hma direct federal lawsuit
TRANSCRIPT
UNITED STATES DISTRICT COURTDISTRICT OF MASSACHUSETTS
)MARK ALLAN CELENTANO, )HMA MGU, LLC, )NEW ENGLAND CUSTOM HEALTH PLAN )ADMINISTRATORS, LLC, AND )JEDEDIAH L. BRETTSCHNEIDER )
Plaintiffs, ))
v. ) CIVIL ACTION) NO. 09-11112-DPW
COMMISSIONER OF THE )MASSACHUSETTS DIVISION OF )INSURANCE, )
Defendant. ))
MEMORANDUM AND ORDERFebruary 2, 2010
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,
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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
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1 Self-funded employee benefit plans are those in which theemployer bears the risk of paying claims, and generally a third-party plan administrator is hired to process and pay claims. Infully-insured employee benefit plans, the employer purchasescommercial group health coverage from an insurance company,which, in turn, assumes the risk of paying claims.
2 Claims 1 through 25 of the Order to Show Cause arise outof allegations that Brettschneider failed to disclose a felonyconviction to the Division when he applied for a Massachusettsinsurance license. These claims are not the subject of thePlaintiffs’ complaint or the motion for preliminary injunction. Rather the Plaintiffs only dispute the Division’s investigationand adjudication of Claims 26 though 33 regarding the Plaintiffs’alleged HIPAA violation. Accordingly, this Memorandum onlyaddresses the issues presented with respect to the latter set ofclaims.
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Precision Machining, Inc., regarding the adoption of a self-
funded employee benefit plan.1 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.
The Division filed the Order to Show Cause against the
Plaintiffs on June 4, 2009, invoking, inter alia, provisions of
HIPAA incorporated in ERISA.2 See MASS. GEN. LAWS ch. 175 §
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3 Around the same time that the Division filed the Show-Cause Order, a “consumer alert” was posted on the Division’swebsite warning employers about “the risks in self-funded healthplans.” See Massachusetts Division of Insurance – ConsumerAlert: Beware of the Risks in Self-Funded Health Plans,http://www.mass.gov/?pageID=ocaterminal&L=4&L0=Home&L1=Consumer&L2=Insurance&L3=Consumer+Alerts&sid=Eoca&b=terminalcontent&f=advisories_selffunded&csid=Eoca (last visited Feb.2, 2010).
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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.3
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,
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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
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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 Union
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4 Part 7 of ERISA also contains its own preemptionprovision, but the Plaintiffs do not appear to argue that thisparticular preemption provision was separately or distinctivelytriggered 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”).
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No. 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.4 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
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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).
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
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5 The Plaintiffs argue that they are not insurance companiesbut “service providers,” such that their businesses are outsidethe scope of the Massachusetts insurance laws and ERISA savingsclause. This assertion is plainly contradicted by theallegations in the Plaintiffs’ own complaint, which must, ofcourse, be considered true for purposes of motion to dismisspractice. The complaint states that Celentano is “a licensedinsurance agent” in Massachusetts, NECHPA is “an insurance agencyand benefits consulting firm” licensed and registered inMassachusetts, HMA MGU is “an insurance underwriter” registeredin Massachusetts, and Brettschneider is a “principal” in HMADirect, the parent company of HMA MGU and NECHPA. The Plaintiffstherefore cannot credibly maintain that they are mere “serviceproviders” detached from the business of insurance inMassachusetts. It is their ability to engage in the insurancebusiness through Division licenses which is at issue in the Show-Cause proceeding. See MASS. GEN. LAWS ch. 175 § 162R (granting thecommissioner the authority to order the suspension, revocation,or placement on probation of the insurance licenses, as well aslevy civil penalties); id. at § 174 (permitting the commissionerto revoke or suspend insurance licenses of corporations or its
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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.5 These laws appear
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officers or directors).
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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
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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).
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
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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
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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
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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
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“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
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6 The instant case is also distinguishable from Chaulkbecause the basis for preemption there was not ERISA but theGarmon preemption doctrine, relating to the National LaborRelations Act. See Chaulk Servs., Inc. v. Massachusetts Comm’nAgainst 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 § 8of the [National Labor Relations] Act, the States as well as thefederal courts must defer to the exclusive competence of theNational Labor Relations Board if the danger of stateinterference with national policy is to be averted.”).
7 I recognize that the DOL’s generally sympathetic approachto the state initiative here reflects a policy judgment by thecurrent Presidential administration regarding preemption. Thispolicy recognizes “a strong role for both the national Governmentand the States,” and cautions that “preemption of State law byexecutive departments and agencies should be undertaken only withfull consideration of the legitimate prerogatives of the Statesand with a sufficient legal basis for preemption.” Pres.Memorandum on Preemption for the Heads of Executive Departmentsand Agencies, 74 Fed. Reg. 24,693 (May 20, 2009). While thepolicy preferences of the federal agency charged withadministering a statute containing preemptive language are notnecessarily determinative, they are entitled to careful andrespectful consideration by the Courts.
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from Chaulk on that basis.6 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.
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.”7 See John Hancock
Mut. Life Ins. Co. v. Harris Trust & Sav. Bank, 510 U.S. 86, 98
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(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.
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
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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.
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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
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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
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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
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8 If, in fact, the Division’s “proposed agreement” and theconsumer alert, see Note 3 supra, together evidence a generalhostility 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 benefitplan covered by ERISA may not “be deemed to be an insurancecompany or other insurer . . . for purposes of any law of anyState purporting to regulate insurance companies [or] insurancecontracts”). Operating as an exception to the savings clause,the deemer clause “has effect only on state laws saved from pre-emption by [the savings clause] that would, in the absence of[the deemer clause], be allowed to regulate self-insured employeebenefit plans.” Kentucky Ass’n of Health Plans, Inc. v. Miller,538 U.S. 329, 336 n.1 (2003). The Division’s proposed agreementand consumer alert, if part of a larger program to regulate selffunded plans, arguably “would not be ‘saved’ as an insurance lawto the extent [they] applied to self-funded plans” and sought toregulate them. See Rush Prudential HMO, Inc. v. Moran, 536 U.S.355, 371 n.6 (2002). Nevertheless, I decline to assess whetherthe deemer clause constrains the Division because I holdabstention is required here and the matter must be resolvedinitially in a state forum.
22
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.8
This proposed agreement - which is more accurately characterized
as that of the Division personnel prosecuting the Show-Cause
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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.
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
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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
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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
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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
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(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.
/s/ Douglas P. Woodlock DOUGLAS P. WOODLOCKUNITED STATES DISTRICT JUDGE
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