Opposition Brief — Blue Cross & Blue Shield v. Weiner

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puso Court, U.S,

ce FILED

t% | JUN 27 Wel

No. 90-1843

OFFICE OF THE CiERK

In The

Supreme Court of the United States

October Term, 1990

BLUE CROSS AND BLUE SHIELD

OF MARYLAND, INC.,

Petitioner,

ROBERT WEINER, SR., MARGARET WEINER,

MARK WEINER, and ROBERT WEINER,

SR.,-as Personal Representative

of the Estate of Steven Weiner,

Respondents.

Petition For A Writ Of Certiorari To The United

States Court Of Appeals For The Fourth Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

LARRY S. STEWART

Counsel of Record

James B. TILGHMAN, Jr.

STEWART TILGHMAN Fox &

BiANcHI, P.A.

44 West Flagler St.

Suite 1900

Miami, Florida 33130

(305) 358-6644

Attorneys for Respondents

June 27, 1991

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

™

QUESTION PRESENTED FOR REVIEW

Whether the United States Court of Appeals for the

Fourth Circuit erred in declining to permit a collateral

attack on the basis of Kalb v. Feuerstein, 308 U.S. 433

(1940), against a state court ERISA preemption deter-

mination that Congress intended the state court to make.

TABLE OF CONTENTS

Page

QUESTION PRESENTED FOR REVIEW ............ i

DEAE RIP GEN 6 vec dice wsacccwnsdpreenedue ii

pe ee a 8 yy rere iii

CPP TON soi occ icapscicceusvepehenss seus 1

SRPUET Ee SI SUR A a os niece ndewaunacans’s 2

REASONS FOR DENYING THE WRIT............. 9

1. The Decision Below Neither Effectively Over-

rules Kalb v. Feuerstein Nor Raises Significant

meeetions oF Pederel LOW. ..... 6.6 sees ce ccssas 9

2. The Decision Below Does Not Conflict With

SE PT: BO 8 os ss vasa don kcasawseees 18

3. The Decision Below Does Not Hinder Federal

Review of State Court ERISA Preemption

SN cc aweus bake cla eae eee 20

CRE 55 W nied cud acndinsctnan cnsateueeyuee 21

ili

TABLE OF AUTHORITIES

Page

Cases

Alleghany Corp. v. Kirby, 340 F.2d 311 (2d Cir.

1965), cert. dismissed, 384 U.S. 28 (1966)........... 19

Aluminum Co. of America v. Utilities Comm’n of

North Carolina, 713 F.2d 1024 (4th Cir. 1983), cert.

Some er ae Ome Cb9OG)........................ 5

Amalgamated Clothing Workers of America v. Rich-

man Brothers, 346 U.S. 511 (1955).................. 20

Baggett v. Department of Professional Regulation Bd.

1 of Pilot Comm'rs, 717 F.2d 521 (11th Cir. 1983)...... 5

: Barry v. Dymo Graphic Systems, Inc., 394 Mass. 830,

Sve mom. 20 fur (ees. 1985)............:........ 14

Blue Cross and Blue Shield of Maryland, Inc. v.

Weiner, 868 F.2d 1550 (11th Cir.), cert. denied, __

| a wee, aoe (b909)................ 1, 5, 16

: Browning Corp. Int'l v. Lee, 624 F.Supp. 555 (N.D.

| eed eek S head nce cccccreesceres 13

‘ Bruenn v. Aetna Life Ins. Co., 197 Cal. App. 3d 1000,

' 243 Cal. Rptr. 262 (Cal. App. 2 Dist. 1987)........ 14

5 Chick Kam Choo v. Exxon Corp., 486 U.S. 140 (1988) .... 21

Consolidated Rail Corp. v. Illinois, 423 F.Supp. 941

i (Regional Rail Reorg. Ct. 1976), cert. denied, 429

EE 15

District of Columbia Court of Appeals v. Feldman, 460

| res ween b ba cevrbveecnsns 5, 6

Donovan v. Dillingham, 688 F.2d 1367 (11th Cir.

EE Oe eer eee eee 7

Dowell v. Applegate, 152 U.S. 327 (1894).............. 10

TABLE OF AUTHORITIES - Continued

Page

Durives &. Bunt, S75 US. B06 CIGGG) «one occ eee eees 16

E-Systems, Inc. v. Taylor, 744 S.W. 2d 956 (Tex. App.

FMC Corp. v. Holliday, __ U.S. __, 111 S. Ct. 403,

pe errr eee eee 21

Fresh Int'l Corp. v. Agricultural Labor Relations Bd.,

Se Fae Se CE Ge PU ok ce ence eeseeee 5

Hathorn v. Lovorn, 457 U.S. 255 (1982)............... 14

Hobbs v. United States Offices of Personnel Manage-

ment, 485 F.Supp. 456 (M.D. Fla. 1980)............ 19

Hood v. Prudential Ins. Co. of America, 522 So.2d 265

SE CE SOR ey SKA Ce cp neu cawh crab eeeaNe res fas 14

In Re Ross, 81 B.R. 473 (Bkrty N.D. Ill. 1988)........ 20

Ingersoll-Rand Co. v. McClendon, 498 U.S. __, 111

S.Ct. 478, 112 L.Ed. 2d 474 (1990)................. 21

International Longshoremen’s Ass’n v. Davis, 476

SE Pe ECT 5 vic odd po env evs vad eee 8, 13, 14

Johansen v. Employee Benefit Claims, Inc., 668

ere errr 13

Kalb v. Feuerstein, 308 U.S. 433 (1940) ........... passim

Kanne v. Connecticut General Life Ins. Co., 867 F.2d

489 (9th Cir. 1988), cert. denied, 492 U.S. 906

BIE Gh Reg gts re ae eee nnn ot aa 8

Mackey v. Lanier Collections Agency & Service, 486

ne EE cay pias ss eke 4 ac OT NW eats does V's os 15

Marrese v. American Academy of Orthopaedic Sur-

po a ahs a ee eee 17

TABLE OF AUTHORITIES - Continued

Page

Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58

iad, ee Eee eee CEE re eee ee eee 13, 14, 21

Peick v. Murray, 141 Ill. App. 3d 1081, 491 N.E. 2d

Se | ee 14

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987)... 6, 9, 13

Providence Hosp. v. National Labor Union Health and

Welfare Fund, 162 Mich. App. 191, 412 N.W. 2d

oe ss a one e echo sna nakes 14

Richland Hosp. Inc. v. Ralyon, 33 Ohio St. 3d 87, 516

Pesehs Se WU MUO CUPP ow cece ecw see ee sess 14

Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923)..... 5, 6

Simmons v. Diamond Shamrock Corp., 844 F.2d 517

a le ed Cale 9 bask dieie 6cnie 20

Stoll v. Gottlieb, 305 U.S. 165 (1938) ................. 10

Takeda v. Northwestern Nat'l Life Ins. Co., 765 F.2d

“icisath cetesegibe og Fests «ARENT Re Pee ee Oe ee 13

Texaco, Inc. v. Pennzoil Co., 784 F.2d 1133 (2d Cir.

1986), rev'd on other grounds, 481 U.S. 1 (1987) .... 19

Texas Employers’ Ins. Assoc. v. Jackson, 820 F.2d 1406

(5th Cir. 1987), modified on reh’g, 862 F.2d 491

ie CE ee i ee are oe aan 18

Transamerica Occidental Life Ins. Co. v. Digregorio,

ER We ROO WN GO, BOE), nw cece cee cw cians 12

Turnbow v. Pacific Mut. Life Ins. Co., 765 P.2d 1160

(Nev. 1988), cert. denied, 490 U.S. 1102 (1989)...... 14

TABLE OF AUTHORITIES — Continued

Page

STATUTES

Employee Retirement Income Security Act of

1974, 29 USC... & GRFC WOR sos ncscncae passim

Frazier-Lemke Act, 47 Stat. 1470 as amended 49

Stat. O42 . ov vcsckeqee yeas Use eae ek ere ees oo i A

Full Faith and Credit Act, 28 U.S.C. § 1738.......... 9

Longshore and Harbor Workers’ Compensation

Act, 33 UBC. Sie ie i oe eee eee eases cn ess 18

National Labor Relations Act, 29 U.S.C. § 151 et

eres cig te ey ea eee 13

Regional Rail Reorganization Act, 45 U.S.C. § 701

et SOQ... . 1+. 05a epee eke ee aE EOE hw ee kle beer 15

Securities Exchange Act of 1934, 15 U.S.C. § 78a et

MO Ee ee 19

TREATISES AND ARTICLES

Boskey & Braucher, Jurisdiction and Collateral

Attack, 40 Colum. L. Rev. 1006 (1940)............. 17

Moore, Collateral Attack on Subject Matter Jurisdic-

tion: A Critique of the Restatement (Second) of

Judgments, 66 Cornell L. Rev. 534 (1981)........... 17

1B Moore’s Federal Practice, § 0.405 [4.-1] (2d ed.

1991)... .:iccn cece beeatew cues Cekmew etme be Rhaa a0 5 18

18 Wright, Miller & Cooper, Federal Practice &

Procedure, & @GBD CHRD Gas hac cere bbe dsasanees> 17, 18

No. 90-1843

In The

Supreme Court of the United States

October Term, 1990

BLUE CROSS AND BLUE SHIELD

OF MARYLAND, INC.,

Petitioner,

ROBERT WEINER, SR., MARGARET WEINER,

MARK WEINER, and ROBERT WEINER,

SR., as Personal Representative

of the Estate of Steven Weiner,

Respondents.

Petition For A Writ Of Certiorari To The United

States Court Of Appeals For The Fourth Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

OPINIONS BELOW

Petitioner omitted from its list of prior opinions Blue

Cross and Blue Shield of Maryland, Inc. v. Weiner, 868 F.2d

1550 (11th Cir.), cert. denied, __:; U.S. __, 110 S.Ct. 239

(1989), which disposed of the first collateral attack in this

case. .

STATEMENT OF THE CASE

Blue Cross and Blue Shield of Maryland, Inc.

(“BCBSM”), is now in its eleventh court in this dispute,

an odyssey which includes two prior petitions for a writ

of certiorari to this Court. Five of these courts —- the

United States District Courts for the District of Maryland

and the Southern District of Florida, the United States

Courts of Appeals for the Fourth and Eleventh Circuits,

and this Court - have rejected BCBSM’s argument that it

is entitled to collaterally attack the 1986 Florida judgment

in this case.

Undeterred, BCBSM claims that “great judges” and

“scholars” would recognize its right to collaterally attack,

and that review of the most recent decision against it is

appropriate because it calls into question the federal

courts’ power to review state court preemption deter-

minations under the Employee Retirement Income Secu-

rity Act of 1974 (“ERISA”), 29 U.S.C. §1001 et seq., the

continued vitality of Kalb v. Feuerstein, 308 U.S. 433 (1940),

and thus the proper balance between principles of res

judicata and exclusive federal jurisdiction. As will be set

forth below, however, none of these concerns are raised

by the Fourth Circuit’s decision. The issue below was not

whether federal review of the Florida courts’ ERISA pre-

emption determination was available, but whether a col-

lateral attack would be permitted to review it again. And

not whether Kalb remains vital, but whether its holding

could be stretched to authorize a collateral attack against

state court action intended rather than forbidden by Con-

gress.

In 1982, Respondent Robert Weiner, Sr., purchased

health insurance for his family from BCBSM. That sum-

mer, one of his sons, Respondent Mark Weiner, became a

quadriplegic in a fall. At about the same time another

son, Steve, became ill and was diagnosed as having AIDS.

Steve would also become paralyzed before he died.

The boys’ health care needs were staggering, but for

almost a year they were met with BCBSM’s coverage.

Then in 1983 BCBSM terminated both boys’ insurance.

The termination was predicated upon fabricated coverage

defenses, and upon terms contained in the master policies

which were intentionally more restrictive than the cover-

- age representations BCBSM made in the benefits book it

provided the Weiner family (collectively “Weiners”)

when the policy was sold. Without insurance coverage,

the family subsisted in a trailer with Mr. and Mrs. Weiner

trying to give round-the-clock care to their two paralyzed

sons, one dying. The ordeal they went through cannot,

and fortunately need not, be described in the limited

space available here.

In 1984, the Weiners filed suit against BCBSM in

Florida state court. After more than two years of discov-

ery the case went to trial on the Weiners’ claims of fraud,

intentional infliction of emotional distress and negli-

gence. The jury returned a verdict against BCBSM on all

counts and awarded $500,000 in compensatory and

$5,000,000 in punitive damages.' A final judgment was

' The reference to a $5,000 compensatory award in the

Fourth Circuit’s opinion (App. A. at 3) is a typographical error.

(Continued on following page)

entered by the Florida trial court in the fall of 1986. The

issue of ERISA preemption was never raised.

BCBSM appealed the state trial court judgment to the

Florida appellate court in 1987. For the first time, BCBSM

contended that the Florida courts lacked subject matter

jurisdiction because the Weiners’ tort claims were based

upon the improper processing of claims for benefits

under an employee benefit plan, and thus were pre-

empted by ERISA. BCBSM asked the Florida appellate

court to decide the issue on the record before it.

In April of 1988, some 18 days before oral argument

was to take place in the Florida appellate court, BCBSM

launched its first collateral attack by filing an action for

declaratory and injunctive relief and a motion for prelimi-

nary injunction in the United States District Court for the

Southern District of Florida. BCBSM asked the district

court to declare the Florida state court judgment void and

unenforceable, and to temporarily and permanently

enjoin the Weiners from taking any further action in the

Florida appellate court - all on the basis of the same

ERISA preemption and collateral attack arguments it

makes before this Court.

The district court afforded BCBSM an emergency

hearing, received extensive memoranda, and denied the

(Continued from previous page)

The Weiners also sued BCBSM’s servicing agent, Blue Cross

and Blue Shield of Florida, Inc., and recovered a separate

judgment of $200,000 in compensatory and $1,500,000 in puni-

tive damages. The judgment against Blue Cross of Florida was

subsequently reversed because of insufficient evidence to sup-

port the intentional tort verdicts.

preliminary injunction. In addition, the district court abs-

tained. While abstention is inappropriate in the face of a

claim of federal preemption that is plain, obvious or

readily apparent, see, e.g., Fresh Int'l Corp. v. Agricultural

Labor Relations Bd., 805 F.2d 1353 (9th Cir. 1986); Baggett v.

Department of Professional Regulation Bd. of Pilot Comm'rs,

717 F.2d 521 (11th Cir. 1983); Aluminum Co. of America v.

Utilities Comm'n of North Carolina, 713 F.2d 1024 (4th Cir.

1983), cert. denied, 465 U.S. 1052 (1984), the district court

found on the evidence before it that ERISA preemption

sont

was “a far cry from being ‘readily apparent’ ”.

BCBSM appealed the district court’s decision to the

United States Court of Appeals for the Eleventh Circuit,

arguing, inter alia, that it was entitled to collaterally

attack the Florida judgment under the principles of Kalb.

The Eleventh Circuit affirmed the district court’s decision

to abstain, and ordered the case dismissed based upon

the Rooker-Feldman doctrine? and a finding that the “Flor-

ida appellate court is an appropriate forum for determin-

ing whether the state trial court had jurisdiction. ... ”

Blue Cross and Blue Shield of Maryland, Inc. v. Weiner, 868

F.2d 1550, 1555-1556 (11th Cir. 1989). The Florida appel-

late court decision was before the Eleventh Circuit when

it denied BCBSM’s suggestion for rehearing in banc.

2 This res judicata related doctrine, named for the Court's

decisions in District of Columbia Court of Appeals v. Feldman, 460

U.S. 462 (1983), and Rooker v. Fidelity Trust Co., 263 U.S. 413

(1923), provides that in our federal system review of federal

questions decided by state courts is the exclusive province of

this Court and may not be accomplished through collateral

attacks in the lower federal courts seeking declaratory or

injunctive relief.

BCBSM petitioned this Court for a writ of certiorari

to the Eleventh Circuit in August of 1989. In addition to

arguing that the Rooker-Feldman doctrine was inapplica-

ble, BCBSM and the Weiners joined issue on the same

question BCBSM now presents — whether Kalb sanctions a

collateral attack on a state court judgment based upon an

allegation that the state court incorrectly determined that

its subject matter jurisdiction was not preempted by

ERISA. This Court denied the petition for writ of cer-

tiorari on October 10, 1989. = US. __, 110 S. Ct. 239

(1989).3

Meanwhile, the Florida appellate court, which was

never informed of the attempt to halt its deliberations in

federal court, rendered its decision on April 26, 1989. The

court acknowledged Pilot Life Ins. Co. v. Dedeaux, 481 U.S.

41 (1987), as controlling precedent, but held that its sub-

ject matter jurisdiction was not preempted by ERISA

because there was no employee benefit plan. (App. C. at

38).

The court’s holding was based on the fact that there

was no plan established or maintained by an employer or

association or employers within the meaning of ERISA.

3 In footnote 5 of its Petition BCBSM attempts to distance

itself from its first collateral attack by incorrectly suggesting

that the only question then was whether the Florida state court

proceedings could be halted, not whether they could be collat-

erally attacked. While the fact that state appellate proceedings

were Ongoing raised certain discrete issues, like the propriety

of abstention, since a final state court judgment had already

been entered the core issue was always BCBSM’s right to

collaterally attack. This is amply demonstrated by BCBSM’s

reliance upon Kalb at each stage of the proceedings.

(App. C at 38). See Donovan v. Dillingham, 688 F.2d 1367

(11th Cir. 1982). Mr. Weiner, who ran a service station as a

sole proprietor (R. 5442, 5503), had purchased insurance

solely to provide coverage for his family. (R. 1504-05,

1509, 1525-26, 1627, 5451).4 He had never provided health

care benefits for his employees. In addition, while the

insurance Mr. Weiner purchased from BCBSM purported

to be part of a plan established by an association of

employers known as the Service Station Dealers of Amer-

ica (“SSDA”), this turned out to be a fraudulent market-

ing scheme. The group policies making up the “plan”

were actually entered into between BCBSM and Associ-

ated Financial Services, Inc. (“AFSI”), an insurance

broker. (PX 29, 30, 31). SSDA was never consulted about

the plan, it never gave anyone permission to use its

name, and its signature was forged on the group policies

by the President of AFSI. (R. 2004-2007, 2020-2021,

2038-2039). No agreements were ever entered into with

any associations of service station dealers or other

employer groups. (R. 2039-2040; PX 27). Thus, while the

insurance was marketed as an SSDA plan, it was nothing

more than an arrangement between two entrepreneurial

businesses to sell insurance to service station operators.°

4 Citations are to the record before the Florida appellate

court. “R” designates references to trial or deposition testi-

mony, and “PX” designates plaintiffs’ exhibits introduced at

trial.

> In its statement of the case BCBSM suggests that the

Florida appellate court should not have decided the ERISA

preemption issue on the record before it. Apart from the fact

that this point was raised in BCBSM’s last petition to this

(Continued on following page)

BCBSM sought discretionary review of the Florida

appellate court’s decision in the Supreme Court of Flor-

ida, which denied review on October 24, 1989. 553 So.2d

1164 (1989). BCBSM then petitioned this Court to issue a

writ of certiorari to review the merits of the Florida

appellate court’s ERISA preemption determination. The

petition was denied on March 19, 1990. ___—~U.S. __, 110

S. Ct. 1475, 108 L.Ed. 2d 612 (1990).

Because the Weiners’ judgment was a Florida judg-

ment and BCBSM’s assets were in Maryland, the case did

not end there. The Weiners were forced to file a Maryland

action to enforce their Florida judgment. BCBSM

removed the action to the United States District Court for

the District of Maryland and launched its second collat-

eral attack by filing a motion to vacate the judgment on

the grounds of ERISA preemption.

The district court denied the motion to vacate, find-

ing that Kalb did not permit a collateral attack in situa-

tions where state courts were empowered and required to

determine if their jurisdiction had been preempted by

federal law as opposed to situations where federal law

(Continued from previous page)

Court, the Florida appellate court was doing exactly what

BCBSM requested. Had the decision gone the other way

BCBSM would not be grumbling about an incomplete record.

Moreover, appellate courts must decide preemption issues

when they are raised for the first time on appeal, International

Longshoremen's Ass'n v. Davis, 476 U.S. 380 (1986), and fre-

quently do. E.g., Kanne v. Connecticut General Life Ins. Co., 867

F.2d 489 (9th Cir. 1988), cert. denied, 492 U.S. 906 (1989).

automatically ousted them from jurisdiction and pre-

cluded any further action on their part. (App. B. at 22-23,

26).

BCBSM appealed the district court’s decision to the

Fourth Circuit, which affirmed. The Fourth Circuit did

not, as BCBSM suggests, question the continued vitality

of Kalb. Rather, it simply agreed with the district court

that Kalb was inapplicable because in enacting ERISA

Congress had not, as it had in the Kalb scenario, with-

drawn the power to make the threshold jurisdictional

decision from the state courts. (App. A. at 4-5). In addi-

tion, the Fourth Circuit did not, as BCBSM states, assume

that an ERISA plan existed.© To the contrary, it deter-

mined “on the merits [that] there were no grounds suffi-

cient to justify disregard of the [Florida appellate court's

decision]”. (App. A at 5).

BCBSM’s Petition for Rehearing with Suggestion for

Rehearing In Banc was denied on March 1, 1990 (App. D),

and BCBSM satisfied the judgment.

REASONS FOR DENYING THE WRIT

1. The Decision Below Neither Effectively Overrules

Kalb v. Feuerstein Nor Raises Significant Questions

of Federal Law

The Full Faith and Credit Act, 28 U.S.C. §1738,

requires federal courts to give full faith and credit to state

¢ What the Fourth Circuit assumed was that the Weiners’

state court claims would have been preempted under Pilot Life

if a plan had existed. (App. A. at 3-4).

court judgments. The principles of res judicata this

invokes provide, inter alia, that a court’s determination of

its own subject matter jurisdiction is res judicata, i.e.,

binding and not subject to collateral attack, even if that

determination is wrong. As this Court stated in Stoll v.

Gottlieb, 305 U.S. 165 (1938), in reversing the Supreme

Court of Illinois’ refusal to give res judicata effect to a

bankruptcy court’s judgment which exceeded its subject

matter jurisdiction:

When an erroneous judgment, whether from the

court of first instance or from the court of final

resort, is pleaded in another court or another

jurisdiction the question is whether the former

judgment is res judicata. . . . We see no reason

why a court, in the absence of an allegation of

fraud in obtaining the judgment, should exam-

ine again the question whether the court making

the earlier determination on an actual contest

over jurisdiction between the parties, did have

jurisdiction of the subject matter of the litiga-

tion.

* * *

‘[The jurisdictional question] was a question

which the [court] was competent to determine in

the first instance. Its determination of it was the

exercise of jurisdiction. Even if that court erred

in entertaining jurisdiction, its determination of

the matter was conclusive upon the parties

before it, and could not be questioned by them

or either of them collaterally... . ’

Id. at 172, 175, citing Dowell v. Applegate, 152 U.S. 327

(1894).

The teaching of Kalb is that Congress may create

exceptions to the above rule, and that it does so when it

withdraws a state court’s power to make even a threshold

determination as to its own jurisdiction. In Kalb, the

Wisconsin Supreme Court refused to permit a collateral

attack upon final judgments of foreclosure entered after

the mortgagors had filed for bankruptcy, noting that the

trial court’s jurisdictional decision, even if erroneous, was

“within the power of the court to make”. 308 U.S. at 438.

While acknowledging the general principle, this Court

held:

But if appellants are right in their contention

that the Federal Act of itself, from the moment

the petition was filed and so long as it remained

pending, operated . . . to oust the jurisdiction of

the state court so as to stay its power to pro-

ceed ... the action of the [state court] was not

merely erroneous but was beyond its power,

void, and subject to collateral attack.

* * *

The wisdom and desirability of an automatic

ouster of jurisdiction of all except bankruptcy

courts over farmer debtors and their property

were considerations for Congress alone.

We think the language and broad policy of

the Frazier-Lemke Act conclusively demonstrate

that Congress intended to, and did deprive

[state courts] of the power and jurisdiction to

continue or maintain in any manner foreclosure

proceedings against appellants. . .

308 U.S. at 438, 439-440.

The character of the decision below thus depends

upon whether Congress intended to automatically oust

state court jurisdiction when an issue of ERISA preemp-

tion is raised or to otherwise render state court decisions

on the subject a nullity. The Kalb Court gleaned congres-

sional intent directly from the Bankruptcy or Frazier-

Lemke Act, 47 Stat. 1470, as amended 49 Stat. 942, 943,

which provided that:

The filing of a petition . . . shall immediately

subject the farmer and all his property, wherever

located . . . to the exclusive jurisdiction of the

court... .

308 U.S. at 440. On the other hand, while Congress could

have provided that a claim of ERISA preemption imme-

diately subjects the parties to the exclusive jurisdiction of

the federal courts, or that federal courts alone are compe-

tent to determine whether an ERISA plan or preemption

exists, it did not.

To the contrary, Congress intentionally involved state

courts in this decision making process. For example, Con-

gress gave state courts concurrent jurisdiction over

actions by participants to clarify rights or obtain benefits

due under an ERISA plan. 29 U.S.C. § 1132(a)(1)(b), (e)(1).

This grant of jurisdiction presumes both the power and

the ability to determine if an employee benefit plan exists

in the first place. Similarly, Congress provided that state

laws regulating insurance would not be preempted by

ERISA, but that certain employee benefit plans could not

be deemed to be in the insurance business. 29 U.S.C.

§ 1144(b)(2)(A)-(2)(B). Again, this presumes that state

courts will have the power and ability to identify ERISA

plans in the enforcement of their own insurance laws.

In keeping with the intent of Congress, the lower

federal courts have repeatedly held that state courts can

properly determine whether claims before them have

been preempted by ERISA. See, e.g., Transamerica Occiden-

tal Life Ins. Co. v. Digregorio, 811 F.2d 1249, 1255 n.5 (9th

Cir. 1987) (“[T]he state courts are perfectly competent to

decide this issue”); Takeda v. Northwestern Nat'l Life Ins.

Co., 765 F.2d 815, 822 n.10 (9th Cir. 1985) (“[T]he state

court to which we remand this case is fully capable to

decide issues of preemption if defendants continue to

assert them”); Johansen v. Employee Benefit Claims, Inc., 668

FSupp. 1294, 1297 (D. Minn. 1987) (“If defendants are

correct that the Dedeaux and Taylor cases provide a federal

preemption defense and that ERISA and not state law

controls, the state court will be bound to apply federal

law”); Browning Corp. Int'l v. Lee, 624 FSupp. 555, 557

(N.D. Tex. 1986) (“[S]tate courts as well as federal courts

are of competent jurisdiction to determine whether a

particular plan is governed by ERISA and therefore not

by state law”).

Similarly, this Court has mandated that state courts

make the threshold federal preemption decision in the

analogous context of preemption under the National

Labor Relations Act (“NLRA”), 29 U.S.C. § 151 et seq.” In

International Longshoremen’s Ass'n v. Davis, 476 U.S. 380

(1986), an employee filed a common law fraud action

against a union in an Alabama state court. The union did

not raise the issue of federal preemption until after trial,

and the Alabama courts refused to consider it for pro-

cedural reasons. In holding that the Alabama courts erred

in refusing to consider the issue, the Court commanded

that when a claim of federal preemption is raised

it must be considered and resolved by the state

court.

? The Court equated the preemptive power of ERISA and

the NLRA in Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58

(1987).

Id. at 393.8 Accord, Hathorn v. Lovorn, 457 U.S. 255 (1982).

The rule is no different with ERISA preemption.’

Finally, state courts are routinely determining

whether claims pending before them are preempted by

ERISA when the issue is raised,!° and this Court has cited

8 In footnote 7 of its Petition BCBSM suggests that the

Davis court found NLRA preemption and bankruptcy preemp-

tion to be the same. Not so. As noted above, in Davis the Court

held that the state court must decide the NLRA preemption

issue, whereas in Kalb the Court held that the state court could

not decide the bankruptcy preemption issue. The quotation

from Davis is taken out of context and refers to a question

faced in both Davis and Kalb but not here - whether state

procedural rules requiring jurisdictional defenses to be raised

or waived constitute an independent and adequate state

ground of decision so as to preclude review by this Court. 476

U.S. at 393, 393 n.11.

9 This is an inescapable corollary of the Court’s decision in

Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (1987), where an

ERISA preemption defense was held to justify federal question

removal. Removal is not self-executing, and if the state court

action is not removed, as was the case here, the state court

must, perforce, resolve the question of ERISA preemption.

10 See, e.g., Hood v. Prudential Ins. Co. of America, 522 So.2d

265 (Ala. 1988); Bruenn v. Aetna Life Ins. Co., 197 Cal. App. 3d

1000, 243 Cal. Rptr. 262 (Cal. App. 2 Dist. 1987); Peick v.

Murray, 141 Ill. App. 3d 1081, 491 N.E. 2d 100 (Ill. App. 1 Dist.

1986); Barry v. Dymo Graphic Systems, Inc., 394 Mass. 830, 478

N.E. 2d 707 (Mass. 1985); Providence Hosp. v. National Labor

Union Health and Welfare Fund, 162 Mich. App. 191, 412 N.W. 2d

690 (Mich. App. 1987); Turnbow v. Pacific Mut. Life Ins. Co., 765

P.2d 1160 (Nev. 1988), cert. denied, 490 U.S. 1102, (1989); Rich-

land Hosp. Inc. v. Ralyon, 33 Ohio St. 3d 87, 516 N.E. 2d 1236

(Ohio 1987); E-Systems, Inc. v. Taylor, 744 S.W. 2d 956 (Tex. App.

- Dallas 1988).

their decisions with approval. E.g., Mackey v. Lanier Col-

lections Agency & Service, 486 U.S. 825, 832 n.6, 833 n.8

(1988).

The difference between Kalb and this case is thus

manifest. Rather than precluding state court participation

once the question of exclusive federal jurisdiction is

raised as it did in the Frazier - Lemke Act, Congress

intended and the federal courts have held that state

courts are to resolve the issue of ERISA preemption and

proceed accordingly. Congressional intent that the state

court decisions which result be null and void can hardly

be found in these circumstances, and absent such intent

Kalb does not sanction a collateral attack. Accordingly, the

decision below represents no more than a straightforward

application of Kalb."

"' Consolidated Rail Corp. v. Illinois, 423 F.Supp. 941

(Regional Rail Reorg. Ct. 1976), cert. denied, 429 U.S. 1095

(1977), relied upon by BCBSM, also demonstrates that the

decision concerning whether a collateral attack is permvissible

must be made in the context of congressional intent. The issue

was whether a federal district court’s determination that it had

jurisdiction over a railway dispute could be collaterally

attacked in a Special Court formulated pursuant to the

Regional Rail Reorganization Act, 45 U.S.C. § 701 ef seq.

(“RRRA”). The Special Court acknowledged that the federal

district court’s jurisdictional decision would normally be res

judicata, but pointed out that Kalb stands for the proposition

that “the legislature may void judgments.” 423 F.Supp. at 948.

Since the RRRA did not automatically oust the district court's

jurisdiction, however, the Special Court accurately concluded

that “Kalb . . . does not control our determination here”. 423

F.Supp. at 948. Nonetheless, the Special Court followed the

broader teaching of Kalb and looked to the RRRA for an

answer.

(Continued on following page)

To promote a contrary appearance BCBSM asserts

that, rather than holding that Congress can and has in

some contexts acted to void state court judgments, Kalb

stands for the much broader proposition that any state

court judgment alleged to infringe upon exclusive federal

jurisdiction is subject to collateral attack. No case law is

cited for this proposition, and none exists. To the con-

trary, this Court has characterized the Kalb holding as a

limited one - standing for the proposition that

“{djoctrines of federal preemption . . . may in some con-

texts be controlling.” Durfree v. Duke, 375 U.S. 106, 114

(1963) (emphasis added) (citations omitted).!?

(Continued from previous page)

The Special Court’s conclusion that the RRRA authorized a

collateral attack was based upon the extreme need for unifor-

mity Congress demonstrated by entrusting exclusive jurisdic-

tion to only one court in the entire nation, the emergency

nature of the situation which rendered the normal appellate

process inadequate, and the extraordinary power Congress

conferred on the Special Court by authorizing it to enjoin any

court in the land save this Court. Once again, the contrast

between the RRRA and ERISA is striking, and highlights the

straightforward nature of the decision below. First, Congress

did not entrust ERISA claims or ERISA preemption determina-

tions to one court, but to all state and federal courts. Second,

ERISA was not enacted to resolve a short term crisis but for the

long haul, evidencing no need to bypass the normal appellate

process. Finally, Congress did not authorize federal courts to

enjoin state court ERISA preemption determinations. To the

contrary, they may not. Blue Cross and Blue Shield of Maryland,

Inc. v. Weiner, 868 F.2d 1550 (11th Cir.), cert. denied, US. __,

110 S.Ct. 239 (1989).

12 In keeping with this view of Kalb the Court has held ina

related context that state court judgments involving claims

(Continued on following page)

Moreover, despite BCBSM’s assertions to the con-

trary, the commentators have recognized both that Kalb

was a product of congressional intent as reflected in the

bankruptcy legislation at issue, and that its principles

apply in some, but not all contexts in which federal law

preempts state court jurisdiction. For example, Professor

Karen Nelson Moore observes that:

{The Kalb decision] should be viewed as an

exception to the modern doctrine of finality

based on a policy extrinsic to the judicial sys-

tem: The congressional mandate thai federal

bankruptcy petitions automatically deprive state

courts of subject matter jurisdiction.

Moore, Collateral Attack on Subject Matter Jurisdiction: A

Critique of the Restatement (Second) of Judgments, 66 Cornell

L. Rev. 534, 542 (1981) (emphasis added). Accord, Boskey

& Braucher, Jurisdiction and Collateral Attack, 40 Colum. L.

Rev. 1006, 1018 (1940). Likewise, Wright, Miller and Coo-

per explain:

Violation of exclusive federal jurisdiction, how-

ever, may leave a state judgment vulnerable to

coliateral attack. The leading case is Kalb v. Feu-

erstein [where] the Supreme Court ruled that the

federal proceedings operated as an automatic

stay of the state court proceedings so that the state

judgment was ‘beyond its power, void, and sub-

ject to collateral attack.’ . . . There may be other

settings as well in which similar results follow

(Continued from previous page)

_within exclusive federal jurisdiction are not necessarily subject

to collateral attack - the determining factor again being the

intent of Congress. Marrese v. American Academy of Orthopaedic

Surgeons, 470 U.S. 373, 380-381 (1985).

from the preemptive effects of exclusive federal

jurisdiction.

18 Wright, Miller & Cooper, Federal Practice & Procedure,

§ 4428 at 283-285 (1981) (emphasis added). And in charac-

terizing Kalb, Moore notes that:

It has been held in an occasional case that compet-

ing considerations dictate that collateral attack

on jurisdictional grounds be permitted.

1B Moore's Federal Practice, § 0.405 [4.-1] at 215 (2d ed.

1991) (emphasis added).

Given the above, the Fourth Circuit’s decision can be

seen neither as a challenge to the continued vitality of

Kalb nor as the source of any significant questions of

federal law in need of resolution by this Court.

2. The Decision Below Does Not Conflict With Exis-

ting Federal Law

When the focus is properly placed on federal pre-

emption decisions state courts are supposed rather than

forbidden to make, the decision below becomes just one

of many that have found state court decisions concerning

federal preemption or exclusive federal jurisdiction res

judicata and immune from collateral attack.

In Texas Employers’ Ins. Assoc. v. Jackson, 820 F.2d 1406

(5th Cir. 1987), modified on reh’g, 862 F.2d 491 (1988), the

federal plaintiff sought declaratory and injunctive relief

to stop an action in a state court whose jurisdiction it

claimed was preempted by the Longshore and Harbor

Workers’ Compensation Act, 33 U.S.C. § 901 et seq., a

form or preemption the Fifth Circuit found to be as

powerful as ERISA preemption. The state trial court had

already considered and rejected the preemption defense

in an interlocutory ruling, but the state proceedings had

not gone to judgment. The Fifth Circuit declined to

accord the state court interlocutory ruling res judicata

effect, but acknowledged that if, as is the case here, there

had been a final judgment, res judicata would have barred

it from reconsiuering the state court’s ruling on the pre-

emption issue:

Thus, if the state court’s ruling was a final

one,we ourselves are bound by that determina-

tion.

820 F.2d at 1421.

In Alleghany Corp. v. Kirby, 340 F.2d 311 (2d Cir. 1965),

cert. dismissed, 384 U.S. 28 (1966), the plaintiff sought to

set aside a state court judgment on the grounds that the

security claims made in state court were within the exclu-

sive jurisdiction of the federal courts. The Second Circuit

declined to set the judgment aside because “the issue of

jurisdiction was raised in and decided by the New York

Courts”. Id. at 312 n.1. Likewise, in Texaco, Inc. v. Pennzoil

Co., 784 F.2d 1133, 1143 n.8 (2d Cir. 1986), rev’d on other

grounds, 481 U.S. 1 (1987), the Second Circuit held that it

was error for the district court to deny res judicata effect

to the Texas court’s rejection of Texaco’s defense that

Pennzoil’s claims were preempted by exclusive federal

jurisdiction under the Securities Exchange Act of 1934, 15

U.S.C. § 78a et seq. And in Hobbs v. United States Offices of

Personnel Management, 485 F.Supp. 456 (M.D. Fla. 1980),

the plaintiff’s claim that a California court lacked subject

matter jurisdiction to award part of his Federal Retire-

ment Fund pension to his wife was rejected on the basis

of res judicata.

In an ERISA context, the debtors asked a bankruptcy

court in In Re Ross, 81 B.R. 473 (Bkrty N.D. Ill. 1988), to

disallow a claim on the grounds that the state court

judgment upon which it was based was void by reason of

ERISA preemption. Relief was denied and the claim

allowed on the basis of res judicata. Similarly, in Simmons

v. Diamond Shamrock Corp., 844 F.2d 517 (8th Cir. 1988),

while the Eighth Circuit refused to give collateral estop-

pel effect to a state court judgment challenged on the

basis of ERISA preemption in a subsequent action

between different parties, the court noted that the state

court judgment was not an “abuse of authority” and

“would be immune from collateral attack” as between the

original parties. Id. at 520 n.5.

These cases demonstrate not only the absence of

conflict among the lower federal courts but, again, the

routine nature of the Fourth Circuit’s decision in this

case.

3. The Decision Below Does Not Hinder Federal

Review of State Court ERISA Preemption Deter-

minations

BCBSM’s suggestion that the Court should authorize

federal collateral attacks upon state court ERISA preemp-

tion determinations to prevent Congress’ regulatory

scheme from being undermined is far-fetched. First, Con-

gress intentionally included the state courts in its regula-

tory scheme. Second, this Court has rejected the notion

the federal rights, including those involving federal pre-

emption and exclusive federal jurisdiction, “will not be

adequately protected in state courts”. Amalgamated

Clothing Workers of America v. Richman Brothers, 348 U.S.

511, 518 (1955); Accord, Chick Kam Choo v. Exxon Corp., 486

U.S. 140 (1988). Third, direct review of state court deci-

sions is available in this Court, and has been undertaken

when necessary. E.g., FMC Corp. v. Holliday, __ U.S. __,

111 S. Ct. 403, 112 L.Ed.2d 356 (1990); Ingersoll-Rand Co. v.

McClendon, 498 U.S. ___, 111 S.Ct. 478, 112 L.Ed. 2d 474

(1990). Fourth, a party wishing to have a federal rather

than a state court make the ERISA preemption determina-

tion may remove the case to federal court. Metropolitan

Life Ins. Co. v. Taylor, 481 U.S. 58 (1987).

CONCLUSION

For the above reasons, it is respectfully submitted

that BCBSM’s Petition for a Writ of Certiorari should be

denied.

Respectfully submitted,

Larry S. STEWART

Counsel of Record

James B. TILGHMAN, Jr.

STEWART TILGHMAN Fox &

BiANcHI, P.A.

44 West Flagler St.

Suite 1900

Miami, Fiorida 33130

(305) 358-6644

Attorneys for Respondents

June 27, 1991

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.