Amicus Curiae Brief — Pilot Life Ins. Co. v. Dedeaux

Supreme Court,

FILED

»)

] DEC 20 i9gg

No. 85-1043

ett 10, JR.

K

IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

PILOT LIFE INSURANCE Co.,

. Petitioner,

EVERATE W. DEDEAUX,

Respondent.

BEST AVAILABLE COPY

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Fifth Circuit

BRIEF AMICI CURIAE FOR

AMERICAN COUNCIL OF LIFE INSURANCE AND

HEALTH INSURANCE ASSOCIATION OF AMERICA

IN SUPPORT OF THE PETITION

Of Counsel: ERWIN N. GRISWOLD

JACK H. BLAINE Counsel of Record

Vice President, State Relations, PF nny a “yA —

d al C ] , ,

aT ee 655 Fifteenth Street, N.W.

Senior Associate General Counsel Washington, D.C. 20005-5701

AMERICAN COUNCIL OF LIFE (202) 879-3939

INSURANCE Counsel for the Amici

1850 K Street, N.W.

Washington, D.C. 20006-2284

(202) 862-4000

JOE W. PEEL

Vice President and

General Counsel

JOHN P. DINEEN

Assistant General Counsel

HEALTH INSURANCE ASSOCIATION

OF AMERICA

919 Third Avenue

28th Floor

New York, New York 10022

(212) 486-5578

LK SSS

WILSON - Eres PRINTING Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

Whether the Employee Retirement Income Security Act

preempts a plan beneficiary’s state common law contract

and tort claims against an insurer, acting as an ERISA

fiduciary, for an alleged mishandling of a benefit claim?

(i)

TABLE OF CONTENTS

Page

— gs | an iv

INTERESTS Fe 1

eR 3

EE EL EE A 3

REASONS FOR GRANTING THE WRIT... 5

1. The Conflict in the Approaches of the Courts of

Appeals and the Current Confusion among the

Federal District Courts Concerning the Pre-

emptive Scope of ERISA Can Only Be Resolved

I ceenenpoenane 5

2. The Decision Below Misapplies This Court’s

Opinion in Metropolitan Life Insurance Co. v.

ESE SESS x

8. The Decision Below Is Inconsistent with the

Broad Preemptive Language of ERISA and the

Policies Embodied in the Act ........000000000000. 10

4. The Fifth Circuit’s Construction of ERISA’s

Saving Clause Is Inconsistent with the Terms

and Legislative History of Both ERISA and the

MeCarrean-rerguson Act ........................................ 14

a senatennaunoatoosncs 20

APPENDIX (Statutes Involved) ..... +o la

(iii)

iv

TABLE OF AUTHORITIES

CASES:

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504

SITE 1: <comninsidiuinkssliinasdiadtianiadieeddhiuialtesdeeiidinsditiaiaihian

Allis-Chalmers Corp. v. Lueck, 105 §S. Ct. 1904

(TTT iccsimsintateriaencenincinsiiianensiaiabscsainesilnaldidiedidiliiaidagatabanibatads

American Progressive Life and Health Insurance

Co. v. Corcoran, 715 F.2d 784 (2d Cir. 1983) .......

Authier v. Ginsberg, 757 F.2d 796 (6th Cir.), cert.

denied, 106 S. Ct. 208 (1985) -......................2...e..

Calhoun v. Falstaff Brewing Corp., 478 F. Supp.

gy ee ae

Dedeauz v. Pilot Life Insurance Co., 770 F.2d 1311

I alae

Dependahl v. Falstaff Brewing Corp., 653 F.2d

1208 (8th Cir.), cert. denied, 454 U.S. 968 and

EE Se Oe

Eversole v. Metropolitan Life Insurance Co., 607

F. Supp. 899 (C.D. Cal. 1986) ...............................

Franchise Tax Board v. Construction Laborers

Vacation Trust, 463 U.S. 1 (1983) -........................

FTC v. National Casualty Co., 357 U.S. 560 (1958)

OOP CI ictincditbtcdltratts wise ee ilies oie

Gilbert v. Burlington Industries, Inc., 765 F.2d 320

(2d Cir.), appeal pending, 54 U.S.L.W. 3237

Ge asccccecepenietcediislenesibien<ntelioesiasenanenaiensianietanintes

Group Life & Health Insurance Co. v. Royal Drug

Co., 440 U.S. 205, reh’g denied, 441 U.S. 917

STITT” csccsinstnseibieveninvenacietensiiidtiadeteiaiiden tite iiashaadial deeded.

Hamilton Life Insurance Co. v. Republic National

Life Insurance Co., 408 F.2d 606 (2d Cir. 1969) ..

Hart v. Orion Insurance Co., 453 F.2d 1358 (10th

RECT oe eee Mes oe ne

Hollenbeck v. Falstaff Brewing Corp., 605 F. Supp.

I Me i

Hoskins v. Retirement Plan of Standard Oil Co.,

No. 78 C 3670, slip op. (N.D. Ill. 1982) -.............

Justice v. Bankers Trust Co., 607 F. Supp. 527

i 8 3 Seer SPEER PEE ee

Kanne v. Connecticut General Life Insurance Co.,

607 F. Supp. 899 (C.D. Cal. 1986) .......................

Page

11

17

18

18

Vv

TABLE OF AUTHORITIES—Continued

Page

Light v. Blue Cross and Blue Shield of Alabama,

616 F. Supp. 558 (S.D. Miss. 1985) ................... 7

Lucash v. Strick Corp., 602 F. Supp. 430 (E.D. Pa.

1984), aff'd mem., 760 F.2d 259 (3d Cir. 1985) .. 7

_ Massachusetts Mutual Life Insurance Co. v. Rus-

eR BS | EE 6, 8

Maxfield v. Central States, Southeast and South-

west Areas Health, Welfare & Pension Funds,

559 F. Supp. 158 (N.D. Ill. 1982).......................... 7

McLaughlin v. Connecticut General Life Insur-

ance Co., 565 F. Supp. 434 (N.D. Cal. 1983) ....... 7-8

Metropolitan Life Insurance Co. v. Massachusetts,

pg Se Es Ree 4, 9-10, 11

Michigan United Food & Commercial Workers

Unions v. Baerwaldt, 767 F.2d 308 (6th Cir.

| PRR eto NS a AG PLAS ful ND i, (ane 10

Miller v. Lay Trucking Co., 606 F. Supp. 1326

I I a 7

Northeast Dept. ILGWU Health and Welfare Fund

v. Teamsters Local Union No. 229 Welfare Fund,

. 3 2 fp gf Le SSR Cnnneseenen 15

Ogden v. Michigan Bell Telephone Co., 571 F. Supp.

Se By BID aetna detichindiieneeetnanibestentnenes 7

Ovitz v. Jefferies & Co., 574 F. Supp. 488 (N.D.

ARRESTS ee rr ee | OC 7

Presti v. Connecticut General Life Insurance Co.,

605 F. Supp. 163 (N.D. Cal. 1985) ........0..002... 8

Russell v. Massachusetts Mutual Life Insurance

Co., 722 F.2d 482 (9th Cir. 1983), rev’d on

other grounds, 105 S. Ct. 3085 (1985) ......000000.... 5-6

SEC v. National Securities, Inc., 393 U.S. 453

ARETE ERR AR ESS a le OO 16-17

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983).. 11

Tolson v. Retirement Committee of the Briggs &

Stratton Retirement Plan, 566 F. Supp. 1503

(E.D. Wis. 1988) ............... | ES Da ot 7

Union Labor Life Insurance Co. v. Pireno, 458

RETESET ES Pe ae ee a 17

Wadsworth v. Whaland, 562 F.2d 70 (1st Cir.

1977), cert. denied, 435 U.S. 980 (1978) ............. 9-10

vi

TABLE OF AUTHORITIES—Continued

Page

Wayne Chemical, Inc. v. Columbus Agency Service

Corp., 567 F.2d 692 (7th Cir. 1977) ..................... 10

STATUTES:

Employee Retirement Income Security Act of 1974

(“ERISA”), 29 U.S.C. §§ 1001 et seq. ................ 2

ERISA § 514, 29 U.S.C. § 1144 ................................. 8, 12, 16

ERISA § 514(a) 29 U.S.C. § 1144(a) -.......---. passim

ERISA § 514(b), 29 U.S.C. § 1144(b)........ 4, 6, 7, 9, 14, 16

ERISA § 514(b) (2) (A), 29 U.S.C. § 1144(b) (2)

a a a a oe 4, 6, 14, 15

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

ig SE aie A IE Ae I nth ca fade ARR i 14

ERISA § 514(b) (4), 29 U.S.C. § 1144(b) (4) ........ 16

ERISA § 514(c) (1), 29 U.S.C. § 1144(c) (1) .~....... 15

McCarran-Ferguson Act, 15 U.S.C. §§ 1011 et seg... 3,16

LEGISLATIVE MATERIALS:

Bs I I ore ose nc cncccscccncsccccsecscccesccsoncecs 19

91 Cong. Rec. 481-82 (1945) ................ eee cceeeee 19

De ccnennsenmesehoseennse 19

Oe Ce carter cnescnsnctvernodenes 18, 19

Oe Bs Te I ccc cestecccscnnpcesnese 19

91 Cong. Rec. 1480-83 (1945) _...20..........c.eeeec eee eeeeeeeeee 19

120 Cong. Rec. 29,197 (1974) .................................- 12, 13, 15

120 Cong. Rec. 29,988 (1974)....................................... 12, 15

199 Cong. Res. SO.068 (1974) ............-.....-.--000--.--------- 12, 13

H.R. Rep. No. 533, 93d Cong., Ist Sess., reprinted

in 1974 U.S. Code Cong. & Ad. News, 4689........ 13

S. Rep. No. 127, 93d Cong., lst Sess., reprinted in

1974 U.S. Code Cong. & Ad. News, 4838 ............. 13

MISCELLANEOUS:

Hutchinson and Ifshin, “Federal Preemption of

State Law Under the Employee Retirement In-

come Security Act of 1974,” 46 U. of Chi. L. Rev.

RRR eg 2S ee 11

Weller, “To Preempt or to Accommodate: The

Question of State and Federal Antitrust Laws

under the McCarran-Ferguson Act,” 9 U. Tol. L.

BD, a Ne eb ieitinicnitbiithcsctintiliiindincsctitimsonasipeaiuitie 19

IN THE

Supreme Court of the Yinited States

OCTOBER TERM, 1985

No. 85-1043

PILOT LIFE INSURANCE Co.,

2 Petitioner,

EVERATE W. DEDEAUX,

Respondent.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Fifth Circuit

BRIEF AMICI CURIAE FOR

AMERICAN COUNCIL OF LIFE INSURANCE AND

HEALTH INSURANCE ASSOCIATION OF AMERICA

IN SUPPORT OF THE PETITION

This brief is filed on behalf of the American Council

of Life Insurance and the Health Insurance Association

of America, as amici curiae, in support of the petition

for certiorari.’

INTERESTS OF THE AMICI

The American Council of Life Insurance (‘‘Council’’)

is the largest life insurance trade association in the

United States, representing the interests of 627 mem-

ber life insurance companies including most of the major

life insurers in the country. The Council’s members cur-

rently hold ninety-five percent of the life insurance in

force in legal reserve life insurance companies in the

United States. The Health Insurance Association of

America (“HIAA”’) represents the interests of 327 mem-

ber companies which write over eighty-five percent of

1 Consent from counsel for both parties has been filed with the

Clerk of this Court.

2

the health insurance written by insurance companies in

the United States. The combined memberships of the

HIAA and the Council represent over ninety percent of

the health insurance written by insurance companies in

the United States.

The legal and practical consequences of the Fifth Cir-

cuit’s opinion below, and the substantial confusion among

the lower federal courts concerning the issue presented

by this case, are matters of grave concern to the mem-

bers of the Council and the HIAA. Many members of

the Council and the HIAA provide group insurance poli-

cies to employers who voluntarily establish employee ben-

efit plans governed by the Employee Retirement Income

Security Act of 1974 (“ERISA” or the “Act’’), 29 U.S.C.

§§ 1001 et seg. As with any form of insurance, a pre-

dictable allocation of risks and costs, based upon his-

torical patterns of claim payments, is essential to the

financial integrity of a finite fund subject to partial

liquidation upon the occurrence of events, such as illness

or disability. By subjecting insurers which undertake

ERISA fiduciary responsibilities to suit under state com-

mon laws, in addition to or in lieu of ERISA, for alleged

improper handling of benefit claims, the decision below

drastically enlarges the risk of such insurers to the

varying, and often inconsistent, standards of conduct im-

posed by state common laws.

The adjudication of benefit claims based upon diverse

state common laws will inevitably result in the haphazard

imposition of liability against insurer-fiduciaries, many

of whom operate in many states; and liability for com-

pensatory and punitive damages is unpredictable under

state common laws which permit such awards. Thus, as

a result of the decision below, members may be unable

to provide affordable group policies of insurance to em-

ployers who provide benefit plans, or, in certain circum-

stances, to provide such policies at all due to the in-

creased liabilities associated with them. The Council and

the HIAA thus have a direct and immediate interest in

the issue presented in this case.

STATUTES INVOLVED

This case involves Section 514 of ERISA, 29 U.S.C.

§ 1144, and the McCarran-Ferguson Act, 15 U.S.C.

$§ 1011, et seg. These provisions are set forth in the

Appendix, infra pp. la-2a.

STATEMENT

Pilot Life Insurance Company (“Pilot”) issued a

group insurance policy to Entex, Inc. (“Entex”) to in-

sure a long term disability benefits plan provided by

Entex to its employees (the “Plan”). The Plan provides

disability benefits to employees who become disabled due

to work-related injuries. Specifically, the Plan provides

benefits during the first two years of disability if the

employee is unable to perform the duties of his or her

occupation. Thereafter, benefits are payable only if the

employee is disabled from “any and every occupation or

employment for which [he or she is] reasonably fitted by

education, training or experience.” The Plan is a welfare

benefit plan subject to ERISA.

The respondent, an employee of Entex, injured his back

in a work-related accident in March, 1975. Respondent

sought, and Pilot provided, disability benefits for the first

two years after respondent’s accident. Although disputes

arose after the two-year period concerning respondent’s

continued eligibility for benefits, Pilot paid disability

benefits to respondent until March, 1980. At that time,

Pilot discontinued respondent’s benefits on the basis of a

medical report which concluded that respondent was able

to perform light or sedentary work.

No internal appeal of Pilot’s decision to terminate

disability benefits, as required by ERISA, was filed by

respondent. Rather, on May 30, 1980, respondent brought

a diversity action against Entex and Pilot in the United

States District Court for the Southern District of Missis-

sippi. In his complaint, respondent asserted various state

4

common law causes of action, including breach of con-

tract, breach of fiduciary duty, and fraud. Respondent

sought $750,000 in compensatory damages and $500,000

in punitive damages. Respondent did not assert any

claim under ERISA.’

The Proceedings Below

On May 21, 1982, Pilot moved for summary judgment,

asserting, inter alia, that ERISA preempted respondent’s

state law claims relating to Pilot’s termination of dis-

ability benefits. The district court granted Pilot’s motion,

holding that Section 514(a) of ERISA preempted re-

spondent’s state law causes of action and that ERISA

provided the exclusive remedy for such claims.

On appeal, the Fifth Circuit reversed the decision of

the district court. The narrow issue on appeal was

whether Section 514(b) (2) (A) of ERISA—the so-called

“saving” clause—released respondent’s state tort and con-

tract claims from preemption. Relying extensively upon

Metropolitan Life Insurance Co. v. Massachusetts, 105

S. Ct. 2380 (1985), the Fifth Circuit held that respond-

ent’s state law claims were not preempted because they

fell within the saving clause embodied in Section 514(b)

of ERISA. The court thus concluded that “state laws

proscribing the same conduct as ERISA may provide a

cause of action in place of, in addition to, or coequal with

any cause of action available under ERISA.” 770 F.2d

at 1317.

In reaching this conclusion, the court of appeals focused

upon one of the arguments advanced by Pilot—namely,

2 As the Fifth Circuit noted on appeal of this action, “[t]he reason

why Dedeaux did not pursue this tack is obvious—Dedeaux sought

$500,000 in exemplary damages, but ERISA neither expressly nor

implicitly authorizes such an award. Massachusetts Mut. Life In-

surance Co. v. Russell, —— U.S. ——, 105 S. Ct. 3085, 87 L.Ed.2d

96 (1985).” Dedeauz v. Pilot Life Ins. Co., 770 F.2d 1311, 1313 n.3

(5th Cir. 1985) (citations omitted). Mississippi common law, on

the other hand, does permit punitive damages awards in certain

circumstances. /d.

5

that ERISA creates a federal statutory cause of action

for precisely the type of conduct underlying respondent’s

state common law claims, thus occupying the field and

preempting those claims. Rejecting this argument, the

court below looked to ERISA’s saving clause and analo-

gous language in the McCarran-Ferguson Act, and stated

that the tort and contract claims asserted by respondent

under general state law were laws “which regulate[]

insurance” in that they affect the relationship between

the insurer, the insured, and the plan beneficiaries. On

this basis, the court of appeals held that respondent’s

causes of action based upon state common law were saved

from preemption by ERISA’s saving clause.

REASONS FOR GRANTING THE WRIT

1. The Conflict in the Approaches of the Courts of Appeals

and the Current Confusion among the Federal! District

Courts Concerning the Preemptive Scope of ERISA

Can Only Be Resolved by This Court.

This case presents a frequently recurring and impor-

tant issue of federal law, which has generated a con-

flict in approach among the courts of appeals and has

resulted in substantial confusion among the federal dis-

trict courts. The court below concluded that ERISA

does not preempt state common law actions, sounding in

contract or tort, arising from an alleged improper han-

dling of a claim for benefits under an ERISA-covered

benefit plan. The Ninth Circuit, in a factually similar

context, has held that ERISA does preempt state contract

and tort law actions arising from an alleged mishandling

of a benefit claim. Russell v. Massachusetts Mutual Life

Insurance Co., 722 F.2d 482 (9th Cir. 1983), rev’d on

other grounds, 105 S. Ct. 3085 (1985).

The conflict in the approaches of the courts of appeals

turns largely upon the interpretation and application of

ERISA’s preemptios, clause and the exception embodied

in its saving clause for laws “which regulate[] insur-

6

ance.” * Without addressing the operation of the sav-

ing clause;the Ninth Circuit in Russell held, inter alia,

that ERISA preempts state common law actions arising

from the mishandling of benefit claims because such

actions “relate to” employee benefit plans within the

meaning of Section 514(a) of ERISA. See 722 F.2d at

487-88. The Ninth Circuit supported its preemption

analysis with strong evidence in ERISA’s legislative his-

tory that the Act’s preemptive reach was intended to be

broad. The Ninth Circuit thus held that the state com-

mon law actions for, ‘nter alia, breach of contract, breach

of fiduciary duty, and breach of the covenant of good

faith and fair dealing “relate to” an employee benefit

plan, and are thus preempted by ERISA.°

3 Section 514(a) of ERISA preempts all state laws that “relate

to” employee benefit plans. See 29 U.S.C. §1144(a). Section

514(b) carves out an exception to this broad preemption clause,

providing that “nothing in this subchapter shall be construed to

exempt or relieve any person from any law of any State which

regulates insurance... .” 29 U.S.C, § 1144(b) (2) (A).

*The Ninth Circuit in Russell also held that ERISA provided a

cause of action for plan beneficiaries for breach of fiduciary duty,

and that a fiduciary could be held personally liable to the bene-

ficiary for extracontractual and punitive damages. This Court

granted certiorari, and reversed that portion of the Ninth Circuit’s

decision which held that a plan fiduciary could be held personally

liable to a beneficiary for extracontractual damages caused by an

alleged improper handling of a benefit claim. In reviewing the

Ninth Circuit’s decision in Russell, this Court expressly did not

address or decide the preemption issue. See Massachusetts Mutual

Life Ins. Co. v. Russell, 105 S. Ct. 3085, 3088 n.4 (1985).

5 See also Dependahl v. Falstaff Brewing Corp., 653 F.2d 1208

(8th Cir.), cert. denied, 454 U.S. 968 and 1084 (1981) (state

common law claim for tortious interference with contract preempted

by ERISA since such claim relates to the benefit plan and since

ERISA governs the conduct underlying the tort claim) ; Authier v.

Ginsberg, 757 F.2d 796 (6th Cir.), cert. denied, 106 S. Ct. 208

(1985) (state law action by ERISA fiduciary for retaliatory dis-

charge held to be preempted by ERISA); Gilbert v. Burlington

Industries, Inc., 765 F.2d 320 (2d Cir.), appeal pending, 54 U.S.L.W.

3237 (1985) (ERISA preempts state common law claims for,

inter alia, breach of contract and fraud because they relate to a

welfare benefit plan).

7

Contrary to the approach of the Ninth Circuit in

Russell, the court below concluded that the sweeping pre-

emption clause of Section 514(a) was inapplicable, find-

ing escape from it in the exceptions embodied in Section

514(b). Thus, the court below achieved a result entirely

different from that in Russell, holding that state common

law causes of action relating to the mishandling of bene-

fit claims are state laws “which regulate[] insurance”

within the meaning of ERISA’s saving clause. Thus, in

a factual context not markedly different from Russell,

the Fifth Circuit concluded that respondent’s claims for

breach of contract, breach of fiduciary duty and fraud

were not preempted by ERISA.

Mirroring the conflicting approaches of the appellate

courts, the federal district courts addressing this issue

have shown a lack of unanimity and inconsistent rea-

soning concerning this recurring subject. Numerous

courts have held that state common law claims for, inter

alia, breach of contract, breach of fiduciary duty, and

fraud “relate to” employee benefit plans and thus ° re

preempted by ERISA.* Other district courts have held,

on the basis of ERISA’s saving clause, that similar state

law claims are not preempted.’

® See, e.g., Light v. Blue Cross and Blue Shield of Alabama, 616

F. Supp. 558 (S.D. Miss. 1985); Justice v. Bankers Trust Co., 607

F. Supp. 527 (N.D. Ala. 1985); Hollenbeck v. Falstaff Brewing

Corp., 605 F. Supp. 421 (E.D. Mo. 1984); Miller v. Lay Trucking

Co., 606 F. Supp. 1326 (N.D. Ind. 1985) ; Lucash v. Strick Corp., 602

F. Supp. 430 (E.D. Pa. 1984), aff'd mem., 760 F.2d 259 (3d Cir.

1985) ; Tolson v. Retirement Committee of the Briggs & Stratton

Retirement Plan, 566 F. Supp. 1503 (E.D. Wis. 1983); Ovitz v.

Jefferies & Co., 574 F. Supp. 477 (N.D. Ill. 1983) ; Ogden v. Michi-

gan Bell Telephone Co., 571 F. Supp. 520 (E.D. Mich. 1983) ; Maz-

field v. Central States, Southeast and Southwest Areas Health,

Welfare & Pension Funds, 559 F. Supp. 158 (N.D. Ill. 1982);

Calhoun v. Falstaff Brewing Corp., 478 F. Supp. 357 (E.D. Mo.

1979) ; Hoskins v. Retirement Plan of Standard Oil Co., No. 78 C

3670, slip op. (N.D. Ill. 1982).

7 See, e.g., Kanne v. Connecticut General Life Ins. Co., 607 F. Supp.

899 (C.D. Cal. 1985); Eversole v. Metropolitan Life Ins. Co., 500

F. Supp. 1162 (C.D. Cal. 1980) ; McLaughlin v. Connecticut General

8

Only this Court can effectively resolve the conflicting

approaches taken by the lower federal courts as to

ERISA’s impact on the continued viability of state com-

mon law actions relating to the mishandling of claims

for benefits provided under ERISA plans. Without guid-

ance from this Court, the emphatic command of ERISA’s

preemption provision, and the uniformity of decision it

fosters, will be undermined by the encroachment of vary-

ing and inconsistent state common law actions upon an

area allocated by Congress to federal law. Some courts

may permit plan beneficiaries to avoid the substance

of ERISA’s preemption provision merely by pleading

state causes of action and claiming that they are saved

from preemption because they “regulate[] insurance.”

Such an elevation of form over substance would open the

doors to state remedies which may be wholly inconsistent

with ERISA’s remedial scheme.* The application of these

state law standards and remedies will not only pose seri-

ous problems to insurer-fiduciaries seeking to conform

their conduct to the dual obligations of federal and state

laws, but will fragment ERISA’s carefully constructed

regulatory and remedial scheme. Such an emasculation

of ERISA’s uniform standards for the maintenance and

administration of employee benefit plans can only thwart,

rather than promote, the policies and objectives of the

Act.

2. The Decision Below Misapplies This Court’s Opinion

in Metropolitan Life Insurance Co. v. Massachusetts.

In holding that state common law claims for breach of

contract, breach of fiduciary duty, and fraud are not

Life Ins. Co., 565 F. Supp. 434 (N.D. Cal. 1983); Presti v. Con-

necticut General Life Ins. Co., 605 F. Supp. 163 (N.D. Cal 1985).

8 The potential for circumventing the remedial scheme of ERISA

is quite real. By permitting beneficiaries to sue under state common

law for redress of conduct expressly regulated by ERISA, the de-

cision below endorses pleading tactics, like those employed by

respondent, which are designed to secure awards of extracontractual

and punitive damages—awards which are not authorized by ERISA.

See Massachusetts Mutual Life Ins. Co. v. Russell, 105 S. Ct. 3085.

preempted by ERISA, the court below relied upon this

Court’s decision in Metropolitan Life Insurance Co. v.

Massachusetts, 105 S. Ct. 2380 (1985). Contrary to the

assertions of the court below, however, nothing in Metro-

politan Life compels a finding that state common law

rules of general application, as opposed to laws which

specifically “regulate” insurance, are saved from preemp-

tion by ERISA’s insurance saving clause.

The narrow issue presented to this Court in Metro-

politan Life was whether Massachusetts’ mandated-

benefit law, which required insurers to provide for cer-

tain mental health care benefits in insurance policies

issued to Massachusetts residents, was a law which “regu-

lates insurance” within the meaning of ERISA’s saving

clause. Reaffirming its conclusion that ERISA’s preemp-

tive scope is broad, the Court stated that all state laws

which “relate to” employee benefit plans, like the

mandated-benefit law at issue, are preempted unless

saved by Section 514(b). In addressing the application

of ERISA’s saving clause, the Court relied upon the

“common-sense view” of the Act’s language and upon

analogous language in the McCarran-Ferguson Act.

Finding that the McCarran-Ferguson Act “strongly sup-

ports the conclusion that regulation regarding the sub-

stantive terms of insurance contracts falls squarely with-

in the saving clause as laws ‘which regulate insurance,’ ”

id. at 2391, the Court concluded that the mandated-

benefit law at issue was saved from preemption.

The court below misconstrued this Court’s decision in

Metropolitan Life when it held that state common law

claims for breach of contract, breach of fiduciary duty

and fraud were saved from preemption by Section 514(b)

of ERISA. This Court’s decision in Metropolitan Life

involved only the application of ERISA’s saving clause to

a state mandated-benefit statute, specifically directed to

insurance and insurers.’ Unlike state statutes regulating

® Many courts have concluded that mandated-benefit laws and

laws regulating insurance contracts fall squarely within the saving

clause of ERISA. See, e.g., Wadsworth v. Whaland, 562 F.2d 70

10

the content of insurance agreements, however, the instant

case involves state common law rules generally applicable

to the relations of parties to any sort of contract. Such

common law rules do not regulate the substantive content

of insurance contracts; nor are they peculiarly applicable

to the insurer-insured relationship. Thus, Metropolitan

Life—a case which involved only a statutory provision

regulating the content of insurance policies, and not ap-

plicable to contracts generally—does not sweep so broadly

as to require the survival of the state common law ac-

tions at issue here.

This precise issue was not decided by the Court in

Metropolitan Life, nor was it decided in Russell.” By

granting the Petition, this Court can resolve the issue

left open by its earlier decisions and provide a rule of

decision to guide the federal courts in the uniform in-

terpretation and application of this important federal

statute.

3. The Decision Below Is Inconsistent with the Broad

Preemptive Language of ERISA and the Policies Em-

bodied in the Act.

The decision of the court below that state common law

contract and tort claims fall outside the preemptive scope

of ERISA runs counter to the clear language and the

legislative history of the Act. By giving ERISA’s ex-

ception clause an unduly expansive reading, the decision

below effectively circumvents the broad command of Sec-

tion 514(a) of ERISA, as shown by its legislative his-

tory, and contravenes important policies underlying the

Act.

(1st Cir. 1977), cert. denied, 4835 U.S. 980 (1978) ; Wayne Chemical,

Inc. v. Columbus Agency Service Corp., 567 F.2d 692 (7th Cir.

1977) ; American Progressive Life and Health Ins. Co. v. Corcoran,

715 F.2d 784 (2d Cir. 1983) ; Michigan United Food & Commercial

Workers Unions v. Baerwaldt, 767 F.2d 308 (6th Cir. 1985).

1© Moreover, in a related case, the Court expressly declined to pass

judgment on whether an employee’s state law claims for breach

of contract and bad-faith handling of an insurance claim would

have been preempted by ERISA. See Allis-Chalmers Corp. v.

Lueck, 105 S. Ct. 1904, 1916 (1985).

11

By its clear terms, ERISA “supersede[s] any and

all State laws insofar as they may now or hereafter

relate to any employee benefit plan... .” 29 U.S.C.

§ 1144(a). Despite this emphatic command, confusion

among the lower federal courts concerning ERISA’s

“virtually unique pre-emption provision,” Franchise Tax

Board v. Construction Laborers Vacation Trust, 463 U.S.

1, 24 n. 26 (1983), has prompted this Court on numerous

occasions to review and interpret these critical words.

The principles which have emerged from this Court’s

decisions are clear: ERISA was meant to have a sweep-

ing preemptive reach, and, with several articulated ex-

ceptions, to make employee benefit plan regulation a

matter of virtually exclusive federal concern. See Metro-

politan Life Insurance Co. v. Massachusetts, 105 S. Ct.

at 2389; Shaw v. Delta Air Lines, Inc., 463 U.S. 85

(1983); Alessi v. Raybestos-Manhattan, Inc., 451 U.S.

504 (1981). Thus, this Court has declined to interpret

Section 514(a) to preempt only state laws dealing spe-

cifically with the subject matters covered by ERISA

(e.g., reporting, disclosure, fiduciary responsibility), but

has held that ERISA “was intended to displace all state

laws that fall within its sphere, even including state laws

that are consistent ‘with ERISA’s substantive require-

ments.” Metropolitan Life Insurance Co. v. Massachu-

setts, 105 S. Ct. at 2389.

This broad view of ERISA’s preemption provision is

likewise compelled by the Act’s legislative history. In

choosing a broad preemption clause as opposed to a

narrower one preempting only those aspects of state law

that related to the substantive areas covered by ERISA,

Congress clearly expressed its intent that ERISA should

occupy the field of employee benefits. See Hutchinson

and Ifshin, “Federal Preemption of State Law Under

the Employee Retirement Income Security Act of 1974,”

46 U. of Chi. L. Rev. 23, 38-43 (1978). Indeed, Senator

Jacob Javits, one of the chief architects of ERISA, ex-

plained Congress’ decision to enact a virtually all-

encompassing preemption clause:

12

Such a formulation [i.e., one that limited preemp-

tion only to areas specifically regulated by ERISA]

raised the possibility of endless litigation over the

validity of State action tnat might impinge on Fed-

eral regulation, as well as opening the door to multi-

ple and potentially conflicting State laws hastily

contrived to deal with some particular aspect of

private welfare or pension benefit plans not clearly

connected to the Federal regulatory scheme. . . .

[T]he emergence of a comprehensive and pervasive

Federal interest and the interests of uniformity with

respect to interstate plans required—but for certain

exceptions—the displacement of State action in the

field of private employee benefit programs.

120 Cong. Rec. 29,942 (1974). Thus, Congress made

clear not only its intent to supersede, at the very least,

all state laws that fall within ERISA’s substantive

reach, but also its intent to preempt state laws that more

generally apply to employee benefit plans.

Against this background, the collision of the decision

below with the legislative intent underlying the Act be

comes quite clear. In holding that state common law

actions arising from alleged mishandling of benefit claims

are not preempted by ERISA, the decision below ignores

the well-articulated intent of Congress to create a per-

vasive federal scheme of employee benefit plan regulation

and strikes at important policies firmly embedded in

ERISA. Throughout its deliberations, Congress was

acutely aware that the establishment of a comprehensive

federal regulatory scheme was critical to ensuring the

uniform administration and enforcement of ERISA, and

that Section 514 played a paramount role in achieving

11 See also 120 Cong. Rec. 29,197 (1974) (remarks of Repre-

sentative Dent) (broad federal preemption was designed to eliminate

“the threat of conflicting and inconsistent State and local regula-

tion”); 120 Cong. Rec. 29,933 (remarks of Senator Williams)

(“the substantive and enforcement provisions of the conference

substitute are intended to preempt the field for Federal regula-

tions, thus eliminating the threat of conflicting or inconsistent

State and local regulation of employee benefit plans”).

13

this uniformity. Indeed, the Senate Committee stated

its ixftent with clarity:

Except . .. in certain . . . enumerated circum-

stances, state law is preempted. Because of the inter-

state character of employee benefit plans, the Com-

mittee believes it essential to provide for a uniform

source of law in the areas of vesting, funding, in-

surance and portability standards, for evaluating

fiduciary conduct and for creating a single report-

ing and disclosure system in lieu of burdensome

multiple reports.

S. Rep. No. 127, 938d Cong., 1st Sess., reprinted in 1974

U.S. Code Cong. & Ad. News, 4838, 4871.'”

The decision below disrupts the system of uniformity

which ERISA was enacted to ensure for employee benefit

plan regulation. If state common laws which relate to

employee benefit plans in general terms, and which

purport to govern areas expressly regulated by ERISA

in particular, are held to survive preemption, plan fi-

duciaries will be subjected to the haphazard application

of standards and remedies embodied in varying state

laws in addition to or in lieu of the standards and reme-

dies established by ERISA. The uncertainty that such a

fragmented system would generate is peculiarly disruptive

12 See also 120 Cong. Rec. 29,942 (1974) (remarks of Senator

Javits) ; 120 Cong. Rec. 29,197 (1974) (remarks of Representative

Dent). In a passage especially applicable to this case, the House

Committee articulated the importance of uniformity in the applica-

tion of ERISA’s fiduciary standards:

[A] fiduciary standard embodied in Federal legislation is con-

sidered desirable because it will bring a measure of uniformity

in an area where decision under the same set of facts may differ

from state to state... . [I]t is evident that the operations of

employee benefit plans are increasingly interstate. The uni-

formity of decision which the Act is designed to foster will help

administrators, fiduciaries and participants to predict the

legality of proposed actions without the necessity of reference

to varying state laws.

H.R. Rep. No. 533, 93d Cong., Ist Sess., 12, reprinted in 1974 U.S.

Code Cong. & Ad. News, 4639, 4650.

14

in the insurance industry, where the assessment of risks

and the prediction of liabilities is fundamental to the

decision to insure, or to administer, ERISA plans. As

Congress surely recognized, the victims of such a frag-

mented system would be not only employers and insurers

who act as ERISA fiduciaries, but also the employees

ERISA was enacted to protect. Because the decision

below permits the practices of the several states, as re-

flected in their common laws, to assume a prominence

equal, if not superior, to ERISA with respect to the

handling of benefit claims, thereby achieving precisely

the result Congress carefully sought to avoid when it

enacted ERISA, this Court should grant the Petition and

clarify the critical statutory and policy issues presented.

4. The Fifth Circuit’s Construction of ERISA’s Saving

Clause Is Inconsistent with the Terms and Legislative

History of Both ERISA and the McCarran-Ferguson

Act.

Not only does the decision below contravene congres-

sional intent to give ERISA a sweeping preemptive scope,

but the decision rests upon a fundamental misinterpreta-

tion of the language of ERISA’s saving clause. In holding

that state common laws of general application are laws

“which regulate[] insurance” within the meaning of

Section 514(b), the court below gave the saving clause

an unduly broad reading—and one which is inconsistent

with both ERISA and the McCarran-Ferguson Act.

By its terms, Section 514(b) states that nothing in

ERISA “shall be construed to exempt or relieve any

person from any law of any State which regulates insur-

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

13 This exception is qualified by the “deemer’” clause found in

Section 514(b) (2) (B), which provides that no employee benefit

plan will be deemed to be an insurance company for purposes of

any state law which regulates insurance. See 29 U.S.C. § 1144(b)

(2) (B). Although the deemer clause distinguishes insured and self-

insured plans for purposes of laws regulating insurance, the dis-

15

Giving these words their common sense meaning, as this

Court has done in construing ERISA, it is obvious from

the words themselves chat Congress intended to bring

within their scope state regulatory schemes specifically

applicable to insurance, and not judicially-created laws

of general application."

Moreover, nothing in the legislative history of ERISA

suggests that Congress intended to create a more sweep-

ing exception to the broad preemption clause contained in

the Act. Indeed; the legislative history suggests the con-

trary—that the carefully tailored exceptions to Section

514(a) were to be construed narrowly. See, e.g., 120

Cong. Rec. 29,197 (1974) (remarks of Representative

Dent) (“narrow exceptions specifically enumerated”) ;

120 Cong. Rec. 29,933 (remarks of Senator Williams)

(“narrow exceptions specified in the bill”). Had Con-

gress intended to create an all-encompassing exception

to a. otherwise expansive preemptive scheme, this would

surly have been stated in the many pages of legislative

tinction is one without substance when laws of general application

are at issue. Unlike state laws regulating insurance, which by

operation of the deemer clause apply to insured but not to self-

insured plans, state laws. of general application which “reiate to”

employee benefit plans would necessarily be inapplicable to both

insured and self-insured plans because of Section 514(a).

14 See Northeast Dept. ILGWU Health and Welfare Fund v.

Teamsters Local Union No. 229 Welfare Fund, 764 F.2d 147, 158

n.8 (3d Cir. 1985) (court stated in dicta that “judge-made rules re-

garding interpretation of insurance contracts are not the kind of

state insurance regulations that the Congress intended to pre-

serve”). Indeed, Congress apparently knew the distinction. In the

definitional section found in Section 514, Congress expressly defined

“State law”—a phrase it did not use in the saving clause—as “all

laws, decisions, rules, regulations, or other State action having the

effect of law, of any State.” 29 U.S.C. §1144(c)(1) (emphasis

added). Congress’ use of the phrase “State law” in Section 514(a),

but not in Section 514(b) (2) (A), was likely not unintentional. It

is entirely consistent with the terms and policies of the Act for

Congress to preempt all “State law” relating to benefit plans, includ-

ing decisional and administrative laws, while saving from preemp-

tion only state regulatory laws applicable to insurance.

16

history which address the breadth of the preemption

clause.”

The conclusion that ERISA’s insurance saving clause is

properly limited to state statutory schemes regulating in-

surance is supported, if not compelled, by the construction

given to analogous language in the McCarran-Ferguson

Act, 15 U.S.C. §§ 1011 et seg. The McCarran-Ferguson

Act provides in relevant part that “[t]he business of

insurance .. . shall be subject to the laws of the several

States which relate to the regulation or taxation of such

business”. 15 U.S.C. § 1012 (emphasis added). Because

the terms of Section 514(b) of ERISA are strikingly

similar to words used by Congress to establish state

primacy over insurance regulation in the McCarran-

Ferguson Act, ERISA should be read in pari materia

with the terms of that Act.

While no unanimous approach to the meaning or scope

of the saving clause has emerged in the decade of ERISA’s

existence, a rather uniform interpretation has been pro-

vided by courts to similar language in the McCarran-

Ferguson Act. Dealing with the meaning of the words

“regulating the business of insurance,” this Court in

SEC v. National Securities, Inc., 393 U.S. 453 (1969),

provided support for the argument that “regulation” of

insurance encompasses legislative and administrative ac-

tions, and not the application of generally applicable state

common law. In that case, the Court stated:

Insurance companies may do many things which are

subject to paramount federal reguiation; only when

they are engaged in the ‘business of insurance’ does

the [McCarran-Ferguson Act] apply. Certainly the

fixing of rates is part of this business. . . . The

selling and advertising of policies, FTC v. National

Casualty Co., 357 U.S. 560 (1958), and the licensing

15 Congress obviously knew how to exempt laws of general appli-

cation from the preemptive scope of ERISA. [In clear contrast to

its reference to laws “which regulate[] insurance” in the saving

clause, Congress expressly exempted—in Section 514—‘“any gen-

erally applicable criminal law of a State.” 29 U.S.C. § 1144(b) (4).

17

of companies and their agents, cf. Robertson v. Cali-

fornia, 328 U.S. 440 (1946), are also within the

scope of the statute. Congress was concerned with

the type of state regulation that centers around the

contract of insurance. . . . The relationship between

insurer and insured, the type of policy which could

be issued, its reliability, interpretation, and enforce-

ment—these were the core of the ‘business of in-

surance.’ ... But whatever the exact scope of the

statutory term, it is clear where the focus was—it

was on the relationship between the insurance com-

pany and the policyholder. Statutes aimed at pro-

tecting or regulating this relationship, directly or

indirectly, are laws regulating the ‘business of

insurance.’

Id. at 459-60 (emphasis added). See also FTC v. Na-

tional Casualty Co., 357 U.S. 560, 564-65 (1958) (per

curiam) (in concluding that states had “regulated” in-

surance by enacting prohibitory legislation authorizing

administrative enforcement, the Court declined to decide

whether there was any distinction in the McCarran-

Fergusor Act between “legislation” and “regulation”.

Thus, this Court’s decisions demonstrate that state laws

regulating insurance are precisely that: they are legisla-

16 The more recent decisions of this Court concerning the scope

of the McCarran-Ferguson Act further support the conclusion that

“regulation” of the insurance business does not encompass generally

applicable state common laws. In Union Labor Life Ins. Co. v.

Pireno, 458 U.S. 119 (1982), and Group Life & Health Ins. Co. v.

Royal Drug Co., 440 U.S. 205, reh’g denied, 441 U.S. 917 (1979), the

Court articulated three criteria for determining whether a particu-

lar activity constitutes the “business of insurance’ within the mean-

ing of that Act: “first, whether the practice has the effect of trans-

ferring or spreading a policyholder’s risk; second, whether the prac-

tice is an integral part of the policy relationship between the in-

surer and the insured; and third, whether the practice is limited

to entities within the insurance industry.” Union Labor Life Ins.

Co. v. Pireno, 458 U.S. at 129. State common law rules relating to

damages for failure to meet contract obligations cannot properly be

deemed the regulation of insurance within the criteria established

and applied in Pireno and Royal Drug.

18

tive and regulatory exercises of state sovereigns directed

to the business of insurance. There is nothing in this

Court’s decisions suggesting that “regulate” was meant to

encompass adjudication by state courts of common laws

of general application which only incidentally relate to

insurance."

Nothing in the legislative history of the McCarran-

Ferguson Act supports the conclusion that “regulate”

encompasses adjudication of state common law claims.

Indeed, in discussing the proviso to Section 2(b) dealing

with federal antitrust laws, Senator Ferguson shed light

on the meaning of “regulation”:

Mr. FERGUSON. .. . But insofar as the State is

concerned which has specifically legislated on the sub-

ject, the three acts [the Sherman, Clayton, and Fed-

eral Trade Commission Acts] shall not apply.

Mr. O’MAHONEY. Mr. President, will the Senator

yield?

Mr. McCARRAN. I yield.

Mr. O’MAHONEY. I believe the Senator from

Michigan went a little further than was his inten-

tion when he said that if the States have legislated

certain things will take place. The bili says if the

States have regulated.

Mr. FERGUSON. I had reference to legislation

dealing with regulation and taxes.

91 Cong. Rec. 1443 (1945) (emphasis added). The great

care exercised by Congress in discussing the meaning of

17 The distinction between laws of general application and laws

regulating insurance has been drawn by the lower federal courts

interpreting the McCarran-Ferguson Act. See, e.g., Hart v. Orion

Ins. Co., 453 F.2d 1358, 1360 (10th Cir. 1971) (arbitration statutes

are “laws of general application pertaining to the method of

handling contract disputes,” and thus do not regulate the business

of insurance within the McCarran-Ferguson Act); Hamilton Life

Ins. Co. v. Republie National Life Ins. Co., 408 F.2d 606. 611 (2d

Cir. 1969) (same).

19

this critical term is evident from other passages of the

legislative history, as for example, where Senator Mc-

Carran, the other chief sponsor of the bill, stated:

. . . the States may, if they see fit to do so, enact

legislation for the purpose of regulation. If they do

enact such legislation, to the extent that they regu-

late they will have taken the business of insurance

in the respective States out from under the Sherman

Anti-trust Act, the Clayton Act and the other acts.

91 Cong. Rec. 1443 (1945) (emphasis added).“ Thus,

throughout its deliberations on the McCarran-Ferguson

Act, Congress made abundantly clear its intent that regu-

lation meant the exercise of control by regulatory agen-

cies over insurance, pursuant to state legislation.

Reading the language of the McCarran-Ferguson Act

éw pari materia with ERISA’s saving clause reveals the

infirmities inherent in the analysis of the court below.

The decision below—that state common laws of general

applicability are laws “which regulate[] insurance” with-

in the meaning of ERISA when applied to the handling

of benefit claims—purports to draw its strength from

an analogous statute which, in no uncertain terms, sup-

ports a contrary result. Because the meaning and scope

of the phrase “regulates insurance” is at the very heart

of the instant case, and, indeed, is the key to resolving

the conflicts and confusion among the lower federal courts,

this Court should review the critical issue here and estab-

lish a rule that gives full effect to the terms and intent

of ERISA and the important policies embodied in the Act.

18 Other similar examples of Congress’ intent concerning the

meaning of “regulation” abound. See, e.g., 91 Cong. Rec. 1444

(1945) (remarks of Senators McCarran and White) ; 91 Cong. Rec.

1480-83 (1945); 91 Cong. Rec. 481-82 (remarks of Senator Rad-

cliffe) ; 91 Cong. Rec. 1087 (remaks of Representative Hancock) ;

90 Cong. Rec. 6525 (1944) (remarks of Representative Hancock).

See also Weller, “To Preempt or to Accommodate: The Question

of State and Federal Antitrust Laws under the McCarran-Ferguson

Act,” 9 U. Tol. L. Rev. 421 (1978).

20

CONCLUSION

For the reasons set forth above and for the additional

reasons advanced in the Petition, the writ of certiorari

should be granted.

Respectfully submitted,

Of Counsel: ERWIN N. GRISWOLD

JACK H. BLAINE Counsel of Record

, PATRICIA A. DUNN

ved Genel Counsel SowsS, Day, Reavis & Poout

EDWARD J. ZIMMERMAN 655 Fifteenth Street, N.W.

Washington, D.C. 20005-5701

prey tng gl unsel (202) 879-3939

INSURANCE Counsel for the Amici

1850 K Street, N.W.

Washington, D.C. 20006-2284

(202) 862-4000

JoE W. PEEL

Vice President and

General Counsel

JOHN P. DINEEN

Assistant General Counsel

HEALTH INSURANCE ASSOCIATION

OF AMERICA

919 Third Avenue

28th Floor

New York, New Yor’ 19022

(212) 486-5578

December, 198&

la

APPENDIX

Section 514 of the Employee Retirement Income Se-

curity Act of 1974 (“ERISA”) provides, in pertinent

part, that:

(a) Except as provided in subsection (b) of this

section, the provisions of this subchapter and sub-

chapter III of this chapter shall supersede any and

all State laws insofar as they may now or hereafter

relate to any employee benefit plan described in sec-

tion 1003(a) of this title and not exempt under sec-

tion 1003(b) of this title.

[(b)](2) (A) Except as provided in paragraph (B),

nothing in this subchapter shall be construed to ex-

empt or relieve any person from any law of any

State which regulates insurance, banking, or securi-

ties.

[(b) (2)](B) Neither an employee benefit plan de-

scribed in section 1003(a) of this title, which is not

exempt under section 1003(b) of this title... nor

any trust established under such a plan, shall be

deemed to be an insurance company or other in-

surer ... or to be engaged in the business of in-

surance ... for purposes of any law of any State

purporting to regulate insurance companies, [or]

insurance contracts. .. .

29 U.S.C. § 1144.

The McCarran-Ferguson Act provides, in relevant part,

that:

[1011.] Congress declares that the continued regu-

lation and taxation by the several States of the busi-

ness of insurance is in the public interest, and that

silence on the part of the Congress shall not be con-

strued to impose any barrier to the regulation or

taxation of such business by the several States.

2a

[1012.] (a) The business of insurance, and every

person engaged therein, shall be subject to the laws

of the several States which relate to the regulation

or taxation of such business.

(b) No Act of Congress shall be construed to in-

validate, 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. §§ 1011-1012.