Medical Malpractice Joint Underwriting Association of Rhodeisland, Plaintiff, Appellant, v. Mark A. Pfeiffer, Etc., Defendant, Appellee, 832 F.2d 240 (1st Cir. 1987)

The only issue presented on appeal is whether the district court erred by abstaining from adjudicating a challenge to the constitutionality of a state statute on the basis of principles announced in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S. Ct. 1236, 47 L. Ed. 2d 483 (1976), and by this court in Allstate Ins. Co. v. Sabbagh, 603 F.2d 228 (1st Cir. 1979) (relying on "Burford abstention" principles announced in Burford v. Sun Oil Co., 319 U.S. 315, 63 S. Ct. 1098, 87 L. Ed. 1424 (1943)). We hold that it did.

Appellant, Medical Malpractice Joint Underwriting Association of Rhode Island (JUA), is an involuntary association, mandated by state regulation,¹  of all insurance companies authorized to write medical malpractice insurance policies in the State of Rhode Island. An insurer must be a member of the JUA to transact this type of business in the state. Furthermore, the JUA is the exclusive agency through which medical malpractice insurance may be written in the state on a primary basis for physicians. Policies issued by the JUA are on an annual basis.

Appellee Mark Pfeiffer is Director of the Department of Business Regulation and Insurance Commissioner for Rhode Island. As Commissioner, he is required to set premium rates for policies issued by the JUA. Such rates are normally set annually. The Commissioner's orders are subject to review through the state judicial system.

Present rates were set in June of 1985 and normally would have been reviewed in June or July of 1986. Prior to this anticipated review, the JUA applied for a rate increase of 104.6 percent for the 1986-87 policy year. However, on June 26, 1986, R.I.Gen.Laws Sec. 42-14-2.4 (1986 Supp.) became effective, freezing medical malpractice premium rates at the 1985-86 levels.²  On the following day, the rate hearing was held at which the Commissioner necessarily dismissed the JUA's application because of this statute. The JUA anticipates a $13,500,000 increase in its deficit due to the freeze.

In response, the JUA brought this action on June 27, 1986 in United States District Court for the District of Rhode Island, claiming that its property was taken without due process when it was denied a rate hearing for the 1986-87 policy year. It sought various remedies under 42 U.S.C. § 1983, requesting, inter alia, a finding that Sec. 42-14-2.4 is unconstitutional.³  The district court, however, decided to abstain from reaching the merits of JUA's claims and dismissed the complaint.⁴ 

Discussion

Acting under its authority conferred by Article III of the United States Constitution, Congress has mandated, in part, that "[t]he district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331 (1982). In spite of this explicit legislative directive, and due to overriding principles of federalism, comity and judicial economy, the United States Supreme Court has carved out several limited exceptions to this mandated original jurisdiction. Appellee argues that abstention principles enunciated in Younger v. Harris, 401 U.S. 37, 91 S. Ct. 746, 27 L. Ed. 2d 669 (1971) [Younger doctrine], Colorado River Water Conservation District, supra, and Allstate Insurance Co., supra, require abstention in this case.⁵ 

Appellee correctly notes that the abstention principles underlying Younger are applicable to non-criminal proceedings when important state interests are involved. However, he fails to note that this doctrine, grounded on concepts of federalism and comity, counsels abstention under limited circumstances when there are pending or ongoing state judicial proceedings involving important state interests. See Middlesex Ethics Comm. v. Garden State Bar Ass'n, 457 U.S. 423, 431-32, 102 S. Ct. 2515, 2520-21, 73 L. Ed. 2d 116 (1982). The Younger doctrine does not provide an exception to Sec. 1331 federal court jurisdiction when, as here, state judicial proceedings have not commenced. Hawaii Housing Authority v. Midkiff, 467 U.S. 229, 238-39, 104 S. Ct. 2321, 2328, 81 L. Ed. 2d 186 (1984).

Similarly, reliance in this case by the district court and appellee on the principles underlying Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S. Ct. 1236, 47 L. Ed. 2d 483 (1976), is misplaced. First, that decision was not based on abstention. Id. at 813-17, 96 S. Ct. at 1244-46. Rather, dismissal of the federal action was approved due to considerations of "[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation." Id. at 817, 96 S. Ct. at 1246, quoting Kerotest Mfg. Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 183, 72 S. Ct. 219, 221, 96 L. Ed. 200 (1952). In particular, the Court was addressing a situation where concurrent state proceedings regarding the same subject matter had been initiated pursuant to a federal statute that authorized concurrent state court jurisdiction. Colorado River Water Conservation District, 424 U.S. at 806, 809, 96 S. Ct. at 1240, 1242. The Court also reached its decision based on clear federal policy to avoid piecemeal litigation regarding the rights in question, participation of one of the parties in other related ongoing state litigation, and the inconvenience of the federal forum. Id. at 819-20, 96 S. Ct. at 1247. None of these factors is present in this case. Neither are there other factors present sufficient to satisfy the Court's command that "[o]nly the clearest of justifications will warrant dismissal." See id. at 819, 96 S. Ct. at 1247.

Our abstention decision in Allstate Ins. Co., supra, is not inconsistent with our decision here.⁶  Allstate held that a district court properly abstained from entertaining a challenge to insurance rates set, after notice and hearing, by a state insurance commissioner. The commissioner's decision was subject to review by the state's highest court, which had the power not only to affirm or reverse the commissioner's order, but also to modify or amend it. Id. at 229. We relied heavily on the fact that the state court's review was not limited to constitutional questions, but included independent determinations of facts regarding the reasonableness of the commissioner's order. Id. at 233. We noted that, "[i]n short, the statutory appeal 'is an integral part of the regulatory process,' " and that the state court "has special powers which we do not possess to enable it to correct any problems in orders of the Commissioner without going to the extreme of forcing the whole process to begin anew." Id. In Allstate, we found that the state court could deal more completely and efficiently with an important local issue governed primarily by local factors and with which it had much greater expertise. Therefore, in the interests not only of federalism, but of comity and judicial efficiency, we allowed abstention under these "exceptional circumstances" as "an extraordinary and narrow exception to the duty of a District Court to adjudicate a controversy properly before it." Id. at 230 (quoting Colorado River Water Conservation District, 424 U.S. at 813, 96 S. Ct. at 1244).

The case before us does not present these exceptional factors. First, appellant does not complain of rates set after notice and hearing; rather, it complains of the very lack of a meaningful hearing resulting from a statutory mandate. We are not concerned, here, with interrupting a complex state regulatory process; the Rhode Island state legislature has already short-circuited that process by enacting the challenged statute. No factual determination by an agency is being challenged. A state court, reviewing this matter, could do nothing this court cannot do: it would not review the factual basis of an agency's decision with power to modify or amend it, but would be simply passing on the legality of a state statute. In this situation, the state courts are not a part of a regulatory process and possess no special powers not possessed by the district court to correct any constitutional problems with the Commissioner's order.

Simply, the district court was presented with a direct challenge to the legality of a state statute under the Constitution of the United States. As such, it is a "civil action ... arising under the Constitution" and district court jurisdiction is mandated by 28 U.S.C. § 1331. Jurisdiction cannot be avoided simply because the issue concerns a coherent state policy. See Zablocki v. Redhail, 434 U.S. 374, 380 n. 5, 98 S. Ct. 673, 677 n. 5, 54 L. Ed. 2d 618 (1978). As we have stated, "The state has no right to an unconstitutional policy, coherent or otherwise." Allstate Ins. Co., 603 F.2d at 232.⁷ 

We thus hold that a direct challenge to the constitutionality of an unambiguous state statute is not subject to the abstention doctrine, at least when there are no pending or ongoing concurrent state proceedings nor potential for disruption of state appellate procedures intimately related to a complex state regulatory process.

Reversed and remanded.