Court Opinion

ID: 2967167
Source: CourtListenerOpinion
Date Created: 2015-09-22 02:04:06.3179+00
Date Added: 2024-06-11T11:43:12.531436
License: Public Domain

FILED: March 9, 2000

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

JOAN CALDWELL JOHNSON; LORRAINE
WITHERSPOON BAKER; DANNY KAY
SMITH; SARA EDELL BOAN; DEANNA
KAY FRANS; DARRYL BERNARD EPPS;
ANDREW NOBLES; JOSEPH CHESTER
WALKER; WILLIAM JOSEPH HARNETT,
JR.; BRUCE ANDERSON; WILLIAM BELL;
FAYE BLAYLOCK; MIKE BREWER; MIKE
BROWN; RONALD CALLAHAN; SANDRA
COULTER; LISA CRUM; ANDREAS
DRUTIS; CRYSTAL GAYLE EDWARDS;
BUSTER ELFIN FLOYD; GEORGE HENLEY;
LORETTA JONES; MARGARET LOCKLEAR;
TAMMY LOCKLEAR; LINDA MCCLEOD;
                                      No. 98-2225(L)
WILLIAM MCCORMICK; HUGH MEISE;
                                      (CA-97-2136-3-17)
PATTY MILLER; GARY PADGETT; MARY
PINCHBACK; VARDRY PITTMAN; ALBERT
J. SAMRA; MASON SKEENES; JIM STOLZ;
AMBER STRICKLAND; CHARLES STUBBS;
LONYA THIGPEN; JAMES THOMPSON;
JESSIE WILLIAMS; VALERIE WILLIAMS,
and on behalf of themselves and all
others similarly situated; STATE OF
SOUTH CAROLINA; ex rel., CHARLES M.
CONDON, in his official capacity as
Attorney General,
Plaintiffs-Appellees,

v.
COLLINS ENTERTAINMENT COMPANY,
INCORPORATED; AMERICAN AMUSEMENT
COMPANY, INCORPORATED; AMERICAN
AMUSEMENT OF AIKEN, INCORPORATED;
JOYTIME DISTRIBUTORS & AMUSEMENT,
INCORPORATED; RED DOT AMUSEMENTS;
CBA GAMES, INCORPORATED; BEST
AMUSEMENT COMPANY; GREENWOOD
MUSIC COMPANY, INCORPORATED; ACE
AMUSEMENT, LLC; B&J AMUSEMENT;
BROYLES & LUTZ, INCORPORATED;
CAROUSEL AMUSEMENTS; COLEY,
INCORPORATED; DREW INDUSTRIES; FAST
FREDDIES; GREAT GAMES,
INCORPORATED; H&JOF SOUTH
CAROLINA, INCORPORATED; HOLLIDAY
AMUSEMENT COMPANY OF CHARLESTON,
INCORPORATED; HOYTS MUSIC COMPANY,
INCORPORATED; HUCKLEBERRY
AMUSEMENT, INCORPORATED; INGRAM
INVESTMENTS; J. M. BROWN AMUSEMENT
COMPANY, INCORPORATED; LARRY
WOLFE AMUSEMENT; MHJ
CORPORATION; MHS ENTERPRISES,
INCORPORATED; MARTIN COIN MACHINE,
INCORPORATED; MCDONALD AMUSEMENT
COMPANY; MIDLANDS GAMING
CORPORATION; ORANGEBURG
AMUSEMENT, INCORPORATED;
PEDROLAND, INCORPORATED; R. L.
JORDAN OIL COMPANY OF NORTH
CAROLINA; ROSEMARY COIN
MACHINES OF FLORENCE, INCORPORATED;
SCOTT'S VENDING INCORPORATED OF
COLUMBIA; SUMTER PETROLEUM
COMPANY; TIM'S AMUSEMENT,
INCORPORATED; VIDEO-MATIC

             2
AMUSEMENTS, INCORPORATED; H. HUGH
ANDREWS, II; PAMELA A. ANDREWS;
DWAYNE I. BOHANNON; J. M. BROWN;
DON E. BROYLES; GRACE E. COLEY;
FRED COLLINS; J. SAMUEL COX;
KENNETH G. FLOWE; CAREY HARDEE;
SCOTT G. HOGUE; LOWELL E. HOLDEN;
PATRICIA HOLLIDAY; WARREN P.
HOLLIDAY; HENRY E. INGRAM; STEVEN
E. LIPSCOMB; TIM MAHON; JIMMY
MARTIN, JR.; CYNTHIA MCDONALD;
JAMES MCDONALD; ALLAN SCHAEFER;
DAVID R. SIMPSON; RON SPENCER;
MICKEY H. STACKS; WILLIAM DARWIN
WHEELER; HERSHEL L. WILLIAMSON; A.
J. WILSON, JR., in their individual and
corporate capacities as representatives
of all others similarly situated,
Defendants-Appellants.

_________________________________________________________________

ORDER

Appellees filed a petition for rehearing with suggestion for rehear-
ing en banc.

The panel voted to deny rehearing.

A member of the Court requested a poll on the suggestion for
rehearing en banc. Judges Murnaghan, Michael, Motz, and King
voted to grant rehearing en banc. Chief Judge Wilkinson, and Judges
Widener, Niemeyer, and Luttig voted to deny rehearing en banc.
Judges Wilkins, Williams, and Traxler did not participate in the poll
of the Court on the suggestion for rehearing en banc. As the petition
for rehearing en banc failed to receive the support of the majority of
judges in regular active service, it is hereby DENIED.

Entered at the direction of Chief Judge Wilkinson for the Court.

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          For the Court

          /s/ Patricia S. Connor
    _________________________
         Clerk

WILKINSON, Chief Judge, concurring in the denial of rehearing en
banc:

I concur in the denial of rehearing en banc. My dissenting col-
league endorses the unbounded assertion of federal judicial power
over core state functions that the actions of the district court reflect.
Such a view is utterly irreconcilable with the principles underlying
our system of dual sovereignty. Under the dissent's approach, the fed-
eral chancellor's control over basic state functions will be unfettered
and complete.

I shall not review in detail all of the points in the panel opinion.
See Johnson v. Collins Entertainment Co., 199 F.3d 710 (4th Cir.
1999). Rather, I will briefly recapitulate the principal factors that in
combination rendered the district court's refusal to abstain an abuse
of discretion.

1. The district court had no basis in the South Carolina Unfair
Trade Practices Act or in the Racketeer Influenced Corrupt Organiza-
tions Act for its order. Indeed, it had no basis in any state or federal
statute for a sweeping injunctive decree. The court instead invoked its
"inherent equitable power" to undertake a basic state regulatory func-
tion. This wholly discretionary enterprise has no logical stopping
point. "Inherent" power wielded by life-tenured judges without autho-
rization in statute over the basic functions of a sovereign state simply
goes too far. Cf. Grupo Mexicano de Desarrollo, S.A. v. Alliance
Bond Fund, Inc., 119 S.Ct. 1961, 1969, 1974 (1999) (Equity jurisdic-
tion does not vest federal courts with "a general power to grant relief
whenever legal remedies are not practical and efficient" because "it
would literally place the whole rights and property of the community
under the arbitrary will of the Judge." (internal quotation marks omit-
ted)).

2. This case has been dominated by unsettled questions of state
law from the outset. These state law issues bear on policy problems

                     4
of substantial public importance, see New Orleans Pub. Serv., Inc. v.
Council of New Orleans, 491 U.S. 350, 361 (1989) (NOPSI), at the
heart of the state police power, see Posadas de Puerto Rico Assocs.
v. Tourism Co. of Puerto Rico, 478 U.S. 328, 341 (1986). In fact, the
state courts were addressing the questions of the payout limit interpre-
tation and the application of state unfair competition law to the payout
statute at the very time the district court rendered its pronouncements.
Contrary to the dissent's characterization, these state law questions
were hardly "straightforward" at the time. Indeed, the state attorney
general observed in withdrawing from the case that there were at least
three possible interpretations of the payout limit. Other state law
issues remain unresolved. See Collins Entertainment, 199 F.3d at 728.
The presence of such disputed questions of state law in an area of
core state policy concern was one among many factors counseling
abstention. See, e.g., Quackenbush v. Allstate Ins. Co., 517 U.S. 706,
728 (1996).

3. The district court's actions supplanted the efforts of the state
agencies charged with the enforcement of the regulatory scheme. The
court admitted as much when it prefaced its decree with pointed criti-
cism of the enforcement efforts of the South Carolina State Law
Enforcement Division and the South Carolina Department of Reve-
nue. Such commandeering of state enforcement efforts is hardly con-
sistent with the "scrupulous regard for the rightful independence of
state governments" that the Supreme Court requires. Quackenbush,
517 U.S. at 718.

4. The district court's assumption of state regulatory prerogatives
was compounded by the minute detail of its injunctive decree. The
panel opinion describes at some length the detailed requirements that
the district court imposed on the businesses targeted by the plaintiffs.
See Collins Entertainment, 199 F.3d at 718, 724. These requirements
included, among many other things, posting a "clarifying sign" with
court-ordered language on each machine and keeping detailed court-
ordered records about customers receiving payouts. Not only is the
intricacy of the decree troubling in its own right, but such a step
would likely draw the district court into an even more intrusive regu-
latory enterprise. If federal courts become regulators to this extent of
private businesses under state regulatory auspices-- and do so with-

                     5
out any solid warrant in law -- the boundaries of state and federal
power will become altogether indistinct.

5. The selective enforcement character of the district court's
actions was also troubling. The district court allowed the plaintiffs to
single out a subset of the putative defendant class for the judicially
crafted enforcement regime. These decisions concerning the alloca-
tion of enforcement resources are, however, precisely the kinds of
decisions that ordinarily rest in the hands of state regulatory agencies.

6. The independence of state administration of a comprehensive
regulatory scheme is at stake here even though private actors are the
named parties in the action. The statute at issue touches virtually
every aspect of the video poker industry and every branch of state
government is intimately involved in its regulation. See Collins
Entertainment, 199 F.3d at 715-17, 723. The state legislature, state
courts, state Administrative Law Judge Division, and two major state
administrative agencies all fashion rules and policies that govern the
most minute details of industry practices. See id. To claim that there
is no "comprehensive administrative scheme with which to interfere,"
as the dissent does, simply belies reality.

Notwithstanding this web of state regulation, the plaintiffs asked
the district court to step in and fashion a different enforcement
scheme than the one the state agencies were implementing at the time.
This was just as much an invitation to interfere with the administra-
tion of the scheme as it would have been had plaintiffs directly chal-
lenged the enforcement efforts of SLED and DOR. To restrict
Burford to only those cases involving direct challenges to the opera-
tion of state regulatory regimes would violate the Supreme Court's
admonitions against a "checklist" approach to abstention. See, e.g.,
Quackenbush, 517 U.S. at 727 (Cases "do not provide a formulaic test
for determining when dismissal under Burford is appropriate.");
Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 11 n.9 (1989) (Abstention
"reflect[s] a complex of considerations designed to soften the tensions
inherent in a system that contemplates parallel judicial processes.").
The dissent's preoccupation with an omitted portion of a quote from
NOPSI simply reflects an attachment to this impermissible checklist
mentality. Indeed, the Supreme Court itself in Quackenbush omitted
the reference to interference with state administrative proceedings or

                     6
orders in quoting the same passage from NOPSI on which the panel
relied. Compare Quackenbush, 517 U.S. at 726-27, with Collins
Entertainment, 199 F.3d at 719.

7. The state attorney general had withdrawn from this case on the
ground that the state legislature had delegated the task of regulatory
oversight to the administrative arm of state government. He also
stated that it was his practice to defer to the Department of Revenue
on the construction of state regulatory statutes and noted that the
interpretation of the payout limit statute was unsettled. The position
of the state's chief law enforcement officer on the roles of the respec-
tive actors in the state regulatory scheme should have cautioned the
district court and underscored the advisability of abstention here.

8. In light of the myriad factors mentioned above and discussed
at length in the panel opinion, it is clear that the dissent's abstract ren-
dition of the panel's holding is mere hyperbole. Abstention analysis
rests, as it always does, on an examination of the totality of the partic-
ular circumstances present in the given case.

Burford abstention is rooted in the law of remedies, being "de-
rive[d] from the discretion historically enjoyed by courts of equity."
Quackenbush, 517 U.S. at 728. The premise underlying abstention is
that federal courts should not exercise expansive remedial powers
when to do so would damage principles of federalism and comity to
the extent that happened here. To condone the district court's actions
in this case would be to endorse broad federal equitable sway over the
most basic state regulatory functions. Preserving our federal system
of government in any meaningful sense means not acquiescing in the
vision of limitless federal judicial power manifested here.

DIANA GRIBBON MOTZ, Circuit Judge, dissenting from the denial
of rehearing en banc:

A panel of this court has taken the dramatic, some would say bold,
step of withdrawing our jurisdiction over an important set of cases in
which federal rights are at stake. It has done so by way of an absten-
tion principle, assertedly derived from the Supreme Court's Burford
doctrine, but fundamentally of its own making. Because this holding
involves the scope of our most basic obligation as judges--to hear

                     7
cases arising under the laws of the United States--a review by all of
the court's active judges would seem particularly appropriate here. I
regret, and dissent from, our decision not to rehear this case en banc.

The case arrived in federal district court on removal by the defen-
dants, who are operators of video poker machines in South Carolina.
Having successfully removed the case to federal court, a group of the
video poker operators then proceeded to argue that federal jurisdiction
was inappropriate. A panel of this court agreed, holding that the dis-
trict court should have abstained, under the doctrine of Burford v. Sun
Oil, 319 U.S. 315 (1943), from deciding whether the video poker
operators violated South Carolina's statutorily-imposed $125 limit on
payouts from video poker machines and, if so, whether this consti-
tuted a "special inducement" or an unfair trade practice under South
Carolina law. The plaintiffs' RICO claim, which they had filed in
state court, and upon which the defendant operators of video poker
machines had based their removal to federal court, was ordered
stayed. Although the panel seems to have been chiefly concerned with
the asserted errors in the district court's decree, it nonetheless held
that the court should have abstained altogether from hearing the case.

I do not believe the panel's decision squares with even the most
expansive understanding of the Burford doctrine. The clearest recent
statement on the scope of Burford comes in New Orleans Public Ser-
vice, Inc. v. Council for the City of New Orleans , in which the
Supreme Court held that "a federal court sitting in equity must decline
to interfere with the proceedings or orders of state administrative
agencies: (1) when there are `difficult questions of state law bearing
on policy problems of substantial public import whose importance
transcends the result in the case then at bar'; or (2) where the `exer-
cise of federal review of the question in a case and in similar cases
would be disruptive of state efforts to establish a coherent policy with
respect to a matter of substantial public concern.'" Id., 491 U.S. 350,
361 (1988) (quoting Colorado River Water Conservation Dist. v.
United States, 424 U.S. 800, 814 (1976)).

In citing this language, the panel omits the underscored part of the
quote and, in doing so, omits from its holding Burford's most basic
principle: that federal courts should "decline to interfere with the pro-
ceedings or orders of state administrative agencies." Here, there was

                     8
no interference of the sort that Burford recognizes, nor was there a
comprehensive administrative scheme with which to interfere.

Read to its outer limits, Burford applies in two related sets of cir-
cumstances. First, Burford mandates that when a state has decided to
reach a public policy problem through a comprehensive administra-
tive scheme, federal courts should not "interfere" by telling state offi-
cials how to make the decisions that the state has charged them with
making. In other words, federal courts should not be doing the work
of local zoning boards, of family courts, of railway commissions, of
water conservation authorities, or the like. This case did not raise the
specter of such interference. It involved only the interpretation of
state law--not the question of whether to grant a license, a permit, a
variance, or of the appropriateness of alimony payments. The plain-
tiffs did not seek to challenge such an administrative order, and
indeed, there was no administrative body to which the plaintiffs might
have turned to get relief in the first instance.

Second, Burford counsels abstention when a federal court, by
deciding a case, would create substantial disuniformity in a field
where multiple actors have interlocking interests, and on which the
state, recognizing the complexity of the field, has erected some regu-
latory architecture. Here, the defendants' entitlement to operate video
poker machines is not interwoven with the rights of other video poker
operators in the way that, quintessentially, landowners' activities fun-
damentally burden one another, or that the drilling of oil in a Texas
field might "drain oil from the most distant parts of the reservoir."
Burford, 319 U.S. at 319. Although enforcement of the law against
particular actors almost always gives rise to a certain kind of
disuniformity--in the sense that other actors may escape enforcement
--that is not the sort of disuniformity with which Burford is con-
cerned.

Every instance in which Burford has been applied by the Supreme
Court or this court has involved a party seeking a decision that, in at
least one of the two ways I have described, would have supplanted the
work of an administrative agency or a state court with specialized
jurisdiction. See Alabama Public Service Commission v. Southern
Railway, 341 U.S. 341 (1951) (decision by commission to require
railroad to continue operation of unprofitable line); Burford, supra

                     9
(decision by commission to grant oil drilling permit); Pomponio v.
Fauquier County Board of Supervisors, 21 F.3d 1319 (4th Cir. 1994)
(en banc) (local zoning decision); Palumbo v. Waste Technologies
Industries, 989 F.2d 156 (4th Cir. 1993) (grant of permit by Ohio
Environmental Protection Agency for hazardous waste incinerator);
Front Royal and Warren County Industrial Park Corp. v. Town of
Front Royal, 945 F.2d 760 (4th Cir. 1991) (local zoning decision);
Brandenburg v. Seidel, 859 F.2d 1179 (4th Cir. 1988) (liquidation of
failed savings and loan by state-appointed receiver and decisions of
state receivership court); Meredith v. Talbot County, 828 F.2d 228
(4th Cir. 1987) (local zoning decision); Browning-Ferris v. Baltimore
County, 774 F.2d 77 (4th Cir. 1985) (same); Caleb Stowe Assocs. v.
County of Albemarle, 724 F.2d 1079 (4th Cir. 1984) (same). See also
Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996) (discussing
applicability of Burford to suit by state insurance commissioner).

Here, by contrast, the district court was asked to decide a set of rel-
atively straightforward state law questions: What is the meaning of
the gaming statute's $125 payout limit? Would violation of that limit
constitute a "special inducement" or an unfair trade practice? There
is no state administrative agency or specialized court charged with
making these determinations--nor do these determinations raise
issues that would seem to require administrative expertise. Rather,
these are the sort of questions that judges routinely face, and at least
one of them, according to the South Carolina Supreme Court, was not
even particularly difficult. In Gentry v. Yonce , that court held that the
$125 payout limit "states exactly what it means." 522 S.E.2d 137, 143
(S.C. 1999) ("We will reject a meaning when to accept it would lead
to a result so plainly absurd that it could not have been intended by
the Legislature or would defeat the plain legislative intention.").
South Carolina's highest court went on to note that the district court
here had analyzed the payout limit, and the possibility that a violation
of the limit might serve as a predicate for a RICO violation, in a man-
ner "consistent" with its own opinion. See id. at 143 n.18.

The panel evidently does not think that a federal district court
should broach these questions, but its rationale for refusing to exer-
cise jurisdiction has nothing to do with whether the state of South
Carolina has empowered certain administrative agencies to inspect
and license video poker machines. Rather, the abstention principle

                     10
implicit in the panel's opinion would seem to apply regardless of the
enforcement mechanism chosen by a state, even in the complete
absence of an administrative scheme. The abstention doctrine applied
by the panel directs that: a federal court should abstain from decision
whenever a case 1) largely turns on state law issues, and 2) involves
a matter of traditional state concern, particularly when 3) it implicates
an issue of controversy in the state.

Even if established precedent recognized such an abstention princi-
ple, which it does not, that principle well might not apply in this case.
Arguably, at least, plaintiffs' RICO claim was at the core, and not the
periphery, of their case against the video poker operators. The panel
majority's characterization of the RICO claim as a"Trojan horse" to
get into federal court certainly seems unfair, in view of the fact that
plaintiffs were content to litigate it in state court. Furthermore, it is
not at all clear that gambling is an issue as quintessentially "local" as
the panel claims. The panel's assumption about the local nature of
gambling sits in tension with RICO itself, in which Congress, grap-
pling with a set of problems it believed to be national in scope, specif-
ically referred to gambling in defining "racketeering activity." See 18
U.S.C. § 1961(1)(A)(1994 & Supp. IV 1998).

In evaluating the merits of the panel's preference for state court
adjudication, I need not go much beyond the principle's novelty. As
the concurring opinion correctly noted, we are an inferior federal
court; "we derive our very existence from the Congress, and we
accept our jurisdiction largely from that Branch." It seems to me that,
as such, we are a far-from-ideal vehicle for the enunciation of a new
prudential exception to the jurisdiction that Congress has given us.

The abstention doctrines are derived, not from Article III or from
the jurisdictional statutes, but rather from the"sound equitable discre-
tion" of the federal courts. See Burford, 315 U.S. at 318. The panel
opinion warns that the abuse of equity power may"thwart the expres-
sion of the democratic will." At the same time, the panel deploys its
own equitable powers to diminish the force of democratic enactments
at both the federal and state levels. It fashions an exception to the
Congressional grant of jurisdiction and, in doing so, impedes the
enforcement of RICO and of South Carolina's gaming and unfair

                     11
trade practices laws--all themselves unmistakeable expressions of the
democratic will.

It is not clear to me where the limits of the panel's new abstention
principle lie. By overstating the applicability of Burford here, the
panel obscures the doctrinal boundaries of the abstention principle
implicit in its opinion. I am not certain how far the panel's preference
for state court adjudication goes, and I am most concerned that,
because of this lack of clarity, the panel's abstention principle will be
applied in ways that we cannot anticipate.

At the very least, en banc review would have enabled us to focus
more attention on what some of these unanticipated applications
might be, and to sharpen the doctrinal boundaries of the principle
itself. I myself doubt the wisdom of this contraction of federal court
jurisdiction, and I question whether such a potentially sweeping
change properly originates in our chambers. With all respect to my
good colleagues, I dissent.

Judge King has authorized me to indicate that he joins in this dis-
sent.

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