# Opposition Brief — Warmus v. Melahn

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1996
- **Citation:** 517 U.S. 1241

## Text

TS | Supreme Court, U.S.
oy, FILED
Vv
No. 95-1251 MAY 13 1996
CLERA
In The

SUPREME COURT OF THE UNITED STATES
October Term, 1995

THOMAS A. WARMUS,
Petitioner,

v.
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**
L
1 l l
AWFS AWSC** NLIC
(Florida) (Michigan) (Arizona)
if
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

Vv

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

vl

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.

2

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

3

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.

4

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

5

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.

6

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.

7

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

8

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

9

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.

10

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.

1]

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

12

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

i3

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).

14

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.

15

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,

16

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.

17

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.

18

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.

19

Respectfully submitted,

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 65102
Telephone: (573) 751-332!
ATTORNEYS FOR RESPONDENTS

*Counsel of Record

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_1287%3A2. Public record. Not legal advice.