97 Civ. 670 (RCC), 97 Civ. 23 (RCC)
May 7, 2003
MEMORANDUM OPINION AND ORDER
Plaintiff Allstate Insurance Co. ("Allstate") and plaintiff Government Employees Insurance Company, together with its affiliates ("GEICO"), initiated the above-captioned actions in this Court more than six years ago pursuant to 42 U.S.C. § 1983. Collectively, plaintiffs' complaints presented a constitutional challenge, on freedom of speech grounds, to Section 2610(b) of the New York State Insurance Law, as well as to certain actions taken by the State purportedly under the purview of that statute.
At the conclusion of discovery, this Court granted summary judgment in plaintiffs' favor, holding that Section 2610(b), and the State's enforcement thereof, restricted plaintiffs' commercial free speech rights in violation of the United States Constitution. Allstate Ins. Co. v. Serio, No. 97 Civ. 670 (RCC), 2000 WL 554221 (S.D.N.Y. May 5, 2000) ("0Allstate I"). On appeal, the Second Circuit declined to address the constitutional issues, noting that such constitutional adjudication might be avoided if the state's actions were improper as a matter of state law. Thus, the Second Circuit certified certain questions to the New York Court of Appeals (also "Court of Appeals") regarding the proper interpretation of§ 2610(b). Allstate v. Serio, 261 F.3d 143 (2d Cir. 2001) ("Allstate II").
Section 2610(b) had not yet been addressed by the state courts. Under New York law, "[w]henever it appears to the Supreme Court of the United States, any United States Court of Appeals, or a court of last resort of any other state, that determinative questions of New York law are involved in a cause pending before it for which there is no controlling precedent of the Court of Appeals, such court may certify the dispositive questions of law to the Court of Appeals." 22 N.Y.C.C.R.R. § 500.17(a).
Upon certification, the New York Court of Appeals ruled that the interpretation of § 2610(b) espoused by the State Department of Insurance and its enforcement actions against Allstate and GEICO were invalid under the terms of the statute. See Allstate v. Serio, 98 N.Y.2d 198, 774 N.E.2d 180, 746 N.Y.S.2d 416 (2002). In light of that decision, the Second Circuit remanded the case back to this Court "for reconsideration of the issues and of its opinion." Allstate v. Serio, 293 F.3d 95, 96 (2d Cir. 2002).
The parties now bring cross-motions for judgment pursuant to Federal Rules of Civil Procedure 54(c) and 58. In spite of, or perhaps because of, the many opinions rendered in connection with this case, the parties continue to disagree as to the proper resolution of their dispute. Allstate and GEICO argue that the constitutional issues were not rendered moot by the decisions of the Second Circuit and the New York Court of Appeals, because past violations of their constitutional rights, as well as prospective violations, remain unredressed. Therefore, Allstate and GEICO urge this Court to reinstate its prior decision and to continue its injunction preventing the State from enforcing § 2610(b) as against them.
The State, on the other hand, argues that the Second Circuit's ruling seeking to eliminate the necessity of a constitutional decision and the New York Court of Appeal's ruling that the State's interpretation of§ 2610(b) was incorrect obviates the need for constitutional adjudication. According to the State, this Court must vacate its earlier decision, dismiss plaintiffs' complaints and deny the requested injunctive and declaratory relief.
For the following reasons, the State's motion for judgment is GRANTED, and plaintiffs' motion is DENIED.
The background of this case has been set forth in detail in the numerous opinions cited above. Familiarity with those decisions is presumed. However, for the benefit of the reader, the Court will set forth a brief recitation of the salient facts.
In 1973, the New York State Legislature passed Insurance Law § 2610(a). That statute, in essence, prevents insurance companies from requiring their customers to use certain automobile repair shops. It reads: "Whenever a motor vehicle collision or comprehensive loss shall have been suffered by an insured, no insurer providing collision or comprehensive coverage there for shall require that repairs be made to such vehicle in a particular place or shop or by a particular concern." N.Y. Ins. Law § 2610(a).
One year later, the Legislature went even further by enacting § 2610(b), which prohibits insurers from making unsolicited recommendations to claimants regarding repair shops. It provides that: "[T]he insurer shall not, unless expressly requested by the insured, recommend or suggest repairs be made to such vehicle in a particular place or shop or by a particular concern." Id. § 2610(b).
In the early 1990s, the State Department of Insurance undertook an investigation and concluded that certain insurance companies, including Allstate, were violating § 2610(b). Specifically, the Department took issue with Allstate's promotion of its "PRO (Priority Repair Option) Program." In conjunction with this program, Allstate employees asked claimants whether they had a preferred repair shop; if the claimant had no preference, then the Allstate personnel would inquire whether the claimant wanted a recommendation. Allstate also advertised its PRO Program through signs and brochures in its offices.
Allstate eventually agreed to settle its dispute with the Department of Insurance, without conceding any violation of law. In a letter (the "Settlement Letter"), Allstate agreed to revise its procedures. First, it agreed that once a claim was reported, it would not, unless requested to do so, mention or recommend a repair facility, or list suggested repair facilities. Second, Allstate promised not to inform claimants about the requirements of Section 2610(b) unless asked to do so. Third, Allstate could continue to promote and advertise the PRO program in mailings and brochures made available to prospective customers, applicants, and policyholders. Finally, Allstate agreed not to have signs or brochures advertising the PRO program displayed at claim facilities or sales offices and agreed not to distribute any such materials to policyholders at these locations unless requested to do so.
On April 7, 1994, the Department issued Circular Letter 4, dated April 7, 1994, which articulated its interpretation of Section 2610(b) and which was substantially similar to the terms of the settlement agreement between the Department and Allstate. Circular Letter 4 states
Circular letters interpreting existing law have the force of law. See Allstate I, at *20 n. 6.
No insurer should suggest to their policyholders who present claims that the policyholder should request a recommendation or referral, including by distributing copies of Section 2610 itself . . . Signs mentioning or describing an insurer's repair program should not be displayed at any drive-in claim facility, sales office or other insurer locations.
Soon after Circular Letter 4 was distributed to insurers, GEICO submitted to the Department proposed changes to its Automobile Casualty Manual. The Manual was to include a proposed endorsement that provided that Plaintiffs' insureds, who purchased the endorsement, would receive a premium discount in return for requesting, at the time of the inception of the policy or the purchase of the Endorsement, that the Plaintiffs recommend specific body shops for the repair of the vehicle, should damage to an insured vehicle be incurred.
GEICO argued that its proposed policy did not violate Section 2610(b) or Circular Letter 4 because it sought consent from the insured before any accident occurred, while the Departmental regulations prohibited unsolicited recommendations to individuals with "live" claims. The Department rejected GEICO's proposal.
Allstate and GEICO filed suit in this Court claiming that Section 2610(b) and its enforcement were unconstitutional under both the United States Constitution and the New York Constitution. Allstate claimed that the statute chilled its right to free speech and that the enforcement of the statute violated the First Amendment as applied to it. GEICO similarly claimed that its free speech rights were violated by the Section 2610(b) of the proposal. Plaintiffs sought declaratory judgments that Section 2610(b) was unconstitutional as applied to them. Allstate additionally asked to have the Settlement Letter made void, and GEICO requested that the Department's rejection of its proposal be overturned. Finally, the parties sought injunctions preventing the enforcement of the Settlement Letter and Circular 4.
This Court awarded summary judgment to Plaintiffs, issuing an order awarding declaratory judgment to Plaintiffs, enjoining the Department from enforcing Section 2610(b), and annulling the Settlement Letter. The State appealed that judgment to the Second Circuit. Declining to decide the constitutional issues presented, the Second Circuit determined that a decision on those issues could be avoided if the Department's actions were invalid under state law. Accordingly, the Second Circuit certified the following questions to the New York Court of Appeals:
(1) Is Circular Letter 4 a valid interpretation of New York Insurance Law § 2610(b)?
(2) Under § 2610(b), can the Department of Insurance properly impose a settlement of the sort reached by the Department with Allstate?
(3) Under Section 2610(b), can the Department of Insurance prohibit the "preferred repairer" clause proposed by GEICO for its Automobile Casualty Manual? and
(4) If any of these Department actions is permitted under Insurance Law Section 2610(b), is that statute an unconstitutional regulation of commercial speech under Article I, Section 8 of the New York Constitution?
In its response, the Court of Appeals ruled that Circular Letter 4, the settlement reached between the Department of Insurance and Allstate, and the rejection of the "preferred repairer" clause proposed by GEICO were not valid under Section 2610(b). It also stated that its decision did not address the issue of whether the Department would have been justified in rejecting GEICO's proposal under Section 2610(a). In light of its response to the first three questions, the Court of Appeals declined to address the fourth question as to the validity of the Department's actions under the New York Constitution.
The Second Circuit remanded the case to this Court for "reconsideration of the issues and of its opinion." Allstate II, 293 F.3d at 96.
In its motion for judgment, Plaintiffs claim that a live controversy between the state and themselves continues to exist and that protection of their First Amendment rights requires this Court to reinstate the injunction previously issued. The State, on the other hand, argues that Plaintiffs' claims should be dismissed as moot, in view of the Court of Appeals' ruling that the challenged actions by the State were improper under § 2610(b). According to the State, there is no longer any case or controversy to be decided in this action.
The mootness doctrine derives from the "case or controversy" requirement in Article III of the United States Constitution and dictates that federal courts may not adjudicate matters that no longer present an actual dispute between parties. See Catanzo v. Wing, 277 F.3d 99, 107 (2d Cir. 2001). Accordingly, when the parties no longer have a legally cognizable interest in the outcome of the litigation, a federal court lacks jurisdiction to hear the case. See id. A case can become moot at any stage of the litigation. See Associated General Contractors of Conn., Inc. v. City of New Haven, 41 F.3d 62, 65 (2d Cir. 1994).
An exception to the mootness doctrine applies when a defendant ceases the challenged action voluntarily. See City of Mesquite v. Aladdin's Castle, Inc., 455 U.S. 283, 289 (1982). Because dismissal of the case would leave the defendant "free to return to his old ways," voluntary cessation of alleged illegal activity does not deprive the Court of jurisdiction over the controversy. Id. (internal quotation marks and citations omitted). Nevertheless, the court may, in the exercise of its discretion, dismiss such a case as moot if (1) "there is no reasonable expectation that the alleged violation will recur" and (2) "interim relief or events have completely and irrevocably eradicated the effects of the alleged violation." Campbell v. Greisberger, 80 F.3d 703, 706 (2d Cir. 1996). A determination of whether a case is moot as a result of voluntary cessation lies within the sound discretion of the district court. See Harrison Burrowes Bridge Constructors, Inc. v. Cuomo, 981 F.2d 50, 59 (2d Cir. 1992).
After this Court's judgment granting Plaintiffs declaratory and injunctive relief, the Department repealed Circular Letter 4, the source of the enforcement actions upon which Plaintiffs' claims were based, and replaced it with Circular Letter 16. Circular Letter 16 allows insurers "to recommend or suggest that repairs to a damaged vehicle be made in particular places or repair shops regardless of whether the insured expressly requested such recommendations." Circular 16 further states that it "repeals and supercedes Department Circular Letter No. 4." Upon certification, the New York Court of Appeals ruled that the policies set forth in Circular letter 4 were not authorized by Section 2610(b).
Plaintiffs do not deny that the new policy set forth in Circular 16 allows them to resume the actions for which they originally sought protection. Rather, they argue that declaratory and injunctive relief is necessary in order to ensure that the Department does not reenact the policies embodied in Circular Letter 4. See Reply Memorandum in Support of Plaintiffs' Motion for Judgment and Memorandum in Opposition to Defendant's Cross-Motion for Vacatur and Dismissal 4-5.
Plaintiffs additionally contend that a case or controversy nevertheless exists because § 2610(b) is infirm on its face and invites "interpretive excesses," which in turn chills their First Amendment rights to free speech. Memorandum in Suport of Plaintiffs' Motion for Judgment ("Allstate Mem.") 13. The Second Circuit explicitly rejected a facial challenge to§ 2610(b). That court noted, "to the extent that the parties present a facial challenge to § 2610(b), it is an `overbreadth' challenge, and such a challenge cannot lie with respect to a regulation of commercial speech." Allstate II, 261 F.3d at *30 (citingMetromedia, Inc. v. City of San Diego, 453 U.S. 490, 504 n. 11 (1981)).
Moreover, were this Court to entertain a facial challenge at this point in the litigation, the certification process would have been an exercise in futility. Had the Second Circuit considered Plaintiffs' claims to be amenable to a facial challenge, there would have been no need to pose the first three questions to the Court of Appeals, which specifically addressed the application of § 2610(b).
Because Plaintiffs' facial challenge cannot stand, their claims can survive mootness scrutiny only if the Department is likely to reenact the policies that are the subject of this litigation in the absence of an injunction or declaratory relief. Courts consider several factors in determining whether a defendant is likely to reengage in alleged illegal activity. In the case of a government defendant, these factors include whether the change is embodied in an official document, see Tawwab v. Metz, 554 F.2d 22, 24 (2d Cir. 1978); whether the newly enacted statute sufficiently altered the challenged law, see Northeastern Fla. Chapter of the Associated Gen. Contractors v. City of Jacksonville, 508 U.S. 656, 662 (1993); whether the government entity evidenced an intent to reenact the law, see City of Mesquite v. Aladdin's Castle, Inc., 455 U.S. 283, 289 (1983); whether the defendant continues to insist on the validity of the challenged statute, see Ahrens v. Bowen, 852 F.2d 49, 53 (2d Cir. 1998); and whether discontinued enforcement is highly selective, see Soto-Lopez v. New York City Civil Service Com., 840 F.2d 162, 168 (2d Cir. 1987).
Weighing these factors, the Court concludes that there is little danger that the Department will reenact the policy challenged in this lawsuit. The Department officially repealed Circular letter 4 and replaced it with a completely different policy, which is embodied in Circular Letter 16. Circular Letter 16 "sufficiently alters" the challenged activities of the Department, such that Plaintiffs are now free to pursue their desired policies. Cf. Northeastern Fla. Chapter of the Associated Gen. Contractors, 508 U.S. at 662 n. 3. Moreover, this case does not present a situation of highly selective discontinuance of enforcement with which the Second Circuit was presented in Soto-Lopez.
Nor does this case present a situation where the State has announced an intention to return to the conduct of the past, which the Supreme Court faced in City of Mesquite. The Department has asserted that the New York Court of Appeals' ruling ensures that the challenged policies will not be reinstated. See Memorandum of Law in Support of Defendant's Motion for Judgment and in Opposition to Plaintiffs' Motion for Judgment 13. Some deference must be accorded a state's representations that certain conduct has been discontinued. See Campbell, 80 F.3d at 706 (2d Cir. 1996). Deference to the Department's representations is particularly compelling in this case in light of the ruling by the State Court of Appeals that the Department's policies were invalid as a matter of state law. Principles of federalism weight against a presumption by this Court that the state would reenact a policy that its own courts have ruled to be improper under state law.
The Court finds that it is unlikely that the Department will reenact the challenged policies embodied in Circular Letter 4 and ruled improper by the Court of Appeals. Concluding that this case is moot, the Court declines to exercise its jurisdiction.
B. Avoiding Constitutional Adjudication
Even assuming that this case were not moot, Plaintiffs' claims must nevertheless be dismissed because the dispute can be resolved on state law grounds, obviating the need for this Court to reach Plaintiffs' First Amendment claims.
It is well-settled that federal courts should, where possible, avoid reaching constitutional questions. See Allstate II, 261 F.3d at 149. Where, as here, the dispute can be resolved on state law grounds, there is no need to reach Plaintiffs' First Amendment claims. It is for this reason that the Second Circuit certified the interpretation of Section 2610(b) to the New York Court of Appeals. As the Second Circuit noted, "certification is appropriate in those circumstances where the state statute is susceptible of an interpretation that would eliminate the constitutional issue and terminate the litigation." Allstate II, 261 F.3d at 151 (internal quotation marks and citations omitted).
In the Supreme Court case Railroad Comm'n of Texas v. Pullman Co., 312 U.S. 496 (1941), the landmark case that established the doctrine ofPullman abstension — the precursor to certification — the Court was faced with an Equal Protection challenge to an action of the Texas Railroad Commission. There, the Court refrained from deciding the case in favor of awaiting a decision from the Texas State Courts as to whether the Commissioner's action was permissible as a matter of Texas law. See Pullman, 312 U.S. at 501. The Supreme Court held that "if there was no warrant in state law for the Commission's assumption of authority, there is an end of the litigation; the constitutional issue does not arise." See id.
The Second Circuit made clear that a decision by the Court of Appeals that the Department of Insurance acted beyond the scope of the statute would obviate the need for this Court to reach Plaintiffs' constitutional claims. It stated:
A decision of the Court of Appeals on these questions of state law might well resolve all the claims brought by the parties in the case before us, and to do so without requiring any decision as to the validity of the statute under the United States Constitution. If the Court of Appeals finds that the actions of the Department of Insurance are improper under § 2610(b), the challenges presented will be disposed of on state law grounds. 261 F.2d at 149-150, 153 (emphasis added).
Because the Court of Appeals ruled that Defendant's actions were not authorized by Section 2610(b), the issues in this case can be resolved on state law grounds. Following the principle that federal courts should address constitutional issues only as a last resort, this Court declines to address Plaintiffs' First Amendment claims. Consequently, the only remaining grounds for relief are based on state law.
The Eleventh Amendment, however, precludes this Court from sanctioning a state for violations of state law. See Pennhuurst State Sch. Hosp. v. Halderman, 465 U.S. 89, 124-25 (1984); Concourse Rehab. Nursing Ctr., Inc., v. Wing, 150 F.3d 185, 189 (2d Cir. 1998). As Plaintiffs acknowledge, the Eleventh Amendment bars federal courts from entering either declaratory or injunctive relief against a state on state law grounds. See Allstate Mem. at 10.
In light of the decision by the New York Court of Appeals, and of the State's cessation of its alleged illegal activity, this Court finds that Plaintiffs' claims are moot or must be resolved in state court. Thus, this Court's order, issued May 5, 2000, is hereby vacated and plaintiffs' claims are dismissed without prejudice.