Fuller Ex Rel. International Ass'n of Entrepreneurs of America Benefit Trust v. Ulland ( 1996 )

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No. 94-2940
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Ross Fuller, as Trustee of *
the International Association *
of Entrepreneurs of America *
Benefit Trust, *
* Appeal from the United States
Appellant, * District Court for the
* District of Minnesota.
v. *
*
James E. Ulland, as *
Commissioner of Commerce of *
the State of Minnesota, *
*
Appellee. *
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Submitted: November 2, 1995
Filed: February 21, 1996
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Before WOLLMAN and MORRIS SHEPPARD ARNOLD, Circuit Judges, and
BOGUE,* District Judge.
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WOLLMAN, Circuit Judge.
Ross Fuller, as Trustee of the International Association of
Entrepreneurs of America Benefit Trust (the "Trustee"), appeals
from the district court's1 judgment dismissing his action against
James E. Ulland, Commissioner of Commerce of the State of Minnesota
(the "Commissioner") for injunctive and declaratory relief under
the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§
1001-1461 (1988). The district court rejected the Trustee's claim
*The HONORABLE ANDREW W. BOGUE, United States District
Judge for the District of South Dakota, sitting by
designation.
1
The Honorable Richard H. Kyle, United States District Judge
for the District of Minnesota.
of exclusive federal jurisdiction and dismissed the action under
the abstention doctrine of Younger v. Harris, 401 U.S. 37 (1971).
Fuller v. Ulland, 858 F. Supp. 931 (D. Minn. 1994). Although we
are essentially in accord with the district court's reasoning, we
conclude that the case should have been stayed rather than
dismissed, and thus we remand for entry of a stay. See
International Ass'n of Entrepreneurs of America v. Angoff, 58 F.3d
1266, 1271 (8th Cir. 1995), cert. denied, 116 S. Ct. 774 (1996).
I.
The International Association of Entrepreneurs of America
Benefit Trust (the "Trust") provides a plan of workers'
compensation insurance to numerous employers in twenty-one states,
including Minnesota. After requesting certain information from the
Trust to determine whether it was complying with Minnesota
insurance law, the Commissioner issued a cease and desist order
requiring the Trust to stop offering or selling its insurance
program in Minnesota until it complied with appropriate Minnesota
licensure requirements.
The cease and desist order gave the Trust thirty days in which
to request a contested case hearing in the matter, the order to
become final if no such request was filed. The Trustee requested
a hearing, but noted that he was doing so only to prevent the cease
and desist order from becoming final. Simultaneously, the Trustee
filed a federal court action for declaratory and injunctive relief
under 29 U.S.C. §§ 1132 (a)(3), claiming ERISA preemption of the
state court regulations.2
2
Section 1132(a)(3) provides that a civil action may be
brought "by a participant, beneficiary, or fiduciary (A) to enjoin
any act or practice which violates any provision of [ERISA] or the
terms of the plan or (B) to obtain other equitable relief (i) to
redress such violations or (ii) to enforce any provisions of
[ERISA] or the terms of the plan."
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Specifically, the Trustee sought a judgment declaring that (1)
the Trust and the plan administered by it constitute an "employee
welfare benefit plan" as defined by ERISA, 29 U.S.C. § 1002(1), and
that the Trust and plan also constitute a "multiple employer
welfare arrangement" as described in ERISA, 29 U.S.C. §
1002(40)(A), and (2) the regulatory process underlying the order,
as it relates to the plan, is inconsistent with, and preempted by,
ERISA. The Trustee further sought a judgment enjoining the
Commissioner from: (1) prohibiting the Trust from conducting
business in Minnesota; (2) subjecting the Trust to the regulatory
scheme applied to insurance companies, including requirements for
purchasing workers' compensation insurance; or (3) taking any
action inconsistent with the provisions of ERISA. Finally, the
Trustee asserted a claim under 42 U.S.C. § 1983, alleging that the
Commissioner's actions and the regulatory scheme itself violate the
United States Constitution.
The district court dismissed the Trustee's action under the
principles of Younger abstention. Younger directs federal courts
to abstain from hearing cases when (1) there is an ongoing state
judicial proceeding which (2) implicates important state interests,
and when (3) that proceeding affords an adequate opportunity to
raise the federal questions presented. Middlesex County Ethics
Comm. v. Garden State Bar Ass'n, 457 U.S. 423, 432 (1982). The
district court found that the state proceeding brought by the
Commissioner satisfied each of the Younger preconditions.
II.
We review a district court's decision to abstain under Younger
principles for abuse of discretion. See Warmus v. Melahn, 62 F.3d
252, 257 (8th Cir. 1995) (applying abuse of discretion standard to
Younger decision); see also Wilton v. Seven Falls Co., 115 S. Ct.
2137, 2144 (1995) (holding that a district court's decision to
dismiss or stay a federal declaratory judgment action in favor of
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a parallel state proceeding is reviewed only for abuse of
discretion).
The first two requirements of Younger abstention are clearly
satisfied here. The state civil enforcement proceeding was ongoing
at the time the suit was filed,3 and the state's interest in
enforcing its insurance laws is important, see California State
Auto Ass'n v. Maloney, 341 U.S. 105, 109-10 (1951) (noting that the
nature of the insurance industry necessitates pervasive state
regulation). The controversy, then, centers on the third
requirement -- whether the state court action affords an adequate
opportunity to present the Trustee's ERISA preemption defense.
ERISA provides generally that its provisions shall preempt state
laws that relate to a covered plan and which are not specifically
exempt from preemption. 29 U.S.C. § 1144(a). The Trustee contends
that federal courts have exclusive jurisdiction over claims
resolving issues of ERISA preemption of state law and that thus the
ERISA claims cannot be resolved in the state proceedings.
Specifically, the Trustee relies on 29 U.S.C. § 1132 (a)(3), which
empowers participants to sue to enjoin any act or practice that
violates any provision of ERISA, and 29 U.S.C. § 1132(e)(1), which
grants federal district courts exclusive subject matter
jurisdiction over such injunctive actions.
To benefit from ERISA preemption, however, a plan must first
establish that it is an ERISA-covered plan, fund or program.
Wisconsin Educ. Ass'n Ins. Trust v. Iowa State Bd., 804 F.2d 1059,
1060 (8th Cir. 1986); Williams v. Wright, 927 F.2d 1540, 1543 (11th
Cir. 1991). In Wisconsin Education Ass'n, we noted Congress'
concern that certain entrepreneurs would claim ERISA status in an
3
The Trustee claims, for the first time on appeal, that the
state action was not ongoing at the time of the filing of the
federal action. We reject this claim. The state proceedings began
with the issuance of the Cease and Desist Order one month before
the trustee filed his federal action.
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attempt to use the ERISA preemption doctrine to escape state
insurance regulation. 804 F.2d at 1063 (citing H.R.Rep. No. 1785,
94th Cong., 2d Sess. 48 (1977)). Some courts have minimized this
problem by premising federal jurisdiction to determine ERISA
preemption on a finding of ERISA status. See MDPhysicians &
Assoc., Inc. v. State Bd. of Ins., 957 F.2d 178, 182 (5th Cir.),
cert. denied, 506 U.S. 861 (1992); Elco Mechanical Contractors,
Inc. v. Builders Supply Assoc. of West Virginia, 832 F. Supp. 1054
(S.D. W. Va. 1993); Plog v. Colorado Ass'n of Soil Conservation
Dists., 841 F. Supp. 350 (D. Colo. 1993). Whether we view a
finding of ERISA-covered status to be a prerequisite to
establishing federal jurisdiction or simply a hurdle to cross
before moving on to the preemption issues, a finding of non-
coverage will eliminate the need for any further federal
involvement. Thus, if the state court finds that the Trust is not
an ERISA-covered plan, the preemption issues will be moot.4
We need not determine whether federal jurisdiction over the
preemption issues exists in this case because our recent decision
in Angoff, 58 F.3d at 1269, establishes that, at the very least,
the state court has concurrent jurisdiction to determine ERISA
status. In Angoff we held that although ERISA establishes the
right of an ERISA fiduciary to an injunction against practices
violative of ERISA and permits only federal courts to issue such
injunctions, the statute nowhere makes federal courts the exclusive
forum for deciding ERISA status of plans or fiduciaries. Id. As
we stated in Angoff, "what [appellant] asserts to be an exclusive
federal jurisdiction to decide ERISA status by declaration is
actually an exclusive federal jurisdiction to grant certain types
of declaratory and injunctive relief once ERISA status has been
established by either a state or federal court." Id. at 1270.
4
In fact, one court has found that the International
Association of Entrepreneurs, as operating in Virginia, is not an
ERISA covered plan. See Int'l Ass'n of Entrepreneurs of Am. Ben.
Trust v. Foster, 883 F. Supp 1050, 1061 (E.D. Va. 1995).
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Accordingly, given the presumption in favor of concurrent
jurisdiction absent congressional instructions to the contrary, and
the statute's silence with respect to the power to declare ERISA
status, a claim of ERISA status can be asserted defensively in a
state court action. Id.
Because the state court is competent to decide the threshold
issue of ERISA status, and because a finding that the Trust is not
an ERISA-covered plan will moot the remaining federal claims, the
third Younger requirement is satisfied. Thus, the district court
did not abuse its discretion in abstaining in this case.
III.
We next address whether the district court should have
dismissed the federal action or stayed it until the state court
resolved the issue of ERISA status. In Angoff, we stated that "so
long as a possibility of return to federal court remains, a stay
rather than a dismissal is the preferred mode of abstention." 58
F.3d at 1271 (citing Wilton, 115 S. Ct. at 2143 n.2). We find this
principle to be equally applicable to the present case. A state
court determination that the Trust is not an ERISA-covered plan
will end the matter. However, if the state court decides
otherwise, return to federal court to determine whether the
Commissioner's actions are preempted by ERISA will be appropriate.
The judgment of dismissal is vacated, and the case is remanded
to the district court for entry of a stay.
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A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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