Johnson v. Collins Entertainment Co.

FILED: March 9, 2000

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

JOAN CALDWELL JOHNSON; LORRAINE

WITHERSPOON BAKER; DANNY KAY

SMITH; SARA EDELL BOAN; DEANNA

KAY FRANS; DARRYL BERNARD EPPS;

ANDREW NOBLES; JOSEPH CHESTER

WALKER; WILLIAM JOSEPH HARNETT,

JR.; BRUCE ANDERSON; WILLIAM BELL;

FAYE BLAYLOCK; MIKE BREWER; MIKE

BROWN; RONALD CALLAHAN; SANDRA

COULTER; LISA CRUM; ANDREAS

DRUTIS; CRYSTAL GAYLE EDWARDS;

BUSTER ELFIN FLOYD; GEORGE HENLEY;

LORETTA JONES; MARGARET LOCKLEAR;

TAMMY LOCKLEAR; LINDA MCCLEOD;

No. 98-2225(L)

WILLIAM MCCORMICK; HUGH MEISE;

(CA-97-2136-3-17)

PATTY MILLER; GARY PADGETT; MARY

PINCHBACK; VARDRY PITTMAN; ALBERT

J. SAMRA; MASON SKEENES; JIM STOLZ;

AMBER STRICKLAND; CHARLES STUBBS;

LONYA THIGPEN; JAMES THOMPSON;

JESSIE WILLIAMS; VALERIE WILLIAMS,

and on behalf of themselves and all

others similarly situated; STATE OF

SOUTH CAROLINA; ex rel., CHARLES M.

CONDON, in his official capacity as

Attorney General,

Plaintiffs-Appellees,

v.

COLLINS ENTERTAINMENT COMPANY,

INCORPORATED; AMERICAN AMUSEMENT

COMPANY, INCORPORATED; AMERICAN

AMUSEMENT OF AIKEN, INCORPORATED;

JOYTIME DISTRIBUTORS & AMUSEMENT,

INCORPORATED; RED DOT AMUSEMENTS;

CBA GAMES, INCORPORATED; BEST

AMUSEMENT COMPANY; GREENWOOD

MUSIC COMPANY, INCORPORATED; ACE

AMUSEMENT, LLC; B&J AMUSEMENT;

BROYLES & LUTZ, INCORPORATED;

CAROUSEL AMUSEMENTS; COLEY,

INCORPORATED; DREW INDUSTRIES; FAST

FREDDIES; GREAT GAMES,

INCORPORATED; H&JOF SOUTH

CAROLINA, INCORPORATED; HOLLIDAY

AMUSEMENT COMPANY OF CHARLESTON,

INCORPORATED; HOYTS MUSIC COMPANY,

INCORPORATED; HUCKLEBERRY

AMUSEMENT, INCORPORATED; INGRAM

INVESTMENTS; J. M. BROWN AMUSEMENT

COMPANY, INCORPORATED; LARRY

WOLFE AMUSEMENT; MHJ

CORPORATION; MHS ENTERPRISES,

INCORPORATED; MARTIN COIN MACHINE,

INCORPORATED; MCDONALD AMUSEMENT

COMPANY; MIDLANDS GAMING

CORPORATION; ORANGEBURG

AMUSEMENT, INCORPORATED;

PEDROLAND, INCORPORATED; R. L.

JORDAN OIL COMPANY OF NORTH

CAROLINA; ROSEMARY COIN

MACHINES OF FLORENCE, INCORPORATED;

SCOTT'S VENDING INCORPORATED OF

COLUMBIA; SUMTER PETROLEUM

COMPANY; TIM'S AMUSEMENT,

INCORPORATED; VIDEO-MATIC

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AMUSEMENTS, INCORPORATED; H. HUGH

ANDREWS, II; PAMELA A. ANDREWS;

DWAYNE I. BOHANNON; J. M. BROWN;

DON E. BROYLES; GRACE E. COLEY;

FRED COLLINS; J. SAMUEL COX;

KENNETH G. FLOWE; CAREY HARDEE;

SCOTT G. HOGUE; LOWELL E. HOLDEN;

PATRICIA HOLLIDAY; WARREN P.

HOLLIDAY; HENRY E. INGRAM; STEVEN

E. LIPSCOMB; TIM MAHON; JIMMY

MARTIN, JR.; CYNTHIA MCDONALD;

JAMES MCDONALD; ALLAN SCHAEFER;

DAVID R. SIMPSON; RON SPENCER;

MICKEY H. STACKS; WILLIAM DARWIN

WHEELER; HERSHEL L. WILLIAMSON; A.

J. WILSON, JR., in their individual and

corporate capacities as representatives

of all others similarly situated,

Defendants-Appellants.

_________________________________________________________________

ORDER

Appellees filed a petition for rehearing with suggestion for rehear-

ing en banc.

The panel voted to deny rehearing.

A member of the Court requested a poll on the suggestion for

rehearing en banc. Judges Murnaghan, Michael, Motz, and King

voted to grant rehearing en banc. Chief Judge Wilkinson, and Judges

Widener, Niemeyer, and Luttig voted to deny rehearing en banc.

Judges Wilkins, Williams, and Traxler did not participate in the poll

of the Court on the suggestion for rehearing en banc. As the petition

for rehearing en banc failed to receive the support of the majority of

judges in regular active service, it is hereby DENIED.

Entered at the direction of Chief Judge Wilkinson for the Court.

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For the Court

/s/ Patricia S. Connor

_________________________

Clerk

WILKINSON, Chief Judge, concurring in the denial of rehearing en

banc:

I concur in the denial of rehearing en banc. My dissenting col-

league endorses the unbounded assertion of federal judicial power

over core state functions that the actions of the district court reflect.

Such a view is utterly irreconcilable with the principles underlying

our system of dual sovereignty. Under the dissent's approach, the fed-

eral chancellor's control over basic state functions will be unfettered

and complete.

I shall not review in detail all of the points in the panel opinion.

See Johnson v. Collins Entertainment Co., 199 F.3d 710 (4th Cir.

1999). Rather, I will briefly recapitulate the principal factors that in

combination rendered the district court's refusal to abstain an abuse

of discretion.

1. The district court had no basis in the South Carolina Unfair

Trade Practices Act or in the Racketeer Influenced Corrupt Organiza-

tions Act for its order. Indeed, it had no basis in any state or federal

statute for a sweeping injunctive decree. The court instead invoked its

"inherent equitable power" to undertake a basic state regulatory func-

tion. This wholly discretionary enterprise has no logical stopping

point. "Inherent" power wielded by life-tenured judges without autho-

rization in statute over the basic functions of a sovereign state simply

goes too far. Cf. Grupo Mexicano de Desarrollo, S.A. v. Alliance

Bond Fund, Inc., 119 S.Ct. 1961, 1969, 1974 (1999) (Equity jurisdic-

tion does not vest federal courts with "a general power to grant relief

whenever legal remedies are not practical and efficient" because "it

would literally place the whole rights and property of the community

under the arbitrary will of the Judge." (internal quotation marks omit-

ted)).

2. This case has been dominated by unsettled questions of state

law from the outset. These state law issues bear on policy problems

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of substantial public importance, see New Orleans Pub. Serv., Inc. v.

Council of New Orleans, 491 U.S. 350, 361 (1989) (NOPSI), at the

heart of the state police power, see Posadas de Puerto Rico Assocs.

v. Tourism Co. of Puerto Rico, 478 U.S. 328, 341 (1986). In fact, the

state courts were addressing the questions of the payout limit interpre-

tation and the application of state unfair competition law to the payout

statute at the very time the district court rendered its pronouncements.

Contrary to the dissent's characterization, these state law questions

were hardly "straightforward" at the time. Indeed, the state attorney

general observed in withdrawing from the case that there were at least

three possible interpretations of the payout limit. Other state law

issues remain unresolved. See Collins Entertainment, 199 F.3d at 728.

The presence of such disputed questions of state law in an area of

core state policy concern was one among many factors counseling

abstention. See, e.g., Quackenbush v. Allstate Ins. Co., 517 U.S. 706,

728 (1996).

3. The district court's actions supplanted the efforts of the state

agencies charged with the enforcement of the regulatory scheme. The

court admitted as much when it prefaced its decree with pointed criti-

cism of the enforcement efforts of the South Carolina State Law

Enforcement Division and the South Carolina Department of Reve-

nue. Such commandeering of state enforcement efforts is hardly con-

sistent with the "scrupulous regard for the rightful independence of

state governments" that the Supreme Court requires. Quackenbush,

517 U.S. at 718.

4. The district court's assumption of state regulatory prerogatives

was compounded by the minute detail of its injunctive decree. The

panel opinion describes at some length the detailed requirements that

the district court imposed on the businesses targeted by the plaintiffs.

See Collins Entertainment, 199 F.3d at 718, 724. These requirements

included, among many other things, posting a "clarifying sign" with

court-ordered language on each machine and keeping detailed court-

ordered records about customers receiving payouts. Not only is the

intricacy of the decree troubling in its own right, but such a step

would likely draw the district court into an even more intrusive regu-

latory enterprise. If federal courts become regulators to this extent of

private businesses under state regulatory auspices-- and do so with-

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out any solid warrant in law -- the boundaries of state and federal

power will become altogether indistinct.

5. The selective enforcement character of the district court's

actions was also troubling. The district court allowed the plaintiffs to

single out a subset of the putative defendant class for the judicially

crafted enforcement regime. These decisions concerning the alloca-

tion of enforcement resources are, however, precisely the kinds of

decisions that ordinarily rest in the hands of state regulatory agencies.

6. The independence of state administration of a comprehensive

regulatory scheme is at stake here even though private actors are the

named parties in the action. The statute at issue touches virtually

every aspect of the video poker industry and every branch of state

government is intimately involved in its regulation. See Collins

Entertainment, 199 F.3d at 715-17, 723. The state legislature, state

courts, state Administrative Law Judge Division, and two major state

administrative agencies all fashion rules and policies that govern the

most minute details of industry practices. See id. To claim that there

is no "comprehensive administrative scheme with which to interfere,"

as the dissent does, simply belies reality.

Notwithstanding this web of state regulation, the plaintiffs asked

the district court to step in and fashion a different enforcement

scheme than the one the state agencies were implementing at the time.

This was just as much an invitation to interfere with the administra-

tion of the scheme as it would have been had plaintiffs directly chal-

lenged the enforcement efforts of SLED and DOR. To restrict

Burford to only those cases involving direct challenges to the opera-

tion of state regulatory regimes would violate the Supreme Court's

admonitions against a "checklist" approach to abstention. See, e.g.,

Quackenbush, 517 U.S. at 727 (Cases "do not provide a formulaic test

for determining when dismissal under Burford is appropriate.");

Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 11 n.9 (1989) (Abstention

"reflect[s] a complex of considerations designed to soften the tensions

inherent in a system that contemplates parallel judicial processes.").

The dissent's preoccupation with an omitted portion of a quote from

NOPSI simply reflects an attachment to this impermissible checklist

mentality. Indeed, the Supreme Court itself in Quackenbush omitted

the reference to interference with state administrative proceedings or

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orders in quoting the same passage from NOPSI on which the panel

relied. Compare Quackenbush, 517 U.S. at 726-27, with Collins

Entertainment, 199 F.3d at 719.

7. The state attorney general had withdrawn from this case on the

ground that the state legislature had delegated the task of regulatory

oversight to the administrative arm of state government. He also

stated that it was his practice to defer to the Department of Revenue

on the construction of state regulatory statutes and noted that the

interpretation of the payout limit statute was unsettled. The position

of the state's chief law enforcement officer on the roles of the respec-

tive actors in the state regulatory scheme should have cautioned the

district court and underscored the advisability of abstention here.

8. In light of the myriad factors mentioned above and discussed

at length in the panel opinion, it is clear that the dissent's abstract ren-

dition of the panel's holding is mere hyperbole. Abstention analysis

rests, as it always does, on an examination of the totality of the partic-

ular circumstances present in the given case.

Burford abstention is rooted in the law of remedies, being "de-

rive[d] from the discretion historically enjoyed by courts of equity."

Quackenbush, 517 U.S. at 728. The premise underlying abstention is

that federal courts should not exercise expansive remedial powers

when to do so would damage principles of federalism and comity to

the extent that happened here. To condone the district court's actions

in this case would be to endorse broad federal equitable sway over the

most basic state regulatory functions. Preserving our federal system

of government in any meaningful sense means not acquiescing in the

vision of limitless federal judicial power manifested here.

DIANA GRIBBON MOTZ, Circuit Judge, dissenting from the denial

of rehearing en banc:

A panel of this court has taken the dramatic, some would say bold,

step of withdrawing our jurisdiction over an important set of cases in

which federal rights are at stake. It has done so by way of an absten-

tion principle, assertedly derived from the Supreme Court's Burford

doctrine, but fundamentally of its own making. Because this holding

involves the scope of our most basic obligation as judges--to hear

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cases arising under the laws of the United States--a review by all of

the court's active judges would seem particularly appropriate here. I

regret, and dissent from, our decision not to rehear this case en banc.

The case arrived in federal district court on removal by the defen-

dants, who are operators of video poker machines in South Carolina.

Having successfully removed the case to federal court, a group of the

video poker operators then proceeded to argue that federal jurisdiction

was inappropriate. A panel of this court agreed, holding that the dis-

trict court should have abstained, under the doctrine of Burford v. Sun

Oil, 319 U.S. 315 (1943), from deciding whether the video poker

operators violated South Carolina's statutorily-imposed $125 limit on

payouts from video poker machines and, if so, whether this consti-

tuted a "special inducement" or an unfair trade practice under South

Carolina law. The plaintiffs' RICO claim, which they had filed in

state court, and upon which the defendant operators of video poker

machines had based their removal to federal court, was ordered

stayed. Although the panel seems to have been chiefly concerned with

the asserted errors in the district court's decree, it nonetheless held

that the court should have abstained altogether from hearing the case.

I do not believe the panel's decision squares with even the most

expansive understanding of the Burford doctrine. The clearest recent

statement on the scope of Burford comes in New Orleans Public Ser-

vice, Inc. v. Council for the City of New Orleans , in which the

Supreme Court held that "a federal court sitting in equity must decline

to interfere with the proceedings or orders of state administrative

agencies: (1) when there are `difficult questions of state law bearing

on policy problems of substantial public import whose importance

transcends the result in the case then at bar'; or (2) where the `exer-

cise of federal review of the question in a case and in similar cases

would be disruptive of state efforts to establish a coherent policy with

respect to a matter of substantial public concern.'" Id., 491 U.S. 350,

361 (1988) (quoting Colorado River Water Conservation Dist. v.

United States, 424 U.S. 800, 814 (1976)).

In citing this language, the panel omits the underscored part of the

quote and, in doing so, omits from its holding Burford's most basic

principle: that federal courts should "decline to interfere with the pro-

ceedings or orders of state administrative agencies." Here, there was

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no interference of the sort that Burford recognizes, nor was there a

comprehensive administrative scheme with which to interfere.

Read to its outer limits, Burford applies in two related sets of cir-

cumstances. First, Burford mandates that when a state has decided to

reach a public policy problem through a comprehensive administra-

tive scheme, federal courts should not "interfere" by telling state offi-

cials how to make the decisions that the state has charged them with

making. In other words, federal courts should not be doing the work

of local zoning boards, of family courts, of railway commissions, of

water conservation authorities, or the like. This case did not raise the

specter of such interference. It involved only the interpretation of

state law--not the question of whether to grant a license, a permit, a

variance, or of the appropriateness of alimony payments. The plain-

tiffs did not seek to challenge such an administrative order, and

indeed, there was no administrative body to which the plaintiffs might

have turned to get relief in the first instance.

Second, Burford counsels abstention when a federal court, by

deciding a case, would create substantial disuniformity in a field

where multiple actors have interlocking interests, and on which the

state, recognizing the complexity of the field, has erected some regu-

latory architecture. Here, the defendants' entitlement to operate video

poker machines is not interwoven with the rights of other video poker

operators in the way that, quintessentially, landowners' activities fun-

damentally burden one another, or that the drilling of oil in a Texas

field might "drain oil from the most distant parts of the reservoir."

Burford, 319 U.S. at 319. Although enforcement of the law against

particular actors almost always gives rise to a certain kind of

disuniformity--in the sense that other actors may escape enforcement

--that is not the sort of disuniformity with which Burford is con-

cerned.

Every instance in which Burford has been applied by the Supreme

Court or this court has involved a party seeking a decision that, in at

least one of the two ways I have described, would have supplanted the

work of an administrative agency or a state court with specialized

jurisdiction. See Alabama Public Service Commission v. Southern

Railway, 341 U.S. 341 (1951) (decision by commission to require

railroad to continue operation of unprofitable line); Burford, supra

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(decision by commission to grant oil drilling permit); Pomponio v.

Fauquier County Board of Supervisors, 21 F.3d 1319 (4th Cir. 1994)

(en banc) (local zoning decision); Palumbo v. Waste Technologies

Industries, 989 F.2d 156 (4th Cir. 1993) (grant of permit by Ohio

Environmental Protection Agency for hazardous waste incinerator);

Front Royal and Warren County Industrial Park Corp. v. Town of

Front Royal, 945 F.2d 760 (4th Cir. 1991) (local zoning decision);

Brandenburg v. Seidel, 859 F.2d 1179 (4th Cir. 1988) (liquidation of

failed savings and loan by state-appointed receiver and decisions of

state receivership court); Meredith v. Talbot County, 828 F.2d 228

(4th Cir. 1987) (local zoning decision); Browning-Ferris v. Baltimore

County, 774 F.2d 77 (4th Cir. 1985) (same); Caleb Stowe Assocs. v.

County of Albemarle, 724 F.2d 1079 (4th Cir. 1984) (same). See also

Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996) (discussing

applicability of Burford to suit by state insurance commissioner).

Here, by contrast, the district court was asked to decide a set of rel-

atively straightforward state law questions: What is the meaning of

the gaming statute's $125 payout limit? Would violation of that limit

constitute a "special inducement" or an unfair trade practice? There

is no state administrative agency or specialized court charged with

making these determinations--nor do these determinations raise

issues that would seem to require administrative expertise. Rather,

these are the sort of questions that judges routinely face, and at least

one of them, according to the South Carolina Supreme Court, was not

even particularly difficult. In Gentry v. Yonce , that court held that the

$125 payout limit "states exactly what it means." 522 S.E.2d 137, 143

(S.C. 1999) ("We will reject a meaning when to accept it would lead

to a result so plainly absurd that it could not have been intended by

the Legislature or would defeat the plain legislative intention.").

South Carolina's highest court went on to note that the district court

here had analyzed the payout limit, and the possibility that a violation

of the limit might serve as a predicate for a RICO violation, in a man-

ner "consistent" with its own opinion. See id. at 143 n.18.

The panel evidently does not think that a federal district court

should broach these questions, but its rationale for refusing to exer-

cise jurisdiction has nothing to do with whether the state of South

Carolina has empowered certain administrative agencies to inspect

and license video poker machines. Rather, the abstention principle

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implicit in the panel's opinion would seem to apply regardless of the

enforcement mechanism chosen by a state, even in the complete

absence of an administrative scheme. The abstention doctrine applied

by the panel directs that: a federal court should abstain from decision

whenever a case 1) largely turns on state law issues, and 2) involves

a matter of traditional state concern, particularly when 3) it implicates

an issue of controversy in the state.

Even if established precedent recognized such an abstention princi-

ple, which it does not, that principle well might not apply in this case.

Arguably, at least, plaintiffs' RICO claim was at the core, and not the

periphery, of their case against the video poker operators. The panel

majority's characterization of the RICO claim as a"Trojan horse" to

get into federal court certainly seems unfair, in view of the fact that

plaintiffs were content to litigate it in state court. Furthermore, it is

not at all clear that gambling is an issue as quintessentially "local" as

the panel claims. The panel's assumption about the local nature of

gambling sits in tension with RICO itself, in which Congress, grap-

pling with a set of problems it believed to be national in scope, specif-

ically referred to gambling in defining "racketeering activity." See 18

U.S.C. § 1961(1)(A)(1994 & Supp. IV 1998).

In evaluating the merits of the panel's preference for state court

adjudication, I need not go much beyond the principle's novelty. As

the concurring opinion correctly noted, we are an inferior federal

court; "we derive our very existence from the Congress, and we

accept our jurisdiction largely from that Branch." It seems to me that,

as such, we are a far-from-ideal vehicle for the enunciation of a new

prudential exception to the jurisdiction that Congress has given us.

The abstention doctrines are derived, not from Article III or from

the jurisdictional statutes, but rather from the"sound equitable discre-

tion" of the federal courts. See Burford, 315 U.S. at 318. The panel

opinion warns that the abuse of equity power may"thwart the expres-

sion of the democratic will." At the same time, the panel deploys its

own equitable powers to diminish the force of democratic enactments

at both the federal and state levels. It fashions an exception to the

Congressional grant of jurisdiction and, in doing so, impedes the

enforcement of RICO and of South Carolina's gaming and unfair

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trade practices laws--all themselves unmistakeable expressions of the

democratic will.

It is not clear to me where the limits of the panel's new abstention

principle lie. By overstating the applicability of Burford here, the

panel obscures the doctrinal boundaries of the abstention principle

implicit in its opinion. I am not certain how far the panel's preference

for state court adjudication goes, and I am most concerned that,

because of this lack of clarity, the panel's abstention principle will be

applied in ways that we cannot anticipate.

At the very least, en banc review would have enabled us to focus

more attention on what some of these unanticipated applications

might be, and to sharpen the doctrinal boundaries of the principle

itself. I myself doubt the wisdom of this contraction of federal court

jurisdiction, and I question whether such a potentially sweeping

change properly originates in our chambers. With all respect to my

good colleagues, I dissent.

Judge King has authorized me to indicate that he joins in this dis-

sent.

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