Opinion
Civ. No. 00-2719, SECTION: "R" (2).
March 12, 2001.
ORDER AND REASONS
Before the Court is defendant Liberty Life Insurance Company's motion to stay. On March 6, 2001, the Court entertained oral argument on the motion. For the following reasons, the Court grants defendant's motion.
I. Background
On June 1, 2000, the South Carolina Department of Insurance initiated a regulatory examination of the rates, terms, and conditions of industrial life insurance policies issued to African Americans and other non-Caucasians by Liberty Life Insurance Company and other insurance companies it had acquired. The Department of Insurance is conducting the examination on behalf of five states — South Carolina, Louisiana, North Carolina, Ohio, and Tennessee. (Def.'s Not. Stay, Ex. 1 at 2.; Def.'s Reply Opp'n Mat. Stay, Ex. A.)
Laura Irvin and Melvin Irvin Sr. filed a class action lawsuit against Liberty Life on September 14, 2000. They allege that for decades Liberty Life and the companies it acquired had issued industrial life insurance policies to African American policyholders containing less favorable rates, terms, and conditions than policies issued to Caucasian policyholders.
Liberty Life now moves to stay this civil action and all discovery pending completion of the regulatory examination. In its motion, Liberty Life argues that the South Carolina and Louisiana Departments of Insurance have primary jurisdiction over plaintiffs' claims and that plaintiffs have failed to exhaust their administrative remedies in connection with the examination process. At oral argument, Liberty Life conceded that the doctrine of exhaustion of administrative remedies is inapplicable. Although plaintiffs filed a motion opposing the motion to stay, they conceded at oral argument that a stay was appropriate until completion of the administrative fact-finding process. Plaintiffs also sought permission at oral argument to conduct limited discovery of Magnolia Life Insurance Company and State National Insurance (two Louisiana insurance companies acquired by Liberty Life) notwithstanding the stay.
II. Discussion
Both the doctrine of exhaustion of administrative remedies and the doctrine of primary jurisdiction are "concerned with promoting proper relationships between the courts and administrative agencies charged with particular regulatory duties." United States v. Western, Pac. R.R. Co., 352 U.S. 59, 63, 77 S.Ct. 161, 165 (1956).
A. Administrative Exhaustion Doctrine
The doctrine of administrative exhaustion is a judicially created rule that precludes judicial relief until the prescribed administrative relief has been exhausted. See Reiter v. Cooper, 507 U.S. 258, 269, 113 S.Ct. 1213, 1220 (1993); McKart v. United States, 395 U.S. 185, 193, 89 S.Ct. 1657, 1662 (1969). While the rule is subject to exceptions and may be waived, the predicate for its application is "a claim [that] is cognizable in the first instance by an administrative agency alone." Western, Pac. R.R. Co., 352 U.S. at 63, 77 S.Ct. at 165. See also McKart, 395 U.S. at 193-94, 89 S.Ct. at 1662-63; Daily Advertiser v. Trans-La, 612 So.2d 7, 27 (La. 1993).
Although Liberty Life asserts that the Louisiana Insurance Code provides an administrative remedy for the "core issue" presented in plaintiffs' complaint, it does not contend that either the Louisiana or the South Carolina Departments of Insurance have exclusive jurisdiction over all of plaintiffs' claims. (Def.'s Mem. Supp. Mot. Stay at 4.) Indeed, plaintiffs' complaint raises claims under 42 U.S.C. § 1981 and 1982, as well as 28 U.S.C. § 1343, over which this Court enjoys original jurisdiction and over which the Departments of Insurance have no authority. See, e.g., Northwinds Abatement, Inc. v. Employers Ins. of Wausau, 69 F.3d 1304, 1309-10 (5th Cir. 1996) (per curiam) (rejecting application of exhaustion of administrative remedies doctrine where agency could not provide remedy sought by plaintiffs). As the Louisiana Department of Insurance has no authority to grant the relief requested under these federal statutes, the doctrine of administrative exhaustion is inapplicable. See, Reiter, 507 U.S. at 269, 113 S.Ct. at 1221.
This conclusion accords with the Fifth Circuit's analysis in Penny v. Southwestern Bell Telephone Company, 906 F.2d 183 (5th Cir. 1990). In Penny, plaintiffs complained of discriminatory telephone rates. Southwestern Bell argued that the Texas Public Utility Commission had exclusive jurisdiction over these claims. The Fifth Circuit rejected this argument, explaining that the Commission "only has the power to regulate rates; it does not have the power to remedy past wrongs." Penny, 906 F.2d at 186. As the Commission did not have the power to provide the remedy sought, the Fifth Circuit found it did not have exclusive jurisdiction. Here, the remedies plaintiffs seek include damages, which the Louisiana Department of Insurance cannot provide. Accordingly, the Court rejects Liberty Life's invitation to stay these proceedings under the doctrine of administrative exhaustion.
B. Primary Jurisdiction Doctrine
In contrast to the doctrine of exhaustion of administrative remedies, the doctrine of primary jurisdiction applies to claims properly before a court but that contain some issue within the special competence of an administrative agency. See Reiter, 507 U.S. at 268, 113 S.Ct. at 1220; Western. Pac. R.R. Co., 352 U.S. at 64, 77 S.Ct. at 165; Daily Advertiser, 612 So.2d at 27. Under this doctrine, a court has the discretion to dismiss or suspend the judicial process pending resolution of that issue by the appropriate administrative agency. Western. Pac. R.R. Co., 352 U.S. at 64, 77 S.Ct. at 165; Wagner Brown v. ANR Pipeline Co., 837 F.2d 199, 201 (5th Cir. 1988). Deference to an administrative proceeding is particularly appropriate when the administrative agency has specialized knowledge of the issue or is more accustomed to adjudicating that type of issue. See Penny, 906 F.2d at 186; Bray v. Utica Mut. Ins. Co., 1998 WL 574768, at *1 (N.D. Tex. Aug. 26, 1998).
Although there is no fixed formula to determine whether primary jurisdiction applies, the Court will analyze the factors, identified by the Fifth Circuit as relevant to this inquiry. Accordingly, the Court inquires whether:
(1) the court has original jurisdiction over the claim before it; (2) the adjudication of that claim requires the resolution of predicate issues or the making of preliminary findings; and (3) the legislature has established a regulatory scheme whereby it has committed the resolution of those issues or the making of those findings to an administrative body.Northwinds Abatement, Inc., 69 F.3d at 1311 (citing Penny, 906 F.2d at 187.)
Applying these factors in Penny, the Fifth Circuit found that the Texas Legislature had specifically authorized the Public Utility Commission to determine whether Southwestern Bell had applied rates in a disparate manner. Penny, 906 F.2d at 187. As a finding of discrimination was necessary to any action by the Commission or the court, the Fifth Circuit found there was concurrent jurisdiction over the discrimination issue. Id. In another case applying these factors, Northwinds Abatement, Inc., the Fifth Circuit found that a plaintiff's damages claims depended upon a finding that the defendant had improperly paid workers' compensation claims without investigating them, a determination that the Texas Legislature had committed to the Texas Workers' Compensation Insurance Facility, the State Board of Insurance, and the Texas Workers' Compensation Commission, subject to judicial review. Northwinds Abatement, Inc., 69 F.3d at 1311.
Here, as already explained, the Court has original jurisdiction over plaintiffs' federal claims of race discrimination in the issuance of industrial insurance policies. The adjudication of those claims, however, involves determinations whether the industrial life insurance policies issued by Liberty Life and the companies it acquired complied with the governing insurance statutes and regulations, such as the Louisiana Insurance Code, which prohibits discrimination in rates. As in Penny and Northwinds Abatement, Inc., findings on the discrimination issue are necessary to any action by the Louisiana Department of Insurance or the Court. The Louisiana and South Carolina Departments of Insurance are uniquely suited to make these determinations, and they are empowered to do so by virtue of their authority to examine and investigate unfair or deceptive insurance trade practices. See LA. REV. STAT. § 22:1214(7), 22:1215; S.C. CODE § 38-57-200. See also Northwinds Abatement, Inc., 69 F.3d at 1311. Furthermore, the South Carolina Department of Insurance is conducting an apparently exhaustive regulatory examination on behalf of the State of Louisiana and four other states to evaluate allegations of race discrimination and will issue a report. The States that receive South Carolina's report may conduct further administrative hearings incident to the issuance of a final departmental order. Although the report findings are not determinative of Liberty Life's ultimate liability in this case, the Court finds that the results of the investigation will assist the Court. Therefore, the Court exercises its discretion to stay these proceedings until one of the five states involved in this investigation completes its administrative process with respect to the investigatory report issued by the South Carolina Department of Insurance.
C. Discovery During Stay
The Court denies plaintiff's motion to conduct limited discovery of Magnolia Life Insurance Company and State National Insurance notwithstanding the stay. Plaintiffs have already received substantial discovery materials from Liberty Life. Further discovery at this juncture could disrupt the ongoing investigation in South Carolina and would distract Liberty Life from complying with South Carolina's investigative requirements.
III. Conclusion
For the foregoing reasons, the Court grants defendant Liberty Life Insurance Company's motion to stay until South Carolina, Louisiana, North Carolina, Ohio, or Tennessee completes its administrative process with respect to the investigatory report issued by the South Carolina Department of Insurance.