Cedar Rapids v. Thomas Miller , 280 F.3d 874 ( 2002 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 00-3727
___________
Cedar Rapids Cellular Telephone, L.P.; *
Davenport Cellular Telephone *
Company, *
*
Plaintiffs/Appellants, *
*
WWC License, LLC; *
Iowa Wireless Services, L.P., *
*
Plaintiffs, *
*
v. *
*
Thomas Miller, Sued as Thomas J. *
Miller, individually, in his official *
capacity as Attorney General of Iowa *
and Administrator of the Iowa *
Consumer Credit Code, *
*
Defendant/Appellee. *
*
___________
Appeals from the United States
No. 00-3728 District Court for the
___________ Northern District of Iowa.
Cedar Rapids Cellular Telephone, L.P.; *
Davenport Cellular Telephone *
Company, *
*
Plaintiffs, *
*
WWC License, LLC, *
*
Plaintiff/Appellant, *
*
Iowa Wireless Services, L.P., *
*
Plaintiff, *
*
v. *
*
Thomas Miller, Sued as Thomas J. *
Miller, individually, in his official *
capacity as Attorney General of Iowa *
and Administrator of the Iowa *
Consumer Credit Code, *
*
Defendant/Appellee. *
*
___________
Submitted: November 14, 2001
Filed: February 14, 2002
___________
Before BYE, RICHARD S. ARNOLD, and RILEY, Circuit Judges.
___________
RILEY, Circuit Judge.
Cedar Rapids Cellular Telephone, L.P. (Cedar Rapids Cellular), Davenport
Cellular Telephone Company (Davenport Cellular), and WWC License, LLC
(WWC), appeal the district court's dismissal of their complaint, which seeks to enjoin
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the Attorney General of Iowa from enforcing state consumer protection statutes
against them. We affirm in part, reverse in part, and vacate the judgment of dismissal.
I. BACKGROUND
Cedar Rapids Cellular, Davenport Cellular, and WWC all provide wireless
telephone service in the State of Iowa. One way they sell wireless service is through
"term service agreements" in which customers agree to purchase cellular telephone
service for pre-established periods of time, typically from twelve to twenty-four
months. Under the term service agreements, a customer who cancels service before
the expiration of the term must pay liquidated damages in the form of a cancellation
fee. Cancellation fees allegedly range from $300 to over $500.
In January 1998, the Attorney General of the State of Iowa notified several
wireless service providers that their business practices violate Iowa law. The
companies contacted by the Attorney General included appellant WWC and U.S.
Cellular Corporation (U.S. Cellular), the parent corporation of appellants Cedar
Rapids Cellular and Davenport Cellular. The Attorney General took the position that
the liquidated damages provisions of the term service agreements violate the Iowa
Consumer Credit Code, Iowa Code Chapter 537, which prohibits charges for default
in certain consumer transactions. He also objected, among other things, to the
companies' alleged practice of using arbitration clauses in the term service
agreements to resolve customer disputes but using small claims court to collect
customer debts.
On April 11, 2000, after negotiations between the Attorney General and U.S.
Cellular broke down, the appellants1 filed this action in the United States District
1
Another wireless service provider, Iowa Wireless Services, L.P., was a
plaintiff below, but is not a party to this appeal.
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Court for the Northern District of Iowa. In their complaint, the appellants seek a
declaration of the following:
1. The Iowa Consumer Credit Code does not apply to their cellular
telephone businesses in general or, in particular, to the cancellation fees
in their term service agreements.
2. The Federal Communications Act preempts: (a) application of the Iowa
Consumer Credit Code to the term service agreements, (b) any award for
money damages under Iowa consumer protection statutes, and (c) any
state attempt to regulate wireless service providers in a way that is not
"competitively neutral."
3. Enforcement of the Iowa Consumer Credit Code against the term service
agreements unlawfully interferes with interstate commerce.
4. The Federal Arbitration Act preempts application of the Iowa Consumer
Credit Code to the arbitration clauses in the term service agreements.
5. The provisions of the Iowa Consumer Credit Code sought to be enforced
against the wireless service providers are void for vagueness under the
Due Process Clause of the Fourteenth Amendment.
The appellants also seek to enjoin the Attorney General from "taking any action under
or to enforce" the Iowa Consumer Credit Code against them.
On the same day the appellants filed this case, the Attorney General brought
a civil enforcement action against U.S. Cellular in state district court in Polk County,
Iowa. In the state action, the Attorney General alleges U.S. Cellular is violating
numerous provisions of the Iowa Consumer Credit Code and the other provisions of
Iowa law. In particular, the Attorney General's enforcement action alleges the
following violations of Iowa law:
1. U.S. Cellular has refused to allow customers to cancel term service
agreements unless they pay a cancellation fee.
2. U.S. Cellular has misrepresented to customers that they have no right to
cancel the term service agreements without paying cancellation fees.
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3. U.S. Cellular has refused to cease billing customers under canceled term
service agreements without full payment, including payment of
cancellation fees.
4. U.S. Cellular has sought to collect attorney fees under the term service
agreements or has authorized the collection of such fees by others.
5. U.S. Cellular has misrepresented that customers would receive "free"
telephones and "free" minutes while using other fees to recoup the costs
of these products and services.
6. U.S. Cellular has misrepresented that customers would receive "free"
statewide roaming while assessing roaming charges for some in-state
calls.
7. U.S. Cellular advertised and entered into contracts for free weekend
hours on Friday evening and Monday morning and then modified its
agreements by ending free weekend hours on Friday and Monday.
8. U.S. Cellular invokes the arbitration clauses in its term service
agreements when it is sued by customers but uses the courts to collect
unpaid accounts, penalties, and attorney fees from its customers.
The Attorney General's action seeks, among other things, injunctive relief against
U.S. Cellular and "its partners, officers, employees, agents, successors, and all other
persons, corporations and other entities acting in concert or participating with U.S.
Cellular."
U.S. Cellular removed the Attorney General's civil enforcement action to the
United States District Court for the Southern District of Iowa. That case was
subsequently remanded to state court for lack of subject matter jurisdiction.
The Attorney General filed a motion to dismiss this lawsuit. The district court
held that it lacked jurisdiction over the appellants' preemption claims, reasoning that
those claims are mere federal defenses that cannot form a basis for federal
jurisdiction. The district court ruled that it did have jurisdiction over the appellants'
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remaining federal claims – those arising under the dormant commerce clause and the
due process clause. It also assumed, without deciding, that it had supplemental
jurisdiction over the appellants' state law claims. Nevertheless, citing various
abstention doctrines, the district court dismissed the case.
The appellants now appeal the district court's dismissal of their claims. They
argue that the district court had subject matter jurisdiction over all of their federal
claims and that it erred in abstaining from the federal claims it did not dismiss.
Appellants Cedar Rapids Cellular and Davenport Cellular also argue that, even if it
was appropriate for the district court to abstain, their claims should have been stayed
rather than dismissed.
II. STANDARD OF REVIEW
A district court's ruling on subject matter jurisdiction is reviewed under the de
novo standard. Charchenko v. City of Stillwater, 47 F.3d 981, 982-83 (8th Cir.
1995). A district court's decision to abstain is reviewed for abuse of discretion, with
underlying legal decisions receiving plenary review. Beavers v. Arkansas State Bd.
of Dental Exam'rs, 151 F.3d 838, 840 (8th Cir. 1998).
III. JURISDICTION
The district court ruled that the appellants' preemption claims cannot support
federal jurisdiction because they are in the nature of federal defenses. The district
court's reasoning might have had force if the appellants were only seeking a
declaratory judgment. See Public Serv. Comm'n of Utah v. Wycoff Co., 344 U.S.
237, 248 (1952) (dictum). However, because the appellants are also seeking
injunctive relief on their preemption claims, the district court has jurisdiction to hear
them. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96 n.14 (1983); Middle South
Energy, Inc. v. Arkansas Pub. Serv. Comm'n, 772 F.2d 404, 409-10 & 410 n.14 (8th
Cir. 1985).
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The Attorney General did not file a cross-appeal, but argues that the district
court should have at least dismissed the appellants' state law claims. The general rule
is that the Eleventh Amendment bars federal courts from enjoining state officers from
violating state law. See Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89
(1984). The district court acknowledged the Pennhurst rule, but expressly declined
to address whether this case presents an exception to it. We leave it to the district
court to decide this question in the first instance.
IV. ABSTENTION
Our finding that the district court has subject matter jurisdiction over all the
appellants' federal claims does not resolve this appeal. We must also decide whether
the district court acted properly in abstaining from the appellants' claims. As
discussed below, we uphold its decision to abstain from the claims of Cedar Rapids
Cellular and Davenport Cellular, but not from the claims of WWC. Although the
district court cited three separate abstention doctrines, the only appropriate basis for
abstention in this case is Younger v. Harris, 401 U.S. 37 (1971). Our decision in
favor of abstention applies to all of the claims raised by Cedar Rapids Cellular and
Davenport Cellular.
A. Abstention Under Brillhart and Colorado River
Two of the abstention doctrines cited by the district court are inapplicable to
this case. The district court did not have discretion to abstain under Brillhart v.
Excess Insurance Co. of America, 316 U.S. 491 (1942). Brillhart applies to
declaratory judgment actions generally, but not to actions that, like this one, involve
good faith claims for injunctive relief. See Black Sea Inv., Ltd. v. United Heritage
Corp., 204 F.3d 647, 652 (5th Cir. 2000).
The district court also lacked discretion to abstain under Colorado River
Conservation District v. United States, 424 U.S. 800 (1976). In reaching this
conclusion, we have examined all six of the factors listed in Colorado River.
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See Federated Rural Elec. Ins. Corp. v. Arkansas Elec. Coops., Inc., 48 F.3d 294,
297-300 (8th Cir. 1995) (listing and applying these factors). We note particularly that
federal law controls most of the appellants' claims, and that this factor is a "major
consideration" against abstention. See Moses H. Cone Mem'l Hosp. v. Mercury
Constr. Co., 460 U.S. 1, 26 (1983).
B. Abstention Under Younger
The doctrine of Younger abstention, which reflects the principle of comity
inherent in our federal system of government, provides much stronger support for
abstention in this case. In Younger, the Supreme Court held that a district court erred
in enjoining a state criminal prosecution when the plaintiff's federal claim could also
have been raised as a defense in the state prosecution. Younger, 401 U.S. at 53-54.
In so ruling, the Court specifically noted the absence of any evidence of "bad faith,
harassment, or any other unusual circumstance that would call for equitable relief."
Id. at 54. It also suggested that abstention might not be appropriate if the statute the
state was seeking to enforce was "flagrantly and patently violative of express
constitutional prohibitions." Id. at 53.
The Supreme Court has extended Younger to forbid the injunction of certain
state civil enforcement actions. In Huffman v. Pursue, Ltd., 420 U.S. 592, 594, 603-5
(1975), the Court held that Younger applied to a federal action that sought to interfere
with a state civil proceeding to abate the showing of obscene movies. In Trainor v.
Hernandez, 431 U.S. 434, 447 (1977), the Court ruled that Younger prevented a
district court from enjoining an allegedly unconstitutional civil action brought by a
state to recover fraudulently obtained welfare payments. As the Court later
explained, "[t]he policies underlying Younger are fully applicable to noncriminal
judicial proceedings when important state interests are involved." Middlesex County
Ethics Comm. v. Garden State Bar Ass'n, 457 U.S. 423, 432 (1982).
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We have also applied Younger outside the context of state criminal
prosecutions. In Fuller v. Ulland, 76 F.3d 957 (8th Cir. 1996), we explained that
"Younger directs federal courts to abstain from hearing cases when (1) there is an
ongoing state judicial proceeding which (2) implicates important state interests, and
when (3) that proceeding affords an adequate opportunity to raise the federal
questions presented." Fuller, 76 F.3d at 959. In this case, the action pending in state
court is undisputedly a judicial proceeding. As we explain below, the Attorney
General's state court action also implicates important state interests and affords an
adequate opportunity to raise the issues underlying these federal claims.
The State of Iowa has an important interest in enforcing its consumer
protection statutes. None of the appellants dispute this general proposition. States
have a long history of regulating against unfair business practices. See California v.
ARC Am. Corp., 490 U.S. 93, 101 (1989). In a different context, the Supreme Court
has recognized that states have an important interest in protecting the public from
deceptive business practices. See Central Hudson Gas & Elec. Corp. v. Public Serv.
Comm'n of New York, 447 U.S. 557, 563 (1980) (evaluating state interests in the
context of commercial speech). Federal telecommunications law implicitly
acknowledges the importance of this interest by leaving states some latitude to
"protect the public safety and welfare" and "safeguard the rights of consumers."
47 U.S.C. § 253(b).
The appellants nonetheless argue that Iowa lacks an important interest in
enforcing these particular statutes against them on the grounds that such enforcement
has been preempted by federal law. In the past, we have held that "[t]he legitimate
state interest contemplated by Younger does not exist when the state action has been
preempted or foreclosed by the Constitution." Middle South Energy, 772 F.2d at 417.
More recently, however, the Supreme Court has made clear that the mere assertion
of a federal preemption claim, even a "substantial" one, does not compel the exercise
of federal jurisdiction. New Orleans Pub. Serv., Inc. v. Council of City of New
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Orleans, 491 U.S. 350, 364-67 (1989). To the extent Middle South Energy suggests
otherwise, it is no longer good law. Thus, the appellants' federal preemption claims
do not stand in the way of Younger abstention.
In New Orleans Public Service, the Supreme Court left open the possibility of
an exception to Younger for preemption claims that are "facially conclusive."
See New Orleans Pub. Serv., 491 U.S. at 367. Some federal courts of appeal have
found that such an exception exists. See, e.g., Midwestern Gas Transmission Co. v.
McCarty, 270 F.3d 536, 539 (7th Cir. 2001) (holding that abstention was
inappropriate when the state asserted interests that "clearly are under exclusive
federal control"); Communications Telesystems Int'l v. California Pub. Util. Comm'n,
196 F.3d 1011, 1017 (9th Cir. 1999) (holding that preemption must be "readily
apparent" to prevent abstention). The appellants, however, have not argued that such
an exception exists or that their preemption claims fall within it. We therefore decline
to rule on whether such an exception is available on the facts of this case.2
Our conclusion that Younger applies despite the appellants' preemption claims
finds support in our prior case law. In Fuller, we applied Younger to prevent
interference with a civil enforcement proceeding which the Minnesota Commissioner
of Commerce brought against the trustee of a workers' compensation plan. The
trustee in Fuller argued that Younger did not apply because the state enforcement
2
The appellants' main preemption claim is based upon section 332 of the
Federal Communications Act which prohibits states from regulating "the entry of or
the rates charged by any commercial mobile service." 47 U.S.C. § 332(c)(3). We
note that the necessity of developing a factual record on the appellants' business
practices and rate structure would appear to foreclose any argument of conclusive
preemption. See New Orleans Pub. Serv., 491 U.S. at 350. In addition, at least one
federal court has held that a state law challenge to cancellation fees such as those
charged by the appellants is not clearly preempted by federal law. See Esquivel v.
Southwestern Bell Mobile Sys., Inc., 920 F. Supp. 713, 715-16 (S.D. Tex. 1996). Cf.
GTE Mobilenet of Ohio v. Johnson, 111 F.3d 469, 478 (6th Cir. 1997).
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action was preempted by the Employee Retirement Income Security Act of 1974, 29
U.S.C. §§ 1001-1461. Fuller, 76 F.3d at 960. We held that the state court was
competent to decide whether preemption applied and affirmed the district court's
decision to abstain under Younger. Id. The courts of Iowa are competent to rule on
the appellants' preemption claims.
We also reject the appellants' suggestion that Younger abstention is
inappropriate because their federal lawsuit involves claims under 42 U.S.C. § 1983.
As appellants note, Justice Brennan believed that "Younger is, in general,
inapplicable to civil proceedings, especially when a plaintiff brings a § 1983 action
alleging violation of federal constitutional rights." Pennzoil Co. v. Texaco, Inc., 481
U.S. 1, 19 (1987) (Brennan, J., concurring). Appellants fail to note, however, that
Justice Brennan developed this belief in dissent. See Huffman, 420 U.S. at 613
(Brennan, J., dissenting). The Supreme Court has applied Younger in cases involving
state civil proceedings and federal claims under § 1983, Juidice v. Vail, 430 U.S.
327, 330 (1977), and so have we, Ronwin v. Dunham, 818 F.2d 675, 676 (8th Cir.
1987).
While Younger clearly applies despite the nature of the appellants' claims, we
must still decide whether it requires abstention in this case. The moving force behind
Younger abstention is the promotion of comity between state and federal judicial
bodies. See New Orleans Pub. Serv., 491 U.S. at 364. As the Court explained in
Younger, this notion of comity represents a system "in which the National
Government, anxious though it may be to vindicate and protect federal rights and
federal interests, always endeavors to do so in ways that will not unduly interfere with
the legitimate activities of the States." Younger, 401 U.S. at 44. We must therefore
decide whether the relief sought by the appellants would unduly interfere with
ongoing state judicial proceedings.
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At first glance, it appears that the appellants' request for injunctive relief in this
case would not interfere with the action pending in state court. Judging solely from
the parties named, the two cases seem to be unrelated. The Attorney General's action
in state court names U.S. Cellular as a defendant but not any of the appellants. The
complaint in this case seeks to enjoin the Attorney General only from proceeding
against the federal plaintiffs, a group that does not include U.S. Cellular. A closer
look at the two actions, however, reveals a close connection between the state court
action against U.S. Cellular and the federal claims of Cedar Rapids Cellular and
Davenport Cellular.
It is not a prerequisite to Younger abstention that the federal plaintiffs also be
defendants in the action pending in state court. The Supreme Court's decision in
Hicks v. Miranda, 422 U.S. 332 (1975), involved a federal challenge to a state
obscenity statute by the owners of a theater and a state criminal prosecution of two
of their employees. According to the Court, Younger prevented the federal district
court from granting relief to the theater owners, even though they were not defendants
in the state court action, because the owners' interests were "intertwined" with those
of the employees, and the owners "sought to interfere with the pending state
prosecution." Id. at 348-49. Following Hicks, we have held the parties in federal and
state court need not be identical "where the interests of the parties seeking relief in
federal court are closely related to those of parties in pending state proceedings and
where the federal action seeks to interfere with pending state proceedings." Womens
Servs., P.C. v. Douglas, 653 F.2d 355, 358 (8th Cir. 1981) (quoting Stivers v.
Minnesota, 575 F.2d 200, 203 (8th Cir. 1978)).
Under this standard, the district court was correct in abstaining from the claims
of appellants Cedar Rapids Cellular and Davenport Cellular. The Attorney General's
state court action seeks an injunction against "all other persons, corporations and
other entities acting in concert or participating with" U.S. Cellular. Cedar Rapids
Cellular and Davenport Cellular concede that U.S. Cellular has a controlling interest
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in their operations. If these two appellants obtain a federal injunction against action
by the Attorney General, they could use that injunction to obstruct the Attorney
General's attempts to enforce any remedy granted by the state courts. This serious
possibility of interference warrants abstention from the claims of Cedar Rapids
Cellular and Davenport Cellular.
In contrast, the claims of WWC do not seek to interfere with the proceeding in
state court. With respect to WWC, this case closely resembles Doran v. Salem Inn,
Inc., 422 U.S. 922 (1975), in which the Supreme Court refused to apply Younger to
the federal claims of two bar operators who were not subject to a pending state
criminal prosecution simply because their co-plaintiff was. Doran, 422 U.S. at 928-
31. The fact the three plaintiffs had "common counsel" and "similar business
activities and problems" was not enough to warrant across-the-board abstention,
because the three were "apparently unrelated in terms of ownership, control, and
management." Id. at 928-29. See also Womens Servs., 653 F.2d at 359. Although
WWC's interests are generally aligned with those of U.S. Cellular, it does not have
the type of close relationship with U.S. Cellular that Cedar Rapids Cellular and
Davenport Cellular do. There is no indication that WWC could use an injunction
obtained in this federal action to interfere with the Attorney General's enforcement
action against U.S. Cellular.
We reject the Attorney General's argument that his attempts to obtain
information from WWC trigger Younger abstention. Administrative proceedings may
be judicial for purposes of Younger if they "declare and enforce liabilities" between
the parties. Yamaha Motor Corp., U.S.A. v. Stroud, 179 F.3d 598, 602-3 (8th Cir.
1999). The Attorney General's administrative action, however, involves nothing more
than an attempt to obtain information about WWC's business practices. See Iowa
Code § 714.16(3)-(6) (Supp. 2001). It is not a judicial proceeding because it does not
give the Attorney General, or anyone else, the power to declare whether those
practices violate Iowa law. See id. Although the Attorney General's demand for
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information may ultimately result in a judicial proceeding, there is no indication that
a judicial proceeding was imminent at the time this case was filed. Cf. Pincham v.
Illinois Judicial Inquiry Bd., 872 F.2d 1341, 1346 (7th Cir. 1989). We therefore hold
that Younger does not provide a basis for abstaining from the claims of WWC.
Appellants Cedar Rapids Cellular and Davenport Cellular also argue that their
claims should have been stayed instead of dismissed. A stay is preferred to dismissal
in cases where there is a possibility that the parties will return to federal court. Fuller,
76 F.3d at 960-61. Cedar Rapids Cellular and Davenport Cellular have not clearly
explained how they might return to federal district court. Nevertheless, out of an
abundance of caution, and in view of the fact that WWC's claims will remain pending
in the district court, we also find that the district court should have stayed the claims
brought by Cedar Rapids Cellular and Davenport Cellular.
V. CONCLUSION
The district court had subject matter jurisdiction over all of the appellants'
federal claims. While the district court correctly chose to abstain from the claims of
Cedar Rapids Cellular and Davenport Cellular, it should have stayed those claims
rather than dismissing them. The district court should not have abstained from the
claims of WWC. Accordingly, we vacate the judgment of dismissal and remand to
the district court for entry of a stay of the claims brought by Cedar Rapids Cellular
and Davenport Cellular. On remand, the district court should hear the federal claims
brought by WWC and should determine whether it has jurisdiction over WWC 's state
law claims.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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