Hammer v. U.S. Dep't of Health & Human Servs.
905 F.3d 517
7th Cir.2018Background
- Land of Lincoln Mutual (insurer) owed ~$32M under ACA Risk Adjustment; HHS owed Land of Lincoln >$70M (mostly Risk Corridor). HHS offset its payments, withholding ~$27M.
- Illinois Chancery Court placed Land of Lincoln in liquidation, appointed the Illinois Director of Insurance as liquidator, and issued an order barring creditors (including governmental entities) from setting off amounts owed to the estate without court leave.
- The Director moved in state court for a declaratory judgment that HHS violated the liquidation court’s order; HHS removed that motion to federal court under 28 U.S.C. § 1442(d)(1) (federal agency removal of ancillary proceedings) and moved to dismiss asserting sovereign immunity and derivative-jurisdiction defects.
- The district court remanded the case to state court, reading § 1442(d)(1) narrowly and alternatively abstaining under Burford-type principles; it certified the remand for appeal.
- The Seventh Circuit reversed: it held the Director’s declaratory-motion was a removable “civil action” under § 1442(d)(1), the motion was directed to HHS, and HHS advanced a colorable federal defense (sovereign immunity). The court also concluded abstention was inappropriate and remanded to the district court for further proceedings on the merits and derivative-jurisdiction issues.
Issues
| Issue | Plaintiff's Argument (Director) | Defendant's Argument (HHS) | Held |
|---|---|---|---|
| Whether a state-court motion for declaratory relief ancillary to a liquidation proceeding is a removable “civil action” under 28 U.S.C. § 1442(d)(1) | The motion is not the sort of ancillary proceeding § 1442(d)(1) targets (legislative history limits it to discovery/pre-suit matters) | The plain text of § 1442(d)(1) covers any proceeding seeking a judicial order, so the motion is removable | Removable: the motion is an ancillary “civil action” under § 1442(d)(1) (text controls; liberal construction of § 1442) |
| Whether the Director’s motion is "against or directed to" the United States agency | The liquidation as a whole is not directed to HHS; Congress could have limited ancillary removal differently | The motion specifically seeks an order against HHS (notice served; relief will affect HHS), so it is directed to the agency | Directed to HHS: the particular ancillary proceeding targets the agency and is removable |
| Whether HHS has a colorable federal defense (sovereign immunity) justifying removal under § 1442 | Sovereign immunity is inapplicable because liquidation is in rem and in rem suits do not implicate sovereign immunity | HHS asserts sovereign immunity (no waiver) such that state court cannot compel payment; that defense is plausible | Colorable defense exists: sovereign-immunity defense is plausible and suffices for § 1442 removal |
| Whether the district court properly abstained (Burford) after removal | State interest in orderly, centralized insurance liquidation and McCarran-Ferguson policy weigh in favor of abstention | Federal policy under § 1442 favors federal forum for federal defenses; resolution of immunity is a federal question and abstention is disfavored | Abstention improper: exceptional circumstances not met; federal forum appropriate, especially when government removed under § 1442 |
Key Cases Cited
- Jefferson Cty. v. Acker, 527 U.S. 423 (establishes that § 1442 permits raising a colorable federal defense for removal)
- Mesa v. California, 489 U.S. 121 (federal-officer removal principles)
- Willingham v. Morgan, 395 U.S. 402 (federal-officer removal statute should be liberally construed)
- Watson v. Philip Morris Cos., 551 U.S. 142 (liberal construction of removal statute principles)
- Nordic Village, Inc. v. United States, 503 U.S. 30 (sovereign immunity and limits of in rem jurisdiction re: monetary liability)
- Central Va. Cmty. Coll. v. Katz, 546 U.S. 356 (bankruptcy in rem jurisdiction and waiver analysis relevant to sovereign immunity)
- Burford v. Sun Oil Co., 319 U.S. 315 (foundational decision on Burford abstention doctrine)
- Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (abstention principles and narrow availability)
- Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (final-order and abstention guidance)
- Rodas v. Seidlin, 656 F.3d 610 (7th Cir. standard on derivative-jurisdiction and federal removal defenses)
- Hartford Cas. Ins. Co. v. Borg-Warner Corp., 913 F.2d 419 (Burford-related factors in insurance-liquidation context)
- U.S. Dep’t of Treasury v. Fabe, 508 U.S. 491 (McCarran-Ferguson implications for priority in insurance liquidations)