American Bank and Trust Co. of Opelousas v. Dent , 982 F.2d 917 ( 1993 )

United States Court of Appeals,
Fifth Circuit.
No. 91-4970
Summary Calendar.
The AMERICAN BANK AND TRUST COMPANY OF OPELOUSAS, Plaintiff-Appellant,
v.
Fred C. DENT, etc., et al., Defendants,
Lynda Drake, In Her Capacity as Commissioner of Financial Institutions for the State of
Louisiana, Defendant-Appellee.
Feb. 10, 1993.
Appeal from the United States District Court for the Western District of Louisiana.
Before GARWOOD, HIGGINBOTHAM and BARKSDALE, Circuit Judges.
GARWOOD, Circuit Judge:
Plaintiff-appellant American Bank & Trust Company of Opelousas, Lo uisiana (American
Bank) brought this suit in the United States District Court for the Western District of Louisiana
seeking a declaratory judgment that a Louisiana statute allegedly prohibiting it from selling insurance
was unconstitutional, and an injunction against any acts by the Louisiana Commissioner of Financial
Institutions to enforce the statute. The district court dismissed the suit, concluding that it was barred
by the Eleventh Amendment. We reverse and remand.
Facts and Proceedings Below
On March 21, 1990, American Bank wrote to Fred C. Dent, Commissioner of Financial
Institutions for the State of Louisiana (Commissioner), asking on behalf of itself and other similarly
situated Louisiana state-chartered banks that the Commissioner promulgate parity regulations
permitting those banks to act as general agents for the sale of life and casualty insurance. The letter
observed that because of a combination of federal and state statutes and regulations, state banks were
denied this ancillary business opportunity while the financial institutions in Louisiana against whom
they competed were not: national banks were permitted to engage in general insurance agency
activities in communities of less than five thousand persons;1 federal-chartered and state-chartered
thrift institutions were allowed to engage in such activities through their service corporation
subsidiaries, see 12 C.F.R. § 545.74(c)(6)(ii); La.Reg. 541; and, credit unions could sell insurance
to their members, see La.Rev.Stat.Ann. § 6:644(B)(9) (West 1986).
The parity regulations, the letter contended, should enable state banks to engage in general
insurance activities to the same extent as national banks; specifically, they should allow state banks
to act as general insurance agents through branches located in communities of less than five thousand
persons. American Bank called upon the Commissioner to promulgate such regulations
notwithstanding what it acknowledged to be the "clear prohibition" of La.Rev.Stat.Ann. §
6:121(B)(2),2 arguing that that statute was facially and in application violative of the Equal Protection
1
12 U.S.C. § 92 [note] provides that any national bank "located and doing business in any
place the population of which does not exceed five thousand inhabitants ... may, under such rules
and regulations as may be prescribed by the Comptroller of the Currency, act as the agent for any
fire, life, or other insurance company authorized by the authorities of the State in which such bank
is located to do business in said State." Although since 1952 the United States Code has omitted
this section on the basis that it was not included in a 1918 amendment and was thereby repealed,
the Comptroller of the Currency has promulgated regulations under it, see 12 C.F.R. § 7.7100,
and the Supreme Court and this Court have also assumed that it is still in force. See
Commissioner v. First Security Bank of Utah, N.A., 405 U.S. 394, 402 & n. 12, 92 S. Ct. 1085,
1090 & n. 12, 31 L. Ed. 2d 318 (1972); First National Bank of La Marque v. Smith, 610 F.2d
1258, 1261 n. 6 (5th Cir.1980); Saxon v. Georgia Association of Independent Insurance Agents,
Inc., 399 F.2d 1010 (5th Cir.1968). The D.C.Circuit, however, recently addressed the question
squarely and concluded that Congress repealed the section in 1918 (though in all likelihood
because of inadvertently placed quotation marks in a 1916 enactment). Independent Insurance
Agents of America v. Clarke, 955 F.2d 731, 734-39 (D.C.Cir.), reh'g en banc denied, 965 F.2d
1077 (D.C.Cir.1992), cert. granted, --- U.S. ----, 113 S. Ct. 810, --- L.Ed.2d ---- (1992).
2
Section 6:121(B)(2) provides in pertinent part:
"Notwithstanding any other provision of this Title, the commissioner shall
not authorize any bank, bank holding company, or subsidiary thereof to engage in
any insurance activity except an insurance activity in which a bank may engage
pursuant to the provisions of R.S. 6:242(A)(6)."
La.Rev.Stat.Ann. § 6:242(A)(6)(a) authorizes a state bank to act as the agent for an
insurance company "only with respect to credit insurance which, within the terms and
conditions authorized by law, is limited to assuring repayment or partial repayment of the
outstanding balance due on a specific extension of credit by a bank ... and collecting
premiums on those policies issued through the bank by such insurance company." Section
6:242(A)(6)(a) also provides that "[n]otwithstanding any other provisions of this Title, no
bank shall engage or be authorized to engage in any insurance activity that is not expressly
permitted by this Paragraph."
Clause. The letter noted that, by virtue of La.Rev.Stat.Ann. §§ 6:902(B) and 6:903, the
Commissioner could promulgate parity regulations to give state-chartered savings and loan
associations the same authority as their federal counterparts (and that the Commissioner's predecessor
in office had promulgated such regulations), and argued that section 6:121(B)(2)'s prohibition of
similar regulations for state banks was arbitrary and discriminatory state action.
On April 3, 1990, the Commissioner responded with a one-sentence letter advising American
Bank that its request was denied. On April 11, American Bank commenced this action in federal
district court seeking declaratory and injunctive relief against Dent in his official capacity as
Commissioner.3 The complaint sought a declaratory judgment that La.Rev.Stat.Ann. §§ 6:121(B)(2)
and 6:242(A)(6) denied American Bank equal protection of the law guaranteed by the Fourteenth
Amendment and 42 U.S.C. § 1983 and that the Commissioner's refusal to promulgate parity
regulations was therefore unconstitutional. It also requested an injunction against any acts by the
Commissioner or his employees to enforce sections 6:121(B)(2) and 6:242(A)(6).
On June 15, 1990, the Commissioner moved to dismiss on the ground that, inter alia, the suit
against him in his official capacity was in substance a suit against the State of Louisiana and thus
barred by the Eleventh Amendment. The motion also argued that the court should dismiss the
complaint under any of three abstention doctrines: (1) the doctrine of Younger v. Harris, 401 U.S.
37, 91 S. Ct. 746, 27 L. Ed. 2d 669 (1971), under which federal courts should abstain from interfering
with pending state proceedings; (2) the principle of Burford v. Sun Oil Co., 319 U.S. 315, 63 S. Ct.
1098, 87 L. Ed. 1424 (1943), under which, when timely and adequate state court review is available,
federal courts sitting in equity should avoid disrupting a state's efforts to implement a coherent policy
through an administrative scheme; and (3) the doctrine of Railroad Commission of Texas v. Pullman
Co., 312 U.S. 496, 61 S. Ct. 643, 85 L. Ed. 971 (1941), under which federal courts should refrain
from granting equitable relief on constitutional grounds if resolution of an unsettled question of state
law may obviate the constitutional question. This last type of abstention was urged because of
3
Lynda Drake has since been substituted as the party defendant in her capacity as Deputy
Commissioner of Financial Institutions.
La.Rev.Stat.Ann. § 6:242(C) (West Supp.1992), a statute enacted in 1988 that had not been invoked
by American Bank. Section 6:242(C) provides:
"In addition to any other powers, a state bank shall have and possess such rights,
powers, privileges, and immunities of a national bank domiciled in this state as may be
prescribed by rule or regulation promulgated by the commissioner. In the event of a conflict
between this Subsection or any rule o r regulation promulgated hereunder and any other
provision of law, the provisions of this Subsection shall control."
The Commissioner alleged in his motion to dismiss that American Bank's request raised the
question—not yet addressed by the Louisiana courts—whether section 6:242(C)'s apparent general
grant of authority to promulgate the type of regulations sought by American Bank overrode the
specific prohibition of 6:121(B)(2). On the advice of counsel that it did not, the Commissioner had
denied American Bank's request.
Following a hearing on the motion to dismiss on September 12, 1991, the district court
accepted the Commissioner's Eleventh Amendment argument, and entered judgment on November
4 dismissing the case under Fed.R.Civ.P. 12(b)(1). The judgment did not address the question of
abstention. No opinion was entered by the district court. American Bank brings this appeal.
Discussion
American Bank argues that the district court erred in dismissing the suit on sovereign
immunity grounds because this case falls within the exception to Eleventh Amendment immunity
carved out by Ex parte Young, 209 U.S. 123, 28 S. Ct. 441, 52 L. Ed. 714 (1908), and succeeding
cases. Young established the principle that the Eleventh Amendment does not bar a suit in federal
court against a state official to enjoin his enforcement of a state law alleged to be unconstitutional.
The Supreme Court, though it has clarified that Young cannot be extended to permit a suit for
equitable monetary restitution from the state treasury for a past breach of a legal duty, Edelman v.
Jordan, 415 U.S. 651, 662-72, 94 S. Ct. 1347, 1355-60, 39 L. Ed. 2d 662 (1974), has reaffirmed the
basic holding of Young as to purely prospective relief on numerous occasions. See, e.g., Papasan v.
Allain, 478 U.S. 265, 276, 106 S. Ct. 2932, 2939, 92 L. Ed. 2d 209 (1986); Pennhurst State School
& Hospital v. Halderman, 465 U.S. 89, 102, 104 S. Ct. 900, 909, 79 L. Ed. 2d 67 (1984); Ray v.
Atlantic Richfield Co., 435 U.S. 151, 157 n. 6, 98 S. Ct. 988, 994 n. 6, 55 L. Ed. 2d 179 (1978);
Georgia Railroad & Banking Co. v. Redwine, 342 U.S. 299, 304, 72 S. Ct. 321, 324, 96 L. Ed. 335
(1952).
We agree with American Bank that the present case falls squarely within the Young doctrine.
The Commissioner's arguments to the contrary are unavailing. First, the Commissioner argues that
the suit is barred because "the state is the real, substantial party in interest," Ford Motor Co. v.
Department of Treasury, 323 U.S. 459, 464, 65 S. Ct. 347, 350, 89 L. Ed. 389 (1945), in that any
relief granted would profoundly affect Louisiana's system for regulating banks and insurance
companies. Relying on Laje v. R.E. Thomason General Hospital, 665 F.2d 724, 727 (5th Cir.1982),
the Commissioner suggests that the inquiry for this Court is whether the Office of Financial
Institutions is merely an alter ego of the state. These arguments, however, misapprehend the essence
of the Young holding. Young did not establish a scheme in which courts are to pierce the plaintiff's
pleadings to decide if the suit is in substance one for relief against the state; indeed, since the nominal
defendant in Young, the attorney general of Minnesota, was merely acting under his general duty to
enforce the statutes of the state, such a test would have compelled a different outcome in that case.
Rather, the Court in Young held that enforcement of an unconstitutional law is by
definition—commentators often describe it as a "fiction"4—not an official act because the state cannot
confer authority on its officers to violate the Constitution or federal law. Young, 209 U.S. at 160,
28 S.Ct. at 454. The Ford Motor Co. case was not one governed by the Young doctrine because it
was a suit for a refund of taxes from the state, i.e., retroactive monetary relief. See Ford Motor Co.,
323 U.S. at 464, 65 S.Ct. at 350. Laje was also a suit for monetary damages, and the discussion
relied upon by the Commissioner deals with an antecedent issue not pertinent to this case: Whether
the defendant hospital had a sufficiently close relationship with the state to be entitled to raise the
defense of sovereign immunity in the first place. See Laje, 665 F.2d at 727. In this case, American
Bank does not contend that the Commissioner is not a state official (or that the Office of Financial
Institutions, which has not been named as a defendant, is not an arm of the State of Louisiana). No
4
See, e.g., 17 C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure § 4231, at
567 (1988); 1 R. Rotunda, J. Nowak, & J. Young, Treatise on Constitutional Law: Substance
and Procedure § 2.12, at 87 (1986).
challenge is made to the Commissioner's ability in a proper case to invoke the Eleventh Amendment;
rather, it is simply argued—correctly—that because of the nature of relief sought he must contend
with the Young exception.
Second, the Commissioner seeks to escape the reach of Young by arguing that this case falls
within the group excluded from the Young doctrine by Pennhurst, i.e., those seeking prospective
injunctive relief on the basis of state law. See Pennhurst, 465 U.S. at 103-06, 104 S.Ct. at 909-11.
This argument is utterly without merit, however, because American Bank is alleging that sections
6:121(B)(2) and 6:242(A)(6) deny it the equal protection of the laws guaranteed by the Fourteenth
Amendment. As is common in Young cases, it is a state law that is challenged as unconstitutional,
but this does not mean that American Bank's cause of action arises under state law; American Bank
does not, like the Pennhurst plaintiff, rely on an alleged violation of the state statute.
Finally, the Commissioner relies on a statement by the Supreme Court in Will v. Michigan
Department of State Police, 491 U.S. 58, 109 S. Ct. 2304, 105 L. Ed. 2d 45 (1989). In Will, having
decided that states were not "person[s]" subject to suit under 42 U.S.C. § 1983, the Court concluded
that the same result must apply to state officials sued in their official capacities because "a suit against
a state official in his or her official capacity ... is no different from a suit against the State itself." Id.
at 71, 109 S.Ct. at 2311. The Commissioner's attempt to invoke the Court's statement as dispositive
of this Eleventh Amendment case, however (and thus as an implicit abandonment of the Young
doctrine), is undercut by the Will Court's recognition of the special sovereign immunity rules
applicable to suits for purely prospective relief, and the limitation of its section 1983 holding to make
it consistent with those principles: "Of course a State official in his or her official capacity, when sued
for injunctive relief, would be a person under § 1983 because "official-capacity actions for
prospective relief are not treated as actions against the State.' " Id. at 71 n. 10, 109 S. Ct. at 2311 n.
10 (quoting Kentucky v. Graham, 473 U.S. 159, 167 n. 14, 105 S. Ct. 3099, 3106 n. 14, 87 L. Ed. 2d
114 (1985)).
For the foregoing reasons, we conclude that the district court erred in dismissing the case
"pursuant to Federal Rule of Civil Procedure 12(b)(1) ... because this Court lacks subject matter
jurisdiction." The Commissioner asks that we consider the abstention arguments raised in the
alternative, and dismiss the case on that basis. Because the abstention doctrines are not exceptions
to the federal courts' jurisdiction, but are rather judicially created guidelines defining circumstances
in which courts may decline to exercise jurisdiction, see New Orleans Public Service, Inc. v. Council
of City of New Orleans, 491 U.S. 350, 358-60, 109 S. Ct. 2506, 2512-13, 105 L. Ed. 2d 298 (1989),
we could not sustain the district court's 12(b)(1) dismissal on their authority; a determination that
abstention is warranted would merely allow us to reach a comparable disposition5 on other grounds.
We conclude, however, that the better course is to remand to the district court to enable it
to consider the abstention questions in the first instance. Even if all the preconditions for abstention
are present, the decision whether or not to abstain is generally one involving some exercise of
discretion by the district court.6 Because the propriety of Pullman or Burford abstention is not
absolutely clear on the present record,7 we deem it advisable for the matter to be decided by the
district court in the first instance.
Conclusion
Because we conclude that under Ex parte Young and its progeny the Eleventh Amendment
5
The appropriate disposition would depend in part on what type of abstention were deemed
applicable. Whereas Pullman abstention contemplates merely the postponement of the exercise of
federal jurisdiction, see Harrison v. National Association for the Advancement of Colored
People, 360 U.S. 167, 177, 79 S. Ct. 1025, 1030, 3 L. Ed. 2d 1152 (1959), Burford rests on the
premise that any intervention by a federal court would impermissibly disrupt state regulation, and
thus counsels dismissal. 17A Wright, Miller, & Cooper, supra note 4, § 4245, at 102.
6
This and other circuit courts generally review abstention decisions under an
abuse-of-discretion standard, see Allen v. Louisiana State Board of Dentistry, 948 F.2d 946, 949
(5th Cir.1991), cert. denied, --- U.S. ----, 112 S. Ct. 1764, 118 L. Ed. 2d 426 (1992); Hospital
Council of Western Pennsylvania v. City of Pittsburgh, 949 F.2d 83, 90 n. 4 (3d Cir.1991);
McIntyre v. McIntyre, 771 F.2d 1316, 1319 (9th Cir.1985), though it has been stated that
decisions to abstain are reviewed under a standard narrower than that applicable to decisions such
as evidentiary rulings, because the discretion to abstain "must be exercised within the narrow and
specific limits prescribed by the particular abstention doctrine involved." C-Y Development Co. v.
City of Redlands, 703 F.2d 375, 377 (9th Cir.1983). See also Shamrock Development Co. v. City
of Concord, 656 F.2d 1380, 1385 (9th Cir.1981) (although Pullman abstention would have been
advisable and within the discretion of the district court, the district court's decision to retain the
case fell short of an abuse of discretion).
7
However, we do consider the Commissioner's reliance on the Younger abstention doctrine to
be obviously unavailing; there are no pending state judicial proceedings in this case.
does not bar this suit, we reverse the district court's dismissal and remand the case. We decline to
make a determination whether abstention is warranted under Pullman or Burford, in the belief that
the Commissioner's abstention arguments are more properly addressed to the district court on
remand.
REVERSED AND REMANDED.