Court Opinion

ID: 6348791
Source: CourtListenerOpinion
Date Created: 2022-06-10 17:00:27.645549+00
Date Added: 2024-06-11T08:42:30.807390
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

APPLIED UNDERWRITERS, INC., a            No. 21-15679
Nebraska Corporation; APPLIED RISK
SERVICES, INC., a Nebraska                  D.C. No.
Corporation,                             2:20-cv-02096-
                Plaintiffs-Appellants,      WBS-AC

                  v.

RICARDO LARA, Insurance
Commissioner for the State of
California, in his official capacity;
KENNETH SCHNOLL, California Dept.
of Insurance Deputy Commissioner,
in his official capacity; BRYANT
HENLEY, California Dept. of
Insurance Deputy Commissioner, in
his official capacity,
                 Defendants-Appellees.
2           APPLIED UNDERWRITERS V. LARA

CALIFORNIA INSURANCE COMPANY,            No. 21-16159
a New Mexico corporation,
               Plaintiff-Appellant,        D.C. No.
               v.                       2:21-cv-00030-
                                           WBS-AC
RICARDO LARA, Insurance
Commissioner for the State of
California, in his official capacity;      OPINION
KENNETH SCHNOLL, California
Department of Insurance Deputy
Commissioner, in his official
capacity; BRYANT HENLEY,
California Department of Insurance
Deputy Commissioner, in his official
capacity,
                Defendants-Appellees.

      Appeal from the United States District Court
         for the Eastern District of California
      William B. Shubb, District Judge, Presiding

        Argued and Submitted December 7, 2021
                 Pasadena, California

                  Filed June 10, 2022

     Before: Marsha S. Berzon, Carlos T. Bea, and
        Jacqueline H. Nguyen, Circuit Judges.

                Opinion by Judge Bea;
             Concurrence by Judge Nguyen
               APPLIED UNDERWRITERS V. LARA                         3

                          SUMMARY *

         Civil Rights/Federal Judicial Abstention

    The panel affirmed the district court’s dismissal of an
action brought under 42 U.S.C. § 1983 against the California
Insurance Commissioner alleging various constitutional
violations arising out of the conservatorship of the California
Insurance Company, an insurance company in the State of
California which partnered with appellants to sell, among
other things, workers’ compensation insurance.

    The California Insurance Commissioner filed an ex parte
conservation application in the Superior Court of San Mateo
to place the California Insurance Company (CIC I) in a
conservatorship after CIC I’s president, Steven Menzies,
attempted to consummate a purchase transaction with
Berkshire Hathaway without the Commissioner’s approval,
and then attempted to bypass the California insurance
regulatory scheme by merging CIC I with the California
Insurance Company (CIC II), a New Mexico-domesticated
shell company formed by Menzies. The Superior Court
granted the Commissioner’s conservatorship application and
appointed the Commissioner as Conservator of CIC I. After
CIC I unsuccessfully challenged the bases of the
conservatorship in state court, Applied Underwriters, of
which Menzies is the Chief Executive Officer, and CIC II
filed separate actions in federal court asserting causes of
actions under § 1983.

    *
      This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
4            APPLIED UNDERWRITERS V. LARA

    The district court dismissed both actions pursuant to
Federal Rule of Civil Procedure 12(b)(1) on the basis that it
lacked jurisdiction to hear the cases under both the Younger
abstention doctrine and the prior exclusive jurisdiction rule.

    The panel held that because important considerations of
federalism were at stake, the district court’s reliance on
Younger abstention as a ground for dismissal was in error.
The panel held that an insurance conservatorship is not
sufficiently akin to a criminal prosecution to bring it within
the purview of the Supreme Court’s current understanding
of what constitutes a similar, Younger-eligible “civil
enforcement proceeding,” making the application of
Younger improper in this case.

    The panel nevertheless held that dismissal of appellants’
claims was warranted on account of the prior exclusive
jurisdiction rule, which holds that when a court of competent
jurisdiction has obtained possession, custody, or control of
particular property, that possession may not be disturbed by
any other court. In applying the prior exclusive jurisdiction
rule, the panel determined that the insurance conservatorship
was an in rem proceeding and that the federal actions seeking
to end the conservatorship’s control over CIC I’s assets were
either in rem or quasi in rem proceedings.

    To the panel’s knowledge, this was the first case in this
Court implicating the prior exclusive jurisdiction rule in
connection with a § 1983 action. The panel noted that
limitations on the exclusive jurisdiction rule may be
necessary in unusual circumstances in which the
adjudication of constitutional rights might be compromised
but concluded that this case did not present any such
circumstances. Thus, appellants’ interests were well
represented in the conservatorship action; they had an
             APPLIED UNDERWRITERS V. LARA                  5

adequate opportunity to raise constitutional challenges; they
failed to sufficiently allege that the conservatorship action
was brought in bad faith; and they failed to demonstrate
irreparable injury arising from extraordinary circumstances
which might justify an exception to the prior exclusive
jurisdiction rule. Accordingly, federal judicial abstention
due to the San Mateo Superior Court’s prior exclusive
jurisdiction of the CIC I res was warranted.

    Concurring in the result, Judge Nguyen agreed that
affirming the district court’s dismissal of these federal
actions was warranted. But she wrote separately because, in
her view, the district court correctly dismissed under
Younger abstention. In reversing the district court’s
dismissal on this ground, the majority held that insurance
conservatorships were not the type of civil enforcement
proceedings to which Younger abstention applies. Judge
Nguyen wrote that to the contrary, insurance
conservatorships embody all of the characteristics which
define that category. Rather than applying the Younger
doctrine, which was tailor-made for this situation, the
majority instead attempted to modernize the doctrine of prior
exclusive jurisdiction. Because Judge Nguyen believed
Younger abstention applied, she concurred only in the result.
6                APPLIED UNDERWRITERS V. LARA

                              COUNSEL

Samuel C. Kaplan (argued), Boies Schiller Flexner LLP,
Washington, D.C.; Maxwell V. Pritt, Beko O. Reblitz-
Richardson, and Reed D. Forbush, Boies Schiller Flexner
LLP, San Francisco, California; for Plaintiffs-Appellants.

Michael J. Strumwasser (argued), Dale K. Larson, Caroline
Chiappetti, and Julia Michel, Strumwasser & Woocher LLP,
Los Angeles, California; Cynthia J. Larsen, Justin
Giovannettone, and Mark C. Smith, Orrick Herrington &
Sutcliffe LLP, Sacramento, California; for Defendants-
Appellees.

                                  OPINION

BEA, Circuit Judge:

    In business, as in life, it is necessary to take risks.
Indeed, fortune favors the bold. 1 Sometimes you win,
sometimes you lose. And when you lose, the loss should be
paid. Here, Steven Menzies, Chief Executive Officer of
Applied Underwriters, Inc. (“Applied”) and President of
California Insurance Company (“CIC I”), made a
$50 million bet with Berkshire Hathaway (“Berkshire”) that
he could complete the purchase of Berkshire’s controlling
interest in CIC I by September 30, 2019. Unfortunately for
Menzies, the deal could not be completed in time, as the
California Insurance Commissioner, Ricardo Lara
(“Commissioner”), failed to approve the sale by that
deadline.

    1
        Virgil, Aeneid, 10:284.
             APPLIED UNDERWRITERS V. LARA                  7

    Instead of accepting this loss, Menzies decided on a
different approach. Menzies consummated the transaction
with Berkshire without the Commissioner’s approval, and
then attempted to bypass the California insurance regulatory
regime altogether by merging CIC I with New Mexico-
domesticated California Insurance Company (“CIC II”), a
shell company formed by Menzies to serve as the vehicle to
effect CIC I’s domestication outside of California. In
response to Menzies’s attempted out-of-state merger, the
Commissioner filed an ex parte conservation application in
the Superior Court of San Mateo to place CIC I in a
conservatorship. That application was granted; the Superior
Court appointed the Commissioner as the Conservator of
CIC I. As Conservator, the Commissioner controlled CIC I
and its assets, subject to the Superior Court approval.
Subsequently, CIC I contested the grounds upon which the
conservatorship was instituted by filing an application to
vacate the order instituting the conservatorship in the
Superior Court. CIC I claimed that the conditions cited for
imposing the conservatorship no longer existed. The
Superior Court denied CIC I’s application. CIC I then
sought a writ of mandate from the California Court of
Appeal seeking to overturn the Superior Court’s denial of
CIC I’s application to vacate the order instituting the
conservatorship, and that petition for writ was also denied.

    After CIC I unsuccessfully challenged the bases of the
conservatorship in state court, both Applied and CIC II filed
separate actions in federal court, asserting causes of action
under 42 U.S.C. § 1983 alleging various constitutional
violations. While characterized in various ways, the relief
sought in both actions was the same—dissolution of the
conservatorship of CIC I. The district court dismissed both
actions pursuant to Federal Rule of Civil Procedure 12(b)(1),
with each order holding that the district court lacked
8               APPLIED UNDERWRITERS V. LARA

jurisdiction to hear the cases under both the “prior exclusive
jurisdiction” rule and the Younger abstention doctrine.

    We have jurisdiction under 28 U.S.C. § 1291. We
conclude that because important considerations of
federalism are at stake, the district court’s reliance on
Younger abstention as a ground for dismissal was in error.
An insurance conservatorship is not sufficiently akin to a
criminal prosecution to bring it within the purview of the
Supreme Court’s current understanding of what constitutes
a similar, Younger-eligible “civil enforcement proceeding,”
thus making the application of Younger improper in this
case. We nonetheless affirm the district court’s dismissal
based on the alternative ground relied upon, the prior
exclusive jurisdiction rule. We also announce limitations to
the prior exclusive jurisdiction rule, explaining how this
doctrine would not provide an absolute bar to parallel federal
court litigation if extraordinary circumstances were present,
none of which are here present.

                        I. BACKGROUND

    Appellants Applied Underwriters, Inc. and Applied Risk
Services (collectively, “Applied”) partner with CIC I to sell
workers’ compensation insurance and various payroll,
agency, and claim services. CIC I is an admitted insurer in
the State of California, 2 which subjects it to regulation by the
California Insurance Commissioner, a position currently
held by Appellee Ricardo Lara. In January 2019, Steven
Menzies, as Chief Executive Officer of Applied
Underwriters, Inc. and as President of CIC I, entered into an

    2
      See Cal. Ins. Code § 24 (defining “admitted” as “entitled to transact
insurance business in this state, having complied with the laws imposing
conditions precedent to transaction of such business”).
            APPLIED UNDERWRITERS V. LARA                 9

agreement with Berkshire Hathaway to purchase Berkshire’s
controlling interest in CIC I (the “Agreement”). The
Agreement included a $50 million “breakup fee” were the
transaction not consummated by September 30, 2019.

    California Insurance Code § 1215.2(d) requires the
California Insurance Commissioner to approve any sale (or
merger) of a controlling interest in an admitted California
insurer, and further provides the Commissioner with 60 days
to approve or disapprove such transactions upon submission
of the information concerning the transaction required by
§ 1215.2(a). These required submissions are known as
“Form A” submissions. On April 9, 2019, Menzies, acting
on behalf of CIC I, submitted to the California Department
of Insurance (“CDI”) his first “Form A,” which detailed the
proposed Agreement and sought official approval.
However, upon review, the CDI requested further
information concerning the Agreement, requiring Menzies
to withdraw the first Form A submission and to submit a
second Form A on June 12, 2019. After this second Form A
submission was found unsatisfactory, Menzies submitted his
third (and final) Form A submission concerning the
Agreement on September 7, 2019.

    When it became clear the Agreement would not be
approved by the Commissioner in time to avoid the
$50 million “breakup fee,” Menzies attempted to avoid the
California regulatory process altogether by consummating
the Agreement without CDI approval. Menzies sought to
effect a merger (the “Merger”) between CIC I, which he now
purported to control, and a newly-formed New Mexico
corporation, Appellant California Insurance Company
(“CIC II”). This newly formed corporate insurer was not
subject to California insurance regulations.
10           APPLIED UNDERWRITERS V. LARA

    Menzies negotiated a ten-day Agreement deadline
extension with Berkshire, at a cost of $10 million. On
October 9, 2019, one day before the extended deadline was
set to expire, the CDI notified Menzies that if the Merger
were to be consummated without the approval of the CDI,
“[CIC I] will cease to exist and [CIC II will be] an unlicensed
insurer [] precluded from transacting the business of
insurance in California.” The uncertain fate of the Merger
notwithstanding, the Agreement between Berkshire and
Menzies closed on October 10, 2019, with CIC I becoming
wholly owned by Menzies.

    On November 4, 2019, before the CIC I/CIC II Merger
could be completed, and without notice given to Appellants,
the Commissioner filed an ex parte conservation application
in the Superior Court of San Mateo which sought “an order
appointing him as conservator of [CIC I].” The conservation
application was based on the Commissioner’s allegation that
Menzies had not “filed and obtained written approval of the
Commissioner” to consummate the Merger, in violation of
California Insurance Code § 1215.2(d).

    Also on November 4, 2019, again without any notice to
Appellants, the Superior Court granted the Commissioner’s
conservation application, appointing California Insurance
Commissioner Ricardo Lara as the Conservator of CIC I. In
justifying lack of notice to Appellants, the Superior Court
explicitly found

       that the Commissioner has . . . established
       good cause to believe that the State of
       California would be prejudiced were it to
       provide respondent advanced notice of this
       proceeding in that [CIC I] has within its
       authority power to at any time complete the
       ostensible consummation of the transaction,
             APPLIED UNDERWRITERS V. LARA                 11

       which would have the effect of at least
       forfeiting [CIC I’s] certificate of authority,
       rendering California policyholders ostensibly
       insured by an out-of-state insurer without
       authority to transact insurance in California
       ....

CIC I subsequently contested, unsuccessfully, the grounds
upon which the conservatorship was instituted. Specifically,
on March 12, 2020, CIC I filed an application to vacate the
conservatorship with the Superior Court, arguing that: 1) the
conservatorship was obtained under false pretenses; 2) the
conditions cited for imposing the conservatorship no longer
existed; 3) the Commissioner acted arbitrarily, capriciously,
and in bad faith; and 4) the conservatorship continues to
harm CIC I. After an August 6, 2020 hearing at which CIC
I appeared by counsel, the Superior Court denied CIC I’s
application to vacate the conservatorship on August 11,
2020, for the following reasons:

       Respondents attempted to take [CIC I] and its
       assets out of California via a merger without
       adequate protection of policyholders and the
       public and the Conservatorship was ordered
       on those grounds. Respondents have failed
       to demonstrate that the conditions
       necessitating conservation no longer exist. In
       light of Respondent’s prior conduct, the
       Conservation       Order      ensures     that
       Respondents do not again attempt to take
       [CIC I] and its assets out of California . . .
       [and] the Commissioner’s preference to
       pursue a Rehabilitation Plan [for CIC I] is
       reasonable and sufficient under the
       circumstances.
12            APPLIED UNDERWRITERS V. LARA

Following this denial, CIC I filed an application for
interlocutory appellate review with the California Court of
Appeal, which was also denied. The record does not
demonstrate whether a writ was sought from the California
Supreme Court. On October 19, 2020, the Commissioner
filed a proposed Rehabilitation Plan (“Rehabilitation Plan”)
with the Superior Court which articulated the terms he would
accept to end the conservatorship of CIC I. CIC I has refused
to accept the Commissioner’s stated terms, so the
conservatorship proceedings remain ongoing.

    After CIC I had unsuccessfully challenged the bases of
the conservatorship in state court, Appellants Applied and
CIC II filed separate actions in federal court, asserting causes
of action under 42 U.S.C. § 1983 alleging various
constitutional violations (“the federal actions”). Appellants
sought, among other forms of relief, orders “declaring the
Commissioner’s actions, as alleged, violate [Appellants’]
rights to due process and equal protection under the
Fourteenth Amendment to the United States Constitution.”
Appellants also sought orders “directing the Commissioner
to take all necessary steps to end [CIC I’s] conservatorship
pursuant to California Insurance Code § 1012, and enjoining
the Commissioner from continuing the conservation.” The
district court dismissed both actions pursuant to Federal Rule
of Civil Procedure 12(b)(1), with each order holding that the
district court lacked jurisdiction to hear the cases under both
the “prior exclusive jurisdiction” rule and the Younger
abstention doctrine.

              II. STANDARD OF REVIEW

    A district court’s determination of subject matter
jurisdiction, including its application of the prior exclusive
jurisdiction rule, is reviewed de novo. Chapman v. Deutsche
Bank Nat. Trust Co., 651 F.3d 1039, 1043 (9th Cir. 2011).
              APPLIED UNDERWRITERS V. LARA                   13

A district court’s determination to apply Younger abstention
is reviewed de novo. Bean v. Matteucci, 986 F.3d 1128,
1132 (9th Cir. 2021).

                       III. ANALYSIS

A. Younger abstention is not proper in an action
   challenging an insurance conservatorship

    In “exceptional circumstances,” the Younger abstention
doctrine instructs federal courts to decline to hear a case
when a parallel state proceeding is ongoing. New Orleans
Pub. Serv., Inc. v. Council of New Orleans (NOPSI),
491 U.S. 350, 368 (1989). Younger abstention is rooted in
“the basic doctrine of equity jurisprudence that courts of
equity should not act . . . to restrain a criminal prosecution,
when the moving party has an adequate remedy at law and
will not suffer irreparable injury if denied equitable relief.”
Younger v. Harris, 401 U.S. 37, 43–44 (1971) (emphasis
added). Following a period of continuous expansion,
including to some civil proceedings, the Supreme Court
firmly cabined the scope of the doctrine, holding that
Younger applies only to three categories of cases (the NOPSI
categories): 1) “ongoing state criminal prosecutions”;
2) “certain civil enforcement proceedings”; and 3) “civil
proceedings involving certain orders . . . uniquely in the
furtherance of the state courts’ ability to perform their
judicial functions.” Sprint Commc’ns, Inc. v. Jacobs,
571 U.S. 69, 78 (2013) (cleaned up). If a state proceeding
falls into one of these three categories, Younger abstention is
applicable, but only if the three additional factors laid out in
Middlesex County Ethics Committee v. Garden State Bar
Association, 457 U.S. 423, 432 (1982) are also met: that the
state proceeding is 1) “ongoing”; 2) “implicate[s] important
state interests”; and 3) “provide[s] adequate opportunity . . .
to raise constitutional challenges.” Herrera v. City of
14           APPLIED UNDERWRITERS V. LARA

Palmdale, 918 F.3d 1037, 1044 (9th Cir. 2019) (quoting
Middlesex, 457 U.S. at 432) (cleaned up).

    Here, the district court found that the Superior Court
insurance conservatorship was a “civil enforcement
proceeding” sufficient to warrant Younger, and that the three
Middlesex factors were met. This holding was in error.

    The hallmark of the civil enforcement proceeding
category for Younger purposes is that such proceedings are
“akin to a criminal prosecution” in “important respects.”
Huffman v. Pursue, Ltd., 420 U.S. 592, 604 (1975). As noted
in Sprint,

       Such        enforcement         actions       are
       characteristically initiated to sanction the
       federal plaintiff, i.e., the party challenging
       the state action, for some wrongful act. In
       cases of this genre, a state actor is routinely a
       party to the state proceeding and often
       initiates the action.       Investigations are
       commonly involved, often culminating in the
       filing of a formal complaint or charges.

Sprint, 571 U.S. at 79–80 (citations omitted). Admittedly,
the current situation bears some resemblance to a criminal
prosecution. Here, the insurance conservatorship was
brought by the Commissioner “acting under and within [the]
police power” of the state of California pursuant to
California Insurance Code § 1011. Carpenter v. Pac. Mut.
Life Ins. Co. of Cal., 10 Cal. 2d 307, 331 (1937).
Specifically, the ex parte application alleged that, upon an
investigation of the Commissioner, “Menzies’s attempt to
merge [CIC I] into and with CIC II without having filed and
obtained written approval of the Commissioner to merge
[CIC I] into a New Mexico domestic insurer is ground for
              APPLIED UNDERWRITERS V. LARA                    15

conservation of an insurer pursuant to section 1011.”
Moreover, as noted above, in reviewing CIC I’s challenge to
vacate the conservation order, the Superior Court found that
“Respondents attempted to take [CIC I] and its assets out of
California via a merger without adequate protection of
policyholders and the public and the Conservatorship was
ordered on those grounds. Respondents have failed to
demonstrate that the conditions necessitating conservation
no longer exist.” It was on these grounds that the district
court found the conservatorship was a “civil enforcement
action” sufficient to merit Younger abstention.

    This insurance conservatorship, however, cannot be said
to have been brought “to sanction the federal plaintiff . . . for
some wrongful act,” Sprint, 571 U.S. at 79, which is the
quintessential feature of a Younger-eligible “civil
enforcement action.” Indeed, in every case of the civil
enforcement genre cited by Sprint where Younger abstention
was found to be valid, the parallel proceedings were either
“in aid of and closely related to criminal statutes,” Huffman,
420 U.S. at 604, or were aimed at punishing some wrongful
act through a penalty or sanction, see, e.g., Ohio Civ. Rights
Comm’n v. Dayton Christian Schools, Inc., 477 U.S. 619,
629 (1986) (state-initiated administrative proceedings to
enforce state civil rights laws, noting “potential sanctions for
the alleged sex discrimination”); Middlesex, 457 U.S. at 427,
433–34 (state-initiated disciplinary proceedings against
lawyer for violation of state ethics rules, noting the
availability of “private reprimand” and “disbarment or
suspension for more than one year”); Moore v. Sims,
442 U.S. 415, 419–20, 423 (1979) (state-initiated
proceeding to gain custody of children allegedly abused by
their parents, noting the action was “in aid of and closely
related to criminal statutes”); Trainor v. Hernandez,
431 U.S. 434, 435, 444 (1977) (civil proceeding “brought by
16           APPLIED UNDERWRITERS V. LARA

the State in its sovereign capacity” to recover welfare
payments defendants had allegedly obtained by fraud, “a
crime under Illinois law”); Huffman, 420 U.S. at 596–98
(state-initiated proceeding to enforce public nuisance laws,
which provided for “closure for up to a year of any place
determined to be a nuisance,” “preliminary injunctions
pending final determination of status as a nuisance,” and
“sale of all personal property used in conducting the
nuisance”).

    Here, the complete lack of sanctions being sought
against Appellants belie any punitive character to the
insurance conservatorship action. This feature underscores
why Younger abstention is not proper in this case. As noted
long ago by the California Supreme Court, in an insurance
conservatorship brought under the California Insurance
Code,

       [t]he commissioner [is] not prosecuting an
       action “for the enforcement or protection of a
       right,” or for the “redress or prevention of a
       wrong,” or for the “punishment of a public
       offense.” The proceeding [is] had under
       sections 1010 to 1061 of the Insurance Code
       which specially deal with the rehabilitation
       and liquidation of insurance companies.
       Those sections set up a comprehensive
       statutory scheme to accomplish those results.
       The proceeding is not one in which another
       party is prosecuting another party at all. It is
       simply a proceeding in which the state is
       invoking its power over a corporate entity
       permitted by the state to engage in a business
       vitally affected with the public interest upon
             APPLIED UNDERWRITERS V. LARA                  17

       condition of continuing compliance with the
       requirements provided by the state.

Carpenter, 10 Cal. 2d at 327.

    To be sure, the nature of the conservatorship in
Carpenter was insolvency, id. at 315, not one like here,
where CIC I was, and appears to remain, a financially viable
entity. Notably, Appellants contend that, before this
contested conservatorship, insurance conservatorships in
California have usually been brought only when a firm has
become insolvent or was at risk of becoming insolvent.
Nonetheless, it is immaterial for Younger purposes that here,
the conservatorship was brought because of an attempt by
CIC I to consummate an unapproved sale of controlling
interest and merger and to move the company’s assets out of
state, instead of for reasons of insolvency.

    For one, as in conservatorships brought on by a firm’s
insolvency, the Commissioner’s actions here were motivated
by the purpose of ensuring “adequate protection of
policyholders and the public.” As the Commissioner’s
conservatorship application explained, if CIC I were
“permitted to consummate” the Merger, then CIC I
policyholders in California might “be left holding policies of
a non-admitted insurer,” such that “policyholders, including
employees with serious work-related injuries and other
claimants entitled to vital and necessary insurance benefits,
may not have recourse to benefits.” Thus, as with a
conservatorship brought on by insolvency, the CIC I
conservatorship is not a proceeding aimed at “punishment of
18              APPLIED UNDERWRITERS V. LARA

a public offense” but rather one “by the state in the interest
of the public.” Id. at 327. 3

    Moreover, insolvency is itself often driven by acts that
are in disregard of the public interest, as is an unapproved
sale of controlling interest and concomitant merger attempt.
Yet the disregard-of-public-interest factor alone does not
impart those acts with the requisite “wrongful” nature such
that punitive sanctions are merited. Indeed, in Carpenter,
the noted insolvency had a readily identifiable cause: “that
the hazardous and insolvent condition is principally caused
by reason of the fact that for many years the company has
issued a large number of noncancellable accident and health
policies . . . at a rate inadequate to maintain the lawful
reserves behind such policies.” Id. at 315. Even though the
insolvency was brought on because of clearly identifiable
imprudent acts by the managers of the insolvent firm, these
imprudent acts in no way impacted the California Supreme
Court’s analysis that the conservatorship was not brought to
prosecute “an action for the enforcement or protection of a
right, or for the redress or prevention of a wrong, or for the
punishment of a public offense.” Id. at 327 (internal
quotation marks omitted).

     3
       As noted by the concurrence, “individualized inquiries into motive
are not part of [the Younger] analysis,” citing Bristol-Meyers Squibb Co.
v. Connors, 979 F.3d 732, 737 (9th Cir. 2020). We agree. However, this
fact cuts against the concurrence’s argument, given that, as demonstrated
above, conservatorships are fundamentally brought “by the state in the
interest of the public,” and not for the “punishment of a public offense.”
Carpenter, 10 Cal. 2d at 327. It is only after attempting to divine the
Commissioner’s true motive in bringing the conservatorship of CIC I
that the concurrence is able to determine that this conservatorship is a
sanction.
                APPLIED UNDERWRITERS V. LARA                            19

   We therefore decline to extend the class of “civil
enforcement proceedings” sufficient to warrant application
of Younger to actions divorced from a quasi-criminal
context. See Sprint, 571 U.S. at 81. Accordingly, the district
court’s application of the Younger abstention doctrine to this
case was in error. 4 Nonetheless, dismissal of Appellants’

    4
       Appellees contend that in addition to falling within the “civil
enforcement action” NOPSI category, insurance conservatorships also
fall within the category of “civil proceedings involving certain orders
that are uniquely in the furtherance of the state courts’ ability to perform
their judicial functions.” 491 U.S. at 368. This argument is meritless.
This third category has been explained to stand “in aid of the authority
of the judicial system, so that its orders and judgments are not rendered
nugatory,” Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 13 (1987) (cleaned
up), and has been applied by the Supreme Court to require federal
abstention in order to avoid interfering with civil contempt orders,
Juidice v. Vail, 430 U.S. 327, 336 n. 12 (1977), and to avoid interfering
with state requirements to post bond pending appeal, Pennzoil Co.,
481 U.S. at 3, 18. The district court correctly found that the insurance
conservatorship does not implicate “the regular operation of [a state
court’s] judicial system” with respect to “the processes by which the
State compels compliance with the judgements of its courts,” Pennzoil
Co., 481 U.S. at 13–14 (cleaned up), and that it is therefore not within
the scope of this category.

     Appellees’ argument that Worldwide Church of God, Inc. v.
California, 623 F.2d 613 (9th Cir. 1980) (per curiam), demands
otherwise is unpersuasive. Worldwide Church conforms with the
established proposition that Younger applies to certain “civil
enforcement actions,” as at issue in that case was the court-ordered
imposition of a permanent receivership of a church allegedly engaged in
the fraudulent distribution of charitable donations to the personal
accounts of those who controlled the church. Id. at 614–15 (emphasis
added). Notably, Worldwide Church was decided before Middlesex,
Pennzoil, NOPSI, or Sprint were decided and so does not reflect NOPSI’s
and Sprint’s cabining of Younger to the three distinct “exceptional
circumstances” described above. NOPSI, 491 U.S. at 368. And, in any
event, Worldwide Church did not cite Juidice or purport to extend the
logic of Juidice’s abstention holding beyond proceedings that lie “at the
20              APPLIED UNDERWRITERS V. LARA

claims was warranted on account of the prior exclusive
jurisdiction rule.

B. The prior exclusive jurisdiction rule bars federal
   interference

    “[T]he ancient and oft-repeated . . . doctrine of prior
exclusive jurisdiction [holds] that when a court of competent
jurisdiction has obtained possession, custody, or control of
particular property, that possession may not be disturbed by
any other court.” State Eng’r v. S. Fork Band of Te-Maok
Tribe of W. Shoshone Indians, 339 F.3d 804, 809 (9th Cir.
2003) (cleaned up). Said another way, where one court first
takes proper in rem jurisdiction over a res, another court “is
precluded from exercising its jurisdiction over the same res.”
Kline v. Burke Const. Co., 260 U.S. 226, 229 (1922); see also
Princess Lida of Thurn & Taxis v. Thompson, 305 U.S. 456,
466–67 (1939).

    As a threshold matter, the application at the heart of this
case seeking an insurance conservatorship was first filed on
November 4, 2019, and the conservatorship of CIC I was
granted on the same day. The federal actions currently on
appeal were first filed on October 20, 2020 (Applied action)
and January 6, 2021 (CIC II action). Therefore, if both the
insurance conservatorship and the federal actions are either
in rem or quasi in rem proceedings, the prior exclusive
jurisdiction rule applies to bar the federal actions, subject to
the limited exceptions we announce below.

core of the administration of a State’s judicial system.” Juidice, 430 U.S.
at 335.
             APPLIED UNDERWRITERS V. LARA                 21

   1. The insurance conservatorship is an in rem
      proceeding

    Looking to the insurance conservation order itself, the
Superior Court asserted in rem jurisdiction over CIC I by
authorizing the Conservator to take title to CIC I:

       11. The Conservator is authorized in his or
       her discretion to take possession of any and
       all assets of [CIC I], including books,
       records, property (both real and personal),
       accounts, safe deposit boxes, rights of action,
       and all such assets as may be in the name of
       [CIC I], wheresoever situated.

       12. Title to all property and assets of [CIC I],
       designated by the Conservator in his or her
       discretion, including deposits, securities,
       contracts, rights of actions, books, records,
       and other assets of every type and nature, and
       including both those presently in [CIC I’s]
       possession and those that may be discovered
       hereafter, wheresoever situated, that are
       necessary or appropriate for the orderly
       conservation of [CIC I] is to be vested in the
       Conservator or his or her successor in office,
       in his official capacity as Conservator. The
       Conservator is authorized to deal with such
       assets in his or her own name as Conservator
       or in the name of [CIC I], and all persons are
       enjoined from interfering with Conservator’s
       possession and title to such assets.

     Appellants challenge this view, contending that because
title to CIC I was vested in the Commissioner instead of the
22           APPLIED UNDERWRITERS V. LARA

Superior Court itself, the conservatorship is not properly
understood as proceeding in rem. This view is unpersuasive,
for two reasons. First, it ignores the Superior Court’s own
explicit assertion of in rem jurisdiction over CIC I:

       11. Powers of the Court and the
       Conservator. This Court shall continue to
       assert and to maintain sole and exclusive
       jurisdiction, to the exclusion of all other
       courts or tribunals, over and to all assets of
       [CIC I] of whatsoever kind or nature and
       wherever or however owned or held.

Second, United States v. Bank of New York & Trust Co.,
296 U.S. 463 (1936) forecloses Appellants’ argument.
There, the Court noted that while “the state court directed the
superintendent of insurance to take possession of the assets”
of the conserved insurance firms, “[t]he proceeding was
essentially one in rem,” id. at 475, later noting that “the
superintendent still holds possession by virtue of [the state
court’s] authorization, and the res thus remains under the
court’s jurisdiction,” id. at 476.

    Garamendi v. Executive Life Insurance Co., 17 Cal. App.
4th 504 (1993), further supports the in rem classification
here. Garamendi considered an appeal of a Superior Court
order in an insurance conservatorship arising under
California Insurance Code § 1011. Id. at 508–09. The
conservatorship concerned assets of a limited partnership in
which the insurance company under conservatorship owned
a 92% interest. Id. at 509. Garamendi held that the
insurance company under conservatorship and the affected
limited partnership shared an “identity of interest” sufficient
to give the Superior Court jurisdiction over the limited
partnership’s assets pursuant to the original conservation
             APPLIED UNDERWRITERS V. LARA                   23

order. Id. at 523. In doing so, Garamendi explicitly
categorized the Superior Court’s jurisdiction in that action as
in rem. Id. This view was subsequently endorsed by this
Court in Morgan Stanley Mortgage Capital Inc. v. Insurance
Commissioner, 18 F.3d 790, 792 (9th Cir. 1994).

   Based on the cited cases, the state court insurance
conservatorship here challenged is one proceeding in rem.

   2. The federal actions are either in rem or quasi in rem
      proceedings

    In form, the federal actions are in personam actions
asserting claims under 42 U.S.C. § 1983 directed against
certain state officials. However, State Engineer instructs
courts to look “behind the form of the action to the gravamen
of a complaint and the nature of the right sued on” when
determining the true jurisdictional nature of a case. 339 F.3d
at 810 (cleaned up).

   Here, in both federal actions, the gravamen of the
complaint is directed at ending the conservatorship’s control
over CIC I’s assets:

       PRAYER FOR RELIEF

       WHEREFORE, in connection with the
       preceding paragraphs, Plaintiffs respectfully
       request that the Court enter judgment in their
       favor against Defendants, and award the
       following relief:

       A. An Order declaring the Commissioner’s
       actions, as alleged, violate Plaintiffs’ rights to
       due process and equal protection under the
24           APPLIED UNDERWRITERS V. LARA

       Fourteenth Amendment to the United States
       Constitution;

       B. An Order declaring the Commissioner’s
       actions, as alleged, constitute a violation of
       the Dormant Commerce Clause and an
       unlawful taking of Plaintiffs’ property
       interests in violation of the Fifth and
       Fourteenth Amendments to the United States
       Constitution;

       C. An Order directing the Commissioner to
       take all necessary steps to end CIC’s
       conservatorship pursuant to California
       Insurance Code § 1012, and enjoining the
       Commissioner     from     continuing  the
       conservation;

Appellants’ prayers for relief seeking declaratory orders also
seek to interfere with the state court’s control over the CIC I
res, imparting an inherently in rem nature to the federal
actions.

    Moreover, in State Engineer, the Court rejected
Appellants’ argument that the underlying “contempt actions
[were] in personam rather than in rem,” 339 F.3d at 810,
recognizing that “the contempt action was brought to enforce
a decree over a res,” id. at 811. In this respect, State
Engineer mirrors the instant federal actions, which, as noted
above, seek “necessarily [to] interfere with the jurisdiction
or control by the state court over the res”—here, the assets
of CIC I. Bank of N.Y., 296 U.S. at 478. Similarly, in Bank
of New York, although the underlying complaints were
brought by the United States in form as in personam actions
in “accounting and delivery” against two New York banks
                APPLIED UNDERWRITERS V. LARA                            25

concerning the United States’ claim to ownership over
certain funds, id. at 470, the Supreme Court looked through
the form of the actions to observe that “the object of the suits
is to take the property from the depositaries and from the
control of the state court, and to vest the property in the
United States to the exclusion of all those whose claims are
being adjudicated in the state proceedings,” id. at 478, and
were thus in rem proceedings.

   For these reasons, the federal actions are necessarily
proceeding either in rem or quasi in rem. And as the state
court insurance conservatorship is also one proceeding in
rem and was filed first, it appears the federal actions must be
dismissed.

    3. Prior exclusive jurisdiction and 42 U.S.C. § 1983

    This case does, however, have a unique and important
feature. To our knowledge, it is the first case in this Court
implicating the prior exclusive jurisdiction rule in
connection with a 42 U.S.C. § 1983 action. 5 And as it is
currently formulated in the caselaw, the prior exclusive
jurisdiction rule presents as an absolute bar to federal court
involvement in state court suits when both suits are either in
rem or quasi in rem, regardless of the presence of any
claimed deprivations of constitutional rights occurring in the

    5
       In a recent unpublished decision, the Third Circuit considered a
42 U.S.C. § 1983 action which also implicated the prior exclusive
jurisdiction rule, finding that the prior exclusive jurisdiction rule barred
jurisdiction in that case. Dyno v. Dyno, No. 20-3302, 2021 WL 3508252,
at *2 (3rd Cir. Aug. 10, 2021) (referring to the prior exclusive
jurisdiction rule as “the Princess Lida doctrine,” citing Princess Lida,
305 U.S. at 466).
26              APPLIED UNDERWRITERS V. LARA

initial action. 6 Accordingly, we take occasion to discuss
limitations on the prior exclusive jurisdiction rule that may
be necessary in unusual circumstances in which the
adjudication of constitutional rights might be compromised,
but conclude that this case does not present any such
circumstances.

    At core, abstention doctrines are rooted in policy
considerations which allow federal courts to exercise
“discretion in determining whether to grant certain types of
relief—a discretion that was part of the common-law
background against which the statutes conferring
jurisdiction were enacted.” NOPSI, 491 U.S. at 359.
Accordingly, “there are some classes of cases in which the
withholding of authorized equitable relief because of undue
interference with state proceedings is ‘the normal thing to
do.’” Id. (quoting Younger, 401 U.S. at 45). Still, abstention
is only “the normal thing to do” in “exceptional
circumstances.” Sprint, 571 U.S. at 78 (quoting NOPSI,
491 U.S. at 368). Such “exceptional circumstances” have
been generalized to embody situations “where denying a
federal forum would clearly serve an important
countervailing interest, for example, where abstention is
warranted by considerations of proper constitutional
adjudication, regard for federal-state relations, or wise
judicial administration.” Quackenbush v. Allstate Ins. Co.,
517 U.S. 706, 716 (1996) (cleaned up). “Few public
interests have a higher claim upon the discretion of a federal
chancellor than the avoidance of needless friction with state

     6
       To be sure, the prior exclusive jurisdiction rule applies with equal
force in prohibiting a state court from interfering with a federal court that
first takes in rem or quasi in rem jurisdiction over a disputed res. See,
e.g., United States v. Alpine Land & Reservoir Co., 174 F.3d 1007,
1012–14 (9th Cir. 1999).
              APPLIED UNDERWRITERS V. LARA                    27

policies, whether the policy relates to the enforcement of the
criminal law, or the administration of a specialized scheme
for liquidating embarrassed business enterprises, or the final
authority of a state court to interpret doubtful regulatory laws
of the state.” Id. at 717–18 (quoting R.R. Comm’n of Tex. v.
Pullman, 312 U.S. 496, 500 (1941)). And to be sure,
“[s]tates, as a matter of tradition and express federal consent,
have an important interest in maintaining precise and
detailed regulatory schemes for the insurance industry.” Id.
at 733 (Kennedy, J., concurring) (citing McCarran-Ferguson
Act, Pub. L. No. 79-15, 59 Stat. 33 (1945) (codified as
amended at 15 U.S.C. § 1011 et seq.)).

     Standing in contrast to the abstention doctrines, Ex parte
Young, 209 U.S. 123 (1908), and its progeny explicitly
permit injunctions against state officials preventing them
from prosecuting criminal actions “where the danger of
irreparable loss is both great and immediate,” Younger,
401 U.S. at 45 (quoting Fenner v. Boykin, 271 U.S. 240, 243
(1926)). Notably, Younger itself refused to extend Ex parte
Young to enjoin a prosecution that “was already pending in
the state court” and which afforded the moving party “an
opportunity to raise his constitutional claims.” Id. at 49. The
Younger Court emphasized that “the possible
unconstitutionality of a statute ‘on its face’ does not in itself
justify an injunction against good-faith attempts to enforce
it, and that [the party seeking the injunction] failed to make
any showing of bad faith, harassment, or any other unusual
circumstance that would call for equitable relief.” Id. at 54.

    With this background, it is clear that abstention under the
prior exclusive jurisdiction rule can be proper even though
the federal action asserts a 42 U.S.C. § 1983 claim. By
maintaining otherwise, Appellants ask this Court to craft a
broad, Ex parte Young-type exception to the prior exclusive
28              APPLIED UNDERWRITERS V. LARA

jurisdiction rule for any 42 U.S.C. § 1983 action brought
against state officials when such suits seek to enjoin an
ongoing state court in rem proceeding. This we shall not do.

     Nor are there any special circumstances in this case
justifying a limitation on the prior exclusive jurisdiction rule.
Appellants first argue in this regard that they are unable to
present any objections in the insurance conservatorship at
all, given that they are not parties to that action. However,
Appellants’ interests are well represented in the
conservatorship action, given that each of CIC I, CIC II, and
Applied are all subject to the common management and
control of Steven Menzies and Jeffrey Silver. 7 Further, as
noted by the district court, any party with a material interest
in CIC I has been “expressly invited . . . to submit any
objections—constitutional or otherwise—they have to the
Proposed Rehabilitation Plan in writing and orally at the
hearing on the Commissioner’s application to approve the
Plan.”

    Appellants next argue that certain procedural
characteristics of the conservatorship proceeding will
prevent them from adequately raising their constitutional
claims, alleging that “the limitations of conservation
     7
      Here, an analogy exists to Younger abstention principles. Supreme
Court precedent holds that Younger abstention is applicable when
nominally distinct parties to the state and federal actions are nonetheless
“so closely related that they should all be subject to the Younger
considerations which govern any one of them.” Doran v. Salem Inn,
Inc., 422 U.S. 922, 928 (1975). Moreover, in Herrera v. City of
Palmdale, 918 F.3d 1037 (9th Cir. 2019), this Court held that Younger
abstention was applicable where the state action was brought against a
corporation while the federal action was brought by the co-founders of
the corporation and their family, id. at 1041, 1047. Appellants offer no
reasons why these same considerations should not apply in the prior
exclusive jurisdiction analysis.
               APPLIED UNDERWRITERS V. LARA                        29

proceedings under California law foreclose any realistic
ability for Appellants to develop and present fact-based
constitutional claims hinging on proof of motive and conduct
rather than the facial validity of a law.” However, state
caselaw firmly establishes the contrary—that Appellants do
have adequate opportunity to raise constitutional challenges
in insurance conservatorship proceedings. Carpenter, the
earlier mentioned California Supreme Court case, for
example, reviewed arguments “that the provisions of the
Insurance Code dealing with rehabilitation of insolvent
insurance companies were unconstitutional in that they
violated the due process, equal protection of the law, and the
contract clauses of the Federal Constitution.” Carpenter,
10 Cal. 2d at 328–32. 8 Rhode Island Insurance Co. v.
Downey, 95 Cal. App. 2d 220 (1949), considered a
“[p]etition for a writ of mandate directing the superior court
to vacate its ‘Order Appointing Conservator and Restraining
Order’ in a proceeding brought against petitioner by
respondent Insurance Commissioner of the State of
California” which argued “that to make the application of
statutes providing for summary seizure constitutional there
must be a reasonable necessity for taking, coupled with an
adequate remedy giving the company whose assets are
seized the right to show that the seizure was unnecessary and
unjustified,” id. at 223, 238–39. And In re Executive Life
Insurance Co., 32 Cal. App. 4th 344 (1995), considered the
appellants’ “claim that the nature of the confirmation hearing
on the modified [rehabilitation] plan denied them their First
Amendment rights of speech and petition,” id. at 391.

    To the extent that Appellants are genuinely unable to
raise fact-based “claims of unconstitutional retaliation” “for

    8
      Carpenter was then further affirmed by the U.S. Supreme Court in
Neblett v. Carpenter, 305 U.S. 297 (1938).
30              APPLIED UNDERWRITERS V. LARA

[CIC I’s] and Appellants’ First Amendment activity,” there
would unquestionably be a proper due process challenge
under the Fourteenth Amendment to the facial validity of the
relevant provisions of the California Insurance Code, a
challenge the Superior Court, Court of Appeals, and
California Supreme Court are able to pass upon, as
thoroughly demonstrated by the California state caselaw
cited above. 9 Indeed, due process challenges have been
raised in CIC I’s application for interlocutory appellate
review with the California Court of Appeal. Specifically,
CIC I asserted in its petition for writ of mandate or other
relief that the “Superior Court’s Failure to Conduct a Full
Hearing And to Construe the Relevant Statute Was Legal
Error And Violated the Express Terms of Section 1012 and
[CIC I’s] Right to Due Process.” And as stated above, CIC I
filed an application to vacate the conservatorship with the
Superior Court, arguing that: 1) the conservatorship was
obtained under false pretenses; 2) the conditions cited for
imposing the conservatorship no longer existed; 3) the
Commissioner acted arbitrarily, capriciously, and in bad
faith; and 4) the conservatorship continues to harm CIC I.
Contrary to Appellants’ representation that “the Superior
Court concluded that state law forecloses any scrutiny of
Appellees’ choice to pursue a conservation over an
injunction,” the Superior Court explicitly found, on the
merits, that “the Commissioner’s preference to pursue a
Rehabilitation Plan is reasonable and sufficient under the
circumstances,” evincing that the Superior Court considered

     9
      Just as in Younger, whether the party seeking to enjoin ongoing
proceedings has “an adequate opportunity to raise constitutional claims”
“does not turn on whether the federal plaintiff actually avails himself of
the opportunity to present federal constitutional claims in the state
proceeding, but rather whether such an opportunity exists.” Herrera,
918 F.3d at 1045–46.
              APPLIED UNDERWRITERS V. LARA                   31

CIC I’s arguments of whether the Commissioner was
justified in pursuing a conservatorship over an injunction.

    We will also consider, as in Younger cases, “bad faith”
and “irreparable injury” exceptions to the otherwise valid
application of the prior exclusive jurisdiction rule. In the
context of Younger, “bad faith ‘generally means that a
prosecution has been brought without a reasonable
expectation of obtaining a valid conviction.’” Baffert v. Cal.
Horse Racing Bd., 332 F.3d 613, 621 (9th Cir. 2003)
(quoting Kugler v. Helfant, 421 U.S. 117, 126 n.6 (1975)).
Such “bad faith” might arise in cases involving “repeated
harassment by enforcement authorities with no intention of
securing a conclusive resolution” or where there is evidence
of “pecuniary bias by the tribunal.” Partington v. Gedan,
961 F.2d 852, 861–62 (9th Cir. 1992). The Second Circuit
has provided the following helpful guidance for determining
what constitutes an allegation of “bad faith”: “it is only when
the state proceeding is brought with no legitimate purpose
that [the] state interest in correcting its own mistakes
dissipates” and the “bad faith” exception to Younger applies.
Diamond “D” Const. Corp. v. McGowan, 282 F.3d 191, 200
(2nd Cir. 2002) (emphasis added).

    Moreover, the Supreme Court in Hicks v. Miranda,
422 U.S. 332 (1975), stated that where there are allegations
of “repeated judicial authorization” for the alleged bad faith
conduct of the federal defendant, “we cannot agree that bad
faith and harassment were made out” unless there is an
allegation that the judicial authorization itself was steeped in
the bad faith actions of the judicial officers involved, id.
at 351.

    In view of these teachings, it is clear there are no
sufficient allegations of “bad faith” here to merit an
exception to the valid application of the prior exclusive
32              APPLIED UNDERWRITERS V. LARA

jurisdiction rule. As previously noted, the conservatorship
action was brought for a legitimate reason—indeed,
Appellants’ own factual allegations make out a violation of
§ 1215.2(d) sufficient to trigger a conservatorship under
§ 1011(c). The allegations make clear that Appellants
neither sought nor received approval from the CDI for the
proposed purchase of the controlling interest in CIC I and
the concomitant CIC I / CIC II merger, as required by
California Insurance Code § 1215.2(d), and that the merger
was an obvious attempt to avoid the California insurance
regulatory regime. It is possible to imagine a hypothetical
situation in which the Commissioner is seeking, through his
proposed Rehabilitation Plan, favorable settlements for
politically allied recipients to compensate for past and future
political contributions, or improper kickbacks for himself
from settlement recipients or others who may conceivably
be favored by other provisions of the proposed
Rehabilitation Plan. This sort of skullduggery could make
out a viable bad faith claim against the Commissioner.

    Before the district court below, Appellants did make
some allegations vaguely to that effect, at least implicitly.10
However, Appellants’ allegations do not suggest that the
Commissioner acted “with no intention of securing a
conclusive resolution.” Partington, 961 F.2d at 862. What
is more, an allegation of “bad faith” is not a talisman
sufficient to overcome an otherwise proper exercise of
abstention. For purposes of fashioning a “bad faith”

     10
       Appellants asserted, among other claims, that Appellees “are
using their broad state conservation powers as a club to force settlement
by parties in private litigation that they want policyholders and their
attorneys to win.” Why they wanted those parties to win—for some
nefarious purpose, or because those parties were entitled to prevail—was
not spelled out.
                APPLIED UNDERWRITERS V. LARA                           33

exception to the application of the prior exclusive
jurisdiction rule, in addition to the due process exception
already outlined, by analogy to Younger, Appellants in these
circumstances—where state officials have sought and
received “repeated judicial authorization for their
conduct”—must allege that the state court itself is part of the
Commissioner’s bad faith scheme, or is otherwise acting in
bad faith to deprive Appellants of a fair chance to litigate the
propriety of the exercise of in rem jurisdiction. Hicks,
422 U.S. at 351. Appellants have failed to make such
allegations. 11

    Likewise, Appellants have failed to demonstrate
“irreparable injury” arising from “extraordinary
circumstances” which might justify an exception to the prior
exclusive jurisdiction rule. In the context of Younger, as
noted by the district court, “such circumstances must be
‘extraordinary’ in the sense of creating an extraordinarily
pressing need for immediate federal equitable relief, not
merely in the sense of presenting a highly unusual factual
situation.” Moore v. Sims, 442 U.S. 415, 433 (1979)

    11
        To be clear, where the state officials have sought and received
judicial authorization for their conduct, the necessity of bad faith
allegations against the Superior Court itself cannot be understated.
Simply alleging that the Superior Court made an incorrect ruling, even a
“clear error,” is not sufficient to defeat an otherwise proper application
of abstention. A respect for federalism demands as much. Appellants
can seek review of the Superior Court’s decision in the California Court
of Appeals, the California Supreme Court, and ultimately, the Supreme
Court of the United States. Without specific allegations that the Superior
Court is itself acting in bad faith, this federal tribunal must respect the
competency of the parallel state court system to correct any mistakes of
law that are made in that system. “Minimal respect for the state
processes, of course, precludes any presumption that the state courts will
not safeguard federal constitutional rights.” Middlesex, 457 U.S. at 431
(emphasis in original).
34              APPLIED UNDERWRITERS V. LARA

(quoting Kugler v. Helfant, 421 U.S. 117, 125 (1975)). Two
recent Ninth Circuit cases have found “extraordinary
circumstances” giving rise to “irreparable injury” sufficient
to satisfy the exception to Younger. Bean v. Matteucci,
986 F.3d 1128 (9th Cir. 2021), held that an individual’s “due
process right to avoid forcible administration of
antipsychotic medications” was a harm that “cannot be fully
vindicated after trial,” id. at 1134–35. Likewise, Arevalo v.
Hennessy, 882 F.3d 763 (9th Cir. 2018), held that where
“petitioner has been incarcerated for over six months without
a constitutionally adequate bail hearing,” such a
“[d]eprivation of physical liberty by detention constitutes
irreparable harm,” id. at 767.

    Here, however, Appellants allege no such concrete
irreparable harm.       Instead, Appellants allege only
speculative harms that may arise if the Superior Court adopts
the Commissioner’s proposed Rehabilitation Plan. Even
then, Appellants will have ample opportunity to have that
decision reviewed by appellate state courts. 12

    Moreover, Appellants’ claims of “irreparable harm”
suffer from a more fundamental defect. As noted above,
Appellants have sufficient ability to challenge the
conservatorship in the Superior Court, which includes the
ability to challenge the proposed Rehabilitation Plan. If the
Superior Court approves the Rehabilitation Plan, and the
Rehabilitation Plan is then affirmed by the California Court

     12
        Specifically, Appellants allege that “[t]he [irreparable] harm
includes forced settlements of litigation rights, millions of dollars in lost
property and assets, and nearly $100 million lost from the forced transfer
of CIC’s and Appellants’ book of business to third parties. And the best
means of repairing that harm—damages—is unavailable because the
relief would run against the state and thus is barred by the Eleventh
Amendment.”
             APPLIED UNDERWRITERS V. LARA                  35

of Appeals and the California Supreme Court, that properly
obtained judgment would not be a legally cognizable
“injury” for the purposes of § 1983 damages. So, although
Appellants note the fundamental concept that damages
against the state are generally barred by the Eleventh
Amendment (notwithstanding California Government Code
§§ 800–900 et seq.), a properly obtained judgment, even if
adverse to Appellants’ interests, cannot count as an “injury”
to a party such that the inability to obtain damages supports
federal injunctive relief. To hold otherwise would be to hold
that a state official can properly act within his authority to
impose a conservatorship on an insurance firm, propose a
Rehabilitation Plan approved by the Superior Court,
California Court of Appeals, and California Supreme Court,
then, at the same time, be subject to damages by the unhappy
owners and affiliates of the conserved insurance firm subject
to the Rehabilitation Plan. This result would be absurd.

    Appellants allege a final source of potential “irreparable
injury” resulting from their present inability to service new
CIC I policies while CIC I is under the conservatorship,
thereby depriving Appellants of profits they would have
otherwise realized. In the event the Superior Court or an
appellate state court were to hold that the conservatorship
was entirely unfounded, denying the Commissioner’s
proposed Rehabilitation Plan, returning all assets to CIC I’s
management, and allowing the Merger with CIC II to
consummate, Appellants may well have suffered an
“irreparable injury,” given Appellants’ uncertain ability to
recover damages from the state. However, two reasons
prevent this claim from representing an “irreparable loss
[that] is both great and immediate” so as to merit an
exception to an otherwise valid exercise of abstention.
Younger, 401 U.S. at 45.
36           APPLIED UNDERWRITERS V. LARA

    First, as previously stated, Appellants’ own factual
allegations make out a violation of § 1215.2(d) sufficient to
trigger a conservatorship under § 1011(c). What is more,
after the Commissioner’s ex parte conservatorship
application was granted, the propriety of the conservatorship
has been twice affirmed, once by the Superior Court in
denying CIC I’s application to vacate the conservatorship,
and once by the California Court of Appeals in denying CIC
I’s application for interlocutory appellate review of the
Superior Court’s denial of CIC I’s application to vacate the
conservatorship. Given this background, it seems highly
unlikely Appellants would ever have any claim for recovery
based on a theory that the conservatorship was
impermissible.

    Second, even in the event that the conservatorship is
vacated in full as baseless, Appellants have not established
that they would be categorically barred from relief under
California Government Code §§ 800–900 et seq. Moreover,
Appellants do not argue that the calculation of damages is
impossible. To be sure, it is unclear whether the institution
of a truly baseless conservatorship could serve as grounds
for waiver of state sovereign immunity under that statute, but
the possibility of such relief further underscores why
Appellants’ claim of “irreparable injury” is misplaced.

    Accordingly, as Appellants have failed to allege here any
true “irreparable injury” arising from “extraordinary
circumstances,” application of the prior exclusive
jurisdiction rule requires federal judicial abstention in this
case.

   Of course, we do not acknowledge these limitations on
the prior exclusive jurisdiction rule lightly, given the
potential embarrassment of competing federal and state
courts issuing injunctions against one another concerning
                APPLIED UNDERWRITERS V. LARA                         37

control of a disputed res. However, if such a case were to
arise where a state forum was irremediably depriving a
litigant of his constitutional rights, then federal interference
would be required, the prior exclusive jurisdiction rule
notwithstanding. 13 Indeed, if the initial proceeding were to
be wholly repugnant to the Constitution, the state forum
could not be said to have “competent jurisdiction” over the
res. State Eng’r, 339 F.3d at 809. But this case in no way
presents such an extraordinary situation. Accordingly,
federal judicial abstention due to the San Mateo Superior
Court’s prior exclusive jurisdiction of the CIC I res is
warranted.

                       IV. CONCLUSION

   For the foregoing reasons, we AFFIRM the district
court’s dismissal of the federal actions.

NGUYEN, Circuit Judge, concurring in the result:

    I agree that we should affirm the district court’s
dismissal of these federal actions. But I write separately
because, in my view, the district court correctly dismissed
under Younger abstention. In rejecting this ground for
dismissal, the majority holds that insurance conservatorships
are not the type of civil enforcement proceedings to which

    13
        In addition to the exceptions at issue in this case, federal
jurisdiction may be appropriate, notwithstanding the prior exclusive
jurisdiction rule, in a case involving enforcement of a statute that is
“flagrantly and patently violative of express constitutional prohibitions
in every clause, sentence and paragraph, and in whatever manner and
against whomever an effort might be made to apply it.” Watson v. Buck,
313 U.S. 387, 403 (1941).
38            APPLIED UNDERWRITERS V. LARA

Younger abstention applies. To the contrary, insurance
conservatorships embody all of the characteristics which
define that category.

    Instead of applying Younger abstention, the majority
breaks new ground to determine how the prior exclusive
jurisdiction doctrine should apply when a federal plaintiff
asserts constitutional violations in a pending state court
proceeding. Younger addresses how federal courts should
proceed in this situation, which explains why the majority
must import aspects of Younger into its extension of the prior
exclusive jurisdiction doctrine. Rather than reinvent the
wheel, I would apply Younger, which the majority’s own
analysis confirms is a better fit.

                               I

                               A

     The Supreme Court has said that Younger only applies to
civil enforcement proceedings that are “‘akin to a criminal
prosecution’ in ‘important respects.’” Sprint Commc’ns, Inc.
v. Jacobs, 571 U.S. 69, 79 (2013) (quoting Huffman v.
Pursue Ltd., 420 U.S. 592, 604 (1975)). First, “enforcement
actions are characteristically initiated to sanction the federal
plaintiff . . . for some wrongful act.” Id. Second, “a state
actor is routinely a party to the state proceeding and often
initiates the action.” Id. Third, “[i]nvestigations are
commonly involved, often culminating in the filing of a
formal complaint or charges.” Id. at 79–80.

   The majority does not dispute that the second and third
of these characteristics are present in insurance
conservatorships. These characteristics are easily shown.
The proceedings here can only be initiated by a state actor—
California’s Insurance Commissioner—who not only
                APPLIED UNDERWRITERS V. LARA                            39

remains a party to those proceedings but controls the
insurer’s assets and business while the action is pending. See
Cal. Ins. Code § 1011; Bristol-Myers Squibb Co. v. Connors,
979 F.3d 732, 736 (9th Cir. 2020) (holding that a case was
sufficiently state-initiated because it could only be brought
by state officials), cert. denied, 141 S. Ct. 2796 (2021). And
insurance conservatorships can only be initiated by filing a
“verified application,” a formal statement of allegations
supporting relief, which obviously requires some prior
investigation. See Cal. Ins. Code § 1011. 1

    The only issue is whether the first characteristic is
present. The majority explains that the district court erred
because “[t]his insurance conservatorship . . . cannot be said
to have been brought ‘to sanction the federal plaintiff . . . for
some wrongful act,’ Sprint, 571 U.S. at 79, which is the
quintessential feature of a Younger-eligible ‘civil
enforcement action.’” Maj. Op. at 15. I strongly disagree.
The      Commissioner      undoubtedly        initiated       the
conservatorship “to sanction [CIC I] for some wrongful act.”
Sprint, 571 U.S. at 79. How could it be otherwise? The
conservatorship was initiated as a direct response to CIC I’s
attempt to do an end-run around California’s regulators by
consummating an unapproved merger in brazen violation of
California law and the Insurance Commissioner’s direct
warning. See Cal. Ins. Code §§ 1011(c), 1215.2(d).

    Yet the majority concludes that the conservatorship lacks
the requisite “punitive character” and “sanctions” to qualify

    1
       I assume for argument’s sake that these second and third
characteristics are not sufficiently indicative of civil enforcement
proceedings by themselves. But see Bristol-Myers Squibb, 979 F.3d
at 737 (“Nothing in [Sprint] suggests that the characteristics it identified
should be treated as a checklist . . . .”).
40            APPLIED UNDERWRITERS V. LARA

as a civil enforcement proceeding. Maj. Op. at 16. But what
would establish the requisite punitive character or sanction?
The majority doesn’t say. Appellants argue, and the
majority appears to accept, that Younger abstention cannot
apply when the purpose of a proceeding is to protect
consumers and the public and rehabilitate the insured.

    But a state proceeding can still be subject to Younger
even if its purpose is to rehabilitate, to deter, or to protect the
public. In Middlesex, the Supreme Court applied Younger
abstention to attorney disciplinary proceedings even though
the purpose of those proceedings was “the protection of the
public, the purification of the bar and the prevention of a re-
occurrence.” 457 U.S. 423, 434 (1982) (citation omitted).
No case suggests that disciplinary proceedings would
become exempt from Younger abstention if they sought a
primarily rehabilitative remedy – such as mandatory
education or counseling – as opposed to disbarment or
suspension. Such individualized inquiries into motive are
not part of this analysis. See Bristol-Myers Squibb, 979 F.3d
at 737 (rejecting “case-specific inquiry” into “the State’s true
motive in bringing [a] case”). Middlesex thus shows that
proceedings geared towards “protection,” “prevention,” and
even rehabilitation can have the requisite punitive character.
457 U.S. at 434; see also Herrera v. City of Palmdale,
918 F.3d 1037, 1045 (9th Cir. 2019) (applying Younger
abstention to suit to abate conditions at a motel that “pose[d]
a severe life and health and safety hazard to any occupants,
nearby residents, and the public.”).

    Focusing on the remedies sought, it is also clear that
insurance conservatorships are “sanctions.”            This
characteristic of civil enforcement proceedings is supposed
to be “akin to a criminal prosecution.” Sprint, 571 U.S.
at 79. In the criminal context, of course, sentences are
             APPLIED UNDERWRITERS V. LARA                  41

shaped by interests in deterrence, protection of the public,
and rehabilitation. See 18 U.S.C. § 3553(a)(2)(B)–(D).
Civil enforcement proceedings accordingly remain akin to
criminal prosecution even when their goal is in part to stop
wrongful conduct and to protect the public from its
consequences.

    We have thus held that state-imposed receiverships,
which have similar aims to conservatorships, can be
sufficient sanctions to fall within Younger’s civil
enforcement category. See Herrera, 918 F.3d at 1045
(holding that “the appointment of a receiver to take
possession and control of the property” in a civil nuisance
action was a “sanction[] . . . consistent with the enforcement
actions described in Sprint . . . .”); Worldwide Church of
God, Inc. v. State of Cal., 623 F.2d 613, 614 (9th Cir. 1980)
(per curiam) (holding that Younger abstention applied to a
receivership imposed “to prevent diversion of Church assets
from charitable purposes to the personal benefit of persons
who controlled the Church.”). Like these state-imposed
receiverships, the Commissioner in conservation
proceedings manages an insurer’s property with a “fiduciary
dut[y]” to protect interested stakeholders. John K. DiMugno
& Paul E.B. Glad, California Insurance Law Handbook
§ 40.5 (2022). The Commissioner’s “initial objective is
almost always to rehabilitate the insolvent or delinquent
insurer.” Id. § 40.3. That its goals are protection and
rehabilitation does not mean that court-ordered
dispossession of an insurer’s assets at the request of state
officials does not amount to a sanction.

                              B

    The majority also appears to suggest that the “imprudent
acts” of an insurer cannot be “wrongful conduct” of the
severity that a criminal prosecution would redress. Maj. Op.
42           APPLIED UNDERWRITERS V. LARA

at 18. The majority provides no authority that Younger
abstention should turn on the egregiousness of the conduct
addressed by parallel state proceedings. Regardless, the
Commissioner points out that some conduct triggering
conservation proceedings, including the conduct in which
CIC I engaged, can trigger criminal penalties under
California law. See Cal. Ins. Code §§ 700(b), 1215.11(d),
(f). And while short of what state law criminalizes, most of
the conditions that authorize a conservatorship describe
blatant malfeasance, such as defying orders of the
Commissioner or violating conditions of practice as an
insurer, see Cal. Ins. Code § 1011(a)–(c), (e)–(h), and are
appropriately categorized by state law as “Proceedings in
Cases of . . . Delinquency,” see id. Div. 1, Pt. 2, Ch. 1, Art.
14. Even if it mattered that insurance conservatorships are
usually brought to redress insolvency, see id. § 1011(d), (i),
there is no reason why a state could not treat such conduct as
worthy of sanction in a civil enforcement proceeding. In a
highly regulated field such as insurance, conduct innocent in
other contexts, such as running an insolvent business, can
take on such a “grave and important interest” that
“something must be done to remedy the situation.”
Carpenter v. Pac. Mut. Life Ins. Co. of Cal., 74 P.2d 761,
775 (Cal. 1937).

    The majority’s only response to the concurrence – and to
this analysis of the different reasons for bringing insurance
conservatorships – is to mischaracterize it as an
“individualized inquir[y]” into “the Commissioner’s true
motive in bringing the conservatorship of CIC I.” Maj. Op.
at 18 n.3. It is because “[t]hat kind of case-specific inquiry
finds no support in precedent” that I (unlike the majority)
examine Cal. Ins. Code § 1011 as a whole. Bristol-Myers
Squibb, 979 F.3d at 737. That the facts of this case are so
“akin to criminal prosecutions” only illustrates how far the
              APPLIED UNDERWRITERS V. LARA                   43

majority strays from the Supreme Court’s characterization
of civil enforcement proceedings. Sprint, 571 U.S. at 72.

                               C

    The majority gives great weight to a passage from the
California Supreme Court’s 1937 decision in Carpenter,
stating that insurance conservatorships are “not brought to
prosecute ‘an action for the enforcement or protection of a
right, or for the redress or prevention of a wrong, or for the
punishment of a public offense.’” Maj. Op. at 18 (quoting
Carpenter, 74 P.2d at 773). This quotation has little if any
relevance to the issues in this case. Carpenter was quoting
section 22 of the California Code of Civil Procedure, which
simply defines “ordinary proceeding[s]” as distinct from
“special proceeding[s],” which include conservatorships.
See Cal. Code Civ. Proc. §§ 22–23. The statute was only
quoted to answer a procedural question entirely unrelated to
the characteristics of civil enforcement proceedings –
whether the trial court was required to enter formal findings.
See Carpenter, 74 P.2d at 773–774.

     Perplexingly, the majority also purports to find support
for its position in Carpenter's statement that insurance
conservatorships are “not a controversy between private
parties but a proceeding by the state in the interest of the
public.” Id. at 774; see Maj. Op. at 17–18. That language
strongly supports applying Younger abstention. Younger-
eligible civil enforcement proceedings are characteristically
initiated by the state, see Sprint, 571 U.S. at 79, and in order
to qualify for Younger they must “implicate important state
interests,” Middlesex, 457 U.S. at 432.              Moreover,
Carpenter’s statement that conservatorships are “not a
controversy between private parties,” 74 P.2d at 774, clearly
distinguishes them from purely private disputes that fall
outside Younger’s reach. See Sprint, 571 U.S. at 80 (dispute
44           APPLIED UNDERWRITERS V. LARA

over fees between national and local telecommunications
carriers); Rynearson v. Ferguson, 903 F.3d 920, 926 (9th
Cir. 2018) (anti-stalking protection order sought by private
party against another private party); Cook v. Harding, 879
F.3d 1035, 1040 (9th Cir. 2018) (challenge to enforcement
of private surrogacy contract).

    As Carpenter helps to confirm, all three characteristics
that Sprint identified are present here.            Insurance
conservatorships are brought by the Commissioner,
following an investigation that results in a formal allegation
of wrongful conduct against an insurer, and they empower
the Commissioner to impose measures that will protect the
public from the insurer’s misconduct, prevent recurrence,
and rehabilitate the insurer. Under Sprint, insurance
conservatorships are thus civil enforcement proceedings and
Younger abstention applies.

                              II

    After rejecting the district court’s conclusion on
Younger, the majority articulates various limitations to the
prior exclusive jurisdiction doctrine in the context of § 1983
actions. Maj. Op. at 26–37. As the majority recognizes,
these limitations are drawn directly from Younger
abstention. See id. at 27–34 & nn. 7, 9. The majority in
effect runs through the remainder of the Younger analysis,
and I fully agree with how the majority applies those
limitations to the facts of this case.

    That the majority finds it necessary to transplant Younger
principles onto the prior exclusive jurisdiction doctrine is
revealing. Younger abstention was developed to reconcile
respect for state courts with the federal interest in enforcing
constitutional rights. See Middlesex, 457 U.S. at 431
(explaining that a policy underlying Younger is that
             APPLIED UNDERWRITERS V. LARA                   45

“[m]inimal respect for the state processes . . . precludes any
presumption that the state courts will not safeguard federal
constitutional rights.”). Younger v. Harris itself held that
abstention was proper in a constitutional challenge to
pending state proceedings because, in “vindicat[ing] and
protect[ing] federal rights and federal interests,” the federal
government must “not unduly interfere with the legitimate
activities of the States.” 401 U.S. 37, 44 (1971). It is
therefore unsurprising that the majority grafted aspects of the
Younger abstention framework onto its prior exclusive
jurisdiction analysis to grapple with these tensions.

    In short, rather than applying a doctrine tailor-made for
this situation, the majority instead attempts to modernize the
“ancient” doctrine of prior exclusive jurisdiction. Maj. Op.
at 20. Because I believe Younger abstention applies, I
concur only in the result.