PDX North Inc v. Commissioner New Jersey Dept

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

________________

Nos. 19-2968 and 19-2993

________________

PDX NORTH, INC.;

SLS DELIVERY SERVICES, INC.

(Intervenor in District Court)

v.

COMMISSIONER NEW JERSEY DEPARTMENT OF

LABOR AND WORKFORCE DEVELOPMENT

PDX North, Inc.,

Appellant in No. 19-2968

SLS Delivery Services, Inc.,

Appellant in No. 19-2993

________________

On Appeal from the United States District Court

for the District of New Jersey

(D.C. Civil No. 3-15-cv-07011)

District Judge: Honorable Brian R. Martinotti

________________

Argued: April 15, 2020

Before: CHAGARES, SCIRICA, and ROTH, Circuit Judges

(Filed: October 22, 2020)

Allison L. Hollows

Fox Rothschild

101 Park Avenue

17th Floor

New York, NY 10178

Jack L. Kolpen

Corinne L. McCann Trainor [ARGUED]

Ian D. Meklinsky

Fox Rothschild

997 Lenox Drive

Princeton Pike Corporate Center, Building 3

Lawrenceville, NJ 08648

Counsel for Appellant in No. 19-2968

Vafa Sarmasti [ARGUED]

271 Route 46 West

Suite A205

Fairfield, NJ 07004

Counsel for Appellant in No. 19-2993

2

Emily M. Bisnauth, Esq. [ARGUED]

Christopher W. Weber

Office of Attorney General of New Jersey

Department of Law & Public Safety

Division of Law

Richard J. Hughes Justice Complex

25 Market Street, P.O. Box 112

Trenton, NJ 08625

Counsel for Appellee

_________________

OPINION OF THE COURT

_________________

SCIRICA, Circuit Judge

This case involves a dispute over the employment

classification of delivery drivers, either as independent

contractors or as employees. The precipitating event in this

litigation is the State of New Jersey’s assertion of non-payment

of unemployment compensation taxes because of the

employers’ misclassification. To resolve a part of this dispute,

we must apply the abstention doctrine of Younger v. Harris,

401 U.S. 37 (1971).

PDX North, Inc., a last-mile shipper, long classified its

delivery drivers as independent contractors. After audits by the

New Jersey Department of Labor and Workforce Development

3

(the “Department”), PDX was told that its drivers were

misclassified. Because they were employees, the Department

asserted PDX owed unemployment compensation taxes. PDX

challenged this determination before the New Jersey Office of

Administrative Law (the “New Jersey OAL”) on February 19,

2015.

On September 22, 2015, PDX filed this suit in federal

court against the Department’s Commissioner contending New

Jersey’s statutory scheme for classifying workers was

preempted by the Federal Aviation Administration

Authorization Act of 1994 (the “FAAAA”) and was

unconstitutional under the Interstate Commerce Clause.

On February 29, 2016, the New Jersey OAL action was

stayed at PDX’s request and with the consent of the

Department. Since then, this stay has been renewed every six

months and remains in effect.

Meanwhile, SLS Delivery Services, Inc., also a last-

mile shipper, was audited by the Department. Because SLS

classified its drivers as independent contractors, it moved to

intervene in PDX’s action against the Commissioner on

December 1, 2017. Intervention was granted on July 27, 2018

and SLS filed a complaint alleging nearly identical claims to

PDX. The Department’s audit against SLS is still pending.

The Commissioner filed a motion for judgment on the

pleadings in the federal action on October 7, 2018, contending

the case was barred by the Younger abstention doctrine. The

trial court agreed and dismissed the entire case. We hold that

the trial court correctly dismissed PDX, but it erred in

dismissing SLS. Accordingly, we will affirm in part, reverse in

4

part, and remand this matter for further proceedings. 1

I.

PDX is a last-mile shipper of wholesale auto parts in

New Jersey and other states along the Eastern Seaboard. Last-

mile shippers, also known as same-day shippers, are

companies providing domestic transportation of shipments

within a 24-hour period, often on a same-day basis with

geographic coverage generally limited to a single metropolitan

area. Depending on the volume and timing of its customers’

shipping needs, PDX hires “independent owner-operators” on

an “as-needed” basis. PDX long classified these drivers as

independent contractors.

In May 2012, after completing an audit of PDX for 2006

through 2009, the Department determined that PDX had

misclassified its drivers, finding they were employees, not

independent contractors. The Department reached the same

conclusion in two subsequent audits examining 2010 through

2015. The parties do not provide the factual basis for this

determination, nor do they provide the Department’s

reasoning.

1

The trial court possessed subject-matter jurisdiction under 28

U.S.C. § 1331, assuming that the Tax Injunction Act does not

withdraw that jurisdiction. See Tenet v. Doe, 544 U.S. 1, 6 n.4

(2005) (noting that the Younger abstention doctrine “represents

the sort of ‘threshold question’ [that] may be resolved before

addressing jurisdiction”). We exercise jurisdiction under 28

U.S.C. § 1291 over the trial court’s Younger abstention

decision.

5

Under N.J. Stat. Ann. § 43:21-19(i)(6) (the

“Independent Contractor Test”), New Jersey presumes workers

are employees unless three statutory elements are met. Those

elements generally require the business to show the worker is

“free from [its] control or direction,” the worker provides a

service “outside the usual course of business,” and the worker

is “customarily engaged in an independently established

trade.” N.J. Stat. Ann. § 43:21-19(i)(6)(A)–(C). Some working

relationships, however, are exempt from the Independent

Contractor Test. One exemption, the Large Motor Carrier

Exemption, may apply if, among other things, the drivers’

vehicles weigh 18,000 pounds or more, the vehicles are used

for the “highway movement of motor freight,” and the driver

receives “a percentage of the gross revenue generated.” N.J.

Stat. Ann. § 43:21-19(i)(7)(X) (the “Large Motor Carrier

Exemption”). If the Large Motor Carrier Exemption applies,

the elements of the Independent Contractor Test do not need to

be satisfied for the worker to qualify as an independent

contractor. Id.

Because the Department determined PDX had

misclassified its drivers and did not qualify for the Large Motor

Carrier Exemption, it concluded the drivers were employees

for which PDX had not withheld unemployment compensation

taxes. The Department assessed PDX for the amount owed,

including principal, interest, and penalties, totaling

$1,831,291.83 and filed administrative judgments for those

assessments in 2015 and 2018. 2 As noted, PDX sought review

2

After PDX’s Amended Complaint was filed in July 2018, the

Department filed an administrative judgment in New Jersey

state court. In addition to the amount owed alleged in PDX’s

Amended Complaint, the judgment reveals $498,134.86 in

6

of the assessment amounts before the New Jersey OAL on

February 19, 2015 and that action is currently stayed by PDX’s

motion (and without objection by the Department or

Commissioner).

As noted, after filing its challenges with the New Jersey

OAL, PDX brought an action for declaratory and injunctive

relief in federal court on September 22, 2015. PDX accepts, for

purposes of this suit, that it can neither satisfy the elements of

the Independent Contractor Test nor the requirements for the

Large Motor Carrier Exemption. As a result, its drivers must

be classified as employees. In addition to the state and federal

tax burdens, PDX complains of the additional costs and

obligations of employment. It asserts that classifying these

drivers as employees would require additional administrative

and human resources costs, the outlay of capital to buy and

maintain a fleet of trucks, and a larger payroll to ensure it can

always meet peak demand. If it must classify its drivers as

employees, PDX alleges, “it will be driven out of business.”

PDX contends the Independent Contractor Test and the

Large Trucker Exemption are preempted by the FAAAA

because they are “related to a price, route, or service” of an

interstate motor carrier. 49 U.S.C. § 14501(c)(1). Moreover,

PDX asserts these provisions violate the Interstate Commerce

Clause, U.S. Const. art. I, § 8, cl. 3, because of the “undue

burdens” they impose on its business. It requested the trial

court to find the Independent Contractor Test and the Large

Motor Carrier Exemption preempted by the FAAAA and

interest, $81,540.00 in penalties, and $680.30 as an

administrative cost assessment. As of September 2018, it

appears PDX owed at least $2,411,645.91.

7

unconstitutional under the Interstate Commerce Clause. It also

requested the trial court to enjoin the enforcement of the

administrative judgments and the performance of future audits.

In a motion to dismiss for failure to state a claim and for

lack of jurisdiction under Rule 12(b) filed on October 30, 2015,

the Commissioner contended PDX’s case should be dismissed

on three separate abstention grounds. The Commissioner did

not raise the Younger abstention doctrine. The trial court

determined none of the cited abstention grounds were

applicable, explicitly noting it did not rule on Younger

abstention because no party had briefed the issue.

The case was reassigned to another judge and proceeded

to discovery. As noted, SLS moved to intervene in the action

on December 1, 2017 because it operated under a similar

business model and was being audited by the Department.

Intervention was granted on July 27, 2018, PDX submitted an

amended complaint, and SLS submitted a complaint

containing nearly identical allegations to PDX’s amended

complaint. After responding to the complaints, the

Commissioner filed a motion for judgment on the pleadings

under Rule 12(c) on October 7, 2018, contending for the first

time that Younger abstention required dismissal.

The trial court granted the Rule 12(c) motion on

Younger abstention grounds, dismissing the case in its entirety.

It reasoned the Younger abstention doctrine applied because

the proceeding was quasi-criminal in nature as to both PDX

and SLS. The trial court then considered the applicable

8

Middlesex factors 3 for both PDX and SLS and concluded each

factor favored abstention. Importantly, the trial court held the

Department’s audit of SLS was an ongoing state judicial

proceeding. In the alternative, the trial court noted SLS may

have waived its argument that it was not subject to an ongoing

state proceeding. The trial court also raised the Tax Injunction

Act (“TIA”), sua sponte, and stated it had “significant doubts

that the TIA would permit this action to go forward” because

this was “an action to enjoin the collection of New Jersey

unemployment compensation contributions.” But the trial

court never ruled on the application of the Tax Injunction Act.

PDX and SLS timely appealed, focusing on two main

4

issues. First, they contend either Federal Rule of Civil

3

In Middlesex, the Supreme Court announced three factors for

courts to consider when determining whether Younger

abstention is appropriate: (1) whether there is an ongoing

judicial proceeding, (2) whether an important state interest is

implicated in the state proceeding, and (3) whether the state

proceedings provide an adequate opportunity to present

constitutional arguments. Middlesex Cnty. Ethics Comm. v.

Garden State Bar Ass’n, 457 U.S. 423, 432 (1982).

4

On appeal, the parties briefed and argued whether the TIA

bars this action. Because the trial court never made any

findings nor ruled on this issue, we decline to address it in the

first instance. See Forestal Guarani S.A. v. Daros Int’l, Inc.,

613 F.3d 395, 401 (3d Cir. 2010) (“We ordinarily decline to

consider issues not decided by a district court, choosing instead

to allow that court to consider them in the first instance.”)

(citations omitted). On remand, we direct the trial court to

address the application of the Tax Injunction Act as to SLS.

9

Procedure 12 or judicial estoppel prevented the invocation of

the Younger abstention doctrine. Second, they contend the trial

court incorrectly applied Younger abstention.

II. 5

First, we will consider whether Federal Rule of Civil

Procedure 12 prohibited the trial court from considering

Younger abstention. PDX and SLS contend the trial court

should not have considered the Rule 12(c) motion because it

was filed after extensive discovery was completed. They also

contend the trial court should not have considered the Younger

abstention argument, because the Commissioner consented to

federal jurisdiction by not arguing it in the first motion to

dismiss or by consenting to a stay in PDX’s state action. We

conclude it was not an abuse of discretion for the trial court to

consider the Commissioner’s 12(c) motion or to consider the

Younger abstention arguments.

A.

PDX and SLS’s first contention is that the

Commissioner’s Rule 12(c) motion could not be considered

because it was filed too late. They argue because “PDX ha[d]

already submitted all of its discovery” it was inappropriate for

the trial court to consider the Rule 12(c) motion. Appellants’

5

PDX and SLS couch these alleged Rule 12 violations as

equitable issues but fail to specify which equitable doctrines

were violated. As such, we will consider these issues under

Rule 12, not under equitable doctrines.

10

Br. 21. We disagree. 6

Rule 12(c) states that such motions must be filed “[a]fter

the pleadings are closed—but early enough not to delay trial.”

The pleadings in this case closed on October 5, 2018, only after

SLS was permitted to intervene. The Commissioner’s Rule

12(c) motion was filed on October 7, 2018. The motion

therefore satisfies the first requirement of Rule 12(c). It also

satisfies the second requirement because no trial date had been

set—and therefore no trial date could have been delayed by its

filing. 7 The trial court did not abuse its discretion in

6

Generally, “matters of docket control,” like whether to

consider a motion, “are committed to the sound discretion of

the district court.” In re Fine Paper Antitrust Litig., 685 F.2d

810, 817 (3d Cir. 1982) (citations omitted). We review for

abuse of discretion and “will not interfere with a trial court’s

control of its docket ‘except upon the clearest showing that the

procedures have resulted in actual and substantial prejudice to

the complaining litigant.’” Id. at 817 (quoting Eli Lilly & Co.

v. Generix Drug Sales, Inc., 460 F.2d 1096, 1105 (5th Cir.

1972)).

7

PDX and SLS cite three cases contending the Rule 12(c)

motion was too late. But they are distinguishable because they

confronted the appropriateness of ruling on a Rule 12(c)

motion notwithstanding factual disputes on the merits, not

considerations of the timeliness of abstention. See Grajales v.

P.R. Ports Auth., 682 F.3d 40, 45–46 (1st Cir. 2012)

(considering “the question of whether it is appropriate to apply

the plausibility standard after substantial pretrial discovery has

taken place”); Ideal Steel Supply Corp. v. Anza, 652 F.3d 310,

325 (2d Cir. 2011) (discussing appropriateness of Rule 12(c)

11

considering the Commissioner’s Rule 12(c) motion.

B.

PDX and SLS’s second contention is that the

Commissioner consented to federal jurisdiction over these

matters. PDX and SLS point to the Commissioner’s agreement

to stay PDX’s state court matter pending the outcome of the

federal case and their failure to raise Younger abstention in

their first motion to dismiss.8 The Commissioner asserts he has

never formally consented to federal court jurisdiction or

waived his Younger abstention argument.

Consent to a stay of the state court proceeding in this

case was not a waiver of Younger abstention, nor is it consent

because “evidence that had already been produced during

discovery would fill the perceived gaps in the Complaint”); Ion

Wave Techs., Inc. v. SciQuest, Inc., 21 F. Supp. 3d 376, 380

(D. Del. 2014) (finding disposition of a claim involved

“material factual disputes” and declining to decide its merits

on a Rule 12(c) motion).

8

PDX and SLS have not argued Younger abstention was

waived under Rule 12. Although it appears to be without merit,

we will not consider whether a failure to raise Younger

abstention in a 12(b) motion would have prohibited the

Commissioner from raising it in a 12(c) motion. See Leyse v.

Bank of Am. Nat’l Ass’n, 804 F.3d 316, 322, 322 n.5 (3d Cir.

2015) (stating Rule 12 permits filing a Rule 12(c) motion on

grounds that were available, but not previously raised, in a

Rule 12(b)(6) motion).

12

to federal jurisdiction. See Ohio Civil Rights Comm’n v.

Dayton Christian Sch., 477 U.S. 619, 626 (1986) (holding

there was no waiver or consent because the state had not

requested the federal court to adjudicate the merits); Addiction

Specialists, Inc. v. Twp. of Hampton, 411 F.3d 399, 409 (3d

Cir. 2005) (concluding state’s consent to stay of state action is

irrelevant to Younger abstention analysis and does not

constitute consent or waiver). The trial court did not err in

considering the Commissioner’s Younger abstention argument.

III.

Second, we will consider whether the Commissioner is

judicially estopped from asserting Younger abstention. 9 PDX

and SLS argue the Commissioner was estopped from asserting

the Younger abstention doctrine based on inconsistent

litigation positions: consenting to a stay of PDX’s state court

action and asserting Younger abstention in federal court.

Judicial estoppel “applies to preclude a party from assuming a

position in a legal proceeding inconsistent with one previously

asserted.” Oneida Motor Freight, Inc. v. United Jersey Bank,

848 F.2d 414, 419 (3d Cir. 1988). As stated previously, the

Commissioner’s position is not inconsistent. Addiction

Specialists, Inc., 411 F.3d at 409 (concluding state’s consent to

stay of state action is irrelevant to Younger abstention

9

We review the invocation of judicial estoppel for abuse of

discretion. Montrose Med. Grp. Participating Sav. Plan v.

Bulger, 243 F.3d 773, 780 (3d Cir. 2001). A court “abuses its

discretion when its ruling is founded on an error of law or a

misapplication of law to the facts.” Id. (quoting In re O’Brien,

188 F.3d 116, 122 (3d Cir. 1999)).

13

analysis). Accordingly, judicial estoppel did not preclude the

trial court from considering Younger abstention. 10

IV.

Third, we determine whether the trial court erred in

dismissing PDX and SLS’s cases under Younger abstention. 11

10

PDX and SLS also contend the law-of-the-case doctrine

foreclosed the trial court from deciding whether there was an

“ongoing judicial proceeding” for Younger purposes. “Courts

apply the law of the case doctrine when their prior decisions in

an ongoing case either expressly resolved an issue or

necessarily resolved it by implication.” United Artists Theatre

Cir. v. Twp. of Warrington, 316 F.3d 392, 397–98 (3d Cir.

2003) (emphasis omitted) (quoting Aramony v. United Way of

Am., 254 F.3d 403, 410 (2d Cir. 2001)). Whether the law-of-

the-case doctrine applies is subject to plenary review. Coca-

Cola Bottling Co. of Shreveport v. Coca-Cola Co., 988 F.2d

414, 429 (3d Cir. 1993). Reviewing the previous trial court

opinion, we conclude no issue relating to Younger abstention

was either explicitly or implicitly decided.

11

“We exercise plenary review over a trial court’s . . .

determination of whether Younger abstention is proper.”

Hamilton v. Bromley, 862 F.3d 329, 333 (3d Cir. 2017)

(citation omitted). At an earlier time, we reviewed the decision

to abstain—after ensuring the legal requirements had been

met—for abuse of discretion. See, e.g., Addiction Specialists,

Inc., 411 F.3d at 408 (“Once we determine that the

requirements have been met, we review a district court’s

decision to abstain under Younger abstention principles for

abuse of discretion.” (quoting Gwynedd Props., Inc. v. Lower

14

Gwynedd Twp., 970 F.2d 1195, 1199 (3d Cir. 1995)) (citations

omitted)). But the Supreme Court in Sprint Communications,

Inc. v. Jacobs, 571 U.S. 69, 72 (2013) stated “Younger

exemplifies one class of cases in which federal-court

abstention is required . . . .” And since then we have applied a

de novo standard.

This practice is not uniform throughout the circuits, but

several have found the same. Compare Sirva Relocation, LLC

v. Richie, 794 F.3d 185, 191 (1st Cir. 2015) (applying de novo

standard of review to Younger abstention), Trump v. Vance,

941 F.3d 631, 636 (2d Cir. 2019) (same), Aaron v. O’Connor,

914 F.3d 1010, 1015 (6th Cir. 2019) (same), Mulholland v.

Marion Cnty. Election Bd., 746 F.3d 811, 816 (7th Cir. 2014)

(same), Rynearson v. Ferguson, 903 F.3d 920, 924 (9th Cir.

2018) (same), and Elna Sefcovic, LLC v. TEP Rocky Mt., LLC,

953 F.3d 660, 669 (10th Cir. 2020) (same), with Golphin v.

Thomas, 855 F.3d 278, 286 (4th Cir. 2017) (applying abuse of

discretion standard of review to Younger abstention), Gates v.

Strain, 885 F.3d 874, 879 (5th Cir. 2018) (applying de novo

standard of review for legal determinations and abuse of

discretion standard of review for decision to abstain to Younger

abstention), Oglala Sioux Tribe v. Fleming, 904 F.3d 603, 609–

10 (8th Cir. 2018) (same), Tokyo Gwinnett, LLC v. Gwinnett

Cnty., 940 F.3d 1254, 1266 (11th Cir. 2019) (applying abuse

of discretion standard of review to Younger abstention), and

Handy v. Shaw, Bransford, Veilleux & Roth, 325 F.3d 346, 349

(D.C. Cir. 2003) (applying de novo standard of review for legal

determinations and abuse of discretion standard of review for

decision to abstain to Younger abstention).

When we review a district court’s judgment on a Rule

15

The trial court correctly dismissed PDX’s case but erred in

dismissing SLS’s case because, for SLS, there was no ongoing

judicial proceeding.

Generally, “a federal court’s ‘obligation’ to hear and

decide a case is ‘virtually unflagging.’” Sprint Commc’ns., Inc.

v. Jacobs, 571 U.S. 69, 77 (2013) (quoting Colo. River Water

Conservation Dist. v. United States, 424 U.S. 800, 817 (1976)).

Younger abstention is an exception to that rule that applies

when certain types of state proceedings are ongoing at the time

a federal case is commenced. Id. Abstention serves a dual-

purpose in these situations: (1) to promote comity, “a proper

respect for state functions,” by restricting federal courts from

interfering with ongoing state judicial proceedings and (2) to

restrain equity jurisdiction from operating when state courts

provide adequate legal remedies for constitutional claims and

there is no risk of irreparable harm. Id.

Younger abstention is only appropriate in three types of

underlying state cases: (1) criminal prosecutions, (2) civil

enforcement proceedings, and (3) “civil proceedings involving

orders in furtherance of the state courts’ judicial function.”

12(c) motion for judgment on the pleadings, we must “view the

facts presented in the pleadings and the inferences to be drawn

therefrom in the light most favorable to the nonmoving party,”

and we may not affirm the grant of such a motion “unless the

movant clearly establishes that no material issue of fact

remains to be resolved and that he is entitled to judgment as a

matter of law.” Wolfington v. Reconstructive Orthopaedic

Assocs. II PC, 935 F.3d 187, 195 (3d Cir. 2019) (quotation

marks omitted).

16

ACRA Turf Club, LLC v. Zanzuccki, 748 F.3d 127, 138 (3d Cir.

2014) (citing Sprint Commc’ns., Inc., 571 U.S. at 78). In this

case, the parties agree that Younger abstention is only proper if

we determine the underlying state proceedings are civil

enforcement proceedings that are quasi-criminal in nature.

To assess whether underlying proceedings are quasi-

criminal in nature, we consider whether:

(1) the action was 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. . . . We also consider whether the

State could have alternatively sought to enforce

a parallel criminal statute.

ACRA Turf Club, LLC, 748 F.3d at 138 (citing Sprint

Commc’ns., Inc., 571 U.S. at 79–80).

If we conclude the civil proceeding here was quasi-

criminal in nature, we must then consider the Middlesex

factors: (1) whether there are “ongoing judicial proceeding[s]”;

(2) whether those “proceedings implicate important state

interests”; and (3) whether there is “an adequate opportunity in

the state proceeding to raise constitutional challenges.”

Middlesex Cnty. Ethics Comm., 457 U.S. at 432.

A.

We will consider three factors described in Sprint to

17

determine whether PDX and SLS are subject to civil

enforcement actions that are quasi-criminal in nature. 12 As

described below, each factor supports a finding that the

underlying proceedings are civil enforcement actions that are

quasi-criminal in nature.

1.

First, we consider whether the underlying action was

commenced by New Jersey in its sovereign capacity. PDX

contends it initiated the challenge to the assessment, not New

Jersey. We disagree. The state administrative action was

commenced by New Jersey in its sovereign capacity as to PDX.

Unlike in ACRA Turf Club, LLC, where “no state actor

conducted an investigation or filed any type of formal

complaint,” here the Commissioner performed multiple audits

of PDX and issued multiple formal assessments after the

culmination of those audits. ACRA Turf Club, LLC, 748 F.3d

at 138. The New Jersey OAL action only occurred because of

the Commissioner’s actions. 13 As the trial court explained,

“[t]he fact that PDX is technically the party seeking review

before the [New Jersey OAL] is a mere function of New Jersey

administrative procedure.” As to PDX, the New Jersey OAL

12

We will not evaluate whether there are “other similarities to

criminal actions,” as it is sufficiently clear from the other

factors that this is a civil enforcement action that is quasi-

criminal in nature.

13

The Supreme Court does not require the state to commence

the judicial proceedings, as PDX seems to suggest, but only

notes it is often the case. See Sprint Commc’ns., Inc., 571 U.S.

at 79.

18

action was, for Younger purposes, commenced by New Jersey

in its sovereign capacity.

2.

Second, we consider whether the proceeding sanctions

wrongful conduct. PDX and SLS contend the proceeding does

not because the only remedies available are civil in nature. The

Commissioner disagrees, pointing out that misclassification of

workers and failure to withhold unemployment compensation

taxes is wrongful and can result in penalties, fines, and

imprisonment. See N.J. Stat. Ann. § 43:21-14 (describing civil

penalties for failing to report or withhold unemployment

compensation taxes); N.J. Stat. Ann. § 43:21-16(e) (describing

criminal fine and term of imprisonment for intentionally false

or fraudulent report). As to both PDX and SLS, assessment

may result in sanctions for a wrongful act.

“Sanctions are retributive in nature and are typically

imposed to punish the sanctioned party ‘for some wrongful

act.’” ACRA Turf Club, LLC, 748 F.3d at 140 (quoting Sprint

Commc’ns., Inc., 571 U.S. at 79). Misclassification of workers

that results in the non-payment of state taxes is “wrongful

conduct.”

Further, the Commissioner has imposed over $30,000 in

penalties on PDX—in addition to the back taxes and interest

allegedly owed—and could penalize SLS similarly. See N.J.

Stat. Ann. § 43:21-14 (describing civil penalties for failing to

report or withhold unemployment compensation taxes).

Penalties are, by their very nature, retributive: a sanction for

wrongful conduct. See Gonzalez v. Waterfront Comm’n of N.Y.

Harbor, 755 F.3d 176, 182 (3d Cir. 2014) (concluding a

19

“disciplinary hearing” and possible termination of employment

were sanctions for wrongful conduct, making false statements).

Accordingly, we find this second factor favors finding this is a

civil enforcement action that is quasi-criminal in nature.

3.

Third, we consider whether there is also a criminal

analog to this action. PDX and SLS contend there is no

criminal analog because they have not been criminally

charged. But the question is not whether the current action is

criminal or whether criminal charges are warranted. To hold as

PDX and SLS contend would erase the quasi-criminal category

of abstention, as it would require criminal charges to be

brought for a quasi-criminal action to exist.

The question is whether there is a criminal analog. See

Gonzalez, 755 F.3d at 182 (holding this factor satisfied because

“New Jersey could have vindicated similar interests by

enforcing its criminal perjury statute”). Under New Jersey law,

employers who do not pay or withhold contributions as

lawfully required may face a $1,000 fine and a sentence of

imprisonment of up to ninety days. N.J. Stat. Ann. § 43:21-

16(e). PDX and SLS acknowledge the risk of New Jersey

criminally charging them in their pleadings, stating they fear

criminal consequences. There is a criminal analog here. This

third factor favors finding this civil enforcement action is

quasi-criminal in nature. Considering these factors together,

we hold this is a civil enforcement action that is quasi-criminal

in nature.

20

B.

Because we have determined this is a civil enforcement

action that is quasi-criminal in nature, we will consider the

Middlesex factors as to PDX and SLS. The trial court did not

err in finding the Middlesex factors favored Younger abstention

as to PDX’s case. PDX’s New Jersey OAL action is an ongoing

judicial proceeding in which New Jersey has a strong interest

and PDX may raise any constitutional claims. But the trial

court erred in finding there was an ongoing judicial proceeding

as to SLS and in dismissing SLS’s case on Younger abstention

grounds, because SLS is not subject to an ongoing state judicial

proceeding. Because the analyses diverge, we will discuss

PDX and SLS separately.

1.

First, we consider whether PDX is involved in ongoing

judicial proceedings. PDX contends it is not subject to an

ongoing state judicial proceeding because the New Jersey OAL

matter is stayed.14 But “state proceedings are ‘ongoing’ for

Younger abstention purposes, notwithstanding [a] state court’s

stay of proceedings” if the state proceeding “was pending at

the time [the plaintiff] filed its initial complaint in federal

14

PDX does not disagree that the New Jersey OAL matter is

judicial in nature. We note proceedings presided over by an

Administrative Law Judge at the New Jersey OAL are judicial

for purposes of Younger abstention. See, e.g., Zahl v. Harper,

282 F.3d 204, 209 (3d Cir. 2002) (discussing a New Jersey

OAL action presided over by an ALJ and concluding “[s]tate

administrative proceedings such as this have long been

recognized as judicial in nature”).

21

court.” Addiction Specialists, Inc., 411 F.3d at 408–09. The

New Jersey OAL action was ongoing at the time PDX brought

its federal action. This Middlesex factor favors Younger

abstention as to PDX.

Second, we consider whether these proceedings

implicate an important state interest. PDX sidesteps this issue

by pointing to the merits of its federal case and arguing federal

preemption supersedes any state interest to the contrary. Even

assuming PDX is correct about the merits of its claims, we do

not consider the merits “when we inquire into the substantiality

of the State’s interest in its proceedings.” O’Neill v. City of

Phila., 32 F.3d 785, 791–92 (3d Cir. 1994) (quoting New

Orleans Pub. Serv., Inc. v. Council of City of New Orleans, 491

U.S. 350, 364–65 (1989)). “Rather, what we look to is the

importance of the generic proceedings to the State.” Id. New

Jersey has an interest in the collection of unemployment

compensation taxes through proper enforcement actions in the

New Jersey OAL and its courts. PDX provides nothing to rebut

this fact. The state administrative proceedings implicate

important state interests.

Finally, we consider whether there is an adequate

opportunity in the state proceedings for PDX to present its

constitutional claims. PDX is currently subject to a New Jersey

OAL action. PDX argues the New Jersey OAL lacks the

authority to consider their constitutional claims because the

New Jersey OAL may only consider constitutional issues that

are necessary to the issue presented. They narrowly define the

issue presented to the New Jersey OAL to include only whether

the workers were properly classified. But PDX admits that

constitutional questions may be reserved for the judicial review

process, after the administrative process is complete.

22

“The Supreme Court has held that this third element is

satisfied in the context of a state administrative proceeding

when the federal claimant can assert his constitutional claims

during state-court judicial review of the administrative

determination.” O’Neill, 32 F.3d at 792 (citing Dayton

Christian Sch., 477 U.S. at 629; Middlesex Cnty. Ethics

Comm., 457 U.S. at 436). As noted, PDX admits its claims may

be heard at the judicial review phase. Our review of New Jersey

law confirms that these constitutional claims may be raised in

this state judicial proceeding. PDX has an adequate

opportunity to present those claims.

Balancing these factors, we will affirm the trial court’s

conclusion that it should abstain as to PDX. All the Middlesex

factors point towards abstention and the trial court did not err

in dismissing PDX’s case on Younger abstention grounds.

2.

The trial court erred in dismissing SLS’s case on

Younger abstention grounds. We first consider whether there

was an ongoing judicial proceeding. The first Middlesex factor

does not favor Younger abstention as to SLS because it is still

at the audit stage. The Commissioner urges us not to reach the

issue, offering three points in rebuttal: (1) SLS waived this

argument in the trial court; (2) SLS concedes a state action is

imminent; and (3) SLS is stonewalling the Commissioner,

thwarting its ability to conclude the audit and issue an

assessment. We disagree with each contention.

We see no waiver. The trial court erred because

“failures to raise [an] issue in the District Court . . . are . . .

23

more properly characterized as forfeitures rather than as

waivers.” Barna v. Bd. of Sch. Dirs. of Panther Valley Sch.

Dist., 877 F.3d 136, 148 (3d Cir. 2017). Moreover, SLS twice

pointed out in its opposition brief that Younger abstention does

not apply because there is no pending state proceeding. While

this contention may have benefitted from further factual and

legal development, it was neither waived nor forfeited.

The Commissioner’s final two contentions are

inapposite. If a judicial proceeding is only imminent, Younger

abstention is inappropriate because that proceeding is not

pending or ongoing. See Malhan v. Sec’y U.S. Dep’t of State,

938 F.3d 453, 463–64 (3d Cir. 2019) (“That Malhan’s

garnishment proceeding is merely threatened . . . makes

abstention ‘clearly erroneous.’” (quoting Miller v. Mitchell,

598 F.3d 139, 146 (3d Cir. 2010))). The Commissioner’s

assertion that SLS is stonewalling cannot be considered under

our standard of review: we must draw all reasonable inferences

in favor of SLS based on the allegations in its complaint. It is

also unsupported by the evidence of record.

Accordingly, we consider whether SLS’s audit is an

“ongoing judicial proceeding.” The Commissioner’s position

seems to be that once the Department initiates a formal audit,

an “ongoing judicial proceeding” exists for Younger purposes.

SLS’s position is that a proceeding is only ongoing once it

becomes judicial in nature. On these facts, we find the initiation

of an audit is insufficient to serve as an ongoing judicial

proceeding for Younger purposes.

The trial court—and the Commissioner—rely on two

cases that involved the issuance of a search warrant and a grand

24

jury subpoena. 15 Both cases are inapposite because they (1) are

criminal Younger cases, (2) rely on New York state law as to

the definition of “criminal proceeding,” and (3) involve

judicial oversight not part of the Department’s audit process.

Nick v. Abrams, 717 F. Supp. 1053, 1056 (S.D.N.Y. 1989)

(search warrant); Notey v. Hynes, 418 F. Supp. 1320, 1326

(E.D.N.Y. 1976) (grand jury subpoena). These cases do not

inform our decision here.

On the relevant facts in this case, the Department’s audit

did not involve judicial oversight and cannot be considered an

ongoing judicial proceeding for Younger abstention purposes.

We believe our colleagues on the First, Fourth, Fifth, Seventh,

and Eleventh Circuits would agree. See Google, Inc. v. Hood,

822 F.3d 212, 224 (5th Cir. 2016) (holding “that the issuance

of a non-self-executing administrative subpoena does not,

without more, mandate Younger abstention”); Mulholland v.

Marion Cnty. Election Bd., 746 F.3d 811, 813 (7th Cir. 2014)

(holding an ongoing election board investigation was “too

preliminary a proceeding to warrant Younger abstention”);

Guillemard-Ginorio v. Contreras-Gomez, 585 F.3d 508, 519

(1st Cir. 2009) (holding an “agency’s investigation . . . was at

too preliminary a stage to constitute a ‘proceeding’ triggering

Younger abstention”); Telco Commc’ns., Inc. v. Carbaugh, 885

F.2d 1225, 1229 (4th Cir. 1989) (“We decline to hold that

Younger abstention is required whenever a state bureaucracy

15

The trial court also cited one of our precedential cases, but

that involved a child support order that subjected an individual

to an ongoing obligation, even though he was not then

obligated to attend a judicial hearing. Anthony v. Council, 316

F.3d 412, 418–21 (3d Cir. 2003). There is no such judicial

order here.

25

has initiated contact with a putative federal plaintiff. Where no

formal enforcement action has been undertaken, any disruption

of state process will be slight.”); Major League Baseball v.

Butterworth, 181 F. Supp. 2d 1316, 1321 n.2 (N.D. Fla. 2001),

aff’d sub nom. Major League Baseball v. Crist, 331 F.3d 1177

(11th Cir. 2003) (holding Younger abstention inappropriate

when Florida’s attorney general served civil investigative

demands).

The first Middlesex factor does not favor Younger

abstention as to SLS. Because SLS is not subject to an ongoing

state proceeding, there is no state interest in those proceedings

and SLS does not have the opportunity to present its

constitutional claims. Accordingly, we will reverse the trial

court’s dismissal of SLS’s case because it erred by invoking

the Younger abstention doctrine. We will remand this matter to

the trial court to allow SLS to pursue its legal and constitutional

challenges. 16

V.

For the reasons expressed, we will affirm in part,

reverse in part, and remand this matter to the trial court for

further proceedings.

16

The trial court did not address the merits of the action. The

Commissioner contends we may still consider the merits of the

action and should affirm the trial court’s dismissal of the case,

even if we conclude Younger abstention is inapplicable. While

we may affirm on any grounds apparent from the record, we

decline to address the merits here. Khazin v. TD Ameritrade

H2olding Corp., 773 F.3d 488, 491 (3d Cir. 2014).

26