Acra Turf Club v. Francesco Zanzuccki

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 13-3064

_____________

ACRA TURF CLUB, LLC, A New Jersey Limited

Liability Company;

FREEHOLD RACEWAY OFF TRACK, LLC, A New

Jersey Limited Liability Company,

Appellants

v.

FRANCESCO ZANZUCCKI, Executive Director of the

New Jersey Racing Commission

_____________

On Appeal from the United States District Court

for the District of New Jersey

District Court No. 3-12-cv-02775

District Judge: The Honorable Michael A. Shipp

_________________

Argued February 12, 2014

Before: SMITH, SHWARTZ, and SCIRICA,

Circuit Judges

(Filed: March 31, 2014)

Kellen F. Murphy

John M. Pellecchia [ARGUED]

Riker, Danzig, Scherer, Hyland & Perretti

One Speedwell Avenue

Headquarters Plaza

Morristown, NJ 07962

Counsel for Appellants

Julie Barnes

Stuart M. Feinblatt [ARGUED]

Office of Attorney General of New Jersey

Division of Law

Richard J. Hughes Justice Complex

25 Market Street, P.O. Box 093

Trenton, NJ 08625

Counsel for Appellee

________________

OPINION

________________

SMITH, Circuit Judge.

2

ACRA Turf Club, LLC (“ACRA”) and Freehold

Raceway Off Track, LLC (“Freehold”) (collectively,

“Plaintiffs”) filed this suit pursuant to 42 U.S.C. §§ 1983

and 1988, against Francesco Zanzuccki (“Zanzuccki”),

Executive Director of the New Jersey Racing

Commission (the “Commission”), asserting that certain

amendments to New Jersey’s Off-Track and Account

Wagering Act violate their rights under the United States

Constitution. The District Court dismissed the case on

Younger abstention grounds, and Plaintiffs appealed.

During the pendency of this appeal, the Supreme Court

issued its decision in Sprint Communications, Inc. v.

Jacobs, 134 S. Ct. 584 (2013), which clarifies and

reminds courts of the boundaries of the Younger

abstention doctrine. Because this action does not fit

within the framework for abstention outlined in Sprint,

we will reverse.

I.

In an effort to promote horse racing in the State,

the New Jersey Legislature enacted the Off-Track and

Account Wagering Act (the “Act”), N.J. Stat. Ann. § 5:5-

127 et seq., on February 1, 2002, providing for the

establishment of up to fifteen off-track wagering

(“OTW”) facilities. The Act authorized the Commission

to issue a license to a single entity, the New Jersey Sports

and Exposition Authority (the “NJSEA”), but

conditioned this grant upon the NJSEA entering into a

participation agreement with all other entities that held

3

valid permits to conduct horse racing in the year 2000.

N.J. Stat. Ann. §§ 5:5-130, 5:5-136. Other than the

NJSEA, ACRA and Freehold were the only two entities

to qualify as permit holders during the relevant period.

Thus, on September 8, 2003, the NJSEA, ACRA, and

Freehold entered into the Master Off-Track Wagering

Participation Agreement (the “Agreement”), which

allocated licensing rights for the fifteen OTW facilities as

follows: NJSEA the right to license nine OTW facilities,

Freehold the right to license four OTW facilities, and

ACRA the right to license two OTW facilities. The

Agreement also provided for geographic exclusivity near

the participants’ respective racetracks.

Although the Act authorized licenses for up to

fifteen OTW facilities, by 2011, only four facilities had

opened and were operating, including one by ACRA

(Favorites at Vineland) and one by Freehold (Favorites at

Toms River). The NJSEA owned two racetracks

(Monmouth Park and the Meadowlands), but had leased

control of those tracks to other entities, one of which was

the New Jersey Thoroughbred Horsemen’s Association,

4

Inc. (the “NJTHA”), which currently operates

thoroughbred racing at both tracks.1

Disappointed by the slow pace at which OTW

facilities were being opened, the New Jersey Legislature

passed several amendments to the Act beginning in 2011,

in an attempt to induce permit holders to open their

remaining share of OTW facilities allocated by the

Agreement. On February 23, 2011, the New Jersey

Legislature enacted the Forfeiture Amendment, 2011 N.J.

Laws 26, § 4 (amending N.J. Stat. Ann. § 5:5-130(b)(1)),

which provided that permit holders would forfeit their

rights to any OTW facility that was not licensed by

January 1, 2012, unless the permit holder could

demonstrate that it was “making progress” toward

obtaining an off-track wagering license and establishing

an OTW. The Forfeiture Amendment provided further

that a permit holder’s rights to an OTW facility, if

forfeited, shall be made available to other “horsemen’s

organizations” without compensation to the permit

1

The New Jersey Thoroughbred Horsemen’s

Association is defined in N.J. Stat. Ann. § 5:5-129 as

“the association representing the majority of New Jersey

thoroughbred owners and trainers responsible for

receiving and distributing funds for programs designed to

aid thoroughbred horsemen.”

5

holder.2 The NJTHA is one such organization that would

be entitled to any forfeited rights.

On January 17, 2012, the New Jersey Legislature

supplemented the Forfeiture Amendment by passing the

Deposit Amendment, 2011 N.J. Laws 205, § 4 (amending

N.J. Stat. Ann. § 5:5-130(b)(1)). The Deposit

Amendment extended the forfeiture date to June 28,

2012, and added a requirement that each permit holder

make a $1 million deposit for each OTW facility in its

share that is not licensed by December 31, 2011. Id. The

Deposit Amendment retained the “making progress”

exception, thus allowing a permit holder to avoid the

deposit requirement (and forfeiture of rights) if it could

establish that it was “making progress toward obtaining

an [OTW] license and establishing an [OTW] facility

according to specified benchmarks developed by the

commission.” N.J. Stat. Ann. § 5:5-130(b)(1).

On the same date the Deposit Amendment was

enacted, the New Jersey Legislature also passed the Pilot

Program Act, 2011 N.J. Laws 228 (codified at N.J. Stat.

Ann. § 5:5-186), which directed the Commission to

2

A “horsemen’s organization” is defined by the

Simulcasting Racing Act, N.J. Stat. Ann. § 5:5-110 et

seq., as an “organization or group representing a majority

of horsemen engaged in competing for purses during a

regularly scheduled horse race meeting, as the case may

be.” N.J. Stat. Ann. § 5:5-111.

6

establish a three-year Pilot Program for the installation of

electronic wagering terminals in a limited number of bars

and restaurants. N.J. Stat. Ann. § 5:5-186. Participation

in the Pilot Program was limited to lessees or purchasers

of NJSEA-owned racetracks, who were permitted to

exchange any unused OTW licenses for a license to

install electronic wagering terminals. The NJTHA

secured the right to a Pilot Program license by paying $2

million to the other assignee of NJSEA’s licenses, the

New Meadowlands Racetrack, LLC.

On January 30, 2012, the Commission sent letters

to ACRA, Freehold, and other OTW licensees, detailing

the Forfeiture and Deposit Amendments and notifying

each permit holder that it could extend its rights to

establish licensed OTW facilities either by posting a

deposit or demonstrating to the satisfaction of the

Commission that the permit holder had made progress

toward establishing its share of OTW facilities. On

March 29, 2012, ACRA and Freehold submitted petitions

to the Commission (the “Progress Petitions”), seeking to

demonstrate that they were making progress toward

opening their remaining OTW facilities. In their

respective petitions, ACRA and Freehold also challenged

the constitutionality of the amendments under the

Contracts, Takings, Due Process, and Equal Protection

Clauses of the United States Constitution.

On May 9, 2012, while their petitions were

pending before the Commission, Plaintiffs filed the

7

instant suit in the United States District Court for the

District of New Jersey, seeking to enjoin enforcement of

the three amendments based on the same constitutional

challenges set out in the Progress Petitions. Plaintiffs

then filed a motion for preliminary injunction on May 24,

2012, claiming they faced irreparable harm if the state

review process was allowed to proceed. Zanzuccki

opposed the motion, arguing, inter alia, that abstention

was warranted under Younger v. Harris, 401 U.S. 37

(1971).

While the preliminary injunction motion was

pending before the District Court, the Commission held a

meeting on June 20, 2012, to consider whether Plaintiffs

had made progress toward establishing their share of

OTW facilities. The Commission determined that both

ACRA and Freehold had made progress toward

establishing their unlicensed OTW facilities, absolved

them of the obligation to submit deposits, and directed

them to “comply with the requirements of the statute and

continue to make progress on an annual basis.” App.

320–21. Following the Commission’s decision,

Zanzuccki filed a letter with the District Court arguing

that the Commission’s decision eliminated any

irreparable harm that would previously have resulted

from denial of the motion for preliminary injunction. On

July 11, 2012, the District Court denied Plaintiffs’

motion for a preliminary injunction without prejudice,

finding that there was no immediate, irreparable harm

8

“since deposit or forfeiture is at least a year away.” App.

34.

As one of the entities that would have been entitled

to licensing rights forfeited by ACRA or Freehold, the

NJTHA was not satisfied with the Commission’s

decision that Plaintiffs had made sufficient progress in

establishing their remaining unlicensed OTW facilities.

Thus, on July 11, 2012, the NJTHA filed an appeal with

the New Jersey Superior Court, Appellate Division (the

“Making Progress Appeal”), contesting the

Commission’s determination. ACRA and Freehold

9

subsequently joined the Making Progress Appeal as co-

respondents of the Commission.3

With the Making Progress Appeal pending before

the New Jersey Appellate Division, Plaintiffs filed a

motion for summary judgment in their federal action on

October 12, 2012, seeking a judgment declaring that the

Amendments were unconstitutional. Zanzuccki filed an

3

On July 27, 2012, shortly after filing the Making

Progress Appeal, the NJTHA—along with the

Standardbred Breeders and Owners Association, who

filed its own motion on August 7, 2012—filed a motion

to intervene in Plaintiffs’ federal suit and to dismiss

based, in part, on Younger abstention. The Magistrate

Judge struck as premature the part of the motion that

sought to dismiss the Complaint, and the NJTHA filed an

appeal of that order, which we dismissed for lack of

jurisdiction. The District Court subsequently denied the

motion to intervene on February 27, 2013, finding that

the proposed intervenors failed to demonstrate that their

interests were not adequately represented by Zanzuccki.

The NJTHA filed a Notice of Appeal on March 5, 2013,

which was docketed as No. 13-1634 (the “Intervention

Appeal”) and consolidated with this appeal for purposes

of disposition only. We resolve the Intervention Appeal

in a separate opinion issued concurrently with this

decision.

10

opposition as well as a cross-motion for dismissal of the

complaint based on Younger abstention. Specifically,

Zanzuccki argued that the Making Progress Appeal

provided an adequate opportunity for ACRA and

Freehold to raise their constitutional challenges in state

court.

On May 30, 2013, the District Court issued an

Order and Memorandum Opinion granting Zanzuccki’s

cross-motion to dismiss the complaint on Younger

abstention grounds. In reaching its conclusion, the

District Court applied the three-part test articulated in

Middlesex County Ethics Committee v. Garden State Bar

Association, 457 U.S. 423, 432 (1982), which requires

(1) an ongoing state judicial proceeding; (2) which

implicates important state interests; and (3) offers an

adequate opportunity to raise the same constitutional

challenges presented in the federal action. Finding these

requirements satisfied, the District Court applied Younger

abstention and dismissed the complaint.

Plaintiffs timely appealed.

II.

The District Court had federal question jurisdiction

under 28 U.S.C. § 1331. We have jurisdiction over this

appeal pursuant to 28 U.S.C. § 1291, because it arises

following a final order of dismissal.

11

“We exercise plenary review over whether the

requirements for abstention have been met.” Miller v.

Mitchell, 598 F.3d 139, 145–46 (3d Cir. 2010).

III.

While this appeal was pending, the Supreme Court

decided Sprint Communications, Inc. v. Jacobs, 134 S.

Ct. 584 (2013), reiterating that Younger abstention is

appropriate in only three narrow categories of cases.

Although Sprint provides a much needed framework for

evaluating abstention issues, the Court explained that

Sprint was merely a restatement of the abstention

principles found in the Court’s existing precedent.

Accordingly, our analysis must consider the full body of

abstention case law, beginning with Younger itself.

In Younger v. Harris, 401 U.S. 37, 53–54 (1971),

the Supreme Court held that federal courts should decline

to enjoin a pending state court criminal prosecution

absent a showing that the charges had been brought in

bad faith or with an intent to harass. The plaintiff in

Younger was indicted in state court for distributing

leaflets in violation of the California Criminal

Syndicalism Act, and he sought a federal court injunction

against the state criminal prosecution on the grounds that

the Act and the charges brought under it violated the First

and Fourteenth Amendment. A three-judge district court

agreed with the plaintiff, but the Supreme Court reversed,

holding that federal courts should not interfere with state

12

criminal proceedings, “particularly . . . when the moving

party has an adequate remedy at law and will not suffer

irreparable injury if denied equitable relief.” Younger,

401 U.S. at 43–44. The Court explained that this decision

was founded on “the notion of ‘comity,’ that is a proper

respect for state functions.” Id. at 44. The result was a

rule that state criminal proceedings should be enjoined

only in “extraordinary circumstances, where the danger

of irreparable loss is both great and immediate” and it

“plainly appears that [asserting the constitutional defense

in state court] would not afford adequate protection.” Id.

at 45 (citations omitted).

Although Younger was initially developed as a

limitation on the ability of federal courts to interfere with

pending state criminal proceedings, the Supreme Court

has since extended Younger’s application to bar federal

interference with certain state civil and administrative

proceedings. Huffman v. Pursue, Ltd., 420 U.S. 592

(1975), was the groundbreaking decision which extended

Younger into the civil arena. In Huffman, state officials

instituted a civil nuisance proceeding and successfully

obtained a judgment against an adult movie theater for

violating an Ohio statute declaring the exhibition of

obscene films to be a nuisance. Instead of appealing the

decision within the state court system, the theater

company filed a federal action under 42 U.S.C. § 1983.

The Supreme Court held that abstention was the proper

course, emphasizing that the state’s nuisance proceeding

13

was “more akin to a criminal prosecution than are most

civil cases.” Huffman, 420 U.S. at 604. The Court noted

that the state was a party to the civil nuisance proceeding,

which was “both in aid of and closely related to criminal

statutes which prohibit the dissemination of obscene

materials.” Id. Thus, the Court concluded that the

“State’s interest in the nuisance litigation is likely to be

every bit as great as it would be were this a criminal

proceeding.”4 Id.

The Court revisited the Younger abstention

doctrine two years later with its decision in Trainor v.

Hernandez, 431 U.S. 434 (1977). In Trainor, the Illinois

Department of Public Aid instituted a civil fraud

proceeding in state court to recover welfare benefits

obtained by Hernandez and his wife, who had allegedly

concealed their personal assets when applying for public

4

Three justices dissented, arguing that, because civil

proceedings can be initiated simply by filing a complaint,

it is too easy for the state to “strip [someone] of a forum

and a remedy that federal statutes were enacted to

assure.” Huffman v. Pursue, Ltd., 420 U.S. 592, 615

(1975) (Brennan, J., dissenting). Although recognizing

that Huffman was limited to quasi-criminal proceedings,

Justice Brennan expressed his concern that the majority’s

decision was “obviously only the first step” toward

applying Younger abstention to all civil cases in state

court. Id. at 613.

14

assistance. After the department obtained a writ of

attachment pursuant to the Illinois Attachment Act

against the defendant’s savings account, Hernandez

brought a federal action challenging the constitutionality

of the attachment statute and seeking declaratory and

injunctive relief. The Supreme Court again held that

abstention was appropriate even though the proceeding

was wholly civil. The Court emphasized that “the State

was a party to the suit in its role of administering its

public-assistance programs” and, by pursuing the action,

was “vindicat[ing] important state policies such as

safeguarding the fiscal integrity of those programs.” Id.

at 444. As in Huffman, the Court pointed out that the

state could have vindicated the same interests by

initiating a criminal enforcement action. Id. The Court

concluded that “the principles of Younger and Huffman

are broad enough to apply to interference by a federal

court with an ongoing civil enforcement action such as

this, brought by the State in its sovereign capacity.” Id.

(emphasis added).

It was not long before the Court considered

Younger’s application again in Moore v. Sims, 442 U.S.

415 (1979). In Moore, the Texas Department of Human

Resources (the “DHR”) acted pursuant to an emergency

ex parte order to remove children from their home based

on suspicions of child abuse. The parents filed suit in

federal court challenging the constitutionality of the

Texas law authorizing the DHR’s actions, and a three-

15

judge district court held that the law was

unconstitutional. The Supreme Court reversed,

concluding that the district court should have abstained

and dismissed the case. The Court explained that its prior

cases demonstrated that the policy concerns articulated in

Younger are “fully applicable to civil proceedings in

which important state interests are involved.” Id. at 423.

Once again, the Court acknowledged that, like the

nuisance proceeding in Huffman, the temporary removal

of a child based on suspicions of child abuse is “in aid of

and closely related to criminal statutes.” Id. (quoting

Huffman, 420 U.S. at 604). The Court then considered

“whether [the parents’] constitutional claims could have

been raised in the pending state proceedings,” explaining

that “abstention is appropriate unless state law clearly

bars the interposition of the constitutional claims.” Id. at

425–26. Because Texas law did not present any

procedural barriers to the presentation of the parents’

constitutional claims, the Court concluded that abstention

was warranted. Id. at 432.

By the time Middlesex County Ethics Committee v.

Garden State Bar Association, 457 U.S. 423 (1982), was

decided, the Supreme Court had already applied Younger

abstention when confronted with a variety of ongoing

state court civil proceedings. Middlesex, however,

marked the first time the Court invoked the abstention

doctrine in favor of a state administrative proceeding.

The plaintiff in Middlesex, a lawyer, filed a suit in federal

16

court seeking to enjoin as unconstitutional ongoing

investigations and administrative proceedings by the

New Jersey state bar ethics committee. Agreeing with the

district court’s decision to abstain, the Supreme Court

explained that “[t]he policies underlying Younger are

fully applicable to noncriminal judicial proceedings when

important state interests are involved,” id. at 432, which

may be “demonstrated by the fact that the noncriminal

proceedings bear a close relationship to proceedings

criminal in nature.” Id. (citing Huffman, 420 U.S. at 604).

Where such “vital state interests” are found, the Court

proclaimed, “a federal court should abstain ‘unless state

law clearly bars the interposition of the constitutional

claims.’” Id. (quoting Moore, 442 U.S. at 426). The

Court then set out a three-part inquiry to guide its

analysis:

first, do state bar disciplinary hearings . . .

constitute an ongoing state judicial

proceeding; second, do the proceedings

implicate important state interests; and third,

is there an adequate opportunity in the state

proceedings to raise constitutional

challenges.

17

Id. at 432 (emphasis in original). Finding this three-part

test satisfied,5 the Court abstained.6 Id. at 437.

A few years later, in Ohio Civil Rights

Commission v. Dayton Christian Schools, Inc., 477 U.S.

619 (1986), the Supreme Court, for the second time,

found Younger abstention was appropriate in view of an

ongoing state administrative proceeding. In Dayton, a

pregnant teacher at a church-run school filed a complaint

with the Ohio Civil Rights Commission after the school

had refused to renew her contract because of its official

view that mothers should stay home with their preschool

5

As to the third prong, the Court acknowledged that

the state ethics committee had concluded its evaluation

without considering the plaintiff’s constitutional

arguments. Nonetheless, the Court found that the plaintiff

had an adequate opportunity to present those challenges

to the New Jersey Supreme Court, which had appellate

jurisdiction over the ethics committee’s decision.

Middlesex, 457 U.S. at 435–36.

6

Justice Brennan concurred in the decision and

noted that despite his general view that Younger is

inapplicable to civil proceedings, he was inclined to join

the judgment of the majority in light of the “quasi-

criminal nature of bar disciplinary proceedings.”

Middlesex Cnty. Ethics Comm. v. Garden State Bar

Ass’n, 457 U.S. 423, 438 (1982) (Brennan, J.,

concurring).

18

children. The Commission concluded that there was

probable cause to conclude that the school’s conduct

amounted to impermissible sex discrimination and,

accordingly, initiated administrative proceedings against

the school. The school defended the administrative

proceeding by asserting a defense under the First

Amendment and also filed suit in federal court to enjoin

the administrative action. The Supreme Court, once

again, held that abstention was proper. Although it did

not directly apply the three-part Middlesex test, the Court

proceeded along similar lines by first emphasizing that

the administrative proceeding was “judicial in nature”

from its outset. Dayton, 477 U.S. at 627. The Court

reiterated that Younger principles apply when there are

state proceedings “in which important state interests are

vindicated, so long as in the course of those proceedings

the federal plaintiff would have a full and fair

opportunity to litigate his constitutional claim.” Id. The

Court concluded that the state’s interest in eliminating

gender discrimination was important, and that the

availability of state judicial review ensured an adequate

opportunity to raise constitutional issues. Id. at 628–29.

The most recent pre-Sprint abstention case is New

Orleans Public Service, Inc. v. Council of the City of New

Orleans (NOPSI), 491 U.S. 350 (1989). There, for the

first time in nearly two decades, the Supreme Court

scaled back Younger’s expanding reach and declined to

abstain in favor of a state proceeding. In NOPSI, a utility

19

company sought a rate increase from the New Orleans

City Council to recover costs imposed by the Federal

Energy Regulatory Commission. The Council denied the

rate increase and then filed a declaratory judgment action

in state court to confirm the validity of its order. The

utility company contested the state action and also

initiated a suit in federal court challenging the

constitutionality of the Council’s decision. The district

court abstained, based in part on Younger, and the court

of appeals affirmed. The Supreme Court reversed and

declared that federal court abstention is not warranted in

all instances where there are pending state court

proceedings. The Court stated:

Although our concern for comity and

federalism has led us to expand the

protection of Younger beyond state criminal

prosecutions, to civil enforcement

proceedings, and even to civil proceedings

involving certain orders that are uniquely in

furtherance of the state courts’ ability to

perform their judicial functions, it has never

been suggested that Younger requires

abstention in deference to a state judicial

proceeding reviewing legislative or

executive action. Such a broad abstention

requirement would make a mockery of the

rule that only exceptional circumstances

20

justify a federal court’s refusal to decide a

case in deference to the States.

NOPSI, 491 U.S. at 367–68 (citations omitted). The

Court ultimately concluded that the Council’s rate setting

was essentially a legislative task and that Younger had

never been applied to prevent review of such matters.

The Court acknowledged that its decision would likely

preclude the state court from deciding the issue, but held

that this possibility did not compel abstention, noting that

“there is no doctrine that the availability or even the

pendency of state judicial proceedings excludes the

federal courts.” Id. at 373.

IV.

More than two decades passed between NOPSI

and Sprint Communications v. Jacobs, 134 S. Ct. 584

(2013). During that period, district courts demonstrated

greater and greater willingness to abstain from

adjudicating federal claims in deference to ongoing state

proceedings. See Joshua G. Urquhart, Younger

Abstention and Its Aftermath: An Empirical Perspective,

12 Nev. L.J. 1, 9 n.62 (2011) (discussing empirical

finding that, between 1995 and 2006, a party seeking

abstention under Younger was successful 51.6 percent of

the time). When analyzing abstention questions during

this twenty-four year period, most courts strictly and

mechanically applied the three-part test from Middlesex,

while largely ignoring the limitations imposed by NOPSI.

21

Id. at 8–9. That approach commonly resulted in

abstention because “the three Middlesex factors have

been expanded so broadly that most parallel state

criminal, civil, or administrative enforcement or similar

actions will satisfy them.” Id. at 9. Perhaps recognizing

this tendency of federal courts to decline to adjudicate

federal claims, the Court in Sprint rejected the notion that

Younger abstention is the rule rather than the exception.7

The Court declared that Younger is an “exceptional”

remedy to be invoked in only a narrow range of cases.

Sprint, 134 S. Ct. at 588.

Sprint involved a dispute between two

telecommunication service providers, Sprint (a national

provider) and Windstream (an Iowa communications

company). Sprint had long paid intercarrier access fees to

Windstream for long distance calls placed by Sprint

customers to Windstream’s in-state customers. In 2009,

however, Sprint began withholding payment for a subset

7

A review of Third Circuit precedent reveals that

our Court was not excepted from the pitfall of

mechanically applying the Middlesex factors as a stand-

alone test. However, because our decision today requires

a straightforward application of Sprint, and because

neither party has asked us to reconsider prior Third

Circuit decisional law, we do not address the extent to

which our holding disrupts our Court’s pre-Sprint

precedential authority.

22

of those calls, classified as Voice over Internet Protocol

(“VoIP”), based on its interpretation of the

Telecommunications Act of 1996. The dispute eventually

ended up in an administrative proceeding before the Iowa

Utilities Board (the “IUB”), which rejected Sprint’s

interpretation of the federal statute and held that

intrastate fees applied to VoIP calls.

Seeking to overturn the IUB ruling, Sprint

commenced two lawsuits. First, it filed suit in federal

court seeking a declaration that the Telecommunications

Act preempted the IUB’s decision. Sprint also appealed

the IUB’s decision to the Iowa state courts, which Sprint

explained was simply a protective measure because of

Eighth Circuit precedent requiring exhaustion of state

remedies before litigating in federal court. On motion by

the IUB, the district court dismissed Sprint’s federal suit

on Younger abstention grounds. The Eighth Circuit

affirmed, based in large part on the three-part Middlesex

test.

In reversing, the Supreme Court emphasized that

as a “general rule . . . ‘the pendency of an action in [a]

state court is no bar to proceedings concerning the same

matter in the Federal court having jurisdiction.’” Sprint,

134 S. Ct. at 588 (quoting Colo. River Water

Conservation Dist. v. United States, 424 U.S. 800, 817

(1976)) (alteration omitted). The Court reiterated that

“[p]arallel state-court proceedings do not detract from” a

federal court’s “virtually unflagging” obligation to hear

23

and decide a case. Id. at 591 (quoting Colo. River Water

Conservation Dist., 424 U.S. at 817).

The Court then reiterated the limitations on the

abstention doctrine set out in NOPSI, explaining that

Younger can overcome the general principle that federal

courts must hear and decide cases only in “exceptional”

circumstances, where “the prospect of undue interference

with state proceedings counsels against federal relief.”

Sprint, 134 S. Ct. at 588 (quoting NOPSI, 491 U.S. at

368). These “exceptional” circumstances arise only

where the federal action interferes with one of three

categories of cases: (1) “ongoing state criminal

prosecutions” (as in Younger itself); (2) “certain civil

enforcement proceedings” (such as the nuisance action in

Huffman); and (3) “civil proceedings involving certain

orders . . . uniquely in furtherance of the state courts’

ability to perform their judicial functions” (such as state

court civil contempt proceedings).8 Id. at 591 (internal

8

Two Supreme Court cases implicate this third

category subject to Younger abstention. See Juidice v.

Vail, 430 U.S. 327, 336 & n.12 (1977) (civil contempt

order); Pennzoil Co. v. Texaco Inc., 481 U.S. 1, 13

(1987) (requirement for the posting of bond pending

appeal). Because this is a unique breed of Younger

abstention which is not relevant to this appeal, we do not

provide a detailed discussion of these cases here.

24

quotation marks and citations omitted). These categories,

said the Court, “define Younger’s scope.” Id.

After noting that the first and third categories

plainly did not accommodate the IUB proceeding, the

Court turned to consider whether the proceeding was a

“civil enforcement proceeding” of the type to which

Younger applied. Id. at 592. The Court explained that

cases applying Younger in the context of civil

enforcement proceedings generally involve state

proceedings that are “akin to a criminal prosecution in

important respects.” Id. (internal quotation marks

omitted). Such actions, the Court noted, “are

characteristically initiated to sanction the federal

plaintiff, i.e., the party challenging the state action, for

some wrongful act.” Id. (citing Middlesex, 457 U.S. at

433–34). Additionally, “a state actor is routinely a party

to the state proceeding and often initiates the action.” Id.

(citing Dayton, 477 U.S. at 619; Moore, 442 U.S. at 419–

20; Trainor, 431 U.S. at 444; Huffman, 420 U.S. at 598).

Finally, the Court stated that “[i]nvestigations are

commonly involved, often culminating in the filing of a

formal complaint or charges.” Id. (citing Dayton, 477

U.S. at 624; Middlesex, 457 U.S. at 433). Applying this

framework, the Court concluded that the IUB proceeding

was not the type of civil enforcement proceeding to

which Younger applies. The Court explained:

It is not “akin to a criminal prosecution.”

Nor was it initiated by “the State in its

25

sovereign capacity.” A private corporation,

Sprint, initiated the action. No state

authority conducted an investigation into

Sprint’s activities, and no state actor lodged

a formal complaint against Sprint.

Sprint, 134 S. Ct. at 592 (citations omitted).

The Court then addressed the Eighth Circuit’s

heavy reliance on the three-part Middlesex test. Recalling

the facts from Middlesex (a lawyer’s attempt to enjoin an

investigation and administrative proceedings by a state

bar ethics committee), the Court stated that Middlesex fit

neatly within the second category of Younger cases

because it was “indeed ‘akin to a criminal proceeding.’”

Sprint, 134 S. Ct. at 593. Acknowledging that lower

courts were inappropriately treating the three Middlesex

factors as a stand-alone test, the Court clarified that

“[t]he three Middlesex conditions . . . were not

dispositive,” but “were, instead, additional factors

appropriately considered by the federal court before

invoking Younger.” Id. (first emphasis added). The Court

explained:

Divorced from their quasi-criminal context,

the three Middlesex conditions would extend

Younger to virtually all parallel state and

federal proceedings, at least where a party

could identify a plausibly important state

interest. That result is irreconcilable with

26

our dominant instruction that, even in the

presence of parallel state proceedings,

abstention from the exercise of federal

jurisdiction is the “exception, not the rule.”

Id. (citation omitted).

V.

Although pre-Sprint case law provides significant

guidance in deciding this case, Sprint itself supplies the

framework for our analysis. Sprint offers a forceful

reminder of the longstanding principle that federal courts

have a “virtually unflagging” obligation to hear and

decide cases within their jurisdiction. Sprint, 134 S. Ct. at

591 (quoting Colo. River, 424 U.S. at 817); see also

Cohens v. Virginia, 19 U.S. 264, 404 (1821) (“We have

no more right to decline the exercise of jurisdiction

which is given, than to usurp that which is not given.”).

Abstention under the Younger line of cases overcomes

this principle only when federal litigation threatens to

interfere with one of three classes of cases: (1) state

criminal prosecutions, (2) state civil enforcement

proceedings, and (3) state civil proceedings involving

orders in furtherance of the state courts’ judicial function.

Sprint, 134 S. Ct. at 591. As in Sprint, this case does not

fit within the first or third categories. We, therefore, must

consider whether the state proceeding, including the

Making Progress Appeal currently pending before the

27

Appellate Division of the New Jersey Superior Court,9 is

the type of “exceptional” civil enforcement proceeding

from which Younger would compel abstention. Sprint,

134 S. Ct. at 588. We conclude it is not.

After Sprint, the threshold requirement for

applying Younger abstention is that the state civil

enforcement proceeding must be “quasi-criminal” in

nature. Sprint, 134 S. Ct. at 593; see also id. at 592

(stating that Younger generally applies only when the

state proceeding is “‘akin to a criminal prosecution’ in

‘important respects’”). In evaluating whether a state

proceeding is quasi-criminal, we consider the factors set

out in Sprint, including whether (1) the action was

9

Although the Commission’s review of the Progress

Petitions and the Making Progress Appeal could be

viewed as two different proceedings, the Supreme Court

has repeatedly assumed, without deciding, that an

administrative proceeding and the state court’s review are

part of a single “unitary process.” Sprint, 134 S. Ct. at

592 (“We will assume without deciding, as the Court did

in NOPSI, that an administrative adjudication and the

subsequent state court’s review of it count as a ‘unitary

process’ for Younger purposes.”). We follow this

approach and assume, for purposes of this opinion, that

the Commission’s review of the Progress Petitions and

the Making Progress Appeal are both components of a

single state proceeding.

28

commenced by the State in its sovereign capacity, (2) the

proceeding was initiated to sanction the federal plaintiff

for some wrongful act, and (3) there are other similarities

to criminal actions, such as a preliminary investigation

that culminated with the filing of formal charges. Id. at

592. We also consider whether the State could have

alternatively sought to enforce a parallel criminal statute.

See, e.g., Huffman, 420 U.S. at 604 (describing the civil

nuisance action as “closely related to criminal statutes

which prohibit the dissemination of obscene materials”);

Trainor, 431 U.S. at 444 (pointing out that “[t]he state

authorities also had the option of vindicating these

policies through criminal prosecutions”).

The state proceeding at issue in this appeal does

not bear any of the hallmarks that Sprint and its

predecessors identify with quasi-criminal actions. It was

not initiated by the State in its sovereign capacity, a point

which is illuminated by the fact that no state actor

conducted an investigation or filed any type of formal

complaint or charges. Instead, the state proceeding was

initiated by Plaintiffs (private entities) when they

voluntarily submitted their Progress Petitions to the

Commission for review. There is also no evidence that

the state proceeding was commenced to sanction

Plaintiffs for some wrongful act. Rather, the requirements

imposed by the Forfeiture and Deposit Amendments

were plainly intended to incentivize conduct which the

State believed would be economically beneficial. Finally,

29

there is no indication that the policies implicated in the

state proceeding could have been vindicated through

enforcement of a parallel criminal statute. Because

nothing here suggests the state proceeding is any “more

akin to a criminal prosecution than are most civil cases,”

Huffman, 420 U.S. at 604, we conclude that the District

Court’s decision to abstain was incorrect.

Zanzuccki challenges the contention that the state

proceeding is not quasi-criminal. In particular, he asserts

that the State initiated the proceeding in its sovereign

capacity.10 He argues that the Commission, a state actor,

commenced the proceeding “on January 30, 2012, when

[it] sent a letter to [Plaintiffs] advising that they could

extend their rights to unlicensed OTW facilities either by

posting a deposit or by demonstrating in a petition, to the

satisfaction of the Racing Commission, that they had

10

After the Supreme Court issued its opinion in

Sprint, the Court sent a notice to the parties requesting

supplemental briefing on Sprint’s application to this

appeal. In response to the Court’s inquiry, Zanzuccki

initially conceded that he “cannot . . . describe the [state]

civil enforcement proceeding as ‘akin to a criminal

prosecution.’” Zanzuccki’s Dec. 26, 2013 Ltr. Br. at 3. At

oral argument, however, Zanzuccki retreated from that

position and argued that the state proceeding sufficiently

resembled the type of enforcement actions Sprint

suggests are subject to Younger abstention.

30

made progress toward establishing their share of the

remaining OTWs.” Zanzuccki’s Dec. 26, 2013 Ltr. Br. at

3. We disagree.11

We fail to see how the Commission’s January 30,

2012 letter represents an effort by the State to initiate any

type of civil proceeding against Plaintiffs. The letter was

a purely informational document intended to inform

Plaintiffs of the requirements imposed by the newly-

enacted Amendments. Indeed, it did not provide any

11

Judge Shwartz would find that this letter was more

than informational and would be sufficient to constitute

the initiation of a proceeding by a state actor, particularly

because it provided the avenue for the licensees to seek

relief from the Forfeiture and Deposit Amendments and

it made clear that a lack of response would result in a

revocation of the licensing rights or the requirement to

pay a $1 million deposit for each unopened facility. As a

result, Judge Shwartz has a different view of the January

30, 2012 letter and would not rule out the use of a letter

as a means to initiate a proceeding to which Younger

applies. Although we hold the Commission’s January 30,

2012 letter does not represent an attempt by the State to

initiate civil enforcement proceedings against Plaintiffs,

we express no opinion as to whether some method other

than the Commission’s letter could constitute a state’s

initiation of such proceedings as described by the

Supreme Court in Sprint.

31

information other than to describe the contents of the

statute, a fact that is demonstrated by the letter’s

concluding paragraph, which states:

Please be advised that the Commission is

requesting that any permit holder which

intends to seek an extension pursuant to the

circumstances in [the Deposit Amendment]

shall file a petition with the [C]ommission

no later than March 31, 2012 . . . .

Compliance with this filing deadline will

allow the [C]ommission time to evaluate the

petition and make a determination prior to

[the deposit deadline]. Should you have any

questions, please feel free to contact me.

App. 165. Both the tone and the obvious purpose of the

letter are clear from this excerpt. Nothing about the letter

reflects an effort by the Commission to initiate adverse,

quasi-criminal proceedings. Significantly, the

Commission’s letter did not demand any action by

ACRA or Freehold, but rather simply “advise[s]” them

about changes in the law. Id.

Moreover, the Commission’s letter in no way

resembles the initiation procedures employed by state

actors in cases where the Supreme Court has applied

Younger abstention. Indeed, all of those cases involved a

state entity that commenced civil or administrative

proceedings by filing some type of formal complaint or

32

charges. See, e.g., Huffman, 420 U.S. at 598 (“[The state

actor] instituted a nuisance proceeding in the Court of

Common Pleas . . . .”); Trainor, 431 U.S. at 435 (“The

Illinois Department of Public Aid . . . filed a lawsuit in

the Circuit Court of Cook County . . . .”); Moore, 442

U.S. at 419 (“[T]he Department . . . institute[d] a suit for

emergency protection of the children under . . . the Texas

Family Code.”); Middlesex, 457 U.S. at 428 (“The

Committee then served a formal statement of charges on

[the federal plaintiff].”); Dayton, 477 U.S. at 624 (“[T]he

Commission initiated administrative proceedings against

[the school] by filing a complaint.”). To be sure, the

Supreme Court has not directly held that Younger applies

only when a state actor files a complaint or formal

charges. Nonetheless, its Younger progeny suggest that a

state’s “initiation” procedure must proceed with greater

formality than merely sending a targeted advisory notice

to a class of people that may be affected by new

legislation.

We likewise reject Zanzuccki’s contention that the

state proceeding threatened the imposition of sanctions if

Plaintiffs failed to “make progress” toward establishing

their remaining OTW facilities. Zanzuccki argues that we

should analogize the Commission’s authority to revoke

Plaintiffs’ licensing rights and/or require Plaintiffs to post

a $1 million deposit for each unopened facility to the

type of sanctions found in a quasi-criminal proceeding.

We do not agree.

33

There is no dispute that ACRA and Freehold

would have faced undesirable consequences—in the way

of potential forfeiture of rights or a substantial deposit

requirement—if they had failed to show they were

“making progress” toward licensing their remaining

OTW facilities. But negative consequences are not the

same thing as sanctions. Sanctions are retributive in

nature and are typically imposed to punish the sanctioned

party “for some wrongful act.” Sprint, 134 S. Ct. at 592.

No party here suggests that Plaintiffs’ conduct (or

inaction) in failing to establish its OTW facilities was

unlawful, much less “wrongful.” In fact, Zanzuccki

admits that punishment was not the goal, explaining that

“the amendments to the Off-Track and Account

Wagering Act . . . were designed to incentivize the

Appellants to open their remaining OTWs.” Zanzuccki’s

Dec. 26, 2013 Ltr. Br. at 3 (emphasis added).

Significantly, even if Plaintiffs had not prevailed on their

Progress Petitions, they still would not have been legally

obligated to make the $1 million deposit. At that point,

making the deposit would simply have been a cost of

doing business, with the choice of whether to make such

payment resting entirely with Plaintiffs.

Our review of Supreme Court cases applying

Younger highlights why the deposit requirement and

potential forfeiture of rights at issue here are not

comparable to “sanctions” found in quasi-criminal

proceedings. For example, in Huffman, the state filed a

34

complaint against a theater company for violating the

obscenity provisions of a nuisance statute, and it sought

to sanction the theater by forcing its closure and seizing

and selling its personal property. Huffman, 420 U.S. at

598. Huffman undoubtedly involved a state civil

enforcement action that was initiated to sanction the

federal plaintiff for what the state considered wrongful

conduct. The state proceeding in Trainor—a civil action

to recover welfare benefits fraudulently obtained by the

defendant—likewise involved an attempt by the state to

sanction an individual for his wrongful conduct. 431 U.S.

at 435–36. So, too, did Middlesex, where a lawyer was

investigated for and charged with acting in a manner

“prejudicial to the administration of justice.” 457 U.S. at

428. If the charges against him were confirmed, he would

have been subject to disbarment. Id. at 427. And finally,

in Dayton, an administrative proceeding was initiated

following an investigation that revealed a private school

had engaged in unlawful employment discrimination. 477

U.S. at 624. If the charges were substantiated, the school

would have been required to reinstate the plaintiff with

back pay and would have become subject to “continuing

surveillance” by the state. Dayton, 477 U.S. at 632

(Stevens, J., concurring).

Dating back to Huffman, each of these cases

clearly involved civil enforcement proceedings that were

“initiated to sanction the federal plaintiff . . . for some

wrongful act.” Sprint, 134 S. Ct. at 592. In contrast, as

35

we have pointed out here, the New Jersey legislature and

the Commission were merely attempting to induce

ACRA and Freehold to exercise licensing rights for

which Plaintiffs had lawful ownership. Like tax increases

and new regulatory obligations, the deposit requirement

and potential forfeiture of rights may have been

unwelcome changes in the law for ACRA and Freehold.

They are not, however, the equivalent of sanctions found

in criminal or quasi-criminal proceedings.

After examining the state proceeding at issue in

this appeal, we can identify none of the quasi-criminal

characteristics discussed in Sprint and found in the

Court’s past Younger abstention cases. Even accepting,

for purposes of this appeal, that the state proceeding is a

36

“civil enforcement” action,12 we conclude it is not the

type of proceeding entitled to Younger deference because

it is no “more akin to a criminal prosecution than are

most civil cases.” Huffman, 420 U.S. at 604.

Accordingly, we will reverse the order of the District

Court and remand for further proceedings.

12

Although we hold that the state proceeding is not

entitled to Younger deference because it is not “akin to a

criminal prosecution,” we are skeptical that the state

proceeding even fits within the “civil enforcement”

category to begin with. In NOPSI, the Court emphasized

that “it has never been suggested that Younger requires

abstention in deference to a state judicial proceeding

reviewing legislative or executive action.” NOPSI, 491

U.S. at 368 (emphasis added). The Commission’s review

of the Progress Petitions was arguably nothing more than

an executive action, and the Making Progress Appeal

could be viewed as a judicial review of such executive

action. If this is true, the District Court’s decision to

abstain was plainly inappropriate under NOPSI. Yet, the

record does not permit us to determine whether the

Commission’s review should be characterized as

executive action or as an “administrative proceeding[]

[that was] ‘judicial in nature’ from the outset.” Dayton,

477 U.S. at 627 (discussing Middlesex). Accordingly, we

do not address this issue further.

37