Liberty Mutual Insurance v. Louisiana Department of Insurance

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 94-30428

LIBERTY MUTUAL INSURANCE CO., ET AL.,

Plaintiffs-Appellees,

versus

THE LOUISIANA DEPARTMENT OF INSURANCE, ET AL.,

Defendants,

THE LOUISIANA DEPARTMENT OF INSURANCE, ET AL.,

Defendants-Appellants.

Appeal from the United States District Court
for the Middle District of Louisiana

(August 11, 1995)

Before HIGGINBOTHAM, SMITH, and STEWART, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Three insurers filed suit in federal court, alleging that

Louisiana insurance regulators violated the federal and state

constitutions by denying requested rate increases. The ratemakers

sued in their individual capacity moved to dismiss or stay

discovery, alleging legislative and qualified immunity. The

magistrate judge allowed limited discovery on the legislative

immunity issue, and the district court affirmed. We remand with

instructions to dismiss.
I.

Liberty Mutual Insurance Company, Liberty Mutual Fire

Insurance Company, and Liberty Insurance Corporation (collectively

Liberty Mutual) write insurance coverage in Louisiana and other

states. The Louisiana Insurance Rating Commission is part of the

Louisiana Department of Insurance, a state agency. Louisiana law

divides the market for worker's compensation insurance into the

voluntary and involuntary markets. The involuntary market contains

insureds who could not buy insurance in a free market. Insurers

serving the voluntary market must also serve the involuntary

market. The LIRC regulates insurance rates in both markets.

Liberty Mutual sought to avoid losses in its sales in the

involuntary market by seeking rate increases in that market or

increases in the voluntary market sufficient to cover the losses by

cross-subsidization. The LIRC denied these requests. With one

exception, Liberty Mutual did not appeal these orders to the state

courts. The one appeal sought only prospective relief to implement

a requested rate increase in the voluntary market. The state

courts denied relief. It left Liberty Mutual free to apply to the

LIRC for a rate increase in the involuntary market, but Liberty

Mutual did not do so. Rather, Liberty Mutual filed this § 1983

action against the Louisiana Department of Insurance, the LIRC, and

ten current and former members of the LIRC in their individual and

official capacities. The complaint alleged that allowed rates were

confiscatory, and it sought damages and both declaratory and

2
injunctive relief. The last amended complaint charges all

defendants with three constitutional violations.

Liberty Mutual noticed the depositions of the ratemakers, who

moved for a protective order and dismissal, arguing legislative and

qualified immunity. The magistrate judge did not rule on the

motion to dismiss, but ruled that Liberty Mutual could take four

depositions, discovery confined to the defense of legislative

immunity. The district court affirmed, and defendants filed this

interlocutory appeal of the discovery ruling. Liberty Mutual has

moved to dismiss this appeal.

II.

The parties dispute whether Mitchell v. Forsyth, 472 U.S. 511

(1985), supports appeal of the discovery order. Liberty Mutual

argues that because the discovery order is narrowly tailored to

discover facts needed to decide the ratemakers' legislative

immunity claim, there was no appealable denial of qualified

immunity.

The difficulty is that the discovery order became appealable

when it implicitly denied the ratemakers' claim to qualified

immunity. The district court permitted limited discovery on the

legislative immunity issue before deciding the qualified immunity

issue. If the ratemakers are entitled to qualified immunity, the

discovery order impermissibly saddles the ratemakers with

"avoidable, burdensome pretrial matters." See Lion Boulos v.

Wilson, 834 F.2d 504, 507 (5th Cir. 1987). This is so, as we will

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explain, because legislative immunity here requires discovery and

qualified immunity does not. Given the underlying policy of the

immunity doctrines, the magistrate judge should have first

addressed qualified immunity, with its potential for decision

without discovery. Such discovery orders are immediately

appealable, see id., and we decline to dismiss this appeal.

III.

Liberty Mutual charges the ratemakers with violating its

constitutional rights in three related ways:1 by confiscatory rate

regulation in violation of the Takings Clause and substantive due

process, by denying it procedural due process, and by violating the

Commerce Clause. Before deciding whether a defendant enjoys

qualified immunity, we "first resolve the constitutional question

-- that is, whether [plaintiffs have] stated a claim for violation

of a right secured to [them] under the United States Constitution."

Duckett v. City of Cedar Park, 950 F.2d 272, 278 (5th Cir. 1992)

(citing Siegert v. Gilley, 500 U.S. 226, 232 (1991)). We hold that

the first of Liberty Mutual's contentions is not ripe, and that its

second and third fail to state claims.

Much of the briefing on both sides is filled with arguments

and precedents interpreting the Takings Clause and its

1
On appeal, Liberty Mutual also alleges in passing a
violation of the Equal Protection Clause. Because it is neither
briefed on appeal nor raised in the last amended complaint, we do
not consider it.

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applicability to the type of rate regulation now before us. We

find it unnecessary to reach these issues, and intimate no views on

them.

We are persuaded that this case is controlled by Williamson

County Regional Planning Comm'n v. Hamilton Bank, 473 U.S. 172

(1985). In Williamson, a county zoning commission changed the

zoning rules applicable to a developer's land. The developer

immediately brought a § 1983 lawsuit in federal court, alleging a

violation of the Takings Clause. The Supreme Court held that the

takings claim was unripe for two reasons: First, the

administrative body had not rendered a final decision applying the

challenged rule to the owner's property and rejecting proposed

variances. Id. at 192-94. Second, the owner had not resorted to

state judicial remedies for just compensation. Id. at 194-97.

As plaintiff, Liberty Mutual bears the burden of proving that,

under Louisiana law as applied to it, any attempt to seek

compensation via state procedures "would have been futile." Samaad

v. City of Dallas, 940 F.2d 925, 934 (5th Cir. 1991). It did not

do so. As far as we can determine, it is an open question whether

Louisiana provides a compensation remedy for the kind of

deprivation alleged here,2 and Liberty Mutual should have first

2
Compare Jackson Court Condominiums, Inc. v. City of New
Orleans, 874 F.2d 1070, 1082 (5th Cir. 1989) (La. Rev. Stat. Ann.
§ 19:102 (West 1979) provides a damages remedy in an inverse
condemnation proceeding) and South Cent. Bell Tel. Co. v. Louisiana
Pub. Serv. Comm'n, 236 So. 2d 813, 815 (La. 1970) (ruling in a
public utility rate case that "a violation of constitutional
rights, such as confiscation of property, would require a court to
exercise the necessary authority to grant relief from the
constitutional abuse" with at least injunctive, if not monetary,

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posed the question to the state courts before bringing it here.

Instead, Liberty Mutual brought this federal action without even

alleging that a state action for compensation was unavailable to

it. Because Liberty Mutual made no effort to compel the state to

pay it just compensation for any confiscatory rate regulation and

because on appeal it has offered no excuse for that failure, we

reject Liberty Mutual's takings claim as unripe.

This reasoning applies equally to the one order for which

Liberty Mutual sought judicial review in the Louisiana state

courts. That claim rested on the takings clause and sought

prospective relief only in the voluntary market and in the form of

a rate increase, not damages.

The second claim, denial of procedural due process, falls with

the first claim. The procedural due process claim fails because

Liberty Mutual has not demonstrated that Louisiana does not offer

a post-deprivation remedy, as we have explained.

Liberty Mutual's third claim is that the ratemakers have

violated the Commerce Clause. The claim is that Louisiana policy

holders enjoyed sub-market rates subsidized by the premiums paid by

out-of-state policy holders. However, by the McCarran-Ferguson

relief) (emphasis added) with La. Rev. Stat. Ann. § 19:1 (West
1979) (restricting definition of compensable property to "immovable
property, including servitudes and other rights in or to immovable
property") and Louisiana v. Henderson, 138 So. 2d 597, 606-07 (La.
Ct. App. 1962) (ruling that "movables" are not compensable under
Louisiana expropriation law).

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Act, "Congress removed all Commerce Clause limitations on the

authority of the States to regulate and tax the business of

insurance." Western & S. Life Ins. Co. v. State Bd. of

Equalization, 451 U.S. 648, 653 (1981). "The Court has squarely

rejected the argument that discriminatory state insurance taxes may

be challenged under the Commerce Clause despite the McCarran-

Ferguson Act." Id. at 654.

IV.

Liberty Mutual has failed to state a claim on its second and

third grounds, and its first claim is unripe. We remand with

instructions to dismiss all claims. Any supplemental state claims

should also be dismissed for want of jurisdiction, given the early

stage of this litigation.

VACATED AND REMANDED with instructions.