No. C00-58 MJM
September 15, 2000
OPINION and ORDER
Plaintiffs, Cedar Rapids Cellular Telephone, L.P., Davenport Cellular Telephone Company, WWC Wireless LLC, and Iowa Wireless Services, L.P., (collectively the "Wireless Service Providers") are cellular telephone service providers ("CMRS" carriers) licensed by and governed under the Federal Communications Act, 47 U.S.C. § 151 et seq. Plaintiffs brought this suit against defendant, Thomas J. Miller, Attorney General of Iowa, claiming that the Attorney General's implementation and enforcement of various provisions of the Iowa Consumer Credit Code (ICCC) was unlawful under federal law and the United States Constitution. Pursuant to the Declaratory Judgment Act, 47 U.S.C. § 2201, 2202, Plaintiffs seek declaratory and injunctive relief for alleged violations of the Supremacy Clause, the Commerce Clause, and the 14th Amendment Due Process Clause of the United States Constitution.
This matter comes before the Court on a Motion to Dismiss filed by Defendant on June 12, 2000. On July 18, 2000, Plaintiffs filed a brief in Resistance to Defendant's Motion to Dismiss. Defendant filed a Reply to Plaintiffs' Resistance on July 31, 2000, and oral arguments were heard on August 7, 2000.
On April 11, 2000, in relation to an ongoing investigation of cellular telephone companies by the Attorney General of Iowa under state consumer protection laws, litigation commenced in both federal and state court. On that date, Plaintiffs to this action, the "Wireless Service Providers", brought suit in federal court seeking declaratory and injunctive relief, claiming that various state consumer protection laws are preempted by federal law, interfere with interstate commerce in violation of the Commerce Clause of the United States Constitution, and are impermissibly vague in violation of the 14th Amendment. Later that same day, the Attorney General of Iowa filed suit in state court against United States Cellular ("US Cellular"), the parent company of two of the four federal plaintiffs, alleging violations of numerous provisions of the Iowa Consumer Credit Code (ICCC).
On April 17, 2000, US Cellular removed the state action to federal court in the Southern District of Iowa. On August 7, 2000, that Court, after briefing and oral arguments, granted the Attorney General's Motion to Remand (and denied US Cellular's Motion to Dismiss, Transfer or Stay) on the ground that the state's claims were not preempted by federal law so as to create federal jurisdiction, and thus the federal district court lacked subject matter jurisdiction over the action. ( See Iowa v. United States Cellular Corp., No. 4-00-CV-91097, S.D. Iowa August 7, 2000).
In addition to briefs and oral arguments in support of and resistance to the Attorney General's Motion to Dismiss the federal action at issue here, the parties have filed supplemental briefs in response to the Southern District of Iowa ruling, and, where appropriate, the Court will refer to and discuss relevant factual, legal or procedural distinctions between that proceeding and this one.
Factual Background to Current Controversy
Plaintiffs provide customers with wireless telephone service in many states, including Iowa. Wireless service providers ("CMRS carriers"), including Plaintiffs, are licensed under and governed by the Federal Communications Act, 47 U.S.C. § 151 et seq. (Complaint ¶ 11). Congress and the primary regulatory agency, the FCC, have stated a clear federal policy to encourage the rapid development and deployment of wireless communications service to all Americans. (Complaint ¶ 12).
One key mechanism to assist this nationwide deployment was the granting of exclusive jurisdiction over the rates charged by CMRS carriers, as well as the terms of entry into markets by CMRS carriers, to the federal government under 47 U.S.C. § 332(c)(3). (Complaint ¶ 13). To further ensure an equal playing field for all CMRS carriers, Congress also required that all state regulation of CMRS carriers be competitively neutral under 47 U.S.C. § 253. (Complaint ¶ 14).
Iowa Code 537, the Iowa Consumer Credit Code (ICCC), enacted in 1974, restricts certain practices in Iowa if the transaction is a "consumer credit transaction" under Iowa Code § 537.1301(11). (Complaint ¶ 16). Such transactions include "consumer credit sales," defined at Iowa Code § 537.1301(12). (Complaint ¶ 16). Sales of services can be included under the definition, see Iowa Code 537.1301(41), and all covered transactions must involve credit, as defined at Iowa Code § 537.1301(15). (Complaint ¶ 16).
The ICCC includes restrictions on the creation, terms, and enforcement of "executory contracts" as described at Iowa Code § 537.3310 (the "Executory Contract Provision"). (Complaint ¶ 18). This provision limits the enforcement of consumer credit contracts which are performed over a period of four or more months, including a limitation which allows consumers an unrestricted right to cancel such contracts, and limits the sums vendors, such as Plaintiffs, can obtain at the time of such cancellation. (Complaint ¶ 18).
Against this statutory backdrop, the relevant facts, for the most part, are not in dispute. Plaintiffs' wireless telecommunications services are sold to consumers in a variety of ways, including: prepaid service with no service agreement required; month-to-month service agreements with no hardware (telephone equipment) included; and packaged service agreements for terms, generally 12-24 months, with various quantities of minutes, hardware, additional service options or other waived or discounted fees or rates included (hereinafter "term service agreements"). (Complaint ¶ 20). These term service agreements offered by Plaintiffs may include discounted telephone hardware, or national or regional "one rate" plans, which allow the consumer multi-state calling areas without additional toll or "roaming" charges. (Complaint ¶ 21, 22). Plaintiffs' term service agreements also generally include a provision for liquidated damages if the consumer cancels or breaches the agreement, (Complaint ¶ 23), and a clause requiring arbitration to resolve disputes under the agreements. (Complaint ¶ 27).
In 1998, the Iowa Attorney General served each Plaintiff with a request for information ("Information Demand"), in accordance with the Attorney General's investigation into consumer complaints that Plaintiffs were violating the ICCC by use and enforcement of term service agreements. (Complaint ¶ 29). Specifically, the Attorney General asserted that the length of the term service agreements, the liquidated damages provisions, and the arbitration provisions, as well as promotion of the agreements, violated Iowa law. (Complaint ¶ 29).
In February, 1999, the Attorney General served on Plaintiffs proposed "Assurance of Voluntary Compliance" forms, a type of private consent agreement, with letters threatening litigation if the Assurances were not executed. (Complaint ¶ 33). Discussions between Plaintiffs and the Attorney General failed to resolve these disputes, and on April 11, 2000, Plaintiffs filed the present action in federal court seeking declaratory and injunctive relief against the Attorney General.
Plaintiffs assert, and request a judgment declaring, that the Attorney General has adopted and is pursuing a policy, pattern and practice which violates the state and federal law rights of the plaintiffs by (a) misapplying Iowa law, (b) violating the Federal Communications Act and the Supremacy Clause of the United States Constitution by engaging in preempted practices, (c) unlawfully interfering with interstate commerce, and (d) violating Plaintiffs' due process rights by applying a law which is impermissibly vague as applied to Plaintiffs. (Complaint ¶ 36, 37, 41). Plaintiffs further request that this Court enter an injunction enjoining the Attorney General and his agents from taking any actions to enforce the ICCC against Plaintiffs based on their term service agreements or other business practices in Iowa.
In his Motion to Dismiss, the Attorney General contends the following: (1) that the assertion of federal defenses to enforcement of state statutes fails to present a federal question which would support federal court jurisdiction; (2) that the Eleventh Amendment bars a federal court from deciding whether the Attorney General is violating state law; and (3) alternatively, that this Court should abstain because there are related ongoing state proceedings. Plaintiffs counter that they have presented a federal question sufficient to support federal court jurisdiction, and that this matter is not one as to which the Court should properly exercise its abstention discretion.
Thus, this Court must first determine whether there is federal subject matter jurisdiction over the action, and if so, whether the Court should nevertheless exercise its discretion to abstain from hearing the action in federal court at this time.
Motion to Dismiss Standard
In addressing a motion to dismiss, the allegations of the complaint must be taken as true and be construed in the light most favorable to Plaintiffs. See Cruz v. Beto, 405 U.S. 319, 322 (1972); Midwestern Machinery v. Northwest Airlines, Inc., 167 F.3d 439, 441 (8th Cir. 1999). Such motions are to be granted only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, (1957). The Supreme Court has articulated the test as follows:
When a federal court reviews the sufficiency of a complaint, before the reception of any evidence either by affidavit or admissions, its task is necessarily a limited one. The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims. Indeed it may appear on the face of the pleadings that a recovery is very remote and unlikely but that is not the test. Moreover, it is well established that, in passing on a motion to dismiss, whether on the ground of lack of jurisdiction over the subject matter or for failure to state a cause of action, the allegations of the complaint should be construed favorably to the pleader.Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); accord, Estate of Rosenberg v. Crandell, 56 F.3d 35, 37 (8th Cir. 1995).
Subject Matter Jurisdiction
Defendant first argues that, because Plaintiffs' claims, and reliance on federal law, are merely anticipatory defenses to state law claims, this Court lacks subject matter jurisdiction and must dismiss the suit. Plaintiffs contend that their complaint presents federal question jurisdiction on several grounds: a) under the Article IV Supremacy Clause, in that the Federal Arbitration Act and section 332 of the Federal Communications Act completely preempt the challenged ICCC provisions; b) under the Commerce Clause, Article I, § 8, in that enforcement by the State of ICCC provisions would result in undue burden on interstate commerce; and c) under the 14th Amendment Due Process Clause, in that the challenged ICCC provisions are impermissibly vague. This Court will address the parties' preemption and constitutional arguments seriatim.
The federal courts are granted broad "federal question" jurisdiction under 28 U.S.C. § 1331 over any claim which "arises under" the Constitution, laws, or treaties of the United States. No clear test has yet been developed to determine when a claim arises under federal law. See Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 8 (1983) ("[T]he statutory phrase `arising under the Constitution, laws, or treaties of the United States' has resisted all attempts to frame a single, precise definition for determining which cases fall within, and which cases fall outside, the original jurisdiction of the district courts."); accord, First Federal Sav. and Loan Ass'n v. Anderson, 681 F.2d 528, 532 (8th Cir. 1982). However, the courts have developed general rules with which to evaluate the existence of a federal question. See id.
One well-settled proposition is that federal jurisdiction must be determined solely from the face of a "well-pleaded" complaint. See Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. at 9-10 (characterizing the well-pleaded complaint rule as "[o]ne powerful doctrine . . . which as a practical matter severely limits the number of cases in which state law `creates the cause of action' that may be initiated in or removed to federal district court."); accord, Missouri v. Cuffley, 112 F.3d 1332, 1335 (8th Cir. 1997). The Supreme Court has explained the well-pleaded complaint rule as follows:
The Supreme Court, in Franchise Tax Board v. Construction Laborers Vacation Trust, expressly confirmed that "[t]he well-pleaded complaint rule applies to the original jurisdiction of the district courts as well as to their removal jurisdiction," 463 U.S. at 10, n. 9, and thus the applicable analysis is the same regardless of whether the lack of subject matter jurisdiction is asserted at the original or removal phase of an action. See Missouri v. Cuffley, 112 F.3d 1332, 1335, n. 4 (8th Cir. 1997) ("With respect to federal-question cases, the removal jurisdiction and the original jurisdiction of the federal district courts are coextensive.").
[W]hether a case is one arising under the Constitution or a law or treaty of the United states, in the sense of the jurisdictional statute, . . . must be determined from what necessarily appears in the plaintiff's statement of his own claim in the bill or declaration, unaided by anything alleged in anticipation of avoidance of defenses which it is thought the defendant may interpose.Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. at 10 (quoting Taylor v. Anderson, 234 U.S. 74, 75-76 (1914)). Thus, under this rule, the possibility that a defendant may raise in his answer a federal defense to a complaint which invokes only state law is, in itself, not a sufficient ground to establish federal question jurisdiction. See First Fed. Sav. and Loan Ass'n v. Anderson, 681 F.2d at 532 ("The complaint will not serve as the basis of subject matter jurisdiction insofar as it goes beyond a statement of the plaintiff's cause of action and anticipates or replies to a probable defense.").
An independent corollary to the well-pleaded complaint rule is the complete preemption doctrine. See Caterpillar Inc. v. Williams, 482 U.S. 386, 393 (1987); Gore v. Trans World Airlines, 210 F.3d 944, 949 (8th Cir. 2000). This doctrine recognizes that there are some situations in which "the pre-emptive force of a statute is so `extraordinary' that it `converts an ordinary state common-law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule.'" Id. (quoting Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 65 (1987)). "Whether federal law preempts a state-law cause of action is a question of congressional intent." Gore v. Trans World Airlines, 210 F.3d at 949 (citing Hawaiian Airlines, Inc. v. Norris, 512 U.S. 246, 252 (1994)).
"The Supremacy Clause, U.S. Const., Art. VI, cl. 2, invalidates state laws that `interfere with or are contrary to,' federal law." Kinley Corp. v. Iowa Utilities Bd., 999 F.2d 354, 357 (8th Cir. 1993) (citing Hillsborough County v. Automated Med. Labs., Inc., 471 U.S. 707, 712 (1985)).
Examples of federal laws that completely preempt state law claims are the Employment Retirement and Income Security Act ("ERISA"), see Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54-55 (1987); the Labor Management and Relations Act ("LMRA"), see Textile Workers Union v. Lincoln Mills, 353 U.S. 448 (1957); and the Railway Labor Act ("RLA"), see Hawaiian Airlines, Inc. v. Norris, 512 U.S. 246, 263 (1994).
Analysis under the well-pleaded complaint rule is slightly more complicated where, as in this action, the plaintiffs, anticipating state action against them, bring an action in federal court for declaratory judgment, thereby reversing the "natural" roles of the plaintiff and defendant. See Missouri v. Cuffley, 112 F.3d at 1335; see, generally, Kevin W. Brown, Annotation, Federal Question Jurisdiction in Declaratory Judgment Suit Challenging State Statute on Grounds of Federal Preemption, 69 ALR Fed 753 (1984). The enactment of the Declaratory Judgment Act, 28 U.S.C. § 2201, gave federal courts the power to grant declaratory relief, but it is well-settled that the statute is strictly remedial and does not provide a separate basis for subject matter jurisdiction. See First Fed. Sav. and Loan Ass'n v. Anderson, 681 F.2d at 533 (citing Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950) (concluding that § 2201 was intended to alter federal procedure only, not federal jurisdiction)); Missouri v. Cuffley, 112 F.3d 1332 at 1335.
"[I]f, but for the availability of the declaratory judgment procedure, the federal claim would arise only as a defense to a state created action, jurisdiction is lacking." Id. (citing Skelly Oil, 339 U.S. at 671-74, and quoting Charles A. Wright, Arthur R. Miller Mary Kay Kane, Fed. Practice and Procedure: Civil § 2767 at 744-45 (2d ed. 1983)); see also Public Serv. Comm'n v. Wycoff Co., 344 U.S. 237, 248 (1952) ("Where the complaint in an action for declaratory judgment seeks in essence to assert a defense to an impending or threatened state court action, it is the character of the threatened action, and not of the defense, which will determine whether there is federal-question jurisdiction in the District Court.").
If, however, the federal issue "would inhere in the claim on the face of the complaint that would have been presented in a traditional damage or coercive action, then federal jurisdiction exists over the declaratory judgment action." Missouri v. Cuffley, 112 F.3d at 1335 (citations omitted). In essence, then, the well-pleaded complaint rule requires that a plaintiff seeking declaratory relief in federal court allege grounds of jurisdiction independent from § 2201, such as diversity of parties or the existence of a federal question under § 1331.
Plaintiffs' federal preemption claims
Plaintiffs cannot establish the requisite federal question jurisdiction under preemption analysis. Plaintiffs argue that section 332 of the Federal Communication Act, which states that "no State . . . shall have any authority to regulate the entry of or the rates charged by any commercial mobile service," completely preempts one or more of the following: a) any application of the ICCC to the term service agreements of plaintiffs; b) any award for money damages against the plaintiffs under the ICCC or other consumer protection acts of the state of Iowa; and c) any attempt to regulate, by executive, legislative, judicial, or contractual action, one or more CMRS providers unless such regulation affects the entire industry in a competitively neutral manner, including the timing of its implementation. If Plaintiffs were correct, federal question jurisdiction would exist, under the complete preemption doctrine, despite what would otherwise be merely an anticipatory federal defense to a state law claim.
The Southern District of Iowa addressed this exact preemption issue in ruling on the State's Motion for Remand after US Cellular's removal of the concurrent state-initiated suit to federal court. See Iowa v. U.S. Cellular, Corp., No. 4-00-CV-90197 (S.D.Iowa Aug. 7, 2000). For the reasons stated therein, this Court agrees with Judge Pratt's conclusion that Plaintiffs' claims are defensive in nature, and that the Federal Communications Act does not so completely preempt the challenged provisions as to confer federal subject matter jurisdiction. See id.
In his opinion, Judge Pratt thoroughly parsed and reviewed the language of the federal statute at issue, and concluded the following:
From the language of the Communications Act itself, it is apparent that Congress did not intend to completely preempt all state regulation of cellular service. First, the Communications Act does not contain a jurisdictional provision parallel to section 301 of the LMRA or section 502(1) of ERISA. See Metropolitan Life, 481 U.S. at 65 (indicating that without such a jurisdictional provision the Court "would be reluctant to find that extraordinary preemptive power . . . that converts an ordinary state common law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule"). Second, there is an exception clause in the Communications Act that expressly reserves power for the states. Section 332 pronounces that "no State . . . shall have any authority to regulate the entry of or the rates charged by any commercial mobile service, except that this paragraph shall not prohibit a State from regulating the other terms and conditions of commercial mobile services." 47 U.S.C. § 332 (c)(3)(A) (emphasis added). Finally, the Act contains a savings clause that provides, "[n]othing in this chapter shall in any way abridge or alter the remedies now existing at common law or by statute, but the provisions of this chapter are in addition to such remedies." 47 U.S.C. § 414.Iowa v. U.S. Cellular Corp., Civ. No. 4-00-CV-90197, at 7.
The legislative history is similarly unpersuasive. Plaintiffs contend that Congress' stated purpose to foster, on a national level, the growth and development of wireless telephone services supports an inference that, to further that goal, any state regulation of term service agreements must be precluded. However, without more, the mere fact that Congress, the FCC and the courts have agreed that wireless telephone service is a national issue does not provide the clear Congressional intent necessary to imbibe a statute with extraordinary preemptive force. This is especially true where Plaintiffs have presented no concrete legislative history which would support extending a general policy to such a preclusive level, and where the statutory language strongly suggests an opposite inference.
And, like the Southern District, this Court declines to read "rates" in section 332 so broadly as to necessarily preclude a state's judicial challenge based on a statute designed to protect consumers against fraudulent or deceptive business practices. Under such a reading, any challenge to Plaintiffs' conduct could be couched in terms of its effect on rates, and, as the Court has already concluded, the language of the statute makes it apparent that Congress did not intend such a result.
Moreover, it is equally arguable that enforcement of the ICCC against Plaintiffs would not affect rates at all, even under a relatively broad reading of that term. Rather, it would merely require Plaintiffs to structure their service agreements so that those agreements conform to the disclosure requirements mandated under the ICCC. This requirement might shift the point in the relationship between Plaintiffs and consumers at which costs and charges would be incurred — in that, e.g., Plaintiffs' hardware costs would be incurred by consumers "up front" rather than spread out incrementally throughout the life of the service agreement, or subsumed in cancellation or liquidation charges — but ultimately, the "rates" charged by Plaintiffs would remain the same.
Plaintiffs have presented nothing, in supplemental briefing, to distinguish the preemption issue in this case from that addressed in the Southern District ruling. Plaintiffs' assertions, therein, that dismissal is inappropriate despite finding no complete preemption are directed to, and will be addressed in, this Court's abstention analysis below. Therefore, as did the Southern District, this Court concludes that the Federal Communications Act, specifically section 332, does not so completely preempt regulation of wireless telephone service such that any claim sounding in state law is necessarily federal in character for purposes of federal question jurisdiction under the Declaratory Judgment Act.
Plaintiffs also cannot establish federal jurisdiction based on their assertion that the ICCC's alleged restrictions on arbitration clauses are preempted by the Federal Arbitration Act (FAA), 9 U.S.C. § 1-204, which declares written provisions for arbitration "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Plaintiffs' complaint states that the term service agreements used by Plaintiffs in Iowa generally include clauses requiring arbitration to resolve disputes under those agreements, and that the Attorney General has represented his position that the arbitration clauses in those agreements violate ICCC provisions. (Complaint ¶ 27, 29).
The Court notes that neither Defendant nor Plaintiffs addressed this issue in briefs or oral argument. However, because determination of subject matter jurisdiction is based only on the well-pleaded complaint (rather than the substance of the claim), the Court will resolve the issue. Moreover, a determination that Congress had completely preempted this field would require retention of federal jurisdiction, and thus the issue must be resolved before this Court can determine whether discretionary abstention is appropriate.
While the Court has some doubts as to whether such allegations are sufficient, even under the notice pleading rules in federal court, to state a claim for which relief can be granted, the Court will infer that were Plaintiffs to continue their regular course of business, the Attorney General would take legal action to enforce conflicting ICCC provisions. Thus, Plaintiffs' FAA preemption argument is clearly a defense to anticipated allegations by the State, and under the complete preemption doctrine, federal question jurisdiction can only be established if Congress intended to completely preempt states from regulating or challenging any aspect of consumer contract arbitration clauses.
The Supreme Court most recently addressed this issue in Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681 (1996), affirming earlier decisions establishing that "[s]tates may regulate contracts, including arbitration clauses, under general contract law principles and they may invalidate an arbitration clause `upon such grounds as exist at law or in equity for the revocation of any contract.' 9 U.S.C. § 2" Id. at 685-86 (quoting Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281 (1995). "[G]enerally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening § 2." Doctor's Associates, Inc. v. Casarotto, 517 U.S. at 687. Section 2 merely precludes states from enacting state laws applicable only to arbitration provisions, and thereby singling out arbitration provisions for suspect status. Id.
This Court has found nothing in the ICCC which could reasonably be interpreted to "single out" arbitration agreements for suspect treatment. Nor have Plaintiffs given any indication, on the face of their complaint, that the Attorney General's anticipated allegations are based on anything other than the general contract defenses of fraud, deceptive practices, and unconscionability, as those concepts are codified in Iowa's consumer protection statute. Because the FAA does not preclude such action by the state, Plaintiffs cannot assert federal jurisdiction based on complete preemption principles.
Plaintiffs also assert a commerce clause challenge, and seek declaratory and injunctive relief against enforcement of ICCC provisions to the extent that they prevent Plaintiffs from employing their business plan in the same manner in Iowa as in the many other states in which Plaintiffs provide wireless telephone service. Plaintiffs contend, further, that the Attorney General's investigation and threatened enforcement actions over the two years preceding Plaintiffs' suit make this an "actual controversy" appropriate for judicial review under the Declaratory Judgment Act. See 28 U.S.C. § 2201 (providing for declaratory relief "[i]n a case of actual controversy within its jurisdiction"); see also, 28 U.S.C. § 2202 (providing that "[f]urther necessary or proper relief based on a declaratory judgment or decree may be granted"). Defendant argues that this, like the preemption claims discussed above, is merely another anticipatory defense "dressed up" as a constitutional challenge, and that, therefore, this Court lacks subject matter jurisdiction.
Plaintiffs allege that the ICCC limits the enforcement of "executory contracts" which are performed over a period of four or more months, including a limitation which allows consumers an unrestricted right to cancel such contracts, and limits the sums vendors, such as Plaintiffs, can obtain at the time of cancellation. Plaintiffs further assert that the term service agreements at issue under Iowa law are similar to those employed by Plaintiffs and other wireless service providers throughout the nation. Plaintiffs argue that such a four-month limitation on contracts, imposed by a single state, in an inherently interstate industry where federal licenses ignore state lines, and many service plans are uniform multi-state plans is a significant burden on interstate commerce.
While Defendant's anticipatory defense argument is intuitively appealing, the Court finds that such a determination would necessarily go to the merits of Plaintiffs' constitutional claim, which a court may not do on a Motion to Dismiss. Thus, the Court concludes that, under the applicable standards, Plaintiffs have established a well-pleaded commerce clause challenge, sufficient to provide the requisite federal question jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201.
And, moreover, Plaintiffs' have established that the dispute with the Attorney General is an "actual controversy" under the Act. The test recognized in this Circuit is whether "there is a substantial controversy between the parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Marine Equip. Mgmt Co. v. United States, 4 F.3d 643, 646 (8th Cir. 1993). "A Plaintiff does not have to `await consummation of threatened injury' before bringing a declaratory judgment action." South Dakota Mining Ass'n, Inc. v. Lawrence County, 155 F.3d 1005, 1008 (8th Cir. 1998) (internal quotations omitted). The plaintiff must merely demonstrate "a realistic danger of sustaining a direct injury as a result of the operation or enforcement of the challenged [statute]." Id.; Minnesota Citizens Concerned for Life v. Fed. Election Comm'n, 113 F.3d 129, 131 (8th Cir. 1997) (holding that a party suffers Article III injury when it must either make significant changes to its operations to obey the regulation, or risk likely enforcement action by disobeying the regulation).
The Court is satisfied that Plaintiffs here faced precisely the situation contemplated by the Declaratory Judgment Act. Plaintiffs' activities had been under investigation by the Attorney General for a considerable amount of time, one or more Plaintiffs had received numerous compliance demands from the Attorney General with regard to alleged ICCC violations, and the Attorney General, in fact, filed a ten-count action in state court against two of the plaintiffs on the same day that this action was brought.
Because the Court concludes that Plaintiffs' Commerce Clause claim is sufficiently pleaded to establish federal question matter jurisdiction independent of the declaratory judgment statute, supplementary jurisdiction over any state law claims is also established under 28 U.S.C. § 1367. Thus, the Court will now consider, under principles laid down by the Supreme Court and this Circuit, whether, despite proper jurisdiction, the Court should exercise its discretion to abstain from hearing the action before it. To the extent relevant to that determination, the Court will assume, without deciding, that Plaintiffs were successful in establishing federal question jurisdiction on any remaining asserted grounds.
Thus, the Court will assume that Plaintiffs have stated a viable claim that the ICCC, as applied to Plaintiffs, violates the 14th Amendment Due Process Clause. Further, the Court will not address Defendant's argument that, under Pennhurst State School Hospital v. Halderman, 465 U.S. 89 (1984), the Eleventh Amendment bars the exercise of pendent jurisdiction over Plaintiffs' claim that a state official has violated state law in carrying out his official responsibilities. Id. at 121. Rather, for purposes of the following analysis only, the Court will assume, without deciding, that Plaintiffs successfully countered that argument by showing that this Court could provide declaratory relief — even under state law, consistent with 28 U.S.C. § 1367 — without directly enjoining the Attorney General.
AbstentionAbstention doctrines are judicially created and self-imposed limitations on courts' adjudication of cases that are properly within their jurisdiction. The abstention doctrines operate to yield proper federal court jurisdiction to a state tribunal, on the theory that the state tribunal is the more appropriate forum to hear and decide the suit. This Circuit has characterized abstention generally as "an extraordinary and narrow exception to the virtually unflagging obligation of federal courts to exercise the jurisdiction given them." In re Burns Wilcox, Ltd., 54 F.3d 475, 477 (8th Cir. 1995) (internal quotations omitted). "Determining when to invoke this narrow exception involves considerations of federalism, comity, and judicial administration explored in the Supreme Court's many and varied abstention cases." In re Otter Tail Power Co. v. Baker Electric, 116 F.3d 1207, 1215 (8th Cir. 1997) (quoting Wolfson v. Mutual Benefit Life Ins. Co., 51 F.3d 141, 144 (8th Cir. 1995)).
The Supreme Court's abstention analysis has developed along a number of branches. Defendant argues for application of the Younger abstention, as it has been interpreted by the Supreme Court and the Eighth Circuit, which permits federal courts to abstain in equity actions, such as for declaratory or injunctive relief, if warranted by notions of comity. See Younger v. Harris, 401 U.S. 37 (1971); Anderson v. Schultz, 871 F.2d 762, 764 (8th Cir. 1989) ( Younger doctrine applies whether federal plaintiff seeks injunction or declaratory relief). Plaintiffs argue that abstention is improper under Younger, and that the correct analysis is that developed in Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976), under which a federal court may abstain in the interests of wise judicial administration only if warranted by "exceptional circumstances". Id. at 817.
The Court concludes, however, that while the Younger and Colorado River factors may inform the analysis, the abstention decision in this case must, foremost, be guided by this Circuit's recent opinion in Capitol Indemnity Corp. v. Haverfield, 218 F.3d 872 (8th Cir. 2000). In that case, the Court of Appeals again clarified that Wilton v. Seven Falls Co., 515 U.S. 277 (1995), provides the appropriate standard governing a district court's decision to dismiss or stay a federal declaratory judgment action during the pendency of parallel state court proceedings. See id. at 874; Prudential Ins. Co. v. Doe, 140 F.3d 785, 789 (8th Cir. 1998) ("The Supreme Court's decision in Wilton v. Seven Falls Co. vests the district courts with broad discretion in deciding whether to hear declaratory judgment actions.") (interior citations omitted)).
Brillhart, Wilton, and Capitol Indemnity each involved only requests for declaratory relief under 28 U.S.C. § 2201. There is no express indication in these opinions that the analysis should be any different where, as here, additional injunctive relief is requested under 28 U.S.C. § 2202. However, to the extent that this factual distinction is relevant, the factors discussed herein in favor of abstention would be sufficient to support abstention under the "pre- Wilton" abstention doctrines of Younger and Colorado River.
In Wilton, a declaratory judgment case, the Supreme Court rejected the "exceptional circumstances" test developed in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976) and Moses H. Cone Mem. Hosp. v. Mercury Constructr. Corp., 460 U.S. 1 (1983), and adopted the discretionary standard first set forth in a 1942 decision, Brillhart v. Excess Ins. Co., 316 U.S. 491 (1942). In Brillhart, an insurer, anticipating a coercive suit, sought a declaration in federal court of nonliability on an insurance policy. See id. Affirming the trial court's dismissal of the action in favor of pending state garnishment proceedings, to which the insurer had been added as a defendant, the Supreme Court held that, "[a]lthough the District Court had jurisdiction of the suit under the Federal Declaratory Judgments Act, it was under no compulsion to exercise that jurisdiction." Id. at 494 (internal citations omitted).
The Supreme Court, in Wilton, explained the policy underlying Brillhart, and its continued vitality in declaratory judgment actions. See Wilton, 515 U.S. at 286. The Court stated that "[d]istinct features of the Declaratory Judgment Act . . . justify a standard vesting district courts with greater discretion in declaratory judgment actions than that permitted under the `exceptional circumstances' test of Colorado River and Moses H. Cone." Id. The Court cited the statute's "textual commitment to discretion" and its "breadth of leeway" as distinguishing the declaratory judgment context from other areas of the law in which concepts of discretion surface, id. at 286-87, and characterized the Act as "an enabling Act, which confers a discretion on the courts rather than an absolute right upon the litigant." Id. at 287 (quoting Public Serv. Comm'n of Utah v. Wycoff Co., 344 U.S. 237, 241 (1952). With the Act, Congress "created an opportunity, rather than a duty, to grant a new form of relief to qualifying litigants." Wilton, 515 U.S. at 288. Finally, the Court affirmed that "[n]o subsequent case ha[d] called into question the application of the Brillhart standard to [those] facts." Id. at 287.
Under Brillhart, when presented with a suit under the Declaratory Judgment Act, the district court must consider the scope and nature of the pending state court proceeding to ascertain whether the issues in controversy between the parties to the federal action, not foreclosed under applicable substantive law, can be better settled by the state court. See Capitol Indemnity Corp. v. Haverfield, 218 F.3d at 874; Brillhart, 316 U.S. at 495; Wilton, 515 U.S. at 282. "This inquiry, in turn, entails consideration of `whether the claims of all parties in interest can satisfactorily be adjudicated in that proceeding, whether necessary parties have been joined, whether such parties are amenable to process in that proceeding, etc.'" Id. at 283 (quoting Brillhart, at 495); Prudential Ins. Co. v. Doe, 140 F.3d 785, 790 (8th Cir. 1998) ("Under Brillhart, we must examine the scope of the [state] action and consider whether abstention would prejudice the [parties'] ability to adjudicate their claims, join parties, and serve process on parties and witnesses.").
In the final analysis, a district court must "ascertain whether the questions in controversy between the parties to the federal suit, and which are not foreclosed under the applicable substantive law, can better be settled in the proceeding pending in state court. . . ." Brillhart, 316 U.S. at 495. "If so, the district court must dismiss the federal action because `it would be uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties.'" Capitol Indemnity Corp. v. Haverfield, 218 F.3d at 874-75 (quoting Brillhart, 316 U.S. at 495)).
It is clear that under Wilton and Brillhart, abstention is appropriate in this case. Both the federal and state court proceeding involve, at the core, the same issue: the interpretation, application, and enforcement of Iowa consumer credit code provisions to wireless telephone service providers. Interpretation of those provisions is governed by state law, and thus the Court would first be required to predict how the Iowa Supreme Court would resolve the dispute over the statute's application to the services that Plaintiffs provide. See Capitol Indemnity, 218 F.3d at 875 (noting the "difficult position" that district courts place themselves in where state law governed interpretation and application of insurance policies). Moreover, such decisions have no precedential value if and when Iowa's highest court decides the issue. See id. (citing Stevens v. Pike County Bank, 829 F.2d 693, 696 (8th Cir. 1987) (Arnold, J., concurring)).
Plaintiffs claim, inter alia, that challenged ICCC definitions and provisions do not apply to wireless service providers such as Plaintiffs. If Plaintiffs are correct, there would be no conflict between Iowa law and the Commerce Clause. Abstention in this case would thus recognize the important interest that a state has in interpreting its statutes, would reduce the likelihood that a federal court would make an erroneous interpretation of state law, and, moreover, may avoid unnecessary constitutional rulings. See Railroad Comm'n of Texas v. Pullman Co., 312 U.S. 496, 499-501 (1941); Horne v. Firemen's Retirement System of St. Louis, 69 F.3d 233 (8th Cir. 1995) (holding that where the crux of the litigation lies in the application of a state statute, the district court was within its "unique and substantial discretion" to abstain and allow the state court to pronounce on constitutional challenges to the state statute).
Plaintiffs further argue that abstention is improper because two of the four federal plaintiffs were not named as defendants in the state proceeding. While this was not an issue in Wilton or Brillhart, it is clear that the relevant inquiry cannot be read so narrowly. Brillhart expressly requires that this Court consider whether the claims of all parties in interest can satisfactorily be adjudicated in the state proceeding. See Brillhart, 316 U.S. at 495. Thus, it is not dispositive that two federal plaintiffs were not initially named in the state suit. Rather, as Brillhart noted, the Court must look to whether "necessary parties have been joined, whether such parties are amenable to process in that proceeding, etc.'" Wilton, 515 U.S. at 283 (quoting Brillhart, 316 U.S. at 495).
The Court notes first, that Rule 75 of the Iowa Rules of Civil Procedure allows for liberal intervention of interested parties. See In Interest of J.R., 315 N.W.2d 750 (1982) (holding that rule granting right to intervene is remedial and is to be liberally construed); State ex rel. Miles v. Minar, 540 N.W.2d 462 (Iowa App. 1995) (stating that purpose of rule is to reduce litigation by involving as many interested persons as possible and to expeditiously dispose of lawsuits). Plaintiffs have articulated no reason why this procedure would not adequately protect those federal plaintiffs not named in the state suit.
The Court further notes that, even under a stricter abstention analysis such as Colorado River, other courts have concluded that substantial identity of parties and issues is sufficient to support abstention. See Lumen Constr., Inc. v. Brant Constr. Co., Inc., 780 F.2d 691, 695 (7th Cir. 1984) (holding that "formal symmetry between the two actions" is not a prerequisite to abstention); McLaughlin v. United Virginia Bank, 955 F.2d 930, 935 ("Suits are parallel if substantially the same parties litigate substantially the same issues in different forums."). And this reading of Brillhart is supported by the Supreme Court's recognition that abstention does not permanently close the door to federal court: "assuming that for some unexpected reason the state forum does turn out to be inadequate in some respect . . . [a party] could seek to return to federal court if it proved necessary." Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 28 (1983).
Finally, Plaintiffs' reliance on the "first to file" rule in favor of federal court retention does not preclude abstention in this case. Stating the well-settled maxim that, generally, a plaintiff is entitled to control its own case, they argue that abstention is improper because Plaintiffs filed this action in federal court hours before Defendant brought suit in state court. Even assuming this rule is applicable to declaratory judgment actions after Wilton, we agree with Defendant that abstention is warranted even though Plaintiffs were, technically, the first to file.
It is well-established that in cases of concurrent jurisdiction, "the first court in which the jurisdiction attaches has priority to consider the case," Orthmann v. Apple River Campground, Inc., 765 F.2d 119, 121 (8th Cir. 1985). This first-filed rule "is not intended to be rigid, mechanical, or inflexible," id., "but is to be applied in a manner best serving the interests of justice." Northwest Airlines, Inc. v. American Airlines, Inc., 989 F.2d 1002, 1005 (8th Cir. 1993). Thus, while being first to file is a factor the Court must consider, Orthmann and subsequent cases make clear that the first-filed rule should inform the abstention analysis rather than dictate it. See Prudential Ins. Co. v. Doe, 140 F.3d at 788 (finding abstention not required "where the federal suit is filed substantially prior to any state suits [and] significant proceedings have taken place in the federal suit") (emphasis added); cf. Pioneer Hi-Bred Intern. v. Holden Found. Seeds, 35 F.3d 1226, 1242 (8th Cir. 1994) ("Subject matter jurisdiction should not be used to dismiss a case containing even a remotely plausible federal claim if the parties and the courts have already made [a] vast expenditure of resources.").
In Northwest Airlines, the Eighth Circuit noted two factors which "send up red flags that there may be compelling circumstances" that warrant not giving effect to the first-filed rule. 989 F.2d at 1007. Those factors were whether the plaintiff had notice that the defendant was at least considering filing suit, and whether the plaintiff's action was for declaratory judgment which "may be more indicative of a preemptive strike than a suit for damages or equitable relief." Id.; Prudential Ins. Co. v. Doe, 140 F.3d at 790 ("We are mindful of the general proposition that declaratory judgments are not to be used defensively to deny a prospective plaintiff's choice of forums."). In light of the undisputed ongoing investigation by the Attorney General that proceeded this action, and Plaintiffs assertion that negotiations with the Attorney General had broken down, both of those factors are, at least arguably, present in this case. The Court finds, therefore, that flexible application of the first-filed rule in the interests of justice does not preclude abstention in this case.
Therefore, for the reasons above discussed, the Court concludes that, while this court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331, this case presents predominantly state law issues, that those issues can better be adjudicated in state court, and that Plaintiffs here will, in no way, be prejudiced by this Court's decision to exercise its broad discretion, under the Declaratory Judgment Act, to abstain from hearing this action in federal court at this time.
For the reasons mentioned herein, Defendant, Attorney Thomas J. Miller's motion to dismiss is GRANTED as to all claims in this action.