Cal. Ins. Co. v. Lara
| Decision Date | 06 July 2021 |
| Docket Number | No. 2:21-cv-00030 WBS AC,2:21-cv-00030 WBS AC |
| Citation | 547 F.Supp.3d 908 |
| Parties | CALIFORNIA INSURANCE COMPANY, a New Mexico Corporation, Plaintiff, v. Insurance Commissioner of the State of California Ricardo LARA, in his official capacity; California Department of Insurance Deputy Commissioner Kenneth Schnoll, in his official capacity; California Department of Insurance Deputy Commissioner Bryant Henley, in his official capacity; and Does 1-20, Defendants. |
| Court | U.S. District Court — Eastern District of California |
Beko Osiris Ra Reblitz-Richardson, Reed Forbush, PHV, Pro Hac Vice, Maxwell V. Pritt, Boies Schiller Flexner LLP, San Francisco, CA, Joshua I. Schiller, Boies Schiller Flexner LLP, New York, NY, Samuel C. Kaplan, PHV, Pro Hac Vice, Boies Schiller Flexner LLP, Washington, DC, for Plaintiff.
Caroline Calvert Chiappetti, Dale K. Larson, Julia Gabriela Michel, Michael J. Strumwasser, Strumwasser & Woocher LLP, Los Angeles, CA, Cynthia J. Larsen, Justin R. Giovannettone, Orrick, Herrington & Sutcliffe LLP, Sacramento, CA, for Defendants.
On March 31, 2021, this court dismissed a lawsuit brought by affiliates of California Insurance Company ("CIC")--a California-domesticated workers compensation insurance carrier--which sought the intervention of this court to effectively halt the currently-pending conservation of CIC in San Mateo Superior Court. See Applied Underwriters, Inc. v. Lara, No. 2:20-cv-02096 WBS AC, 530 F. Supp. 3d 914, 936–37, (E.D. Cal. Mar. 31, 2021). The court held that it lacked jurisdiction over the Applied Underwriters action based on the prior exclusive jurisdiction doctrine and Younger abstention doctrine.1 See id. at 927–28, 939, (citing Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971) ).
This action is the second collateral attack brought by an affiliate of CIC against the ongoing state conservation proceeding. (See First Amended Compl. ("FAC") ¶¶ 24, 30, 63 (Docket No. 30).) In all material respects, this action is identical to the action the court dismissed in its March 31 order. The plaintiff in this action, California Insurance Company, a New Mexico Corporation ("CIC II"), is the shell company owned and formed by the owner of CIC to effectuate the transfer of CIC's assets to New Mexico. See (id. ); Applied Underwriters at 921–22. CIC II is owned and controlled by the same individual (Steven Menzies) who serves as the President, Treasurer, and Director of the Applied Underwriters plaintiffs, and is represented by the same counsel as the Applied Underwriters plaintiffs. See (FAC ¶ 24); Applied Underwriters, at 920–21. CIC II's claims are nearly identical to those of the Applied Underwriters plaintiffs: CIC alleges that the same defendants--California Department Insurance ("CDI") officers Ricardo Lara, Kenneth Schnoll, and Bryant Henley, named in their official capacities--violated its rights under the U.S. Constitution based on the same alleged conduct set forth in the Applied Underwriters complaint.
Crucially, CIC II seeks essentially the same relief in this case as that sought in Applied Underwriters--a federal court order interfering with and potentially terminating the state conservation proceeding. CIC II's First Amended Complaint seeks an "Order directing defendants to take all necessary steps to prevent further harm to plaintiff." (FAC Prayer for Relief ¶ E.) While this request is certainly broader and more vague than the plaintiffs’ request in Applied Underwriters,2 CIC II specifically alleges that it is "entitled to injunctive relief enjoining defendants from continuing the Commissioner's bad-faith conservatorship." (FAC ¶ 171.) Because CIC II also alleges that "the ongoing conservatorship has damaged and will continue to impose irreparable damage to CIC's"--and therefore CIC II's--"goodwill and credit" (FAC ¶ 126), injunctive relief directing defendants to "take all necessary steps to prevent further harm" (FAC Prayer for Relief ¶ E) would necessarily entail ending the conservation.
Even the declaratory relief CIC II seeks would result in the same interference with and disruption of state proceedings that led the court to dismiss plaintiffs’ claims in Applied Underwriters. See Applied Underwriters, at 927–28, 936 n.7. CIC II asks the court to declare unconstitutional, and thus invalid, the bases of the conservation and the proposed rehabilitation plan. (See FAC Prayer for Relief ¶¶ A-D; Pl.’s Opp'n at 92 (Docket No. 39-1) ().) Declaring defendants’ actions and proposed rehabilitation plan to be unconstitutional would have the same practical effect as injunctive relief directing defendants to take all necessary steps to terminate the conservation. See Gilbertson v. Albright, 381 F.3d 965, 971 (9th Cir. 2004) (). Artful pleading cannot conceal the fact that the gravamen of this action, like the Applied Underwriters action, is to interfere with, and even terminate, the ongoing state conservation proceeding involving CIC. See Applied Underwriters, at 927–28.
Because this case involves the same underlying state court proceeding as Applied Underwriters, and similarly seeks to interfere with, or even terminate, that proceeding, the court concludes that dismissal is warranted under the prior exclusive jurisdiction doctrine for the same reasons articulated in the court's prior order. See id. at 924–28.
The court further concludes that Younger abstention is also appropriate in this case. As the court explained in Applied Underwriters, abstention under Younger v. Harris is warranted when a federal court is asked to intervene in or enjoin an ongoing state proceeding which falls into one of three categories: criminal prosecutions, certain civil enforcement proceedings, and "civil proceedings involving certain orders that are uniquely in furtherance of the state courts’ ability to perform their judicial functions." New Orleans Pub. Serv., Inc. v. Council of City of New Orleans, 491 U.S. 350, 367-68, 109 S.Ct. 2506, 105 L.Ed.2d 298 (1989) (" NOPSI"). Once the court is satisfied that the case falls into one of the three NOPSI categories, the court must further conclude that the three Middlesex factors are met: the conservation must be (1) ongoing, (2) "implicate important state interests," and (3) there must be "an adequate opportunity in the state proceedings to raise constitutional challenges." Readylink Healthcare, Inc. v. State Compensation Ins. Fund, 754 F.3d 754, 759 (9th Cir. 2014) (quoting Middlesex Cnty. Ethics Comm. v. Garden State Bar Ass'n, 457 U.S. 423, 432, 102 S.Ct. 2515, 73 L.Ed.2d 116 (1982) ). Finally, the court must evaluate whether the established exceptions to Younger for "bad faith, harassment, or any other unusual circumstance that would call for equitable relief" are not present. Younger, 401 U.S. at 45, 91 S.Ct. 746.
The court will explain in greater detail below why the above-listed factors apply with equal force to CIC II's case as they did to the plaintiffs’ case in Applied Underwriters. First, however, the court will address a point raised by CIC II's counsel at oral argument: that abstention in this case would be particularly inappropriate given the fact that CIC II's claims arise under 42 U.S.C. § 1983. Counsel argued that denying CIC II a federal forum to raise its claims that state officers instituted the underlying state proceedings in violation of its federal constitutional rights would be inconsistent with § 1983 ’s purpose: "to interpose the federal courts between the States and the people, as guardians of the people's federal rights--to protect the people from unconstitutional action under the color of state law, ‘whether that action be executive, legislative, or judicial.’ " Mitchum v. Foster, 407 U.S. 225, 240, 92 S.Ct. 2151, 32 L.Ed.2d 705 (1972) (quoting Ex Parte Virginia, 100 U.S. 339, 346, 25 L.Ed. 676 (1879) ).
CIC II correctly points out that § 1983 empowers federal courts to enjoin ongoing state judicial proceedings if necessary to prevent great, immediate, and irreparable loss of a person's constitutional rights. See Ex Parte Young, 209 U.S. 123, 167, 28 S.Ct. 441, 52 L.Ed. 714 (1908) ; Mitchum, 407 U.S. at 242-43, 92 S.Ct. 2151. The Supreme Court has noted, however, that this power does not "question or qualify in any way the principles of equity, comity, and federalism [underlying Younger ] that must restrain a federal court when asked to enjoin a state court proceeding." Id. at 243, 92 S.Ct. 2151. When Congress enacted § 1983, it was moved by a concern that "state courts were being used to harass and injure individuals, either because the state courts were powerless to stop deprivations or were in league with those who were bent upon abrogation of federally protected rights." Id. at 240, 92 S.Ct. 2151 (emphasis added). Consistent with this concern, the Supreme Court has expressly and repeatedly held that Younger abstention is not appropriate where the federal plaintiff has shown that "state procedural law barred presentation of [its federal] claims," Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 15, 107 S.Ct. 1519, 95 L.Ed.2d 1 (1987), or that the Juidice v. Vail, 430 U.S. 327, 338, 97 S.Ct. 1211, 51 L.Ed.2d 376 (1977). Absent some evidence that the state court will be unable or unwilling to vindicate the federal plaintiff's constitutional rights, however, ...
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