Liberty Mutual Ins. Co. v. Hurlbut

09-1215-cv
Liberty Mutual Ins. Co. v. Hurlbut
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3 August Term 2008
4
5 Docket No. 09-1215
6 Argued: June 22, 2009 Decided: November 4, 2009
7 LIBERTY MUTUAL INSURANCE COMPANY , LIBERTY MUTUAL FIRE INSURANCE COMPANY ,
8 LIBERTY INSURANCE CORPORATION , LM INSURANCE COMPANY , EMPLOYERS INSURANCE
9 COMPANY OF WAUSAU , WAUSAU BUSINESS INSURANCE COMPANY , WAUSAU GENERAL INSURANCE
10 COMPANY, WAUSAU UNDERWRITERS INSURANCE COMPANY , PEERLESS INSURANCE COMPANY ,
11 PEERLESS INDEMNITY INSURANCE COMPANY , THE NETHERLANDS INSURANCE COMPANY ,
12 EXCELSIOR INSURANCE COMPANY , THE AMERICAN FIRE AND CASUALTY COMPANY , THE OHIO
13 CASUALTY INSURANCE COMPANY ,
14 Plaintiffs-Appellants,
15 - v.-
16 ROBERT H. HURLBUT , DONALD T. DE CARLO , C. SCOTT BOWEN , JOHN F. CARPENTER ,
17 DENIS M. HUGHES , CHARLES L. LOIODICE , WILLIAM A. O’LOUGHLIN JR ., KENNETH R.
18 THEOBALDS, PATRICIA SMITH , in their official capacities as the
19 COMMISSIONERS OF THE NEW YORK STATE INSURANCE FUND , ZACHARY S. WEISS , DONNA
20 FERRARA, MONA A. BARGNESI , RICHARD A. BELL , GERALDINE CHAPEY , CANDACE K.
21 FINNEGAN, SCOTT C. FIRESTONE , AGATHA EDEL GROSKI , KARL A. HENRY , MARK D.
22 HIGGINS, FRANCES M. LIBOUS AND ELLEN O. PAPROCKI , in their official
23 capacities as MEMBERS OF THE NEW YORK STATE WORKERS COMPENSATION BOARD ,
24 Defendants-Appellees.
25 Before: MINER, LIVINGSTON, Circuit Judges, and TRAGER, District
26 Judge.*
27 Appeal from a judgment entered in the United States District
28 Court for the Southern District of New York (Chin, J.) in favor
29 of defendants-appellees Commissioners of the Workers’
30 Compensation Board of the State of New York and Trustees of the
31 New York State Insurance Fund, in an action brought by
*
The Honorable David G. Trager, of the United States
District Court for the Eastern District of New York, sitting by
designation.
1
1 plaintiffs-appellants, Liberty Mutual Insurance Company and
2 affiliate companies, challenging two amendments enacted in 2007
3 to the New York Workers’ Compensation Law as violative of the
4 Contracts, Takings, Due Process and Equal Protection provisions
5 of the United States Constitution, the District Court having
6 abstained from the exercise of federal jurisdiction and dismissed
7 the action for that reason.
8 Affirmed.
9 Evan Glassman, Steptoe & Johnson
10 LLP, New York, New York, for
11 Plaintiffs-Appellants.
12 MARK F. HORNING , Jeffrey M. Theodore,
13 Mark F. Horning, Steptoe & Johnson
14 LLP, Washington D.C., for
15 Plaintiffs-Appellants.
16 STEVEN C. WU (on behalf of Andrew M.
17 Cuomo, New York State Attorney
18 General;, Barbara K. Hathaway, on
19 the brief), for Defendants-
20 Appellees.
2
1 MINER, Circuit Judge:
2 Plaintiffs-appellants Liberty Mutual Insurance Company and
3 affiliated companies (“Liberty Mutual”) appeal from a judgment
4 entered in the United States District Court for the Southern
5 District of New York (Chin, J.) in favor of defendants-appellees,
6 Commissioners of the Workers’ Compensation Board of the State of
7 New York (the “Board”) and Trustees of the New York State
8 Insurance Fund (the “Trustees”). Liberty Mutual brought the
9 action giving rise to the judgment seeking injunctive and
10 declaratory relief from two amendments to the New York Workers’
11 Compensation Law enacted in 2007. Liberty Mutual challenges
12 these amendments as violative of the Contracts, Takings, Due
13 Process and Equal Protection provisions of the United States
14 Constitution. Relying on the doctrine announced in Younger v.
15 Harris, 401 U.S. 37 (1971), the District Court determined that
16 the circumstances of this case required it to abstain from the
17 exercise of federal jurisdiction and dismiss the complaint for
18 that reason. We agree that abstention is appropriate but rely on
19 different precedent.
20 BACKGROUND
21 I. The New York Workers’ Compensation System — Policy and
22 Procedure
23 The New York Workers’ Compensation System is governed by the
24 Workers’ Compensation Law (the “WCL” or “Law”). The Law requires
25 employers to pay benefits to workers who are injured or disabled
26 during the course of their employment, regardless of fault. N.Y.
3
1 WORKERS’ COMP . LAW § 10(1). These benefits include medical care,
2 replacement of lost wages (“indemnify payments”) and death
3 benefits. Id. §§ 13, 14, 16. To assure that these payments are
4 made, the Law requires employers to obtain insurance coverage in
5 one of the following ways: purchase workers’ compensation
6 coverage from an approved insurance carrier (“Carrier”) such as
7 Liberty Mutual; secure coverage from the State Insurance Fund; or
8 seek approval from the Board to act as a self-insurer. Id. §§
9 10(1), 50. The benefits provided under the WCL are the exclusive
10 remedies for injuries sustained by employees in the course of
11 employment, and the Law thus forecloses any suit by an employee
12 against an employer in tort. Id. § 11; see also O’Rourke v.
13 Long, 41 N.Y.2d 219, 222 (1976). (The WCL “was designed to
14 provide a swift and sure source of benefits to the injured
15 employee or to the dependents of the deceased employee” in return
16 for “the loss of the common-law tort action in which greater
17 benefits might be obtained.”).
18 The original law took effect on January 1, 1914, and the New
19 York Court of Appeals soon thereafter recognized that the
20 underlying policy of the Law was to “protect[] both employer and
21 employee, the former from wasteful suits and extravagant
22 verdicts, the latter from the expense, uncertainties and delays
23 of litigation in all cases and from the certainty of defeat if
24 unable to establish a case of actionable negligence.” Jensen v.
25 S. Pac. Co., 215 N.Y. 514, 524 (1915), rev’d on other grounds,
26 244 U.S. 205 (1917). Numerous refinements to the Law over the
4
1 years have resulted in a statute of some complexity. As one
2 judge of the New York Court of Appeals has put it, the Law has
3 been the “object of constant legislative attention and fine-
4 tuning,” with various amendments, including 560 amendments
5 between 1914 and 1961, and an Omnibus Reform amendment in 1996,
6 all resulting in a “complex, integrated and unusually
7 prescriptive statute.” See Greenberg v. N.Y. City Transit Auth.,
8 7 N.Y.3d 139, 145–46 (2006) (Read, J., dissenting).
9 It has been estimated that more than 90% of employee claims
10 for benefits under the standards provided by the WCL are paid
11 without contest. See MARTIN MINKOWITZ , NEW YORK PRACTICE SERIES : NEW
12 YORK WORKERS’ COMPENSATION , § 15:1, at 594 (2003). The Law provides
13 a comprehensive system for resolving contested claims. The
14 responsibility for operation of that system lies with the Board.
15 N.Y. WORKERS’ COMP . LAW § 20(1). An injured worker who seeks
16 benefits under the WCL is required to file a claim with the Board
17 or his employer. Id. § 20. The carrier is afforded the
18 opportunity to dispute the claim, id. § 25(2)(a); N.Y. COMP . CODES
19 R. & REGS. tit. 12, § 300.22(a), and the dispute is addressed in
20 the first instance by a Workers’ Compensation Law Judge (“WCLJ”).
21 See N.Y. WORKERS ’ COMP . LAW § 150; N.Y. COMP . CODES R. & REGS . tit.
22 12, § 300.1(a)(10). A party dissatisfied with the decision of
23 the WCLJ may seek administrative review by a three-member Board
24 panel and, if review is granted and the panel does not make a
25 unanimous decision, review of the full Board is mandated upon
26 request of either party; if the decision is unanimous, any party
5
1 may seek discretionary review by the full Board. The statutory
2 scheme allows a party to seek judicial review of the Board’s
3 administrative decision in the New York State Supreme Court,
4 Appellate Division, Third Department. N.Y. WORKERS ’ COMP . LAW §
5 23. The designation of a single court for this purpose
6 implements the legislative intent to establish a judicial forum
7 having “specific expertise to deal with the complexity” of the
8 issues presented in workers’ compensation cases. Empire Ins. Co.
9 v. Workers’ Comp. Bd., 607 N.Y.S.2d 675, 675 (N.Y. App. Div.
10 1994). The Law provides that appeals in workers’ compensation
11 cases “shall be heard in a summary manner and shall have
12 precedence over all other civil cases in such court.” N.Y.
13 WORKERS’ COMP . LAW § 23. An opportunity for further review may be
14 sought in the New York State Court of Appeals, and “[a]n appeal
15 to the appellate division of the supreme court, third department,
16 or to the court of appeals, shall not operate as a stay of the
17 payment of compensation required by the terms of the award or of
18 the payment of the doctors’ bills found to be fair and
19 reasonable.” Id. (2007).
20 The jurisdiction of the Board is far-reaching. The WCL,
21 administered by the Board, covers approximately 7.9 million
22 workers. See N.Y. STATE WORKERS ’ COMPENSATION BOARD , BASIC FACTS ABOUT
23 THE BOARD, at www.wcb.state.ny.us, \content\main\TheBoard\
24 factsht.jsp (last visited Sept. 21, 2009). In 2006, the Board
25 received 140,109 new claims, re-opened 182,028 claims; received
26 13,258 applications for appeals; and rendered 12,072 decisions.
6
1 Id. The Law vests the Board with extensive powers beyond the
2 adjudication of claims. For example, it licenses workers’
3 compensation attorneys, N.Y. WORKERS ’ COMP . LAW § 24-a; approves or
4 rejects medical providers, id. § 13-b–13-e; and brings certain
5 enforcement proceedings not related to the challenged amendments,
6 id. § 26, 54-b, 141-a. Among the Board’s powers is the authority
7 to order payments for certain types of indemnity awards to be
8 made to the Aggregate Trust Fund (“ATF”). The ATF is
9 administered by the Trustees as an aggregate, indivisible fund
10 separate and apart from other money held by the State Insurance
11 Fund. Id. § 27. Deposits to the ATF ordered by the Board are
12 made by insurance carriers and, at the Board’s discretion, by
13 self-insured employers. Id. § 27.
14 Prior to the 2007 amendments subject of this appeal,
15 mandatory deposits to the ATF were made for “scheduled” awards
16 for permanent partial disability (“PPD”). A PPD is a condition
17 that restricts an employee’s ability to work but does not totally
18 foreclose it. A “scheduled” award is so-called because it refers
19 to a statutory schedule that identifies certain injuries such as
20 loss of a limb and sets the compensation amount for the injury.
21 See id. § 15(3). PPD awards for injuries not identified in the
22 schedule are determined by a WCLJ and are designated as “non-
23 scheduled” or “classified.” See id. § 15(3)(w). Until 2007, the
24 Board was not required to order an ATF deposit for a non-
25 scheduled award, although it had the discretion to do so.
26 Single, lump-sum payment settlements, whereby an injured
7
1 employee agrees to waive all past, present, and future indemnity
2 payments and medical benefits, were authorized by the WCL prior
3 to the 2007 amendments. See id. § 32(a) (2007). Approval by the
4 Board of such agreements, known as “waiver agreements” or
5 “section 32 settlements,” is mandatory, and the Board may deny
6 approval or order modification in the case of a proposed
7 settlement that is “unfair, unconscionable, or improper as a
8 matter of law.” Id. § 32(b)(1); N.Y. COMP . CODES R. & REGS . tit.
9 12, § 300.36(d), (e). Court review may be sought in the case of
10 the Board’s disapproval of a settlement. Id. § 300.36(g).
11 II. The 2007 Amendments and the Challenge
12 The 2007 amendments, inter alia, extended the requirement
13 that deposits to the ATF be made for scheduled awards to require
14 that such deposits be made by private carriers in all PPD cases
15 where long-term benefits are awarded, thus ending the distinction
16 between scheduled and non-scheduled awards. See N.Y. WORKERS ’
17 COMP. LAW § 27(2). The Board calculates the deposit by
18 ascertaining the present, discounted value of future long-term
19 benefits owed by the carrier to the injured employee. After
20 making the deposit, the carrier is “discharged from any further
21 liability” for indemnity payments but remains liable for medical
22 benefits. Id. § 27. Future indemnity payments are then made by
23 the ATF. A carrier may contest a PPD claim and a deposit order
24 in administrative and judicial review proceedings but has no
25 further part to play with regard to indemnity payments after the
26 deposit is made. Id. § 27(3).
8
1 Another provision of the 2007 amendments relates to the
2 settlement of workers’ compensation claims. WCL § 32 as revised
3 provides a new time frame for settlements, requiring carriers to
4 make settlement offers within two years of the indexing of claims
5 by the Board or six months after classification of a permanent
6 disability, whichever is later. See id. § 32(a). The amendments
7 also conferred settlement authority upon the ATF for indemnity
8 benefits. This authority becomes vested following a mandatory
9 deposit. Although the ATF may reach a settlement for less than
10 the amount of the carrier’s deposit, the carrier is not entitled
11 to a refund of the excess paid. Id. § 27(8). ATF settlements
12 are reviewed under the same regulations that govern waiver and
13 settlements initiated by carriers and must be approved in the
14 same way. Although the settlement decisions of the ATF do not
15 require the consent of the carrier that made the deposit, it is
16 the policy of ATF to “provide to the funding carrier a minimum of
17 60 days advance notice prior to entering a settlement agreement.”
18 See New York State Insurance Fund, Interoffice Memorandum, Claims
19 Medical Bulletin # 2007-4.
20 Liberty Mutual’s constitutional challenges are directed to
21 the 2007 amendments to WCL §§ 27 and 32. Specifically, Liberty
22 Mutual asserts that, because the amendments apply to awards of
23 compensation, not policies of insurance, issued after July 1,
24 2007, they operate substantially to impair contracts of insurance
25 (insurance policies) in violation of the Contracts Clause.
26 According to Liberty Mutual, the retroactive application of the
9
1 amendments “impairs both specific provisions of Liberty Mutual’s
2 insurance policies and the overall balance of liabilities and
3 premiums that is the most critical element of an insurance
4 contract.” Liberty Mutual alleges that the Contracts Clause
5 violations arise from the imposition of the 3% fee that ATF
6 collects under the amendments to administer a claim after a
7 deposit is made; from the restriction of its former contractual
8 right to pay compensation benefits on the basis of a multi-year
9 schedule is restricted; and from the elimination of its right to
10 settle claims after a deposit has been made. Contending that the
11 retroactivity of the amendments will impair contracts entered
12 into prior to the retroactivity date, Liberty Mutual contends
13 that it will sustain enormous losses by reason of the lack of a
14 premium adequate to cover liability under the new regime.
15 Liberty Mutual therefore contends that the WCL amendments
16 “operate[] as a substantial impairment of a contractual
17 relationship,” Allied Structural Steel Co. v. Spannaus, 438 U.S.
18 234, 244 (1978), that the amendments do not “have a significant
19 and legitimate public purpose,” Energy Reserves Group, Inc. v.
20 Kan. Power & Light Co., 459 U.S. 400, 411 (1983), and, if the
21 amendments do have such a purpose, they are not “reasonable and
22 necessary” to the attainment of the purpose, U.S. Trust Co. of
23 N.Y. v. New Jersey, 431 U.S. 1, 25 (1977). Accordingly, Liberty
24 Mutual argues that there is a clear violation of the
25 constitutional provision that “[n]o State shall . . . pass any .
26 . . Law impairing the Obligation of Contracts. . . .” U.S.
10
1 CONST. art. I, § 10, cl. 1.
2 Liberty Mutual also asserts that the amendments are
3 violative of the Due Process Clause, see U.S. CONST . amend. XIV,
4 § 1, because WCL § 32 as amended “bars an insurer from appearing
5 before the ATF and WCB on settlements of claims asserted against
6 its own insurance policies and also prohibits judicial review of
7 WCB decisions approving such settlements.” Liberty Mutual
8 contends that these provisions violate due process by depriving
9 it of an opportunity to be heard, since WCL § 32(e) now provides
10 that “no consultation or approval of any . . . insurance carrier
11 . . . shall be required before [the ATF] may enter into any
12 waiver agreement, or before the [WCB] may approve such waiver
13 agreement.” Although an insurer has nothing further to do with
14 the funds deposited with the ATF, Liberty Mutual claims a
15 property interest in the funds that may be used by ATF for the
16 settlement of claims made against Liberty Mutual’s insureds.
17 Liberty Mutual also claims due process violations because it is
18 denied judicial review of such settlements, N.Y. WORKERS ’ COMP . LAW
19 § 32(f); because ATF keeps any deposits in excess of settlements;
20 and because the ATF is administered by the New York State
21 Insurance Fund, a competitor of Liberty Mutual and the State’s
22 largest carrier of workers’ compensation insurance.
23 Finally, Liberty Mutual challenges the 2007 amendments as
24 violative of the Equal Protection Clause. See U.S. CONST . amend.
25 XIV, § 1. The basis for this challenge lies in the fact that
26 self-insured employers are not required to make deposits to the
11
1 ATF as are private carriers. Although the reason given for the
2 deposit requirement is to protect claimants against the risk of
3 insurer insolvencies, Liberty Mutual contends that “there is no
4 rational basis to impose these measures on insurers, who are
5 already subject to multiple layers of solvency requirements, but
6 not on self-insured employers, who are not so heavily regulated.”
7 Liberty Mutual contends that the discrimination in the
8 requirement of deposits to ATF is irrational, because injured
9 workers already are protected by the Workers’ Compensation
10 Security Fund, see N.Y. WORKERS ’ COMP . LAW § 106, which pays awards
11 of compensation in the case of default by an insolvent carrier
12 and is financed by annual assessments on all insurers, see id. §
13 108.
14 A previous challenge to the constitutionality of amended WCL
15 § 27 was presented to the Workers’ Compensation Board by Wausau
16 Insurance Company, an affiliate of Liberty Mutual and a
17 plaintiff-appellant in this action. In the Board proceeding,
18 bearing WCB case number 7050-8896, Daniel Del Plato was named as
19 claimant and Genesee County ARC was named as employer. In its
20 application for Board review of the decision of a WCLJ, Wausau
21 argued that the direction that it deposit funds into the ATF in
22 payment of a PPD award is “not only unconstitutional, but also
23 premature and that the calculation of such a deposit was
24 inaccurate.” Wausau asserted in its administrative protest that
25 self-insured employers and the State Insurance Fund “are treated
26 differently [from Wausau] in regard to a direction to make a
12
1 deposit into the Aggregate Trust Fund and therefore, such a
2 direction is unconstitutional.” The WCB made an interim
3 determination with respect to Wausau’s claim; it rescinded the
4 direction to deposit without prejudice and adjourned the case
5 pending resolution of Wausau’s claim for reimbursement under WCL
6 § (15)(8)(d). See Employer Genesee Co. ARC, No. 7050 8896, 2008
7 WL 4862978 (N.Y. Work. Comp. Bd. Oct. 31, 2008). There does not
8 yet appear to be a ruling on the merits of the constitutional
9 claim.
10 III. The Decision of the District Court
11 In its Memorandum Decision of March 9, 2009, the District
12 Court determined “that the abstention doctrine set out in Younger
13 v. Harris, 401 U.S. 37 (1971), mandates dismissal of the case for
14 lack of subject matter jurisdiction.” Liberty Mut. Ins. Co. v.
15 Hurlbut, No. 08 CIV 7192, 2009 WL 604430, at *3 (S.D.N.Y. Mar. 9,
16 2009). The District Court noted that “under Younger, abstention
17 is mandatory when ‘(1) there is a pending state proceeding, (2)
18 that implicates an important state interest, and (3) the state
19 proceeding affords the federal plaintiff an adequate opportunity
20 for judicial review of his or her federal constitutional
21 claims.’” Id. (quoting Hartford Courant Co. v. Pelligrino, 380
22 F.3d 83, 100-01 (2d Cir. 2004)).
23 Applying the foregoing factors in the case at hand, the
24 District Court determined that Liberty Mutual was involved in
25 pending workers’ compensation proceedings involving disputes over
26 PPD benefit claims in which the Board has ordered Liberty Mutual
13
1 to make ATF deposits pursuant to the challenged amendments. Id.2 Rejecting Liberty Mutual’s contention that only state civil
3 enforcement actions implicate Younger abstention, the District
4 Court found that workers’ compensation proceedings are indeed
5 judicial in nature and implicate inquiries that investigate,
6 declare, and enforce liabilities. Id. at *3-4. Moreover, the
7 District Court concluded that, although the proceedings involve
8 private parties, the state has an interest “beyond its interest
9 as adjudicator of wholly private disputes.” Id. at *4 (internal
10 quotation marks omitted).
11 Turning to the factor of important state interest, the
12 District Court observed that the general welfare of the state is
13 promoted by compensating workers for all injuries they sustain in
14 the course of employment and in preventing them from losing the
15 means of support by reason of such injuries. Id. at *5.
16 According to the District Court, the state interest is evidenced
17 by the detailed regulatory scheme put in place by the state to
18 ensure workers a statewide system designed to provide relief for
19 job-related injuries. Id. The District Court found that “[t]he
20 preliminary injunction [against enforcement of the challenged WCL
21 amendments] sought by plaintiffs would interfere with these
22 regulatory mechanisms.” Id.
23 Finally, the District Court determined that judicial review
24 of Liberty Mutual’s constitutional claims was available within
25 the system established by the state. Id. Because review of WCB
26 decisions is available in the Appellate Division, Third
14
1 Department, and because this review extends to WCB orders
2 directing ATF deposits, the District Court found that Liberty
3 Mutual’s constitutional challenge to WCL §§ 27 and 32 can be
4 mounted in the state court. Id. Accordingly, the District Court
5 concluded that the third Younger factor has been met here.
6 The District Court rejected Liberty Mutual’s argument that
7 the state and federal actions are not significantly closely
8 related so as to justify Younger abstention, holding that
9 different parties and different issues in the two actions do not
10 preclude abstention; that Liberty Mutual had not indicated that
11 it would be barred from constitutional challenges in the state
12 proceedings; and that at least one such challenge had been
13 mounted by Liberty Mutual in a WCB proceeding already. Id. The
14 District Court also rejected Liberty Mutual’s argument that no
15 state proceedings would actually be enjoined by this federal
16 action and therefore that Younger does not apply, on the ground
17 that this argument “interpret[s] the doctrine too narrowly.” Id.
18 at *6. All that is needed, according to the District Court “is
19 an ongoing state proceeding implicating an important state
20 interest, [where the] state proceeding affords the federal
21 plaintiff an adequate opportunity for judicial review of its
22 constitutional claims.” Id.
23 ANALYSIS
24 In Younger v. Harris, the Supreme Court held that a federal
25 court, except in cases where an injunction is necessary to
26 prevent immediate and irreparable injury, should not enjoin a
15
1 criminal proceeding in a state court. This determination is said
2 to have been based on “proper respect for the fundamental role of
3 States in our federal system” as well as equitable principles.
4 Ohio Civil Rights Comm’n v. Dayton Christian Sch., Inc., 477 U.S.
5 619, 626 (1986). Recognizing a special “concern for comity and
6 federalism,” the Supreme Court has
7 applied the Younger principle to civil proceedings in
8 which important state interests are involved . . .
9 [and] also [has] applied it to state administrative
10 proceedings in which important state interests are
11 vindicated, so long as in the course of those
12 proceedings the federal plaintiff would have a full and
13 fair opportunity to litigate his constitutional claim.
14 Id. at 627 (internal citations omitted).
15 The Court has described three considerations that prompt
16 abstention in the face of broad-based challenges to state
17 statutes: (1) that a federal court will interpret state law
18 without having the benefit of a state court interpretation which
19 may come at a later time and be at odds with the federal court
20 interpretation; (2) that the federal court decision may encompass
21 matters as to which there is no real case or controversy; and (3)
22 that the domestic policies of a state may be unnecessarily
23 obstructed when a state court is impeded from interpreting and
24 applying the state’s statutes. See Moore v. Sims, 442 U.S. 415,
25 428-29 (1979) (requiring Younger abstention in action challenging
26 constitutionality of child abuse statute during pendency of state
27 juvenile court protective proceedings).
28 Reviewing Supreme Court precedent, we have noted that
29 Younger abstention is appropriate where “that 1) there is an
16
1 ongoing state proceeding; 2) an important state interest is
2 implicated; and 3) the plaintiff has an avenue open for review of
3 constitutional claims in the state court.” Philip Morris, Inc.
4 v. Blumenthal, 123 F.3d 103, 105 (2d Cir. 1997) (internal
5 quotation marks omitted); see also Spargo v. N.Y. State Comm’n on
6 Judicial Conduct, 351 F.3d 65, 75 (2d Cir. 2003). The existence
7 of ongoing state proceedings is an essential requirement for
8 Younger abstention: “Absent any pending proceeding in state
9 tribunals, . . . application by the lower courts of Younger
10 abstention [is] clearly erroneous.” Ankenbrandt v. Richards, 504
11 U.S. 689, 705 (1992). Not only must state proceedings be pending
12 in order to invoke Younger, the proceedings must have been
13 initiated “‘before any proceedings of substance on the merits
14 have taken place in the federal court.’” Hawaii Hous. Auth. v.
15 Midkiff, 467 U.S. 229, 238 (1984) (quoting Hicks v. Miranda, 422
16 U.S. 332, 349 (1975)).
17 For example, in Christ the King Reg’l High Sch. v. Culvert,
18 815 F.2d 219 (2d Cir. 1987), the Lay Faculty Association of a
19 Catholic high school filed an unfair labor practice charge with
20 the New York State Labor Relations Board. In that administrative
21 proceeding, the Association charged the School with refusing to
22 bargain and with discharging striking members of the Association.
23 Various proceedings transpired before the Board, and some months
24 after the inception of the proceedings, the School commenced a
25 federal court action asserting, as it did before the Board, that
26 the Board’s exercise of jurisdiction would be violative of the
17
1 Establishment and Free Exercise Clauses of the Constitution and
2 was preempted by the National Labor Relations Act.
3 The District Court granted summary judgment to the Board and
4 the Association, but on appeal we determined that dismissal,
5 predicated upon Younger abstention, should have been granted. In
6 doing so, we referred to the Supreme Court’s holding in Dayton
7 Christian Schools “that a federal court should not enjoin a
8 pending state administrative proceeding when important state
9 interests are involved, as long as the federal plaintiff will
10 have a full and fair opportunity to litigate constitutional
11 claims during or after the proceedings.” Culvert, 815 F.2d at12 224. Such opportunities were available to the plaintiff in
13 Culvert.
14 With respect to the requirement for ongoing proceedings in
15 Culvert, we concluded: “As in Dayton Christian Schools, the
16 administrative agency in this case has not yet conducted its
17 formal hearing or imposed any sanctions; hence, an ongoing state
18 proceeding exists.” Id. In support of Younger abstention, we
19 also found that there was an important state interest in the
20 regulation of the duty to bargain collectively and that
21 litigation of the constitutional claim was available before the
22 State Labor Relations Board and before the New York State Supreme
23 Court pursuant to Article 78 of the New York Civil Practice Law
24 and Rules. Id. at 224-25.
25 In the same vein is Westvaco Corp. Envelope Division v.
26 Campbell, 842 F. Supp. 1472 (D. Mass. 1994), in which an employer
18
1 sought to enjoin the Massachusetts Department of Industrial
2 Accidents from considering an injured worker’s claim under a
3 system analogous to that established by New York’s WCL. At the
4 time the action was commenced, the claim had been denied and
5 administrative proceedings were pending. The employer contended
6 that the claim was preempted by the National Labor Relations Act
7 (NLRA), 29 U.S.C. §§ 157-58. The employee claimed that he was
8 totally disabled from work due to anxiety and major depression
9 arising from harassment and stress in the workplace. The
10 employer’s argument was that the employee’s claim of harassment,
11 if proven to be due to union activity, would fall within the
12 provisions of the NLRA. In dismissing the federal action on the
13 basis of the Younger abstention doctrine, the court found that
14 “the pending administrative proceeding upholds an important state
15 interest,” that the employer “will have an adequate opportunity
16 to litigate its federal preemption claim in the state court
17 system,” and that “[t]he ongoing state administrative worker’s
18 compensation proceedings are undoubtedly ‘judicial in nature.’”
19 Id. at 1475-76.
20 Common to all the cases in which the Younger abstention
21 doctrine is applied is the need to find that state proceedings,
22 whether they be criminal, civil or administrative, are ongoing or
23 “pending.” See 1A FEDERAL PROCEDURE LAWYERS ’ EDITION § 1:621 (2002).
24 The requirement is not fulfilled if the proceedings “are merely
25 incipient or threatened.” Id. § 1:622. The pendency of state
26 proceedings is problematic in the case now before us. At least
19
1 as to ATF’s authority to settle claims after deposits are made
2 under the amendment to WCL § 32, it is clear that no state
3 administrative or judicial proceedings challenging the amendments
4 are pending. Indeed, Liberty Mutual advises that “the ATF has
5 not entered into any settlements of claims against Liberty Mutual
6 since passage of the 2007 legislation, and thus no settlement-
7 approval proceedings have been instituted.” Liberty Mutual
8 contends that it will be unable to challenge amended § 32 in any
9 event because it is barred by statute from objecting to ATF’s
10 settlements. It is not clear that this is so. See N.Y. COMP .
11 CODES R. & REGS . tit 12, § 300.36(d)(3).
12 As to the issue of the retroactivity of the 2007 amendments,
13 the constitutional question has been raised before the Board, as
14 previously noted. However, there is no indication from either
15 side whether the claim, relating to an injury that occurred in
16 2005, is still pending. As to the mandatory deposits now
17 provided for in § 27, it appears that deposits have been made in
18 some cases and administrative review of deposit orders has been
19 sought in others. Again, we have not been favored with specific
20 information as to whether any proceedings regarding the mandatory
21 deposits are pending or ongoing in any state tribunal.
22 Our concerns with the applicability of the Younger doctrine
23 in the case at bar lead us to consider another closely-related
24 abstention doctrine which we think is applicable in this case.
25 We rely on that doctrine, known as Burford abstention, to affirm
26 the judgment of the District Court. In doing so, we exercise our
20
1 discretion to “affirm the district court’s judgment on any ground
2 appearing in the record, even if the ground is different from the
3 one relied on by the district court.” Doninger v. Niehoff, 527
4 F.3d 41, 50 n.2 (2d Cir. 2008) (internal quotation marks
5 omitted); see also ACEquip Ltd. v. Am. Eng’g Corp., 315 F.3d 151,
6 155 (2d Cir. 2003). Although we do not pronounce on the merits
7 of the Younger abstention question or use it as the basis for
8 dismissal in this case, we note that learned treatise authors
9 have written that “[a]nalytically the cases in which [Younger
10 abstention] requires a federal court not to act . . . appear to
11 be a special case of Burford-type abstention.” 17A CHARLES ALAN
12 WRIGHT, ARTHUR R. MILLER , EDWARD H. COOPER & VIKRAM DAVID AMAR , FEDERAL
13 PRACTICE & PROCEDURE § 4241, at 318 n.70 (3d ed. 2007).
14 In Burford v. Sun Oil Co., 319 U.S. 315 (1943), the
15 plaintiff invoked the equity jurisdiction of the federal court in
16 seeking to enjoin an order of the Texas Railroad Commission
17 permitting the drilling of four wells on land in East Texas.
18 Claiming the protection of the Fourteenth Amendment, the
19 plaintiff challenged the reasonableness of the Commission’s grant
20 of the oil-drilling permit. Taking note of the need of the state
21 to protect the oil and gas industry as well as the public
22 interest, the Court found that
23 Texas interests in this matter are more than that very
24 large one of conserving gas and oil, two of our most
25 important natural resources. It must also weigh the
26 impact of the industry on the whole economy of the
27 state and must consider its revenue, much of which is
28 drawn from taxes on the industry and from mineral lands
29 preserved for the benefit of its educational and
30 eleemosynary institutions. To prevent “past, present,
21
1 and imminent evils” in the production of natural gas, a
2 statute was enacted “for the protection of public and
3 private interests against such evils by prohibiting
4 waste and compelling ratable production.” The primary
5 task of attempting adjustment of these diverse
6 interests is delegated to the Railroad Commission which
7 Texas has vested with “broad discretion” in
8 administering the law.
9 Id. at 320.
10 The Court observed that the Railroad Commission had acquired
11 specialized knowledge and that, “[a]s a practical matter, the
12 federal courts can make small contribution to the well-organized
13 system of regulation and review which the Texas statutes
14 provide.” Id. at 327. The Court further observed that “[t]he
15 state provided a unified method for the formation of policy and
16 determination of cases by the Commission,” that federal court
17 intervention could very well lead to conflicting interpretations
18 of state law and the defeat of state policies, and that
19 “expeditious and adequate” state court judicial review of
20 Railroad Commission decisions was available. Id. at 333–34. The
21 Court concluded that, under the circumstances revealed, proper
22 respect for independent state action commanded abstention and
23 dismissal of the complaint.
24 Citing Alabama Public Service Commission v. Southern Railway
25 Co., 341 U.S. 341 (1951), a case wherein a railroad sought to
26 enjoin enforcement of an order of the Alabama Public Service
27 Commission denying permission for the discontinuance of
28 unprofitable rail lines, and referring to other cases as well,
29 the Supreme Court in New Orleans Public Service, Inc. v. Council
30 of New Orleans, 491 U.S. 350, 361 (1989), “distilled” the Burford
22
1 doctrine as follows:
2 Where timely and adequate state-court review is
3 available, a federal court sitting in equity must
4 decline to interfere with the proceedings or orders of
5 state administrative agencies: (1) when there are
6 difficult questions of state law bearing on policy
7 problems of substantial public import whose importance
8 transcends the result in the case then at bar; or (2)
9 where the exercise of federal review of the question in
10 a case and in similar cases would be disruptive of
11 state efforts to establish a coherent policy with
12 respect to a matter of substantial public concern.
13 (internal quotation marks omitted).
14 We have identified three factors to consider in connection
15 with the determination of whether federal court review would work
16 a disruption of a state’s purpose to establish a coherent public
17 policy on a matter involving substantial concern to the public.
18 Those factors are as follows: “(1) the degree of specificity of
19 the state regulatory scheme; (2) the need to give one or another
20 debatable construction to a state statute; and (3) whether the
21 subject matter of the litigation is traditionally one of state
22 concern.” Hachamovitch v. DeBuono, 159 F.3d 687, 697 (2d Cir.
23 1998) (Burford abstention not warranted in case of due process
24 challenge to state physician discipline statute for lack of
25 procedure to reopen misconduct proceedings to consider newly
26 discovered evidence).
27 Important to its conclusion in the Burford case itself were
28 the Court’s findings that “[t]he state provides a unified method
29 for the formation of policy and determination of cases by the
30 [Railroad] Commission and by the state courts” and that “[t]he
31 judicial review of the Commission’s decisions in the state courts
23
1 is expeditious and adequate.” Burford, 319 U.S. at 333-34. In
2 Alabama Public Service Commission, the Court emphasized the
3 importance of the availability of recourse to the state courts:
4 Not only has Alabama established its Public Service
5 Commission to pass upon a proposed discontinuance of
6 intrastate transportation service, but it has also
7 provided for appeal from any final order of the
8 Commission to the circuit court of Montgomery County as
9 a matter of right.
10 Ala. Pub. Serv. Comm’n, 341 U.S. at 348. Citing Burford, the
11 Court stated: “Whatever rights [the Railway Company] may have are
12 to be pursued through the state courts.” Id. at 350. And while
13 it may “seem[] too narrow to try to confine Burford, and the
14 later case of Alabama Public Service Commission to their own
15 facts and to hold that this kind of abstention is proper only
16 when a case involves basic matters of state policy, complicated
17 by nonlegal considerations of a predominantly local nature, and
18 the state has specially concentrated all judicial review of
19 administrative orders of the sort involved in a single state
20 court,” 17A WRIGHT , COOPER , MILLER & AMAR , supra, § 4244, at 383–85,
21 consideration of the principles enunciated in the cited cases
22 surely is warranted in assessing the viability of Burford-type
23 abstention.
24 In undertaking the assessment here, we find that federal
25 review of the WCL amendments as sought by Liberty Mutual would
26 “threaten[] to frustrate the purpose of the complex
27 administrative system that [New York] ha[s] established.” See
28 Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 725 (1996). The
29 WCL is a reticulated statute that governs a complex system
24
1 designed to benefit the interests of employer and employee in the
2 State of New York. Maintaining the balance between these
3 interests has been the goal throughout the history of the
4 statute. To that end, an elaborate system for the compensation
5 of those injured in the course of employment has been
6 established, with due consideration for the financial burdens
7 imposed on employers and their insurers. Indeed, the 2007
8 amendments to the WCL (and there are a number not under attack
9 here) are designed to maintain the balance. This is evidenced by
10 the statement of Purpose set forth in the Sponsor’s Memo of the
11 New York State Assembly Bill proposing the Amendments:
12 This bill establishes comprehensive reforms to New
13 York’s workers’ compensation law by: (1) increasing
14 maximum and minimum benefits for injured workers and
15 indexing the maximum to New York’s average weekly wage;
16 (2) dramatically reducing costs in the workers’
17 compensation system, making hundreds of millions of
18 dollars available annually to be translated into
19 premium reductions; (3) establishing enhanced measures
20 to combat workers’ compensation fraud; (4) replacing
21 the Special Disability Fund with enhanced protections
22 for injured veterans; (5) preventing insurance carriers
23 from transferring costs to New York employers by
24 closing the Special Disability Fund to new claims; and
25 (6) creating a financing mechanism to allow for
26 settlement of the Fund’s existing liabilities.
27 New York Sponsors Memorandum, 2007 A.B. 6163, New York Assembly,
28 230th Legislature, 2007 Regular Session.
29 The WCL establishes an integrated system with interdependent
30 parts. It is a statute with a high level of specificity. As is
31 apparent from the statement of the Sponsor, the amendments
32 challenged here very much take into account the historic balance
33 of interests that has been the hallmark of the policy underlying
25
1 the WCL. The manner of compensating workers for lost wages and
2 medical expenses incurred by virtue of work-related injuries has
3 presented public policy questions that have been debated and
4 resolved in various ways over many years. The adjustments
5 provided by the 2007 amendments to the WCL therefore serve to
6 classify the subject matter of this litigation as a matter of
7 traditional and substantial state concern. In carrying out
8 coherent public policy objectives, the New York Legislature has
9 been very specific in prescribing the methods and means for
10 providing compensation for injured workers.
11 Not only would federal court intervention be disruptive of a
12 carefully established state system, it might also yield
13 inconsistent and therefore conflicting results. For example, a
14 federal court decision respecting the retroactivity of the
15 amendment to WCL § 27, relating to deposits to the ATF for non-
16 scheduled awards, may well conflict with WCB decisions already
17 made on the same issue. Moreover, the deposits now required are
18 part and parcel of the entire integrated and balanced system,
19 providing as it does for the assurance of payments after
20 determinations are made regarding the extent of injury and the
21 present value of future long-term payments. Likewise, the
22 settlement authority conferred upon the ATF by the provisions of
23 amended WCL § 32 would be fraught with uncertainty by differing
24 interpretations of the provision at the state and federal levels.
25 Federal review of the 2007 amendments here would unduly disrupt
26 the administration of the New York WCL, would interfere with
26
1 matters of substantial public concern and would hamper resolution
2 by the state of challenges similar to those made here. The
3 issues joined in this case, including constitutional issues,
4 should be resolved by the WCB and by the New York court
5 specifically designated to provide adequate and expeditious
6 review of WCB decisions.
7 CONCLUSION
8 For the foregoing reasons, the judgment of the District
9 Court is affirmed.
27