Petition for Writ of Certiorari — Dillon v. Alleghany Corp.

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1) J k Bupreme Court U.S,

90. me FILED

U I 0} DEC 17 19%

SOSEPA SPanig, yp

CLinu

—

In The i

Supreme Court of the United States

October Term, 1990

JOHN J. DILLON II and ROBERT D. HAASE,

Petitioners,

ALLEGHANY CORPORATION,

Respondent.

Petition For A Writ Of Certiorari

To The United States Court Of

Appeals For The Seventh Circuit

PETITION FOR A WRIT OF CERTIORARI

LINLEY E. PEARSON

Attorney General of

Indiana

Texry G. Duca

Deputy Attorney

General

State of Indiana

Office of the Attorney

General

219 State iiouse

Indianapolis, Indiana

46204

(317) 232-3604

yX%

DONALD J. HANAWAY

Attorney General of

Wisconsin

F. THomMas CREERON III

Assistant Attorney

General

State of Wisconsin

Counsel of Record

Wisconsin Department

of Justice

Posi Office Box 7857

Madison, Wisconsin

53707-7857

(608) 266-8549

Attorneys for Petitioners

QUESTION PRESENTED

Is vacation of a decision reversing a final judgment

dismissing a complaint on abstention grounds and

affirming an interlocutory order refusing to abstain in a

parallel proceeding required where both proceedings are

mooted by actions of parties other than the states urging

abstention, thereby precluding those states from seeking

writs of certiorari?

LIST OF PARTIES

The parties to this action are John J. Dillon III, Com-

missioner of the Indiana Department of Insurance, Robert

D. Haase, Commissioner of Insurance for the State of

Wisconsin, Alleghany Corporation, St. Paul Companies,

Inc., St. Paul Fire and Casualty Insurance Company and

St. Paul Indemnity Company.

ili

TABLE OF CONTENTS

Page

QUESTION PRESENTED ..................--00 000.

a ii

OPINIONS BELOW............................005- 2

JURISDICTION....... Re i cceixes 3

CONSTITUTIONAL AND STATUTORY PROVI-

ee 3

STATEMENT OF THE CASE.................000--- 4

REASONS FOR GRANTING THE WRIT ........... 6

I. THE DECISION OF THE SEVENTH CIRCUIT

COURT OF APPEALS IS INCONSISTENT WITH

THE DECISIONS OF THIS COURT AND

OTHER COURTS OF APPEAL REQUIRING

VACATION IN CASES THAT HAVE BECOME

en 6

Il. EVEN IF THE EXERCISE OF DISCRETION IS

PERMITTED UNDER 28 U.S.C. § 2106 WHEN

DETERMINING WHETHER VACATION IS

APPROPRIATE IN CASES THAT HAVE

BECOME MOOT, THE COURT OF APPEALS

ABUSED ITS DISCRETION IN THIS CASE.... 10

II. EVEN IF VACATION IS PROPER ONLY IN

CASES IN WHICH CERTIORARI WOULD

HAVE BEEN GRANTED, THE ORDERS OF THE

COURT OF APPEALS SHOULD BE REVIEWED

Ie 11

Ee ere re 13

TABLE OF AUTHORITIES

Cases CiteED

Alleghany Corp. v. Eakin, 712 F. Supp. 716 (S.D.

Ind., 1989)

Alleghany Corp. v. Haase, 708 F. Supp. 1507 (W.D.

Wis. 1989)

Alleghany Corp. v. Haase, 896 F.2d 1046 (7th Cir.

PURPA NaGe SCANS SSNS VES COSTAE) WAKER TERA t, &

Alleghany Corp. v. McCartney, 896 F.2d 1138 (8th

Cir. 1990)

Alleghany Corp. v. Pomeroy, 898 F.2d 1314 (8th

Cir. 1990)

Aviation Enterprises, Inc. v. Orr, 716 F.2d 1403

(D.C. Cir. 1983)

“at Mis) © ee Mt gt oe me we er we a ee Se ee ee ee

Board of Regents of University of Texas System v.

New Left Education Project, 414 U.S. 807 (1973)

Chicago Bd. Options Exchange, Inc. v. Board of

Trade of City of Chicago, 459 U.S. 1026 (1982)

Commodity Futures Trading Com’n v. Board of

Trade, 701 F.2d 653 (7th Cir. 1983)

TeOnunrines oe o

County of L.A. v. Davis, 440 U.S. 625 (1979)

Deakins v. Monaghan, 484 U.S. 193 (1988)

Delta Airlines v. McCoy Restaurants, Inc., 708 F.2d

582 (11th Cir. 1983)

Federal Data Corp. v. SMS Data Products Group,

819 F.2d 277 (Fed. Cir. 1987)

io &S 6 Ww &.8.6'4 46:6 8 6 E-OE OS OE SE OA ESS Oe eR Oe

Oe & 6.8 & 8 OS HOA OR SKS OS SES OOD OE DS OSE SOK

Sia ee ok ee oe oe ot ee a Oe a oe a a ee ee ee ee oe ee ee ee

“?@ a oa ee ee ee oe a ee ee ee a ee i oe a a ee ee

12, 13

mF ee

TABLE OF AUTHORITIES — Continued

Page

Great Western Sugar Co. v. Nelson, 442 U.S. 92

Ce iais ba ees ee ae ee 14

Harrison Western Corp. v. U.S., 792 F.2d 1391 (9th

Ree Sa coal ee sce eu BEER ee cae eee eee §

In Re: Memorial Hosp. of lowa County, Inc., 862

jf Bl. Be. £o Bh | ee.

John J. Dillon, III, Commissioner, Indiana Dept. of

Insurance, et al. v. Alleghany Corporation, No.

oe Bf. me a err ey rer 3

Kennedy v. Block, 784 F.2d 1220 (4th Cir. 1986) ....7, 9

Long Island Lighting Co. v. Cuomo, 888 F.2d 230

Ge a RE Si Sines aed eee eee 7

Lynn Hinrichs v. Patricia Goodrich, No. 90-

C-0072-C (W.D. Wis., November 30, 1990)......... 1i

National Union Fire Ins. Co. v. Seafirst Corp., 891

Fale Fee COU a Es ce sda evan tn eee eer 8

O’Connor v. Donaldson, 422 U.S. 563 (1975).......... 8

Preiser v. Newkirk, 422 U.S. 395 (1975) .............. 6

Ringsby Truck Lines, Inc. v. Western Conf. of

Teamsters, 686 F.2d 720 (9th Cir. 1982)............. 8

Swingline, Inc. v. I.B. Kleinert Rubber Co., 399

Poa Ge Wau ls REE oes xtra cena teanen OPE sEnia® 8

United States v. Munsingwear, Inc., 340 U.S. 36

GENS 2 ca thaceR Rese ee eee 7, 8, 9, 10

CONSTITUTIONAL PROVISIONS

hme ee: ae a ee 3

TABLE OF AUTHORITIES —- Continued

Page

: FEDERAL STATUTES AND RULES

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ee oa ssc Chek a bee Rbests sa heutwanes 4

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pe A Ic a 5.5.4. c ce sack bn bese knee cons £6 7,0, 11

SD ANON PED GUD osc v ik ca dxe csv sedcacassaxkass 3

STATE STATUTES

J ee 8 Re | rer re err 4

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sss ns bs SAS Ed CaSO SRM ie Ne As 4

EC ORES cs 0's 4 Ada des WNC Aba eee ae O40S8x 4

OTHER AUTHORITIES

13A C. Wright, A. Miller & E. Cooper, Federal

Practice & Procedure § 3533.10 (2d Ed. 1984)

WRG pe kes Lae llc SELCMRE ORE ERES SEARO SO ER ERC ee ae

Note, Collateral Estoppel and Supreme Court Dis-

position of Moot Cases, 78 Mich. L. Rev. 946

arr re rT Seer terre seis rere 11

a ——

No.

_—

In The

Supreme Court of the United States

October Term, 1990

JOHN J. DILLON III and ROBERT D. HAASE,

Petitioners,

ALLEGHANY CORPORATION,

Respondent.

Petition For A Writ Of Certiorari

To The United States Court Of

Appeals For The Seventh Circuit

PETITION FOR A WRIT OF CERTIORARI

The petitioners, John J. Dillon III, Commissioner of

the Indiana Department of Insurance and Robert D.

Haase, Commissioner of Insurance of the State of Wiscon-

sin, respectfully request that a writ of certiorari issue to

review July 19, 1990 and July 23, 1990 orders of the

Seventh Circuit Court of Appeals refusing their respec-

tive requests to vacate that court’s judgment and decision

in Alleghany Corp. v. Haase, 896 F.2d 1046 (7th Cir. 1990)

and all prior judgments, orders and decisions in that

consolidated proceeding.

OPINIONS BELOW

The orders from which review is sought ure reprinted

in their entirety in the appendix (A-1, A-3).

The district court in Indiana issued a memorandum

decision and interlocutory order denying Indiana’s

motion to abstain (A-118), and then certified that order

for immediate appeal (A-116). Alleghany Corp. v. Eakin,

712 F. Supp. 716 (S.D. Ind., 1989). Accepting the recom-

mendation of the magistrate, the district court in Wiscon-

sin granted Wisconsin’s motion to dismiss on abstention

grounds, and issued a final judgment accordingly (A-33,

A-35). Alleghany Corp. v. Haase, 708 F. Supp. 1507 (W.D.

Wis. 1989).

The seventh circuit issued an order consolidating

Alleghany’s appeal from the final judgment in Wisconsin

and the appeals of Indiana and St. Paul from the inter-

locutory order in Indiana (A-28). On February 21, 1990, it

affirmed the Indiana interlocutory order and reversed the

Wisconsin final judgment (A-5). Haase, 896 F.2d at

1046-1056. On April 5, 1990, it issued a separate opinion

denying Indiana’s petition for rehearing and suggestion

of rehearing en banc (A-132). Haase, 896 F.2d at 1056-57.

The orders from which review is sought were issued in

response to the July 16, 1990 request of Indiana and the

July 19, 1990 request of Wisconsin to vacate the entirety

of the seventh circuit’s judgment and decisions in Haase

as well as all prior judgments, orders and decisions in

that case. (A-140, A-143).

The district court in Indiana subsequently dismissed

that action as moot on July 12, 1990 (A-115). The district

court in Wisconsin dismissed that action as moot on July

19, 1990 (A-31).

JURISDICTION

The orders from which review is sought were issued

on July 19, 1990 and July 23, 1990. Although no rehearing

was requested concerning those orders, rehearing con-

cerning the seventh circuit’s February 21, 1990 decision

was sought by Indiana and denied on April 5, 1990

(A-132). Haase, 896 F.2d at 1056-57.

Pursuant to Supreme Court Rule 30.3, Justice Stevens

issued an order granting petitioners an extension of time

through December 16, 1990 to file a petition for a writ of

certiorari. John J. Dillon, III, Commissioner, Indiana Dept. of

Insurance, et al. v. Alléghany Corporation, No. A-266 (Octo-

ber 5, 1990). The jurisdiction of this Court is invcked

pursuant to 28 U.S.C. § 2101(c).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

U.S. Const., Art. Ill § 2:

The judicial power shall extend to all cases,

in law and equity, arising under this constitu-

tion, the laws of the United States, and treaties

made, or which shall be made, under their

authority; to all cases affecting ambassadors,

other public ministers and consuls; to all cases

of admiralty and maritime jurisdiction; to con-

troversies to which the United States shall be a

party; to controversies between two or more

States, between a state and citizens of another

state, between citizens of different States,

between citizens of the same state claiming

lands under grant of different States, and

between a state, or the citizens thereof, and

foreign States, citizens or subjects.

28 U.S.C. § 2106:

The Supreme Court or any cther court of

appellate jurisdiction may affirm, modify,

vacate, set aside or reverse any judgment,

decree, or order of a court lawfully brought

before it for review, and may remand the cause

and direct the entry of such appropriate judg-

ment, decree, or order, or require such further

proceedings to be had as may be just under the

circumstances.

y™

STATEMENT OF THE CASE

In an effort to acquire St. Paul, Alleghany com-

menced related actions in Indiana and Wisconsin chal-

lenging the insurance takeover statutes of those states,

Ind. Code §§ 27-1-23-1 et seq.; Wis. Stats. §§ 600.03(13),

611.72, 617.11(1), asserting jurisdiction under 28 U.S.C.

§§ 1331 and 1343(a)(3). The motions of Indiana and Wis-

consin requesting each district court to dismiss those

actions on abstention grounds culminated in the seventh

circuit’s decision in the consolidated appellate pro-

ceeding holding that abstention is not required. Haase,

876 F.2d at 1046.

At some point during the pendency of the seventh

circuit proceedings, Alleghany and St. Paul commenced

negotiations to resolve the legal dispute created by Alle-

ghany’s effort to acquire St. Paul (A-141). The record

contains no suggestion that the seventh circuit, Indiana or

Wisconsin was advised of the pendency of those negotia-

tions. The settlement was made public on or about May

29, 1990 (A-141). It required St. Paul to pay approximately

$260 million for 4.4 million of shares of St. Paul stock that

had been acquired by Alleghany at a total cost of approx-

imately $230 million (A-141). In addition, it required St.

Paul to reimburse Alleghany up to $5 million in expenses

and to stop all litigation (A-141).

Alieghany subsequently sought stipulations of dis-

missal on the grounds that its challenges to the states’

insurance takeover laws had become moot (A-135). Indi-

ana signed such a stipulation, but Wisconsin did not

(A-135, A-140). Both district courts ultimately dismissed

Alleghany’s actions as moot, without determining the

validity of the takeover statutes involved (A-31, A-115).

Upon being approached by Alleghany, Indiana and

Wisconsin each requested the seventh circuit to vacate its

decision on the basis that there was no remaining case or

controversy between the parties, and that the actions had

become moot (A-135, A-140). Alleghany opposed vaca-

tion on the theory that an opinion is a public act and that

only the vacation of final judgments is required when a

case has become moot (A-143). Prior to the receipt of

Alleghany’s opposition, the seventh circuit denied Indi-

ana’s request to vacate, citing only its decision in In Re:

Memorial Hosp. of lowa County, Inc., 862 F.2d 1299 (7th Cir.

1988) (A-3). It then summarily reaffirmed that order in

denying Wisconsin’s separate request to vacate (A-1).

—

REASONS FOR GRANTING THE WRIT

I. THE DECISION OF THE SEVENTH CIRCUIT

COURT OF APPEALS IS INCONSISTENT WITH

THE DECISIONS OF THIS COURT AND OTHER

COURTS OF APPEAL REQUIRING VACATION IN

CASES THAT HAVE BECOME MOOT.

It is the duty of a federal court to vacate the judg-

ments, orders and decisions that have been issued in a

case that has become moot because U.S. Const., Art. III

§ 2 limits federal judicial power to specified cases and

controversies. Preiser v. Newkirk, 422 U.S. 395, 401 (1975).

Moot cases no longer present live controversies, and fed-

eral courts therefore have no jurisdiction to decide them:

Article III of the Constitution limits federal

courts to the adjudication of actual, ongoing

controversies between litigants. . . . It is not

enough that a controversy existed at the time

the complaint was filed, and continued to exist

when review was obtained in the Court of

Appeals. . . . In the case now before us, respon-

dents state that they no longer seek any equita-

ble relief in federal court. Because there no

longer is a live controversy between the parties

over whether a federal court can hear respon-

dents’ equitable claims, the first question on

which certiorari was granted is moot.

Deakins v. Monaghan, 484 U.S. 193, 108 S.Ct. 523, 528

(1988) (citations and footnotes omitted).

Vacation of prior judgments, orders and decisions

issued in a case that has become moot is therefore manda-

tory under 28 U.S.C. § 2106 because such judgments

should not be accorded res judicata or collateral estoppel

effect or result in other collateral consequences where the

initial controversy terminates, thereby preventing an

action from being litigated to a final resolution:

The established practice of the Court in dealing

with a civil case from a court in the federal

system which has become moot while on its way

here or pending our decision on the merits is to

reverse or vacate the judgment below and

remand with a direction to dismiss. That was

said in Duke Power Co. v. Greenwood County,

299 U.S. 259, 267, 57 S.Ct. 202, 205, 81 L.Ed. 178,

to be “the duty of the appellate court”. That

procedure clears the path for future relitigation

of the issues between the parties and eliminates

a judgment, review of which was prevented

through happenstance. When that procedure is

followed, the rights of all parties are preserved;

none is prejudiced by a decision which in the

statutory scheme was only preliminary.

.. . Denial of a motion to vacate could bring

the case here. Our supervisory power over the

judgments of the lower federal courts is a broad

one. See 28 U.S.C. § 2106, 28 U.S.C.A. § 2106, 62

Stat. 963; [citations omitted]. As already indi-

cated, it is commonly utilized in precisely this

situation to prevent a judgment, unreviewable

because of mootness, from spawning any legal

consequences.

United States v. Munsingwear, Inc., 340 U.S. 36, 39-41 (1950)

(footnote omitted).

These well-defined principles are followed by the

majority of the courts of appeal. See e.g., Long Island

Lighting Co. v. Cuomo, 888 F.2d 230, 233 (2d Cir. 1989);

Federal Data Corp. v. SMS Data Products Group, 819 F.2d

277, 279 (Fed Cir. 1987); Kennedy v. Block, 784 F.2d 1220,

1225 (4th Cir. 1986); Aviation Enterprises, inc. v. Orr, 716

F.2d 1403, 1407-1408 (D.C. Cir. 1983); Delta Atrlines v.

McCoy Restaurants, Inc., 708 F.2d 582, 584 (11th Cir. 1983);

Swingline, Inc. v. I.B. Kleinert Rubber Co., 399 F.2d 283,

284-85 (C.C.P.A. 1968). They are not adhered to by the

seventh and the ninth circuits. lowa County; National

Union Fire Ins. Co. v. Seafirst Corp., 891 #2d 762 (9th Cir.

1989); Ringsby Truck Lines, Inc. v. Western Conf. of Teams-

ters, 686 F.2d 720 (9th Cir. 1982).

The ninth circuit itself has admitted that its “Ringsby

decision has been roundly criticized[.}” Harrison Western

Corp. v. U.S., 792 F.2d 1391, 1394 n.2 (9th Cir. 1986), citing

13A C. Wright, A. Miller & E. Cooper, Federal Practice &

Procedure § 3533.10 (2d Ed. 1984) at 431-32. And the

seventh circuit seemingly acknowledges that its position

is at odds with the actions of the Court in Chicago Bd.

Options Exchange, Inc. v. Board of Trade of City of Chicago,

459 U.S. 1026 (1982) and Board of Regents of University of

Texas System v. New Left Education Project, 414 U.S. 807

(1973) (per curiam). See Commodity Futures Trading Com’n

v. Board of Trade, 701 F.2d 653, 657 (7th Cir. 1983). Yet, it

reflexively persists in its position because it refuses to

“squander[] judicial time that has already been invested.”

Iowa County, 862 F.2d at 1302.

This reasoning is totally at odds with the decisions of

this Court. Vacation of any judgment under Munsingwear

“strips the decision below of its binding effect.” Deakins,

108 S. Ct. at 528. It also “deprives that court’s opinion of

precedential effect... .” County of L.A. v. Davis, 440 U.S.

625, 634 n.6 (1979), quoting O’Connor v. Donaldson, 422

U.S. 563, 577-78 n.12 (1975). Thus, application of Munsing-

wear by any court of appeals “of course leave[s] open and

unresolved the questions addressed by the district court

in its earlier published opinion.” Kennedy, 784 F.2d at

1225.

Although judicial resources are gained when they

may be devoted to other proceedings because a case has

become moot, there is always some “loss” resulting from

the prior expenditure of those resources in a mooted case.

Since that is always true, the standard established by the

seventh circuit undercuts the entire rationale of Munsing-

wear. Yet, the holding in that case inevitably leads to the

conclusion that “it is appropriate for a court of appeals to

vacate its own judgment if it is made aware of events that

moot the case during the time available to seek cer-

tiorari.” 13A Wright, Miller & Cooper, Federal Practice and

Procedure § 3533.10 at 435 (footnote omitted).

The subsidiary reasons advanced by the seventh cir-

cuit in lowa County for rigidly refusing to vacate prior

judgments, orders and decisions also do not withstand ~

scrutiny:

Support was found in various analogies - if

the losing party complies with a judgment

rather than appeal, the judgment is not found

moot and vacated; if the Solicitor General con-

fesses error in the Supreme Court, the Court

retains power to decide the case on the merits or

to remand for reconsideration; voluntary dis-

continuance of offending conduct does not auto-

matically lead to mootness. In the epigrammatic

opening paragraph, the court opined that the

district court opinion “is a public act of the

government, which may not be expunged by

private agreement. History cannot be rewritten.

There is no common law writ of erasure.” In re

Memorial Hospital, C.A. 7th, 1988, 862 F.2d

1299. For the reasons suggested in the main

volume, none of these arguments seems persua-

sive. It is particularly daunting to contemplate

that even after the parties have preferred to

surrender the opportunity for appellate review

as a matter of right in order to achieve the

certainty and economy of settlement, they can

do so only if they are willing to submit to non-

mutual issue preclusion in litigation with non-

arties; the frailties of nonmutual preclusion are

<plored in vol. 18, §§ 4463-4465.

13A Wright, Miller & Cooper, Federal Practice & Procedure

§ 3533.10 (Supp. at 192).

Alleghany has conceded, and both district courts

have found, that this action is moot. Under Munsingwear,

the seventh circuit therefore had a mandatory duty to

grant the states’ request to vacate. There is no support for

any other standard in any decision of this Court.

II. EVEN IF THE EXERCISE OF DISCRETION IS PER-

MITTED UNDER 28 U.S.C. § 2106 WHEN DETER-

MINING WHETHER VACATION IS

APPROPRIATE IN CASES THAT HAVE BECOME

MOOT, THE COURT OF APPEALS ABUSED ITS

DISCRETION IN THIS CASE.

The rule established in the ninth circuit requires

“consider[ation of] the equities and hardships in resolv-

ing the question” of whether vacation is appropriate.

Seafirst Corp., 891 F.2d at 769. Abuse of discretion is the

standard it applies in reviewing such decisions. Id. -

Any discretion that may be invoked under 28 U.S.C.

§ 2106 was abused by the seventh circuit. Indiana and

Wisconsin intended to seek writs of certiorari to review

the seventh circuit’s decision. They were precluded from

11]

doing so, not by any of their own acticns, but by actions

of Alleghany and St. Paul that occurred without their

knowledge or consent. It is hardly equitable for Alle-

ghany, which pocketed $35 million by virtue of its settle-

ment with St. Paul and then sought stipulations

dismissing its challenges to the states’ insurance takeover

laws as moot, to claim that there are any legitimate

grounds for permitting collateral consequences to flow

from a decision that significantly erodes the ability of the

states to have other kinds of cases or controversies

decided in their own courts. See e.g., Lynn Hinrichs v.

Patricia Goodrich, No. 90-C-0072-C (W.D. Wis., November

30, 1990) (A-145). |

By its very nature, the doctrine of abstention is of the

utmost importance to the states. Both the facts surround-

ing the states’ conduct and the subject matter of this

action dictate that vacation is required even if the exercise

of discretion is permissible under 28 U.S.C. § 2106.

Ill. EVEN IF VACATION IS PROPER ONLY IN

CASES IN WHICH CERTIORARI WOULD HAVE

BEEN GRANTED, THE ORDERS OF THE COURT

OF APPEALS SHOULD BE REVIEWED AND

REVERSED.

The United States has at times urged the Court to

grant certiorari and vacate decisions of lower courts only

“where it would have granted the petition for certiorari

had the case not become meot.” Commodity Futures, 701

F.2d at 657 (citation omitted). Note, Collateral Estoppel and

Supreme Court Disposition of Moot Cases, 78 Mich. L. Rev.

946, 951 (1980). The suggestion is unsound: “The require-

ment that the Court undertake a hypothetical disposition

of the petition would impose an unwarranted burden.”

13A Wright, Miller & Cooper, Federal Practice and Pro-

cedure § 3533.10 at 433 (footnote omitted). Even if it were

accepted, certiorari would likely have been granted in

this case to resolve a conflict in the circuits on a jurisdic-

tional question of importance to all states, since the

eighth circuit found that abstention was required in two

similar challenges to takeover laws brought by Alle-

ghany. Alleghany Corp. v. Pomeroy, 898 F.2d 1314 (8th Cir.

1990); Alleghany Corp. v. McCartney, 896 F.2d 1138 (8th Cir.

1990). See Haase, 896 F.2d at 1056.

To the extent that any certiorari requirement can be

imposed, Indiana and Wisconsin have met it. Review and

reversal of the court of appeals’ orders is therefore

required under any standard that is conceivably applica-

ble to cases that have become moot.

CONCLUSION

Indiana and Wisconsin (as well as Illinois) are labor-

ing under the jurisdictional burden of a decision which,

through no fault of their own, they are unable to chal-

lenge. That precedent has already been construed broadly

by a federal district court in Wisconsin (A-145). Arkansas,

lowa, Minnesota, Missouri, Nebraska, North Dakota and

South Dakota are not subject to such an expansive appli-

cation of federal jurisdiction. Pomeroy, 898 F.2d 1314;

McCartney, 896 F.2d 1138. Vacation of the judgment,

orders and decisions in Haase, 896 F.2d 1046 and 708 F.

Supp. 1507, and in Eakin, 712 F. Supp. 716, will restore

uniformity to the law of abstention and afford all states

an equal opportunity to assert that important interests

protected by that doctrine should be litigated in their

own courts.

Illinois, Indiana and Wisconsin, as well as all otner

litigants in the seventh circuit, are also currently being

subjected to more onerous collateral consequences from

decisions issued in their federal courts than are faced by

litigants in any other circuit. Vacation of the underlying

decisions in this case and concomitant rejection of the

rationale proffered by the seventh circuit in lowa County

and reaffirmed below will also assure that all federal

litigants face the same legal consequences when an action

becomes moot.

Indiana and Wisconsin respectfully request that the

July 19 and July 23 orders of the Seventh Circuit Court of

Appeals be reversed, that its judgment and memorandum

decisions of April 15, 1990 and February 21, 1990 be

vacated and that this case be remanded with directions to

vacate the March 7, 1989 judgment, memorandum deci-

sion and order of the United States District Court for the

Western District of Wisconsin and the January 30, 1989

memorandum decision and order of the United District

Court for the Southern District of Indiana. See Great West-

ern Sugar Co. v. Nelson, 442 U.S. 92, 94 (1979).

Dated this 17th day of December, 1990.

LINLEY E. PEARSON DONALD J. HANAWAyY

Attorney General of Attorney General of

Indiana Wisconsin

Terry G. Duca - F. THomas CRreEERON III

Deputy Attorney Assistant Attorney

General General

State of Indiana State of Wisconsin

Counsel of Record

Office of the Attorney Wisconsin Department

General of Justice

219 State House Post Office Box 7857

Indianapolis, Indiana Madison, Wisconsin

46204 53707-7857

(317) 232-3604 (608) 266-8549

Attorneys for Petitioners

—

In The

Supreme Court of the United States

October Term, 1990

JOHN J. DILLON III and ROBERT D. HAASE,

Petitioners,

ALLEGHANY CORPORATION,

Respondent.

Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Seventh Circuit

APPENDIX TO PETITION FOR

A WRIT OF CERTIORARI

APPENDIX

Table of Contents

Document Page

Order denying Wisconsin’s Request to Vacate (7th

Sa OE Be WN eer ecasayene vines aureych aes A-1

Order Denying Indiana’s Request to Vacate (7th

Sie ee SO BE bacco ak bicdecectsecevepesaers A-3

Opinion Re: Abstention (7th Cir., February 21,

POS i See Ratu sseG COREE UV ERSEME REE peter eas A-5

Consolidation Order (7th Cir., June 15, 1989)...... A-28

Order Dismissing Action as Moot (W.D. Wis., July

ek See egress er ee es rere A-31

Final Judgment Re: Abstention (W.D. Wis., March

Py Sire eT ae rear aoe nen A-33

Decision and Order Re: Abstention (W.D. Wis.,

oe ah ig ME EEO LTE eee Lee A-35

Order Dismissing Action as Moot (S.D. Ind., July

Pa EE See oa tea ok bee Oa Ree weer ees A-115

Certification Order (S.D. Ind., March 20, 1989) ...A-116

Opinion and Order Re: Abstention (S.D. Ind., Jan-

Se OR EDS Pee ee Pere a ane Cone ee ge A-118

Order on Rehearing (7th Cir., April 5, 1990)...... A-132

Text and Exhibits to Indiana’s Request to Vacate

FER Sy FE Fy TP se sec eeactnsccesspecess A-i35

Text and Exhibits to Wisconsin’s Request to Vacate

oe ee | ee ore rrr rye ree A-140

Text to Alleghany Corporation’s Opposition to

Indiana’s Request to Vacate (7th Cir., Jul, 23,

i PT PEE eee CP Le eee treet are A-143

Memorandum Decision: Lynn Hinrichs v. Patricia

Goodrich, No. 90-C-0072-C (W.D. Wis., Novem-

eB AEP TEESE EEE TENT Ee ee ee A-145

A-1

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

July 23, 1990

By the Court:

ALLEGHANY CORPORATION,

etc.,

Plaintiff-Appellant

No. 89-1655 v

ROBERT D-HAASE, etc.,

Defendant-Appellee

and

ST. PAUL COMPANIES, etc.,

et al.,

Intervening Appellees

ALLEGHANY CORPORATION,

etc.,

Plaintiff-Appellee

Nos. 89-2055, 89-2056 Vv

HARRY E. EAKIN, etc.,

Defendant-Appellant

and

ST. PAUL COMPANIES, etc.,

et al.,

Intervenors-Appellants

ee ee ee eee eee ee ae ae ae ae ie i i a ae ES SS we ws we ~~

Appeal from the

United States Dis-

trict Court for the

Western District of

Wisconsin:

No. 88 C 368

Chief Judge Barbara

B. Crabb

Appeals from the

United States

District Court

for the Southern

District of

Indiana,

Indianapolis

Division:

No. 88 C 561

Judge William E.

Steckler

This matter comes before the court for its consider-

ation of the “RESPONSE TO MOTION TO VACATE?” filed

herein on July 20, 1990, by counsel for the defendant-

appellee, Robert D. Haase.

A-2

In light of this court’s order of July 19, 1990,

IT IS ORDERED that said response is DENIED.

A-3

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

Juiy 19, 1990

Before

Hon. RICHARD A. POSNER, Circuit Judge

Hon.

ALLEGHANY

CORPORATION, a

Delaware Corporation,

Plaintiff-Appellant

Cross-Appellee

)

Nos. 89-1655, 89-2055, ‘

89-2056 v. )

)

ROBERT D. HAASE and

JOHN J. DILLON, JIL,

Defendants-Appellees )

Cross-Appellants )

and )

ST. PAUL COMPANIES, | )

INC. et al., )

Intervening Appellees)

Cross-Appellants )

Appeals from the United

States District Court for the

Western District of

Wisconsin.

No. 88 C 368

Judge Barbara B. Crabb

This matter comes before the court for its consider-

ation of the “MOTION TO VACATE JUDGMENT AND

DECISION OF THIS COURT” filed herein on July 16,

1990, by counsel for John J. Dillon, III. On consideration

thereof,

;

A-4

IT IS ORDERED that said motion is DENIED. See In

re: Memorial Hosp. of lowa County, Inc., 862 F.2d 1299 (7th

Cir.1988).

A-5

In the

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

No. 89-1655

ALLEGHANY CORPORATION,

Plaintiff-Appellant,

Rospert D. Haase, Commissioner of Insurance

of the State of Wisconsin,

Defendant-Appellee,

and

Sr. Paut Companies, Inc. and

St. PauL FirE AND CASUALTY INSURANCE

Company, .

Intervening Defendants-Appellees.

Nos. 89-2055, 89-2056

ALLEGHANY CORPORATION,

Plaintiff-Appellee,

Joun J. Ditton, Commissioner of Indiana

Department of Insurance,

Defendant-Appellant,

and

St. Paut Companies, INc. and St. PAut Fire

AND CASUALTY INSURANCE COMPANY,

Intervening Defendants-Appellants.

A-6

Appeals from the United States District Courts for the

Western District of Wisconsin and for the Southern Dis-

trict of Indiana.

No. 88 C 368 - Barbara B. Crabb, Judge.

No. 88 C 561 - William E. Steckler, Judge.

ARGUED DecemMBER 8, 1989 — DecipeD FEBRUARY 21, 1990

Before Posner and Eastersrook, Circuit Judges, and

DumBaAuLb, Senior District Judge.*

Posner, Circuit Judge. These three appeals arise from

two closely related suits brought by Alleghany Corpora-

tion to invalidate, on federal constitutional grounds, por-

tions of the insurance holding company statutes of

Wisconsin and Indiana. Acting under the authority of

Wis. Stat. §§ 600.03(13), 611.72, 617.11(1), and Ind. Code

§§ 27-1-23-1 et seqg., respectively, the insurance commis-

sioners of these states turned down Alleghany’s applica-

tion for permission to acquire 20 percent of the common

stock of The St. Paul Companies, Inc., an insurance hold-

ing company. Alleghany could have sought review of the

commissioners’ decisions in the courts of the respective

states, but it did not do so. The appeals present the single

question whether, because of this omission, the doctrine

of Younger v. Harris, 401 U.S. 37 (1971), forbids the federal

courts to entertain Alleghany’s suits. A district judge in

Wisconsin said yes and dismissed Alleghany’s suit, 708 F.

Supp. 1507 (W.D. Wis. 1989), precipitating Alleghany’s

* Hon. Edward Dumbauld, of the Western District of Pennsyl-

vania, sitting by designation.

A-7

appeal (No. 89-1655). A district judge in Indiana said no

but certified his ruling for immediate appeal under 28

U.S.C. 1292(b), and we accepted appeals from his ruling

by both the Indiana insurance commissioner (No.

89-2055) and St. Paul (No. 89-2056). St. Paul had been

permitted to intervene in both suits — on the commission-

ers’ side. Its management does not want to be taken over

by Alleghany, and fears that a takeover bid may ensue if

Alleghany obtains 20 percent of its stock.

St. Paul owns insurance companies incorporated in

ten separate states, each of which is among the 47 states

that have nearly identical statutes requiring anyone who

wants to acquire more than ten percent of the stock of

either an insurance company incorporated in the state, or

the parent of such a company, to obtain the approval of the

state insurance commissioner. The commissioner is to

render a written decision after a full hearing, the decision

to be based on specified criteria including the applicant’s

integrity and financial strength and the competitive

effects of the proposed acquisition. Alleghany filed appli-

cations in all ten states. Four granted the application.

Four — including Wisconsin and Indiana — turned it down.

It is pending in one (Delaware). And it was withdrawn in

another (Illinois) pending the determination, in proceed-

ings already begun to challenge the rulings by the insur-

ance commissioners in the other states, of the

constitutionality of the insurance company holding stat-

utes. Proceedings there are — galore. The four approvals

gave rise to two appeals to state courts by St. Paul from

the commissioners’ ruling. Jn one, a state supreme court

reversed the decision of the lower courts not to review

the commissioner’s approval, and remanded for that

A-8

review, St. Paul Cos. v. Hatch, 449 N.W.2d 130 (Minn.

1989); the other is pending. The four rejections gave rise

to four suits by Alleghany challenging the constitu-

tionality of insurance holding company statutes — the two

on appeal to us plus two on appeal to the Eighth Circuit.

In one of the Eighth Circuit cases a district court had ab-

stained under Younger. In the other the district court had

refused to abstain, proceeded to the merits, and held

North Dakota’s statute unconstitutional as an unreason-

able burden on commerce. Alleghany Corp. v. Pomeroy, 698

F. Supp. 809, 700 F. Supp. 460 (D.N.D. 1988). Although the

McCarran-Ferguson Act provides “that silence on the

part of the Congress shall not be construed to impose any

barrier to the regulation or taxation of such business by

the several States,” 15 U.S.C. § 1011(a) — thus eliminating,

one might suppose, any challenge to the insurance hold-

ing company statutes based on congressional silence (the

predicate for invoking the “dormant” commerce clause) -

the court in Pomeroy, citing SEC v. National Securities, Inc.,

393 U.S. 453, 459-61 (1969), distinguished between the

business of insurance and the ownership of an insurance

company, and held that state regulation of the ownership

was not insulated by the Act. Whether this interpretation

is correct is not an issue on this appeal; the defendants do

not contend that it is frivolous.

The controversy between Alleghany and the insur-

ance commissioners is a live one. Even though Alleghany

has already been turned down by several of the commis-

sioners, and it needs the permission of all to go ahead

with the acquisition, this is only if the statutes are consti-

tutional. If they are not, Alleghany does not require per-

mission under these statutes.

A-9

If Alleghany had sought judicial review of the Wis-

consin or the Indiana commissioner’s ruling in a state

court, as it could have done, Wis. Stat. § 227.53(1); Ind.

Stat. § 4-21.5-5-3(a), and had lost, it could not have main-

tained a suit in federal district court to invalidate the

ruling, whether on constitutional or any other grounds -

provided only that the state courts would have had juris-

diction to consider Alleghany’s federal claims, and they

would have. Wis. Stat. § 227.57(8); Ind. Code

§ 4-21.5-5-24(d)(2). The qualification is essential, but if it

is satisfied the suit in federal court would be barred by

res judicata. Button v. Harden, 814 F.2d 382, 384 (7th Cir.

1987). The commissioners and St. Paul argue that Alle-

ghany should not be permitted to obtain access to a

federal forum by refusing to exercise its unquestioned

right to judicial review’ of the commissioners’ rulings in

state court, review that would encompass any federal as

well as state grounds for questioning the rulings and that

would keep Alleghany in state court.

It will help in analyzing the issue to step back a pace

and ask, could these two federal court suits be main-

tained if Alleghany had not applied to the commissioners

for approval? Ex parte Young, 209 U.S. 123 (1908), implies

an affirmative answer. It holds that federal courts have

the power to enjoin threatened state action that, if carried

out, would violate the plaintiff’s federal rights. True,

there is always a potential question of “ripeness” (on

which see generally Pacific Gas & Electric Co. v. State

Energy Resources Conservation & Development Comm'n, 461

U.S. 190, 200-01 (1983)) in an attack on merely threatened

action. Is the threat sufficiently imminent and probable to

create a real controversy between the plaintiff and the

A-10

state officials? Only if the plaintiff can show that it is can

he maintain a federal suit. Wooley v. Maynard, 430 US.

705, 710 (1977); Steffel v. Thompson, 415 U.S. 452, 458-59

(1974); National Metalcrafters v. McNeil, 784 F.2d 817,

821-22 (7th Cir. 1986); Illinois v. General Electric Co., 683

F.2d 206, 209-10 (7th Cir. 1983). The cost of, and delay in,

obtaining regulatory approvals from ten states before a

hostile tender offer could even be made would have

entitled Alleghany to maintain, against objections based

on lack of ripeness, federal suits in all ten states to enjoin

the enforcement of the state’s insurance holding company

statute, alleged to be an unreasonable burden on inter-

state commerce because each state is seeking to regulate a

transaction having its major incidence elsewhere. Brown-

ing-Ferris Industries v. Alabama Dept. of Environmental Man-

agement, 799 F.2d 1473, 1478 (11th Cir. 1986); City of Altus

v. Carr, 255 F. Supp. 828, 836 (W.D. Tex. 1966) (three-judge

court), aff’d per curiam, 355 U.S. 35 (1966). Examples of

similar suits in this circuit attacking regulatory obstacles

to hostile takeovers include MITE Corp. v. Dixon, 633 F.2d

486 (7th Cir. 1980), affirmed as Edgar v. MITE Corp., 457

U.S. 624 (1982), and Dynamics Corp. v. CTS Corp., 794 F.2d

250 (7th Cir. 1986), reversed, 481 U.S. 69 (1987).

Our conclusion that Alleghany could have brought

its suits challenging the insurance holding company stat-

utes without first applying to the insurance commission-

ers for permission to acquire the St. Paul Companies

would be mistaken if there were a general requirement of

exhausting state remedies before bringing federal suits

challenging state action. For then Alleghany would have

to apply to the commissioner and if turned down would

have to appeal to a state court - and by operation of res

A-11

judicata would be forever denied a federal forum unless

the Supreme Court chose to review the decision of the

highest state court to which Alleghany could appeal an

adverse decision. Lynk v. LaPorte Superior Court, 789 F.2d

554, 564 (7th Cir. 1986); cf. id. at 563 (discussing Rooker-

Feldman doctrine). But there is no general requirement of

exhausting state judicial or administrative remedies

before bringing a federal suit, although there are impor-

tant exceptions to this generality, such as the requirement

of exhaustion in the habeas corpus statute. 28 U.S.C.

§ 2254(b). The Supreme Court has held that 42 U.S.C.

§ 1983, the principal vehicle for challenging state action

on federal grounds and the one used by Alleghany in

these suits, contains no requirement of exhausting admin-

istrative remedies. Patsy v. Florida Board of Regents, 457

U.S. 496 (1982). Exhaustion of judicial remedies is some-

times required, in effect, by the rule of Parratt v. Taylor,

451 U.S. 527 (1981), but any general requirement of

exhausting state judicial remedies before bringing a fed-

eral civil rights suit would spell the demise of Ex parte

Young, since the decision in the state suit usually would

have preclusive effect on the federal. We are not autho-

rized to issue a death warrant for Ex parte Young.

All this is not to say that anyone who brings suit in

federal court to enjoin the operation of a state statute, or

other state action, is, by virtue of Ex parte Young, automat-

ically entitled to an injunction, provided that all jurisdic-

tional requirements such as ripeness are satisfied and the

plaintiff can demonstrate that his federal rights have

indeed been violated. The right to an injunction depends

on more than just presenting a good legal claim to a court

having jurisdiction. Part of the more consists of general

A-12

equitable considerations and another part, though it is

applicable only to a subclass of injunction suits, consists

of considerations of comity — the interest in harmonious

relations between sovereigns and therefore between the

federal government and the states. It is in regard to

considerations of equity and comity that the doctrine of

Younger v. Harris comes into play. Its central meaning is

_ that a federal district court may not, save in exceptional

circumstances, enjoin, at the behest of a person who has

actually or arguably violated a state statute, a state court

proceeding to enforce the statute against that person.

Illinois v. General Electric Co., supra, 683 F.2d at 213. His

remedy is to interpose his federal claims as a defense in

that action. The adequacy of alternative remedies is a

standard ground for denying an injunction, although

today one only sporadically invoked. The unseemliness

of a federal court’s interrupting a proceeding brought by

state officials to enforce state law in state courts provides

an additional, and the decisive, ground, based on comity,

for denying such an injunction.

These grounds are at their strongest when, as in

Younger itself, the state is prosecuting a person for a

crime. Allowing him to block the prosecution by obtain-

ing an injunction from a federal judge would come close

to allowing a state criminal defendant to remove his

criminal prosecution into federal court — a course that

would wreck the balance between federal and state pre-

rogatives that is struck in the habeas corpus statute. And

it would do this gratuitously, since the defendant can

interpose his federal defenses in the state action and will

even have a later shot at a federal forum — not only the

Supreme Court under the certiorari jurisdiction, but also,

A-13

and more practically, the district court under the habeas

corpus jurisdiction, provided only that he is convicted

and imprisoned, and if not his interest in having access to

a federal forum will be much reduced.

The grounds for denying a federal-court injunction

are only slightly attenuated when instead of a criminal

prosecution the state has brought a civil enforcement

action, such as the suit to close a pornographic movie

theater in Huffman v. Pursue, Ltd., 420 U.S. 592, 604 (1975).

And there is only a slight further attenuation when, as in

Hicks v. Miranda, 422 U.S. 332, 350 (1975), the state pro-

ceeding is begun after the defendant in that proceeding

has brought his federal injunctive suit. It is not the order

of the suits that matters but the fact that the federal

plaintiff has violated (or is alleged to have violated) state

law. The state normally is entitled to prosecute or other-

wise proceed against the violators of its laws in its own

courts without interruption by a federal district court.

But the principle of Ex parte Young stands unimpaired in

cases in which the federal plaintiff has not violated state

law, has not exposed himself to a state enforcement pro-

ceeding, is not a defendant in such a proceeding, but

merely seeks to sweep away an illegal obstacle to his

activities. Illinois v. General Electric Co., supra, 683 F.2d at

213.

This clearly would be such a case if Alleghany had

sued the state insurance commissioners before applying

for permission to acquire St. Paul. And if this is right,

then the argument that by virtue of having applied to the

commissioners Alleghany forfeited its right under Ex

parte Young to bring a suit to enjoin the enforcement of

the state insurance holding company statues yields a

A-14

paradox. If accepted, the argument would deter firms in

Alleghany’s position from applying for a state license

before challenging the constitutionality of the state’s

licensing scheme, since the application would channel the

firm into the state court system even if it preferred to be

in federal court. With firms thus induced to avoid the

state regulatory process, the principles of federalism

would be affronted rather than protected. Moreover, the

argument we are examining implies that instead of Alle-

ghany’s filing four suits in order to challenge the regula-

tory scheme (suits against the four insurance

commissioners who turned it down), it would have had

to file ten suits — suits against all the insurance commis-

sioners whose permission was required under state law;

for only by suing the commissioners in advance of apply-

ing for permission could Alleghany maintain these suits

in federal courts.

If the state insurance commissioners had the power

to decide issues of federal constitutional law, if decisions

by the commissioners were given preclusive effect by the

courts of the commissioner’s state, and if procedures

employed by the commissioners were deemed adequately

“judicial” in character to compel the federal courts to give

the commissioners’ findings the same preclusive effect as

a matter of federal common law, University of Tennessee v.

Eliott, 478 U.S. 788 (1986), then the doctrine of res judicata

would force Alleghany —- once it had filed an application —

to seek review of the commissioner’s decision in state

court. Alleghany could not split its constitutional claim.

Watson Rural Water Co. v. Indiana Cities Water Corp., 540

N.E.2d 131 (Ind. App. 1989); Patzer v. Board of Regents, 763

F.2d 851, 857 (7th Cir. 1985) (Wisconsin law). There are an

A-15

awful lot of if’s here. We discuss only one. The defen-

dants concede that the commissioners lack the power to

determine the constitutionality of the statutes they

enforce, in which event there is no issue of splitting. The

concession may be premature. It is true that this limita-

tion on the power of administrative agencies, state and

federal, is extraordinarily common; the California Consti-

tution, for example, declares that “an administrative

agency ... has no power to declare a statute unenforce-

able,” Art. III, § 3.5(b); Beltran v. California, 871 F.2d 777,

783 (9th Cir. 1988); Fresh Int’l Corp. v. Agricultural Labor

Relations Bd., 1353, 1362 n. 14 (9th Cir. 1986). And it is true

that the limitation is assumed in a large number of cases,

of which the following are merely illustrative: Public Util-

ities Comm’n v. United States, 355 U.S. 534, 539 (1958);

Weinberger v. Salfi, 422 U.S. 749, 765 (1975); Mathews v.

Diaz, 426 U.S. 67, 76 (1976); Ohio Civil Rights Comm'n v.

Dayton Christian Schools, Inc., 477 U.S. 619, 629 (1986);

Continental Air Lines, Inc. v. Department of Transportation,

843 F.2d 1444, 1456 (D.C. Cir. 1988); Denberg v. Railroad

Retirement Bd., 696 F.2d 1193, 1196 (7th Cir. 1983). But we

know of no case where the limitation had actually been

challenged, for example as violating the supremacy

clause. In defense of the limitation it could be argued that

while every public official has a paramount duty to obey

the Constitution, not every such official is competent to

interpret the Constitution, and it is therefore a sensible

division of labor to confine interpretive questions to judi-

cial officers. We need not resolve the issue here. The

defendants have conceded that the state commissioners

cannot determine the constitutionality of the insurance

A-16

holding company statutes, and their concession binds

them.

So res judicata is not a bar to these suits. Nor, to get

back on the main track, is Younger. Alleghany has not

violated state law, because it has not attempted to con-

summate its attempted takeover of St. Paul without

obtaining the required permissions from the insurance

commissioners. It is not the target of a state enforcement

proceeding. The plaintiff in Pennzoil Co. v. Texaco, Inc., 481

U.S. 1 (1987) - a case of which the present defendants

make much -— had brought a federai suit to prevent a state

court from requiring the posting of an appeal bond in an

ongoing state litigation; there is no state litigation here.

Texaco had been sued for violating state law (tortious

interference with contract rights), had lost in the trial

court, and was suing in federal court to protect its right

of appeal in the state court system. The suit was held

barred by Younger. Texaco arguably had violated state

law; Alleghany has not. The state courts are of course

open to Alleghany — even more clearly, indeed, than they

were open to Texaco - but they are open to anyone who

complains that state officials are violating his fede-al

rights; if that were a ground for abstention, federal courts

would not have to decide the 23,558 civil rights suits filed

by state prisoners in federal district courts last year.

The principle on which we are proceeding is dramati-

cally illustrated by Wooley v. Maynard, supra. The plaintiff

was seeking to enjoin a state statute that required the

slogan “Live Free or Die” to be embossed on license

plates. He had already been convicted three times of

violating the statute. He had not appealed any of these

convictions. Yet Younger was held not to bar his suit; since

A-17

he was seeking only prospective relief he was free to

invoke the aid of a federal court, even though he could

easily have raised his federal claims as a defense in the

state criminal cases. 430 U.S. at 710-11. The Younger doc-

trine is designed for the case where an injunction would

interfere with a state court’s efforts to enforce state law.

Alleghany seeks neither to abort a state proceeding nor to

obtain a resolution of state law questions in federal court.

It asks a federal court to enjoin on federal grounds a state

law whose meaning has been settled by state officials.

Any intimations of a broader scope for Younger aris-

ing from the fact that the plaintiff in Pennzoil was not a

public agency were promptly scotched by New Orleans

Public Service, Inc., (NOPSI) v. Council of City of New

Orleans, 109 S. Ct. 2506, 2518-20 (1989). The essential

thing in Pennzoil, it is now clear, is that once the state trial

court rendered a judgment against Texaco, the state had a

substantial interest in enforcing the procedures that it

had established to regulate appeals. For Texaco to sue in

federal court to enjoin collection was like a convicted

state criminal defendant’s suing in federal court to enjoin

the state from requiring him to appeal within a fixed

period of time.

NOPSI not only clarifies the scope of Pennzoil, but is

a case much like the present one. A local ratemaking

body had refused to grani the request of a power com-

pany to be permitted to raise its rates. The company

could have challenged the refusal in state court, but

instead brought a federal suit to enjoin the refusal on

federal grounds. The Supreme Court held Younger inap-

plicable.

A-18

The precise holding of NOPSI is that since ratemak-

ing is a legislative rather than judicial function, an injunc-

tion would not interrupt a state judicial proceeding. The

defendants in our case therefore ask us to characterize the

denial of the permissions sought by Alleghany as judicial

in character, and the administrative proceeding plus state

judicial review as a unitary judicial proceeding, since “for

Younger purposes, the State’s trial-end-appeals process is

treated as a unitary system, and for a federal court to

disrupt its integrity by intervening in mid-process would

demonstrate a lack of respect for the State as sovereign.”

Id. at 2518. See also Huffman v. Pursue, Ltd., supra, 420 U.S.

at 608-09. The defendants are correct that for these pur-

poses an administrative proceeding can be ” ‘judicial in

nature’ ”; the Supreme Court so held with reference to

attorney disciplinary proceedings in Middlesex Ethics

Committee v. Garden State Bar Ass'n, 457 U.S. 423, 433-34

(1982). See also Ohio Civil Rights Comm'n v. Dayton Chris-

tian Schools, Inc., supra, 477 U.S. at 627. That was just a

conclusion, but a conclusion justified by the fact that to

remove such proceedings into federal district court

would be precisely the sort of federal judicial interference

with a state’s effort to bring the violators of its laws to

book that Younger interdicts. Whether the stzte proceeds

against malefactors administratively or judicially is a dis-

tinction irrelevant to the policy behind Younger (Bethune

Plaza, Inc. v. Lumpkin, 863 F.2d 525, 528 (7th Cir. 1988)),

especially since the federal Constitution does not pre-

scribe the allocation of powers between branches of state

government — it does not require the states to have sepa-

rate branches. United Beverage Co. v. Indiana Alcoholic Bev-

erage Comm'n, 760 F.2d 155 (7th Cir. 1985). But there has

—_—- ee coe eeer en

A-19

been as yet no malefaction here, and we cannot see any

difference between the refusal by a state agency to allow

a power company to raise its rates and the refusal by a

state agency to allow one company to buy another. Cf. St.

Paul Cos. v. Hatch, supra, 449 N.W.2d at 134-37. If federal

judicial intervention does not demonstrate disrespect for

state sovereignty in the first case, neither does it in the

second.

This case is actually a weaker case for Younger

abstention than was NOPSI. The regulatory order in

NOPSI was in response to alleged negligence by the

power company in failing to minimize its costs by diver-

sifying its sources of power. Functionally, it was a reme-

dial order. Indeed, in effect though not in legal form it

was “punishment” for past misconduct by the firm. A

state has, as we have been at pains to stress, a strong

interest in punishing its malefactors, and this whether the

punishment takes the form of a rate order or of a seizure

of contraband or of a criminal sanction. The ratemaking

order in NOPSI might therefore have been analogized to

the disciplinary proceeding in Middlesex. No such analo-

gizing to Middlesex (or to Daytor Christian Schools) is

possible here. The critical element of misconduct -

emphasized ad nauseam not only in this opinion but in

our earlier opinion in Illinois v. General Electric Co., supra,

683 F.2d at 213 — is missing. We repeat the holding of that

decision: Younger is confined to cases in which the federal

plaintiff had engaged in conduct actually or arguably in

violation of state law, thereby exposing himself to an

enforcement proceeding in state .ourt which, once com-

menced, must be allowed to continue uninterrupted to

conclusion (if no state proceeding is ever commenced,

A-20

there is of course no Younger bar). This is not such a case.

Within the potential domain of Younger marked out by

this distinction, there are additional] limits illustrated by

NOPSI, but we need not consider their bearing.

We note, finally, that decision from other circuits

support our result. Ford Motor Co. v. Insurance Commis-

sioner, 874 F.2d 926, 933-35 (3d Cir. 1989); Kerkado-

Melendez v. Aponte-Roque, 829 F.2d 255, 258-62 (1st Cir.

1987).

The decision of the district court in Indiana, refusing

to abstain, is affirmed (Nos. 89-2055, 89-2056); the deci-

sion of the district court in Wisconsin, abstaining, is

reversed (No. 89-1655).

EASTERBROOK, Circuit Judge, concurring. I join the

court’s opinion but add a few words about the commis-

sioners’ “concession” that they cannot evaluate the con-

stitutionality of the laws they administer. How can a state

“concede” that the Constitution is not supreme for its

executive branch? The Supremacy Clause, Art. VI cl.2,

provides that “This Constitution, and the Laws of the

United States which shall be made in Pursuance there-

of .. . shall be the supreme Law of the Land... ”. The

Constitution is supreme for commissioners of insurance

no less than for legislators and judges. Concessions sur-

render valuable entitlements; here the concession asserts

an immunity from federal rules, an act of aggrandizement

rather than abasement. As the court observes, slip op. 9,

the concession is common, but no case | could find holds

that state agencies have the immunity from federal law

they say they possess.

A-21

State agencies could disregard federal rules only if

the second portion of the Supremacy Clause - “the

Judges in every State shall be bound thereby, any Thing

in the Constitution or Laws of any State to the Contrary

notwithstanding.” - meant that the Constitution is

supreme only for judges. Yet the nullification debates are

behind us. No one believes these days that legislative and

executive branches of state governments may ignore the

Constitution and federal law until slapped with an

injunction. The Supremacy Clause establishes a hierarchy

of rules, binding on all governmental actors. The lilinois

Commerce Commission may not, for example, yank the

certificates of two interstate carriers whose merger was

approved by the Interstate Commerce Commission and

issue an opinion saying-something like: “We ignore the

Interstate Commerce Act when making our decisions, and

if you don’t like that go sue us.” Federal law is supreme

for all state actors, at all times, “any Thing in the Consti-

tution or Laws of any State to the Contrary notwithstand-

ing.”

Federal courts proclaim, when requiring state offi-

cials to pay damages for disobedience to federal law

(including constitutional doctrine), that state actors must

follow the federal rules without waiting for litigation.

National rules govern even though no case on all fours

has been rendered. Anderson v. Creighton, 483 U.S. 635,

640 (1987); Kurowski v. Krajewski, 848 F.2d 767 (7th Cir.

1988). Local governments acting on the basis of local

rules that have been preempted by federal ones must pay

damages. E.g., Golden State Transit Corp. v. Los Angeles, 110

S. Ct. 444 (1989); Community Communications Co. v. Boul-

der, 455 U.S. 40 (1982). Governmental bodies do not even

- A-22

get the benefit of the qualified immunity available to

their minions. Owen v. City of Independence, 445 U.S. 622

(1980). Governments are liable only for their laws and

other policies, so the universe of damages actions against

governmental bodies is precisely the one in which,

according to the “concession” in this case, agencies are

free to disregard federal law.

Officials may not act as if state law is the only law.

After Brown v. Board of Education, 347 U.S. 483 (1954),

made it pellucid that the Constitution forbids discrimina-

tion in the operation of public schools, a school board

could not say that it was required by state law to segre-

gate its students and had to keep doing this until some

judge told it to stop. See Green v. County School Board, 391

U.S. 430 (1968). So too with state laws discriminating on

account of sex. Once Duren v. Missouri, 439 U.S. 357

(1979), held that states may not exclude women from jury

venires, it was unnecessary to bring 49 more suits, or

perhaps 3,041 more (one per county), to achieve compli-

ance throughout the nation. There were 83,166 local gov-

ernments in the United States in 1987 and oodles of state

agencies, 1988 Statistical Abstract of the United States Table

452; I shudder to think that none of them need comply

with the Constitution until told to by a judge, one clause

at a time. Under the Supremacy Clause, state administra-

tive agencies may — must — conform their conduct to

constitutional norms without waiting to be hit by a judi-

cial order. Even the concept of a “judicial” order supposes

a separation of powers that states are not required to

observe. Bethune Plaza, Inc. v. Lumpkin, 863 F.2d 525, 528

(7th Cir. 1988). States may merge the powers of adminis-

tration and adjudication, as in Middlesex Ethics Committee

A-23

v. Garden State Bar Ass'n, 457 U.S. 423 (1982), or may

abolish judicial review. Reallocations of this kind could

not abrogate the Supremacy Clause.

The most sonorous justification for the commission-

ers’ position is that they are following the law and leaving

to orderly adjudication claims that their law is defective.

Such an approach supposes that state rules are the whole

law of the commissioners’ jurisdictions, that national

rules are a form of foreign law. Yet the Supremacy Clause

integrates the legal systems. We have one body of law,

with a hierarchy among rules.

The laws of the United States are laws in the

several States, and just as much binding on the

citizens and courts thereof as the State laws are.

The United States i§ not a foreign sovereignty as

regards the several States, but is a concurrent,

and, within its jurisdiction, paramount sover-

eignty. Every citizen of a State is a subject of two

distinct sovereignties, having concurrent juris-

diction in the State, - concurrent as to place and

persons, though distinct as to subject matter. ...

The disposition to regard the laws of the United

States as emanating from a foreign jurisdiction

is founded on erroneous views of the nature and

relations of the State and Federal governments.

It is often the cause or the consequence of an

unjustifiable jealousy of the United States gov-

ernment, which has been the occasion of disas-

trous evils to the country.

Claflin v. Houseman, 93 U.S. 130, 136-37 (1876). If state

laws conflict, the commissioners will attempt to reconcile

these laws as best they can and may enforce one at the

expense of another. When the conflicting pair is one state

and one federal, the duty to resolve the conflict is no less,

and the Supremacy Clause names the winner To say

A-24

otherwise is to misunderstand the structure of our federal

system. And it is an offense against that structure to force

persons holding federal rights to wait for vindication,

and pay lawyers to secure it, when persons holding iden-

tical entitlements under state law face no such obstacles.

This does not mean that constitutional questions are

the first order of business for an administrator any more

than for a court. Judges regularly deal with statutory

questions before they take up constitutional ones. Even

though deferral increases slightly the expense of obtain-

ing a favorable decision, it is justified to ensure appropri-

ate respect for rules established by the political branches.

States might separate their decision-making not only tem-

porally but also among officials, some specializing in

statutory interpretation and others in constitutional law.

Here the parallel to judicial practice breaks down. An

insurance commissioner does not resolve questions of

state law and then turn to the state’s Attorney General (or

even to a court) for authoritative guidance on federal law;

the commissioner resolves questions of state law and then

issues a binding order. The person claiming a federal

right is directed to comply. A judge does not resolve the

statutory point, issue an injuction, and then turn to the

constitution. A judge resolves the questions of federal

law before issuing a binding decision; agencies must do

this too. .

Abjuring administrative “authority” to act on the

basis of federal law creates problems under 42 U.S.C.

§1983 as well as the Supremacy Clause, for it amounts to

a demand that people abandon their federal remedies.

Indiana and Wisconsin insist that the state as an entity

will listen to constitutional (and other federal) claims

A-25

only in state court. Yet §1983 creates an entitlement to

litigate in federal court, free of any efforts by the state to

limit access. Felder v. Casey, 108 S. Ct. 2302 (1988). Given

the doctrine of claim preclusion, which 28 U.S.C. §1738

enforces, Migra v. Warren City School District Board of

Education, 465 U.S. 75 (1984), a state rule allocating to

state courts all resolution of claims under federal law

amounts to: “This state will ignore your entitlements

under federal substantive law unless you give up your

right to litigate in federal court.” Felder and, e.g., Patsy v.

Board of Regents, 457 U.S. 486 (1982), show that no such

demand may be made or honored.

Often we are told that chaos would break out if

everyone made his own decision about which lega! rules

are enforceable. Let us leave difficult questions to-tke

courts, the refrain goes, so that we may have order

Although the division of labor is beneficial in the main -

no one who has watched tax protesters find fantastic

propositions in the Constitution, see Coleman v. CIR, 791

F.2d 68 (7th Cir. 1986), could tolerate the thought of

revenue clerks making up and enforcing private versions

of constitutional tax law — the proposition that there must

be a chain of command takes us only so far. Public

officials owe their allegiance to the Constitution first,

federal laws second, and state laws third. Even a com-

mand from the President of the United States does not

relieve public employees of their duty to follow the Con-

stitution. Uniied States v. Ehrlichman, 546 F.2d 910 (D.C.

Cir. 1976). See also United States v. Konovsky, 202 F.2d 721,

730-31 (7th Cir. 1953) (reliance on a superior’s order does

not negate specific intent in a prosecution under 18 U.S.C.

§241 for violating the Constitution. Cops on the beat must

A-26

follow Tennessee v. Garner, 471 U.S. 1 (1985), rather than

state laws that may permit or even direct them to use

deadly force in apprehending felons. Police who prefer

state to federal law will find themselves in the dock.

Perhaps functionaries are entitled to follow the

orders of their superiors, unless clearly unlawful, so that

there may be efficient and consistent administration. A

commissioner of insurance is no functionary; he com-

mands a cadre of lawyers. Any legal staff good enough to

interpret the arcane insurance laws these officials must

apply can look up constitutional doctrine as well. State

agencies, in conjunction with state attorneys general, pos-

sess ample legal skill - and more experience, | wager,

than a randomly selected judge of a court of general

jurisdiction who may not see a claim under the dormant

Commerce Clause during his career. We should require

no less of a commissioner of insurance than of a police

official or a prison warden.

At all events, the “constitutional” question here turns

out to be a dispute about the meaning of the McCarran-

Ferguson Act, 15 U.S.C. §§ 1011-i5. If that statute autho-

rizes states to regulate insurance holding companies, then

there is no remaining issue, see Western & Southern Life

Insurance Co. v. State Board of Equalization, 451 U.S. 648,

652-55 (1981). If the McCarran-Ferguson Act does not

apply, then the jig is up under the dormant Commerce

Clause, see Edgar v. MITE Corp., 457 U.S. 624, 643-46

(1982). No insurance commissioner could say with a

straight face that he and his staff lack expertise needed to

interpret the McCarran-Ferguson Act. They do it all the

time.

eam eaeaaaieaiaaalie eae

A-27

The role of the Constitution in administrative

decison-making turns out to be irrelevant to this litiga-

tion. Under 28 U.S.C. §1738, the decision of a state official

— be he called “judge” or “commissioner” — has the same

preclusive effect in federal litigation as in state litigation.

Marrese v. American Academy of Orthopaedic Surgeons, 470

U.S. 373 (1985). All agree that the decisions of these

commissioners of insurance are reviewable in some court.

Suits filed in state courts could not have been met with

claims of preclusion.The preclusive effect would be the

same — none — if the commissioners had considered and

rejected the Commerce Clause arguments on the merits.

Indiana and Wisconsin do not view administrative deci-

sions as preclusive in their own courts, so they are not

preclusive in federal court.

A true copy.

Teste:

Clerk of the United States Court of

Appeals for the Seventh Circuit

A-28

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

June 15, 1989

By the Court:

ALLEGHANY CORPORATION, a __) Appeal from

Delaware Corporation, ) the United

Plaintiff-Appellant, ) States District

No. 89-1655 ) Court for

) the Western

) District of

ROBERT D. HAASE, Commissioner ) Wisconsin.

of Insurance of the State )

of Wisconsin, ) No. 88-C-368,

Defendant-Appellee, ) Hon. Barbara B.

nual Crabb,

Judge.

)

ST. PAUL COMPANIES, )

INCORPORATED and ST. PAUL _)

FIRE AND CASUALTY )

INSURANCE COMPANY, )

Intervening Appellees. )

A-29

ALLEGHANY CORPORATION, a_) Appeals from

Delaware Corporation, ) the United

Plaintiff-Appellee, ) States District

) Court for

0. eS ) the Southern

89-2056 a

) District of

) Indiana,

HARRY E. EAKIN, Commissioner _) Indianapolis

of Indiana Department of Insurance) Division.

Defendant-Appellee, )

and ) No. 88-C-561

) Hon. William E.

ST. PAUL COMPANIES, Steckler,

INCORPORATED and ST. PAUL Judge.

INDEMNITY INSURANCE

COMPANY,

Intervenors-Appellants.

— Oe ee

ORDER

The court, on its own motion, orders that these

appeals are CONSOLIDATED for purposes of briefing

and disposition.

The briefing schedule is as follows:

1. Alleghany Corporation shall file its opening brief

and required short appendix in the appeal docketed in

89-1655 on or before July 3, 1989.

2. The St. Paul Companies shall file their combined

responsive brief in the appeal docketed in 89-1655 and

opening brief and required short appendix in the appeal

docketed in 89-2055 on or before August 2, 1989.

3. Robert Haase shall file his responsive brief in the

appeal docketed in 89-1655 on or before August 2, 1989.

ee EEE

A-30

4. Harry Eakin shall file his opening brief and

required short appendix in the appeal docketed in

89-2056 on or before August 2, 1989.

5. Alleghany Corporation shall file its combined

reply brief, if any, in the appeal docketed in 89-1655 and

responsive brief in the appeals docketed in 89-2055 and

89-2056 on or before September 1, 1989.

6. The St. Paul companies and Harry Eakin shall file

their respective reply briefs, if any, in the appeals dock-

eted in 89-2055 and 89-2056 on or before September 15,

1989.

A-31

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF WISCONSIN

ALLEGHANY CORPORATION,

Plaintiff,

vs.

ROBERT D. HAASE, Commissioner

of Insurance of the State of

Wisconsin,

Case No.

Defendant, and 88-C-368-C

THE ST. PAUL COMPANIES,

INC. and ST. PAUL FIRE AND

CASUALTY INSURANCE

COMPANY,

Proposed Intervening

Defendants.

ORDER FOR DISMISSAL

WITHOUT PREJUDICE

Upon review of plaintiff Alleghany Corporation’s

Motion for dismissal Without Prejudice and the file and

records in this action,

IT IS HEREBY ORDERED that this action, and all

claims asserted therein, be, and hereby is, dismissed as

A-32

moot without prejudice and without costs or disburse-

ments to any party or proposed intervening party.

Dated: July 19, 1990.

/s/ Barbara B. Crabb

Barbara B. Crabb, Chief teline

United States District Court

A-33

JUDGMENT IN A CIVIL CASE

DISTRICT

United States District WESTERN DISTRICT

)

Court ) OF WISCONSIN

age ica ‘ DOCKET NUMBER

CORPORATION ) 88-C-0368-C

{ ) (Filed MAR 7 1989)

Plaintiff, )

- ) NAME OF JUDGE

, ) OR MAGISTRATE

ROBERT D. HAASE, ) JUDGE BARBARA

Defendant. ‘ B. CRABB

)

{ ] Jury Verdict. This action came before the Court and

a jury with the judicial officer named above presid-

ing. The issues have been tried and the jury has

rendered its verdict.

[X] Decision by Court. This action has come on for

consideration by the Court with the judge named

above presiding. The issues have been considered

and a decision has been rendered.

IT IS ORDERED AND ADJUDGED

That defendant’s motion to dismiss this case is

GRANTED.

A-34

CLERK DATE

/s/ Joseph W. Skupniewitz .

JOSEPH W. SKUPNIEWITZ

MAR 7 1989

A-35

ALLEGHANY

CORPORATION, Plaintiff,

Vv.

Robert D. HAASE, Commissioner of

Insurance of the State of

Wisconsin, Defendant.

No. 88-C-368-C.

United States District Court,

W.D. Wisconsin.

March 7, 1989.

Jeffrey B. Bartell, Donald K. Schott, William J. Toman,

Erica M. Eisinger, Quarles & Brady, Madison, Wis.,

Thomas W. Tinkham, Richard L. Bond, David R. Abrams,

Dorsey & Whitney, Minneapolis, Minn., for plaintiff.

Peter L. Gardon, Whyte & Hirschboeck, Madison,

Wis., for intervenor St. Paul Fire & Cas. Ins. Co. and St.

Paul Companies, Inc.

Daniel D. Stier, Asst. Atty. Gen., Madison, Wis., for

defendant.

James A. Strain, Peter J. Rusthoven, Barnes & Thorn-

burg, Indianapolis, Ind., for American Council of Life Ins.

American Ins. Ass’n, amici curiae.

ORDER AND OPINION

CRABB, Chief Judge.

Plaintiff brings this action for declaratory judgment

seeking a determination that Wis.Stat. §§ 611.72 and

617.12 violate the Commerce Clause, the Supremacy

Clause, and the Fifth and Fourteenth Amendments of the

United States Constitution, and Title 42, Section 1983 of

A-36

the United States Code, and for injunctive relief to pro-

hibit defendant from enforcing those sections of the Wis-

consin statutes. Those sections prohibit the execution of

any plan for the acquisition of control (as defined in

Wis.Stat. § 600.03(13)) of any domestic stock insurance

company, or its parent holding company wherever orga-

nized, without the approval of defendant.

Plaintiff, a Delaware corporation with its principal

executive office in New York, owns approximately 9.2

percent of the outstanding common stock of the St. Paul

Companies, Inc., a publicly-traded insurance holding

company domiciled in Minnesota. Plaintiff seeks to

acquire presumptive control (in excess of ten percent of

the common stock, Wis.Stat. § 600.03(13))) of the St. Paul

Companies, Inc., through purchases on the open market.

St. Paul Companies’ principal and wholly-owned subsid-

iary is St. Paul Fire & Marine Insurance Company, a

Minnesota corporation. St. Paul Fire & Marine has a

wholly-owned subsidiary incorporated in Wisconsin, St.

Paul Fire and Casualty Insurance Company. St. Paul Fire

and Casualty accounts for one-tenth of one percent of the

statutory admitted assets and three percent of the pre-

mium income of the St. Paul holding company system.

St. Paul Companies has insurance company subsid-

iaries incorporated in eight states other than Wisconsin.

In four of those states, and in Minnesota, approval of

plaintiff's proposed acquisition has been either granted

or recommended, and in three of those states plaintiff's

proposal has been denied (the outcome in the eighth state

is not stated in the record).

A-37

On November 24, 1987, plaintiff filed with defendant

an Insurance Holding Company Registration Statement,

seeking approval to acquire in excess of ten percent of the

common stock of St. Paul Companies. Defendant held a

hearing on plaintiff's proposed acquisition in February

1988, and denied plaintiff's application for approval of

the proposed acquisition on April 7, 1988.

Plaintiff had a right to judicial review of defendant’s

decision under Wis.Stat. ch. 227, and was advised in

writing of that right by defendant. Plaintiff did not seek

state court review, and the time to seek review expired on

May 9, 1988. On April 28, 1988, plaintiff filed this action

which is now before the court on defendant’s motion to

dismiss the complaint under the abstention doctrines of

Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669

(1971) and Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct.

1098, 87 L.Ed. 1424 (1943).

The magistrate filed a report recommending that the

motion be granted on the ground that the elements requi-

site to Younger abstention are present: (1) there is a pend-

ing state proceeding, (2) that implicates important state

interests, (3) and provides an adequate opportunity for

plaintiff to raise its constitutional claims. Like the magis-

trate, I find that the state proceeding set in motion by

plaintiff’s application and the hearing called by defen-

dant involve important state interests in the regulation of

the domestic insurance industry, and that these proceed-

ings provide plaintiff with an adequate opportunity to

pursue the federal claims raised in this action.

A-38

I find it a very close question whether there is a

“pending” state proceeding where, as here, the proceed-

ing being challenged is an administrative hearing that has

ended and resulted in a fina! order. I conclude, however,

that recent rulings of the United States Supreme Court

direct a finding that a state proceeding is pending if an

administrative proceeding has been initiated before a fed-

eral action is filed whether or not the proceeding itself is

ongoing at the time the federal action is filed, and thus, |

am constrained to find that state proceedings were pend-

ing when plaintiff filed this suit.

This result follows from the Supreme Court’s steady

expansion of the Younger doctrine, as discussed below in

this order. This result also makes manifest the far-reach-

ing implications of such expansion, namely that however

important a plaintiff’s interest in having a federal forum

to hear important issues of federal constitutional law, the

federal courts are closed to plaintiffs in any case in which

a state administrative or judicial proceeding has been

held, even if the plaintiff did not initiate the state pro-

ceeding or if the case would not be ripe until the state

had acted to give the plaintiff a federal claim.

Nevertheless, I conclude that Younger abstention, as

extended by the United States Supreme Court, is appro-

priate in this case, and | will adopt the magistrate’s

findings of fact and conclusions of law pertaining to

Younger abstention, supplemented by the findings of fact

and conclusions of law set forth in this order.!

1 Because | will grant defendant’s motion to dismiss on

Younger abstention grounds, | do not consider defendant's

(Continued on following page)

A-39

Supplementary Findings of Fact

Of the eight states other than Wisconsin that have

asserted a statutory right to approve plaintiff’s proposed

purchase of over ten percent of St. Paul Companies’

shares, California, Minnesota and New York have

approved the proposal; in Texas approval has been rec-

ommended; Indiana, Nebraska and North Dakota have

denied the proposal; and the record does not disclose the

outcome in Delaware.

In response to the federal court challenges to the

state statutes’ constitutionality that plaintiff filed in Indi-

ana, Nebraska and North Dakota, motions to dismiss on

Younger and Burford abstention grounds were denied in

Indiana and North Dakota, and granted in Nebraska. See

Alleghany Corporation v. Eakin, No. I.P. 88-561-C (S.D.ind.

Jan. 30, 1989); Alleghany Corporation v. Pomeroy, 698

F.Supp. 809 (D.N.D.1988); Alleghany Corporation v.

McCartney, No. CV99-L-235 (D.Neb. Oct. 18, 1988).

Opinion

The doctrine of abstention was established in Younger

and expanded in subsequent cases to protect state

(Continued from previous page)

argument that Burford abstention is also proper in this case. As

the magistrate notes in his report and recommendation, the

disposition of defendant’s motion to dismiss also renders

unnecessary consideration of the motion to intervene of St.

Paul Fire & Casualty Insurance Company and St. Paul Com-

panies, Inc., and of the motion of these intervenors and plain-

tiff for summary judgment.

A-40

processes from premature federal interference.? Younger,

401 U.S. at 44, 91 S.Ct. at 750 (principle of federalism

requires that federal court “not unduly interfere with the

legitimate activities of the states”); Bethune Plaza, Inc. v.

Lumpkin, 863 F.2d 525, 528 (7th Cir.1988). In Younger, the

United States Supreme Court held that under principles

of comity, equity, and federalism, the federal courts

should refrain from enjoining state criminal prosecutions.

Jacobson v. Village of Northbrook Municipal Corporation, 824

F.24 567, 569 (7th Cir.1987). In Samuels v. Mackell, 401 U.S.

66, 91 S.Ct. 764, 27 L.Ed.2d 688 (1971), the Court extended

the holding in Younger to prevent federal courts from

issuing declaratory judgments regarding state statutes

that are subject to ongoing state criminal prosecutions.

Middlesex County Ethics Committee v. Garden State Bar

Ass'n, 457 U.S. 423, 431 n. 10, 102 S.Ct. 2515, 2521 n. 10, 73

L.Ed.2d 116 (1982). The contours of the Younger doctrine

have since been steadily expanded to encompass pending

quasi-criminal and civil judicial and administrative pro-

ceedings that implicate important state interests and pro-

vide a forum competent to vindicate constitutional

challenges to those proceedings. See, e.g., Pennzoil

2 “The Younger doctrine is based on, and its contours estab-

lished by, two principles of equity jurisprudence. The first is that

an injunction is an extraordinary remedy, . . . never more extraordi-

nary than when, if granted it would prevent government officials

from proceeding under a statute founded on important state inter-

ests against a violator of the statute. . . . The second principle is

that an injunction will not be issued when the plaintiff has an

adequate remedy at law, which he does if he can assert the ground

on which he seeks an injunction as a defense to the very proceed-

ing that the injunction would put a stop to.” W.C.M. Window

Company v. Bernardi, 730 F.2d 486 (7th Cir. 1984).

A-41

Company v. Texaco, Inc., 481 U.S. 1, 10-11, 107 S.Ct. 1519,

1525-26, 95 L.Ed.2d 1 (1987).

In Huffman v. Pursue, Ltd., 420 U.S. 592, 95 S.Ct. 1200,

43 L.Ed.2d 482 (1975) (civil nuisance proceeding), the

Supreme Court extended Younger abstention principles to

include state-initiated civil proceedings in aid of and

closely related to state criminal statutes. In Juidice v. Vail,

430 U.S. 327, 97 S.Ct. 1211, 51 L.Ed.2d 376 (1977) (civil

contempt order), the Court applied the Younger absten-

tion doctrine to important state civil actions that may be

analogous to criminal proceedings but that are not intri-

cately bound up with the state’s criminal statutes, and in

Trainor v. Hernandez, 431 U.S. 434, 97 S.Ct. 1911, 52

L.Ed.2d 486 (1977) (civil attachment proceeding), the

Court confirmed that Younger is not confined to the crimi-

nal context but applies also to civil actions brought by the

state to vindicate important state policies. In Middlesex,

457 U.S. at 423, 102 S.Ct. at 2515, the Court held

definitively that Younger policies are fully applicable to

state civil judicial proceedings when important state

interests are involved, and in Pennzoil, 481 U.S. at 1, 107

S.Ct. at 1519, the Court held the implication of important

court interests factor to be controlling for Younger absten-

tion purposes where the state was not even a party to the

state proceeding (but where the state plaintiff was a

private party acting as a state actor). Lemon v. Tucker, 664

F.Supp. 1143, 1146 (N.D.I11.1987).

In Middlesex, 457 U.S. at 432-33, 102 S.Ct. at 2521-22,

the Court also ruled that administrative proceedings that

are “judicial in nature” are within the category of civil

judicial proceedings to which Younger applies when

important state interests are involved and when there is

A-42

an adequate opportunity in those proceedings to raise

constitutional challenges. In Ohio Civil Rights Commission

v. Dayton Christian Schools, Inc., 477 U.S. 619, 627, 106

S.Ct. 2718, 2723, 91 L.Ed.2d 512 (1986), the Court broadly

applied the Middlesex articulation of the Younger doctrine

to ongoing state administrative proceedings, judicial or

otherwise, in which important state interests are vindi-

cated and in which the federal plaintiff would have a full

and fair opportunity to litigate constitutional claims.

This dual focus on the importance of the state’s inter-

ests and on the availability of a meaningful opportunity

to raise constitutional objections before a competent state

tribunal, has been codified in the form of a three-part test

that the Supreme Court established in Middlesex and

applied in subsequent cases to determine whether Young-

er abstention is appropriate in either the criminal or civil

context: (1) the existence of a pending state judicial or

administrative proceeding, (2) that implicates important

state interests, (3) and provides an adequate opportunity

for constitutional challenges to be raised. Pennzoil, 481

U.S. at 10-11, 107 S.Ct. at 1525-26; Dayton, 477 U.S. at 627,

106 S.Ct. at 2723; Middlesex, 457 U.S. at 432, 102 S.Ct. at

2521.

Plaintiff expands this test to include as additional

determinative factors the existence of a state-initiated

enforcement proceeding and the violation of state law.

These may be common characteristics of many Younger

and related cases. However, plaintiff does not cite to, and

I am not aware of, any Supreme Court case that explicitly

elevates these characteristics to be Younger requirements.

Moreover, neither of these characteristics was present

A-43

when the Court held Younger abstention appropriate in

Pennzoil, 481 U.S. 1, 107 S.Ct. 1519.

In Pennzoil, Texaco (the federal plaintiff and state

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

against Pennzoil (the state plaintiff), seeking to enjoin

Pennzoil from taking any action to enforce a multibillion

* dollar judgment that a Texas court had rendered against

Texaco and in favor of Pennzoil. When Texaco filed its

federal action, there had not yet been any enforcement

proceeding, state-initiated or otherwise, and there had

not yet been any violation of state law. Just as in the

instant case in which the state would have to act to

« enforce its decision rendered against plaintiff at the con-

cluded hearing should plaintiff refuse to abide by that

decision, so in Pennzoil Pennzoil would have had to act,

in conjunction with the state, to enforce the state trial

court’s judgment rendered against Texaco should Texaco

have resisted the execution of that judgment. See Lemon v.

Tucker, 664 F.Supp. at 1146. In both the instant case and in

Pennzoil, state-initiated enforcement proceedings and vio-

& ations of state law may follow from the federal plaintiff’s

taking action contrary to a state tribunal’s decision, but

such occurrences are not necessary for Younger abstention

to be applicable before those occurrences take place.

Plaintiff also adds to the Middlesex test the absence of

any preemption claims, arguing that abstention should

not be invoked in preemption cases. “The federal courts

of appeal are in disagreement on the question of whether

the assertion of a preemption claim renders abstention by

the federal district court inappropriate.” Fore Way Express,

Inc. v. State of Wisconsin Department of Industry, Labor and

Human Relations, 660 F.Supp. 310, 312 (E.D.Wis. 1987)

A-44

(citing Kentucky West Virginia Gas Company v. Pennsylvania

Public Utility Commission, 791 F.2d 1111, 1115-16 (3rd

Cir.1986), Middle South Energy v. Arkansas Public Service

Commission, 772 F.2d 404, 417 (8th Cir. 1985), cert. denied,

474 U.S. 1102, 106 S.Ct. 884, 88 L.Ed.2d 919 (1986), Cham-

pion International Corp. v. Brown, 731 F.2d 1406, 1408-09

(9th Cir. 1984), and Baggett v. Department of Professional

Regulation, Board of Pilot Commissioners, 717 F.2d 521, 524

(11th Cir. 1983), holding that the district court should not

abstain; New Orleans Public Service v. City of New Orleans,

782 F.2d 1236, vacated in part, 798 F.2d 858, 860-864 (5th

Cir.1986), and Aluminum Co. v. Utilities Commission of State

of North Carolina, 713 F.2d 1024, 1028-30 (4th Cir.1983),

cert. denied, 465 U.S. 1052, 104 S.Ct. 1326, 79 L.Ed.2d 722

(1984), affirming decision to abstain in the fact of federal

preemption claims). In Fore Way the court followed the

latter authorities and ruled that a preemption claim does

not render Younger abstention inappropriate where there

exists a complex state regulatory scheme that might be

disrupted by federal court review and a state court sys-

tem that is capable of addressing the federal plaintiff’s

constitutional challenges. 660 F.Supp. at 313. In the

instant case, the challenged state statutes are also part of

a complex state regulatory scheme that might be dis-

rupted by federal court intervention, and the state courts

are also capable of hearing and deciding plaintiff’s fed-

eral claims.

In Fore Way the court based its ruling primarily on

the analysis in New Orleans Public Service, 798 F.2d at 858,

863-64. In that case, as in the instant case, the claims

A-45

before the court involved the intersection of state inter-

ests (in setting retail electricity rates) with federal inter-

ests (in wholesale rate making). Id. at 860. The court held

Younger abstention to be proper based on the important

state interests in setting retail rates, jurisdiction over

which was explicitly reserved to the states by the Federal

Power Act. Id. at 861. Similarly, in the instant case, where

the siate’s interest in regulating insurance is derived from

equally explicit language in the McCarran-Ferguson Act,

15 U.S.C. §§ 1011, 1012(a), plaintiff's preemption claim

does not suffice to defeat the applicability of Younger

abstention.

Finally, plaintiff makes the argument, addressed in

the magistrate’s report at 1535-36, that the Middlesex test

is not applicable because plaintiff seeks prospective relief

only. The Supreme Court has held that Younger does not

bar resort to a federal forum where the federal plaintiff

seeks to preclude future prosecution and not to change

his or her record or to annul the results of prior state

prosecutions. Wooley v. Maynard, 430 U.S. 705, 710-711, 97

S.Ct. 1428, 1432-33, 51 L.Ed.2d 752 (1977). In the instant

case, plaintiff seeks “prospective relief” against the

enforcement of a decision made at the conclusion of an

administrative hearing. Such relief, if granted, would

annul the results of that hearing and is no different in

effect from the enjoining of pending proceedings in order

to prevent both the reaching and enforcement of a result,

usually sought by federal plaintiffs in Younger cases.

What may render Younger abstention inappropriate in this

plaintiff’s case is not that plaintiff seeks prospective

relief, for the effect of the relief it seeks is not prospective,

tte

A-46

but that the proceeding whose decision plaintiff seeks to

enjoin the state from enforcing is over.

Of the three Middlesex factors to be considered in

determining whether Younger abstention is appropriate,

the first — the existence of a pending state proceeding — is

the most hotly contested by the parties in the case at bar.

It is also the most complex. Because the analysis of this

element depends in part on, and follows logically from,

the analyses of the second and third Middlesex factors -

the vindication of important state interests and the avail-

ability of an adequate opportunity to raise constitutional

claims — these latter two elements will be discussed first.

Important State Interests

As the magistrate documents at pages 1531-32 of his

report, the courts have recognized wide-ranging interests

in the many cases in which Younger has been applied. The

Supreme Court has never held a state interest to be

unimportant, and only a few lower courts have so held.

Note, Slogan or Substance? Understanding “Old Federalisin”

and Younger Abstention, 73 Cornell L.Rev. 852, 873-74 (May

1988) (citing Texaco, Inc. v. Pennzoil, 784 F.2d 1133, 1150

(2d Cir.1986) (state interest in bond provision relatively

minor), rev'd, 481 U.S. at 1, 107 S.Ct. at 1519; Mobil Oil

Corporation v. City of Long Beach, 772 F.2d 534, 542 (9th

Cir.1985) (state suing in proprietary not sovereign capac-

ity and seeking only money damages)); see also W.C.M.

Window Company, Inc. v. Bernardi, 730 F.2d at 490 (interest

in employment of state residents that underlies state pref-

erence law not as central to state goals as protection of

health, safety and morals; but decision not to abstain

A-47

based on fact that three plaintiffs could not join state

proceeding); First Alabama Bank of Montgomery, N.A. v.

Parsons Steel, Inc., 825 F.2d 1475, 1482-83 (11th Cir. 1987)

(minimal state interest as adjudicator of wholly private

dispute between private parties).

The instant case involves an alleged conflict between

the state’s interest in regulating the statewide business of

insurance and the federal interest in overseeing nation-

wide corporate takeovers and in protecting interstate

commerce. As the magistrate demonstrates at pages

1533-35 of his report, the factors defendant is required to

take into account in ruling upon a request to acquire

control shares under Wis.Stat. § 611.72 are not unrelated

to the state’s legitimate regulatory concerns for the sol-

vency of domestic insurance companies and foreign

insurance companies licensed to write insurance in Wis-

consin, and for Wisconsin policyholders. I agree with the

magistrate’s conclusion that this statute implicates the

state’s interest in ensuring the financial stability of com-

panies that offer insurance to state residents, and that this

interest is substantial. Whether, in light of the federal

interest in the non-insurance aspects of the transaction at

issue, the state is entitled or authorized to effectuate this

interest as provided for under the contested statutes goes

to the merits of this action and need not (and should not)

be decided in order to find the existence of important

state interests for Younger abstention purposes.

Plaintiff’s contention that the state’s interests are

minimal because there has been no violation of state law,

the state has not initiated any enforcement proceeding,

ant the relief requested will not operate directly against

any state court, see Evans v. City of Chicago, 689 F.2d 1286,

A-48

1294 (7th Cir. 1982) (noting that as of 1982 “the excep-

tional Younger progeny which did not involve pending

State initiated proceedings abstained from considering

relief which would operate directly against a state court”)

is based on a narrow reading of this element of the

Middlesex test that may be inferred from the early Younger

cases but is not borne out by more recent cases. See

Pennzoil, 481 U.S. at 12-14, 107 S.Ct. at 1526-28; W.C.M.

Window, 730 F.2d at 490 (protecting health, safety and

morals of state residents is the type of interest involved in

cases where Younger abstention has been ordered); and

cases collected at 1532 n. 26 of the magistrate’s report.

Plaintiff contends that the McCarran-Ferguson Insur-

ance Regulation Act, 15 U.S.C. §§ 1011-1015, cannot be

used to supply the important state interest in this case

because application of the Act is in dispute and goes to

the merits of the case. This contention is equally unavail-

ing. The finding of an important state interest need not be

supported by federal statute, and the concerns for state

policy holders that are reflected in state statutes and in

the conclusions of law made in defendant’s order deny-

ing plaintiff's application for approval of the proposed

acquisition suffice to establish the state’s important inter-

est in the consequences for state residents of the acquisi-

tion of a domestic insurer.

Competent Forum/Adequate Opportunity to Raise Federal

Claims

A federal plaintiff has an adequate opportunity to

raise constitutional challenges to a state proceeding

before a state tribunal if such challenges may be heard in

the challenged proceeding itself or in state court judicial

A-49

review (either trial or appellate) of the proceeding,

regardless whether the federal plaintiff seeks such

review. Pennzoil, 481 U.S. at 15-17, 107 S.Ct. at 1528-29

(federal plaintiff’s challenge to Texas bond provision

could have been raised in trial court that entered judg-

ment against plaintiff, and plaintiff could not escape

Younger abstention by failing to do so); Dayton, 477 U.S. at

629, 106 S.Ct. at 2724 (where Dayton sought injunction

against continuation of administrative proceedings on sex

discrimination claims, it was sufficient for Younger

abstention purposes that Dayton’s constitutional claims

could be raised in state court review of those proceed-

ings); Middlesex, 457 U.S. at 432-34, 102 S.Ct. at 2521-22

(where state ethics committee served formal statement of

charges on lawyer who instead of filing answer filed suit

in federal court, and disciplinary proceedings were sub-

ject to state court review, Younger abstention held appro-

priate); Huffman, 420 U.S. at 608-11, 95 S.Ct. at 1210-12;

Foster v. Zeeko, 540 F.2d 1310, 1320 (7th Cir. 1976); Fore

Way Express, Inc. v. Wisconsin Department of Industry, Labor

and Human Relations, 660 F.Supp. at 311.

Gibson v. Berryhill, 411 U.S. 564, 93 S.Ct. 1689, 36

L.Ed.2d 488 (1973), is somewhat inconsistent with this

articulation of the adequate opportunity factor. In Gibson,

the Court stated that the fact that judicial review was

forthcoming at the conclusion of the challenged adminis-

trative proceeding was irrelevant where the administra-

tive tribunal itself was not competent because of bias, one

of the exceptions to Younger. Id. 411 U.S. at 577, 93 S.Ct. at

1697. Under Dayton, 477 U.S. at 629, 106 S.Ct. at 2724, and

Middlesex, 457 U.S. at 432-34, 102 S.Ct. at 2521-22, it

would appear that such incompetence would be corrected

A-50

by the availability of review. However, bias was not an

issue in those cases, and it is not raised by plaintiff in the

case at bar. Moreover, administrative tribunals in general

are normally not competent to hear claims that statutes

are unconstitutional. See, e.g., Weinberger v. Salfi, 422 U.S.

749, 765, 95 S.Ct. 2457, 2466, 45 L.Ed.2d 522 (1975) (issue

of constitutionality of statutory requirement is beyond

Secretary’s jurisdiction to determine); Metropolitan Life

Insurance Company v. Board of Directors, 572 F.Supp. 460,

468 (W.D.Wis. 1983) (state administrative body may not

rule on constitutional challenges to the statutes under

which it operates). It would be contrary to the holdings in

post-Gibson cases such as Dayton, 477 U.S. at 619, 106

S.Ct. at 2718, and Middlesex, 457 U.S. at 423, 102 S.Ct. at

2515, to interpret Gibson to extend beyond bias and to bar

Younger abstention wherever the administrative tribunal

is not competent to hear constitutional claims, regardless

of the opportunity to raise those claims in state courts

upon review of the tribunal’s decision.

As explained in the magistrate’s report at 1528-29,

Wis.Stat. §§ 227.53-.58 provide for judicial review by state

trial and appellate courts of administrative hearings, and

for the consideration of constitutional challenges in the

course of such review. Accordingly, | agree with the mag-

istrate’s conclusion that the state proceedings set in

motion by the statutorily required application and hear-

ing at issue in the case at bar provide plaintiff with an

adequate opportunity to raise in a competent state tribu-

nal the federal defenses raised in this action.

Pending State Proceeding

The existence of a pending state proceeding is neces-

sary to trigger Younger abstention and is the critical issue

A-51

to be determined on this motion. Indeed, it is to this issue

that most of plaintiff’s objections to the magistrate’s

report are addressed.* The magistrate found that the com-

pleted hearing in the instant case was part of an “adjudi-

cative continum” because it is subject to rehearing and

judicial and appellate review. Plaintiff objects that the

availability of appellate review relates to the adequate

opportunity factor of the Middlesex test, that no comity

concerns are implicated when the administrative hearing

is over, and that if, as in this case, a completed adminis-

trative proceeding is held to be “pending,” then no party

to a state administrative proceeding can ever raise federal

claims in federal district court and federal plaintiffs will

be forced to bypass state administrative agencies in order

to get into federal district court. These objections will be

addressed in the course of the analysis that follows.

Whether the state proceeding in question is pending

is not an issue when the proceeding is in state court or

before an administrative tribunal for a decision and is

actually ongoing at the time the federal action is com-

menced or before there is substantial advancement in the

federal action. Dayton, 477 U.S. at 627-28 n. 2, 106 S.Ct. at

3 Plaintiff’s other objections are directed at the magis-

trate’s analysis of the important state interest factor and are

disposed of at page 1514 above. Plaintiff’s one remaining

objection, that state courts are inadequate to resolve multistate

federal constitutional challenges (despite the fact that federal

courts in different circuits can no better guarantee uniformity),

may be relevant to choice of forum but does not refute the

Younger principle that federal courts should not interfere with

state application and prosecution of state laws and the related

proposition that state courts are competent to evaluate the

constitutionality of state laws.

A-52

2723-24 n. 2. The problem arises when the state pro-

ceeding has yielded a decision and is no longer ongoing

when the federal action is filed.

When the state proceeding is in a trial court and the

court has entered judgment, the proceeding is apparently

considered to pending for Younger abstention purposes.

The reasoning for such a determination is unclear. In

Huffman, 420 U.S. at 592, 95 S.Ct. at 1200, the first case in

which the Court addressed the “pending” element where

the state proceeding had ended, the Court applied to

state trial proceedings only the requirement that the fed-

eral plaintiff continue through state appellate remedies

before seeking relief. Jd. at 608, 95 S.Ct. at 1210. The Court

stated that the fact that the federal plaintiff may no

longer be able to appeal is irrelevant. Id. at 611 n. 22, 95

S.Ct. at 1211 n. 22. The Court seems to have based this

requirement on the availability of a competent state tribu-

nal to decide the federal issues, id. at 594, 605, 95 S.Ct. at

1203, 1208, a consideration that was incorporated in »ub-

sequent cases in the adequate opportunity factor of the

Middlesex test. See cases cited in preceding sections; see

also Brown v. Scott, 462 F.Supp. 518, 521 (N.D.Ill. 1978)

(opportunity to raise federal claims in state court, either

on appeal or review, did not change threshold Younger

requirement that state court proceeding be pending).

4 In Pennzoil, 481 U.S. at 1, 107 S.Ct. at 1519, the Supreme

Court did not address whether the state proceeding was pend-

ing, perhaps because judgment was entered by the trial court

after the federal action was filed. Id. at 17, 107 S.Ct. at 1529

(judgment entered later the same day).

A-53

The distinction made in Huffman between state court

and administrative proceedings was eliminated when the

Supreme Court extended Younger to administrative pro-

ceedings in Middlesex and Dayton. In those cases the

proceedings at issue were ongoing and so the Court did

not reach the question whether they were pending. The

Court based its decision to extend Younger on its deter-

mination of the other two factors of the Middlesex test, the

implication of important state interests and the availabil-

ity of an adequate opportunity to raise federal claims in

the course of judicial review.

In Middlesex and Dayton, the Court also stated that

the Younger concerns of comity and federalism are as

applicable to pending civil proceedings as to pending

criminal prosecutions. 457 U.S. at 432, 102 S.Ct. at 2521;

477 U.S. at 627, 106 S.Ct. at 2723. However, these princi-

ples are not directly applicable te administrative proceed-

ings, ongoing or completed, where, as here and in most

other instances, the administrative tribunal has no

authority to decide the federal plaintiff’s constitutional

challenges. As plaintiff notes in its objections to the mag-

istrate’s report, where the constitutional challenges can-

not be entertained, there is no disruption of the pending

proceeding because no issue that could be decided is

being reopened, and there is no duplication of separate

legal proceedings addressing identical issues because the

constitutional issues are not within the state forum’s

jurisdiction. See Steffel v. Thompson, 415 U.S. 452, 462, 94

S.Ct. 1209, 1217, 39 L.Ed.2d 505 (1974). There is also no

disrespect even though the state court could hear the

constitutional claims if the federal plaintiff instituted a

ile

A-54

proceeding in state court, because there is no requirement

that § 1983 actions must first be filed in state court.®

However, Middlesex and Dayton appear to require

that where an administrative proceeding has taken place,

even though the federal plaintiff was not required to

initiate an action in state court, he or she must continue in

state court. The reason for this is that even if the adminis-

trative tribunal may not decide constitutional claims, the

state court may and the federal court’s intervention

would reflect negatively on the state court’s ability to

enforce constitutional principles in the course of its

review of the administrative proceeding. This concern

with the showing of disrespect for the state court that can

> The Supreme Court has been careful to include dis-

claimers against the erosion of the § 1983 exemption from the

exhaustion of remedies requirement even as it has narrowed

that exemption by its expansive application of Younger to non-

criminal, non-ongoing, proceedings, See, e.g., Dayton, 477 U.S.

at 627-28 n. 2, 106 S.Ct. at 2723-24 n. 2; Huffman, 420 US. at 610

n. 21, 95 S.Ct. at 1211 n. 21; Bethune Plaza, 863 F.2d at 529.

Although the Court’s cryptic assurances that the § 1983

exhaustion of remedies exemption remains intact may be

belied by the practical effect of recent Younger decisions, it is

still true that a federal plaintiff is not required to initiate either

state administrative or judicial remedies prior to bringing a

§ 1983 suit in federal court. Indeed, as is made clear in the

remainder of this order, it is only when federal plaintiffs do not

initiate proceedings before state administrative tribunals or in

state trial courts, and instead file a § 1983 action in federal

court before such proceedings are initiated against them, that

their right to sue under § 1983 in federal district court is

preserved. See People of State of Illinois v. General Electric Com-

pany, 683 F.2d 206 (7th Cir. 1982) (Younger abstention held

inappropriate where state began enforcement proceeding after

General Electric filed suit in federal court).

A-55

review the administrative proceeding may be attenuated,

but it applies whether the administrative proceeding is

ongoing or completed at the time the federal suit is filed.

The competency of the state tribunal to decide consti-

tutional claims is a critical distinction between adminis-

trative and court proceedings. Based on that distinction,

it could be concluded that unlike a completed trial a

completed administrative hearing should not trigger

Younger abstention, because whereas the federal plaintiff

could have raised constitutional claims at trial such

claims could not have been considered in the administra-

tive hearing. However, this distinction exists even where

the administrative proceeding has not yet ended — even

where it is ongoing the federal plaintiff’s constitutional

claims may not be decided until judicial review of the

hearing. Nevertheless, this distinction has not prevented

the Supreme Court from applying Younger to ongoing

administrative hearings. See Dayton, 477 US. at 619, 106

S.Ct. at 2718; Middlesex, 457 U.S. at 423, 102 S.Ct. at 2515.

Because this distinction cannot be used to hold Younger

applicable to ongoing administrative proceedings but not

to completed administrative proceedings, there is no

basis for using this distinction to hold Younger applicable

to completed trials but not to completed administrative

proceedings.

It appears that, where the Supreme Court has found

that important state interests are involved in the adminis-

trative proceeding that is being challenged, the Court has

decided to defer to the state court that could review that

proceeding and hear the constitutional challenges in that

review — in other words, to give the state court the first

A-56

opportunity to hear claims emanating from state proceed-

ings and challenging state laws. Because the comity con-

cerns related to disruption and duplication are not

implicated either when an administrative proceeding is

pending or when it is not (see discussion above at page

1516), and because the comity concern related to disre-

spect is indirectly implicated both when an administra-

tive proceeding is pending and when it is not, the

determination whether Younger principles are implicated

does not depend on whether the administrative proceed-

ing is pending.® Rather, the key concern seems to be

deference to state courts where the state had enforced its

laws or begun to enforce them, by refraining from inter-

fering with state court review of administrative applica-

tion of state law. See Lemon v. Tucker, 664 F.Supp. at 1147

(Younger policy of noninterference with state proceedings

applies where state prosecuting its laws).”

6 The irrelevance of whether the proceeding is actually

ongoing at the time the federal suit is filed was foreshadowed

by the statement in Huffman that although Younger turned on

the fact that the state court proceeding was pending, the pend-

ing element was used only to distinguish proceedings that had

already commenced from those that were merely incipient or

threatened, and the argument that the state proceeding had

ended was of no consequence. 420 U.S. at 606-07, 95 S.Ct. at

1209-10.

? There is some language that suggests the state proceed-

ing must be “coercive” for this concern to be triggered. Dayton,

477 U.S. at 627-28 n. 2, 106 S.Ct. at 2723-24 n. 2. One factor

bearing on the coercive nature of the proceeding in question is

whether federal plaintiffs must raise their constitutional claims

as defenses to the state proceeding. Lemon, 664 F.Supp. at 1147

(federal plaintiffs are not in a coercive posture when they are

(Continued on following page)

A-57

In sum, just as the statutory availability of appellate

review renders a completed trial pending for Younger

purposes, Huffman, 420 U.S. at 607-611, 95 S.Ct. at

1209-12, so the availability of judicial review renders a

completed administrative proceeding pending, because

the same Younger concerns that apply to ongoing admin-

istrative proceedings apply to ended administrative pro-

ceedings. This means that state proceeding (not tainted

by bias, bad faith or harassment) for which the state

offers statutory appellate review through its courts or

otherwise is pending for Younger purposes from the time

it is initiated, as long as the federal action is filed after

such initiation, until it has completed the review process.®

(Continued from previous page)

the state plaintiffs, or “prosecutors,” seeking to obtain affirma-

tive remedies from a state agency). That plaintiff in the instant

case would have had to raise its federal claims as defenses to

the hearing it challenges suffices to bring the state’s interest in

enforcing its laws to bear.

8 Until the Supreme Court applied Younger in Pennzoil, 481

U.S. at 1, 107 S.Ct. at 1519, to a state proceeding in which the

state was not a party, most courts held that Younger abstention

may apply only to a “state-initiated adjudication pending in a

state forum.” See, e.g., Jordi v. Sauk Prairie School Board, 651

F.Supp. 1566, 1575 (W.D.Wis. 1987) (citing Evans v. City of

Chicago, 689 F.2d 1286, 1294 (7th Cir. 1982)). In the instant case,

the fact of which party initiated the challenged hearing is

disputed. Plaintiff avers that it initiated the administrative

proceeding by submitting its application for approval of its

proposal to purchase St. Paul Companies. However, as defen-

dant notes, plaintiff was required by state law to submit the

application, and defendant called the hearing in response to

the application pursuant to the same state law. Thus, plaintiff

initiated the adjudicatory process to which I conclude Younger

(Continued on following page)

A-58

At that point, the federal plaintiff may be barred by the

principle of res judicata from pursuing his or her claims,

and may be able to proceed only by writ of certoriari to

the United States Supreme Court. The Court of Appeals

for the Seventh Circuit has said as much in rather expan-

sive dicta in Bethune Plaza, 863 F.2d at 528-29:

A state is entitled to continue in its own courts

(or administrative tribunals, for there is no

sharp distinction between a state “court” and a

state “adjudicatory agency”) litigation begun

there, without having the suit under § 1983

serve as a form of federal-defense removal... .

If the state’s tribunal is competent to resolve the

federal defense, then the litigation must con-

tinue in that forum.?

(Continued from previous page)

applies, and defendant initiated the actual proceeding that |

conclude triggered the application of Younger, but it was state

law that prompted either or both parties to set in motion the

process that I have found implicates the important state inter-

ests that bring the Younger concerns to bear. In any case,

whether the state initiated the process seems to be irrelevant

after Pennzoil.

9 In City Investing Company v. Simcox, 633 F.2d 56, 60 n. 10

(7th Cir. 1980), the Seventh Circuit Court of Appeals expressed

a somewhat different view of the role of federal district courts:

The rule of this circuit is that “[a]bstention from the exercise of

federal jurisdiction . . . is an extraordinary and narrow excep-

tion to the duty of a District Court to adjudicate a controversy

properly before it . . . [and is to be applied] only in exceptional

circumstances where the order of the parties to repair to the

State court would clearly serve an important countervailing

interest.” (Quoting County of Allegheny v. Frank Mashuda Co.,

360 U.S. 185, 79 S.Ct. 1060, 3 L.Ed.2d 1163 (1959)). The court’s

more expansive 1988 view of Younger abstention as expressed

in Bethune Plaza, 863 F.2d at 528-529, reflects the Supreme

Court’s steady extension of Younger over the last decade.

A-59

Thus, Younger, as steadily broadened by the Supreme

Court, now operates to deny the party brought before an

administrative tribunal the opportunity to choose a

forum for challenging the proceeding when it is over, and

to confine § 1983 actions challenging administrative pro-

ceedings to state courts. Such a result significantly erodes

“the paramount role Congress has assigned to the federal

courts to protect constitutional rights,” Steffel, 415 U.S. at

473,94 S.Ct. at 1222, despite the Supreme Court’s avowed

adherence to the § 1983 exhaustion exemption that pre-

serves this paramount role. Plaintiff fails to suggest, and |

am unable to find, any justifiable means of reconciling

such avowals with the Court’s rulings that the availabil-

ity of state judicial and appellate review suffices to trig-

ger Younger abstention, in order to avoid this far-reaching

result.

Accordingly, | am constrained to find that the chal-

lenged hearing in the instant case is pending for purposes

of Younger abstention. Having also found that the hearing

implicates important state interests and presents plaintiff

an adequate opportunity to raise its constitutional claims

in the course of judicial review, I conclude that abstention

on Younger grounds is appropriate,’° and | will adopt the

10 The district courts in Indiana and North Dakota have

concluded to the contrary and declined to abstain in actions

identical to the instant action brought by this plaintiff before

those courts. Alleghany Corporation v. Eakin, No. I.P. 88-561-C

(S.D.Ind. Jan. 30, 1989) and Alleghany Corporation v. Pomeroy,

698 F.Supp. 809 (D.N.D. 1988). As noted in the magistrate’s

report at p. 1533 n. 29, the decision by the North Dakota court

in Alleghany Corporation v. Pomeroy is inapposite because the

(Continued on following page)

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(Continued from previous page)

court found that constitutional challenges could not be raised

on judicial review of the Commissioner’s decision under North

Dakota statutes, and therefore one of the Middlesex factors was

not present. Id. at 812-13.

In Alleghany Corporation v. Eakin, the district

court in Indiana found Younger inapplicable, reason-

ing that there was no pending proceeding because

the plaintiff had received a final determination on its

application at the concluded hearing, even though

the plaintiff “could have availed itself of judicial

review of the denial of its application in the Indiana

state courts....” Id. at 7. The court relied primarily

on Thomas v. Texas State Board of Medical Examiners,

807 F.2d 453, 456-57 (5th Cir. 1987), and People of

State of Illinois v. General Electric Company, 683 F.2d

206 (7th Cir. 1982). As discussed in the magistrate’s

report at pp. 28-30, Thomas may be distinguished by

the existence of certain elements, such as the request

for damages and the charge of a personal vendetta,

that would make Younger abstention inapplicable

even if the administrative proceeding had been

ongoing. More important, the finding in Thomas that

the availability of state court review did not render

Younger abstention inappropriate is contrary to the

United States Supreme Court’s application and

extension of Younger as discussed in this order.

Like Thomas, General Electric, 683 F.2d at 206, is

also distinguishable from the instant case and the

force of its reasoning has been diluted by subsequent

Supreme Court cases. In General Electric, where the

court declined to abstain when General Electric sued

in federal court for a declaratory judgment that an

Illinois law was unconstitutional, General Electric

had not yet been brought before any state tribunal.

The state began its enforcement proceedings a few

(Continued on following page)

A-61

Magistrate’s Report and Recommendation as supple-

mented by my own conclusions of law as set forth

above.!!

Order

IT IS ORDERED that the Magistrate’s Report and

Recommendation is adopted as supplemented by the

(Continued from previous page)

hours after General Electric commenced its suit in

federal court. Id. at 208. (Under Dayton, 477 U.S. at

627-28 n. 2, 106 S.Ct. at 2723-24 n. 2, such a sequence

might no longer suffice to render Younger abstention

inapplicable because the state proceeding was initi-

ated before the federal action had substantially

advanced.)

However, more important to the court than the

order of the suits was whether a state statute had

been violated. Id. at 212-13. As in the instant case,

the federal plaintiff had not violated state law when

it filed suit in federal court. The federal plaintiff had

also not yet violated the state law it was challenging

in Pennzoil, 481 U.S. at 1, 107 S.Ct. at 1519, yet the

Supreme Court held Younger abstention to be appro-

priate nevertheless because of the importance of the

state interests implicated by that law. Id. at 12-14, 107

S.Ct. at 1526-28. Thus, the lynchpin of the General

Electric decision is no longer required for Younger to

apply, and the analysis in more recent cases weakens

General Electric’s precedential value. Even so, the

court in General Electric anticipated the subsequent

trend in Younger case law when it stated that “it is

unseemly to allow a single federal district judge to

enjoin a state statute.” Id. at 213.

1! However, I do not agree with the statement in the

Magistrate’s report at 41 that “[tlo hold otherwise would ren-

der the [Younger] doctrine a virtual nullity.”

A-62

findings of fact and conclusions of law set forth in this

order, and that defendant’s motion to dismiss this case is

GRANTED.

REPORT AND RECOMMENDATION

JAMES GROH, United States Magistrate.

Plaintiff, Alleghany Corporation (Alleghany), brings

this action for declaratory judgment seeking a determina-

tion that Wis.Stats. §§ 611.72 and 617.12 are unconstitu-

tional and for injunctive relief to prohibit defendant

Commissioner of Insurance from enforcing them. Those

sections prohibit, inter alia, the execution of any plan for

the acquisition of control (as defined in Wis.Stats.

§ 600.03(13)) of any domestic stock insurance company, or

its parent holding company wherever organized, without

the approval of the defendant.

Alleghany seeks to acquire presumptive control (in

excess of ten percent of the common stock) of the St. Paul

Companies, Inc. (ST. PAUL), a publicly-trade insurance

holding company domiciled in Minnesota, through pur-

chases on the open market. ST. PAUL’s principal (and

wholly-owned) subsidiary is St. Paul Fire & Marine Insur-

ance Company (FIRE & MARINE), a Minnesota corpora-

tion. FIRE MARINE, in turn has a wholly-owned

subsidiary incorporated in Wisconsin, St. Paul Fire and

Casualty Insurance Company (FIRE & CASUALTY). After

application and hearing, in conformity with the applica-

ble state statutes and regulations, the Commissioner

denied Alleghany’s request. (Cmpl.Ex. C) Alleghany did

not pursue the statutory review procedure through the

Wisconsin courts. Wis.Stats §§ 227.48, .49 and .53. Instead,

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Alleghany filed this action which is now before the court

on the Commissioner’s motion to dismiss the complaint

under the abstention doctrines of Younger v. Harris, 401

U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971) and Burford v.

Sun Oil, Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424

(1943). (Dkt. #6) This report and recommendation, sub-

mitted pursuant to 28 U.S.C. § 636(b)(1)B), recommends

that the motion be granted.!

FINDINGS OF FACT

For the purpose of deciding this motion only, | find

the following facts from the well-pleaded allegations of

the complaint. (Dkt #1):

1. The plaintiff, Alleghany Corporation, is a Dela-

ware corporation with its principal place of business in

New York, New York. It is a publicly-held company

whose common stock is listed and traded on the New

York Stock Exchange. (Cmpl. { 3)

2. The defendant, Robert D. Haase, is the Commis-

sioner of Insurance of the State of Wisconsin. As such, he

has the duty to administer and enforce the insurance laws

of Wisconsin, including those pertaining to transfers of

control of insurance companies. (Cmpl. 7 1,4; Wis.Stat.

' St. Paul Fire & Casualty Ins. Co. and St. Paul Companies,

Inc., respectively, the Wisconsin insurer and its grandparent

(the direct object of plaintiff’s acquisition effort) have filed a

motion for leave to intervene. (Dkt. #3) Defendant (Dkt. #22),

plaintiff (Dkt. #8), and the intervenors (Dkt. #27) have all filed

motions for summary judgment as well. The disposition of the

instant motion renders consideration of the other motions

unnecessary.

A-64

§ 601.41(1)). Defendant is a resident of the Western Dis-

trict of Wisconsin. (Cmpl. 7 6)

3. In July, 1987, Alleghany began to acquire, on the

open market, common stock of The St. Paul Companies,

Inc. (St. PAUL), an insurance holding company incorpo-

rated and domiciled in Minnesota whose common stock

is quoted on the NASDAQ National Market System and is

registered under Section 12 of the Securities Exchange

Act of 1934 (15 U.S.C. § 78a et seq.). (Cmpl. J 7)

4. St. Paul Fire and Casualty Insurance Company

(FIRE & CASUALTY), a Wisconsin corporation, is wholly-

owned subsidiary of St. Paul Fire and Marine Insurance

Company (FIRE & MARINE), a Minnesota corporation,

which, in turn, is a wholly-owned subsidiary of ST.

PAUL. (Cmpl. 4 18)

5. As a result of its purchases, Alleghany owns,

directly or indirectly, approximately 9.2 percent of ST.

PAUL’s outstanding common stock and seeks to acquire

over 10 percent of the common stock through further

open market purchases. (Cmpl. { 7)

6. Alleghany’s acquisition of shares of ST. PAUL is

subject to the Williams Act, 15 U.S.C. §§ 78m(d), (e) and

78n(d)-(f). Alleghany filed a Schedule 13D with the Secu-

rities Exchange Commission discussing its plans and pro-

posals regarding control and changes in the business of

ST. PAUL upon acquiring more than 5 percent of ST.

PAUL’s stock as required by the Williams Act and regula-

tions issued thereunder. (Cmpl. 77 37, 38 and 40; 15

U.S.C. § 78n(d)(1); 17 CFR § 240.13d-1.2

2 There is no allegation that Alleghany has initiated, or

intends to initiate, a tender offer, so the provisions of Section

14(d) (15 U.S.C. § 78n(d)) have not been engaged.

A-65

7. Forty-seven states, including Wisconsin and Min-

nesota, have adopted similar statutes reserving to the

Commissioner of Insurance, or equivalent official, the

authority to approve or disapprove a proposed acquisi-

tion or control of a domestic insurance company or its

parent holding company, and to require the filing of a

disclosure statement and a hearing before the appropriate

insurance official in advance of such acquisition. The

ownership of more than 10 percent of the voting securi-

ties of such a company creates a rebuttable presumption

of control. (Cmpl. 77 13, 20, Wis.Stats. §§ 600.03(13),

611.72(2) and (3), and 617.12) (hereinafter sometimes col-

lectively referred to as “the Act” are “the Wisconsin

Act”).3

3 Aside from noting the similarity of the statutes, the

complaint does not cite the specific statutes of any states other

than Wisconsin. The legislation appears to have had its origins

in the Model Insurance Holding Company System Regulatory

Act adopted by the National Association of Insurance Commis-

sions in 1969. 2 Proc. NAIC, p. 735-738. See Cmpl.Ex.A, p.

22-24.

Wis.Stat. § 600.03(13) defines control:

(13) “Control” means that possession, directly or

indirectly, of the power to direct or cause the direc-

tion of the management and policies of a person,

whether through the ownership of voting securities,

by contract, by common management or otherwise.

A person having a contract or arrangement giving

that person control is deemed to be in control despite

any limitations placed by law on the validity of the

contract or arrangement. There is a rebuttable pre-

sumption of control if a person directly or indirectly

owns, holds with the power to vote or holds proxies

(Continued on following page)

A-66

7. On November 12, 1987, Alleghany filed its Form

A Statement Regarding the Acquisition of Control of a

(Continued from previous page)

to vote more than 10% of the voting securities of

another person, except that no person shall be pre-

sumed to control another person solely by reason of

holding an official position with that person. “Con-

trol” has the same meaning in the terms “control-

ling”, “controlled by” and “under common control

with”. See also “affiliate”.

Wis.Stat. § 600.03(1) defines affiliate:

(1) “Affiliate” of a person means any other per-

son who controls, is controlled by, or is under com-

mon control with, the first person. A corporation is

an affiliate of another corporation, regardless of

ownership, if substantially the same group of per-

sons manage the 2 corporations.

Wis.Stat. § 611.72 states, in pertinent part:

(2) Approval required. No proposed plan of

merger or consolidation under ss. 180.62 to 180.685

and 180.72 or other plan for acquisition of control may be

submitted to the shareholders of any domestic stock insur-

ance corporation or its parent insurance holding corpora-

tion participating in the transaction or executed unless

it has been approved by the commissioner. [emphasis

added]

(3) Grounds for disapproval. The commissioner

shall approve the plan if the commissioner finds,

after hearing, that it would not violate the law or be

contrary to the interests of the insured of any partici-

pating domestic corporation or of the Wisconsin

insureds of any participating nondomestic corpora-

tion and that:

(Continued on following page)

A-67

Domestic Insurer (ST. PAUL) with the Minnesota Com-

missioner of Commerce. A hearing was held before an

(Continued from previous page)

(a) After the change of control, the domestic

stock insurance corporation or any stock insurance

corporation controlled by the insurance holding cor-

poration would be able to satisfy the requirement for

the issuance of a license to write the line or lines of

insurance for which it is presently licensed;

(b) The effect of the merger, consolidation or

other acquisition of control wouid not be to create a

monopoly or substantially to lessen competition in

insurance in this state;

is not likely to jeopardize the financial stability of the

domestic stock insurance corporation or its parent

insurance holding corporation, or prejudice the

interests of its Wisconsin policyholders;

(d) The plans or proposals which the acquiring

party has to liquidate the domestic stock insurance

corporation or its parent insurance holding corpora-

tion, sell its assets, or consolidate or merge it with

any person, or make any other material change in its

business or corporate structure or management are

fair and reasonable to policyholders of the domestic

stock insurance corporation or in the public interest;

and

(e) The competence and integrity of those per-

sons who would control the operation of the domes-

tic stock insurance corporation are such that it would

be in the interest of the policyholders of the corpora-

tion and of the public to permit the merger or acqui-

sition of control.

(Continued on following page)

A-68

administrative law judge on December 16 and 17, 1987, at

which an extensive record was developed. On January 11,

1988, the Deputy Commissioner of Commerce adopted

the recommendation of the administrative law judge that

Alleghany be permitted to acquire up to 20 percent of ST.

PAUL’s stock, with any additional purchases to be made

only after obtaining further approval from the Commis-

sioner. (Cmpl. 74 8-11 and Exs. A, p. 22, and B, p. 17) The

order of the Deputy Commissioner is under review in the

Minnesota courts. (Cmpl. 4 12)4

9. The State of Wisconsin also asserts the indepen-

dent and separate authority to approve or disapprove of

Alleghany’s proposal to purchase over ten percent of ST.

(Continued from previous page)

> * >

Wis.Stat. § 617.12 states:

Any person attempting to acquire control over a

domestic insurer shall be subject to the same duties

with respect to reports and replies to the commis-

sioner as are provided by law for the insurer, to the

extent reasonably necessary to carry out the pur-

poses of this chapter, and shall be subject to the

jurisdiction of the commissioner and the courts of

this state for the enforcement of such duties. Section

617.12 was repealed, effective March 25, 1988, by

1987 Wis.Act 167 4949 5, 10 and consolidated with

Section 617.11 governing reports on insurer affiliates.

This change has no apparent effect on the issues in

this case.

4 The complaint does not reveal by whom the review was

sought or the issues presented for review. It is clear, however,

that ST. PAUL opposed the application in the administrative

proceedings. (Cmpl. 74 9 and 11 and Ex. A, p. 1, 22)

A-69

PAUL’s stock because ST. PAUL’s sub-subsidiary, FIRE &

CASUALTY, is incorporated in Wisconsin. (Cmpl. 7{ 17,

19 and 20 and statutes at n. 3, supra) Alleghany does not

seek to acquire the shares of FIRE & CASUALTY itself,

which would continue to be the wholly-owned subsidiary

of FIRE & MARINE. (Cmpl. 74 18 and 21.)

10. In 1987, approximately two percent of ST.

PAUL’s insurance premiums came from Wisconsin. FIRE

& CASUALTY accounts for approximately three percent

of ST. PAUL’s premium and less than one-tenth of one

percent of ST. PAUL’s admitted assets. FIRE & MARINE

reinsures the policies written by FIRE & CASUALTY.

11. Alleghany filed an Insurance Holding Company

Registration Statement with the Wisconsin Department of

Insurance on November 24, 1987, pursuant to Wis.Stats.

§§ 611.72 and 617.12 and regulations promulgated there-

under. (Cmpl. 4] 1, 27; s. Ins. 12.01(111) Wis.Adm.Code)

12. Defendant held a hearing on Alleghany’s pro-

posed acquisition of the stock on February 10-11, 1988, as

required by Wis.Stat. 611.712(3) and s. Ins. 12.01(12)(a),

Wis.Adm.Code. (Cmpl. 9923 and 27).5

13. On April 7, 1988, defendant issued a decision

and order denying Alleghany’s application for approval

of the proposed acquisition. (Cmpl. 727 and Ex. C.)® For

his conclusions of law, defendant stated:

° The hearing procedures are spelled out in the Commis-

sioner’s regulations. s. Ins. 5.01 et seq., Wis.Adm.Code.

6 This decisions and those of the Minnesota regulatory

authorities (Cmpl.Exs. A & B) contain extensive findings of fact

(over 40 pages) about Alleghany and ST. PAUL and the pro-

posed acquisition.

A-70

(84) Alleghany has the burden of proof in

this proceeding to show by a preponderance of

the evidence that its plan of acquisition is not

contrary to the interests of the insureds of any

participating domestic corporation or of the

Wisconsin insureds of any participating non-

domestic corporation and that the five criteria

specified under s. 611.72(3)(a) to (e), Wis. Stat.,

are fulfilled.

(85) Alleghany’s plan of acquisition is con-

trary to the interests of the insureds of St. Paul

Fire and Casualty, the Wisconsin insureds of St.

Paul, and the public.

(86) Alleghany has failed to sustain its bur-

den to show that the effect of the acquisition of

control would not be to create a monopoly or

substantially to lessen competition in insurance

in this state.

(87) Alleghany has failed to sustain its bur-

den to show that its financial condition is not

likely to jeopardize the financial stability of the

domestic stock insurance corporation or its par-

ent insurance holding corporation, or prejudice

the interests of its Wisconsin policyholders.

(88) Alleghany has failed to sustain its bur-

den to show that the plans or proposals which it

has to liquidate the domestic stock insurance

corporation or its parent insurance holding cor-

poration, sell its assets, or consolidate or merge

it with any person, or make any other material

change in its business or corporate structure or

management are fair and reasonable to policy-

holders of the domestic stock insurance corpora-

tion or in the public interest.

(89) Alleghany has failed to sustain its bur-

den to show that the competence and integrity

of those persons who would control the opera-

tion of the domestic stock insurance corporation

A-7]

or its parent insurance holding corporation are

such that it would be in the interest of the

policyholders of the corporation and of the pub-

lic to permit the acquisition of control.

(90) The Commissioner has the authority

under the McCarran-Ferguson Act, 15 U.S.C. ss.

1011-1015, to deny Alleghany’s petition.

(Cmpl. Ex. C, p. 21)?

14. Shares of ST. PAUL common stock are traded in

interstate commerce. The effect of defendant’s order is to

prevent Alleghany from making further purchases of ST.

PAUL common stock outside the State of Wisconsin

through public trades with sellers located outside Wis-

consin. (Cmpl. 7 2, 30)

15. Eight other states have asserted a similar statu-

tory right to approve Alleghany’s proposed purchase of

over 10 percent of ST. PAUL’s shares —- California, Indi-

ana, Nebraska, North Dakota, New York, Texas, Dela-

ware, and Illinois. Alleghany has filed applications for

approval in all these states and hearings were held in

Indiana, Nebraska, North Dakota and Texas. Live testi-

mony was permitted or required at all hearings (includ-

ing Wisconsin), all of which were held after the

Minnesota hearing. (Cmpl. 7] 13 and 14) After a con-

tested proceeding, California approved the acquisition of

up to 20 percent of ST. PAUL’s stock. The Insurance

? The decision also notified Alleghany of its right, within

30 days, to petition for a rehearing pursuant to Wis.Stat.

§ 227.49 or to seek judicial review in Wisconsin Circuit Court

under Wis.Stat. § 227.53 (Ex.C. at 22-23) Plaintiff concedes that

it did not seek relief or review under these provisions. (Brief at

4, Dkt. # 15)

A-72

Commissioners of Indiana, North Dakota, and Nebraska

have disapproved the applications.®

16. This action was filed April 28, 1988. This court

has jurisdiction over the action pursuant to 28 U.S.C.

§§ 1331 and 1343(a)(3). Venue is proper pursuant to 28

USC. § 1994.

CONCLUSIONS OF LAW

Introduction

The focal issues in this action for declaratory and

injunctive relief are whether Wis.Stats. §§ 611.72 and

617.12 are unconstitutional under the Supremacy Clause

and the Commerce Clause of the United States Constitu-

tion (Art. VI, cl. 2 and Art. I, § 8, cl. 3).9 The purpose and

®’ Notice may be taken of tater developments in other

jurisdictions. Federal court challenges to the constitutionality

of the state statutes have been filed in Nebraska and North

Dakota. Alleghany Corp. v. McCartney, No. CV-88-L-235, Alle-

ghany Corp. v. Pomeroy, No. A1-88-096. Motions to dismiss on

abstention grounds were filed in each case. The motion was

granted in McCartney, on October 18, 1988, and the opinion

appears at Docket No. 47. The motion was denied in Pomeroy,

698 F.Supp. 809 (Opinion at Docket No. 35A) and 700 F.Supp.

460 on October 28, 1988, the district court found the North

Dakota statute to be an unconstitutional infringement of the

Commerce Clause and granted Alleghany’s Motion for Sum-

mary Judgment. (Opinion at Docket No. 50)

9 Alleghany seeks a declaration of the constitutional

invalidity of the statutes and an injunction barring defendant

from invoking or enforcing them against it. Briefly stated,

Count I alleges that the legislation, on its face and as applied,

(Continued on following page)

A-73

effect of this legislation is to reserve to the defendant

Commissioner the authority to approve or disapprove the

transfer of control of a domestic insurance company (i.e.

one incorporated in Wisconsin, Wis.Stats. § 600.03(17)), or

its parent company, wherever domiciled. In this case the

Commissioner’s exercise of that authority translates into

a prohibition against Alleghany’s further purchase of ST.

PAUL shares.

The issues presented by this case are complex and

far-reaching, arising as they do at the intersection of two

otherwise unrelated regulatory systems, one state and the

other federal — the supervision of the insurance industry

and the regulation of the (interstate) market in publicly-

traded securities. Although insurance is a business affect-

ing interstate commerce, United States v. South-Eastern

Underwriters Assn., 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed.

1440 (1944), Congress, in the McCarran-Ferguson Act, 15

U.S.C. §§ 1011-1015, has reserved to the states the exclu-

sive authority to regulate “[t]he business of insurance

(Continued from previous page)

constitutes the impermissible staie regulation of interstate

commerce by regulating or prohibiting transactions in ST.

PAUL’s securities between non-resident buyers and sellers and

by subjecting Alleghany to duplicative or inconsistent regula-

tion. (Cmpl. 4 28-35) Count II alleges that the statutory

scheme, on its face and as applied, is in direct conflict with the

Williams Act which, it is alleged, has preempted the regulation

of transfers of control of publicly traded corporations. (CmpIl.

{1 36-42) Count III alleges that the State of Wisconsin is only

minimally affected by Alleghany’s purchase of ST. PAUL

shares, and that its attempt to regulate the out-of-state transac-

tions in ST. PAUL shares violates the Due Process Clause of the

Fourteenth Amendment. Finally, Count IV charges that the

foregoing allegations constitute a violation of 42 U.S.C. § 1983.

A-74

and every person engaged therein” in the absence of an

express declaration of Congress to the contrary. 15 U.S.C.

§ 1012.!9 The Wisconsin Jegisiation, defendant argues, is

an exercise of that authority. Broadly stated, its putative

purposes are to protect the financial condition of Wiscon-

sin insurers to protect Wisconsin policyholders, and to

foster stable markets and competition. That legislation is

not an aberration. It is represented that forty-seven states

have adopted it in some form, and it apparently derives

from a model act endorsed by the National Association of

10 15 U.S.C. § 1011 states:

Congress hereby declares that the continued reg-

ulation and taxation by the several States of the

business of insurance is in the public interest, and

that silence on the part of the Congress shall not be

construed to impose any barrier to the regulation or

taxation of such business by the several States.

15 U.S.C. § 1012 states, in pertinent part:

(a) The business of insurance, and every person

engaged therein, shall be subject to the laws of the

several States which relate to the regulation or taxa-

tion of such business.

(b) No Act of Congress shall be construed to

invalidate, impair, or supersede any law enacted by

any State for the purpose of regulating the business

of insurance, or which imposes a fee or tax upon

such business unless such Act specifically relates to the

business of Insurance. . . . [emphasis added]

In 15 U.S.C. § 1014 the business of insurance is

expressly made subject to the National Labor Rela-

tions Act and the Fair Labor Standards Act of 1938

and the Merchant Marine Act.

A-75

Insurance Commissioners.'! This fact contributes to the

complexity of the overall controversy, at least on the

surface, as eight other states (in six federal judicial cir-

cuits) have also asserted regulatory jurisdiction over Aile-

ghany’s proposed acquisition under their versions of the

legislation.'*? This lawsuit, then, may be viewed as just

one act in a labrynthine multi-state drama of which rela-

tively little is (or need be) known at this juncture. Other

scenes are being played out in the districts of Nebraska

and North Dakota and in the state courts of Minnesota.

While those proceedings are of interest, they provide no

more than persuasive authority on the issues of she

instant motion or the merits of Alleghany’s complaint.

As noted, Alleghany’s case is anchored first on Sec-

tions 13(d) and (e) and 14(d)-(f) of the Securities

Exchange Act of 1934, as amended (15 U.S.C. §§ 78m(d),

(e) and 78n(d)-(f), commonly referred to as the Williams

Act, which Congress adopted in 1968 to regulate transfers

of control of publicly traded corporations for the purpose

of protecting investors. Piper v. Chris-Craft Industries Inc.,

430 U.S. 1, 97 S.Ct. 926, 51 L.Ed.2d 124 (1977). The thrust

of Alleghany’s claim is that it has done all that the

Williams Act requires of it and that Alleghany’s market

purchases of 10%, 20% or more of ST. PAUL’s shares

1 See note 3, supra. Some of the history of the Model

Insurance Holding Company System Regulatory Act is

recounted in the decision of the Minnesota Administrative Law

Judge, who notes that the Minnesota statute was drawn from

the model act. (Cmpl.Ex. A, pp. 23-25)

12 See Finding 15, supra p. 1523.

A-76

would be lawful and proper in all respects. As the Wis-

consin legislation permits the Commissioner to bar fur-

ther purchases (as he has done here), or otherwise impair

or impede the acquisition process, it is in direct conflict,

Alleghany argues, with the letter and the purpose of the

federal legislation and must be seen as having been pre-

empted by it. i

The question of a state’s supervisory powers with

respect to corporate takeovers generally is one of consid-

erable consequence, and has been visited, with mixed

results, at least three times by the Supreme Court in the

past few years. Leroy v. Great Western United Corp., 443

U.S. 173, 99 S.Ct. 2710, 61 L.Ed.2d 464 (1979) (involving

Idaho takeover legislation — decided on venue grounds);

Edgar v. Mite Corp., 457 U.S. 624, 102 S.Ct. 2629, 73

L.Ed.2d 269 (1982) (plurality opinion voiding Illinois leg-

islation) and CTS Corp. v. Dynamics Corp. of America, 481

U.S. 69, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987) (upholding

Indiana legislation).'1* These same cases also presented

Alleghany’s other principal claim — that state attempts to

regulate corporate takeovers violate the Commerce

Clause.

Defendant does not dispute the existence of substan-

tial federal constitutional questions or the jurisdiction of

'3 The statutes in Leroy and Edgar pertained only to take-

overs by tender offer. 443 U.S. at 176, n. 4, 99 S.Ct. at 2712, n. 4;

457 U.S. at 626, n. 1, 102 S.Ct. at 2632, n. 1. The Indiana statute

in CTS Corp., was addressed broadly to the acquisition of

“control shares” in corporation incorporated in Indiana, 107

S.Ct. at 1641. None of the cases involved control of an insur-

ance company.

sew —

A-77

this court to consider them. He urges, however, that

theories of abstention fashioned by the Supreme Court

are controlling the dictate the dismissal of Alleghany’s

complaint. For purposes of this motion, the weli-pleaded,

factual allegations of the complaint are taken as true. Fore

Way Exp., Inc. v. Wis. Dept. of Industry, 660 F.Supp. 310,

211 (E.D.Wis.1987).

Our Court of Appeals has recently described “absten-

tion” as

the rubric applied to a congeries of statutory

and judicially created doctrines which either

require or intimate (more or Jess strongly) that a

federal court not entertain a claim pressed

before it. All of these doctrines are designed to

afford state courts and other organs of state

government a measure of respect. A few also

reflect the judicial preference for avoiding

unnecessary questions of constitutional law.

Although the rationales differ in detail, the

application of each doctrine results in the fed-

eral court declining to hear a claim, until the

state court has an opportunity to address it, e.g.,

[Railroad Commission of Texas v.] Pullman [Co.]

312 U.S. [496] at 501-02, 61 S.Ct. [643] at 645]-46

[85 L.Ed. 971 (1941)], or absolutely, e.g., Younger

v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669

(1971).

Moses v. Kenosha County, 826 F.2d 708, 709 (7th Cir.1987).

This unitary view of the subject, which deemphasizes the

separateness of the various “doctrines”, echoes the

admonition of the Supreme Court in its most recent treat-

ment of the question:

The various types of abstention are not rigid

pigeonholes into which federal courts must try

to fit cases. Rather, they reflect a complex of

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considerations designed to soften the tensions

inherent in a system that contemplates parallel

judicial processes.

Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 107 S.Ct. 1519, 1526

n. 9, 95 L.Ed.2d 1 (1987).14

It is with these considerations in mind that | turn to

defendant’s specific claims that abstention is proper

under either the Younger or Burford abstention doctrines.

Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669

(1971); Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098,

87 L.Ed. 1424 (1943).

I. The Younger Doctrine

In 1971, the Supreme Court held, in Younger v. Harris,

that it was inappropriate for a federal judge to enjoin a

pending state criminal prosecution. Over the next sixteen

years that rationale has been extended to non-criminal,

state administrative proceedings (see e.g. Ohio Civil kights

Commission v. Dayton Christian Schools, 477 U.S. 619, 106

S.Ct. 2718, 91 L.Ed.2d 512 (1986) and Middlesex County

Ethics Committee v. Garden State Bar Ass'n, 457 U.S. 423,

102 S.Ct. 2515, 73 L.Ed.2d 116 (1982)) and, in 1987, to

litigation between purely private litigants. Pennzoil Co. v.

Texaco, Inc., 481 U.S. 1, 107 S.Ct. 1519, 95 L.Ed.2d 1

(1987).15

'4 The historical development of abstention is helpfully

summarized in 17A Wright, Miller and Cooper, Federal Practice

and Procedure: Jurisdiction 2d (1988) § 4241.

'S For the evolution and application of the Younger rule

generally, see 17 A Wright, Miller & Cooper, Federal Practice and

Procedure: Jurisdiction 2d (1988), §§ 4251-4255.

A-79

In the Pennzoil case, Pennzoil had obtained an $11

billion judgment against Texaco in the Texas state trial

court. Under Texas law, a bond of $13 billion was

required as a condition of appeal. Texaco did not appeal,

nor did it attempt to challenge the constitutionality of the

appeal bond law in the Texas courts. Instead, it filed an

action (after the jury verdict and just hours before judg-

ment was entered) in the federal district court for the

Southern District of New York to enjoin Pennzoil from

enforcing the judgment, alleging violation of its rights

under the Constitution and federal laws.'® The district

court granted a preliminary injunction (626 F.Supp. 250

(1986)) and the Second Circuit, affirming, made it perma-

nent. (784 F.2d 1133 (1986)).

In reversing, the Supreme Court reaffirmed the prin-

ciples upon which Younger was grounded, and added that

abstention is obligatory under Younger whenever impor-

tant state interests are at stake.

The first ground for the Younger decision

was “the basic doctrine of equity jurisprudence

that courts of equity should not act, and partic-

ularly should not act to restrain a criminal pros-

ecution, when the moving party has an adequate

remedy at law.” Id. [401 U.S.] at 43, 91 S.Ct. at

750. The Court also offered a second explanation

for its decision:

“This underlying reason... is reinforced by

an even more vital consideration, the notion

'6 These included the Full Faith and Credit Clause. the

Commerce Clause, the Williams Act, the Securities Exchange

Act of 1934, the Due Process Clause and Equal Protection

Id. 107 S.Ct. at 1523, n. 6 and 1524.

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of ‘comity,’ that is, a proper respect for state

functions, a recognition of the fact that the

entire country is made up of a Union of

separate state governments, and a continu-

ance of the belief that the National Govern-

ment will fare best if the States and their

institutions are left free to perform their

separate functions in their separate ways

. . . . The concept does not mean blind

deference to ‘States’ Rights’ any more than

it means centralization of control over every

important issue in our National Govern-

ment and its courts. The Framers rejected

both these courses. What the concept does

represent is a system in which there is sensi-

tivity to the legitimate interests of both

State and National Governments, and in

which the National Government, anxious

though it may be to vindicate and protect

federal rights and federal interests, always

endeavors to do so in ways that will not

unduly interfere with the legitimate activ-

ities of the States.” Id. at 44, 91 S.Ct. at 750.

This concern mandates application of Younger

abstention not only when the pending state proceed-

ings are criminal, but also when certain civil pro-

ceedings are pending, if the State’s interests in the

proceeding are so important that exercise of the fed-

eral judicial power would disregard the comity

between the states and the National Government.

[citations omitted] [emphasis added]

Pennzoil Co. v. Texaco, Inc., 107 S.Ct. at 1525-26.'!7

17 Alleghany opens its argument (Br. p. 5; Dkt. #7) with

Justice Brennan’s oftquoted observation from Colorado River

Water Cons. Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct.

1236, 1246, 47 L.Ed.2d 483 (1976) regarding “the virtually

(Continued on following page)

A-81

Chief Justice Burger advanced a convenient three-

part test for determining the applicability of Younger

abstention in the Middlesex County case:

(Continued from previous page)

unflagging obligation of the federal courts to exercise the

jurisdiction given them.” Whatever vitality that statement may

continue to have with regard to the quite different species of

abstention brought to life in that case, it has been without force

in the Younger context for some time. To the contrary

Younger v. Harris, supra, and its progeny espouse

a strong federal policy against federal-court inter-

ference with pending state judicial proceedings

absent extraordinary circumstances.

Middlesex County Ethics Committee v. Garden State Bar

Ass'n, 457 U.S. at 431, 102 S.Ct. at 2520; see also

Huffman v. Pursue, Ltd., 420 U.S. 592, 601, 95 S.Ct.

1200, 1206, 43 L.Ed.2d 482 (1975). Indeed, Justice

Brennan has made no secret of his disagreement with

the expansion of Younger abstension. The latest

expression is found in his opinion concurring in the

judgment in Pennzoil, in which he reiterates his view

that Younger is generally inapplicable to civil pro-

ceedings and, particularly, actions under 42 U.S.C.

§ 1983. Pennzoil, 107 S.Ct. at 1530.

It should be noted that the Younger decision

itself acknowledged that abstention would be inap-

propriate in the case of a statute which was in patent

and flagrant violation of constitutional prohibitions

in every conceivable application or upon a showing

of bad faith, harrassment or other unusual circum-

stances. Younger, 401 U.S. at 53-54, 91 S.Ct. at 754-55.

It has not been suggested that any of these excep-

tional circumstances are present here. Thus, Alle-

ghany’s suggestion that the Younger abstention is

“extraordinary and narrow,” must be viewed as

somewhat overstated. (Br. p. 5)

A-82

first, do state bar disciplinary hearings within

the constitutionally prescribed jurisdiction of

the State Supreme Court constitute an ongoing

state judicial proceeding; second, do the proceed-

ings implicate important state interests; and

third, is there an adequate opportunity in the

state proceedings to raise constitutional chal-

lenges.

Id. 457 U.S. at 432, 102 S.Ct. at 2521. See also Texaco, Inc. v.

Pennzoil Co., 784 F.2d 1133, 1149 (2d Cir.1986); New

Orleans Public Service v. City of New Orleans, 798 F.2d 858,

863-864 (5th Cir.1986), cert. denied 481 U.S. 1023, 107 S.Ct.

1910, 95 L.Ed.2d 515 (1987); World Famous Drinking Empo-

rium v. City of Tempe, 820 F.2d 1079, 1082 (9th Cir.1987).

These same factors provide the framework for the Youn-

ger analysis in the instant case.

The first question to consider is whether the hearing

provided for under Wis.Stats. § 611.72(3) and conducted

by the Commissioner was part of an ongoing state judi-

cial proceeding.

That a state administrative proceeding may be a part

of an ongoing judicial proceeding is central to the

Supreme Court’s decisions in Ohio Civil Rights Commission

v. Dayton Christian Schools, 106 S.Ct. at 2723-2724 and n. 2,

and Middlesex County, 457 U.S. at 433-434, 102 S.Ct. at

2522. The proceeding must, however, be adjudicative or

judicial in nature to warrant deference under the Younger

principle. Ohio Civ. Rights Comm., 106 S.Ct. at 2723, n. 2.

As Judge Easterbrook recently observed:

Younger and many ensuing cases protect the

state’s processes from premature federal inter-

ference. A state is entitled to continue in its own

courts (or administrative tribunals, for there is no

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sharp distinction between a state “court” and a state

“adjudicatory agency”) litigation begun there,

without having the suit under § 1983 serve as a

form of federal-defense removal. . . . If the

state’s tribunal is competent to resolve the fed-

eral defense, then the litigation must continue in

that forum.

Bethune Plaza, Inc. v. Lumpkin, 863 F.2d 525, 528 (7th

Cir.1988). [emphasis added]

Although the Supreme Court has not spelled out all

that is required to render a proceeding judicial in

nature,'® it may be assumed that those proceedings which

provide the type of procedural safeguards found in for-

mal court proceedings will satisfy the requirement.'? |

find that the provisions of Ch. 227 Wis.Stats and the

Commission’s Rules of procedures for Hearings (s. Ins.

5.01-5.25, Wis.Adm.Code) regarding the conduct of hear-

ings provide for rules and procedures substantially the

same as those followed in formal court proceedings, and

18 The Court of Appeals in Middlesex County thought that

the Ethics Committee procedures fell short of being adjudica-

tive in nature (643 F.2d 119, 128 (3rd Cir.1981)) but those

reservations were rejected by the Supreme Court without dis-

cussion.

'9 See Restatement (Second) of Judgments (1982) § 83(2) and

Comment (b) and (c), pertaining to the essential elements of

adjudication (as found in the Federal Administrative Pro-

cedure Act, 5 U.S.C. § 551 et seq. and the Model State Adminis-

trative Procedure Act) for purposes of affording preclusive

effect to administrative determinations.

A-84

Alleghany has not suggested otherwise. Wis.Stats.

§ 601.62(2)2°

The Wisconsin Administrative Procedure Act also

provides for a rehearing upon timely petition, Wis.Stats.

§ 227.49, and under § 227.53, judicial review of the Com-

missioner’s decision is available in the Circuit Court of

Dane County upon the filing of a petition within thirty

days of service of the decision. Further review can also be

had in the state appellate courts. Wis.Stats. § 227.58. The

Commissioner’s decision specifically noted Alleghany’s

right to such a rehearing or judicial review. (Compl. Ex.

C, pp. 22-23) Alleghany acknowledges that it “chose to

proceed to federal court” on its constitutional claims

rather than seeking a review in the state courts. (Br. p. 4)

It appearing that the hearing before the Commis-

sioner was judicial in nature and was part of an ongoing

state judicial proceeding, it is appropriate to consider

next the third Middlesex County factor: whether the state

proceedings afforded Alleghany an adequate opportunity

to raise its federal claims. Alleghany has not questioned

the adequacy of Wisconsin’s review procedures to con-

sider the constitutional and federal law issues raised by

it, so this issue may be disposed of in summary fashion.

Wis.Stat. § 227.57 s

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