BT Inv. Managers, Inc. v. Lewis, 76-1373

• Decision Date: 21 September 1977
• Docket Number: No. 76-1373,76-1373
• Citation: 559 F.2d 950
• Parties: BT INVESTMENT MANAGERS, INC. and Bankers Trust New York Corporation, Plaintiffs-Appellants, v. Gerald A. LEWIS, Comptroller of the State of Florida and Commissioner of Banking of the State of Florida, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 950

559 F.2d 950

BT INVESTMENT MANAGERS, INC. and Bankers Trust New York Corporation, Plaintiffs-Appellants, v. Gerald A. LEWIS, Comptroller of the State of Florida and Commissioner of Banking of the State of Florida Defendant-Appellee.

No. 76-1373.

United States Court of Appeals Fifth Circuit.

Sept. 21, 1977.

John E. Mathews, Jr., Stephen E. Day, Jacksonville, Fla., for plaintiffs-appellants.

Robert L. Shevin, Atty. Gen., William B. Corbett, Jr., Asst. Gen. Counsel, Ed Kuhnel, Gen. Counsel, Richard E. Gentry, Asst. Gen. Counsel, Tallahassee, Fla., for Legal Annex.

Appeal from the United States District Court for the Northern District of Florida.

Before AINSWORTH and MORGAN, Circuit Judges, and LYNNE, Senior District Judge. ^*

LYNNE, Senior District Judge:

Appellants sought declaratory and injunctive relief from a Florida statute that prohibited them from operating an "investment advisory" service in that state. The three-judge district court invoked the doctrine of abstention and dismissed the action without prejudice so that plaintiffs might have certain state law issues resolved by the courts of the State of Florida. We reverse.

Facts

In 1972 appellant Bankers Trust New York Corporation (BTNYC), a "bank holding company" under the Bank Holding Act, 12 U.S.C. § 1841 et seq., sought to establish its wholly-owned subsidiary, appellant B. T. Investment Managers, Inc. (BTIM), in the activity of "investment advisory" in the State of Florida. ¹ Generally, this activity would include providing portfolio investment advice, general economic information and advice, general economic statistical forecasting, and industry studies to persons desiring such services. While BTNYC had pending before the Federal Reserve Board ² an application for authority to establish BTIM as such an investment advisory service in Palm Beach, Florida, the Florida legislature amended a certain statute ³ so as to prohibit non-Florida bank holding companies from providing investment advisory services to any person ⁴ in Florida. ⁵ Bound by a provision of the Bank Holding Act that requires the Federal Reserve Board to deny such an application when the planned activity is prohibited under the law of the "target" state, ⁶ the Board was obliged to deny BTNYC's application in view of the intervening Florida amendment. ⁷

Following the Federal Reserve Board's denial of their application, appellants brought suit in the Northern District of Florida under 28 U.S.C. § 2201, seeking injunctive relief from the operation of the Florida statutes in question and a declaration that the statutes violate the due process and equal protection clauses of the fourteenth amendment as well as the supremacy and commerce clauses of the United States Constitution. A three-judge district court was convened pursuant to 28 U.S.C. § 2281. ⁸ Pretermitting consideration of the merits of appellants' complaint, that court invoked the doctrine of abstention and accordingly dismissed the action without prejudice. ⁹

Abstention

The sole issue on appeal is whether the district court properly abstained in this case. Although the abstention doctrine is more properly referred to as a collection of doctrines, ¹⁰ the particular doctrine first articulated in Railroad Commission of Texas v. Pullman, 312 U.S. 496, 61 S.Ct. 634, 85 L.Ed. 971 (1941), teaches that in certain federal constitutional challenges to state statutes a federal district court should exercise its discretion to stay its action pending interpretation of the challenged statute by the courts of the enacting state and thereby avoid an unnecessary federal constitutional decision. The doctrine is conceived to enhance comity within our federal system of government: by leaving to a state the interpretation of unsettled questions of that state's laws when such interpretation may dispose of a case short of federal constitutional scrutiny, unnecessary friction between state and national governments may be avoided.

However, Pullman -type abstention is a narrow, judicially created exception to the general grant of federal jurisdiction found in article III of the Constitution. ¹¹ Not only is there a presumption in favor of retention of federal jurisdiction once obtained, ¹² it is also well established that the doctrine "contemplates that deference to state court adjudication only be made where the issue of state law is uncertain." Harman v. Forssenius, 380 U.S. 528, 534, 85 S.Ct. 1177, 1182, 14 L.Ed.2d 50 (1965). While it is true, as appellee points out, that the statutes here in question have yet to be construed by the courts of Florida, mere absence of judicial interpretation does not necessarily render their meaning unsettled or uncertain. Indeed, by their very terms the challenged statutes could scarcely be clearer in effect, if not in purpose ¹³ that is, to rid Florida banking and trust interests of non-Florida competition in the area of investment counselling. As the Federal Reserve Board observed in denying appellants' application, ¹⁴ there is simply no plausible construction of the challenged statutes under which appellants might be permitted to conduct their proposed business in Florida.

Thus, without more, abstention in the present case would appear improper. Appellee, however, contends that since the Florida Constitution contains a provision equivalent to the due process clause of the fourteenth amendment to the United States Constitution, ¹⁵ the district court properly abstained in view of the possibility that state constitutional scrutiny by the courts of Florida might obviate the necessity of a federal constitutional decision. ¹⁶ While appellee's position is not without support in this particularly problematic subcategory of Pullman -type abstention cases, ¹⁷ we find the instant case controlled by the Supreme Court's holding in Wisconsin v. Constantineau, 400 U.S. 433, 91 S.Ct. 507, 27 L.Ed.2d 515 (1971), that where a state statute can be challenged under essentially identical state and federal constitutional provisions, abstention is improper.

The three-judge court alternatively based its abstention on the proposition found in Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943), and a line of cases thereunder, ¹⁸ that a federal court should refrain from exercising its jurisdiction in order to avoid needless conflict with the administration by a state of its own affairs." ¹⁹ Although Burford type abstention shares with Pullman -type abstention the goal of " comity" in the broadest sense, the two doctrines differ substantially in both purpose and effect. While the purpose of Pullman -type abstention is to avoid unnecessary federal constitutional challenge to state law, a court invoking Burford -type abstention essentially defers to a state's overriding interest in the matters sub judice and, concomitantly, to the superior competence of the state's courts to adjudicate such matters. Thus, usually at issue in Burford -type cases are state regulatory matters ²⁰ such as regulation of natural resources, ²¹ education, ²² or eminent domain, ²³ where a paramount state interest is apparent, ²⁴ where the history of state judicial experience in the area indicates special reliability, ²⁵ or, even absent an established regulatory scheme, where the intrusion of federal adjudication might handicap state government. ²⁶ Unlike Pullman -type abstention, Burford -type abstention requires neither the presence of a state issue nor unclarity in pertinent state law. Rather, a court abstaining under Burford relegates a federal issue to state court adjudication because the federal issue touches some overriding state interest such as those just described. Moreover, rather than merely stay its proceedings pending state court adjudication, as in a Pullman -type case, a federal court abstaining under Burford normally dismisses the case. ²⁷

Without considering whether a case may be suitable for abstention under both the Pullman and Burford doctrines, we find Burford -type abstention improper in the present case. Although the challenged statutes are part of a large and perhaps complex regulatory scheme i. e., the Florida Banking Code it must be remembered that appellants focus their attack upon a single statute ²⁸ whose possible invalidation could scarcely be expected to disrupt Florida's entire system of banking regulation. In this context we discern no overriding state interest, special state competence, or threat to Florida's administration of its own affairs that would warrant denying appellants access to their chosen federal forum and relegating their various federal claims to the courts of Florida.

Having found neither basis of abstention relied upon by the three-judge district court to be proper, we reverse and remand for that court's consideration of the merits of appellants' complaint.

REVERSED and REMANDED.

* Senior District Judge of the Northern District of Alabama, Sitting by designation.

1 BTNYC is a New York corporation, while BTIM is a Delaware Corporation that has qualified to do business in Florida.

2 Federal Reserve Board approval is required for such "banking-related" activity by 12 U.S.C. § 1843(c)(8) and by 12 C.F.R. § 225.4(b)(1), promulgated thereunder.

3 The amended statute, Fla.Stat. § 659.141(1), provides as follows:

659.141 Control; ownership

(1) Except as provided in subsection (3) of this section, no bank, trust company, or holding company, the operations of which are principally conducted outside this state, shall acquire, retain, or own, directly or indirectly, all or substantially all the assets of, or control over, any bank or trust company having a place of business in this state where the business of banking or trust business or functions are conducted, or acquire, retain, or own all or substantially all of the assets of, or control over, any business organization having a place of business in this state where or from which it furnishes investment advisory services in this...