Opposition Brief — Warmus v. Melahn

Supreme Court brief1996

Ask Donna

What actually matters in this document.

Text

TS | Supreme Court, U.S.

oy, FILED

No. 95-1251 MAY 13 1996

CLERA

In The

SUPREME COURT OF THE UNITED STATES

October Term, 1995

THOMAS A. WARMUS,

Petitioner,

LEWIS MELAHN, JAMES OETTING,

and WILLIAM R. HOBBS, II,

Respondents.

On Petition for Writ of Certiorari to the United States

Court of Appeals for the Eighth Circuit

BRIEF IN OPPOSITION

JEREMIAH W. (JAY) NIXON

Attorney General

JOHN R. MUNICH

Deputy Attorney General for Litigation

BRUCE FARMER*

GARY L. GARDNER |

ALANA M. BARRAGAN-SCOTT

Assistant Attorneys General

Post Office Box 899

Jefferson City, Missouri 05102

Telephone: (573) 751-332!

ATTORNEYS FOR RESPONDENTS

* Counsel of Record

LIST OF AFFILIATED COMPANIES

Pctitioncr Thomas Warmus is the owner of American

Financial Life Insurance Company (AFSLIC). For purposes

of this lawsuit, petitioner and this company are onc and the

same. AFSLIC is a member of an insurance holding

company system as defined by Chapter 382.010, Mo.Rev.Stat.

A Holding Company Registration Statement (HCRS) was

filed on August 12, 1991 by AFSLIC for itself and all of its

affiliates and subsidiaries. The following organizational chart

depicts the holding company system of AFSLIC:

Thomas A. Warmus

Individuai**

1 l l

AWFS AWSC** NLIC

(Florida) (Michigan) (Arizona)

l oll i l

AWII ATL AWCC-MI* AWSv-SE | AWCC-MD}

(Florida) (Arizona) (Mich' gan) (Florida) | |(Maryland)

l me a

AFSLIC* AWL*

(Missouri) | | (Michigan)

AWFS American Way Financial Services Corporation

AWSC** American Way Service Corporation

NLIC Nanseekay Life Insurance Company

AWH Amcrican Way Holdings, Incorporated

ATL American Trend Life Insurance Company

AWCC-MI* American Way Casualty Company of Michigan

AWSC-SE = American Way Service Corporation Southeast

AWCC-MD_ American Way Casualty Company of Maryland

AFSLIC* American Fin. Sec. Life Insurance Company

AWL* American Way of Life Insurance Company

° Denotes company in Rehabilitation

"= Denotes Chaptcr |! Bankruptcy.

ill

TABLE OF CONTENTS

LIST OF AFFILIATED COMPANIES ......... i

RESPONDENTS’ STATEMENT OF THE CASE . |

REASONS FOR DENYING THE WRIT ...... 7

The Court should deny certiorari because

petitioner's demand for a broad ruling prohibiting

abstention is unworkable in this fact-intensive case and

would result in federal court interference with

Missouri's important interest in regulating insolvent

Cr. cee a pee Gwe e eb 666s 7

eS ey er rr eee 18

TABLE OF AUTHORITIES

Page(s)

Cases:

Alexander v. leyoub, 62 F.3d 709

(Sta Gar WFNS sls Sw we Ne 16

Angoff v. American Fin. Sec. Life Ins. Co.,

869 S.W.2d 90 (Mo. Ct. App. 1993)

CARRE IVE fc Sieg ATE BROAN GES AN 4,8

Angoff v. American Fin. Sec. Life Ins. Co.,

891 S.W.2d &33 (Mo. Ct. App. 1994)

Fg Ie CARR Se A ee 5,8

Clay v. Sun Ins. Office Ltd., 363 U.S. 207

(USI vio ecripew s OFS OTS CONEY oo 16

Deakins v. Monaghan, 484 U.S. 193 (1988)... 11, 17

Fair Assessment in Real Estate Ass'n, Inc. v. McNary,

454 U.S. 100 (1981) ........... 12,13,16

Gulf Oil Corp. v. Gilbert, 330 U.S. 501 (1947) . 16

Huffman v. Pursue, Ltd., 420 U.S. 592 (1975) .. 18

Lake Carriers’ Ass'n v. MacMullan,

406. US. GG (ISTE OR ed HH. 16

Langnes v. Green, 282 U.S. 531 (1931) ...... 16

Louisiana Power & Light Co. v. City of Thibodaux,

360 US. 19S) ca ae eee 16

Middlesex County Ethics Comm. v. Garden State

Bar Ass'n, 457 U.S. 423 (1982) ..... 13, 14

Moses H. Cone Memorial Hosp. v. Mercury

Constr. Corp., 460 U.S. 1 (1983) ..... 15,17

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

of New Orleans, 491 U.S. 350

CIGRDD 5. 0 Ska Sa ee 13,15,18

Ohio Civil Rights Comm'n v. Dayton Christian Schools,

Inc, 477 U.S.. 619 (1986). oo ties 14

Quackenbush vy. Allstate Ins. Co., No. 95-244 (U.S.

araec Fed. 20, 19FO ..o.0.0.0.00 cdi wen 10

Samuels v. Mackell, 401 U.S. 66 (1971) ....... 1]

Steffel v. Thompson, 415 U.S. 452 (1974) .... 15,16

Tafflin v. Levitt, 493 U.S. 455 (1990) ......... 16

U.S. Dep't of Treasury v. Fabe, 508 U.S. 491

(1998) Svs 2.04. GOA abel. Sa oF 14

United Gas Pipe Line Co. v. Ideal Cement Co.,

3 US. 1364 (19621) HOS 2A. 16

Warmus v. Hank, 4&8 F.3d 1220

(Gs GE: Fe ws Ne Cole cee sae ee 7

Vii

Warmus v. Melahn, 62 F.3d 252 (8th Cir. 1995)... 6

Wolfson v. Mutual Benefit Life Ins. Co.,

$1 F.3d 141 (8th Cir. 1995) ........... 9

Younger v. Harris, 401 U.S. 37 (1971) ..... 14, 17

Zwickler v. Koota, 389 U.S. 241 (1967) ...... 16

Statutes:

McCarran-Ferguson Act, 15 U.S.C. § 1011 .... 14

Mo. Rev. Stat. §§ 3751.1150-375.1246 (1994) . 2,14

Mo. Rev. Stat. § 375.1165 (1994) ........... 2

RESPONDENTS’ STATEMENT OF THE CASE

Having failed in the Missouri state courts four

times, twice without an appeal, to derail a pending

insurance regulatory proceeding against his company,

petitioner now seeks review of a particularly fact-

sensitive ruling of the lower federai courts in an area of

law -- insurance regulation -- peculiarly committed to

the province of the states. The decision of which he

seeks review is fully consistent with past abstention

decisions of this Court. Indeed, the issues raised in the

petition are presently governed by well-established law.

The position petitioner urges would, in fact, radically

change that well-established law and place ongoing

state insurance proceedings at the mercy of every

affected party who could afford a federal court filing

fee.

To the extent petitioner seeks to pose discrete,

carefully drawn issues to evade the established

abstention principles, those issues are almost totally

devoid of any development among the courts of

appeals. At bottom, petitioner is left to argue only that

the Eighth Circuit erred in ruling he could not disrupt

complex, ongoing state insurance proceedings through

the vehicle of the Section 1983 damages action he filed

in federal court. But even if that ruling were wrong --

and it is not -- the petition would still present no issues

worthy of review by this Court. Indeed, granting the

petition would yield precisely the result petitioner seeks

-- disruption of the ongoing State regulatory

proceedings. The petition should be denied.

Facts

The record and legal basis for the lower court

decisions have not been accurately presented in

petitioner's argument for certiorari. Because of the

unique factual background relating to petitioner and his

various corporations, it is important to correct

petitioner's | misrepresentations. Additionally,

subsequent events, including pending criminal charges

and bankruptcy proceedings involving petitioner,

warrant consideration in deciding whether to grant the

petition.

In early 1992, Lewis Melahn, the former

Director of the Missouri Department of Insurance

(MDI), placed American Financial Security Life

Insurance Company (AFSLIC) into administrative

supervision pursuant to Missouri's comprehensive

Statutory scheme to regulate financially-distressed

insurance companies. Mo. Rev. Stat. §§ 375.1150 -

375.1246 (1994). William R. Hobbs, Il, was appointed

and acted as the administrative supervisor of AFSLIC.

Acting on a verified petition, the state court issued an

order of rehabilitation, finding that MDI officials had

“proved grounds sufficient to place . . . AFSLIC into

rehabilitation pursuant to Section 375.1165, R.S.Mo.

because AFSLIC is operating in hazardous condition.”

App. at 62. The rehabilitation court adopted as its

findings of fact and conclusions of law the special

master's report. The report found, as grounds for an

order authorizing rehabilitation, that the further

transaction of business by AFSLIC was hazardous to its

policyholders, creditors, or the public under Mo. Rev.

Stat. § 375.1165(1). App. at 55, 57. The report

specifically found: 1) AFSLIC's ratio of written

premiums to capital and surplus was excessive, 2)

AFSLIC overstated its reserve credits and resulting

surplus, and 3) AFSLIC's admissible assets were less

than its liabilities plus capital and surplus. /d.' It was

Melahn's verified petition for rehabilitation, filed in his

capacity as Director of MDI, that led to the order of

rehabilitation.

On March 30, 1993, the Circuit Court of Cole

County, Missouri, entered an order of rehabilitation,

authorizing Jay Angoff, the present Director of MDI, to

rehabilitate AFSLIC. App. at 61-64. The director, as

rehabilitator, was authorized to appoint one or more

special deputies who were granted the power and

responsibility of the rehabilitator. The director

appointed Hobbs as Special Deputy Rehabilitator.

Warmus and AFSLIC moved in the Missouri

trial court for authority to file suit against Melahn,

Hobbs, and James Oetting, former Chief Financial

Examiner of the Department of Insurance. App. at 97.

Warmus and AFSLIC moved to sue respondents

individually for their actions "{djuring the

administrative supervision of" AFSLIC _ that

subsequently led to the placement of AFSLIC into

'The state petition for rehabilitation identified eight

separate reasons for placing AFSLIC in rehabilitation.

App. at 20. Only one ground was necessary to uphold

the rehabilitation. And the state court held that

rehabilitation was appropriate for three different

reasons.

rehabilitation. /d. On June 10, 1993, the Missouri trial

court denied Warmus and AFSLIC's motion. Neither

Warmus nor AFSLIC ever appealed that denial to the

Missouri appellate court.

AFSLIC appealed the order of rehabilitation in

the Missouri courts. The Missouri appellate court

affirmed the order of rehabilitation, holding that "there

was substantial evidence from which the trial court

could find AFSLIC should have been placed into

rehabilitation." Angoff v. American Fin. Sec. Life Ins.

Co., 869 S.W.2d 90, 93 (Mo. Ct. App. 1993) (Angoff

I). The court stated:

The Director sought rehabilitation for

AFSLIC for operating with excessive

premiums to assets, overstating its reserve

credits, and for failing to maintain the

required amount of capital and surplus.

The trial court found all of these things

to be true to some extent and additionally

found the accounting methodology that

AFSLIC used evidenced hazardous

operating conditions.

Id. at 93. The Missouri appellate court upheld the

validity of the respondents’ actions in placing AFSLIC

into rehabilitation.’

*The Missouri appeal was initially decided on

November 9, 1993. The district court's opinion

dismissing the federal court lawsuit was issued on

November 29, 1993. The Missouri decision became

The state court rehabilitation proceeding

continues." Warmus has filed numerous motions in the

rehabilitation court, including three motions to

terminate the rehabilitation.‘ The first motion to

terminate was filed August 17, 1993. Summary

judgment was entered against Warmus on December

21, 1993 and Warmus did not appeal. The second

motion was filed December 21, 1993. After opening

statements, the trial court directed a verdict against

Warmus. Warmus appealed, but the Missouri appellate

court affirmed the denial of his motion to terminate.

Angoff v. American Fin. Sec. Life Ins. Co., 891 S.W.2d

833 (Mo. Ct. App. 1994) (Angoff /]). Warmus' third

motion to terminate was denied by the trial court and

again Warmus did not appeal. Warmus, as

representative of the suspended directors of AFSLIC,

has also filed a motion for money damages against the

final on February 22, 1994 when the Missouri Supreme

Court denied AFSLIC's application for transfer. App.

18.

‘Under separate cover, respondents have submitted

various court records and documents from other

litigation involving Warmus including |) the ongoing

state rehabilitation case, 2) Warmus' individual

bankruptcy, 3) Warmus' holding company bankruptcy

and 4) pending criminal charges against Warmus.

‘On July 6, 1993, the suspended officers and

directors of AFSLIC filed a Designation of

Representative, designating Warmus as their corporate

representative for all purposes in the AFSLIC

rehabilitation.

Missouri Department of Insurance.’ This motion is

pending in state court.

Though Warmus states that he "was never party

to the state court rehabilitation proceedings of

AFSLIC," Pet. at 3, he dees not seriously challenge the

Eighth Circuit's finding that Warmus and AFSLIC are

“one and the same” for abstention purposes. Warmus

v. Melahn, 62 F.3d 252, 257 (8th Cir. 1995); App. at

11. There are two pending bankruptcy cases involving

Warmus that support this finding. Warmus has filed an

individual Chapter 11 bankruptcy in the United States

Bankruptcy Court, Southern District of Florida. Jn re:

Warmus, Case No. 94-24673-BKC-RBR. There

Warmus includes the instant lawsuit in the Notice of

Filing Schedules and Statement of Affairs. The second

bankruptcy involves Warmus’ holding company. In

this Chapter 11 bankruptcy, the statement of financial

affairs again lists this federal lawsuit. /n re: American

Way Service Corp., Case No. 94-24696-BKC-RBR.

Finally, the underlying federal lawsuit alleges

that Missouri insurance officials conspired with

officials of the Michigan Insurance Bureau. Pet. at 2.

The Court should be aware that the state of Michigan

has charged Warmus with six felonies related to his

control of two insurance firms. People v. Warmus,

Case No. CR95-137002 FH (Circuit Court of Oakland

County, Michigan). Warmus has also filed at least one

‘Motion to Assess Missouri Division [sic] of

Insurance for Waste and Extraordinary Expenses filed

on September 13, 1994 in the state rehabilitation court.

federal action against Michigan insurance officials.

Warmus v. Hank, 48 F.3d 1220 (6th Cir. 1995)

(unpublished).

REASONS FOR DENYING THE WRIT

The Court should deny certiorari because

petitioner's demand for a broad ruling prohibiting

abstention is unworkable in this fact-intensive case

and would result in federal court interference with

Missouri's important interest in regulating insolvent

insurers.

Warmus presents abstention issues under a broad

analytical framework. The abstention doctrines,

however, are not easily reduced to bright-line

resolution. The complex interplay between the federal

and state systems, so integral to our system of

federalism, requires careful consideration of the factual

and legal issues involved in each case. Therefore, it is

not surprising that this Court has yet to decide the

extent to which the Younger doctrine applies to a

federal action seeking only monetary relief. And it

should not do so in a case that presents unique factual

issues in an area expressly left for the states to regulate.

1. Petitioner misrepresents the fact-

intensive nature of this case.

Petitioner's conclusory presentation of the facts

is perhaps most disturbing. Warmus glosses over

important facts and distorts those he chooses to present.

For example, Warmus argues that the state court

proceedings and the federal case “were completely

different." Pet. 8. But even a cursory review of the

federal complaint shows the substantial, indeed, almost

identical, relationship between Warmus' claim for

money damages and the state court rehabilitation

proceeding for AFSLIC. The federal complaint refers

to Warmus and AFSLIC interchangeably. App. 66-96.

In fact, the federal complaint specifically alleges that

respondent Melahn's “actions in placing [AFSLIC] into

administrative supervision and then filing for a Seizure

and for a Rehabilitation were . . . for the purpose of

destroying . . . and otherwise damaging Warmus and

[AFSLIC]." App. at 92-93.

Warmus states that he did not contest the

validity of the order placing AFSLIC into rehabilitation.

Pet. at 2-3. The record shows otherwise. In state

court, Warmus has appealed the rehabilitation

proceeding twice. First, Warmus appealed the initial

order of rehabilitation challenging the actions of state

officials. His first appeal was rejected. Angoff J, 869

S.W.2d at 93. Warmus also appealed the second of

three motions to terminate the rehabilitation proceeding.

Again, the Missouri appellate court rejected Warmus'

challenge, finding that AFSLIC remained insolvent and

in an hazardous condition. Angoff I], 891 S.W.2d at

835. Thus, the state court of appeals has twice

determined that the rehabilitation proceeding was

lawful.

Now, in federal court, Warmus is mounting a

direct attack against the state court judgment placing

AFSLIC into rehabilitation. Warmus calculates his

money damages based upon the respondents’ actions in

placing AFSLIC under administrative supervision and

requesting a rehabilitation order. Warmus' claim for

monetary damages against the individual state officials

is inextricably linked with respondents’ official

decisions to place AFSLIC into a state court

rehabilitation proceeding. A federal court damage

action would provide Warmus with yet another

opportunity to challenge the conduct of state officials

that resulted in AFSLIC's rehabilitation proceeding,

conduct that has already been validated by the state

appellate court.*

An accurate review of the factual record reveais

the uniqueness and complexity of this case. While

lawsuits involving insolvent insurers are not

uncommon, the instant petition is factually distinct

from even that type of litigation. For example, the

Eighth Circuit identified three major categories of cases

involving insurer insolvency abstention issues. Wolfson

v. Mutual Benefit Life Ins. Co., 51 F.3d 141, 145 (8th

Cir. 1995). The first category consisted of suits by the

insolvent insurer's policyholders against third parties in

which the defendant, often supported by the insurer's

receiver, urges abstention because recovery by the

plaintiff may reduce the receiver's ability to recover on

‘To illustrate, Warmus seeks damages in federal

court for loss of consulting fees, other revenue and

"loss of property rights" in his “book of business."

App. at 92. These are in fact assets of AFSLIC which

the state court has ordered the rehabilitator to collect.

It would directly conflict with the state court

rehabilitation order if a federal court ordered payment

to Warmus.

behalf of the insurer's insolvency estate. The second

category involved cases in which the insolvent insurer

or its receiver asserted a claim in the federal action

which, if successful, will enhance the insolvent's estate.

The third category identified by the Eighth Circuit

involved claims by policyholders, policy beneficiaries,

and other creditors against a now-insolvent insurer.

Warmus'’ petition does not fit within any of these

categories, but presents a wholly different, and rare (at

least in the caselaw) scenario.’ Warmus' federal

lawsuit pits an insolvent insurer against the state

officials who, as twice validated by the state court,

properly found the insurance company to be financially

insolvent and properly placed the company into

rehabilitation. A broad abstention ruling under the

unique facts of this case would have little precedential

value and offer little guidance to the lower courts.

This case is also different from Quackenbush v.

Allstate Ins. Co., No. 95-244 (U.S. argued Feb. 20,

1996), awaiting decision by this Court. Quackenbush

involves two issues: 1) the appealability of a remand

order based on abstention and 2) the application of

Burford abstention to actions in equity. There, Allstate

seeks to arbitrate its dispute with the liquidator of an

insolvent insurer pursuant to reinsurance contracts

between Allstate and the insurer. Allstate, unlike

Warmus, does not seek damages against the state

officials.

2. Petitioner misrepresents the Eighth

Circuit's holding, which is premised on

established legal principles.

Contrary to petitioner's statement, the Eighth

Circuit did not hold that a finding in Warmus' favor

could cause “embarrassment to the MDI." Pet. at 7.

The Eighth Circuit actually held that a finding in

Warmus' favor "might well have the practical effect of

undermining the validity and integrity of the state-court

rehabilitation proceedings." App. at 9. The court first

noted that the respondents’ “conduct was clearly in

issue in AFSLIC's appeal." Jd. The court also found

that a "resulting federal judgment" for damages would

amount to a declaration that high ranking officials at

MDI conspired to drive Warmus out of business. /d.

Relying on this court's opinion in Samuels v. Mackell,

401 U.S. 66 (1971), the Eighth Circuit recognized that

Warmus' federal lawsuit for money damages could

have a substantial impact on or interfere with AFSLIC's

state court rehabilitation proceeding. Whether the

federal court lawsuii requests damages or equitable

relief, the practical effect is virtually identical. The

pending state court proceeding could be frustrated as

much by a damage award as it would be by an

injunction.

"The potential for federal-state friction is

obvious." Deakins v. Monaghan, 484 U.S. 193, 208

(1988) (J. White concurring) (citation omitted).

Application of comity principles allow federal courts to

avoid this friction. This Court has already recognized

that abstention is appropriate in § 1983 damage actions

where to do so would be intrusive to state interests. In

Fair Assessment in Real Estate Ass'n, Inc. v. McNary,

454 U.S. 100 (1981), state taxpayers brought suit for

damages in federal court alleging the unconstitutional

administration of the state tax system. There, the

taxpayers, like Warmus, claimed that damage actions

- were inherently less intrusive to state interests than

injunctions or declaratory judgments and therefore

should not be barred from federal court. There, the

taxpayers, like Warmus, argued that they only sought

recovery from individual state officers. 454 U.S. at

113. The Court held that "a determination [in a

damage action] would be fully as intrusive as the

equitable actions that are barred by principles of

comity." /d. (footnote omitted). The Court also

emphasized that "the intrusiveness of such § 1983

actions would be exacerbated by the nonexhaustion

doctrine of Monroe v. Pape, 365 U.S. 167, 81 S.Ct.

473, 51 L.Ed.2d 492 (1961)." Jd. at 113-14.

And while a judgment alone is intrusive, "the

very maintenance of the suit itself would intrude on the

enforcement of the state scheme." Fair Assessment in

Real Estate, 454 U.S. at 114. Warmus' view would

mandate federal court intrusion into the entire scope of

the state regulatory authority over financially-distressed

insurers, from supervision to rehabilitation to

liquidation. An individual, like Warmus, could attack

every regulatory decision in a federal § 1983 action for

damages.* "[D]Jamages actions, no less than actions for

‘For example, in state court, Warmus has filed three

motions to terminate the rehabilitation, a motion to

assess damages and numerous other motions objecting

an injunction, would hale state officers into federal

court every time a [plaintiff] alleged the requisite

elements of a § 1983 claim." Jd. at 115. State

Officials’ determination, and even authority, to regulate

would be drained.

Warmus also suggests that when he chooses to

mount a federal court attack on a state regulatory

action, the federal court must apply a harsh and

unprecedented standard. Plucking the word

“substantial” from this Court's abstention

jurisprudence,’ Warmus radically narrows Younger

abstention to cases in which a party can demonstrate

“substantial interference" with a certain state

proceeding. This Court has routinely rejected this

approach, noting that “the substantiality of [a] State's

interest in its proceedings” is not examined by narrowly

inquiring into “its interest in the outcome of the

particular case." New Orleans Pub. Serv., Inc. v.

Council of City of New Orleans, 491 U.S. 350, 365

(1989) (emphasis in original) (NOPS/). Such an

interest could arguably -- and simply -- "be offset by a

substantial federal interest in the opposite outcome.”

Id. Instead, focus is placed on “the importance of the

generic proceedings to the State." /d.

to routine regulatory decisions. Under Warmus' view

of abstention, he can seek federal court review of these

disputes simply by limiting his prayer to money

damages.

*Pet. at 11, citing Middlesex County Ethics Comm.

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

Thus, for example, in Younger v. Harris the

Court focused on California's generic interest in

carrying out the task of enforcing its criminal laws.

401 U.S. 37, 51-52 (1971). In Ohio Civil Rights

Comm'n v. Dayton Christian Schools, Inc., another case

in which the Court approved of abstention, the focus

was placed on Ohio's general interest in preventing

employers from engaging in sexual discrimination. 477

U.S. 619, 628 (1986). In Middlesex County Ethics

Comm., 457 U.S. at 434, the Court focused on New

Jersey's "important interest in maintaining and assuring

the professional conduct of the attorneys it licenses."

These cases recognize that abstention is particularly

appropriate where a specialized state proceeding exists

and the federal inquiry would likely frustrate or

undermine the state action.

Warmus does not dispute Missouri's legitimate

interest in regulating its insurance industry. Missouri

has a comprehensive scheme to regulate financially-

impaired insurance companies. Mo. Rev. Stat. §§

375.1150 - 375.1246. And Congress has statutorily

recognized the "supremacy of the States in the realm of

insurance regulation” by passing the McCarran-

Ferguson Act, 15 U.S.C. §§ 1011-1015. U.S. Dep't of

Treasury v. Fabe, 508 U.S. 491 (1993).

The underlying action is intimately connected

with a state statutory scheme and the operation of a

highly regulated industry long recognized as involving

vital public concerns. The Eighth Circuit's holding in

this factually unusual case recognizes that Younger

abstention permits the states to operate in their spheres

of interest without unnecessary federal interference.

This holding is correct and does not warrant further

review.

3. Abstention cannot be decided solely on

the basis of the relief requested.

This Court has rejected Warmus’ underlying

premise, that abstention is susceptible to bright-line

rules.

[Tjhe decision whether to dismiss a

federal action because of parallel state-

court litigation does not rest on a

mechanical checklist, but on a careful

balancing of the important factors as they

apply in a given case. . ..

Moses H. Cone Memorial Hosp. v. Mercury Constr.

Corp., 460 U.S. 1, 16 (1983). The Court noted that the

"weight to be given to any one factor may vary greatly

from case to case, depending on the particular setting

of the case.” /d. The particular setting of this case,

insurance regulation, is an area of state concern and,

thus, is a significant factor in favor of both granting

abstention and denying certiorari.

"The various types of abstention are," obviously,

"not rigid pigeonholes into which federal courts must

try to fit cases," NOPSI/, 491 U.S. at 359 (citation

omitted), any more than such cases may be

pigeonholed simply by asking what type of relief a

plaintiff determined to request. To the contrary, the

abstention "fit" of a particular case is not dependent

upon the type of relief requested. Steffel v. Thompson,

415 U.S. 452, 474-75 (1974); Lake Carriers’ Ass'n v.

MacMullan, 406 U.S. 498, 509 n.13 (1972); Zwickler

v. Koota, 389 U.S. 241, 254 (1967). This Court should

not adopt a rule whereby an artifice of pleading allows

a party to avoid abstention and eliminates the courts’

discretionary power.

Warmus’ pleading-based view of abstention is

only supported by the Fifth Circuit. See, e.g.

Alexander v. leyoub, 62 F.3d 709, 713 (Sth Cir. 1995)

(Younger has no applicability to a claim for damages).

Considering the factual posture of this case and the

lack of a significant split in the circuits, the Court

should defer consideration of this issue.

Moreover, this Court has approved federal court

abstention in a variety of cases seeking legal remedies:

RICO claims, Tafflin v. Levitt, 493 U.S. 455 (1990); a

tax case for damages under § 1983, Fair Assessment in

Real Estate Ass'n, 454 U.S. 100; a diversity suit for

contractual reimbursement, United Gas Pipe Line Co.

v. Ideal Cement Co., 369 U.S. 134 (1962); a diversity

suit concerning an action on an insurance policy, Clay

v. Sun Ins. Office Litd., 363 U.S. 207 (1960); an

eminent domain suit, Louisiana Power & Light Co. v.

City of Thibodaux, 360 U.S. 25 (1959); a diversity suit

for property damage dismissed on the basis of forum

non conveniens, Gulf Oil Corp. v. Gilbert, 330 U.S.

501 (1947); an admiralty claim, Langnes v. Green, 282

U.S. 531 (1931); and others. Here, the lower courts’

abstention simply reflect this well-established caselaw

-- caselaw that examines the facts and the nature of the

states’ interests.

Abstention is a fact-specific inquiry. Moses H.

Cone, 460 U.S. at 16. Abstention also requires the

exercise of a federal court's discretionary power.

Younger v. Harris, 401 U.S. 37, 43-44 (1971) (decision

to abstain rests on principles of “equity” and

considerations of “comity"). Indeed, the standard of

review for a grant or denial of abstention is an abuse of

discretion. Moses H. Cone, 460 U.S. at 19. But

Warmus' litmus test would place abstention doctrines

into watertight compartments and largely eliminate the

ability of a federal judge to exercise his or her

discretionary power. To forbid even the possibility of

abstention in a case “at law" would unreasonably

curtail the ability of the judiciary to perform one of its

important junctions: the striking of a reasoned balance

between state and federal interests. Warmus’ litmus

test summarily casts aside this Court's decades-long

development of a sensitive scale that delicately

balances state and federal interests.

Finally, Warmus suggests the lower courts

made a mistake in dismissing, rather than staying, his

action for damages. Mistake is not a basis for

certiorari. Further, a dismissal, rather than a stay, was

appropriate because Warmus chose to abandon the

claim for money damages he asserted in the state court

proceeding. Because of that fact alone, Warmus'

reliance on Deakins v. Monaghan, 484 U.S. 193, is

misplaced. In Deakins, this Court held that the district

court had “no discretion to dismiss rather than to stay

claims for monetary relief that [could] not be redressed

in the state proceeding." 484 U.S. at 202. And this

Court has refused to allow a party to avoid Younger

abstention by abandoning state appellate remedies.

Huffman v. Pursue, Ltd., 420 U.S. 592, 609 (1975); see

also NOPSI, 491 U.S. at 369 ("a party may not procure

federal intervention by terminating the state judicial

process prematurely -- foregoing the state appeal to

attack the trial court's judgment in federal court").

In this case, petitioner abandoned his state court

remedies in order to demand that a federal court intrude

upon a state's ability and right to rehabilitate an

insolvent insurance company. Not surprisingly,

petitioner demands that this Court impose a wholly

unnecessary and unwise rule, one that would work to

his benefit. To reduce abstention to a bright-line rule

or litmus test and remove federal judges’ discretion to

abstain in money damages cases would curtail the

ability of the judiciary to strike a balance between state

and federal interests.

CONCLUSION

For the reasons stated above, the petition for writ

of certiorari should be denied.

Respectfully submitted,