Opposition Brief — Erbauer Construction Corp. v. Pan American Life Insurance

Supreme Court, U.S.

2. FILED

No. 90-1973 Fo

| L 26 499)

| OFFICE OF THE CLERK

—_—-—

-——_

In The

Supreme Court of the United States

October Term, 1991 ~

e

ERBAUER CONSTRUCTION CORPORATION,

Petitioner,

PAN AMERICAN LIFE INSURANCE COMPANY,

Respondent.

¢

Petition For A Writ Of Certiorari

To The Supreme Court Of Texas

«

RESPONDENT’S BRIEF IN OPPOSITION

->

REAGAN M. Brown

Counsel of Record

FULBRIGHT & JAWORSKI

1301 McKinney, Suite 5100

Houston, Texas 77010

(713) 651-5151

Attorneys for Respondent,

Pan American Life Insurance

Company

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

OR CALL COLLECT (402) 342-2831

ES

a

QUESTIONS PRESENTED

The questions presented by petitioner rest upon a

flawed premise. The courts below did not determine

whether petitioner has a remedy under the Employee

Retirement Income Security Act of 1974 (ERISA). Peti-

tioner simply asserts that it has no such remedy in order

to present the following questions for review:

1. Does the Employee Retirement Income Security

Act of 1974 (ERISA) preempt state law claims. of an

employer, who is not empowered to bring a civil action

under ERISA?

2. Does ERISA preemption of an employer’s state

law claims, without an alternative federal remedy, deny

the employer’s constitutional right of access to the

courts?

These questions were not decided below and are not

properly presented here.

LIST OF PARTIES

Pan American Life Insurance Company is a parent

corporation, all subsidiaries of which are wholly owned.

ill

TABLE OF CONTENTS

Page

OR 0 Ug 1 ot ot be i

ee icc bs cose cre cs ssc ce ess ssceess ii

Sg 0 6 | iv

a iv

Constitutional Provisions ........................ vii

Statutes and Rules .................. 00. cece eee vii

STATEMENT OF THE CASE....................... 1

A. Factual Background ......................... 2

eee 3

REASONS THE PETITION SHOULD BE DENIED

I. THIS IS AN ORDINARY ERISA PREEMPTION

CASE RAISING NO SPECIAL OR IMPORTANT

Ee Oe sy osc vcccc re cecreseverce 5

A. The Judgment of the Supreme Court of Texas

Comports with Well-Settled Decisions of this

Court on ERISA Preemption............... 5

B. The Judgment of the Texas Supreme Court

Does Not Conflict with the Decisions of the

United States Courts of Appeals or State

eee cnc i eee cae nn ssvcesees 11

I]. ERISA PREEMPTION IN THIS CASE DOES NOT

DENY ERBAUER ANY CONSTITUTIONAL

TE so ccc cece cee sceceeereee 16

eee cosh ese hcrcenccescccetaaress 19

iv

TABLE OF AUTHORITIES

Page

CasES

Anshultz v. Connecticut Gen. Life Ins. Co., 850

F.2d 1467 (11th Cir. 1988)..........cceeecesecevees 12

Avco Corp. v. Machinists, 390 U.S. 557 (1968)........ 8

Blatt v. Marshall & Lassman, 812 F.2d 810 (2nd Cir.

Ente ery rerrr yr Sara ye rr eee eee 14

Broughton v. Courtney, 861 F.2d 639 (11th Cir.

arn rr rrr rr tre re ere ee 15

Carter v. Amax Coal Corp., 748 FSupp. 812 (D.

1) Seem rererr eer se errr eT err Tree 15

Caterpillar, Inc. v. Williams, 482 U.S. 386 (1987)...8, 15

Cathey v. Metropolitan Life Ins. Co., 805 S.W.2d

387 (Tex. 1991), cert. denied, 59 U.S.L.W. 3946

oe A) ree 5,7, 13

Chicago & N.W. Transp. Co. v. Kalo Brick & Tile

oo BS BO errr reer 15

Christensen v. Ward, 916 F.2d 1462 (10th Cir. 1990) .... 17

Commercial Life Ins. Co. v. Superior Court, 47

Cal.3d 473, 253 Cal. Rptr. 682, 764 P.2d 1059

(1988), cert denied sub nom. Juliano v. Commer-

cial Life Ins. Co., 490 U.S. 1075 (1969)............ 13

Duke Power Co. v. Carolina Environmental Study

Group, 438 US. 59 (1978).............--eeeee renee 18

Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805

oe Bs gb. Be ae, | re err Terre 13

Ellis v. Blum, 643 F.2d 68 (2nd Cir. 1981) ........... 17

TABLE OF AUTHORITIES - Continued

Page

Farmers Educational and Cooperative Union of

American v. WDAY, 360 U.S. 525 (1959)........... 16

Fort Halifax Packing Co. v. Coyne, 482 US. 1

CURE alin sive ens Cee Ke US Ou phen se cbadesexssve- 6

Garner v. Teamsters C. & H. Local Union, 346 U.S.

ai LE PRS A TE ree Te ee 9

Genter v. Acme Scale & Supply Co., 776 F.2d 1180

Ge I I ao 50 oc Cenc vip nest dacasedacevnees 14

Great Lakes Steel Division of National Steel Corp.

v. Deggendorf, 716 F.2d 1101 (6th Cir. 1983) ...... 11

Hermann Hospital v. MEBA Medical & Benefits

Plan, 845 F.2d 1286 (5th Cir. 1988)............. ia, 35

Hines v. Davidowitz, 312 U.S. 52 (1941).............. 7

Howard v. Parisian, Inc., 807 F.2d 1560 (11th Cir.

MSE SRESS See w ees ess wil tiie tee eek Sins Ss 15

In re Life Ins. Co. of N. Am., 857 F.2d 1190 (8th

Se UNC eg fer aie enor eee 12

Ingersoll-Rand Co. v. McClendon, 111 S.Ct. 478

NE hon Cae CS ach ead Sb KA dM aN Sn Khe wend bs 6, 9, 10

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

489 (9th Cir. 1988), cert. denied 109 S.Ct. 3216

RN EN eee Che ong oe 3s ek ak ow a wk 12

Lee v. E.I. DuPont de Nemours & Co., 894 F.2d 755

ee yy cay a ceo ys ack os ss 15

Lister v. Stark, 890 F.2d 941 (7th Cir. 1989).......... 15

Longshoremen v. Davis, 476 U.S. 380 (1986).......... 9

vi

TABLE OF AUTHORITIES —- Continued

Lugar v. Edmondson Oil Co., 457 U.S. 922 (1982)....

Massachusetts Mut. Life Ins. Co. v. Russell, 473

U.S. 1346 (90GB .. oc oibae or eer eca ewes wes i

Memorial Hospital System v. Northbrook Ins. Co.,

904 F2d 236 (Stik Cie THRs 6 ss esis viiies sin oes

Pane v. Darden, 763 FSupp. 281 (N.D. Ill. 1991)..... 15

Paul v. Virginia, 75 U.S. 168 (1869)..................

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

see eee ce pw ue me pele aang nee ' 7.9, 1G, 2,

Pressroom Unions Fund v. Continental Assurance,

700 F.2d GOD Cae Ge We 6 is oncee seek eke cn tees

Provident Life and Accidental Ins. Co. v. Waller,

906 F.2d 965 (4th Cie. TOGO)... ccc ccc cc cs cesses. 5%,

San Diego Buildings Trade Council v. Garmon, 359

U.S. 236 (99GB. i5 vas eed eee te cess

Shaw v. Delta Airlines, Inc., 463 U.S. 85 (1983).......

Standard Oil Co. of California v. Agsalud, 442

F.Supp. 695 (N.D. Cal. 1977), aff'd, 633 F.2d 760

(9th Cir. 1980), aff'd, 454 U.S. 801 (1981)..........

U.S. Steel Mining Co. v. District 17, United Mine

Workers of America, 897 F.2d 149 (4th Cir. 1990) ...

United Const. Workers v. Laburnum Const. Corp.,

347 U.S. 656 (QO. « ivcveece ster se 3 sas een ilies 9

Usery v. Turner Elkhorn Mining Co., 428 U.S. 1

(1976)... « an ein none wether enn ge

Wisconsin Public Intervenor v. Mortier, 59

U.S.L.W. 4755. CUS. Bee a FR nck cc ce cesses.

a Tee

Vili

TABLE OF AUTHORITIES - Continued

Page

CONSTITUTIONAL PROVISIONS

ED Be. a 17

ee a. nv da bab ad beewsskevcadeass 17

am MO. MONO. ALY. 0. i eect ew ewaeces 17

RULES AND STATUTES

ee bas cba nabs dy ka veseeessccesenedes 5

29 U.S.C. § 1002(16)(A)(ii)(1985). 2. ee, | ie

29 U.S.C. § 1002(16)(B)(i)(1985)...... (yaw senhas aes . 13

29 U.S.C. § 1103(a)(1985).......... eeene acnrnegnawen 8

29 U.S.C. § 1103(b)(2)(1985)... 2.0, teen

29 U.S.C. § 1103(c)(1)(1985) .. 0.2 en, 7, 8, 18

2 US.C. § 1132(1965) .................0.. 7, 11, 18, 19

29 U.S.C. § 1132(a)(3)(1985) .. 2. ee 13

29 U.S.C. § 1132(a)(5)(1985) .. 0. eee, 15

29 U.S.C. § 1132(k)(1985) .. 2.2.0.2 ee. 14

29 U.S.C. § 1144(a)(1988)... 2.02, ...6

No. 90-1973

.

In The

Supreme Court of the United States

October Term, 1991

+

ERBAUER CONSTRUCTION CORPORATION,

Petitioner,

PAN AMERICAN LIFE INSURANCE COMPANY,

Respondent.

*

Petition For A Writ Of Certiorari

To The Supreme Court Of Texas

.

RESPONDENT'S BRIEF IN OPPOSITION

°

Respondent, Pan American Life Insurance Company

(Pan American) respectfully requests that this Court deny

the petition for writ of certiorari, seeking review of the

judgment of the Supreme Court of Texas in this case. The

opinion of the Supreme Court of Texas is reported at 805

S.W.2d 395 (Tex. 1991).

= ®

STATEMENT OF THE CASE

Petitioner Erbauer Construction Corporation

(Erbauer) fails to raise any special or important reasons to

warrant granting its petition for a writ of certiorari. The

arguments made by Erbauer involve issues that are well-

settled and do not involve conflicting decisions between

the United States courts of appeals or other state courts of

last resort. Erbauer’s claims do not implicate any federal

constitutional provision. This statement will describe the

pertinent facts omitted from Erbauer’s statement of the

case.

A. Factual Background

In February 1978, Erbauer established an employee

benefit plan funded by a group policy of insurance issued

by Pan American (PX 10).! The employee benefit plan

provided, among other employee benefits, major medical

disability benefits (PX 10). Under the terms of the

employee benefit plan, an Erbauer employee who made

written application for insurance for his dependents more

than thirty-one days after the date of eligibility for the

dependent’s insurance could not obtain the insurance

until the employee furnished satisfactory evidence of

insurability of each dependent (PX 10).

Erbauer’s personnel manager, Louise Hubbard was

responsible for submitting employee benefit applications

(S.F. 85-86). Hubbard would accommodate an employee

who was late in seeking to insure his dependents by

backdating the employee’s enrollment card to the date he

would have been eligible for the insurance (S.F. 676-77)

The plan did not authorize backdating (PX 10). Hubbard

1 The record on appeal is designated “Tr.” The trial testi-

mony is designated “S.F.” Exhibits are designated “PX” for

plaintiff's exhibits and “PAX” for Pan American’s exhibits. The

Appendix to Erbauer’s Petition is referred to as “A.”

also dealt directly with Pan American in sending and

receiving benefit applications, forms for processing

claims and verification of coverage (S.F. 86, 102).

One of the Erbauer employees Hubbard accommo-

dated by backdating his enrollment card was Dewey Gill.

Hubbard prepared an enrollment card for Gill more than

thirty-one days after the deadline for Gill to register his

dependent daughter, Crystal, as a participant in the plan

(PX 1, S.F. 130). Hubbard then backdated the effective

date of Gill’s enrollment card to a date that would make

his daughter eligible for benefits (PX 1, S.F. 130). Pan

American denied Gill’s subsequent claim for employee

benefits because it had no record that Gill or his daughter

were enrolled in the plan or had submitted evidence of

insurability (S.F. 685).

Erbauer was the only employer to establish or main-

tain the employee benefit plan involved in this case (PX

10). The employee benefit plan does not specifically des-

ignate the administrator (PX 10). In January 1980, Erbauer

exercised its fiduciary power by changing the insurance

company to fund its employee benefit plan (S.F. 270).

B. Procedural History

Dewey Gill sued Erbauer in Texas state court because

Erbauer failed to comply with its responsibilities under

the employee benefit plan in providing the required

information for employees to be enrolled with insurance

coverage (PAX 1, S.F. 666, 673, 685; Tr. 129). Erbauer, in

turn, sued Pan American for its processing of Gill’s claim

(Tr. 114). Specifically, Erbauer alleged that Pan American

wrongfully denied Gill’s claim for employee benefits (Tr.

114). When asked by the trial court to explain his client’s

cause of action against Pan American, Erbauer’s attorney

admitted that Erbauer’s claims were identical to Dewey

Gill’s claims except for the damages Erbauer sought to

recover (S.F. 7) (emphasis added).

The court of appeals did not decide whether or not

Erbauer had a remedy under the Employee Retirement

Income Security Act of 1974 (“ERISA”) in its opinion

affirming the trial court’s judgment in favor of Erbauer.

Instead, the court of appeals incorrectly held that ERISA

did not preempt Erbauer’s claims because ERISA had not

been pleaded as an affirmative defense at the trial court

level (A. 6). Justice Camille Dunn correctly recited in her

dissenting opinion that ERISA preemption in this case is

jurisdictional and could not be waived (A. 26-29).

In reversing the judgments of the lower courts, the

Texas supreme court held that Erbauer’s claims relate to

an employee benefit plan (A. 3). Erbauer’s petition does

not challenge this finding. The Texas supreme court fur-

ther held ERISA preemption in this case is jurisdictional

and could be raised for the first time on appeal (A. 3).

Erbauer’s petition also does not challenge this finding.

Erbauer bases all of its arguments on a single flawed

premise: that the judgment of the Texas supreme court

leaves Erbauer without any cause of action or remedy.

Neither the Texas supreme court nor the court of appeals

decided whether or not ERISA provides some type of

remedy to Erbauer or the extent of that remedy. As Jus-

tice Dunn correctly outlined in her dissenting opinion in

the court of appeals, the existence and extent of Erbauer’s

cause of action under ERISA is a question properly left to

a federal district court having jurisdiction over Erbauer’s

lawsuit (A. 24). Instead of refiling its suit in a court

having jurisdiction, Erbauer filed this petition.

S

REASONS THE PETITION SHOULD BE DENIED

I. THIS IS AN ORDINARY ERISA PREEMPTION

CASE RAISING NO SPECIAL OR IMPORTANT

ISSUES.

Rule 10 of this court permits the discretionary writ of

certiorari to be granted “only when there are special and

important reasons therefor.” (Emphasis added). This

Court recently denied the petition for certiorari in Cathey

v. Metropolitan Life Ins. Co., 805 S.W.2d 387 (Tex. 1991),

cert. denied, 59 U.S.L.W. 3946 (U.S. June 25, 1991). The

Texas supreme court decided Cathey the same day it

decided this case. The court applied Cathey and held that

Erbauer’s claims relate to an employee benefit plan and

are preempted by ERISA (A. 3). Because the issues raised

by Erbauer’s petition involve matters of law well-settled

by prior decisions of this Court and do not involve con-

flicting state or federal decisions, the petition should be

denied.

A. The Judgment of the Supreme Court of Texas

Comports with Well-Settled Decisions of this .

Court on ERISA Preemption

In Cathey v. Metropolitan Life Ins. Co., the foundation

of the decision in this case, the Texas supreme court

relied on the well-settled decisions of this Court that all

suits alleging improper claims processing relating to an

employee benefit plan be governed only by ERISA. 805

S.W.2d at 391, citing Ingersoll-Rand Co. v. McClendon, 111

S.Ct. 478, 485 (1990) and Pilot Life Ins. Co. v. Dedeaux, 481

U.S. 41, 52-54 (1987). Erbauer sued Pan American for its

processing of Dewey Gill’s employee benefit claim (Tr.

114). The supreme court properly held that ERISA pre-

empted Erbauer’s claim against Pan American (A. 3).

Federal law preempts state law when the federal

statute contains a provision expressly preempting state

law. Ingersoll-Rand v. McClendon, 111 S.Ct. at 482. Federal

law preempts state law if the latter conflicts directly with

an ERISA cause of action. Ingersoll-Rand, 111 S.Ct. at

484-85. Federal law also preempts state law to the extent

state and federal law actually conflict. Wisconsin Public

Intervenor v. Mortier, 59 U.S.L.W. 4755, 4757 (U.S. June 21,

1991). All three types of federal preemption exist in this

case.

ERISA expressly preempts all-state laws that “relate

to” an employee benefit plan. 29 U.S.C. § 1144(a)(1988). A

law “relates to” an employee benefit plan if it has a

connection or reference to such a plan. Shaw v. Delta

Airlines, Inc., 463 U.S. 85, 96-97 (1983). A state law may

“relate to” a benefit plan even if the law is not specifically

designed to affect the plan or the effect is only indirect.

Ingersoll-Rand, 111 S.Ct. at 483. Furthermore, ERISA pre-

empts state laws relating to plans, rather than simply to

plan benefits. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1

(1987).

Erbauer’s causes of action indisputably “relate to”

the employee benefit plan in this case. Erbauer alleged

that Pan American was guilty of improperly processing

Dewey Gill’s employee benefit claim (Tr. 114). Erbauer

admitted in open court that its claims were identical to

Gill’s claims except for the damages it sought to recover

(S.F. 7). Erbauer’s causes of action against Pan American

can be decided only after a court first determines the

employee’s entitlement to benefits and Pan American's

interpretation and administration of the plan. Because

Erbauer’s cause of action against Pan American exists

solely because of the presence of an employee benefit

plan, Erbauer’s cause of action necessarily relates to the

plan. In fact, Erbauer has not challenged this finding of

the Texas supreme court.

The second type of federal preemption, a conflict

between a state cause of action and an ERISA cause of

action, also exists in this case. Erbauer’s state law claims

conflict with ERISA’s causes of action for improper claims

processing. The civil enforcement portion of ERISA, 29

U.S.C. § 1132, does not permit the recovery of extra-

contractual damages for the improper processing of a

benefit claim. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. at

51-57; Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S.

134, 144 (1985); Cathey v. Metropolitan Life Ins. Co., 805

S.W.2d at 391. Furthermore, as outlined below, Erbauer’s

state law claims conflict directly with the ERISA causes of

action available to entities like Erbauer. Infra at 13-15.

The third type of federal preemption, conflicting

state and federal law, is present in this case. Federal law

preempts state law when the latter “stands as an obstacle

to the accomplishment and execution of the full purposes

and objectives of Congress.” Hines v. Davidowitz, 312 U.S.

52, 67 (1941). Erbauer’s state law claims for extracontrac-

tual damages conflict directly with 29 U.S.C.

§ 1103(c)(1)(1985). Section 1103(c)(1) provides that the

assets of an employee benefit plan shall never inure to the

benefit of any employer. Because Erbauer did not estab-

lish a trust under section 1103(a), the assets of this

employee benefit plan are the assets of Pan American. 29

U.S.C. § 1103(b)(2)(1985). ERISA must preempt Erbauer’s

state law claims in order that the plan assets be held “for

the exclusive purposes of providing benefits to partici-

pants in the plan and their beneficiaries...” 29 U.S.C.

§ 1103(c)(1)(1985).

The federal-preemption doctrine does not require

that a party must have a cause of action under federal

law in order for state law to be preempted. Justice Bren-

nan, writing for a unanimous court in Caterpillar, Inc. v.

Williams, 482 U.S. 386 (1987), rejected the court of

appeals’ conclusion that complete preemption, permitting

a litigant to remove a case to federal court, does not occur

unless the federal cause of action relied upon provides

the plaintiff with a remedy. Justice Brennan noted that the

lower court’s analysis was squarely contradicted by Avco

Corp. v. Machinists, 390 U.S. 557 (1968), where the court

stated: ~ <

The nature of the relief available after jurisdic-

tion attaches is, of course, different from the

question whether there is jurisdiction to adjudi-

cate the controversy.

Williams, 482 U.S. at 391, n. 4 citing Avco Corp., 390 U.S. at

561.

The nature of the relief available to Erbauer after

jurisdiction attaches was not before the Texas supreme

court because it lacked jurisdiction to adjudicate the con-

troversy. Furthermore, this Court’s recognition in Inger-

soll-Rand of “express preemption” as one type of federal

preemption would be superfluous if a party must have an

ERISA cause of action in order for ERISA to preempt state

laws relating to employee benefit plans. In that regard,

Erbauer’s argument is moot because its petition does not

challenge the Texas supreme court’s finding that

Erbauer’s claim “relates to” an employee benefit plan and

is therefore “expressly preempted” by ERISA.

Erbauer’s reliance on United Const. Workers v. Labur-

num Const. Corp., 347 U.S. 656 (1954) is misplaced. Labur-

num involved a claim of implied preemption under the

authority of Garner v. Teamsters C. & H. Local Union, 346

U.S. 485 (1953). Unlike ERISA, the Labor Management

Relations Act involved in Laburnum did not contain a

provision expressly preempting state laws. Express pre-

emption, as described by this Court in Ingersoll-Rand,

does not require the existence of a substitute federal

cause of action.

Laburnum concerned the scope of preemption under

the Labor Management Relations Act as opposed to the

nature of that preemption. Longshoremen v. Davis, 476 U.S.

380, 393 (1986). The Labor Management Relations Act did

not preempt the plaintiff’s suit in Laburnum because the

regulated activity was a “merely peripheral concern” of

the act. See, San Diego Buildings Trade Council v. Garmon,

359 U.S. 236, 243-44 (1959). In contrast, the need for

uniformity of law concerning claims processing of

employee benefit claims is at the heart of ERISA. Pilot

Life, 481 U.S. at 54. As this Court recognized in Ingersoll-

Rand:

10

It is foreseeable that state courts, exercising

their common law powers, might develop differ-

ent substantive standards applicable to the same

employer conduct, requiring the tailoring of

plans and employer conduct to the peculiarities

of the law of each jurisdiction. Such an outcome

is fundamentally at odds with the goal of uni-

formity that Congress sought to implement.

111 S.Ct. at 484.

Unlike ERISA, Congress intended to preserve exist-

ing state law remedies for illegal union picketing when it

passed the Labor Management Relations Act. Laburnum,

347 U.S. at 668-69. In contrast, Congress intended to limit

the remedies available for improper claims processing of

benefit claims to those contained within ERISA. As this

Court noted in Pilot Life:

The deliberate care with which ERISA’s civil

enforcement remedies were drafted and the bal-

ancing of policies embodied in its choice of

remedies argue strongly for the conclusion that

ERISA’s civil enforcement remedies were

intended to be exclusive. This conclusion is fully

confirmed by the legislative history of the civil

enforcement provision.

481 US. at 54.

The well-settled decisions of this Court support the

judgment of the Texas supreme court and reject Erbauer’s

arguments. Under Ingersoll-Rand and Pilot Life, ERISA

expressly and impliedly preempts Erbauer’s state law

causes of action. Erbauer’s petition should be denied.

11

B. The Judgment of the Texas Supreme Court Does

Not Conflict with the Decisions of the United

States Courts of Appeals or State Courts of Last

Resort

Erbauer’s petition fails to raise a legitimate conflict

between the Texas supreme court’s judgment and other

state or federal courts. Like every other ‘argument

Erbauer asserts, its claim of conflicting decisions rests

upon the false premise that the judgment of the Texas

supreme court leaves Erbauer without a remedy under

ERISA. The judgment cannot conflict with the cases cited

by Erbauer when the supreme court did not address the

issue of Erbauer’s standing to sue under ERISA. Further-

more, the judgment preempting Erbauer’s state law

causes of action comports with other state and federal

courts that have considered claims similar to those

alleged by Erbauer.

None of the five cases cited on pages 9-10 of

Erbauer’s petition conflict with the judgment of the Texas

supreme court. Pressroom Unions Fund v. Continental

Assurance, 700 F.2d 889 (2d Cir. 1983), Provideni Life and

Accidental Ins. Co. v. Waller, 906 F.2d 985 (4th Cir. 1990)

and Great Lakes Steel Division of National Steel Corp. v.

Deggendorf, 716 F.2d 1101 (6th Cir. 1983) all concerned

attempts by employers to maintain an implied cause of

action under 29 U.S.C. § 1132. Two of the courts held the

employers in those cases had standing to sue as fiduci-

aries. Waller, 906 F.2d at 988, n. 5; Deggendorf, 716 F.2d at

1104-05. Pressroom Union Fund did not discuss ERISA

preemption.

In Memorial Hospital System v. Northbrook Ins. Co., 904

F.2d 236 (5th Cir. 1990), the court recognized that ERISA

12

preemption occurs when the state law claims involve

allegations such as improper claims processing and the

claims directly affect the relationship among the tradi-

tional ERISA entities — the employer, the plan and its

fiduciaries and the participants and beneficiaries. 904

F.2d at 245 (emphasis added). Erbauer sued Pan Ameri-

can for its alleged improper processing of Dewey Gill’s

benefit claim (Tr. 114). In Hermann Hospital v. MEBA Med.-

cal & Benefits Plan, 846 F.2d 1286 (5th Cir. 1988), the court

recognized:

Adopting Hermann’s position would allow par-

ties that lack standing to sue under ERISA to

circumvent its enforcement provisions by filing

suit in state courts under state law. Arguably,

they could thus obtain advantages denied to par-

ties plaintiff enumerated under § 1132(a). This is

an untenable result.

845 F.2d at 1290 (emphasis added). Instead of conflicting

with the judgment, the cases cited by Erbauer support the

finding that ERISA preempts Erbauer’s claim.

The judgment of the Texas supreme court also does

not conflict with the decisions of other courts holding

that ERISA preempts the type of causes of action asserted

by Erbauer. Erbauer alleged extracontractual damages on

the theories of breach of contract, breach of the duty of

good faith and fair dealing, the Texas Deceptive Trade

Practices Act and the Texas Insurance Code. ERISA pre-

empts these claims. See Pilot Life, 481 U.S. at 51-57; Massa-

chusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134 (1985);

Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489, 493-94

(9th Cir. 1988), cert. denied, 109 S.Ct. 3216 (1989); In re Life

Ins. Co. of N. Am., 857 F.2d 1190, 1194 (8th Cir. 1988);

Anshultz v. Connecticut Gen. Life Ins. Co., 850 F.2d 1467,

13

1469 (11th Cir. 1988); Cathey, 805 S.W.2d at 391; Commer-

cial Life Ins. Co. v. Superior Court, 47 Cal.3d 473, 253 Cal.

Rptr. 682, 764 P.2d 1059 (1988), cert. denied sub nom. Juliano

v. Commercial Life Ins. Co., 490 U.S. 1075 (1989).

Because it was without jurisdiction to consider the

question, the Texas supreme court did not decide whether

or not Erbauer has standing to sue under ERISA. Nev-

ertheless, other courts have held that ERISA preempts the

claims of entities similarly situated to Erbauer. In Provi-

dent Life & Acc. Ins. Co. v. Waller, the court held that a

“plan administrator” has standing to sue as a fiduciary

under 29 U.S.C. § 1132(a}{3). 906 F.2d at 988, n. 5. Because

Erbauer was the only employer to establish or maintain

the employee benefit plan (PX 10), Erbauer is a “plan

sponsor” under ERISA. 29 U.S.C. § 1002(16)(B)(i)(1985).

Because the employee benefit plan in this case does not

specifically designate the administrator (PX 10), Erbauer,

as the plan sponsor, is the “plan administrator”. 29 U.S.C.

§ 1002(16)(A)ii)(1985). Accordingly, Erbauer is a fiduci-

ary under ERISA. See also, U.S. Steel Mining Co. v. District

17, United Mine Workers of America, 897 F.2d 149 (4th Cir.

1990) (plan administrator is a fiduciary; employer also is

a fiduciary when it arranged for plan to continue medica!

insurance coverage).

In Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d

732 (7th Cir. 1986), the plaintiff-employer adopted an

employee benefit plan with benefits to be paid by the

defendant-insurer. When the insurer withdrew from writ-

ing insurance for the plan, the employer sued to require

the insurer to continue to provide benefits under the

plan. The court held the employer could be considered a

fiduciary because, like Erbauer, the employer had the

-~-—--

14

power to select a new insurance company for the plan.

805 F.2d at 736.

In Blatt v. Marshall & Lassman, 812 F.2d 810 (2nd Cir.

1987), an accounting firm failed to deliver a notice of

change form to the retirement committee until after a

participant had left the firm, thereby unreasonably delay-

ing the participant’s receipt of benefits. The court held

the accounting firm was an ERISA fiduciary who

breached its duty to the plan participant by preventing or

interfering with the participant’s receipt of benefits to

which he was entitled. 812 F.2d at 813. Dewey Gill sued

Erbauer because Erbauer failed to comply \v..th its

responsibilities under the plan in providing the required

information for employees to be enrolled with insurance

coverage (PAX 1, S.F. 666, 673, 685; Tr. 129). :

Erbauer’s role in backdating the eligibility of certain

employees for insurance coverage is similar to the action

that resulted in employer being a fiduciary in Genter v.

Acme Scale & Supply Co., 776 F.2d 1180 (3rd Cir. 1985). In

Genter, the employer permitted certain employees to

increase insurance coverage contemporaneous with sal-

ary increases, even though the employee benefit plan

required changes in the insurance coverage to occur on

the annual anniversary date of the policy. The court held

that the employer was the fiduciary because it accommo-

dated certain employees with mid-stream increases not

provided for in the terms of the plan. 776 F.2d at 1184.

ERISA also provides a remedy to Erbauer in its posi-

tion as an administrator under 29 U.S.C. § 1132(k)(1985).

Under this section, an administrator may bring suit in

federal court against the secretary of labor to, among

15

other matters, compel the secretary to take action

required under ERISA. Erbauer could have sued the sec-

retary of labor in federal court to require the secretary to

bring an action against Pan American to pay Dewey Gill,

under the authority of 29 U.S.C. § 1132(a)(5)(1985).

Erbauer, of course, made no attempt to pursue its

remedies as either an administrator or a fiduciary.

Furthermore, ERISA preempts Erbauer’s claims even

if a court were to determine that Erbauer has no remedy

under ERISA. The fact that giving preemptive effect to a

federal statute would leave a party without a remedy

does not mean that Congress did not intend to preempt

state law. Broughton v. Courtney, 861 F.2d 639, 643 (11th

Cir. 1988) (citing Howard v. Parisian, Inc., 807 F.2d 1560,

1565 (11th Cir. 1987). In fact, the courts to directly con-

front this issue have rejected Erbauer’s argument that

standing to sue under ERISA is a prerequisite for ERISA

preemption. See Lee v. E.!. DuPont de Nemours & Co., 894

F.2d 755 (5th Cir. 1990); Lister v. Stark, 890 F.2d 941, 946

(7th Cir. 1989); Hermann Hospital v. MEBA Medical & Bene-

fits Plan, 845 F.2d 1286, 1290 (5th Cir. 1988); Pane v.

Darden, 763 FSupp. 281, 283 (N.D. Ill. 1991) (claim pre-

empted so long as it “relates to” employer-sponsored

plan; preemption dependent on nature of plan involved,

not plaintiff’s “status” under that plan); Carter v. Amax

Coal Corp., 748 FSupp. 812 (D. Utah 1990).?

2 Erbauer’s statement on page 15 of the petition that “this

Court has never found state law preempted in the absence of

an alternative federal remedy” is untrue. See, e.g., Caterpillar,

Inc. v. Williams, discussed supra at 7-8; Chicago & N.W. Transp

(Continued on following page)

oo nn

16

The judgment of the Texas supreme court does not

conflict with any case cited in Erbauer’s petition. It does

not conflict with the federal and state courts holding that

ERISA preempts the type of claims made by Erbauer. The

judgment does not conflict with federal circuit cases

holding that ERISA preempts the claims of entities sim-

ilarly situated to Erbauer. In short, Erbauer’s petition

raises no special or important issues for this court to

consider.

Il. ERISA PREEMPTION IN THIS CASE DOES NOT

DENY ERBAUER ANY CONSTITUTIONAL

RIGHT OF ACCESS.

Erbauer again bases its constitutional “right of

access” argument on the flawed premise that the Texas

supreme court determined that Erbauer has no remedy

under ERISA. Because the Texas supreme court did not

decide that issue, Erbauer’s petition should be denied.

Furthermore, Erbauer has not been denied any substan-

tive due process “right of access.”

Erbauer’s petition cites three provisions of the

United States Constitution allegedly providing to Erbauer

a “right of access”: the privileges and immunities clause

(Continued from previous page)

Co. v. Kalo Brick & Tile Co., 450 U.S. 311 (1981) (Interstate

Commerce Act preempts shipper’s injunction suit under state

law even though shipper lacked any remedy under federal

law); Farmers Educational and Cooperative Union of America v.

WDAY, 360 U.S. 525, 535 (1959) (Federal Communications Act

preempts state law libel suit for damages against radio station,

leaving plaintiff without any remedy).

17

of Article IV, the First Amendment and the due process

clause of the Fourteenth Amendment. None of these three

constitutional provisions guarantee Erbauer a right to sue

Pan American for monetary damages.

The privileges and immunities clause of Article IV of

the United States Constitution does not apply to Erbauer

because Erbauer is a corporation. Paul v. Virginia, 75 U.S.

168 (1869). The Open Access Clause of the First Amend-

ment (providing citizens with the right to redress griev-

ances) focuses on procedural impediments to the exercise

of existing rights and does not prevent a court from

holding that a plaintiff has no remedy at law for the

injuries he may allege. Christensen v. Ward, 916 ¥.2d 1462,

1472 (10th Cir. 1990).

Erbauer’s petition also fails to raise a colurable argu-

ment under the due process clause of the Fourteenth

Amendment. A prerequisite to a showing of a due pro-

cess violation under the Fourteenth Amendment is con-

duct characterized as “state action.” Lugar v. Edmondson

Oil Co., 457 U.S. 922 (1982). Although the judges of the

Texas supreme court can be considered “state actors,”

they were not acting “under color of state law,” the legal

equivalent of “state action.” The judges of the Texas

supreme court applied federal law, not state law, to pre-

empt Erbauer’s state law claims. A state official who

applies federal law to determine a person’s claim acts

under color of federal law, not state law. Ellis v. Blum, 643

F.2d 68, 83 n. 17 (2nd Cir. 1981). Because the judgment of

the Texas supreme court applying ERISA does not consti-

tute “state action,” the due process clause of the Four-

teenth Amendment does not apply.

18

Moreover, a determination that ERISA preempts

Erbauer’s claims without leaving Erbauer a remedy

under ERISA (a finding no court has made) would not

violate any substantive due process “right of access.”

There is no federal constitutional requirement that a fed-

eral law cutting off state remedies either duplicate recov-

ery at common law or provide a reasonable substitute

remedy. Duke Power Co. v. Carolina Environmental Study

Group, 438 U.S. 59, 88 (1978). Acts of Congress adjusting

the burdens and benefits of economic life have a pre-

sumption of constitutionality and the burden is on one

complaining of a due process violation to establish that

Congress has acted in an arbitrary and irrational way.

Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15 (1976).

ERISA preemption of state health insurance laws does not

violate the due process clause. Standard Oil Co. of Califor-

nia v. Agsalud, 442 F.Supp. 695 (N.D. Cal. 1977), aff'd, 633

F.2d 760 (9th Cir. 1980), aff'd, 454 U.S. 801 (1981).

Congress intended that all suits alleging improper

claims processing relating to employee benefit plans be

governed only by ERISA. Pilot Life, 481 U.S. at 52-54.

Congress intended to limit the type of remedies available

for improper claims processing to those contained within

29 U.S.C. § 1132. Pilot Life, 481 U.S. at 54. Congress

intended that the assets of an employee benefit plan

should never inure to the benefit of any employer. 29

U.S.C. § 1103(c)(1)(1985). It is inconceivable that Con-

gress, acting with those intentions, also intended for

employers such as Erbauer to have a right to recover

unlimited actual and punitive damages to be paid from

19

the assets of the plan when the participants anu oenefici-

aries of that plan would be limited to the remedies pro-

vided in section 1132. Not only is there a rational basis to

the ERISA civil enforcement scheme, to adopt Erbauer’s

position would be totally irrational and inconsistent with

the intentions of Congress.

CONCLUSION

The questions that Petitioner raises are neither spe-

cial nor important. The judgment of the Texas supreme

court involves no unsettled questions of law and is

entively consistent with the prior rulings of this Court

and other federal circuit courts and state courts of last

resort on ERISA preemption. ERISA preemption in this

case does not violate any right of access under the United

States Constitution. Accordingly, the petition should be

denied.

Respectfully submitted,

REAGAN M. Brown

Counsel of Record

FULBRIGHT & JAWORSKI

1301 McKinney, Suite 5100

Houston, Texas 77010

(713) 651-5151

Attorneys for Respondent,

Pan American Life Insurance

Company