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Stroman Realty, Inc. v. Grillo

July 18, 2006

STROMAN REALTY, INC., PLAINTIFF,
v.
FERNANDO E. GRILLO, SECRETARY OF THE ILLINOIS DEPARTMENT OF FINANCIAL AND PROFESSIONAL REGULATION, DEFENDANT.



The opinion of the court was delivered by: Judge Robert W. Gettleman

MEMORANDUM OPINION AND ORDER

Plaintiff Stroman Realty, Inc. ("Stroman"), filed a complaint in the Southern District of Texas against Defendant Fernando E. Grillo, Secretary of the Illinois Department of Financial and Professional Regulation ("Illinois"), seeking to enjoin Illinois from enforcing the Illinois Real Estate Licensing Act of 2000 ("Licensing Act"), 225 Ill. Comp. Stat. 454, and the regulations thereunder against Stroman for conducting its timeshare resale business. Stroman alleges that Illinois's enforcement of the Licensing Act, as applied to Stroman, violates the Commerce Clause. U.S. Const., §8, cl. 3.

Following a complaint from an Illinois resident, Illinois's Department of Financial and Professional Regulation ("IDFPR") sent Stroman a cease and desist letter, listing alleged activities Stroman had engaged in that required a real estate license in Illinois. Stroman subsequently filed a lawsuit in the United States District Court for the Southern District of Texas for preliminary injunctive relief against Illinois's enforcement of the Licensing Act against Stroman. Illinois then brought a formal administrative complaint against Stroman for violating the Licensing Act and the Illinois Timeshare Act, 765 Ill. Comp. Stat. 101 (2006). Illinois alleged that Stroman acted as a real estate agent in the State of Illinois without a license. Stroman moved to stay the administrative action in the Texas case. That case was transferred to this court, which denied the motion to stay. Illinois has now moved to dismiss pursuant to F.R.C.P. 12(b)(6) and F.R.C.P. 12(b)(1), arguing that Stroman's allegations do not constitute a constitutional violation, and that this court should abstain from exercising jurisdiction based on the Younger doctrine. Younger v. Harris, 401 U.S. 37 (1971). For the reasons discussed herein, Illinois's motion to dismiss is granted.

FACTS

Plaintiff Stroman resells property timeshare intervals on the secondary market. Timeshare intervals allow a buyer to purchase the right to use a property or unit for a specified interval of time. They are typically sold or exchanged for the use of vacation resort properties. Stroman is located in Texas and is, along with its sales associates, licensed to engage in real estate brokering by the state of Texas.

Stroman operates a computerized listing service to match potential timeshare buyers to sellers. If a seller wants to advertise and list his timeshare with Stroman, he signs an advertising agreement. Stroman charges sellers a one-time advertising fee to list their timeshare intervals in its computer system and imposes a commission fee upon the completion of a successful sale. Stroman employs 80 sales associates to handle phone calls from potential buyers and sellers. The sales associates attempt to match a potential buyer's timeshare interval preferences, such as the duration, location, and price of the timeshare interval, to a timeshare listed in the computer system. Stroman also operates an internet website which allows users to view available timeshare intervals and obtain relevant information. The internet user can submit an offer through the website or can call the company to speak with a sales associate.

Stroman's business transactions frequently involve parties and properties residing in multiple states. For example, Stroman might match a New York buyer with a Nebraska seller for a timeshare interval located in California. Stroman's sales associates field approximately 1,000 calls daily from across the country, some of which require inquiry into timeshare interval properties located in several states. To facilitate its business activities, the company solicits buyers, sellers and potential referral sources, such as real estate agencies and developers, of timeshare intervals. To do so, Stroman advertises its services nationally and internationally. Stroman places daily advertisements in national, regional, and local newspapers, as well as advertising in specialty magazines, trade publications, and on the internet. The company also conducts large amounts of direct mail solicitations. Most of Stroman's advertisements generically promote its timeshare resale services rather than individual timeshare intervals.

STANDARD OF REVIEW

Rule 12(b)(1) motions are premised on either facial or factual attacks on jurisdiction. Villasenor v. Indus. Wire & Cable, Inc., 929 F.Supp. 310, 311 (N.D.Ill. 1996). If the defendant makes a factual attack on the plaintiff's assertion of subject matter jurisdiction, it is proper for the court to look beyond the jurisdictional allegations in the complaint and "view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists." Capital Leasing Co. v. F.D.I.C., 999 F.2d 188, 191 (7th Cir. 1993) (per curiam); Bernhart v. United States, 884 F.2d 295, 296 (7th Cir. 1989). The Supreme Court has held that an attempt to plead a federal claim fails only where it "clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or where such a claim is wholly insubstantial and frivolous." Bell v. Hood, 327 U.S. 678, 682-83, 66 S.Ct. 773, 90 L.Ed. 939 (1946).

DISCUSSION

Illinois has moved to dismiss arguing that: (1) Stroman's complaint, on its face, does not state a claim for a violation of the dormant Commerce Clause; and (2) this court should refrain from exercising jurisdiction under the Younger*fn1 abstention doctrine. Because this court finds that abstention is warranted, there is no need to discuss the merits of Stroman's dormant Commerce Clause argument. See Moses v. Kenosha County, 826 F.2d 708, 710 (7th Cir. 1987) (dismissal without decision regarding constitutional claims is appropriate procedure when Younger abstention applies); Green v. Benden, 281 F.3d 661, 666 (7th Cir. 2002) (merits of challenge to denial of plaintiff's request for injunctive relief not needed because Younger abstention was appropriate).

ABSTENTION

The Younger doctrine originally held that federal courts should abstain from hearing a challenge to the constitutionality of a state criminal statute when the plaintiff bringing the challenge is being prosecuted in a state court for violating that statute. Younger, 401 U.S. 37. Due to "principles of comity and federalism . . . federal courts should refrain from enjoining state criminal prosecutions." Jacobson v. Vill. of Northbrook Mun. Corp., 824 F.2d 567, 569 (7th Cir. 1987). Younger is "fully applicable to civil proceedings in which important state interests are involved," Moore v. Sims, 442 U.S. 415, 423 (1979), and has subsequently been held to apply to state administrative proceedings, Ohio Civil Rights Comm'n. v. Dayton Christian Sch., Inc., 477 U.S. 619, 627 (1986). Thus, Younger abstention "requires federal courts to abstain from enjoining ongoing state proceedings that are (1) judicial in nature, (2) implicate important state interests, and (3) offer an adequate opportunity for review of constitutional claims, (4) so long as no extraordinary circumstances exist which would make abstention inappropriate." Green v. Benden, 281 F.3d 661, 666 (7th Cir. 2002) citing Middlesex County Ethics Comm. v. Garden State Bar Ass'n, 457 U.S. 423, 432, 436-37; Majors v. Engelbrecht, 149 F.3d 709, 711 (7th Cir. 1989). When a plaintiff in federal court, after having already filed a complaint, becomes a defendant in a state criminal proceeding, Younger abstention still applies so long as the federal court has not engaged in any "proceedings of substance on the merits." Hicks v. Miranda, 422 U.S. 332 (1975). See also Majors, 149 F.3d at 713.

First, with regard to timing, Stroman argues that because the administrative action was filed after Illinois was served with Stroman's federal complaint, Younger abstention is inappropriate. After the Supreme Court's holding in Hicks, however, the timing of the filing of the state and federal court lawsuits is largely unimportant, provided the federal suit has not progressed to any "proceedings of substance on the merits." See Doran v. Salem Inn, Inc., 422 U.S. 922, 929 (1975) (abstention proper when federal suit is still in an "embryonic stage"); Ciotti v. County of Cook, 712 F.2d 312, 313 (7th Cir. 1983) (decision on standing is not a decision on the merits). The instant case has clearly not progressed to the merits. In Ciotti, the Seventh Circuit cited with approval Giulini v. Blessing, 654 F.2d 189, 193 (2d Cir. 1981), and Nevin v. Ferdon, 413 F. Supp. 1043, 1049 (N.D. Cal. 1976), which both found abstention proper when the only action taken by the federal court was a ruling on jurisdiction or jurisdiction and abstention. This is analogous to the current case. The District Court for the Southern District of Texas transferred the case to this court after an examination of jurisdiction, but no ruling on Stroman's ...


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