Petition for Writ of Certiorari — Employers Resource Management Co. v. Shannon
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FILED
(" vo, DBS VS NOV 27 1995
F THE CLERK
In the Supreme Cou
OF THE
United States
OCTOBER TERM, 1995
EMPLOYERS RESOURCE MANAGEMENT COMPANY,
INCORPORATED; AMERICAN EMPLOYERS BENEFIT TRUST,
Petitioners,
Vv.
PRESTON C. SHANNON, Commissioner,
THEODORE V. MORRISON, JR., Commissioner,
HULLIHEN WILLIAMS MOoRE, Commissioner,
STEVEN T. FOSTER, Commissioner of Insurance,
BUREAU OF INSURANCE OF THE STATE CORPORATION
COMMISSION OF THE COMMONWEALTH OF VIRGINIA,
Respondents.
On Petition for a Writ of Certiorari to the
United States Court of Appeals
for the Fourth Circuit
PETITION FOR A WRIT OF CERTIORARI
ALLAN J. GRAF
Counsel of Record
FARMER & RIDLEY
444 South Flower Street
Suite 2300
Los Angeles, CA 90071-3033
(213) 626-0291
Counsel for Petitioners
Of Counsel:
ROBERT W. RIDLEY
444 South Flower Street
Suite 2300
Los Angeles, CA 90071-3033
(213) 626-0291 y
Bowne of Los Angeles, Inc.. Law Printers (213) 627-2200 &
.
QUESTIONS PRESENTED FOR REVIEW
(1) Whether Congress, in enacting Section 502(a) (3) of
ERISA, 29 U.S.C. §1132%2)(3), “expressly authorized”
federal courts to enjoin state court proceedings within the
meaning of the Anti-Injunction Act, 28 U.S.C. §2283?
(2) Whether a federal court may, with respect to matters
within its exclusive jurisdiction, enjoin state court proceed-
ings involving such matters urider the Anti-Injunction Act,
28 U.S.C. §2283, on the grounds that such injunction is
“necessary in aid of its jurisdiction”?
(3) Whether the District Court below abused its discre-
tion when it abstained under the principles enunciated in
Younger v. Harris, 401 U.S. 37 (1971), from exercising its
jurisdiction to decide the merits of the Petitioners’ claims of
federal pre-emption of state law when Section 502(¢) (1) of
ERISA, 29 U.S.C. §1132(¢) (1), confers upon the district
courts of the United States exclusive jurisdiction over such
claims?
|
i
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED .........-----++++ i
TABLE OF AUTHORITIES ...........----00-5- iii
OPINIONS BELOW .........cccccceccesesvcecs l
JURIBDICTION cc ccccccsccscccsctdsssovesteses 2
STATUTORY PROVISIONS INVOLVED ....... 2
STATEMENT qo ccccsvccccccosucsecesesaukusees 3
A. Statement of Facts ..........-eeeeeeeceees 4
B. The Proceedings Below ............-+-++++: 5
REASONS FOR GRANTING THE PETITION .. 9
A. The Circuits Are Divided on Whether ERISA
Expressly Authorizes Federal Courts to Enjoin
State Court Pioceedings Within the Meaning of
the Anti-Injunction Act ............-++++-: 10
B. This Court Should Definitively Resolve the Is-
sue of Whether a Federal Court May, With
Respect to Matters in Its Exclusive Jurisdiction,
Enjoin State Court Proceedings Involving Such
Matters Under the Anti-Injunction Act ...... 17
C. The Court of Appeals Was in Error When It
Affirmed the District Court’s Decision to Ab-
stain on Younger Grounds Because the District
Court Has Exclusive Jurisdiction Over Petition-
rg rrr rr ee 19
CONCLUBIONN .oc cccccecicistwimasendutenness 25
APPENIIS, A cn oc cbstdccdapveneesieeeeee la
APPENDIX ©. occ ccc cecdcdcnnnsuasesesr eee 22a
ial asada |
ili
TABLE OF AUTHORITIES
Cases
Amalgamated Clothing Workers of America v. The
Richman Brothers, 348 U.S. 511 (1955)......-- 18
AT & T Management Pension Plan v. Tucker, case
no. CV-95-2263 ABC (JRx), 1995 U.S. Dist.
LEXIS 14148 (C.D.Ca. August 14, 1995) ...... 9, 11
Capital Service, Inc. v. National Labor Relations
Board, 347 U.S. 501 (1954) .......-.--eeeee 9,17, 18
Cartledge v. Miller, 457 F.Supp. 1146, 1151-1152
(S.D.N.Y. 1978) ......eeee cece cere eeeeeees 11
Champion International Corporation v. Brown, 731
F.2d 1406 (9th Cir. 1984) ........--- eee eee 24
FMC Corporation v. Holliday, 498 U.S. 52 (1990) 14
General Motors Corporation v. Buha, 623 F.2d 455
(6th Cir. 1980) ........ cece eee eee e eee cece: 11
Gilbert v. Burlington Industries, Inc., 765 F.2d 320
(2d Cir. 1985), aff'd without opinion, 477 U.S. 901
(TDDB) onc ceric ccc ccncesersencccccceccecs: 11
Ingersoll-Rand Company v. McClendon, 498 USS.
BBD CIGSO) . vere cccccccsccceccscccccccess: 14
MacKey v. Lanier Collection Agency & Service, Inc.,
486 U.S. 825 (1988) ......-- eee eee eee reece 19
Mitchum v. Foster, 407 U.S. 225 (1972) ....... 13, 14, 15
New Orleans Public Service, Inc. v. Council of the
City of New Orleans, 491 U.S. 350 (1989) ...21, 23, 24
Olde Discount Corporation v. Tupman, | F.3d 202
(3rd Cir. 1993), cert. denied, _— CED. cms 204
S.Ct. 741 (1994) 2... ccc cee e ee eeeee 23
Pilot Life Insurance Company v. Dedeaux, 491 USS.
DUE suucgveccevescvcncevccessccceesss 14
iv
TABLE OF AUTHORITIES
CASES
Page
Poe v. Ullman, 367 U.S. 497 (1961) .....--+-++-- 16
Rice v. Norman Williams Company, 458 U.S. 654
(1982) ....csccccccccevccccrccerseseucceres 18
Schneidewind v. ANR Pipeline Company, 485 U.S.
293 (1988) ....- cece eeccccreeeecererecees 22
Senco of Florida, Inc. v. Clark, 473 F.Supp. 902
(M.D.Fla 1979) ....---e eee cece e eet eee eeeee 11
Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983) 14
Shelley v. Kraemer, 334 U.S. 1 (1948) .....------ 14
Stone & Webster Engineering Corporation v. Ilsley,
690 F.2d 323, 326, n.2 (2nd Cir. 1982), judgment
affirmed without opinion sub nom, Arcudi v. Stone
& Webster Engineering Corporation, 463 U.S. 1220
(1983) ..ceesccccccccsvecceccscrsesesescers 24
The 1975 Salaried Retirement Plan for Eligible
Employees of Crucible, Inc. v. Nobers, 968 F.2d
401 (3rd Cir. 1991) ....... eee cece rece ee eeees 12, 15
Total Plan Services, Inc. v. Texas Retailers
Association, Inc., 925 F.2d 142 (Sth Cir. 1991) .. 12, 15
United States Steel Corporation Plan for Employee
Insurance Benefits v. Musisko, 885 F.2d 1170 (3rd
Cir. 1989), cert. denied, 493 U.S. 1074 (1990) .. 12, 15
Vv
TABLE OF AUTHORITIES
CASES
Page
Vendo Company v. Lektro-Vend Corporation, 433
RI Ge CIRTID cv ccdccuscccntecesies 9, 13, 14, 18, 19
Younger v. Harris, 401 U.S. 37 (1971) .......-.-.
i, 4, 7, 10, 19, 20, 23, 24
eeeeveseseesneeeeeeveeveeseeeeeeeeeee @
Statutes and Rules
Pte ake.) Ree Peep er 2
I cacy ee enu te teats 6,7
NI vo cicnks vnc <kaeratehins 6
6 URE HAN... oes. Wo ere x
Anti-Injunction Act, 28 U.S.C. §2283 .... i, 2,4, 7, 10, 11
Section 3(40) of Employee Retirement Income
Security Act, 29 U.S.C. §1002(40) ............ 4
Section 403(a) of Employee Retirement Income
Security Act, 29 U.S.C. §1103(a) ...........-. 3
Section 502(a) (3) of Employee Retirement Income
Security Act, 29 U.S.C. §1132(a) (3) ........-.
Section 502(e) (1) of Employee Retirement Income
Security Act, 29 U.S.C. §1132(e)(1).. i, 3, 6, 12, 13, 14
Section 514(a) of Employee Retirement Income
Security Act, 29 U.S.C. §1144(a) ...........-. 3
Section 514(b) (6) of Employee Retirement Income
Security Act, 29 U.S.C. §1144(b) (6) .......... 4
Section 514(c)(1) of Employee Retirement Income
Security Act, 29 US.C.......-ccccececceccces 14
ME i coo cine 15
In the Supreme Court
OF THE
United States
OCTOBER TERM, 1995
EMPLOYERS RESOURCE MANAGEMENT COMPANY,
INCORPORATED; AMERICAN EMPLOYERS BENEFIT TRUST,
Petitioners,
Vv.
PRESTON C. SHANNON, Commissioner,
THEODORE V. MorRRISON, JR., Commissioner,
HULLIHEN WILLIAMS Moore, Commissioner,
STEVEN T. FosSTER, Commissioner of Insurance,
BUREAU OF INSURANCE OF THE STATE CORPORATION
COMMISSION OF THE COMMONWEALTH OF VIRGINIA,
Respondents.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
Employers Resource Management Company, Incorpo-
rated and American Employers Benefit Trust respectfully
petition for a writ of certiorari to review the judgment of the
United States Court of Appeals for the Fourth Circuit in
this case.'
OPINIONS BELOW
The opinion of the Court of Appeals (App., infra, la -
21a) is reported at 65 F.3d 1126. The opinion of the District
‘Petitioners have no parent, subsidiary or affiliate corporations.
2
Court (App., infra, 22a-4la) is reported at 869 F.Supp.
398.
JURISDICTION
The Court of Appeals entered its judgment on Septem-
ber 19, 1995. The jurisdiction of this Court is invoked under
28 U.S.C. §1254(1).
STATUTORY PROVISIONS INVOLVED
A. The Anti-Injunction Act, 28 U.S.C. §2283, reads as
follows:
“A court of the United States may not grant an
injunction to stay proceedings in a State court except as
expressly authorized by Act of Congress, or where
necessary in aid of its jurisdiction, or to protect or
effectuate its judgments.”
B. Section 502(a)(3) of the Employee Retirement In-
come Security Act of 1974 (“ERISA”), 29 U.S.C.
§1132(a) (3), reads as follows:
“A civil action may be brought —
** ¢
“(3) by a participant, beneficiary, or fiduciary
(A) to enjoin any act or practice which violates any
provision of this subchapter or the terms of the plan,
or (B) to obtain other appropriate equitable relief
(i) to redress such violations or (ii) to enforce any
provisions of this subchapter or the terms of the
plan;”
C. Section 502(e)(1) of ERISA, 29 U.S.C.
§1132(e) (1), reads as follows:
“Except for actions under subsection (a)(1)(B) of
this section, the district courts of the United States
shall have exclusive jurisdiction of civil actions under
this subchapter brought by the Secretary or by a
participant, beneficiary, or fiduciary. State courts of
competent jurisdiction and district courts of the United
States shall have concurrent jurisdiction of actions
under subsection (a) (1)(B) of this section.”
STATEMENT
Employers Resource Management Company, Inc.
(“ERM”), one of the Petitioners herein, is the fiduciary of
Plan No. 502, an employee welfare benefit plan subject to
the provisions of ERISA. American Employers Benefit
Trust (the “Trust”), the other Petitioner herein, is a trust
established pursuant to Section 403(a) of ERISA, 29
U.S.C. §1103(a), for the purpose of holding in trust all of
the assets of Plan No. 502.
ERM and the Trust brought an action in the United
States District Court for the Eastern District of Virginia for
injunctive and declaratory relief in order to enjoin the
Respondents herein, the Commissioners of the State Corpo-
ration Commission of the Commonwealth of Virginia and
the Commissioner of Insurance of the Commonwealth of
Virginia (hereinafter collectively referred to as the “Corpo-
ration Commission”) from taking any action to subject Plan
No. 502, ERM and the Trust to regulation under the laws of
the Commonwealth of Virginia governing and regulating
insurance on the grounds that Section 514(a) of ERISA, 29
U.S.C. §1144(a), pre-empts and supersedes the application
of Virginia’s insurance laws to self-funded employee welfare
benefit plans subject to ERISA. The Corporation Commis-
sion, which had instituted proceedings in February, 1994 to
4
enjoin Petitioners from offering and administering the Plan
in the Commonwealth of Virginia, contends that Plan
No. 502 is not an employee welfare benefit plan subject to
ERISA. Alternatively, the Corporation Commission asserts
that if Plan No. 502 is an ERISA plan, such Plan is a
multiple employer welfare arrangement (“MEWA”) pursu-
ant to Section 3(40) of ERISA, 29 U.S.C. §1002(40), and,
therefore, subject to regulation in accordance with the laws
of the Commonwealth of Virginia governing insurance pur-
suant to Section 514(b) (6) of ERISA, 29 U.S.C.
§1144(b) (6).
Neither the District Court below (App., infra, 26a) nor
the Court of Appeals (App., infra, n.1, 3a) ruled on the
merits of Petitioners’ Complaint for relief. Instead, the
District Court dismissed Petitioners’ Complaint on the
grounds that the Anti-Injunction Act, 28 U.S.C. §2283,
barred the District Court from either issuing the injunction
or granting the declaratory judgment requested by Petition-
ers because the Corporation Commission, in its quasi-
judicial capacity, had commenced proceedings against Peti-
tioners prior to the filing of the action herein. The District
Court also held that it must abstain from deciding the case
under the principles enunciated by this Court in Younger v.
Harris, supra, 401 U.S. 37 (1971), even if the Anti-
Injunction Act did not bar the District Court from granting
the injunctive and declaratory relief requested by Petition-
ers. The District Court’s decision was affirmed by the Court
of Appeals.
A. Statement of Facts
ERM is in the business of providing co-employment
services on a long-term basis to its client employers. Pursu-
ant to a Co-Employment Agreement entered into with its
co-employer clients, ERM assumes the responsibility for
certain employer obligations and liabilities, including but not
5
limited to the providing and administering of employee
welfare benefits, the paying of wages and salaries and the
paying of withholding and social security taxes. All such
taxes are paid under ERM’s employer identificauon num-
ber. ERM also issues to each employee the Form W-2
prescribed by the Internal Revenue Service, and ERM is
designated as the employer on such form. Pursuant to the
Co-Employment Agreement, ERM has the right to control
and direct emplover functions and responsibilities such as
hiring, recruiting, training, work and performance evalua-
tions, discipline and termination of employment. ERM
established and administers a work safety program with
which all the co-employer clients and co-employees of
ERM are required to comply. ERM and its clients are, in
effect, the co-employers of the individual employees in-
volved. ERM has approximately 1,200 co-employer clients
in thirteen states, including Virginia, and there are more
than 5,500 co-employees working in forty-three states and
Puerto Rico.
ERM has established and maintains an employee welfare
benefit plan providing certain hospital and medical benefits,
dental benefits, death benefits, accidental death and dis-
memberment benefits and occupational injury and illness
benefits. Basic mandatory medical benefits are provided to
all employees, paid for exclusively by ERM’s client co-
employers without any contribution from employees. The
participants in the Plan are all individual co-employees of
ERM and jointly employed by ERM and other employers.
B. The Proceedings Below
On February 18, 1994, the Corporation Commission filed
an Order to Take Notice against ERM and the Trust
notifying them that the Corporation Commission intended
to enter a cease-and-desist order against ERM and the Trust
to bar them from operating in Virginia on the grounds that
6
ERM and the Trust constituted a multiple employer welfare
arrangement subject to regulatie:: by Virginia’s insurance
laws. On March 3, 1994, ERM and ¢kt< Trust filed a timely
petition for removal of this action to the United States
District Court for the Eastern District of Virginia pursuant
to 28 U.S.C. §1441(b). Commonwealth of Virginia v.
Employers Resource Management Company, Inc., Civil Ac-
tion No. 3:93-CV-157.
Also on March 3, 1994, simultaneously with the filing of
the petition for removal, ERM and the Trust filed an
independent action in the United States District Court for
the Eastern District of Virginia seeking injunctive and
declaratory relief to bar the Corporation Commission from
subjecting the Trust and the Plan to regulation under
Virginia’s insurance laws. Employers Resource Management
Company, Inc., et al. v. Preston C. Shannon, et al., Civil
Action No. 3:94-CV-148. The relief was sought on the
grounds that ERM had established and maintains an em-
ployee welfare benefit plan subject to ERISA and that such
plan is not a multiple employer welfare arrangement under
ERISA. Subject matter jurisdiction in the District Court
below was predicated upon Section 502(a)(3) and Sec-
tion 502(¢)(1) of ERISA, 29 U.S.C. §1132(a)(3) and
§1132(e)(1), which grant to the District Courts of the
United States exclusive jurisdiction “to enjoin any act or
practice which violates any provision of [ERISA].” Subject
matter jurisdiction in the District Court below was also
predicated upon 28 U.S.C. §1331.
The Corporation Commission filed a motion to remand
the action entitled Commonwealth of Virginia v. Employers
Resource Management Company, Inc., Civil Action
No. 94:3-CV-157. The Corporation Commission also filed a
Motion to Dismiss, Stay or Abstain and Motion for Judg-
ment on the Pleadings in Employers Resource Management
Company, Inc., et al. v. Preston C. Shannon, et al., Civil
$ De eee ae. St ee es ©
7
Action No. 94:3-CV-148. By that motion, the Corporation
Commission sought dismissal of Petitioners’ Complaint for
injunctive and declaratory relief on the grounds that (i) the
Anti-Injunction Act, 28 U.S.C. §2283, barred all the relief
sought by Petitioners in their Complaint, (ii) the District
Court must abstain from exercising its jurisdiction under the
principles set forth in Younger v. Harris, supra, 401 U.S. 37
(1971), and (iii) the ERM Plan was a multiple employer
welfare arrangement subject to regulation under the insur-
ance laws of the Commonwealth of Virginia.
The Corporation Commission’s Motion to Remand and
the Motion to Dismiss, Stay or Abstain and Motion for
Judgment on the Pleadings came on for hearing before the
District Court on June 10, 1994. The District Court reserved
decision on all motions but directed the parties to complete
discovery on the issue of ERM’s status as an employer under
ERISA. After completion of discovery, the parties prepared
and filed Joint Stipulations of Fact. The Petitioners and the
Corporation Commission submitted supplemental memo-
randa of law at the direction of the District Court on the
issues of whether ERM is an employer under ERISA and
whether the employee welfare benefit plan established and
maintained by ERM is a multiple employer welfare
arrangement.
On November 22, 1994, the District Court issued its
Order granting the Corporation Commission’s Motion. The
District Court also granted the Corporation Commission’s
Motion to Remand in the case Commonwealth of Virginia
v. Employers Resource Management Company, Inc., Civil
Action No. 3:94-CV-157.?
?The District Court granted the Corporation Commission's Motion to
Remand on the grounds that the District Court lacked subject matter
jurisdiction under 28 U.S.C. §1331. The District Court held that the
“well pleaded complaint” rule precluded “federal question” jurisdiction
(App., infra, 26a-28a). Petitioners disagree with the District Court’s
8
The District Court expressly did not decide the merits of
the case as to whether ERM is an employer under ERISA
and whether the employee welfare benefit plan established
and maintained by ERM is a multiple employer welfare
arrangement (App., infra, 26a). The District Court ruled
only that Petitioners’ pre-emption claim was not “facially
conclusive” (App., infra, 39a-40a). After entry of the Dis-
trict Court’s Order granting the Respondents’ Motion to
Dismiss, Stay or Abstain and dismissing the Petitioners’
Complaint, Petitioners filed a timely appeal to the Court of
Appeals.
The Court of Appeals had jurisdiction over the appeal
pursuant to 28 U.S.C. § 1291 and 28 U.S.C. § 1292(a) (1).
On September 19, 1995, the Court of Appeals affirmed the
District Court in all respects.
The Court of Appeals, acknowledging that “[o]ther cir-
cuits are divided on the issue” (App., infra, 10a), held that
ERISA does not expressly authorize the federal courts to
enjoin state court proceedings within the meaning of the
Anti-Injunction Act. The Court of Appeals reasoned that
ERISA’s legislative history did not indicate any “distrust of
state courts” on the part of Congress and that such a
showing would be necessary before a federal statute could be
construed as expressly authorizing injunctions against state
court proceedings (App., infra, 9a and 14a).
The Court of Appeals also affirmed the District Court’s
decision to dismiss Petitioners’ Complaint on the grounds of
Younger abstention; although the Court recognized that
“the federal-state balance, which Younger abstention is
designed to maintain, has been skewed sharply in favor of
the federal system in the ERISA context” (App., infra,
19a) and that “Congress has made it clear under ERISA
decision, but 28 U.S.C. §1447(d) precluded any appeal or review of the
District Court’s Order of Remand.
4
:
a
4
9
... that federal interests outweigh competing state interests”
(App., infra, 20a). The Court of Appeals held that absten-
tion was mandated under Younger unless a party could show
that it “would be injured by having to raise its pre-emption
defense in the state proceedings rather than in federal
district court.” (App., infra, 20a).
REASONS FOR GRANTING THE PETITION
The Court of Appeals acknowledged that “[o]ther cir-
cuits are divided on the issue of whether ERISA carves an
exception into the Anti-Injunction Act that enables federal
courts to enjoin state proceedings when a party raises a
question of federal law under ERISA” (App., infra, 10a).
One may expect more conflicting decisions in the district
courts without authoritative guidance from this Court on the
issue. In A T & T Management Pension Plan v. Tucker, case
no. CV-95-2263 ABC (JRx), 1995 U.S. Dist. LEXIS
14148 (C.D.Ca. August 14, 1995), the United States Dis-
trict Court for the Central District of California just recently
enjoined a state court proceeding enforcing an order entered
in a marital dissolution case on the grounds that enforce-
ment of such order was pre-empted by ERISA.
This case also brings to this Court an opportunity to
resolve two apparently conflicting decisions of this Court on
the issue of whether a federal court may enjoin a state court
proceeding which involves subject matter over which Con-
gress has conferred exclusive jurisdiction on the federal
courts. In Capital Service, Inc. v. National Labor Relations
Board, 347 U.S. 501 (1954), this Court suggested that, in
such circumstances, a federal court may enjoin a state court
proceeding as being “necessary in aid of its jurisdiction.” In
Vendo Company v. Lektro-Vend Corporation, 433 U.S. 623
(1977), the lead opinion of that case suggested that the
“necessary in aid of its jurisdiction” exception to the Anti-
Injunction Act does not automatically permit a federal court
10
to enjoin state court proceedings relating to matters within
the federal court’s exclusive jurisdiction.
Finally, Petitioners bring to this Court one other impor-
tant and recurring issue which also concerns the relations
between and the respective roles of federal and state courts
in cases raising substantial questions of federal law. The
decision of the District Court below to abstain from exercis-
ing its jurisdiction under the principles enunciated by this
Court in Younger v. Harris, supra, 401 U.S. 37 (1971),
which was affirmed by the Court of Appeals, misconstrues
the deference which federal courts owe to state courts. The
Court of Appeals was in error when it med that abstention
by a federal court in favor of prior state ese’: proceedings is
mandated unless it can be shown by a party that “it would
be injured by having to raise its pre-emption defense in the
state proceedings rather than in federal district court.”
(App., infra 20a). Adherence to such a standard will upset
the balance between federal and state courts in those areas
where Congress has elected to confer upon the federal
courts exclusive jurisdiction to decide claims specifically
created by federal law. The principles of federal-state com-
ity on which Younger is premised should not be construed to
require a federal court to abstain from exercising jurisdiction
over federal law claims involving matters where federal pre-
emption of state law is virtually complete and over which
Congress has conferred exclusive jurisdiction upon the fed-
eral courts.
A. The Circuits Are Divided on Whether ERISA Ex-
pressly Authorizes Federal Courts to Enjoin State
Court Proceedings Within the Meaning of the Anti-
Injunction Act
The United States Courts of Appeals are divided on the
issue of whether ERISA is a statute in which Congress has
“expressly authorized” the federal courts to enjoin state
court proceedings within the meaning of the Anti-Injunction
a
| A a
11
Act, 28 U.S.C. §2283. The Courts of Appeals for the
Second and Sixth Circuits have held that Congress intended
ERISA to be an exception to the Anti-Injunction Act. The
Court of Appeals in this case, as well as the United States
Courts of Appeals for the Third and Fifth Circuits, have
held that Congress did not so intend. This Court has never
expressly decided the issue.
In General Motors Corporation v. Buha, 623 F.2d 455
(6th Cir. 1980), the United States Court of Appeals for the
Sixth Circuit held that Section 502(a)(3) of ERISA, 29
U.S.C. §1132(a) (3), was a Congressionally authorized ex-
ception to the Anti-Injunction Act. Since Congress empow-
ers plan fiduciaries to obtain injunctive relief enjoining
violations of ERISA or enforcing its provisions, a federal
court would not be barred from enjoining state court pro-
ceedings which violate the broad pre-emption provision of
ERISA (623 F.2d at 459). In Gilbert v. Burlington Indus-
tries, Inc., 765 F.2d 320 (2d Cir. 1985), affd without
opinion, 477 U.S. 901 (1986), the United States Court of
Appeals for the Second Circuit similarly held that Sec-
tion 502(a)(3) of ERISA, 29 U.S.C. §1132(a) (3), is an
“expressly authorized” exception to the Anti-Injunction
Act. Several District Courts have also ruled that ERISA
constitutes an exception to the Anti-Injunction Act. Cart-
ledge v. Miller, 457 F.Supp. 1146, 1151-1152 (S.D.N.Y.
1978), and Senco of Florida, Inc. v. Clark, 473 F.Supp. 902,
904-905 (M.D. Fla. 1979). Just recently, the United States
District Court for the Central District of California held that
ERISA expressly authorizes federal courts to enjoin state
court proceedings which may violate ERISA’s pre-emption
provisions. A T & T Management Pension Plan v. Tucker,
supra, 1995 U.S. Dist. LEXIS 14148 (C.D.Ca. 1995).
The United States Courts of Appeals for the Third and
Fifth Circuits take the contrary view and hold that ERISA
is not an exception to the prohibitions of the Anti-Injunction
12
Act. United States Steel Corporation Plan for Employee
Insurance Benefits v. Musisko, 885 F.2d 1170 (3rd Cir.
1989), cert. denied, 493 U.S. 1074 (1990); The 1975 Sala-
ried Retirement Plan for Eligible Employees of Crucible,
Inc. v. Nobers, 968 F.2d 401 (3rd Cir. 1991); and Total Plan
Services, Inc. v. Texas Retailers Association, Inc., 925 F.2d
142 (Sth Cir. 1991). These were the decisions relied on by
the Court of Appeals in the instant case when it affirmed the
District Court’s dismissal of Petitioners’ Complaint on the
grounds that the Anti-Injunction Act barred the relief being
sought.
The decisions of the Second and Sixth Circuits more truly
accord with Congress’ expressed intent in enacting the very
broad and expansive pre-emption provision found in ERISA
and coupling it with a grant of exclusive jurisdiction to the
federal courts over claims involving pre-emption of state law
by ERISA [29 U.S.C. §1132(¢) (1) ]. The decisions of the
Second and Sixth Circuits also more truly conform with this
Court’s decision in Mitchum v. Foster, 407 U.S. 225 (1972),
which established the test for determining whether Con-
gress, in enacting a particular statute, intended to authorize
injunctions against state court proceedings.
In Mitchum, this Court stated the test as follows:
“a federal law need not expressly authorize an
injunction of a State court proceeding in order to
qualify as an exception.*** The test, rather, is
whether an Act of Congress, clearly creating a federal
right or remedy enforceable in a federal court of equity,
could be given its intended scope only by the stay of a
State court proceeding.” (407 U.S. at 237-238).
13
This test may have been possibly refined in a subsequent
decision of the Supreme Court in which there was no
majority opinion. In Vendo Company v. Lektro-Vend Cor-
poration, supra, 433 U.S. 623 (1977), this Court’s lead
opinion discussed the Mitchum test as follows:
“By limiting the statutory exception of §2283 and its
predecessors to these few instances, we have clearly
recognized that the Act countenancing the federal
injunction must necessarily interact with, or focus
upon, a state judicial proceeding” (433 U.S. at 640-
641).
ERISA satisfies all of these tests. Congress, in enacting
Section 502(a)(3) of ERISA, 29 U.S.C. §1132(a) (3),
obviously created a “uniquely federal right or remedy”;
since the federal courts have exclusive jurisdiction over any
civil action to enjoin violations of ERISA or to enforce any
of its provisions pursuant to Section 502(¢)(1) of ERISA,
29 U.S.C. §1132(¢)(1). ERISA also satisfies the second
part of the Court’s test. ERISA “could be given its intended
scope only by the stay of a State court proceeding.”
Mitchum v. Foster, supra, 407 U.S. at 238. In Vendo
Company v. Lektro-Vend Corporation, supra, it was noted
that a federal statute may be found to satisfy this second
part of the Mitchum test and to come within the “expressly
authorized” exception of the Anti-Injunction Act “if there
exists sufficient evidence in the legislative history demon-
strating that Congress recognized and intended the statute
to authorize injunction of state-court proceedings.” (433
U.S. at 633). ERISA’s legislative history clearly demon-
strates from the interaction between ERISA’s broad pre-
emption provision and ERISA’s grant of exclusive federal
jurisdiction over suits in equity raising pre-emption claims
that ERISA can be given its intended scope only by empow-
ering the federal courts to enjoin state court proceedings.
14
In Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983), this
Court extensively reviewed ERISA’s legislative history re-
lating to pre-emption. That legislative history made manifest
Congress’ intention to displace all state regulation of em-
ployee benefit plans (463 U.S. at 99). This Court, in
subsequent decisions, has consistently reaffirmed that the
purpose of ERISA is to establish employee benefit plan
regulation “as exclusively a federal concern.” Pilot Life
Insurance Company v. Dedeaux, 491 US. 41, 46 (1987);
FMC Corporation v. Holliday, 498 U.S. 52, 56 (1990); and
Ingersoll-Rand Company v. McClendon, 498 U.S. 133, 137
(1990). The broad scope of ERISA pre-emption is further
emphasized by the definition of “State law” under the
statute. In Ingersoll-Rand Company v. McClendon, supra,
498 U.S. at 137, this Court noted that “to underscore its
intent that §514(a) be expansively applied, Congress used
equally broad language in defining the ‘State law’ that would
be pre-empted.” Section 514(c) (1) defines “State law”, in
relevant part, as follows:
“For purposes of this section: (1) The term ‘State law’
includes all laws, decisions, rules, regulations, or other
State action having the effect of law, of any State.”
(emphasis added)
The term “State action” necessarily includes state court
proceedings. Shelley v. Kraemer, 334 U.S. 1 (1948). ER-
ISA, thus, focuses upon and interacts with state judicial
proceedings as the lead opinion in this Court’s decision in
Vendo Company v. Lektro-Vend Corporation, supra, 433
US. at 640-641, suggests is required in order to meet the
second test established in Mitchum v. Foster, supra, 407
U.S. 225 (1972).
In furtherance of this objective of uniform federal regula-
tion of employee benefit plans, Congress, in Section
502(¢)(1) of ERISA, 29 U.S.C. §1132(e)(1), conferred
upon the federal courts exclusive jurisdiction over suits for
15
equitable relief brought pursuant to Section 502(a) (3) of
ERISA, 29 U.S.C. §1132(a) (3). ERISA’s statutory design
is, thus, premised on the exclusive jurisdiction of the federal
courts to decide claims of ERISA pre-emption. The obvious
purpose of exclusive federal jurisdiction is to reinforce
Congress’ objective of establishing uniform federal regula-
tion of employee benefit plans. When these statutory provi-
sions are read and construed together, it is readily apparent
that Congress expressly authorized federal courts to enjoin
pending state court proceedings.
ERISA is notable as federal legislation precisely because
of the almost unique combination of a very expansive federal
pre-emption of all state law relating to its subject matter
with exclusive federal jurisdiction over suits to enforce its
provisions. It is this combination that distinguishes ERISA
from most of the federal statutes which were found not to
have “expressly authorized” injunctions of state court
proceedings.
Neither the Court of Appeals in this case nor the Courts
of Appeals for the Third and Fifth Circuits in Musisko,
supra, 885 F.2d 1170 (3rd Cir. 1989), Texas Retailers
Association, Inc., supra, 925 F.2d 142 (Sth Cir. 1991), and
Nobers, supra. 968 F.2d 401 (3rd Cir. 1992), considered the
legislative history of ERISA as an adequate expression of
Congress’ intention to authorize injunctions of state court
proceedings. These Courts, misconceiving the second part of
the Mitchum test, held that there must be a showing that
Congress distrusted the state courts to protect or enforce
federal rights (App., infra, 14a). While such a showing was
sufficient in connection with civil rights claims under 42
U.S.C. §1983, this Court nowhere suggested in Mitchum
that this was the exclusive test for establishing that a federal
statute authorized injunctions of state court proceedings.
What this Court observed ‘np Mitchum about the legislative
history of the Civil Rights Act was Congress’ expressed
16
intention to give to the federal courts the primary responsi-
bility for the protection of civil rights:
“This legislative history makes evident that Congress
clearly conceived that it was altering the relationship
between the States and the Nation with respect to the
protection of federally created rights. . . .” (407 USS. at
242).
It cannot be challenged that ERISA dramatically altered
the relationship between the federal government and the
states with respect to employee benefit plans. Coupling
broad pre-emption, intended to displace all state laws and
regulation except in limited circumstances, with exclusive
federal jurisdiction over pre-emption claims is the clearest
evidence that Congress intended to give to federal courts the
power to enjoin state court proceedings which encroach
upon this subject matter.
The exclusive jurisdiction of the federal courts would be
substantially frustrated and compromised unless the federal
courts were empowered to stay state court proceedings. A
state, seeking to subject an employee benefit plan to state
law or regulation as in the instant case, would need only to
institute a state court suit to oust a federal court from its
exclusive jurisdiction over claims of ERISA pre-emption. A
plan or its fiduciaries would, thus, not be able to seek
injunctive and declaratory relief to bar pre-empted state
action because of the limitations on standing imposed by
Article III of the Constitution. In order for federal judicial
power to be exercised, there must exist a “case or contro-
versy.” This Court has held on several occasions that a
person does not have standing to challenge the constitution-
ality of state law merely because he or she is within the class
of persons subject to the statute. See e.g., Poe v. Ullman,
367 U.S. 497 (1961). In effect, a fiduciary who is potentially
aggrieved by a pre-empted state law may lack standing to
challenge the law because an immediate, direct threat of
17
enforcement of that state law may be lacking. By initiating
state court proceedings, a state could compel decision of
claims of pre-emption by state courts despite the fact that it
was the intention of Congress to have such claim decided
exclusively in federal court.
B. This Court Should Definitively Resolve the Issue of
Whether a Federal Court May, With Respect to
Matters in Its Exclusive Jurisdiction, Enjoin State
Court Proceedings Under the Anti- Injunction Act
Involving Such Matters
The instant case presents an opportunity to this Court to
resolve an apparent conflict in earlier decisions of this Court
on whether federal courts have the power under the Anti-
Injunction Act to enjoin state court proceedings involving
matters over which Congress has conferred exclusive juris-
diction upon the federal courts. In Capital Service, Inc. v.
National Labor Relations Board, supra, 347 U.S. 501
(1954), this Court held that where Congress granted to a
federal agency exclusive jurisdiction over a class of claims,
the federal agency may act to preserve its exclusive jurisdic-
tion by enjoining state court proceedings which invade the
federal agency’s exclusive jurisdiction. Such an injunction is
justified as an exception to the Anti- Injunction Act because
it is “necessary in aid of” the federal agency’s “jurisdiction”,
which is the second exception specified in the Anti-Injunc-
tion Act:
“But where Congress, acting within its constitutional
authority, has vested a federal agency with exclusive
jurisdiction over a subject matter and the intrusion of a
State would result in a conflict of functions, the federal
court may enjoin the state proceeding in order to
preserve the federal right.” (347 U.S. at 504).
18
This rationale should be applicable to all matters over which
Congress has conferred exclusive jurisdiction upon the fed-
eral courts.
The holding of this Court in Capital Service, Inc. is called
into question by this Court’s decision in Vendo Company v.
Lektro-Vend Corporation, supra, 433 U.S. 623 (1977).
There was no majority opinion in that case. The lead
opinion, joined in by three Justices, did state that the
exclusive federal jurisdiction of the Clayton Act did not
support a stay of state court proceedings as “necessary in aid
of” the federal court’s jurisdiction within the meaning of the
Anti-Injunction Act (433 U.S. at 641-643). Two Justices
concurred in the case result in a separate opinion that did
not explicitly consider this exception to the Anti-Injunction
Act. Four Justices dissented from the result. It should be
noted that the federal anti-trust laws do not pre-empt the
entire field of trade regulation involving monopolistic and
anti-competitive practices. See, e.g., Rice v. Norman Wil-
liams Company, 458 U.S. 654 (1982), where this Court
discussed the more limited nature of federal anti-trust law
pre-emption. Federal law pre-empts state law in this field
only when the two irreconcilably conflict (458 U.S. at 659).
ERISA pre-emption, however, is of an entirely different
order. ERISA pre-empts the field displacing virtually all
>This Court’s decision in Amalgamated Clothing Workers of America
v. The Richman Brothers, 348 U.S. 511 (1955) cannot be construed to
be a rejection by this Court of the proposition that a federal court may
enjoin state court proceedings involving matters over which the federal
courts have exclusive jurisdiction. In that case, this Court held a stay of
state court proceedings was not permitted under the Anti-Injunction Act
to aid the federal court’s jurisdiction because the federal court had no
subject matter jurisdiction in the first place. In that case, the federal
court had exclusive jurisdiction only in suits brought by the National
Labor Relations Board. Therefore, a private litigant could not seek a stay
of a state court action from a federal court; even though the state court
action might interfere with the enforcement of federal law.
19
state laws relating to employee benefit plans even if such
laws do not conflict with ERISA. MacKey v. Lanier Collec-
tion Agency & Service, Inc., 486 U.S. 825, 829-830 (1988).
This case may serve to clarify the law on whether a
federal court may enjoin state court proceedings involving
matters falling within the exclusive jurisdiction of the fed-
eral courts. Petitioners believe that this Court’s decisions in
the Capital Service, Inc. case, supra, 347 U.S. 501 (1954),
and the Vendo Company case, supra, 433 U.S. 623 (1977),
can be reconciled. Where federal law pre-empts an entire
field with the purpose of displacing state law on that subject
matter and also confers exclusive jurisdiction upon the
federal courts to decide claims involving the pre-empted
area, a stay of state court proceedings would be mandated as
being “necessary in aid of” the federal court’s jurisdiction.
In such a situation, Congress has evidenced its intent to
make the federal courts the sole decision makers in the area
and to foreclose the state courts from the area. The federal
anti-trust laws are critically different from ERISA.
Although Congress has granted exclusive jurisdiction to the
federal courts to give the statutory remedies for violations of
the Sherman and Clayton Acts, Congress has not pre-
empted the field of trade regulation. State laws in this area
are pre-empted only when they irreconcilably conflict with
federal law. Thus, in any pre-emption dispute, the construc-
tion and interpretation of state Jaw remains a critical ele-
ment of the case. This Court should, nevertheless, provide
express guidance to the lower federal courts on this issue.
C. The Court of Appeals Was in Error When It Af-
firmed the District Court’s Decision to Abstain on
Younger Grounds Because the District Court Has
Exclusive Jurisdiction Over Petitioners’ Claims
In Younger v. Harris, supra, 401 U.S. 37 (1971) and in
subsequent cases, this Court has delineated the circum-
20
stances in which a federal court should abstain in favor of
prior ongoing state judicial or administrative proceedings.
Abstention is the general rule where the state proceedings
involve vital state interests and further provide an adequate
opportunity to raise federal constitutional challenges to state
law. The Court of Appeals has, however, seriously miscon-
strued the principles underlying Younger abstention. In-
stead, it has fashioned a test for making the decision to
abstain or not to abstain that ignores the paramountcy of
certain fundamental federal interests which is manifest
when Congress chooses to confer matters to the exclusive
jurisdiction of the federal courts.
Younger abstention is grounded in the basic notions of
federalism. Inherent in the concept of federalism is the
balance between the interests of the states and the interests
of the national government. Younger v. Harris, supra, 401
USS. at 44:
“The concept [of ‘Our Federalism’] does not mean
blind deference to ‘States’ Rights’ any more than it
means centralization of control over every important
issue in our National Government and its courts. The
Framers rejected both these courses. What the concept
does represent is a system in which there is sensitivity
to the legitimate interests of both State and National
Governments, and in which the National Government,
anxious though it may be to vindicate and protect
federal rights and federal interests, always endeavors to
do so in ways that will not unduly interfere with the
legitimate activities of the States.”
Thus, proper application of Younger abstention requires
the federal court to weigh the countervailing state and
federal interests at stake. In many cases, the federal interest
involved is not as important as the particular state interest,
especially the state’s interest in not having the federal courts
interfere with the state’s judicial and administrative
Pee ee ee
ee a en
21
processes. This is true because state courts are presumed
fully competent to decide issues of federal law and to protect
federal interests in the event of any conflict with state
interests.
In New Orleans Public Service, Inc. v. Council of the City
of New Orleans, 491 U.S. 350 (1989) [“NOPSI’], this
Court provided some further guidance on the propriety of
abstention in favor of state judicial or administrative pro-
ceedings.’ In that case, this Court held that the presence of
even a substantial claim of federal pre-emption was not, in
and of itself, sufficient to outweigh a state’s interest in non-
interference with its judicial proceedings (491 U.S. at 365).
Rather, this Court held that federal courts must weigh the
importance of the “generic proceedings” to the state against
the importance of the conflicting federal interests. The focus
of such inquiry cannot be narrowly limited to the “outcome”
of the claim of federal pre-emption in any particular case.
There are, however, areas in which the federal interest in
the “generic proceedings” outweighs the state’s interest.
With respect to these matters, Congress has made a decision
to pre-empt the field and displace all state law relating to
that field. Indeed, the NOPSI case illustrates the application
of Younger abstention to cases involving so-called “conflict
pre-emption” as distinct from so-called “field pre-emp-
*In NOPSI, the precise issue was the conflict between the Federal
Energy Regulatory Commission’s authority to regulate interstate power
transactions and the authority of the State of Louisiana to regulate
intrastate retail rates for public power. This Court observed that federal
law in this area was structured upon state regulation of public utilities.
The Natural Gas Act, regulating interstate transactions only, was
intended to be a limited and circumscribed intrusion in the authority of
States to regulate the intrastate costs of public power (491 U.S. at 365).
22
tion.”® In situations involving “conflict pre-emption,” Con-
gress did not intend federal legislation to pre-empt the field
and, thus, displace all state law and regulation in that field.
Rather, Congress intended to preserve the fundamental role
of state law and regulation. Pre-emption occurs only when
state law cannot be harmonized with federal law. State law
is a principal element in the pre-emption issue to be re-
solved. In cases involving “conflict pre-emption,” the deci-
sion to abstain cannot turn on the “outcome” of the
particular pre-emption dispute because such focus ignores
the larger Congressional purpose to preserve the basic role
of state law in a given area. In cases involving “conflict pre-
emption,” a federal court's refusal to abstain from interfer-
ing with ongoing state judicial or administrative proceedings
would be unnecessarily intrusive and contrary to principles
of federalism precisely because Congress intended to pre-
serve the role of state law in the particular area.
In cases involving “field pre-emption,” however, the fed-
eral interest in the “generic proceedings” is inherently the
paramount interest regardless of the outcome of the particu-
lar pre-emption dispute. This is because Congress has made
the decision to displace all state law from a field. Courts do
not intrude upon state interests when Congress makes a
constitutionally permissible decision to pre-empt a field. In
such cases, issues of state law are irrelevant. The only issue
is how much of the field is Congress pre-empting. That issue
is resolved exclusively by reference to federal law.
51n Schneidewind v. ANR Pipeline Company, 485 U.S. 293 (1988),
this Court again reaffirmed the distinction between “field” and “con-
flict” pre-emption:
“Congress explicitly may define the extent to which its enactments
pre-empt state law....** * Congress implicitly may indicate an
intent to occupy a given field to the exclusion of state law. * * *
Finally, even where Congress has not entirely displaced state regula-
tion in a particular field, state law is pre-empted when it actually
conflicts with federal law.” (485 U.S. at 299-300).
23
ERISA, among all of the federal statutes, makes one of
the most compelling cases for federal courts to refuse to
abstain on Younger grounds. ERISA pre-emption is a class
of “field pre-emption” which has been categorized as
“super-pre-emption,” displacing virtually all state laws from
the field of employee benefit plans, even state laws which
are fully consonant with ERISA. Congress has coupled
ERISA’s expansive pre-emption with a grant to the federal
courts of exclusive jurisdiction over equitable suits to enjoin
violations of ERISA or to enforce its provisions, which, in
effect, is a manifestation of Congress’ intention to have pre-
emption claims resolved by the federal courts rather than
the state courts.
The Court of Appeals in this case erroneously held that
abstention is mandated under Younger unless a party can
show that “it would be injured by having to raise its pre-
emption defense in the state proceedings rather than in the
federal district court.” (App., infra, 20a). This is not a
standard applied by other Courts of Appeals, which have
held Younger abstention to be improper in certain circum-
stances; even though the conditions for this type of absten-
tion are present.
In Olde Discount Corporation v. Tupman, | F.3d 202
(3rd Cir. 1993), cert. denied, U.S. ume 114 8.Ct. 741
(1994), the Court of Appeals for the Third Circuit held that
the federal interest in promoting arbitration in commercial
disputes under the Federal Arbitration Act outweighed a
state’s interest in having a dispute over the fraudulent sale of
securities resolved in the state’s tribunal. The Third Circuit
stressed the overall importance of arbitration as a vital
federal interest which was superior to the countervailing
State interest. In two cases decided before this Court’s
decision in NOPSI, supra, 491 U.S. 350 (1989), the Courts
of Appeals for the Second and Ninth Circuits had held that
Younger abstention is inappropriate in an ERISA context.
24
Champion International Corporation v. Brown, 731 F.2d
1406, 1408-1409 (9th Cir. 1984); Stone & Webster Engi-
neering Corporation v. Ilsley, 690 F.2d 323, 326, n.2 (2nd
Cir. 1982), judgment affirmed without opinion sub nom,
Arcudi v. Stone & Webster Engineering Corporation, 463
U.S. 1220 (1983). Thus, without the necessity of having to
show “injury” as required by the Court of Appeals in the
instant case, courts have recognized that there are cases in
which the federal interest is so predominant that the state
interest, even the state interest in preventing interference
with its judicial proceedings, must yield in every respect to
the paramount federal interest. In such cases, abstention by
the federal courts is totally improper even if the three
conditions for Younger abstention are formally present.
The instant case, thus, affords this Court an opportunity
to expand upon its decision in NOPSI, supra, 491 U.S. 350
(1989) and provide guidance to the federal courts on the
propriety of Younger abstention when “the importance of
the generic proceedings to the State” (491 U.S. at 365) is
manifestly outweighed by the importance of the “generic
proceedings” to the federal government.
25
CONCLUSION
For the foregoing reasons, a writ of certiorari should issue
to review the judgment and opinions of the Court of Appeals
for the Fourth Circuit.
ALLAN J. GRAF
Counsel of Record
FARMER & RIDLEY
444 South Flower Street
Suite 2300
Los Angeles, CA 90071-3033
(213) 626-0291
Counsel for Petitioners
Of Counsel:
ROBERT W. RIDLEY
444 SOUTH FLOWER STREET
SuITE 2300
Los ANGELES, CA 90071-3033
(213) 626-0291
Respectfully submitted,
November 22, 1995
APPENDIX A
INDEX
A. Opinion of the Court of Appeals, 65 F.3d 1126
SUD GA UD vccberceccceesseesncencsses la
B. Opinion of the District Court, 869 F.Supp. 398
CELE VE SUED ccevcenccctscevcevessetecss 22a
la
APPENDIX A.
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
(Argued July 13, 1995
Decided September 19, 1995)
Docket No. 94-2611
EMPLOYERS RESOURCE MANAGEMENT COMPANY,
INCORPORATED; AMERICAN EMPLOYERS
BENEFIT TRUST,
Plaintiffs-Appellants,
v.
PRESTON C. SHANNON, Commissioner,
THEODORE V. MORRISON, JR., Commissioner;
H.W. Moore, Commissioner, STEVEN T. FOSTER,
Commissioner of Insurance,
Defendants-Appellees.
Before ERVIN, Chief Judge, MURNAGHAN, Circuit
Judge, and PHILLIPS, Senior Circuit Judge.
Affirmed by published opinion. Chief Judge ERVIN
wrote the opinion, in which Judge MURNAGHAN and
Senior Judge PHILLIPS joined.
OPINION
ERVIN, Chief Judge:
This case arises from an attempt by the State Corporation
Commission of the Commonwealth of Virginia (“SCC” or
“Commission”) to apply state insurance licensing laws to
employee welfare benefit plans established and maintained
2a
by Employers Resource Management (“ERM”). Both the
Commission and ERM agree that the applicability of Vir-
ginia law turns on whether ERM’s benefit plans are properly
characterized as Multiple Employer Welfare Arrangements
— most commonly referred to as MEWAs. In this appeal,
we must resolve whether an ongoing, quasi-judicial proceed-
ing before the Commission or federal district court is the
proper forum for determining ERM’s MEWA designation.
For the reasons discussed below, we conclude that both the
Anti-Injunction Act and the Younger abstention doctrine
preclude us from enjoining the pending proceeding before
the Commission. Consequently, the district court’s decision
to deny injunctive relief is affirmed.
Although we are not addressing the substantive question
of whether ERM maintains a MEWA for purposes of
regulation under Virginia’s insurance laws, we begin by
explaining briefly the company’s function. ERM provides
co-employment services to its client employers — designat-
ing itself on employees’ W-2 forms as the employer, paying
employee wages, and providing all employee benefits. In
addition to these responsibilities, ERM conducts periodic
safety inspections and ensures that occupational, health, and
safety regulations are followed at all times. The primary
employer is relegated, in effect, to the status of an on-site
director of day-to-day operations. Nationwide, ERM has _
1,200 co-employer clients who, in turn, employ 5,500 work-
ers. The companies with which ERM works appear to be
small operations that find it cost-efficient to delegate admin-
istrative tasks to a larger company.
Most relevant for purposes of this litigation, ERM serves
as the fiduciary of employee welfare benefit plans that it
establishes for the employees of its client co-employers.
ERM finances the plans through fees paid by the co-
3a
employers and through optional employee contributions.
The plans are fairly comprehensive, including hospital and
medical benefits, dental benefits, and death benefits. ERM
created the American Employers Benefit Trust, the other
named plaintiff in this case, to hold all assets of the plans
over which ERM exerts control.' ERM served as plan
administrator and as fiduciary of the plans in accordance
with § 3(21)(A) of the Employee Retirement Income Se-
curity Act of 1974, 29 U.S.C. §§ 1001 et seg. (“ERISA”).
As the body charged with the regulation of the business of
insurance in the Commonwealth of Virginia, the SCC
maintains subject matter jurisdiction over persons offering
or providing coverage in the Commonwealth for health care
services. VA.CODE ANN. § 38.2-3420 (Michie 1994).
Pursuant to its authority under section 38.2-233 of the
Virginia Code, the Commission developed specific regula-
tions to govern the operation of all MEWAs. Employers
found to be operating MEWAs are held accountable to the
dictates of the Commonwealth’s insurance laws. Believing
that ERM was operating a MEWA without a license, the
Commission initiated a state proceeding against the com-
pany on February 18, 1994. In response to the initiation of
proceedings, ERM filed two suits in federal court. The first
sought removal of the state proceeding to federal court
under 28 U.S.C. § 1441(b), and the second requested in-
junctive and declaratory relief in the hopes of barring the
Commission from subjecting ERM to regulation under
Virginia’s insurance laws. ERM argued that equitable relief
‘Concentrating further on the substantive issue of whether ERM
maintains a MEWA would shift our focus away from the issues that are
the heart of this appeal. Although ERM properly avoided the “ultimate”
question of its ERISA status in its initial brief, the company dedicated a
substantial portion of its reply brief trying to convince us that it should
not be categorized as maintaining a MEWA. Those arguments have
fallen on deaf ears, since our only task is to decide the forum in which
that issue ultimately will be settled.
4a
was appropriate because the company was simply acting in
its capacity as a single employer in maintaining an employee
welfare benefit plan for its employees. Because it was not
operating a multiple employer welfare arrangement, ERM
claimed that it should not be subject to the dictates of the
Commission or Virginia law.
Without deciding the merits of the case, the district court
remanded ERM’s removal action the Commission’ and
denied ERM’s claim for equitable relief. The district court
found that the requests for injunctive and declaratory relief
were barred under the Anti-Injunction Act and the Younger
abstention doctrine. ERM filed a timely notice of appeal
from that decision.’
Il.
The fact that questions arising under ERISA are federal
in nature is not enough to circumvent the dictates of the
Anti-Injunction Act or the Younger abstention doctrine —
the bases relied upon by the district court for denying
ERM’s request for injunctive and declaratory relief. For the
following reasons, we join the Third and Fifth Circuits in
holding that § 1132(a) of ERISA does not operate as an
automatic exception to the Anti-Injunction Act. We also
find that it was within the sound discretion of the district
2Because 28 U.S.C. § 1447(d) precludes an appeal of the district
court’s decision to remand the first case brought by ERM, the present
appeal only concerns the district court’s dismissal of the claim for
equitable relief. See 28 U.S.C. § 1447(d) (“An order remanding a case
to the State court from which it was removed is not reviewable on appeal
or otherwise [unless removal of a civil rights case was sought under
section 1443].”).
*We note that appellate jurisdiction is proper under both 28 U.S.C.
§ 1291 (appeal from a final order issued by the district court) and 28
U.S.C. § 1292(a)(1) (appeal from an order rejecting a claim for
injunctive relief).
Sa
court to abstain under Younger, rather than to carve out an
exception to the Younger abstention doctrine.
A.
ERM will be entitled to injunctive relief only if we
conclude that enjoining the SCC proceeding is permissible
despite the dictates of the Anti-Injunction Act, 28 U.S.C.
§ 2283, which “generally bars federal courts from granting
injunctions to stay proceedings in state courts.’”* Chick Kam
Choo v. Exxon Corp., 486 U.S. 140, 142, 108 S.Ct. 1684,
1687, 100 L.Ed.2d 127 (1988). Intended as a limitation on
the ability of federal courts to interfere with the state
judicial system, the Act provides:
A court of the United States may not grant an injunc-
tion to stay proceedings in a State court except as ex-
pressly authorized by Act of Congress, or where necessary
in aid of its jurisdiction, or to protect or effectuate its
judgments.
28 U.S.C. § 2283.
We take seriously the mandate in the Anti-Injunction Act
and recognize that for over two hundred years, the Act has
helped to define our nation’s system of federalism. See
Texas Employers’ Ins. Ass'n v. Jackson, 862 F.2d 491, 505
(Sth Cir.1988) (referring to the Anti-Injunction Act as a
“pillar of federalism reflecting the fundamental constitu-
tional independence of the states and their courts”). As the
Supreme Court observed in Chick Kam Choo, the Act
serves as a “necessary concomitant of the Framers’ decision
to authorize, and Congress’ decision to implement, a dual
system of federal and state courts.” 486 U.S. at 146, 108
S.Ct. at 1689. “[T]he consistent understanding has been
that its [the Act’s] basic purpose is to prevent ‘needless
‘ERM agrees that the proceeding before the SCC qualifies as a state
judicial proceeding for purposes of the Anti-Injunction Act.
6a
friction between state and federal courts.’” Mitchum v.
Foster, 407 U.S. 225, 232-33, 92 S.Ct. 2151, 2156-57, 32
L.Ed.2d 705 (1972) (quoting Oklahoma Packing Co. v.
Oklahoma Gas & Elec. Co., 309 U.S. 4, 9, 60 S.Ct. 215, 218,
84 L.Ed. 537 (1940) ). Any discussion of federalism will, by
its very nature, involve a balancing of federal and state
interests, and the Anti-Injunction Act plays a critical role in
ensuring that the proper balance is maintained.
Notwithstanding the Act’s basic purpose of preserving the
integrity of state judicial systems, Congress defined three
instances in which injunctions are permitted and it now is
settled that the Act is “an absolute prohibition against
enjoining state court proceedings, unless the injunction falls
within one of [those] three specifically defined exceptions.”
Atlantic Coast Line R. Co. v. Brotherhood of Locomotive
Engineers, 398 U.S. 281, 286, 90 S.Ct. 1739, 1743, 26
L.Ed.2d 234 (1970). Injunctions, therefore, are permitted
when they are expressly authorized by statute, necessary to
aid the court’s jurisdiction, or required to protect or effectu-
ate the court’s judgment “to ensure the effectiveness and
supremacy of federal law.” Chick Kam Choo, 486 U.S. at
146, 108 S.Ct. at 1689. The exceptions are construed nar-
rowly, however, and are “not [to] be enlarged by loose
statutory construction.” Atlantic Coast Line, 398 US. at
287, 90 S.Ct. at 1743; Amalgamated Clothing Workers v.
Richman Brothers 348 U.S. 511, 514, 75 S.Ct. 452, 454, 99
L.Ed. 600 (1955) (noting that § 2283’s prohibition “is not
to be whittled away by judicial improvisation”). Unlike
Chick Kam Choo, in which only the Anti-Injunction Act’s
third exception was “even arguably applicable,” 486 USS. at
146, 108 S.Ct. at 1689, our analysis of the Act turns
primarily on the applicability of its first exception.
The Anti-Injunction Act’s “expressly authorized” excep-
tion is not triggered simply by the fact that a state proceed-
ing involves a question of federal law. “Rather, when a state
Ta
proceeding presents a federal issue, even a pre-emption
issue, the proper course is to seek resolution of that issue by
the state court.” Chick Kam Choo, 486 U.S. at 149-50, 108
S.Ct. at 1691. The circuits are in agreement that the
existence of preemption does not control application of the
Anti-Injunction Act. See, e.g. National R.R. Passenger
Corp. v. Florida, 929 F.2d 1532, 1535 (11th Cir.1991);
Total Plan Services, Inc. v. Texas Retailers Ass'n, Inc., 925
F.2d 142 (Sth Cir.1991); U.S. Steel Corp. Plan for Em-
ployee Ins. Benefits v. Musisko, 885 F.2d 1170 (3rd
Cir.1989), cert. denied, 493 U.S. 1074, 110 S.Ct. 1121, 107
L.Ed.2d 1028 (1990). In the ERISA context, in particular,
it has been noted that the applicability of the Anti-Injunc-
tion Act’s exceptions, and not the fact that ERISA
preempts state-law claims brought by employees against
employee benefit plans, is the basis on which the injunction
issue is to be resolved.’ See, e.g., 1975 Salaried Retirement
Plan v. Nobers, 968 F.2d 401, 408-10 (3rd Cir. 1992)
(holding that injunction against prosecution of state court
contract action brought by laid off employees against em-
ployer did not come within exception in the Anti-Injunction
Act as “expressly authorized by Act of Congress” simply
‘We recognize that there is compelling evidence supporting the
proposition that Congress intended for ERISA to preempt state law.
Section 514(a) of ERISA preempts “any and all State laws insofar as
they may now or hereafter relate to any employee benefit plan” covered
by ERISA. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 91, 103 S.Ct.
2890, 2897, 77 L.Ed.2d 490 (1983) (citing 29 U.S.C. § 1144(a)). This
rather straightforward provision is flushed out further throughout the
legislative history. See 120 Cong. Rec. 29197 (1974) (statement of Rep.
Dent) (claiming that the “crowning achievement” of the legislation was
the “reservation to Federal authority [of] the sole power to regulate the
field of employee benefit plans”); id. at 29933 (statement of Sen.
Williams) (“[W]ith the narrow exceptions specified in the bill, the . . .
provisions .. . are intended to preempt the field for Federal regulations,
thus eliminating the threat of conflicting or inconsistent State and local
regulation of employee benefit pians.”).
8a
because the state-court claims were preempted by ERISA,
even if the state court claims were subject to exclusive
federal jurisdiction), cert. denied, ___ U.S. __, 113 S.Ct.
1066, 122 L.Ed.2d 370 (1993).
In arguing that ERISA qualifies as an express exception
to the Anti-Injunction Act, ERM overstates the relevance of
the Supreme Court’s decision in Mitchum v. Foster. While
we recognize that a federal law need not contain an express
reference to the Anti-Injunction Act in order to qualify
under the “expressly authorized” exception, id. at 237, 92
S.Ct. at 2159, in order to justify the grant of injunctive
relief, it is necessary to demonstrate that the federal scheme
in question has created “a specific and uniquely federal right
or remedy, enforceable in a federal court of equity, that
could be frustrated if the federal court were not empowered
to enjoin a state court proceeding,” Mitchum, 407 USS. at
237, 92 S.Ct. at 2159 (emphasis added). In Mitchum, the
Court found that 42 U.S.C. § 1983 entails such a scenario.
It does not necessarily follow from the Mitchum ruling,
however, that the same result is compelled in the ERISA
context.
While we appreciate that Congress intended for ERISA
to operate primarily in the federal sphere, we do not believe
that ERISA created the type of “unique” federal right or
remedy that was at issue in Mitchum’s consideration of 42
U.S.C. § 1983. As the Mitchum Court acknowledged, an
entirely new structure of law emerged in the post-Civil War
era, and § 1983, in particular, “opened the federal courts to
private citizens, offering a uniquely federal remedy against
incursions under the claimed authority of state law upon
rights secured by the Constitution and laws of the Nation.”
Mitchum, 407 U.S. at 239, 92 S.Ct. at 2160. Section 1983
provides the quintessential example of a congressional act
designed to displace state law. At its heart, § 1983 is meant
to provide citizens with relief in those cases in which their
9a
rights have been violated under color of state law. It would
make no sense to prohibit federal courts from enjoining on-
going state proceedings if the entire purpose of the congres-
sional enactment was to protect individuals from state ac-
tion. Id. at 240, 92 S.Ct. at 2161; see also id. at 242, 92 S.Ct.
at 2162 (“The very purpose of § 1983 was to interpose the
federal courts between the States and the people, as guardi-
ans of the people’s federal rights.”’).
The ERISA statutory scheme is not sufficiently analogous
to the scheme developed under § 1983 for us to extend
Mitchum into the ERISA setting. Although ERISA was
designed to unify the nation’s laws regarding employee
welfare benefits, there was never a sense that Congress
enacted ERISA because “state courts were being used to
harass and injure individuals.” Jd. at 240, 92 S.Ct. at 2161.
That, however, was precisely the reason Congress enacted
§ 1983. Id. at 242, 92 S.Ct. at 2162. Section 1983 was
passed in response to a perceived failure of the state system.
See id. at 242, 92 S.Ct. at 2162 (noting that the “legislative
history makes evident that Congress clearly conceived that
it was altering the relationship between the States and the
Nation with respect to the protection of federally created
[civil] rights”); cf. Pennsylvania v. Union Gas, 491 U.S. 1,
41-42, 109 S.Ct. 2273, 2302-03, 105 L.Ed.2d 1 (1989)
(Scalia, J. concurring) (noting that the Civil Rights Act of
1871 was intended to be a “limitation[ ] of the power of the
States and enlargement[] of the power of Congress”).
ERM makes no claim that ERISA was enacted for similar
reasons. A distrust of state courts did not play the same role
in the development of ERISA as it did in the formation of
§ 1983. See 1975 Salaries Retirement Plan, 968 F.2d at 410
(pointing out that “Congress had no overarching distrust
that state courts would disregard ERISA, unlike Congress’s
concerns about state court violations of section 1983’).
10a
Other circuits are divided on the issue of whether ERISA
carves an exception into the Anti-Injunction Act that en-
ables federal courts to enjoin state proceedings when a party
raises a question of federal law under ERISA. Compare
Gilbert v. Burlington Industries, Inc., 765 F.2d 320 (2d
Cir.1985) (finding that § 1132(a) of ERISA constitutes an
exception to the Anti-Injunction Act and affirming district
court’s grant of injunction of state court proceeding); Gen-
eral Motors Corp. v. Buha, 623 F.2d 455 (6th Cir.1980)
(same) with Total Plan Services, 925 F.2d 142 (finding no
ERISA exception and affirming district court’s denial of
injunctive relief); Musisko, 885 F.2d 1170 (same). The
“circuit split” that allegedly exists between the Third and
Fifth Circuits, on the one hand, and the Second and Sixth
Circuits, on the other, is far less troubling once the particu-
lar cases are examined. We join the Third and Fifth Circuits
in rejecting the notion that ERISA operates as an automatic
exception to the Anti-Injunction Act.
In General Motors Corp. v. Buha, the district court had
enjoined a state court judge from enforcing a writ of garnish-
ment. The defendant, Buha, had obtained previously a state
court judgment against Walter Kinsky in a tort action.
Buha, 623 F.2d at 457. Kinsky did not pay the judgment,
and Buha instituted post-judgment garnishment procedures.
A writ of garnishment was served on a bank that was serving
as trustee for a General Motors pension plan. The bank
denied liability as the trustee of the pension fund, and Buha
demanded an examination of the bank. Jd. GM filed an
action in federal district court, requesting that the court
restrain enforcement of the writ.
On appeal, the Sixth Circuit evaluated the propriety of
the district court’s decision to enjoin the state court proceed-
ings. The appellate court relied exclusively on the Supreme
Court’s Mitchum decision, without ever acknowledging the
diferences between § 1983 — the congressional scheme at
ee ee ee
issue in Mitchum — and ERISA — the Act under consider-
ation in Buha. The central question for the Buha court was
whether ERISA “could be given its intended scope only by
the stay of a state court proceeding.” Buha, 623 F.2d at 458
(quoting Mitchum, 407 U.S. at 238, 92 S.Ct. at 2160). In
answering that question in the affirmative, the Buha court
focused on the fact that ERISA had been enacted to provide
a uniform framework for the regulation of employees’ bene-
fit plans. Jd. at 459 (quoting 120 Cong.Rec. 29197 (1974)
(statement of Rep. Dent).
It does not follow, however, as the Buha court implies,
that every discrepancy touching on ERISA requires federal
courts to enjoin ongoing state proceedings in order for
ERISA to be given its intended scope. In fact, Buha’s
holding may be read in a far more limited fashion than
ERM has suggested. The court simply held:
When a district court finds that an action in a state
court will have the effect of making it impossible for a
fiduciary of a pension plan to carry out its responsibili-
ties under ERISA, the anti-injunction provisions of
§ 2283 do not prohibit it from enjoining the state court
proceedings.
Buha, 623 F.2d at 459 (emphasis added). Had Buha not
| enjoined the state proceedings, the trustee of the General
Motors pension plan, along with GM itself, might have been
| unable to carry out its responsibilities under ERISA. The
present case, on the other hand, does not present a scenario
in which someone claims they are owed funds from a
pension plan. ERM has never suggested that it will be
unable “to carry out its responsibilities under ERISA” if it
is subjected to Virginia insurance law. ERM is not in the
same position as General Motors was in Buha. We do not
find that affirming the district court’s decision in this case
would run counter to the dictates of Buha.
EE oVv7VO3Orrrrr
12a
Like Buha, Gilbert v. Burlington Industries, Inc., is a case
in which an ERISA plan fiduciary faced the possibility of
not being able to fulfill its ERISA responsibilities if forced
to resolve a dispute in state court. Thirty-six former employ-
ees of Burlington Industries sued the company, claiming
that severance pay was owed upon their termination of
employment. The Second Circuit, after spending most of its
time determining whether a severance pay policy constitutes
an employee welfare benefit plan under ERISA, Gilbert,
765 F.2d at 324-26, dispensed with the issue of whether the
district court had acted improperly in enjoining the state
administrative proceeding in only one paragraph. Jd. at 329.
The court merely asserted, without any analysis to support
its claim, that “the injunction falls within the [ Anti-Injunc-
tion] Act’s exception for actions ‘expressly authorized’ by
federal law.” Id.
We find that Gilbert, like Buha, does not provide us with
a sufficiently compelling reason to circumvent the
Anti-Injunction Act. As was the case in Buha, the Gilbert
court simply assumed that ERISA should be treated in the
same manner as § 1983 had been treated by the Supreme
Court in Mitchum. In order to escape the rather strict
provisions of the Anti-Injunction Act, there must be some
basis — beyond the desire to create a uniform federal sys-
tem of law —to justify the complete exclusion of state
courts from the process. Gilbert never offers that type of
analysis. Furthermore, it made more sense in Gilbert than in
the present case to enjoin state proceedings, because the
ERISA fiduciary was facing an action brought by plan
participants. As we noted in the context of our discussion of
Buha, ERM has not explained the ways in which its adher-
ence to ERISA may be jeopardized by allowing the SCC to
continue with its proceeding.
Although the arguments set forth by the Second and
Sixth Circuits are unpersuasive, we find the decisions of the
l3a
Third and Fifth Circuits to be instructive. Unlike Buha and
Gilbert, which applied a blanket policy that all ERISA
actions brought in state courts must, by necessity, be en-
joined, the Fifth Circuit’s decision in Total Plan Services,
Inc. v. Texas Retailers Assn., Inc., 925 F.2d 142 (Sth
Cir.1991), rejected the idea that ERISA’s federal nature
completely shuts off access to state courts. Jd. at 144.
Relying on the Supreme Court’s decision in Chick Kam
Choo, the Total Plan Services court placed great weight on
the fact that the statutory exceptions to the Anti-Injunction
Act “are narrow and are ‘not [to] be enlarged by loose
statutory construction.’” 925 F.2d at 144 (quoting Chick
Kam Choo, 486 U.S. at 146, 108 S.Ct. at 1689). The Fifth
Circuit went beyond simply noting that Anti-Injunction Act
exceptions are rarely applicable and added that “ ‘any doubts
are to be resolved in favor of allowing the state court action
to proceed.’” 925 F.2d at 144 (quoting Texas Employers’
Insurance Ass'n v. Jackson, 862 F.2d 491, 499 (Sth
Cir.1988) (en banc), cert. denied, 490 U.S. 1035, 109 S.Ct.
1932, 104 L.Ed2d 404 (1989)). According to Total Plan
Services, such principles apply when the state proceedings
“interfere with a protected federal right or invade an area
pre-empted by federal law, even when the interference is
unmistakably clear.”’ Id. (quoting Atlantic Coast Line R.R.
v. Brotherhood of Locomotive Eng’rs, 398 U.S. 281, 287, 90
S.Ct. 1739, 1743, 26 L.Ed2d 234 (1970)). Even § 1132 of
ERISA, which appears to create an exception to the Anti-
Injunction Act, could not be read as making the mere filing
of a state court proceeding a violation of ERISA. /d.
“[S]imply because an area of law is federal, the proper
forum to make that determination is not necessarily federal
as well.” Id. at 145 (emphasis added).
In Total Plan Services, the Fifth Circuit relied heavily on
similar analysis that had been provided two years earlier by
the Third Circuit in U.S. Steel Corp. Plan for Emp. Ins. v.
Musisko, 885 F.2d 1170 (3d Cir.1989). In that case, the
l4a
Third Circuit rejected the plaintiffs’ attempt to broaden the
three narrow exceptions to the Anti-Injunction Act. The
Musisko court observed that “[c]onspicuously absent from
the language of this ERISA injunction provision is any
suggestion of its use by federal courts against state tribu-
nals.” Jd. at 1177. Musisko laid out the case against granting
injunctive relief and for preserving the integrity of the state
system:
A federal court may not enjoin state court proceed-
ings merely because they “invade an area pre-empted
by federal law even when the interference is unmistaka-
bly clear,” Chick Kam Choo, 486 U.S. at [149], 108
S.Ct. at 1691, or where the “incursion upon a federally
pre-empted domain dislocates the federal scheme as a
whole,” Richman Bros., 348 U.S. at 517, 75 S.Ct. at
456. The fact that the state proceeding presents a
preemption issue does not alter the respect due the
state tribunal. “/7]he proper course is to seek resolu-
tion of that issue by the state court.” Chick Kam Choo,
486 U.S. at [150], 108 S.Ct. at 1691.
885 F.2d at 1177-78; accord 1975 Salaried Retirement Plan,
968 F.2d at 408-10.
We conclude that the sounder position is the one adopted
in the Third and Fifth Circuits — i.c., the Anti-Injunction
Act allows for only limited exceptions to its general rule of
not enjoining state proceedings and the mere fact that
ERISA is rooted in federal law does not preclude a state
court from operating as the forum in which federal law is to
be considered. As the Fifth Circuit observed in Total Plan
Services:
Although plaintiffs present good arguments that the
proper tribunal for an ERISA fiduciary action is a
federal court, the appropriate authority to decide the
scope of the ERISA preemption issue in this case is the
2 Beha 7 adh eat.
ee ee
ee en i 2 lene
lSa
state court, where the action initially was filed and
where this issue initially was presented and ruled upon.
As the Supreme Court has stated, we should not
be swayed by any “assumption... that federal rights
will not be adequately protected in the state courts.”
Amalgamated Clothing Workers, 348 U.S. at 517, 75
S.Ct. at 456.
925 F.2d at 146. Like the Fifth Circuit, we resolve all doubts
“in favor of allowing the state court action to proceed.”
Texas Employers’ Insurance Ass'n, 862 F.2d at 499. Recog-
nizing the preemption of state law and respecting the dic-
tates of the Anti-Injunction Act are not mutually exclusive.
Unwilling to construe broadly the Anti-Injunction Act’s
limited exceptions, we affirm the district court’s denial of
injunctive and declaratory relief.
Our review of Younger abstention principles is far more
limited than the review we undertook in the Anti-Injunction
Act setting. This court reviews a district court’s decision to
abstain only for an abuse of discretion. Martin Marietta v.
Maryland Comm'n on Human Rel., 38 F.3d 1392, 1396
(4th Cir.1994); Richmond, Fredericksburg & Potomac R.
Co. v. Forst, 4 F.3d 244, 250 (4th Cir.1993).
Unlike our discussion of the Anti-Injunction Act, in
which we noted that enjoining state proceedings is generally
to be avoided, our consideration of Younger v. Harris, 401
US. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), begins with
the basic proposition that “abstention from the exercise of
federal jurisdiction is the exception, not the rule.” Hawaii
Housing Authority v. Midkiff, 467 U.S. 229, 236, 104 S.Ct.
2321, 2326-27, 81 L.Ed.2d 186 (1984); Pomponio v.
Fauquier County Bd. of Sup’rs, 21 F.3d 1319, 1324 (4th
Cir.1994); see also Forst, 4 F.3d at 251 (noting that the
“obligation to hear cases properly before the district court is
l6a
‘virtually unflagging’”) (quoting Colorado River Water
Conservation District v. United States, 424 U.S. 800, 817, 96
S.Ct. 1236, 1246, 47 L.Ed.2d 483 (1976) ). Put simply, the
doctrine of abstention is “an extraordinary and narrow
exception to the duty of a District Court to adjudicate a
controversy properly before it.” County of Allegheny v.
Frank Mashuda Co., 360 U.S. 185, 188, 79 S.Ct. 1060,
1063, 3 L.Ed.2d 1163 (1959). While the Anti-Injunction
Act is designed to affirm the legitimacy of the state forum,
the limited nature of the Younger abstention doctrine rein-
forces the preeminence of the federal system in certain areas
of law.
Younger abstention is appropriate only in those cases in
which (i) there is an ongoing state judicial proceeding,
(2) the proceeding implicates important state interests, and
(3) there is an adequate opportunity to present the federal
claims in the state proceeding.’ Middlesex County Ethics
Comm. v. Garden State Bar Ass'n, 457 U.S. 423, 432, 102
S.Ct. 2515, 2521, 73 L.Ed.2d 116 (1982). Abstention will
not be required unless the “state court proceedings [have
been] initiated ‘before any proceedings of substance on the
merits have taken place in the federal court.”” Hawaii
Housing Authority, 467 U.S. at 238, 104 S.Ct. at 2328
(quoting Hicks v. Miranda, 422 U.S. 332, 349, 95 S.Ct.
2281, 2292, 45 L.Ed.2d 223 (1975) ). Here, the Commission
proceeding began two weeks before ERM filed its claims in
federal court. For that matter, ERM concedes that all three
elements of Younger have been met in this case.
7We note that although Younger involved criminal proceedings, the
Supreme Court has since extended abstention principles into noncrimi-
nal judicial proceedings, see, ¢.g., Huffman v. Pursue, Lid., 420 US.
$92, 603-04, 95 S.Ct. 1200, 1207-08, 43 L.Ed.2d 482 (1975), and into
state administrative proceedings that are judicial in nature. See, e.g.,
Ohio Civil Rights Comm'n v. Dayton Christian Sch., Inc., 477 US. 619,
627, 106 S.Ct. 2718, 2722-23, 91 L.Ed.2d 512 (1986).
17a
ERM asks us to consider, however, whether a set of
extraordinary circumstances exist in this case that would
warrant a circumvention of the Younger abstention doctrine
so that the substantive issue of whether ERM is operating a
MEWA can be resolved in federal court. The Supreme
Court has recognized that in “extraordinary circumstances,”
the federal courts may disregard the “strong federal policy
against federal-court interference with pending state judicial
proceedings.” Middlesex County Ethics Committee, 457
US. at 431, 102 S.Ct. at 2521. While no discretion exists to
grant injunctive relief when a case is properly within the
Younger category of cases, Colorado River, 424 U.S. at 816
n. 22, 96 S.Ct. at 1246 n. 22, such discretion can be
exercised when extraordinary circumstances exist. We rec-
ognized as much in Forst, when we noted that “[a]bstention
is not necessarily appropriate in every civil action that meets
the formal requirements of the Younger doctrine.” Forst, 4
F.3d at 251 (citing New Orleans Pub. Serv., Inc. v. Council
of New Orleans, 491 U.S. 350, 368, 109 S.Ct. 2506, 2518,
105 L.Ed.2d 298 (1989) (“NOPSTI’)). In effect, the
Younger abstention doctrine, which is an exception itself,
comes with its own exception.
ERM relies heavily on Forst, because it is an instance in
which this court explicitly carved out an exception to
Younger abstention. In Forst, we concluded that Congress
had created “a clear exception to the principles of comity
that underlie Younger abstention,” Forst, 4 F.3d at 251, in
section 306 of the Railroad Revitalization and Regulatory
Reform Act of 1976 (the “4-R Act”). ERM asks that we
reach the same conclusion with respect to ERISA that Forst
reached with respect to the 4-R Act. The Forst court held:
In the narrow context of state taxation of railroad
property, Congress has determined that the principles
of comity that underlie the Tax Injunction Act — the
principles that also underlie Younger abstention —
18a
simply do not apply. Section 306 defines an entire
category of cases in which “extraordinary circum-
stances” exist to justify federal court intervention in
state taxation matters. Consequently, the district court
abused its discretion by abstaining under Younger.
Id. at 252. It was not simply that the parties’ dispute arose
under federal law, but also that Congress had determined
that “railroads were entitled to adjudicate their disputes
with state taxing authorities in federal court.” Id. at 254.
There was no concern on our part with the competence of
the state courts to decide issues of federal law. Jd. at 251.
Instead, we were guided by the fact that Congress had
passed section 306 of the 4-R Act as an explicit exception to
the Tax Injunction Act. Congress’ preference for a federal
forum was rooted in “[t]he history of state discrimination
against railroads — including the railroads’ experience in the
state courts.” Id. at 252. That history convinced Congress to
“restore the power of the federal courts to enjoin discrimina-
tory state taxation of railroads.” Jd.
Unlike the Forst court, which chose not to adhere to
Younger abstention principles based on a clearly articulated
congressional desire to have issues under the 4-R Act
litigated in federal court, our decision in Martin Marietta
affirmed the district court’s holding that Younger abstention
was applicable and that the state administrative proceeding
regarding an employee’s discrimination claim should con-
tinue. 38 F.3d at 1395. The question at the heart of the
Martin Marietta litigation was the same one posed in Forst
— whether particular acts of Congress create the type of
extraordinary circumstances that justify the circumvention
of Younger abstention.® Jd. at 1396. In Martin Marietta, we
*In Martin Marietta, our attention focused on section 301 of the Labor
Management Relations Act, 29 U.S.C. § 185(a) (1988), and the
Rehabilitation Act of 1973, 29 U.S.C. §§ 701 ef. seq.
Scar ks aie Seared
19a
determined that neither of the two acts in question pre-
empted the Maryland Commission on Human Relations’
jurisdiction over the claims brought by a former Martin
Marietta employee. Younger abstention did not apply. Our
decision stood in contrast to our holding in Forst, in which
we acknowledged that Congress had a “clear[ ] concern{ ]
that the states were not providing an ‘adequate’ opportunity
for railroads to remedy discriminatory taxation.” Forst, 4
F.3d at 252. No similar shortcoming on the part of the state
system existed in Martin Marietta so as to trigger concerns
about “the abilities of state courts to provide adequate
remedies for federal rights.” Forst, 4 F.3d at 252.
The Martin Marietta court reaffirmed Younger’s “strong
policy against federal court interference with any pending
state judicial proceeding unless extraordinary circumstances
so warrant.” 38 F.3d at 1396. That an issue of federal law is
before a state court or administrative agency does not, in
and of itself, suggest that a federal court must seize the
matter for its own consideration. See id. (recognizing that,
for purposes of Younger, “state courts are fully competent to
decide issues of federal constitutional law”). We observed
that under the Supreme Court’s decision in NOPSI, sub-
stantial claims of preemption do not automatically preclude
abstention. Jd. (citing NOPSI, 491 U.S. at 365, 109 S.Ct. at
2516-17).
Even though we ultimately agree with the SCC that it
was proper for the district court, with Younger abstention in
mind, to remove itself from this controversy, we recognize
that the federal-state balance, which Younger abstention is
designed to maintain, has been skewed sharply in favor of
the federal system in the ERISA context. Congress has
shown clearly its interest in uniform regulation of pension
plans and its intention “to establish pension plan regulation
as exclusively a federal concern.” Alessi v. Raybestos-Man-
hattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895, 1906, 68
20a
L.Ed.2d 402 (1981). It enacted broad preemption provi-
sions to save employers from conflicting and inconsistent
state and local regulation of employee benefit plans. See
Shaw, 463 U.S. at 90-91, 103 S.Ct. at 2896-97. We find that
Congress has made it as clear under ERISA as it has under
the 4-R Act that federal interests outweigh competing state
interests.
The problem for ERM is that it has not shown, as the
railroad company in Forst did, how it would be injured by
having to raise its preemption defense in the state proceed-
ings rather than in federal district court. ERM perceives
that the Commission is more likely than a federal district
court to label ERM’s pension plans as MEWAs, thus
leaving ERM subject to Virginia’s insurance laws. The fact
that ERM would prefer a federal forum is not a serious
enough interest to rise to the level of an exception to
Younger abstention. In Huffman v. Pursue, Ltd., 420 U.S.
§92, 95 S.Ct. 1200, 43 L.Ed.2d 482 (1975), the Supreme
Court recognized that federal court intervention is allowed
in those cases
where the District Court properly finds that the state
proceeding is motivated by a desire to harass or is
conducted in bad faith, or where the challenged statute
is flagrantly and patently violative of express constitu-
tional prohibitions in every clause, sentence and para-
graph, and in whatever manner and against whomever
an effort might be made to apply it.
Id. at 611, 95 S.Ct. at 1212. ERM has not provided us with
any reason to believe that the Commission is either incapa-
ble of reviewing ERM’s claim of preemption under ERISA
or that the Commission is somehow less trustworthy than its
federal counterpart. We refuse to create an exception to
Younger abstention based on ERM’s mere assertion of an
ERISA preemption challenge. Thus, the district court did
not abuse its discretion in abstaining under Younger.
2la
III.
Our decision today is not intended to detract, in any way,
from the uniquely federal nature of ERISA. Rather, we
recognize that “simply because an area of law is federal, the
proper forum to make that determination is not necessarily
federal as well.” Total Plan Services, 925 F.2d at 145.
Although “superficially compelling,” id, we reject the
argument that the preeminence of federal law somehow
precludes consideration of federal law in the context of a
state administrative proceeding. We recognize that even
when presented with a question such as ERM’s MEWA
classification — which ultimately must be determined by
examining federal law — we have an equally compelling
responsibility to preserve the integrity of the competing state
system. Upon close examination, we do not find that ERISA
operates as an automatic exception to the Anti-Injunction
Act, nor do we find that this case presents us with the type
of extraordinary circumstances that would justify ignoring
principles of Younger abstention. Accordingly, the judgment
of the district court is
AFFIRMED.
APPENDIX B
ST maith io. ok hee a eet eee dee ata ee nea ee _ om —— Se
CE RTE Cn ee ee a ee
22a
APPENDIX B.
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA,
RICHMOND DIVISION
EMPLOYERS RESOURCE MANAGEMENT COMPANY, ¢t al.,
Plaintiffs,
Vv.
PRESTON C. SHANNON, et al.,
Defendants.
Civ. A. No. 3:94cv148
COMMONWEALTH OF VIRGINIA,
Plaintiff,
Vv.
EMPLOYERS RESOURCE MANAGEMENT CoO., et al.,
Defendants.
Civ. A. No. 3:94cv157
MEMORANDUM OPINION
PAYNE, District Judge.
On March 3 and 4, 1994, Employers Resource Manage-
ment Co. (“ERM”) initiated two actions in this court. The
first action (“Case I’), in which ERM and American
Employers Benefit Trust (“the Trust”) are plaintiffs, prays
for a declaration that ERISA preempts the application of
Virginia state law regulating multiple employer welfare
arrangements (“MEWAs’”) and for an injunction preclud-
ing state officials from proceeding with an action to enforce
state law in the Virginia State Corporation Commission
(“SCC”). Defendants, state officials, move the court to
dismiss, stay, or abstain from adjudicating the case, and they
move for judgment on the pleadings.
23a
The second action (“Case II”) came to this court upon
removal by ERM and the Trust of pending state proceedings
in the SCC that were begun by the Commonwealth of
Virginia on February 18, 1994. The Commonwealth moves
to remand this action. The ultimate question in both actions
— the question that either a state court or this court must
eventually decide — is whether ERM and the Trust are part
of a MEWA such that ERISA does not preempt state
regulation. See 29 U.S.C. § 1144(b) (6).
This court does not reach that ultimate question, however.
Case II, as initiated by the Commonwealth, does not “arise
under” federal law for purposes of 28 U.S.C. § 1331, which
outlines the parameters of federal question jurisdiction. This
conclusion, then, determines the result in Case I, as well,
given both the Anti-Injunction Act, 28 U.S.C. § 2283, and
the abstention principles set forth in Younger v. Harris, 401
U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), and subse-
quent cases. Because the state proceedings were begun
before ERM initiated Case I, the injunction and the declar-
atory judgment sought in Case I, which would operate to
enjoin the state proceedings associated with Case II, are not
within the power of this court to grant. Virginia’s state
judicial system is capable of dealing with the preemption
defense that ERM has raised. For the reasons set forth
below, both the Commonwealth’s motion to remand Case II
and the state officials’ motion to dismiss Case I are granted.
BACKGROUND
A. Procedural Facts
The parties have stipulated to most of the important facts.
For purposes of remanding the entire controversy, including
the question of ERISA preemption, only the procedural
facts are substantially relevant.
ERM’s trouble with state agencies began on Novem-
ber 18, 1991 when the Bureau of Insurance (“the Bureau”’)
Pgh” *D PRED Yrs or ne
"Te Eibeahiies Beat kanes Fond
ade i lhl i
a ee FREES INE At SEE ERE SN
24a
advised ERM that it might be operating in Virginia in
violation of the SCC’s rules governing MEWAs. ERM
responded to the Bureau on January 2, 1992, arguing that
ERISA preempted state regulation and representing that it
stood prepared to file an action “in the appropriate forum”
to enjoin the Commissioner of Insurance from enforcing
state law. Stip., J 15. A few days later, the Bureau countered
by suggesting that the United States Department of Labor
(“the DOL”) could help resolve the dispute.
While maintaining that the Bureau had no jurisdiction
and refusing to provide the Bureau with any documents,
ERM did supply the DOL with requested documents. On
May 28, 1992, ERM responded to an April 30 request by
the DOL for information describing ERM’s business, the
current trust agreement of its employee welfare benefit plan,
and an example of a contract between ERM and one of its
client employers. After a formal request on June 23, 1992 by
the Bureau for an opinion from the DOL, the DOL issued
Advisory Opinion 93-29A(c), dated November 2, 1993,
which found ERM was a MEWA subject to state
regulation.
Next, on February 18, 1994, the Commission issued an
Order to Take Notice informing ERM and the Trust that it
would enter a cease and desist order after March 7, 1994 if
ERM did not file a responsive pleading to object before that
date. On March 3, ERM did respond. The next day, it
removed that pending state proceeding to this court. Also on
March 3, ERM filed a complaint in this court seeking an
injunction and a declaratory judgment. Nothing of moment
has occurred at the state level since March 3, when ERM
filed its response to the Order to Take Notice.
B. State Law
Virginia specifies most of the judicial function of the SCC
at Va.Code §§ 12.1-12, -13. These duties include “the duty
25a
of administering the laws made for the regulation and con-
trol of corporations doing business” in Virginia. Chapter 5 of
Title 12 details the procedure the SCC follows and the right
of litigants to appeal its decisions. Specifically, § 12.1-39
provides that “any party aggrieved by any final . . . judgment
of the Commission shall have, of right, an appeal to the
Supreme Court irrespective of the amount involved.” More-
over, no other state court may interfere with the Commis-
sion’s proceedings. Jd.
The substantive state law licensing requirements support-
ing the Commission’s Order to Take Notice are found in
certain rules governing MEWAs adopted by the Commis-
sion pursuant to Va.Code § 38.2-223. These rules define
MEWAs and subject them to licensing requirements “as an
insurance company, health maintenance organization,
health services plan, or dental or optometric services plan
pursuant to Title 38.2 of the Code of Virginia.” See Com-
mission’s Rules Governing MEWAs § 5.A, in Common-
wealth’s Memorandum in Support of Motion to Remand,
Ex. 2. A MEWA is defined in § 4 of those rules. The
Commission’s definition of MEWA tracks rather closely the
definition of MEWA provided by ERISA at 29 U.S.C.
§ 1002(40)(A), which encompasses most arrangements
that offer certain employee welfare benefits “to the employ-
ees of two or more employers.” ERISA specifically provides
that state regulation of such arrangements is not completely
preempted. See 29 U.S.C. § 1144(b) (6) (A).
C. The Business of ERM
ERM’s clients are employers. Each client and ERM are,
in the language used by ERM, “co-employers” of the
client’s employees. When a new client enters an arrange-
ment with ERM, its employees continue to work for the
benefit of the client, which remains practically the sole
overseer of the employees’ work. ERM’s primary role is to
26a
perform certain administrative functions: paying employees’
their wages, paying employer taxes, being responsible for
State and local employee payments or withholdings from
wages, and, not least of all, maintaining a plan to provide
employees with certain medical and death benefits. It also
administers an occupational and worker safety program that
all of its clients must follow. There exist substantial disputes
respecting whether ERM is an employer and what legal
principles should govern the resolution of that dispute. It is,
however, not necessary to decide those issues.
DISCUSSION
A. Remand of Case II
As a general proposition, Virginia, like every other state,
by virtue of its police power, has the right to regulate
businesses operating within its borders. This right is limited,
however, by the United States Constitution, including the
Supremacy Clause. When a party argues that a state, which
has instituted a suit to enforce state regulation against the
party, cannot enforce its regulation consistently with the
Supremacy Clause, it raises a federal preemption defense to
a state claim. The case arises, then, not under federal law,
but under state law. And even where “both parties admit
that the only question for decision is raised by a federal pre-
emption defense,” the well-pleaded complaint rule pre-
cludes the exercise of jurisdiction by federal courts. See
Franchise Tax Bd. v. Construction Laborers Vacation Trust,
463 US. 1, 12, 14, 103 S.Ct. 2841, 2848, 2849, 77 L.Ed.2d
420 (1983); Caterpillar Inc. v. Williams, 482 U.S. 386, 393,
107 S.Ct. 2425, 2430, 96 L.Ed.2d 318 (1987) (“[I]t is now
settled law that a case may not be removed to federal court
on the basis of a federal defense, including the defense of
preemption, even if the defense is anticipated in the plain-
tiff's complaint. ...”) (emphasis in original).
27a
Franchise Tax Board is indeed very much on point.
There, a state agency sued a welfare benefit trust in state
court, demanding money from the trust to cover unpaid
personal income tax. The state agency also sought a declara-
tion that ERISA did not preempt state regulation. 463 U.S.
at 5-7, 103 S.Ct. at 2844-45. The Court found the case
could not be removed on the basis of ERISA preeemption,
which related to both the tax levy and the declaratory
judgment. Jd. at 7, 103 S.Ct. at 2845. Using a “straightfor-
ward application” of the well-pleaded complaint rule, the
Court disposed of the first cause of action, concerning the
tax levy, rather simply. It explained,
California law establishes a set of conditions, without
reference to federal law, under which a tax levy may be
enforced; federal law becomes relevant only by way of a
defense to an obligation created entirely by state law,
and then only if [plaintiff] has made out a valid claim
for relief under state law.
Id. at 13, 103 S.Ct. at 2848. Likewise, ERM’s argument
concerning the federal definition of MEWA is a defense to
attempted enforcement of state regulation. Thus, the court
must remand the case as the United States Supreme Court
dictated in Franchise Tax Board.
ERM suggests that a federal question is inherent in the
Order to Take Notice, or complaint, because federal law
controls the definition of a MEWA. While the federal
definition is controlling with respect to the preemption
defense, the state definition controls the complaint, If ERM
does not fit within the definition of arrangements governed
by the SCC’s rules, then the SCC fails to make out “a valid
claim for relief under state law.” The federal definition, for
this purpose, need not even be consulted. Even if the state
and federal definitions were precisely the same, or if the
state law specifically referred to the definition of MEWA
given by ERISA, the result would remain unchanged. Any
28a
state statute could read, “The following regulation is valid to
the extent it is not preempted by federal law.” But even in
such a case, the reference to federal law would not give rise
to federal question jurisdiction for cases brought alleging
violations of the state statute.
ERM cites North Davis Bank v. First Nat'l Bank of
Layton, 457 F.2d 820 (10th Cir.1972). There, the plaintiff
sought, pursuant to a state law that described how and
where a bank’s branch offices could be established, to enjoin
the defendant national bank’s construction of a new facility.
Federal law provided that a national bank could establish a
branch only if the host state permitted its state banks to
establish a branch in the same way, and it defined the term
“branch.” Jd. at 821-22 & n. 3. Finding that federal law
controlled the definition of what constituted a branch office
for the defendant national bank, the Court of Appeals
upheld federal court jurisdiction. Jd. at 823. In the same
way, ERM argues, federal law controls the definition of
MEWA so that a federal question is raised by the SCC’s
complaint.
The persuasive value of North Davis Bank is lost, how-
ever, with the understanding that the court there sustained
the exercise of jurisdiction because of a perceived distinction
between a federal defense and a claim of preemption.
Several subsequent decisions criticized North Davis Bank,
found its distinction unconvincing, and held that preemption
was a federal defense that would not support federal ques-
tion jurisdiction. See, e.g., Lawrence Co., S.D. v. State of
S.D., 668 F.2d 27, 31 & n. 2 (8th Cir.1982); Smart v. First
Federal S & L Assoc., 500 F.Supp. 1147, 1154
(E.D.Mich.1980). Most importantly, of course, the Su-
preme Court of the United States, in Franchise Tax Board
and Caterpillar Inc., has since clarified the import of a
preemption defense, as discussed above.
29a
B. Dismissal of Case I
Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 103 S.Ct.
2890, 77 L.Ed2d 490 (1983), makes clear that a federal
court generally has jurisdiction pursuant to 28 U.S.C. § 1331
over claims seeking an injunction against any application of
state law allegedly preempted by federal law. /d. at 96 n. 14,
103 S.Ct. at 2899 n. 14. Other considerations enter the
picture, however, when a state proceeding to enforce such
state law begins before the injunction action in federal court.
The basic controversy here having been remanded to the
SCC in its judicial capacity, the court cannot interfere with
these state proceedings, which began several days before any
action in this court, by issuing an injunction or a declaratory
judgment concerning issues that the SCC must decide. Both
the Anti-Injunction Act and Younger v. Harris require this
conclusion.
1. The Anti-Injunction Act
“A court of the United States may not grant an injunction
to stay proceedings in a State court except as expressly
authorized by Act of Congress...” 28 U.S.C. § 2283 (the
Anti-Injunction Act). The court finds that the injunction
and declaratory judgment sought by ERM and the Trust
would be “an injunction to stay proceedings in a State
court”; it finds further that the ERISA provision at 29
U.S.C. § 1132(a) (3), which authorizes a fiduciary to bring
an action “to enjoin any act or practice which violates any
provision” of ERISA, is not an express authorization for
injunctions of state proceedings as required by the first
exception of the Anti-Injunction Act.
ERM seeks to have this court prevent state officials from
enforcing state regulation and declare that the regulation is
preempted by ERISA. Both remedies would effectively stay
proceedings that are pending in the SCC. Although the
Supreme Court of the United States has not yet ruled on the
30a
issue, most courts agree that a declaratory judgment action
is barred if it would interfere with state proceedings in a
manner similar to a prohibited injunction. See, e.g. U.S.
Steel Corp. Plan v. Musisko, 885 F.2d 1170, 1175 (3d
Cir.1989), cert. denied, 493 U.S. 1074, 110 S.Ct. 1121, 107
L.Ed.2d 1028 (1990); Ahrensfeld v. Stephens, 528 F.2d 193,
197 n. 6 (7th Cir.1975); Erwin Chemerinsky, Federal Juris-
diction § 11.2, at 558 (1989). Valuing substance over no-
menclature, this court agrees with these cases.
Perhaps the more controversial question is whether Con-
gress has expressly authorized federal courts to enjoin state
proceedings in which a party seeks to enforce state laws
preempted by ERISA. The Supreme Court of the United
States set forth a two-element test for the “express authori-
zation” exception in Mitchum v. Foster, 407 U.S. 225, 92
S.Ct. 2151, 32 L.Ed.2d 705 (1972): 1) that the federal
law confer a uniquely federal right or remedy; and 2) that
the federal law “could be given its intended scope only by
the stay of a state court proceeding.” Jd. at 237-38, 92 S.Ct.
at 2159-60. Interpreting 42 U.S.C. § 1983, the Supreme
Court held that the permission given courts to grant injunc-
tive relief! was an express authorization exception to the
Anti-Injunction Act. It emphasized, however, the legislative
history suggesting that Congress “realized that state officers
might, in fact, be antipathetic to the vindication of [ feder-
ally created] rights; and it believed that these failings
extended to the state courts.” The Supreme Court con-
cluded further that “[t]he very purpose of § 1983 was to
interpose the federal courts between the States and the
people as guardians of the people’s federal rights.” /d. at
242, 92 S.Ct. at 2162. Obviously, it is less clear the extent to
'42 U.S.C. § 1983 imposes liability upon any person who acts “under
color of” state law to deprive another of federal rights. This liability
exists “in an action at law, suit in equity, or other proper proceeding for
redress” (emphasis added).
3la
which Congress intended exclusive federal jurisdiction to
determine whether ERISA preempts a particular state
cause of action.
The only other Supreme Court case on point arguably
suggests that the state proceeding in this case would itself
have to be a violation of federal law. In Vendo Co. v. Lektro-
Vend Corp., 433 U.S. 623, 97 S.Ct. 2881, 53 L.Ed.2d. 1009
(1977), a plurality of the Court, reversing the court below,
found that § 16 of the Clayton Act’ was not an express
authorization for injunctions of state court proceedings.
Distinguishing Mitchum on the second of its two-element
test, the plurality of three Justices for whom Justice Rehn-
quist wrote noted that, whereas a strong distrust of state
judiciaries had motivated § 1983, no such motive was impli-
cated by § 16 of the Clayton Act. Every other Justice, two in
concurrence and four in dissent, suggested that a state
lawsuit could be enjoined if the litigation itself were an anti-
trust violation. See id. at 644-46, 97 S.Ct. at 2894-95
(Blackmun, J., concurring); id. at 652-54, 97 S.Ct. at 2898-
99 (Stevens, J., dissenting). Thus, both Mitchum and Vendo
Co. (including the concurrence and dissent) suggest that
ERISA’s authorization for injunctions does not qualify as an
exception to the Anti-Injunction Act in the context of the
case at bar: nothing in the record suggests that Congress
distrusted state courts to rule on an ERISA preemption
defense or that the state litigation itself violates ERISA.
The Third and Fifth Circuits have clearly held that 29
U.S.C. §1132(a)(3) does not authorize an injunction
against state proceedings. See, e.g, The 1975 Salaried Re-
tirement Plan v. Nobers, 968 F.2d 401 (3d Cir. 1992); Total
*Section 16, at 15 U.S.C. § 26, entitles a party “to sue for and have
injunctive relief, in any court of the United States . . . against threatened
loss or damage by a violation of the antitrust laws” under the same
principles used by courts of equity to prevent harm generally.
32a
Plan Services, Inc. v. Texas Retailers Ass'n, 925 F.2d 142
(Sth Cir. 1991).
The Second and Sixth Circuits, on the other hand, have
held that an injunction is authorized to stop state proceed-
ings that threaten to tread on areas committed by Congress
exclusively to ERISA regulation.’ See Gilbert v. Burlington
Indus., Inc., 765 F.2d 320 (2d Cir. 1985), aff'd without
opinion, 477 U.S. 901, 106 S.Ct. 3267, 91 L.Ed.2d 558
(1986); General Motors Corp. v. Buha, 623 F.2d 455 (6th
Cir. 1980). The Commonwealth disputes the reach of these
cases. Disposing summarily of the last of two “remaining
contentions” in the case and citing only 29 U.S.C.
§ 1132(a)(3) in support, the Gilbert court stated simply
that a fiduciary of a welfare benefit plan is authorized to
seck an injunction of state proceedings. 765 F.2d at 329. The
court provided no explanation, failing even to acknowledge
the possibility that this ERISA provision did not suffice as
an express authorization for purposes of the Anti-Injunction
Act.
More analysis was provided by the Sixth Circuit in Buha.
There, a plan fiduciary that was not a litigant in the state
proceedings sought an injunction in federal court against
state proceedings to enforce a writ of garnishment served on
the trustee of a pension fund. The Sixth Circuit concluded
that “[w]hen a district court finds that an action in a state
court will have the effect of making it impossible for a
fiduciary of a pension plan to carry out its responsibilities
under ERISA,” the court may enjoin that action notwith-
standing the Anti-Injunction Act. Buha, 623 F.2d at 459.
> ERISA would not be the only area over which the circuits have split.
One commentator has observed that “there is a substantial split among
lower courts as to whether specific statutes, such as the federal securities
laws and the federal environmental laws, should be regarded as expressly
authorizing injunctions of state court proceedings.” Chemerinsky, supra,
§ 11.2.2, at 563 (footnote omitted).
33a
The decision was based on the second element of the
Mitchum test. Concerning that element and the necessity of
staying state court proceedings to give ERISA its “intended
scope,” the court stressed that “[i]t is central to the statu-
tory scheme that ERISA not be subject to state and local
laws which might frustrate its goals.” Id.
That logic is not persuasive. Certainly, no one would
dispute that where ERISA preempts state law, state law
should not be applied, whether the state law frustrates
ERISA’s goals or not. The question is whether ERISA
preempts state law in this particular case, and the SCC is
competent to answer that question. Staying the SCC pro-
ceeding is therefore not necessary to give ERISA its “in-
tended scope.” The Sixth Circuit’s reasoning failed
sufficiently to weigh the general rule that “when a state
proceeding presents a federal issue, even a preemption issue,
the proper course is to seek resolution of that issue by the
state court.” Chick Kam Choo v. Exxon Corp., 486 U.S.
140, 149-50, 108 S.Ct. 1684, 1691-92, 100 L.Ed.2d 127
(1988); see also Texas Employers’ Ins. Ass'n v. Jackson,
862 F.2d 491, 498 (Sth Cir. 1988) (noting that “construc-
tion and application of [the Anti-Injunction Act] is not to
be influenced by any ‘assumption . . . that federal rights will
not be adequately protected in the state courts’”) (citing
Amalgamated Clothing Workers v. Richman Bros., 348 U.S.
511, 75 S.Ct. 452, 99 L.Ed. 600 (1955)).
Superior logic grounds the decision in Nobers wherein the
Third Circuit, true to the actual approach taken in Mitchum,
stated that there was “no evidence that Congress so dis-
trusted state courts that it expected that state courts would
fail to comply in good faith with the supersedure and
exclusive jurisdiction provisions of ERISA.” Id. at 410.
Thus, ERISA differs significantly from § 1983. The same
court in U.S. Steel Corp. Plan v. Musisko, 885 F.2d 1170,
1178 (3d Cir. 1989), the original Third Circuit case finding
34a
ERISA did not fit within an Anti-Injunction Act exception,
questioned and distinguished Buha and flatly rejected
Gilbert because it failed to explain its reasoning. In Musisko,
the court noted that in Buha, “the fiduciary was not a party
to the state court proceedings, and could not have raised its
objections to garnishment there.” Jd. Given that distinction
and because ERM and the Trust are the defendants in the
SCC proceeding, the Third Circuit would clearly find here
that the SCC proceeding cannot be enjoined.
In Texas Retailers, 925 F.2d at 145 n. 3, the Fifth Circuit
rejected the rationale of Buha. The district court below had
been asked by an insurance company and other plaintiffs to
enjoin state proceedings and declare that the state claims
brought by a trust and other defendants were preempted by
ERISA. Plaintiffs sought that relief after the state court
ruled against them. Finding that the Anti-Injunction Act
prohibited such an injunction and that the declaratory judg-
ment suit was a “patent attempt” by the insurance company
to circumvent the state court proceedings, the district court
dismissed the complaint. Jd. at 143. The Fifth Circuit
affirmed this decision, finding the reasoning of Musisko
accorded with Supreme Court precedent. Jd. at 145.
The Supreme Court has not addressed the specific ques-
tion whether ERISA expressly authorizes an injunction
against state court proceedings. Conceivably, it could find
that some substantive provision of ERISA might be violated
by the mere process of state litigation, in which case an
injunction of state proceedings might lic. But that circum-
stance is not presented where, as here, a defendant in a state
proceeding simply fears that the state tribunal will not agree
that certain state claims are preempted by ERISA. In any
event,
{a]ny doubts as to the propriety of a federal injunction
against state court proceedings should be resolved in
favor of permitting the state courts to proceed in an
35a
orderly fashion to finally determine the controversy.
The explicit wording of § 2283 itself implies as much,
and the fundamental principle of a dual system of
courts leads inevitably to that conclusion.
Atlantic Coast Line R. Co. v. Brotherhood of Locomotive
Engineers, 398 U.S. 281, 297, 90 S.Ct. 1739, 1748, 26
L.Ed.2d 234 (1970). This same “fundamental principle”
gives rise to another basis for not enjoining the SCC
proceeding.
2. Younger Abstention
Abstention under Younger v. Harris, 401 U.S. 37, 91
S.Ct. 746, 27 L.Ed.2d 669 (1971), requires, at a minimum,
“(i) that there is a pending state judicial proceeding,
(ii) that the action implicates important state interests and
(iii) that there is an adequate opportunity for the plaintiff to
raise federal constitutional claims in a state forum.” Na-
tional Home Ins. Co. v. State Corp. Comm'n, 838 F.Supp.
1104, 1117 (E.D.Va.1993) (citing Middlesex Ethics Comm.
v. Garden State Bar Ass'n, 457 U.S. 423, 432, 102 S.Ct.
2515, 2521, 73 L.Ed2d 116 (1982)). But even if the three
minimum conditions are met, “[a]bstention is still inappro-
priate if plaintiff can show that (i) the challenged [state ]
statute ‘flagrantly and patently’ violates express constitu-
tional provisions or (ii) that plaintiff will suffer irreparable
injury if the federal court abstains because there is no
adequate remedy at law.” National Home, 838 F.Supp. at
1119 (citing Younger, 401 U.S. at 53-54, 91 S.Ct. at 755).
The facts and arguments in this case implicate only two of
these issues. None of the parties suggests that ERM could
not raise its federal defense of preemption in the state
proceedings, nor that state proceedings were not pending at
the time the injunction suit was filed. Additionally, ERM
does not allege irreparable injury. Thus, the court need
36a
address only the importance of state interests and the
possibility of flagrant unconstitutionality.
a. Important State Interests
The progeny of Younger v. Harris is instructive in assess-
ing the importance of state interests in an abstention analy-
sis. The Younger doctrine was extended to civil cases in
which a state government is a party in Huffman v. Pursue,
Lid, 420 U.S. 592, 95 S.Ct. 1200, 43 L.Ed.2d 482 (1975).
After losing a civil nuisance suit brought by state officials in
state court, the defendant movie theater brought a § 1983
injunction and declaratory judgment suit in federal district
court. On appeal, the Huffman Court held that the interests
in this civil action were similar enough to those in a criminal
proceeding to warrant the extension of Younger. This degree
of similarity, subsequent cases clarified, is not strictly re-
quired, however. In a civil fraud proceeding instituted in
state court by the Illinois Department of Public Aid, the
court decided that Younger can apply to civil proceedings,
like the instant one, in which a state is a party. See Trainor
v. Hernandez, 431 U.S. 434, 444, 97 S.Ct. 1911, 1918, 52
L.Ed.2d 486 (1977) (finding Younger applicable to interfer-
ence “with an ongoing civil enforcement action . . . brought
by the State in its sovereign capacity”). It is clear now that
Younger can also be applied even in private civil litigation,
see Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 107 S.Ct. 1519,
95 L.Ed.2d 1 (1987), but not in all such litigation, see New
Orleans Public Service, Inc. (NOPSI) v. Council of City of
New Orleans, 491 U.S. 350, 109 S.Ct. 2506, 105 L.Ed.2d
298 (1988).
Pennzoil and NOPSI help to describe the basic dimen-
sions of Younger’s “important state interest” requirement,
but greater insight into the doctrine’s precise contours can
come only from lower court cases. In Pennzoil, the Supreme
court found a federal court should have abstained from
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hearing Texaco’s constitutional challenge to a Texas law
that apparently would have required Texaco to post a
$13 billion bond in order to appeal an extremely adverse
judgment rendered in Texas state trial court. The majority
reasoned that a concern for “comity” mandated abstention:
This concern mandates application of Younger absen-
tion not only when the pending state proceedings are
criminal, but also when certain 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.
Pennzoil, 481 U.S. at 11, 107 S.Ct. at 1526. Rejecting
Texaco’s argument that important state interests were not
implicated, the Supreme Court found that the state was
significantly interested in “the processes by which the State
compels compliance with the judgments of its courts.” Jd. at
13-14, 107 S.Ct. at 1527-28; see also id. at 14, 107 S.Ct. at
1527 (reasoning that “[s]o long as those challenges [to the
process by which state judgments are obtained] relate to
pending state proceedings,” comity demands abstention).
Thus, Pennzoil’s reasoning does not clearly determine the
outcome where the challenged state statute does not relate
to such a process. And ERM challenges not the state
process, but the applicability of state regulation to its
business.
NOPSI confirmed that Younger does not apply to all civil
litigation. There, a city council filed a declaratory judgment
action in state court to verify the propriety of its refusal to
permit NOPSI, a utility company, to increase the rates
charged to consumers. NOPSI later sued in federal court to
challenge the constitutionality of the council’s decision.
NOPSI, 491 U.S. at 355-58, 109 S.Ct. at 2511-13. On
appeal, the Supreme Court held that Younger abstention
was not required “in deference to a state judicial proceeding
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reviewing legislative or executive action.”* Jd. at 368, 109
S.Ct. at 2518.
Lower courts have concluded that state interests like
those at stake in the instant case are important enough
to warrant Younger abstention. In Aim-Stan, Inc. v.
Department of Waste Management, 732 F.Supp. 646, 652
(E.D. Va.1990) (Merhige, J.), the court found the interest
of a state in “the health and safety of its citizens” qualifies
as an important state interest justifying Younger abstention.
An even more relevant qualifying interest, found in a case
where the SCC was the defendant, is a state’s interest “in
protecting consumers from the potential hazards generated
by continued operation of financially troubled risk retention
groups.” National Home, 838 F.Supp. at 1117. It seems
clear, then, and ERM concedes, “that Virginia has a strong
interest in the enforcement of its insurance laws.” Plaintiffs’
Opposition, at 33. The importance of the state interest is
only strengthened by the role of the state as the plaintiff in
the state proceeding. See Trainor, 431 U.S. at 444, 97 S.Ct.
at 1918. ERM argues, however, that this interest is totally
preempted by ERISA unless ERM’s arrangement is a
MEWA, which implicates the question at the heart of the
litigation.
The thrust of ERM’s argument against absention, there-
fore, is that ERISA preemption negates any important state
interest, and second, that preemption is so patent as to
preclude abstention. Neither argument is correct, as the
Supreme Court’s discussion in NOPS/ clearly demonstrates.
“In explaining this statement, however, the Court assumed “that the
Council proceeding {had to] be the sort of proceeding entitled to
Younger treatment.” Jd., 401 U.S. at 369, 91 S.Ct. at 657 (emphasis in
orginal).
39a
Concerning the first point, that alleged preemption offsets
any state interest, the Supreme Court noted
when we inquire into the substantiality of the State’s
interest in its proceedings we do not look narrowly to its
interest in the outcome of the particular case — which
could arguably be offset by a substantial federal interest in
the opposite outcome. Rather, what we look to is the
importance of the generic proceedings to the State.
NOPSI, 491 U.S. at 365, 109 S.Ct. at 2516. Thus, although
it is possible that ERM could prevail on the issue of federal
preemption and although this would mean Virginia has no
interest in the outcome of regulating ERM, this possibility
does not change the dispositive generic state interest: that in
enforcing states insurance laws.
b. Patent Unconstitutionality
On the second point, concerning patently or flagrantly
unconstitutional state regulation, the Supreme Court in
NOPSI acknowledged that a “facially conclusive” claim of
federal preemption might be sufficient to render absenten-
tion inappropriate,’ but found the claim was not so obvious
in that case. It reasoned that “what requires further factual
inquiry can hardly be deemed ‘flagrantly’ unlawful for pur-
poses of a threshold abstention determination.” Jd. at 367,
109 S.Ct. at 2517. This exception to the Younger doctrine is
extremely narrow. See Chemerinsky, supra, § 13.4, at 653-
54. The Supreme Court has never found a case within this
exception, and district court cases are almost as rare. See
National Home, 838 F.Supp. at 1119 n. 36 (“The ‘flagrantly
unconstitutional’ abstention exception has been so narrowly
5 Just as the Supreme Court left unresolved the issue of the effect of a
“facially conclusive” preemption claim in NOPSI, so did the Fourth
Circuit in its recent decision in Martin Marietta Corp. v. Maryland
Comm'n on Human Relations, 38 F.3d 1392 (1994).
40a
construed as to be rendered ‘virtually meaningless’.”) (cit-
ing Simopoulos v. Virginia State Bd. of Medicine, 644 F.2d
321, 328 (4th Cir.1981)). But see Tolbert v. City of Mem-
phis, 568 F.Supp. 1285 (W.D.Tenn.1983) (finding absten-
tion was not required in the case of selective enforcement of
a city ordinance proscribing public exposure of female
breasts).
The facts here certainly do not tempt the court to add this
case to that limited class of cases finding flagrant unconsti-
tutionality. Without deciding the degree of deference to
which the DOL opinion is entitled in considering the merits
of the case, that it found ERISA does not preempt state
regulation of ERM obviously suggests preemption is not
flagrant or patent. Moreover, without analyzing the facts in
depth, it is apparent that the SCC can reasonably argue that
ERM has established an arrangement to benefit “the em-
ployees of two or more employers,” 29 U.S.C.
§ 1002(40) (A), such that state reguiation is not necessarily
preempted.
CONCLUSION
The Anti-Injunction Act and the Younger doctrine neces-
sarily reward the party initiating litigation by favoring its
choice of a state forum. They are not unlike other legal
doctrines, then, that allow plaintiffs to be the masters of
their lawsuits. Under the policy established by all of these
doctrines, the defendant must have a compelling reason to
disturb the plaintiff's choice of forum. Here, none exists.
Although federal law is relevant, it is so only in defense of
the action that arises under state law. Moreover, comity and
Congress demand that this court not interfere with the
proceeding first initiated by the SCC in the state judiciary.
For all of these reasons, defendants’ motion to dismiss
Case I (3:94cv148) is granted, and plaintiff's motion to
remand Case II (3:94cv157) is also granted.
4la
Let the Clerk send a copy of this Memorandum Opinion
to all counsel of record.
It is so ORDERED.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.