Opinion
CIVIL ACTION NO. 09-11112-DPW.
February 2, 2010
MEMORANDUM AND ORDER
The Massachusetts Division of Insurance (the "Division") filed an Order to Show Cause against Mark Celentano; HMA MGU, LLC; New England Custom Health Plan Administrators, LLC; and Jedediah Brettschneider (collectively, the "Plaintiffs"), alleging they violated Massachusetts law by causing a self-funded employee benefit plan to violate the non-discrimination provisions of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), 29 U.S.C. § 1181, et seq., incorporated in the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq. The Plaintiffs brought this action against the Division, seeking declaratory and injunctive relief on the ground that aspects of the Order to Show Cause are preempted by ERISA. The Plaintiffs have moved for a preliminary injunction to enjoin the Defendant from investigating, prosecuting, or adjudicating certain of the issues and claims raised in the Order to Show Cause. The Defendant has filed a motion to dismiss, contending that this court must abstain from exercising jurisdiction pursuant to the doctrine articulated in Younger v. Harris, 401 U.S. 37, 45-47 (1971). I will grant the motion to dismiss.
I. FACTUAL BACKGROUND
The Plaintiffs are all licensed by the Division to engage in the business of insurance in Massachusetts. See generally MASS. GEN. LAWS ch. 175, § 162H, et seq. Plaintiff New England Custom Health Plan Administrators, LLC ("NECHPA") is an insurance agency and employee benefits consulting firm. Plaintiff HMA MGU, LLC is a managing general underwriter. NECHPA and HMA MGU operate under a parent company, Health Management Advisors, LLC (d/b/a "HMA Direct"), which is not a respondent to the Order to Show Cause and thus not a plaintiff in this action. HMA Direct's clients usually sponsor self-funded medical plans for their employees. Plaintiff Mark Celentano, a licensed independent insurance agent, helps clients establish self-funded employee health benefit plans placed through NECHPA. Plaintiff Jedidiah Brettschneider is a principal at HMA Direct and licensed as a resident individual insurance producer.
According to the Order to Show Cause, in or around the Spring of 2008, Celentano contacted a Massachusetts company, KC Precision Machining, Inc., regarding the adoption of a self-funded employee benefit plan. Celentano allegedly represented to KC Precision that the self-funded plan would provide employees with the same coverage as KC Precision's then-existing plan under Blue Cross/Blue Shield, but at a lower cost. The Show-Cause Order alleges that in or around August 2008, once KC Precision's HMA Plan became effective, Celentano required KC Precision to remove an employee temporarily from its self-funded plan and to purchase an individual health insurance policy for him until he recovered from surgery; as a result, the costs of the employee's medical treatment would not come out of KC Precision's self funded plan pool.
Self-funded employee benefit plans are those in which the employer bears the risk of paying claims, and generally a third-party plan administrator is hired to process and pay claims. In fully-insured employee benefit plans, the employer purchases commercial group health coverage from an insurance company, which, in turn, assumes the risk of paying claims.
The Division filed the Order to Show Cause against the Plaintiffs on June 4, 2009, invoking, inter alia, provisions of HIPAA incorporated in ERISA.See MASS. GEN. LAWS ch. 175 § 162R(e) (granting the commissioner "the authority to enforce the provisions of and impose any penalty or remedy authorized by sections 162H to 162X, inclusive, and chapter 176D against any person who is under investigation for or charged with a violation of" those sections). The HIPAA violation, the Division alleges, implicates Massachusetts law, in particular Mass. Gen. Laws ch. 175, § 162R(a)(8) as constituting "fraudulent, coercive or dishonest practices . . . in the conduct of business," as well as Mass. Gen. Laws ch. 176D, § 2 as engaging in an "unfair or deceptive act or practice in the business of insurance." Among other sanctions, the Division may revoke each of the Plaintiffs' insurance licenses, impose upon them the maximum fines allowed under state law, and order the Plaintiffs to cease and desist from the conduct alleged in the Show-Cause Order.
Claims 1 through 25 of the Order to Show Cause arise out of allegations that Brettschneider failed to disclose a felony conviction to the Division when he applied for a Massachusetts insurance license. These claims are not the subject of the Plaintiffs' complaint or the motion for preliminary injunction. Rather the Plaintiffs only dispute the Division's investigation and adjudication of Claims 26 though 33 regarding the Plaintiffs' alleged HIPAA violation. Accordingly, this Memorandum only addresses the issues presented with respect to the latter set of claims.
Around the same time that the Division filed the Show-Cause Order, a "consumer alert" was posted on the Division's website warning employers about "the risks in self-funded health plans." See Massachusetts Division of Insurance — Consumer Alert: Beware of the Risks in Self-Funded Health Plans,
The United States Department of Labor ("DOL") had earlier commenced an investigation as to whether HMA Direct violated ERISA. In a letter dated April 30, 2009, the DOL reported that HMA Direct "has been selected for review by this office," and, pursuant to its investigative authority in 29 U.S.C. § 1134, requested various documentation, including "all contracts" between HMA Direct and KC Precision, as well as the schedule of KC Precision's employee and employer contributions.
The Plaintiffs filed this lawsuit on June 30, 2009, some three weeks after the Division's Show-Cause proceeding was commenced, seeking a declaratory judgment that "the claims and relief sought in connection with Counts 26 through 33 of the Show-Cause Order violate the preemption provisions of ERISA . . . and HIPAA," as well as a permanent injunction against the Division from any investigation, prosecution, or adjudication of these ERISA and HIPAA related issues. On the same day, the Plaintiffs also moved for a preliminary injunction to enjoin the Division from "any investigation, prosecution, or adjudication of Claims 26 through 33 in the Order to Show Cause." As grounds for the relief they seek, Plaintiffs argue that ERISA contains "broad preemption provisions" that exempt self-funded employee benefit plans from regulation by state laws.
In response, the Division has filed the instant motion to dismiss on the basis of Younger abstention. The Division argues that Younger and its progeny direct this court to abstain from deciding whether ERISA preempts the challenged claims in the Order to Show Cause and to dismiss this action.
At a preliminary hearing on October 15, 2009, I directed the parties to request an amicus curiae brief from the DOL, the federal entity charged with enforcing ERISA, addressing the issues of ERISA preemption and Younger abstention presented in this case. On December 18, 2009, the Secretary of Labor filed an amicus brief in support of the Division's motion to dismiss. An amicus brief has also been filed by the Self-Insurance Institute of America, Inc. in support of the Plaintiffs.
II. DISCUSSION
The parties' dispute concerns Claims 26 through 33, see Note 2 supra, of the Division's Order to Show Cause, in which the Division alleges that the Plaintiffs violated Massachusetts laws by "causing KC Precision's HMA Plan to violate the nondiscrimination provisions of HIPAA." The Plaintiffs contend that Claims 26-33 violate the federal preemption provisions of ERISA and HIPAA because (1) self-funded ERISA employee benefit health plans are subject neither to state insurance laws nor the Division's regulatory jurisdiction, and (2) the Division lacks the authority to interpret and/or enforce HIPAA against self-funded employee benefit health plans. The Division contends that the Younger doctrine requires this court to abstain from deciding whether ERISA preempts these claims in the Order to Show Cause. Although the question of Younger abstention must ordinarily be resolved before the merits (here, the question of ERISA preemption) of the underlying claims are addressed, Local UnionNo. 12004, United Steelworkers of Am. v. Massachusetts, 377 F.3d 64, 76 n. 11 (1st Cir. 2004), the explanation of my resolution of the parties' contentions in this Memorandum is most comprehensibly begun with a survey of ERISA preemption principles.
A. ERISA and Preemption
The nondiscrimination provisions of HIPAA which the Division alleges were violated by the Plaintiffs are contained in Part 7 of ERISA. See 29 U.S.C. § 1182. As a general proposition, to the extent "any and all State laws . . . relate to any employee benefit plan" governed by ERISA, those state laws are preempted by ERISA. 29 U.S.C. § 1144(a). But, by its own terms, ERISA does not preempt other federal laws, id. at § 1144(d), for example, the McCarran-Ferguson Act, the federal law placing regulation and taxation of the "business of insurance" in the hands of the states. 15 U.S.C. § 1012(a). Moreover, pursuant to the ERISA "savings clause," the preemption clause is not to be construed "to exempt or relieve any person from any law of any State which regulates insurance. . . ." 29 U.S.C. § 1144(b)(2)(A). Nevertheless, an exception to the savings clause is found in the "deemer clause," id. at § 1144(b)(2)(B), which "prohibits States from regulating self-funded plans as insurers." Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 371 n. 6 (2002).
Part 7 of ERISA also contains its own preemption provision, but the Plaintiffs do not appear to argue that this particular preemption provision was separately or distinctively triggered by the Division's Order to Show Cause. See 29 U.S.C. § 1191(a) (preempting state law only to the extent that the law "prevents the application of a requirement of this part").
The Supreme Court has "addressed claims of pre-emption with the starting presumption that Congress does not intend to supplant state law." New York State Conference of Blue Cross Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 654-55 (1995). The "basic thrust of the pre-emption clause" in § 1144(a) is "to avoid a multiplicity of regulation in order to permit the nationally uniform administration of employee benefit plans." Id. at 657. To that end, ERISA preempts, for example, "state laws that [have] mandated employee benefit structures or their administration," "state laws providing alternative enforcement mechanisms," and, more generally, state laws that "bind plan administrators to any particular choice and thus function as a regulation of an ERISA plan itself." Id. at 658-59 (citations omitted).
The Plaintiffs argue that by "attempting to enforce HIPAA's non-discrimination provisions under the guise of state insurance regulations," the Division impermissibly seeks indirectly to regulate a self-funded employee benefit plan. In its broadest form, this argument overlooks the savings clause, 29 U.S.C. § 1144(b)(2)(A), which "does not require that a state law regulate 'insurance companies' or even ' the business of insurance' to be saved from pre-emption; it need only be a 'law . . . which regulates insurance.'" Kentucky Ass'n of Health Plans, Inc. v. Miller, 538 U.S. 329, 336 n. 1 (2003). In order for a state law to be deemed a law "which regulates insurance" under the savings clause, it must satisfy two requirements: (1) "the state law must be specifically directed toward entities engaged in insurance," and (2) "the state law must substantially affect the risk pooling arrangement between the insurer and the insured." Id. at 341-42.
The Show-Cause Order seeks to redress specific unfair or deceptive practices with respect to particular insurance agents and insurance companies pursuant to Chapters 175 and 176D of the Massachusetts General Laws, which govern "insurance" and "the business of insurance," respectively. These laws appear expressly and "specifically directed toward entities engaged in insurance." See Miller, 538 U.S. at 342. By licensing the persons and entities that can develop risk pooling agreements and prohibiting them from engaging in suspect business practices, the state laws invoked in the Division's Show-Cause Order "substantially affect the risk pooling arrangement between the insurer and the insured." See id. at 338-39 (finding the second prong is met if the state laws "alter the scope of permissible bargains between insurers and insureds"); Standard Ins. Co. v. Morrison, 584 F.3d 837, 844 (9th Cir. 2009) ("The requirement that insurance regulations substantially affect risk pooling ensures that the regulations are targeted at insurance practices, not merely at insurance companies.") (emphasis added). The DOL suggests in its amicus brief that the state licensing laws cited in the Division's Order "affect risk pooling even more substantially than other insurance laws that the Supreme Court has held saved" under the savings clause. Cf. Rush Prudential, 536 U.S. at 387 (holding savings clause spared state statute that required HMOs to provide independent review of disputed medical claims); UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 368 (1999) (holding state notice-prejudice rule escaped preemption by ERISA under the savings clause). Overall, although these Massachusetts insurance laws might "relate to" ERISA plans under the preemption clause, see 29 U.S.C. § 1144(a), they appear to fall directly within the scope of the ERISA savings clause and consequently are arguably spared from preemption. See id. at § 1144(b)(2)(A).
The Plaintiffs argue that they are not insurance companies but "service providers," such that their businesses are outside the scope of the Massachusetts insurance laws and ERISA savings clause. This assertion is plainly contradicted by the allegations in the Plaintiffs' own complaint, which must, of course, be considered true for purposes of motion to dismiss practice. The complaint states that Celentano is "a licensed insurance agent" in Massachusetts, NECHPA is "an insurance agency and benefits consulting firm" licensed and registered in Massachusetts, HMA MGU is "an insurance underwriter" registered in Massachusetts, and Brettschneider is a "principal" in HMA Direct, the parent company of HMA MGU and NECHPA. The Plaintiffs therefore cannot credibly maintain that they are mere "service providers" detached from the business of insurance in Massachusetts. It is their ability to engage in the insurance business through Division licenses which is at issue in the Show-Cause proceeding. See MASS. GEN. LAWS ch. 175 § 162R (granting the commissioner the authority to order the suspension, revocation, or placement on probation of the insurance licenses, as well as levy civil penalties); id. at § 174 (permitting the commissioner to revoke or suspend insurance licenses of corporations or its officers or directors).
Contending that the savings clause precludes ERISA preemption of the Division's Show-Cause proceeding, the DOL reasons it would be "inconsistent both with ERISA's protective purposes and Congress' decision to save state insurance laws" and "particularly incongruous if state insurance departments could generally forbid licensed agents from aiding or abetting violations of other state and federal laws, but were somehow uniquely forbidden from sanctioning insurers and agents when they induced violations of ERISA." Moreover, the DOL finds "no reason" why the Massachusetts insurance laws "should not also extend to instances where the deceptive practices involve inducing or abetting violations of ERISA" because "there is nothing unique about ERISA that would put an agent who induces violations of HIPAA or ERISA beyond the reach of such state laws." The DOL observes that the end result, should the Division ultimately prevail in the Show-Cause proceeding, will be specific to the Plaintiffs only and will not have a broad regulatory effect on ERISA plans. At most, the DOL suggests, "some plans would have to locate other service providers to provide administrative services or stop-loss insurance."
B. The Younger Doctrine
Under Younger, "[a]s a matter of comity, federal courts are required to abstain from enjoining ongoing state court proceedings absent extraordinary circumstances." Colonial Life Accident Ins. Co. v. Medley, 572 F.3d 22, 26 (1st Cir. 2009) (vacating preliminary injunction issued against pending state administrative proceedings and remanding to district court with instructions to dismiss or stay the federal action in order for the state system to decide the preemption question in the first instance). Abstention "is ordinarily required if (1) there is an ongoing state judicial proceeding involving the federal plaintiff that (2) implicates important state interests and (3) provides an adequate opportunity for the federal plaintiff to assert his federal claims." Local Union, 377 F.3d at 77. The parties dispute each of these three criteria for Younger abstention.
1. Ongoing State Judicial Proceeding
First, the parties dispute whether the Show-Cause proceeding before the Division qualifies as judicial in nature. The Younger doctrine counsels federal courts to "refrain from issuing injunctions that interfere with ongoing state-court litigation, or, in some cases, with state administrative proceedings." Maymo-Melendez v. Alvarez-Ramirez, 364 F.3d 27, 31 (1st Cir. 2004). The Division's filing of the Order to Show Cause has commenced a formal enforcement proceeding before a state agency that is adjudicatory in nature. It is no mere investigatory inquiry. Cf. Guillemard-Ginorio v. Contreras-Gómez, 585 F.3d 508, 519 (1st Cir. 2009) (concluding that a state agency investigation, prior to the issuance of an order against the plaintiffs, "was at too preliminary a stage to constitute a 'proceeding' triggering Younger abstention").
The Show-Cause proceeding at issue here is sufficiently formal and structured to satisfy the first prong of Younger; moreover, it is the predicate that must be exhausted before formal judicial review is commenced. Under Massachusetts law, whenever the Commissioner of the Division has "reason to believe that any [such] person has engaged or is engaging in this commonwealth in any unfair method of competition or any unfair or deceptive act or practice" in the business of insurance and that a proceeding "would be to the interest of the public," the Commissioner "shall issue and serve upon such person a statement of the charges in that respect and a notice of a hearing. . . ." MASS. GEN. LAWS ch. 176D § 6. The Plaintiffs are also entitled to a Chapter 30A hearing prior to the suspension or revocation of their insurance licenses. See id. at ch. 175 §§ 162R(b)-(c); id. at ch. 30A § 1 ("'Adjudicatory proceeding' means a proceeding before an agency in which the legal rights, duties or privileges of specifically named persons are required by constitutional right or by any provision of the General Laws to be determined after opportunity for an agency hearing.").
At the conclusion of that hearing, the presiding officer will file a decision with the Division, see 801 CODE MASS. REGS. § 1.01(10)(d)(2), and Massachusetts affords the Plaintiffs both administrative and judicial opportunities for subsequent review of that decision. First, "any person aggrieved by any finding, ruling or decision rendered upon a hearing authorized by law held before a person other than the commissioner" has a statutory right to appeal to the Commissioner of the Division, who "may modify, affirm or reverse such ruling, finding or decision." MASS. GEN. LAWS ch. 26 § 7. Second, a person "aggrieved by a final decision of any agency in an adjudicatory proceeding" is entitled to judicial review in the Massachusetts courts. Id. at ch. 30A § 14. The court may affirm, remand, set aside, or modify the agency decision, or "compel any action unlawfully withheld or unreasonably delayed, if it determines that the substantial rights of any party may have been prejudiced" by the agency decision for various reasons. Id. at § 14(7).
The Plaintiffs contend that the DOL investigation pre-dates the filing of the Division's Order to Show Cause, and therefore that the state proceeding should be enjoined in deference to the ongoing DOL investigation. As a general proposition, when a federal agency has already exercised its jurisdiction, it can be "inconsistent" with "principles of comity and equal respect for the interests of both the federal and state government for a federal court to abstain on Younger grounds from deciding a claim properly before it, in order to give way to a state administrative action filed after the federal proceedings are underway." Chaulk Servs., Inc. v. Massachusetts Comm'n Against Discrimination, 70 F.3d 1361, 1369 (1st Cir. 1995). However, " comity works both ways." Id. (emphasis in original). The Division filed its Order to Show Cause on June 4, 2009 against multiple respondents, whereas the DOL simply sent a letter to HMA Direct only on April 30, 2009 stating that HMA Direct "has been selected for review by this office," citing the Secretary of Labor's "investigative authority." See 29 U.S.C. § 1134(a)(1) (granting the Secretary of Labor "the power, in order to determine whether any person has violated or is about to violate any provision of this subchapter or any regulation or order thereunder . . . to make an investigation, and in connection therewith to require the submission of reports, books, and records"). There is no indication that the DOL has gone beyond its preliminary investigation or actually commenced proceedings for the conduct alleged in the Division's Order to Show Cause. Cf. id. at § 1132 (listing various bases on which the Secretary may bring a civil action). This case is thus distinguishable from Chaulk on that basis. The Show-Cause proceeding before the Division is the earliest commenced adversarial regulatory initiative and the only ongoing proceeding that is now adjudicatory in nature.
The instant case is also distinguishable from Chaulk because the basis for preemption there was not ERISA but the Garmon preemption doctrine, relating to the National Labor Relations Act. See Chaulk Servs., Inc. v. Massachusetts Comm'n Against Discrimination, 70 F.3d 1361, 1370-71 (1st Cir. 1995); see generally San Diego Building Trades v. Garmon, 359 U.S. 236, 245 (1959) ("When an activity is arguably subject to § 7 or § 8 of the [National Labor Relations] Act, the States as well as the federal courts must defer to the exclusive competence of the National Labor Relations Board if the danger of state interference with national policy is to be averted.").
Moreover, as the DOL acknowledges, the DOL investigation and Division's Show-Cause proceeding, together, reflect the "concurrent jurisdiction" of Massachusetts and the United States Department of Labor "over conduct that implicates both traditional areas of state concern and ERISA."See John Hancock Mut. Life Ins. Co. v. Harris Trust Sav. Bank, 510 U.S. 86, 98 (1993) (holding "ERISA leaves room for complementary or dual federal and state regulation"). While the civil enforcement dimension to ERISA permits the Secretary of Labor to bring civil actions to redress ERISA violations, see 29 U.S.C. § 1132(a), the Division may also use state administrative channels, as it did here, to prosecute alleged violations of Massachusetts insurance laws. Accordingly, I find the first prong of Younger is met.
I recognize that the DOL's generally sympathetic approach to the state initiative here reflects a policy judgment by the current Presidential administration regarding preemption. This policy recognizes "a strong role for both the national Government and the States," and cautions that "preemption of State law by executive departments and agencies should be undertaken only with full consideration of the legitimate prerogatives of the States and with a sufficient legal basis for preemption." Pres. Memorandum on Preemption for the Heads of Executive Departments and Agencies, 74 Fed. Reg. 24,693 (May 20, 2009). While the policy preferences of the federal agency charged with administering a statute containing preemptive language are not necessarily determinative, they are entitled to careful and respectful consideration by the Courts.
2. Important State Interests
The Division argues that the Commonwealth has a strong interest in licensing, regulating, and deciding whether to sanction professionals and entities engaged in the insurance business in Massachusetts. The Division contends that it chose to commence the Show-Cause proceeding against the Plaintiffs to "enforce Massachusetts law and ensure that licensed insurance producers are neither incompetent nor engaging in unfair or deceptive acts or practices." The Plaintiffs, nevertheless, argue that the Division's claims are predicated on the allegation that KC Precision violated the non-discrimination provisions of ERISA, and Massachusetts lacks "any substantial, legitimate interest" in regulating employee benefit health plans governed by ERISA or in interpreting and enforcing the non-discrimination provisions of ERISA.
In the Show-Cause proceeding, the Division is seeking to redress the Plaintiffs' alleged violations of Massachusetts laws as constituting "fraudulent, coercive or dishonest practices . . . in the conduct of business," MASS. GEN. LAWS ch. 175, § 162R(a)(8), and for engaging in an "unfair or deceptive act or practice in the business of insurance," id. at ch. 176D, § 2. It is true that, without alleging violations of the nondiscrimination provisions of HIPAA in ERISA, the Division does not have a basis for the allegations in Claims 26-33. But the broader interest at stake, as the Division correctly acknowledges, is the important state interest in regulating and licensing the insurance industry in Massachusetts. It is clear that a state's interest in licensing and regulating certain professionals qualifies as sufficiently "important" to trigger Younger abstention. See, e.g., Middlesex County Ethics Committee v. Garden State Bar Ass'n, 457 U.S. 423, 434-35 (1982) (holding the state "has an extremely important interest in maintaining and assuring the professional conduct of the attorneys it licenses" and that interest "calls Younger abstention into play"); Zahl v. Harper, 282 F.3d 204, 209 (3d Cir. 2002) (recognizing "the obvious interest states have in regulating the practice of medicine" such that Younger abstention was warranted).
With respect to the insurance business in particular, "[s]tates, as a matter of tradition and express federal consent, have an important interest in maintaining precise and detailed regulatory schemes for the insurance industry." Quackenbush v.Allstate Ins. Co., 517 U.S. 706, 733 (1996) (Kennedy, J., concurring). The McCarran-Ferguson Act, 15 U.S.C. § 1012(a), expressly provides that "[t]he business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business." The Supreme Court long ago recognized that state licensing requirements for insurance agents are designed "to protect the public from fraud, misrepresentation, incompetence and sharp practice which falls short of minimum standards of decency in the selling of insurance" and "[t]hat such dangers . . . vitally affect the public interest." Robertson v. California, 328 U.S. 440, 447 (1946). To that end, Massachusetts has developed a regulatory scheme involving licensure of its insurance industry. See, e.g., MASS. GEN. LAWS ch. 175 § 3A ("The commissioner shall administer and enforce the provisions of this chapter," titled "Insurance"); id. at § 162I ("A person shall not sell, solicit or negotiate insurance in the commonwealth for any class or classes of insurance unless the person is licensed. . . ."). The core activity at issue in the Division's Order to Show Cause is the sale and marketing of insurance in Massachusetts, and the alleged underlying ERISA violations referenced neither undermine the Commonwealth's interest in relief, nor turn the Division's proceeding into a federal matter. Rather, the Show-Cause proceeding seeks to rectify the type of "evils" that the Supreme Court explains "are most apt to arise in connection with the activities of the less reliable and responsible insurers, as well as insurance brokers or salesmen. . . ." Robertson, 328 U.S. at 447.
Contrary to the Plaintiffs' assertions, "[t]here is no doubt that the administration of the insurance industry implicates an important state interest and, therefore, the second Younger criterion is clearly established." Int'l Fidelity Ins. Co. v. Sanchez-Ramos, 397 F. Supp. 2d 327, 332 (D.P.R. 2005) (granting motion to dismiss on Younger grounds in favor of proceedings before the Commissioner of Insurance of Puerto Rico); see also Jou v. Schmidt, 203 Fed. Appx. 9, 11 (9th Cir. 2006) ("As to the second prong [of Younger], we have held that the state has an important interest in regulating its insurance industry."); Blue Cross Blue Shield of Michigan v. Baerwaldt, 726 F.2d 296, 299 (6th Cir. 1984) (finding "[t]he regulation of insurance companies clearly involves important state interests" and affirming dismissal on Younger grounds); Fuller v. Ulland, 76 F.3d 957, 959 (8th Cir. 1996) (finding the second requirement of Younger abstention was "clearly satisfied" because "the state's interest in enforcing its insurance laws is important").
3. Adequate Opportunity to Assert Federal Claims
Regarding the third prong of Younger, the Division maintains that the Plaintiffs can advance any ERISA and HIPAA preemption defenses in the proceeding before the Division and, if subsequent judicial review is necessary, the Massachusetts state courts, with ultimate review in the Supreme Court of the United States. The Plaintiffs suggest that the Division is an inadequate forum to adjudicate the preemption issue in the first instance, insisting that the Division is not a "fair, impartial and adequate forum" because it is "fundamentally opposed to self-funded health plans."
Federal courts have regularly abstained on Younger grounds in cases with ERISA preemption claims, recognizing that "state courts are competent to decide whether ERISA has preempted [the] state law claims." NGS Am., Inc. v. Jefferson, 218 F.3d 519, 530 (6th Cir. 2000); Colonial Life, 572 F.3d at 26 (holding state anti-discrimination "proceedings provided an adequate opportunity to raise the federal questions at issue" including the ERISA preemption claim). "[S]ubstantial claims of preemption do not automatically preclude abstention." Employers Res. Mgmt. Co. v. Shannon, 65 F.3d 1126, 1136 (4th Cir. 1995) (citing NOPSI, 491 U.S. at 365). The Show-Cause Order has placed the matter at issue here on the road to state court through administrative proceedings.
The Plaintiffs' argument that the Division's "bias" raises "serious due process concerns," is not persuasive. "Parties advancing due process arguments based on a combination of investigative and adjudicative functions, and the decision maker's bias allegedly resulting therefrom, have a very difficult burden of persuasion to carry." Pathak v. Dep't of Veterans Affairs, 274 F.3d 28, 33 (1st Cir. 2001). In support of their bias claim, the Plaintiffs point to the Division's "proposed agreement in the HMA matter," which seeks a resolution pursuant to which neither the Plaintiffs nor their affiliates "will market or sell any self-funded health plan, including any self-funded health plan involving stop loss insurance, or any insured health plan in Massachusetts during the pendency" of this matter. This proposed agreement — which is more accurately characterized as that of the Division personnel prosecuting the Show-Cause proceeding as opposed to the Division itself — even if coupled with a Division policy that is averse to self-funded health plans, does not overcome the Plaintiffs' "very difficult burden of persuasion." See Pathak, 274 F.3d at 33. This is especially so when there is the prospect of both state administrative and state judicial review of any determination by the Division's prosecutors. I find that the Plaintiffs will have an adequate opportunity to assert their federal claims, including any due process claims, administratively before the Division and, if necessary, by judicial review thereafter. As a consequence, the third prong of Younger is satisfied.
If, in fact, the Division's "proposed agreement" and the consumer alert, see Note 3 supra, together evidence a general hostility toward — or an effort to regulate, i.e. shut down — self-funded health plans, the deemer clause would be implicated. See 29 U.S.C. § 1144(b)(2)(B) (providing that an employee benefit plan covered by ERISA may not "be deemed to be an insurance company or other insurer . . . for purposes of any law of any State purporting to regulate insurance companies [or] insurance contracts"). Operating as an exception to the savings clause, the deemer clause "has effect only on state laws saved from preemption by [the savings clause] that would, in the absence of [the deemer clause], be allowed to regulate self-insured employee benefit plans." Kentucky Ass'n of Health Plans, Inc. v. Miller, 538 U.S. 329, 336 n. 1 (2003). The Division's proposed agreement and consumer alert, if part of a larger program to regulate self funded plans, arguably "would not be 'saved' as an insurance law to the extent [they] applied to self-funded plans" and sought to regulate them. See Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 371 n. 6 (2002). Nevertheless, I decline to assess whether the deemer clause constrains the Division because I hold abstention is required here and the matter must be resolved initially in a state forum.
C. Exception to Younger Abstention
Because I have found that the three criteria of the Younger doctrine are satisfied, abstention is required unless an exception applies. Colonial Life, 572 F.3d at 26. The exceptions to Younger "have been narrowly construed." Malachowski v. City of Keene, 787 F.2d 704, 709 (1st Cir. 1986) (citing United Books, Inc. v. Conte, 739 F.2d 30, 34 (1st Cir. 1984)) (per curiam); see also Huffman v. Pursue, Ltd., 420 U.S. 592, 602, 611 (1975) (qualifying the exceptions to the Younger doctrine as "narrow"). The First Circuit recognizes an exception to Younger abstention, even if the three criteria are met, when a "facially conclusive" claim of preemption renders abstention inappropriate. Colonial Life, 572 F.3d at 26 (quoting NOPSI, 491 U.S. at 367). The bounds of this "abstract" exception are unclear, and "courts have largely defined the term 'facially conclusive' by rejecting that which it is not." Id. at 27. For example, merely to state a "substantial" claim of federal preemption is insufficient. Id. (citing NOPSI, 491 U.S. at 366-67). Questions of first impression are not "facially conclusive" either. Id. More specifically, ERISA preemption of state law claims cannot be "facially conclusive" if a district court needs to "conduct a 'detailed analysis,' including resolving interjurisdictional differences." Id. at 28.
The analysis of whether ERISA preempts a state law "involves two central questions: (1) whether the plan at issue is an 'employee benefit plan' and (2) whether the cause of action 'relates to' this employee benefit plan." McMahon v. Digital Equip. Corp., 162 F.3d 28, 36 (1st Cir. 1998). The First Circuit in Colonial Life recently declined to permit federal courts to perform this analysis when faced with a claim of Younger abstention: "[b]ecause Younger prohibits a district court from addressing the merits of the parties' claims unless preemption is facially conclusive, and ERISA preemption requires that the plan at issue be covered by ERISA, the plan's ERISA status would have to be 'facially conclusive.'" Colonial Life, 572 F.3d at 29.
On its face, ERISA does not appear — although I do not purport to resolve the question definitively — to preempt the Division's Order to Show Cause the Division's enforcement action against the Plaintiffs, as discussed above in Section II.A. supra. But even if the Plaintiffs had stated a substantial claim of federal preemption, "such a claim is not enough to justify a federal court's intervention in an ongoing state proceeding." Id. at 28 (citing NOPSI, 491 U.S. at 366-67). Indeed, the Supreme Court has "expressly rejected" the notion that "'a district court presented with a pre-emption-based request for equitable relief should take a quick look at the merits; and if upon that look the claim appears substantial, the court should endeavor to resolve it.'" Id. (quoting NOPSI, 491 U.S. at 364-65). Instead, as the First Circuit observed in Colonial Life, a "district court's need to conduct a 'detailed analysis'" — as I did above in only Section II.A in an effort to make my resolution of the Younger issue more comprehensible — "demonstrates that ERISA preemption of [the] state law claims was not, in fact, 'facially conclusive'" and therefore "require[s] the district court to abstain in deference to the state proceeding already underway." Id. Explaining that "[t]he same principles of comity and federalism that proscribe the district court's jurisdiction likewise prohibit our consideration of the merits of [the federal] claims in the first instance," the First Circuit held that a state administrative body had "jurisdiction to conduct this analysis in the first instance, and must be permitted to do so." Id.
I note that the DOL itself rejects the Plaintiffs' contention that the DOL has sole authority over the issues in the Order to Show Cause. While such a policy of federal executive deference to state initiatives is not, of course, determinative here, see Note 7 supra, it counsels that the question of preemption presented in this case is far from "facially conclusive." The DOL contends that, in this case, the Division seeks to regulate insurance practices in the Commonwealth, not employee benefit plans generally. Even if the Division is ultimately successful in the Show-Cause proceeding, any indirect effect would be "a result no different from myriad state laws in areas traditionally subject to local regulation, which Congress could not possibly have intended to eliminate" in enacting ERISA. Travelers, 514 U.S. at 668.
Accordingly, I conclude the "facially conclusive" exception to Younger does not apply here.
III. CONCLUSION
I hold that abstention is appropriate and dismiss the Plaintiffs' case in its entirety. As a result, the Plaintiffs' motion for preliminary injunction is moot: "[i]f Younger requires abstention, 'there is no discretion to grant injunctive relief.'" Colonial Life, 572 F.3d at 25 (quoting Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817 n. 22 (1976)). For the reasons set forth more fully above, I GRANT the Defendant's motion (Doc. No. 12) to dismiss on grounds of Younger abstention, and I DENY the Plaintiffs' motion (Doc. No. 2) for preliminary injunction. The Clerk is directed to enter an order of dismissal.
http://www.mass.gov/?pageID=ocaterminalL=4L0=HomeL1=ConsumerL2=InsuranceL3=Consumer+Alertssid=Eocab=terminalcontentf=advisories_selffundedcsid=Eoca (last visited Feb. 2, 2010).