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IN RE PROVIDENT MUT. LIFE INS. CO. MUT. HOLDING

February 17, 1999

IN RE: PROVIDENT MUTUAL LIFE INSURANCE COMPANY MUTUAL HOLDING COMPANY LITIGATION.


The opinion of the court was delivered by: Joyner, District Judge.

  MEMORANDUM AND ORDER

This consolidated civil action has been brought before the Court on Motions of Defendants Provident Mutual Insurance Company, Robert W. Kloss, Diane M. Koken, Commissioner of the Insurance Department of Pennsylvania and the Insurance Department of Pennsylvania to abstain and/or dismiss the action(s) against them. For the reasons which follow, the motions shall be granted.

History of the Case

Plaintiffs, Hilary Butler, Duncan and Michelle Henderson, Jonathan and Doreen Oswaks, Mark Podlas, Douglas Prevost, Reverend Michael Shea, Phillip Hartley Smith, Reverend Paul Terry and Ira Rubenstein are members and policyholders of the Provident Mutual Insurance Company who brought this lawsuit "on behalf of themselves and others similarly situated." By these suits, Plaintiffs seek to have Provident Mutual's proposed plan of conversion from a mutual insurance company to a stock insurance company and Section 917-A(3) of the Pennsylvania Insurance Company Mutual-to-Stock Conversion Act, 40 P.S. §§ 911-A to 928-A ("the Act") declared unconstitutional. Plaintiffs also seek to enjoin the Insurance Commissioner from approving the proposed conversion and Provident Mutual from converting to a stock company. Essentially, plaintiffs assert that the proposed conversion and the provisions of the Act under which the Board of Directors of Provident Mutual are proceeding are unlawful and unconstitutional in that the conversion would operate and the Act would permit the taking of plaintiffs' property without just compensation and without first affording them due process of law because the Act effectively delegates the Commissioner's task of protecting the rights and interests of the class members to the management of Provident Mutual.

Defendants move to stay or dismiss this consolidated action arguing that: (1) The court should abstain from adjudicating this case under the doctrines of Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943) and Railroad Comm'n of Texas v. Pullman, 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941); (2) Plaintiffs' claims are not ripe for disposition; (3) There is no state action to sustain the constitutional claims, there has been no violation of plaintiffs' rights to procedural due process, no impairment of plaintiffs' contract rights, no improper delegation of authority to the insurance commissioner and no conflict of interest.

Standards for Fed.R.Civ.P. 12(b)(6) Motions

In reviewing a motion to dismiss for failure to state a claim upon which relief can be granted under Fed.R.Civ.P. 12(b)(6), the Court must accept as true the facts alleged in the complaint and all reasonable inferences that can be drawn after construing them in the light most favorable to the non-movant. Pearson v. Miller, 988 F. Supp. 848, 852 (M.D.Pa. 1997) (citing Jordan v. Fox, Rothschild, O'Brien, and Frankel, Inc., 20 F.3d 1250, 1261 (3rd Cir. 1994)). Dismissal is limited to those instances where it is certain that no relief could be granted under any set of facts that could be proved. Alexander v. Whitman, 114 F.3d 1392, 1398 (3d Cir. 1997).

Discussion

Defendants first assert that this Court should abstain from adjudicating this matter (1) under Pullman because there are uncertain issues of state law underlying plaintiffs' constitutional claims which could be avoided or narrowed depending upon how the state statute governing the Provident conversion is interpreted; and (2) under Burford in deference to the Commonwealth's administrative procedures for approving plans of conversion.

Prior decisional law has long supported the general proposition that federal courts lack the authority to abstain from the exercise of jurisdiction that has been conferred. New Orleans Public Service, Inc. v. Council of New Orleans, 491 U.S. 350, 358, 109 S.Ct. 2506, 2513, 105 L.Ed.2d 298 (1989). There are, however, some classes of cases in which the withholding of authorized relief because of undue interference with state proceedings is appropriate, but the courts have carefully defined the areas in which such "abstention" is permissible. Id., 491 U.S. at 359, 109 S.Ct. 2506. Abstention thus remains the exception, not the rule. Hawaii Housing Authority v. Midkiff, 467 U.S. 229, 236, 104 S.Ct. 2321, 2327, 81 L.Ed.2d 186 (1984).

In Burford v. Sun Oil Co., supra, the plaintiffs sought to challenge the reasonableness of the Texas Railroad Commission's grant of an oil drilling permit under the Fourteenth Amendment. Noting that the constitutional challenge was of minimal federal importance in that the primary issue presented was whether the commission had properly applied Texas' complex oil and gas regulations, the Supreme Court concluded that "a sound respect for the independence of state action required the federal equity court to stay its hand." 319 U.S. at 334, 63 S.Ct. at 1107.

This decision, along with several others, (see, e.g. Alabama Pub. Serv. Comm'n v. Southern R. Co., 341 U.S. 341, 71 S.Ct. 762, 95 L.Ed. 1002 (1951)) was eventually distilled into the "Burford" doctrine. Under this principle of abstention, where timely and adequate state court review is available, a federal court sitting in equity must decline to interfere with the proceedings or orders of state administrative agencies: (1) when there are "difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar"; or (2) where the "exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern." New Orleans Public Service, Inc., 109 S.Ct. at 2514 citing Colorado River Water Conservation, District v. United States, 424 U.S. 800, 814, 96 S.Ct. 1236, 1245, 47 L.Ed.2d 483 (1976).

The Pullman abstention doctrine is slightly different in that it may be invoked when a federal court is presented with both a federal constitutional issue and an unsettled issue of state law whose resolution might narrow or eliminate the federal constitutional question, thus avoiding needless friction with state policies. Presbytery of New Jersey of the Orthodox Presbyterian Church v. Whitman, 99 F.3d 101, 106 (3rd Cir. 1996). In the absence of a showing that a definitive ruling in the state courts cannot be pursued with full protection of the constitutional claim, a district court should exercise its wise discretion by staying its hands. Pullman, 312 U.S. at 501, 61 S.Ct. at 645-646.*fn2

Under federal jurisprudence, a district court must make three findings in order to justify the Pullman exception to the general rule that federal courts must hear cases properly brought within their jurisdiction. Artway v. Attorney General of State of New Jersey, 81 F.3d 1235, 1270 (3rd Cir. 1996). Specifically, the Court must determine whether: (1) there are uncertain issues of state law underlying the federal constitutional claims brought in federal court; (2) there are state law issues amenable to a state court interpretation that would obviate the need for, or substantially narrow, the scope of adjudication of the constitutional claims; (3) a federal court's erroneous construction of state law would be disruptive of important state policies. Chez Sez III Corp. v. Township of Union, 945 F.2d 628, 631 (3rd Cir. 1991). If all three factors are present, the federal court must then consider whether ...


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