ReadyLink Healthcare, Inc. v. State Compensation Insurance Fund
754 F.3d 754
| 9th Cir. | 2014Background
- ReadyLink, a temporary-nurse employer, disputed a SCIF premium audit that recharacterized per-diem payments as payroll, resulting in a $555,327.53 additional premium.
- ReadyLink sought administrative review with the California Department of Insurance; an ALJ and the Commissioner upheld SCIF’s premium calculation and rejected ReadyLink’s argument that IRS per-diem rules controlled the USRP interpretation.
- ReadyLink filed a state mandamus action in Los Angeles Superior Court and appealed to the California Court of Appeal, expressly arguing IRS preemption; the state courts rejected ReadyLink’s Supremacy Clause claim and the California Supreme Court denied review.
- While the state appeal was pending, ReadyLink filed a putative class action in federal court seeking declaratory and injunctive relief on federal preemption grounds plus state-law damages against SCIF and the Commissioner.
- The district court dismissed the federal preemption claim under Younger abstention and declined supplemental jurisdiction over state-law claims; the Ninth Circuit held that Younger abstention was improperly applied but affirmed dismissal on issue preclusion grounds because the state appellate decision necessarily decided the preemption issue.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal court must abstain under Younger from adjudicating ReadyLink's Supremacy Clause claim | ReadyLink argued federal jurisdiction under §1331 and pressed preemption of the Commissioner’s decision by IRS rules | SCIF/Commissioner argued Younger abstention applied because state administrative and judicial proceedings were ongoing and implicated important state interests | District court erred: Younger does not apply because the state proceedings were not criminal, quasi-criminal enforcement, nor core judicial-administration matters (Sprint governs Younger’s limits) |
| Whether IRS per-diem rules preempt the Commissioner’s interpretation of the USRP | ReadyLink argued IRS per-diem reporting rules should control for workers’ compensation premium calculations | Commissioner/SCIF argued state insurance regulation and USRP can impose different or stricter reporting rules for premium calculation purposes | California Court of Appeal held no preemption: state scheme may impose more demanding per-diem reporting requirements than IRS for workers’ comp purposes; issue preclusion bars relitigation in federal court |
| Whether the federal suit should proceed after state appellate decision | ReadyLink argued it needed discovery and federal adjudication to fully litigate the Supremacy Clause claim | Defendants argued the state appellate final judgment resolved the preemption issue and preclusion should apply | Ninth Circuit held California issue preclusion applies: the issue was identical, actually litigated, necessarily decided, final on the merits, and between the same parties |
| Whether issue preclusion is appropriate when the prior proceeding was administrative mandamus under Cal. Code Civ. Proc. §1094.5 | ReadyLink contended preclusion inappropriate because administrative record was limited and additional factual development might be needed | Defendants argued the Court of Appeal resolved the legal preemption issue and that preemption is predominantly legal | Court held preclusion appropriate: preemption was decided as a matter of law, ReadyLink had opportunity to litigate, and preclusion promotes judicial economy and integrity |
Key Cases Cited
- Younger v. Harris, 401 U.S. 37 (Younger abstention and its limits)
- Sprint Communications, Inc. v. Jacobs, 134 S. Ct. 584 (Younger limited to three exceptional categories)
- Middlesex County Ethics Committee v. Garden State Bar Ass’n, 457 U.S. 423 (framework for Younger abstention)
- Juidice v. Vail, 430 U.S. 327 (orders at the core of the judicial process and Younger)
- Colorado River Water Conservation District v. United States, 424 U.S. 800 (abstention and federal duty to exercise jurisdiction)
- Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75 (full faith and credit and state preclusion rules govern federal courts)