In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 18‐2523
JENNIFER HAMMER, Director of the Illinois Department of In‐
surance and Liquidator of Land of Lincoln Mutual Health In‐
surance Company,
Plaintiff‐Appellee,
v.
UNITED STATES DEPARTMENT OF HEALTH AND HUMAN
SERVICES,
Defendant‐Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 17 C 494 — Virginia M. Kendall, Judge.
____________________
SUBMITTED SEPTEMBER 20, 2018* — DECIDED SEPTEMBER 25, 2018
____________________
* We have agreed unanimously to decide this case without oral argu‐
ment because the briefs and record adequately present the facts and legal
arguments, and oral argument would not significantly aid the court. FED.
R. APP. P. 34(a)(2)(C).
2 No. 18‐2523
Before ROVNER, HAMILTON, and ST. EVE, Circuit Judges.
ST. EVE, Circuit Judge. The Department of Health and Hu‐
man Services owed millions of dollars to the now‐defunct
Land of Lincoln Mutual Health Insurance Company. Like‐
wise, Land of Lincoln owed millions to HHS. As part of its
regulatory oversight, HHS has elected to set off its own debt
payments by first paying down Land of Lincoln’s debt. The
Director of the Illinois Department of Insurance, who is Land
of Lincoln’s appointed liquidator, contends that this setoff vi‐
olates an order issued by the Illinois court overseeing the liq‐
uidation proceedings that prevents any creditors from setting
off money owed to Land of Lincoln without prior leave of the
court. The Director asked the state court for a declaration that
HHS violated the order, but HHS removed the motion to fed‐
eral district court arguing that the federal government was
not subject to the state court’s jurisdiction. The district court
remanded the case back to state court relying on a narrow
reading of 28 U.S.C. § 1442, as well as principles of abstention.
We reverse on both grounds and remand to the district court
for further proceedings consistent with this opinion.
I
This case centers on debts in the Affordable Care Act’s
three premium‐stabilization programs—the Risk Adjustment,
Risk Corridor, and Reinsurance programs—all of which were
designed to redistribute money among insurance companies
and thereby mitigate each company’s exposure to risks in the
market. See 42 U.S.C. §§ 18061–18063. For the purposes of this
appeal, the parties broadly agree that HHS intended to imple‐
ment these programs in a budget‐neutral way paying out only
the funds that each program had taken in from other insur‐
ance companies.
No. 18‐2523 3
Land of Lincoln participated in these premium‐stabiliza‐
tion programs and incurred a debt of roughly $32 million in
the Risk Adjustment program. This debt, though large,
should not have been a problem for the company, as HHS
owed Land of Lincoln over $70 million, the bulk of which it
owed under the Risk Corridor program. The government,
however, was not able to pay what it owed because it was tak‐
ing in far less money than it had expected, and it refused to
dip into its limited discretionary funds. Like other insurance
companies, Land of Lincoln sought the overdue Risk Corridor
payments in a suit with the Court of Federal Claims, but it
was rebuffed, Land of Lincoln Mut. Health Ins. Co. v. United
States, 129 Fed. Cl. 81 (2016), and the Federal Circuit affirmed
the dismissal of the claim in Land of Lincoln Mut. Health Ins.
Co. v. United States, 892 F.3d 1184 (Fed. Cir. 2018), and its com‐
panion case Moda Health Plan, Inc. v. United States, 892 F.3d
1311 (Fed. Cir. 2018). By late 2016, Land of Lincoln was inca‐
pable of paying its Risk Adjustment debt, and thus became
insolvent and began rehabilitation proceedings that turned
into a liquidation.
As part of the liquidation, the Chancery Division of the
Circuit Court of Cook County—one of two Illinois courts em‐
powered to oversee insurance rehabilitation and liquidation,
see 215 ILCS 5/199—entered an order naming the Director of
the Illinois Department of Insurance as liquidator,
see 215 ILCS 5/191, and prohibited all of Land of Lincoln’s
creditors, including any “governmental entity,” from “setting
off or netting monies owed Land of Lincoln without the prior
leave of this Court.” See 215 ILCS 5/189. Despite this order
and the Director’s protestations, HHS began to offset its over‐
due payments against Land of Lincoln’s debt in the Risk Ad‐
justment program, as its own regulations permitted,
4 No. 18‐2523
see 45 C.F.R. § 156.1215(b). HHS has since withheld $27 mil‐
lion in payments that it put toward Land of Lincoln’s debt.
HHS’s refusal to comply led the Director to move the state
court for a declaratory judgment finding that HHS was in vi‐
olation of the court’s order. In the motion, the Director as‐
serted that she “is not asking at this point that [HHS] be or‐
dered to release the funds or pay them over to the estate,” and
instead she hoped that the declaration would lead HHS to fol‐
low the order of its own accord. In the event HHS did not
choose to comply, the Director expressly asked for “leave to
seek an appropriate remedy.”
HHS removed the Director’s motion to the United States
District Court for the Northern District of Illinois under the
federal officer removal statute, 28 U.S.C. § 1442, that permits
“[t]he United States or any agency thereof” to remove a “civil
action … that is commenced in a State court and that is against
or directed to” the agency. Because the full liquidation pro‐
ceeding in the Chancery Division of the Circuit Court of Cook
County was not removable, HHS relied on § 1442(d)(1), which
permits an agency to remove, separate from the entire case,
“any proceeding (whether or not ancillary to another pro‐
ceeding) to the extent that in such proceeding a judicial order,
including a subpoena for testimony or documents, is sought
or issued.” Shortly after removal, HHS filed a Federal Rule of
Civil Procedure 12(b)(1) motion to dismiss under the doctrine
of “derivative jurisdiction,” see Rodas v. Seidlin, 656 F.3d 610,
615–16 (7th Cir. 2011), arguing that the state court lacked ju‐
risdiction over the United States. In its motion, HHS argued
that because the United States had not waived its sovereign
immunity, the federal court could not hear the case except as
No. 18‐2523 5
an original suit. The Director responded by moving to re‐
mand the case back to state court.
The district court granted the Director’s motion to re‐
mand. Relying on the legislative history surrounding
§ 1442(d)(1), the district court concluded that Congress had
not aimed that provision toward this sort of motion for de‐
claratory relief, but instead Congress was concerned, princi‐
pally, with removal of actions “pertaining to pre‐suit discov‐
ery and specifically those affecting Federal officers.” Because
the district court thought it necessary to construe the statute
strictly against removal, it determined that it lacked removal
jurisdiction over this motion, which neither related to discov‐
ery nor involved an officer. The district court then certified its
remand order. See 28 U.S.C. § 1447(c); N.D. ILL. L.R. 81.2
HHS filed a timely motion for reconsideration, which the
district court denied mainly because HHS had only rehashed
its earlier arguments for removal, which the district court al‐
ready had thoroughly addressed. At that time, the district
court also bolstered its decision to remand explaining that
even if it had erred in remanding on statutory grounds, it
would have exercised its discretion to remand under the ab‐
stention doctrine first set forth in Burford v. Sun Oil Co., 319
U.S. 315 (1943). In the district court’s view, removal of this
motion would be disruptive to the state’s efforts to establish a
uniform rehabilitation system centralized in specialized state
courts. The district court further concluded that federal policy
favoring state regulation of insurance—codified in the
McCarran‐Ferguson Act, 15 U.S.C. § 1012—also favored ab‐
stention. Again, the district court certified its remand order,
and, that same day, the state court began to schedule briefing
on the Director’s motion for declaratory relief. HHS timely
6 No. 18‐2523
appealed from the order denying its motion to reconsider,
and we expedited the appeal to minimize the uncertainty sur‐
rounding the state court’s jurisdiction to proceed on the Di‐
rector’s declaratory relief motion.1
II
We begin, as we must, with our jurisdiction to consider
this appeal. See P.H. Glatfelter Co. v. Windward Prospects Ltd.,
847 F.3d 452, 455 (7th Cir. 2017). An order remanding a case
to state court is a final order that is reviewable on appeal un‐
less there is some other prohibition on review.
See Quackenbush v Allstate Ins. Co., 517 U.S. 706, 714–15 (1996);
Benson v. SI Handling Sys., Inc., 188 F.3d 780, 782 (7th Cir.
1999). In most cases removed from state court, 28 U.S.C. §
1447(d) provides such a constraint by prohibiting review “on
appeal or otherwise.” Section 1447(d), however, provides an
exception for “an order remanding a case to the State court
from which it was removed pursuant to section 1442.” HHS
sought removal under § 1442, therefore, we may consider this
appeal. See Lu Junhong v. Boeing Co., 792 F.3d 805, 808 (7th Cir.
2015). Because the remand order in this case is reviewable, the
certification of the remand order imposes no independent bar
on either our jurisdiction or the district court’s jurisdiction. In
reaching this conclusion, we join the three other circuits that
have considered this issue. See Shapiro v. Logistec USA, Inc.,
412 F.3d 307, 312 (2d Cir. 2005); Hudson United Bank v. LiTenda
1 HHS moved this court to stay the remand, but we denied the motion
because the district court had already certified its remand orders and the
case had returned to state court; therefore, there was nothing for this court
to stay. See Hudson United Bank v. LiTenda Mortg. Corp., 142 F.3d 151, 154
n.6 (3d Cir. 1998).
No. 18‐2523 7
Mortg. Corp., 142 F.3d 151, 159 (3d Cir. 1998); In re Digicon Ma‐
rine, Inc., 966 F.2d 158, 160‐61 (5th Cir. 1992). Secure in our
jurisdiction over this appeal, we move to the merits.
III
HHS first argues that the district court erred in concluding
that it lacked subject‐matter jurisdiction over this case under
the federal officer and agency removal statute, 28 U.S.C.
§ 1442. Removal under § 1442 creates an exception to the
“well‐pleaded complaint” rule and allows removal of a case
that presents a federal question beyond the narrow confines
of the complaint, including a case in which an officer or
agency can raise a “colorable” federal defense. See Jefferson
Cty. v. Acker, 527 U.S. 423, 431 (1999); Rodas, 656 F.3d at 616‐17.
Because this case centers on the text of § 1442, we set out
the relevant parts of that statute in their entirety:
(a) A civil action or criminal prosecution that is
commenced in a State court and that is against
or directed to any of the following may be re‐
moved by them to the district court of the
United States for the district and division em‐
bracing the place wherein it is pending:
(1) The United States or any agency thereof or
any officer (or any person acting under that
officer) of the United States or of any agency
thereof, in an official or individual capacity,
for or relating to any act under color of such
office or on account of any right, title or au‐
thority claimed under any Act of Congress
for the apprehension or punishment of crim‐
inals or the collection of the revenue.
8 No. 18‐2523
….
(d) In this section, the following definitions apply:
(1) The terms “civil action” and “criminal pros‐
ecution” include any proceeding (whether
or not ancillary to another proceeding) to the
extent that in such proceeding a judicial or‐
der, including a subpoena for testimony or
documents, is sought or issued. If removal is
sought for a proceeding described in the pre‐
vious sentence, and there is no other basis
for removal, only that proceeding may be re‐
moved to the district court.
Therefore, § 1442 allows removal of any proceeding that
meets the following requirements: (1) the proceeding must be
a “civil action,” (2) the civil action must be “against or di‐
rected to” the removing party, (3) the removing party must be
one of the entities listed, (4) and the civil action must be “for
or relating to any act under color of such office.” As previ‐
ously mentioned, the Supreme Court has interpreted this last
element as requiring a “colorable” federal defense. See Acker,
527 U.S. at 431; Mesa v. California, 489 U.S. 121, 129 (1989). On
appeal, the Director does not contest that HHS is an agency of
the United States, but she argues that it has not met the other
three elements.
No. 18‐2523 9
A
We start with the element that the district court found dis‐
positive—whether the motion for declaratory relief is a “civil
action.” The district court opined that HHS’s removal “ap‐
pears to fall within [§ 1442(d)(1)], but [that] a closer look at the
legislative history reveals the distinct purpose behind Con‐
gress’s amendment.” In the court’s view, that purpose was
aimed at ancillary civil actions “pertaining to pre‐suit discov‐
ery and specifically those affecting Federal officers.” The
court relied on legislative history showing that Congress was
particularly concerned with an attempt to seek discovery
from a congresswoman without having filed a suit against
her. See H.R. Rep. 112‐17, at 3–4, reprinted in 2011 U.S.C.C.A.N.
420, 422–23 (describing Price v. Johnson, 600 F.3d 460 (5th Cir.
2010)). Because the motion for declaratory relief neither re‐
lated to discovery nor affected an individual federal officer,
and the district court considered itself duty‐bound to con‐
strue the removal statute narrowly, the court concluded that
the motion for declaratory relief was not an “ancillary pro‐
ceeding,” and therefore not a “civil action,” within the mean‐
ing of § 1442.
On appeal, HHS argues that the district court erred in nar‐
rowly construing § 1442(d)(1). Even assuming that a narrow
construction was necessary, HHS asserts that the plain text of
the statute applies to the motion in this case, making it remov‐
able. We agree with both points.
We have yet to interpret the definition of “civil action”
provided in 28 U.S.C. § 1442(d)(1), but three of our sister cir‐
cuits have done so. Each concluded that a motion, not related
to discovery, was removable separately from an underlying
case not otherwise removable, and none of the circuit courts
10 No. 18‐2523
conditioned removal on the involvement of an individual of‐
ficer. See Doe v. Office of Refugee Resettlement, 884 F.3d 269, 273
n.8 (5th Cir. 2018) (state‐court order requiring agency, as cus‐
todian of minor, to “facilitate access” to the minor is a civil
action); Goncalves ex rel. Goncalves v. Rady Children’s Hosp. San
Diego, 865 F.3d 1237, 1249–1251 (9th Cir. 2017) (motion to ex‐
punge lien on settlement is a civil action); In re Common‐
wealth’s Motion to Appoint Counsel Against or Directed to Def.
Assoc. of Phila., 790 F.3d 457, 467 (3d Cir. 2015) (motion to dis‐
qualify criminal defense attorney is a civil action).
The district court relied on our decision in Morris v. Nuzzo,
718 F.3d 660, 670 (7th Cir. 2013), for a narrow‐construction
rule applicable to removal statutes, but that case involved re‐
moval under 28 U.S.C. § 1441(b) based on diversity jurisdic‐
tion. See id. at 664. To the extent there is a presumption against
removal in ordinary diversity cases, it does not extend to
cases in which there is a contrary congressional policy favor‐
ing removal. Dart Cherokee Basin Operating Co. v. Owens, 135 S.
Ct. 547, 554 (2014) (involving the Class Action Fairness Act,
28 U.S.C. § 1332(d)). The Supreme Court has repeatedly found
such a congressional policy in § 1442, and it has instructed
courts that “this policy should not be frustrated by a narrow,
grudging interpretation.” Willingham v. Morgan, 395 U.S. 402,
407 (1969). Instead, the Court has directed that “[t]he federal
officer removal statute is not ‘narrow’ or ‘limited,’” id. at 406,
and the statute must be “liberally construed,” Watson v. Philip
Morris Cos., 551 U.S. 142, 147 (2007).
Turning to the text of § 1442, it does not support the dis‐
trict court’s conclusion that it lacked jurisdiction because the
Director’s motion was neither directed at an individual officer
No. 18‐2523 11
nor related to discovery. The definition of “civil action” is in‐
dependent of the nature of the party removing. Section
1442(a) uses the term “civil action” only once to refer to all the
different entities and persons that may remove a case under
the section, including individual officers, persons acting un‐
der those officers, federal agencies, and the United States it‐
self. Due to this drafting choice, the text of the statute gives no
reason to believe that the phrase “civil action” should have
different meanings depending on whether the defendant is an
officer or an agency.
The text of the statute also gives no reason to limit removal
only to discovery disputes. The statute applies to any pro‐
ceeding seeking a “judicial order, including a subpoena for tes‐
timony or documents.” 28 U.S.C. § 1442(d)(1) (emphasis
added). Words like “including” generally broaden the scope
of a statute. See Samantar v. Yousuf, 560 U.S. 305, 317 & n.10
(2010). Accordingly, the only question is whether the Director
is seeking a judicial order, and we are certain she is because
her request is for a “declaratory judgment or order” per 735
ILCS 5/2‐701.
Because the Director seeks an order declaring her right to
money withheld by HHS, her motion requesting that order is
an “ancillary proceeding” and, therefore, a “civil action”
within the plain text of § 1442. There is no need then to delve
into the legislative history. See Singh v. Sessions, 898 F.3d 720,
725–26 (7th Cir. 2018).
B
Next, the motion for declaratory relief is also “against or
directed” to HHS within the meaning of § 1442. The district
12 No. 18‐2523
court correctly recognized that the liquidation of Land of Lin‐
coln (as a whole) was not a civil action “against or directed to”
HHS, or any other part of the federal government. The gov‐
ernment merely has an interest in the proceeding that does
not, inherently, make it a party. See United States v. Rural Elec.
Convenience Co‐op Co., 922 F.2d 429, 434–35 (7th Cir. 1991). The
Director contends that this ends the inquiry. If Congress
wanted to allow agencies to remove only portions of proceed‐
ings, the Director reasons, it could have worded 28 U.S.C. §
1442 as it did in § 1452(a), which allows removal of “any claim
or cause of action.”
The Director’s position has two faults. First, it wrenches
the district court’s reasoning from its context. As the court
correctly explained, “removal could only be proper if contem‐
plated as arising from an ancillary proceeding [and] Section
1442(a) does not otherwise provide that DHHS can remove
the action as a non‐ancillary proceeding.” This part of the dis‐
trict court’s analysis is correct because this case is removable
only if it is an ancillary proceeding. The district court erred
solely in its determination that this case was not an ancillary
proceeding.
Second, we cannot ignore the plain meaning of the statute
because Congress could have, arguably, made the statute’s
meaning even plainer. (Though we also question the Direc‐
tor’s premise and doubt that the language in § 1452 would be
clearer in this context because a motion is not a “claim or
cause of action,” but it does seek a “judicial order.”) Regard‐
less, “[t]he mere possibility of clearer phrasing cannot defeat
the most natural reading of a statute.” Caraco Pharm. Labs., Ltd.
v. Novo Nordisk A/S, 566 U.S. 399, 416 (2012). The language
governing removal of ancillary proceedings states that “[i]f
No. 18‐2523 13
removal is sought for a proceeding described in the previous
sentence, and there is no other basis of removal, only that pro‐
ceeding may be removed to the district court.” 28 U.S.C.
§ 1442(d)(1) (emphasis added). If “only” some portion of a
proceeding is removable, then that necessarily implies that
other portions of that proceeding are not. See Doe, 884 F.3d
at 273 n.8. We agree with the Ninth Circuit that any other
reading of the statute would “create an incentive for forum
shopping” and make the availability of a federal forum un‐
duly dependent on the manner by which a litigant chooses to
challenge federal action—whether in an independent suit or
through a motion ancillary to some other claim. Goncalves,
865 F.3d at 1251.
Having concluded that the statute allows removal of only
part of a proceeding, we turn to whether the Director’s motion
is “against or directed to” HHS. That much is plain from the
fact that the Director served HHS with a notice of the Direc‐
tor’s motion, and HHS must respond to the motion. That the
Director may eventually ask the court to order HHS to pro‐
duce the withheld money only bolsters this conclusion.
C
We also agree with HHS that it has alleged a colorable fed‐
eral defense. HHS specifically argues that the Director’s mo‐
tion cannot proceed because it has not waived its sovereign
immunity. It asked the district court to dismiss the case for
lack of subject‐matter jurisdiction and now asks this court to
do so in the district court’s stead. To conclude that removal
was proper, we need find only a “colorable” or “plausible”
federal defense, because removal is “concerned with who
makes the ultimate determination, not what that determina‐
tion will be.” Ruppel v. CBS Corp., 701 F.3d 1176, 1182 (7th Cir.
14 No. 18‐2523
2012). We leave the merits of the federal defense in the capa‐
ble hands of the district court. Id.
The Director contends that HHS’s claim to sovereign im‐
munity is baseless. In doing so, the Director does not rely on
any waiver of sovereign immunity, express or implied, but
instead argues that the liquidation proceeding does not impli‐
cate sovereign immunity at all, because it is a proceeding in
rem.
The Director overstates her case. “[T]here is no general in
rem exception to principles of sovereign immunity.” Zych
v. Wrecked Vessel Believed to be the Lady Elgin, 960 F.2d 665, 669
(7th Cir. 1992). The Supreme Court concluded as much in
United States v. Nordic Village, Inc., 503 U.S. 30, 38 (1992), where
it held that 11 U.S.C. § 106(c), which acted as a limited waiver
of the United States’s sovereign immunity in bankruptcy
cases, did not waive its immunity for monetary liability. Id.
at 34–37. After concluding that the statute did not act as a
waiver, the Court expressly rejected the respondent’s fallback
position that “a bankruptcy court’s in rem jurisdiction over‐
rides sovereign immunity.” Id. at 38.
Like the claims involved in Nordic Village, it is not clear
that in rem jurisdiction extends to the claims in this case. The
Director seeks “to recover a sum of money, not ‘particular
dollars.’” Id. Though we explained in Blackhawk Heating &
Plumbing Co. v. Geeslin, 530 F.2d 154, 158 (7th Cir. 1976), that
it was “of no consequence” to the in rem nature of the pro‐
ceeding “that the Illinois court does not have actual physical
possession” of the assets of a liquidating insurance company,
Blackhawk Heating involved property—securities held in es‐
crow—not a monetary claim. Id. at 155, 158 n.5. It is “plausi‐
ble”—the burden that HHS must meet to remove this case—
No. 18‐2523 15
that the reasoning of Blackhawk is confined to that situation.
No one in that case, for example, doubted that the district
court had jurisdiction to enter judgment in the underlying lit‐
igation, even though the relevant liquidation proceedings had
begun nine months before the district court entered judg‐
ment. See id. at 156. The district court lacked only the “ancil‐
lary jurisdiction” to execute that judgment through a petition
to turn over the securities. Id. at 158. The two claims—one for
a monetary judgment and the other for turnover of assets—
“retained a separate identity.” Id.; cf. Fischer v. Am. United Life
Ins. Co., 314 U.S. 549, 554–55 (1942) (holding that “determina‐
tion … of the rights of the parties in the res” does not interfere
with a different court’s jurisdiction over that res). Similarly,
Land of Lincoln appears never to have doubted that the Fed‐
eral Circuit or the Court of Federal Claims had the authority
to order HHS to pay its Risk Corridor debt, even while the
company was under liquidation. See Land of Lincoln, 892 F.3d
at 1185‐86.
Next, the Director argues that the Supreme Court abro‐
gated the reasoning of Nordic Village, and therefore Zych, in
the later case of Central Virginia Cmty. College v. Katz, 546 U.S.
356 (2006). In Katz, the Court held that certain proceedings
that were “ancillary to the Bankruptcy Court’s exercise of its
in rem jurisdiction … did not implicate state sovereign im‐
munity.” Id. at 371. It implied that a “mere declaration” was
one such order, id., but it recognized that other orders, includ‐
ing an order enforcing that declaration through a turnover ac‐
tion, “might … involve in personam process,” even though
they were “ancillary to and in furtherance of the court’s in rem
jurisdiction.” Id. at 372. In refusing to decide whether a turn‐
over action implicated the state’s sovereign immunity, the
Court cited Nordic Village with approval. Id. at 372 n.10. In the
16 No. 18‐2523
end, the Court held that the state’s immunity—to whatever
extent it existed—had been waived by the ratification of the
bankruptcy clause. Id. at 373.
Even to the extent that the Director seeks a “mere declara‐
tion,” HHS’s claim to sovereign immunity remains colorable.
A contrary conclusion would imply that both statutes that
create and court decisions that find waiver of the federal gov‐
ernment’s sovereign immunity were wholly unnecessary, in‐
cluding the version of 11 U.S.C. § 106(c) interpreted in Nordic
Village. The Court read that section to abrogate the govern‐
ment’s sovereign immunity with respect only to “’declaratory
and injunctive’—though not monetary—relief against the
Government.” Nordic Village, 503 U.S. at 35. In doing so, the
Court collected cases from the courts of appeals in which the
government had, prior to the enactment of § 106(c), asserted
its immunity even to orders declaring debts dischargeable. Id.
at 36. Likewise, our own case rejecting that argument also re‐
lied on a waiver of sovereign immunity, albeit an implied one.
See McKenzie v. United States, 536 F.2d 726, 728 (7th Cir. 1976).
We think neither the Court’s interpretation of § 106(c) in Nor‐
ris Village nor its in‐depth analysis of the history of the bank‐
ruptcy clause in Katz were dicta, as the Director implies with
her categorical rule that in rem jurisdiction does not offend
sovereign immunity. Indeed, the Supreme Court continues to
reject such a categorical rule, even after Katz. Just this past
year, the Supreme Court issued an opinion recognizing—in
the context of an Indian Tribe’s sovereign immunity—that a
suit to quiet title’s in rem nature was not dispositive of the
tribe’s sovereign immunity, and instead its previous holdings
were based on statutory interpretation. Upper Skagit Indian
Tribe v. Lundgren, 138 S. Ct. 1649, 1652 (2018). Both Congress
No. 18‐2523 17
and the courts have spilled too much ink on this issue to con‐
clude that HHS’s claim to immunity is not “colorable.”
Because HHS met the final element necessary for removal
under § 1442, we conclude that the district court erred in re‐
manding this case for lack of removal jurisdiction.
IV
That removal was proper does not end this appeal because
the district court decided that, even if it had erred in constru‐
ing § 1442, it would nevertheless abstain from hearing the
case. We review the district court’s decision to abstain from
exercising its jurisdiction for an abuse of discretion. Adkins
v. VIM Recycling, Inc., 644 F.3d 483, 496 (7th Cir. 2011). As we
have recognized, “[t]here is little or no discretion, however, to
abstain in a case that does not meet traditional abstention re‐
quirements, and that determination is a question of law.”
Prop. & Cas. Ins. Ltd. v. Cent. Nat’l Ins. Co. of Omaha, 936 F.2d
319, 321 (7th Cir. 1991).
It is well established that federal courts have a “virtually
unflagging obligation … to exercise the jurisdiction given
them.” Colo. River Water Conservation Dist. v. United States, 424
U.S. 800, 817 (1976). This duty arises from the “undisputed
constitutional principle that Congress, and not the judiciary,
defines the scope of federal jurisdiction within the constitu‐
tionally permissible bounds.” New Orleans Pub. Serv., Inc. v.
Council of the City of New Orleans, 491 U.S. 350, 359 (1989)
(NOPSI). There are, however, “’exceptional circumstances’
where denying a federal forum would clearly serve an im‐
portant countervailing interest,” including a “regard for fed‐
eral‐state relations.” Quackenbush, 517 U.S. at 716. In such a
case, courts are put in the position of balancing “the strong
18 No. 18‐2523
federal interest in having certain classes of cases, and certain
federal rights, adjudicated in federal court, against the State’s
interests in maintaining ‘uniformity in the treatment of an
“essentially local problem.’’” Id. at 728 (quoting NOPSI, 491
U.S. at 362). This balance “only rarely favors abstention,” id.,
and abstention is always “the exception, not the rule.” Colo.
River, 424 U.S. at 813.2
Here, the district court relied upon the abstention princi‐
ple set out in Burford v. Sun Oil Co., 319 U.S. 315. In Burford,
the Sun Oil Company argued that the Texas Railroad Com‐
mission violated principles of due process when it issued an
order granting Burford permission to drill oil wells on his
land. Id. at 316–17. Texas had established a comprehensive
and complex regulatory scheme for the allocation of these
drilling rights centering on the Commission’s broad discre‐
tion in administering this regulatory scheme. Id. at 320–25.
Furthermore, the Texas legislature established a system of ju‐
dicial review by its own state courts sitting in Travis County.
Id. at 325. Though it was settled that the Commission’s actions
did not violate the Constitution, the federal courts had been
“called upon constantly to determine whether the Railroad
Commission ha[d] acted within the scope of statutory author‐
ity.” Id. at 328 & n.24. Federal court review of the Commis‐
sion’s decisions inevitably led to “[d]elay, misunderstanding
2 HHS contends that abstention cannot be allowed here because, un‐
der Quackenbush, a federal court can abstain only if it is being asked to
order discretionary—i.e., equitable or declaratory—relief. 517 U.S. at 730.
With some trepidation, we will take the Director at her word that she is
seeking only declaratory relief, and with that assumption, Quackenbush
does not lead to a categorical bar on abstention here.
No. 18‐2523 19
of local law, and needless federal conflict with the State pol‐
icy.” Id. at 327. This interference with fundamental questions
of state law and policy rose to the level that both the legisla‐
tive and executive branches of Texas’s government were re‐
sponding to individual federal court decisions as they hap‐
pened trying to fix the damage the federal courts were caus‐
ing. Id. at 329 & nn. 25–26. In light of the “settled” and narrow
constitutional issues, id. at 328, 331–32, the “basic problems of
Texas policy” involved in every equitable decision, id. at 332,
and the “expeditious and adequate” review available in the
state courts, id. at 334, the Supreme Court affirmed the district
court’s decision to abstain from exercising its equitable pow‐
ers over the dispute. Id.
The Supreme Court has generalized this standard in the
intervening decades and clarified that Burford abstention is
proper in only two circumstances. The first is “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.’” NOPSI, 491 U.S. at 361 (quoting
Colo. River, 424 U.S. at 814). The second is “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 pol‐
icy with respect to a matter of substantial public concern.” Id.
A court may abstain under this second type of Burford absten‐
tion “when principles of federalism warrant deference to a
state’s regulatory regime.” Adkins, 644 F.3d at 504. Here, the
district court correctly found that the first situation does not
apply to this case, but nevertheless abstained under the sec‐
ond type of Burford abstention.
Relying on our decision in Hartford Casualty Insurance Co.
v. Borg‐Warner Corp, 913 F.2d 419 (7th Cir. 1990), the district
20 No. 18‐2523
court focused on four factors in deciding to abstain: (1)
whether the suit is based on a cause of action that is exclu‐
sively federal; (2) whether the suit requires the court to deter‐
mine issues that are directly relevant to state policy in the reg‐
ulation of the insurance industry; (3) whether state proce‐
dures indicate a desire to create special state forums to regu‐
late and adjudicate the issues; and (4) whether there are diffi‐
cult or unusual state laws at issue. Id. at 425 (citing Grimes v.
Crown Life Ins Co., 857 F.2d 699, 704–05 (10th Cir. 1988)). Re‐
garding the first factor, the district court viewed the case as
arising principally under state law with HHS raising only fed‐
eral law defenses. Next, the district court gave great weight to
Illinois’s interest in maintaining a uniform liquidation process
and found that removal (and dismissal) of this case would
disrupt that uniform process and lead to piecemeal litigation.
Because the state court is competent to interpret federal law,
the district court reasoned that the federal government’s in‐
terest in removal was minimal. Also, the district court recog‐
nized that Illinois’s provision concentrating liquidation pro‐
ceedings to only two specific chancery courts, see 215 ILCS
5/199, sufficed to create a special forum. The district court did
not opine on the fourth factor because the difficulty of state
law questions is irrelevant to the second type of Burford ab‐
stention.
Finally, the district court considered the effect of the
McCarran‐Ferguson Act, 15 U.S.C. § 1012, on this case. That
act provides that “[n]o Act of Congress shall be construed to
invalidate, impair, or supersede any law enacted by any State
for the purpose of regulating the business of insurance … un‐
less such Act specifically relates to the business of insurance.”
The district court declined to read that language to prohibit
the use of the removal statute entirely, as the Director argued,
No. 18‐2523 21
but instead found the Act evinced a federal policy favoring
abstention beyond the factors already considered.
Though we, like the Tenth Circuit, see Oklahoma ex rel. Doak
v. Acrisure Bus. Outsourcing Servs., LLC, 529 F. App’x 886,
896–97 (10th Cir. 2013), question the continuing validity of the
Hartford factors after the Supreme Court’s decisions in NOPSI
and Quackenbush, we will nevertheless approach the analysis
in the same way the district court did. Even under that stand‐
ard, we conclude that the district court abused its discretion
in abstaining because this matter does not meet traditional ab‐
stention requirements in the first instance.
A
Regarding the first factor, namely, the nature of the cause
of action, the federal issues in this case eclipse any state issues
that might arise. Therefore, under the ordinary rules of the
Supremacy Clause, principles of federalism do not “warrant
deference to the state’s regulatory regime.” Adkins, 644 F.3d
at 504; cf. Illinois Bell Tel. Co. v. Glob. NAPs Ill., Inc., 551 F.3d
587, 595 (7th Cir. 2008) (recognizing that state’s implementa‐
tion of federal law could not justify Burford abstention).
To clarify, this case involves two debts owed to and by a
federal agency under a federal regulatory regime, and the
court must decide whether that agency can, consistent with a
federal regulation, offset the two debts. On the other hand, the
only application of state law to this case is whether HHS vio‐
lated the state‐court order by offsetting its debt, which may or
may not be “mutual” (and therefore permissible to offset) un‐
der state law. The determination of that question would nec‐
essarily require a court to answer antecedent federal ques‐
tions, including, most importantly, whether the federal
22 No. 18‐2523
agency enjoys sovereign immunity preventing the state court
from deciding the state‐law question in the first place. More‐
over, to the extent state law overcomes contrary general fed‐
eral law under the McCarran‐Ferguson Act, that determina‐
tion is itself a question of federal law, namely, the interpreta‐
tion of the Act, see SEC v. Variable Annuity Life Ins. Co. of Am.,
359 U.S. 65, 69 (1959), and the contrary preemption provision
of the Affordable Care Act, 42 U.S.C. § 18041(d).
Beyond whether questions of state or federal law predom‐
inate, Congress has already decided, as a policy matter under
28 U.S.C. § 1442, that HHS’s federal defense should be de‐
cided in federal court. Abstention doctrines are not intended
to alter that sort of policy choice. See Adkins, 644 F.3d at 497.
As explained above, Congress’s policy under § 1442 is that
“federal officers, and indeed the Federal Government itself,
require the protection of a federal forum.” Willingham,
395 U.S. at 407. Accordingly, the district court’s recognition
that “HHS seeks only to raise federal defenses,” was a reason
to exercise jurisdiction, not to relinquish it. Two courts of ap‐
peals have held that there is never any discretion to abstain in
a case removed under § 1442, although both courts were con‐
sidering different abstention doctrines. See In re Common‐
wealthʹs Motion, 790 F.3d at 475 n.10; Jamison v. Wiley, 14 F.3d
222, 239 (4th Cir. 1994). In contrast, the Director points us to
no case in which a court of appeals has affirmed abstention of
a case removed under § 1442, and we have not found one.
Nevertheless, we need not declare an inviolable rule because
a presumptive one will suffice. A federal court should not ab‐
stain, absent the most extraordinary and exceptional circum‐
stances, when the federal government has properly removed
a case under § 1442. Adkins, 644 F.3d at 496 (“a federal court’s
ability to abstain from exercising federal jurisdiction ‘is the
No. 18‐2523 23
exception, not the rule,’ and can be justified only in excep‐
tional circumstances.”) (citations omitted). This case does not
present such extraordinary circumstances, so HHS’s federal
defense belongs in federal court. In addition, unlike the
McCarran Amendment at issue in Colorado River, 424 U.S. at
819, we have in § 1442(d)(1) a federal policy in favor of piece‐
meal removal of ancillary proceedings because of the substan‐
tial import of federal defenses. Principles of Burford absten‐
tion are not designed as an “end run around” that policy.
See Adkins, 644 F.3d at 497.
B
The district court also gave too much weight to Illinois’s
interests in a uniform liquidation proceeding and concen‐
trated review of claims, while diminishing the complex fed‐
eral policies and interests at play in this case. Removal of this
one case is not “disruptive of state efforts to establish a coher‐
ent policy.” NOPSI, 491 U.S. at 361. It is the opposite because
the Director is asking the state court to interfere with a com‐
plex federal regulatory system.
Critically, the budget‐neutral nature of the premium‐sta‐
bilization programs—in particular the Risk Adjustment pro‐
gram in which Land of Lincoln owed money—means that
HHS has already distributed the money it offset to other in‐
surance companies which, like Land of Lincoln, needed that
money to maintain solvency. HHS informs this court that
there are more than twenty insurance companies throughout
the country that are in rehabilitation or liquidation proceed‐
ings and whose debts HHS has been offsetting to the tune of
hundreds of millions of dollars. Exposing HHS’s ac‐
tions—whether lawful or not—to the inconsistent decisions of
so many different state fora could have dire consequences for
24 No. 18‐2523
the complex regulatory framework of the Affordable Care
Act, if not the insurance market as a whole. The federal gov‐
ernment’s interest in the relative uniformity of the federal
courts is substantial.
In contrast, we do not see how removal of this case will
disrupt the liquidation in Illinois court. The court can con‐
tinue to freely distribute Land of Lincoln’s assets to creditors
according to the state’s priority scheme, albeit with $27 mil‐
lion less to distribute for now. The Director is justifiably wor‐
ried that this money may not be distributed to Illinois policy‐
holders if this case were removed. This is a lofty concern, and
we do not disparage the Director’s desire to protect the people
of her state. Nonetheless, whether the money ultimately goes
to the benefit of the people of Illinois is a question of substan‐
tive law. Equity, the origin of abstention principles, see
Quackenbush, 517 U.S. at 717–18, has nothing to do with the
question of sovereign immunity, which does not look to the
“hardship” caused by immunity, but only to what Congress
has or has not allowed, see Soriano v. United States, 352 U.S.
270, 277 (1957). The Director is correct that Illinois courts must
respect federal law to the same extent as federal courts, but,
especially given the policy favoring removal of federal de‐
fenses in § 1442, there is no reason to prefer the state court to
the federal court to resolve this same substantive question.
Cf. Prop. & Cas. Ins., 936 F.2d at 322 n.5 (noting that it makes
little sense to abstain to a court that would apply foreign law).
Moreover, unlike the danger in non‐uniform treatment of
HHS’s offsets among the several state court systems, there is
negligible impact on the uniformity of the liquidation if HHS
removes this case on a sovereign immunity defense. The need
for uniform treatment implies that the parties are similarly sit‐
uated, but Land of Lincoln’s other creditors and debtors are
No. 18‐2523 25
not the federal government. We said in Hartford that “where
similar suits would not be disruptive of the rehabilitation pro‐
cess, a federal court would have to hear the case.” 913 F.3d
at 426. If the federal government, in its unique posture as a
sovereign, can remove this case and jump in line, there is no
implication from that conclusion that other creditors could do
the same, thereby disrupting and diminishing the whole es‐
tate.
The McCarran‐Ferguson Act does not change our analysis.
In Hartford, we relied on the Act to abstain from deciding “the
amount and existence of liability that an insolvent Illinois in‐
surer owes to Hartford.” 913 F.2d at 426. Here, both the
amount and the existence of liability are federal questions and
they are not in dispute. We, therefore, do not need to “invade
the province of the state rehabilitation court in deciding dam‐
ages.” Id. at 427. We also think the district court was wise to
reject the Director’s argument that the Act prohibited removal
outright. The courts of appeals have consistently rejected the
argument that the Act prohibits diversity removal of insur‐
ance‐related claims. See, e.g., ESAB Grp., Inc. v. Zurich Ins.
PLC, 685 F.3d 376, 389 (4th Cir. 2012) (collecting cases). They
have reached this conclusion even in opposition to express
state insurance laws prohibiting removal, in part because “it
cannot fairly be said that choice of forum between state and
federal court, within a state” is “integral” to the policy rela‐
tionship or the substantive concerns of the McCarran‐Fergu‐
son Act. Intʹl Ins. Co. v. Duryee, 96 F.3d 837, 840 (6th Cir. 1996).
We join these courts in concluding that removal does not “in‐
validate, impair, or supersede” any law regulating insurance,
when the same substantive law will be considered in either
forum. See Hawthorne Sav. F.S.B. v. Reliance Ins. Co. of Ill.,
26 No. 18‐2523
421 F.3d 835, 843 (9th Cir. 2005), amended, 433 F.3d 1089 (9th
Cir. 2006).
C
Finally, we can dismiss the third and fourth Hartford fac‐
tors out of hand. The existence of a special forum “is a prereq‐
uisite of, not a factor in, the second type of Burford absten‐
tion.” Prop. & Cas., 936 F.2d at 323. Illinois’s system concen‐
trating review in specific state courts passes this threshold,
see Adkins, 644 F.3d at 504, but meeting the bare minimum re‐
quirements is not a reason itself to abstain. Burford does not
require abstention in all cases in which there is a specialized
forum, or even when federal adjudication will conflict with a
regulatory policy. See NOPSI, 491 U.S. at 362. In NOPSI, for
example, the Supreme Court thought abstention inappropri‐
ate in any case in which there is no need for an “inquiry be‐
yond the four corners” of the agency’s actions. Id. at 363. Here,
HHS contends that sovereign immunity prevents the state
court from preventing its setoff, haling it into court, or forcing
it to pay money to the liquidation estate. To decide whether
that defense should be sustained will “not demand significant
familiarity with, and will not disrupt state resolution of, dis‐
tinctively local regulatory facts or policies.” Id. at 364 (empha‐
sis omitted). On the final factor, the Director has not pointed
to any difficult or unusual state laws at issue in this case, to
whatever extent that factor remains relevant outside the con‐
fines of the first type of Burford abstention.
V
The parties finally dispute the appropriate remedy, now
that we have found that the district court should not have re‐
manded this case to state court for lack of removal jurisdiction
No. 18‐2523 27
or on abstention grounds. As we previously noted, HHS ar‐
gues we should direct the district court to dismiss the case
forthwith rather than remand for further proceedings. We de‐
cline to do so because the merits of HHS’s defense have not
been resolved. The district court, in the first instance, must
evaluate HHS’s sovereign immunity to the Director’s motion,
as well as the propriety of dismissal under the doctrine of de‐
rivative jurisdiction, which despite its name is “a procedural
bar to the exercise of federal judicial power” and does not go
to the court’s subject‐matter jurisdiction. Rodas, 656 F.3d at
619. The Director could, if she so chooses, amend her motion
for declaratory relief to constitute a proper complaint that en‐
gages with the federal court’s jurisdiction. See id. at 625. Such
a modification would cut out the intermediate step between
dismissal of this case and the filing of a new one, and HHS
itself admits that an action seeking relief other than money
damages could proceed in the district court under the Admin‐
istrative Procedure Act, 5 U.S.C § 702, which waives the
United States’s sovereign immunity to declaratory relief in
the federal courts.
On the other extreme from HHS’s request that we dismiss
the case outright, the Director argues that under any circum‐
stance this case belongs in state court, even if it is removable,
the district court erred in abstaining, and the doctrine of de‐
rivative jurisdiction bars the case. She relies principally on
28 U.S.C. § 1447(c), which requires a district court to remand
if at any time it determines it lacks subject‐matter jurisdiction.
Section 1447(c) does not apply to this case by its own
terms. Although HHS made the error of filing its motion to
dismiss for lack of derivative jurisdiction under Federal Rule
of Civil Procedure 12(b)(1), we have already explained that
28 No. 18‐2523
derivative jurisdiction is not an issue of subject‐matter juris‐
diction. See Rodas, 656 F.3d at 619. Furthermore, the entire
principle behind derivative jurisdiction is that that the case
was not “properly constructed” because it was brought in the
wrong forum. Id. at 624. Remanding to a forum deemed
wrong is nonsensical. Even if we believe the state court would
be duty‐bound to dismiss the case, the Director’s procedural
mechanism for reaching that result would undermine the
strong federal interest in having federal defenses adjudicated
in a federal forum regardless of their ultimate merit. Just as a
losing federal defense may be resolved in federal court, so too
must a winning defense that leads to a situation in which
“[t]he suit would be removed only to be dismissed.” Willing‐
ham, 395 U.S. at 407.
Because we base our holding on the conclusion that HHS’s
claim of sovereign immunity is only “plausible,” we leave to
the district court the final evaluation of the defense. The par‐
ties framed this question as primarily concerned with
whether this motion is in rem or in personam, but failed to fully
explore the consequences of this antecedent issue, and in par‐
ticular the limits of “the prior exclusive jurisdiction doctrine.”
Goncalves, 865 F.3d at 1253; see also United States v. $79,123.49
in U.S. Cash & Currency, 830 F.2d 94, 97 (7th Cir. 1987); Black‐
hawk Heating, 530 F.2d at 157; 13F CHARLES ALAN WRIGHT, ET
AL., FEDERAL PRACTICE AND PROCEDURE § 3631 (3d ed.). To
summarize the doctrine briefly, two suits, both of which are
in rem or quasi in rem and require the courts to have possession
or control of the same property, cannot proceed at the same
time, and the second court must yield to the first. United States
v. Bank of N.Y. & Tr. Co., 296 U.S. 463, 477–78 (1936). Though
we have concluded that it is plausible that this removed mo‐
No. 18‐2523 29
tion for declaratory relief is not entirely in rem for several rea‐
sons, if the district court finds otherwise, then it must deter‐
mine whether the state court has prior jurisdiction over the
same res. If both actions are in rem, the court must dismiss this
case for lack of jurisdiction independent of any abstention
principal or the validity of removal. But if one of the two cases
is not in rem or quasi in rem, there is no jurisdictional bar and
the case should stay in federal court. See Fischer, 314 U.S. at
555; Kline v. Burke Const. Co., 260 U.S. 226, 229–30 (1922).
Finally, we recognize that, just as HHS has a plausible ar‐
gument for sovereign immunity, the Director has a non‐friv‐
olous argument that HHS is improperly jumping in line in
Land of Lincoln’s liquidation to the detriment of policyhold‐
ers. Cf. U.S. Dep’t of Treasury v. Fabe, 508 U.S. 491, 508–09
(1993) (holding that the McCarran‐Ferguson Act precluded
the United States from obtaining priority over policyholders
or administrative expenses in insurance liquidation). Though
the Director cites Fabe for the proposition that the United
States may, if it so chooses, submit its claims to a state liqui‐
dation proceeding without undermining its sovereign im‐
munity, we note that even in that case the question presented
to the Supreme Court originated in federal court. See id. at 495.
We express no opinion on the merits of the Director’s inter‐
pretation of the Act, we hold only that HHS has the right to
have that question decided in federal court, whether it be in
this case or another.
VI
Because the district court construed its removal jurisdic‐
tion too narrowly and erred in abstaining, this case should
have remained in federal court. Accordingly, we REVERSE
30 No. 18‐2523
the judgment of the district court and REMAND for further
proceedings consistent with this opinion.