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Ford Motor Co. v. Insurance Commissioner of Commonwealth of Pennsylvania and Pennsylvania Association of Independent Insurance Agents

filed: May 5, 1989.

FORD MOTOR COMPANY AND FORD MOTOR CREDIT COMPANY, AND THE AMERICAN ROAD INSURANCE COMPANY AND FORD LIFE INSURANCE COMPANY, AND FIRST NATIONWIDE FINANCIAL CORPORATION AND FIRST NATIONWIDE BANK
v.
INSURANCE COMMISSIONER OF THE COMMONWEALTH OF PENNSYLVANIA AND PENNSYLVANIA ASSOCIATION OF INDEPENDENT INSURANCE AGENTS, ULRICH, JOHN M., JR., PROFESSIONAL INSURANCE AGENTS ASSOCIATION OF PENNSYLVANIA, MARYLAND AND DELAWARE, INC., LEACH, CHARLES P., JR., PENNSYLVANIA ASSOCIATION OF LIFE UNDERWRITERS AND ALEXANDER, HAROLD E. (INTERVENING DEFENDANTS) APPELLANTS IN 88-1339; UNITED SERVICES AUTOMOBILE ASSOCIATION, A TEXAS RECIPROCAL INTERINSURANCE EXCHANGE AND USAA CASUALTY INSURANCE COMPANY, A TEXAS STOCK INSURANCE COMPANY AND USAA LIFE INSURANCE COMPANY, A TEXAS STOCK INSURANCE COMPANY, AND USAA ANNUITY AND LIFE INSURANCE COMPANY, A TEXAS STOCK INSURANCE V. MUIR, WILLIAM J., III, ACTING INSURANCE COMMISSIONER OF THE COMMONWEALTH OF PENNSYLVANIA, PENNSYLVANIA ASSOCIATION OF INDEPENDENT INSURANCE AGENTS, JOHN ULRICH, JR., PROFESSIONAL INSURANCE AGENTS ASSOCIATION OF PENNSYLVANIA, MARYLAND AND DELAWARE, INC.; CHARLES P. LEACH, JR.,; PENNSYLVANIA ASSOCIATION OF LIFE UNDERWRITERS; AND HAROLD E. ALEXANDER, APPELLANTS IN 88-5077; UNITED SERVICES AUTOMOBILE ASSOCIATION, A TEXAS RECIPROCAL INTERINSURANCE EXCHANGE AND USAA CASUALTY INSURANCE COMPANY, A TEXAS STOCK INSURANCE COMPANY AND USAA LIFE INSURANCE COMPANY, A TEXAS STOCK INSURANCE COMPANY, AND USAA ANNUITY AND LIFE INSURANCE COMPANY, A TEXAS STOCK INSURANCE V. MUIR, WILLIAM J., III, ACTING INSURANCE COMMISSIONER OF THE COMMONWEALTH OF PENNSYLVANIA, PENNSYLVANIA ASSOCIATION OF INDEPENDENT INSURANCE AGENTS, JOHN ULRICH, JR., PROFESSIONAL INSURANCE AGENTS ASSOCIATION OF PENNSYLVANIA, MARYLAND AND DELAWARE, INC.; CHARLES P. LEACH, JR.,; PENNSYLVANIA ASSOCIATION OF LIFE UNDERWRITERS; AND HAROLD E. ALEXANDER, INTERVENORS, CONSTANCE FOSTER, APPELLANT IN 88-5078; UNITED SERVICES AUTOMOBILE ASSOCIATION, A TEXAS RECIPROCAL INTERINSURANCE EXCHANGE AND USAA CASUALTY INSURANCE COMPANY, A TEXAS STOCK INSURANCE COMPANY AND USAA LIFE INSURANCE COMPANY, A TEXAS STOCK INSURANCE COMPANY, AND USAA ANNUITY AND LIFE INSURANCE COMPANY, A TEXAS STOCK INSURANCE V. MUIR, WILLIAM J., III, ACTING INSURANCE COMMISSIONER OF THE COMMONWEALTH OF PENNSYLVANIA, PENNSYLVANIA ASSOCIATION OF INDEPENDENT INSURANCE AGENTS, JOHN ULRICH, JR., PROFESSIONAL INSURANCE AGENTS ASSOCIATION OF PENNSYLVANIA, MARYLAND AND DELAWARE, INC.; CHARLES P. LEACH, JR.,; PENNSYLVANIA ASSOCIATION OF LIFE UNDERWRITERS; AND HAROLD E. ALEXANDER, PLAINTIFFS/INTERVENORS, UNITED SERVICES AUTOMOBILE ASSOCIATION, USAA CASUALTY INSURANCE COMPANY, USAA LIFE INSURANCE COMPANY, AND USAA ANNUITY AND LIFE INSURANCE COMPANY, APPELLANTS IN 88-5121



On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civil Action No. 87-3241 On Appeal from the United States District Court for the Middle District of Pennsylvania (Scranton), D.C. Civil Action No. 84-1596

Higginbotham, Mansmann and Greenberg, Circuit Judges.

Author: Higginbotham

Opinion OF THE COURT

HIGGINBOTHAM, JR., Circuit Judge

On these appeals we are revisited by significant questions concerning the appropriate applications of the doctrines of abstention and preemption, and of the dormant commerce clause of the United States Constitution. Although all such cases present issues that require delicate balancing, these cases are particularly sensitive because they concern both a federal scheme designed to assist the nation's failing savings and loans companies and the important state interest in regulating the state insurance industry. Upon our review of the contentions raised on these appeals, we conclude: (1) that the principles of Younger do not require abstention in these cases; (2) that Pennsylvania's statute that precludes companies that sell insurance in Pennsylvania from affiliation with savings and loan institutions is preempted to the extent that the state statute is applicable to companies authorized pursuant to federal legislation to purchase failing thrifts and (3) the state statute is not preempted in its application to other than failing thrifts and, in that application, does not violate the Commerce Clause. In our view, that statute neither discriminates impermissibly in favor of in-state residents, nor presents a burden on interstate commerce and, it therefore, does not present harm precluded by the Commerce Clause. Accordingly, we will affirm the decisions of the district courts in these cases in part and reverse in part.

I. Background

These appeals are taken from the judgments of district courts in two declaratory actions that were filed to determine the constitutionality of § 641 of the Insurance Department Act of 1921, as amended, P.L. 1148 (1987), codified at 40 Pa.Stat.Ann. (Purdon 1987 Supp.).*fn1 Although the cases are wholly separate and were filed independently, they were consolidated for the purposes of appeal because of the commonality of the underlying facts and the significant identity of the issues presented for review. The facts of neither case are in dispute. For the purposes of this discussion, we review the facts and procedural histories of each case briefly:

A. Pennsylvania Ass'n of Independent Insurance Agents v. Ford Motor Co. ("Ford")

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

In June 1986 Ford, through its new subsidiaries FNFC and FNB, arranged to purchase two Ohio based savings and loan companies, ("S & L's") that were failing and had been placed into receivership with the Federal Savings and Loan Insurance Corporation ("FSLIC"). FSLIC had solicited applications for the purchase of these S & L's pursuant to federal statutory guidelines designed to limit liability exposure for these failed companies which were federally insured. See 12 U.S.C. § 1730a (1982).*fn2 The failing Ohio S & L's were merged with FNB to create a larger national savings and loan entity. Subsequently, in February 1987, Ford requested and was granted permission by the Federal Home Loan Bank Board to open two additional branches of the newly constituted FNB. One of these new branches was in Pennsylvania.

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

Accordingly, in June 1987, three months after FNB's Pennsylvania branch office was opened, Ford filed a complaint in the United States district court for declaratory relief from Pennsylvania's enforcement of that statute which, Ford alleged, was unconstitutional on several grounds. Ford claimed, inter alia that, to the extent that the statute placed a restriction upon its ownership of a savings and loan institution, it was preempted by 12 U.S.C. § 1730a(m) (1987). Additionally, Ford contended that § 641 was constitutionally infirm because it was violative of the dormant commerce clause of the United States Constitution. The Insurance Commissioner of the State of Pennsylvania ("Insurance Commissioner" or "the Commissioner") filed a reply challenging the merits of the contentions raised by Ford. The Commissioner was joined by the appellants in this case, the Pennsylvania Association of Independent Insurance Agents ("Insurance Agents") who had successfully petitioned the district court for leave to intervene. Together with that motion to intervene, the Insurance Agents also filed a motion to dismiss Ford's complaint in which it petitioned the district court to abstain from adjudication of the complaint pursuant to the Younger doctrine of abstention.*fn3 Prior to intervening in the case, the Insurance Agents had filed a complaint with the Insurance Commissioner initiating an administrative proceeding that sought the revocation of American Road's and Ford Life's insurance licenses because those companies were in violation of § 641. Subsequent to the insurance agents' intervention in this case, Ford filed a motion in the district court seeking an injunction of the state administrative proceedings.

Ford also filed a motion for summary judgement on three grounds: it contended that the statute was unconstitutional as a violation of the equal protection clause, that federal legislation preempted the entire field concerning the acquisition and ownership of savings and loans and that federal legislation that specifically addressed the acquisition of failing savings and loan institutions preempted § 641.

The district court concluded that neither of the first two contentions raised by Ford for summary judgement were meritorious. It concluded, however, that the language and legislative history of § 1730a(m) evinced Congress's clear intent to preempt state laws that hindered the acquisition of failing S & L's and determined, accordingly, that § 641 had been preempted. Because its decision rested on preemption grounds, the district court also held that abstention was improper. The insurance agents challenge each of the district court's conclusions on this appeal.*fn4

B. Foster v. United Services Automobile Ass'n ("USAA")

The United Services Automobile Association ("USAA") is a group of four Texas based insurance companies that are engaged in the insurance business nationwide. It is licensed to sell insurance in Pennsylvania and has been doing so for a number of years. In 1983, USAA was granted permission by the Federal Home Loan Bank Board and FSLIC to create the USAA Federal Savings Bank in Texas. In accordance with all applicable federal regulations, USAA organized and capitalized that bank, which then began doing business in Texas.*fn5 During the following year, the Pennsylvania Insurance Commissioner notified USAA that its simultaneous ownership of the Texas bank and continued sale of insurance policies in Pennsylvania, violated § 641. It advised USAA that pursuant to § 641, it must either cease the sale of insurance in Pennsylvania or divest itself entirely from ownership in the Texas bank. USAA filed a complaint in the district court seeking declaratory relief from enforcement of the statute, which it challenged as unconstitutional on its face and as preempted by federal regulation. Subsequent to that complaint, the insurance department commenced state administrative proceedings for the revocation of USAA's license to sell insurance in Pennsylvania and, in light of those proceedings, filed a motion for dismissal in the district court on abstention grounds. USAA cross-filed a motion for summary judgement on the grounds that § 641 was preempted by § 1730a.

The district court concluded that abstention was appropriate under each of three types of abstention: Younger, Pullman*fn6 and Burford.*fn7 We reversed that decision and held that abstention by the district court under any of these theory was improper. See United Services Automobile Ass'n v. Muir, 792 F.2d 356 (3d Cir. 1986), cert. denied, sub nom. Grode v. United Services Automobile Ass'n, 479 U.S. 1031, 107 S. Ct. 875, 93 L. Ed. 2d 830 (1987) ("USAA I"). Accordingly, we remanded this matter to the district court for hearing.

On remand, the Insurance Commissioner again petitioned the district court to abstain. The Commissioner limited this request to Younger abstention and contended that this Court's decision in USAA I had been overruled by intercedent precedent of the Supreme Court in the case Ohio Civil Rights Comm'n v. Dayton Christian Schools Inc., 477 U.S. 619, 106 S. Ct. 2718, 91 L. Ed. 2d 512 (1986) ("Dayton Schools"). The Commissioner argued that USAA I had held that Younger abstention was inappropriate only because of this Court's view that the State administrative proceedings were an inadequate forum for the constitutional claims raised. The Commissioner argued that that conclusion was no longer valid in light of Dayton Schools and, accordingly, that abstention pursuant to Younger was appropriate.

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

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

II. Abstention

Although the analyses of the district courts regarding this issue arise from different circumstances, the threshold concern of both is whether abstention pursuant to Younger was warranted. That doctrine of abstention, characterized as one of equitable restraint, instructs us that due deference must be paid to state proceedings initiated to resolve controversies that raise significant state issues when federal court intervention is sought.*fn8 Deference to state proceedings pursuant to Younger, however, is not absolute. The appropriate focus of a court's inquiry when the question of Younger abstention is raised, therefore, is whether the state proceeding provides an adequate forum for the resolution of the federal claims that have been asserted, see Dayton Schools, 477 U.S. at 627 (Younger principle is applicable to "state administrative proceedings in which important state interests are vindicated, so long as in the course of those proceedings the federal plaintiff would have a full and fair opportunity to litigate his constitutional claim");*fn9 and whether deference to the state proceeding will present a significant and immediate potential for irreparable harm to the federal interests asserted. See Wooley v. Maynard, 430 U.S. 705, 712, 97 S. Ct. 1428, 51 L. Ed. 2d 752 (1977)(Younger abstention improper where federal intervention "necessary in order to afford adequate protection of constitutional rights"); Kugler v. Helfant, 421 U.S. 117, 124-25, 95 S. Ct. 1524, 44 L. Ed. 2d 15, reh'g denied, 421 U.S. 1017, 44 L. Ed. 2d 686 (1975).

In the present cases, we are persuaded that Pennsylvania maintains the significant interest in the regulation of its insurance industry sufficient to support abstention under this doctrine. In light of the Supreme Court's decision in Dayton Schools, we are also persuaded that the scheme for administrative adjudication and judicial review of the claims presented is adequate for Younger purposes.

A. Abstention And The Adequacy of State Administrative Proceedings

In USAA I, this Court held that "administrative proceedings suffice for Younger purposes only when they 'are adequate to vindicate federal claims.'" USAA I, 792 F.2d at 365. See also Williams v. Red Bank Bd. of Education, 662 F.2d 1008 (3d Cir. 1981). In that light, we concluded that because the Insurance Commission proceeding did not provide a forum for the adjudication of the constitutional claims, abstention was inappropriate. See Middlesex Ethics Comm. v. Garden State Bar Ass'n, 457 U.S. 423, 432, 102 S. Ct. 2515, 73 L. Ed. 2d 116 (1982)(Younger abstention not available where there is no "adequate opportunity [in the state proceedings] to raise the constitutional claims.").

Subsequent to our decision in USAA I, the Supreme Court held that state administrative proceedings that do not provide an opportunity for the resolution of the claimant's constitutional contention, are adequate for Younger abstention if the state's judicial review of the administrative proceeding provides opportunity for de novo hearing of the constitutional claim. Dayton Schools, 477 U.S. at 629. Cf. Watts v. Burkhart, 854 F.2d 839 (6th Cir. 1988) (the fact that the state agency would not consider the constitutional claims raised did not preclude Younger abstention where the constitutional claims could be presented on review in the state court); Christ the King Regional High School v. Culvert, 815 F.2d 219 (2d Cir.) (same), cert. denied 484 U.S. 830, 108 S. Ct. 102, 98 L. Ed. 2d 63 (1987). Accordingly, we hold now that, to the extent that our decision in USAA I concluded that Younger abstention is inappropriate in cases where the administrative proceeding itself does not provide a forum for the adjudication of constitutional claims -- without regard to the opportunity that exists to pursue those claims on judicial review -- it has been overruled by Dayton Schools.

In the present cases, this conclusion necessarily results in the determination that the Pennsylvania administrative proceeding in question is sufficient for purposes of Younger abstention. The Pennsylvania statutes concerning administrative law and procedure clearly provide for adequate judicial ...


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