Cedar Rapids Cellular Telephone, L.P. Davenport Cellular Telephone Company, Wwc License, LLC Iowa Wireless Services, L.P. 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, Cedar Rapids Cellular Telephone, L.P. Davenport Cellular Telephone Company, Wwc License, Llc, Iowa Wireless Services, L.P. 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

Docket: 00-3727

Court: Court of Appeals for the Eighth Circuit; February 13, 2002; Federal Appellate Court

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Cedar Rapids Cellular, Davenport Cellular, and WWC License, LLC, wireless service providers in Iowa, appeal the dismissal of their complaint against Iowa's Attorney General, Thomas Miller. The plaintiffs contest the applicability of the Iowa Consumer Credit Code to their business practices, specifically regarding cancellation fees in their term service agreements, which can range from $300 to over $500. The Attorney General previously notified these companies that their practices violated state law, particularly concerning the legality of liquidated damages and the use of arbitration clauses while pursuing debts in small claims court.

The plaintiffs filed their action in April 2000, seeking declaratory relief on several grounds: that the Iowa Consumer Credit Code does not apply to their services or cancellation fees; that the Federal Communications Act preempts state consumer protection statutes; that enforcement of the Iowa Consumer Credit Code interferes with interstate commerce; that the Federal Arbitration Act preempts its application to arbitration clauses; and that the Consumer Credit Code provisions are void for vagueness under the Fourteenth Amendment. They also seek to enjoin the Attorney General from enforcing the Iowa Consumer Credit Code against them. The court's ruling affirms some aspects of the case while reversing and vacating the dismissal.

On the same day the appellants initiated their case, the Attorney General filed a civil enforcement action against U.S. Cellular in Polk County, Iowa, citing multiple violations of the Iowa Consumer Credit Code and other Iowa laws. The Attorney General's allegations include: 

1. U.S. Cellular's refusal to allow customers to cancel service agreements without paying a cancellation fee.
2. Misrepresentation to customers regarding their cancellation rights.
3. Continued billing of customers under canceled agreements, demanding full payment.
4. Efforts to collect attorney fees under service agreements.
5. Misleading claims about "free" phones and minutes, offset by hidden fees.
6. Misrepresentations about "free" statewide roaming while imposing charges on some calls.
7. Alteration of advertised free weekend hours in contracts.
8. Use of arbitration clauses to defend against lawsuits while utilizing court actions for debt collection.

The Attorney General seeks injunctive relief against U.S. Cellular and associated parties. U.S. Cellular removed the action to federal court, which was later remanded back to state court due to lack of subject matter jurisdiction. The district court determined it lacked jurisdiction over the appellants' preemption claims, viewing them as federal defenses, but ruled it had jurisdiction over claims related to the dormant commerce clause and due process clause. The court also suggested it had supplemental jurisdiction over state law claims but ultimately dismissed the case based on various abstention doctrines. The appellants are appealing this dismissal, arguing that the district court had jurisdiction over all federal claims and should have stayed rather than dismissed their claims. The standard of review for jurisdiction is de novo, while abstention decisions are reviewed for abuse of discretion.

The district court determined that the appellants' preemption claims did not establish federal jurisdiction as they resembled federal defenses; this reasoning would have been valid if only a declaratory judgment were sought. However, since the appellants also sought injunctive relief, the district court has jurisdiction to hear their claims. The Attorney General, while not cross-appealing, contended that the district court should have dismissed the appellants' state law claims, citing the Eleventh Amendment's limitation on federal courts from enjoining state officers regarding state law violations. The district court recognized this rule but did not rule on potential exceptions, which it will address later.

While confirming the district court’s jurisdiction over federal claims, the appellate court evaluated the appropriateness of the district court's abstention from hearing the claims. It upheld the district court's decision to abstain from the claims of Cedar Rapids Cellular and Davenport Cellular but ruled against abstention for the claims of WWC. The court found that the district court misapplied two abstention doctrines—Brillhart and Colorado River—as they were not suitable for cases involving good faith injunctive relief claims. An analysis of the Colorado River factors indicated that federal law predominantly governed the appellants' claims, which strongly argued against abstention.

In contrast, the Younger abstention doctrine was deemed applicable due to its principle of comity. The appellate court referenced the Younger case, which established that a federal court erred in enjoining a state criminal proceeding when the federal claim could be raised as a defense in that proceeding, especially in the absence of evidence suggesting bad faith or unusual circumstances justifying equitable relief.

The Supreme Court has applied the Younger abstention doctrine to prohibit federal injunctions against certain state civil enforcement actions. In Huffman v. Pursue, Ltd., the Court ruled that Younger applies when federal actions interfere with state civil proceedings, such as efforts to abate obscene movie showings. In Trainor v. Hernandez, it was determined that Younger prevented a federal court from enjoining a state's action to recover fraudulently obtained welfare payments. The principles of Younger are applicable to noncriminal judicial proceedings involving significant state interests, as established in Middlesex County Ethics Comm. v. Garden State Bar Ass'n.

The doctrine has also been extended beyond criminal prosecutions, as illustrated in Fuller v. Ulland, where it was stated that federal courts should abstain from cases with ongoing state judicial proceedings that implicate important state interests and provide adequate opportunities to raise federal questions. In the current case, the state court action led by the Attorney General addresses important state interests and allows for federal issues to be raised.

Iowa has a significant interest in enforcing its consumer protection laws, which is widely acknowledged. The state has historically regulated against unfair business practices, and the Supreme Court has recognized the need to protect the public from deceptive practices. Federal telecommunications law also supports the state's role in safeguarding consumer rights.

The appellants contend that Iowa's enforcement of these statutes is preempted by federal law. Previous rulings indicated that a legitimate state interest under Younger does not exist if state action is preempted by federal law. However, the Supreme Court clarified that the mere claim of federal preemption does not automatically negate federal jurisdiction. Therefore, the appellants' federal preemption arguments do not prevent the application of Younger abstention in this case.

The Supreme Court in *New Orleans Public Service* indicated a potential exception to the Younger abstention doctrine for preemption claims that are "facially conclusive." Some appellate courts have recognized this exception, as seen in *Midwestern Gas Transmission Co. v. McCarty*, where abstention was deemed inappropriate due to state interests being under exclusive federal control, and *Communications Telesystems Int'l v. California Pub. Util. Comm'n*, which required preemption to be "readily apparent" to avoid abstention. However, the appellants did not assert that such an exception applies to their claims. Consequently, the court refrains from determining the availability of this exception in the current case.

The court's application of Younger abstention, despite the appellants’ preemption claims, is supported by precedent. In *Fuller*, the court applied Younger to maintain the integrity of a state civil enforcement proceeding, affirming that state courts are competent to address preemption issues. Furthermore, the appellants' argument against Younger based on their federal claims under 42 U.S.C. § 1983 is rejected. While Justice Brennan expressed in dissent that Younger might not apply to civil proceedings, the Supreme Court has previously extended Younger to cases involving state civil proceedings with federal claims under § 1983.

Determining whether abstention is necessary involves evaluating the principle of comity between state and federal courts. Although the initial assessment suggests that the appellants' request for injunctive relief would not disrupt the state court proceedings—since the Attorney General's state action involves U.S. Cellular, not the appellants—a deeper analysis reveals a significant connection between the state action against U.S. Cellular and the federal claims of Cedar Rapids Cellular and Davenport Cellular, which complicates the assessment of potential interference.

Younger abstention does not require that federal plaintiffs also be defendants in a related state court action. In Hicks v. Miranda, the Supreme Court established that federal courts must abstain from interfering in state prosecutions when the interests of federal plaintiffs are closely related to those of state defendants, even if they are not identical parties. The district court correctly abstained from claims made by Cedar Rapids Cellular and Davenport Cellular, as their operations are controlled by U.S. Cellular. If they were to secure a federal injunction, it could obstruct the Attorney General's state enforcement efforts, justifying abstention.

In contrast, WWC's claims do not interfere with the state proceeding. Similar to Doran v. Salem Inn, Inc., where abstention was not warranted for plaintiffs not directly subject to state action, WWC lacks the close relationship with U.S. Cellular that would lead to potential interference. The Attorney General's argument that requests for information from WWC trigger Younger abstention is rejected, as the actions taken do not constitute a judicial proceeding capable of declaring legal liabilities. Thus, there is no basis for abstaining from WWC's claims under Younger.

Cedar Rapids Cellular and Davenport Cellular contend that their legal claims should have been stayed rather than dismissed, as a stay is typically favored when there is a chance of returning to federal court. Though they did not adequately demonstrate the likelihood of such a return, the court determined that, given WWC's ongoing claims in the district court, a stay was warranted for Cedar Rapids Cellular and Davenport Cellular's claims. The district court possessed subject matter jurisdiction over all federal claims. While it correctly abstained from Cedar Rapids Cellular and Davenport Cellular's claims, it should have opted for a stay instead of dismissal. The court also ruled that the district court should not have abstained from WWC's claims. Consequently, the judgment of dismissal is vacated, and the case is remanded for the district court to impose a stay on Cedar Rapids Cellular and Davenport Cellular's claims while proceeding with WWC's federal claims and assessing jurisdiction over its state law claims. Additionally, it notes that preemption arguments based on the Federal Communications Act and state law challenges regarding cancellation fees lack clear federal preemption, as indicated by relevant case law.