Alleghany Corp. v. Pomeroy

• Decision Date: 05 April 1990
• Docket Number: 89-5034,Nos. 89-5033,s. 89-5033
• Citation: 898 F.2d 1314
• Parties: 1990-1 Trade Cases 69,006 ALLEGHANY CORPORATION, Appellee, v. Earl R. POMEROY, Commissioner of Insurance of the State of North Dakota, Appellant, and St. Paul Companies, Inc., a Minnesota corporation, and St. Paul Insurance Company of North Dakota, a North Dakota insurance company, Intervenors. ALLEGHANY CORPORATION, Appellee, v. Earl R. POMEROY, Commissioner of Insurance of the State of North Dakota, and St. Paul Companies, Inc., a Minnesota corporation, and St. Paul Insurance Company of North Dakota, a North Dakota insurance company, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1314

898 F.2d 1314

1990-1 Trade Cases 69,006

ALLEGHANY CORPORATION, Appellee, v. Earl R. POMEROY, Commissioner of Insurance of the State of

North Dakota, Appellant,

and

St. Paul Companies, Inc., a Minnesota corporation, and St.

Paul Insurance Company of North Dakota, a North

Dakota insurance company, Intervenors.

ALLEGHANY CORPORATION, Appellee, v. Earl R. POMEROY, Commissioner of Insurance of the State of

North Dakota, and St. Paul Companies, Inc., a Minnesota

corporation, and St. Paul Insurance Company of North Dakota,

a North Dakota insurance company, Appellants.

Nos. 89-5033, 89-5034.

United States Court of Appeals Eighth Circuit.

Submitted June 12, 1989.

Decided Feb. 27, 1990.

Concurring and Dissenting Opinion

Filed April 5, 1990.

Nicholas Spaeth, Bismarck, N.D., and Richard J. Urowsky, New York City, for appellant.

Thomas Tinkham, Minneapolis, Minn., for appellee.

Before JOHN R. GIBSON and WOLLMAN, Circuit Judges, and BROWN, ^* Senior Circuit Judge.

JOHN R. GIBSON, Circuit Judge.

This is another case arising out of Alleghany Corporation's efforts to acquire control of the St. Paul Companies. The North Dakota Insurance Commissioner, Earl R. Pomeroy, rejected Alleghany's application to acquire control of the St. Paul Companies, including the St. Paul Insurance Company of North Dakota. Alleghany filed this action in federal court instead of appealing Pomeroy's decision to the North Dakota state courts. The district court refused to abstain, and held that the North Dakota Insurance Holding Company Systems Act, Secs. 26.1-10-01 to 26.1-10-12 (1989), violated the commerce clause of the United States Constitution. The essence of the appellants' argument is that the district court should have abstained under Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), because there was an ongoing state judicial proceeding that both implicated important state interests and afforded Alleghany an adequate opportunity to assert its constitutional claims. ¹ We are persuaded by this argument, and we reverse the judgment of the district court.

Alleghany sought to purchase over 10% of the stock of St. Paul Companies, Inc., a Minnesota corporation. St. Paul Companies owned all of the stock of St. Paul Fire and Marine Insurance Company, which was also a Minnesota corporation. In turn, St. Paul Fire and Marine had wholly-owned subsidiaries incorporated under the laws of eight states, ² including St. Paul Insurance Company of North Dakota, incorporated in North Dakota. Alleghany filed in ten states for approval to purchase the St. Paul Companies' stock. ³ The application in North Dakota was necessary because Alleghany hoped to acquire control of a North Dakota domestic insurer. See N.D.Cent.Code Secs. 26.1-10-01, 26.1-10-03. Commissioner Pomeroy denied Alleghany's application because he concluded that a transfer of control was not in the best interest of St. Paul of North Dakota's policyholders. Commissioner of Insurance Decision at 49-50. ⁴

The district court refused to abstain because it concluded that, under North Dakota law, Alleghany could not raise constitutional claims in state-court review of the administrative procedure. The court based this decision primarily on its analysis of First Bank of Buffalo v. Conrad, 350 N.W.2d 580 (N.D.1984), in which the North Dakota Supreme Court stated that it preferred that constitutional challenges to administrative actions be asserted in a collateral declaratory judgment action rather than on direct appeal of the administrative action. Id. at 584. The district court concluded that Conrad distinguished this case from Huffman v. Pursue, Ltd., 420 U.S. 592, 95 S.Ct. 1200, 43 L.Ed.2d 482 (1975). See 698 F.Supp. 809, 812-13 (D.N.D.1988). In Huffman, the Supreme Court applied Younger when state judicial proceedings had not been exhausted. Huffman, 420 U.S. at 607-09, 95 S.Ct. at 1209-11. Since the district court in this case did not abstain it considered the merits of Alleghany's constitutional arguments in a separate order and concluded that North Dakota's Insurance Holding Company Systems Act directly regulated interstate commerce in violation of the commerce clause of the United States Constitution. See 700 F.Supp. 460, 467 (D.N.D.1988). The court recognized that the McCarran-Ferguson Act, 15 U.S.C. Secs. 1011-1015 (1988), authorizes state insurance regulation, but rejected the argument that North Dakota's regulation of the proposed acquisition was protected from commerce clause scrutiny by the McCarran-Ferguson Act. 700 F.Supp. at 462-66. Then, relying primarily on Edgar v. MITE Corp., 457 U.S. 624, 102 S.Ct. 2629, 73 L.Ed.2d 269 (1982), the court held that the North Dakota Insurance Holding Company Systems Act constituted "purely economic protectionism of those currently in control of the insurance company," and thus violated the commerce clause. 700 F.Supp. at 467.

We heard this appeal at the same time as the appeal involving Alleghany's attempt to obtain approval in Nebraska. See McCartney, 896 F.2d 1138 (8th Cir. 1990), ⁵ which we also decide today. In that case, we engaged in a comprehensive discussion of the Younger abstention doctrine. See id. at 1142-1145. In this opinion, we concentrate upon the unique abstention issues presented by North Dakota law.

I.

As we observed in McCartney, although the abstention doctrine of Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 was originally applied in a criminal context, Younger abstention has been extended to administrative proceedings, see Ohio Civil Rights Comm'n v. Dayton Christian Schools, 477 U.S. 619, 627, 106 S.Ct. 2718, 2722-23, 91 L.Ed.2d 512 (1986), and a three-part test articulated in Middlesex County Ethics Committee v. Garden State Bar Association, 457 U.S. 423, 102 S.Ct. 2515, 73 L.Ed.2d 116 (1982), guides the abstention analysis in such cases. Pursuant to that test, we must first determine whether there are pending state judicial proceedings. If so, we must decide whether the pending judicial proceedings "implicate important state interests" and if there is "an adequate opportunity in the state proceedings to raise constitutional challenges." Id. at 432, 102 S.Ct. at 2521.

A.

In McCartney, we held that administrative proceedings such as those before the State Insurance Commissioner are judicial proceedings because the Commissioner "investigates, declares and enforces liabilities as they stand on present or past facts and under laws supposed already to exist." McCartney, 896 F.2d at 1143, (quoting New Orleans Pub. Serv. v. Council of New Orleans, --- U.S. ----, 109 S.Ct. 2506, 2519, 105 L.Ed.2d 298 (1989) (NOPSI ) (quoting, in turn, Prentis v. Atlantic Coast Line Co., 211 U.S. 210, 226, 29 S.Ct. 67, 69, 53 L.Ed. 150 (1908))). Similarly, Commissioner Pomeroy's actions in this case were judicial because he applied an established doctrine to a particular set of facts.

The next question is whether there are "pending" state proceedings. Instead of attempting to raise its constitutional challenges in the North Dakota state courts, Alleghany filed this federal action. Thus, the claims which are advanced in this federal suit have never been considered, and are not now being considered, by any state court. As the majority in NOPSI recently explained, the Supreme Court has "never squarely faced" the question whether these facts satisfy the Middlesex requirement that there be pending state proceedings. NOPSI, 109 S.Ct. at 2518-19 n. 4. ⁶ However, even the majority in NOPSI indicated that the Supreme Court's decision in Dayton Christian Schools "suggests, perhaps, that an administrative proceeding to which Younger applies cannot be challenged in federal court even after the administrative action has become final." Id.

Even though NOPSI confined the holdings of Middlesex and Dayton Christian Schools to situations in which state administrative proceedings are ongoing, id., it is well-settled that parties may not avoid the strictures of Younger simply by allowing a state judgment to become final. See Huffman v. Pursue, Ltd., 420 U.S. 592, 95 S.Ct. 1200. In Huffman, the Court stated that:

Federal post-trial intervention, in a fashion designed to annul the results of a state trial, also deprives the States of a function which quite legitimately is left to them, that of overseeing trial court dispositions of constitutional issues which arise in civil litigation over which they have jurisdiction.... In short, we do not believe that a State's judicial system would be fairly accorded the opportunity to resolve federal issues arising in its courts if a federal district court were permitted to substitute itself for the State's appellate courts.

Id. at 609, 95 S.Ct. at 1210-11 (footnote omitted).

Unless there is some reason to distinguish Huffman, this element of the Middlesex test is satisfied here because Alleghany failed to present its constitutional claims to the state courts. One significant difference between this case and Huffman is that federal consideration of Alleghany's claims would involve little, if any, duplication of the state litigation. Commissioner Pomeroy was precluded from considering the constitutional questions which are the subject of this federal action, Johnson v. Elkin, 263 N.W.2d 123, 126 (N.D.1978), and Alleghany does not challenge the Commissioner's findings. This distinction makes abstention seem less appropriate in this case than in Huffman. See Steffel v. Thompson, 415 U.S. 452, 462, 94 S.Ct. 1209, 1217, 39 L.Ed.2d 505 (1974). However, just as did the state in Huffman, North Dakota has an interest in exercising a supervisory power over the decisions of state adjudicatory bodies. This interest has two facets.

First, the state courts may construe state law in a way which renders a constitutional decision unnecessary. See Pennzoil Co. v. Texaco, 481 U.S. 1, 11, 107 S.Ct. 1519, 1525, 95 L.Ed.2d 1 (1987) (stating that an "important reason for abstention is to avoid...