Amicus Curiae Brief — New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co.

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: } Supreme Court, U.S.

a a a

DEC 13 1994

PHATE oe cuca

OcTOBER TERM, 1994

New York STATE CONFERENCE OF BLUE Cross &

BLUE SHIELD PLANS, et ai.,

a Petitioners

TRAVELERS INSURANCE Co., ef al.

Mario M. Cuomo, GOVERNOR OF NEw YorK, ef al.,

. Petitioners

TRAVELERS INSURANCE COMPANY, ef al.

HosPiITAL ASSOCIATION OF NEW YoRK STATE,

i Petitioner

TRAVELERS INSURANCE COMPANY, et al.

On Writs of Certiorari to the

United States Court of Appeals

for the Second Circuit

BRIEF OF THE

NATIONAL CARRIERS’ CONFERENCE COMMITTEE

AS AMICUS CURIAE IN SUPPORT OF RESPONDENTS

Of Counsel: BENJAMIN W. BOLEY

Wnitam H. Dempsey Commech of Record

1800 Massachusetts Ave. N.W. ANNER. Bowden

ry SHEA & GARDNER

pee mes D.C. 20086 1800 Massachusetts Ave., N.W.

828-2000 Washington, D.C. 20086

(202) 828-2000

Davi P. Lee

1901 L Street, N.W.

Washington, D.C. 20036

(202) 862-7218

Attorneys for National Carriers’

; yi etme pT bc ge: eI

BEST WAIL BLE copy

ISSUE PRESENTED

We devote this brief to an issue upon which the Court

granted certiorari but that neither petitioners nor the

United States as amicus curiae have briefed. That issue

is whether New York’s 13% surcharge upon all hospital

bills paid by, inter alia, self-insured plans and plans in-

sured by commercial insurers, but not upon bills paid by

plans insured by the Blues, is preempted by § 514(a) of

the Employee Retirement Income Security Act of 1974

(“ERISA”), 29 U.S.C. § 1144(a), as to self-insured

ERISA plans, as distinct from commercially insured

ERISA plans.

TABLE OF CONTENTS

FOE w

STATEMENT OF INTEREST ..................-.--c-c-c-seoseeeoees 2

SUMMARY OF ARGUMENT. ....................c0--ccececeneeeseeeees 8

RE eetiecnadictieibaisiecenniensnsenecsnesemnassmnsscveennenanenssasanassnecece 6

I. THE QUESTION OF WHETHER OR NOT

ERISA PREEMPTS APPLICATION OF NEW

YORK’S 18% SURCHARGE TO SELF-

INSURED ERISA PLANS IS PROPERLY

BEFORE THE COURT AND SHOULD BE

EE eee 8

Il. SECTION 514(a) OF ERISA PREEMPTS

APPLICATION OF NEW YORK’S 13% SUR-

CHARGE TO SELF-INSURED- ERISA

EES 13

A. The “Relates to” Clause ..22.................0.-.cee00- 13

B. The “Saving” and “Deemer” Clauses ............ 23

Ss 25

APPENDIX AND EXHIBITS THERETO

Citations to the Record in the Lower Courts ........ la

Travelers’ Notice of Motion for Summary Judg-

ment (filed Aug. 21, 1992) Exhibit 1 —................. 9a

HIAA Plaintiffs’ Notice of Motion (filed Aug. 21,

en lla

Letter from Craig P. Murphy, Counsel for Travel-

ers, to Hon. Louis J. Freeh (Mar. 24, 1998) Ex-

ES EEE SES l4a

Letter from Robert A. Bicks, Counsel for Blue

Cross/Blue Shield, to Hon. Louis J. Freeh (Mar.

I! 17a

TABLE OF CONTENTS—Continued

Letter from Jeffrey J. Sherrin, Counsel for

HANYS, to Hon. Louis J. Freeh (Mar. 30, 1993)

| ee ee eee

Letter from Craig P. Murphy, Counsel for Travel-

ers, to Hon. Louis J. Freeh (Mar. 31, 1993) Ex-

I ——————————————————————————E7E

Letter from Benjamin W. Boley, Counsel for

NCCC, to Hon. Louis J. Freeh (Apr. 6, 1993)

Exhibit 7 ............. eS a eet SS Sk

Order, Dkt. Nos. 92 Civ. 3999, 92 Civ. 5419

(S.D.N.Y. Apr. 27, 1993) Exhibit 8 .......................

Affidavit of Jeffrey J. Sherrin, Counsel for

HANYS, in Opposition to Motion of NCCC for

Leave to File Brief as Amicus Curiae, Dkt. Nos.

98-7132L, 93-7134CON, 93-7148CON, 93-7194XAP

(2d Cir.) (sworn to Apr. 21, 1993) Exhibit 9........

Page

20a

TABLE OF AUTHORITIES

CASES Page

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

> | Sa 16, 21, 22

Auto Club Ins. Ass'n V. Health and Welfare Plans,

Inc., 961 F.2d 588 (6th Cir. 1992) .. a 16

Baxter v. Lynn, 886 F.2d 182 (8th Cir.), reh’g

denied, en banc, 1989 U.S. App. LEXIS 16899

SD Ce eeterettncnertait incinerate 17

Brown Vv. Granatelli, 897 F.2d 1851 (5th Cir.),

cert. denied, 498 U.S. 848 (1990) -...................... 16

District of Columbia v. Greater Washington Bd.

of Trade, 1138 S. Ct. 580 (1992) -....................... 14, 15, 16

Electro-Mechanical Corp. Vv. Ogan, 9 F.3d 445 (6th

RR PS ON a 24

FMC Corp. V. Holliday, 498 U.S. 52 (1990) ........ 9, 16, 24

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

ht er Rae IE A: TERE i Take PN 8 5 16

Hampton Indus., Inc. Vv. Sparrow, 981 F.2d 726

I a. ae 24

Ingersoll-Rand Co. Vv. McClendon, 498 U.S. 133

nh RT Le ONE A Tc, Se 16, 21

Mackey V. Lanier Collection Agency & Serv., Inc.,

8 EE ee 14, 16

Metropolitan Life Ins. Co. Vv. Massachusetts, 471

RE 95 16, 18, 19, 28, 24

Mulleniz v. Aetna Life and Casualty Ins. Co., 912

F.2d 1406 (llth Cir. 1990) —...... 16

National Elevator Indus., Inc. v. Calhoon, 957 F.2d

1555 (10th Cir.), cert. denied, 118 S. Ct. 406

ES, ee 22, 23

NYSA-ILA Medical and Clinical Servs. Fund Vv.

Azelrod, 27 F.3d 823 (2d Cir.) , petition for cert.

filed sub nom. Chassin ¥. NYSA-ILA Medical

and Clinical Servs. Fund, 638 U.S.L.W. 3429

(U.S. Oct. 21, 1994) (No. 94-745) 0... 11

Pilot Life Ins. Co. V. Dedeauz, 481 U.S. 41 (1987) .. 14

PPG Indus. Pension Plan A (CIO) V. Crews, 902

oy: 4 - % Seas Seeen 17, 21

Shaw V. Delta Air Lines, Inc., 468 U.S. 85 (1988)... 15, 21

TABLE OF AUTHORITIES—Continued

Page

Travitz v. Northeast Dep’t ILGWU Health and

Welfare Fund, 13 F.3d 704 (3d Cir.), cert. de-

I GG i EE . 16,24

Tri-State Machine, Inc. v. Nationwide Life Ins.

Co., 33 F.3d 309 (4th Cir. 1994) -........................ 24

United Wire, Metal and Machine Health and Wel-

fare Fund v. Morristown Memorial Hospital,

995 F.2d 1179 (3d Cir.), cert. denied, 114 S. Ct.

6 _y——————E ES 4,11, 12,17

STATUTES

Employee Retirement Income Security Act of 1974

(ERISA):

83(1), 29 U.S.C. § 1002(1) ~..........................--- 13

§ 3(21) (A), 29 U.S.C. § 1002(21) (A) -............ 2

§ 503 (2), 29 U.S.C. § 1183(2) .........................-.-- 2

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

§ 514(b) (2) (A), 29 U.S.C. § 1144(b) (2) (A). 9, 18,

§ 514(b) (2) (B), 29 U.S.C. § 1144(b) (2) (B).. 18, 23

N.Y. Pub. Health Law

§ 2807-c(1) (a) (McKinney Supp. 1993) .......... 20

§ 2807-c(1) (b) (McKinney Supp. 1993) -......... 2,19

MISCELLANEOUS

120 Cong. Rec. 29988 (1974) .............-..---cccc--esseeeeeees 21

120 Cong. Rec. 29942 (1974) .........---.-..---eceernerennneeeeees 21

In THE

Sipreme Court of the United States

OcTOBER TERM, 1994

No. 93-1408

New YorK STATE CONFERENCE OF BLUE Cross &

BLUE SHIELD PLANS, et al.,

7 Petitioners

TRAVELERS INSURANCE Co., et al.

No. 93-1414

Mario M. Cuomo, GovERNOR OF NEW York, et ai.,

7 Petitioners

TRAVELERS INSURANCE COMPANY, ef all.

No. 93-1415

HOSPITAL ASSOCIATION OF NEW YORK STATE,

. Petitioner

TRAVELERS INSURANCE COMPANY, ef al.

On Writs of Certiorari to the

United States Court of Appeals

for the Second Circuit

BRIEF OF THE

NATIONAL CARRIERS’ CONFERENCE COMMITTEE

AS AMICUS CURIAE IN SUPPORT OF RESPONDENTS

STATEMENT OF INTEREST

The National Carriers’ Conference Committee (“NCCC”)

submits this brief as amicus curiae urging affirmance of

the decision of the court of appeals. Pursuant to Rule

37.3 of the Rules of this Court, the NCCC has filed with

the Clerk the written consents of all of the parties in this

case to the submission of this amicus curiae brief.

The NCCC, consisting of labor relations officials of ten

of the nation’s major freight railroads and the Chairman

of the National Railway Labor Conference, is the sole

governing body of fiduciaries for The Railroad Employees

National Early Retirement Major Medical Benefit Plan.

In addition, along with the Health and Welfare Com-

mittee of Cooperating Railway Labor Organizations, the

NCCC serves as the governing body of fiduciaries for

The Railroad Employees National Health and Welfare

Plan. These Plans (the “Railroad Plans” or the “Plans” )

were established and are maintained pursuant to national

collective bargaining agreements under the Railway Labor

Act between most of the Class I line haul rail carriers in

the United States and the principal twelve railway labor

organizations. The Plans are self-insured employee wel-

fare benefit plans under the Employee Retirement Income

Security Act of 1974, as amended (“ERISA”). They pro-

vide health care benefits, including coverage for inpatient

hospital care, to more than a half million railroad em-

ployees, retirees, and their dependents throughout the

country. Respondent The Travelers Insurance Company

(“Travelers”) provides claims administrative services to

the Railroad Plans and acts as a fiduciary of the Plans

under §§ 3(21)(A) and 503(2) of ERISA, 29 U.S.C.

§§ 1002(21)(A) and 1133(2).

In this case, the court of appeals affirmed the summary

judgment of the district court that ERISA preempts the

imposition of, among other things, a 13% surcharge under

§ 2807-c(1)(b) of the N.Y. Pub. Health Law on gen-

eral hospital bills for inpatient care paid by ERISA-

covered plans, whether such plans are self-insured by the

employers maintaining them or insured under a policy

issued by a commercial insurer. Reversal of the court of

appeals’ decision would require the Railroad Plans either

(a) to pay the 13% surcharge—approximately $1 million

per year—so as to remain self-insured on a national basis

as called for by the collective bargaining agreements pur-

suant to which the Plans are maintained and to continue

to have the Plans administered on a national or regional

basis by administrators of their choice, or (b) to avoid

the 13% surcharge by becoming insured with Blue Cross/

Blue Shield (the “Blues”) in New York, thus destroying

the interstate uniformity of the Plans’ structure (self-

insured) and administration (nationwide or regional) and

subjecting the Plans to New York’s host of insurance laws

and regulations.

The interest of the NCCC, as fiduciaries of the Plans,

is to escape this Hobson’s choice.

SUMMARY OF ARGUMENT

I. This case presents two closely related questions:

Does ERISA preempt New York’s 13% surcharge on hos-

pital bills for inpatient care as the surcharge is applied

to ERISA-covered plans that are (a) insured by commer-

cial insurers or (b) self-insured. We contend, contrary

to the suggestion of the United States, that the question

of ERISA preemption of the surcharge as applied to self-

insured plans is properly before the Court and that sound

judicial policy calls for its resolution in this case.

The issue of whether ERISA preempts application of

the surcharge to self-insured plans has been raised, argued

before and decided by both the district court and the court

of appeals. Plaintiffs, acting as claims fiduciaries for self-

insured plans, raised the issue in their complaints and

motions for summary judgment. The district court granted

summary judgment in plaintiffs’ favor in all respects as

to the 13% surcharge, and the court’s opinion shows. that

the judgment included a declaration that ERISA pre-

empted the surcharge as applied to self-insured plans. In-

deed, following the entry of a stay of its judgment on the

13% surcharge pending appeal, the district court ordered

the plaintiffs who are claims fiduciaries for self-insured

plans to pay the surcharge on their behalf.

Appellants brought the issue regarding self-insured plans

to the court of appeals both in their statements of ques-

tions presented and in their briefs. In fact, appellant Hos-

pital Association of New York (“HANYS”) unsuccess-

fully opposed the motion of this amicus for leave to

file a brief in the court of appeals on the ground that

the appellees who are claims fiduciaries for self-insured

ERISA plans had adequately represented the interests of

those plans. The court of appeals affirmed the district

court’s ruling as to the 13% surcharge in all respects.

That the court’s opinion did not distinguish between in-

sured and self-insured plans is without consequence, since

its ruling found preemption as to both.

All of the petitioners in this Court based their argument

for certiorari on an alleged conflict between the decision

below and the decision of the Third Circuit Court of

Appeals in United Wire, Metal and Machine Health and

Welfare Fund v. Morristown Memorial Hospital, 995

F.2d 1179 (3d Cir.), cert. denied, 114 §. Ct. 382 (1993),

where only self-insured plans and their participants chal-

lenged various New Jersey hospital rate laws on ERISA

preemption grounds. Indeed, the certiorari petition of

HANYS explicitly framed the issue in terms of whether

ERISA preempted New York’s different “set of [hospital]

rates for patients covered by[, among others,] self-insured

plans.” Brief for Petitioner HANYS on Writ of Certivrari

to the United States Court of Appeals for the Second

Circuit at (i); HANYS v. Travelers Ins. Co., Dkt. No.

93-1415, 63 U.S.L.W. 3282, 3291 (U.S. Oct. 7, 1994).

This Court should decide the issue of preemption as to

self-insured plans because it is inextricably linked to the

issue of preemption as to insured plans. In both con-

texts, the impact of the 13% surcharge on a plan’s choice

of insurers must be evaluated. The preemption issue as

to self-insured plans raises two additional, but related,

considerations: imposition of the surcharge directly upon

an ERISA plan and its effect on a plan’s choice of a

basic structure, i.e., insurance versus self-insurance. More-

over, the Court should decide the question of preemption

of the 13% surcharge as it applies to self-insured plans

because that question was the very issue creating the con-

flict petitioners cited in seeking certiorari.

Il. The 13% surcharge as applied to self-insured

ERISA plans “relates to” them for purposes of ERISA’s

preemption provision because (a) self-insured plans them-

selves pay the surcharge to the hospitals—there is no in-

tervening insurance company that pays the hospital and

passes the surcharge through to the plans in the form

of higher premiums—and (b) the surcharge applies to

self-insured plans solely by virtue of the central function

that makes them ERISA-covered plans—the payment of

health care benefits. This particular characteristic of the

surcharge distinguishes it from state laws imposing directly

upon self-insured plans requirements affecting the plans

by reason of their property ownership, utility use, hiring

of employees and other similar activities.

In addition, the surcharge “relates to” the self-insured

plans because it is designed to induce them to alter dras-

tically their basic structure and administration by chang-

ing from self-insurance administered on a national or

multistate regional basis by entities of their choice to

insurance with the Blues in New York. Such a change

would create severe administrative burdens for such plans

and subject them to New York insurance laws and regula-

tions from which Congress, in the “deemer” clause of

ERISA’s preemption provision, expressly protected them.

Furthermore, becoming insured with the Blues in New

York would interfere with the uniform plan structure and

administration throughout the country or multistate region

that is the hallmark of interstate plan operations, espe-

cially those of national plans that are collectively bar-

gained, as are the Railroad Plans.

The insurance “saving” clause of ERISA’s preemption

provision does not preserve the 13% surcharge from pre-

emption. The surcharge is a law regulating hospital rates,

not insurance. Furthermore, the deemer clause of the pre-

emption provision precludes application of the saving clause

to any state law to the extent that it “relates to” self-

insured plans. Thus, since the 13% surcharge “relates to”

self-insured plans, the saving clause does not insulate the

surcharge from preemption as it applies to them.

ARGUMENT

New York’s effort to improve the competitive position

of the Blues by imposing a 13% surcharge or other

payors of inpatient hospital bills penalizes both commer-

cially insured and self-insured plans. In the case of in-

sured ERISA plans, the impact of the surcharge comes

by way of premium increases by the insurers. In the case

of self-insured ERISA plans, the impact is direct and

immediate. The surcharge is paid to the hospitals by the

plans themselves. Though the aim of the statute is the

same in both situations—to induce plans to switch to the

Blues “by giving the Blues a competitive advantage over

commercially insured, self-insured funds” and others (Pet.

App. at 27, 56)’—and while in our view a statute so

designed runs afoul of ERISA’s preemption provision

whether applied to commercial insurers or to self-insured

plans, the situations are not identical. As the United

States acknowledges: “Application of the 13% surcharge

1 We adopt “Pet. App.” to refer to the Petitioners’ Appendix to

their petition for certiorari in Docket No. 93-1414 and “JA” to

refer to the Joint Appendix filed by Petitioners with their briefs

on the writ. :

to ‘self-insured funds’ may raise some distinct issues, since

that surcharge applies to bills that some ERISA plans—

those that self-insure—must pay themselves.” Brief for the

United States as Amicus Curiae Supporting: Petitioners at

12 n.3 (hereinafter “Gov’t Br.”); Brief for the United

States as Amicus Curiae on Petitions for a Writ of Cer-

tiorari to the United States Court of Appeals for the

Second Circuit at 14 n.5 (hereinafter “Gov't Br. on

Pet.”).

The United States thus appears to appreciate that the

argument that the 13% surcharge “relates to” ERISA

plans is stronger where the surcharge is levied upon the

plan itself than where the surcharge impacts the plan

through the intermediary of an insurer. Moreover, in

the case of self-insured plans, there is an additional dis-

tinguishing factor relating to the plan’s basic structure

and administration. Not only does the statute designedly

color the plan’s choice of insurance carrier, but it also

affects the choice of insurance as against self-insurance.

In view of the interrelationship of the issues respecting

insured and self-insured ERISA plans—both their similari-

ties and dissimilarities—it would on the face of it seem

desirable for the Court to examine them together. Never-

theless, petitioners do not discuss the discrete problems

raised by application of the surcharge to self-insured plans,

and the Government expressly declines to brief the ques-

tion, resting on its suggestion that the Court remand that

issue to the lower courts if it reverses the court of appeals

respecting exaction of the surcharge from commercially

insured ERISA plans. Gov't Br. at 12 n.3, 28 2.20.

In this brief, we show, first, that the Government’s

recommendation is grounded in a demonstrably mistaken

understanding of the proceedings below and, to. the extent

it speaks to the Court’s discretion, is unwise. We. then

show that application of the surcharge to self-insured

ERISA plans is barred by ERISA’s preemption provision.

I. THE QUESTION OF WHETHER OR NOT ERISA

PREEMPTS APPLICATION OF NEW YORK’S 13%

SURCHARGE TO SELF-INSURED ERISA PLANS

IS PROPERLY BEFORE THE COURT AND

SHOULD BE DECIDED.

Notwithstanding the Solicitor General’s expressed doubts,

the issue of preemption of the surcharge as applied to

self-insured ERISA plans was unquestionably raised,

argued, and decided both in the district court and the

court of appeals and was one of the issues as to which

this Court granted certiorari. Because of the importance

of this question and the irreconcilability between our view

of the lower court proceedings and the Solicitor General's,

we include in the Appendix (“App.”) detailed citations

to the record in the lower courts. In summary, that record

shows the following:

The issue of preemption respecting self-insured plans

was raised in the district court by the plaintiffs as fidu-

ciaries for such plans. While the Government, in its

Brief as Amicus Curiae in support of the petition for

certiorari, maintained the contrary (Gov't Br. on Pet. at

14 n.5), it now acknowledges, though rather elliptically,

its error.2 Gov't Br. at 11-12 n.3. As to the proceedings

before the district court, the affidavits from the plaintiffs

in support of their motions for summary judgment were

replete with references to self-insured plans, App. at 2a,

and the district court granted those motions in all respects

pertaining to the 13% surcharge. Pet. App. at 89-90.

Moreover, the court in its opinion made quite clear that

2 It now says, “In fact, the complaints filed in this case may be

read to allege that one or more of the plaintiffs is a self-insured

plan, see J.A. 93, at 718, and the complaints allege that several

of the insured-[sic] plaintiffs in this case are fiduciaries for self-

insured funds that are ERISA plans, see J.A. 69, 91-93.” Gov't

Br. at 12 n.8. To say that parties alleged standing to raise an issue

is not quite the same thing as to concede that they did in fact raise

the issue. But since in fact they did, this seems close enough to be

taken as a concession.

its judgment applied to self-insured plans. Thus, the court

specifically held, citing FMC Corporation v. Holliday,

498 U.S. 52 (1990), that the insurance saving clause of

ERISA § 514(b)(2)(A) cannot save the surcharge as

applied to self-insured plans because “self-insured plans

do not engage in the ‘business of insurance’ as a matter

of law.” Pet. App. at 79.

The Solicitor General believes it is “not clear” that the

district court’s injunction—which was directed “ ‘against

any commercial insurers or HMOs in connection with

their coverage of any ERISA plans’ ”—extended to in-

surers in their capacity as administrators of self-insured

plans. Gov't Br. at 12 n.3 (citation omitted). But it is

the court’s judgment that is controlling, and that judg-

ment plainly extended to self-insured plans. In any event,

the Solicitor General’s doubt is unfounded. He evidently

believes that the term “coverage” in the injunction might

refer only to insured coverage. But the court held that

HMOs are not engaged in the business of insurance (Pet.

App. at 79 & n.14), and, accordingly, the court’s use of

the term “coverage” respecting both HMOs and commer-

cial insurers must be taken to include coverage under

self-insured plans that they administer.

Moreover, the court removed any possible question by

squarely ruling, in a post-judgment order of which the

Solicitor General may be unaware, that the court’s judg-

ment encompassed self-insured plans. After the court had

Stayed that judgment as to the 13% surcharge pending

appeal, a dispute arose as to whether a plaintiff, Travelers,

in its capacity as fiduciary for two self-insured ERISA

plans that were not parties, the Railroad Plans, was ob-

liged to pay the surcharge on their behalf. Noting that

“two self-insured ERISA plans for which Travelers pro-

vides administrative services . . . had instructed Travelers

not to pay the 13% differential,” the court ordered

Travelers to pay. App. at 4a-5a and Ex. 8 thereto.

As to the appeal, the Solicitor General says:

“Since no cross-appeal was taken from the district

court’s order, the application of the 13% surcharge

to ‘self-insured fund[s]’ was not raised by any party

before the court of appeals. Nor did the court ad-

dress it sua sponte.” Gov't Br. at 12 n.3.

The Solicitor General is mistaken. (Not, to be sure,

with respect to the absence of a cross-appeal regarding

any surcharge. But this is a fact without any significance

that we can discern, since the judgment on the surcharges

was wholly in plaintiffs’ favor.) The appeal carried to

the court of appeals that judgment, which covered the

13% surcharge as applied to self-insured funds. The ap-

pellants’ statements of questions presented embraced that

issue. And it was briefed by the parties. (See App. at

5a-6a, especially the citations to passages in the appellants’

briefs.) Of particular significance is the opposition of

appellant—here petitioner—Hospital Association of New

York State (“HANYS”) to this amicus’ motion, subse-

quently granted, for leave to file a brief with the court of

appeals:

“First, the Court already has been favored with briefs

from five sets of parties and from four amicus curiae,

covering all of the issues. In particular, the interests

of all self-insured plans, and the Railroad Plans spe-

cifically, are alrready represented. Plaintiff the Trav-

elers Insurance Company (‘Travelers’) acts as fi-

duciary or otherwise provides administrative services

to self-insured plans, including the Railroad Plans.

Travelers has specifically lodged its complaint in such

capacity. (Citation omitted.) The additional brief

which the Railroad Plans seek to submit is merely

cumulative ... .” (Emphasis added.) App. at 7a

and Ex. 9 thereto.

Thus the issue as to self-insured plans was clearly in

play in the court of appeals; and while the court did not

in its opinion distinguish between self-insured plans and

insured plans, there was no reason for it to do so. App.

at 8a. The court simply referred to the 13% surcharge

in general terms without distinction as to payor—whether

commercial insurer or self-insured plan—and if its ration-

ale be thought to be framed primarily with reference to

insured plans, that rationale surely applied a fortiori to

self-insured plans. If anything can be said to be missing,

it is simply the equivalent of an addendum stating that

“the same is true of self-insured plans”.*

In this Court, the petitioners sought review of the judg-

ment below insofar as it struck down the 13% surcharge

and did not, naturally, excise from their request that

element of the judgment applying to self-insured plans.

To the contrary, the first issue identified in the petition

filed by HANYS expressly raised the question of pre-

emption of New York’s different “set of [hospital] rates

for patients covered by[, among others,] self-insured

plans,” and the Court granted that petition as to that

issue. Brief for Petitioner HANYS on Writ of Certiorari

to the United States Court of Appeals for the Second

Circuit at (i); HANYS v. Travelers Ins. Co., Dkt. No.

93-1415, 63 U.S.L.W. 3282, 3291 (U.S. Oct. 7, 1994).

Moreover, the principal reason advanced by all petition-

ers for review was the asserted conflict between the deci-

sion below and that of the Third Circuit Court of Appeals

in United Wire, Metal and Machine Health and Welfare

Fund v. Morristown Memorial Hospital, 995 F.2d 1179

(3d Cir. 1993)—a case where only self-insured plans

and their participants challenged various New Jersey hos-

pital rate laws as preempied by ERISA.

*If a full expression of the court of appeals’ views respecting

preemption as it applies to self-insured plans be thought helpful,

the court supplied it in its subsequent opinion in NYSA-ILA Medi-

cal and Clinical Services Fund vy. Azelrod, 27 F.8d 828 (2d Cir.),

petition for cert. fled sub nom. Chassin ¥. NYSA-ILA Medical and

Clinical Services Fund, 68 U.S.L.W. 8429 (U.S. Oct. 21, 1994)

(No, 94-745).

In these circumstances, the Solicitor General’s sugges-

tion that the Court noi decide the preemption issue as it

relates to self-insured plans is without procedural warrant.

It is also without merit as a matter of judicial policy.

That issue is inextricably linked to the issue of preemp-

tion respecting insured plans. A central element of the

preemption analysis respecting the surcha:»<'s application

to ERISA plans generally is the New Yor’ statute’s pur-

pose of influencing the plans’ choice of insurers. That

element must be evaluated as it relates to insured plans.

It is even more pertinent in the context of self-insured

plans, because that context includes two additional, but

related, factors—the effect on the choice of a plan’s basic

structure, i.e., self-insurance versus insurance, and the

direct imposition of the surcharge on the plans. There is

no sound reason for excluding self-insured plans from this

assessment and leaving undecided the very question an-

swered in United Wire that petitioners asserted created the

conflict requiring resolution by this Court. This is espe-

cially so because, as we have noted supra at 11 n.3, that

question was ruled upon by the Court of Appeals for the

Second Circuit in a decision subsequent to the one here

under review, a decision as to which a petition for certi-

orari is currently pending.

We add that it might be useful to the Court to be

advised of the position of the United States respecting

self-insured plans. In the court below, as the Solicitor

General notes, the Secretary of Labor, appearing as amicus

curiae, took the position “that the impact on choices made

by plans provides a sufficient connection to trigger pre-

emption” of the surcharges on the ground that they “relate

to” ERISA plans, “but that—except for self-insured ERISA

plans, which are protected by the ‘deemer’ clause—they

are saved from preemption by the insurance savings

clause.” Gov't Br. at 14 n.4. The Secretary has now

joined in the contrary position expressed in the brief for

the United States with respect to insured plans, id. at

14 & n.4; but there is no indication that the United States

would extend that reversal of position to self-insured

plans, which, the Solicitor General acknowledges, “may

raise some distinct issues.” Jd. at 12 n.3.

Il. SECTION 514(a) OF ERISA PREEMPTS APPLICA-

TION OF NEW YORK’S 13% SURCHARGE TO

SELF-INSURED ERISA PLANS.

New York’s 13% surcharge as applied to self-insured

ERISA plans “relates to” those plans for purposes of

§ 514(a) of ERISA, 29 U.S.C. § 1144(a), and, as ap-

plied to those plans, is not a law “which regulates insur-

ance” under the saving clause of § 514(b)(2)(A), 29

U.S.C. § 1144(b)(2)(A).

A. The “Relates to” Clause.

The 13% surcharge imposed upon self-insured ERISA

plans “relates to” them for purposes of § 514(a) because

the surcharge is a direct levy upon such plans and attaches

to the very activity that makes them ERISA-covered

plans, the provision of health care benefits to plan par-

ticipants. The plans pay the surcharge to the billing

hospital; there is no intervening insurance company that

pays the hospital and passes the surcharge on to the plans

in the form of higher premiums.* And the provision of

hospital care benefits to participants, the activity upon

which the surcharge is fixed, is the very function that

brings the plans, pursuant to § 3(1) of ERISA, 29 U.S.C.

§ 1002(1), under its coverage.

*The distinction is not merely formal. When paid by ERISA

plans in response to the hospital’s bill, the amount is fixed by law.

When passed through by a commercial insurer, the amount is

determined by the realities of the competitive marketplace. Insurers

must cover their costs or go out of business. Accordingly, sub-

stantial cost increases suffered by the insurer are almost certain

to increase the costs of the insured plan. Still, the difference be-

tween a cost increase that the law requires a self-insured plan to

pay and a cost increase that an insured plan is asked by its insurer

to agree to pay is a real difference.

We submit that these facts, viewed against this Court's

rulings that ERISA’s preemption clause is to be accorded

“ ‘its broad common-sense meaning,” Pilot Life Insur-

ance Co. Vv. Dedeaux, 481 U.S. 41, 47 (1987) (citations

omitted), so as to give “effect to the ‘deliberately expan-

sive’ language chosen by Congress,” District of Columbia

v. Greater Washington Board of Trade, 113 S. Ct. 580,

583 (1992) (citation omitted), make inescapable the

conclusion that New York’s 13% surcharge “relates to”

self-insured ERISA plans. As in Mackey v. Lanier Col-

lection Agency & Service, Inc., 486 U.S. 825 (1988),

the result is driven by the statutory language. To borrow

and adapt the words of amicus curiae quoted by this Court

in Mackey in applying the “relates to” phrase, “ ‘there is

simply no logical way to construe the English language’ ”

so as to conclude that a law imposing a 13% levy on

bills paid by self-insured ERISA plans for inpatient hos-

pital care of plan participants does not “relate to” such

plans. Mackey, 486 US. at 836.

This is not to say that any tax or other requirement

directly imposed upon an ERISA plan “relates to” that

plan for purposes of § 514(a). Congress did not intend

to wipe out a state’s entire body of laws insofar as they

apply to ERISA plans As the Court observed in consider-

ing state judicial remedies in Mackey, no one would con-

tend that “lawsuits against ERISA plans for run-of-the-

mill state-law claims such as unpaid rent, failure to pay

creditors, or even torts committed by an ERISA plan”

are preempted. Jd. at 833. Rut here, the 13% surcharge

is not only imposed directly upon self-insured plans, it is

imposed solely by virtue of the core plan function that

causes the plan to fall within ERISA’s ambit, the provi-

sion of health care benefits to plan participants.

On this analysis, the term “relates to” would retain the

exceedingly broad meaning that Congress intended and

that this Court has articulated. It would not be artificially

constricted so as to avoid unreasonable results. Such

results would be avoided, instead, through interpretation

of the phrase “any employee benefit plan”—to which

challenged state law must “relate”—so that that

does not simply describe one type of enterprise

others, but defines an entity that is affected by th

law because it is a benefit plan rather than som

else. Laws that apply to ERISA plans, then, sole

cause they own property, or use utilities, or hi

ployees, or engage in other activities just as do

other enterprises, would not “relate to” those plans ev

though the laws impose requirements directly upon

plans.

In short, because it is imposed directly on self-insured

ERISA plans and targets their provision of health care

benefits, the 13% surcharge for those reasons alone “re-

lates to” those plans for purposes of § 514(a).° This, we

submit, is the teaching of the two decisions of this Court

holding state laws preempted as applied directly to self-

insured ERISA plans by virtue of their performance of

their core functions. In Shaw v. Delta Air Lines, Inc.,

463 Us. 85 (1983), The Court ruled preempted a state

statute prohibiting discrimination in employee benefit plans

on the basis of pregnancy. While the law did not apply

only to ERISA plans, the Court had “no difficulty in con-

cluding” that it “relate[d] to” such plans because it “pro-

afaee

Boa

eit :

5 Accordingly, the surcharge cannot be listed as among thoce laws

of “general applicability” that this Court has noted may be more

likely than other laws to have a “tenuous, remote or peripheral”

effect on ERISA plans. District of Columbia v. Greater Washington

Board of Trade, 118 8. Ct. 580, 588 n.1 (1992). Rather, the sur-

charge is primarily addressed to and primarily affects ERISA

plans. It is assessed upon a limited category of payors of hospital

bills, and there can be little doubt that the vast majority of pay-

ments to hospitals by entities in this category are made either by

insured or self-insured plans subject to ERISA. Hence, the 137%,

surcharge is hardly “generally applicable” even to all payors for

hospital services, no less the population at large.

* For an explication of the Court’s ruling as to a second statute

involved in Shaw, see District of Columbia Vv. Greater Washington

Board of Trade, 113 8. Ct. 580, 585 (1992).

hibit[ed] employers from structuring their employee benefit

plans” in a certain manner. Id. at 96-97. And in FMC

Corporation v. Holliday, 498 U.S. 52 (1990), the Court

ruled that § 514(a) applied to a state law barring both

ERISA and non-ERISA plans from asserting subrogation

with respect to a beneficiary’s tort recovery.” Any number

of decisions in the courts of appeals are of similar import.

See, e.g., Travitz v. Northeast Dep't ILGWU Health and

Welfare Fund, 13 F.3d 704, 709-10 (3d Cir. 1994) (state

bar against recovery from tortfeasor of amounts otherwise

payable by self-insured plan “relates to” that plan); Auto

Club Ins. Ass'n Vv. Health and Welfare Plans, Inc., 961

F.2d 588, 592-93 (6th Cir. 1992) (state coordination of

benefits rule, as applied to self insured plans, “relates to”

them); Mullenix v. Aetna Life and Casualty Ins. Co., 912

F.2d 1406, 1408-09 (11th Cir. 1990) (application to self-

insured plans of state mandate that chiropractic services be

covered “relates to” such plans); Brown v. Granatelli, 897

F.2d 1351, 1353-55 (5th Cir. 1990) (application to self-

insured plans of state requirement that health insurance

policies cover newborns with congenital defects “relates to”

7 Other § 514(a) decisions by the Court accord with this analysis.

In three cases, the challenged state laws did not apply directly to

ERISA plans, but the Court held them preempted nonetheless be-

cause there was a substantia! indirect impact that bore specifically

on the plans’ activities in providing benefits. Metropolitan Life Ins.

Co. v. Massachusetts, 471 U.S. 724 (1985); Ingersoll-Rand Co. Vv.

McClendon, 498 U.S. 183 (1990); and Greater Washington Board

of Trade, 113 S. Ct. 580 (1992). In a fourth case, on the other

hand, the Court upheld state laws that impacted ERISA plans only

indirectly and that did not impinge upon interests, such as uni-

formity, that ERISA was designed to secure. Fort Halifax Packing

Co. Vv. Coyne, 482 U.S. 1 (1987). Finally, in Mackey, 486 U.S. 825

(1988), while the state law—a general garnishment statute—did

apply directly to ERISA plans, it was not aimed specifically at the

activities they conducted because they were benefit plans. In any

event, the Court viewed other ERISA provisions as evidencing a

legislative intent under which such statutes were permissible. For

a similar ruling, see Alessi v. Raybestos-Manhattan, Inc., 451 U.S.

504 (1981).

such plans even if they have purchased stop-loss insur-

ance); PPG Indus. Pension Plan A (CIO) v. Crews, 902

F.2d 1148, 1150-51 (4th Cir. 1990) (state law prohibit-

ing particular method of integrating pension and workers’

compensation benefits as applied to self-. ured plans “re-

lates to” such plans); Baxter v. Lynn, 886 F.2d 182, 185

(8th Cir. 1989) (state law that “prohibit{[s] employers

from structuring their [self-insured plans] in a manner that

requires reimbursement” by plan participant who recovers

from third-party “relates to” such plans).*

There is in addition a further reason why New York’s

13% surcharge “relates to” self-insured plans: It is de-

signed to induce them, although they may be nationwide

and collectively bargained, as are the Railroad Plans, to

change their basic structure and administration—from

self-insurance administered on a national or multistate

regional basis by the entity of their choice to insurance

with the Blues in New York.

A primary goal of the 13% surcharge when enacted

was to encourage providers of health care benefits, be

they commercial insurers or self-insured plans, to insure

those benefits with the Blues. The court of appeals found

that the surcharge “was meant to ‘ “level [the] playing

field”’ for the Blues . . . (citations omitted). The hope

was that this would encourage more employers and

ERISA plans to subscribe to the Blues.” JA 37. See also

Gov't Br. at 9 (the surcharges “are designed to give the

Blues a rate advantage in the marketplace, thereby en-

couraging more customers to purchase coverage from the

® The decision of the Third Circuit Court of Appeals in United

Wire, 995 F.2d 1179 (3d Cir. 1993), appears to depart from this

approach. We think it incorrect, but in any event, as we hereafter

note in the text, the 18% surcharge is materially different from,

and more pernicious than, the laws involved in United Wire in that

New York’s surcharge designedly interferes with a plan’s determi-

nation of what ite basic structure and administration should be.

Blues and helping maintain the solvency of the Blues.”

(Emphasis added.) ).

By penalizing self-insured plans that choose not to

switch to insurance with the Blues in New York, New

York seeks to compel those plans to reverse their decisions

to be self-insured. Those decisions are made by large and

mature plans, like the Railroad Plans, for very good rea-

sons. Such plans can predict with substantial accuracy

what their benefits and related expenses will be in any

given year, thus minimizing the need to insure against the

risk that benefits and expenses will exceed available funds.

On the other hand, becoming insured triggers the applica-

tion to the plans of a long list of burdensome and costly

state insurance laws and regulations, such as mandated

benefit laws, mandated provider laws and premium taxes,

from which Congress plainly intended, through the

deemer clause in § 514(b)(2)(B) of ERISA, 29 U.S.C.

§ 1144(b) (2) (B), to protect self-insured plans.°

In Metropolitan Life Insurance Co. v. Massachusetts,

471 U.S. 724 (1985), this Court recognized, and gave

effect to, this legislative intent in a fashion directly rele-

vant here. The Court held that a state law requiring that

certain minimum mental health-care benefits be provided

in insurance policies “relate[d] to” insured ERISA plans

under § 514(a) but was “saved” under the insurance sav-

ing clause. The Court ruled, however, that the law could

not be “saved” as to self-insured plans because of the

deemer clause. In language closely in point here, the

Court took note of Congress’ intent to afford a special

measure of protection to self-insured plans, an intent con-

firmed by post-ERISA legislative consideration:

*The deemer clause provides, in effect, that state laws that

“relate to” self-insured plans under §514(a) of ERISA cannot

be applied to those plans even if the laws are not preempted, as

applied to insured plans, because they are laws “which regulate

insurance” for purposes of the saving clause. § 514(b)(2)(B) of

ERISA, 29 U.S.C. § 1144(b) (2) (B).

“We are aware that our decision results in a dis-

tinction between insured and uninsured plans, leav-

ing the former open to indirect regulation while the

latter are not. By so doing we merely give life to

a distinction created by Congress in the ‘deemer

clause,’ a distinction Congress is aware of and one

it has chosen not to alter.”

253A 1977 Activity Report of the House Committee on

Education and Labor recognized the difference in treatment

between insured and non-insured plans: “To the extent that

[certain programs selling insurance policies] fail to meet the

definition of an “employee benefit plan” [subject to the deemer

clause], state regulation of them is not preempted by section

514, even though such state action is barred with respect to

the plans which purchase these “products”.’ H.R. Rep. No.

94-1785, p. 48. A bill to amend the saving clause to specify

that mandated-benefit laws are preempted by ERISA was

reported to the Senate in 1981 but was not acted upon.”

(Citation omitted.) Jd. at 747 & n.25.

Congress’ differentiation in ERISA between insured and

self-insured plans and its determination to afford self-

insured plans greater insulation from state regulation, all

as recognized by this Court in Metropolitan Life, strongly

support the view that the 13% surcharge as applied to

self-insured plans “relates to” them for purposes of

§ 514(a) even if a contrary conclusion were reached

regarding application of the surcharge to insured plans.

We should note here, as we did in the court of appeals

without contradiction by petitioners, that, under New York

law, self-insured plans apparently cannot avoid the 13%

surcharge by hiring the Blues to administer their self-

insured programs. The surcharge is imposed on all pay-

ments for services provided to patients “enrolled in a

self-insured fund which provides for reimbursement di-

rectly to general hospitals.” N.Y. Pub. Health Law

§ 2807-c(1)(b) (McKinney Supp. 1993). The exclusion

from the surcharge that favors the Blues is for payments

for services “provided in accordance with policies writ-

ten” by the Blues. Jd. at § 2807-c(1)(a) (emphasis

added). Self-insured plans do not buy “policies written”

by the Blues, or by any other insurer, and so make no

payments to hospitals in accordance with any such “pol-

icy.” Thus, even if administered by the Blues, self-insured

plans are apparently required to pay the surcharge. They

must become insured by the Blues to avoid it.

Even if the surcharge were not applicable to self-insured

plans administered by the Blues, its impact upon national,

collectively bargained, self-insured plans—like the Rail-

road Plans—would still be intolerable. To be sure, the

plans would not have to buy insurance from the Blues to

avoid the penalty, but their choice would remain unac-

ceptable: pay the surcharge or appoint a different ad-

ministrator in New York than elsewhere, even though

uniform administration on a nationwide or multistate re-

gional basis has long been a hallmark of interstate plan

operations, as is the case with the Railroad Plans, and a

practice collectively bargained, as is also the case with

the Railroad Plans. Indeed, such uniform administration

is likely to be the modus operandi for most nationwide

health care benefit plans collectively bargained by man-

agement and labor, since it diminishes disparate treatment

of plan participants and beneficiaries depending upon

where they happen to live.

A plan with otherwise uniform administration that is

forced upon pain of the surcharge to use a separate ad-

ministrator—the Blues—in New York will be saddled

with administrative burdens and inefficiencies that it does

not now have. Among other things, such a plan would

need to negotiate separate administrative service contracts,

meld claims and other reports of separate administrators

with separate information systems into a unified format,

and make sure that the administrators interpret plan pro-

visions—such as what services are medically necessary and

what charges are reasonable and customary—in the same

fashion.

And what if other states, following New York’s lead,

elected to penalize self-insured, collectively bargained,

nationwide, ERISA-covered plans for failure to become

insured with companies or to appoint administrators that

for policy reasons these other states favored, companies

and administrators that would not be the New York Blues

and in all probability would be different from state to

state? Surely, ERISA does not contemplate that a plan be

faced with appreciable penalties in any number of states

if it refuses to balkanize its structure and administration,

since such a choice would threaten the uniformity that

Congress in ERISA sought to promote. See 120 Cong.

Rec. 29942 (1974) (remarks of Sen. Javits); 120 Cong.

Rec. 29933 (1974) (remarks of Sen. Williams). The

preemption clause was expressly designed to protect

ERISA plans from efforts by states to require “the tailor-

ing of plans and employer conduct to the peculiarities of

the law of each jurisdiction.” Ingersoll-Rand Co. V.

McClendon, 498 U.S. 133, 142 (1990). See also Shaw,

463 U.S. at 105 (“By establishing benefit plan regulation

‘as exclusively a federal concern,” (citation omitted), Con-

gress minimized the need for interstate employers to ad-

minister their plans differently in each State in which they

have employees.” ).

That plans like the Railroad Plans are the product of

nationwide collective bargaining adds special force to

their concern over the threat posed by the 13% surcharge

to a comprehensive, uniform scheme of benefit administra-

tion. This Court has recognized that where ERISA-

covered plans “emerge from collective bargaining, the

additional federal interest in precluding state interference

with labor-management negotiations calls for preemption

of state efforts to regulate” their terms. Alessi v. Ray-

bestos-Manhattan, Inc., 451 U.S. 504, 525 (1981). See

also PPG Indus. Pension Plan A (CIO) v. Crews, 902

F.2d 1148, 1151 (4th Cir. 1990) (same). “As a subject

of collective bargaining, [plan] terms themselves become

expressions of federal law, requiring preemption of intru-

sive state law.” Alessi, 451 U.S. at 526. The New York

surcharge attaches to self-insured, collectively bargained,

‘ERISA-covered plans because the collective bargainers

chose not to negotiate the kind of arrangement that New

York favors, i.e., insurance with the Blues. Such a law

certainly interferes with and intrudes upon the federally

protected bargaining process.

Respondents have cited a number of decisions holding

preempted state laws affecting ERISA plans in ways anal-

ogous to the impact of the 13% surcharge. We draw the

Court’s attention in particular to National Elevator Indus-

try, Inc. v. Calhoon, 957 F.2d 1555 (10th Cir.), cert.

denied, 113 S. Ct. 406 (1992), a case remarkably similar

to the one at bar insofar as the applicability of ERISA’s

“relates to” clause is concerned. There, an industry asso-

ciation claimed that ERISA preempted a ruling by the

Oklahoma Commissioner of Labor requiring employers

to pay helpers on state projects at the higher wage level

applicable to mechanics, unless the helpers had enrolled

in a training program approved by the federal Bureau of

Apprenticeship Training (“BAT”). The employers, how-

ever, funded an ERISA-covered, national, helpers train-

ing plan that had apparently not been approved by BAT.

In a conclusion equally applicable in this case—-one need

only substitute “hospital rates” for “wages”—the court

wrote:

“We accept, as a general proposition, the state’s right

to regulate wages. But a wage law that provides an

option favoring certain ERISA plans and benefits

(BAT approved plans) over other ERISA plans

and benefits [the employers’ plan] is not a law of

‘general application’ and may be used to effect

change in the administration, structure and benefits

of an ERISA plan. If a state is permitted to use a

prevailing wage scheme to single out and favor cer-

tain ERISA “plans: over other ERISA plans, the

potential for abuse is great—a state could avoid

ERISA’s preemption provision and covertly disturb

or alter ERISA plans. We believe that [the Com-

missioner’s] ruling would discourage non-BAT ap-

proved ERISA training programs and encourage

changes to [the employers’ plan], a national em-

ployee benefit program. We hold that [the Commis-

sioner’s] ruling applying the state’s prevailing wage

law does ‘relate to’ an employee benefit plan because

the ruling’s effects on [the employers’ plan] are not

rey remote or peripheral.” 957 F.2d at

1561.

B. The “Saving” and “Deemer” Clauses.

A state law “which regulates insurance” is saved from

preemption by § 514(b)(2)(A) of ERISA. This insur-

ance “saving” clause is limited, however, by the so-called

“deemer” clause § 514(b)(2)(B). The deemer clause

forbids states from deeming an employee benefit plan “to

be an insurance company or other insurer .. . or to be

engaged in the business of insurance . . . for purposes of

any law of any State purporting to regulate insurance

companies [or] insurance contracts... .”

We agree with respondents, who have fully briefed the

question of the applicability of the saving clause to the

13% surcharge as applied to insured plans, that under

any “common sense” reading of the surcharge provision,

see Metropolitan Life, supra, the saving clause does not

come into play. The surcharge regulates hospital rates,

not insurance.

That the saving clause does not save the surcharge from

preemption as applied to self-insured plans is even clearer.

The deemer clause is the beginning and end of the inquiry.

It precludes application of the saving clause to a law

effect, and possibly the aim, of encouraging participation in a

specific type of ERISA plan (BAT approved apprentice plans)

while discouraging participation in a different type of ERISA

plan,” i.e., the employers’ plan. 957 F.2d at 1559.

preempted by § 514(a) because it “relates to” a self-

insured ERISA plan.

In FMC Corporation v. Holliday, 498 U.S. 52 (1990),

this Court concisely and clearly stated the governing prin-

ciples in terms that control in this case:

“(Sjelf-funded ERISA plans are exempt from state

regulation insofar as that regulation ‘relate[s] to’ the

plans. State laws directed toward the plans are pre-

empted because they relate to an employee benefit

plan but are not ‘saved’ because they do not reg-

ulate insurance. State laws that directly regulate

insurance are ‘saved’ but do not reach self-funded

employee benefit plans because the plans may not

be deemed to be insurance companies, other insurers,

or engaged in the business of insurance for purposes

of such state laws.” 498 U.S. at 61 (emphasis

added ).

Courts of appeal have applied these principles consist-

ently to preempt, as applied to self-insured plans, any

state laws that otherwise regulate insurance. E.g., Tri-

State Machine, Inc. v. Nationwide Life Ins. Co., 33 F.3d

309, 315 (4th Cir. 1994); Electro-Mechanical Corp. v.

Ogan, 9 F.3d 445, 450 (6th Cir. 1993); Travitz v. North-

east Dep't ILGWU Health and Welfare Fund, 13 F.3d

704, 710 (3d Cir. 1994); Hampton Indus., Inc. v. Spar-

row, 981 F.2d 726, 729-30 (4th Cir. 1992). The result

should be no different here.”

11 This Court observed in Metropolitan Life that Massachusetts

had “never tried to enforce” in connection with self-insured ERISA

plans a state law that otherwise regulated insurance, thus “effec-

tively conceding” that ERISA would preempt such application. 471

U.S. at 735 n.14. Moreover, as we noted earlier, supra at 12-13, in

the court of appeals the Secretary of Labor expressly acknowledged

that the deemer clause protected self-insured plans from applica-

tion of the insurance saving clause in this case.

CONCLUSION

In closing, we briefly take note of the efforts of peti-

tioners to depict the court of appeals’ decision as inimical

to sound public policy. They contend that its decision

would radically undermine the authority of the states to

determine how best to distribute the costs of health care.

But certainly preemption affecting only state laws, like

New York’s 13% surcharge, that are imposed directly on

self-insured plans by virtue of their core function—the

provision of health care benefits—would have no such

effect. Nor would the further extension of preemption to

laws designed to force insured ERISA plans to turn to

State-favored insurance carriers. Moreover, the wisdom

of requiring those who need and can afford health care

to bear a large share of those costs, as does New York,

rather than subsidizing hospitals with funds from taxes

that are not levied on health care general revenues, is at

least questionable. In any case, this general subject has

been at the heart of Congressional debate over the last

year, a debate that most expect will soon be renewed.

Congress, in the preemption provision of ERISA, has

marked that debate as the appropriate forum for petition-

ers to make their case.

The judgment of the Second Circuit should be affirmed.

Respectfully submitted,

Of Counsel: BENJAMIN W. BOLEY

WILLIAM H. Dempsey Counsel of Record

1800 Massachusetts Ave., N.W. net nell

naa s00ss 1800 Massachusetts Ave., N.W.

Washington, D.C. 20086

(202) 828-2000

DAVDD P. Lez

1901 L Street, N.W.

Washington, D.C. 20036

(202) 862-7218

Attorneys for National Carriers’

December 12, 1994 Conference Committee

APPENDIX

CITATIONS TO THE RECORD

IN THE LOWER COURTS

A. District Court Proceedings.

1. The complaints. In separate complaints subse-

quently consolidated, Travelers Insurance Company

(“Travelers”) and the Health Insurance Association of

America and other trade associations and insurance com-

panies (collectively the “HIAA Plaintiffs”) brought suit

both as sellers (or associations of sellers) of commercial

insurance to ERISA plans and as claims fiduciaries (or

associations of claims fiduciaries) of self-insured ERISA

plans. Travelers’ Complaint 948, 10-13, 21 at JA 68

through JA 86; HIAA Plaintiffs’ Amended Complaint

qq 11, 13-17, 19 at JA 87 through JA 104. The HIAA

Plaintiffs’ complaint alleged that the “vast majority of per-

sons covered by commercial health insurance and self-

insured plans, . . . receive that coverage pursuant to

employee benefit plans subject to ERISA,” HIAA Plain-

tiffs’ Complaint 44 5, 33 at JA 88-89, JA 97, and that

the 13% surcharge would have the effect of forcing both

insured and self-insured plans to increase the cost of their

benefit plans, to reduce the scope of the benefits provided

under their plans, or. “to choose other means for [plan]

funding,” id. 445, 6 at JA 88-89; 44 33-37 (insured

plans); 38-41 at JA 97-99 (self-insured plans). See also

Travelers’ Complaint 44 58-60 at JA 81-82. Both com-

plaints prayed for a declaration that ERISA preempts the

13% surcharge as applied to self-insured and insured

plans and an injunction barring defendants from enforcing

that surcharge to self-insured and insured plans. Travelers’

Complaint 44 62-63 at JA 82 & Prayer 4 (c) at JA 85;

HIAA Plaintiffs’ Amended Complaint 4 53 at JA 101 &

Prayer 4 (ii), (iv) at JA 103-04.

2. The summary judgment motions. Both Travelers

and the HIAA Plaintiffs moved for summary judgment on

various counts of their complaints, including in each case

the count in which they claimed that ERISA preempts the

13% surcharge as applied to both insured and self-insured

ERISA plans. Travelers’ Notice of Motion for Summary

Judgment at 2 (Ex. 1 hereto at 9a); Travelers’ Complaint

Count IV (13% surcharge) at JA 81-82; HIAA Plain-

tiffs’ Notice of Motion at 2 (Ex. 2 hereto at 1la); HIAA

Plaintiffs’ Amended Complaint Count Two (13% sur-

charge) at JA 101. Moreover, in support of their motions,

plaintiffs filed affidavits replete with statements of fact

about self-insured plans, plaintiffs’ involvement with them

as claims fiduciaries, and the impact upon them of the

13% surcharge. Gutterman Affidavit 94 1-5, 7-9, 15-19,

25 at JA 115-118, JA 120-21, JA 122; Musco Affidavit

q¢ 4, 6, 13-14 at JA 123-25; Donnelly Affidavit 44 4, 6 at

JA 127-28; D’Amico Affidavit 4 4 at JA 130; Welch Affi-

davit ¢@ 3-9, 11, 13 at JA 131-34; Shapland Affidavit

“4 8, 9 at JA 140; Sujecki Affidavit 94 1,5, 6 at JA 298,

JA 300.

That the summary judgment motions sought resolution

of the issue of ERISA preemption of the 13% surcharge

as applied to self-insured plans is also indicated in the

affidavits submitted by defendants. Anderman Affidavit

qq 28, 29 at JA 156-57; Klein Affidavit ¢ 43 at JA 189.

3. The district court's decision. The district court by

order of February 4, 1993, granted plaintiffs’ motions for

summary judgment in all respects pertaining to the 13%

surcharge. In addition, the court enjoined defendants from

enforcing that surcharge (and the other surcharges that

plaintiffs" had challenged) “against any commercial in-

surers or HMOs in connection with their coverage of any

ERISA plans.” Pet. App. at 89-90.

In discussing the inapplicability of ERISA’s insurance

saving clause to self-insured plans, the district court

held, citing FMC Corporation v. Holliday, 498 U.S. 52

(1990), that “those portions of the 13% Surcharge re-

ferring to self-insured plans could not possibly fall within

the scope of the savings clause because. . . self-insured

plans do not engage in the ‘business of insurance’ as a

matter of law.” Pet. App. at 79. The court also ruled

that, as a matter of law, HMOs are not engaged in the

business of insurance. /d. at 7° & n.14.

In addition to granting summary judgment to plaintiffs

with respect to the surcharges, the district court’s order

also enjoined enforcement of the surcharges against “any

commercial insurers or HMOs in connection with their

coverage of any ERISA plans.” Pet. App. at 89-90.

4. The district court's stay and related order. Pilain-

tiffs did not appeal the court’s grant of summary judgment

to them. Defendants, however, did appeal. They also

moved to stay the district court’s February 4, 1993, order

pending appeal.

In opposition to defendants’ stay motion—which the

district court granted on February 9, 1993, but only with

respect to the 13% surcharge, Pet. App. at 98—Travelers

submitted the affidavit of Timothy F. Lyons. The Lyons

Affidavit stated that the 13% surcharge applies to both

insured and self-insured plans, Lyons Affidavit 48 at JA

324; that Travelers “is not even in a position to continue

paying the surcharge with regard to its self-insured ERISA

customers,” id. § 12 at JA 325; that because ERISA obli-

1To be sure, the court stated elsewhere in its opinion that the

“Surcharges do not directly increase a plan’s costs or effect the

level of benefits to be offered. However, there can be little doubt

that the Surcharges at issue will have a significant effect on the

commercial insurers and HMOs which do or could provide coverage

for ERISA plans and thus lead, at least indirectly, to an increase

in plan costs” because plaintiffs will pass the surcharge on to their

plan customers. Pet. App. at 71 (footnotes omitted). This analysis

ignores self-insured plans since they themselves pay the surcharge.

There is no passing through from insurer to plan in the form of

higher premiums. Rather, the surcharge directly increases the

plan’s costs.

gates plan fiduciaries to use plan funds for the exclusive

benefit of plan participants and beneficiaries, fiduciaries

of self-insured plans could be expected to “refuse to con-

tinue to pay the 13% surcharge,” id.; and that two non-

party, self-insured plans for which Travelers provides ad-

ministrative claims services had in late 1992 instructed

Travelers “not to use any plan assets to pay the 13%

surcharge” because the self-insured plans had concluded

that ERISA preempted the 13% surcharge as applied to

them, id. The self-insured plans to which the Lyons

Affidavit referred were the Railroad Plans.

Shortly after the district court had stayed its order as to

the 13% surcharge, Travelers advised the court by letter

that the Railroad Plans had informed Travelers that the

Plans’ prior instruction not to pay the surcharge remained

in effect. (Ex. 3 hereto at 14a.) The intervening defend-

ants, in letters to the court, objected to nonpayment of the

13% surcharge by the Railroad Plans. (Exs. 4, 5 hereto

at 17a, 20a.)* The NCCC also wrote to the district court

explaining the NCCC’s position as fiduciaries of the Rail-

read Plans. (Ex. 7 hereto at 25a.)

The district court resolved the dispute in an April 27,

1993, order that contained the following recitations:

“WHEREAS .. . this Court held that federal law

preempts certain provisions of the New York Public

Health Law, including the 13% differential . . . ; and

WHEREAS .. . this Court granted defendants’

motion for a stay pending appeal of such . . . Order

insofar as it concerns the 13% differential; and

WHEREAS .. . two self-insured ERISA plans for

which Travelers provides administrative services—

[the Railroad Plans]—had instructed Travelers not

to pay the 13% differential... .”

2 Travelers responded in writing to intervening defendants’ let-

ters to the court. (Ex. 6 hereto at 23a.)

Furthermore, the order itself provided:

“(T]he named parties to this action, including Trav-

elers, in its capacity as claims fiduciary of the Rail-

road Plans, are directed to pay the 13% differential

with respect to all hospital claims, where applicable

{under New York’s Public Health Law], whether

incurred before or after the date hereof.” (Ex. 8

hereto at 30a-3 1a.)

The court noted that its order applied to the trade

association plaintiffs “only to the extent they serve di-

rectly as fiduciaries of ERISA plans” and that the order

“does not impose on any person any obligation to pay the

13% differential except to the extent such obligation

otherwise exists under the relevant contracts and/or New

York law.” Id.

B. Court of Appeals Proceedings.

1. The briefs. The briefs submitted on appeal by the

appellants argued that ERISA did not preempt the 13%

surcharge as applied to self-insured plans. The brief of

intervenors-defendants-appellants The New York State

Conference of Blue Cross and Blue Shield Plans and

Empire Blue Cross and Blue Shield (hereinafter “the

Blues”) stated: “[{I]f New York is prohibited from

charging commercial insurers and self-insured plans the

DRG rate including the differentials, it is highly spec-

ulative what rate these payors will be required to pay.”

Brief at 21 (hereinafter “Blues App. Br.”). In addition,

the Blues acknowledged that the surcharges “discriminate

against commercial insurers and self-funded plans by in-

creasing their costs,” id. at 29, and argued in response

that “[cJountless state laws will influence a plan’s deci-

sion regarding whether to self-insure or purchase insur-

ance from a commercial insuror or from a Blue Plan,”

id. at 30. See also id. (“[a]ny law or regulation which

lowers the Plans’ costs of doing business .. . would...

impact commercially insured and self-insured ERISA

plans”); Blues App. Reply Br. at 1, 3, 5 n.6 (further at-

tempts to refute discriminatory basis of 13% surcharge).*

The Blues responded directly to the contention in the

amicus brief of the NCCC that the Railroad Plans would

have to become insured through the Blues in New York

to avoid payment of the 13% surcharge, Blues App.

Reply Br. at 10 n.11, and that the surcharge hindered

the uniform operation of self-insured plans nationwide,

id. at 9-10. Finally, the Blues challenged the district

court’s ruling that the saving clause does not apply to

self-insured plans and further argued that the deemer

clause is similarly inapplicable. Blues App. Br. at 37-40.*

-_—_—

3 The briefs of the State of New York (“State”) and the Hospital

Association of New York State (“HANYS”) generally treated all

payors of the 13% surcharge collectively, and made few argu-

mentative distinctions among them. Hence, most of their refer-

ences to self-insured plans were merely descriptive of the statute.

Brief for Defendants-Appellants State at 5, 7, 20, 28 n.32, 36

(hereinafter “State App. Br.”); Brief on Appeal for Intervenor-

Defendant-Appellant HANYS at 21, 25-26, 35 (hereinafter

“HANYS App. Br.”); HANYS App. Reply Br. at 2, 3, 9, 17. Addi-

tional references to self-insured plans were made in connection

with appellants’ contentions that the statute did not discriminate

among payors based on their ERISA status; that uniform costs

between the Blues and commercial insurers/self-insured plans could

never be achieved; or that no evidence existed that the surcharge

increased the cost of self-insured plans or otherwise provided an

incentive for them to switch to the Blues. State App. Br. at 7, 20,

21; State App. Reply Br. at 5, 8-9, 8 n.11, 10 n.15; HANYS App.

Reply Br. at 3, 5-6, 8-9, 15-16; Petition for Rehearing with Sugges-

tion En Banc for Intervenor-Defendant-Appellant-Cross-Appellee

HANYS at 2, 5, 8.

4 Plaintiffs/appellees understood that appellants were challenging

in the court of appeals the district court’s ruling that the 13%

surcharge was preempted by ERISA as applied to all applicable

entities, including self-insured plans. App. Br. for the HIAA Plain-

tiffs-Appellees and Plaintiff-Appellee-Cross-Appellant Travelers at

2, 3, 7, 8, 11, 12, 18, 14, 18, 21, 22, 25, 29, 35, 36, 39, 45, 46, 47,

49-50, 62-65.

2. The opposition to the filing of an amicus brief by

the NCCC. Counsel for intervenor-defendant-appellant

HANYS submitted an affidavit (Ex. 9 hereto at 32a)

opposing the NCCC’s motion for leave to file an amicus

brief with the court of appeals. Paragraphs 3 and 4 of

the affidavit stated:

“First, the Court already has been favored with briefs

from five sets of parties and from four amicus curiae,

covering all of the issues. In particular, the interests

of all self-insured plans, and the Railroad Plans spe-

cifically, are already represented. Plaintiff The Trav-

elers Insurance Company (“Travelers”) acts as fi-

duciary or otherwise provides administrative services

to self-insured plans, including the Railroad Plans.

Travelers has specifically lodged its complaint in such

capacity. See JA-57-63. The additional brief which

the Railroad Plans seek to submit is merely cumula-

tive and does not provide the Court with any new

positions or perspectives necessary for a full presenta-

tion of the issues.

More importantly, Intervenor-Appellant Hospital

Association of New York State did not consent to the

Railroad Plans filing an amicus brief because of the

Plans’ violation of the Stay Order of the District

Court. A copy of our letter on behalf of the Hospital

Association is annexed hereto. As the Railroad

Plans’ April 14, 1993 memorandum of law in support

of their motion acknowledges (at p. 3), the Railroad

Plans have chosen to defy New York law and have

refused to continue paying the 13% differential on

hospital charges which is at issue on this appeal.

While the court below found that differential pre-

empted by federal law, the court stayed the portion

of its Order directed to such 13% differential, pend-

ing the outcome of this appeal. See JA-1863-69.

Accordingly, the 13% differential remains in effect,

and the Railroad Plans’ refusal to pay it amounts to

willful defiance of the Stay Order and/or state law.”

Ex. 9 9q 3-4 at 33a-34a.

3. The court's decision. The court of appeals’ opinion

made few differentiations as to any one surcharge and

almost none as to payor status. For example, the court

stated that the “13% and 11% surcharges are designed

to increase hospital costs for patients covered by health

plans other than the Blues, and thus make these com-

peting plans less attractive than the Blues... . Thus,

the surcharges purposely interfere with the choices that

ERISA plans make for health care coverage.” JA 52.

See also JA 53 (“The surcharges substantially increase

the cost to ERISA plans of providing beneficiaries with

a given level of health care benefits.” “[T]he surcharges

here force ERISA plans to increase either plan costs or

reduce plan benefits.” ).

The court of appeals also addressed in a general

fashion the application of the saving clause to the sur-

charges, concluding that the 13% and 11% surcharges

do not “regulate insurance.” JA 56. Although “the sur-

charge laws provide for different payment rates based on

whether a patient is uninsured, covered by an HMO, a

commercial insurer or a self-insured health plan,” the

surcharge laws did not address matters typically within

the purview of state insurance regulations. JA 57. Again,

the court’s analysis of the saving clause did not rely on

differences in payor status.

EXHIBIT 1

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

92 Civ. 3999 (LIF)

(CM 0773)

THE TRAVELERS INSURANCE COMPANY,

-against- Plaintiff,

Mario M. Cuomo, in his Official Capacity as Governor

of the State of New York, MARK CHASSIN, M.D., in

his Official Capacity as Commissioner of Health of the

State of New York, and SALVATORE R. CURIALE, in

his Official Capacity as Superintendent of Insurance of

the State of New York, Defendants,

NEW YORK STATE CONFERENCE OF BLUE CROSS AND

BLUE SHIELD PLANS, EMPIRE BLUE CROSS AND BLUE

SHIELD and HOSPITAL ASSOCIATION OF NEW YorK

T ,

STATE Intervenors.

NOTICE OF MOTION

FOR SUMMARY JUDGMENT

PLEASE TAKE NOTICE that upon the accompany-

ing affidavit of Darrell M. Joseph, sworn to August 20,

1992, and the exhibit thereto, the accompanying affidavit

of James M. Gutterman, sworn to August 17, 1992, and

the exhibits thereto, the annexed Amended Statement

pursuant to Rule 3(g) of the Civil Rules of this Court

and the accompanying memorandum of law, plaintiff The

Travelers Insurance Company, by its attorneys, Windels,

Marx, Davies & Ives, will move this Court, before the

Honorable Louis J. Freeh, United States District Judge,

10a

in Courtroom 312, United States Courthouse, 40 Centre

Street, Foley Square, New York, New York 10007, on

the 2lst day of August, 1992, at 9:00 o’clock in the fore-

noon of that day, or as soon thereafter as counsel may be

heard, for an Order pursuant to Rule 56(c) of the Fed-

eral Rules of Civil Procedure granting summary judgment

in its favor and against defendants on the ground that

there exists no genuine issue as to any material fact with

respect to Counts I, IV and VI of plaintiff's Complaint,

and that plaintiff is entitled to judgment as a matter of

law, and granting plaintiff such other and further relief

as the Court may deem just and proper.

PLEASE TAKE FURTHER NOTICE that, pursuant

to the schedule previously agreed to by the parties and

approved by the Court, as reflected in the Court’s endorse-

ment of plaintiff's counsel’s letter to the Court of August

11, 1992, filed on August 12, 1992, the parties shall

adhere to the following briefing schedule: (1) defend-

ants’ (including intervenors’) papers in opposition to

plaintiff's motion and in support of any cross-motions for

summary judgment are due to be served on or before

October 2, 1992; (2) plaintiff's reply papers are due to

be served on or before October 16, 1992; and (3) any

additional papers from defendants (including intervenors )

are due to be served on or before October 22, 1992.

Dated: New York, New York

August 21, 1992

WINDELS, MARX, Davies & IVES

By: /s/ Craig P. Murphy

Craic P. Murpny (CM 0773)

Attorneys for Plaintiff

The Travelers Insurance

Company

156 West 56th Street

New York, New York 10019

(212) 237-1000

lla

EXHIBIT 2

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

92 Civ. 5419 (LIF)

THE HEALTH INSURANCE ASSOCIATION OF AMERICA, THE

AMERICAN COUNCIL OF LIFE INSURANCE, THE LIFE

INSURANCE COUNCIL OF NeW York, INC., AETNA

Lire INSURANCE COMPANY, AETNA HEALTH PLANS OF

New York, INC., MUTUAL OF OMAHA INSURANCE

COMPANY, THE UNION LaBor Lire INSURANCE Com-

PANY, and PROFESSIONAL INSURANCE AGENTS OF NEW

York, INC. TRUST, Plaintiffs,

-against-

Mark Cuassin, M.D., in his Official Capacity as Com-

missioner of Health of the State of New York, MARY

Jo Bang, in her Official Capacity as Commissioner of

Social Services of the State of New York, SALVATORE

R. CurIALE, in his Official Capacity as Superintendent

of Insurance of the State of New York, and RoBERT

ABRAMS, in his Official Capacity as Attorney General

of the State of New York, Defendants.

NOTICE OF MOTION

PLEASE TAKE NOTICE that, upon the pleadings;

the annexed statement pursuant to Rule 3(g) of the Civil

Rules for the Southern District of New York; the accom-

panying Affidavits of Thomas D. Musco, and the annexed

exhibit, executed on August 18, 1992, Vincent W. Don-

nelly, executed on August 18, 1992, Raymond A.

D’Amico, executed on August 13, 1992, Mark R. Welch,

executed on August 18, 1992, John P. Burke, executed

12a

on August 19, 1992, Robert B. Shapland, executed on

August 14, 1992, James R. Hibbitts, executed on August

13, 1992, Thomas L. Reddy, Sr., executed on August 17,

1992, and Angelo V. D’Ascoli, executed on August 19,

1992; the undersigned will move this Court, the Honor-

able Louis J. Freeh presiding, in Room 540, United

States Courthouse, Foley Square, New York, New York,

on October 26, 1992, at 9:00 a.m. or as soon thereafter

as counsel may be heard, for an order:

(a) pursuant to Rule 56(a) of the Federal Rules

of Civil Procedure, granting summary judgment in

favor of all plaintiffs and against all defendants on

counts one through three of the Amended Complaint

and enjoining enforcement of, and declaring invalid,

Section 2807-c(1)(b) of the New York Public

Health Law and Sections 346 and 348 of the New

York Omnibus Revenue Act of 1992, insofar as they

impose Surcharges increasing hospital charges for

patients covered by employee welfare plans subject

to ERISA that use commercial insurance, self-insur-

ance, or health maintenance organizations to provide

benefits to participants or beneficiaries; and

(b) granting plaintiffs such other and further re-

lief as the Court may deem just and proper.

Further grounds for this motion are set forth in the

accompanying memorandum of law.

Dated: New York, New York

August 21, 1992

PAUL, WEISS, RIFKIND, WHARTON

& GARRISON

By: /s/ Sidney S. Rosdeitcher

SIDNEY S. ROSDEITCHER (SR-3127)

1285 Avenue of the Americas

New York, New York 10019-6064

(212) 373-3000

I3a

Attorneys for Plaintiffs The Health

Insurance Association of Amer-

ica, The American Council of

Life Insurance, The Life Insur-

ance Council of New York, Inc.,

Mutual of Omaha Insurance

Company, The Union Labor Life

Insurance Company, and Pro-

fessional Insurance Agents of

New York, Inc. Trust

HOGAN & HARTSON

Clifford D. Stromberg

CLIFFORD D. STROMBERG

(CS-3510)

Columbia Square

555 13th Street, N.W.

Washington, D.C. 20004-1109

(202) 637-5600

Attorneys for Plaintiffs Aetna Life

Insurance Company and Aetna

Health Plans of New York, Inc.

14a

EXHIBIT 3

WINDELS, MARX, DAVIES & IVES

156 West 56th Street

New York, NY 10019

(212) 237-1000

March 24, 1993

Craig P. Murphy

(212) 237-1234

BY HAND

Hon. Louis J. Freeh

United States District Judge

United States District Court

Southern District of New York

United States Courthouse

40 Centre Street, Room 540

New York, New York 10007-9998

Re: The Travelers Ins. Co. v. Cuomo, et al.,

No. 92 Civ. 3999 (LJF)

Dear Judge Freeh:

I represent plaintiff The Travelers Insurance Company

in connection with the above matter. I am writing to

inform the Court of a recent development concerning the

partial stay pending appeal which this Court granted on

February 9, 1993.

On February 3, 1993, this Court granted plaintiff's

motion for summary judgment and enjoined defendants

from enforcing the three hospital surcharges at issue in

this litigation on the grounds that they are preempted by

ERISA. On February 9, 1993, this Court stayed its

February 3 order to the extent it enjoined enforcement

15a

of the 13% surcharge, but denied a stay of the order

regarding the 9% and 11% surcharges.

As Your Honor knows, The Travelers brought this

suit in its capacity as fiduciary of two ERISA plans, the

B.H. Aircraft Plan and the Sheridan Catheter Plan, under

Section 3(21)(A) of ERISA, 29 U.S.C. § 1002(21)(A).

These plans are described, respectively, in paragraphs 18

and 21 of the complaint. The Travelers also provides

commercial health insurance and/or administrative serv-

ices in connection with other ERISA plans.

In the affidavit of Timothy F. Lyons, Esq., sworn to

on February 8, 1993, which was submitted in opposition

to the defendants’ and certain intervenors’ motions for a

Stay pending appeal, The Travelers explained that in late

1992, two non-party self-insured ERISA plans had in-

structed The Travelers to stop using plan assets to pay the

13% surcharge. The plans at issue are the Railroad

Employees National Early Retirement Major Medical

Benefit Plan and the Railroad Employees National Health

and Welfare Plan (referred to collectively as “the Rail-

road Plans”).

Following this Court’s February 9, 1993 stay order,

The Travelers again communicated with the Railroad

Plans regarding the 13% surcharge. Within the last few

days, the Committees charged with governance of the

Plans have advised The Travelers that in light of the

fact that the Railroad Plans are not parties to the case

in which this Court’s orders of February 3 and 9, 1993

were issued, and in consideration of the prohibition laid

down by ERISA that plan assets not be disbursed to

provide benefits for persons other than plan participants

and beneficiaries, the Committees could not, consistently

with their fiduciary duties under applicable law, reverse

their earlier instructions to The Travelers and authorize

the use of plan assets to pay the 13% surcharge.

Because the Railroad Plans are not parties to this liti-

gation, it is our understanding that they are not subject

16a

to this Court’s February 9, 1993 stay order. Accordingly,

The Travelers has concluded that it must follow the in-

structions of the Railroad Plans. However, because The

Travelers, in its capacity as fiduciary of the B.H. Air-

craft Plan and the Sheridan Catheter Plan, is a party to

this litigation and subject to the stay order, I wanted to

bring this matter to Your Honor’s attention. I also wish

to note that during the pendency of the appeal from Your

Honor’s February 3 order, The Travelers will continue

paying the 13% surcharge on behalf of the Sheridan

Catheter Plan, the B.H. Aircraft Plan and the other

ERISA plans in connection with which The Travelers

provides commercial health insurance. The Travelers has

also recommended that all self-insured ERISA plans

which receive administrative services from The Travelers

continue paying the 13% surcharge.

Very truly yours,

/s/ Craig P. Murphy

CRAIG P. MURPHY

CPM:dr

cc: All Counsel in 92 Civ. 3999 (LJF), and 92 Civ. 5419

(LJF) (by facsimile)

bec: Benjamin W. Boley, Esq. (by facsimile)

James M. Michener, Esq. (by facsimile )

Timothy F. Lyons, Esq. (by facsimile )

Darrell M. Joseph, Esq.

All HIAA Action Plaintiffs (by facsimile) (except

the Aetna entities )

17a

EXHIBIT 4

BREED, ABBOTT & MORGAN

Citicorp Center

153 East 53rd Street

New York, N* 10022-4858

(212) 888-0800

March 29, 1993

BY HAND

Hon. Louis J. Freeh

United States District Judge

United States Courthouse

Foley Square

New York, New York 10007

Re: Travelers v. Cuomo, 92 Civ. 3999 (LIF)

Dear Judge Freeh:

In his March 24, 1993 letter, Travelers’ attorney, Craig

Murphy, Esq., informs the Court that two self-insured

ERISA plans for which Travelers acts as fiduciary have

instructed Travelers to refuse to pay the 13% hospital

differential, and that Travelers has chosen to abide by

such position. This letter responds on behalf of inter-

venors Empire Blue Cross and Blue Shield and The New

York State Conference of Blue Cross and Blue Shield

Plans and, in accord with Your Honor’s pre-motion pro-

cedures, prays leave to move for an Order enforcing your

February 9, 1993 Order (the “Stay Order”) and for

whatever other relief this Court may deem appropriate.

The basic premise of Mr. Murphy’s letter is inconsist-

ent with Travelers’ position in this action and is incorrect

as a matter of law and fact. As purported justification

18a

for the failure of these plans to pay the 13% differential,

Mr. Murphy asserts: “Because the Railroad Plans are not

parties to this litigation, it is our understanding that they

are not subject to this Court’s February 9, 1993 stay

order.” Thus, Mr. Murphy presses for the bizarre result

that as supposed non-parties, the Railroad Plans obtain

rights pursuant to the Court’s February 3, 1993 decision

greater than the parties themselves.

The effect of the Stay Order is to leave the 13%

differential in place and applicable to all entities subject

to it. Under the stay, the 13% remains the law, and the

Railroad Plans, like all other similarly situated persons,

continue to be obligated to pay it. Indeed, Mr. Murphy

appears not to dispute but rather to acknowledge that

State law requires payment of the 13% differential, stat-

ing: “The Travelers has also recommended that all self-

insured ERISA plans which receive administrative services

from The Travelers continue paying the 13% surcharge.”

The Stay Order applies to Travelers with respect to all

of the ERISA plans, whether fully insured or self-funded,

for which Travelers acts as a fiduciary. Indeed, in its

complaint, Travelers appears to sue not only on its own

behalf but also on behalf of those ERISA plans for which

it acts as a fiduciary. In fact, in Travelers’ capacity as

fiduciary, Travelers advised this Court, through 4 12-13

of the Lyons Affidavit submitted in opposition to Defend-

ants’ motion for a stay, of the very same information set

forth in Mr. Murphy’s current letter, i.e., that self-insured

plans would refuse to pay the differential and would direct

Travelers not to pay it. This Court ruled against Travel-

ers on the motion, finding specifically that “. . . ERISA

plans . . . will only suffer monetary damages if the court’s

Order is stayed during appeal.” Stay Order at 5. Now,

once again, Travelers attempts to be relieved of its re-

sponsibility as fiduciary to make the payments. This

action cannot be countenanced by the Court.

In any event, these plans are bound by Your Honor’s

Orders and subject to “contempt” as persons with “actual

19a

notice” of the decree[s] of February 3 and 9, 1993.

Vuitton v. Carousel Handbags, 592 F.2d 126, 129-30

(2d Cir. 1979). Particularly so where, as here, both such

plans are plainly acting in concert with the plaintiff in

this litigation, Travelers. See Fed. R. Civ. P. 65(d).

By refusing to pay the 13% differential, Travelers, as

the fiduciary for these two Railroad Plans, has violated

the law and is subject to whatever penalties and remedies

may be available to the State and any other relevant

person. Moreover, by altering the status quo they would

appear exposed to whatever sanctions or other corrective

actions this Court may deem in order, regardless of what

decision ultimately may emanate from the Court of Ap-

peals. Cf. United States v. United Mine Workers, 330

U.S. 258 (1947).* Such relief appears called for because

the sole grounds asserted for failure to comply is an

obvious misreading, indeed flouting, of Your Honor’s Stay

Order. It is of this Court’s Stay Order that we would

seek enforcement.

Respectfully,

/s/ Robert A. Bicks

RoBERT A. BIcKs

BARTLEY J. COSTELLO

cc: All counsel

1 The law is clear that under Fed. R. Civ. P. 62(c), the district

court has jurisdiction to issue injunctions or other orders which

preserve the status quo pending appeal. See International Ass’n

v. Eastern Airlines, Inc., 847 F.2d 1014, 1018 (2d Cir. 1988) (not-

ing that Fed. R. Civ. P. 62(c) permits the district court to issue

orders which preserve the status quo pending appeal). Moreover,

as a leading commentator has stated: “[I]t has been held that

the district court, which has granted an injunction pending appeal,

may consider whether defendant is in contempt for violation of

that order, even while the appeal is stil! pending.” C. Wright & A.

Miller, Federal Practice and Procedure, § 2905 at 325.

20a

EXHIBIT 5

SHERRIN & GLASEL

Attorneys & Counselors at Law

74 North Pear! Street

Albany, New York 12207

(518) 465-1275

March 30, 1993

Hon. Louis J. Freeh

United States District Court

United States Courthouse

Foley Square

40 Centre Street, Room 540

NY, NY 10007-9998

Original Via Overnight Mail

Copy Via Hand Delivery

Re: Travelers, et al. v. Cuomo, et al., 92 Civ. 3999,

(LJF)

Dear Judge Freeh:

We are writing on behalf of the Hospital Association of

New York State in response to the March 24, 1993 letter

from Windels, Marx, Davies & Ives, attorneys for Trav-

elers Insurance Company, wherein the Court is advised

that Travelers is refusing to pay the 13% differential

with respect to participants in two Railroad Plans. The

justification presented for this refusal is that these Plans

are not parties to the litigation, bound by the Court’s

Stay Order of February 9, 1993, and that Travelers is

merely following the Plans’ instructions. We are request-

ing the opportunity to seek affirmative relief from this

Court, which may include a contempt order or other

sanctions, an enforcement order or an appropriate clarifi-

cation of the Stay Order with respect to the obligation of

2la

these and other plans and commercial insurers to comply

with the mandate of the Public Health Law.

In its Stay Order, this Court held that “loss of the 13%

Surcharge will cause a substantial and irreparable disrup-

tion in the functioning of and services provided by New

York's hospitals.” (Stay Opinion and Order, p. 5). Fur-

ther, this Court held that “the public interest in financially-

stable hospitals and uninterrupted hospital services out-

weighs that monetary harm, and supports the imposition

of a stay as to the 13% Surcharge.” (Stay Opinion and

Order, p. 5). The very purposes for issuance of the stay

will be frustrated if a party to the action, Travelers, can

with impunity ignore the Stay Order and the Public Health

Law simply by claiming that the Plans, on whose behalves

it sued as a fiduciary, are not bound by the Order.

Contrary to Travelers’ assertion, these Plans are bound

both by the Court’s Order and by the Public Health Law,

which imposes the 13% obligation. Travelers sued as

fiduciary on behalf of ERISA plans, including the two

Railroad Plans. Certainly, Travelers and the Plans fully

expected to have the Plans enjoy the benefits of a judg-

ment in Travelers’ favor. If their position is that these two

Plans are not bound by the Stay Order because they are

not parties, then they are al not entitled to the fruits

of the litigation. They would remain required to comply

with the Public Health Law, even if Plaintiffs ultimately

prevail. In any event, Travelers is bound by the Stay

Order and the Public Health Law and must pay the 13%.

A fiduciary is bound to act in conformance with law and

judicial direction; it may not disregard its legal obligations

on the excuse that its clients directed it to do so.

It is the intention of the Defendant-Intervenor Hospital

Association of New York State to move this Court for an

order enforcing or, if necessary, clarifying the Stay Order

of February 9, 1993. The Court may, however, wish to

schedule a telephone conference call among the parties

22a

preliminary to the filing of any motion. We respectfully

await your advice.

Respectfully submitted,

SHERRIN & GLASEL, Esos.

s/ Jeffrey J. Sherrin

JEFFREY J. SHERRIN

JIS/cl

cc: All counsel

(Via fax and overnight mail)

23a

EXHIBIT 6

WINDELS, MARX, DAVIES & IVES

156 West 56th Street

New York, NY 10019

(212) 237-1000

March 31, 1993

BY HAND

Hon. Louis J. Freeh

United States District Judge

United States District Court

Southern District of New York

United States Courthouse

40 Centre Street, Room 540

New York, New York 10007-9998

Re: The Travelers Ins. Co. v. Cuomo, et al.,

No. 92 Civ. 3999 (LJF)

Dear Judge Freeh:

I am writing in response to the letters submitted on be-

half of the Hospital Association of New York and Blue

Cross/Blue Shield in response to my letter of March 24,

1993. The thrust of those letters is that The Travelers

should be held in contempt or sanctioned for deliberately

violating this Court’s February 9, 1993 order. There is ab-

solutely no basis for the imposition of sanctions or a finding

of contempt against The Travelers.

As I previously explained in my March 24, 1993 letter,

the committees charged with the governance of the Rail-

road Plans concluded that they could not, consistent with

their fiduciary duties, allow the use of plan assets to pay

the 13% surcharge. They have, therefore, instructed The

24a

Travelers not to use plan assets for that purpose. After

reviewing the situation, The Travelers decided that it had

to obey these instructions since the Railroad Plans were

not parties to this litigation and, therefore, not subject to

the stay order. Recognizing, however, that others might

disagree, The Travelers brought the situation to Your

Honor’s attention.

If The Travelers has misinterpreted the scope of this

Court’s stay order—which I believe is unlikely since this

Court did not enter an injunction directing nonparty

ERISA plans to continue paying the 13% surcharge but

only stayed its earlier injunction prohibiting State officials

from enforcing the surcharge—then the scope of this

Court’s February 9 order should be clarified. If, on the

other hand, the Hospital Association or some other party

wishes to expand the scope of this Court’s February 9

order, then it should make the appropriate motion to do

so.

Under no circumstances, however, should The Travelers

be criticized or sanctioned for having forthrightly brought

this matter to Your Honor’s attention.

Very truly yours,

/s/ Craig P. Murphy

CRAIG P. MURPHY

CPM:dr

cc: All Counsel in 92 Civ. 3999 (LJF), and 92 Civ.

5419 (LJF) (via facsimile)

bec: Benjamin W. Boley, Esq. (via facsimile)

James M. Michener, Esq. (via facsimile)

Timothy F. Lyons, Esq. (via facsimile)

Darrell M. Joseph, Esq.

All HIAA Action Plaintiffs (via facsimile)

25a

EXHIBIT 7

SHEA & GARDNER

1800 Massachusetts Avenue, N.W.

Washington, D.C. 20036

(202) 828-2000

April 6, 1993

VIA EXPRESS MAIL

Hon. Louis J. Freeh

United States District Judge

United States District Court

Southern District of New York

United States Courthouse

40 Centre Street, Room 540

New York, NY 10007-9998

Re: The Travelers Insurance Co. v. Cuomo, et al.

No. 92 CV 3999 (LJF)

Dear Judge Freeh:

We write this letter on behalf of the National Carriers’

Conference Committee (“NCCC”) as fiduciaries of The

Railroad Employees National Health and Welfare Plan

and The Railroad Employees National Early Retirement

Major Medical Benefit Plan.’ These plans, which provide

for health benefits on a self-insured basis, have been col-

lectively bargained on a national level by numerous rail-

roads and railway labor organizations. They are referred

to as the “Railroad Plans” in the letters sent to you by

counsel for The Travelers Insurance Company dated

March 24 and 31, 1993. Counsel for Travelers has pro-

* The NCCC is the governing body of fiduciaries for The Railroad

Employees National Early Retirement Major Medical Benefit Plan,

and, along with the Health and Welfare Committee, Cooperating

Railway Labor Organizations, forms the governing body of fidu-

ciaries for The Railroad Employees National Health and Welfare

Plan.

26a

vided us with copies of those letters, as well as copies of

the letters sent to you on March 29 and March 30 by

counsel for intervening defendants.

As fiduciaries of the Railroad Plans, the members of

the NCCC are obligated by § 404(a)(1) of ERISA to

discharge their duties to the Plans solely in the interests

of Plan participants and beneficiaries and for the exclu-

sive purpose of providing benefits to them and of defray-

ing the reasonable expenses of administering the Plans.

The NCCC members consider that this obligation requires

that they, as Plan fiduciaries, not allow the disbursement

of the assets of the nationwide Railroad Plans to pay a

surcharge on general hospital bills that, as this Court con-

cluded, is “simply designed to reduce the attractiveness of

particular forms of medical coverage, in order to make

[Blue Cross/Blue Shield] more competitive” in the State

of New York, and that is considered by the Labor Depart-

ment,” and, more significantly, by this Court, to be pre-

empted by ERISA as applied to self-insured plans.

In short, as fiduciaries of the Railroad Plans, the mem-

bers of the NCCC have sought only to carry out what

they perceive their fiduciary duties to be. Consonant with

that perception, the Railroad Plans have instructed Travel-

ers not to pay the 13% surcharge. These instructions

were given almost five months before the decision ren-

dered by the Court in this case on February 3.

The NCCC does not understand that the Court, by its

Stay order of February 9, intended to override the duties

owed to the Railroad Plans by their fiduciaries and to re-

quire disbursement of Railroad Plan assets to pay the

13% surcharge. The Court’s February 9 order simply

Stayed its February 3 order enjoining enforcement of the

13% surcharge. The Court did not affirmatively order

*Brief for Secretary of Labor as Amicus Curiae at 9, The

Travelers Insurance Co. v. Cuomo (No. 98-7132) (“It is the Secre-

tary’s position that ERISA preempts the surcharges as to self-

funded plans, but not as to commercial insurers.”’)

27a

payment of the surcharge. Surely, the Railroad Plans may

not be held in contempt of an order that did not com-

mand performance by anyone—no less the Plans, which

are not parties to the litigation—of the act that the Plans

have not performed. See International Longshoremen’s

Ass'n, Local 1291 vy. Philadelphia Marine Trade Ass'n,

389 U.S. 64, 76 (1967); Town of Islip v. Eastern Air

Lines, Inc., 793 F.2d 79, 83 (2nd Cir. 1986): Stotler &

Co. v. Able, 870 F.2d 1158, 1163-64 (7th Cir. 1989):

Lichtenstein v. Lichtenstein, 425 F.2d 1111, 1113 (3d

Cir. 1970).

Perhaps in recognition of this proposition, counsel for

intervening defendants have indicated their desire to move

for an order requiring the Railroad Plans to pay the 13%

surcharge. The Railroad Plans, however, are not parties

to this action. Nor are they acting in concert with any

party before the Court. Thus, the Court would appear

to lack authority to enter the kind of an order counsel

seems to have in mind. See Fed. R. Civ. Pro. 65(d);

Regal Knitwear v. National Labor Relations Bd., 324

U.S. 9, 14 (1945); Heyman v. Kline, 444 F.2d 65, 66-67

(2nd Cir. 1971); Alemite Mfg. Corp. v. Staff, 42 F.2d

832, 832-33 (2nd Cir. 1930); O & L Associates v. Del

Conte, 601 F.Supp. 1463, 1464-65 (S.D.N.Y. 1985).

Furthermore, because a notice of appeal has been filed,

the Court’s jurisdiction to issue orders is limited to those

necessary to preserve the status quo pending appeal. See

Fed. Rule Civ. Pro. 62(c); International Ass'n of Ma-

chinists v. Eastern Air Lines, Inc., 847 F.2d 1014, 1018

(2nd Cir. 1988); Ideal Toy Corp. v. Sayco Doll Corp.,

302 F.2d 623, 625 (2nd Cir. 1962); McClatchy News-

papers v. Central Valley Typographers Union No. 46,

686 F.2d 731, 735 (9th Cir. 1982). Requiring the Rail-

road Plans to pay the 13% surcharge would alter the

Status quo rather than preserve it, because the Railroad

Plans stopped paying the surcharge about four or five

months before the Court rendered its February 3 decision.

28a

The NCCC does not propose that the Plans ignore any

lawful obligation they may have to the State of New York

and its hospitals. If, in the end, the 13% surcharge is

upheld, the Plans will pay it retroactively, and there can

be no doubt of their capacity to do so.

Respectfully yours,

/s/ Benjamin W. Boley

BENJAMIN W. BOLEY

BWB/skb

cc: All counsel (Advance copy by fax)

29a

EXHIBIT 8

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

92 Civ. 3999 (LIF)

THE TRAVELERS INSURANCE COMPANY,

Plaintiff,

New YorK STATE HEALTH MAINTENANCE

ORGANIZATION CONFERENCE, ef al.,

: Intervenor,

- against -

Mario M. Cuomo, in his Official Capacity as

Governor of the State of New York, et al.,

Defendants,

New YorK STATE CONFERENCE OF BLUE CROSS AND

BLUE SHIELD PLANS, EMPIRE BLUE CROSS AND BLUE

SHIELD and HOSPITAL ASSOCIATION OF NEW YORK

STATE, I

ntervenors.

92 Civ. 5419 (LIF)

THE HEALTH INSURANCE ASSOCIATION OF

AMERICA, et al.,

Plaintiffs,

New YorK STATE HEALTH MAINTENANCE

ORGANIZATION CONFERENCE, et al.,

- against - Intervenors,

Mark Cuassin, M.D., in his Official Capacity as

Commissioner of Health of the State of New York, et al.,

Defendants.

30a

New YorK STATE CONFERENCE OF BLUE CROSS AND

BLUE SHIELD PLANS, EMPIRE BLUE CROSS AND BLUE

SHIELD and HosPiITAL ASSOCIATION OF NEW YORK

STATE,

Intervenors.

ORDER

WHEREAS by Order, dated February 3, 1993, this

Court held that federal law preempts certain provisions of

the New York Public Health Law, including the 13%

differential set forth in § 2807-c(1)(b) thereof and ap-

plicable to certain hospital charges (“the 13% differen-

tial”); and

WHEREAS by Order, dated February 9, 1993, this

Court granted defendants’ motion for a stay pending

appeal of such February 3, 1993 Order insofar as it

concerns the 13% differential; and

WHEREAS by letter, dated March 24, 1993, plaintiff

The Travelers Insurance Company (“Travelers”) in-

formed the Court that two self-insured ERISA plans for

which Travelers provides administrative services—the

Railroad Employees National Early Retirement Major

Medical Benefit Plan and the Railroad Employees Na-

tional Health and Welfare Plan (collectively “the Rail-

road Plans”)—had instructed Travelers not to pay the

13% differential, and that Travelers was following such

instruction and not paying the 13% differential with re-

spect to the Railroad Plans;

IT IS HEREBY ORDERED that pending a determina-

tion by the United States Court of Appeals for the Second

Circuit of the appeals from this Court’s February 3, 1993

order, the named parties to this action, including Trav-

elers, in its capacity as claims fiduciary of the Railroad

Plans, are directed to pay the 13% differential with re-

spect to all hospital claims, where applicable under Sec-

3la

tion 2807-c(1)(b) of the New York Public Health Law,

whether incurred before or after the date hereof. This

order applies to plaintiffs Health Insurance Association of

America, American Council of Life Insurance, and Life

Insurance Council of New York, Inc. only to the extent

they serve directly as fiduciaries of ERISA plans.*

SO ORDERED.

New York, New York

April 27, 1993

/s/ Louis J. Freeh

Louis J. FREEH

U.S.D.J.

* This order does not impose on any person any obligation to

pay the 18%differential except to the extent such obligation other-

wise exists under the relevant contracts and/or New York law.

32a

EXHIBIT 9

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

93-7132L

93-7134CON

93-7148CON

93-7194XAP

THE TRAVELERS INSURANCE COMPANY,

Plaintiff-A ppellee,

New YorRK HEALTH MAINTENANCE

ORGANIZATION CONFERENCE,

Intervenor-A ppellee,

Vv.

Mario M. Cuomo, in his Official Capacity Governor of

the State of New York, Mark CuassINn, M.D., in his

official Capacity as Commissioner of Health of the

State of New York, and SALVATORE R. CURIALE, in his

Official Capacity as Superintendent of Insurance of the

State of New York, Defendants-A ppellants,

New YorRK STATE CONFERENCE OF BLUE CROSS AND

BLUE SHIELD PLANS, EMPIRE BLUE CROSS AND BLUE

SHIELD and HOSPITAL ASSOCIATION OF NEW YORK

STATE, Intervenors-A ppeliants.

THE HEALTH INSURANCE ASSOCIATION OF AMERICA, THE

AMERICAN COUNCIL OF LIFE INSURANCE, THE LIFE

INSURANCE COUNCIL OF NEW YorK, INC., AETNA LIFE

INSURANCE COMPANY, AETNA HEALTH PLANS OF NEW

York, INc., MUTUAL OF OMAHA INSURANCE COMPANY,

THE UNION LABOR LIFE INSURANCE COMPANY, and

PROFESSIONAL INSURANCE AGENTS OF NEW York, INC.

Trust, Plaintiffs-A ppellees,

33a

AFFIDAVIT

STATE OF NEW York )

COUNTY OF ALBANY ) 5s.:

Jeffrey J. Sherrin, being duly sworn, deposes and says:

1. I am a partner in the law firm of Sherrin & Glasel,

attorneys for the Intervenor-Appellant Hospital Associa-

tion of New York State. I am admitted to practice in

this Court.

2. I submit this affidavit in opposition to the motion of

The National Carriers’ Conference Committee, as fiduci-

aries of The Railroad Employees National Health and

Welfare Plan and The Railroad Employees National

Early Retirement Major Medical Plan (hereinafter “the

Railroad Plans”), for leave to serve and file an amicus

brief.

3. First, the Court already has been favored with briefs

from five sets of parties and from four amicus curiae,

covering all of the issues. In particular, the interests of

all self-insured plans, and the Railroad Plans specifically,

are already represented. Plaintiff The Travelers Insur-

ance Company (“Travelers”) acts as fiduciary or other-

wise provides administrative services to self-insured plans,

including the Railroad Plans. Travelers has specifically

lodged its complaint in such capacity. See JA-57-63.

The additional brief which the Railroad Plans seek to

submit is merely cumulative and does not provide the

Court with any new positions or perspectives necessary

for a full presentation of the issues.

4. More importantly, Intervenor-Appellant Hospital As-

sociation of New York State did not consent to the Rail-

road Plans filing am amicus brief because of the Plans’

violation of the Stay Order of the District Court. A copy

of our letter on behalf of the Hospital Association is

annexed hereto. As the Railroad Plans’ April 14, 1993

memorandum of law in support of their motion acknowl-

34a

edges (at p. 3), the Railroad Plans have chosen to defy

New York law and have refused to continue paying the

13% differential on hospital charges which is at issue on

this appeal. While the court below found that differen-

tial preempted by federal law, the court stayed the portion

of its Order directed to such 13% differential, pending

the outcome of this appeal. See JA-1863-69. Accord-

ingly, the 13% differential remains in effect, and the

Railroad Plans’ refusal to pay it amounts to willful defi-

ance of the Stay Order and/or state law.

5. This circumstance was brought to the attention of the

court below, and at a conference on April 15, 1993,

Judge Freeh emphasized that the conduct of the Railroad

Plans was directly contrary to the intent of the Stay

Order. He therefore directed that an Order be submitted

that will affirmatively direct all parties to pay the 13%.

This proposed order is at present being circulated to all

counsel for approval.

6. It is respectfully submitted that the Railroad Plans

come before this Court with unclean hands. They have

chosen to ignore the District Court’s Stay Order and the

Public Health Law, resorting to a self-help, but unlawful

remedy. Having chosen this path of defiance, they should

not be granted “Friend of the Court” status. Accordingly,

their motion for leave to file an amicus brief should be

denied.

/s/ Jeffrey J. Sherrin

Sworn to before me this 21 day of April, 1993.

/s/ Philip Rosenberg

PHILIP ROSENBERG

Notary Public, State of New York

Qualified in Albany Co. #5006761

Commission Expires 1/11/95

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.