Silver v. Woolf, Civ. No. H-81-872.

• Citation: 538 F. Supp. 881
• Decision Date: 06 May 1982
• Docket Number: Civ. No. H-81-872.
• Court: U.S. District Court — District of Connecticut
• Parties: Herbert R. SILVER, d/b/a Allied Bond and Collection Agency v. Brian J. WOOLF, in his capacity as Acting Banking Commissioner of the State of Connecticut.

538 F. Supp. 881

Herbert R. SILVER, d/b/a Allied Bond and Collection Agency v. Brian J. WOOLF, in his capacity as Acting Banking Commissioner of the State of Connecticut.

Civ. No. H-81-872.

United States District Court, D. Connecticut.

May 6, 1982.

Robert N. Wienner, Cohn & Birnbaum, Hartford, Conn., for plaintiff.

John G. Haines, Jonathan L. Ensign, Asst. Attys. Gen., Hartford, Conn., for defendant.

MEMORANDUM OF DECISION

BLUMENFELD, Senior District Judge.

In this action for a declaratory judgment the plaintiff, the sole proprietor of a consumer collection agency located in Philadelphia, Pennsylvania, contends that Section 42-127a(a) of the Connecticut General Statutes is unconstitutional on its face and as applied to the plaintiff under the due process and commerce clauses of the United States Constitution.

Conn.Gen.Stat. § 42-127a(a) requires that all consumer collection agencies acting within the State of Connecticut obtain a license from the State Commissioner of Banking. It provides that

a consumer collection agency is acting within this state if it ... (3) has its place of business located outside this state and regularly collects from consumer debtors who reside within this state for creditors whose place of business is located outside this state.

Id. The plaintiff characterizes his business as a "national collection agency which on behalf of its clients seeks to collect debts from debtors located in all of the 50 states and in a number of U. S. territories and foreign countries." It has no offices, employees or property in Connecticut and seeks to collect outstanding debts from Connecticut debtors solely through mail and telephone communications.

Beginning in July 1980 the Consumer Credit Division of the Connecticut Banking Department received a number of complaints from Connecticut consumer debtors concerning the collection practices of the plaintiff's company. Defendant's Motion for Summary Judgment Exhibits A-1 through A-17. The Department began a correspondence with the plaintiff in order to determine if his company was subject to the licensing requirements of Conn.Gen. Stat. § 42-127a. The plaintiff responded by refusing to provide any information concerning the scope of his activities in Connecticut on the basis of his position that his company was not subject to Connecticut law because its only contacts with the state are by mail and telephone communication. After receiving additional complaints about the plaintiff's company, the Department told the plaintiff that it considered his company subject to the licensing requirements of Conn.Gen.Stat. § 42-127a and began informing the plaintiff's clients that his company was not licensed as required by Connecticut law and that, therefore, referral of accounts to his collection agency for collection from Connecticut debtors is prohibited by Conn.Gen.Stat. § 42-131a(b).¹ Three of the plaintiff's clients have been contacted by the Department so far.

On September 14, 1981 the Banking Department commenced formal proceedings against the plaintiff's company to enforce the licensing requirement. A hearing was held on November 4, 1981, and on March 30, 1982 the Banking Commissioner issued a decision ordering the plaintiff to cease and desist from acting as a consumer collection agency in Connecticut without a license.²

On November 10, 1981 the plaintiff filed this action under 42 U.S.C. § 1983 seeking a declaratory judgment that Conn.Gen.Stat. § 42-127a(a) is unconstitutional on its face and/or as applied to the plaintiff. He also seeks an injunction to restrain the Banking Commissioner from (1) enforcing Conn.Gen. Stat. § 42-127a(a) against the plaintiff and (2) enforcing Conn.Gen.Stat. § 42-131a(b) against the plaintiff's clients insofar as it relates to plaintiff's status under Conn.Gen. Stat. § 42-127a(a). The defendant has moved for summary judgment. A hearing was held before this court on January 25, 1982 on the plaintiff's motion for a preliminary and permanent injunction and on the defendant's motion for summary judgment.

The two grounds upon which the defendant urges this court to dismiss this suit without reaching the merits are considered in limine.

I. EXHAUSTION OF ADMINISTRATIVE REMEDIES

Although there were state administrative proceedings pending at the time the federal complaint was filed, the fact that the plaintiff did not exhaust his administrative remedies prior to filing this lawsuit does not preclude this court from taking jurisdiction.

While a plaintiff is generally required to exhaust his administrative remedies prior to commencing an action seeking judicial relief, Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 50-51, 58 S.Ct. 459, 463, 82 L.Ed. 638 (1938), the Supreme Court has held on numerous occasions that state administrative remedies need not be exhausted prior to commencing a federal civil rights action under 42 U.S.C. § 1983. E.g., Ellis v. Dyson, 421 U.S. 426, 432-33, 95 S.Ct. 1691, 1694-95, 44 L.Ed.2d 274 (1975); Gibson v. Berryhill, 411 U.S. 564, 574-75, 93 S.Ct. 1689, 1695-96, 36 L.Ed.2d 488 (1973). In this circuit this line of cases has been interpreted to "mean not that state administrative remedies need never be exhausted prior to commencement of § 1983 suits, but merely that the exhaustion requirement should not be given `wooden application.'" Swan v. Stoneman, 635 F.2d 97, 103 (2d Cir. 1980) (quoting from Eisen v. Eastman, 421 F.2d 560, 569 (2d Cir. 1969), cert. denied, 400 U.S. 841, 91 S.Ct. 82, 27 L.Ed.2d 75 (1970)). Exhaustion is not required where it would be futile because the question of the adequacy of the administrative remedy is "for all practical purposes coextensive with the merits of the plaintiff's constitutional claims," Fuentes v. Roher, 519 F.2d 379, 387 (2d Cir. 1975), or where the issue is one where there is no need for the "exercise of agency discretion or expertise," Touche Ross & Co. v. Securities & Exchange Commission, 609 F.2d 570, 577 (2d Cir. 1979). In addition, an agency can in some circumstances be found to have waived the exhaustion requirement by stipulation or by adopting a final position prior to completion of the entire administrative process. Greenberg v. Bolger, 497 F.Supp. 756, 772 (E.D.N.Y.1980).

The plaintiff contends that the federal Constitution prevents the state from enforcing its licensing requirement against the plaintiff. His claim is solely one of federal constitutional law on which the agency has no expertise. In addition, the hearing examiner had made it clear prior to the institution of this federal suit that she would not make any decision on the constitutional issues. There is no reason, therefore, to apply the doctrine requiring the exhaustion of administrative remedies.

II. ABSTENTION

The doctrine of equitable restraint requires that a federal court abstain from enjoining pending state enforcement proceedings at least in the absence of extraordinary circumstances, such as bad faith or harassment on the part of the state prosecution, or a facial attack on a patently unconstitutional statute. Younger v. Harris, 401 U.S. 37, 53-54, 91 S.Ct. 746, 754-755, 27 L.Ed.2d 669 (1971). It has been applied to a variety of state civil proceedings. E.g., Moore v. Sims, 442 U.S. 415, 99 S.Ct. 2371, 60 L.Ed.2d 994 (1979) (state proceeding to remove custody of children from their parent); Trainor v. Hernandez, 431 U.S. 434, 97 S.Ct. 1911, 52 L.Ed.2d 486 (1977) (enforcement action to attach property pursuant to a state action to recover wrongfully paid welfare benefits); Juidice v. Vail, 430 U.S. 327, 97 S.Ct. 1211, 51 L.Ed.2d 376 (1977) (state's contempt process); Huffman v. Pursue, 420 U.S. 592, 95 S.Ct. 1200, 43 L.Ed.2d 482 (1975) (state nuisance proceeding). The doctrine is based upon the rationale that principles of equity and federalism preclude a federal court from interfering with an ongoing state proceeding which offers the federal plaintiff a fair forum for the resolution of his federal claims. See, e.g., Younger v. Harris, 401 U.S. at 44, 91 S.Ct. at 750.

The defendant in this case contends that because the plaintiff has a right to appeal the Banking Commissioner's decision to the state Superior Court under Conn.Gen.Stat. § 4-183 the principles of equitable restraint require this court to abstain in favor of the state's judicial process. The defendant characterizes the administrative appeal afforded by Conn.Gen.Stat. § 4-183 as a continuation of the administrative enforcement proceeding and, therefore, views the state proceedings as ongoing at the present time. In fact, there are no state proceedings pending at the present time. The administrative proceedings before the Banking Commission have been completed. All that remains to be done is the enforcement of the Commissioner's order which has been temporarily restrained by this court. The plaintiff has no state forum in which to pursue his constitutional challenge to this licensing statute unless he chooses to seek judicial review of the Commissioner's decision under Conn.Gen.Stat. § 4-183.

The fact that the plaintiff has the option of seeking judicial review is not sufficient to require this court to abstain. A federal civil rights plaintiff is not required to exhaust state judicial remedies prior to coming to federal court. E.g., Steffel v. Thompson, 415 U.S. 452, 472-73, 94 S.Ct. 1209, 1222, 39 L.Ed.2d 505 (1974); Gibson v. Berryhill, 411 U.S. 564, 574 n.13, 93 S.Ct. 1689, 1695 n.13, 36 L.Ed.2d 488 (1973). Abstention is not required in this case because there is lacking "the most fundamental requirement for the exercise of equitable restraint, ... the existence of an ongoing state proceeding where the federal plaintiff's claims can be heard," Aristocrat Health Club of Hartford v. Chaucer, 451 F.Supp. 210, 216 (D.Conn.1978) (emphasis added).

I turn next to consider the merits.

III. THE MERITS

A. The Propriety of Summary Judgment

The plaintiff challenges the constitutionality of ...