Readylink Healthcare, Inc. v. State Comp. Ins. Fund

Decision Date12 June 2014
Docket NumberNo. 12–56248.,12–56248.
Citation754 F.3d 754
PartiesREADYLINK HEALTHCARE, INC., a Nevada Corporation, on behalf of itself and others similarly situated, Plaintiff–Appellant, v. STATE COMPENSATION INSURANCE FUND; Dave Jones, Insurance Commissioner, in his official capacity, Defendants–Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

OPINION TEXT STARTS HERE

Seth A. Rafkin (argued) and Jennifer M. Bogue, Cooley LLP, San Diego, CA, for PlaintiffAppellant.

Kamala D. Harris, Attorney General of California, Paul D. Gifford, Senior Assistant Attorney General, Felix E. Leatherwood, Supervising Deputy Attorney General, Brian D. Wesley (argued), Deputy Attorney General, Los Angeles, CA, for DefendantAppellee Dave Jones, California Insurance Commissioner, in his official capacity.

Bruce D. Celebrezze (argued) and Benjamin E. Shiftan, Sedgwick LLP, San Francisco, CA; LaDonna Wallace, Jody A. DeBernardi, and Judith D. Sapper, State Compensation Insurance Fund, Santa Ana, CA, for DefendantAppellee State Compensation Fund.

Appeal from the United States District Court for the Central District of California, Philip S. Gutierrez, District Judge, Presiding. D.C. No. 2:11–cv–09934–PSG–PJW.

Before: JEROME FARRIS and ANDREW D. HURWITZ, Circuit Judges, and PAUL L. FRIEDMAN, District Judge.*

OPINION

HURWITZ, Circuit Judge:

This case involves parallel judicial proceedings, one in state court and the other in federal court. Each was initiated by ReadyLink Healthcare, Inc. (ReadyLink), and each contended that a decision by the Commissioner of the California Department of Insurance (Commissioner) was preempted by Internal Revenue Service (IRS) regulations. The federal district court abstained, relying on Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). While this appeal from the district court judgment was pending, the California Court of Appeal rejected ReadyLink's preemption claim, and the California Supreme Court denied review.1

Applying the Supreme Court's guidance in Sprint Communications, Inc. v. Jacobs, ––– U.S. ––––, 134 S.Ct. 584, 187 L.Ed.2d 505 (2013), we find that the district court erred by abstaining. However, because issue preclusion now bars ReadyLink's claim, we affirm the judgment dismissing the complaint.

I. Background

ReadyLink provides temporary nurses for medical facilities. From 2000 to 2006, ReadyLink purchased workers' compensation insurance from the State Compensation Insurance Fund (SCIF). SeeCal. Ins.Code §§ 11770, 11773. Although a creature of California statutes, “SCIF is an ‘insurer’ on the same basis as any private carrier offering workers' compensation insurance.” P.W. Stephens, Inc. v. State Comp. Ins. Fund, 21 Cal.App.4th 1833, 27 Cal.Rptr.2d 107, 108 (1994).

When SCIF audited ReadyLink for the 2005 policy year, it found that ReadyLink had failed to report certain per diem payments to employees as payroll, and billed ReadyLink for an additional premium of $555,327.53. ReadyLink appealed that decision to the California Department of Insurance, seeCal. Ins.Code § 11737(f), and an administrative law judge (ALJ) approved SCIF's premium calculation.

The ALJ first found that the California Workers' Compensation Uniform Statistical Reporting Plan (USRP),2 which SCIF used to calculate ReadyLink's premium rates, exempts payments for “additional living expenses not normally assumed” from payroll. Because ReadyLink's per diem payments were not tied to the expenses that nurses accrued while working away from their homes, the ALJ concluded that the payments were actually wages. In doing so, the ALJ rejected ReadyLink's argument that the USRP should be interpreted consistently with IRS per diem reporting rules. The Commissioner affirmed and designated the decision as precedential.

ReadyLink then petitioned the Los Angeles Superior Court for a writ of administrative mandamus pursuant to California Code of Civil Procedure § 1094.5. It alleged, among other things, that the Commissioner should have followed IRS reporting rules in interpreting the USRP. The Superior Court denied relief. ReadyLink appealed to the California Court of Appeal, expressly arguing that IRS regulations preempted the Commissioner's decision.

While the state court appeal was pending, ReadyLink filed this putative class action against SCIF and the Commissioner in the Central District of California. The federal complaint alleged that IRS regulations preempted the Commissioner's decision, requested both declaratory and injunctive relief, and asserted various state-law damage claims. After SCIF moved to dismiss the complaint, the district court ordered supplemental briefing to address possible abstention under Younger and Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). The district court then dismissed the federal preemption claim on Younger grounds and declined to exercise supplemental jurisdiction over the remaining state-law claims. ReadyLink appealed.

As ReadyLink's appeal to this court was pending, the California Court of Appeal affirmed the Superior Court's denial of mandamus, expressly holding that the Commissioner's decision was not preempted by federal law. ReadyLink HealthCare, Inc. v. Jones, 210 Cal.App.4th 1166, 148 Cal.Rptr.3d 881, 886–92 (2012). The California Supreme Court denied ReadyLink's subsequent petition for review.

II. Younger Abstention
A.

The district court had jurisdiction over ReadyLink's complaint under 28 U.S.C. § 1331, see Verizon Md. Inc. v. Pub. Serv. Comm'n of Md., 535 U.S. 635, 642, 122 S.Ct. 1753, 152 L.Ed.2d 871 (2002), and we have jurisdiction over this appeal under 28 U.S.C. § 1291, see Agriesti v. MGM Grand Hotels, Inc., 53 F.3d 1000, 1000–01 (9th Cir.1995). We review the district court's Younger determination de novo. Gilbertson v. Albright, 381 F.3d 965, 982 n. 19 (9th Cir.2004) (en banc).

B.

In Younger v. Harris, the Supreme Court reaffirmed the long-standing principle that federal courts sitting in equity cannot, absent exceptional circumstances, enjoin pending state criminal proceedings. 401 U.S. at 43–54, 91 S.Ct. 746. The Court, citing comity concerns, later extended the Younger principle to civil enforcement actions “akin to” criminal proceedings, Huffman v. Pursue, Ltd., 420 U.S. 592, 604, 95 S.Ct. 1200, 43 L.Ed.2d 482 (1975), and to suits challenging “the core of the administration of a State's judicial system,” Juidice v. Vail, 430 U.S. 327, 335, 97 S.Ct. 1211, 51 L.Ed.2d 376 (1977).

The Court's subsequent opinion in Middlesex County Ethics Committee v. Garden State Bar Ass'n, 457 U.S. 423, 102 S.Ct. 2515, 73 L.Ed.2d 116 (1982), found abstention appropriate when (1) there is “an ongoing state judicial proceeding,” (2) those “proceedings implicate important state interests,” and (3) there is “an adequate opportunity in the state proceedings to raise constitutional challenges.” Id. at 432, 102 S.Ct. 2515. Our ensuing decisions concluded that the three Middlesex factors controlled Younger abstention in civil actions. See, e.g., Meredith v. Oregon, 321 F.3d 807, 816–17 (9th Cir.2003); Fresh Int'l Corp. v. Agric. Labor Relations Bd., 805 F.2d 1353, 1357–62 (9th Cir.1986). And, although not a threshold element, we identified a fourth requirement: The requested relief must seek to enjoin—or have the practical effect of enjoining—ongoing state proceedings. AmerisourceBergen Corp. v. Roden, 495 F.3d 1143, 1149 (9th Cir.2007); Gilbertson, 381 F.3d at 977–78 (citing Samuels v. Mackell, 401 U.S. 66, 72, 91 S.Ct. 764, 27 L.Ed.2d 688 (1971)).

But, our post- Middlesex decisions have sent mixed signals on whether Younger remains limited to criminal cases, quasi-criminal actions, and orders involving the administration of a state's judicial system. A number of our opinions suggested that, notwithstanding Middlesex, Younger applies only to those three types of proceedings. See, e.g., Logan v. U.S. Bank Nat. Ass'n, 722 F.3d 1163, 1167–69 (9th Cir.2013); Potrero Hills Landfill, Inc. v. Cnty. of Solano, 657 F.3d 876, 883–85 & n. 7 (9th Cir.2011); Martori Bros. Distribs. v. James–Massengale, 781 F.2d 1349, 1354–56 (9th Cir.1986), abrogated on other grounds, Ohio Civ. Rights Comm'n v. Dayton Christian Schs., Inc., 477 U.S. 619, 627 n. 2, 106 S.Ct. 2718, 91 L.Ed.2d 512 (1986). Others, however, implied that district courts must abstain in any action when the Middlesex factors are present. See, e.g., Delta Dental Plan of Cal., Inc. v. Mendoza, 139 F.3d 1289, 1295 (9th Cir.1998); Fresh Int'l Corp., 805 F.2d at 1358.

We also have been less than clear on whether Younger applies only to state-initiated proceedings. Compare Potrero Hills, 657 F.3d at 883 n. 7 ([O]ur case law clearly demonstrates that the first Younger prong may be satisfied even when the ongoing state proceeding involves only private litigants.”), with San Jose Silicon Valley Chamber of Commerce Political Action Comm. v. City of San Jose, 546 F.3d 1087, 1093 (9th Cir.2008) (We must abstain under Younger if four requirements are met: (1) a state-initiated proceeding is ongoing....”).

Sprint resolved these interpretive dilemmas, squarely holding that Younger abstention is limited to the “three exceptional categories” of cases identified in New Orleans Public Service, Inc. v. Council of New Orleans (NOPSI), 491 U.S. 350, 367–68, 109 S.Ct. 2506, 105 L.Ed.2d 298 (1989). Sprint, 134 S.Ct. at 592. Those cases are: (1) “parallel, pending state criminal proceeding[s],” (2) “state civil proceedings that are akin to criminal prosecutions,” and (3) state civil proceedings that “implicate a State's interest in enforcing the orders and judgments of its courts.” Id. at 588.

For orders at the “core” of the judicial process, the underlying state proceeding plainly need not have been initiated by the state. See Juidice, 430 U.S. at 329–30, 335–36, 97 S.Ct. 1211; Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 4–5, 12–14, 107 S.Ct. 1519, 95 L.Ed.2d 1 (1987). For civil...

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