Petition for Writ of Certiorari — Stromanman Realty, Inc. v. Martinez (No. 07-1096)

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Sete nee erties ti 6 2008

_ IN THE .

THE CLERK

Supreme Court of the Unifes Siste

STROMAN REALTY, INC., PETITIONER

DEAN MARTINEZ, Secretary of the Illinois

Department of Financial and Professional Regulation,

RESPONDENT.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

“FOR THE SEVENTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

LESLIE A. POWELL |

Counsel of Record

DIANA M. SCHOBEL

Law Offices of Leslie A.

Powell

115 North Market Street

Frederick, Maryland 21701

(301) 668-7575

Counsel for Petitioner

CURRY & TAYLOR @ (202) 393-4141

QUESTIONS PRESENTED

The doctrine of Younger abstention has not been

consistently applied by the circuit courts of appeals

with some circuits discounting the federal interest and

focusing instead upon the state interest in determining

whether abstention is required. This failure to conduct

a reasoned threshold analysis will result in abstention

becoming the rule, rather than the exception, in cases

involving administrative proceedings. Further, there is

considerable disagreement among the circuits as to how

to synthesize the principles of res judicata and

collateral estoppel with Younger abstention in a case

involving administrative proceedings; specifically,

whether a party is obligated to pursue state court

review of an administrative action to avoid res judicata

or cellateral estoppel on the legal issues that could have

been addressed by a reviewing court but not the

underlying administrative forum.

The questions presented for review are as

follows:

i. Whether abstention in favor of a state

administrative proceeding is required in

cases involving important federal

interests such as the commerce clause,

where the underlying principle of comity

is necessarily diminished _ thereby

justifying “a narrower view of state

interests in the abstention context”.

Harper v. Pub. Serv. Comm’n of West

Virginia, 396 F.3d 348, 357 (4th Cir. 2005).

Whether Younger abstention should be

expanded to require a federal court to

abstain where an _ administrative

proceeding is filed after institution of the

federal case and the federal plaintiff

cannot obtain review of the constitutional

issues until subsequent court review

which is restricted to the limited record

before the agency.

Whether Younger abstention requires a

party to pursue a state court appeal of an

administrative agency decision to avoid

the application of res judicata on legal

issues when the agency cannot consider

the constitutional question presented by

that party.

10)

RULE 29.6 STATEMENT

Stroman Realty, Inc. is held by Stroman

Interests, Ltd. No publicly held company owns 10% or

more of petitioner’s stock.

TABLE OF CONTENTS

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IIE sasscincissskaweund cchasiininsnjeesnitipsienisuithwctciaabspiibisaiibnninasunaiidandisaienth 1

Statutory and Constitutional Provisions Involved ............... 1

CIE GE GN GO ciiinsinicictnnheciteecincscnsnsnaitiesoncinsntmnietinstacissntades 2

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I MT a ii cc ansentacransnicabnsvacadnchammmbias ay

Aas AE RIE III i cistinetsssensncndinschctscacktiiannaseseiationdiies 8

Reasons for Granting the Petition. .................ccccsccssssecsesessenes 11

|i This Court Should Grant Review to Resolve

the Conflict Among the Circuits on the

Application of Younger Abstention to Federal

Claims Asserting Violation of the Commerce

A. Is Younger Abstention Required when

the Federal Claim Involves a Core

Attribute of the National Government

Such as the Commerce Clause. ............... FARES SES 11

B. Whether the Nature, not the Merits, of

the Federal Claim Should be Considered

by the Court in Analyzing the Propriety

of Abstention Under Yowiger. ............csscescceeeees 20

This Court Should Address the Issue of

Whether Administrative Actions Filed After

a Federal Plaintiff has Filed Suit in Court

Constitutes an “Ongoing State Judicial

Proceeding” Compelling Younger Abstention.

This Court has Never Addressed Whether

Plaintiffs are Required to Pursue State Court

Review of Agency Decisions Either Before or

to the Exclusion of a Federal Action Under 42

U.S.C. § 1983 Seeking Prospective Injunctive

a ss a auido d dices Rona cuqawvudicudovcshaces 28

EPS EIGEN TNENGR a ITI. SAS BRI rl ORO 35

APPENDIX:

October 10, 2007, Opinion, U.S. Court of Appeals

for the Seventh Circuit, Case No. 06-3214

July 18, 2006, Memorandum Opinion and Order,

U.S. District Court for the Northern District

of Illinois (Eastern Division), Case No. 06 C 1187

November 19, 2007, Order denying petition for

rehearing, Case No. 06-3214

June 13, 2005, Amended Complaint for Injunctive

Relief, U.S. District Court for the Southern

District of Texas, Case No. H05-2066

June 13, 2005, Amended Complaint for Injunctive

Relief Exhibit 8, U.S. District Court for the

Southern District of Texas, Case No. H05-2066

Waiver of Service of Summons, U.S. District

Court for the Southern District of Texas, Case

ERR RA TERE FEUD FORME ARNOT MeL mC eT mT APNE 65a

August 1, 2005, Notice of Preliminary Hearing,

State of Illinois, Department of Financial and

Professional Regulation, Department of

Professional Regulation, Bureau of Real Estate

Professions, Case No. E2005-92

August 1, 2005, Administrative Complaint,

Affidavit of Service, State of Illinois, Department

of Financial and Professional Regulation,

Department of Professional Regulation, Bureau of

Real Estate Professions, Case No. E2005-92

Vil

TABLE OF AUTHORITIES

CASES

ASTORIA FED. SAV. & LOAN ASS'N V. SOLIMINO, 501

U.S. 104 (1991)

BALDWIN V. G.A.F. SEELIG, INC., 294 U.S. 511 (1935)

BROWN V. SLENKER, 220 F.3D 411 (5TH CIR. 2000)

CAROLINA TRUCKS & EQUIP., INC. Vv. VOLVO

TRUCKS OF N. AM., INC., 492 F.3D 484 (4TH CIR.

CIOTTI V. COUNTY OF COOK, 712 F.2D 312 (7TH CIR.

1983)

CITY OF LOS ANGELES V. LYONS, 461 U.S. 95 (1983)

DESARIO V. THOMAS, 139 F.3D 80 (2D CIR. 1998)

VACATED ON OTHER GROUNDS, SLEKIS V. THOMAS,

525 U.S. 1098 (1999)

DOMBROWSKI V. CITY OF CHICAGO, 842 N.E..2D 302

(ILL. APP. 2005)

DORAN V. SALEM INN, INC., 422 U.S. 922 (1975)

EDMUNDSON V. BOROUGH OF KENNETT SQUARE, 4

F.3D 186 (3D CIR. 1993)

FELDER V. CASEY, 487 U.S. 131 (1988)

FORD MOTOR Co. v. INS. COMM'R OF COM. OF PA.,

874 F.2D 926 (3D CIR. 1989)

FORTY ONE NEWS, INC. V. COUNTY OF LAKE, 491

F.3D G62 (7TH CIR. 2007)

GJELLUM V. CITY OF BIRMINGHAM, 829 F.2D 1056

(11TH CIR. 1987)

GRANHOLM V. HEALD, 544 U.S. 460 (2005)

GREEN V. BENDEN, 281 F.3D 661 (7TH CIR. 2002)

HARPER V. PUB. SERV. COMM'N OF WEST VIRGINIA,

396 F.3D 348 (4TH CIR. 2005) i, 11, 14, 17-18,

HARTFORD ENTERPRISES, INC. V. CoTy, __ F. SUPP.

2D __, 2008 WL 54291 (D. ME. JAN. 3, 2008)

HAWAIL HOUSING AUTH. V. MIDKIFF, 467 U.S. :

(SREP SALES RERE Taare Voi re ker RRS ON Eee Oe Satin te PRL ma 13

vit

HI TECH TRANS, LLC v. NEW JERSEY, 382 F.3D 295

CRI rs SO sh scsikiciscchucWbiattecanlelani a eile incase cali, 18-19, 22

HICKS V. MIRANDA, 422 U.S. 332 (1975)............. 24-25, 27-28

HUGHES V. OKLAHOMA, 411 U.S. 322 (1979)............:cccccccceeees 14

HUNT V. WASH. STATE APPLE ADVER. COMM'N, 432

UE OF idiodaintiecobihadeLalbnncincbiasmiddcsccaphbaadiihiaszcecateieess 20

IN RE PAN AM. CORP., 950 F.2D 839 (2D CIR. 1991).............. 15

LIFE PARTNERS, INC. V. MORRISON, 484 F.3D 284

(4TH CIR. 2007), CERT. DENIED,___ U.S. __,

128 8: OF. TOS CORC. B, BOGT) vseccccccssiscsccccascoses 10, 14, 15, 21, 22

LOUISIANA DEBATING AND LITERARY ASS'N V.

CITY OF NEW ORLEANS, 42 F.3D 1483 (65TH CIR.

jt REE MS SPEEA TERT RETRY CoRR SANS OCR OO Le 27

MANNHEIM VIDEO V. COUNTY OF COOK, 884 F.2D

py ge AR: AMIRI Iie Raa ok nti hs KORRES ee 25

MARATHON PETROLEUM Co. V. STUMBO, 2007 WL

4163863 (E.D.KY. NOV. 20, 2007)............ccccssessrsccssesesesers 15, 21

MIDDLESEX COUNTY ETHICS COMMITTEE V.

GARDEN STATE BAR ASS'N, 457 U.S. 423 (1982)....... passim

MILLER V. COUNTY OF SANTA CRUZ, 39 F.3D 1030

ge LS Age |S BMORE SMELT eae Ee SR ge na Ne OR nD Me 32

MITCHUM V. FOSTER, 407 U.S. 225 (1972)............s0ssecscsoees 12, 32

NEW ORLEANS PUB. SERV., INC. V. COUNCIL OF THE

CITY OF NEW ORLEANS, 491 U.S. 350 (1989)............. passim

OHIO CIVIL RIGHTS COMM'N V. DAYTON CHRISTIAN

SCHOOLS, INC., 477 U.S. 619 (1986).........0...ccccceee 24, 29, 30, 34

PENNZOIL Co. V. TEXACO, INC., 481 U.S. 1 (1987)................ 20

PIKE V. BRUCE CHURCH, INC., 397 U.S. 137 (1970)................ 6

PLANNED PARENTHOOD OF GREATER IOWA V.

ATCHISON, 126 F.3D 1042 (8TH CIR. 1997).......................0.. 27

SCOTT/HUBBARD Co., INC. V. SIKA CHEM. CORP., 708

PR Da reds Bak Fe iacicccticcnciackcsecsniniacecineane 17

STEFFEL V. THOMPSON, 415 U.S. 452 (1974).................c00e 25, 26

STROMAN REALTY, INC. V. ANTT, 20 F. SUPP. 2D 1050

Ah Ry 1 et. : SARA ERRORS NY. OT RGDE DEANE SIS SME TRIE 17

STROMAN REALTY, INC. V. GRILLO, 2006 WL 492458

CREF. 2 eke Ws ely UD ictitannechshcuvdciiinmphdlnasupdasaainnmiaesdisadnienns 8

“we

TELCO COMMUNICATIONS, INC. V. CARBAUGH, 885

ec ere L,I, sab ennstesiaboesundnscenenenets 2

UNIV. OF TENNESSEE V. ELLIOTT, 478 U.S. 788

(1986)

WOOLEY V. MAYNARD, 430 U.S. 705 (1977)

YOUNGER V. HARRIS, 401 U.S. 37 (1971)

STATUTES

28 U.S.C. § 1254(1) ji ,

28 U.S.C. § 1738

Be Firs © ROEID cxnctsensccctecnsctseccesaceee denbastnidnescestionqueniiateninentab passim

735 Ill. Comp. Stat. 5/3-110

735 Ill. Comp. Stat. 5/3-111

CONSTITUTIONAL PROVISIONS

U.S. Const. art. I § 8, cl. 3............ aa PTE EEA) Ss 2. 6

]

PETITION FOR WRIT OF CERTIORARI

Petitioner, Stroman Realty, Inc., respectfully

petitions for a writ of certiorari to review the judgment

of the United States Court of Appeals for the Seventh

Circuit.

OPINIONS BELOW

The court of appeals’ opinion is reported at 505 F.3d

658. App. la-lla. The order denying the petition for

rehearing and rehearing en banc is unreported. App.

27a. The opinion of the United States District Court for

the Northern District of Illinois is reported at 438 F.

Supp. 2d 929. App. 12a-26a.

JURISDICTION

The district court had jvrisdiction over petitioner’s

claims pursuant to 28 U.S.C. § 1331. The court of

appeals had jurisdiction to review the district court’s

final judgment pursuant to 28 U.S.C. § 1291. The court

of appeals filed its opinion on October 10, 2007. It

denied petitioner’s petition for rehearing on November

19, 2007. The jurisdiction of this Court is invoked under

28 U.S.C. § 1254(1).

STATUTORY AND CONSTITUTIONAL

PROVISIONS INVOLVED

42 U.S.C. § 1983 provides:

Every person who, under color of any statute,

ordinance, regulation, custom, or usage, of any

State or Territory or the District of Columbia,

subjects, or causes to be subjected, any citizen of

the United States or other person within the

jurisdiction thereof to the deprivation of any

rights, privileges, or immunities secured by the

Constitution and laws, shall be liable to the party

injured in an action at law, suit in equity, or

other proper proceeding for redress, except that

in any action brought against a judicial officer for

an act or omission taken in such officer's judicial

capacity, injunctive relief shall not be granted

unless a declaratory decree was violated or

declaratory relief was unavailable. For the

purposes of this section, any Act of Congress

applicable exclusively to the District of

Columbia shall be considered to be a statute of

the District of Columbia.

Article I, § 8, cl. 3 of the United States Constitution

provides:

The Congress shall have Power - .. To regulate

Commerce with foreign Nations, and among the

several States, and with the Indian Tribes. . .

STATEMENT OF THE CASE

This case presents the Court the opportunity to

* resolve a conflict among the circuit courts of appeals

and to provide necessary guidance in the application of

the Younger abstention doctrine to claims brought in

federal court.' The Fourth Circuit has refused to apply

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

Younger abstention where the federal claim was

pursuant to the commerce clause and therefore did not

implicate questions of comity and federalism, the

underpinning of Younger. In contrast, the Seventh

Circuit rejected that analysis and found Younger

abstention appropriate based upon a purported state

interest in regulating real estate professionals. This

case also provides this Court the opportunity to answer

the question as to whether Younger abstention should

be applied where the state official files administrative

proceedings against the federal plaintiff only after the

federal court litigation has commenced _ thereby

depriving the federal plaintiff of a federal forum to

address his constitutional claims pursuant to 42 U.S.C.

§ 19838. Further, this Court should address whether

Younger applies to federal cases seeking to enjoin

future administrative enforcement actions and to what

extent federal court plaintiffs must participate in a

state’s administrative and judicial review process

before bringing such claims in federal court.

1. The Timeshare Industry.

The concept of purchasing time intervals for the use

of vacation resort facilities was introduced in the 1960's.

App. 30a. Although these intervals can be “traded” for

use of other intervals in different geographic locations

through an exchange network, timeshares are typically

treated by the states as real property interests subject

to the states’ real estate laws in the advertising, sale

and brokerage of these interests. See App. 43a-55a.

The timeshare industry has grown to be a multi-

billion dollar industry. App. 3la. In 2002, timeshare

developers alone sold approximately $5.5 billion in

timeshare intervals in the United States, comprising

nearly 60% of timeshare sales worldwide. Jd. These

initial sales cost millions of dollars to market and the

advertising efforts are nationwide. App. 35a. Of the

initial prices of vacation timeshares, anywhere from

30% to 65% of the price of a new sale is for the cost of

marketing, promotion and advertising by the resort

owner. /d.

Many timeshare owners need or want to sell their

intervals; as a result, a secondary market in timeshare

sales (“resales”) has developed. App. 33a. Because of

the specialized nature of the timeshare resale market

and the almost prohibitive cost of marketing a

timeshare on a small scale, however, most traditional

real estate salespersons are not equipped to handle this

secondary market, nor are they interested in doing so.

App. 34a-35a.

As with initial sales, potential purchasers in the

resale market for vacation timeshares are located

throughout the country and the world. App. 33a. The

sellers, however, are also dispersed throughout the

country. App. 36a. To market these intervals

effectively for resale, a nationwide marketing program

is necessary to reach these dispersed buyers and

sellers. App. 35a. Timeshare resale brokers have filled

this niche and can fund nationwide advertising

campaigns by pooling advertising fees collected from

individual owners wishing to resell their timeshare

intervals. Stroman was one of the first and largest

resale brokers. Nationally, consumer resales totaled

approximately $390 million in 2002. App. 3la-32a.

2. Stroman’s Lawsuit.

Stroman has conducted its timeshare brokerage

business in the interstate resale market for over 25

years. App. 36a. All of Stroman’s operations are

conducted in Texas. App.,39a, 4la-42a. Stroman

spends millions of dollars each year on its advertising

and promotional efforts and has an active internet site

that promotes its services worldwide and advertises

timeshares throughout the United States. App. 37a-

38a. Stroman advertises every day in national,

international, regional and local media with a

circulation ranging from 15 to 24.5 million readers.

App. 37a. Stroman’s internet web site identifies resorts

and the types of intervals for sale at each resort,

including the attributes of the intervals. App. 38a. A

computer user is free to browse the site for various

timeshares to determine if there is an interval he

wishes to purchase. /d. A potential purchaser can

make an offer over the internet or call one of Stroman’s

Texas-licensed real estate agents. /d.

Daily, Stroman agents speak to approximately 1,000

different people who reside in numerous states and

outside the United States. App. 35a-36a, 41a. A caller

may inquire about different timeshares available in

several different states during the same call. App. 41a.

For example, a New York resident may inquire about

an Illinois based timeshare owned by a Colorado

resident and also a California based timeshare owned

by an Illinois resident during the same phone call. Jd.

Each of Stroman's sales associates is a licensed real

estate salesperson or broker in the State of Texas and a

member in good standing of the National Association of

REALTORS® App. 39a. As such, they are bound by

the statutes and regulations of the State of Texas and

the Code of Ethics and Standards of Practice of the

National Association of REALTORS.® Jd. Both the

laws of the State of Texas and the Code of Ethics and

Standards require honesty by a real estate agent and

prohibit false or misleading representations. Id.

On May 10, 2005, the Illinois Department of

Financial and Professional Regulation, Division of

Banks and Real Estate (“DFPR”), sent Stroman a

cease and desist notice which asserted violations of

Illinois real estate licensing laws based on Stroman’s

advertising timeshare resales and its alleged brokerage

services in Illinois. App. 3a. DFPR claimed that

Stroman and its salespeople had to obtain Illinois real

estate broker’s and salesperson’s licenses and comply

with all Illinois’ laws and regulations for Stroman to

conduct any activities that involve any Illinois based

timeshare interests, any timeshare interests that are

headquartered in Illinois, or any Illinois residents,

regardless of the location of the timeshare interests.

Id.

Stroman filed suit in federal court seeking

injunctive relief against DF PR pursuant to 42 U.S.C.

§ 1983 for violation of the dormant commerce clause,

US. Const. art. I, § 8, cl. 3. App. 28a-60a. Stroman

complained that DFPR unconstitutionally projected

Illinois law into Texas and that Illinois’ laws

discriminated against interstate commerce both in

effect and under the Pike balancing test.2 App. 56a-58a.

*Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).

In its federal suit, Stroman specifically alleged that,

by its actions and based on its real estate laws, Illinois

has reached into Texas to impose its regulatory scheme

on Stroman, not for business Stroman does in Illinois,

but for business Stroman does in Texas in interstate

commerce. App. 56a, 58a. For example, every time a

Texas resident calls Stroman about an_ Illinois

timeshare property, Stroman is under threat of

penalties for actions taken in Texas. If Stroman enters

into its standard registration/advertising agreement,

which is a personal service contract, with a Texas

resident and the timeshare interval is in L[llinois, Illinois

claims Stroman is subject to fines even though the

owner is a Texas resident. See App. 72a-73a. If

Stroman accepts payment for its advertising services

from a Texas resident without either escrowing the

funds or obtaining a written authorization containing

specific language mandated by Illinois, Stroman is

subject to discipline even when the parties have agreed

that their contract will be governed by Texas law. App.

45a-46a. If Stroman’s newspaper advertisement or its

web site is read by an Illinois resident, Stroman faces

sanction. App. 72a-73a.

As Stroman explained, the burden grows even more

onerous when other states apply their own regulatory

schemes. This means that Stroman and its agents

would, in addition to maintaining their existing licenses

in Texas and obtaining licenses in Illinois, have to incur

costs of obtaining and maintaining licenses in every

other state claiming an interest in Stroman’s activities.

App. 55a. Likewise, Stroman would have to conform its

contracts and escrow requirements in each transaction

to the requirements of as many as four states per

transaction, assuming that were possible. This

cumulative effect substantially impedes the flow of

goods and services among the several states. See App.

55a-56a.

Two months after Stroman served its federal

complaint, DFPR initiated an administrative action

against Stroman. App. 7la-76a. In that action, DF PR

sought fines against Stroman for activities during the

time period of August 2000 through August 2005 that

DF PR asserted required an Illinois real estate license.

App. 72a-74a. Based on its after-filed administrative

action, DFPR then moved the federal district court to

abstain as a matter of comity under the Younger

abstention doctrine. App. 18a-14a. The district court

abstained and dismissed Stroman’s complaint without

prejudice based on its finding that Illinois had an

important interest in enforcing its real estate licensing

statutes. App. 18a-20a.* The district court undertook

no analysis of whether the federal interest in a national

economic union outweighed Illinois’ asserted interest in

regulating the real estate profession. See id.

3. The Decision Below.

The Seventh Circuit affirmed, finding that the court

was required to abstain from interfering with the state

administrative action that is “ongoing, judicial in nature

3Stroman’s suit was originally filed in the United States District

Court for the Southern District of Texas. App. 13a. DFPR moved

to dismiss for lack of personal jurisdiction and venue, failure to

state a claim and abstention. Stroman Realty, Inc. v. Grillo, 2006

WL 492458 at *2 (S.D. Tex. Feb. 28, 2006). The district court

transferred the action to the Southern District of Illinois. App.

13a.

and implicates the Department’s important interest in

regulating the real estate profession.” App. 2a. The

court rejected Stroman’s assertion that because its case

involved an important issue of national concern — that

of an economic union — Younger abstention was

inapplicable. App. 7a-8a. The court likewise rejected

Stroman’s argument that abstention should not apply

when the administrative action was brought two

months after the filing of the federal complaint when

the relief sought in the federal, action was wholly

prospective and the resolution of the administrative

action would not necessarily forestall further

administrative actions againstStroman. App. 6a.

Thus, the court found that each component of the

Middlesex test was met.‘ The court found that the

administrative proceeding was “on-going” and that

Stroman’s “dormant Commerce Clause claim could [] be

adequately addressed on judicial review in the event of

an adverse administrative decision.” /d. The court

next determined that the state had an important state

interest in “regulating timeshare brokerage activities

involving Illinois residents or timeshare properties

located within the state.” App. 7a. Relying on New

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

Orleans, 491 U.S. 350 (1989) (“NOPST’), the court held

that “Stroman’s contention that the Department’s

attempt to regulate its business violates the dormant

Commerce Clause in and of itself does not require us to

forgo consideration of the State’s interest in regulating

the business of timeshare resales.” App. 8a. The court

‘Middlesex County Ethics Committee v. Garden State Bar Ass'n,

457 U.S. 423 (1982).

then determined that the state interest in protecting

Illinois consumers against “‘evil, fraudulent, dishonest

and incompetent practices”® overwhelmed Stroman’s

federal claim because the “statutes the Department

seeks to enforce have the type of incidental effects that

a valid licensing scheme has on out-of-state companies”

which are “different from the state regulation at issue

in Harper, which the Fourth Circuit found aimed to

limit access to the waste removal market.” App. 8a-9a

(emphasis in the original). The court did not address

the Fourth Circuit’s opinion in Life Partners, Inc. v.

Morrison, 484 F.3d 284 (4th Cir. 2007), cert. denied, ___

US. __, 128 S. Ct. 708 (Dec. 3, 2007).

Finally, the court found that abstention was

required because no exceptional circumstances such as

a pressing need for equitable relief existed. App. Ya-

10a. The court rejected Stroman’s argument that

injunctive relief was necessary because it faced

repeated investigation and administrative action as

DF PR had only filed one administrative action against

Stroman and that action remained pending. App. 10a.

S5DFPR has not accused Stroman of engaging in any such practices.

It merely seeks to fine Stroman for conducting business without an

Illinois license. App. 71a-74a.

REASONS FOR GRANTING THE PETITION

Il. This Court Should Grant Review to Resolve the

Conflict Among the Circuits on the Application

of Younger Abstention to Federal Claims

Asserting Violation of the Commerce Clause.

A. Is Younger Abstention Required when the

Federal Claim Involves a Core Attribute of the

National Government Such as the Commerce

Clause.

This Court should grant certiorari to resolve the

conflict among the circuits regarding whether the

federal courts must abstain under Younger v. Harris,

401 U.S. 37 (1971), when the federal litigation is

premised on the state’s violation of the dormant

commerce clause — a purely federal claim implicating

fundamental principles of national unity. None of this

Court’s decisions addresses this issue, and the circuit

courts have diverged on this point. The Seventh

Circuit applies Younger to commerce clause claims in

the same manner as it would a case alleging procedural

due process violations in the context of a state

disciplinary proceeding. The Fourth Circuit, however,

recognizes that cases alleging violation of the dormant

commerce clause represent “a difference of kind, not

merely of degree,” justifying a “narrower view” of the

asserted state interest, rendering Younger abstention

inappropriate. Harper v. Pub. Serv. Comm’n of West

Virginia, 396 F.3d 348 (4th Cir. 2005). Because

important national interests are at stake, the door to

the federal courthouse should remain open to such

claims, particularly when the very purpose of

Younger is to balance federal and state concerns.

When Congress enacted 42 U.S.C. § 1983, it

determined that litigants asserting federal

constitutional violations should have the option of a

federal forum. Mitchum v. Foster, 407 U.S. 225, 239

(1972). Litigants then sought to use this federal forum

as a means to arrest state court proceedings. Thus, in

Younger, the Court held that federal courts should not

interfere with pending state criminal proceedings

except under extraordinary circumstances. Younger,

401 U.S. at 41. The Court later expanded the doctrine

to include ongoing noncriminal judicial proceedings

when important state interests are _ involved.

Middlesex County Ethics Committee v. Garden State

Bar Ass’n, 457 U.S. 423, 432 (1982). Generally, the

court may abstain from the federal case where there

are ongoing state proceedings that: 1) are judicial in

nature; 2) involve important state interests; and

3) provide an adequate opportunity to raise federal

claims. Middlesex County, 457 U.S. at 432. Even

where these criteria are met, the court will decline to

abstain under certain circumstances, such as when the

state proceeding is motivated by a desire to harass or is

conducted in bad faith, there is an extraordinarily

pressing need for immediate equitable relief, or the

challenged provision flagrantly and patently violates

express constitutional provisions. Younger, 457 U.S. at

54-55.

Abstention is not a jurisdictional bar, however.

Rather, it is a policy premised on:

the notion of “comity,” that is, a proper respect

for state functions, a recognition of the fact that

the entire country is made up of a Union of

separate state governments, and a continuance

of the belief that the National Government will

fare best if the States and their institutions arc

left free to perform their separate functions in

their separate ways.

Ids at 44. However, this Court has specifically noted

that the concept of 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.

Id. (emphasis added). Further, “‘abstention from the

exercise of federal jurisdiction is the exception, not the

rule.” Hawaii Housing Auth. v. Midkiff, 467 U.S. 229,

236 (1984) (citation omitted).

While comity is the primary consideration in

abstention cases, this Court also has stressed the

importance of protecting the peculiarly national

interests embodied in the commerce clause. This Court

observed that the commerce clause:

“reflect[s] a central concern of the Framers that

was an immediate reason for calling the

Constitutional Convention: the conviction that in

order to succeed, the new Union would have to

avoid the tendencies toward economic

Ralkanization that had plagued relations among

the Colonies and later among the States under

the Articles of Confederation.”

Granholm v. Heald, 544 U.S. 460, 472 (2005) (quoting

Hughes v. Oklahoma, 441 U.S. 322, 325-26 (1979)).

Applying these principles, the circuit courts are

divided as to whether Younger abstention is

appropriate where the claim in the federal case involves

important national interests under the commerce

clause. The Fourth Circuit offers the more reasoned

view in cases such as Harper and Life Partners, Inc. In

Harper, the Fourth Circuit held that Younger

abstention did not apply to a suit challenging a West

Virginia agency’s requirement that solid waste haulers

obtain certificates of convenience and necessity before

doing business in the state. In so doing, the court

determined that “(t]he commerce power plays a role in

abstention analysis quite different from many other

provisions of the Constitution. The dormant Commerce

Clause demonstrates a difference of kind, not merely of

degree.” Harper, 396 F.3d at 355. Thus, “the

commerce power itself justifies a narrower view of

state interests in the abstention context.” /d. at 357.

The Fourth Circuit reached the same conclusion in

Life Partners, Inc. There, the Virginia Bureau of

Insurance issued a show cause order to a Texas-based

viatical settlement provider requiring it to explain why

the provider was conducting business with a Virginia

resident without a state license. The provider sued in

federal court under 42 U.S.C. § 1983, asserting that

applying Virginia’s Viatical Settlement Act to its

business violated the commerce clause. The court of

appeals affirmed the district court’s refusal to abstain

because, while Younger requires “federal courts to

refrain from interfering with ongoing state judicial

proceedings that implicate important state interests”,

when the federal case involves “‘an overwhelming

federal interest-an interest that is . .. a core attribute of

the national government .. . -no state interest, for

abstention purposes can be nearly as strong at the same

time.” Life Partners, Inc., 484 F.3d at 300 (citing

Harper, 396 F.3d at 356). See also In re Pan Am.

Corp., 950 F.2d 839, 847 (2d Cir. 1991) (stating that

“the notion of “comity” ...is “not strained when a

federal court cuts off state proceedings that entrench

upon the federal domain.’

The Fourth Circuit’s approach properly considers

both state and federal interests, in stark contrast to

that of the Seventh Circuit in this case, as well as

district courts within the First and Sixth Circuits. See

Hartford Enterprises, Inc. v. Coty, __ F. Supp. 2d _,

2008 WL 54291 (D. Me. Jan. 3, 2008); Marathon

Petroleum Co. v. Stumbo, 2007 WL 4163863 (E.D.Ky.

Nov. 20, 2007). In the case below, the court rejected

Harper, stating that “Stroman’s contention that the

Department’s attempt to regulate its business violates

the dormant Commerce Clause in and of itself does not

require us to forego consideration of the State’s

interest in regulating the business of timeshare

resales.” App. 8a.

This split in the circuits is rooted in the courts’

divergent readings of this Court’s decision in New

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

Orleans, 491 U.S. 350 (1989) (““NOPST’). In NOPSI, the

Court addressed whether Younger applied to a utility

company’s federal suit to invalidate a state rate making

authority’s findings that the company was not entitled

to full reimbursement for power plant costs, which the

company argued was preempted by a FERC decision

allocating costs among the participating companies.

The company argued that Younger did not require

abstention in the face of a claim that the state action

was pre-empted by federal law and called into question

the Younger prerequisite that states have a legitimate

substantial interest in the pending proceedings. The

Court characterized the company as arguing that “a

district court presented with a pre-emption-based

request for equitable relief should take a quick look at

the merits; and if upon that leok the claim appears

substantial, the court should endeavor to resolve it.”

NOPSI, 491 U.S. at 364. The Court responded that:

the mere assertion of a substantial constitutional

challenge to state action will not alone compel

the exercise of federal jurisdiction. (Citation

omitted.) That is so because when we inquire

into the substantiality of the State’s interest in

its proceeding 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.

Id. (first and second emphasis added). The Seventh

Circuit took this language to mean that the nature of

Stroman’s commerce clause claim could not factor into

*The Court ultimately found Younger did not apply because there

was no ongoing state proceeding that was judicial in nature.

the Younger analysis but that the state’s purported

interest in regulating real estate brokers was

determinative. App. 7a-8a.’

The Fourth Circuit interpreted NOPSI differently.

The Harper court acknowledged NOPSI’s statement

that “assertion of a substantial constitutional challenge

to state action will not alone compel the exercise of

federal jurisdiction”, but observed that while areas

such as criminal law, insurance, zoning and the like may

from time to time implicate constitutional provisions,

there is no disrespect to federal-state relations in

allowing state courts to address those constitutional

questions. “This is because many constitutional

provisions assign rights and responsibilities but do not

themselves create any particular interests for states

against their sister states, or vis-a-vis the national

government.” Harper, 396 F.3d at 355. Harper

expressly noted that the state interest at stake in

NOPSI was “intrastate” commerce. Id. at 356

(emphasis added). By emphasizing intrastate

commerce when upholding Younger abstention, Harper

"The court did not address the fact that Texas has an interest. in

regulating its own resident brokers and that principles of co-nity

also weighed against any interest Illinois could have in regulating

the conduct of brokers located and licensed in other states. See,

e.g., Scott/Hubbard Co., Inc. v. Sika Chem. Corp., 708 F. Supp. 945,

948 (N.D. Ill. 1989) (“Illinois’ interest in regulating finders

domiciled here is greater than New Jersey’s interest in extending

its licensing requirement outside its own jurisdiction.”). Indeed,

the only acts Stroman arguably performs in Illinois are the

dissemination of direct mail and advertising in national and local

press. These are at best, however, “only tenuous connections with”

Illinois. See Stroman Realty, Inc. v. Antt, 20 F. Supp. 2d 1050, 1054

(S.D.Tex. 1998).

suggests that this Court implicitly acknowledged that

interstate interests factor into the abstention analysis.

Id. Declining to abstain, the Fourth Circuit recognized

that “[nJo state’s dignity could be offended by

acknowledging the obvious point that the Framers

consciously withdrew interstate commerce from the

vast collection of interests that remain the primary

responsibility of the states.” Jd. at 355.°

The Third Circuit takes a similar approach in cases

where the plaintiffs raise preemption-based federal

claims. As did Harper, the court in Hi Tech Trans,

LLC v. New Jersey, 382 F.3d 295 (3d Cir. 2004), took

heed of NOPSIs statement concerning the “mere

assertion of a substantial constitutional challenge”, but

recognized that the court’s “focus should not be on

whether a federal claim has been presented, but rather

on the nature of that claim.” Hi Tech Trans, 382 F.3d

SHarper took NOPSIs statement that courts should look to the

importance of the generic proceedings to the state rather than the

state’s interest in the outcome of a particular case to mean that

“the characterization of state interests should not be general to the

point of rendering the Middlesex County test meaningless, or

specific to the point of rendering the state interest trivial.”

Harper, 396 F.3d at 354. Harper quotes NOPSI, wherein the

Court observed that “(t]he appropriate question here is not

whether Louisiana has a substantial, legitimate interest in

reducing NOPSI’s retail rate below that necessary to recover its

wholesale costs, but whether it has a substantial, legitimate

interest in regulating intrastate retail rates.”” Jd. (quoting NOPSI,

491 U.S. at 365). Thus, Harper determined that West Virginia’s

requirement that solid waste haulers receive certificates of

convenience and necessity did not “concern ‘improper disposal of

solid waste” but “who has the right to contract with towns,

businesses, and individuals in West Virginia to remove that waste

.... Harper, 396 F.3d at 355.

at 307 (citation omitted). Federal preemption claims

therefore “‘require[] review of the state interest to be

served by abstention, in tandem with the federal

interest that is asserted to have usurped the state law”

and “‘[t]he determination of whether abstention is

proper where preemption is alleged does not rest upon

whether the preemption claim ultimately will prevail.”

Id. (citations omitted). See also Ford Motor Co. v. Ins.

Comm’r of Com. of Pa., 874 F.2d 926, 934 (8d Cir. 1989)

(“Although Pennsylvania’s interest in the regulation of

its insurance industry is significant, there exists a

countervailing significant federal interest in insuring

[sic] the unhindered enforcement of federal law.”).

This Court should grant certiorari to resolve this

split in the circuits and answer the question unresolved

in this Court’s NOPSI analysis: Unlike administrative

actions where a litigant asserts constitutional rights

such as due process, does a claim premised on the

commerce clause weigh against Younger abstention in

light of the important federal interests at stake.® See

*That the analysis of a federal claim based on the commerce clause

calls for a different analysis is demonstrated by the cases on which

the lower court relied. For example, in Green v. Benden, 281 F.3d

661 (7th Cir. 2002) (App. 5a), an Illinois psychologist filed a federal

action alleging that Illinois administrative hearings to suspend his

[llinois license violated his due process and equal protection rights.

Unlike that proceeding, federal interests are heightened where, as

here, a Texas business conducting business exclusively in Texas,

having personal service contracts with Texans and residents of

other states, files suit to enjoin another state from regulating its

business in Texas and is only then made a respondent to a state

administrative action. Cobbling together the various extensions of

Younger to deprive the Texas plaintiff of its chosen federal forum

in these circumstances is itself offensive to our federal system.

Indeed, this Court has recognized that “[t]he various types of

Carolina Trucks & Equip., Inc. v. Volvo Trucks of N.

Am., Inc., 492 F.3d 484, 490 (4th Cir. 2007) (observing

that “extraterritorial laws disrupt our national

economic union just as surely as ‘customs duties” and

that “[t]he compliance costs that such laws impose

undermine the Commerce Clause’s objective of a

‘national common market.””’) (citing Baldwin v. G.A.F.

Seelig, Inc., 294 U.S. 511, 521 (1935) and Hunt v. Wash.

State Apple Adver. Comm’n, 432 U.S. 333, 350 (1977)).

B. Whether the Nature, not the Merits, of the

Federal Claim Should be Considered by the

Court in Analyzing the Propriety of Abstention

Under Younger.

The circuits also are divided as to what

consideration, if any, the federal court should give to

the merits of the commerce clause claim itself in

determining whether to abstain. Again, the circuits

part ways in reading NOPSI. There, the Court

rejected the notion that “a district court presented with

a pre-emption-based request for equitable relief should

take a quick look at the merits; and if upon that look the

claim appears substantial, the court should endeavor to

resolve it.” NOPSI, 491 U.S. at 364.

To the extent the Seventh Circuit thought the

commerce clause warranted any consideration, it

decided that Stroman’s commerce clause claim was not

abstention are not rigid pigeonholes into which federal courts must

try to fit cases. Rather, they reflect a complex of considerations

designed to soften the tensions inherent in a system that

contemplates parallel judicial processes.” Pennzoil Co. v. Texaco,

Inc., 481 U.S. 1, 11 n. 9 (1987).

as strong as that in Harper. See App. 8a (distinguishing

Harper, stating that “we do not think the Department’s

interest is one which, by its very nature, unduly

burdens interstate commerce.”).'!° In so doing, the court

looked to the asserted state interests and concluded

that “the statutes the Department seeks to enforce

have the type of incidental effects that a valid licensing

scheme has on out-of-state companies.”"’ App. 9a

(emphasis in original).

The Seventh Circuit’s analysis is contrary to the

Fourth Circuit’s in Harper and Life Partners. Indeed,

in Life Partners, the court rejected the plaintiffs

commerce clause challenge while affirming the lower

court’s refusal to abstain. In upholding the trial court’s

abstention ruling, the Fourth Circuit characterized the

issue as whether Virginia was authorized to regulate

“The district. court. in Hartford Enterprises, Inc. ». Coty followed

the Seventh Circuit’s lead, suggesting Harper should only apply

where the state law at issue “by its very nature served to impede

interstate commerce.” Hartford Enterprises, Inc., __ F. Supp. 2d

___, 2008 WL 54291, at *3 n. 4 (quoting Martinez) (App. 8a.). The

district court in Marathon Petroleum Co., LLC v. Stumbo likewise

viewed Harper as limited and analyzed the plaintiffs’ commerce

clause challenge as the Sixth Circuit did federal preemption claims,

that is, whether the plaintiffs “presented a facially conclusive claim

that the Kentucky Act violates the dormant Commerce Clause.”

Marathon Petroleum Co., 2007 WL 4163863, at *9. This “patently

unconstitutional” analysis appears to be based on the Middlesex

exception to abstention rather than the comity and federal

principles addressed in Harper and Life Partners.

"The court’s characterization of the state action is erroneous.

Illinois did not seek to enforce its real estate laws. Rather, it

sought, through the administrative action, to impose fines on

Stroman.

viatical settlements “and if not, whether Virginia’s

regulations violate the dormant Commerce Clause.”

Life Partners, 484 F.3d at 301. Life Partners did not

ask whether Virginia’s licensing and _ regulatory

requirements posed only “incidental burdens” on out-

of-state businesses - that was a merits determination,

mot a factor in considering whether the case should

have proceeded in federal court in the first place.

Compare Life Partners, 484 F.3d at 301 with App. Ya.

See also Hi Tech Trans, 382 F.3d at 308; Ford Motor

Co., 874 F.2d at 9385 n. 12 (“{t]he decision that

abstention is improper in light of’ an asserted

preemption claim “need not result in a finding that the

state statute has in fact been preempted.”). Nor did the

Fourth Circuit’s refusal to abstain in Harper turn on

the merits of the court’s finding that the regulations at

issue in that case served to “impede interstate

commerce”, as the Seventh Circuit implies. App. 8a.

The Harper court only reached the merits of the

commerce clause challenge because the lower court

refused to abstain -— it was not part of the Fourth

Circuit’s analysis in its determination that abstention

would have been improper.”

2Indeed, given the complex, fact specific nature of the commerce

clause analysis, it is inappropriate for a court to determine the

merits of the claim - before any answer is filed or discovery

undertaken - in deciding whether the federal court will even hear

the case. Such cases are akin to those where preliminary issues

such as personal jurisdiction are “intertwined with the merits” of

the case and “ultimately have to be resolved at trial.” Brown v.

Slenker, 220 F.3d 411, 418-19 (5th Cir. 2000) (citation omitted)

(holding that district court erred in resolving disputed factual

issues that went to the issue of both personal jurisdiction and the

merits of the underlying action and that resolution of these facts

should have gone to the jury).

Whether a court should consider the nature of a

claim, as the Third and Fourth Circuits do, rather than

the merits of a federal claim in analyzing whether to

abstain pursuant to Younger is a question this Court

has not squarely addressed. This Court should

reconcile the conflict between the circuits and, like the

Fourth Circuit, determine that claims brought under

the commerce clause are appropriately resolved in

federal court, with an assessment of the merits of the

commerce clause challenge made independently from

the abstention analysis.

II. This Court Should Address the Issue of

Whether Administrative Actions Filed After

a Federal Plaintiff has Filed Suit in Court

Constitutes an “Ongoing State Judicial

Proceeding” Compelling Younger

Abstention.

This Court has never addressed whether an after-

filed administrative proceeding constitutes an “on-

going judicial proceeding” requiring Younger

abstention. The’ relative ease with which

administrative proceedings can be instituted, their lack

of procedural safeguards, restricted discovery and

inability to consider constitutional claims until later

court review, renders such proceedings far different

from those involving a criminal prosecution instituted

in state court shortly after the federal suit began. To

blindly apply the same result to civil administrative

proceedings ignores. the significant distinctions

pertinent to criminal law and the traditional importance

of the enforcement of those laws to the states. This

Court’s rulings do not support such an expansion of

Younger.

Thus, in Hicks v. Miranda, 422 U.S. 332 (1975), this

Court held that abstention was appropriate because of

the privity between the federal plaintiff and the

defendants in a previously filed criminal state court

proceeding. Hicks, 422 U.S. at 349. In so ruling, the

Court commented that the federal proceedings had not

progressed to “proceedings of substance on the merits.”

Id. Likewise, in Doran v. Salem Inn, Inc., 422 U.S. 922

(1975), the Court held Younger abstention was required

where a_ state court criminal proceeding “was

commenced the day following the filing of the federal

complaint.” Doran, 422 U.S. at 929. The Court held

that the act of filing the federal complaint could not

insulate the federal plaintiff from prosecution for

violation of state law. Id. Finally, in Ohio Civil Rights

Comm’n v. Dayton Christian Schools, Inc., 477 U.S.

619 (1986), this Court extended Younger to

administrative proceedings. The Court held that

abstention was proper where court review of

constitutional issues was available on review of the

administrative decision when the federal court action

was brought after the institution of the administrative

proceedings for the purpose of enjoining those

proceedings. Dayton Christian Schools, Inc., 477 USS.

at 629.

Here, the court held that when an administrative

action is filed after the federal plaintiff has brought suit

in federal court, the federal court may divest itself of

jurisdiction so long as eventual court review of the

administrative proceeding is available.” This rule,

'8None of this Court’s opinions compels the result reached by the

Seventh Circuit in this case. The Seventh Circuit relied on Hicks

and Seventh Circuit law to extend Younger to after-filed

however, bars federal plaintiffs from obtaining the

judicial review that Congress directed federal courts to

undertake when constitutional violations are alleged.

Permitting a state agency to avoid federal court review

of its unconstitutional conduct for essentially the price

of a stamp guts the purpose of section 1983 and ignores

the significant distinctions between state court criminal

proceedings, which formed the bases for this Court’s

rulings in Hicks and Doran, and the administrative

proceedings at issue here. First, states have a

paramount interest in their criminal prosecutions and

they are not lightly undertaken. Second, in a state

court, the defendant can still raise its federal

constitutional questions under the protections of the

court system and can do so immediately." By contrast,

when a defendant faces a state administrative

administrative actions. As in Hicks, however, each of the Seventh

Circuit cases relied on by the Stroman panel involved a

subsequently filed state court action, not an administrative

proceeding. See Forty One News, Inc. v. County of Lake, 491 F.3d

662, 663 (7th Cir. 2007); Mannheim Video v. County of Cook, 884

F.2d 1043, 1043 (7th Cir. 1989); and Ciotti v. County of Cook, 712

F.2d 312, 312 (7th Cir. 1983).

4Sleffel v. Thumpson, 415 U.S. 452 (1974), further supports the

conclusion that after-filed administrative actions should not bar

access to federal court relief. In Steffel, the Court recognized that

“{wjhen no state criminal proceeding is pending at the time the

federal complaint is filed” Younger is inappropriate because

“federal intervention does not result in duplicative legal

proceedings or disruption of the state criminal justice system; nor

can federal intervention, in that circumstance, be interpreted as

reflecting negatively upon the state court’s ability to enforce

constitutional principles.” Steffel, 415 U.S. at 462. Similarly, none

of these concerns is implicated by refusing to abstain based on an

after-filed administrative action.

proceeding it cannot raise the constitutional question

until subsequent court review and even then, the

review may be substantially restricted, as here, to the

record before the agency.”

The result of the Seventh Circuit’s rule dumps cases

involving important federal constitutional questions

into state administrative tribunals that are not

equipped to decide them and compels a federal litigant

to wait for eventual state court review on the

constitutionality of the statute the agency seeks to

enforce thus placing the federal plaintiff between the

“Seylla of intentionally flouting state law” and the

“Charybdis” of foregoing “constitutionally protected

activity.” Steffel v. Thompson, 415 U.S. 452, 462 (1974).

The facts in this case demonstrate the error of such a

broad application of Younger.

Here, Stroman had done business in the same

manner for twenty-five years before it had any inkling

that [Illinois intended to enforce its laws

extraterritorily. One month after it received the cease

and desist letter from Iinois’ DF PR, Stroman sued to

vindicate its federal rights under the commerce

Judicial review is limited to the evidence in the administrative

record, and no new evidence may be considered, although

constitutional questions are heard de novo. 735 Ill. Comp. Stat. 5/3-

110. The agency’s factual findings are deemed “prima facie true

and correct.” Id. The court on review may affirm or reverse the

agency’s decision, or remand the case for additional evidence. See

735 Ill. Comp. Stat. 5/3-111. Under Illinois law, “administrative

agencies do not have judicial authority to determine the

constitutionality of the legislation they are charged with

enforcing.” Dombrowski v. City of Chicago, 842 N.E.2d 302, 307

(Ill. App. 2005) (citations omitted).

clause.'© DFPR waited nearly another two months

before instituting its administrative proceeding against

Stroman. Extending Hicks to Stroman with its after-

filed state administrative proceeding and ignoring

Hicks’ distinctive and determinative condition of

plaintiff-defendant privity and a state criminal action

turns the threshold Middlesex question of whether

there is an ongoing state judicial proceeding at the time

of the filing of the federal complaint on its head.

As the four justice dissent expressed in Hicks,

“(t]he Court’s new rule creates a reality which few

state prosecutors can be expected to ignore. It is an

open invitation to state officials to institute state

proceedings in order to defeat federal jurisdiction.”

‘’Stroman had no reason -or ability— to bring suit prior to receipt

of the cease and desist notice because it was not under any threat

of prosecution. See City of Los Angeles v. Lyos, 461 U.S. 95, 101-

03 (1983) (complaint failed to allege an Art. III case or controversy

where it alleged only abstract injury instead of alleging that

respondent “sustained or [was] immediately in danger of

sustaining some direct injury’ as the result of the challenged

official conduct and the injury or threat of injury must be both ‘real

and immediate,’ not ‘conjectural’ or ‘hypothetical.”’ 461 U.S at 101-

102). The circuits are consistent that Younger does not bar a

federal claim where administrative action has been threatened.

See Planned Parenthood of Greater Iowa v. Atchison, 126 F.3d

1042, 1048 (8th Cir. 1997) (holding that there were no ongoing

proceedings for purposes of Middlesex where a state agency had

determined that Planned Parenthood’s proposed new center was

reviewable under its Certificate of Need regulations); Louisiana

Debating and Literary Ass’n v. City of New Orleans, 42 F.3d 1483,

1491 (5th Cir. 1995) (district court’s finding of no ongoing state

proceedings in a case where a letter had issued alleging violations

did not constitute an abuse of discretion); accord, Telco

Communications, Inc. v. Carbaugh, 885 F.2d 1225, 1227-28 (4th

Cir. 1989).

Hicks, 422 U.S. at 357 (Stewart, J., dissenting). That is

precisely what happened in this case. Given the

substantial distinctions between criminal court

proceedings with their attendant rights and the limited

rights provided to administrative agency respondents,

this Court should address this issue of substantial

importance and limit the application of Younger to

those civil cases where a federal court plaintiff seeks to

enjoin administrative agency proceedings instituted

before the filing of his federal suit.

Ill. This Court has Never Addressed Whether

Plaintiffs are Required to Pursue State

Court Review of Agency Decisions Either

Before or to the Exclusion of a Federal

Action Under 42 U.S.C. § 1983 Seeking

Prospective Injunctive Relief.

The Seventh Circuit’s extension of Younger

warrants particular attention from this Court because

it imposes a requirement that potential civil rights

plaintiffs pursue state court review of administrative

actions thus precluding their federal claims from being

heard in federal court. However, this Court has never

determined that state court review of the initial agency

action is required before a litigant may present a claim

in federal court under 42 U.S.C. § 1983. Where a party

seeks prospective relief from future enforcement of a

state’s laws, the reasoning of Wooley v. Maynard, 430

U.S. 705 (1977), should apply, and Younger should not

bar suit in federal court.

In NOPSI, the state had argued that just as the

state’s trial-and-appeals process is treated as a unitary

system for Younger purposes and prevents federal

intervention mid-process, “where the initial

adjudicatory tribunal is an agency .. . the litigation

from agency through courts, is to be viewed as a

unitary process that should not be disrupted, so that

federal intervention is no more permitted at the

conclusion of the administrative stage than during it.”

NOPSI, 491 U.S. at 369. Because the agency proceeding

was legislative, rather than judicial in nature, the Court

did not decide that issue and made it clear that it had

not done so in its prior cases. /d. at 370 n.4. The Court

observed that Middlesex County Ethics Comm’n and

Dayton Christian Schools were the only Supreme

Court cases involving administrative proceedings, and

in both cases, the agency actions were ongoing at the

time the plaintiffs filed their federal suits. NOPS/

noted that although Dayton’s alternative argument

that federal challenges could be made upon appeal to

state courts “suggests, perhaps, that an administrative

proceeding to which Younger applies cannot be

challenged in federal court even after’ the

administrative action has become final... [Wle have

never squarely faced the question.” Id. (emphasis

added).

In the case below, the court determined that even if

the Illinois administrative proceeding did not provide

Stroman the opportunity to assert its commerce clause

claim, Stroman could raise its constitutional issues upon

state judicial review. App. 6a. The Seventh Circuit has

therefore mandated a requirement that whenever state

agency administrative proceedings are initiated, the

private party must exhaust his administrative remedies

in the state proceeding and raise his claims only in state

court. While this result appears to be condoned: in

Dayton, 477 U.S. at 627 n. 2, it is inconsistent with the

Court’s later statement in NOPSI set forth above."

The Seventh Circuit’s approach warrants special

attention from this Court because of its potential to bar

42 U.S.C. § 1983 plaintiffs from ever asserting their

ciaims in federal court.. Where a party participates in

an administrative action and the judicial review that

results in a state court judgment, the state court

decision is afforded full faith and credit under 28 U.S.C.

§ 1738. However, this Court has not decided whether

claim preclusion will apply to bar a plaintiffs

constitutional claims brought under section 1983 where

the plaintiff participated in an earlier administrative

action but did not engage in state court review.

Although in Univ. of Tennessee v. Elliott, 478 U.S. 788

(1986), the Court found that an agency’s fact finding

could apply in a subsequent section 1983 action, see

Elliott, 478 U.S. at 796-99, it has never held that an

unreviewed state administrative decision either

precludes a party’s subsequent action under section

1983 or bars a party from questioning the agency’s

authority to regulate it.”

"The court in Dayton did not elaborate on why a different result

should obtain with respect to exhaustion of administrative

remedies where a proceeding is coercive versus remedial.

Dayton, 477 U.S. at 627 n. 2. Given Congress’ express grant of

authority via section 1983 for federal court review, there is no

justification for such a distinction.

**Nor did this Court address the issue in Astoria Fed. Sav. & Loan

Ass’n v. Solimino, 501 U.S. 104 (1991). Astoria addressed whether

claimants under the Age Discrimination in Employment Act were

collaterally estopped from relitigating in federal court judicially

unreviewed findings of a state administrative agency. The Court

This has left the circuits to disagree as to whether a

party to an administrative proceeding must litigate all

claims in that action through judicial review or retains

the ability to bring a section 1983 action in federal court

when there are no state court proceedings pending,

with the Third and Eleventh Circuits reaching

conclusions opposite from those of the Ninth. Thus, in

Edmundson v. Borough of Kennett Square, 4 F.3d 186

(3d Cir. 1993), a Pennsylvania Civil Service Commission

affirmed a borough’s decision to suspend and later

terminate a police officer’s employment. The officer

declined to appeal either of these decisions in state

court. The Third Circuit held that while administrative

fact finding is entitled to preclusive effect, the same

does not hold true for unreviewec questions of law.

Therefore, the Commission’s’ uireviewed legal

determination that the officer’s public criticism of his

superior officer was unprotected by the First

Amendment did not prevent him from bringing suit

under 42 U.S.C. § 1983. Edmundson, 4 F.3d at 192.

Similarly, the Eleventh Circuit has held that:

With respect to the claim preclusive effect of

unreviewed state agency rulings, we conclude

that the importance of the federal rights at issue,

the desirability of avoiding the forcing of

litigants to file suit initially in federal court

rather than seek relief in an unreviewed state

administrative proceeding, and the limitations of

state agencies as adjudicators of federal civil

restricted its analysis to issue preclusion, and ultimately found

that, in any event, preclusion principles did not apply.

rights override the lessened federalism concerns

implicated outside the contours of the full faith

and credit statute.

Gjellum v. City of Birmingham, 829 F.2d 1056, 1064

(11th Cir. 1987).

In contrast, the Ninth Circuit in Miller v. County of

Santa Cruz, 39 F.3d 1030, 1032 (9th Cir. 1994), held that

an administrative agency’s decision is binding as to

both factual and legal issues and that administrative

rulings bar subsequent section 1983 claims even where

the party does not seek state court review. See also

DeSario v. Thomas, 139 F.3d 80, 87 (2d Cir. 1998),

vacated on other grounds, Slekis v. Thomas, 525 U.S.

1098 (1999) (recognizing that “[tJhe Circuits are split on

whether a federal suit arising out of the same

transaction(s) as a state administrative decision that

has not been reviewed in state court is barred by res

judicata.”).

Coupled with this uncertainty, the Seventh Circuit’s

extension of Younger means that whenever the state

administrative action has been initiated, the section

1983 plaintiff must pursue any potential constitutional

claims in that state’s administrative process, effectively

closing the federal forum to these claims. Thus,

through Younger, the federal courts may shrug off

Congress’ determination that jurisdiction for section

1983 cases properly lies in the federal forum. See

Mitchum v. Foster, 407 U.S. 225, 242 (1972) (“The very

purpose of section 1983 was to interpose the federal

courts between the States and the people, as guardians

of the people’s federal rights -- to protect the people

from unconstitutional action under color of state law,

‘whether that action be executive, legislative, or

judicial.’””) (citation omitted); see also Felder v. Casey,

487 U.S. 131, 142 (1988) (“I]t [is] plain that Congress

never intended that those injured by governmental

wrongdoers could be required, as a condition of [section

1983] recovery, to submit their claims to the

government responsible for their injuries.”).

Requiring exhaustion of administrative remedies

and barring section 1983 plaintiffs from federal courts is

inappropriate when the plaintiff requests prospective

relief to prevent future enforcement actions. Here, the

Illinois administrative action, initiated after Stroman

filed suit, attempted to impose administrative fines for

alleged past violations of Illinois’ real estate regulatory

scheme over a five-year period. App. 7la-74a. It did

not attempt to enjoin any future activity. Thus, even if

Stroman simply agreed to pay the administrative fines

sought, there would he no effect on a_ future

enforcement action, nor would Stroman be protected

from future enforcement if the agency failed to prove

the violations alleged.

The Seventh Circuit’s application of Younger is

contrary to this Court’s precedent rendering Younger

irrelevant to cases seeking relief from future

prosecutions. In Wooley v. Maynard, 430 U.S. 705

(1977), the plaintiff had previously been prosecuted and

convicted for concealing the portion of his license plate

that read “Live Free or Die”. He did not appeal the

convictions and subsequently brought suit for

injunctive relief. Affirming the district court’s holding

that Younger abstention did not apply, the Court

reasoned:

[T]he suit is in no way “designed to annul the

results of a state trial” since the relief sought is

wholly prospective, to preclude further

prosecution under a statute alleged to violate

appellees’ constitutional rights. . . . The

Maynards seek only to be free from prosecutions

for future violations of the same statutes.

Younger does not bar federal jurisdiction.

Wooley, 430 U.S. at 711.

This Court should grant certiorari to synchronize its

holding in Wooley with Dayton Schools to address

whether Younger applies to federal cases seeking

prospective injunctive relief and to what extent, if any,

federal court plaintiffs must participate in the state

administrative and judicial review process before

proceeding in federal court. The Seventh Circuit’s

position requiring exhaustion of administrative

remedies, thereby barring plaintiffs from ever bringing

their claims in a federal forum, demonstrates a pressing

need for this Court to address these issues, particularly

in cases such as Stroman’s, which does not fit into any

of the rubrics described in this Court’s prior case law.

CONCLUSION

For the foregoing reasons, the petition for a writ

of certiorari should be granted.

Respectfully submitted,

Leslie A. Powell

Counsel of Record

Diana M. Schobel

Law Offices of Leslie A. Powell

115 North Market Street

Frederick, Maryland 21701

(301) 668-7575

Counsel for Petitioner

(any footnote(s) trail end of each document)

No. 06-3214

UNITED STATES COURT OF APPEALS FOR THE

SEVENTH CIRCUIT

STROMAN REALTY, INC., Plaintiff-Appellant,

DEAN MARTINEZ, Secretary of the Illinois

Department of Financial and Professional Regulation,'

Defendant-Appellee.

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 06 C 1187--Robert W. Gettleman, Judge.

March 30, 2007, Argued

Octoher 10, 2007, Decided

COUNSEL: For STROMAN REALTY,

INCORPORATED, Plantifff - Appellant: Leslie A.

Powell, Frederick, MD.

For DEAN MARTINEZ, Secretary, Defendant -

Appellee: Mary KE. Welsh, OFFICE OF THE

ATTORNEY GENERAL, Civil Appeals Division,

Chicago, IL.

JUDGES: Before EASTERBROOK, Chief Judge, and

BAUER and WILLIAMS, Circuit Judges.

OPINION BY: WILLIAMS

OPINION

WILLIAMS, Circuit Judge. Stroman Realty, a national

timeshare brokerage company, was notified by the

Illinois Department of Financial and Professional

Regulation that it had been conducting unlicensed

brokerage activities that involved Illinois residents and

property as well as timeshare developers that had

offices in the state. Stroman continued its activities,

against the Department's instructions, and filed for

injunctive relief in federal court from the Department's

enforcement of its regulations. The basis of Stroman's

complaint was that such enforcement violated the

dormant Commerce Clause. The Department

subsequently filed an administrative complaint with the

State's Office of Banks and Real Estate against

Stroman to enforce Illinois licensing requirements and

then moved to dismiss Stroman's federal complaint. The

district court granted the Department's motion on

abstention grounds.

We agree with this decision as we believe that the

district court was required to abstain from interfering

with a state proceeding that is ongoing, judicial in

nature, and implicates the Department's important

interest in regulating the real estate profession. We

also find that the state proceeding affords Stroman an

adequate opportunity to raise its federal claims. Since

this case presents no exceptional circumstances that

would warrant federal court intervention, we affirm.

I. BACKGROUND

Stroman bills itself as the world's largest resale broker

of vacation resort timeshares, maintaining a database of

over one million property buyers, sellers, and renters.

Stroman's business is built around a computer listing

system that allows it to match buyers with timeshares.

When a sale is made, Stroman mails contracts to the

buyer and seller, and these transactions often involve

parties and properties in multiple states, including

Illinois. Stroman runs its operation out of Conroe,

Texas, and employs sales associates that hold only

Texas real estate licenses.

On May 10, 2005, the Illinois Department of Financial

and Professional Regulation mailed a cease-and-desist

letter to Stroman's Texas office. The letter notified

Stroman that the Department had received a complaint

from an Illinois resident and had _ subsequently

discovered that Stroman was engaged in timeshare

brokerage activities in Illinois without the required

licensure. In particular, the Department accused

Stroman of (1) soliciting Illinois citizens in the purchase,

sale, and rental of timeshare properties and (2)

maintaining client relationships with Illinois citizens,

timeshare developers who owned timeshares in Illinois,

and timeshare developers with business offices located

in Illinois. The letter instructed Stroman to either

obtain an Illinois license or to stop doing business in

Illinois.

Stroman responded on June 13, 2005, by seeking

injunctive relief from the Department's enforcement of

its licensing requirements in a federal court in the

Southern District of Texas. Stroman's complaint

. alleged that the Department's attempted regulation of

its timeshare. resale brokerage business violated the

dormant Commerce Clause of the Constitution. The

Department, in turn, filed an administrative complaint

pes

against Stroman in which it alleged that, from August

1, 2000, until August 1, 2005 (the date of the

Department's filing), Stroman had been engaged in

timeshare resale brokerage in Illinois without a license

in violation of the state's Real Estate Timeshare Act of

1999, 765 Ill. Comp. Stat. § 101/15-70(a), and the Real

Estate License Act of 2007, 225 Ill. Comp. Stat. §

454/20-10(a). The administrative complaint charged

Stroman with (1) serving as a timeshare resale agent

for owners of property physically located in Illinois and

for developers whose business offices were located in

Illinois, and (2) offering its timeshare resale services to

Illinois citizens via mail and newspapers. The

Department sought the assessment of a civil penalty of

up to $ 25,000 against Stroman. See 765 Ill. Comp. Stat.

§ 101/15-25.

After filing its administrative complaint, the

Department moved to dismiss Stroman's federal

lawsuit citing the district court's lack of personal

jurisdiction, improper venue, and failure to state a

claim. The Department also argued that, because of the

pending administrative action, the district court should

abstain from deciding the case. The district court

agreed that it lacked personal jurisdiction over the

Department and transferred the case to the Northern

District of Lilinois. There, Stroman moved for a default

judgment or, alternatively, to stay the administrative

proceeding, which the district court denied.2 The

Department then filed an amended motion to dismiss,

which the district court granted without prejudice.

Stroman appeals.

If. ANALYSIS

The district court did not reach the merits of Stroman's

dormant Commerce Clause challenge, deciding instead

that abstention was appropriate in light of the pending

state court proceeding against Stroman. As _ the

Supreme Court explained in Younger v. Harris, 401

U.S. 37, 43 (1971), this doctrine of abstention reflects

Congress's "desire to permit state courts to try state

cases free from interference by federal courts," except

in special circumstances. Therefore, federal courts must

abstain from enjoining or otherwise interfering in

ongoing state court proceedings that are (1) judicial in

nature, (2) involve important state interests, and (38)

provide an adequate opportunity to raise the federal

claims, as long as (4) no exceptional circumstances exist

that would make abstention inappropriate. Green v.

Benden, 281 F.3d 661, 666 (7th Cir. 2002) (citing

Middlesex. County Ethics Comm'n »,. Garden. State Rar

Ass'n, 457 U.S. 423, 482, 436-37 (1982)). We review de

novo the district court's dismissal of Stroman's

complaint on abstention grounds, Majors _ v.

Engelbrecht, 149 F.3d 709, 712 (7th Cir. 1998), and begin

by addressing the least controversial prongs of the

Middlesex framework in this case, (1) and (3).

A. The Proceeding Is Ongoing and Judicial in Nature.

It is uncontested that the state proceeding at issue is

judicial in nature, as the motivating factor behind the

Department's filing of its complaint was to enforce its

real estate licensing requirements against Stroman. See

id. at 712 (for Younger abstention § purposes,

administrative proceedings are judicial in nature when

they are coercive, such as_ state enforcement

proceedings). Yet Stroman disagrees that this

proceeding should be characterized as "ongoing” since

the Department filed its administrative complaint after

Stroman filed its claim in federal court. But the precise

timing and order of the Department's filing is less

important than the extent to which the federal

proceedings had progressed when the state

proceedings began. Younger abstention has been held

to apply when state proceedings begin after a federal

complaint is filed, "but before any proceedings of

substance on the merits have taken place in the federal

court." Hicks v. Miranda, 422 U.S. 332 (1975); see also

Forty One News, Inc. v. County of Lak , 491 F.3d 662,

666-67 (7th Cir. 2007) (court's resolution of Rule 12(b)(6)

motion did not constitute a proceeding of substance on

the merits); Mannheim Video v. County of Cook, 884

F.2d 1043, 1045-46 (7th Cir. 1989) (same); Ciotti »v.

County of Cook, 712 F.2d 312, 313-14 (7th Cir. 1983)

(same, for court's determination that plaintiff had

standing to sue). When the Department filed its

administrative complaint against Stroman, no

"proceedings of substance" had occurred as_ the

Department had yet to respond to Stroman's complaint

in federal court . Therefore, for purposes of abstention,

we consider the state proceeding at issue to be ongoing.

We also conclude that this state proceeding provides

Stroman with an adequate opportunity to raise its

federal constitutional claim. In Green, an Illinois court's

review of the administrative proceeding was

determined to provide the plaintiff with an adequate

opportunity to raise his due process and equal

protection challenges. 281 F.3d at 666. We see no reason

why Stroman's dormant Commerce Clause claim could

not also be adequately addressed on judicial review in

the event of an adverse administrative decision. See 225

Ill. Comp. Stat. § 454/20-75 (subjecting al! final

decisions of the Office of Banks and Real Estate to

judicial review).

B. An Important State Interest Is Involved and No

Exceptional Circumstances Exist.

Having resolved that the state proceeding is ongoing,

judicial in nature and can adequately address Stroman's

claims, we consider whether it involves an important

state interest. See Green, 281 F.3d at 666. The

Department asserts that is has a legitimate, substantial

interest in regulating timeshare brokerage activities

involving Illinois residents or timeshare properties

located within the state. But Stroman contends that

Younger is inapplicable when an important federal

interest is implicated. Stroman's argument is similar to

the one rejected by the Court in New Orleans Pub.

Serv., Inc. ["NOPSI"] v. Council of New Orleans, 491

U.S. 350, 364-65 (1989), in that it essentially asserts, in

light of its dormant Commerce Clause challenge, that

the federal court should peek ahead to _ the

constitutional issue and attempt to resolve it. In

NOPSI, the Court responded to the petitioner's

argument that abstention was inappropriate if a federal

court was presented with a "substantial claim" that

federal law preempts the challenged state action by

stating, "[T]he mere assertion of a_ substantial

constitutional challenge to state action will not alone

compel the exercise of federal jurisdiction.” /d.

Therefore, when inquiring into whether abstention is

required, the Court explained that “we do not look

narrowly to [the State's] 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." Id. at 365. So

Stroman's contention that the Department's attempt to

regulate its business violates the dormant Commerce

Clause in and of itself does not require us to forgo

consideration of the State's interest in regulating the

business of timeshare resales.

Alternatively, Stroman urges us to adopt the view that

the Department's enforcement of the State's licensing

requirements improperly limits access to the real estate

brokerage market. In support, Stroman cites to Harper

v. Public Service Commission of West Virginia, 396

F.3d 348, 354-55 (4th Cir. 2005), where abstention was

deemed inappropriate in the face of a dormant

Commerce Clause challenge because the State's

licensing requirements did not reflect a valid interest in

preventing the improper disposal of waste, but rather,

"by tts very nature serve[d} to impede interstate

commerce." But we do not think the Department's

interest is one which, by its very nature, unduly

burdens interstate commerce.

According to the Department, its regulation of real

estate professionals serves “to protect [Illinois

consumers against evil, fraudulent, dishonest and

incompetent practices, to ensure a minimum level of

competence and familiarity with the State's applicabie

laws, and to assess the fitness to practice based on

character and trustworthiness." The Department has a

legitimate and substantial interest in setting and

enforcing the standards for those who deal with

property sales involving its citizens. See, e.g., Coldwell

Banker Residential Real Estate Servs. of Ill., Inc. v.

Clayton, 475 N.E.2d 536 (ill. 1985) (the State has a

"substantial interest in regulating the real estate

profession"); see also Thompson v. Schmidt, 601 F.2d

305, 308 (7th Cir. 1979) (a given state has a "legitimate

and substantial interest" in setting the qualifications for

professions that require special skills and affect the

general welfare). At best, Stroman has argued that the

statutes the Department seeks to enforce have the type

of incidental effects that a valid licensing scheme has

on out-of-state companies. This is different from the

state regulation at issue in Harper, which the Fourth

Circuit found aimed to limit access to the waste

removal market. In addition, as we noted in Midwestern

Gas Transmission Co. v. McCarty, 270 F.3d 536, 539

(7th Cir. 2001), a state has no basis for invoking

Younger if it seeks to enforce an invalid interest, such

as the regulation of activities under exclusive federal

control. In this case, however, the Department's

interest does not concern the regulation of an activity

that is under exclusive federal control, nor does it, as

the district court pointed out, fall under an area of even

partial federal control. See Stroman v. Grillo, 438 F.

Supp. 2d 929, 984-35 (N.D. Ill. 2006). Rather, we find

that the proceeding involves a valid, legitimate state

interest-the regulation of real estate professionals

engaged in the business of timeshare brokerage-and

thereby meets the second abstention prong.

Based on the above findings, abstention is required

unless Stroman can demonstrate any exceptional

circumstances that would require federal intervention.

See Green, 281 F.3d at 666. For example, when "(1) the

state proceeding is motivated by a desire to harass or is

conducted in bad faith, (2) there is an extraordinarily

pressing need for immediate equitable relief, or (3) the

challenged provision is flagrantly and patently violative

10a

of express constitutional prohibitions," federal

intervention in the state proceeding is appropriate.

Jacobson v. Village of Northbrook Mun. Corp. 824 F.2d

567, 569-70 (7th Cir. 1987) (internal quotations and

citations omitted). Stroman has shown no exceptional

circumstances that warrant reversing the district

court's decision to abstain.

First, there is no indication that the Department filed

its complaint in bad faith. We are not troubled by the

timing of the filing, after Stroman filed its federal

complaint, because by that point it presumably became

evident to the Department that Stroman did not plan to

comply with the _ cease-and-desist letter by

discontinuing its brokerage practices. Nor do we find

that there exists an "extraordinarily pressing need" for

equitable relief in the form of a federal injunction.

Stroman claims that it will face repeated investigation

and administrative action, subjecting it to a $25,000 fine

for each act of allegedly regulated conduct. To date,

however, only one administrative action has been filed

against Stroman, and because that action remains

pending, no fines have been assessed against it.

Stroman also claims that its reputation will suffer from

the unplication that it is voperaling ileyally. Without

more, however, such speculation does not rise to the

level of irreparable harm that would justify the

intervention of a federal court.

Finally, the statute is not of the type that we would

consider to be "flagrantly and patently" violative of the

Constitution. See Younger, 401 U.S. at 54 ("[T]he

possible unconstitutionality of a statute ‘on its face’

does not in itself justify an injunction against good-faith

attempts to enforce it ... ." (emphasis added)).

Ill. CONCLUSION

For the reasons outlined above, the judgment of the

district court is AFFIRMED.

Footnote(s)

1 After this appeal was filed, Dean Martinez replaced

Fernando Grillo as the Secretary of the [Illinois

Department of Financial and Professional Regulation.

We therefore substitute Dean Martinez as the Appellee

in this action. See Fed. R. App. P. 43(c).

2 At oral argument, Stroman represented that neither

party has pushed the state administrative action

forward, and, as far as we know, it remains pending.

12a

No. 06 C 1187

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS,

EASTERN DIVISION

STROMAN REALTY, INC., Plaintiff,

Vv.

FERNANDO E. GRILLO, Secretary of the Illinois

Department of Financial and Professional Regulation,

Defendant.

July 18, 2006, Decided

July 18, 2006, Filed

COUNSEL: For Stroman Realty, Inc., Plaintiff: Leslie

A. Powell, Diana M. Schohel, Law Offices of Leslie A.

Powell, Frederick, MD; Gerald M Birnberg, Williams

Birnberg & Andersen, Houston, TX; Jose A. Lopez,

Schopf & Weiss, Chicago, IL; Veronica Gomez, Schopf

& Weiss LLP, Chicago, IL.

For Fernando FE Grillo, Defendant: Rachel Jana

Fleischmann, Yolanda L Ricks, [Illinois Attorney

General's Office, Chicago, IL.

JUDGES: Robert W. Gettleman, Judge.

OPINION BY: Robert W. Gettleman

OPINION

MEMORANDUM OPINION AND ORDER

13a

Plaintiff Stroman Realty, Inc. ("Stroman"), filed a

complaint in the Southern District of Texas against

Defendant Fernando E. Grillo, Secretary of the Illinois

Department of Financial and Professional Regulation

("Iltinois"), seeking to enjoin Illinois from enforcing the

Iilinois Real Estate Licensing Act of 2000 ("Licensing

Act"), 225 Ill. Comp. Stat. 454 and the regulations

thereunder against Stroman for conducting -_ its

timeshare resale business. Stroman alleges that

Illinois's enforcement of the Licensing Act, as applied

to Stroman, violates the Commerce Clause. U.S. Const.,

§ 8, cl. 3.

Following a complaint from an Illinois resident,

Illinois's Department of Financial and Professional

Regulation ("IDFPR") sent Stroman a cease and desist

letter, listing alleged activities Stroman had engaged in

that required a real estate license in Illinois. Stroman

subsequently filed a lawsuit in the United States

District Court for the Southern District of Texas for

oreliminary injunctive’ relief against Lllinois's

enforcement of the Licensing Act against Stroman.

Illinois then brought a formal administrative complaint

against Stroman for violating the Licensing Act and the

Illinois Timeshare Act, 765 Ill. Comp. Stat. 101 (2006).

Illinois alleged that Stroman acted as a real estate

agent in the State of Illinois without a license. Stroman

moved to stay the administrative action in the Texas

case. That case was transferred to this court, which

denied the motion to stay. Illinois has now moved to

dismiss pursuant to F.R.C.P. 12(b)(6) and F.R.C.P.

12(b)(1), arguing that Stroman's allegations do not

constitute a constitutional violation, and that this court

should abstain from exercising jurisdiction based on the

Younger doctrine. Younger vy. Harris, 401 U.S. 37

l4a

(1971). For the reasons discussed herein, Illinois's

motion to dismiss is granted.

FACTS

Plaintiff Stroman resells property timeshare

intervals on the secondary market. Timeshare intervals

allow a buyer to purchase the right to use a property or

unit for a specified interval of time. They are typically

sold or exchanged for the use of vacation resort

properties. Stroman is located in Texas and is, along

with its sales associates, licensed to engage in real

estate brokering by the state of Texas.

Stroman operates a computerized listing service to

match potential timeshare buyers to sellers. If a seller

wants to advertise and list his timeshare with Stroman,

he signs an advertising agreement. Stroman charges

sellers a one-time advertising fee to list their timeshare

intervals in its computer system and imposes a

commission fee upon the completion of a successful sale.

Stroman employs 80 sales associates to handle phone

calls from potential buyers and sellers. The sales

associates attempt to match a potential buyer's

timeshare interval preferences, such as the duration,

location, and price of the timeshare interval, to a

timeshare listed in the computer system. Stroman also

operates an internet website which allows users to view

available timeshare intervals and obtain relevant

information. The internet user can submit an offer

through the website or can call the company to speak

with a sales associate.

Stroman's business transactions frequently involve

parties and properties residing in multiple states. For

15a

example, Stroman might match a New York buyer with

a Nebraska seller for a timeshare interval located in

California. Stroman's sales associates field

approximately 1,000 calls daily from across the country,

some of which require inquiry into timeshare interval]

properties located in several states. To facilitate its

business activities, the company solicits buyers, sellers

and potential referral sources, such as real estate

agencies and developers, of timeshare intervals. To do

so, Stroman advertises its services nationally and

internationally. Stroman places daily advertisements in

national, regional, and local newspapers, as well as

advertising in specialty magazines, trade publications,

and on the internet. The company also conducts large

amounts of direct mail solicitations. Most of Stroman's

advertisements generically promote its timeshare

resale services rather than individual timeshare

intervals.

STANDARD OF REVIEW

Rule 12(b)(1) motions are premised on either facial

or factual attacks on jurisdiction. Villasenor v. Indus.

Wire & Cable, Inc., 929 F.Supp. 310, 311 (N.D.IIl. 1996).

If the defendant makes a factual attack on the plaintiff's

assertion of subject matter jurisdiction, it is proper for

the court to look beyond the jurisdictional allegations in

the complaint and "view whatever evidence has been

submitted on the issue to determine whether in fact

subject matter jurisdiction exists." Capital Leasing Co.

v. FDIC, 999 F.2d 188, 191 (7th Cir. 1993) (per curiam);

Barnhart v. United States, 884 F.2d 295, 296 (7th Cir.

1989). The Supreme Court has held that an attempt to

plead a federal claim fails only where it "clearly appears

to be immaterial and made solely for the purpose of

16a

obtaining jurisdiction or where such:a claim is wholly

insubstantial and frivolous." Bell v. Hood, 327 U.S. 678,

682-83, 66 S. Ct. 778, 90 L.Ed. 939 (1946).

DISCUSSION

Illinois has moved to dismiss arguing that: (1)

Stroman's complaint, on its face, does not state a claim

for a violation of the dormant Commerce Clause; and (2)

this court should refrain from exercising jurisdiction

under the Younger’ abstention doctrine. Because this

court finds that abstention is warranted, there is no

need to discuss the merits of Stroman's dormant

Commerce Clause argument. See Moses _v. Kenosha

County, 826 F.2d 708, 710 (7th Cir. 1987) (dismissal

without decision regarding constitutional claims is

appropriate procedure when Younger abstention

applies); Green v. Benden, 281 F.3d 661, 666 (7th Cir.

2002) (merits of challenge to denial of plaintiff's request

for injunctive relief not needed because Younger

abstention was appropriate).

ABSTENTION

The Younger doctrine originally held that federal

courts should abstain from hearing a challenge to the

constitutionality of a state criminal statute when the

plaintiff bringing the challenge is being prosecuted in a

state court for violating that statute. Younger, 401 U.S.

37. Due to "principles of comity and federalism .. .

federal courts should refrain from enjoining state

criminal prosecutions." Jacobson v. Vill. of Northbrook

Mun. Corp., 824 F.2d 567, 569 (7th Cir. 1987). Younger

is "fully applicable to civil proceedings in which

important state interests are involved," Moore v. Sims,

17a

442 U.S. 415, 423 (1979), and has subsequently been

held to apply to state administrative proceedings, Ohio

Civil Rights Comm'n. v. Dayton Christian Sch., Inc.,

477 U.S. 619, 627 (1986). Thus, Younger abstention

"requires federal courts to abstain from enjoining

ongoing state proceedings that are (1) judicial in nature,

(2) implicate important state interests, and (3) offer an

adequate opportunity for review of constitutional

claims, (4) so long as no extraordinary circumstances

exist which would make abstention inappropriate."

Green v. Benden, 281 F.3d 661, 666 (7th Cir. 2002)

citing Middlesex County Ethics Comm. v. Garden State

Bar Ass'n, 457 U.S. 423, 432, 436-37; Majors _v.

Engelbrecht, 149 F.3d 709, 711 (7th Cir. 1989). When a

plaintiff in federal court, after having already filed a

complaint, becomes a defendant in a state criminal

proceeding, Younger abstention still applies so long as

the federal court has not engaged in any "proceedings of

substance on the merits." Hicks v. Miranda, 422 U.S.

332 (1975). See also Majors, 149 F.3d at 7138.

First, with regard to timing, Stroman argues that

because the administrative action was filed after Illinois

was served with Stroman's federal complaint, Younger

abstention is inappropriate. After the Supreme Court's

holding in Hicks, however, the timing of the filing of the

state and federal court lawsuits is largely unimportant,

provided the federal suit has not progressed to any

“proceedings of substance on the merits." See Doran v.

Salem Inn, Inc., 422 U.S. 922, 929 (1975) (abstention

proper when federal suit is still in an “embryonic

stage"); Ciotti v. County of Cook, 712 F.2d 312, 313 (7th

Cir. 1983) (decision on standing is not a decision on the

merits). The instant case has clearly not progressed to

the merits. In Ciotti, the Seventh Circuit cited with

18a

approval Giulini v. Blessing, 654 F.2d 189, 193 (2d Cir.

1981), and Nevin v. Ferdon, 413 F. Supp. 1048, 1049

(N.D. Cal. 1976), which both found abstention proper

when the only action taken by the federal court was a

ruling on jurisdiction or jurisdiction and abstention.

This is analogous to the current case. The District

Court for the Southern District of Texas transferred

the case to this court after an examination of

jurisdiction, but no ruling on Stroman's dormant

Commerce Clause claim has been made by either court.

The only action this court has taken was to deny

Stroman's request to stay the _ state court's

administrative action. The denial did not address

Stroman's substantive claim. Thus, no "proceedings of

substance on the merits" have occurred in this

litigation.

Because the timing of the lawsuits is not an issue,

the question is whether the state proceedings meet the

test for Younger abstention. First, the proceedings

initiated through Illinois's administrative complaint are

clearly judicial in nature. "For the purposes of Younger

abstention, administrative proceedings are ‘judicial in

nature’ when they are coercive - i.e., state enforcement

proceedings." Majors, 149 F.3d at 712 (citations

omitted). "A judicial inquiry investigates, declares and

enforces liabilities as they stand on present or past

facts and under laws supposed already to exist." New

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

Orleans, 491 U.S. 350, 370-71 (1989) citzng Prentis_v.

Atl. Coast Line Co., 211 U.S. 210, 226 (1908).

In the instant case, Illinois was clearly attempting

to enforce the Licensing Act when it filed the

administrative complaint against Stroman. The

19a

proceedings were coercive, not remedial. Additionally,

the procedures governing the hearing conform to the

definition of a judicial inquiry. The Licensing Act

requires an investigation of those accused of violating

the act. 225 Ill. Comp. Stat. 454/20-60. The investigation

is reviewed for merit and notification is given to the

accused that disciplinary proceedings are to be

initiated. Id. The Real Estate Administration and

Disciplinary Board ("Board") of the Office of Banks and

Real Estate ("OBRE") then hears the charges and the

accused and complainant may be represented by

counsel and present "statements, testimony, evidence

and argument.” Id. The Board and OBRE possess

subpoena powers over “any persons or documents for

the purpose of investigation or hearing . . . in the same

manner as prescribed by law for judicial procedure in

civil cases in the courts of [Lllinois]." Id. The

administrative proceeding conducted by the OBRE is

clearly of an investigatory and judicial nature. It deals

with prior events and applies present law. Thus, the

administrative action initiated against Stroman was

"judicial in nature."

Nor is there any question that regulation of the real

estate profession is an important state interest. States

have traditionally possessed the power to regulate the

conduct of professionals and implement licensing

schemes. Goldfarb v. Va. State Bar, 421 U.S. 773, 792-93

(1975). States have "a legitimate and _ substantial

interest in prescribing reasonable, in the constitutional

sense, qualifications for professions or occupations

which require special knowledge or skill and intimately

(affect) the public health, morals, order, or safety, or

the general welfare." Thompson _v. Schmidt, 601 F.2d

305, 308 (7th Cir. 1979) (citations and quotations

20a

omitted). Efforts by states to "preserve professional

integrity” should be treated with deference. Scariano v.

Justices of Supreme Court of State of Ind., 38 F.3d 920,

924 (7th Cir. 1994). Although no court has considered

whether licensing real estate professionals is an

important state interest, courts have found regulation

of other professions to meet this standard.* Clearly,

regulating the real estate profession is a traditional and

important state interest.

Stroman argues that abstention is improper because

Illinois's interest in regulating the real estate

profession does not outweigh the federal government's

interest in preventing trade barriers in interstate

commerce. Stroman cites Midwestern Gas’

Transmission Co. v. McCarty, 270 F.3d 536, 539 (7th

Cir. 2001), and Harper v. Pub. Serv. Comm'n of W. Va.,

396 F.3d 348, 357 (4th Cir. 2005), for support. Those

cases, however, are inapplicable to the instant case.

In Midwestern Gas, the Midwestern Gas

Transmission Company ("Midwestern") sought to enjoin

the Southern Indiana Gas and Electric Company

("SIGECO") and Indiana Utility Regulatory

Commision ("IURC") from engaging in-state

prosecutorial proceedings against it. SIGECO wanted

the IURC to require Midwestern to receive permission

before connecting its pipeline to two Indiana industrial

gas users who wanted to use the pipes to transport out-

of-state natural gas into Indiana. Midwestern had

received approval from the Federal Energy Regulatory

Commission ("FERC") prior to the initiation of the

IURC proceedings. The Seventh Circuit held that

Younger abstention was not appropriate because the

federal Natural Gas Act created dual state-federal

Zla

jurisdiction over the sale and distribution of natural

gas. The Natural Gas Act granted FERC exclusive

jurisdiction over the interstate transportation of

natural gas. “[I] f for example [the state] is seeking to

regulate activities that clearly are under exclusive

federal control, then there is no basis for invoking

Younger." Midwestern Gas, 270 F.3d at 539.

The regulation of those acting as real estate

professionals in Illinois, however, as Illinois points out,

is not an activity under either exclusive federal control

or dual state-federal jurisdiction. Rather, it is an

important and traditional state interest. “The

[Younger] doctrine presupposes that the state has a

valid interest that it is seeking to enforce" which, unlike

Midwestern Gas, is present here. Id.

In Harper, Southern Ohio Disposal ("SOD") brought

suit against The Public Service Commission of West

Virginia ("PSC") to enjoin the PSC from barring SOD

from competing with waste removal companies in West

Virginia. Under West Virginia law, a common carrier

such as SOD was required to obtain a "certificate of

convenience and necessity" from the PSC to operate in

the state. Applicants for the certificate had to show

that the company already providing service in the area

was not "adequately serving the same territory." This

requirement effectively granted a monopoly to waste

haulers who already had a certificate for an area. The

Fourth Circuit held that the state interest protected by

the certificate requirement was “limiting access to the

waste removal market" because a "limitation on market

access to maintain exclusive franchises for existing

enterprises" is not comparable to legitimate neutral

22a

regulation. Harper, 396 F.3d at 350, 355 citing PSC. W.

Va. Code Ann, § 24A-3-3(a) (Michie 2004).

The Illinois Licensing Act, in contrast, does not

create a virtual monopoly for present real estate license

holders. Stroman is able to obtain a license without

regard to any other license holder. 225 Ill. Comp. Stat.

454. Pointedly, the Harper court recognized that

regulation of business professionals such as insurance

agents and state/local housing code enforcement are

important state interests. Harper, 396 F.3d at 352-53.

Thus, the Harper court would no doubt view licensure

of real estate professionals in the same light.

Additionally, the OBRE's administrative proceeding

offers an adequate opportunity for review of Stroman's

constitutional claims. "Subsequent judicial review is a

sufficient opportunity." Majors, 149 F.3d at 713 citing

Dayton Christian Sch., 477 U.S. at 629. The Licensing

Act states that "final administrative decisions of OBRE

shall be subject to judicial review pursuant to the

provisions of the Administrative Review Law." 225 IIL.

Comp. Stat. Ann. 454/20-75. When reviewing an

administrative agency's decision under the

Administrative Review Law, 735 Ill C ‘

5/3-101, the Appellate Court of Lllinois independently

reviews the agency's conclusions of law according to a

de novo standard, including any constitutional issues

brought on appeal. Home Interiors and Gifts, Inc. v.

Dep't of Revenue, 318 Ill. App. 3d 205, 209-10 (1st Dist.

2000). Stroman thus has a definite and adequate

opportunity to bring its constitutional claim in Illinois

state court.

23a

Stroman argues that it is not required to raise its

constitutional claim in state court because Illinois has

no compulsory counterclaim rule, citing Peregrine Fin.

Group, Inc. v. Martinez, 712 N.E. 2d 861, 868 (Ill. App.

1999). Peregrine involved an arbitration agree==<nt and

is not relevant with regard to a state adnun'=.-2tive

proceeding. In any case, Green counsels th:. |. is

irrelevant whether the constitutional claims are

actually raised in state court, because the "federal court

should assume that the state procedures will afford an

adequate remedy." Green, 281 F.3d at 667 citing

Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 15 (1987). Thus,

it matters not whether Stroman must raise a

constitutional claim; it is sufficient that it can do so.

Finally, there are no extraordinary circumstances

that would make Younger abstention improper.

Because the present circumstances satisfy the three

Younger requirements, abstention is inappropriate only

if: "(1) the state proceeding is motivated by a desire to

harass or is conducted in bad faith; (2) there is an

extraordinarily pressing need for immediate equitable

relief; or (3) the challenged provision is flagrantly and

patently violative of express constitutional

prohibitions." Jacobson, 824 F.2d at 569-70 (citations

and quotations omitted). The exceptions to enforcing

the Younger doctrine are extremely narrow.

Arkebauer v. Kiley, 985 F.2d 1351, 1358 (7th Cir. 1993).

None of these elements are present in this case.

[llinois's administrative proceeding was not brought

in bad-faith or to harass. This prong "requires more

than a mere allegation and more than a ‘conclusory’

finding." Grandco Corp. v. Rochford, 536 F.2d 197, 2038

(7th Cir. 1976). Stroman makes no allegation that

24a

OBRE's conduct was harassing or in bad-faith. Nor

does Stroman have an extraordinarily pressing need for

immediate equitable relief. Stroman has argued that it

has and will continue to suffer irreparable harm as a

result of Illinois's enforcement of the Licensing Act and

claims it will face "continued administrative actions."

PL's Resp. Br., 15. Stroman does not specify whether

the actions will be from the OBRE in Illinois or from

real estate licensing agencies in other states. The

administrative action itself, however, will not cause

Stroman irreparable injury. Although a negative

outcome in the administrative hearing and state court

might be adverse to Stroman, it is not for this court to

say whether Stroman will succeed in those forums.

Merely appearing at the administrative hearing or

appealing in state court will not cause irreparable harm

or injury.

Nor is the Licensing Act flagrantly and patently

unconstitutional. For this requirement to be met, a

statute must be "flagrantly and patently violative of

express constitutional prohibitions in every clause,

sentence and paragraph, and in whatever manner and

against whomever an effort might be made to apply it."

Pinchaim v. Ul. Judicial Inquiry Bd., 872 F.2d 1341, 1350

(7th Cir. 1989) citing Younger, 401 US. at 53-54 citing

Watson v. Buck, 313 U.S. 387 (1941). "[T] he possible

unconstitutionality of a statute 'on its face’ does not in

itself justify an injunction against good-faith efforts to

enforce it.” Id., 872 F.2d at 1850. The Licensing Act is

not so flagrantly unconstitutional as to fit this

description. Although Stroman claims that the Act

violates the constitution as applied to it, the Act is

clearly constitutional as applied to the vast majority

against whom it is applied.

25a

Finally, Stroman has also argued that abstention in

this circumstance would require exhaustion before it

could assert a federal claim, citing Patsy v. Bd. of

Regents of State of Fla., 457 U.S. 496 (1982). However,

the Supreme Court in Dayton Christian Schools

determined that the application of the Younger

doctrine to state administrative proceedings is

compatible with Patsy, which held that administrative

remedies need not be exhausted prior to the initiation

of a § 1983 lawsuit in federal court. "Unlike Patsy, the

administrative proceedings [in Dayton Christian

Schools] are coercive rather than remedial, began

before any substantial advancement in the federal

action took place, and involve an important state

interest." Dayton Christian Sch., 477 U.S. at 627 (nm. 1).

This exactly describes the instant case.

While it is true that Younger abstention is a narrow

doctrine reserved only for exceptional circumstances,

when the requirements of Younger are met, “abstention

is not only permissible but expected." Hogsett, 43 F.3d

290 at 294 citing Younger, 401 U.S. at 37 (1971).

Accordingly, this court grants Defendant [Illinois's

motion to dismiss based on Younger abstention.

CONCLUSION

For the reasons discussed herein, the court abstains

from exercising jurisdiction, and dismisses the instant

case without prejudice.

ENTER: July 18, 2006

Robert W. Gettleman

United States District Judge

26a

Footnote(s)

! ‘Younger v. Harris, 401 U.S. 37 (1971).

2 See e.g. Trust & Inv. Advisers, Inc. v. Hogsett, 43

F.3d 290, (7th Cir. 1994) (regulating securities

investment); Gilbertson v. Albright, 381 F.3d 965, 969

(9th Cir.-2004) (land surveyors); Van Breeman v. Zollar,

1997 WL 124266 (N.D. Ill. 1997) (professional

engineers); Baffert v. Cal. Horse Racing Bd., 332 F.3d

613, 618 (9th Cir. 2003) (horse racing).

27a

No. 06-3214

UNITED STATES COURT OF APPEALS FOR THE

SEVENTH CIRCUIT

STROMAN REALTY, INC., Plaintiff-Appellant,

Vv.

DEAN MARTINEZ, Secretary of the Lilinois

Department of Financial and Professional Regulation,

Defendant-Appellee.

November 19, 2007, Decided

Appeal from the United States District Court for the

Northern District of IHinois, Eastern Division.

No. 06 C 1187. Robert W. Gettleman, Judge.

JUDGES: Before HON. FRANK H.

EASTERBROOK, Chief Judge; HON. WILLIAM J.

BAUER, Circuit Judge; HON. ANN CLAIRE

WILLIAMS, Circuit Judge.

ORDER

On consideration of the petition for panel rehearing and

for rehearing en banc filed by Plaintiff-Appellant on

October 24, 2007, all members of the original panel have

voted to DENY the petition for rehearing. No judge in

regular active service requested a vote on the petition

for rehearing en banc.

Accordingly, the petition for rehearing is DENIED.

28a

Filed 6/14/2005

Civil Action No. H05-2066

IN THE UNITED STATES DISTRICT COURT FOR

THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

STROMAN REALTY, INC. Plaintiff,

FERNANDO E. GRILLO

Secretary of the Illinois Department of Financial and

Professional Regulation, Defendant.

AMENDED COMPLAINT FOR INJUNCTIVE

RELIEF

Plaintiff, Stroman Realty, Inc. (“Stroman”), avers and

alleges as follows:

PARTIES

The Plaintiff

i Stroman is a corporation organized and existing

under the laws of the State of Texas with its principal

place of business at 14500 Hwy 105 .West, Conroe,

Texas 77304. Stroman is a real estate broker licensed

under the laws of the State of Texas. It is engaged in

the interstate and international business of brokering

timeshare resales, as well as related activities. The

nature of its business is more fully described in

paragraphs 17 through 32 infra.

29a

The Defendant

2. Defendant, Fernando E. Grillo, is the Secretary

for the Department of Financial and Professional

Regulation for the State of [Illinois ("DFPR" or

"Illinois"). Through its Division of Banks and Real

Estate, DF PR enforces the Real Estate License Act of

2000, codified at 225 Ill. Comp. Stat. Ann. 454 and the

Real Estate Timeshare Act of 1999, codified at 765 Il.

Comp. Stat. Ann. 101. Mr. Grillo's principal place of

business is located at 100 West Randolph Street, FL

009 C-9, Chicago, Illinois 60601.

JURISDICTION AND VENUE

3. Pursuant to 28 U.S.C. § 2201 and 42 U.S.C.

§ 1983, this action is being brought for preliminary and

permianent injunctive relief against enforcement of

statutes and regulations of the State of Illinois in

violation of the Commerce Clause, Article 1, § 3 clause 8

of the Constitution of the United States. This Court has

jurisdiction pursuant to 28 U.S.C. § 1331.

4. Venue is proper in this district under 28 U.S.C.

§ 1391(b). Defendant seeks to and/or has enforced the

statutes and regulations of the State of Illinois against

Stroman, whose sole business office is located in the

Southern Judicial District of Texas. Enforcement of

these statutes and regulations will have and has had a

significant adverse impact on the business of Stroman

in the Southern District of Texas, on the clients and

potential clients of Stroman who reside in the Southern

District of Texas, and on interstate and international

commerce. In addition, a substantial part of the events

or omissions giving rise to the claims alleged herein

30a

occuied in the Southern District of Texas. Stroman

has had and has clients who reside in the Southern

District of Texas and own or are or were interested in

purchasing or selling timeshare facilities located in

Illinois. These clients and other potential clients

residing in the Southern District of Texas will be

deprived of their right to use the real estate broker of

their choice to resell or purchase timeshare facilities

located in Illinois in the secondary market and will have

their ability to participate in the national secondary

market for timeshare resales significantly reduced if

enforcement of the laws challenged herein is not

enjoined.

ELATED CAS

5. There are two cases pending before this Court in

which Stroman Realty, Inc. is the plaintiff where the

same Commerce Clause allegations are raised. One is

against the officia's of the States of California and

Florida and is styled, Stroman Realty, Inc. v. Jim Antt,

Jr., et al., Case No. H-98-0283. That case is before the

Honorable Lynn Hughes. The other is Stroman Realty,

Inc. v. Elaine Richardson, Case No. 05-CV 1203, and is

against the State of Arizona.

THE BUSINESS OF VACATION RESORT

TIMESHARE RESALES

6. The concept of purchasing time intervals for the

use of vacation resort facilities was introduced in the

1960s and continues to enjoy increasing popularity in

the United States and around the world today. The

concept is frequently referred to as "timeshare,"

"intervals" or "vacation ownership.” In a_ timeshare

sla

transaction, the buyer typically purchases the right to

use a specified unit or type of unit in a resort during a

specified time interval or season. For example, a buyer

can purchase the right to use a specific living unit and

related amenities in a Colorado resort during the period

of January 1 through January 7 for a one-time fixed

price plus periodic maintenance fees. This right to use

the unit can be extended in perpetuity or for a fixed

period of time. The right to use the facility may be

evidenced by a deed, a lease or by other methods. If the

developer is successful, it will sell the remaining weeks

to others.

‘2 A major source of a timeshare's value is the

ability to exchange the right to use the facility with

other timeshare owners in the United States and

throughout the world. Ex. 1 at 2. The availability of

exchanges is the single most important motivating

factor leading’ to timeshare sales. Exchanges are

facilitated through major companies, such as RCI and

Interval International, that specialize in coordinating

national and international exchanges. Almost all of the

timeshare resorts in the United States are associated

with either RCI or Interval International, and together

they serve approximately 3 million members in

coordinating national and international exchanges.

8. The timeshare business was a $5 billion industry

in 1996 involving such companies as Marriott, Hyatt,

Hilton, Ramada, Disney, Embassy Suites, Sheraton,

Radisson and Hampton. In 2002, timeshare developers

alone sold approximately $5.5 billion in timeshare

intervals in the United States which compromises

nearly 60% of timeshare sales worldwide in timeshares

in 2002. Ex. 2 at 6. Nationally, consumer resales

32a

compromised $390 million. Ex. 2 at 9. As of January 1,

2008, there are approximately 1,590 timeshare vacation

resorts located in 47 states in the United States. Ex. 2

at 3. As of 2002, there were more than 5,425 timeshare

resorts worldwide. Ex. 3 at 1. The states with the

largest numbers of timeshare vacation resorts are

Florida, California, South Carolina, Hawaii, Nevada

and North Carolina. Ex. 2 at 4. A 1997 Report by the

American Resort Development Association ("ARDA

Report”), the largest timeshare developer trade

association in the world, contains a‘ table showing the

location of timeshares by state. Ex. 1 at 82-83. In 1997,

almost 90% of timeshare owners were first-time buyers

of new units. According to a 2002 report, 60% of the

timeshare intervals sold werldwide were new intervals

sold by developers. Ex. 2 at 6.

9. There are three timeshare resorts in Illinois,

WorldMark, Family Resorts and Travel, f/k/a New |

Horizons ("New Horizons") and Silverleaf Resorts. One

of these, Silverleaf Resorts, is part of a system with

resorts in six states. An owner of one of these

timeshares can rent or exchange his interest with one

of Silverleaf's 100,000 members nationwide. WorldMark

and New Ilorizons are vacation clubs and are part of

nationwide networks. For example, WorldMark has

more than 200,000 members nationwide who can

exchange their vacations without the necessity of going

through an exchange company.

10. Illinois is one of the leading states in the United

States for timeshare owners. According to a 1997 study,

Illinois residents owned 51,243 timeshares throughout

the United States.

33a

11. For many reasons, such as adverse economic

changes in a person's life, loss of interest, medical

limitations, divorce, death, and maturation of children,

many owners of timeshare intervals need to or want to

resell their intervals. The 1997 ARDA Report found

that 46% of timeshare owners are interested in selling

one or more of their timeshares. Ex. 1 at 53. To

facilitate these resales a secondary market in timeshare

resales has developed. Potential purchasers in the

resale market for vacation timeshares are located

throughout the country and the world.

12. The vast bulk of timeshare resale buyers live

outside the state where the use facility is located. For

example, in 1997, only 13.9% of the timeshare units in

Florida were owned by Florida residents (Ex. 1 at 41,

90-91), and a limited survey of 1997 closed resale

transactions showed that in every state but two, more

than 72% of the buyers lived in a state different than

the property location.

13. Resale prices are generally substantially less

than the original purchase price. However, since the

resale market is diverse and the result of individual

negulialion, il is impossible to predict the sales price of

any specific interval and there are no standards by

which to do so. The average cost of a timeshare unit

purchased from a developer between August 2001 to

July 2002 was $14,200, as compared to an average

resale purchase price of $5,000. Ex. 2 at 10-11. As of

2000, approximately 15% of current owners purchased

on the United States resale market. Ex. 2 at 9.

14. While Stroman and others in the secondary

timeshare resale market try to promote the facilitation

34a

of resales as an extra benefit to resort owners, many of

the resort developers regard resales as unwanted

competition and have worked to discourage the growth

of the resale market. These resort owners are

motivated by the fact that a person marketing a lower

priced resale is marketing exactly the same product

that the resort owner is marketing at full price. Ex. 2 at

10-11. For example, if use of a resort unit is divided into

52 one-week intervals for marketing purposes, the

initial purchaser from the resort owner has rights to

use the exact same living space, furniture and facilities

as the buyer of a different interval in that same

timeshare unit on the secondary market at a much

lower price. As a result, some resort owners do not

permit resale of their timeshare units and others try to

discourage resales and seek to impede the functioning

of independent brokers such as Stroman. For example,

typically resort owners will not allow "for sale" signs

the number one real estate sales tool according to the

National Association of REALTORS® on timeshare

units. If a timeshare unit owner is unable to sell his

unit, the resort owner may repossess it and resell it,

thereby obtaining windfall profits. As of 1997, 58% of

1,204 timeshare resorts did not provide any resale

programs for their limeshare owners.

15. Because of the specialized nature of the

timeshare resale market and the almost prohibitive cost

of marketing a timeshare on a small scale, most

traditional real estate salespersons are not equipped to

handle this secondary market nor are they interested in

doing so. Unique problems associated with resales that

non-specialized real estate agents are generally not

equipped to handle include the need for national

advertising to generate sales, the agent's lack of

35a

familiarity with the many timeshare options such as

deeded, fixed time, quarter shares, fractional

ownership, biannual ownership, floating time, points,

seasons, and right-to-use, the agent's need to

coordinate with resort management to obtain accurate

information and assure that the transfer will be

recognized, the difficulty in obtaining title insurance

and the need to contact specialized firms to do so if title

insurance is available at all, and the need to coordinate

a closing between residents of distant states for a

timeshare often located in a third state.

16. Of the initial prices of vacation timeshares,

anywhere from 30% to 65% of the price of a new sale

covers the cost of marketing, promotion ana

advertising by the resort owner. Likewise, effective

marketing to potential domestic resale purchasers

requires a constant program of nationwide advertising

and promotion. The existence of strong independent

brokers willing and able to pursue a large-scale

nationwide marketing program is essential to the

existence of a viable resale market given the

geographic dispersion of potential buyers and sellers,

the resistance of resort owners to resales, the fact that

58% of resort owners offer no resale assistance to their

interval owners, and because non-specialized real estate

salespersons are ill-equipped to handle timeshares.

STROMAN'S BUSINESS

17. Stroman is the world's largest vacation resort

timeshare resale broker. Operating from its purpose-

built 16,000 square foot headquarters in Conroe, Texas,

Stroman has approximately 80 licensed real estate

agents to handle approximately 1,000 incoming

36a

telephone calls daily from potential buyers and sellers

located throughout the country and the world.

18. Founded by its President Wayne Stroman in

1979, Stroman began to specialize in the timeshare

resale market in the early 1980's. Since the Multiple

Listing Service used by traditional real estate brokers

is limited to a local market and has no category for

timeshares, Wayne Stroman recognized the need to

develop a new computerized system that could be used

for marketing of timeshare resales. Thus, in order to

maximize the potential of the secondary timeshare

resale market, Wayne Stroman developed a

sophisticated computer marketing system called the

CTLS Computer System ("CTLS"). Specially tailored to

the timeshare resale market, the CTLS permits

Stroman to match buyer's demands with the features of

a seller's timeshare interval by considering such factors

as location, price, amenities and use interval. The CTLS

runs on over 130 networked computers at Stroman's

headquarters, and its database includes over 1 million

resort property buyers, sellers and renters.

19. In order to participate in the resale market on

any substantial basis, the resale broker must advertise

on a national and international basis. This market

imperative derives from the fact that potential buyers

and sellers are located throughout the country and the

world; most prospective buyers are not fully aware of

the options available; and each interval is a unique

product because of factors such as its location, time slot,

view, size, point systems, amenities and price. Thus, a

major continuous effort is required to develop a

database of potential buyers and sellers that is as broad

as possible in order to facilitate sales. Stroman creates

37a

and maintains profiles of timeshare desired by

prospective buyers who contact Stroman, which can be

matched with timeshare owners who advertise through

Stroman.

20. The critical importance of national and

international advertising and promotion to this

secondary market is illustrated by the distribution of

buyers who purchased timeshares through Stroman.

Stroman has sold timeshares located in all of the 47

states where timeshares have been developed. Stroman

has sold intervals to buyers and for sellers from all of

the fifty states. Over the years, only one state

accounted for 10% of the buyers, three states each

accounted for from 7 to 8% of the buyers, one state

accounted for 5%, one accounted for 4% and Texas

accounted for 8.4%.

21. Stroman advertises every day in _ national,

international, regional and local media with a

circulation ranging from 15 to 24.5 million readers.

Stroman advertises daily in USA Today and frequently

in newspapers in most major markets such as the New

York Times, Washington Post, Chicago Sun Times,

Boston Globe, Toronto Globe, Torunto Sun, Dallas

Morning News, Houston Chronicle, Baltimore Sun, and

a host of others. In addition, Stroman advertises in over

a dozen specialty magazines and trade publications and

conducts the largest direct mail operation in the resale

industry. Stroman's direct mail solicitations (over 4.5

million pieces annually each year for the past ten years)

target potential buyers and sellers as well as potential

referral sources such as real estate agencies and

developers. Stroman spends millions of dollars each

year on its advertising and promotional efforts and has

38a

an active Internet site that promotes its services

worldwide and currently advertises timeshares

throughout the United States.

22. Stroman's internet web site identifies resorts

and the types of intervals for sale at each resort,

inciuding the attributes of the interval. A computer

user is free to browse the site for various timeshares to

determine if there is an interval he wishes to purchase.

A potential purchaser can make an offer over the

internet or call one of Stroman's licensed Texas real

estate agents.

23. With the exception of internet advertising and

periodic inserts into direct mail pieces, each of

Stroman's advertisements is generic, advertising its

resale services rather than specific timeshare intervals.

This approach is dictated by the sheer number of

properties in the database and the need to meet print

deadlines that would make specific property listings

obsolete. Some examples of Stroman's advertisements

and promotional material are attached hereto as

Exhibits 4, 5, 6, and 7.

39a

24. Each of Stroman's Sales Associates is a licensed

real estate salesperson or broker in the State of Texas

and a member in good standing of the National

Association of REALTORS®. As such, they are bound

by the statutes and regulations of the State of Texas

and the Code of Ethics and Standards of Practice of the

National Association of REALTORS®. Both the laws of

the State of Texas and the Code of Ethics and

Standards require honesty by a real estate agent and

prohibit false or misleading representations. Stroman

and its agents have a stellar reputation with the Texas

Real Estate Commission.

25. Stroman's Sales Associates interview potential

buyers and sellers by using prepared scripts that have

been submitted to the Texas Attorney General, the

Texas Real Estate Commission, and the Secretary of

State for the State of Texas. When Stroman receives a

call from a potential timeshare seller a licensed real

estate agent obtains the vital information about the

facility from the caller, including information about

maintenance fees and special requirements for transfer.

The information is entered into the CTLS computer

system. When the seller enters into an advertising

agreement with Stroman, he is charged a one-time

advertising fee of $499 which registers property in the

CTLS system for three years and includes internet

advertising of that interval as well as the benefits of

Stroman's generic advertising. In addition, the seller

may agree to pay a commission of 10% or a minimum of

$850, whichever is greater, when the timeshare is sold.

Charges to non-U.S. clients are slightly higher.

26. The advertising fee is critically necessary to

generate interstate resales of timeshares through

40a

Stroman's multimillion dollar advertising and |

promotional efforts. No interval could support its own

nationwide advertising campaign; for example, a one

week four line advertisement in the Timeshare

classified section in USA Today costs $1,060 or between

$260 and $316 per day, depending on the day. An

individual owner would quickly spend more than the

value of his timeshare at these rates. Given the high

cost of advertising and promotion, and the relatively

low sales prices of and commissions from timeshare

resales, effective advertising can only be supported by

pooling the advertising fees of timeshare resellers.

Thus, the advertising fee paid by a seller to Stroman

supports the pool of funds required for the massive

marketing campaign designed to attract as many

potential market participants as possible. In the

absence of such a pool of participants, the 46% of

timeshare owners who want to sell would find their

options severely limited.

27. When a potential buyer calls Stroman, a licensed

real estate Sales Associate develops a profile of what

the buyer is looking for in terms of time interval,

location, resort project, amenities and price and tries to

match the profile through the CTLS system with

intervals that are being offered. Thereafter, the Sales

Associate will try modifying profile elements until

something close to the buyer's profile is located. The

buyer is then sent a list of profiles that most closely

match his request. If the buyer wants to make an offer

on an interval, the seller is contacted. The Sales

Associate assists in the negotiations until the parties

agree to a sale or negotiations are otherwise concluded.

4la

28. On any given day, Stroman agents speak to

approximately 1,000 different people who reside in

numerous states and outside the Unites States. A caller

may inquire about different timeshares available in

several different states during the same call. For

example, a New York resident may inquire about an

Illinois based timeshare owned by a Colorado resident

and also a California based timeshare owned by an

Illinois resident during the same phone call.

29. When a buyer and seller reach agreement, the

buyer is sent a contract and asked to make an earnest

money deposit along with returning the signed contract

to Stroman in Texas. Once the buyer's contract is

received in Texas, the seller is sent a contract for

execution and return to Stroman in Texas. The buyer's

offer is accepted when the seller's executed contract is

received in Texas. The contracts provide that they are

to be governcd by the law of the location of the escrow

agent. Stroman generally uses the law firm of Rice,

Rice & Rice, P.C., of Conroe, Texas as the escrow

agent, but may use a different agent depending on the

Rice firm's ability to handle the title insurance and title

work relating to the closing. The Rice firm, or other

closing agent then takes care of the remaining matters

necessary for closing, including. any _ special

requirements of the developer, POA, exchange

company, or management company.

42a

30. In this interstate market for timeshare resales,

the vast majority of sales involve two or more states.

The process by which Stroman acquires property

information from sellers, contacts buyers and facilitates

sales is all part of a unitary course of interstate

commerce protected by the Commerce Clause Art. 1,

§ 8 of the Constitution of the United States.

31. Stroman does not have, and has never had any

office in the State of Illinois or in any state other than

Texas. It has no employees or general agents in Illinois

and does not send employees or agents to Illinois with

the exception of attending an occasional trade show or

convention.

32. Stroman has been conducting its interstate

business essentially as described above for over two

decades. Only in recent years have state governments

actively sought to impose their regulatory schemes on

Stroman in a manner that will force Stroman out of

business. In the past, however, Stroman has withdrawn

from doing business with residents of one or more

states that accounted for a negligible amount of its

business when regulatory authorities insisted that

Stroman be licensed in the state.

THE POSITION OF ILLINOIS

33. Illinois has taken the position that Stroman and

its salespersons are required to obtain [Illinois real

estate broker's and salesperson's licenses and comply

with all of its laws and regulations if Stroman conducts

activities with respect to timeshare resales that involve

Illinois citizens as sellers, renters or buyers of a

timeshare interest, regardless of the location of the

43a

timeshare interest, or if the timeshare is located in

Illinois, regardless of the residence of the potential

buyer or seller. Exhibit 8. This would also require

Stroman to register with the Illinois Secretary of State

and obtain a certificate of authority to transact business

in Illinois before filing an application for a broker's

license. Ill. Admin Code. tit. 68, § 1450.85.

34. If Illinois is correct, each Stroman agent would

have to be licensed in each of the fifty states because it

is impossible to predetermine which states will be

involved in any given transaction when Stroman

receives a call from a prospective buyer.

THE REGULATORY SCHEME

35. Texas, Illinois and every other state, have

comprehensive real estate licensing laws. The laws of

each state contain basic educational critcria and require

brokers and salespersons to be scrupulously honest in

their dealings with buyers and sellers.

Illinois

36. Illinois's real estate sales licensing scheme is

briefly described in the following paragraphs.

Bye A real estate broker in Illinois means an

individual or business entity, other than a salesperson

or leasing agent, who for another and for compensation

actually or offers to sell, exchange, purchase, rent or

lease real estate. The definition also includes anyone

who negotiates or offers to negotiate such transactions

and "assists or directs in procuring or referring of

prospects, intended to result in the sale, exchange,

44a

lease, or rental of real estate." 225 Ill. Comp. Stat. Ann

454/1-10. A "salesperson" is any individual, other than a

real estate broker, employed by or associated with a

broker as an independent contractor, who participates

in activity covered by the definition of "broker". Id.

38. The term "real estate" includes timeshares, as

well as other interests in real property “whether the

real estate is situated in [Illinois] or elsewhere." Id.

39. Applicants for either an Illinois broker's license

or a salesperson's license must pay a $125 application

fee, plus an additional $45 examination fee payable to

the designated testing service for the required exam.

The exam is not given in Texas. The candidate for an

Illinois salesperson's license must complete 45 hours of

instruction in an approved Real Estate Transaction

Course, including at least 15 hours in agency, disclosure

and environmental issues. The candidate for an Illinois

broker's license who does not already have a

salesperson's license must complete 120 hours of

instruction, including the hours required to obtain a

salesperson's license, 45 hours that include 15 hours

each in brokerage administration and contracts and

conveyances, and 30 hours in other approved course

work. Applicants who already have a salesperson's

license must complete 75 hours of approved course

work.

40. To maintain an Illinois broker's or salesperson's

license, every two years the licensee must complete 12

hours of continuing education for each licensing period.

The renewal fee is $150 for brokers and $100 for

salespersons and is paid biannually.

45a

41. lLllinois does not have a licensing reciprocity

agreement with Texas.

42. Illinois real estate licensees are subject to license

revocation, suspension and fines for failing to comply

with the license law and the commission of various

enumerated offenses. These offenses include, but are

not limited to, making false promises of a character

likely to induce, paying compensation to any unlicensed

person for licensed activity and failing to keep an

escrow or trust account for funds deposited with the

licensee. 225 Ill. Comp. Stat. Ann. 454/20-20. An

unlicensed person cannot collect commissions for

brokerage activities. 225 Ill. Comp. Stat. Ann. 454/10-

15. Acting as a broker or salesperson while unlicensed

is punishable by a $25,000 fine. 225 Ill. Comp. Stat.

Ann. 454/20-10.

43. Nonresident licensees irrevocably consent to

service of process through DFPR. Process served on

DFPR constitutes service on the licensee as though the

licensee were personally served in the State. 225 au.

Comp. Stat. Ann. 454/5-60.

44, Employing brukers are required to have written

employment agreements with every salesperson it

employs or utilizes as an independent contract that

addresses the terms of the relationship, including

supervision, duties, compensation and termination. 225

Ill. Comp. Stat. Ann. 454/10-20.

45. Under the Timeshare Act, an agent reselling a

timeshare interest is required to deposit any fees

collected prior to closing into an escrow account. Any

fees paid to the agent prior to closing may be disbursed

46a

only upon receipt of a disbursement authorization

signed by the owner in the following form:

I, (name of owner), am the owner of a timeshare

interest in (name of timeshare plan). I

understand that for my protection I can require

the entire fee to be held in escrow until the

closing on the resale of my timeshare interest,

but I am authorizing a release before the

transfer in the following amount: (amount

written in words) ($ (amount in numbers)), for

the following purpose or purposes (description of

purpose or purposes). I understand that the

resale agent is regulated by [DF PR] under the

Real Estate Timeshare Act of 1999. [DFPR]

requires the resale agent to obtain this

disbursement authorization with my signature

before disbursement of my funds.

765 Ill. Comp. Stat. Ann. 101/5-40.

46. To obtain authority as a foreign corporation from

the Illinois Secretary of State, a corporation must pay a

$150 fee and file an application that includes, among

other information, the aggregate number of shares it

has authority to issue, itemized by class, a statement of

the paid-in capital of the corporation, an estimate of the

dollar value of all property to be owned by the

corporation, wherever located and an estimate of the

gross amount of business to be transacted during the

year. 805 Ill. Comp. Stat. Ann. 5/13-15. The corporation

also must file annual reports that include this

information, along with a $75 fee. 805 Ill. Comp. Stat.

Ann. 5/14-05. In addition, foreign corporations are

47a

subject to license fees and franchise fees. 805 Ill. Comp.

Stat. Ann. 5/15-50, 805 Ill. Comp. Stat. Ann. 5/15-65.

Texas

47. The Texas licensing requirements are more

extensive than those of many other states. The real

estate licensing scheme of Texas is briefly described in

the following paragraphs.

43. In Texas, a real estate broker is any person who,

"In exchange for a commission or other valuable

consideration or with the expectation of receiving a

commission or other valuable consideration . . . for

another person" sells, offers to sell, negotiates the

listing or sale, lists, appraises, auctions, buys or options

real estate. A real estate salesperson "means a person

associated with a licensed broker for the purposes of

performing acts or transactions comprehended by the

definition of real estate broker as defined in the Texas

Real Estate License Act. Tex. Occ. Code Ann.

§ 1101.02.

49. Applicants for a broker's license must complete

60 semester hours (180 hours), or equivalent classroom

hours of core real estate courses to be eligible for a

license. Tex. Occ. Code Ann. § 1101.356. Applicants for

a salesperson's license must complete 12 semester

hours in core real estate courses, including 4 hours in

principles of real estate and 2 hours each in the law of

agency and contract law. Tex. Occ. Code Ann.

§ 1101.358. Core real estate courses include, but are not

limited to, principles of real estate, real estate

appraisal, real estate law, real estate finance, real

estate marketing, real estate mathematics, real estate

48a

brokerage, property management, real _ estate

investments, and agency law. Tex. Occ. Code Ann.

§ 1101.003. Before the first, second and third annual

renewal, salespersons must respectively complete 14,

16, and 18 semester hours of post-licensure education

per annual renewal period. Tex. Occ. Code Ann.

§ 1101.454. All licensees, not subject to post-licensure

educational requirements, must*complete 15 classroom

hours of continuing education requirements approved

by the Reat Estate Commission for each annual

renewal. Texas Real Estate License Act § TA.

Applicants for a broker's license must pay a $300

application fee, $10 Recovery Fund Fee for each

renewal and $59 for a licensing exam. Applicants for a

salesperson's license must pay a $69.50 application fee,

$49 for the first three annual renewals and $102 for

each renewal thereafter and $59 for a licensing exam.

Resident Texas brokers must maintain an office within

Texas. Tex. Occ. Code Ann. § 1101.552.

50. The Texas Real Estate Commission is authorized

to suspend or revoke any license or impose fines for a

host of enumerated offenses. Such offenses include, but

are not limited to, violation of the Real Estate License

Act, making a misrepresentation or false promise,

failing to properly disclose an agency, failing to account

for money or commissions, misuse of funds, failing to

disclose commissions, guaranteeing profit on sale of real

property, accepting secret profits, offering real estate

for sale without the consent of the owner, failing to

deposit money into an escrow account, or failing to

produce books to the Real Estate Commission for an

investigation. Administrative penalties up to $1,000

may be imposed. Tex. Occ. Code Ann. $§ 1101.651,

1101.652, 1101.702.

ae):

49a

Other States

51. If Florida, California, Arizona and Illinois can

require Stroman to comply with their respective laws

pertaining to real estate sales for its interstate

timeshare resale activities, Stroman would likewise be

subject to the laws of the other states, all of which have

similar definitions of "broker," or explicitly include

soliciting timeshare sales in their definitions of broker, ¢

have educational requirements that are redundant and

include topics not relevant to the timeshare resale

business, and repeating fees. Thus, for example,

Colorado, Virginia, and Pennsylvania all. similarly

define broker and salesman or specifically include those

involved in timeshare sales within their definition, all

have their own fee structures and educational

requirements, all subject licensees to fines and other

_ penalties for violations of rules and regulations, and all

' prohibit fraud or misrepresentation. The laws of many

of those states would require or permit Stroman to act

inconsistently with the requirements of Illinois.

BAS RIRaSG Ae rahi ie a Ge eee ge metas ey yk

e 52. An applicant for a Colorado real estate broker's

_ license must complete 48 hours of classrooin instruction

| or equivalent correspondent huurs in Culoradu

contracts and regulations and 24 hours in real estate

closings regardless of any real estate licensure in any

other jurisdictions. There are additional requirements

of 168 hours for brokers who have not been licensed by

another state. Courses include real estate law, real

estate practice, trust accounts and record-keeping, real

estate closing and real estate finance. Brokers licensed

by another state do not have to take the additional 96

hours. Colo. Rev. Stat. § 2-61-103(4), (5). A portion of

Colorado's triennial continuing education requirements

50a

must be met by courses taken at Colorado schools. Colo.

Rev. Stat. § 12-61-110.5. In Colorado, advance fees

collected for advertising purposes must be maintained

in a trust fund in a Colorado bank or recognized

depository and may not be withdrawn until the services

agreed upon have been fully performed. Rules and

Regulations at the Real Estate Commission § E-2. A

Colorado real estate broker is required to use a

standard form approved by the Real Estate

Commission for any listing contract unless the

agreement was prepared by an attorney representing a

party in the transaction. Rules and Regulations of the

Real Estate Commission § F-1.

53. Violation of enumerated offenses by a licensee

subjects the licensee to license probation, suspension,

revocation or a fine not to exceed $2500. Violations

include, among other things, misrepresentation, false

promises, violation of the Colorado Consumer

Protection Act, conflicts of interest, improper handling

and accounting of funds, converting funds of others,

improper record keeping, incompetence or

unworthiness, secret fees or self dealing, or failing to

adequately document continuing education completion.

Practicing as a real estate broker or salesperson

without a license is a misdemeanor punishable by a fine

of not more than $500 or by imprisonment not to exceed ~—

six months, or, if a corporation, by fine not to exceed

$5000. Colo. Rev. Stats. §§ 12-61-113, 12-61-119.

54. An applicant for a Virginia broker's license must

take 12 semester-hours of real estate courses. Va. Code

Ann. § 54.1-2105(B)(2). Applicants for a salesperson's

license must complete a 45 hour course in the principles

of real estate. Va. Code Ann. § 54.1-2105(B)(1); see 18

5la

Va. Admin. Code § 135-20-360(C)(5) (requiring 60 hours

of study in listed areas of study). Renewal of a Virginia

real estate license requires completion of 16 hours of

continuing education each licensing term of which 8

hours shall include federal fair housing laws, real estate

laws and regulations, ethics and standards of conduct.

Va. Code Ann. § 54.1-2105(E); 18 Va. Admin. Code

§ 135-20-100. Escrow accounts must be maintained in a

federally insured Virginia depository. 18 Va. Admin.

Code § 135-20-180(A)(1). An applicant licensed in

another jurisdiction may obtain a Virginia real estate

license by meeting criteria that essentially require that

the applicant met requirements in the other state that

were substantially similar to Virginia's education and

testing requirements. 18 Va. Admin. Code § 135-20-60.

55. The Virginia Real Estate Board has the power

to fine any licensee and to suspend or revoke any

license or registration for violation of the real estate

law including, but not limited to, failing to disclose an

interest, failing to disclose an agency relationship,

making misrepresentations, incompetence, conflicts of

interest, improper dealings, and improper maintenance

of escrow funds. ie Ms Admin. Code

§§ 135-20-155, 135-20-260.

52a

56. In Pennsylvania, a real estate broker is any

person who, for another person and a fee, assists

another to acquire real estate, negotiates the listing,

sale, or time share for real estate, or undertakes to

promote the sale or purchase of real estate. 63 Pa. Cons.

Stat. § 455.201, 49 Pa. Code, § 35.201. A salesperson is

any person assisting a broker in broker activities. Id.

Each must be licensed to do business in Pennsylvania.

63 Pa. Cons. Stat. § 455.301. Applicants for a broker's

license must pay $40 for the licensing examination, $40

for the review of qualifications, $75 for the application

and $42 to $84 (depending on biennial period) to obtain

an original license. 49 Pa. Code § 35.203. Applicants for

a salesman's license must pay $40 for a licensing

examination, $25 application fee and $32 to $64

(depending on biennial period) license fee. Id.

57. Brokers must complete 240 hours or 16 credits of

instruction, half in four of the following courses: real

estate law, real estate finance, real estate investment,

residential property management, nonresidential

property management, real estate sales, real estate

brokerage and _ office management, residential

construction, appraisal of residential property, and

appraisal of income-producing property. 63 Pa. Stat.

Ann. § 455.511(8), 49 Pa. Code § 35.271. An applicant

may receive two credits for each year that the applicant

has been practicing in another jurisdiction with a real

estate license. 49 Pa. Code § 35.271(b)(6). Real estate

schools outside of Pennsylvania which have been

approved "by the real estate licensing authority of the

jurisdiction where the real estate education provider is

located" will be accepted by the commission to fulfill the

educational requirements. 49 Pa. Code § 35.271 (b)(iii).

Salespersons must complete 60 hours of instruction in

53a

basic real estate courses as a prerequisite to licensure.

63 Pa. Cons. Stat. § 455.521(2). 49 Pa. Code,

§ 35.272(a)(2). Brokers and salespersons must also

complete a 14-hour Commission-approved continuing

education program to be eligible for a biennial license

renewal. 63 Pa. Stat. Ann. § 455.404a(b); 49 Pa. Code

§ 35.382(b).

58. Pennsylvania has a_ special category for

timeshare salespersons who is a person who sells or

offers to sell time shares in the employ of another or as

an independent contractor, under the supervision of a

real estate broker. 63 Pa. Cons. Stat. § 455.201. The

aggregate fees for an applicant for time-share

salespersons is $97 to $129 (depending on biennial

period). 49 Pa. Code § 35.203. Time-share salespersons

must also complete 30 hours of instruction in contract

law, sales practices, procedures and ethics, and basic

resort timesharing theory and then complete 30 days of

on-site training at a time share facility under the

supervision of a licensed broker. 63 Pa. Stat. Ann.

§ 455.591.

a9. Listing agreements must disclose that a Real

Estate Recovery Fund is available "to reimburse a

person who has obtained a final civil judgment against a

Commonwealth real estate licensee owing to fraud,

misrepresentation or deceit in a real estate transaction

.. 49 Pa. Code, § 35.331(a)(1). In any listing

agreement or contract of agency with a seller, a broker

must disclose that the broker's commission and time

period of the listing are negotiable, the purpose of the

Pennsylvania Real Estate Recovery Fund and the

commission telephone number at which the seller may

obtain further information. 63 Pa. Cons. Stat. §$ 455.608.

54a

Any sales agreement or contract must contain a

disclosure to prospective buyers about whether the

broker represents the buyer or seller, a statement

regarding the Real Estate Recovery Fund, a statement

regarding zoning classifications and a statement that

access to public roads may require a permit. 63 Pa.

Cons. Stat. § 455.608b. A purchase contract for a

timeshare must contain the following:

You, the purchaser, may cancel this purchase at

any time prior to midnight of the fifth day

following the date of this transaction. If you

desire to cancel, you are required to notify the

seller, in writing, at (address) ....

63 Pa. Stat. Ann. § 455.609(b).

60. All licensees are subject to disciplinary ‘action if

found guilty of any of the following acts: making a

misrepresentation or false promise, failing to hold all

fees until the consummation of the _ transaction,

commingling funds, failing to deposit a principal's funds

in a trust account, failing to produce trust fund rewards

to the commission, failing to maintain records for three

years, acting for more than one party in a transaction,

failing to furnish all signatories with a copy of a

contract, self dealings, obtaining secret profits, being

convicted of felony, violating any Commission Rule,

conducting deceptive contests, showing incompetence,

unworthiness, bad faith, or dishonesty, etc. 63 Pa Stat.

Ann. § 455.604(a). Practicing real estate without an

active license is unlawful and punishable as a criminal

summary offense by a $500 fine and/or 3 months

imprisonment; subsequent offenses are considered third

degree felonies punishable by a $2,000 to $5,000 fine and

5ba

between one to two years incarceration. 63 Pa. Cons.

Stat. §§ 455.301, 455.303. Unlicensed practitioners of

real estate may not prosecute an action for the recovery

of real estate commissions or fees. 63 Pa. Cons. Stat.

§ 455.302. Licensed and unlicensed practitioners of real

estate may also be assessed a civil penalty by the

commission not to exceed $1,000 for a violation of the

Pennsylvania Real Estate Licensing and

Administration Act. 63 Pa. Cons. Stat. § 455.305.

61. If Stroman is subject to the licensing laws of

Florida, California, Arizona and Illinois, then it is also

subject to the licensing laws of the other 46 states. If so,

each of its sales personnel will have to be licensed in all

fifty states, because no one can anticipate what three

states (location of buyer, seller and property) will be

involved in any negotiation or transaction. In many

cases, more than three states will be involved because

Stroman's Sales Associates often talk to potential

buyers in many states about a specific property before

a sale is consummated. Stroman could not possibly

afford the cost of the hundreds of hours lost for each

agent to become licensed and remain in compliance with

fifty different states as well as the hundreds of

thousands of dollars this licensing would cost, not only

initially but on an ongoing basis. If it were required to

be licensed in California, Florida, Arizona and Illinois,

Stroman would have no choice but leave the business,

as would other timeshare resale brokers like Stroman.

As a result, the volume of sales in interstate commerce

would significantly decline, timeshare owners would be

significantly deprived of access to the secondary

market, and Stroman's multimillion dollar investment

over the last 25 years in the business will be lost.

56a

62. Enforcement of Illinois's real estate licensing

laws and regulations against Stroman, in practical

effect, discriminates against interstate commerce,

unduly burdens interstate commerce, will force

Stroman out of the' timeshare resale business and

deprive actual and potential buyers and sellers of

timeshares on the secondary resale market; of the

ability to effectively participate therein on their own or

through their selected and/or local broker.

63. Illinois's reai estate licensing laws discriminate

against interstate commerce, in effect, by forcing

Stroman and other participants in the secondary

market to undertake heavy burdens that local

participants who compete with Stroman do not have to

bear. For example, among other things, under Illinois

law, Stroman would not only have the extra expense of

having eighty or more salespersons obtain and maintain

Illinois licenses, even though Stroman and its sales

people already hold licenses in ‘l'exas, Stroman also will

have the additional expense of creating written

employment agreements for all of its agents. These

expenses would force Stroman to withdraw from doing

business with Illinois residents or timeshares located in

Illinois. Local licensees do not have the extra cost of

obtaining and maintaining licenses in more than one

jurisdiction, or of maintaining multiple transaction and

employment records.

64. The effect of applying Lilinois’s locaj licensing

legislation to the interstate business of timeshare

resales is to create such barriers to the conduct of

interstate business that Stroman is deprived of access

to local demand for its services in violation of the

Commerce Clause. This discriminatorily favors the local

57a

business interests of developers in Illinois who want to

limit and/or suppress the national and international

secondary resale market and the local brokers who

generally limit their business to timeshares within their

single state.

65. Since many state laws are _ inconsistent,

subjecting Stroman's interstate business in the

secondary timeshare resale market to local legislation

such as that of Illinois will subject Stroman to a

hodgepodge of different and/or inconsistent regulations

that will make it impossible or impossibly expensive to

participate in this interstate commerce, including, but

not limited to, disclosure requirements, advance fee

laws, right to cancel provisions, and record-keeping

requirements.

66. Application of Illinois's real estate licensing law

and the regulations relating thereto to Stroman's

interstate business in the secondary market for

timeshare resales violates Article I, Section 3, clause 8

of the Constitution of the United States because, among

other reasons:

a) the application in effect discriminates

against interstate commerce in favor of local business

and as such is per se illegal because there are

alternative ways for Illinois to accommodate any

legitimate state interest it may have relating to this

commerce;

b) the application creates an undue burden

on interstate commerce by placing an_ intolerable

financial burden on Stroman due to, among other

things, the education requirements, reporting

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requirements, requirement that it have written

employment agreements with all of its salespeople,

requirement that it register as a foreign corporation

and escrow deposit disclosure requirement under the

Timeshare Act, and by subjecting Stroman to

requirements that are inconsistent with’ the

requirements of other states which are involved in the

continuous flow of the same interstate commerce;

c) the application creates an undue burden

on interstate commerce by subjecting Stroman to

requirements that bear little or no relationship to any

legitimate regulatory interest that Illinois may have;

d) the application creates a burden on

interstate commerce that is excessive in relation to any

local benefit that might be obtained thereby;

e) the application projects the effect of

Illinois's laws into other states by forcing Stroman to

comply with Illinois’ laws in timeshare resale

transactions involving residents of different states;

f) the application requires Stroman to obtain

a license to engage in interstate commerce;

g) this is an area of commerce that requires

uniform regulation.

67. As a result of Illinots's enforcement and efforts

to enforce the Real Estate License Act of 2000 and the

regulations promulgated thereunder, Stroman has

suffered and will continue to suffer irreparable injury in

the form of lost sales and profits, increased expenses,

exposure to fines, exposure of its contracts to being

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declared invalid and the potential of being forced out of

business. Stroman will not be able to obtain

compensation for these injuries. Stroman will continue

to suffer these injuries unless enforcement of the

foregoing laws and related regulations is enjoined.

WHEREFORE, Stroman requests the entry of

an order:

a) preliminarily and permanently enjoining

Fernando E. Grillo, as Secretary of the Illinois

Department of Financial and Professional Regulation of

the State of Illinois from enforcing the Real Estate

License Act of 2000, 225 Ill. Comp. Stat. Ann. 454 and

the regulations thereunder against plaintiff in the

conduct of its business in the timeshare resale market

or such portions of said statutes and regulations that

the Court finds should be enjoined;

b) granting attorney's fees, costs and such

other and further relief as the Court deems just and

proper.

Respectfully submitted,

Attorney-In-Charge

/s/Leslie A. Powell

by Leslie A. Powell

Maryland Bar No. 03779

(by permission by Gerald M. Birnberg)

Law Offices of Leslie A. Powell

115 North Market Street

Frederick, Maryland 21701

Telephone: (301) 668-7575

Facsimile: (301) 668-7755

60a

/s/

Gerald M. Birnberg

Texas State Bar No. 02342000

Matt E. Rubin

Texas State Bar No. 1736162

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