Petition — Wadsworth v. Whaland

Supreme Court brief1978

Ask Donna

What actually matters in this document.

Text

| Signeme Quant, ©. S. 4

FILED

wiv 29 I9TT

| MICHAEL RODAK, JR., CLERK

In the |

Supreme Court of the United States

Ooroser Term, 1977

Be - 765 ‘

BRUCE W. WADSWORTH, ADMINISTRATOR OF

NEW HAMPSHIRE EMPLOYERS’ BENEFIT TRUST

AND NORTHERN NEW ENGLAND BENEFIT TRUST

PETITIONER,

FRANCIS E. WHALAND, COMMISSIONER,

DEPARTMENT OF INSURANOBE,

STATE OF NEW HAMPSHIRE

RESPONDENT.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FIRST OIROUIT

Joun J. Fuanerry

Jorn C, Martin

Perer H. Rysman

Preti & FLAHERTY

443 Congress Street

Portland, Maine

Attorneys for Petitioner

November 29, 1977

Blanchard Press, Inc., Boston, Mass. — Law Printers

TABLE OF CONTENTS

Page

EE sold sais «nied aetwads Haan ent eancie 2

Jurisdiction Pay Pee Ae 2

Questions Presented ........... 2

Constitutional and Statutory Provisions Involved | 3

Mtatement of the Case ...... cic eee c ee eccees cate oa

The Factual Background __. ORE Et oa 3

- & jet ARRRRRAS RRR rrr rrr 6

Jurisdiction of the Courts Below Pate ae toe ee

Reasons for Granting the Writ .................... 9

I. This Case Presents an Important Question of

Federal Law that Requires Resolution by this

BP aE RIA Set rts res ee ae pa adh Mesa pS 9

A. The Congressional Intent to Pre-empt State

Regulation in this Field Was Clearly Ex-

gg oi peg SEEN Ee Wee Ed 9

1, The Legislative History .............. 9

2. Administrative Interpretations ........ 14

B. The States Continue to Regulate Benefit

‘ Plans Covered by ERISA .............. 16

II. The Courts of Appeal and the District Courts

Have Reached Conflicting Results on the Ques-

BU Gy ID cece ccasdsccccccccsecssss 18

rr Peer rrr yy rere 21

Appendices

1, Opinion and Judgment of the Court of Appeals 22

2. Opinion and Judgment of the District Court 39

8. Constitutional and Statutory Appendix... 50

4. Table of Required Health-Care Benefits . 53

TABLE OF CITATIONS

Cases:

Azearo v, Harnett, 414 F.Supp. 473 (S.D. N.Y.), aff’d

mem, 553 F.2d 98 (2d Cir.), cert. denied, 46 U.S.L.W.

oe SS, eee eee earn aie” ae

il Table of Contents

Page

Bell vy, Employee Security Benefit Association, No.

77-4066 (D. Kan., Aug. 22, 1977) | 20

Bingler v, Johnson, 394 U.S. 741 (1969) ee 19

City of Burbank v, Lockheed Air Terminal, Inc,, 411

U.S, 624 (1973) | =

Donaldson v, United States, 400 U.S. 517 (1971) rt

General Electric Co. v. Gilbert, 429 U.S, 125 (1976) 4

Griggs v, Duke Power Co., 401 U.S, 424 (1971) 15

Hewlett-Packard Co, vy. Barnes, 425 F.Supp. 1294

(N.D. Cal. 1977) 20

Kerbow vy. Kerbow, 421 F.Supp. 1253 (N, D. Tex. 1975) 20

Marshall v. Chase Manhattan Bank (National Associa-

tion), 558 F.2d 680 (2d Cir, 1976) : 18

S.E.C. vy. National Securities, Inc., 393 U.S, 453 (1969) 16

Wayne Chemical, Inc. v. Columbus Agency Service

Corp., 426 F.Supp. 316 (N.D, Ind, 1977) 19

Statutes:

Chapter 57, New Hampshire Laws of 1976, N.H, Rev.

Stat. Ann, §415 _ passim

Employee Retirement Income Security Act, 29 U.S.C,

§1001 et seq passim

MeCarran-Ferguson Act, 15 U. S.C, §1012(B) 7, 16

National Labor Relations Act, 29 U.S.C, ete 4 :

2, 3, 1

Legislative History:

Activity Report of the Committee on Education and

Labor, United States House of Representatives,

H.R. Rep, No, 94-1785, 94th Cong. 2nd Sess, (Jan. 3,

1977) 14

HLR. 12906, 93rd Cong. 2nd Sess. (1974) 10

Table of Contents

Page

S. Rep, No, 127, 93rd Cong. Ist Sess, (1973) 9

120 Cong. Ree, 29, 197 (1974) 12

120 Cong. Ree. 29, 933 (1974) 12

120 Cong. Ree. 29, 942 (1974) | 11

1974 U.S, Code Cong. and Ad, News 5162 10

Miscellaneous:

Advisory letter from Administrator of Pension and

Welfare Benefit Programs, C.C.H. Pension Plan

Guide 23, 472 (July 14, 1976)

Brummond, Federal Preemption of State Insurance

Regulation Under ERISA, 62 lowa L.Rev, 57 (1976)

ERISA opinion Letter No, 75-143, C.C.H, Pension

Plan Guide 25, 145

Office of Employee Benefit Security Opinion Letter

C.C.H, Pension Plan Guide 725, 136

Okin, Federal Preemption of State Law under ERISA:

An Examination of the Effects of the Federal

Mandate in the Light of Authoritative Precedent

Under the Supremacy Clause, the McCarran-Ferg-

son Act and the Legislative History, XXIV Proc,

Assoc, Life Ins. Counsel 115 (1976)

Pfenningstorf and Kimball, Employee Legal Service

Plans: Conflicts Between Federal and State Regula-

tion, 3 A.B.F. Res, J. 787 (1976)

In the

Supreme Court of the United States

Octoser Term, 1977

No.

BRUCE W. WADSWORTH, ADMINISTRATOR OF

NEW HAMPSHIRE EMPLOYERS’ BENEFIT TRUST

AND NORTHERN NEW ENGLAND BENEFIT TRUST

PETITIONER,

FRANCIS E. WHALAND, COMMISSIONER,

DEPARTMENT OF INSURANCE,

STATE OF NEW HAMPSHIRE

RESPONDENT.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

The Petitioner Bruce W. Wadsworth respectfully prays

that a writ of certiorari issue to review the judgment nd

opinon of the United States Court of Appeals for the First

Cireuit entered in this proceeding on September 1, 1977.

Decisions Below

The unreported decision of the United States District

Court for the District of New Hampshire (No. 76-226, Feb.

11, 1976) is appended hereto at page 39. The decision

of the United States Court of Appeals for the First Cir-

cuit, Nos. 77-1135 and 77-1136, Sept. 1, 1977, is reported at

562 F.2d 70 and is appended at page 22.

Jurisdiction

The judgment of the court below was entered on Sep-

tember 1, 1977. This petition is timely filed under Supreme

Court Rule 22.

Jurisdiction of this Court is invoked pursuant to 28

U.S.C, §1254(1).

Questions Presented

1. When an employee benefit plan providing benefits in

part through the purchase of group insurance is regu-

lated by the provisions of the Employee Retirement Income

Security Act, 29 U.S.C. §1001 et seq., does that Act pre-

empt Chapter 57 of the New Hampshire Laws of 1976,

which requires group insurers to provide first-dollar cov-

erage for mental illness not otherwise provided by the

Plan?

2. Is Chapter 57, as it is made to apply to group in-

surance purchased to provide benefits under a health and

welfare plan which is the product of collective bargaining,

pre-empted by (302 of the National Labor Relations Act,

29 U.S.C. §186(e) (5)?

3. Has the State of New Hampshire, by requiring a

benefit plan covering employees in many states to pro-

vide benefits required by Chapter 57 to employees resi-

dent and employed in that state, placed an impermis-

sible burden on interstate commerce in contravention of

Art. I, §8 of the United States Constitution?

_4. Does Chapter 57, by favoring group insurance sup-

plied by Blue Cross-Blue Shield, deprive petitioners of

the equa] protection of the laws in contravention of the

Fourteenth Amendment?

Constitutional and Statutory Provisions Involved

The relevant Constitutional and statutory provisions in-

volved herein are set out at page 50 infra.

Statement of the Case

The Factual Background

Petitioner, Plaintiff-Appellant below, is the admini-

strator of certain employee benefit plans created by col-

lectively bargained agreements or established by employer

groups as part of their labor benefit programs. The

requirements of the Employee Retirement Income Se-

curity Act, 29 U.S.C. §1001 et seq. (hereinafter ‘‘ERISA’’),

govern the plans and Petitioner as the fund administrator.

The court below described the operation of the benefit

plans as follows:

The funds administered by plaintiffs are employee

welfare benefit plans within the meaning of §3 of

ERISA.’ All of the funds, with the exception of New

Hampshire Employer’s [sic] Benefit Trust, are

‘*Taft-Hartley Trusts’’ in that they are also regu-

lated by §302 of the Labor Management Relations

Act.? Also with the exception of New Hampshire Em-

Employer’s [sic] Benefit Trust, which is voluntarily

129 U.S.C. §1002(1).

229 U.S.C. §186(c).

operated by employees, the funds are the products

of collective bargaining agreements that require em-

ployers to contribute at a specified level. While the

level of contributions is specified by the collective

bargaining agreements, benefits are not.

Each year the fund administrators meet with local

unions to determine the types of coverage desired

by the members. The fund administrators must obtain,

at the least possible cost, the coverage chosen. To ful-

fill this obligation the fund administrators, with the

aid of insurance consultants, put together packages

upon which they request sealed bids from insurance

companies. Although the funds are self-insurers on

a few benefits, approximately 90 per cent of the bene-

fits are provided through group insurance policies.

However, for all practical purposes, under the group

insurance policies the funds are self-insurers who re-

tain the insurance companies to provide the admini-

strative service of processing claims.’ Because the pre-

miums are experience rated the amount of claims for

the year is projected; if the actual amount of claims

is higher than the projection, the premium is adjusted

upward; if the actual amount of claims is lower than

the projection, the premium is adjusted downward.

3In General Electric Co. v. Gilbert, 429 U.S. 125 (1976), the

Supreme Court made a similar observation concerning General

Electrie’s ‘‘ Weekly Sickness and Accident Insurance Plan:”’

With respect to the Plan, General Electric is, in effect, a self-

insurer. While General Electric has obtained, for employees

outside California, an insurace policy from the Metropolitan

Life Insurance Company, this policy involves the payment

of a tentative premium only, subject to adjustment in the

light of actual experience. Pretrial Stipulation of Facts, 11.

In effect, therefore, the Metropolitan Life Insurance Company

is used to provide the administrative service of processing

claims, while General Electric remains, for all practical pur-

poses, a self-insurer.

429 U.S. at 129 n. 3 [footnote by the Court. ]

So in the long run, the funds reimburse the insurance

company for all claims.

562 F.2d 74-75 [Footnotes by the court, renumbered. ]

Frarcis E. Whaland, Defendant-Appellee below, is Com-

missioner of Insurance for the State of New Hampshire.

As such, he is charged with administering Chapter 57 of

the Laws of 1976, N.H. Rev. Stat. Ann. §415: 18-a(1)

(1976) (hereinafter ‘‘Chapter 57’’). In relevant part, Chap-

ter 57 provides that:

Each insurer that issues or renews any policy of

group or blanket accident or health insurance provid-

ing benefits for medical or hospital expenses, shall

provide to each group, or to the portion of each group

comprised of certificate holders of such insurance

who are residents of this state and whose principal

place of employment is in this state, coverage for

expenses arising from the treatment of mental illness-

es and emotional disorders ....

At the time this law was enacted, Petitioner was con-

cerned (a) that Chapter 57 would necessitate disparate

treatment of New Hampshire beneficiaries and those resi-

dent in other states, (b) that the statute mandates certain

benefits which had not been agreed upon by the administra-

tors and the unions, (ce) that the statute unfairly discrim-

inates in favor of Blue Cross-Blue Shield plans and

against Petitioner’s plans* and (d) that the enactment of

* This concern was aroused by Chapter 57 :2 (iv), New Hampshire

Laws of 1976, which reads:

In the case of care and services rendered by licensed gen-

eral hospitals, public or licensed mental hospitais, or com-

munity mental health concerns which have not entered into a

written contract with the hospital service corporation for the

rendering of such care and services to its subscribers, benefits

of not less than 75 percent of the benefits enumerated in para-

graphs I, II and III shall be provided.

ERISA had precluded the application of Chapter 57 to

the plans involved herein. Shortly after the effective date

of Chapter 57, therefore, Petitioner Wadsworth sought

a declaration from Commissioner Whaland that Chapter

57 does not affect the plans administered by Wadsworth.

Receiving no response from Commissioner Whaland, Pe-

titioner Wadsworth and James M. Dawson,® on behalf of

the employee benefit plans administered by them, com-

menceéd actions in the United States District Court for the

District of New Hampshire against Commissioner Wha-

land, seeking a Declaratory Judgment and injunctive re-

lief prohibiting the application of Chapter 57 to the em-

ployee benefit plans administered by the Plaintiffs.

On December 22 and 23, 1976, an evidentiary hearing

was held by the District Court. All parties submitted ap-

propriate motions for summary judgment with support-

ing affidavits. By decision dated February 11, 1977, the

District Court granted summary judgment in favor of the

Defendant, holding that Chapter 57 is constitutional and

is not pre-empted by ERISA.

Wadsworth and Dawson seasonably appealed the deci-

sion to the Court of Appeals for the Second Circuit, which

consolidated the two cases. That court affirmed the judg-

ment of the District Court.

The Opinions Below:

The District Court, by Hugh H. Bownes, J., held that

ERISA does not pre-empt Chapter 57. Despite the lang-

uage of Section 514 of that Act, 29 U.S.C. §1144(a), which

states that

the provisions of this title . .. shall supersede any and

all State laws insofar as they may now or hereafter

relate to any employee benefit plan . . .,

ad Dawson administers employee benefit funds substantially iden-

tical to those administered by Petitioner Wadsworth.

and despite Congress’ definition of ‘‘employee welfare

benefit plan’’ in 29 U.S.C. §1002(1) as including plans

which operate ‘‘through the purchase of insurance or other-

wise,’’ the court declared the exception contained in 29

U.S.C. §1144 (b) (2) (A) to be controlling. That subsec-

tion reads: : | a

Except as provided in subparagraph (B), nothing

in this subchapter shall be construed to exempt or

relieve any person from any law of any State

which regulates insurance, banking, or securities.

Subparagraph (B), referred to in the foregoing lang-

nage, creates a further qualification:

Neither an employee benefit plan . .., nor any trust

established under such plan, shall be deemed to be an

insurance company or other insurer, bank, trust com-

pany, or investment company, or to be engaged in the

business of insurance or banking for purposes of any

law of any State purporting to regulate insurance

companies, insurance contracts, banks, trust compan-

ies, or investment companies. 29 U.S.C. §1144(b) (2)

(B). Sane

Holding that this language means merely that ‘‘states

may not regulate employee benefit plans by calling them

insurance companies’’ (Slip Op. at 10), and relying on

the broad savings clause of the McCarran-Ferguson Act,

15 U.S.C. §1012(B), the District Court found in ERISA no

intent to pre-empt Chapter 57. It summarily dismissed

Petitioner’s other claims as well.

The Court of Appeals, affirming, rendered a more com-

plex opinion. At the outset, it stated that:

The issue is whether employee welfare plans are in-

surers under [Chapter 57], In the event they are, we

would have'no difficulty finding explicit pre-emption

by ERISA notwithstanding the saving clause [29

U.S.C. §1144(b) (2) (A), supra].”’

562 F.2d at 76 [footnote omitted].

As noted earlier, the court found that ‘‘for all practical

purposes’’ the plans are self-insurers; nevertheless, it held

that ERISA does not pre-empt Chapter 57, and that Chap-

ter 57 does not purport ‘‘to directly regulate employee

welfare plans as insurers.’’ 562 F.2d at 76.°

The Court agreed with the Petitioner’s alternative con-

tention that Chapter 57 does regulate the plans indirectly,

by controlling the content of the policies written and issued.

Even so, it refused to find pre-emption by ERISA, Con-

struing the savings clause together with the ‘‘deemer’’

clause and the MeCarran-Ferguson Act, the Court found

no ‘‘clear statement of intent’’ that Congress meant to

forbid State legislation which affects employee benefit

plans but only indirectly. The Court summarily affirmed

the District Court’s disposition of Petitioner’s claims

of pre-emption by the National Labor Relations Act, and

of violations of the Commerce and Equal Protection

Clauses,

® One possible interpretation of this aspect of the decision is that

ERISA pre-empts state regulation when, and only to the extent

that, the benefit funds are self-insurers, If that is so, Petitioner

would appear to be able to declare that the funds are self-insurers

for particular benefits, such as treatment for mental illness, and,

as such, provide only the coverage originally bargained for by the

administrators and the unions, Under the logie of the opinion

below, such a self-insurance program is exempt from state regula-

tion, even though Chapter 57 expressly requires more extensive

coverage, This anomalous result emphasizes the inconsistency in

approach and policy which exists in this area and which the court

below evidently approved.

Jurisdiction of the Courts Below

The District Court’s jurisdiction was invoked under 28

U.S.C. §§1331 and 1343(3). Appellate jurisdiction lay in

the Court of Appeals under 28 U.S.C. §1291.

Reasons for Granting the Writ

I, Tae Case Presents AN Important Question or Fxp-

BERAL Law Tuat Requires Resotution By Tuts Court.

A. The Congressional Intention to Pre-empt State

Regulation in This Field Was Clearly Expressed.

1, The Legislative History.

The pre-emptive section of ERISA, with its two qualify-

ing subparagraphs, has been set out above. In interpret-

ing the Congressional intent, it is instructive to examine

the earlier versions of the section. That examination re-

veals that the law as enacted contains a broader pre-emp-

tion provision than those originally proposed.

The Senate Committee on Labor and Public Welfare

stated its early position thus:

Because of the interstate character of employee bene-

fit plans, the Committee believes it essential to pro-

vide for a uniform source of law in the areas of vest-

ing, funding, insurance and portability standards, for

evaluating fiduciary conduct, and for creating a single

reporting and disclosure system in lieu of burdensome

multiple reports.”

7§. Rep. No, 127, 93d Cong., Ist Sess. (1973), at 35.

Irom this original and limited aim, the pre-emptive

provision grew in scope. The Senate adopted a provision

stating that ERISA is to pre-empt State laws only insofar

as those laws ‘relate to the subject matters regulated by

this Act or the Welfare and Pension Plans Disclosure

Act,’’ with exceptions for State laws regulating insur-

ance, banking, securities, and employee benefit plans not

subject to ERISA, H.R.2, 938d Cong., 2d Sess. Sec. 699(a)

(1974) (as amended by the Senate).

The House of Representatives, with exceptions either

similar to those of the Senate or not relevant here, pro-

vided that ERISA should supersede all State laws

insofar as they may now or hereafter relate to the

reporting and disclosure responsibilities, and fidu-

ciary responsibilities, of persons acting on behalf of

any employee benefit plan. ... H.R. 12906, 98d Cong.,

2d Sess. See, 514 (1974).

Thus the bills which went to the conference committee

limited pre-emption to state regulation of specific matters

detailed in ERISA,

The conference committee expanded the pre-emption

clause to its present scope: ERISA was to pre-empt ‘‘any

and all State laws insofar as they may now or hereafter

relate to any employee benefit plan... .’? 29 U.S.C. §1144

(a). In its accompanying report, the conference committee

explained the provision as follows:

Under [ERISA] the provisions of Title I are to

supersede all State laws that relate to any employee

benefit plan that is established by an employer en-

gaged in or affecting interstate commerce or by an

employee organization that represents employees en-

gaged in or affecting interstate commerce, 1974

U.S. Cope Cone, & Ap, News 5162.

When the revised pre-emption clause was presented to

the full membership of Congress, it was explained in

language equally broad, Senator Jacob Javits, one of the

managers of the bill,® stated:

Both House and Senate bills provided for preemp-

tion of State law but .. defined the perimeters of

preemption in relation to the areas regulated by the

bill. Such a formulation raised the possibility of end-

less litigation over the validity of State action that

might impinge on such Federal regulation, as well as

opening the door to multiple and potentially conflict-

ing State laws hastily contrived to deal with some

particular aspect of private welfare ... benefit plans

not clearly connected to the Federal regulatory scheme.

... [T]he emergence of a comprehensive and per-

vasive Federal interest and the interests of uniform-

ity with respect to interstate plans required . , . the

displacement of State action in the field of private

employee benefit programs, 120 Cong. Rec, 29,942

(1974)

Congressman John Dent, Chairman of the Subcommittee

on Labor, House Labor and Education Committee, ex-

plained the revised pre-emption clause to the House:

Finally I wish to make note of what is to many the

crowning achievement of this legislation, the reserva-

tion to Federal authority [of] the sole power to regu-

late the field of employee benefit plans. With the pre-

emption of the field, we round out the protection af-

* This Court has recognized that weighty consideration is to be

given to comments made by the managers of a bill and by members

of committees which have dealt extensively with it. City of Bur-

bank v, Lockheed Air Terminal, Inc., 411 U.S. 624, 637 (1973).

forded participants by eliminating the threat of con-

flicting and inconsistent State and local regulation. ...

The coyferees, with the narrow exceptions spec-

ifically enumerated, applied this principle in its broad-

est sense to foreclose any non-Federal regulation of

employee benefit plans. Thus, the provisions of sec-

tion 514 would reach any rule, regulation, practice or

decision of any State, subdivision thereof or any

agency or instrumentality thereof . . . which would

affect any employee benefit plan... . 120 Cong, Ree.

29,197 (1974).

The Chairman of the Senate Committee of Labor and

Public Welfare, Senator Harrison Williams, Jr., made sim-

ilar remarks:

It should be stressed that with the narrow excep-

tions specified in the bill, the substantive and en-

forcement provisions of the conference substitute are

intended to preempt the field for Federal regula-

tions, thus eliminating the threat of conflicting or in-

consistent State and local regulation of employee ben-

efit plans. This principle is intended to apply in its

broadest sense to all actions of State or local govern-

ments, or any instrumentality thereof, which have

the force or effect of law. 120 Cong. Rec. 29,933 (1974).

As Senator Williams noted, there are ‘‘narrow excep-

tions’’ to the pre-emption clause. Those which appear on

the face of the clause are these: pre-emption does not

apply to transactions occurring prior to the effective date

of ERISA; pre-emption does not prohibit cooperation be-

tween the federal government and state agencies; and

there is no pre-emption of generally applicable state crim-

inal laws.

Beyond this, the sweeping clause is subject to the lang-

uage of later subparagraphs. By 29 U.S.C. §1144(b) (2)

(A), Congress provided that ERISA was not to

relieve any person from any law of any State which

regulates insurance, banking or securities.

Subparagraph (B) of this section qualifies this provi-

sion by stating that ‘‘an employee benefit Plan’’ like

those involved herein shall not ‘‘be deemed to be an in-

surance company or other insurer... or to be engaged

in the business of insurance ... for purposes of any law of

any State purporting to regulate insurance companies [or]

insurance contracts, . . .’’ Congress expressly recognized

that the plans might function ‘‘by the purchase of insur-

ance or otherwise’’, thus including self-insurers as well

as purchasers from outside insurance carriers. 29 U.S.C.

§1002(1), Finally, ERISA defined the term ‘‘State’’ to

include agencies ‘‘which purport to regulate, directly or

indirectly, the terms and conditions of employee benefit

plans... .’’ 29 U.S.C. §1144(e).

Petitioner Wadsworth has argued below that, taken as

a whole, and viewed in the context of the legislative his-

tory, these provisions clearly demonstrate Congress’ in-

tention to supersede laws like New Hampshire’s Chapter

57. This position is supported by a recent statement of the

House Committee charged with the oversight of ERISA:

It is our understanding of [the language of the

pre-emption section] that with respect to regulation

of the activities of certain employee benefit plans

(those subject to ERISA jurisdiction), federal auth-

ority has been expressly extended to occupy the field

to the exclusion of state authority subject to certain

exceptions, These exceptions are designed to delin-

eate affirmatively the limits of the ‘‘field’’ preempted

by section 514(a), and articulate a second, but distinct-

ly subordinate, policy within the section of preserving

state authority insofar as it does not relate to any

plan ‘‘. . . deseribed in section 4(a) and not exempt

under section 4(b).’’

Based on our examination of the effects of section

514, it is our judgment that the legislative scheme of

ERISA is sufficientiy broad to leave no room for

effective state regulation within the field pre-empted.

Similarly it is our belief that the Federal interest and

the need for national uniformity are so great that

enforcement of state regulation should be precluded.

Activity Report of the Committee on Education and

Labor of the U.S. House of Representatives, H.R. Rep.

No. 94-1785, p. 47, 94th Cong., 2d Sess. (1977).

The rejection of Petitioner’s argument by the courts

below raises a serious question concerning the scope of the

Federal law and the intentions of Congress. That question

needs resolution by this Court. Donaldson v, United States,

400 U.S. 517 (1971).

2. Administrative Interpretations

The Department of Labor, which is charged with admin-

istering ERISA, has made plain its opinion that the

statute pre-empts laws like Chapter 57. In a letter to the

California Commissioner of Corporations, for example,

the Department’s Administrator of Pension and Welfare

Benefit Programs advised that a California statute man-

dating certain coverage was pre-empted by ERISA. The

Administrator wrote :

The effect of this section is to preempt all state

laws which relate to employee benefit plans subject

to the coverage of Title I of ERISA (Protection of

Employee Benefit Rights), whether such state laws

conflict with the terms of the federal legislation or

would merely supplement the federal scheme. —

The major reasons for broad pre-emption . . . in-

clude (1) the need to prevent conflicting regulations

over interstate plans, (2) the desire to avoid the liti-

gation that would result from piecemeal preemption,

(3) the emergence of a pervasive Federal interest in

employee benefit plans, and (4) the existence of a

comprehensive federal program for future study (see

§3022). C.C.H. Pension Plan Guide 23,472 (July 14,

1976). 4

The Office of Employee Benefits Security, in Opinion

Letter 75-22, expressed the view that Hawaii’s Prepaid

Health Care Act, which purported to regulate employee

benefit plans, had been superseded by ERISA. Id. at

725,136. And in ERISA Opinion Letter 75-143, the De-

partment stated :

State laws governing employee benefit plans are

pre-empted by ERISA insofar as coverage extends to

any fund established by one or more employers to

provide employees, their families or dependents with

medical, hospital, disability, death, retirement or an-

nuity benefits. 7d. at 25,145

These interpretations are entitled to ‘‘great deference’’

from the courts. Griggs v. Duke Power Co., 401 U.S. 424,

434 (1971). The courts below made no reference to them.

B. The States Continue to Regulate Benefit Plans

Covered by ERISA.

The questions proposed to this Court for review are

particularly pressing in view of the thicket of state laws

which, despite the pre-emption clause, purport to regulate

benefit plans which are subject to regulation under ERISA.

In the area of mandatory benefits alone, as the chart ap-

pended hereto at page 53 shows, state laws are prolifer-

ating rapidly; almost all of the legislation noted on the

chart was enacted after January 1, 1975, the effective date

of ERISA.

There is of course no question that states may pass

laws regulating the ‘‘business of insurance’’. S.E.C. v. Na-

tional Securities, Inc., 393 U.S. 453, 459 (1969). It is

equally clear that no Act of Congress shall be construed

to supersede state laws regulating the ‘‘business of in-

surance’’ unless that Act specifically relates to the busi-

ness of insurance. The McCarran-Ferguson Act, 15 U.S.C.

§1011 et seq.

What is problematic in this case is the extent to which

ERISA, as an act covering employee benefit plans, re-

lates specifically to the business of insurance and there-

fore supersedes state regulation.

Some commentators have no doubt that state laws are

preempted :

Giving the McCarran Act maximum effect, it is

only necessary to ask whether ERISA satisfies the

McCarran Act requirement that federal laws ‘‘specif-

ically relate to the business of insurance.’’ The re-

quirement is not that ERISA use the words ‘‘insur-

ance business’’; it is that it ‘‘relate’’ to the business

of insurance. To the extent that ERISA affects that

portion of the ‘‘insurance business’’ that overlaps

‘‘employee benefit funds’’ when it states that a certain

activity is not to be ‘‘deemed’”’, that is, ‘‘treated as,’’

an insurance business for state insurance law pur-

poses, it does explicitly relate to the business of (em-

ployee benefit) insurance; that is its purpose. We

conclude that ine McCarran Act does not preclude

supersession of state law by ERISA in this way. Pfen-

nigstorf and Kimball, Employee Legal Service Plans:

Conflicts Between Federal and State Regulation, 3

A.B.F. Res. J. 787, 828-9 (1976).

Others are not convinced; see, e.g., Okin, Federal Pre-

emption of State Law under ERISA: An Examination of

the Effects of the Federal Mandate in the Light of Auth-

oritative Precedent Under the Supremacy Clause, the Mc-

Carran-Ferguson Act and the Legislative History, XXIV

Proc. Assoc. Life Ins. Counsel 115 (1976); Brummond,

Federal Preemption of State Insurance Regulation Under

ERISA, 62 Iowa L.Rev. 57 (1976).

This lack of clarity, coupled with burgeoning state reg-

ulation, has placed the Petitioner, and presumably other

plan administrators, in a position of great uncertainty.

On the one hand, he is responsible as a fiduciary® for man-

aging a benefit plan which has been arrived at by negotia-

tion with representatives of the beneficaries; on the other,

he may be subject to laws like New Hampshire’s Chapter

57, which require the plan to extend certain coverage at

additional and unplanned expense. Under Chapter 57, this

coverage — which was not bargained for by the parties —

must be extended to some of the plan beneficiaries; and,

to avoid discrimination prohibited by the National Labor

Relations Act, 29 U.S.C. §186(c) (5), extension to all of

the beneficiaries may perhaps be necessary. The present

929 U.S.C. §1101 et seg.

nationwide conflict between state regulators and the De-

partment of Labor places the federally-regulated fund

administrator in the position of obeying two antipathetic

masters. Petitioner asks this Court to settle the conflict

by declaring which master shall prevail.

Il. Tse Courts or APPEAL AND THE District Courts Have

Reacuep Conruiictinc Resutts ON THE QUESTION OF

Pre-EmpTION.

As suggested above, the confusion over Federal and

state regulation has left Petitioner in doubt as to his

legal obligations, and threatens the fiscal life of the plans.

Disagreement among the Courts of Appeal has compounded

this doubt. Moreover, since beneficiaries of the plans ad-

ministered by Petitioner live, work, and are provided

health care in several states and in two Circuits which have

disagreed, the Petitioner encounters legal requirements

which are impossible to reconcile without this Court’s

clarification.

The opinion of the First Circuit Court of Appeals in this

ease holds that New Hampshire’s law is not pre-empted

by ERISA. As noted above, the language of the opinion

suggests that there are circumstances in which ERISA

might pre-empt; but those circumstances are not defined

with enough precision to guide the Petitioner in conform

ing his conduct to the law. :

The Second Circuit has reached a result contrary to

that of the/ecurt below in this case. In Marshall v. Chase

Manhattan Bank (National Association), 558 F.2d 680 (2d

Cir. 1976), the Court reversed the District Court’s judg-

ment dismissing a suit by the Secretary of Labor. The

Secretary had sued for injunctive and declaratory relief

to prevent the Defendant from invoking state court juris-

diction over the termination of an employee benefit plan,

including an accounting for the period after ERISA’s ef-

fective date of January 1, 1975. Chase contended that

since the employer became bankrupt in 1974 ERISA did

not govern and the case was properly before the State

courts.

The Court of Appeals agreed with the Secretary that

the federal court was the proper forum:

The superior federal interest sought to be vindicated

here is clear from §§502 and 514 of [ERISA] as well

as its legislative history which establishes the con-

gressional intent that the United States regulate the

field of employee benefit plans eliminating the threat

of conflicting and inconsistent regulation. 558 F.2d at

683.

As support for that conclusion, the Court cited the re-

marks of Congressman Dent quoted above.

Thus the Second Circuit has evidently read the pre-

emption clause as having a very broad scope. The First

Circuit, in its decision in this case, has read the clause far

more narrowly. The conflict in interpretation in two neigh-

boring Circuits makes review by the Court appropriate.

Bingler v. Johnson, 394 U.S. 741 (1969).

The lower courts which have considered the matter are

also divided. In Wayne Chemical, Inc. v. Columbus Agency

Service Corp., 426 F. Supp. 316 (N.D. Ind. 1977), the

court held that ERISA pre-empted an Indiana law man-

dating continued coverage of disabled dependents, saying:

Since the court concludes that the benefit plan here

is a covered federal plan, the court is led also to the

conclusion that no state statute, regulation, or com-

mon law rule, operating of its own force, may govern

any aspect of this case. 426 F. Supp. at 321 [Foot-

note omitted.] |

Similarly, in Kerbow v. Kerbow, 421 F. Supp. 1253,

1260 (N.D. Tex. 1975), the court concluded that ‘‘Con-

gress intended the Act to supersede any and all state

laws regulating employee benefit plans.’’ Accord: Azzaro

v. Harnett, 414 F. Supp. 473 (S.D.N.Y. 1976), aff’d mem.

553 F.2d 93 (2d Cir.), cert. denied 46 U.S.L.W. 3200 (Oct.

4, 1977).

Most recently, in Bell v. Employee Security Benefit

Association, No. 77-4066 (D.Kan., August 22, 1977), the

court explicitly rejected the reasoning of the District Court

in this ease and adopted the language of the decision in

Hewlett-Packard Company v. Barnes, 425 F. Supp. 1294,

1300 (N.D. Cal. 1977) :

Overall, the legislative history reveals both that

Congress carefully considered the question of pre-

emption, including the feasibility of enacting a more

jimited pre-emption provision, and that Congress

ultimately enacted Section 514(a) with the express

purpose of summarily pre-empting state regulation

of ERISA-covered employee benefit plans. That the

statute, standing alone or buttressed by its legisla-

tive history, was intended to supersede state regula-

tion of benefit plans such as plaintiffs’ is indisputable.

In sharp contrast to these decisions in the district

courts, Judge Bownes’ opinion in this case focused on

the savings clause and held that ERISA does not pre-empt

the New Hampshire statute. See also Insurers’ Action

Council v. Heaton, 423 F. Supp. 921 (D. Minn. 1976).

In sum, then, the Federal courts conflict on this issue;

the conflict produces uncertainty among those who, like

the Petitioner, are subject to differing interpretations in

different areas; and the interpretation given by the Court

below requires expenditures, both unbargained and un-

planned, which threaten the plans with fiscal disaster.

Guidance from this Court, therefore, is urgently needed.

Conclusion

For all of the foregoing reasons, Petitioner Wadsworth

respectfully requests this Court to grant his Petition for

a Writ of Certiorari to the United States Court of Appeals

for the First Circuit.

Respectfully submitted,

Joun J. FLAHERTY

JorL C. Martin

Peter H. Rysman

Preti & FLAHERTY

443 Congress Street

Portland, Maine

Attorneys for Petitioner

APPENDIX

United States Court of Appeals

For the First Circuit

No, 77-1135

BRUCE W. WADSWORTH, ADMINISTRATOR OF

NEW HAMPSHIRE EMPLOYERS’ BENEFIT TRUST

AND NORTHERN NEW ENGLAND BENEFIT TRUST

APPELLANT,

FRANCIS BE. WHALAND, COMMISSIONER,

DEPARTMENT OF INSURANCE, STATE OF

NEW HAMPSHIRE

APPELLEE.

No. 77-1136

JAMES M. DAWSON, ADMINISTRATOR OF NORTH-

ERN NEW ENGLAND CARPENTERS HEALTH AND

WELFARE FUND, NEW HAMPSHIRE MASONS

HEALTH AND WELFARE FUND, NEW HAMPSHIRE

PLUMBERS HEALTH AND WELFARE FUND, NEW

HAMPSHIRE SHEET METAL WORKERS #297

HEALTH AND WELFARE FUND

APPELLANT,

FRANCIS E. WHALAND, COMMISSIONER,

DEPARTMENT OF INSURANCE, STATE OF

NEW HAMPSHIRE

APPELLEE.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW HAMPSHIRE

[How. Hue H. Bownsrs, United States District Judge]

Before Corrtn, Chief Judge,

Lay, Circuit Judge",

CampBELL, Circuit Judge.

David L. Nixon, with whom Randolph J. Reis and Brown and

Nixon Professional Association were on brief, for James M. Dawson

ete,, appellant. .

John J. Flaherty, with whom Peter H. Rysman and Preti &

Flaherty were on brief, for Bruce W. Wadsworth, appellant.

George J. Pantos, Michael J. Bartlett, Vedder, Price, Kaufman,

Kammholz & Day and Robert 8. Stone on brief, for Erisa Industry

Committee, amicus curiae.

James C. Sargent, Jr., Assistant Attorney General, with whom

David H. Souter, Attorney General, and Andrew R. Grainger,

Attorney, were on brief, for appellees.

Warren Spannaus, Attorney General, Richard B. Allyn, Solicitor

General, Richard A. Lockridge, and Stephen Shakman, Special

Assistant Attorneys General, on brief for the State of Minnesota,

amicus curiae.

ya September 1, 1977

Lay, Circuit Judge. This case presents an important and

fundamental question of federal preemption because of an

alleged conflict between the Employee Retirement Income

Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq.,

and the New Hampshire state Jaw regulating the content of

group insurance policies, Chapter 57 of the Laws of 1976,

N.H. Rev. Stat. Ann. §§ 415:18-a, 419:5-a and 420:5-a

(1976) Chapter 57 requires the ‘‘issuers’’ of group health

insurance policies to provide coverage for the treatment of

mental illnesses and emotional disorders. ERISA does

* Of the Bighth Circuit, sitting by designation.

1 Each insurer that issues or renews any policy of group or

blanket accident or health insurance providing benefits for medical

or hospital expenses, shall provide to each group, or to the portion

of each group comprised of certificate holders of such insurance

who are residents of this state and whose principal place of employ-

ment is in this state, coverage for expenses arising from the treat-

ment of mental illnesses and emotional disorders .. . .

N.H. Rev, Stat. Ann. § 415:18-a(I) (1976) (emphasis added).

not require this, Administrators of various health and

welfare funds which provide benefits chiefly through the

purchase of group health insurance,? brought this action

against Francis E. Whaland, Commissioner of Insurance

for the State of New Hampshire, seeking a declaration that

Chapter 57 is unconstitutional and an injunction restraining

its enforcement. The fund administrators’ principal con-

tention is that ERISA preempts the provisions of Chapter

57, to the extent that that chapter applies to employee

benefit plans.’ Alternatively, they assert that the New

2 Northern New England Carpenters Health and Welfare Fund,

New Hampshire Masons Health and Welfare Fund, New Hamp-

shire Plumbers Health and Welfare Fund, New Hampshire Sheet

Metal Workers #297 Health and Welfare Fund, New Hampshire

imployers’ Benefit Trust, and Northern New England Benefit

Trust.

3The importance of the preemption issue is highlighted by the

participation of the ERISA Industry Committee (ERIC) and the

State of Minnesota as amicus curiae, The State of Minnesota

recently enacted a comprehensive health insurance law which re-

quires certain minimum health-care benefits. See Minnesota Com-

prehensive Health Insurance Act, Minn, Stat. Ann, Ch, 62E (West

Supp. 1977). The State of Minnesota stresses the overall impor-

tance of the continued efficacy of state insurance laws, as recognized

by § 514(b)(2)(B) of ERISA, 29 U.S.C. § 1144(b)(2)(B), and

as required by the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-15.

ERIC, a nonprofit association of 80 major corporations who main-

tain group health plans covering nearly 7 million employees, joins

the plaintiff administrators in urging that ERISA preempts state

laws which directly or indirectly ‘‘relate’’ to employee welfare

plans. Such a result is required, they believe, to avoid the substan-

tial, adverse effects of concurrent federal and multiple state regula-

tion of welfare benefit plans. The ERIC brief concludes with this

comment:

In the final analysis, the victims of a fragmented scheme

of Federal and multi-state regulation of benefit plans are

likely to be employees, themselves—the very persons intended

to be benefited by plan regulation. Faced with mounting costs,

unwieldy administration and vexatious litigation, at least

some employers will undoubtedly terminate or curtail their

employee welfare benefit plans; others, considering the —.

tion of such plans, will abandon the idea. Such a result would

not only be directly contrary to the best interest of employees

but also frustrate Congressional intent in adopting ERISA

, a anes for encouraging the growth of employee bene-

t plans.

Hampshire statutory scheme is an undue burden on inter-

state commerce and violates the due process and equal

protection clauses of the United States Constitution. Both

parties filed motions for summary judgment. After an

evidentiary hearing relating primarily to the issue of

irreparable harm, the district court, the Honorable Hugh

H. Bownes presiding, held that ERISA did not preempt

state regulation of group insurance policies, and that Chap-

ter 57 did not contravene any provision of the Constitution.

We affirm.

ERISA.

As the preamble to the Act indicates,* ERISA is the re-

* Section 2 of ERISA states:

(a) The Congress finds that the growth in size, scope,

and numbers of employee benefit plans in recent years has been

rapid and substantial; that the operational scope and economic

impact of such plans is increasingly interstate; that the continued

well-being and security of millions of employees and their depend-

ents are directly affected by these plans; that they are affected

with a national public interest; that they have become an im-

portant factor affecting the stability of employment and the

successful development of industrial relations; that they have

become an important factor in commerce because of the interstate

character of their activities, and of the activities of their partici-

pants, and the employers, employee organizations, and other entities

by which they are established or maintained; that a large volume

of the activities of such plans is carried on by means of the mails

and instrumentalities of interstate commerce; that owing to the

lack of employee information and adequate safeguards concerning

their operation, it is desirable in the interests of employees and

their beneficiaries, and to provide for the general welfare and the

free flow of commerce, that disclosure be made and safeguards be

provided with r t to the establishment, operation, and adminis-

tration of such plans; that they substantially affect the revenues

of the United States because they are afforded preferential Federal

tax treatment; that despite the enormous growth in such plans

many employees with long years of employment are losing antici-

pated retirement benefits owing to the lack of vesting provisions in

such plans; that owing to the inadequacy of current minimum

standards, the soundness and stability of plans with respect to

adequate funds to pay promised benefits may be endangered ; that

owing to the termination of plans before requisite funds have been

sult of a congressional endeavor to curb the funding and

disclosure abuses of employee pension and welfare benefit

plans by establishing minimum federal standards. Title I

of ERISA, composed of five main subparts, provides the

substantive regulatory provisions governing two basic types

of employee benefit plans. Those two types are pension

plans, which provide for retirement or deferred income,®

and welfare benefit plans, which provide medical, health,

sickness, accident, and other non-pension benefits.®

Part one of Title I’ deals with the reporting and dis-

closure requirements for both types of plans. The basic

purposes of these requirements are to inform employees

of their rights, and to assist the Secretary of Labor in

determining the financial soundness of the plan. See Brum-

mond, Federal Preemption of State Insurance Regulation

Under ERISA, 62 Iowa L., Rev. 57, 61-62 (1976). Thus,

the fund administrators are required to provide each par-

ticipant and each beneficiary with a summary description

of their plan drafted in language understandable by the

average plan participant® and to make available a copy of

accumulated, employees and their beneficiaries have been deprived

of anticipated benefits; and that it is therefore desirable in the

interests of employees and their beneficiaries, for the protection of

the revenue of the United States, and to provide for the free flow

of commerce, that minimum standards be provided assuring the

equitable character of such plans and their financial soundness.

(b) It is hereby declared to be the policy of this Act

‘o protect interstate commerce and the interests of participants in

employee benefit plans and their beneficiaries, by requiring the dis-

closure and reporting to participants and beneficiaries of financial

and other information with respect thereto, by establishing stand-

ards of conduct, responsibility, and obligation for fiduciaries. of

‘mployee benefit plans, and by providing for appropriate remedies,

sanctions, and ready access to the Federal courts.

29 U.S.C. § 1001(a) - 1001(b).

29 U.S.C. § 1002(2).

*29 U.8.C. §1002(1).

729 U.S.C. §§ 1021-31.

#29 U.S.C. § 1022(a) (1).

the plan’s annual report.’ A copy of the information pro-

vided to participants and beneficiaries, as well as other

data, must be furnished to the Secretary of Labor.®

Parts two" and three™ of Title I are limited in that they

apply only to pension benefit plans. Part II creates mini-

mum vesting standards and participation requirements

while part three provides funding requirements.

Part four™ of the Title sets forth the fiduciary standards

for the management of employee pension and welfare bene-

fit plans. These standards provide in part that the plan

be in writing,’* the assets held in trust exclusively for

the benefit of employees,’* and that the plan investments

be diversified.” A ‘‘prudent man”’ standard is established

for fund administrators, and prohibited financial trans-

actions are listed.”

Finally, p: «t five**® contains the administrative and en-

forcement provisions which apply to both employee pen-

sion plans and welfare benefit plans. It creates broad crim-

inal and civil penalties® and sets forth general guidelines

governing claims procedures.” Part five also gives the

Secretary of Labor broad investigative powers” and au-

thority to promulgate regulations.”

* 29 U.S.C. § 1023(a)(1)(A).

1929 U.S.C. § 1021(b).

129 U.S.C. §§ 1051-61.

1229 U.S.C. §§ 1081-86. For further discussion of subpart three

see Brummond, Federal Preemption of State Insurance Regulation

Under ERISA, 62 Iowa L. Rev. 57, 62-63 (1976).

1329 U.S.C. §§ 1101-14.

14 29 1102(a) (1).

= 1103 (a).

1104(a) (1) (A) (i).

1104(a)(1)(C).

. §§ 1104(a)(1)(B), 1106.

1131-44,

§ 1131-32.

1133,

1134.

1135.

BSBesesas

SSSssssss

aadddadddeacd

bn tn ta tn tn tn tn bn co tn

aeanaaaaaa

Il.

The ‘‘ Funds’’.

The funds administered by plaintiffs are employee wel-

fare benefit plans within the meaning of § 3 of ERISA.*

All of the funds, with the exception of New Hampshire

Employer’s Benefit Trust, are ‘‘Taft-Hartley Trusts’’ in

that they are also regulated by § 302 of the Labor Manage-

ment Relations Act.** Also with the exception of New

Hampshire Employer’s Benefit Trust, which is voluntarily

operated by employees, the funds are the products of col-

lective bargaining agreements that require employers to

contribute at a specified level. While the level of contribu-

tions is specified by the collective bargaining agreements,

benefits are not.

Each year the fund administrators meet with local

unions to determine the types of coverage desired by the

members. The fund administrators must obtain, at the

least possible cost, the coverage chosen, To fulfill this ob-

ligation the fund administrators, with the aid of insurance

consultants, put together packages upon which they re-

quest sealed bids from insurance companies, Although the

funds are self-insurers on a few benefits, approximately

90 per cent of the benefits are provided through group in-

surance policies. However, for all practical purposes, un-

der the group insurance policies the funds are self-insurers

who retain the insurance companies to provide the adminis-

trative service of processing claims.”* Because the pre-

429 U.S.C. § 1002(1).

2529 U.S.C. § 186(c).

26In General Electric Co. v. Gilbert, 429 U.S, 125 (1976), the

Supreme Court made a similar observation concerning General

Electric’s ‘‘Weekly Sickness and Accident Insurance Plan:’’

With respect to the Plan, General Electric is, in effect, a self-

insurer. While General Electric has obtained, for employees

outside California, an insurance policy from the Metropolitan

Life Insurance Company, this policy involves the payment of

a tentative premium only, subject to adjustment in the light

miums are experience rated the amount of claims for the

year is projected; if the actual amount of claims is higher

than the projection, the premium is adjusted upward; if

the actual amount of claims is lower than the projection,

the premium is adjusted downward. So in the long run,

the funds reimburse the insurance company for all claims.

IT.

A. The Preemption Issue.

The preemption issue is raised by § 514 of ERISA”

which provides that all state laws that ‘‘relate to’’ em-

ployee benefit plans are superseded.” This sweeping lan-

guage is modified by a saving clause which reaffirms the

authority of the states to regulate insurance.” However,

the saving clause is further limited in that no plan will

be ‘‘deemed’’ to be an insurance company, insurer or en-

gaged in the business of insurance for the purpose of any

state insurance law.”

of actual experience. Pretrial Stipulation of Facts, 4 11.

In effect, therefore, the Metropolitan Life Insurance Com-

pany is used to provide the administrative service of process-

ing claims, while General Electric remains, for all practical

purposes, a self-inswrer.

429 U.S. at 129 n. 3.

2799 U.S.C. § 1144.

28 Except as provided in subsection (b) of this section, the

provisions of this subchapter and subchapter III of this chapter

shall supersede any and all State laws insofar as they may now

or hereafter relate to any employee benefit plan... .

29 U.S.C. § 1144(a) (emphasis added).

2° Except as provided in subparagraph (B), nothing in this sub-

chapter shall be construed to exempt or relieve any person from any

law of any State which regulates insurance, banking, or securities.

29 U.S.C. § 1144(b)(2)(A) (emphasis added).

3° Neither an employee benefit plan described in section 1003(a)

of this title, which is not exempt under section 1003(b) of this

title (other than a plan established primarily for the purpose of

providing death benefits), nor any trust established under such a

plan, shall be deemed to be an insurance company or other insurer,

bank, trust company, or investment company or to be engaged in

the business of insurance or banking for purposes of any law of

any State purporting to regulate insurance companies, insurance

contracts, banks, trust companies, or investment companies.

29 U.S.C. § 1144(b)(2)(B) (emphasis added).

Plaintiffs contend that 4 514 preempts any direct or im-

direct regulation of employee benefit plans by the state.”

They urge that Chapter 57 clearly ‘‘relates’’ to employee

benefit plans and therefore the provisions of ERISA ‘‘su-

persede’’ Chapter 57 as it applies to them. On the other

hand the Commissioner urges that no direct conflict be-

tween ERISA and Chapter 57 exists, and that the saving

clause specifically preserves the efficacy of state regulation

of insurance. The Commissioner finds support for his posi-

tion in the McCarran-Ferguson Act, which reflects a con-

gressional policy to allow the states to regulate the business

of insurance.*

B. The New Hampshire Act.

In resolving the preemption issue, it is first necessary to

determine the scope of the New Hampshire statute. Chap-

ter 57 applies to ‘‘each insurer that issues or renews any

policy of group or blanket accident or health insurance’’

31In making this contention plaintiffs rely on the definitions of

‘*State law’’ and ‘‘State’’ contained in § 514(c), which provides:

(2) The term ‘‘State’’ includes a State, any political sub-

divisions thereof, or any agency or instrumentality of either,

which purports to regulate, directly or indirectly, the terms

and conditions of employee benefit plans covered by this sub-

chapter.

29 U.S.C. § 1144(c) (emphasis added).

3215 U.S.C. §§ 1011-15. In particular, § 2(b) of the McCarran-

Ferguson Act, provides:

No Act of Congress shall be construed to invalidate, impair,

or supersede any law enacted by any State for the purpose of

regulating the business of iusurance, or which imposes a fee

or tax upon such business, unless such Act specifically relates

to the business of insurance... .

15 U.S.C. § 1012(b) (emphasis added).

33 Section 514(d) of ERISA reaffirms the congressional policy

set forth in the McCarran-Ferguson Act by providing:

(d) Nothing in this subchapter shall be construed to alter,

amend, modify, invalidate, impair, or supersede any law of

the United States (except as provided in sections 1031 and

1137(b) of this title) or any rule or regulation issued under

any such law.

29 U.S.C. § 1144(d).

and ‘‘certificate holders of such insurance.’’ The issue is

whether employee welfare funds are insurers under the

statute. In the event they are, we would have no difficulty

finding explicit preemption by ERISA notwithstanding the

saving clause.**

In determining the scope of Chapter 57 we are without

the aid of a definitive New Hampshire state court interpre-

tation. The state attorney general, without conceding its

direct non-applicability to employee benefit plans, indicates

that ‘‘Chapter 57 is not a disclosure law, and it does not

purport to regulate benefit plans.’’ The plaintiffs, on the

other hand, assert that they are not ‘‘self-insurers,’’ de-

spite the fact that their insurance premiums are experience

rated. Without further clarification we find that Chapter

57 was codified as an insurance law and specifically relates

to insurers who issue certificates of insurance. Under a

group insurance policy, a plan, as such, is really the ‘‘in-

sured’’ and it does not issue certificates of insurance to its

members. Under these circunistances we find there is no

intention under Chapter 57 to directly regulate employee

welfare plans as insurers.

This resolution, however, does not end our analysis.

Plaintiffs further contend that Chapter 57 impermissibly

regulates employee benefit plans by indirectly regulating

‘the content of the group insurance policies which the funds

purchase, and that ERISA preempts any indirect state

regulation of employee benefit plans. The State of New

Hampshire responds that ERISA was not intended to pre-

empt any state law unless that law directly conflicts with

or duplicates the regulatory provisions of ERISA.

-%* As we will discuss, the preemption clause makes explicit that

‘‘all State laws’’ as they ‘‘relate’’ to ‘‘any employee benefit plan’’

are “‘superseded.’’ Additionally, § 514(b)(2)(B) clearly removes

an employee welfare plan from the application of the saving clause.

Hewlett-Packard Co. v. Barnes, 425 F. Supp. 1294 (N.D. Cal. 1977).

C. Legislatiwe History of § 514(a)

We turn first to the state’s argument. New Hampshire

contends that Congress’ use of the word ‘‘supersede’’ in

§ 514(a) indicates an intention to avoid regulatory vacuums

created by displacing state regulation only in areas not

principally covered by ERISA. We disagree. The legis-

lative history manifests that Congress intended to preempt

all state laws that relate to eniployee benefit plans and not

just state laws which purport to regulate an area expressly

covered by ERISA.

The original versions of ERISA, both in the House and

Senate, limited the scope of preemption to areas expressly

covered by the bill. The House version listed the specific

areas of federal regulation; the Senate version preempted

all state laws which were related to the ‘‘subject matter’’

regulated by the bill.*®° However, during conference the

language limiting preemption was replaced by the present

sweeping preemption language. The conference committee

35This argument was made by Brummond. See Brummond,

supra, 62 Iowa L. Rev. at 99.

36 Section 514(a) of H.R. 2, 93d Cong., lst Sess. (1973) provided :

(a) It is hereby declared to be the express intent of Congress

that, except for actions authorized by section 503(e)(1)(B)

of this Act and except as provided in subsection (b) of this

section the provisions of part 1 of this subtitle shall supersede

any and all laws of the States and of political subdivisions

thereof insofar as they may now or hereafter relate to the

reporting and disclosure responsibilities, and fiduciary respon-

sibilities, of persons acting on behalf of any employee benefit

plan to which part 1 applies.

120 Cong. Rec. 4742 (1974) (emphasis added).

Section 699(a) of the Senate version provided :

(a) PRE-EMPTION OF STATE LAWS. — It is hereby

declared to be the express intent of Congress that, except for

actions authorized by section 694 of this title, the provisions

of this Act or the Welfare and Pension Plans Disclosure Act

shall supersede any and all laws of the States and of political

subdivisions thereof insofar as they may now or hereafter

relate to the subject matters regulated by this Act or the

Welfare and Pension Plans Disclosure Act... .

120 Cong. Ree. 5002 (1974) (emphasis added).

report and the floor debates explain the reason for the

change was to avoid ‘‘the ,ossibility of endless litigation

over the validity of State action that might impinge on

Federal regulation . . . and potentially conflicting State

laws hastily contrived to deal with some particular aspect

of private welfare or pension benefit plans not clearly con-

nected to the Federal regulatory scheme.’’*’ Congress,

therefore, clearly rejected a concept of preemption limited

to conflicting or duplicate state law, in favor of applying

the principle in its ‘‘broadest sense.’’*®

Thus, we agree with plaintiffs that Chapter 57 is a state

law which indirectly relates to employee benefit plans and

is subject to preemption. However, we cannot agree that

preemption necessarily follows. Chapter 57 is also a state

law regulating insurance and is expressly exempted from

preemption by § 514(b)(2)(A).*%* Any possible conflict

between the state’s regulation of insurance and the regu-

latory provisions of ERISA must be resolved by the appli-

cation of the ‘‘deemer’’ clause, § 514(b)(2)(B).

D. The ‘‘Deemer’’ Clause.

The deemer clause simply provides that a state may not

deem an employee benefit plan to be an insurance com-

pany, insurer, or in the business of insurance for the pur-

poses of its insurance laws. Consequently, a state may not

regulate an employee benefit plan simply because the plan

serves as self-insurer on all of its benefits. Thus, the

37120 Cong. Rec. 29942 (1974) (remarks of Sen. Javits). See

also H.R. No. 93-1280, 93d Cong., 2d Sess. (1974), reprinted in

[1974] U.S. Code Cong. & Admin. News 5038; S.R. No. 93-1090,

93d Cong., 2d Sess. (1974) ; 120 Cong. Rec. 29197 (1974) (remarks

of Rep. Dent); 120 Cong. Ree. 29933 (1974) (remarks of Sen.

Williams). For an excellent discussion of the legislative history see

Hewlett-Packard Co. v. Barnes, 425 F. Supp. 1294, 1298-1300

(N.D. Cal. 1977).

38 120 Cong. Rec. 29197 (1974) (remarks of Rep. Dent).

39 Section 514(b)(2)(A) provides that ERISA does not relieve

any ‘‘person’’ from any state insuance law. 29 U.S.C. § 1144(b)

(2)(A). Included within the definition of ‘‘person’’ are trusts

created under such a plan.

deemer provision prevents a state from subjecting a plan,

as a business of insurance, to the state’s general insurance

laws or enacting special legislation regulating plans as a

‘‘unique variety of insurance.’’ Hewlett-Packard Co. v.

Barnes, 425 F. Supp. 1294, 1300 (N.D. Cal. 1977). How-

ever, on its face the deemer provision does not prohibit a

state from indirectly affecting plans by regulating the con-

tents of group insurance policies purchased by the plans.

We are unable to accept plaintiffs’ contention that the

deemer provision forbids the states from indirectly affect-

ing employee benefit plans by regulating group insurance.

In order to accept plaintiffs’ construction, we would have

to construe § 514 without its saving clause pertaining to

state regulation of insurance. This we cannot do; we must

interpret the statute as written. Congress was fully aware

of the functions and scope of employee benefit plans* and,

nonetheless, exempted state laws regulating insurance from

preemption. We also find that plaintiffs’ suggested con-

struction is not required by the definition of ‘‘State’’ as

any state agency which ‘‘purports to regulate, directly or

indirectly, the terms and conditions of employee benefit

plans covered by this title.’” ERISA § 514(c)(2). Such a

construction would completely emasculate the saving clause.

It is our duty when interpreting an act of Congress to con-

strue it in such a manner as to give effect to all its parts

and to avoid a construction which would render a provi-

sion surplusage. See, e.g., McDonald v. Thompson, 305

U.S. 263 (1938); Wilderness Society v. Morton, 479 F.2d

842 (D.C. Cir. 1973), cert. denied, 411 U.S. 917 (1973).

The plaintiffs’ interpretation would greatly diminish the

state’s primacy in regulating insurance. It would nullify

all state insurance laws concerning group insurance when

the group policy is issued to an employee benefit plan. We

*° Congress defined an employee benefit plan as one providing

benefits ‘‘through the purchase of insurance or otherwise.’’ 29

U.S.C. § 1002(1).

do not find, absent a clear statement of intent, that Con-

gress meant to so restrict a state’s authority to regulate

insurance. Cf. United States v. Bass, 404 U.S. 336, 350

(1971).

Our interpretation of the deemer restriction comports

with the national policy of state primacy in the regulation

of insurance announced by Congress in the McCarran-

Ferguson Act.** Under that Act, the only congressional

enactment which may ‘‘invalidate, impair, or supersede’’

any state insurance law is an act which ‘‘specifically relates

to the business of insurance. .. .’’** This national policy

is twice reaffirmed by ERISA in § 514: first with the saving

clause, and again with subsection (d).

We conclude that ERISA does not preempt application

of state law to group insurance policies when such policies

are purchased by employee benefit plans. The argument

that the plans would be detrimentally affected and might

face bankruptcy or extinction cannot change the plain

meaning of ERISA. Assuming such detrimental conse-

quences exist, we note that Congress fully intended to

appraise the implementation of the Act and to provide

remedial legislation where necessary.“ In any event such

arguments are not best directed to the courts.

#129 U.S.C. § 1011-15. In the landmark decision of Paul v.

Virginia, 75 U.S. (8 Wall.) 168 (1868), the Supreme Court held

that ‘‘[i]ssuing a policy of insurance [was] not a transaction of

commerce.’’ Id. at 183. However, in 1944 the Supreme Court

reversed Paul v. Virginia, supra, in United States v. South-Eastern

Underwriters Ass’n, 322 U.S. 533 (1944), holding that the business

of insurance was interstate in nature. Jd. at 539. The decision

east considerable doubt on the validity of the entire insurance

regulatory mechanism. The MeCarran-Ferguson Act dispelled the

doubt, however, by reaffirming the ascendency of state regulation

in insurance matters.

4229 U.S.C. § 1012.

* An indication of this continuing concern was Congress’ direc-

tion that a task force be formed to study and make a full report on

“*the effects and desirability of Federal preemption of state and

local law with respect to matters relating to pension and similar

plans... .’’ 29 U.S.C. § 1222(a) (4).

IV.

Other Issues.

We briefly review the appellants’ remaining arguments.

The fund administrators challenge the application of Chap-

ter 57 to employee welfare funds claiming it to be pre-

empted by the National Labor Relations Act and in contra-

vention of the Constitution of the United States. We find

no merit to these claims and, as did the district court,

we dispose of them summarily.

Plaintiffs argue that Chapter 57, since it indirectly af-

fects employee welfare funds, is preempted by general pro-

visions of federal labor law. As we have indicated, Chapter

57 does not relate to employee benefit plans and is not

intended to affect labor relations or disputes. The record

demonstrates that benefits under any insurance plan are

not part of the terms or conditions of collective bargaining

agreements. Similarly, it has been held that state regula-

tion of pension plans is not preempted by federal labor law.

White Motor Corp. v. Malone, 545 F.2d 599 (8th Cir. 1976).

State regulations of group insurance policies purchased by

employee benefit plans are peripheral to any federal labor

law other than ERISA.“

44 The McCarran-Ferguson Act provides that no state insurance

law is to be superseded by federal law unless that law specifically

relates to the business of insurance. 29 U.S.C. § 1012. The Labor

Management Relations Act, 29 U.S.C. § 141 et seq., is not a law

that specifically relates to the business of insurance. The Labor

Management Relations Act does place some restrictions upon so-

called ‘‘Taft-Hartley Trusts’’ including a requirement that the

trustees provide ‘‘fair and equal treatment.’’ 29 U.S.C. § 186.

Plaintiffs claim that this duty cannot be satisfied if Chapter 57 is

upheld since union members in New Hampshire will be receiving

disproportionate benefits. New Hampshire responds that this duty

is satisfied when a trustee pays out a given level of benefits to

employees which is relatively uniform, equitable, and which com-

ports with the level of contributions; and that appellant has no

obligation under 29 U.S.C. § 186 to provide the same type of bene-

fits to all employees.

Plaintiffs additionally assert that Chapter 57 is an un-

constitutional burden on interstate commerce. This claim

is partially refuted by the fact that Congress fully intended

in passing ERISA to retain regulation of insurance within

the sphere of the state. There is no proof of any undue

burden on commerce.

In State Board of Ins. v. Todd Shipyards Corp., 370 U.S.

451 (1962), the Supreme Court held: ‘‘The power of Con-

gress to grant protection to interstate commerce against

state regulation or taxation [citations omitted], or to

withhold it [citations omitted] is so complete that its

ideas of policy should prevail.’’ Jd. at 456 (emphasis

added and footnote omitted). The Court further noted

that with the McCarran-Ferguson Act Congress ‘‘provided

that the regulations and taxation of insurance should be

left to the states, without restriction by reason of the

Commerce Clause.’’ Id. at 452.

Plaintiffs also challenge Chapter 57 on due process

grounds. The district court found that New Hampshire

law does not subject the fund administrators to any crimi-

nal penalty for noncompliance with Chapter 57. On this

basis it determined that plaintiffs had no legal basis to

attack the New Hampshire Act for vagueness. We agree.

‘*The essential purpose of the ‘void for vagueness’ doctrine

is to warn individuals of the criminal consequences of their

conduct.’’ Jordon v. DeGeorge, 341 U.S. 223, 230 (1951).

With regard to plaintiffs’ equal protection argument,

the district court found that, since they were not insurance

companies, the plaintiffs lacked standing to challenge the

New Hampshire Act as being in violation of the equal pro-

tection clause of the Constitution. We are hesitant to ex-

clude plaintiffs’ challenge on a finding of lack of standing.

As Judge Stevens (now Mr. Justice Stevens) observed in

Cotovsky-Kaplan Physical Therapy Ass’n, Ltd. v. United

States, 507 F.2d 1363 (7th Cir. 1975): ‘‘The test is not

whether these plaintiffs are regulated by the statute but

whether the interests asserted by them fall arguably within

the zone of interests so regulated.’’ Jd. at 1366.

However, we need not decide the standing issue. Even

assuming standing, we summarily hold that plaintiffs’ argu-

ment that the statute denies equal protection since it

discriminatorily favors Blue Cross-Blue Shield, to be with-

out merit. See Travelers Ins. Co. v. Blue Cross, 481 F.2d

80, 86 (3d Cir. 1973).*

The judgment is affirmed.

*5 The equal protection issue was fully briefed and argued in both

the district court and this court and was implicitly rejected by the

district court. Thus, our decision is not contrary to the principle

enunciated in Singleton v. Wulff, 428 U.S. 106 (1976), urging that

appellate courts forego passing on constitutional issues not decided

by the district court.

Unitep States District Court ror THE

District or New HamPsHIRE

Civil Action No. 76-266

James M. Dawson, Administrator of Northern New England

. Carpenters Health and Welfare Fund, New Hampshire

Masons Health and Welfare Fund, New Hampshire

Plumbers Health and Welfare Fund, New Hampshire

Sheet Metal Workers #297 Health and Welfare Fund,

and

Bruce W. Wapswortn, Administrator of New Hampshire

Employers’ Benefit Trust and Northern New England

Benefit Trust,

Francis E. WHatanp, Commissioner, Department of Insur-

ance, State of New Hampshire.

ORDER

Plaintiffs are administrators of employee health and

welfare funds, all but one of which, the New Hampshire

Employers’ Benefit Trust, are ‘*Taft-Hartley Trusts’’ es-

tablished under 29 U.S.C. § 186(c).

The defendant, the State of New Hampshire, has recently

enacted Chapter 57 of the Laws of 1976, RSA 415:18-a,

419:5-a, and 420:5-a, which mandates coverage of mental

and nervous conditions in group health and accident insur-

ance policies.

The plaintiffs claim that the New Hampshire statute

violates the United States Constitution and that it is pre-

empted by federal statutes in the instances of the Taft-

Hartley Trusts.

The plaintiffs allege that several provisions of Chapter

57 violate the equal protection and due process provisions

of the Fourteenth Amendment. The case is before this

court on cross-motions for summary judgment.

In determining whether Chapter 57 violates the Equal

Protection Clause, I must uphold the legislative classifica-

tion unless it is patently arbitrary and bears no rational

relationship to a legitimate governmental interest. U. S.

Dept. of Agriculture v. Moreno, 413 U.S. 528 (1973) ; Fron-

tiero v. Richardson, 411 U.S. 677 (1973); San Antonia

Independent School District v. Rodriguez, 411 U.S. 1 (1973) ;

Dandridge v. Williams, 397 U.S. 471 (1970); Turner v.

Fouche, 396 U.S. 346 (1970). ‘‘This inquiry employs a

relatively relaxed standard reflecting the Court’s aware-

ness that the drawing of lines that create distinctions is

peculiarly a iegislative task and an unavoidable one.’’

Massachusetts Bourd of Retirement v. Murgia, 44 U.S.L.W.

5077 (1976). I look to the character of the classifications

in question, individual interests affected by classification,

and governmental interests asserted in support of classifi-

cation. Dunn v. Blumenstein, 405 U.S. 330 (1972). In doing

so, I note that the exercise of the police power with regard

to enforcement of health and insurance regulations is al-

most always upheld. Cf. Hoopston Canning Co, v. Cullen,

318 U.S. 313 (1943); Bourjois v. Chapman, 301 U.S. 183

(1937); Travelers Insurance Co. v. Blue Cross of Western

Pennsylvania, 481 F.2d 80 (3d Cir. 1973); cert. den., 414

U.S. 1093 (1973); Iowa National Mutual Insurance Com-

pany v. City of Osawatomie, Kansas, 458 F.2d 1124 (10th

Cir. 1972); Wissner v. Metropolitan Life Insurance Com-

pany, 395 F.2d 204 (5th Cir. 1968); Guest v. Fitzpatrick,

409 F. Supp. 818 (E.D. Pa. 1976); King v. Blue Mountain

Forest Association, 100 N.H. 212 (1956) ; State v. Normand,

76 N.H. 541 (1913). Justice Holmes stated with regard to

the guarantees of the Fourteenth Amendment and the

reservation of the police powers to the State:

[W]e must be cautious about pressing the broad words

of the Fourteenth Amendment to a drily logical ex-

treme. Many laws which it would be vain to ask the

court to overthrow could be shown, easily enough, to

transgress a scholastic interpretation of one or another

of the great guaranties in the Bill of Rights. They

more or less limit the liberty of the individual or they

diminish property to a certain extent. We have few

scientifically certain criteria of legislation, and as it

often is difficult to make the line where what is called

the police power of the States is limited by the Con-

stitution of the United States, judges should be slow

to read into the latter a nolumus mutare as against

the law-making power. Noble State Bank vy. Haskell,

219 U.S. 104, 110 (1911).

The question of standing always loonis in the background

of an equal protection claim. It is axiomatic that one does

not have standing to assert the rights of another. Tileston

v. Ullman, 318 U.S. 44 (1943). In order to satisfy the con-

stitutional requirement for a case or controversy

[t]he controversy must be definite and concrete, touch-

ing the legal relations of parties having adverse legal

interests. Aetna Life Insurance Co. v. Haworth, 300

U.S. 227, 240 (1937).

Plaintiffs also raise a vagueness issue under the due

process claim.

1. Residence and Place of Employment

Plaintiffs complain that the statute discriminates against

them by ‘‘compelling only those who are residents and have

their principal place of employment in New Hampshire to

procure mental health insurance... .’’

Chapter 57:1(I) of the 1976 Laws states in pertinent

part:

Each insurer ... shall provide to each group, or the

portion of each group comprised of certificate holders

of such insurance who are residents of this state and

whose principal place of employment is in this state,

coverage for expenses arising from the treatment of

mental illness .... (Emphasis added.)

The statute, far from discriminating, applies equally to

all those within the jurisdiction. It is basic constitutional

law that a state can only regulate as to those within its

jurisdiction. While this may impose additional burdens on

residents as opposed to those outside the jurisdiction, this

is not a constitutional defect.

2. Blue Cross-Blue Shield

Plaintiffs complain that Blue Cross-Blue Shield is

granted significant advantage over other insurers by Chap-

ter 57:2(VI) of the Laws of 1976 which states:

In the case of care and services rendered by licensed

general hospitals, public or liceised mental hospitals,

or community mental health centers which have not

entered into a written contract with the hospital ser-

vice corporation for the rendering of such care and

services to its subscribers, benefits of not less than

75 percent of the benefits enumerated in paragraphs I,

II, and III shall be provided.

The plaintiffs are not insurance companies, so, even if this

provision does discriminate, they are not in a position to

complain. If Blue Cross-Blue Shield is given a superior

position as a result of this statute, the plaintiffs are free

to do business with Blue Cross-Blue Shield. In short,

plaintiffs do not have standing to raise this issue.

3. Group Versus Individual Policies

Chapter 57:1(1I) of the 1976 Laws creates a statutory

classification of ‘‘group or blanket accident or health insur-

ance policies.’’ The plaintiffs allege that it is unconstitu-

tional to require purchasers of group insurance to purchase

mental health insurance since there is no similar require-

ment for purchasers of individual policies.

The issue is whether there is a rational basis for the

mental health insurance requirement for purchasers of

group insurance.

The State has determined that there is a grave need for

mental health insurance but, because of the higher cost of

individual policies, mental insurance benefits are more

likely to be economically feasible in a group plan which

ean take advantage of group, rather than than national,

actuarial statistics and the combined economic power of the

group. This is clearly ‘‘a rational basis.’’

4. Difference Between Billing Procedures for Psychiatrists

and Psychologists from Other Physicians

Plaintiffs complain ‘hat the billing procedures mandated

for psychiatrists and psychologists are different from those

of physicians and, therefore, unconstitutional. Plaintiffs

are not physicians and do not have standing to raise this

issue.

5. First Dollar Charges

Plaintiffs claim an equal protection violation by Section

1(ITI)(d) of Chapter 57 of the 1976 Laws which states:

Benefiits for outpatient services under this para-

graph need not be provided for the first or second

visit providing such a limitation applies in the case

of services for other illnesses, and benefits for out-

patient treatment may be otherwise limited to not

less than 15 full hours of treatment in any consecutive

12-month period.

Plaintiffs interpret this statute to mean that ‘‘first and

second office visits must be paid unless there are at least

15 full hours of insured mental health treatment in any

12-month period.’’ They contend that there is a distinction

made between mental illness and other illnesses and that

there must be a rational basis for this distinction. Although

I do not concur with plaintiffs’ interpretation of the statute,

it is plain that the provision does make a distinction between

the two categories of illness. This is not a distinction that

violates the Equal Protection Clause of the Fourteenth

Amendment. The legislature, in its wisdom, has seen fit to

give more protection to those with mental problems than

those with physical problems. Perhaps they felt that those

with physical problems already had adequate protection

without further legislative intervention; perhaps they felt

that the risk sharing element of insurance should be applied

to mental illnesses because of the large expenses incurred

by a victim and his family and the potential exposure of

all families. In any event, there is a rational basis for this

provision which falls within the police power of the State

of New Hampshire.

6. Vagueness

The plaintiffs allege that Chapter 57 violates the Due

Process Clause of the Fourteenth Amendment because it is

unduly vague. They contend that NH RSA 400-A:15(III),

which makes it a crime to violate rules, regulations or order

of the Insurance Commissioner, applies to them.’ It is

not clear that this criminal statute applies to insurance

1 The statute is set out below.

400-A:15 RuLEs anp REGULATIONS; VIOLATION.

I. The commissioner shall have full power and authority to

make, promulgate, amend and rescind reasonable rules and regu-

lations for, or as an aid to, the administration or effectuation of

any provision or provisions of this title and such other rules and

regulations as are reasonably necessary to implement the provisions

of this title.

II. Prior to the adoption of any rule or regulation, or the

amendment or repeal thereof, the commissioner shall publish or

otherwise circulate notice of his intended action and afford inter-

ested persons opportunity to submit data or views either orally

or in writing.

III. Any person who knowingly violates any rule, regulation,

or order of the commissioner may, upon hearing, except where other

penalty is expressly provided, be subject to such suspension or

revocation of certificate of authority or license, or administrative

fine not to exceed $2,500 in lieu of such suspension or revocation,

as may be applicable under this title for violation of the provision

to which such rule, regulation, or order relates.

statutes as opposed to rules. If it does, the violator would

be the insurance carrier, not the plaintiffs here. There-

fore, once again, plaintiffs do not have standing to sue.

7. Impairment of Contract

Plaintiffs allege that Chapter 57 impairs their constitu-

tional right to contract. In City of El Paso v. Simmons,

379 U.S. 497 (1965), the Court held that the constitutional

prohibition against impairment of contracts is qualified by

the measure of control which the states retain over remedial

processes and that the states also have authority to safe-

guard vital interests of their citizens even if legislation

appropriate to that end has the effect of modifying or

abrogating contracts already in effect. That holding is

directly on point here.

8. Interstate Commerce and Preemption

Plaintiffs’ final constitutional claim is that Chapter 57

interferes with Congress’ authority to regulate interstate

commerce. This constitutional issue is much the same as the

preemption issue. The question is whether Congress has

chosen to preempt the field.

[F Jederal regulation of a field of commerce should not

be deemed preemptive of state regulatory power in the

absence of persuasive reasons—either that the nature

of the regulated subject matter permits no other con-

clusion, or that the Congress has unmistakably so

ordained. Florida Avocado Growers v. Paul, 373 U.S.

132 (1962).

All of the plaintiff trusts except the New Hampshire

Employers’ Benefit Trust are Taft-Hartley Trusts and sub-

ject to the various provisions of Title 29. Plaintiffs com-

plain that Chapter 57 has been preempted on two separate

bases: (a) it interferes with the congressional purpose in

ERISA by fostering conflicting state laws; and (b) it is

specifically preempted by statute.

(a) Conflicting State Statutes

The trusts in question here are subject to the provisions

of 29 U.S.C. § 186. Subsection (c)(5) of that section pro-

vides that monies paid to the fund be used ‘‘for the sale

and exclusive benefit of the employees of such employer,

and their families and dependents... .’’ This language has

been construed to require fair and equal administration by

the fiduciaries of such funds. Bey v. Muldoon, 223 F. Supp.

489 (B.D. Pa. 1963).

The beneficiaries of the funds in this case are not all

from New Hampshire. They are, therefore, not within the

scope of Chapter 57. Plaintiffs assert that if Chapter 57

is followed for New Hampshire beneficiaries, then it must

be followed for all beneficiaries. This not only extends New

Hampshire jurisdiction beyond its territorial limit, but it

runs the risk of conflicting with other jurisdictions which

might have different insurance requirements.

This argument is flawed by a false premise. Plaintiffs

have attempted a quantum leap by asserting that the re-

quirement of fair and equal administration means that

beneficiaries from different jurisdictions must all receive

the same precise policies. There is no legal basis for this

presumption. The evidence shows that employer and em-

ployee contributions to the funds are negotiated by the

international unions and that the exact terms of the insur-

ance contracts are chosen by the members of one or more

locals. I don’t doubt that the State of New Hampshire has

created an additional burden for the administrators who

may have to furnish two separate plans for the members of

each local which is composed of employees from more than

one jurisdiction, but Congress would not have knowingly

preempted the insurance field without providing for it more

specifically.

b. Statutory Preemption

Plaintiffs’ other preemption argument is somewhat more

direct.

Section 514 of the Employee Retirement Income Security

Act (ERISA), 29 U.S.C. § 1144, preempts state laws that

relate ‘‘to any employee benefit plan... .’’

[T]he provisions of this title . . . shall supersede any

and all State laws insofar as they may now or here-

after relate to any employee benefit plan... . 29

U.S.C. § 1144(a).

Employee benefit plans include both retirement funds

and health and accident funds of the type which the

plaintiffs administer. 29 U.S.C. § 1002(3).

To the sweeping preemption language, Congress cre-

ated an exception:

Except as provided in subparagraph (B), nothing

in this subchapter shall be construed to exempt or

relieve any person from any law of any State which

regulates insurance, banking, or securities. 29 U.S.C.

§ 1144(b) (2) (A).

Plaintiffs claim that there is an exception to tis excep-

tion contained at 29 U.S.C. § 1144(b)(2)(B).

Neither an employee benefit plan .. ., nor any

trust established under such plan, shall be deemed to

be an insurance company or other insurer, bank, trust

company, or investment company, or to be engaged in

the business of insurance or banking for purposes of

any law of any State purporting to regulate insur-

ance companies, insurance contracts, banks, trust

companies, or investment companies.

There is little or no published legislative history sur-

rounding the words in this subsection which help me inter-

pret it.? Plaintiffs would have me read this language to

21 have reviewed the parts of the House, Senate, and Conference

Reports which concern preemption as well as the hearings before

the respective House and Senate Committees and the floor state-

preempt Chapter 57, but the plain meaning of the language

is that states may not regulate employee benefit plans by

calling them insurance companies. This more limited read-

ing is bolstered by 15 U.S.C. § 1012(B).

No Act of Congress shall be construed to invali-

date, impair, or supersede any law enacted by any

State for the purpose of regulating the business of

insurance, or which imposes a fee or tax upon such

business, unless such Act specifically relates to the

business of insurance .... 15 U.S.C. § 1012(B).

ERISA is not primarily concerned with the regulation

of insurance. ERISA is a broad act, the parts of which are

important here deal almost exclusively with reporting pro-

visions to ensure the financial health of empioyee benefit

trusts. The remainder of ERISA deals mostly with tax

aspects of retirement funds, contributions to them, and

payments from them. Even without the exception for in-

surance regulation at 29 U.S.C. § 1144(b)(2)(A), the ef-

fect of 15 U.S.C. § 1012 is to except insurance regulation

from preemption. The exception makes the intent not to

preempt even clearer.

The New Hampshire statute imposes mental health in-

surance on those participating in group insurance plans.

It neither seeks to nor in any way effects the administra-

tion of employee benefit plans. This decision is disting-

uished from the rulings in Azzaro, et al v. Harnett, C, 75-

361 (S.D. N.Y. 1976), and Hewlett-Packard Co. v. Barnes,

C. 76-1607 (N.D. Cal. 1976), because the state statutes in

those cases were financial disclosure, quality control, and

ments of Senator Harrison Williams and Representative John Dent,

Chairmen of their respective committees, and statements of other

Congressmen. None of these addressed the question of preemption

of substantive insurance statutes which regulate benefits, not finan-

cial or recording requirements. The complete lack of discussion of

the effect of preemption of state regulations which concern actual

insurance benefits aids in my conclusion that there was no pre-

emption intended in this field.

general reporting statutes, not general insurance statutes

regulating the form of benefits. They were designed to

effect the administration and implementation of group

plans and were directly preempted by ERISA.

Judgment is entered for the defendant on all counts.

So OrpERep.

Hue H. Bowness

United States District Judge

February 11, 1976

Constitutional and Statutory Appendix

UNITED STATES CONSTITUTION

Articie I, Szc. 8

The Congress shall have power ... To regulate commerce

with foreign nations, and among the several states...

AMENDMENT XIV

. .. No State shall make or enforce any law which shall

abridge the privileges or immunities of citizens of the

United States; nor shall any State ... deny to any person

within its jurisdiction the equal protection of the laws.

STATUTES

United States Code, Title 29

§1002(1):

The terms ‘‘employee welfare benefit plan’’ and

‘*welfare plan’’ mean any plan, fund, or program which was

heretofore or is hereafter established or maintained by an

employer or by an employee organization, or by both, to

the extent that such plan, fund, or program was established

or is maintained for the purpose of providing for its par-

ticipants or their beneficiaries, through the purchase of

insurance or otherwise, (A) medical, surgical, or hospital

care or benefits, or benefits in the event of sickness, ac-

cident, disability, death or unemployment, or vacation

benefits, apprenticeship or other training programs, or

‘day care centers, scholarship funds, or prepaid legal serv-

ices, or (B) any benefit described in section 186(c) of this

title (other than pensions on retirement or death, and in-

surance to provide such pension).

§1144(a):

Except as provided in subsection (b) of this sec-

tion, the provisions of this subchapter and subchapter IIT

of this chapter shall supersede any and all State laws in-

sofar as they may now or hereafter relate to any employee

benefit plan described in section 1003(a) of this title and

not exempt under section 1003(b) of this title. This section

shall take effect on January 1, 1975.

§1144(b) (2):

(A) Except as provided in subparagraph (B),

nothing in this subchapter shall be construed to exempt

or relieve any person from any law of any State which

regulates insurance, banking, or securities.

(B) Neither an employee benefit plan described in

section 1003(a) of this title, which is not exempt under

section 1003(b) of this title (other than a plan established

primarily for the purpose of providing death benefits,

nor any trust established under such a plan, shall be

deemed to be an insurance company or other insurer, bank,

trust company, or investment company or to be engaged

in the business of insurance or banking for purposes of

any law of any State purporting to regulate insurance com-

panies, insurance contracts, banks, trust companies, or

investment companies.

N.H. Rev. Stat. Ann. §415: 18a-(I) (1976):

Each insurer that issues or renews any policy of

group or blanket accident or health insurance providing

benefits for medical or hospital expenses, shall provide to

each group, or to the portion of each group comprised of

certificate holders of such insurance who are residents of

this state and whose principal place of employment is in

this state, coverage for expenses arising from the treatment

of mental illnesses and emotional disorders. . . .

WR emaens ees bd

REQUIRED HEALTH-CARE BENEFITS

Source: Blue Cross Association Legal Affairs Bulletin

|! Hi fl

\¢ AGH

STATE i 3 aut §| £\¥2 i i

; s 2elef : z1% i SS) ES

g § ERE) 2/2) 2 |Sh\fe 22

Alabama :

Alaska .

Arizona =i > et E..

Arkansas . ft Be

California ESBS G.. ®

Colorado : . . s s

Connecticut wt £2 G_ ae

Delaware . ’

Florida. A &.. -i*

Georgia

Hawaii A ES B.. .

Idaho : a

Illinois . A BS E.. -

Indiana 7 =

lowa . :

Kansas

Kentucky :

Louisiana . . .

Maine x x x x

Maryland - x

Massachusetts ~ RA &..

Michigan 7 -

Minnesota x x x x x x x -—

Mississippi . :

Missouri x x x x

REQUIRED HEALTH-CARE BENEFITS

Continued

ildren

= fa a

Treatment

and/or soci

Out-of-hospital

and/or second ——~ a

Alcoholism and/or

drug abuse

Catastrophic Illness

Continued Coverage

Physically handicap

mentally retarded

Maternity

Dental Care

Preadmission testin

Newborns

Montana

Nebraska _

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina |_

North Dakota 7

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island ~

South Carolina

South Dakota .

Tennessee

Texas ;

Utah :

Vermont

Virginia

Washington :

Pad

ee ee ee ee

ee ee ee

at §

West Virginia __|

Wisconsin

Wvoming

mm lhl

“

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.