United States District Court, Northern District of Illinois, E.D
September 20, 1972
UNITED AUTOMOBILE, AEROSPACE, AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA (UAW), BY ROBERT JOHNSTON, REGIONAL DIRECTOR, FOR ITSELF AND ON BEHALF OF CERTAIN MEMBERS AND EMPLOYEES, ET AL., PLAINTIFFS,
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY ET AL., DEFENDANTS.
The opinion of the court was delivered by: Bauer, District Judge.
MEMORANDUM OPINION AND ORDER
This cause comes on certain defendants' motion to dismiss
pursuant to Rules 12(b)(1) and (6) of the Federal Rules of Civil
Plaintiff United Automobile, Aerospace and Agricultural
Implement Workers of America ("UAW") is a labor organization
composed of over 1.5 million workers. Plaintiffs Porter, Watkins
and Wright are black motorists who reside in the City of Chicago
in an area which will hereinafter be referred to as Area 43.
Plaintiffs Moscovitch and Carter are white motorists who reside
in Area 43. Defendants, except for the Insurance Rating Board
("IRB"), are insurance companies doing business in Illinois.
Defendant IRB, now doing business as the Insurance Services
Office ("ISO"),*fn1 is an advisory organization which provides
insurance carriers with statistical, actuarial, rating, policy
form and related services with respect to various lines of
insurance, including automobile insurance.
Plaintiffs base federal jurisdiction over the instant case upon
various sections of the post-Civil War civil rights legislation —
specifically, 42 U.S.C. § 1981-1983. The complaint alleges that
in March of 1970, the defendants divided the City of Chicago into
four zones for the purpose of setting new automobile insurance
premium rates. One of the zones thus created, plaintiffs allege,
was that area of Chicago bounded on the north by Chicago Avenue,
on the south
by 95th Street, on the east by Lake Michigan and on the west by
Ashland Avenue and certain other streets west of Ashland Avenue.
This is the area which has been referred to as Area 43. The
complaint alleges that at the time Area 43 was created, and at
all times thereafter, the defendants knew that Area 43
encompassed approximately 85% of the black population in Chicago.
The complaint further alleges:
In so establishing Area 43 the defendants isolated
or segregated the bulk of the Negro population of
Chicago and established for those persons
substantially higher automobile insurance rates,
thereby discriminating against and depriving these
persons of equal opportunity to contract for
The primary reason urged by defendants for dismissing the
instant suit is the alleged failure of plaintiffs to exhaust
their state administrative remedies. Whether this proffered
reason is valid depends upon the resolution of two separate
issues: (1) Are plaintiffs in a civil rights suit required to
exhaust remedies, and (2) if so, are adequate state
administrative remedies available to plaintiffs in the instant
case? Each of these issues will be discussed separately.
I. ARE PLAINTIFFS IN A CIVIL RIGHTS SUIT REQUIRED TO EXHAUST
In Monroe v. Pape, 365 U.S. 167, 169, 81 S.Ct. 473, 474, 5
L.Ed.2d 492 (1961), the complaint alleged that:
. . 13 Chicago police officers broke into
petitioners' home in the early morning, routed them
from bed, made them stand naked in the living room,
and ransacked every room, emptying drawers and
ripping mattress covers. It further alleg[ed] that
Mr. Monroe was then taken to the police station and
detained on `open' charges for 10 hours, while he was
interrogated about a two-day-old murder, that he was
not taken before a magistrate, though one was
accessible, that he was not permitted to call his
family or attorney, that he was subsequently released
without criminal charges being preferred against him.
The complaint further alleged that the officers, who did not have
a valid search warrant, acted "under color of the statutes,
ordinances, regulations, customs and usages" of Illinois. When
the defense of plaintiffs' failure to exhaust state remedies was
raised, the Court stated:
It is no answer that the State has a law which if
enforced would give relief. The federal remedy is
supplementary to the state remedy, and the latter
need not be first sought and refused before the
federal one is invoked. Hence the fact that Illinois
by its constitution and laws outlaws unreasonable
searches and seizures is no barrier to the present
suit in the federal court. Id. at 183, 81 S.Ct. at
In McNeese v. Board of Education, 373 U.S. 668
, 83 S.Ct. 1433,
10 L.Ed.2d 622 (1963), the complaint alleged that the defendant
school board required black students to attend classes in a
segregated part of the school and use entrances and exits
separate from the whites'. The lower court, dismissing the
action, held that the administrative remedy provided by the
Illinois statute must first be exhausted. The state statute
provided that 50 residents of a school district or 10%, whichever
is less, could file a complaint with the Superintendent of Public
Instruction alleging that a pupil had been discriminated against
in a school on account of race. The Superintendent, on notice to
the school board, could then put the complaint down for a hearing
within a prescribed time. After the hearing, the Superintendent
would notify the parties of his decision and, if he decided that
the allegations in the complaint were "substantially correct,"
would request the Illinois Attorney General to bring suit to
rectify the practice.
The Court, in reversing an affirmance of the dismissal, stated:
We have, however, in the present case no underlying
issue of state law controlling this litigation. The
right alleged is as plainly federal in origin and
nature as those vindicated in Brown v. Board of
Education, 347 U.S. 483, 74 S.Ct. 686, 98 L.Ed. 873.
It is immaterial whether respondents' conduct is
legal or illegal as a matter of state law. . . . Such
claims are entitled to be adjudicated in the federal
courts. Id. at 674, 83 S.Ct. at 1437 [footnotes
In Damico v. California, 389 U.S. 416
, 88 S.Ct. 526, 19 L.Ed.2d
647 (1967), welfare claimants under California's welfare code
sought a declaratory judgment of unconstitutionality against
certain of the code's sections and regulations. The three-judge
District Court dismissed the complaint solely because "it
appear[ed] to the Court that all of the plaintiffs [had] failed
to exhaust adequate administrative remedies." The Court, in
This was error. In McNeese v. Board of Education,
373 U.S. 668, 83 S.Ct. 1433, 10 L.Ed.2d 622, noting that
one of the purposes underlying the Civil Rights Act
was `to provide a remedy in the federal courts
supplementary to any remedy any State might have,' .
. . we held that `relief under the Civil Rights Act
may not be defeated because relief was not first
sought under state law which provided [an
administrative] remedy,'. . . . Id. at 417, 88
S.Ct. at 526.
Plaintiffs urge that the three cases cited hereinabove, inter
alia, clearly demonstrate that there is no requirement of
exhaustion of remedies in suits brought under the Civil Rights
Acts. Accordingly, plaintiffs argue, this case should neither be
stayed nor dismissed.
Defendants, however, have presented case authority in support
of their motion. In Reetz v. Bozanich, 397 U.S. 82, 90 S.Ct. 788,
25 L.Ed.2d 68 (1970), a three-judge District Court enjoined the
enforcement of certain of Alaska's fishing licensing laws. In
reversing, the Court, quoting from City of Meridian v. Southern
Bell Tel. & Tel. Co., 358 U.S. 639, 640-641, 79 S.Ct. 455, 3
L.Ed.2d 562 (1959), stated:
Proper exercise of federal jurisdiction requires
that controversies involving unsettled questions of
state law be decided in the state tribunals
preliminary to a federal court's consideration of the
underlying federal constitutional questions. * * *
That is especially desirable where the questions of
state law are enmeshed with federal questions. * * *
Here, the state law problems are delicate ones, the
resolution of which is not without substantial
difficulty — certainly for a federal court. * * * In
such a case, when the state court's interpretation of
the statute or evaluation of its validity under the
state constitution may obviate any need to consider
its validity under the Federal Constitution, the
federal court should hold its hand, lest it render a
constitutional decision unnecessarily. 397 U.S. at
85, 90 S.Ct. at 789-790.
In Askew v. Hargrave, 401 U.S. 476
, 91 S.Ct. 856, 28 L.Ed.2d
196 (1971), a class action was brought challenging the
constitutionality of Florida's "Millage Rollback Law". This law
provided that a local school district must limit its ad valorem
taxes for school purposes to not more than 10 mills of assessed
valuation, with certain exceptions, in order to receive state
moneys. The plaintiffs claimed the law effected an invidious
discrimination in violation of the Equal Protection Clause since
it discriminated against school children in property-poor
counties. A three-judge District Court enjoined enforcement of
Reversing the lower court's decision, the Court stated:
The District Court . . . rejected appellants'
argument that the court `should abstain from
case in deference to [the] state court proceeding,' .
. . holding that under Monroe v. Pape, [supra] and
McNeese v. Board of Education, [supra], `[t]he fact
that a state remedy is available is not a valid basis
for federal court abstention.' . . . The reliance
upon Monroe v. Pape and McNeese was misplaced.
Monroe v. Pape is not in point, for there `the state
remedy, though adequate in theory, was not available
in practice.' . . . McNeese held that `assertion of a
federal claim in a federal court [need not] await an
attempt to vindicate the same claim in a state
court.' . . . Our understanding from the colloquy on
oral argument with counsel for the parties is that
the [state court proceeding] asserts, not the `same
claim,' that is, the federal claim of alleged denial
of the federal right of equal protection, but
primarily state law claims under the Florida
Constitution, which claims, if sustained, will
obviate the necessity of determining the Fourteenth
Amendment question. 401 U.S. at 478, 91 S. Ct. 856 at
In Metcalf v. Swank, 444 F.2d 1353 (7th Cir. 1971), Judge Pell
entered a well-reasoned opinion discussing the abstention
doctrine in light of the recent Supreme Court decisions. In
Metcalf, welfare recipients brought a class action challenging
the constitutionality of a ceiling on the public assistance
shelter allowances. The District Court dismissed the cause since
the plaintiffs had failed to exhaust their state remedies. In
affirming, the Court of Appeals distinguished a number of Supreme
Court decisions. Monroe v. Pape, supra, was distinguished on
the ground that:
. . the only state remedy available to the
plaintiffs in Monroe was a judicial one. Long
before Monroe, the rule was established that state
judicial remedies normally need not be exhausted
before relief is sought in the federal courts whether
under the Civil Rights Act or otherwise. . . . Thus
we find Monroe unpersuasive in the instant case
where plaintiffs' remedy is plainly administrative.
444 F.2d 1355.
Similarly, the Court of Appeals distinguished McNeese v. Board
of Education, supra, stating:
While the remedy in McNeese was formally
administrative, the Court found that it was in
substance judicial since the only power of the
administrator was to recommend the institution of
state court proceedings. . . . Further, the Court
indicated its doubt that the state remedy was
`sufficiently adequate.' 444 F.2d at 1355.
King v. Smith, 392 U.S. 309
, 88 S.Ct. 2128, 20 L.Ed.2d 1118
(1968) and Damico v. California, supra, were distinguished
In both Damico, which contains the broadest
language relied upon by plaintiffs, and King, a
state statute was challenged as unconstitutional on
Thus we take Damico and King to hold only that
because of the special federal nature of actions
under the Civil Rights Act, and because of the
general inadequacy of administrative remedies to deal
with substantial challenges based upon the
unconstitutionality of a statute on its face,
exhaustion should not be required in cases combining
these elements. 444 F.2d at 1355-1356.
Houghton v. Shafer, 392 U.S. 639
, 88 S.Ct. 2119, 20 L.Ed.2d
1319 (1968), was distinguished as being merely "a particular
application of the general rule that there is no requirement to
exhaust inadequate administrative remedies."
In Reid v. Board of Education, 453 F.2d 238 (2nd Cir. 1971), a
class composed of handicapped children sued a school board for
its failure to screen and admit them to a special education
program. The Court, holding that the action must
be stayed while the plaintiffs attempted to exhaust their
administrative remedies, stated:
In holding that appellants must resort to the New
York courts for initial resolution of available state
claims, we have fully considered Monroe v. Pape,
[supra] and McNeese v. Board of Education, supra,
which held that § 1983 provides a supplementary
remedy and that `assertion of a federal claim in a
federal court [need not] await an attempt to
vindicate the same claim in a state court.' . . .
But, the state law claims of appellants here are
separate and distinct from the rights asserted as a
basis for their federal claims. This is not a case
where the state claims, although not based upon a
state remedy for a federally-provided right, are
grounded upon state constitutional rights which are
merely counter-parts for the federal rights asserted.
453 F.2d 244.
From these authorities, the Court will attempt to distill some
rules governing the application of the doctrine of abstention to
suits brought under the Civil Rights Acts.
First, it is apparent that where a statute is being challenged
as unconstitutional on its face, a plaintiff is not required to
exhaust his administrative remedies. The rationale for this rule
appears to be that such exhaustion would usually be futile.
Second, if the state action available to plaintiff is based
upon claims which are identical or counter-parts to his federal
claims, the plaintiff need not exhaust his state remedies. The
rationale for this rule is that the federal cause is
supplementary to any identical state cause.
Third, a plaintiff, even if he does not challenge the
constitutionality of a statute on its face, will not be required
to exhaust his remedies if such remedies are judicial and not
administrative in nature. The rationale for this rule is that
while a state administrative decision can provide a record and a
basis for a judicial decision, a state judicial decision can
provide no more of a record or basis than a federal court's
decision could provide.*fn2
By combining these rules into one rule and then taking the
obverse of the single rule, the Court comes up with the
following: Where a plaintiff (1) is not challenging the
constitutionality of a statute on its face, (2) can challenge the
complained-of activity in a state proceeding on a basis different
in nature than his basis in a federal court, and (3) has adequate
administrative, not judicial, remedies available, he will be
required to exhaust his state remedies before proceeding in a
federal court. This rule fits like a glove on the instant suit.
Various sections of the Illinois Insurance Code of 1937,
Ill.Rev.Stat. ch. 73, §§ 613-1065.163, should be set out at this
time. Ill.Rev.Stat. ch. 73, § 1065.18-4(d) sets forth standards
to be used in setting rates:
Risks may be grouped by classifications for the
establishment of rates and minimum premiums. . . .
Such classifications . . . of risks may be
established based upon size, expense, management,
individual experience, location or dispersion of
hazard, or any other reasonable considerations
and shall apply to all risks under the same or
substantially the same circumstances or conditions.
Ill.Rev.Stat. ch. 73, § 1031(3) provides that the following
activity by an insurance carrier is an unfair method of
[The] [m]aking or permitting [of] any unfair
discrimination between individuals or risks of the
same class or of essentially the same hazard and
expense element because of the race, color, religion
or national origin of such insurance risks or
Plaintiffs do not allege that these sections are
unconstitutional on their face; further, it is obvious from an
examination of these sections that any such allegation, if made,
would be frivolous.
It should also be obvious from an examination of these sections
that the basis for a challenge of the complained-of activity in a
state proceeding would be entirely different than the basis for a
challenge in a federal court. As stated in Monroe v. Pape,
supra, Congress, by enacting the Civil Rights Acts, intended:
. . to afford a federal right in federal courts
because, by reason of prejudice, passion, neglect,
intolerance or otherwise, state laws might not be
enforced and the claims of citizens to the enjoyment
of rights, privileges, and immunities guaranteed by
the Fourteenth Amendment might be denied by the state
agencies. 365 U.S. at 180, 81 S.Ct. at 480.
However, the provision in the Illinois Insurance Code of 1937
which prohibits racial discrimination in the setting of insurance
rates is not primarily concerned with constitutional rights,
privileges, and immunities guaranteed to individuals. Instead,
that section is simply part of a regulatory scheme which has as
its purpose the elimination of "unfair method[s] of competition
or an unfair or deceptive act[s] or practice[s] in the business
of insurance." Ill.Rev.Stat. ch. 73, § 1030.
The federal statute is concerned with the preservation of
individuals' constitutional rights; the state statute is
concerned with the regulation and supervision of the insurance
industry. Thus, it is clear that plaintiffs can challenge the
complained-of activity in a state proceeding on a basis entirely
different than their basis for a challenge in this Court.
The final issue is whether the plaintiffs have an adequate
state administrative remedy.
II. DO PLAINTIFFS HAVE AN ADEQUATE STATE ADMINISTRATIVE REMEDY?
Under the Illinois Insurance Code of 1937, the Director of
Insurance has been given broad powers, including the power:
. . to examine and investigate into the affairs of
every person engaged in the business of insurance in
this State in order to determine whether such person
has been or is engaged in any unfair method of
competition or in any unfair or deceptive act or
practice. . . . Ill.Rev.Stat. ch. 73, § 1032.
The Code provides that whenever the Director shall have reason to
believe that an insurance company is engaged in any unfair method
of competition, "he shall issue and serve upon such [company] a
statement of the charges" and set the matter for a hearing.
Ill.Rev. Stat. ch. 73 § 1033(1) [Emphasis added]. Further,:
Upon good cause shown, before the commencement of
such hearing, the Director shall permit any person
to intervene, appear and be heard at such
hearing by counsel or in person. Ill. Rev.Stat. ch.
73, § 1033(2). [Emphasis added].
If, after such hearing, the Director shall determine that the
insurance company has engaged in an unfair method of competition,
"he shall reduce his findings to writing and shall issue and
cause to be served upon the person charged with the violation an
order requiring such person to cease and desist from engaging in
such method of competition. . . ." Ill.Rev.Stat. ch. 73, §
1034(1) [Emphasis added]. The Code allows for judicial review of
such cease and desist orders. Ill.Rev.Stat. ch. 73, § 1035. An
intervenor in the hearing may also seek judicial review of the
Director's report. Ill.Rev.Stat. ch. 73, § 1037.
This Court is of the opinion that the procedure outlined by the
Illinois Insurance Code of 1937 is capable of providing an
adequate administrative remedy for the complained-of-activity.
The use of the mandatory "shall" throughout the Code in
describing the powers of the Director distinguishes the
administrative procedures in the instant case from the
administrative procedures discussed in McNeese v. Board of
Finally, plaintiffs note that the state administrative remedy
does not include the awarding of damages while the remedy which
can be obtained through the instant suit under the Civil Rights
Acts does. As to this issue, plaintiffs appear to be putting the
cart before the horse. In order to award damages, this Court must
find liability; in order to find liability, this Court must find
that the plaintiffs have exhausted their administrative remedies.
If at such time as the plaintiffs have exhausted their remedies
and received no relief, it will be time enough to institute a
suit similar to the instant one.
Accordingly, it is hereby ordered, adjudged and decreed that
defendants' motion to dismiss is granted.