Acra Turf Club v. Francesco Zanzuccki

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 13-3064
_____________
ACRA TURF CLUB, LLC, A New Jersey Limited
Liability Company;
FREEHOLD RACEWAY OFF TRACK, LLC, A New
Jersey Limited Liability Company,
Appellants
v.
FRANCESCO ZANZUCCKI, Executive Director of the
New Jersey Racing Commission
_____________
On Appeal from the United States District Court
for the District of New Jersey
District Court No. 3-12-cv-02775
District Judge: The Honorable Michael A. Shipp
_________________
Argued February 12, 2014
Before: SMITH, SHWARTZ, and SCIRICA,
Circuit Judges
(Filed: March 31, 2014)
Kellen F. Murphy
John M. Pellecchia [ARGUED]
Riker, Danzig, Scherer, Hyland & Perretti
One Speedwell Avenue
Headquarters Plaza
Morristown, NJ 07962
Counsel for Appellants
Julie Barnes
Stuart M. Feinblatt [ARGUED]
Office of Attorney General of New Jersey
Division of Law
Richard J. Hughes Justice Complex
25 Market Street, P.O. Box 093
Trenton, NJ 08625
Counsel for Appellee
________________
OPINION
________________
SMITH, Circuit Judge.
2
ACRA Turf Club, LLC (“ACRA”) and Freehold
Raceway Off Track, LLC (“Freehold”) (collectively,
“Plaintiffs”) filed this suit pursuant to 42 U.S.C. §§ 1983
and 1988, against Francesco Zanzuccki (“Zanzuccki”),
Executive Director of the New Jersey Racing
Commission (the “Commission”), asserting that certain
amendments to New Jersey’s Off-Track and Account
Wagering Act violate their rights under the United States
Constitution. The District Court dismissed the case on
Younger abstention grounds, and Plaintiffs appealed.
During the pendency of this appeal, the Supreme Court
issued its decision in Sprint Communications, Inc. v.
Jacobs, 134 S. Ct. 584 (2013), which clarifies and
reminds courts of the boundaries of the Younger
abstention doctrine. Because this action does not fit
within the framework for abstention outlined in Sprint,
we will reverse.
I.
In an effort to promote horse racing in the State,
the New Jersey Legislature enacted the Off-Track and
Account Wagering Act (the “Act”), N.J. Stat. Ann. § 5:5-
127 et seq., on February 1, 2002, providing for the
establishment of up to fifteen off-track wagering
(“OTW”) facilities. The Act authorized the Commission
to issue a license to a single entity, the New Jersey Sports
and Exposition Authority (the “NJSEA”), but
conditioned this grant upon the NJSEA entering into a
participation agreement with all other entities that held
3
valid permits to conduct horse racing in the year 2000.
N.J. Stat. Ann. §§ 5:5-130, 5:5-136. Other than the
NJSEA, ACRA and Freehold were the only two entities
to qualify as permit holders during the relevant period.
Thus, on September 8, 2003, the NJSEA, ACRA, and
Freehold entered into the Master Off-Track Wagering
Participation Agreement (the “Agreement”), which
allocated licensing rights for the fifteen OTW facilities as
follows: NJSEA the right to license nine OTW facilities,
Freehold the right to license four OTW facilities, and
ACRA the right to license two OTW facilities. The
Agreement also provided for geographic exclusivity near
the participants’ respective racetracks.
Although the Act authorized licenses for up to
fifteen OTW facilities, by 2011, only four facilities had
opened and were operating, including one by ACRA
(Favorites at Vineland) and one by Freehold (Favorites at
Toms River). The NJSEA owned two racetracks
(Monmouth Park and the Meadowlands), but had leased
control of those tracks to other entities, one of which was
the New Jersey Thoroughbred Horsemen’s Association,
4
Inc. (the “NJTHA”), which currently operates
thoroughbred racing at both tracks.1
Disappointed by the slow pace at which OTW
facilities were being opened, the New Jersey Legislature
passed several amendments to the Act beginning in 2011,
in an attempt to induce permit holders to open their
remaining share of OTW facilities allocated by the
Agreement. On February 23, 2011, the New Jersey
Legislature enacted the Forfeiture Amendment, 2011 N.J.
Laws 26, § 4 (amending N.J. Stat. Ann. § 5:5-130(b)(1)),
which provided that permit holders would forfeit their
rights to any OTW facility that was not licensed by
January 1, 2012, unless the permit holder could
demonstrate that it was “making progress” toward
obtaining an off-track wagering license and establishing
an OTW. The Forfeiture Amendment provided further
that a permit holder’s rights to an OTW facility, if
forfeited, shall be made available to other “horsemen’s
organizations” without compensation to the permit
1
The New Jersey Thoroughbred Horsemen’s
Association is defined in N.J. Stat. Ann. § 5:5-129 as
“the association representing the majority of New Jersey
thoroughbred owners and trainers responsible for
receiving and distributing funds for programs designed to
aid thoroughbred horsemen.”
5
holder.2 The NJTHA is one such organization that would
be entitled to any forfeited rights.
On January 17, 2012, the New Jersey Legislature
supplemented the Forfeiture Amendment by passing the
Deposit Amendment, 2011 N.J. Laws 205, § 4 (amending
N.J. Stat. Ann. § 5:5-130(b)(1)). The Deposit
Amendment extended the forfeiture date to June 28,
2012, and added a requirement that each permit holder
make a $1 million deposit for each OTW facility in its
share that is not licensed by December 31, 2011. Id. The
Deposit Amendment retained the “making progress”
exception, thus allowing a permit holder to avoid the
deposit requirement (and forfeiture of rights) if it could
establish that it was “making progress toward obtaining
an [OTW] license and establishing an [OTW] facility
according to specified benchmarks developed by the
commission.” N.J. Stat. Ann. § 5:5-130(b)(1).
On the same date the Deposit Amendment was
enacted, the New Jersey Legislature also passed the Pilot
Program Act, 2011 N.J. Laws 228 (codified at N.J. Stat.
Ann. § 5:5-186), which directed the Commission to
2
A “horsemen’s organization” is defined by the
Simulcasting Racing Act, N.J. Stat. Ann. § 5:5-110 et
seq., as an “organization or group representing a majority
of horsemen engaged in competing for purses during a
regularly scheduled horse race meeting, as the case may
be.” N.J. Stat. Ann. § 5:5-111.
6
establish a three-year Pilot Program for the installation of
electronic wagering terminals in a limited number of bars
and restaurants. N.J. Stat. Ann. § 5:5-186. Participation
in the Pilot Program was limited to lessees or purchasers
of NJSEA-owned racetracks, who were permitted to
exchange any unused OTW licenses for a license to
install electronic wagering terminals. The NJTHA
secured the right to a Pilot Program license by paying $2
million to the other assignee of NJSEA’s licenses, the
New Meadowlands Racetrack, LLC.
On January 30, 2012, the Commission sent letters
to ACRA, Freehold, and other OTW licensees, detailing
the Forfeiture and Deposit Amendments and notifying
each permit holder that it could extend its rights to
establish licensed OTW facilities either by posting a
deposit or demonstrating to the satisfaction of the
Commission that the permit holder had made progress
toward establishing its share of OTW facilities. On
March 29, 2012, ACRA and Freehold submitted petitions
to the Commission (the “Progress Petitions”), seeking to
demonstrate that they were making progress toward
opening their remaining OTW facilities. In their
respective petitions, ACRA and Freehold also challenged
the constitutionality of the amendments under the
Contracts, Takings, Due Process, and Equal Protection
Clauses of the United States Constitution.
On May 9, 2012, while their petitions were
pending before the Commission, Plaintiffs filed the
7
instant suit in the United States District Court for the
District of New Jersey, seeking to enjoin enforcement of
the three amendments based on the same constitutional
challenges set out in the Progress Petitions. Plaintiffs
then filed a motion for preliminary injunction on May 24,
2012, claiming they faced irreparable harm if the state
review process was allowed to proceed. Zanzuccki
opposed the motion, arguing, inter alia, that abstention
was warranted under Younger v. Harris, 401 U.S. 37
(1971).
While the preliminary injunction motion was
pending before the District Court, the Commission held a
meeting on June 20, 2012, to consider whether Plaintiffs
had made progress toward establishing their share of
OTW facilities. The Commission determined that both
ACRA and Freehold had made progress toward
establishing their unlicensed OTW facilities, absolved
them of the obligation to submit deposits, and directed
them to “comply with the requirements of the statute and
continue to make progress on an annual basis.” App.
320–21. Following the Commission’s decision,
Zanzuccki filed a letter with the District Court arguing
that the Commission’s decision eliminated any
irreparable harm that would previously have resulted
from denial of the motion for preliminary injunction. On
July 11, 2012, the District Court denied Plaintiffs’
motion for a preliminary injunction without prejudice,
finding that there was no immediate, irreparable harm
8
“since deposit or forfeiture is at least a year away.” App.
34.
As one of the entities that would have been entitled
to licensing rights forfeited by ACRA or Freehold, the
NJTHA was not satisfied with the Commission’s
decision that Plaintiffs had made sufficient progress in
establishing their remaining unlicensed OTW facilities.
Thus, on July 11, 2012, the NJTHA filed an appeal with
the New Jersey Superior Court, Appellate Division (the
“Making Progress Appeal”), contesting the
Commission’s determination. ACRA and Freehold
9
subsequently joined the Making Progress Appeal as co-
respondents of the Commission.3
With the Making Progress Appeal pending before
the New Jersey Appellate Division, Plaintiffs filed a
motion for summary judgment in their federal action on
October 12, 2012, seeking a judgment declaring that the
Amendments were unconstitutional. Zanzuccki filed an
3
On July 27, 2012, shortly after filing the Making
Progress Appeal, the NJTHA—along with the
Standardbred Breeders and Owners Association, who
filed its own motion on August 7, 2012—filed a motion
to intervene in Plaintiffs’ federal suit and to dismiss
based, in part, on Younger abstention. The Magistrate
Judge struck as premature the part of the motion that
sought to dismiss the Complaint, and the NJTHA filed an
appeal of that order, which we dismissed for lack of
jurisdiction. The District Court subsequently denied the
motion to intervene on February 27, 2013, finding that
the proposed intervenors failed to demonstrate that their
interests were not adequately represented by Zanzuccki.
The NJTHA filed a Notice of Appeal on March 5, 2013,
which was docketed as No. 13-1634 (the “Intervention
Appeal”) and consolidated with this appeal for purposes
of disposition only. We resolve the Intervention Appeal
in a separate opinion issued concurrently with this
decision.
10
opposition as well as a cross-motion for dismissal of the
complaint based on Younger abstention. Specifically,
Zanzuccki argued that the Making Progress Appeal
provided an adequate opportunity for ACRA and
Freehold to raise their constitutional challenges in state
court.
On May 30, 2013, the District Court issued an
Order and Memorandum Opinion granting Zanzuccki’s
cross-motion to dismiss the complaint on Younger
abstention grounds. In reaching its conclusion, the
District Court applied the three-part test articulated in
Middlesex County Ethics Committee v. Garden State Bar
Association, 457 U.S. 423, 432 (1982), which requires
(1) an ongoing state judicial proceeding; (2) which
implicates important state interests; and (3) offers an
adequate opportunity to raise the same constitutional
challenges presented in the federal action. Finding these
requirements satisfied, the District Court applied Younger
abstention and dismissed the complaint.
Plaintiffs timely appealed.
II.
The District Court had federal question jurisdiction
under 28 U.S.C. § 1331. We have jurisdiction over this
appeal pursuant to 28 U.S.C. § 1291, because it arises
following a final order of dismissal.
11
“We exercise plenary review over whether the
requirements for abstention have been met.” Miller v.
Mitchell, 598 F.3d 139, 145–46 (3d Cir. 2010).
III.
While this appeal was pending, the Supreme Court
decided Sprint Communications, Inc. v. Jacobs, 134 S.
Ct. 584 (2013), reiterating that Younger abstention is
appropriate in only three narrow categories of cases.
Although Sprint provides a much needed framework for
evaluating abstention issues, the Court explained that
Sprint was merely a restatement of the abstention
principles found in the Court’s existing precedent.
Accordingly, our analysis must consider the full body of
abstention case law, beginning with Younger itself.
In Younger v. Harris, 401 U.S. 37, 53–54 (1971),
the Supreme Court held that federal courts should decline
to enjoin a pending state court criminal prosecution
absent a showing that the charges had been brought in
bad faith or with an intent to harass. The plaintiff in
Younger was indicted in state court for distributing
leaflets in violation of the California Criminal
Syndicalism Act, and he sought a federal court injunction
against the state criminal prosecution on the grounds that
the Act and the charges brought under it violated the First
and Fourteenth Amendment. A three-judge district court
agreed with the plaintiff, but the Supreme Court reversed,
holding that federal courts should not interfere with state
12
criminal proceedings, “particularly . . . when the moving
party has an adequate remedy at law and will not suffer
irreparable injury if denied equitable relief.” Younger,
401 U.S. at 43–44. The Court explained that this decision
was founded on “the notion of ‘comity,’ that is a proper
respect for state functions.” Id. at 44. The result was a
rule that state criminal proceedings should be enjoined
only in “extraordinary circumstances, where the danger
of irreparable loss is both great and immediate” and it
“plainly appears that [asserting the constitutional defense
in state court] would not afford adequate protection.” Id.
at 45 (citations omitted).
Although Younger was initially developed as a
limitation on the ability of federal courts to interfere with
pending state criminal proceedings, the Supreme Court
has since extended Younger’s application to bar federal
interference with certain state civil and administrative
proceedings. Huffman v. Pursue, Ltd., 420 U.S. 592
(1975), was the groundbreaking decision which extended
Younger into the civil arena. In Huffman, state officials
instituted a civil nuisance proceeding and successfully
obtained a judgment against an adult movie theater for
violating an Ohio statute declaring the exhibition of
obscene films to be a nuisance. Instead of appealing the
decision within the state court system, the theater
company filed a federal action under 42 U.S.C. § 1983.
The Supreme Court held that abstention was the proper
course, emphasizing that the state’s nuisance proceeding
13
was “more akin to a criminal prosecution than are most
civil cases.” Huffman, 420 U.S. at 604. The Court noted
that the state was a party to the civil nuisance proceeding,
which was “both in aid of and closely related to criminal
statutes which prohibit the dissemination of obscene
materials.” Id. Thus, the Court concluded that the
“State’s interest in the nuisance litigation is likely to be
every bit as great as it would be were this a criminal
proceeding.”4 Id.
The Court revisited the Younger abstention
doctrine two years later with its decision in Trainor v.
Hernandez, 431 U.S. 434 (1977). In Trainor, the Illinois
Department of Public Aid instituted a civil fraud
proceeding in state court to recover welfare benefits
obtained by Hernandez and his wife, who had allegedly
concealed their personal assets when applying for public
4
Three justices dissented, arguing that, because civil
proceedings can be initiated simply by filing a complaint,
it is too easy for the state to “strip [someone] of a forum
and a remedy that federal statutes were enacted to
assure.” Huffman v. Pursue, Ltd., 420 U.S. 592, 615
(1975) (Brennan, J., dissenting). Although recognizing
that Huffman was limited to quasi-criminal proceedings,
Justice Brennan expressed his concern that the majority’s
decision was “obviously only the first step” toward
applying Younger abstention to all civil cases in state
court. Id. at 613.
14
assistance. After the department obtained a writ of
attachment pursuant to the Illinois Attachment Act
against the defendant’s savings account, Hernandez
brought a federal action challenging the constitutionality
of the attachment statute and seeking declaratory and
injunctive relief. The Supreme Court again held that
abstention was appropriate even though the proceeding
was wholly civil. The Court emphasized that “the State
was a party to the suit in its role of administering its
public-assistance programs” and, by pursuing the action,
was “vindicat[ing] important state policies such as
safeguarding the fiscal integrity of those programs.” Id.
at 444. As in Huffman, the Court pointed out that the
state could have vindicated the same interests by
initiating a criminal enforcement action. Id. The Court
concluded that “the principles of Younger and Huffman
are broad enough to apply to interference by a federal
court with an ongoing civil enforcement action such as
this, brought by the State in its sovereign capacity.” Id.
(emphasis added).
It was not long before the Court considered
Younger’s application again in Moore v. Sims, 442 U.S.
415 (1979). In Moore, the Texas Department of Human
Resources (the “DHR”) acted pursuant to an emergency
ex parte order to remove children from their home based
on suspicions of child abuse. The parents filed suit in
federal court challenging the constitutionality of the
Texas law authorizing the DHR’s actions, and a three-
15
judge district court held that the law was
unconstitutional. The Supreme Court reversed,
concluding that the district court should have abstained
and dismissed the case. The Court explained that its prior
cases demonstrated that the policy concerns articulated in
Younger are “fully applicable to civil proceedings in
which important state interests are involved.” Id. at 423.
Once again, the Court acknowledged that, like the
nuisance proceeding in Huffman, the temporary removal
of a child based on suspicions of child abuse is “in aid of
and closely related to criminal statutes.” Id. (quoting
Huffman, 420 U.S. at 604). The Court then considered
“whether [the parents’] constitutional claims could have
been raised in the pending state proceedings,” explaining
that “abstention is appropriate unless state law clearly
bars the interposition of the constitutional claims.” Id. at
425–26. Because Texas law did not present any
procedural barriers to the presentation of the parents’
constitutional claims, the Court concluded that abstention
was warranted. Id. at 432.
By the time Middlesex County Ethics Committee v.
Garden State Bar Association, 457 U.S. 423 (1982), was
decided, the Supreme Court had already applied Younger
abstention when confronted with a variety of ongoing
state court civil proceedings. Middlesex, however,
marked the first time the Court invoked the abstention
doctrine in favor of a state administrative proceeding.
The plaintiff in Middlesex, a lawyer, filed a suit in federal
16
court seeking to enjoin as unconstitutional ongoing
investigations and administrative proceedings by the
New Jersey state bar ethics committee. Agreeing with the
district court’s decision to abstain, the Supreme Court
explained that “[t]he policies underlying Younger are
fully applicable to noncriminal judicial proceedings when
important state interests are involved,” id. at 432, which
may be “demonstrated by the fact that the noncriminal
proceedings bear a close relationship to proceedings
criminal in nature.” Id. (citing Huffman, 420 U.S. at 604).
Where such “vital state interests” are found, the Court
proclaimed, “a federal court should abstain ‘unless state
law clearly bars the interposition of the constitutional
claims.’” Id. (quoting Moore, 442 U.S. at 426). The
Court then set out a three-part inquiry to guide its
analysis:
first, do state bar disciplinary hearings . . .
constitute an ongoing state judicial
proceeding; second, do the proceedings
implicate important state interests; and third,
is there an adequate opportunity in the state
proceedings to raise constitutional
challenges.
17
Id. at 432 (emphasis in original). Finding this three-part
test satisfied,5 the Court abstained.6 Id. at 437.
A few years later, in Ohio Civil Rights
Commission v. Dayton Christian Schools, Inc., 477 U.S.
619 (1986), the Supreme Court, for the second time,
found Younger abstention was appropriate in view of an
ongoing state administrative proceeding. In Dayton, a
pregnant teacher at a church-run school filed a complaint
with the Ohio Civil Rights Commission after the school
had refused to renew her contract because of its official
view that mothers should stay home with their preschool
5
As to the third prong, the Court acknowledged that
the state ethics committee had concluded its evaluation
without considering the plaintiff’s constitutional
arguments. Nonetheless, the Court found that the plaintiff
had an adequate opportunity to present those challenges
to the New Jersey Supreme Court, which had appellate
jurisdiction over the ethics committee’s decision.
Middlesex, 457 U.S. at 435–36.
6
Justice Brennan concurred in the decision and
noted that despite his general view that Younger is
inapplicable to civil proceedings, he was inclined to join
the judgment of the majority in light of the “quasi-
criminal nature of bar disciplinary proceedings.”
Middlesex Cnty. Ethics Comm. v. Garden State Bar
Ass’n, 457 U.S. 423, 438 (1982) (Brennan, J.,
concurring).
18
children. The Commission concluded that there was
probable cause to conclude that the school’s conduct
amounted to impermissible sex discrimination and,
accordingly, initiated administrative proceedings against
the school. The school defended the administrative
proceeding by asserting a defense under the First
Amendment and also filed suit in federal court to enjoin
the administrative action. The Supreme Court, once
again, held that abstention was proper. Although it did
not directly apply the three-part Middlesex test, the Court
proceeded along similar lines by first emphasizing that
the administrative proceeding was “judicial in nature”
from its outset. Dayton, 477 U.S. at 627. The Court
reiterated that Younger principles apply when there are
state 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.” Id. The
Court concluded that the state’s interest in eliminating
gender discrimination was important, and that the
availability of state judicial review ensured an adequate
opportunity to raise constitutional issues. Id. at 628–29.
The most recent pre-Sprint abstention case is New
Orleans Public Service, Inc. v. Council of the City of New
Orleans (NOPSI), 491 U.S. 350 (1989). There, for the
first time in nearly two decades, the Supreme Court
scaled back Younger’s expanding reach and declined to
abstain in favor of a state proceeding. In NOPSI, a utility
19
company sought a rate increase from the New Orleans
City Council to recover costs imposed by the Federal
Energy Regulatory Commission. The Council denied the
rate increase and then filed a declaratory judgment action
in state court to confirm the validity of its order. The
utility company contested the state action and also
initiated a suit in federal court challenging the
constitutionality of the Council’s decision. The district
court abstained, based in part on Younger, and the court
of appeals affirmed. The Supreme Court reversed and
declared that federal court abstention is not warranted in
all instances where there are pending state court
proceedings. The Court stated:
Although our concern for comity and
federalism has led us to expand the
protection of Younger beyond state criminal
prosecutions, to civil enforcement
proceedings, and even to civil proceedings
involving certain orders that are uniquely in
furtherance of the state courts’ ability to
perform their judicial functions, it has never
been suggested that Younger requires
abstention in deference to a state judicial
proceeding reviewing legislative or
executive action. Such a broad abstention
requirement would make a mockery of the
rule that only exceptional circumstances
20
justify a federal court’s refusal to decide a
case in deference to the States.
NOPSI, 491 U.S. at 367–68 (citations omitted). The
Court ultimately concluded that the Council’s rate setting
was essentially a legislative task and that Younger had
never been applied to prevent review of such matters.
The Court acknowledged that its decision would likely
preclude the state court from deciding the issue, but held
that this possibility did not compel abstention, noting that
“there is no doctrine that the availability or even the
pendency of state judicial proceedings excludes the
federal courts.” Id. at 373.
IV.
More than two decades passed between NOPSI
and Sprint Communications v. Jacobs, 134 S. Ct. 584
(2013). During that period, district courts demonstrated
greater and greater willingness to abstain from
adjudicating federal claims in deference to ongoing state
proceedings. See Joshua G. Urquhart, Younger
Abstention and Its Aftermath: An Empirical Perspective,
12 Nev. L.J. 1, 9 n.62 (2011) (discussing empirical
finding that, between 1995 and 2006, a party seeking
abstention under Younger was successful 51.6 percent of
the time). When analyzing abstention questions during
this twenty-four year period, most courts strictly and
mechanically applied the three-part test from Middlesex,
while largely ignoring the limitations imposed by NOPSI.
21
Id. at 8–9. That approach commonly resulted in
abstention because “the three Middlesex factors have
been expanded so broadly that most parallel state
criminal, civil, or administrative enforcement or similar
actions will satisfy them.” Id. at 9. Perhaps recognizing
this tendency of federal courts to decline to adjudicate
federal claims, the Court in Sprint rejected the notion that
Younger abstention is the rule rather than the exception.7
The Court declared that Younger is an “exceptional”
remedy to be invoked in only a narrow range of cases.
Sprint, 134 S. Ct. at 588.
Sprint involved a dispute between two
telecommunication service providers, Sprint (a national
provider) and Windstream (an Iowa communications
company). Sprint had long paid intercarrier access fees to
Windstream for long distance calls placed by Sprint
customers to Windstream’s in-state customers. In 2009,
however, Sprint began withholding payment for a subset
7
A review of Third Circuit precedent reveals that
our Court was not excepted from the pitfall of
mechanically applying the Middlesex factors as a stand-
alone test. However, because our decision today requires
a straightforward application of Sprint, and because
neither party has asked us to reconsider prior Third
Circuit decisional law, we do not address the extent to
which our holding disrupts our Court’s pre-Sprint
precedential authority.
22
of those calls, classified as Voice over Internet Protocol
(“VoIP”), based on its interpretation of the
Telecommunications Act of 1996. The dispute eventually
ended up in an administrative proceeding before the Iowa
Utilities Board (the “IUB”), which rejected Sprint’s
interpretation of the federal statute and held that
intrastate fees applied to VoIP calls.
Seeking to overturn the IUB ruling, Sprint
commenced two lawsuits. First, it filed suit in federal
court seeking a declaration that the Telecommunications
Act preempted the IUB’s decision. Sprint also appealed
the IUB’s decision to the Iowa state courts, which Sprint
explained was simply a protective measure because of
Eighth Circuit precedent requiring exhaustion of state
remedies before litigating in federal court. On motion by
the IUB, the district court dismissed Sprint’s federal suit
on Younger abstention grounds. The Eighth Circuit
affirmed, based in large part on the three-part Middlesex
test.
In reversing, the Supreme Court emphasized that
as a “general rule . . . ‘the pendency of an action in [a]
state court is no bar to proceedings concerning the same
matter in the Federal court having jurisdiction.’” Sprint,
134 S. Ct. at 588 (quoting Colo. River Water
Conservation Dist. v. United States, 424 U.S. 800, 817
(1976)) (alteration omitted). The Court reiterated that
“[p]arallel state-court proceedings do not detract from” a
federal court’s “virtually unflagging” obligation to hear
23
and decide a case. Id. at 591 (quoting Colo. River Water
Conservation Dist., 424 U.S. at 817).
The Court then reiterated the limitations on the
abstention doctrine set out in NOPSI, explaining that
Younger can overcome the general principle that federal
courts must hear and decide cases only in “exceptional”
circumstances, where “the prospect of undue interference
with state proceedings counsels against federal relief.”
Sprint, 134 S. Ct. at 588 (quoting NOPSI, 491 U.S. at
368). These “exceptional” circumstances arise only
where the federal action interferes with one of three
categories of cases: (1) “ongoing state criminal
prosecutions” (as in Younger itself); (2) “certain civil
enforcement proceedings” (such as the nuisance action in
Huffman); and (3) “civil proceedings involving certain
orders . . . uniquely in furtherance of the state courts’
ability to perform their judicial functions” (such as state
court civil contempt proceedings).8 Id. at 591 (internal
8
Two Supreme Court cases implicate this third
category subject to Younger abstention. See Juidice v.
Vail, 430 U.S. 327, 336 & n.12 (1977) (civil contempt
order); Pennzoil Co. v. Texaco Inc., 481 U.S. 1, 13
(1987) (requirement for the posting of bond pending
appeal). Because this is a unique breed of Younger
abstention which is not relevant to this appeal, we do not
provide a detailed discussion of these cases here.
24
quotation marks and citations omitted). These categories,
said the Court, “define Younger’s scope.” Id.
After noting that the first and third categories
plainly did not accommodate the IUB proceeding, the
Court turned to consider whether the proceeding was a
“civil enforcement proceeding” of the type to which
Younger applied. Id. at 592. The Court explained that
cases applying Younger in the context of civil
enforcement proceedings generally involve state
proceedings that are “akin to a criminal prosecution in
important respects.” Id. (internal quotation marks
omitted). Such actions, the Court noted, “are
characteristically initiated to sanction the federal
plaintiff, i.e., the party challenging the state action, for
some wrongful act.” Id. (citing Middlesex, 457 U.S. at
433–34). Additionally, “a state actor is routinely a party
to the state proceeding and often initiates the action.” Id.
(citing Dayton, 477 U.S. at 619; Moore, 442 U.S. at 419–
20; Trainor, 431 U.S. at 444; Huffman, 420 U.S. at 598).
Finally, the Court stated that “[i]nvestigations are
commonly involved, often culminating in the filing of a
formal complaint or charges.” Id. (citing Dayton, 477
U.S. at 624; Middlesex, 457 U.S. at 433). Applying this
framework, the Court concluded that the IUB proceeding
was not the type of civil enforcement proceeding to
which Younger applies. The Court explained:
It is not “akin to a criminal prosecution.”
Nor was it initiated by “the State in its
25
sovereign capacity.” A private corporation,
Sprint, initiated the action. No state
authority conducted an investigation into
Sprint’s activities, and no state actor lodged
a formal complaint against Sprint.
Sprint, 134 S. Ct. at 592 (citations omitted).
The Court then addressed the Eighth Circuit’s
heavy reliance on the three-part Middlesex test. Recalling
the facts from Middlesex (a lawyer’s attempt to enjoin an
investigation and administrative proceedings by a state
bar ethics committee), the Court stated that Middlesex fit
neatly within the second category of Younger cases
because it was “indeed ‘akin to a criminal proceeding.’”
Sprint, 134 S. Ct. at 593. Acknowledging that lower
courts were inappropriately treating the three Middlesex
factors as a stand-alone test, the Court clarified that
“[t]he three Middlesex conditions . . . were not
dispositive,” but “were, instead, additional factors
appropriately considered by the federal court before
invoking Younger.” Id. (first emphasis added). The Court
explained:
Divorced from their quasi-criminal context,
the three Middlesex conditions would extend
Younger to virtually all parallel state and
federal proceedings, at least where a party
could identify a plausibly important state
interest. That result is irreconcilable with
26
our dominant instruction that, even in the
presence of parallel state proceedings,
abstention from the exercise of federal
jurisdiction is the “exception, not the rule.”
Id. (citation omitted).
V.
Although pre-Sprint case law provides significant
guidance in deciding this case, Sprint itself supplies the
framework for our analysis. Sprint offers a forceful
reminder of the longstanding principle that federal courts
have a “virtually unflagging” obligation to hear and
decide cases within their jurisdiction. Sprint, 134 S. Ct. at
591 (quoting Colo. River, 424 U.S. at 817); see also
Cohens v. Virginia, 19 U.S. 264, 404 (1821) (“We have
no more right to decline the exercise of jurisdiction
which is given, than to usurp that which is not given.”).
Abstention under the Younger line of cases overcomes
this principle only when federal litigation threatens to
interfere with one of three classes of cases: (1) state
criminal prosecutions, (2) state civil enforcement
proceedings, and (3) state civil proceedings involving
orders in furtherance of the state courts’ judicial function.
Sprint, 134 S. Ct. at 591. As in Sprint, this case does not
fit within the first or third categories. We, therefore, must
consider whether the state proceeding, including the
Making Progress Appeal currently pending before the
27
Appellate Division of the New Jersey Superior Court,9 is
the type of “exceptional” civil enforcement proceeding
from which Younger would compel abstention. Sprint,
134 S. Ct. at 588. We conclude it is not.
After Sprint, the threshold requirement for
applying Younger abstention is that the state civil
enforcement proceeding must be “quasi-criminal” in
nature. Sprint, 134 S. Ct. at 593; see also id. at 592
(stating that Younger generally applies only when the
state proceeding is “‘akin to a criminal prosecution’ in
‘important respects’”). In evaluating whether a state
proceeding is quasi-criminal, we consider the factors set
out in Sprint, including whether (1) the action was
9
Although the Commission’s review of the Progress
Petitions and the Making Progress Appeal could be
viewed as two different proceedings, the Supreme Court
has repeatedly assumed, without deciding, that an
administrative proceeding and the state court’s review are
part of a single “unitary process.” Sprint, 134 S. Ct. at
592 (“We will assume without deciding, as the Court did
in NOPSI, that an administrative adjudication and the
subsequent state court’s review of it count as a ‘unitary
process’ for Younger purposes.”). We follow this
approach and assume, for purposes of this opinion, that
the Commission’s review of the Progress Petitions and
the Making Progress Appeal are both components of a
single state proceeding.
28
commenced by the State in its sovereign capacity, (2) the
proceeding was initiated to sanction the federal plaintiff
for some wrongful act, and (3) there are other similarities
to criminal actions, such as a preliminary investigation
that culminated with the filing of formal charges. Id. at
592. We also consider whether the State could have
alternatively sought to enforce a parallel criminal statute.
See, e.g., Huffman, 420 U.S. at 604 (describing the civil
nuisance action as “closely related to criminal statutes
which prohibit the dissemination of obscene materials”);
Trainor, 431 U.S. at 444 (pointing out that “[t]he state
authorities also had the option of vindicating these
policies through criminal prosecutions”).
The state proceeding at issue in this appeal does
not bear any of the hallmarks that Sprint and its
predecessors identify with quasi-criminal actions. It was
not initiated by the State in its sovereign capacity, a point
which is illuminated by the fact that no state actor
conducted an investigation or filed any type of formal
complaint or charges. Instead, the state proceeding was
initiated by Plaintiffs (private entities) when they
voluntarily submitted their Progress Petitions to the
Commission for review. There is also no evidence that
the state proceeding was commenced to sanction
Plaintiffs for some wrongful act. Rather, the requirements
imposed by the Forfeiture and Deposit Amendments
were plainly intended to incentivize conduct which the
State believed would be economically beneficial. Finally,
29
there is no indication that the policies implicated in the
state proceeding could have been vindicated through
enforcement of a parallel criminal statute. Because
nothing here suggests the state proceeding is any “more
akin to a criminal prosecution than are most civil cases,”
Huffman, 420 U.S. at 604, we conclude that the District
Court’s decision to abstain was incorrect.
Zanzuccki challenges the contention that the state
proceeding is not quasi-criminal. In particular, he asserts
that the State initiated the proceeding in its sovereign
capacity.10 He argues that the Commission, a state actor,
commenced the proceeding “on January 30, 2012, when
[it] sent a letter to [Plaintiffs] advising that they could
extend their rights to unlicensed OTW facilities either by
posting a deposit or by demonstrating in a petition, to the
satisfaction of the Racing Commission, that they had
10
After the Supreme Court issued its opinion in
Sprint, the Court sent a notice to the parties requesting
supplemental briefing on Sprint’s application to this
appeal. In response to the Court’s inquiry, Zanzuccki
initially conceded that he “cannot . . . describe the [state]
civil enforcement proceeding as ‘akin to a criminal
prosecution.’” Zanzuccki’s Dec. 26, 2013 Ltr. Br. at 3. At
oral argument, however, Zanzuccki retreated from that
position and argued that the state proceeding sufficiently
resembled the type of enforcement actions Sprint
suggests are subject to Younger abstention.
30
made progress toward establishing their share of the
remaining OTWs.” Zanzuccki’s Dec. 26, 2013 Ltr. Br. at
3. We disagree.11
We fail to see how the Commission’s January 30,
2012 letter represents an effort by the State to initiate any
type of civil proceeding against Plaintiffs. The letter was
a purely informational document intended to inform
Plaintiffs of the requirements imposed by the newly-
enacted Amendments. Indeed, it did not provide any
11
Judge Shwartz would find that this letter was more
than informational and would be sufficient to constitute
the initiation of a proceeding by a state actor, particularly
because it provided the avenue for the licensees to seek
relief from the Forfeiture and Deposit Amendments and
it made clear that a lack of response would result in a
revocation of the licensing rights or the requirement to
pay a $1 million deposit for each unopened facility. As a
result, Judge Shwartz has a different view of the January
30, 2012 letter and would not rule out the use of a letter
as a means to initiate a proceeding to which Younger
applies. Although we hold the Commission’s January 30,
2012 letter does not represent an attempt by the State to
initiate civil enforcement proceedings against Plaintiffs,
we express no opinion as to whether some method other
than the Commission’s letter could constitute a state’s
initiation of such proceedings as described by the
Supreme Court in Sprint.
31
information other than to describe the contents of the
statute, a fact that is demonstrated by the letter’s
concluding paragraph, which states:
Please be advised that the Commission is
requesting that any permit holder which
intends to seek an extension pursuant to the
circumstances in [the Deposit Amendment]
shall file a petition with the [C]ommission
no later than March 31, 2012 . . . .
Compliance with this filing deadline will
allow the [C]ommission time to evaluate the
petition and make a determination prior to
[the deposit deadline]. Should you have any
questions, please feel free to contact me.
App. 165. Both the tone and the obvious purpose of the
letter are clear from this excerpt. Nothing about the letter
reflects an effort by the Commission to initiate adverse,
quasi-criminal proceedings. Significantly, the
Commission’s letter did not demand any action by
ACRA or Freehold, but rather simply “advise[s]” them
about changes in the law. Id.
Moreover, the Commission’s letter in no way
resembles the initiation procedures employed by state
actors in cases where the Supreme Court has applied
Younger abstention. Indeed, all of those cases involved a
state entity that commenced civil or administrative
proceedings by filing some type of formal complaint or
32
charges. See, e.g., Huffman, 420 U.S. at 598 (“[The state
actor] instituted a nuisance proceeding in the Court of
Common Pleas . . . .”); Trainor, 431 U.S. at 435 (“The
Illinois Department of Public Aid . . . filed a lawsuit in
the Circuit Court of Cook County . . . .”); Moore, 442
U.S. at 419 (“[T]he Department . . . institute[d] a suit for
emergency protection of the children under . . . the Texas
Family Code.”); Middlesex, 457 U.S. at 428 (“The
Committee then served a formal statement of charges on
[the federal plaintiff].”); Dayton, 477 U.S. at 624 (“[T]he
Commission initiated administrative proceedings against
[the school] by filing a complaint.”). To be sure, the
Supreme Court has not directly held that Younger applies
only when a state actor files a complaint or formal
charges. Nonetheless, its Younger progeny suggest that a
state’s “initiation” procedure must proceed with greater
formality than merely sending a targeted advisory notice
to a class of people that may be affected by new
legislation.
We likewise reject Zanzuccki’s contention that the
state proceeding threatened the imposition of sanctions if
Plaintiffs failed to “make progress” toward establishing
their remaining OTW facilities. Zanzuccki argues that we
should analogize the Commission’s authority to revoke
Plaintiffs’ licensing rights and/or require Plaintiffs to post
a $1 million deposit for each unopened facility to the
type of sanctions found in a quasi-criminal proceeding.
We do not agree.
33
There is no dispute that ACRA and Freehold
would have faced undesirable consequences—in the way
of potential forfeiture of rights or a substantial deposit
requirement—if they had failed to show they were
“making progress” toward licensing their remaining
OTW facilities. But negative consequences are not the
same thing as sanctions. Sanctions are retributive in
nature and are typically imposed to punish the sanctioned
party “for some wrongful act.” Sprint, 134 S. Ct. at 592.
No party here suggests that Plaintiffs’ conduct (or
inaction) in failing to establish its OTW facilities was
unlawful, much less “wrongful.” In fact, Zanzuccki
admits that punishment was not the goal, explaining that
“the amendments to the Off-Track and Account
Wagering Act . . . were designed to incentivize the
Appellants to open their remaining OTWs.” Zanzuccki’s
Dec. 26, 2013 Ltr. Br. at 3 (emphasis added).
Significantly, even if Plaintiffs had not prevailed on their
Progress Petitions, they still would not have been legally
obligated to make the $1 million deposit. At that point,
making the deposit would simply have been a cost of
doing business, with the choice of whether to make such
payment resting entirely with Plaintiffs.
Our review of Supreme Court cases applying
Younger highlights why the deposit requirement and
potential forfeiture of rights at issue here are not
comparable to “sanctions” found in quasi-criminal
proceedings. For example, in Huffman, the state filed a
34
complaint against a theater company for violating the
obscenity provisions of a nuisance statute, and it sought
to sanction the theater by forcing its closure and seizing
and selling its personal property. Huffman, 420 U.S. at
598. Huffman undoubtedly involved a state civil
enforcement action that was initiated to sanction the
federal plaintiff for what the state considered wrongful
conduct. The state proceeding in Trainor—a civil action
to recover welfare benefits fraudulently obtained by the
defendant—likewise involved an attempt by the state to
sanction an individual for his wrongful conduct. 431 U.S.
at 435–36. So, too, did Middlesex, where a lawyer was
investigated for and charged with acting in a manner
“prejudicial to the administration of justice.” 457 U.S. at
428. If the charges against him were confirmed, he would
have been subject to disbarment. Id. at 427. And finally,
in Dayton, an administrative proceeding was initiated
following an investigation that revealed a private school
had engaged in unlawful employment discrimination. 477
U.S. at 624. If the charges were substantiated, the school
would have been required to reinstate the plaintiff with
back pay and would have become subject to “continuing
surveillance” by the state. Dayton, 477 U.S. at 632
(Stevens, J., concurring).
Dating back to Huffman, each of these cases
clearly involved civil enforcement proceedings that were
“initiated to sanction the federal plaintiff . . . for some
wrongful act.” Sprint, 134 S. Ct. at 592. In contrast, as
35
we have pointed out here, the New Jersey legislature and
the Commission were merely attempting to induce
ACRA and Freehold to exercise licensing rights for
which Plaintiffs had lawful ownership. Like tax increases
and new regulatory obligations, the deposit requirement
and potential forfeiture of rights may have been
unwelcome changes in the law for ACRA and Freehold.
They are not, however, the equivalent of sanctions found
in criminal or quasi-criminal proceedings.
After examining the state proceeding at issue in
this appeal, we can identify none of the quasi-criminal
characteristics discussed in Sprint and found in the
Court’s past Younger abstention cases. Even accepting,
for purposes of this appeal, that the state proceeding is a
36
“civil enforcement” action,12 we conclude it is not the
type of proceeding entitled to Younger deference because
it is no “more akin to a criminal prosecution than are
most civil cases.” Huffman, 420 U.S. at 604.
Accordingly, we will reverse the order of the District
Court and remand for further proceedings.
12
Although we hold that the state proceeding is not
entitled to Younger deference because it is not “akin to a
criminal prosecution,” we are skeptical that the state
proceeding even fits within the “civil enforcement”
category to begin with. In NOPSI, the Court emphasized
that “it has never been suggested that Younger requires
abstention in deference to a state judicial proceeding
reviewing legislative or executive action.” NOPSI, 491
U.S. at 368 (emphasis added). The Commission’s review
of the Progress Petitions was arguably nothing more than
an executive action, and the Making Progress Appeal
could be viewed as a judicial review of such executive
action. If this is true, the District Court’s decision to
abstain was plainly inappropriate under NOPSI. Yet, the
record does not permit us to determine whether the
Commission’s review should be characterized as
executive action or as an “administrative proceeding[]
[that was] ‘judicial in nature’ from the outset.” Dayton,
477 U.S. at 627 (discussing Middlesex). Accordingly, we
do not address this issue further.
37