Case 1:09-cv-11112-DPW Document 37 Filed 02/02/2010 Page 1 of 27

UNITED STATES DISTRICT COURT

DISTRICT 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 ORDER

February 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,

 Case 1:09-cv-11112-DPW Document 37 Filed 02/02/2010 Page 2 of 27

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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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 §

1
Self-funded employee benefit plans are those in which the
employer bears the risk of paying claims, and generally a third-
party plan administrator is hired to process and pay claims. In
fully-insured employee benefit plans, the employer purchases
commercial 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 out
of allegations that Brettschneider failed to disclose a felony
conviction to the Division when he applied for a Massachusetts
insurance license. These claims are not the subject of the
Plaintiffs’ complaint or the motion for preliminary injunction.
Rather the Plaintiffs only dispute the Division’s investigation
and adjudication of Claims 26 though 33 regarding the Plaintiffs’
alleged HIPAA violation. Accordingly, this Memorandum only
addresses the issues presented with respect to the latter set of
claims.

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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,

3
Around the same time that the Division filed the Show-
Cause Order, a “consumer alert” was posted on the Division’s
website warning employers about “the risks in self-funded health
plans.” See Massachusetts Division of Insurance – Consumer
Alert: 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=termi
nalcontent&f=advisories_selffunded&csid=Eoca (last visited Feb.
2, 2010).

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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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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

4
Part 7 of ERISA also contains its own preemption
provision, but the Plaintiffs do not appear to argue that this
particular preemption provision was separately or distinctively
triggered 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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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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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

5
The Plaintiffs argue that they are not insurance companies
but “service providers,” such that their businesses are outside
the scope of the Massachusetts insurance laws and ERISA savings
clause. This assertion is plainly contradicted by the
allegations in the Plaintiffs’ own complaint, which must, of
course, be considered true for purposes of motion to dismiss
practice. The complaint states that Celentano is “a licensed
insurance agent” in Massachusetts, NECHPA is “an insurance agency
and benefits consulting firm” licensed and registered in
Massachusetts, HMA MGU is “an insurance underwriter” registered
in Massachusetts, and Brettschneider is a “principal” in HMA
Direct, the parent company of HMA MGU and NECHPA. The Plaintiffs
therefore cannot credibly maintain that they are mere “service
providers” detached from the business of insurance in
Massachusetts. It is their ability to engage in the insurance
business through Division licenses which is at issue in the Show-
Cause proceeding. See MASS. GEN. LAWS ch. 175 § 162R (granting the
commissioner the authority to order the suspension, revocation,
or placement on probation of the insurance licenses, as well as
levy civil penalties); id. at § 174 (permitting the commissioner
to revoke or suspend insurance licenses of corporations or its

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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

officers or directors).

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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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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

6
The instant case is also distinguishable from Chaulk
because the basis for preemption there was not ERISA but the
Garmon preemption doctrine, relating to the National Labor
Relations Act. See Chaulk Servs., Inc. v. Massachusetts Comm’n
Against 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 § 8
of the [National Labor Relations] Act, the States as well as the
federal courts must defer to the exclusive competence of the
National Labor Relations Board if the danger of state
interference with national policy is to be averted.”).
7
I recognize that the DOL’s generally sympathetic approach
to the state initiative here reflects a policy judgment by the
current Presidential administration regarding preemption. This
policy recognizes “a strong role for both the national Government
and the States,” and cautions that “preemption of State law by
executive departments and agencies should be undertaken only with
full consideration of the legitimate prerogatives of the States
and with a sufficient legal basis for preemption.” Pres.
Memorandum on Preemption for the Heads of Executive Departments
and Agencies, 74 Fed. Reg. 24,693 (May 20, 2009). While the
policy preferences of the federal agency charged with
administering a statute containing preemptive language are not
necessarily determinative, they are entitled to careful and
respectful consideration by the Courts.

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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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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

8
If, in fact, the Division’s “proposed agreement” and the
consumer alert, see Note 3 supra, together evidence a general
hostility 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 benefit
plan covered by ERISA may not “be deemed to be an insurance
company or other insurer . . . for purposes of any law of any
State purporting to regulate insurance companies [or] insurance
contracts”). 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 employee
benefit plans.” Kentucky Ass’n of Health Plans, Inc. v. Miller,
538 U.S. 329, 336 n.1 (2003). The Division’s proposed agreement
and consumer alert, if part of a larger program to regulate self
funded plans, arguably “would not be ‘saved’ as an insurance law
to the extent [they] applied to self-funded plans” and sought to
regulate them. See Rush Prudential HMO, Inc. v. Moran, 536 U.S.
355, 371 n.6 (2002). Nevertheless, I decline to assess whether
the deemer clause constrains the Division because I hold
abstention is required here and the matter must be resolved
initially in a state forum.

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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. WOODLOCK
UNITED STATES DISTRICT JUDGE

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