# Appendix — United Services Automobile Ass'n v. Foster

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1989
- **Citation:** 493 U.S. 969

## Text

i

89-449 >) | stoma
No. ia SEP 6 ise9

CLERK

IN THE ——

Supreme Court of the United States

OcTOBER TERM, 1989

UNITED SERVICES AUTOMOBILE ASSOCIATION, et al.,
Petitioners
v.
CONSTANCE FOSTER, INSURANCE COMMISSIONER
OF THE COMMONWEALTH OF PENNSYLVANIA, et al.,

Respondents.

APPENDIX TO
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

DONALD B. AYER

Counsel of Record
ROBERT H. KLONOFF
JONES, DAY, REAVIS & POGUE
1450 G Street, N.W.
Washington, D.C. 20005
(202) 879-3939

_ MICHAEL L. BROWNE
CHRISTOPHER K. WALTERS
W. THOMAS McGOUGH, JR.
REED, SMITH, SHAW & MCCLAY
2500 One Liberty Place
Philadelphia, PA 19103
(215) 851-8100

Counsel for Petitioners

WILson - Eras Printing Co., Inc. - 789-0096 - WasHiINGTON. D.C. 20001

TABLE OF CONTENTS

Page
Appendix A (court of appeals decision dated May 5,
a. snmeetsnenatnasennaccceses la
Appendix B (court of appeals denial of petition for
rehearing and rehearing en banc dated June 9,
1989) 0) LS ie EE 4la
Appendix C (district court decision dated December 23,
i. ccuinstugnemencorterens 45a
Appendix D (United States Supreme Court denial of
petition for certiorari dated January 12, 1987) ......... 67a
Appendix E (court of appeals decision dated June 6,
1986) (OAs 68a

Appendix F (district court decision and order dated
ESSELTE EE eee 88a

-la
APPENDIX A

UNITED STATES COURT OF APPEALS
THIRD CIRCUIT

Nos. 88-1339, 88-5077, 88-5078 and 88-5121

ForRD MoTOR COMPANY and FORD MOTOR CREDIT CoM-
PANY, and THE AMERICAN ROAD INSURANCE COMPANY
and Forp LIFE INSURANCE COMPANY, and First Na-
TIONWIDE FINANCIAL CORPORATION and FIRST NATION-
WIDE BANK v.

INSURANCE COMMISSIONER OF THE
COMMONWEALTH OF PENNSYLVANIA

Appeal of PENNSYLVANIA ASSOCIATION OF INDEPENDENT
INSURANCE AGENTS; JOHN ULRICH, JR.; PROFESSIONAL
INSURANCE AGENTS ASSOCIATION OF PENNSYLVANIA,
MARYLAND AND DELAWARE,:INC.; CHARLES P. LEACH,
JR.; PENNSYLVANIA ASSOCIATION OF LIFE UNDER-
WRITERS; and HAROLD E. ALEXANDER, in 88-1339

UNITED SERVICES AUTOMOBILE ASSOCIATION, a Texas Re-
ciprocal Interinsurance Exchange, USAA CASUALTY
INSURANCE COMPANY, a Texas Stock Insurance Com-
pany, USAA LIFE INSURANCE CoMPANY, a Texas Stock
Insurance Company, and USAA ANNUITY AND LIFE
INSURANCE COMPANY, a Texas Stock Insurance,

Vv.

Muir, WILLIAM J., III, Acting Insurance Commissioner
of the Commonwealth of Pennylvania

Appeal of PENNSYLVANIA ASSOCIATION OF INDEPENDENT
INSURANCE AGENTS; JOHN ULRICH, JR.; PROFESSIONAL
INSURANCE AGENTS ASSOCIATION OF PENNSYLVANIA,
MARYLAND AND DELAWARE, INC.; CHARLES P. LEACH,
JR.; PENNSYLVANIA ASSOCIATION OF LIFE UNDER-
WRITERS; and HAROLD E. ALEXANDER, in 88-5077

2a

UNITED SERVICES AUTOMOBILE ASSOCIATION, a Texas Re-
ciprocal Interinsurance Exchange, USAA CASUALTY
INSURANCE COMPANY, a Texas Stock Insurance Com-
pany, USAA LIFE INSURANCE COMPANY, a Texas Stock
Insurance Company, and USAA ANNUITY AND LIFE
INSURANCE COMPANY, a Texas Stock Insurance,

Vv.

MulIr, WILLIAM J., III, Acting Insurance Commissioner
of the Commonwealth of Pennsylvania,

PENNSYLVANIA ASSOCIATION OF INDEPENDENT INSURANCE
AGENTS; JOHN ULRICH, JR.; PROFESSIONAL INSURANCE
AGENTS ASSOCIATION OF PENNSYLVANIA, MARYLAND
AND DELAWARE, INC.; CHARLES P. LEACH, JR.; PENN-
SYLVANIA ASSOCIATION OF LIFE UNDERWRITERS; and
HAROLD E. ALEXANDER

Appeal of Constance Foster, in 88-5078

UNITED SERVICES AUTOMOBILE ASSOCIATION, a Texas Re-
ciprocal Interinsurance Exchange, USAA CASUALTY
INSURANCE COMPANY, a Texas Stock Insurance Com-
pany, USAA LIFE INSURANCE COMPANY, a Texas Stock
Insurance Company, and USAA ANNUITY AND LIFE
INSURANCE COMPANY, a Texas Stock Insurance,

V.

Murr, WILLIAM J., III, Acting Insurance Commissioner
of the Commonwealth of Pennsylvania,
PENNSYLVANIA ASSOCIATION OF INDEPENDENT INSURANCE

AGENTS; JOHN ULRICH, JR.; PROFESSIONAL INSURANCE
AGENTS ASSOCIATION OF PENNSYLVANIA, MARYLAND
AND DELAWARE, INC.; CHARLES P. LEACH, JR.; PENN-
SYLVANIA ASSOCIATION OF LIFE UNDERWRITERS; and

HAROLD E. ALEXANDER

Appeal of United Services Automobile Association,
USAA Casualty Insurance Company,
USAA Life Insurance Company, and
USAA Annuity and Life Insurance Company, in 88-5121

3a

Argued Oct. 5, 1988
Decided May 5, 1989

William R. Balaban, Balaban & Balaban. Harrisburg,
Pa., Jonathan B. Sallet (argued), Miller, Cassidy, Lar-
roca & Lewin, Washington, D.C., for appellants PA Assoc.
of Ind. Ins. Agents in 88-1339, and 88-5077, and for
appellees, PA Assoc. of Ind. Ins. Agents in 88-5121 and
88-5078.

Harvey Bartle, III (argued), Dechert, Price & Rhoads,
Philadelphia, Pa., for appellee Ford in 88-1339.

John B. Knoor, III (argued), Chief Deputy Atty. Gen.,
Office of Atty. Gen., Harrisburg, Pa., for appellee, Con-
stance Foster in 88-5121, 88-5077 and 88-5078..

Christopher K. Walters (argued), Reed, Smith, Shaw
& McClay, Philadelphia, Pa., Robert B. Hoffman, Reed,
Smith, Shaw & McClay, Harrisburg, Pa., for appellant
United Services Auto. Ass’n, in 88-5121, 88-5077 and
88-5078.

Before HIGGINBOTHAM, MANSMANN and GREEN-
BERG, Circuit Judges.

OPINION OF THE COURT

A. LEON HIGGINBOTHAM, JR., Circuit Judge.

On these appeals we are revisited by significant ques-
tions concerning the appropriate applications of the doc-
trines of abstention and preemption, and of the dormant
commerce clause of the United States Constitution. Al-
though all such cases present issues that require delicate
balancing, these cases are particularly sensitive because
they concern both a federal scheme designed to assist the
nation’s failing savings and loans companies and the im-
portant state interest in regulating the state insurance

4a

industry. Upon our review of the contentions raised on
these appeals, we conclude: (1) that the principles of
Younger do not require abstention in these cases; (2) that
Pennsylvania’s statute that precludes companies that sell
insurance in Pennsylvania from affiliation with savings
and loan institutions is preempted to the extent that the
state statute is applicable to companies authorized pur-
suant to federal legislation to purchase failing thrifts
and (3) the state statute is not preempted in its applica-
tion to other than failing thrifts and, in that application,
does not violate the Commerce Clause. In our view, that
statute neither discriminates impermissibly in favor of
in-state residents, nor presents a burden on interstate
commerce and, it therefore, does not present harm pre-
cluded by the Commerce Clause. Accordingly, we will
affirm the decisions of the district courts in these cases
in part and reverse in part.

I. Background

These appeals are taken from the judgments of district
courts in two declaratory actions that were filed to deter-
mine the constitutionality of § 641 of the Insurance De-
partment Act of 1921, as amended, P.L. 1148 (1987),
codified at 40 Pa.Stat.Ann. (Purdon 1987 Supp.).' Al-
though the cases are wholly separate and were filed inde-
pendently, they were consolidated for the purposes of
appeal because of the commonality of the underlying facts
and the significant identity of the issues presented for
review. The facts of neither case are in dispute. For

1In pertinent part, §641 provides that
[n]jo lending institution, . . . bank holding company, savings
and loan company or any subsidiary or affiliate of the fore--
going, or officer or employee thereof, may directly or indirectly,
be licensed or admitted as an insurer... in this State
40 Pa.Stat.Ann. § 281(b) (Purdon 1987 Supp.). Such institutions
may be licensed to “sell credit life, health and accident insurance
and to sell and underwrite title insurance in accordance with
regulations promulgated by the Insurance Commissioner.” Jd.

” ee

5a

the purposes of this discussion, we review the facts and
procedural histories of each case briefly:

A. Pennsylvania Ass’n of Independent Insurance
Agents v. Ford Motor Co. (“Ford”)

In December 1985, Ford Motor Company (‘Ford’’)
acquired the First Nationwide Financial Corporation
(“FNFC”) which is a California based savings and loan
holding company. Ford also acquired FNFC’s subsidiary,
First Nationwide Savings which Ford renamed First Na-
tionwide Bank (“FNB’). At that time, FNB had offices
located in California, New York, Florida and Hawaii.

In June 1986 Ford, through its new subsidiaries FNFC
and FNB, arranged to purchase two Ohio based savings
and loan companies, (“S & L’s”) that were failing and
had been placed into receivership with the Federal Sav-
ings and Loan Insurance Corporation (“FSLIC”). FSLIC
had solicited applications for the purchase of these S & L’s
pursuant to federal statutory guidelines designed to limit
liability exposure for these failed companies which were
federally insured. See 12 U.S.C. §1730a (1982).2 The

2 That statute provides for the “[rJegulation of holding com-
panies.” In its several sections, it provides explicit guidelines for,
inter alia, the “registration and examination” of holding com-
panies, see § 1730a(b); regulations of “[h]Jolding company activi-
ties,” see §1730a(c); “transactions,” see §1730a(d) and “acqui-
sitions,” see § 1730a(e) (1). Significant to the present cases, that
statute also provides for “{e]mergency thrift acquisitions.” See
§ 1730a(m). In pertinent part, that section provides that:

[nJotwithstanding any provision of the laws or constitution
of any State or any provision of Federal law, except as pro-
vided in subsections (c), (e) (2) and (1) of this section, and
in clause (iii) of this subparagraph, the Corporation, upon
its determination that severe financial conditions exist which
threaten the stability of a significant number of insured insti-
tutions, or of insured institutions possessing significant finan-
cial resources, may authorize, in its discretion and where it
determines such authorization would lessen the risk to the
Corporation, an insured institution that is eligible for assist-

6a

failing Ohio S & L’s were merged with FNB to create a
larger national savings and loan entity. Subsequently, in
February 1987, Ford requested and was granted permis-
sion by the Federal Home Loan Bank Board to open two
additional branches of the newly constituted FNB. One
of these new branches was in Pennsylvania.

Among the numerous subsidiary companies that are
owned and controlled by Ford are the American Road
Insurance Company (“American Road”), which is a
wholly owned subsidiary of Ford, and the Ford Life In-
surance Company (“Ford Life”), which is wholly owned
by American Road. Both of these companies are licensed
to sell insurance in Pennsylvania and have been engaged
in that business for over twenty years. Ford’s simul-
taneous ownership of these insurance companies and
FNB, however, placed it in violation of § 641 of the
Pennsylvania insurance act.

Accordingly, in June 1987, three months after FNB’s
Pennsylvania branch office was opened, Ford filed a com-
plaint in the United States district court for declaratory
relief from Pennsylvania’s enforcement of that statute
which, Ford alleged, was unconstitutional on several
grounds. Ford claimed, inter alia that, to the extent that
the statute placed a restriction upon its ownership of a
savings and loan institution, it was preempted by 12
U.S.C. § 1730a(m) (1987). Additionally, Ford contended
that § 641 was constitutionally infirm because it was vio-
lative of the dormant commerce clause of the United

ance pursuant to section 1729(f) of this title to merge or con-
solidate with, or to transfer its assets and liabilities to, any
other insured institution or any insured bank (as such term
“insured bank” is defined in section 1813(h) of this title),
may authorize any other insured institution to acquire control
of said insured institution, or may authorize any company
to acquire control of said insured institution or to acquire
the assets or assume the liabilities thereof.

12 U.S.C. § 1730a(m) (1) (A) (i) (1987 Supp.).

on SS mae rin se tl," nantataalaliaatasl

ee ee

a

States Constitution. The Insurance Commissioner of the
State of Pennsylvania (“Insurance Commissioner” or “the
Commissioner”) filed a reply challenging the merits of
the contentions raised by Ford. The CommissiGner was
joined by the appellants in this case, the Pennsy!vania
Association of Independent Insurance Agents (“Insurance
Agents”) who had successfully petitioned the district
court for leave to intervene. Together with that motion
to intervene, the Insurance Agents aiso filed a motion to
dismiss Ford’s complaint in which it petitioned the dis-
trict court to abstain from adjudication of the complaint
pursuant to the Younger doctrine of abstention.’ Prior to
intervening in the case, the Insurance Agents had filed
a complaint with the Insurance Commissioner initiating
an administrative proceeding that sought the revocation
of American Road’s and Ford Life’s insurance licenses
because those companies were in violation of § 641. Sub-
sequent to the insurance agents’ intervention in this case,
Ford filed a motion in the district court seeking an in-
junction of the state administrative proceedings.

Ford also filed a motion for summary judgment on
three grounds: it contended that the statute was uncon-
stitutional as a violation of the equal protection clause,
that federal legislation preempted the entire field con-
cerning the acquisition and ownership of savings and
loans and that federal legislation that specifically ad-
dressed the acquisition of failing savings and loan in-
stitutions preempted § 641.

3 See Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d
669 (1971). That case represents the starting point for a judicial
doctrine “designed to protect the institutional autonomy of state
governments by limiting the power of federal courts to grant
declaratory or injunctive relief against unconstitutional state action
in circumstances where paraliel state proceedings involving the
federal litigants provide them with an adequate forum for airing
their constitutional claims.” L. Tribe, American Constitutional
Law 201-02 (2d ed. 1988).

8a

The district court concluded that neither of the first
two contentions raised by Ford for summary judgment
were meritorious. It concluded, however, that the lan-
guage and legislative history of § 1730a(m) evinced Con-
gress’s clear intent to preempt state laws that hindered
the acquisition of failing S & L’s and determined, accord-
ingly, that § 641 had been preempted. Because its deci-
sion rested on preemption grounds, the district court also
held that abstention was improper. The insurance agents
challenge each of the district court’s conclusions on this
appeal.*

B. Foster v. United Services Automobile Ass’n
(“USAA”)

The United Services Automobile Association (“USAA”’)
is a group of four Texas based insurance companies that
are engaged in the insurance business nationwide. It is
licensed to sell insurance in Pennsylvania and has been
doing so for a number of years. In 1983, USAA was
granted permission by the Federal Home Loan Bank
Board and FSLIC to create the USAA Federal Savings
Bank in Texas. In accordance with all applicable federal
regulations, USAA organized and capitalized that bank,
which then began doing business in Texas.° During the
following year, the Pennsylvania Insurance Commissioner
notified USAA that its simultaneous ownership of the
Texas bank and continued sale of insurance policies in
Pennsylvania, violated § 641. It advised USAA that pur-
suant to § 641, it must either cease the sale of insurance
in Pennsylvania or divest itself entirely from ownership

4 Ford does not cross-appeal from the decision of the district
court concerning the alternate bases on which it sought summary
judgment. Accordingly, none of these issues are before us on this
appeal. Also, the Insurance Commissioner, although a named
defendant, does not join as an appellant in this case.

5 The record does not indicate—and the insurance commissioner
does not contend—that this bank has ever solicited deposits from
Pennsylvania citizens, or otherwise done any business in Pennsyl-
vania.

a

9a

in the Texas bank. USAA filed a omplaint in the district
court seeking declaratory relief from enforcement of the
statute, which it challenged as unconstitutional on its face
and as preempted by federal regulation. Subsequent to
that complaint, the insurance department commenced state
administrative proceedings for the revocation of USAA’s
license to sell insurance in Pennsylvania and, in light of
those proceedings, filed a motion for dismissal in the dis-
trict court on abstention grounds. USAA cross-filed a
motion for summary judgment on the grounds that § 641
was preempted by § 1730a.

The district court concluded that abstention was appro-
priate under each of three types of abstention: Younger,
Pullman* and Burford.’ We reversed that decision and
held that abstention by the district court under any of
these theory was improper. See United Services Auto-
mobile Ass’n v. Muir, 792 F.2d 356 (3d Cir. 1986), cert.
denied, sub nom. Grode v. United Services Automobile
Ass’n, 479 U.S. 1031, 107 S.Ct. 875, 93 L.Ed.2d 830
(1987) (“USAA I’). Accordingly, we remanded this
matter to the district court for hearing.

On remand, the Insurance Commissioner again peti-
tioned the district court to abstain. The Commissioner
limited this request to Younger abstention and contended
that this Court’s decision in USAA I had been overruled
by intercedent precedent of the Supreme Court in the case
Ohio Civil Rights Comm’n v. Dayton Christian Schools,
Inc., 477 U.S. 619, 106 S.Ct. 2718, 91 L.Ed.2d 512 (1986)
(“Dayton Schools”). The Commissioner argued that
USAA I had held that Younger abstention was inappro-
priate only because of this Court’s view that the State
administrative proceedings were an inadequate forum for

® See Ruilroad Comm’n of Texas v. Pullman Co., 312 U.S. 496,
61 S.Ct. 643, 85 L.Ed. 971 (1941).

7 See Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87
L.Ed. 1424 (1943). :

Ba Ns ee ee

10a

the constitutional claims raised. The Commissioner ar-
gued that that conclusion was no longer valid in light of
Dayton Schools and, accordingly, that abstention pursu-
ant to Younger was appropriate.

The district court agreed that USAA I had been ovér-
ruled by Dayton Schools regarding the issue of Younger
abstention. It concluded, however, that because of the
potential for irreparable harm to USAA, abstention was
nonetheless improper. In light of that conclusion, the dis-
trict court evaluated the merits of the constitutional
claims presented. It concluded that USAA’s claim that
§ 641 was preempted by § 1730a was without merit, but
determined that § 641 was unconstitutional as a violation
of the Commerce Clause.

On this appeal, the Insurance Commissioner and the
Insurance Agents challenge the district court’s decision
not to abstain and its determination that § 641 is uncon-
stitutional. USAA cross-appeals from the decision of the
district court that enforcement of § 641 against it is not
preempted by the federal regulatory scheme.

II. Abstention

Although the analyses of the district courts regarding
this issue arise from different circumstances, the thresh-
old concern of both is whether abstention pursuant to
Younger was warranted. That doctrine of abstention,
characterized as one of equitable restraint, instructs us
that due deference must be paid to state proceedings ini-
tiated to resolve controversies that raise significant state
issues when federal court intervention is sought.* Defer-

8 Younger abstention precludes intervention by federal courts
into on-going state proceedings. The doctrine has been extended,
however, to apply to circumstances in which the filing of a federal |
action preceded the initiation of the state proceedings. See Hick? v.
Miranda, 422 U.S. 332, 349, 95 S.Ct. 2281, 2291, 45 L.Ed.2d 223
(1975) (federal court should abstain in favor of state proceeding
initiated subsequent to federal action if no “proceedings of sub-

bes eter teak wit

lla

ence to state proceedings pursuant to Younger, however,
is not absolute. The appropriate focus of a court’s inquiry
when the question of Younger abstention is raised, there-
fore, is whether the state proceeding provides an adequate
forum for the resolution of the federal claims that have
been asserted, see Dayton Schools, 477 U.S. at 627, 106
S.Ct. at 2723 (Younger principle is applicable to “state
administrative proceedings in which important state in-
terests are vindicated, so long as in the course of those
proceedings the federal plaintiff would have a full and
fair opportunity to litigate his constitutional claim’’) ; °
and whether deference to the state proceeding will present
a significant and immediate potential for irreparable
harm to the federal interests asserted. See Wooley v.
Maynard, 430 U.S. 705, 712, 97 S.Ct. 1428, 1434, 51
L.Ed.2d 752 (1977) (Younger abstention improper where
federal intervention “necessary in order to afford ade-
quate protection of constitutional rights”); Kugler v.
Helfant, 421 U.S. 117, 124-25, 95 S.Ct. 1524, 1530-31, 44
L.Ed.2d 15 reh’g denied, 421 U.S. 1017, 95 S.Ct. 2425,
44 L.Ed.2d 686 (1975).

stance on the merits” in the federal action have occurred); USAA
I, 792 F.2d at 365 (“[s]o long as ‘the federal litigation was in an
embryonic stage and no contested matter had been decided,’ the dis-
trict court may abstain under ‘Younger’’) (quoting Doran v. Salem
Inn, Inc., 422 U.S. 922, 929, 95 S.Ct. 2561, 2566, 45 L.Ed.2d 648
(1975) ). Thus, despite the fact that in both of these cases the
federal declaratory action preceded the initiation of the state
proceedings, the inquiry into whether Younger abstention should
apply was proper because no “proceedings of substance on the
merits” had yet occurred in the federal courts.

® This rule has been extended to include non-judicial state court
proceedings that provide a full and fair opportunity for hearing
of the federal claims. See Dayton Schools, 477 U.S. at 627, n.2,
106 S.Ct. at 2723, n. 2; Gibso:. v. Berryhill, 411 U.S. 564, 576-77,
93 S.Ct. 1689, 1696-97, 36 L.Ed.2d 488 (1973) (“administrative
proceedings looking toward the revocation of a license to practice
medicine may in proper circumstances command the respect due
court proceedings”) ; Williams v. Red Bank Bd. of Education, 662
F.2d 1008 (3d Cir. 1981).

12a

In the present cases, we are persuaded that Pennsyl-
vania maintains the significant interest in the regulation
of its insurance industry sufficient to support abstention
under this doctrine. In light of the Supreme Court’s de-
cision in Dayton Schools, we are also persuaded that the
scheme for administrative adjudication and. judicial re-
view of the claims presented is adequate for Younger
purposes.

A. Abstention And The Adequacy of State Administra-
tive Proceedings

In. USAA I, this Court held that “administrative pro-
ceedings suffice for Younger purposes only when they ‘are
‘adequate to vindicate federal claims.’” USAA I, 792
F.2d at 365. See also Willams v. Red Bank Bd. of Edu-
‘cation, 662 F.2d 1008 (3d Cir. 1981). In that light, we
concluded that because the Insurance Commission pro-
ceeding did not provide a forum for the adjudication of
the constitutional claims, abstention was inappropriate.
See Middlesex Ethics Comm. v. Garden State Bar Ass’n,
457 U.S. 423, 432, 102 S.Ct. 2515, 2521, 73 L.Ed.2d 116

(1982) (Younger abstention not available where there is ©
no “adequate opportunity [in the state proceedings] to
raise the constitutional claims.”).

Subsequent to our decision in USAA I, the Supreme
Court held that state administrative proceedings that do
not provide an opportunity for the resolution of the claim-
ant’s constitutional contention, are adequate for Younger
abstention if the state’s judicial review of the administra-
tive proceeding provides opportunity for de novo hearing
of the constitutional claim. Dayton Schools, 477 U.S. at
629, 106 S.Ct. at 2724. Cf. Watts v. Burkhart, 854 F.2d
839 (6th Cir. 1988) (the fact that the state agency would
not consider the constitutional claims raised did not pre-
clude Younger abstention where the constitutional claims
could be presented on review in the state court); Christ
the King Regional High School v. Calvert, 815 F.2d 219

13a

(2d Cir.) (same), cert. denied —— U.S. ——, 108 S.Ct.
102, 98 L.Ed.2d 63 (1987). Accordingly, we hold now
that, to the extent that our decision in USAA I concluded
that Younger abstention is inappropriate in cases where
the administrative proceeding itself does not provide a
forum for the adjudication of constitutional claims—with-
out regard to the opportunity that exists to pursue those
claims on judicial review—it has been overruled by Day-
ton Schools.

In the present cases, this conclusion necessarily results
in the determination that the Pennsylvania administrative
proceeding in question is sufficient for purposes of
Younger abstention. The Pennsylvania statutes concern-
ing administrative law and procedure clearly provide for
adequate judicial review of state administrative determi-
nations. The statute expressly provides that

[a]Jny person aggrieved by an adjudication of a
Commonwealth agency who has a direct interest in
such adjudication shall have the right to appeal
therefrom to the court vested with jurisdiction of
such appeals...

2 Pa. Cons.Stat.Ann. § 702 (Purdon 1988). Significantly,
the statute provides further that

[a] party who proceeded before a Commonwealth
agency under the terms of a particular statute shall
not be precluded from questioning the validity of the
statute in the appeal, but such party may not raise
upon appeal any other question not raised before the
agency (notwithstanding the fact that the agency
may not be competent to resolve such question) unless
allowed by the court upon due cause shown.

2 Pa. Cons.Stat.Ann. § 703(a) (Purdon 1988) (emphasis
added). We read these provisions of the Pennsylvania
law to permit the assertion of the unconstitutionality of
a statute on judicial review of an administrative proceed-
ing in which that statute has been applied and, in light

14a

of Dayton Schools, conclude that the administrative pro-
ceedings in this case are sufficient for application of
Younger principles.

Our inquiry into the propriety of Younger abstention
for the present cases, however, is not terminated here.
The district courts in these cases relied on reasons apart
from the adequacy of the state- proceedings to support
their decisions that Younger abstention was improper
and, on one of these alternate grounds, we affirm their
conclusions.

B. Abstention and “Our Federalism”

In Ford, the district court’s decision not to abstain was
predicated upon its view that § 641 had been preempted
by federal legislation enacted to provide for the acquisi-
tion of failing savings and loans. Relying upon this
Court’s decision in Kentucky West Virginia Gas Co. v.
Pennsylvania Public Utility Comm’n, 791 F.2d 1111 (8d
Cir. 1986) (“Kentucky West’), the district court held
that because the supremacy clause was implicated, ab-
stention in favor of the state proceeding was improper.
See Ford Motor Co. v. Insurance Commissioner of Penn-
sylvania, 672 F. Supp. 841, 849-50 (E.D.Pa. 1987). The
district court stated that “dispositive [of its decision] is
a line of cases from the Courts of Appeals for the Third,
Eighth, Ninth and Eleventh Circuits that hold that there
can be no important state interest that the federal court
should defer to in enforcing a state law that has been
preempted by federal law.” Jd. at 849.*°

10We note that an alternative argument against abstention,
which is not addressed by the district court, is raised in Ford
concerning the fact that private individuals—and not the state—
initiated the proceedings at issue. This Court has noted that the
state’s interests in adjudication of a controversy is entitled to less
deference in the abstention inquiry where the proceeding was not
begun by the state. See Johnson v. Kelly, 583 F.2d 1242, 1249
(3d Cir. 1978) (abstention improper in a challenge of tax sales of
property when state action to quiet title was brought by private

i i aa at

‘ae. Can NRG a el i LCS OM a

15a

In this case, as in Kentucky West, we note that there
is no absolute rule prohibiting the application of Younger
abstention doctrine whenever the Supremacy Clause is
invoked. See Kentucky West, 791 F.2d at 1117 (“[iJt
would . . . be an overstatement to suggest that Younger
abstention is never appropriate when the question pre-
sented is one of preemption.”) The presence of a claim
of preemption in such cases, however, requires review of
the state interest to be served by abstention, in tandem
with the federal interest that is asserted to have usurped
the state law. In performing that inquiry, this Court
and other appellate courts have “concluded that the notion
of ‘comity’ embodied by the Younger doctrine is ‘not
strained when a federal court cuts off state proceedings
that entrench upon the federal domain.’” Jd. (quoting
Middle South Energy, Inc. v. Arkansas Public Service
Comm’n, 772 F.2d 404, 417 (8th Cir. 1985), cert. denied,
474 U.S. 1102, 106 S.Ct. 884, 88 L.Ed.2d 919 (1986) ).
Cf. Champion Int’l Corp. v. Brown, 731 F.2d 1406, 1409
(9th Cir. 1984) (“Montana has no cognizable state in-
terest in enforcing those age discrimination laws that are
preempted by federal law’’). In the present cases, we see
no beneficial purpose, as contemplated by the Younger

citizens). This Court has also previously concluded that “where
the pending state proceeding is a privately initiated one, the state’s
interest in that proceeding is not strong enough to merit Younger
abstention, for it is no greater than its interest in any other liti-
gation that takes place in its courts.” Williams, 662 F.2d at 1019.
These decisions are intended to exclude cases that are initiated for
the adjudication of essentially private controversies from the pur-
view of Younger abstention. They are distinguishable from the
present cases in which the state’s interest in its proceeding is
readily apparent. Despite their initiation by a private complainant,
the proceedings at issue necessarily involve the Insurance Com-
missioner and are conducted by the state commission which enforces
the insurance statute. Moreover, as we stated above, we recognize
the state’s significant interest in the regulation of its insurance
industry, and we reiterate our conclusion in Williams that “Younger
commands respect for important state interests, not technicalities
of form.” Id.

16a

doctrine, that would be served by the district court’s ab-
stention in favor of Pennsylvania’s enforcement of § 641.
Although Pennsylvania’s interest in the regulation of its
insurance industry is significant, there exists a counter-
vailing significant federal interest in insuring the un-
hindered enforcement of federal law. Balancing these in-
terests in the present cases, we are persuaded that the
scales weigh decidedly in favor of federal intervention so
that the federal courts could determine the extent to

which § 641 had been preempted.

As a preface to our holding on this issue, we note our
view that the intent of § 641 is not ambiguous. That sec-
tion was designed clearly to proscribe affiliations between
all state licensed insurance companies and any savings
and loans institutions. Accordingly, no detailed factual
proceedings are necessary to determine the statute’s ap-
plicability to Pennsylvania licensed insurance companies
that purchase savings and loan institutions pursuant to
§ 1730a. See Wisconsin v. Constantineau, 400 U.S. 433,
439, 91 S.Ct. 507, 511, 27 L.Ed.2d 515 (1971) (“[w]here
there is no ambiguity in the state statute, the federal
court should not abstain but should proceed to decide the
federal constitutional claim”); cf. Aluminum Co. of
America v. Utilities Comm’n of North Carolina, 713 F.2d
1024, 1030 (4th Cir. 1983) (abstention is inappropriate
where conflict between challenged state action and federal
law is “readily discernible from the pleadings”) cert.
denied, 465 U.S. 1052, 104 S.Ct. 1826, 79 L.Ed.2d 722
(1984). Moreover, on the records of these cases, we can
discern no construction of the state statute that would
limit its application such that review of the federal con-
stitutional claims would be unnecessary." In cases in-

11USAA reasserts on this appeal its contention that it is not
subject to the prohibitions of § 641, even if the constitutionality of
that statute is upheld, because it’s banking affiliate “neither accepts
deposits nor lends money in Pennsylvania and[,] therefore[,} is
not a ‘lending institution’ within the meaning of the statute.”
Appellee, Cross-Appellant (USAA) Brief at 19 (emphasis in orig-

-17a

volving a facial challenge to a statute, the pivotal ques-
tion in determining whether abstention is appropriate
is whether the statute is ‘fairly subject to an interpreta-
tion which will render unnecessary or substantially mod-
ify the federal constitutional question.’ ” City of Houston,
Texas v. Hill, 482 U.S. 451, 107 S.Ct. 2502, 2513, 96
L.Ed.2d 398 (1987) (quoting Harman v. Forssenius, 380
U.S. 528, 534-35, 85 S.Ct. 1177, 1181-82, 14 L.Ed.2d 50
(1965) ) (other citations omitted). When the possibility
for such an interpretation is not apparent, however, the
district court’s decision to exercise its jurisdiction does
not constitute error. Moreover, where the core of the
controversy itself is the federal constitutional claims, and
the state proceedings are initiated for enforcement rather
than interpretation of the state statute, we do not con-
clude that the exercise of federal jurisdiction is intrusive.

In our view, the principles of comity and federalism
upon which the Younger doctrine is predicated, are not
undermined by federal intervention in these cases, which
would forestall the state proceedings in order to deter-
mine whether enforcement of the state statute conflicts
with an important federal scheme. Cf. Pennzoil Co. v.
Texaco, Inc., 481 U.S. 1, 107 S.Ct. 1519, 1526, 95 L.Ed.2d
1 (1987) (Younger abstention warranted when “civil
proceedings are pending, if the State’s interests in the
proceeding are so important that exercise of the federal
judicial power would disregard the comity between the
States and the National Government.”) (emphasis added).
Federal intervention in these cases does not intrude upon

inal). The district court’s-decision on remand from USAA /! does
not address this contention and, on this record, it is not apparent
that the appellee continued to pursue this claim in the district
court. We cannot conclude that the issue, which requires factual
inquiry as well as the interpretation and application of Pennsyl-
vania state law, is properly before us. Accordingly, we do not
reach this issue. We will remand this question to the district
court, however, to determine the viability of this claim and, if
viable, for initial decision on the merits.

18a

the principles of our federalism given the nature of the
state proceedings at issue and the significance of the fed-
eral claims asserted. Accordingly, we conclude in both
of the present cases, that the challenge to § 641 on the
grounds that is preempted, together with the significant
federal interest that is implicated, counsel in favor of
the district courts’ decisions not to abstain.’? We will,
therefore, affirm the decisions of the district courts not to
abstain.'®

12 Our conclusion that Younger abstention was not warranted in
these circumstances applies to each case, despite our holding, that
the preemption claim prevails only with regard to one of the trans- —
actions in one of the cases. See infra, § III. Our holding regarding
Younger.is predicated upon the significance of the federal interest
invoked in these cases and our determination that the principles
of comity and federalism are not undermined by the intervention
of the federal court into the state proceedings in these cases. The
determination of whether abstention is proper where preemption is
alleged does not rest upon whether the preemption claim will ulti-
mately prevail. Accordingly, just as the presence of a claim of
preemption will not preclude abstention in every case, the decision
that abstention is improper in light of a claim of preemption that
has been asserted, need not result in the finding that the state
statute has in fact been preempted.

13 Although we have concluded that the district court’s decision
not to abstain in USAA was appropriate, we are compelled to
address the rationale upon which the district court relied. On
remand from our decision in USAA TI the district court recognized
that Dayton Schools overruled our decision with regard to the ade-
quacy of the Pennsylvania proceedings, see USAA v. Foster, 680
F.Supp. 712, 175 (M.D.Pa. 1987). The district court declined to
abstain, however, based on its interpretation of this Court’s decision
in Sullivan v. City of Pittsburgh, 811 F.2d 171 (3d Cir.) cert.
denied, US. , 108 S.Ct. 148, 98 L.Ed.2d 104 (1987). The
district court determined that in Sullivan this Court added a sepa-
rate “irreparable harm” factor to the inquiry of when Younger
abstention is proper. Accordingly, the district court concluded that
prior to invoking Younger abstention it had to ascertain whether
abstention would result in irreparable harm to USAA and, on that
point, the district court held that it was bound by the decision of

19a

III. Preemption

Both Ford and USAA contend that § 641 has been
completely displaced by federal legislation and is there-

this Court in USAA I concerning the affect that abstention would
have upon USAA. It held that “[iJn [USAA I], the Third Circuit
decided that USAA would suffer irreparable harm if we were to
abstain.” USAA, 680 F.Supp. at 715.

The district court’s interpretation of Sullivan was in error.
Sullivan did not create a new criterion to be evaluated in the
Younger analysis, but rather interpreted—in light of the specific
circumstances of the case under review—a factor that has always
been an appropriate part of that inquiry. In Younger and in its
companion cases, the Supreme Court affirmed a long standing judi-
cial policy that deference to a state action is improper where
“extraordinary circumstances [exist] in which . . . irreparable
injury” to the litigant’s ability to vindicate the constitutional claim
is demonstrated. Younger, 401 U.S. at 55, 91 S.Ct. at 755. See also,
Samuels v. Mackell, 401 U.S. 66, 69, 91 S.Ct. 764, 766, 27 L.Ed.2d 688
(1971) (“im the Younger case, we set out in detail the historical
and practical basis for the settled doctrine of equity that a federal
court should not enjoin a state criminal prosecution begun prior to
the institution of the federal suit except in very unusual situa-
tions, where necessary to prevent immediate irreparable injury.”).
In Sullivan, we noted that “the nature of the term ‘irreparable
harm’ makes it difficult to define every situation the term encom-
passes”. Sullivan, 811 F.2d at 178 (citing Trainor v. Hernandez,
431 U.S. 434, 442 n. 7, 97 S.Ct. 1911, 1917 n. 7, 52 L.Ed.2d 486
(1977)). We also noted the Supreme Court’s instruction that
“circumstances are extraordinary in the relevant Younger sense
where they create ‘an extraordinary pressing need for immediate
federal equitable relief” Sullivan, 811 F.2d at 179 (quoting Kugler,
421 U.S. at 124-25, 95 S.Ct. at 1530-31). See also Wooley, 430 U.S.
at 712, 97 S.Ct. at 1434 (extraordinary circumstances, in terms of
Younger, exist where “‘an injunction is necessary in order to
afford adequate protection of constitutional rights.’”) (quoting
Spielman Motor Co. v. Dodge, 295 U.S. 89, 95, 55 S.Ct. 678, 680, 79
L.Ed. 1322 (1935)). We reiterate here that this exception is
intended to be applied with careful scrutiny and only to the
extraordinary case.

In Sullivan, we concluded that extraordinary circumstances were
present that warranted immediate federal court intervention. That
case concerned recovering alcoholics who sought declaratory and
injunctive relief—predicated upoa claims of constitutional depriva-

20a

fore invalid under the Supremacy Clause of the Constitu-
tion. See U.S. Const. art VI, cl. 2.% They argue that
Congress has preempted the field of regulation regarding
savings and loan institutions and, thus, that § 641 has
been superceded by the federal scheme. To the extent that
§ 641 applies to the acquisition of failing thrifts we are
convinced that it has been preempted by federal law.
We are unpersuaded, however, as were the district courts,

tion—from the city of Pittsburgh’s decision to close alcoholic treat-
ment centers. The district court had made a factual finding that
“if recovering alcoholics at the Center were improperly forced
from the center and into a community which cannot provide treat-
ment for their abuse, these alcoholics” might suffer severe injury or
death as a result. Sullivan, 811 F.2d at 180. We determined that
this factual finding was not in error and held that “the threat of
this type of injury is precisely what the irreparable harm exception
to Younger is intended to prevent.” Jd. Specifically, we noted that
[a] wrongful deprivation by the City of Pittsburgh in this
case would threaten not only to do harm to appellees’ present
enjoyment of rights to Equal Protection, Due Process and
equal treatment under the Rehabilitation Act of 1973, but to
eliminate the possibility of appellees’ enjoyment or exercise of
any federal constitutional or statutory rights in the future.
Id. (emphasis added). In the present cases, on the récords before
us, we cannot say with certainty that the same potential for ir-
reparable injury to the appellees’ right to vindicate their federal
claims exist, and thus that “extraordinary circumstances” are
present that compel immediate federal intervention. Accordingly,
we will not affirm the district court’s rationale in USAA that
irreparable harm mandated disregard for Younger. In light of
our holding that abstention was nonetheless proper, however, we
will uphold the district court’s judgment.

14 In pertinent part, that provision states that the “Constitution,
and the Laws of the United States which shall be made in Pur-
suant thereof ... shall be the supreme Law of the Land .. .”
U.S. Const. Art. VI cl. 2. See also Gibbons v. Ogden, 22 U.S. (9
Wheat.) 1, 211, 6 L.Ed. 28 (1824) (“to such acts of the State
Legislatures as do not transcend their powers, but . . . interfere
with, or are contrary to the law of Congress, made in pursuance
of the constitution, . . . [i]m every such case, the act of Congress
. .. is supreme; and the iaw of the State . . . must yield to it.”)

2la

that Congress intended to preempt entirely the states’
authority to impose reguiations upon savings and loan
institutions that operate within the state’s borders, or, as
in the present case, to impose regulations upon other fi-
nancial institutions that seek affiliations with savings and
loans.

In reaching this conclusion, we are guided by the
Supreme Court’s instruction that preemption analysis
should be “tempered by the conviction that the proper
approach is to reconcile ‘the operation of both statutory
schemes with one anvther rather than holding one com-
pletely ousted.’” Merrill Lynch v. Ware, 414 U.S. 117,
127, 94 S.Ct. 383, 389, 38 L.Ed.2d 348 (1973). Cf.
Florida Lime and Avocado Growers, Inc. v. Paul, 373
U.S. 132, 142, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 reh.
denied, 374 U.S. 858, 83 S.Ct. 1861, 10 L.Ed.2d 1082
(1963) (“federal regulation of a field of commerce should
not be deemed pre-emptive of state regulatory power in
the absence of persuasive reasons—either that the nature
of the regulated subject matter permits no other conclu-
sion, or that Congress has unmistakenly so ordained’).
In light of this presumption in favor of the validity of
state regulation, and because there is no clear indication
that federal legislation is intended exclusively to provide
for every aspect of the regulation of savings and loan
institutions, we conclude that, apart from its application
to savings and loan companies acquired pursuant to
§ 1730a(m), § 641’s proscription of affiliations between
insurance companies and savings and loan institutions has
not been preempted.

A. Section 641 is Pre-empted Regarding the Acquisition
of Failing Thrifts

“The question [of] whether the regulation of an entire
field has been reserved by the Federal Government is,
essentially, a question of ascertaining the intent under-
lying the federal scheme.” Hillsborough County v. Auto-

22a

mated Medical Laboratories, Inc., 471 U.S. 707, 713, 105
S.Ct. 2371, 2875, 85 L.Ed.2d 714 (1985) (citing Rice v.
Santa Fe Elevator Corp., 331 U.S. 218, 67 S.Ct. 1146,
91 L.Ed. 1447 (1947) ; California Savings and Loan Ass’n
v. Guerra, 479 U.S. 272, 281, 107 S.Ct. 683, 689, 93
L.Ed.2d 613 (1987) (“[i]n determining whether a state
statute is pre-empted by federal law and therefore invalid
under the Supremacy Clause of the Constitution, our sole
task is to ascertain the intent of Congress.’’) Signifi-
cantly, we note that Congress may decide not to displace
state law entirely and, consequently, “may .. . preempt
state law to the extent that the state law actually con-
flicts with federal law. Such a conflict arises when com-
pliance with both state and federal law is impossible.”
Michigan Canners & Freezers Ass’n., Inc. v. Agricultural
Marketing & Bargaining Bd., 467 U.S. 461, 469, 104
S.Ct. 2518, 2523, 81 L.Ed.2d 399 (1984) (citing Florida
Lime & Avocado Growers v. Paul, 373 U.S. at 142-43, 83
S.Ct. at 1217-18). A conflict arises also where the state
law “stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress.”
Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404,
85 L.Ed.2d 581 (1941); see also Hillsborough County,
471 U.S. at 713, 105 S.Ct. at 2375. i

In the present cases, we have no difficulty discerning
Congress’ intent from the language and legislative history
of § 1730a(m) which, in our view, clearly provides that
§ 641 is preempted to the extent that it applies to Ford’s
acquisition of failing savings and loans.

In pertinent part, §1730a(m) provides that “[n]ot-
withstanding any provisions of the laws or constitutions
of any State or any provision of Federal law... [FSLIC,
upon its determination that severe financial conditions
exist which threaten the stability of a significant number
of insured institutions . . . may authorize any company
to acquire control of said insured institution.” 12 U.S.C.

23a

§1730a(m) (Supp. 1987) (emphasis added). This lan-
guage amply demonstrates Congress’ intent to preempt

all other legislation that might inhibit the purchase of a~

failing thrift by a FSLIC approved buyer. Although that
language, by itself, is sufficient to support our conclusion,
Congress has left an even more explicit statement of its
intent. In the conference report on the reenactment of
1730a(m), Congress expressly noted that with regard to
the circumstances presented by one of these cases

[e]xcept as [limited by other sections of the federal
statute] section 408(m) (A) (i) preempts other pro-
visions of Federal and State law that would have the
effect of preventing a company from acquiring a fail-
ing thrift institution. Thus, for example if a life
insurance company invested in or acquired a thrift
institution under section 408(m) [enacted and codi-
fied as 1730a(m)]), that section would preempt any
state law that would prevent the company from con-
tinuing to engage in the life insurance business be-
cause of that investment or acquisition .. .

H.R.Rep. No. 261, 100th Cong., 1st Sess., Cong.Rec. H
6857, H 6895 (daily ed. July 31, 1987) (emphasis added),
U.S. Code Cong. & Admin. News 1987, p. 489. This
legislative history provides unmistakable guidance to us
for the disposition of this issue. See United States v. Bd.
of Comm’rs of Sheffield, 435 U.S. 110, 134, 98 S.Ct. 965,
980, 55 L.Ed.2d 148 (1978) (“the legislative background
of [a] reenactment is conclusive ... [w]hen a Congress
that reenacts a statute voices its approval of an adminis-
trative or other interpretation thereof, Congress is treated
as having adopted that interpretation and this Court is
bound thereby”). We hold that Congress’s intent to pre-
clude any impediment to the acquisition of failing thrifts
is clear. In the present cases, therefore, we conclude that
§ 641 is preempted with regard to Ford’s purchase of the
Ohio thrifts and the authorized branch offices of those
thrifts opened in Colorado and Pennsylvania.

4
‘4

24a

We reach the latter part of this holding in light of the
factual finding by the district court that an essential
aspect of Ford’s agreement with FSLIC to purchase the
Ohio thrifts was the authorization that Ford received to
open the branch offices of the thrift. Ford, 672 F.Supp.
at 843. Specifically, the district court found that, “un-
der the authority of 12 U.S.C. §1730a(m), the Bank
Board granted to FNB the right to open branches in
Pennsylvania and [Colorado].” Jd. The district court
took note of the Bank Board finding that

“the Acquisition and Merger [of FNB and the Ohio
thrifts] are of very substantial benefit to the FSLIC
in a measure sufficient to constitute a compelling
factor in determining to make an award of branch-
ing rights in Pennsylvania and Colorado to [FNB]”

Id. (quoting Bank Board resolution approving acquisi-
tion of Ohio thrifts) (emphasis added). The district
court concluded that “FNB would not have acquired the
Ohio savings and loan associations if it did not get the
right to open branches in these two states in return.”
Id. We do not find that determination to be clearly er-
roneous. We are compelled by it, and the rationale un-
derlying § 1730a(m), to preclude application of § 641 to
the Pennsylvania or Colorado branches of the thrift. In
our view, application of § 641 to these branches would
frustrate the intent of the federal legislation just as
would the application of the state statute directly to the
purchase of the Ohio thrifts themselves. Accordingly,
§ 641 is preempted as to these authorized branches as
well as the Ohio thrifts and enforcement by Pennsyl-
vania of § 641 as to Ford’s ownership of these thrifts
is precluded.

We do not reach a similar conclusion concerning thrifts
acquired or capitalized outside of the purview of § 1730
a‘m). The legislative intent to preempt the application
of § 641 beyond cases involving the acquisition of failing

25a

thrifts is not evident, and accordingly, as to those cases,
§ 641 has not been preempted.

B. Federal Regulations That Concern The Savings and
Loan Industry, Although Comprehensive, Do Not
Evidence Congress’s Intent to Displace State Regu-
lation Entirely and Did Not Pre-empt § 641

In these cases, USAA and Ford argue that the regu-
latory scheme that Congress enacted for the savings and
loan industry was intended to occupy that field exclu-
sively. They contend that the federal scheme was in-
tended to regulate more than just the operations of sav-
ings and loan institutions, but also to regulate every as-
pect “regarding the organization, ownership, incorpora-
tion and operation of federal savings banks.” Appellee
(USAA) Brief at 21. See also, Appellee (Ford) Brief at
24 (“[section] 641 is preempted as applied . . . because
it frustrates federal purposes and ‘stands as an obstacle’
to the broad and pervasive federal regulatory scheme
governing the ownership and control of federal S &
L’s’”). They assert that the comprehensiveness of the
federal regulatory scheme, together with the significant
federal interest in the regulation of savings and loan in-
stitutions, evinces congressional intent to preclude sup-
plemental state regulation. We do not agree.

In cases such as these, where Congress has not ex-
pressly preempted a state’s statute, its “intent to pre-
empt all state law in a particular area may be inferred
where the scheme of federal regulation is ‘sufficiently
comprehensive to make reasonable the inference that Con-
gress ‘left no room’ for supplementary state regulation.”
Hillsborough County, 471 U.S. at 714, 105 S.Ct. at 2375.
See also Guerra, 479 U.S. at 280, 107 S.Ct. at 689 (con-
gressional intent to preempt may be inferred where the
scheme of federal regulation is “sufficiently comprehensive
to make reasonable the inference that Congress ‘left no
room’ for supplementaly state regulation”).

26a

In both cases, the district courts acknowledged the
comprehensiveness of the federal regulatory scheme. See
USAA, 680 F.Supp. at 716; Ford, 672 F.Supp. at 846.
Both district courts, however, concluded that the intent
of the federal scheme was to regulate the operation of
federally insured thrifts. Accordingly, each court con-
cluded that the federal regulations did not preclude sup-
plemental state regulations which, as in these cases, im-
posed a restriction upon the affiliations that the thrift
could have and were designed more to regulate the in-
surance industry rather than to control the operation of
the savings and loan industry. Our review of the fed-
eral regulatory scheme leads us to a similar conclusion.

We reiterate that our conclusion on this issue is in-
formed by the Supreme Court’s instruction that “federal
regulation of a field of commerce should not be deemed
pre-emptive of state regulatory power in the absence of
persuasive reasons—either that the nature of the regu-
lated subject matter permits no other conclusion, or that
Congress has unmistakenly so ordained.” Florida Lime
and Avocado Growers, Inc. v. Paul, 373 U.S. at 142, 83
S.Ct. at 1217. We are unconvinced that the federal bank-
ing regulatory scheme permits no conclusion other than
that Congress intended to occupy the field exclusively.

Initially we note that the comprehensive nature of the
federal regulatory scheme, by itself, is not sufficient to
support a conclusion that Congress intended to preempt
all state regulation. See Hillsborough, 471 U.S. at 717,
105 S.Ct. at 2377 (“[t]o infer preemption whenever an
agency deals with a problem comprehensively is vir-
tually tantamount to saying that whenever a federal
agency decides to step into a field, its regulations will be
exclusive’). Indeed, precisely because the regulatory
scheme at issue in these cases is so detailed, we interpret
the absence of clear preemptive language as indicative
that Congress did not intend to displace state law en-
tirely. We note, as has the Supreme Court, that “be-

27a

cause agencies normally address problems in a detailed
manner and can speak through a variety of means...
we can expect that they will make their intentions clear
if they intend for their regulations to be exclusive.” Id.

Moreover, the regulations at issue in the present cases
provide explicitly for preemption of state law on two
issues, see 12 C.F.R. § 590 (1988) (“Preemption of State
Lending Restrictions) (expressly preempting state usury
laws and state due on sale laws), but no where indicate
that all state regulation is preempted. Indeed, in one
section, the regulations clearly demonstrate Congress’ rec-
ognition that the federal scheme might be supplemental
by state regulation. Section 555.17(b) precludes officers
or directors of savings and loan associations from refer-
ring insurance business generated by members of the
S & L to insurance companies with which the officers or
directors are affiliated.’*> Such referrals would constitute
a usurpation of the S & L’s corporate opportunity to en-
gage in the insurance business. Significantly, however,
§ 555.17 is limited by specific exceptions enumerated else-
where in the section. One of those exceptions provides
that

[n]o corporate opportunity for a Federal association
to enter the insurance business is deemed to have
existed

[while a specific State statute or regulation pre-
cluded Federal association service corporations .. .
from engaging in the insurance business

12 C.F.R. § 555.17 (c) (iii) (1988) (emphasis added).

15 In pertinent part, that section provides that

referral of insurance business of an association’s members to
an insurance agency owned by one or more officers or directors
of the association, or by one or more persons having the
power to direct its management, constitutes usurpation of the
association’s corporate opportunity to engage in the insurance
business.

12 C.F.R. § 555.17(b) (1988)

28a

Appellees correctly assert that the circumstance pro-
vided for in § 555.17 is not at issue in these cases. In
our view, however, the existence of this provision pro-
vides compelling evidence that Congress did not envision
that all state regulations would be in conflict with the
federal regulatory scheme. Moreover, the subject matter
of § 555.17(c) (iii) is particularly significant because it
demonstrates Congress’s specific awareness of the exist-
ence of state statutes such as § 641. In that light, we
cannot conclude that, by these regulations, “Congress ‘left
no room’ for supplementary state regulation.” Hills-
borough County, 471 U.S. at 713, 105 S.Ct. at 2378. Ac-
cordingly, we also cannot conclude that Congress intended
exclusively to occupy this field of regulation.

IV. Dormant Commerce Clause

Upon their conclusions that abstention was not war-
ranted and that § 641 was not wholly preempted, the dis-
trict courts reviewed Ford’s and USAA’s claim that
§ 641 was invalid as a violation of the dormant Com-
merce Clause. See U.S. Const. art. I, § 8, cl. 3.2° On that

16In pertinent part, that clause provides that “Congress shall
have Power ... [t]o regulate Commerce . . . among the several
states.” U.S. Const. art. 1 § 8, cl. 3.

In light of its conclusion that USAA’s creation of a Bank in
Texas was not preempted by federal law because it did not fall
within the scope of 1730a(m), the district court granted summary
judgment to USAA on the grounds that enforcement of § 641
against that insurer violated the Commerce Clause.

In Ford, the district court initially did not reach the merits
of this constitutional issue. It’s decision held only that federal law
preempted application of §641 to the acquisition of the failing
Ohio S & L’s and the Pennsylvania and Colorado branches. Subse-
quent to that decision, the Commissioner moved for amendment
of the district court’s order because it did not address Ford’s
acquisition of FNFC and FNB in 1985, which the commissioner
asserted was a violation of § 641. The Commissioner contended
that application of § 641 was not preempted because those institu-
tions had not been purchased pursuant to the failed S & L provi-

-
|
.
,

29a

claim, however, the courts concluded that to the extent
that § 641 was not preempted, it was nonetheless con-
stitutionally infirm because it imposed an excessive bur-
den upon interstate commerce. -

The courts determined that § 641’s proscription of af-
filietions between Pennsylvania insurance companies and
financial institutions—whether or not located in Pennsyl-
vania—indirectly regulated interstate commerce. Accord-
ingly, the district courts held that resolution of the con-
stitutional validity of § 641 turned upon application of
the Supreme Court’s holding in Pike v. Bruce Church,
Inc., 397 U.S. 137, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970).
In Pike, the Supreme Court stated that °

sion of federal law. In response to that motion the district court
concluded that, although § 1730a did not preempt the application
of § 641 to FNFC and FNB, “enforcement of section 641 on insur-
ance companies that own banking affiliates that do not operate in
Pennsylvania is invalid as a violation of the commerce clause of
the Constitution.” Ford Motor Co. v. Insurance Commissioner,
No. 87-3241 (Supplemental Memorandum) slip op. at 5, 1988 WL
29342 (E.D.Pa. Mar. 22, 1988) reprinted at Jt.App. at 148. (citing
USAA). In reaching its conclusion, the district court relied en-
tirely upon the rationale expressed in USAA v. Foster. Accord-
ingly, our discussion of the propriety of application of the Com-
merce Clause to § 641 focuses upon the decision issued in USAA
and attributes that holding to both cases. We note, however, that
the decision of the district court in USAA striking § 641 as vio-
lative of the Commerce Clause, relied in significant part upon the
fact that the insurer in that case did not own an affiliated bank
that transacted business in Pennsylvania. See USAA, 680 F.Supp.
at 722. That circumstance, obviously, is not true in Ford. The
decision in USAA, in dicta, did note that in cases that involved
insurers who were affiliated with Pennsylvania banks “the con-
cerns of the Commissioner and the [Independent Agents] become
very real,” Id. at 721-22, bui summarily concluded that that statute
would nonetheless be invalid as overbroad. In our view, that con-
clusion is insufficient of itself to support the judgment in Ford.
For that reason, even if we were to sustain the decision of the dis-
trict court in USAA, we could not, on this record, affirm the judg-
ment of the district court in Ford.

30a

[w]here the statute regulates evenhandedly to ef-
fectuate a legitimate local public interest, and its
effects on interstate commerce are not incidental, it
will be upheld unless the burden imposed on such
commerce is clearly excessive in relation to the puta-
tive local benefits

Id. at 142, 90 S.Ct. at 847.

In the present cases, the district courts concluded in
light of Pike that, although the imposition on interstate
commerce that resulted from the enforcement of § 641 is
incidental, that burden is still “excessive” because the
benefits to Pennsylvania are not sufficiently realized by
§ 641 to support the burden upon interstate commerce.
For that reason, the district court struck § 641 as uncon-
stitutional. In arriving at this balance between the sig-
nificance of the state interest in precluding the affilia-
tions between insurers and banking institutions, and the
effect of that regulation upon interstate commerce, how-
ever, the district courts erred. Because that statute regu-
lated indiscriminately—affording no preference to in-state
interests over others—we cannot conclude that it pre-
sented a burden to interstate commerce and, in that light,
we hold that it did not violate the Commerce Clause.

Indiscriminate Regulution Of Commerce Does Not Neces-
sarily Burden “Interstate Commerce”

The Insurance Commissioner asserts that § 641 effects
three important state goals: “to protect the insurance in-
dustry from . . . unfair concentration; . . . to protect
consumers from coercive ‘tic-ins’ and other forms of
subtle pressure tactics by lending institutions; and... .
to protect the ability of the insurance examiners to moni-
tor adequately the insurance industry.” USAA, 680 F.
Supp. at 720. The district courts did not question the
legitimacy of these goals, but concluded that “the adverse
effects of affiliation are not present where the affiliated

8la

bank is outside the jurisdiction, or are readily prevented
in ways less burdensome than is prescribed in Section
641(b).” Id.

Resolution of the issue of applicability of the Com-
merce Clause to these cases is dependent upon the level
of scrutiny that is applied to review the Pennsylvania
statute. As we have previously noted, three standards
of review are applied in performing dormant Commerce
Clause inquiry:

1) state actions that purposefully or arbitrarily dis-
criminate against interstate commerce or undermine
uniformity in areas of particular federal importance
are given heightened scrutiny; 2) legislation in areas
of peculiarly strong state interest is subject to very
deferential review; and 3) the remaining cases are
governed by a balancing rule, under which state law
is invalid only if the incidental burden on interstate
commerce is clearly excessive in relation to the puta-
tive local benefits.

Norfolk Southern Corp. v. Oberly, 822 F.2d 388, 398-99
(3d Cir. 1987). Under the highest level of scrutiny “the
burden falls upon the State to demonstrate both that
the statute ‘serves a legitimate local purpose,’ and that
this purpose could not be served as well by available non-
discriminatory means.” Maine v. Taylor, 477 U.S. 131,
138, 106 S.Ct. 2440, 2448, 91 L.Ed.2d 110 (1986) (quot-
ing Hughes v. Oklahoma, 441 U.S. 322, 336, 99 S.Ct.
1727, 1736, 60 L.Ed.2d 250 (1979)). “In practice, such
heightened scrutiny is applied with considerable rigor
and turns out to be ‘a virtually per se rule of invalid-
ity.’” Norfolk Southern Corp., 822 F.2d at 400 (quoting
Philadelphia v. New Jersey, 437 U.S. 617, 624, 98 S.Ct.
2531, 2535, 57 L.Ed.2d 475 (1978) ).

In the present cases, heightened scrutiny of § 641 is
not warranted because that provision does not discrimi-
nate in the manner that it regulates. As we have held

82a

“Tthjeightened scrutiny is the standard of review for
‘simple economic protectionism.’ . . . [this] category of
protectionism includes those state measures that discrimi-
nate on their face against out-of-state interests or in
favor of in-state interests.” Norfolk, 822 F.2d at 400
(citing Philadelphia, 487 U.S. 617, 98 S.Ct. 2531, 57
L.Ed.2d 475 (1978); Hughes; South-Central Timber De-
velopment, Inc. v. Wunnicke, 467 U.S. 82, 104 S.Ct. 2237,
81 L.Ed.2d 71 (1984)). The state statute at issue, how-
ever, is not the “simple economic protectionism” that the
Commerce Clause precludes. Accordingly, because height-
ened scrutiny is not applicable, § 641 must be upheld if
the incidental burden that it imposes upon interstate
commerce is not “clearly excessive in relation to the puta-
tive local benefits.” Pike, 397 U.S. at 142, 90 S.Ct. at
847. See also, Minnesota v. Clover Leaf Creamery, Co.,
449 U.S. 456, 471, 101 S.Ct. 715, 727, 66 L.Ed.2d 659 reh.
denied, 450 U.S. 1027, 101 S.Ct. 1735, 68 L.Ed.2d 222
(1981) ."”

As we have previously noted in performing that in-
quiry, “[t]he ‘incidental burden on interstate commerce’
appropriately considered in Commerce Clause balancing
is the degree to which the state action incidentally dis-
criminates against interstate commerce relative to intra-
state commerce. It is a comparative measure.” Norfolk
Southern, 822 F.2d at 406 (emphasis added). In our
view, “the Commerce Clause is concerned with protection-
ism and the need for uniformity . . . legislation will not
be invalidated under the Pike test in the absence of dis-
criminatory burdens on interstate commerce.” Id.

The Supreme Court’s decision in Exxon Corp v. Gover-
nor of Maryland, 437 U.S. 117, 98 S.Ct. 2207, 57 L.Ed.2d

17 We do not reach the inquiry of whether § 641 is entitled to the
second standard of review set forth in Norfolk Southern. Although
Pennsylvania has a significant interest in the regulation of its
insurance industry, its concern is not “pecularily local” such that
it invokes this most differential standard of review.

33a

91, reh. denied sub nom., Shell Oil Co. v. Governor of
Maryland, 439 U.S. 884, 99 S.Ct. 232, 58 L.Ed.2d 200
(1978), provides useful instruction. In Exxon, the Court
addressed a Maryland statute that precluded companies
that refined petroleum from owning retail service stations
within Maryland. The proscription applied to in-state
owners of oil refineries as well as to out of state re-
fineries, and because no competitive advantage to local
interest was discernible, the court upheld the constitution-
ality of the statute. In reaching its conclusion, the Court
noted that the state act “create[d] no barriers whatso-
ever against interstate independent dealers; it [did] not
prohibit the flow of interstate goods, place added costs
upon them, or distinguish between in-state and out-of-
state companies in the retail market.” Exxon, 437 U.S.
at 126, 98 S.Ct. at 2214. The Court concluded that “the
absence of any of these factors fully distinguishes this
case from those in which a State has been found to have
discriminated against interstate commerce.” Id. (em-
phasis added). it held that

[while the refiners will no longer enjoy their same
status in the Maryland market, in-state independent
dealers will have no competitive advantage over out-
of-state dealers. The fact that the burden of a state
regulation falls on some interstate companies does
not, by itself, establish a claim of discrimination
against interstate commerce.

437 U.S. at 126, 98 S.Ct. at 2214 (emphasis added). See
also CTS Corp. v. Dynamics Corp. of America, 481 U.S.
69, 88, 107 S.Ct. 1687, 1649, 95 L.Ed.2d 67 (1987)
(“[{b]ecause nothing in the Indiana Act imposes a greater
burden on out-of-state [entities] than it does on similarly
situated Indiana [entities], we rejected the contention
that the Act discriminates against interstate commere’”’).

This Court has similarly concluded that

{[w]here the “burden” on out-of-state interests is no
different from that placed on competing in-state in-

84a

terests ... it is a burden on commerce rather than a
burden on interstate commerce. In such cases, noth-
ing in Commerce Clause jurisprudence entitles out-
of-state interests to more strict judécial review than
that to which the in-state interests are entitled.

Norfolk Southern, 822 F.2d at 406 (emphasis in origi-
nal). We are persuaded that this same conclusion is ap-
plicable to the present cases. Section 641 places no dis-
criminatory burdens on interstate insurers. It does
not add increased costs to them or otherwise distinguish
between in-state insurers and out-of-state insurers in the
insurance market. Indeed, as the district court in USAA
found, USAA “could not make... [the] argument [that
§ 641 discriminates against interstate commerce in favor
of local business because] Section 641(b) treats all insur-
ance companies and all savings and loans alike, whether
or not they are based in Pennsylvania.” See USAA, 680
F.Supp. at 719 n. 6. For these reasons, we conclude that
the Commerce Clause has not been violated.’®

—

18 Our holding in these cases is consonant with the Supreme
Court’s guidance in this area. The Court has previously noted that
where regulations “affect alike shippers in interstate and intra-
state commerce in large numbers within as well as without[,] the
state is a safeguard against their abuse.”*South Carolina State
Highway Dep’t v. Barnwell Bros., 303 U.S. 177, 187, 58 S.Ct. 510,
515, 82 L.Ed. 734 (1938). That holding endorses the rationale that
the state’s regulatory scheme will be adequately monitored because
an instate constituency is-similarly affected, and will act in its
interests to keep the legislature from overreaching. See elso, South-
ern Pacific Co. v. Arizona, 325 U.S. 761, 783, 65 S.Ct. 1515, 1527,
89 L.Ed. 1915 (1945); L. Tribe, American Constitutional Law at
409-10 & nn. 4-8 (2d ed. 1988).

One possible source of this rationale is the famous “footnote 4”
of Carolene Products. See United States v. Carolene Products Co.,
304 U.S. 144, 152 n. 4, 58 S.Ct. 778, 783 n. 4, 82 L.Ed. 1234 (1938).
Consistent with the overall view of that case, the court articulated
a view that one commentator has described in the following manner:

[w]hen states adopt economic regulations that affect out-of-state
interests, those out-of-state interests are likely to be short-

85a

_ The district courts, in reaching the conclusions that
the Commerce Clause invalidates § 641, appear to have
been most persuaded by the significant economic effect
that enforcement of § 641 will have upon Ford an&
USAA. Indeed, the district court in USAA concluded
that “[{i]f the Insurance Department enforces Section
641(b) against USAA, USAA will be forced to abandon
its insurance business in Pennsylvania or relinquish its

interest in the Texas bank. If USAA opts to allow its
insurance license to be revoked, this revocation could re-

changed because they are not represented in the political proc-
ess that produces the regulations. But everyone who is affected
ought to be represented. Therefore we have judicial review of
state economic regulation that affects out-of-state interests in
order to give those interests “virtual representation.”
Regan, The Supreme Court and State Protectionism: Making Sense
of the Dormant Commerce Clause, 84 Mich.L.Rev. 1091, 1160
(1986). The value of this analytical approach is debated. Compare
id. (asserting that implicit in such an approach is the reliance
upon state and federal interests, and arguing that such an approach
should be replaced by inquiry of the state legislature’s motivation)
with Tushnet, Rethinking the Dormant Commerce Clause, 79 Wis.
L.Rev. 125 (1979) (discussing a political theory of judicial review
in dormant commerce clause cases in which the focus of concern is
the adequacy of the legislature to protect important interests).
This rationale however, is firmly entrenched in our jurisprudence,
see, e.g., Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456,
473 n. 17, 101 S.Ct. 715, 728 n. 17, 66 L.Ed.2d 659 reh. denied, 450
U.S. 1027, 101 S.Ct. 1735, 68 L.Ed.2d 222 (1981) (“[t]he existence
of major in-state interests adversely affected by the [state statute]
is a powerful safeguard against legislative abuse) ; Raymond Motor
Transp., Inc. v. Rice, 434 U.S. 429, 444 n. 18, 98 S.Ct. 787, 795 n.18,
54 L.Ed.2d 664 (1978) (“The Court’s special deference to state
highway regulations derives in part from the assumption that
where such regulations do not discriminate on their face against
interstate commerce, their burden usually f...s on local economic
interests as well as other states’ economic interests, thus insuring
that a state’s own political processes will serve as a check against
unduly burdensome regulations”), and persuades us in the present
cases, that the protections afforded by the Commerce Clause are not

implicated.

36a

sult in devastating economic consequences.” USAA, 680
F.Supp. at 721. On this point, the district court quoted
this Court’s opinion in USAA I in which we concluded, in
our holding that Pullman abstention was inappropriate,
that USAA would suffer “devastating economic conse-
quences” if its license to sell insurance in Pennsylvania
was revoked. See id. (quoting USAA I, 792 F.2d at 363).

We are not unaware, nor are we insensitive to this
“burden” that results from the enforcement of the state
provision. We cannot say, however, that the dormant
Commerce Clause is the proper remedy. Both Ford and
USAA appear to have adopted corporate strategies that
seek to expand their corporate bases by the acquisition
of other companies. That strategy is their own choosing
and we express no value judgments concerning it. In
making those choices, however, the companies must ex-
pect that they will be required to comply with all ap-
plicable state as well as federal regulations. They can-
not hope to invoke the Constitution at every turn to cir-
cumvent state regulation and insure unrestricted expan-
sion and protection of their opportunity to obtain the
greatest margin of profit.

On this point we are again guided by Exxon. In that
case, the Supreme Court noted arguments that, as the
result of the state divestiture regulation, some oil refin-
ers would stop selling in Maryland. See Exxon, 487 U.S.
at 127, 98 S.Ct. at 2215. The Court also recognized that
the result of that occurrence might be that Maryland
consumers would be deprived of some special services that
had previously been provided by the affiliated retail sta-
tions. Jd. Although it assumed, argwendo, the accuracy
of these contentions, the Court nonetheless concluded that
the protections of the Commerce Clause, had not been
triggered. Significantly, it concluded that even if those
refiners chose to withdraw entirely from the Maryland
market “there [was] no reason to assume that their share
of the entire supply [would] not be promptly replaced by

87a

other interstate refiners . . interstate commerce is not
subjected to an impermissible burden simply because an
otherwise valid regulation causes some business to shift
from one interstate supplier to another.” Exxon, 437
U.S. at 127, 98 S.Ct. at 2215. Similarly, in the present
cases, the district courts, holdings give us no reason to
conclude that interstate commerce will be adversely af-
fected by enforcement of § 641. There is no reason for
us to assume that USAA’s or Ford’s share of the insur-
ance products sold in Pennsylvania will not be promptly
replaced by other interstate insurers. Accordingly, we
cannot conclude that § 641 places an impermissible burden
upon interstate commerce.

The district courts disinguish Exxon on the grounds
that the statute at issue in that case “did not have the
practical effect of indirectly regulating the refiners’ own-
ership of other entities outside the state.” USAA, 680
F.Supp. at 722. In that light, the courts concluded that
“unlike [§ 641], the Maryland statute in the Exxon case
did not reach beyond the borders of the state,” id. and,
because § 641 precluded Pennsylvania insurers from af-
filiations with S & L’s wherever located, its affect upon
interstate commerce was different from that involved in
Exxon. We believe that this narrow reading of Exxon
is in error.

We do not view the Court’s decision in Exxon as predi-
cated upon the conclusion that the state statute did not
regulate beyond the Maryland borders. Indeed, we note
that Justice Blackmun’s dissent departs from the Court
majority precisely because of the recognition that the
Maryland statute had the actual effect of precluding
many out-of-state businesses from participating in the
retail market in Maryland. See Exxon, 437 U.S. at 138,
98 S.Ct. at 2220 (“[o]f the ciass of enterprises excluded
entirely from participation in the retail gasoline market,
95% were out-of-state firms.”) (Blackmun, J., concurring
and dissenting). In our view, the focus of the majority

88a

opinion was the manner by which the statute regulated.
The Court concluded that the fact that the statute regu-
lated indiscriminately compelled the conclusion that the
Commerce Clause had not been violated.”

As the Supreme Court has noted, “[t]he Commerce
Clause [does not] protect{] the particular structure or
method of operation in a retail market .. . the Clause
protects the interstate market, not the particular inter-
state firms, from prohibitive or burdensome regulations.”
Exxon, 437 U.S. at 127, 98 S.Ct. at 2215 (emphasis
added) (citation omitted). Thus, although § 641 may
provide somewhat of a boon to independent insurance
agents who sell insurance in Pennsylvania, that boon is
no less available to independent agents who are based
outside of the state as it is to such agents for whom
Pennsylvania is home. To the extent that the regulation
infringes upon the commercial association rights of lend-
ing institutions outside of Pennsylvania, it infringes upon
those same rights of lending institutions within Pennsyl-
vania. In that light, even if § 641 is viewed as “protec-
tionist” of the economic interests of unaffiliated insurers,
because it does not afford that protection only to local
agents, it is not violative of the Commerce Clause.”

19 We are not unaware that, even a statute that is facially indis-
criminate may nonetheless be determined to be violative of the
Commerce Clause because it has a discriminatory effect. Nothing
in the records of the present cases, or in the decisions of the district
courts, however, indicates that enforcement of § 641 will have the
effect of favoring in-state interests over out-of-state interests.

20 Finally, USAA and Ford argue that heightened scrutiny of
§ 641 is proper because of the significant need for uniformity in
the regulation in this area. Their argument on this point appears,
essentially, to be that the prohibition of a “financially sound” insti-
tution from eligibility to be a purchaser of a S & L conflicts with
the federal policy. They argue that, pursuant to Southern Pacific,
the Commerce Clause should render the statute unconstitutional be-
cause the “federal government has a compelling interest ‘in the
uniformity of regulation’ in connection with the ownership, acqui-
sition and control of federally insured thrift institutions.” Appellee

SSSGMUnILSAi 2 ase Uaiaad.. .. vasinin str whadiedidheadan detains acd tastes Lovaennds a

39a

V. Conclusion

In light of the foregoing, we reach the following con-
clusions in these cases: In Ford, we wil! affirm the deci-
sion of the district court not to abstain. We will also
affirm the district court’s decision that § 641 was inappli-
cable to Ford’s acquisition of the two failing Ohio S & L’s
under the provisions of 12 U.S.C. §1730a(m) (1982),
and the branches authorized in connection with that acqui-
sition, because the state statute has been preempted by
the federal law concerning the emergency acquisition of
failing thrifts. We will also affirm the district court’s
conclusion that § 641 is not preempted by federal law in
its application to circumstances other than those provided
by §1730a(m). We will reverse, however, the district
court’s judgment that § 641 is violative of the dormant
Commerce Clause.

In USAA, we will affirm the decision of the district
court not to abstain, although we will not affirm the

(Ford) Brief at 30 (quoting Southern Pacific, 325 U.S. at 770, 65
S.Ct. at 1521). To succeed on this argument, however, the appellees
must demonstrate the presence of a national scheme to regulate
completely the transfer and affiliations of every S & L throughout
the country. They have failed in that demonstration and neither is
the existence of such a scheme apparent on the face of the federal
legislation. :

In our view, the appellees’ assertions on this point are merely
the preemption argument dressed in different clothing. See Rice,
331 U.S. at 230, 67 S.Ct. at 1152 (federal preemption will be
inferred where the field is one in which the federal interest is so
dominant that the “federal system wil! be assumed to preclude
enforcement of state laws on the same subject”), see also, Hills-
borough County, 471 U.S. at 713, 2374. (sic) As we have held in
this opinion supra, to the extent that § 641 imposes restrictions or
regulations that affect the ability of an otherwise viable institution
to purchase a failing thrift, it conflicts with federal legislation, and,
therefore, is preempted. Apart from that circumstance, however,
we do not discern a conflict between the state statute and federal
regulation of the savings and loan industry that requires invalida-
tion of the state statute.

40a

rationale upon which it relied. We will also affirm the
holding of the district court that § 641 is not preempted
by federal law in its application to USAA’s establishment
of a Texas savings and loan company. We will reverse,
however, the district court’s judgment that § 641 is vio-
lative of the dormant commerce clause and we will re-
mand this matter to the district court for its determina-
tion of the viability of USAA’s claim that the state
statute is otherwise inapplicable to it. See supra, n. 11.

All parties in these cases will bear their own costs.

4la
APPENDIX B _

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 88-5077, 88-5078 & 88-5121

UNITED SERVICES AUTOMOBILE ASSOCIATION,
a Texas Reciprocal Interinsurance Exchange

and

USAA CASUALTY INSURANCE COMPANY,
a Texas Stock Insurance Company,

and

USAA LIFE INSURANCE COMPANY,
a Texas Stock Insurance Company,

and
USAA ANNUITY AND LIFE INSURANCE COMPANY,
a Texas Stock Insurance

v.

Mur, WILLIAM J., III,
Acting Insurance Commissioner of the
Commonwealth of Pennsylvania

PENNSYLVANIA ASSOCIATION OF INDEPENDENT INSURANCE
AGENTS; JOHN ULRICH, JR.; PROFESSIONAL INSURANCE
AGENTS ASSOCIATION OF PENNSYLVANIA, MARYLAND
AND DELAWARE, INC.; CHARLES P. LEACH, JR.; PENN-
SYLVANIA ASSOCIATION OF LIFE UNDERWRITERS; and

HAROLD E. ALEXANDER,

Appellants in 88-5077

42a

UNITED SERVICES AUTOMOBILE ASSOCIATION,
a Texas Reciprocal Interinsurance Exchange

and

USAA CASUALTY INSURANCE COMPANY,
a Texas Stock Insurance Company,

and

USAA LIFE INSURANCE COMPANY,
a Texas Stock Insurance Company,

and

USAA ANNUITY AND LIFE INSURANCE COMPANY,
a Texas Stock Insurance

V.

Murr, WILLIAM J., III,
Acting Insurance Commissioner of the
Commonwealth of Pennsylvania

PENNSYLVANIA ASSOCIATION OF INDEPENDENT INSURANCE
AGENTS; JOHN ULRICH, JR.; PROFESSIONAL INSURANCE
AGENTS ASSOCIATION OF PENNSYLVANIA, MARYLAND
AND DELAWARE, INC.; CHARLES P. LEACH, JR.; PENN-
SYLVANIA ASSOCIATION OF LIFE UNDERWRITERS; and
HAROLD E. ALEXANDER,

CONSTANCE FOSTER,
Appellant in 88-5078

43a

UNITED SERVICES AUTOMOBILE ASSOCIATION,
a Texas Reciprocal Interinsurance Exchange

and

USAA CASUALTY INSURANCE COMPANY,
a Texas Stock Insurance Company

and

USAA LIFE INSURANCE COMPANY,
a Texas Stock Insurance Company

and

USAA ANNUITY AND LIFE INSURANCE COMPANY,
a Texas Stock Insurance

V.

Muir, WILLIAM J., III,
Acting Insurance Commissioner of the
- Commonwealth of Pennsylvania

PENNSYLVANIA ASSOCIATION OF INDEPENDENT INSURANCE
AGENTS; JOHN ULRICH, JR.; PROFESSIONAL INSURANCE
AGENTS ASSOCIATION OF PENNSYLVANIA, MARYLAND
AND DELAWARE, INC.; CHARLES P. LEACH, JR.; PENN-
SYLVANIA ASSOCIATION OF LIFE UNDERWRITERS; and
HAROLD E, ALEXANDER,

UNITED SERVICES AUTOMOBILE ASSOCIATION,
USAA CASUALTY INSURANCE COMPANY,
USAA LIFE INSURANCE COMPANY, and

USAA ANNUITY AND LIFE INSURANCE COMPANY,
Appellants in 88-5121

On Appeal from the United States District Court for the
Middle District of Pennsylvania

(D.C. Civil Action No. 84-1596)

44a

SUR PETITION FOR REHEARING

Present: GIBBONS, Chief Judge, SEITZ,
HIGGINBOTHAM, SLOVITER, BECKER,
STAPLETON, MANSMANN, GREENBERG,
HUTCHINSON, SCIRICA, COWEN,
and NYGAARD, Circuit Judges.

The petition for rehearing filed by appellant in the
above-entitled case having been submitted to the judges
who participated in the decision of this Court and to all
the other available circuit judges of the circuit in regular
active service, and no judge who concurred in the decision
having asked for rehearing, and a majority of the circuit
judges of the circuit in regular service not having voted
for rehearing, the petition for rehearing by the panel and
the Court in bance, is denied.

BY THE COURT,

/s/ Leon Higginbotham
Circuit Judge
Dated: June 9, 1989 ;

-

45a.

APPENDIX C

UNITED STATES DISTRICT COURT
M.D. PENNSYLVANIA

Civ. No. 84-1596

UNITED SERVICES AUTOMOBILE ASSOCIATION, et al.,
Plaintiffs,
V.

CONSTANCE FOSTER,
Defendant.

Dec. 23, 1987

Michael L. Browne, Christopher K. Walters, Reed,
Smith, Shaw & McClay, Philadelphia, Pa., Robert B.
Hoffman, Reed, Smith, Shaw & McClay, Harrisburg, Pa.,
for plaintiffs. -

Andrew S. Gordon, Ellis M. Saull, Dist. Attys. Gen.,
Allen C. Warshaw, Sr. Deputy Atty. Gen., Office of
Atty. Gen., Harrisburg, Pa., for defendant.

Karen Balaban, William Balaban, Harrisburg, Pa., for

intervenors.
MEMORANDUM

HEPMAN, District Judge.

In this action against the Insurance Commissioner of
the Commonwealth of Pennsylvania (hereinafter “Com-
missioner’), the plaintiffs, United Services Automobile
Association, U.S.A.A. Casualty Insurance Company,
U.S.A.A. Life Insurance Company, and U.S.A.A. Annu-
ity and Life Insurance Company (hereinafter “USAA’’)
challenge the constitutionality of Section 641 of Penn-

46a

sylvania’s Insurance Department Act of 1921, 40 Pa.
C.S.A. § 281.1. Presently before us are three motions:
the motion of the Commissioner for summary judgment
on abstention grounds; the motion of USAA for sum-
mary judgment on pre-emption grounds; and the motion
of USAA for summary judgment on Commerce Clause
grounds.
I. BACKGROUND

USAA, a reciprocal interinsurance exchange organized
and existing under the laws of Texas with its principal
place of business in San Antonio, is licensed to sell in-
surance in Pennsylvania. In April, 1984, USAA Finan-
cial Services, a wholly-owned subsidiary of USAA, filed
an application with the Federal Home Loan Bank Board
for a Federal Savings Bank Charter for the USAA Fed-
eral Savings Bank. The bank received its charter and
began operations in San Antonio in December, 1983. The
bank has no locations in Pennsylvania.

In July and August, 1984, the Pennsylvania Insurance
Department notified USAA that its indirect ownership
of the bank in Texas constituted a violation of Section 641
of the Insurance Department Act and advised USAA
that it must divest itself of the bank or risk revocation
‘of its licenses to transact insurance business in Penn-
sylvania. In November, 1984, USAA brought the present
action under 42 U.S.C. § 1983, seeking declaratory and

1 Section 641, in pertinent part, provides:

(b) No lending institution, public utility, bank holding com-
pany, savings and loan holding company or any subsidiary or
affiliate of the foregoing, or officer or employe thereof, may,
directly or indirectly, be licensed or admitted as an insurer or
be licensed to sell insurance in this State either as a broker or
as an agent except that a lending institution or bank holding
company, subsidiary or affiliate of a lending institution may be
licensed to sell credit life, health and accident insurance and to
sell and underwrite title insurance in accordance with regula-
tions promulgated by the Insurance Commissioner.

47a

injunctive relief against the Commissioner, and, in De-
cember, 1984, the Commissioner initiated state agency
proceedings to revoke the plaintiffs’ insurance licenses.

After consideration of the motion of the Commissioner
to dismiss the federal action on abstention grounds, we
ordered the action dismissed on September 30, 1985.
USAA appealed from our order.

In June, 1986, the Court of Appeals for the Third
Circuit reversed the judgment and remanded the case
for further proceedings consistent with its opinion. See
United Services Automobile Association v. Muir, 792
F.2d 356 (3d Cir. 1986). Thereafter, we issued a pre-
liminary injunction which prohibits the Commissioner
from revoking the plaintiffs’ insurance licenses pending
further order.

In October, 1986, the Commissioner filed a Petition
for a Writ of Certiorari in the Supreme Court. The
Supreme Court denied the petition.

On August 21, 1987, we granted the motion of
the Pennsylvania Association of Independent Insurance
Agents, John M. Ulrich, -Jr., Professional Insurance
Agents Association of Pennsylvania, Maryland and Dela-
ware, Inc., Charles P: Leach, Jr., Pennsylvania Associ-
ation of Life Underwriters and Harold E. Alexander,
to intervene in the action. Oral argument on the motions
for summary judgment was held September 16, 1987.

II. ABSTENTION

In our September, 1986, ruling in this case, we dis-
missed USAA’s complaint on abstention grounds. We
relied on the three different types of abstention set forth
in Railroad Commission of Texas v. Pullman, 312 U.S.
496, 61 S.Ct. 643, 85 L.Ed. 971 (1941); Burford v. Sun
Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424
(1943); and Younger v. Harris, 401 U.S. 37, 91 S.Ct.
746, 27 L.Ed.2d 669 (1971). The Court of Appeals for

48a

the Third Circuit reversed our ruling and held that none
of the three types of abstention applied. USAA v. Muir,
792 F.2d 356. On remand, the Insurance Commissioner
has again moved for abstention based solely on the
Younger abstention. For the following reasons, we shall
deny the motion.

The Commissioner has renewed the motion for sum-
mary judgment on abstention grounds basing his argu-
ment on the holding in the recent Supreme Court case of
Ohio Civil Rights Commission v. Dayton Christian
Schools, 477 U.S. 619, 106 S.Ct. 2718, 91 L.Ed.2d 512
(1986). In Dayton, the Supreme Court held that Younger
abstention applies “to state administrative proceedings
in which important state interests are vindicated, so long
as in the course of those proceedings the federal plaintiff
would have a full and fair opportunity to litigate his
constitutional claim.” Jd. at 627, 106 S.Ct. at 2723, 91
L.Ed.2d at 522. The Court further ruled that even if
the state administrative agency could not itself consider
the constitutionality of a state statute it is called upon
to enforce, “it would seem an unusual doctrine . . . to
say that [the agency] could not construe its own statu-
tory mandate in the light of federal constitutional prin-
ciples. ... In any event, it is sufficient . . . that consti-
tutional claims may be raised in state court judicial re-
view of the administrative proceeding.” Jd. at 629, 106
S.Ct. at 2724, 91 L.Ed.2d at 523.

Although we agree with the Commissioner that the
holding of the Supreme Court in Dayton appears to over-
rule the Third Circuit’s holding in USAA v. Muir on
the issue of Younger abstention, the Third Circuit’s latest
decision involving Younger abstention, Sullivan v. City
of Pittsburgh, 811 F.2d 171 (8d Cir. 1987), requires us
to reject the Commissioner’s motion for summary judg-
ment. In addition to the requirement under the Younger
abstention doctrine that there be an ongoing state pro-
ceeding in which constitutional claims can be raised, the

49a

Third Cireuit in Sullivan added the requirement that, in
order to invoke Younger abstention, irreparable injury
may not be threatened.’

In USAA v. Muir, the Third Circuit decided that
USAA would suffer irreparable harm if we were to ab-
stain.* Therefore, on the issue of abstention, we are
bound by the Third Circuit’s prior opinion in this case.
If the Third Circuit in Sullivan had not added the
requirement of no threat of irreparable harm to the
Younger abstention doctrine, we would have leaned to-
ward granting the Commissioner’s renewed motion for
summary judgment on abstention grounds. However,
because of the Sullivan opinion, we are clearly bound

2 The court in Sullivan stated:

Since Younger, the Court has recognized that extraordinary
circumstances may threaten irreparable injury which justifies
federal intervention in ongoing state proceedings even in the
absence of bad faith or harassment by state officials. Although
the Court has acknowledged that the nature of the term ‘irrep-
arable harm’ makes it difficult to define every situation the
term encompasses, the Court has stated that circumstances are
extraordinary in the relevant Younger sense where they create
‘an extraordinarily pressing need for immediate federal equita-
ble relief,’ and do not simply present a unique or unusual fac-
tual situation. Such need for relief appears justified upon a
showing ‘ “that an injunction is necessary in order to afford
adequate protection of constitutional rights.” ’

Sullivan, 811 F.2d at 179 (citations omitted).

8 The Third Circuit held:

Weighing the legal issues and the devastating economic con-
sequences a license revocation would impose upon USAA on the
one hand and the vague claim of risks to the state from a Texas
bank not doing business in Pennsylvania on the other hand, we
conclude that the district court erred by holding that the state
appeal and supersedeas procedures adequately protected USAA’s
interests. t

USAA »v. Muir, 792 F.2d at 363.

50a

by the Third Circuit’s decision in USAA v. Muir under
the law-of-the-case doctrine.‘

III. PRE-EMPTION

USAA has moved for summary judgment on pre-
emption grounds, arguing that Section 641(b) as applied
to USAA is invalid under the Supremacy Clause of the
United States Constitution. Specifically, USAA claims
that Section 641(b) is preempted by the Home Owners’
Loan Act of 1933 (“HOLA”), 12 U.S.C. § 1461 et seq.,
the National Housing Act, 12 U.S.C. §$ 1730, 1730a,
and the regulations promulgated pursuant to these acts.
USAA offers two reasons to support its claim of pre-
emption: (1) Congress has occupied the entire field
regarding the organization, ownership, incorporation and
operation of federal savings banks; and (2) Section 641
is in actual conflict with federal law, standing as an
obstacle to the full accomplishment of the federal gov-
ernment’s purposes in that the federal government,
through the Federal Home Loan Bank Board and the
Federal Savings and Loan Insurance Corporation, ap-
proved USAA’s ownership of the savings bank in Texas.

Pre-emption of a state law by a federal law or regula-
tion has its roots in the Supremacy Clause which pro-
vides that the “Constitution, and the Laws of the United
States which shall be made in Pursuance thereof; .. .

4 The law-of-the-case doctrine applies to issues that were dis-
cussed by the court in a prior appeal. Schultz v. Onan Corp., 737
F.2d 339, 345 (3d Cir. 1984). Generally, a court will refuse to
reopen what has already been decided. Zichy v. City of Philadcl-
phia, 590 F.2d 503, 508 (8d Cir. 1979). The court, however, has
the duty to apply “a supervening rule of law despite its prior deci-
sions to the contrary when the new legal rule is valid and applicable
to the issues of the case.” Jd. Based on this duty to apply a super-
vening rule of law, we would have considered. the defendant’s re-
newed motion based on the Supreme Court’s ruling in Dayton had
the Sullivan decision not explained the Third Circuit’s stance on
the irreparable harm requirement.

5la

shall be the supreme Law of the Land; ... any Thing
in the Constitution or Laws of any State to the Contrary
notwithstanding.” U.S. Const. art. VI, cl. 2. It is well-
settled that pre-emption may occur in any of the follow-
ing three ways:

First, in enacting the federal law, Congress may
explicitly define the extent to which it intends to pre-
empt state law. Second, even in the absence of ex-
press pre-emptive language, Congress may indicate
an intent to occupy an entire field of regulation, in
which case the States must leave all regulatory ac-
tivity in that area to the Federal Government.
Finally, if Congress has not displaced state regula-
tion entirely, it may nonetheless pre-empt state law
to the extent that the state law actually conflicts
with federal law. Such a conflict arises when com-
pliance with both state and federal law is impossible
or when the state law “stands as an obstacle to the
accomplishment and execution of the full purposes
and objectives of Congress.”

Michigan Canners and Freezers Assoc. v. Agricultural
Marketing and Bargaining Board, 467 U.S. 461, 469, 104
S.Ct. 2518, 2523, 81 L.Ed.2d 399 (1984) (quoting Hines
v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85
L.Ed. 581 (1941)) (citations omitted).

USAA does not argue that Congress has explicitly
defined its intent to pre-empt Section 641(b). Instead,
USAA argues that pre-emption has occurred in either
the second or the third way as set forth in the above-
excerpted quote from Michigan Canners.

We shall first address USAA’s argument that Section
641 is pre-empted because Congress has occupied the en-
tire field of regulation pertaining to savings banks. The
Supreme Court has explained that congressional intent
to pre-empt may be inferred where the scheme of fed-
eral regulations is “sufficiently- comprehensive to make

52a

reasonable the inference that Congress ‘left no room’
for supplementary state regulation,” California Savings
and Loan Association v. Guerra, 479 U.S. 272, ——, 107
S.Ct. 683, 689, 93 L.Ed.2d 618, 623 (1987); or “where
the field is one in which ‘the federal interest is so domi-
nant that the federal system will be assumed to preclude
enforcement of state laws on the same subject.’” Hilis-
borough County v. Automated Medical Laboratories, Inc.,
471 U.S. 707, 718, 105 S.Ct. 2371, 2375, 85 L.Ed.2d
714 (1985).

In considering whether or not to infer pre-emption
from the federal law’s occupancy of the field or dominant
federal interest, the Supreme Court has expressed the
following cautionary note: “Undoubtedly, every subject
that merits congressional legislation is, by definition, a
subject of national concern. That cannot mean, however,
that every federal statute ousts all related state law.”
Id. at 719, 105 S.Ct. at 2378. This cautionary note is
in accord with other statements by the Supreme Court
to the effect that pre-emption analysis is to be “tempered
by the conviction that the proper approach is to reconcile
‘the operation of both statutory schemes with operation
of both statutory schemes with one another rather than
holding one completely ousted,’” Merrill Lynch v. Ware,
414 U.S. 117, 127, 94 S.Ct. 388, 389-90, 38 L.Ed.2d 348
(1973); and “federal regulation of a field of commerce
should not be deemed pre-emptive of state regulatory
power in the absence of persuasive reasons—either that
the nature of the regulated subject matter permits no
other conclusion, or that Congress has unmistakenly so
ordained.” Florida Lime and Avocado Growers, Inc. v.
Paul, 373 U.S. 182, 142, 83 S.Ct. 1210, 1217, 16 L.Ed.2d
248 (1963).

Analyzing the case before us in light of these princi-
ples, we find that Section 641(b) is not pre-empted be-
cause of occupancy of the field by federal law.

53a

It should first be noted that we do not dispute many
of the arguments advanced by USAA. For example, we
agree that the federal scheme under HOLA and the Na-
tional Housing Act creates “a uniform and compre-
hensive federally regulated thrift system without state
interference.” ° Furthermore, after carefully considering
the Supreme Court’s decision in Fidelity Federal Sav-
ings and Loan Association v. de la Cuesta, 458 U.S. 141,
102 S.Ct. 3014, 73 L.Ed.2d 664 (1982), we recognize,
as USAA points out, that “Congress invested the Board
with broad authority to regulate federal savings and
loans so as to effect the statute’s purposes, and plainly
indicated that the Board need not feel bound by existing
state law.” Id. at 162, 102 S.Ct. at 3027. In fact, the
broad authority vested in the Board is clearly expressed
in the federal regulations:

The regulations in this Part 545 are promulgated
pursuant to the plenary and exclusive authority of
the Board to regulate all aspects of the operations
of Federal associations, as set forth in section 5(a)
of the Home Owners’ Loan Act of 1933, 12 U.S.C.
1464, as amended. This exercise of the Board’s au-
thority is preemptive of any state law purporting
to address the subject of the operations of a Federal
association.

12 C.F.R. § 545.2. Lastly, we do not dispute USAA’s
statement that the federal regulations governing federal
savings banks are voluminous and comprehensive.

Despite our agreement with these arguments advanced
by USAA, we cannot infer that federal law has left no
room for a state law, such as Section 641(b), which con-
cerns the state’s insurance industry. While the federal
regulations do occupy the entire field of regulation con-
cerning the opération of federal savings banks, we can-

5 Plaintiff’s Brief Supporting Motion for Summary Judgment in
Preemption Issue at 18.

ee 54a

not infer that these federal regulations also occupy the
field of regulation concerning the relationship of these
banks with other entities, such as insurance companies.
The Supreme Court in Fidelity Federal Savings and
Loan expressly suggested that Congress may not have
occupied the entire field:

As we noted above, a savings and loans’ mortgage
lending practices are a critical aspect of its “opera-
tion,” over which the Board unquestionably has ju-
risdiction. Although the Board’s power to promul-
gate regulations exempting federal savings and loans
from the requirements of state law may not be
boundless, in this case we need not explore the outer
limits of the Board’s discretion.

Fidelity Federal Savings & Loan, 458 U.S. at 167, 102
S.Ct. at 3029-30.

We find here that Section 641(b) does not address the
operations of federal savings banks. In other words, it
does not attempt to govern the operations of USAA’s
bank in Texas. Instead, Section 641(b) simply regulates
the relationships between licensed insurers in Pennsy]l-
vania and other non-insurance entities. Hence, it is our
opinion that the federal regulations governing the opera-
tions of federal savings banks and the state statute gov-
erning affiliations and ownership of insurance companies
can coexist.

In a similar vein, USAA’s argument that the sheer
volume and comprehensiveness of the federal regulations
governing federal savings banks indicate the intent to
occupy the entire field fails in light of the Supreme
Court’s statement in Hillsborough County:

We are even more reluctant to infer pre-emption
from the comprehensiveness of regulations than from
the comprehensiveness of statutes. As a result of
their specialized functions, agencies normally deal
with problems in far more detail than does Congress.

esaperesees

55a

To infer pre-emption whenever an agency deals with
a problem comprehensively is virtually tantamount
to saying that whenever a federal agency decides to
step into a field, its regulations will be exclusive.
Such a rule, of course, would be inconsistent with
the federal-state balance embodied in our Su»remacy
Clause jurisprudence.

Hillsborough County, 471 U.S. at 717, 105 S.Ct. at 2377.
In the instant case, the regulations are admittedly com-
prehensive; however, the Home Loan Bank Board has
indicated an intent to pre-empt only those regulations
governing the operations of federal savings banks.

USAA’s alternative ground for arguing that Section
641(b) is pre-empted is that the state statute is in actual
conflict with the federal law. An actual conflict between
federal law and state law may pre-empt the state law to
the extent it actually conflicts with the federal law.
California Savings and Loan Association, 479 U.S. at
, 107 S.Ct. at 689,-93 L.Ed. at 628. Such a conflict
“occurs either because ‘compliance with both federal and
state regulations is a physical impossibility,’ Florida Lime
& Avocado Growe~s, Inc. v. Paul, 373-U.S. 182, 142-143
[83 S.Ct. 1210, 1217], . . ., or because the state law
stands ‘as an obstacle to the accomplishment and execu-
tion of the full purposes and objectives of Congress.’ ” /d.,
(quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct.
399, 404, 85 L.Ed. 581 (1941)). USAA argues that
Section 641(b) stands as an obstacle to the federal gov-
ernment’s purpose when it approved USAA’s ownership
of USAA’s bank in Texas.

Determining whether state law frustrates congressional
purpose is a two-step procedure. First, the court must
engage in construction and interpretation of the state
and federal statutes, and only then determine if a con-
flict exists. “[I]n deciding whether any conflict is pres-
ent, a court’s concern is necessarily with ‘the nature of
the activities which the States have sought to regulate,

56a

rather than on the method of regulation adopted.’” Chi-
cago and North Western Transportation Company v. Kalo
Brick and Tile Co., 450 U.S. 311, 317-318, 101 S.Ct.
1124, 1180, 67 L.Ed.2d 258 (1981) (quoting San Diego
Building Trades Council v. Garmon, 359 U.S. 236, 248,
79 S.Ct. 778, 778, 3 L.Ed.2d 775 (1959) ).

It is clear from the state statute that Pennsylvania is
seeking only to regulate the insurance industry and not
the banking industry. Section 641(b) deals exclusively
with who may be licensed to sell insurance in this state.
It says nothing about who may appropriately become a
bank or savings and loan holding company. Admittedly,
an insurance company that becomes affiliated with a sav-
ings and loan holding company will risk losing its in-
surance license in Pennsylvania, but that is because the
state legislature has determined an affiliation between
an insurance company and a saving and loan holding
company would adversely affect the insurance industry.
The statute does not regulate or protect any industry
other than the insurance industry.

It is equally clear that the federal laws in question
regulate only the savings and loan industry and not the
licensing of insurance companies by states. Indeed, the
House Report concerning the Savings and Loan Holding
Company Amendments of 1967 explicitly states the pur-
pose of that Act to be-

to provide a comprehensive statutory framework for
the registration, examination and regulation of hold-
ing companies controlling one or more savings and
loan associations, the accounts of which are insured
by an agency of the Federal Government—the Fed-
eral Savings and Loan-Insurance Corporation.

H.R.Rep. No. 997, 90th Cong., 2d sess., 1968 U.S.
Code Cong. & Ad.News 1601, 1603. Nothing in the Act
nor in the Federal Home Loan Bank Board regulations
even intimates that the purpose of the Act was to allow

57a

insurance companies to become savings and loan holding
companies. Furthermore, nothing in either of the Acts
guarantees a state license to sell insurance to an insur-
ance company that becomes affiliated with a savings and
loan. The federal and state acts are aimed at two com-
pletely separate purposes; they. regulate two separate in-
dustries; and nothing in the federal act requires states to
allow an affiliation between the two. Because there is no
actual conflict between federal law and state law in the
instant case, USAA has failed to demonstrate federal
pre-emption of Section 641(b).

For the foregoing reasons, we shall deny USAA’s mo-
tion for summary judgment on pre-emption grounds.

IV. COMMERCE CLAUSE

USAA has also moved for summary judgment on Com-
merce Clause grounds. USAA argues that Section
641(b), when applied to USAA, places a severe burden on
interstate commerce, a burden which is excessive in rela-
tion to the putative local benefits derived from Section
641(b). USAA further argues that Section 641(b)
forces USAA either to cease transacting their insurance
business with citizens of Pennsylvania or to surrender
their federally-approved ownership of a federal bank in
Texas.®

The Commerce Clause of the United States Constitu-
tion provides that “Congress shall have Power . . . To
regulate Commerce . .. among the several States.”
U.S. Const. art. I, § 8, cl. 3. The Supreme Court has
interpreted the Commerce. Ciause “not only as an author-
ization for congressional action, but, even in the absence
of a conflicting federal statute, as a restriction on per-
missible state regulation.” Hughes v. Oklahoma, 441

®USAA does not argue that the Pennsylvania law discriminates
against interstate commerce in favor of local business. Indeed, it
could not make such an argument because Section 641(b) treats all
insurance companies and all savings and loans alike, whether or not
they are based in Pennsylvania.

58a

U.S. 322, 326, 99 S.Ct. 1727, 1731, 60 L.Ed.2d 250
(1979). Although a state has the power to regulate mat-
ters of legitimate local concerns, it may not impede the
free flow of commerce by “discriminating against the
articles of eommerce coming from outside the state,”
Lewis v. B.T. Investment Managers, Inc., 447 U.S. 27,
36, 100 S.Ct. 2009, 2015, 64 L.Ed.2d 702 (1980), or by
reguiating matters of predominant national concern
“which, because of the need for national uniformity, de-
mand that their regulation, if any, be prescribed by a
single authority.” Southern Pacific Co. v. Arizona, 325
U.S. 761, 767, 65 S.Ct. 1515, 1519, 89 L.Ed. 1915 (1945).
The Commerce Clause “also precludes the application of
a state statute to commerce that takes place wholly out-
side of the State’s borders, whether or not the commerce
has effects within the state.” Edgar v. Mite Corp., 457
U.S. 624, 642-48, 102 S.Ct. 2629, 2641, 73 L.Ed.2d 269
(1982). Similar to the limitations placed on the jurisdic-
tion of state courts, “any attempt ‘directly’ to assert ex-
traterritorial jurisdiction . . . would offend sister States
and exceed the inherent limits of the State’s power.” Id.
at 648, 102 S.Ct. at 2641, (quoting Shaffer v. Heitner,
433 U.S. 186, 197, 97 S.Ct. 2569, 2576, 53 L.Ed.2d 683

(1977) ).

A state statute that regulates interstate commerce
indirectly may also be precluded by the Commerce Clause.
The appropriate test to apply to a regulation that indi-
rectly regulates interstate commerce is the test enuaci-
ated by the Supreme Court in Pike v. Bruce Church, Inc.,
397 U.S. 187, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970):

Where the statute regulates evenhandedly to effec-
tuate a legitimate local public interest, and its effects
on interstate commerce are only incidental, it will be
upheld unless the burden imposed un such commerce
is clearly excessive in relation to the putative local
benefits. Huron Cement Co. v. Detroit, 362 U.S. 440,
443[80 S.Ct. 818, 816, 4 L.Ed.2d 852 (1960)]. Ifa

59a

legitimate local purpose is found, then the question
becomes one of degree. And the extent of the burden
that will be tolerated will of course depend on the
nature of the local interest involved, and on whether
it could be promoted as well with a lesser impact on
interstate activities.

Id. at 142, 90 S.Ct. at 847.

Because Section 641(b) regulates “everi-handedly to
effectuate a legitimate local public interest,” and because
it affects commerce only incidentally, we have determined
that the Pike test is the appropriate test to apply to the
facts of the case at bar.

Thus, in accordance with the Pike test, we must uphold
Section 641(b) unless the burden it imposes on interstate
commerce is “clearly excessive in relation to the putative
local benefits.” We shall first examine the local benefits
conferred by Section 641(b). The Commissioner and the
intervenors suggest three primary local benefits: (1) to
protect the insurance industry from, inter alia, unfair
competition and economic concentration; (2) to protect
consumers from coercive “tie-ins” and other forms of
subtle pressure tactics by lending institutions; and (3)
to protect the ability of the insurance examiners to mon-
itor adequately the insurance industry. The Commis-
sioner argues that these local benefits will be adversely
affected if affiliations between insurance companies and
lending institutions are permitted. It is our opinion, how-
ever, that in this case the adverse effects of affiliation are
either not present where the affiliated bank is outside the
jurisdiction, or are readily prevented in ways less burden-
some than is prescribed in Section 641(b).

First, the Commissioner and intervenors express con-
cern that without the protection of Section 641(b), the
insurance industry faces the risk of unfair competition
and economic concentration. However, testimony by Ron-
ald Chronister, the former Acting Deputy Insurance Com-
missioner, indicates that concentration of economic power

60a

and decreased competition is not a concern with respect
to USAA’s affiliation with a Texas bank. See Notes of
Testimony of Ronald Chronister, November 14, 1985, at
17-18. While we agree with the Commissioner that the
consolidation of a large insurer and a large bank, such as
Citibank, would produce significant economic clout,’ here
we are dealing with a smaii bank in Texas which at the
present time has no locations in Pennsylvania.* Secondly,
the Commissioner and the intervenors state that Section
641(b) protects the consumer particularly from subtle
“tie-in” sales.° The risk of a “tie-in” sale, however, to a
resident of Pennsyivania by a Texas bank is almost “nil.”
Id. at 11. Last, the Commissioner and the intervenors
suggest that Section 641(b) protects the insurance exam-
iner’s ability to examine the solvency of affiliated insur-
ance companies. While the prohibition of all affiliations
between lending institutions and insurance companies pro-
vides an easier task for the insurance examiners in their
examinations of insurance companies, we find that even
in the absence of Section 641(b) the insurance examiners
would still be able to examine the solvency of affiliated
companies. Under the Federal Home Loan Bank Board
regulations, the results of bank examinations by the Fed-
eral Home Loan Bank Board are available “to other agen-
cies of the United States or a State for use where neces-
sary in the performance of their official duties.” 12
C.F.R. § 505.5 (b).?°

T Notes of Testimony of Ronald Chronister, November 14, 1985,
at 16-17.

8 It should be noted, however, that several Pennsylvania residents
have credit cards issued by the Texas bank. While we have consid-
ered this fact, we find it but one small factor of the man factors
we have weighed.

* A “tie-in sale” occurs when a bank conditions the granting of -
credit upon the purchase of insurance from an affiliated agercy or
insurance company. 3

10 We acknowledge the unsworn declaration of Ronald Chronister
filed September 10, 1987, that expresses the Insurance Department’s

6la

Now we shall turn to the burdens imposed on commerce
by Section 641(b). We find that Section 641(b)’s impact
on commerce, when it is applied to USAA, is clearly ex-
cessive in relation to its putative local benefits. The
Texas bank was properly approved by the appropriate
federal agencies. It operates its business in accordance
with the applicable federal regulations. It has no loca-
tions in Pennsylvania. And, specifically, it sells no insur-
ance in Pennsylvania. USAA’s insurance company has
more than 40,000 policyholders in Pennsylvania. Its
premium income in Pennsylvania exceeds $35 million per
year. Furthermore, it services officers and members of
the United States armed forces who frequently move about
the nation.

If the Insurance Department enforces Section 641(b)
against USAA, USAA will be forced to abandon its
insurance business in Pennsylvania or relinquish its in-
terest in the Texas bank. If USAA opts to allow its
insurance license to be revoked, this revocation could
result in devastating economic consequences.'' On the

difficulty in obtaining reports of examinations pursuant to 12 C.F.R.
§ 505.5. Regardless, the procedure is available to the Insurance
Department and, therefore, it is not impossible for the Department
to obtain reports of examinations prepared by the Federal Home
Loan Bank Board.

11The Third Circuit stated the following in USAA v. Muir in
regard to the irreparable harm USAA would suffer if its insurance
license were revoked:

The threat of revocation might alarm an unknown of USAA’s
more than 40,000 Pennsylvania policyholders into cancelling
their insurance. Nationwide, a revocation order even if stayed,
would prevent USAA from continuing unqualifiedly to repre-
sent that its insurance contracts are available in all 50 states.
Because USAA limits its policies primarily to commissioned
officers of the United States armed forces, persons who move
frequently in the service of their country, the inability to offer
insurance coverage in every state may well be a major blow.

Weighing the legal issues and the devastating economic con-
sequences a license revocation would impose upon USAA on

62a

other hand, if USAA were to relinquish its interest in the
Texas bank, it would be giving up that which the federal
government has authorized it to own. Although Section
641(b) does not require USAA to relinquish its interest
in the Texas bank, Section 641(b) certainly has the
practical effect of interfering with the business of the
Texas bank. We agree with USAA that the choice facing
USAA, if Section 641 is enforced against it, is, in prac-
tical effect, no choice at all. ~

The instant situation is much like that encountered by
the Supreme Court in Edgar v. Mite Corp., 457 U.S. 624,
102 S.Ct. 2629, 73 L.Ed.2d 269 (1982). There, in an
effort to protect Illinois shareholders from hostile tender
offers, the Illinois legislature passed a law regulating
tender offers made to both in-state and out-of-state cor-
porations. The Supreme Court observed that the “most
obvious burden the Illinois Act imposes on interstate
commerce arises from the statute’s previously described
nationwide reach which purports to give Illinois the power
to determine whether a tender offer may proceed any-
where.” Jd. at 6438, 102 S.Ct. at 2641. Weighing this
burden against the legitimate local concerns of protecting
resident security holders and regulating the internal af-
fairs of companies incorporated under Illinois law, the
Court held:

We agree with the Court of Appeals that these as-
serted interests are insufficient to outweigh the
burdens Illinois imposes on interstate commerce.

While protecting loca

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0322%3A2. Public record. Not legal advice.