, 458-59, 94 S.Ct. 1209, 1215-16, 39 L.Ed.2d 505 (1974); National Metalcrafters v. McNeil, 784 F.2d 817, 821-22 (7th Cir.1986); Illinois v. General Electric Co., 683 F.2d 206, 209-10 (7th Cir.1983). The cost of, and delay in, obtaining regulatory approvals from ten states before a hostile tender offer could even be made would have entitled Alleghany to maintain, against objections based on lack of ripeness, federal suits in all ten states to enjoin the enforcement of the state's insurance holding company statute, alleged to be an unreasonable burden on interstate commerce because each state is seeking to regulate a transaction having its major incidence elsewhere. Browning-Ferris Industries v. Alabama Dept. of Environmental Management, 799 F.2d 1473, 1478 (11th Cir.1986); City of Altus v. Carr, 255 F.Supp. 828, 836 (W.D.Tex.1966) (three-judge court), aff'd per curiam, 355 U.S. 35 (1966). Examples of similar suits in this circuit attacking regulatory obstacles to hostile takeovers include MITE Corp. v. Dixon, 633 F.2d 486 (7th Cir.1980), affirmed as Edgar v. MITE Corp., 457 U.S. 624, 102 S.Ct. 2629, 73 L.Ed.2d 269 (1982), and Dynamics Corp. v. CTS Corp., 794 F.2d 250 (7th Cir.1986), reversed, 481 U.S. 69, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987).

Our conclusion that Alleghany could have brought its suits challenging the insurance holding company statutes...

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