Alleghany Corp. v. Pomeroy

• Decision Date: 11 August 1988
• Docket Number: Civ. No. A1-88-096.
• Citation: 698 F. Supp. 809
• Parties: ALLEGHANY CORPORATION, Plaintiff, v. Earl R. POMEROY, Commissioner of Insurance of the State of North Dakota, Defendant, and American Council of Life Insurance, and the American Insurance Association, Amici Curiae, and St. Paul Insurance Company of North Dakota, a North Dakota Insurance company; and The St. Paul Companies, Inc., a Minnesota corporation, Intervening Defendants.
• Court: U.S. District Court — District of South Dakota

698 F. Supp. 809

ALLEGHANY CORPORATION, Plaintiff, v. Earl R. POMEROY, Commissioner of Insurance of the State of North Dakota, Defendant and American Council of Life Insurance, and the American Insurance Association, Amici Curiae and St. Paul Insurance Company of North Dakota, a North Dakota Insurance company; and The St. Paul Companies, Inc., a Minnesota corporation, Intervening Defendants.

Civ. No. A1-88-096.

United States District Court, D. North Dakota, Southwestern Division.

August 11, 1988.

H. Patrick Wier, and Harlan G. Fuglesten, Fargo, N.D., Thomas Tinkham, Richard Bond, and Leslie J. Anderson, Minneapolis, Minn., for Alleghany Corp.

Merle T. Pederson, Bismarck, N.D., for Pomeroy.

Patrick Durick, Joel W. Gilbertson, David E. Reich, Bismarck, N.D., James A. McDermott, James A. Strain, Eric R. Moy, Peter J. Rusthoven, and David Hamilton, Indianapolis, Ind., for amici curiae.

Thomas O. Smith, Bismarck, N.D., for St. Paul Companies.

MEMORANDUM AND ORDER

CONMY, Chief Judge.

Alleghany Corporation is a Delaware corporation with its headquarters in New York. Its common stock is listed and traded on the New York Stock Exchange. Alleghany, through its subsidiaries, is engaged in the sale and underwriting of title insurance and in the property and casualty insurance business.

St. Paul Companies, Inc. is incorporated under the laws of the state of Minnesota with its headquarters located in St. Paul, Minnesota and is an insurance holding company for one of the largest groups of property-liability insurance underwriters in the United States. Through its subsidiaries it is engaged in investment banking, insurance, and reinsurance brokerage activities. St. Paul Companies, Inc. wholly owns St. Paul Fire and Marine Insurance Company, a Minnesota corporation with its home office in St. Paul, Minnesota, which in turn wholly owns the St. Paul Insurance Company of North Dakota. St. Paul Insurance Company of North Dakota is a North Dakota corporation with its offices located in Fargo, North Dakota, and is a writer of professional liability insurance for physicians in North Dakota.

In July, 1987, Alleghany began to purchase common stock of St. Paul Companies, Inc. According to Alleghany it currently owns directly or through its subsidiaries approximately 9.2 percent of about 46,301,857 shares of outstanding common stock of St. Paul Companies, Inc. Alleghany seeks to acquire up to 20% of the stock of the St. Paul Companies, Inc.

In order to acquire the additional stock, however, Alleghany, pursuant to Minnesota's Insurance Holding Company Act, was required to obtain prior approval from the Commissioner of the Minnesota Department of Commerce. The Insurance Holding Company Act provides that the Commissioner of Commerce must give its approval for acquisition of control of a domestic insurer so long as the acquisition does not cause a material change in St. Paul Companies' business which would be unfair to policyholders or not in the public interest.

On November 19, 1987, Alleghany filed an Amended Form A pursuant to section 60D.02 of the Minnesota Insurance Holding Company Act proposing to acquire up to 20% of the stock of St. Paul Companies, Inc. On January 11, 1988, a Deputy Commissioner of the Minnesota Department of Commerce gave Alleghany approval to acquire up to and including 20% of the common stock of the St. Paul Companies, Inc. The Deputy Commissioner determined that Alleghany's plans and proposals were not unfair and unreasonable to the policyholders of the Insurers and that they were not contrary to the public interest within the meaning of the Insurance Holding Company Act. The decision of the Deputy Commissioner is currently under review in the Minnesota courts.

Like Minnesota, eight other states, including North Dakota, required Alleghany to obtain approval for the acquisition of more than 10% of the stock of St. Paul Companies, Inc. pursuant to similar Insurance Holding Company Acts because St. Paul Companies, Inc. had a wholly owned subsidiary in each of those states.¹ Since St. Paul Insurance Company of North Dakota is a wholly owned subsidiary of the St. Paul Fire & Marine Insurance Company, which is wholly owned by the St. Paul Companies, Inc., Alleghany was required to obtain approval from the North Dakota Insurance Commissioner to acquire more than 10% of the stock in St. Paul Companies, Inc. See N.D.Cent.Code § 26.1-10-03 (1987 supp.). On November 23, 1987, Alleghany filed with the Commissioner its proposal to acquire up to 20% of the stock of the St. Paul Companies, Inc. pursuant to section 26.1-10-03 of the North Dakota Century Code. On March 29, 1988, the Insurance Commissioner ordered that Alleghany could not acquire 10% or more of the stock of the St. Paul Companies, Inc. Contrary to the findings of Minnesota (the state of domicile for St. Paul Companies, Inc.) the Insurance Commissioner of North Dakota concluded that the 20% acquisition was not in the best interest of the public nor in the interest of the policyholders.

Rather than appealing the decision of the North Dakota Insurance Commissioner to the state district court pursuant to North Dakota's Administrative Procedures Act, Alleghany filed the present action in federal district court for declaratory and injunctive relief.² Specifically Alleghany seeks to have section 26.1-10-03 of the Insurance Holding Company Act declared invalid and unenforceable and to enjoin the Defendant from invoking said section. The Commissioner of Insurance for the State of North Dakota has moved this court to dismiss the complaint for failure to state a claim upon which relief can be granted pursuant to Rule 12(b) of the Federal Rules of Civil Procedure based on the principals of federal abstention. The Defendant has also requested oral argument on his motion to dismiss. The court finds, however, that the issues have been extremely well briefed and that oral argument would not aid the court in its determination. Accordingly, the request for oral argument will be denied.

I. ABSTENTION

Several principles have been developed which prohibit federal courts from intervening in pending state judicial proceedings. In Younger v. Harris, the United States Supreme Court held that federal courts may not enjoin pending state criminal prosecutions except under special circumstances. Younger v. Harris, 401 U.S. 37, 41, 91 S.Ct. 746, 749, 27 L.Ed.2d 669 (1971). Central to the Court's holding is the premise that courts of equity should not act, and particularly should not act to restrain a criminal prosecution, when the moving party has an adequate remedy at law and will not suffer irreparable injury if denied equitable relief. Id. at 43, 91 S.Ct. at 750. The court noted that such restraint was warranted in order to prevent erosion of the role of the jury and to avoid a duplication of legal proceedings and legal sanctions where a single suit would be adequate to protect the rights asserted. Id. at 44, 91 S.Ct. at 750. The court further stated that its holding was reinforced by an even more vital consideration:

the notion of "comity," that is, a proper respect for state functions, a recognition of the fact that the entire country is made up of a Union of separate state governments, and a continuance of the belief that the National Government will fare best if the States and their institutions are left free to perform their separate functions in their separate ways.... The concept does not mean blind deference to "States' Rights" any more than it means centralization of control over every important issue in our National Government and its courts. The Framers rejected both these courses. What the concept does represent is a system in which there is sensitivity to the legitimate interests of both State and National Governments, and in which the national Government, anxious though it may be to vindicate and protect federal rights and federal interests, always endeavors to do so in ways that will not unduly interfere with the legitimate activities of the States.

Id. In recognition of the principles of equity, comity, and federalism the Court ruled that federal courts should ordinarily refrain from enjoining ongoing state criminal prosecutions. Restraining such prosecutions would entail an unseemly failure to give effect to the principle that state courts, along with federal courts, have a solemn responsibility to guard, enforce, and protect every right granted by the Constitution. Steffel v. Thompson, 415 U.S. 452, 94 S.Ct. 1209, 39 L.Ed.2d 505 (1974). The Court has also recognized that these same concerns are prevalent in civil proceedings when important state interests are involved thus warranting federal abstention. See e.g. Huffman v. Pursue, Ltd., 420 U.S. 592, 95 S.Ct. 1200, 43 L.Ed. 2d 482, reh'g denied 421 U.S. 971, 95 S.Ct. 1969, 44 L.Ed.2d 463 (1975) (federal defendants filed complaint in federal court from adverse state court decision rather than appealing to state appellate courts); Middlesex County Ethics Committee v. Garden, 457 U.S. 423, 102 S.Ct. 2515, 73 L.Ed. 2d 116 (1982) (attorney disciplinary proceedings); Pennzoil Co. v. Texaco, 481 U.S. 1, 107 S.Ct. 1519, 95 L.Ed.2d 1 (1987) (enforcement of state court judgment); Trainor v. Hernandez, 431 U.S. 434, 97 S.Ct. 1911, 52 L.Ed.2d 486 (1977) (state attachment and execution proceedings); Juidice v. Vail, 430 U.S. 327, 97 S.Ct. 1211, 51 L.Ed.2d 376 (1977) (state contempt proceedings); Moore v. Sims, 442 U.S. 415, 99 S.Ct. 2371, 60 L.Ed.2d 994 (1979) (child-custody proceedings). The Court has also found Younger applicable to pending state administrative proceedings. See Gibson v. Berryhill, 411 U.S. 564, 93 S.Ct. 1689, 36 L.Ed.2d 488 (1973) and Ohio Civ. Rights Commission v. Dayton Christian Schools, 477 U.S. 619, 106 S.Ct. 2718, 91 L.Ed.2d 512 (1986).

The Defendant asserts that the Court's holding in Dayton and preceding Supreme Court decisions dictate that this court abstain from hearing the...