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United States v. Rothman

United States District Court, D. Minnesota

November 13, 2017

MIKE ROTHMAN, Commissioner of the Minnesota Department of Commerce, in his capacity as Liquidator of Minnesota Surety and Trust Company, Defendant.



         The United States brought this action against Mike Rothman, Commissioner of the Minnesota Department of Commerce (“the Commissioner”), in his capacity as liquidator of the Minnesota Surety and Trust Company (“MS&T”), seeking a declaration that MS&T's liability on 62 breached immigration bonds attached at the time the bonds were executed, not when they were breached. The Commissioner moved to dismiss or stay, and the United States moved for a judgment on the pleadings. For the reasons set forth below, both motions are denied.

         I. BACKGROUND

         MS&T operated as a surety on federal immigration bonds until its state-ordered liquidation on November 22, 2011. At the time of its liquidation, MS&T had roughly 800 open immigration bonds with the Department of Homeland Security (“DHS”) totaling $6.9 million. In April 2012, the Commissioner mailed proof-of-claim forms to creditors and federal agencies, including DHS, notifying them that any claims against MS&T had to be received by November 1, 2012. DHS did not submit a claim to the liquidator on any of the MS&T bonds prior to that deadline, electing instead to seek the return of each alien bonded by MS&T. See ECF No. 22 at 8-9. The overwhelming majority of those aliens were delivered to DHS. However, in 62 cases, the alien was not returned, and DHS considered these bonds breached. In April 2016, DHS filed a claim with the state's special deputy liquidator for $483, 735.25, representing the face value of the 62 breached bonds ($467, 900) plus interest and fees.

         In November 2016, the special deputy denied DHS's claim. The special deputy concluded that the bonds had been canceled as of December 23, 2011, pursuant to Minn. Stat. § 60B.22, under which “insurance policies or similar contracts of coverage” expire 30 days from the date of liquidation. DHS requested reconsideration of the special deputy's decision in January 2017, but the Commissioner affirmed the initial ruling. The Commissioner then moved for summary judgment in the state liquidation proceeding to affirm his denial. DHS moved to stay the state case. With both state motions pending, the United States filed this action, seeking a declaration that MS&T's liability on the 62 immigration bonds attached at the time the bonds were issued - a judgment that would, according to the United States, prevent MS&T's obligations from being canceled by § 60B.22. The state court judge granted the United States' motion to stay, pending this Court's decision on the bond liability attachment question. ECF No. 40 at 6-9.


         A motion to dismiss or a motion for judgment on the pleadings is appropriately granted “only when there is no dispute as to any material facts and the moving party is entitled to judgment as a [m]atter of law.” Greenman v. Jessen, 787 F.3d 882, 887 (8th Cir. 2015) (citation omitted). To survive a Rule 12 motion, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); Haney v. Portfolio Recovery Assocs., LLC, 837 F.3d 918, 924 (8th Cir. 2016), as amended (Dec. 27, 2016).

         A. Motion to Dismiss or Stay

         The Commissioner's motion to dismiss or stay turns on two principal arguments. First, he contends that the McCarran-Ferguson Act precludes the federal government from interfering with Minnesota's laws regulating the business of insurance - and, in particular, the 30-day expiration provision under Minn. Stat. § 60B.22. Second, he urges the Court to abstain from issuing a declaratory judgment under several abstention doctrines. As set forth below, neither argument is sufficiently strong to justify a dismissal or stay, particularly in light of the state court's decision to stay those proceedings pending this Court's resolution of the underlying question of MS&T's liability.

         1. McCarran-Ferguson

         The McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015, protects states from federal interference in insurance regulation. Under the statute, no “Act of Congress” can “invalidate, impair, or supersede” any state statute that has been enacted “for the purpose of regulating the business of insurance, ” unless the federal statute specifically relates to the business of insurance itself. 15 U.S.C. § 1012(b). In general, then, states enjoy the somewhat unique power of “reverse preemption” when it comes to the regulation of insurance. However, McCarran-Ferguson does not require the federal government to “cede the field of insurance regulation to the States.” Humana Inc. v. Forsyth, 525 U.S. 299, 308 (1999). The mere fact that the federal claims “relate to the insurance business in the abstract” is not enough to trigger McCarran-Ferguson protection. Ludwick v. Harbinger Grp., Inc., 854 F.3d 400, 405 (8th Cir. 2017). The federal claims being made must bring forth “case-specific intrusion and interference.” Id.

         Here, the Commissioner argues that McCarran-Ferguson prevents the United States from superseding Minn. Stat. § 60B.22 and its cancelation of MS&T's obligations on the 62 contested bonds. However, the Commissioner does not point to any specific federal statute - i.e., an “Act of Congress” - that impairs the state's liquidation law. Instead, he contends that McCarran-Ferguson applies because there is a conflict between § 60B.22 and the “argument” that the United States makes regarding the timing of MS&T's liability. Def.'s Reply Mem. 5. But that “argument” is not an “Act of Congress, ” as McCarran-Ferguson requires. To the contrary, it is an argument that involves federal contract law. Further, the United States expressly concedes that it is not seeking to preempt § 60B.22, and nowhere does the United States rely on a federal statute to support its arguments regarding MS&T's liability.[1] Therefore, because there is no “Act of Congress” interfering with the state's regulatory scheme, McCarran-Ferguson does not apply.

         2. Abstention

         The Commissioner next argues that the Court should exercise its discretion over declaratory judgments and abstain from issuing a decision. Specifically, the Commissioner contends that “[t]here is no doubt that the liquidation proceeding in state court will fully resolve the dispute between the parties.” Def.'s Mem. Supp. Mot. Dismiss 10. Therefore, the Commissioner concludes, permitting the state court to fully ventilate all of the issues is more economical than having this Court resolve only one question of federal law. Def.'s Mem. 11.

         “Generally, a federal district court must exercise its jurisdiction over a claim unless there are exceptional circumstances for not doing so.” Scottsdale Ins. Co. v. Detco Indus., Inc., 426 F.3d 994, 996 (8th Cir. 2005) (internal quotation omitted); see Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817-18 (1976). However, courts enjoy “unique and substantial” discretion in declaratory judgment actions. Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995). The extent of that discretion largely turns on whether there is a parallel state court action pending. Scottsdale, 426 F.3d at 999. When such an action is pending, the court's discretion is broad, and guided largely by ...

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