Hammer v. United States Department of Health and Human Services, No. 18-2523 (7th Cir. 2018)
Annotate this Case
Justia Opinion Summary
Want to stay in the know about new opinions from the Seventh Circuit US Court of Appeals?
Sign up for free summaries delivered directly to your inbox. Learn More ›
You already receive new opinion summaries from Seventh Circuit US Court of Appeals. Did you know we offer summary newsletters for even more practice areas and jurisdictions? Explore them here.
The Affordable Care Act’s three premium‐stabilization programs were designed to redistribute money among insurance companies and mitigate each company’s exposure to market risks, 42 U.S.C. 18061–18063. The Department of Health and Human Service (HHS) intended to implement these programs in a budget‐neutral way paying out only the funds that each program had taken in from other insurance companies. Land of Lincoln participated in these premium‐stabilization programs and incurred a debt of roughly $32 million but HHS owed Land of Lincoln over $70 million. HHS was not able to pay what it owed because it was taking in far less money than expected, and it refused to dip into its discretionary funds. Like other insurance companies, Land of Lincoln sought the overdue payments in an unsuccessful suit. Land of Lincoln became insolvent and began liquidation. Despite an Illinois court order, HHS began to offset its overdue payments against Land of Lincoln’s debt, as its own regulations permitted. The Director of the Illinois Department of Insurance, Land of Lincoln’s appointed liquidator, asked the state court for a declaration that HHS violated the order, but HHS removed the motion to federal district court arguing that the federal government was not subject to state court jurisdiction. The district court remanded the case back to state court relying on a narrow reading of 28 U.S.C. 1442, and principles of abstention. The Seventh Circuit reversed on both grounds and remanded to the district court.
Download PDF
In the United States Court of Appeals For the Seventh Circuit ____________________ No. 18 2523 JENNIFER HAMMER, Director of the Illinois Department of In surance and Liquidator of Land of Lincoln Mutual Health In surance Company, Plaintiff Appellee, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, Defendant Appellant. ____________________ Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 17 C 494 — Virginia M. Kendall, Judge. ____________________ SUBMITTED SEPTEMBER 20, 2018* — DECIDED SEPTEMBER 25, 2018 ____________________ * We have agreed unanimously to decide this case without oral argu ment because the briefs and record adequately present the facts and legal arguments, and oral argument would not significantly aid the court. FED. R. APP. P. 34(a)(2)(C). 2 No. 18 2523 Before ROVNER, HAMILTON, and ST. EVE, Circuit Judges. ST. EVE, Circuit Judge. The Department of Health and Hu man Services owed millions of dollars to the now defunct Land of Lincoln Mutual Health Insurance Company. Like wise, Land of Lincoln owed millions to HHS. As part of its regulatory oversight, HHS has elected to set o its own debt payments by first paying down Land of Lincoln’s debt. The Director of the Illinois Department of Insurance, who is Land of Lincoln’s appointed liquidator, contends that this seto vi olates an order issued by the Illinois court overseeing the liq uidation proceedings that prevents any creditors from setting o money owed to Land of Lincoln without prior leave of the court. The Director asked the state court for a declaration that HHS violated the order, but HHS removed the motion to fed eral district court arguing that the federal government was not subject to the state court’s jurisdiction. The district court remanded the case back to state court relying on a narrow reading of 28 U.S.C. § 1442, as well as principles of abstention. We reverse on both grounds and remand to the district court for further proceedings consistent with this opinion. I This case centers on debts in the A ordable Care Act’s three premium stabilization programs—the Risk Adjustment, Risk Corridor, and Reinsurance programs—all of which were designed to redistribute money among insurance companies and thereby mitigate each company’s exposure to risks in the market. See 42 U.S.C. §§ 18061–18063. For the purposes of this appeal, the parties broadly agree that HHS intended to imple ment these programs in a budget neutral way paying out only the funds that each program had taken in from other insur ance companies. No. 18 2523 3 Land of Lincoln participated in these premium stabiliza tion programs and incurred a debt of roughly $32 million in the Risk Adjustment program. This debt, though large, should not have been a problem for the company, as HHS owed Land of Lincoln over $70 million, the bulk of which it owed under the Risk Corridor program. The government, however, was not able to pay what it owed because it was tak ing in far less money than it had expected, and it refused to dip into its limited discretionary funds. Like other insurance companies, Land of Lincoln sought the overdue Risk Corridor payments in a suit with the Court of Federal Claims, but it was rebu ed, Land of Lincoln Mut. Health Ins. Co. v. United States, 129 Fed. Cl. 81 (2016), and the Federal Circuit a rmed the dismissal of the claim in Land of Lincoln Mut. Health Ins. Co. v. United States, 892 F.3d 1184 (Fed. Cir. 2018), and its com panion case Moda Health Plan, Inc. v. United States, 892 F.3d 1311 (Fed. Cir. 2018). By late 2016, Land of Lincoln was inca pable of paying its Risk Adjustment debt, and thus became insolvent and began rehabilitation proceedings that turned into a liquidation. As part of the liquidation, the Chancery Division of the Circuit Court of Cook County—one of two Illinois courts em powered to oversee insurance rehabilitation and liquidation, see 215 ILCS 5/199—entered an order naming the Director of the Illinois Department of Insurance as liquidator, see 215 ILCS 5/191, and prohibited all of Land of Lincoln’s creditors, including any “governmental entity,” from “setting o or netting monies owed Land of Lincoln without the prior leave of this Court.” See 215 ILCS 5/189. Despite this order and the Director’s protestations, HHS began to o set its over due payments against Land of Lincoln’s debt in the Risk Ad justment program, as its own regulations permitted, 4 No. 18 2523 see 45 C.F.R. § 156.1215(b). HHS has since withheld $27 mil lion in payments that it put toward Land of Lincoln’s debt. HHS’s refusal to comply led the Director to move the state court for a declaratory judgment finding that HHS was in vi olation of the court’s order. In the motion, the Director as serted that she “is not asking at this point that [HHS] be or dered to release the funds or pay them over to the estate,” and instead she hoped that the declaration would lead HHS to fol low the order of its own accord. In the event HHS did not choose to comply, the Director expressly asked for “leave to seek an appropriate remedy.” HHS removed the Director’s motion to the United States District Court for the Northern District of Illinois under the federal o cer removal statute, 28 U.S.C. § 1442, that permits “[t]he United States or any agency thereof” to remove a “civil action … that is commenced in a State court and that is against or directed to” the agency. Because the full liquidation pro ceeding in the Chancery Division of the Circuit Court of Cook County was not removable, HHS relied on § 1442(d)(1), which permits an agency to remove, separate from the entire case, “any proceeding (whether or not ancillary to another pro ceeding) to the extent that in such proceeding a judicial order, including a subpoena for testimony or documents, is sought or issued.” Shortly after removal, HHS filed a Federal Rule of Civil Procedure 12(b)(1) motion to dismiss under the doctrine of “derivative jurisdiction,” see Rodas v. Seidlin, 656 F.3d 610, 615–16 (7th Cir. 2011), arguing that the state court lacked ju risdiction over the United States. In its motion, HHS argued that because the United States had not waived its sovereign immunity, the federal court could not hear the case except as No. 18 2523 5 an original suit. The Director responded by moving to re mand the case back to state court. The district court granted the Director’s motion to re mand. Relying on the legislative history surrounding § 1442(d)(1), the district court concluded that Congress had not aimed that provision toward this sort of motion for de claratory relief, but instead Congress was concerned, princi pally, with removal of actions “pertaining to pre suit discov ery and specifically those a ecting Federal o cers.” Because the district court thought it necessary to construe the statute strictly against removal, it determined that it lacked removal jurisdiction over this motion, which neither related to discov ery nor involved an o cer. The district court then certified its remand order. See 28 U.S.C. § 1447(c); N.D. ILL. L.R. 81.2 HHS filed a timely motion for reconsideration, which the district court denied mainly because HHS had only rehashed its earlier arguments for removal, which the district court al ready had thoroughly addressed. At that time, the district court also bolstered its decision to remand explaining that even if it had erred in remanding on statutory grounds, it would have exercised its discretion to remand under the ab stention doctrine first set forth in Burford v. Sun Oil Co., 319 U.S. 315 (1943). In the district court’s view, removal of this motion would be disruptive to the state’s e orts to establish a uniform rehabilitation system centralized in specialized state courts. The district court further concluded that federal policy favoring state regulation of insurance—codified in the McCarran Ferguson Act, 15 U.S.C. § 1012—also favored ab stention. Again, the district court certified its remand order, and, that same day, the state court began to schedule briefing on the Director’s motion for declaratory relief. HHS timely 6 No. 18 2523 appealed from the order denying its motion to reconsider, and we expedited the appeal to minimize the uncertainty sur rounding the state court’s jurisdiction to proceed on the Di rector’s declaratory relief motion.1 II We begin, as we must, with our jurisdiction to consider this appeal. See P.H. Glatfelter Co. v. Windward Prospects Ltd., 847 F.3d 452, 455 (7th Cir. 2017). An order remanding a case to state court is a final order that is reviewable on appeal un less there is some other prohibition on review. See Quackenbush v Allstate Ins. Co., 517 U.S. 706, 714–15 (1996); Benson v. SI Handling Sys., Inc., 188 F.3d 780, 782 (7th Cir. 1999). In most cases removed from state court, 28 U.S.C. § 1447(d) provides such a constraint by prohibiting review “on appeal or otherwise.” Section 1447(d), however, provides an exception for “an order remanding a case to the State court from which it was removed pursuant to section 1442.” HHS sought removal under § 1442, therefore, we may consider this appeal. See Lu Junhong v. Boeing Co., 792 F.3d 805, 808 (7th Cir. 2015). Because the remand order in this case is reviewable, the certification of the remand order imposes no independent bar on either our jurisdiction or the district court’s jurisdiction. In reaching this conclusion, we join the three other circuits that have considered this issue. See Shapiro v. Logistec USA, Inc., 412 F.3d 307, 312 (2d Cir. 2005); Hudson United Bank v. LiTenda 1 HHS moved this court to stay the remand, but we denied the motion because the district court had already certified its remand orders and the case had returned to state court; therefore, there was nothing for this court to stay. See Hudson United Bank v. LiTenda Mortg. Corp., 142 F.3d 151, 154 n.6 (3d Cir. 1998). No. 18 2523 7 Mortg. Corp., 142 F.3d 151, 159 (3d Cir. 1998); In re Digicon Ma rine, Inc., 966 F.2d 158, 160 61 (5th Cir. 1992). Secure in our jurisdiction over this appeal, we move to the merits. III HHS first argues that the district court erred in concluding that it lacked subject matter jurisdiction over this case under the federal o cer and agency removal statute, 28 U.S.C. § 1442. Removal under § 1442 creates an exception to the “well pleaded complaint” rule and allows removal of a case that presents a federal question beyond the narrow confines of the complaint, including a case in which an o cer or agency can raise a “colorable” federal defense. See Je erson Cty. v. Acker, 527 U.S. 423, 431 (1999); Rodas, 656 F.3d at 616 17. Because this case centers on the text of § 1442, we set out the relevant parts of that statute in their entirety: (a) A civil action or criminal prosecution that is commenced in a State court and that is against or directed to any of the following may be re moved by them to the district court of the United States for the district and division em bracing the place wherein it is pending: (1) The United States or any agency thereof or any o cer (or any person acting under that o cer) of the United States or of any agency thereof, in an o cial or individual capacity, for or relating to any act under color of such o ce or on account of any right, title or au thority claimed under any Act of Congress for the apprehension or punishment of crim inals or the collection of the revenue. 8 No. 18 2523 …. (d) In this section, the following definitions apply: (1) The terms “civil action” and “criminal pros ecution” include any proceeding (whether or not ancillary to another proceeding) to the extent that in such proceeding a judicial or der, including a subpoena for testimony or documents, is sought or issued. If removal is sought for a proceeding described in the pre vious sentence, and there is no other basis for removal, only that proceeding may be re moved to the district court. Therefore, § 1442 allows removal of any proceeding that meets the following requirements: (1) the proceeding must be a “civil action,” (2) the civil action must be “against or di rected to” the removing party, (3) the removing party must be one of the entities listed, (4) and the civil action must be “for or relating to any act under color of such o ce.” As previ ously mentioned, the Supreme Court has interpreted this last element as requiring a “colorable” federal defense. See Acker, 527 U.S. at 431; Mesa v. California, 489 U.S. 121, 129 (1989). On appeal, the Director does not contest that HHS is an agency of the United States, but she argues that it has not met the other three elements. No. 18 2523 9 A We start with the element that the district court found dis positive—whether the motion for declaratory relief is a “civil action.” The district court opined that HHS’s removal “ap pears to fall within [§ 1442(d)(1)], but [that] a closer look at the legislative history reveals the distinct purpose behind Con gress’s amendment.” In the court’s view, that purpose was aimed at ancillary civil actions “pertaining to pre suit discov ery and specifically those affecting Federal officers.” The court relied on legislative history showing that Congress was particularly concerned with an attempt to seek discovery from a congresswoman without having filed a suit against her. See H.R. Rep. 112 17, at 3–4, reprinted in 2011 U.S.C.C.A.N. 420, 422–23 (describing Price v. Johnson, 600 F.3d 460 (5th Cir. 2010)). Because the motion for declaratory relief neither re lated to discovery nor affected an individual federal officer, and the district court considered itself duty bound to con strue the removal statute narrowly, the court concluded that the motion for declaratory relief was not an “ancillary pro ceeding,” and therefore not a “civil action,” within the mean ing of § 1442. On appeal, HHS argues that the district court erred in nar rowly construing § 1442(d)(1). Even assuming that a narrow construction was necessary, HHS asserts that the plain text of the statute applies to the motion in this case, making it remov able. We agree with both points. We have yet to interpret the definition of “civil action” provided in 28 U.S.C. § 1442(d)(1), but three of our sister cir cuits have done so. Each concluded that a motion, not related to discovery, was removable separately from an underlying case not otherwise removable, and none of the circuit courts 10 No. 18 2523 conditioned removal on the involvement of an individual of ficer. See Doe v. Office of Refugee Resettlement, 884 F.3d 269, 273 n.8 (5th Cir. 2018) (state court order requiring agency, as cus todian of minor, to “facilitate access” to the minor is a civil action); Goncalves ex rel. Goncalves v. Rady Children’s Hosp. San Diego, 865 F.3d 1237, 1249–1251 (9th Cir. 2017) (motion to ex punge lien on settlement is a civil action); In re Common wealth’s Motion to Appoint Counsel Against or Directed to Def. Assoc. of Phila., 790 F.3d 457, 467 (3d Cir. 2015) (motion to dis qualify criminal defense attorney is a civil action). The district court relied on our decision in Morris v. Nuzzo, 718 F.3d 660, 670 (7th Cir. 2013), for a narrow construction rule applicable to removal statutes, but that case involved re moval under 28 U.S.C. § 1441(b) based on diversity jurisdic tion. See id. at 664. To the extent there is a presumption against removal in ordinary diversity cases, it does not extend to cases in which there is a contrary congressional policy favor ing removal. Dart Cherokee Basin Operating Co. v. Owens, 135 S. Ct. 547, 554 (2014) (involving the Class Action Fairness Act, 28 U.S.C. § 1332(d)). The Supreme Court has repeatedly found such a congressional policy in § 1442, and it has instructed courts that “this policy should not be frustrated by a narrow, grudging interpretation.” Willingham v. Morgan, 395 U.S. 402, 407 (1969). Instead, the Court has directed that “[t]he federal officer removal statute is not ‘narrow’ or ‘limited,’” id. at 406, and the statute must be “liberally construed,” Watson v. Philip Morris Cos., 551 U.S. 142, 147 (2007). Turning to the text of § 1442, it does not support the dis trict court’s conclusion that it lacked jurisdiction because the Director’s motion was neither directed at an individual officer No. 18 2523 11 nor related to discovery. The definition of “civil action” is in dependent of the nature of the party removing. Section 1442(a) uses the term “civil action” only once to refer to all the different entities and persons that may remove a case under the section, including individual officers, persons acting un der those officers, federal agencies, and the United States it self. Due to this drafting choice, the text of the statute gives no reason to believe that the phrase “civil action” should have different meanings depending on whether the defendant is an officer or an agency. The text of the statute also gives no reason to limit removal only to discovery disputes. The statute applies to any pro ceeding seeking a “judicial order, including a subpoena for tes timony or documents.” 28 U.S.C. § 1442(d)(1) (emphasis added). Words like “including” generally broaden the scope of a statute. See Samantar v. Yousuf, 560 U.S. 305, 317 & n.10 (2010). Accordingly, the only question is whether the Director is seeking a judicial order, and we are certain she is because her request is for a “declaratory judgment or order” per 735 ILCS 5/2 701. Because the Director seeks an order declaring her right to money withheld by HHS, her motion requesting that order is an “ancillary proceeding” and, therefore, a “civil action” within the plain text of § 1442. There is no need then to delve into the legislative history. See Singh v. Sessions, 898 F.3d 720, 725–26 (7th Cir. 2018). B Next, the motion for declaratory relief is also “against or directed” to HHS within the meaning of § 1442. The district 12 No. 18 2523 court correctly recognized that the liquidation of Land of Lin coln (as a whole) was not a civil action “against or directed to” HHS, or any other part of the federal government. The gov ernment merely has an interest in the proceeding that does not, inherently, make it a party. See United States v. Rural Elec. Convenience Co op Co., 922 F.2d 429, 434–35 (7th Cir. 1991). The Director contends that this ends the inquiry. If Congress wanted to allow agencies to remove only portions of proceed ings, the Director reasons, it could have worded 28 U.S.C. § 1442 as it did in § 1452(a), which allows removal of “any claim or cause of action.” The Director’s position has two faults. First, it wrenches the district court’s reasoning from its context. As the court correctly explained, “removal could only be proper if contem plated as arising from an ancillary proceeding [and] Section 1442(a) does not otherwise provide that DHHS can remove the action as a non ancillary proceeding.” This part of the dis trict court’s analysis is correct because this case is removable only if it is an ancillary proceeding. The district court erred solely in its determination that this case was not an ancillary proceeding. Second, we cannot ignore the plain meaning of the statute because Congress could have, arguably, made the statute’s meaning even plainer. (Though we also question the Direc tor’s premise and doubt that the language in § 1452 would be clearer in this context because a motion is not a “claim or cause of action,” but it does seek a “judicial order.”) Regard less, “[t]he mere possibility of clearer phrasing cannot defeat the most natural reading of a statute.” Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, 566 U.S. 399, 416 (2012). The language governing removal of ancillary proceedings states that “[i]f No. 18 2523 13 removal is sought for a proceeding described in the previous sentence, and there is no other basis of removal, only that pro ceeding may be removed to the district court.” 28 U.S.C. § 1442(d)(1) (emphasis added). If “only” some portion of a proceeding is removable, then that necessarily implies that other portions of that proceeding are not. See Doe, 884 F.3d at 273 n.8. We agree with the Ninth Circuit that any other reading of the statute would “create an incentive for forum shopping” and make the availability of a federal forum un duly dependent on the manner by which a litigant chooses to challenge federal action—whether in an independent suit or through a motion ancillary to some other claim. Goncalves, 865 F.3d at 1251. Having concluded that the statute allows removal of only part of a proceeding, we turn to whether the Director’s motion is “against or directed to” HHS. That much is plain from the fact that the Director served HHS with a notice of the Direc tor’s motion, and HHS must respond to the motion. That the Director may eventually ask the court to order HHS to pro duce the withheld money only bolsters this conclusion. C We also agree with HHS that it has alleged a colorable fed eral defense. HHS specifically argues that the Director’s mo tion cannot proceed because it has not waived its sovereign immunity. It asked the district court to dismiss the case for lack of subject matter jurisdiction and now asks this court to do so in the district court’s stead. To conclude that removal was proper, we need find only a “colorable” or “plausible” federal defense, because removal is “concerned with who makes the ultimate determination, not what that determina tion will be.” Ruppel v. CBS Corp., 701 F.3d 1176, 1182 (7th Cir. 14 No. 18 2523 2012). We leave the merits of the federal defense in the capa ble hands of the district court. Id. The Director contends that HHS’s claim to sovereign im munity is baseless. In doing so, the Director does not rely on any waiver of sovereign immunity, express or implied, but instead argues that the liquidation proceeding does not impli cate sovereign immunity at all, because it is a proceeding in rem. The Director overstates her case. “[T]here is no general in rem exception to principles of sovereign immunity.” Zych v. Wrecked Vessel Believed to be the Lady Elgin, 960 F.2d 665, 669 (7th Cir. 1992). The Supreme Court concluded as much in United States v. Nordic Village, Inc., 503 U.S. 30, 38 (1992), where it held that 11 U.S.C. § 106(c), which acted as a limited waiver of the United States’s sovereign immunity in bankruptcy cases, did not waive its immunity for monetary liability. Id. at 34–37. After concluding that the statute did not act as a waiver, the Court expressly rejected the respondent’s fallback position that “a bankruptcy court’s in rem jurisdiction over rides sovereign immunity.” Id. at 38. Like the claims involved in Nordic Village, it is not clear that in rem jurisdiction extends to the claims in this case. The Director seeks “to recover a sum of money, not ‘particular dollars.’” Id. Though we explained in Blackhawk Heating & Plumbing Co. v. Geeslin, 530 F.2d 154, 158 (7th Cir. 1976), that it was “of no consequence” to the in rem nature of the pro ceeding “that the Illinois court does not have actual physical possession” of the assets of a liquidating insurance company, Blackhawk Heating involved property—securities held in es crow—not a monetary claim. Id. at 155, 158 n.5. It is “plausi ble”—the burden that HHS must meet to remove this case— No. 18 2523 15 that the reasoning of Blackhawk is confined to that situation. No one in that case, for example, doubted that the district court had jurisdiction to enter judgment in the underlying lit igation, even though the relevant liquidation proceedings had begun nine months before the district court entered judg ment. See id. at 156. The district court lacked only the “ancil lary jurisdiction” to execute that judgment through a petition to turn over the securities. Id. at 158. The two claims—one for a monetary judgment and the other for turnover of assets— “retained a separate identity.” Id.; cf. Fischer v. Am. United Life Ins. Co., 314 U.S. 549, 554–55 (1942) (holding that “determina tion … of the rights of the parties in the res” does not interfere with a different court’s jurisdiction over that res). Similarly, Land of Lincoln appears never to have doubted that the Fed eral Circuit or the Court of Federal Claims had the authority to order HHS to pay its Risk Corridor debt, even while the company was under liquidation. See Land of Lincoln, 892 F.3d at 1185 86. Next, the Director argues that the Supreme Court abro gated the reasoning of Nordic Village, and therefore Zych, in the later case of Central Virginia Cmty. College v. Katz, 546 U.S. 356 (2006). In Katz, the Court held that certain proceedings that were “ancillary to the Bankruptcy Court’s exercise of its in rem jurisdiction … did not implicate state sovereign im munity.” Id. at 371. It implied that a “mere declaration” was one such order, id., but it recognized that other orders, includ ing an order enforcing that declaration through a turnover ac tion, “might … involve in personam process,” even though they were “ancillary to and in furtherance of the court’s in rem jurisdiction.” Id. at 372. In refusing to decide whether a turn over action implicated the state’s sovereign immunity, the Court cited Nordic Village with approval. Id. at 372 n.10. In the 16 No. 18 2523 end, the Court held that the state’s immunity—to whatever extent it existed—had been waived by the ratification of the bankruptcy clause. Id. at 373. Even to the extent that the Director seeks a “mere declara tion,” HHS’s claim to sovereign immunity remains colorable. A contrary conclusion would imply that both statutes that create and court decisions that find waiver of the federal gov ernment’s sovereign immunity were wholly unnecessary, in cluding the version of 11 U.S.C. § 106(c) interpreted in Nordic Village. The Court read that section to abrogate the govern ment’s sovereign immunity with respect only to “’declaratory and injunctive’—though not monetary—relief against the Government.” Nordic Village, 503 U.S. at 35. In doing so, the Court collected cases from the courts of appeals in which the government had, prior to the enactment of § 106(c), asserted its immunity even to orders declaring debts dischargeable. Id. at 36. Likewise, our own case rejecting that argument also re lied on a waiver of sovereign immunity, albeit an implied one. See McKenzie v. United States, 536 F.2d 726, 728 (7th Cir. 1976). We think neither the Court’s interpretation of § 106(c) in Nor ris Village nor its in depth analysis of the history of the bank ruptcy clause in Katz were dicta, as the Director implies with her categorical rule that in rem jurisdiction does not offend sovereign immunity. Indeed, the Supreme Court continues to reject such a categorical rule, even after Katz. Just this past year, the Supreme Court issued an opinion recognizing—in the context of an Indian Tribe’s sovereign immunity—that a suit to quiet title’s in rem nature was not dispositive of the tribe’s sovereign immunity, and instead its previous holdings were based on statutory interpretation. Upper Skagit Indian Tribe v. Lundgren, 138 S. Ct. 1649, 1652 (2018). Both Congress No. 18 2523 17 and the courts have spilled too much ink on this issue to con clude that HHS’s claim to immunity is not “colorable.” Because HHS met the final element necessary for removal under § 1442, we conclude that the district court erred in re manding this case for lack of removal jurisdiction. IV That removal was proper does not end this appeal because the district court decided that, even if it had erred in constru ing § 1442, it would nevertheless abstain from hearing the case. We review the district court’s decision to abstain from exercising its jurisdiction for an abuse of discretion. Adkins v. VIM Recycling, Inc., 644 F.3d 483, 496 (7th Cir. 2011). As we have recognized, “[t]here is little or no discretion, however, to abstain in a case that does not meet traditional abstention re quirements, and that determination is a question of law.” Prop. & Cas. Ins. Ltd. v. Cent. Nat’l Ins. Co. of Omaha, 936 F.2d 319, 321 (7th Cir. 1991). It is well established that federal courts have a “virtually unflagging obligation … to exercise the jurisdiction given them.” Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976). This duty arises from the “undisputed constitutional principle that Congress, and not the judiciary, defines the scope of federal jurisdiction within the constitu tionally permissible bounds.” New Orleans Pub. Serv., Inc. v. Council of the City of New Orleans, 491 U.S. 350, 359 (1989) (NOPSI). There are, however, “’exceptional circumstances’ where denying a federal forum would clearly serve an im portant countervailing interest,” including a “regard for fed eral state relations.” Quackenbush, 517 U.S. at 716. In such a case, courts are put in the position of balancing “the strong 18 No. 18 2523 federal interest in having certain classes of cases, and certain federal rights, adjudicated in federal court, against the State’s interests in maintaining ‘uniformity in the treatment of an “essentially local problem.’’” Id. at 728 (quoting NOPSI, 491 U.S. at 362). This balance “only rarely favors abstention,” id., and abstention is always “the exception, not the rule.” Colo. River, 424 U.S. at 813.2 Here, the district court relied upon the abstention princi ple set out in Burford v. Sun Oil Co., 319 U.S. 315. In Burford, the Sun Oil Company argued that the Texas Railroad Com mission violated principles of due process when it issued an order granting Burford permission to drill oil wells on his land. Id. at 316–17. Texas had established a comprehensive and complex regulatory scheme for the allocation of these drilling rights centering on the Commission’s broad discre tion in administering this regulatory scheme. Id. at 320–25. Furthermore, the Texas legislature established a system of ju dicial review by its own state courts sitting in Travis County. Id. at 325. Though it was settled that the Commission’s actions did not violate the Constitution, the federal courts had been “called upon constantly to determine whether the Railroad Commission ha[d] acted within the scope of statutory author ity.” Id. at 328 & n.24. Federal court review of the Commis sion’s decisions inevitably led to “[d]elay, misunderstanding 2 HHS contends that abstention cannot be allowed here because, un der Quackenbush, a federal court can abstain only if it is being asked to order discretionary—i.e., equitable or declaratory—relief. 517 U.S. at 730. With some trepidation, we will take the Director at her word that she is seeking only declaratory relief, and with that assumption, Quackenbush does not lead to a categorical bar on abstention here. No. 18 2523 19 of local law, and needless federal conflict with the State pol icy.” Id. at 327. This interference with fundamental questions of state law and policy rose to the level that both the legisla tive and executive branches of Texas’s government were re sponding to individual federal court decisions as they hap pened trying to fix the damage the federal courts were caus ing. Id. at 329 & nn. 25–26. In light of the “settled” and narrow constitutional issues, id. at 328, 331–32, the “basic problems of Texas policy” involved in every equitable decision, id. at 332, and the “expeditious and adequate” review available in the state courts, id. at 334, the Supreme Court affirmed the district court’s decision to abstain from exercising its equitable pow ers over the dispute. Id. The Supreme Court has generalized this standard in the intervening decades and clarified that Burford abstention is proper in only two circumstances. The first is “when there are ‘difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar.’” NOPSI, 491 U.S. at 361 (quoting Colo. River, 424 U.S. at 814). The second is “where the ‘exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent pol icy with respect to a matter of substantial public concern.” Id. A court may abstain under this second type of Burford absten tion “when principles of federalism warrant deference to a state’s regulatory regime.” Adkins, 644 F.3d at 504. Here, the district court correctly found that the first situation does not apply to this case, but nevertheless abstained under the sec ond type of Burford abstention. Relying on our decision in Hartford Casualty Insurance Co. v. Borg Warner Corp, 913 F.2d 419 (7th Cir. 1990), the district 20 No. 18 2523 court focused on four factors in deciding to abstain: (1) whether the suit is based on a cause of action that is exclu sively federal; (2) whether the suit requires the court to deter mine issues that are directly relevant to state policy in the reg ulation of the insurance industry; (3) whether state proce dures indicate a desire to create special state forums to regu late and adjudicate the issues; and (4) whether there are diffi cult or unusual state laws at issue. Id. at 425 (citing Grimes v. Crown Life Ins Co., 857 F.2d 699, 704–05 (10th Cir. 1988)). Re garding the first factor, the district court viewed the case as arising principally under state law with HHS raising only fed eral law defenses. Next, the district court gave great weight to Illinois’s interest in maintaining a uniform liquidation process and found that removal (and dismissal) of this case would disrupt that uniform process and lead to piecemeal litigation. Because the state court is competent to interpret federal law, the district court reasoned that the federal government’s in terest in removal was minimal. Also, the district court recog nized that Illinois’s provision concentrating liquidation pro ceedings to only two specific chancery courts, see 215 ILCS 5/199, sufficed to create a special forum. The district court did not opine on the fourth factor because the difficulty of state law questions is irrelevant to the second type of Burford ab stention. Finally, the district court considered the effect of the McCarran Ferguson Act, 15 U.S.C. § 1012, on this case. That act provides that “[n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance … un less such Act specifically relates to the business of insurance.” The district court declined to read that language to prohibit the use of the removal statute entirely, as the Director argued, No. 18 2523 21 but instead found the Act evinced a federal policy favoring abstention beyond the factors already considered. Though we, like the Tenth Circuit, see Oklahoma ex rel. Doak v. Acrisure Bus. Outsourcing Servs., LLC, 529 F. App’x 886, 896–97 (10th Cir. 2013), question the continuing validity of the Hartford factors after the Supreme Court’s decisions in NOPSI and Quackenbush, we will nevertheless approach the analysis in the same way the district court did. Even under that stand ard, we conclude that the district court abused its discretion in abstaining because this matter does not meet traditional ab stention requirements in the first instance. A Regarding the first factor, namely, the nature of the cause of action, the federal issues in this case eclipse any state issues that might arise. Therefore, under the ordinary rules of the Supremacy Clause, principles of federalism do not “warrant deference to the state’s regulatory regime.” Adkins, 644 F.3d at 504; cf. Illinois Bell Tel. Co. v. Glob. NAPs Ill., Inc., 551 F.3d 587, 595 (7th Cir. 2008) (recognizing that state’s implementa tion of federal law could not justify Burford abstention). To clarify, this case involves two debts owed to and by a federal agency under a federal regulatory regime, and the court must decide whether that agency can, consistent with a federal regulation, offset the two debts. On the other hand, the only application of state law to this case is whether HHS vio lated the state court order by offsetting its debt, which may or may not be “mutual” (and therefore permissible to offset) un der state law. The determination of that question would nec essarily require a court to answer antecedent federal ques tions, including, most importantly, whether the federal 22 No. 18 2523 agency enjoys sovereign immunity preventing the state court from deciding the state law question in the first place. More over, to the extent state law overcomes contrary general fed eral law under the McCarran Ferguson Act, that determina tion is itself a question of federal law, namely, the interpreta tion of the Act, see SEC v. Variable Annuity Life Ins. Co. of Am., 359 U.S. 65, 69 (1959), and the contrary preemption provision of the Affordable Care Act, 42 U.S.C. § 18041(d). Beyond whether questions of state or federal law predom inate, Congress has already decided, as a policy matter under 28 U.S.C. § 1442, that HHS’s federal defense should be de cided in federal court. Abstention doctrines are not intended to alter that sort of policy choice. See Adkins, 644 F.3d at 497. As explained above, Congress’s policy under § 1442 is that “federal officers, and indeed the Federal Government itself, require the protection of a federal forum.” Willingham, 395 U.S. at 407. Accordingly, the district court’s recognition that “HHS seeks only to raise federal defenses,” was a reason to exercise jurisdiction, not to relinquish it. Two courts of ap peals have held that there is never any discretion to abstain in a case removed under § 1442, although both courts were con sidering different abstention doctrines. See In re Common wealth s Motion, 790 F.3d at 475 n.10; Jamison v. Wiley, 14 F.3d 222, 239 (4th Cir. 1994). In contrast, the Director points us to no case in which a court of appeals has affirmed abstention of a case removed under § 1442, and we have not found one. Nevertheless, we need not declare an inviolable rule because a presumptive one will suffice. A federal court should not ab stain, absent the most extraordinary and exceptional circum stances, when the federal government has properly removed a case under § 1442. Adkins, 644 F.3d at 496 (“a federal court’s ability to abstain from exercising federal jurisdiction ‘is the No. 18 2523 23 exception, not the rule,’ and can be justified only in excep tional circumstances.”) (citations omitted). This case does not present such extraordinary circumstances, so HHS’s federal defense belongs in federal court. In addition, unlike the McCarran Amendment at issue in Colorado River, 424 U.S. at 819, we have in § 1442(d)(1) a federal policy in favor of piece meal removal of ancillary proceedings because of the substan tial import of federal defenses. Principles of Burford absten tion are not designed as an “end run around” that policy. See Adkins, 644 F.3d at 497. B The district court also gave too much weight to Illinois’s interests in a uniform liquidation proceeding and concen trated review of claims, while diminishing the complex fed eral policies and interests at play in this case. Removal of this one case is not “disruptive of state efforts to establish a coher ent policy.” NOPSI, 491 U.S. at 361. It is the opposite because the Director is asking the state court to interfere with a com plex federal regulatory system. Critically, the budget neutral nature of the premium sta bilization programs—in particular the Risk Adjustment pro gram in which Land of Lincoln owed money—means that HHS has already distributed the money it offset to other in surance companies which, like Land of Lincoln, needed that money to maintain solvency. HHS informs this court that there are more than twenty insurance companies throughout the country that are in rehabilitation or liquidation proceed ings and whose debts HHS has been offsetting to the tune of hundreds of millions of dollars. Exposing HHS’s ac tions—whether lawful or not—to the inconsistent decisions of so many different state fora could have dire consequences for 24 No. 18 2523 the complex regulatory framework of the Affordable Care Act, if not the insurance market as a whole. The federal gov ernment’s interest in the relative uniformity of the federal courts is substantial. In contrast, we do not see how removal of this case will disrupt the liquidation in Illinois court. The court can con tinue to freely distribute Land of Lincoln’s assets to creditors according to the state’s priority scheme, albeit with $27 mil lion less to distribute for now. The Director is justifiably wor ried that this money may not be distributed to Illinois policy holders if this case were removed. This is a lofty concern, and we do not disparage the Director’s desire to protect the people of her state. Nonetheless, whether the money ultimately goes to the benefit of the people of Illinois is a question of substan tive law. Equity, the origin of abstention principles, see Quackenbush, 517 U.S. at 717–18, has nothing to do with the question of sovereign immunity, which does not look to the “hardship” caused by immunity, but only to what Congress has or has not allowed, see Soriano v. United States, 352 U.S. 270, 277 (1957). The Director is correct that Illinois courts must respect federal law to the same extent as federal courts, but, especially given the policy favoring removal of federal de fenses in § 1442, there is no reason to prefer the state court to the federal court to resolve this same substantive question. Cf. Prop. & Cas. Ins., 936 F.2d at 322 n.5 (noting that it makes little sense to abstain to a court that would apply foreign law). Moreover, unlike the danger in non uniform treatment of HHS’s offsets among the several state court systems, there is negligible impact on the uniformity of the liquidation if HHS removes this case on a sovereign immunity defense. The need for uniform treatment implies that the parties are similarly sit uated, but Land of Lincoln’s other creditors and debtors are No. 18 2523 25 not the federal government. We said in Hartford that “where similar suits would not be disruptive of the rehabilitation pro cess, a federal court would have to hear the case.” 913 F.3d at 426. If the federal government, in its unique posture as a sovereign, can remove this case and jump in line, there is no implication from that conclusion that other creditors could do the same, thereby disrupting and diminishing the whole es tate. The McCarran Ferguson Act does not change our analysis. In Hartford, we relied on the Act to abstain from deciding “the amount and existence of liability that an insolvent Illinois in surer owes to Hartford.” 913 F.2d at 426. Here, both the amount and the existence of liability are federal questions and they are not in dispute. We, therefore, do not need to “invade the province of the state rehabilitation court in deciding dam ages.” Id. at 427. We also think the district court was wise to reject the Director’s argument that the Act prohibited removal outright. The courts of appeals have consistently rejected the argument that the Act prohibits diversity removal of insur ance related claims. See, e.g., ESAB Grp., Inc. v. Zurich Ins. PLC, 685 F.3d 376, 389 (4th Cir. 2012) (collecting cases). They have reached this conclusion even in opposition to express state insurance laws prohibiting removal, in part because “it cannot fairly be said that choice of forum between state and federal court, within a state” is “integral” to the policy rela tionship or the substantive concerns of the McCarran Fergu son Act. Int l Ins. Co. v. Duryee, 96 F.3d 837, 840 (6th Cir. 1996). We join these courts in concluding that removal does not “in validate, impair, or supersede” any law regulating insurance, when the same substantive law will be considered in either forum. See Hawthorne Sav. F.S.B. v. Reliance Ins. Co. of Ill., 26 No. 18 2523 421 F.3d 835, 843 (9th Cir. 2005), amended, 433 F.3d 1089 (9th Cir. 2006). C Finally, we can dismiss the third and fourth Hartford fac tors out of hand. The existence of a special forum “is a prereq uisite of, not a factor in, the second type of Burford absten tion.” Prop. & Cas., 936 F.2d at 323. Illinois’s system concen trating review in specific state courts passes this threshold, see Adkins, 644 F.3d at 504, but meeting the bare minimum re quirements is not a reason itself to abstain. Burford does not require abstention in all cases in which there is a specialized forum, or even when federal adjudication will conflict with a regulatory policy. See NOPSI, 491 U.S. at 362. In NOPSI, for example, the Supreme Court thought abstention inappropri ate in any case in which there is no need for an “inquiry be yond the four corners” of the agency’s actions. Id. at 363. Here, HHS contends that sovereign immunity prevents the state court from preventing its setoff, haling it into court, or forcing it to pay money to the liquidation estate. To decide whether that defense should be sustained will “not demand significant familiarity with, and will not disrupt state resolution of, dis tinctively local regulatory facts or policies.” Id. at 364 (empha sis omitted). On the final factor, the Director has not pointed to any difficult or unusual state laws at issue in this case, to whatever extent that factor remains relevant outside the con fines of the first type of Burford abstention. V The parties finally dispute the appropriate remedy, now that we have found that the district court should not have re manded this case to state court for lack of removal jurisdiction No. 18 2523 27 or on abstention grounds. As we previously noted, HHS ar gues we should direct the district court to dismiss the case forthwith rather than remand for further proceedings. We de cline to do so because the merits of HHS’s defense have not been resolved. The district court, in the first instance, must evaluate HHS’s sovereign immunity to the Director’s motion, as well as the propriety of dismissal under the doctrine of de rivative jurisdiction, which despite its name is “a procedural bar to the exercise of federal judicial power” and does not go to the court’s subject matter jurisdiction. Rodas, 656 F.3d at 619. The Director could, if she so chooses, amend her motion for declaratory relief to constitute a proper complaint that en gages with the federal court’s jurisdiction. See id. at 625. Such a modification would cut out the intermediate step between dismissal of this case and the filing of a new one, and HHS itself admits that an action seeking relief other than money damages could proceed in the district court under the Admin istrative Procedure Act, 5 U.S.C § 702, which waives the United States’s sovereign immunity to declaratory relief in the federal courts. On the other extreme from HHS’s request that we dismiss the case outright, the Director argues that under any circum stance this case belongs in state court, even if it is removable, the district court erred in abstaining, and the doctrine of de rivative jurisdiction bars the case. She relies principally on 28 U.S.C. § 1447(c), which requires a district court to remand if at any time it determines it lacks subject matter jurisdiction. Section 1447(c) does not apply to this case by its own terms. Although HHS made the error of filing its motion to dismiss for lack of derivative jurisdiction under Federal Rule of Civil Procedure 12(b)(1), we have already explained that 28 No. 18 2523 derivative jurisdiction is not an issue of subject matter juris diction. See Rodas, 656 F.3d at 619. Furthermore, the entire principle behind derivative jurisdiction is that that the case was not “properly constructed” because it was brought in the wrong forum. Id. at 624. Remanding to a forum deemed wrong is nonsensical. Even if we believe the state court would be duty bound to dismiss the case, the Director’s procedural mechanism for reaching that result would undermine the strong federal interest in having federal defenses adjudicated in a federal forum regardless of their ultimate merit. Just as a losing federal defense may be resolved in federal court, so too must a winning defense that leads to a situation in which “[t]he suit would be removed only to be dismissed.” Willing ham, 395 U.S. at 407. Because we base our holding on the conclusion that HHS’s claim of sovereign immunity is only “plausible,” we leave to the district court the final evaluation of the defense. The par ties framed this question as primarily concerned with whether this motion is in rem or in personam, but failed to fully explore the consequences of this antecedent issue, and in par ticular the limits of “the prior exclusive jurisdiction doctrine.” Goncalves, 865 F.3d at 1253; see also United States v. $79,123.49 in U.S. Cash & Currency, 830 F.2d 94, 97 (7th Cir. 1987); Black hawk Heating, 530 F.2d at 157; 13F CHARLES ALAN WRIGHT, ET AL., FEDERAL PRACTICE AND PROCEDURE § 3631 (3d ed.). To summarize the doctrine briefly, two suits, both of which are in rem or quasi in rem and require the courts to have possession or control of the same property, cannot proceed at the same time, and the second court must yield to the first. United States v. Bank of N.Y. & Tr. Co., 296 U.S. 463, 477–78 (1936). Though we have concluded that it is plausible that this removed mo No. 18 2523 29 tion for declaratory relief is not entirely in rem for several rea sons, if the district court finds otherwise, then it must deter mine whether the state court has prior jurisdiction over the same res. If both actions are in rem, the court must dismiss this case for lack of jurisdiction independent of any abstention principal or the validity of removal. But if one of the two cases is not in rem or quasi in rem, there is no jurisdictional bar and the case should stay in federal court. See Fischer, 314 U.S. at 555; Kline v. Burke Const. Co., 260 U.S. 226, 229–30 (1922). Finally, we recognize that, just as HHS has a plausible ar gument for sovereign immunity, the Director has a non friv olous argument that HHS is improperly jumping in line in Land of Lincoln’s liquidation to the detriment of policyhold ers. Cf. U.S. Dep’t of Treasury v. Fabe, 508 U.S. 491, 508–09 (1993) (holding that the McCarran Ferguson Act precluded the United States from obtaining priority over policyholders or administrative expenses in insurance liquidation). Though the Director cites Fabe for the proposition that the United States may, if it so chooses, submit its claims to a state liqui dation proceeding without undermining its sovereign im munity, we note that even in that case the question presented to the Supreme Court originated in federal court. See id. at 495. We express no opinion on the merits of the Director’s inter pretation of the Act, we hold only that HHS has the right to have that question decided in federal court, whether it be in this case or another. VI Because the district court construed its removal jurisdic tion too narrowly and erred in abstaining, this case should have remained in federal court. Accordingly, we REVERSE 30 No. 18 2523 the judgment of the district court and REMAND for further proceedings consistent with this opinion.
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
