# Amicus Curiae Brief — American Mfrs. Mut. Ins. Co. v. Sullivan

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0186%3A19

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1999
- **Citation:** 526 U.S. 40

## Text

IN THE
SUPREME COURT OF THE
OCTOBER TERM, 1998

AMERICAN MANUFACTURERS MUTUAL
INSURANCE COMPANY, ef al,
Petitioners,
Vv.

DELORES SCOTT SULLIVAN, et ai.,
Respondents.

On Writ of Certiorari to the United States Court of Appeals
for the Third Circuit

BRIEF AMICI CURIAE OF THE AMERICAN
ASSOCIATION OF RETIRED PERSONS, THE CENTER
FOR MEDICARE ADVOCACY, INC., THE NATIONAL
CENTER FOR YOUTH LAW, THE NATIONAL HEALTH
LAW PROGRAM, THE NATIONAL SENIOR CITIZENS
LAW CENTER, AND THE NATIONAL PARTNERSHIP
FOR WOMEN & FAMILIES
IN SUPPORT OF RESPONDENTS

SALLY HART GILL DEFORD

CENTER FOR MEDICARE (COUNSEL OF RECORD)
ADVOCACY, INC. SARAH LENZ LOCK

1730 EAST RIVER ROAD AARP FOUNDATION LITIGATION

SUITE 107 MICHAEL SCHUSTER

TUCSON, AZ 85718 AMERICAN ASSOCIATION OF

(520) 577-1611 RETIRED PERSONS

601 E STREET, NW
COUMSEL FOR AMICUS CURIAE WASHINGTON, D.C. 20049
CENTER FOR MEDICARE (202) 434-2060
ADVOCACY, INC.
COUNSEL FOR AMICUS CURIAE
AMERICAN ASSOCIATION OF
RETIRED PERSONS
[Additional Counsel Are Listed on Inside Cover]

-_——_——

"BEST AVAILABLE COPYE:

JEANNE FINBERG
NATIONAL CENTER FOR YOUTH LAW
114 SANSOME STREET, SUITE 900

SAN FRANCISCO,CA 91401
(415) 543-3307

FOR AMICUS CURIAE
NATIONAL CENTER FOR YOUTH LAW

JANE PERKINS PROGRAM
NATIONAL HEALTH phew
211 NORTH COLUMBIA

(919) 968-6308

COUNSEL FOR AMICUS CURIAE
NATIONAL HEALTH LAW PROGRAM

VICKI GOTTLICH ns SOS CENTER
NATIONAL SENIOR SI snag

1101 14TH STREET, N.W., ea
WASHINGTON, D.C. 20005

COUNSEL FOR AMICUS CURIAE ,
NATIONAL SENIOR CITIZENS LAW

JUDITH L. LICHTMAN AMILIES
NATIONAL PARTNERSHIP FOR WOMEN & F

1875 CONNECTICUT AVENUE, N.W., SUITE 710

W ASHINGTON, D.C. 20009

(202) 986-2600

COUNSEL FOR AMICUS CURIAE AMILIES
NATIONAL PARTNERSHIP FOR WOMEN & F.

“BEST AVAILABLE COPY!

TABLE OF CONTENTS

CED se vecwsbecsccccivcssesen ii
INTEREST OF AMICI CURIAE ...........22cecceees l
SUMMARY OF ARGUMENT ....................-. 8
SD : 60.6 aumianuds epinet epsaneest coneant 9

THE COURT BELOW CORRECTLY APPLIED
THE PRINCIPLES WHICH HAVE BEEN
ESTABLISHED BY THIS COURT AND
FORMULATED INTO A CLEARLY STATED
PETES Sh eGbeoneccebowoceseccecece 9

A. This Court should apply the state action
test which it has developed over time and
which it has now definitively delineated ... 9

B. The Third Circuit’s analysis and conclusion
rely on the principles and their application
which the Edmonson Court gleaned from
this Court’s prior decisions ............ 16

EE ctin cca ctetedwovdsesetasvecvcests 23

TABLE OF AUTHORITIES
CASES
Atkins v. Rivera, 477 U.S. 154 (1986) .......-- eee eee 5
Blum v. Yaretsky, 457 U.S. 991 (1982) ........--6-045. 12,23
Bodimetric Health Services, Inc. v. Aetna Life &

Casualty, 903 F.2d 480 (7th Cir. 1990) .........-.-00- 5
Burton v. Wilmington Parking Authority,

SIDS, FES od odcvccbcccdoctoccceesens 13,20
Catanzano v. Dowling, 60 F.3d 113 (2d Cir. 1995) .......... 5
Edmonson v. Leesville Concrete Co., Inc.,

SOO UD. GIA (IGP) .nccccccccccccccscccccces passim
Flagg Bros., Inc. v. Brooks, 436 U.S. 149 (1978) ........... 12
Geissal v. Moore Medical Corp.,

SEG TED. we dabacecccsncncicoccsvonsaan 4
Georgia v. McCollum, 505 U.S. 42 (1992) ...........- 8,16,20
Grijalva v. Shalala, 152 F.3d 1115

EEE ctecacepldedocceccecsaccsuny 4,5,8,15,17
Healey v. Shalala, No. 398CV00418DJS

(D.Conn. filed March 4, 1998) ..........005 cee eeeues 4
Herdrich v. Pegram, 154 F.3d 362 (7th Cir. 1998) ........... 6
Jackson v. Metropolitan Edison Co.,

SIDE POD. abddbse deciccvcccdccccvcedes 9,23
Lebron v. National R.R. Passenger Corp.,

SOD BE SOE “obebcecccccdcccocestbisuaun 9,10
Lugar v. Edmondson Oil Co.,

457 U.S. 922 (1982) ............ 8,11,12,13,14,15,16,17
Mark v. Borough of Hatboro, 51 F.3d 1137

DOG TED bdcecedov st atehtedocccsocatendes 15,21
Mathews v. Eldridge, 424 U.S. 319 (1976) .........--+045: 21
Moose Lodge No. 107 v. Irvis, 407 U.S. 163 (1972) ......... 12
Perry v. Chen, 985 F. Supp. 1197 (D. Ariz. 1996) ........... 5
Rendell-Baker v. Kohn, 457 U.S. 830 (1982) ..........-+.. 12

Sullivan v. Barnett, 139 F.3d 158 (3d Cir. 1998)
cert. granted sub nom. American Manufacturers
Mutual Ins. Co. v. Sullivan, 119 S. Ct. 128
CURED ds docontedacnesevedebeteccon’ 2,9,16,17,20,22

ill

Tulsa Professional Collection Services, Inc. v. Pope,

SR EEE ee eee 17,20
United Auto Workers v. Gaston Festivals, Inc.,

ee eee ae 20
West v. Atkins, 487 U.S. 42 (1988)... 2.2... cece cece 22

CONSTITUTION, STATUTES, REGULATIONS

AND RULES

eee SIL obo cae totce cocaine dc nceuasdene l
Balanced Budget Act of 1997,

Pub. L. No. 105-33, § 4001, 111 Stat. 251, 275

GENE. eudsescabeUewapsteduees duaccsccceccceses 7

Pub. L. No. 105-33, § 4701(a), 111 Stat. 251, 489

EE stbabssauseeetendbescedcscasctvccccsssece 7
Pennsylvania Workers Compensation Act,

We IRIE Tob cc ccccécadcccacoses 16,18

Oe IIE, Sec cdodecccccccaccceaubec 16

Eo noc no oc dncuee chnadnans 18

Fe ec ceateekne 18

77 Pa. Stat. Ann. § 531(6Mfiv) ..................00.. 19
63 Fed. Reg. 34968 (June 26, 1998) .............. peepee 7
DOT EE LuGetscasdeocsccececécees 16,18,19
I os ono ck dncadacecdeousne 19
PUT EEG Va. daSotcb curcessdbccéccnens 19
rr cr tet leet ge eee 18,19
pT dics eckldcteepackshacensbaauk’ 18
CEL 25. doteae ab cccett caceeeune 18
RR ES RRC a AM 19
I a 19
I a a 19
re Se oon oan ndenaded i ebcenetnads 19
as cd oe ceutdeucdsases 18
SPIES SCocbcdu dare deccbcanaceccdeccr 8

iV
MISCELLANEOUS

G. S. Buchanan, A Conceptual History of the State Action
Doctrine: The Search for Governmental Responsibility
(), 34 Hous. L. REV. 333, 345-351 (1997) ..........-- 13
G. S. Buchanan, A Conceptual History of the State Action

(ID, 34 Hous. L. REV. 665, 756-764 (1997) ........... 15
E. Chemerinsky, Rethinking State Action,
80 Nw. U. L. REV. 503 (1985) .... 22... ee ce eee eee 10

Health Care Financing Administration, Medicare Managed

Care Contract Report (Data as of * ov. 1,1998)

. ..........-. 7
Health Care Financing Administration, National Summary

of Medicaid Managed Care Programs and Enrollment

(Data as of June 30, 1997) . ....... 66-60 se eee cece eeeees 6
R. J. Krotoszynski, Jr., Back to the Briarpatch: An

Argument in Favor of Constitutional Meta-analysis

in State Action Determinations, 94 MICH L. REV.

FOR, BEB CIGDS) 2c cccccsdicsccccccccccesce cs 10,13,15
Medicare Payment Advisory Commission, Health Care

Spending and the Medicare Program: A Data

Book, at 30 (July 1998)... 2... cece eee teen ene 6
B. R. Snyder, Private Motivation, State Action and the

Allocation of Responsibility for Fourteenth Amendment

Violations, 75 CORNELL L. REV. 1053 (1990) .......... 10
H. C. Strickland, The State Action Doctrine and

the Rehnquist Court, 18 HASTINGS. CONST. L.Q.

587, 588 (1991) (citation omitted) ...........-+-00s 10

IN THE
SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1998

No. 97-2000

AMERICAN MANUFACTURERS MUTUAL
INSURANCE COMPANY, ef al,
Petitioners,

v.

DELORES SCOTT SULLIVAN, et ai.,
Respondents.

On Writ of Certiorari to the United States Court of Appeals
for the Third Circuit

BRIEF AMICI CURIAE OF THE AMERICAN
ASSOCIATION OF RETIRED PERSONS, THE CENTER
FOR MEDICARE ADVOCACY, INC., THE NATIONAL

CENTER FOR YOUTH LAW, THE NATIONAL HEALTH
LAW PROGRAM, THE NATIONAL SENIOR CITIZENS
LAW CENTER, AND THE NATIONAL PARTNERSHIP

FOR WOMEN & FAMILIES
IN SUPPORT OF RESPONDENTS

INTEREST OF AMICI CURIAE”

Six national organizations join in this brief, which focuses
solely on the first question before the Court, whether the
petitioning insurance companies are state actors and therefore
required to provide basic procedural protections guaranteed by
the due process clause of the Fourteenth Amendment. As the

” No counsel for any party authored any portion of this brief. No persons
other than the amici curiae, their members, or their counsel made a
monetary contribution to the preparation and submission of this brief.

2

following descriptions of those organizations demonstrate,
they, their members, and their constituencies have a significant
interest in the outcome of this case and in upholding the Third
Circuit’s determination that the insurance companies’ activities
amounted to state action pursuant to prior decisions of this
Court. See Sullivan v. Barnett, 139 F.3d 158 (3d Cir.), cert
granted sub nom. American Manufacturers Mutual Ins. Co. v.
Sullivan, 119 S. Ct. 128 (1998).

The American Association of Retired Persons (AARP), a
nonprofit membership organization of more than 32 million
Americans age 50 or older, is dedicated to addressing the needs
and interests of older people. Through education, advocacy,
and service, and by promoting independence, dignity, and
purpose, AARP seeks to enhance the quality of life for all
citizens. In the effort to promote independence, AARP works
to foster the health and economic security of individuals as they
age by attempting to ensure the availability of quality and
economical health coverage.

The Center for Medicare Advocacy, Inc., which is staffed
by attorneys, paralegals, a nurse, and technical assistants,
provides legal advice, self-help materials, and representation to
the elderly and disabled who are unfairly denied Medicare
coverage. The Center’s work includes responding to over
8,000 telephone calls annually, producing educational
materials, pursuing Medicare coverage for beneficiaries who
are eligible for both Medicare and Medicaid, and engaging in
litigation of national importance. Furthermore, the Center
annually represents hundreds of individuals in appeals of
Medicare denials, particularly for home health care, and its staff
members act as consultants and trainers for groups which are
interested in learning about Medicare coverage and appeals or
in developing Medicare advocacy projec’s.

3

The National Center for Youth Law (NCYL) is a nonprofit
corporation which represents the interests of poor children and
adolescents in civil litigation. It also assists attorneys
nationwide ide in representing their indigent clients, and is the
primary national resource on children’s issues to more than
6,000 legal services attorneys and paralegals who request
advice, written materials, trainings, mentoring, and
co-counseling. NCYL’s clients are regular beneficiaries of
government-sponsored health care programs, such as Medicaid,
and NCYL frequently acts to enforce the rights of children and
adolescents in these programs under state or federal law.

The National Health Law Program (NHeLP) is a national
public interest law firm that seeks to improve health care for
America's working and unemployed poor, minorities, children,
elderly, and people with disabilities. NHeLP serves legal
services programs, protection and advocacy offices,
community-based organizations, the private bar, providers, and
individuals who work to maintain a health care safety net for
millions of low income people. NHeLP monitors Medicaid,
Medicare, and other publicly-funded health care programs,
seeks remedies when laws and policies are ignored, and helps
Americans to receive needed medical care.

The National Senior Citizens Law Center (NSCLC) is a
nonprofit organization that advocates on behalf of elderly poor
people. Since its formation in 1972, NSCLC has engaged in
litigation, legislative and administrative advocacy, technical
assistance, and training in many areas of elder law, including
Medicare and Medicaid. NSCLC has brought numerous law
suits on behalf of Medicare beneficiaries and Medicaid
recipients to protect their rights under those federal statutes and
their implementing regulations, and under the Constitution.

4

The National Partnership for Women & Families (National
Partnership) is a national advocacy organization that develops
and promotes policies to help women achieve equal opportunity
and obtain quality health care and economic security for
themselves and their families. Founded in 1971 as the
Women's Legal Defense Fund, the National Partnership works
to improve access to quality health care through research and
analysis, public education, advocacy, and litigation of
significant cases. The National Partnership is a leading voice
in the effort to ensure that women and families receive quality
health care through their health insurance plans, including
managed health care plans.

Each of the amici organizations thus advocates on behalf
of individuals throughout the country, seeking especially to
ensure access to health care and to protect and enhance their
rights to obtain quality health care. For instance, AARP filed
a brief amicus curiae last Term in support of the ultimately
victorious petitioners in Geissal v. Moore Medical Corp., 118
S. Ct. 1869 (1998). Similarly, attorneys for the Center for
Medicare Advocacy represent a nationwide class of plaintiffs
in a successful due process challenge which raises the issue of
state action in a Medicare context, with AARP filing a
supporting amicus brief in the Court of Appeals. See Grijalva
v. Shalala, 152 F.3d 1115 (9th Cir. 1998). And, the Center for
Medicare Advocacy, NSCLC, and AARP are co-counsel for a
nationwide class of Medicare beneficiaries seeking to enforce
procedural protections for recipients of home health care.
Healey v. Shalala, No. 398CV00418DJS (D.Conn. filed March
4, 1998).

The instant case is of particular concern to the amici
organizations because of its potentially broad and significant
impact on their members and constituencies. The state action
issue is obviously of great importance in the context of

>

workers’ compensation programs, and the decision’s effect on
that aspect alone of the nation’s health care system would
warrant attention. More broadly, however, this Court’s
resolution may affect the rights to and surrounding health care
in numerous other situations, as petitioners themselves
recognize, see Reply Brief for Petitioners on Petition for Writ
of Certiorari, at 5 & n.2, and as the courts have begun to
address.” As the relationships between state and federal
governments on the one hand, and private companies involved
in the health care industry on the other, are encouraged and
grow, the administration of the nation’s health care system is
increasingly becoming a joint venture, with dramatic
ramifications for the rights of those dependent on that system.

Historically, the two most important public health care
programs, Medicare and Medicaid, have involved private
entities to some degree. Medicaid, a welfare program
2dministered by each state subject to federal statutory and
regulatory requirements, see, e.g., Atkins v. Rivera, 477 U.S.
154, 156-157 (1986), pays private individuals and institutions
to provide the actual health care. Medicare, a federal insurance
program, not only relies on private providers but also utilizes
insurance companies to administer the program and distribute
payments. See, e.g., Bodimetric Health Services, Inc. v. Aetna
Life & Casualty, 903 F.2d 480, 482 n.3 (7th Cir. 1990). As
managed care models become increasingly more prevalent in

” For instance, state action holdings have played crucial roles in enforcing
procedural rights of beneficiaries of state Medicaid programs. See, e.g.,
Catanzano v. Dowling, 60 F.34 113, 117-120 (2d Cir. 1995); Perry v. Chen,
985 F. Supp. 1197, 1201-12C. (D. Ariz. 1996). Similarly, the right to
effective notices and timely hearings for Medicare beneficiaries enrolled in
ae ee Grijalva, 152 F.3d
at .

6

these public programs, however, the extent and context of the
private sector participation is dramatically ch.oging.

The line between providers and insurance companies is
becoming less distinct, and decisions regarding the
appropriateness of particular health care are being made before,
not after, that care is provided. Under the traditional fee-for-
service system, doctors provided the care and the question of
reimbursement came later; under managed care, where payment

is typically on a “capitated” basis (with the plan receiving a set
monthly amount per enrollee regardless of usage), there are
strong economic incentives for a private plan to question a
suggested course of treatment. See, e.g., Herdrich v. Pegram,
154 F.3d 362, 375 (7th Cir. 1998). This evolving new role for
the private entities involved in publicly funded and authorized
health programs renders their decision-making processes more
important than ever.

This increasing “privatization” of benefit programs is
moving forward rapidly. As of June 1997, more than 15
million Medicaid beneficiaries -- almost 48% of the Medicaid
population -- were enrolled in managed care plans, a dramatic
increase from the 2.7 million who had been enrolled just six
years earlier. Health Care Financing Administration, National
Summary of Medicaid Managed Care Programs and
Enrollment at 1 (Data as of June 30, 1997)
. And, since
1988, the annual increase in Medicare beneficiaries enrolled in
risk-based HMOs has been as high as 36%, and in 1998 is still
over 20%, “far surpassing the annual growth in the beneficiary
population,” which has stayed well below 5%. Medicare
Payment Advisory Commission, Health Care Spending and the
Medicare Program: A Data Book, at 30 (July 1998).
Nationwide, more than 50,000 Medicare beneficiaries enroll in
these plans every month, id., with over six million presently

7

enrolled. Health Care Financing Administration, Medicare
Managed Care Contract Report at | (Data as of Nov.1,1998)
.

Of no less importance than this past growth is that January
1, 1999 marks the beginning date of the Medicare+Choice
program, Balanced Budget Act of 1997, Pub. L. No. 105-33,
§ 4001, 111 Stat. 251, 275 (1997), which is intended to change
the very nature of the Medicare program: “Alternatives
available to beneficiaries under the M+C program include both
the traditional managed care plans (such as HMOs) that have
participated in Medicare on a capitated payment basis ... as well
as a broader range of plans comparable to those now available
through private insurance ....” 63 Fed. Reg. 34968 (June 26,
1998). In short, spurred by Congressional action, the Medicare
program is aggressively encouraging increased beneficiary
participation in private managed care structures.” This will
increasingly place private entities into relationships with
beneficiaries that previously had been the province of
government agencies or their agents, which, of course, are
subject to constitutional restraints.

The evolution in the administration of government benefit
programs thus renders the state action determination important
to a rapidly expanding number of individuals. Whether in the
context of workers’ compensation, Medicaid, Medicare, or any
of a host of other programs devised and administered by state
and federal governments to secure economic and health security
for vulnerable populations, the active participation of private

” It is also anticipated that there will be significant growth in managed care
enroliment of Medicaid beneficiaries, as states are now permitted to require
their participation in managed care plans without obtaining a waiver from
the federal government. Balanced Budget Act of 1997, Pub. L. No. 105-33,
§ 4701(a), 111 Stat. 251, 489 (1997).

8

entities has become a critical component, but that development
should not occasion a deprivation of individual rights. Judge
Wiggins observed for the Ninth Circuit that “the government
cannot avoid the due process requirements of the Constitution
merely by delegating its duty to determine Medicare coverage
to private entities,” Grijalva, 152 F.3d at 1121, and, on behalf
of their members and constituencies, the amici organizations
are anxious to see that position upheld in the overall context of
the state action inquiry.’

SUMMARY OF ARGUMENT

Although the theory of state action is a difficult concept
and its evolution has engendered considerable debate, this
Court has developed and consistently employed a two-step
process. Lugar v. Edmondson Oil Co., 457 U.S. 922, 937
(1982). As Justice White explained for the Court in that
decision, the first step requires a determination of whether the
state has authorized the conduct at issue, and the second looks
to the additional factors which would convert private action
into state action. The three principles necessary to make this
second determination, by evaluating the totality of the

circumstances, were explicitly outlined in Edmonson v.
Leesville Concrete Co., Inc., 500 U.S. 614 (1991) and reiterated
in Georgia v. McColliim, 505 U.S. 42 (1992). These decisions
have not been overruled, and the court below relied on and
applied their principles in making its decision.

Since suspension of medical coverage was here authorized
by the statute, there is no doubt that the first Lugar step is met.
In considering the first of Edmonson’s three principles relevant

* The blanket written consents of the parties to the filing of amicus curiae
briefs has been filed with the Clerk of the Court pursuant to Supreme Court
Rule 37.3.

9

to the second step, the Third Circuit correctly noted the
insurance companies’ significant reliance on governmental
assistance in effecting the suspensions. The state is involved in
every facet of the dispute resolution process, and it could not be
accomplished without the state’s consistent involvement. The
court below also noted that suspension of benefits pending
dispute resolution is a traditional governmental function in
benefit programs. Third, the state aggravates the harm by
locking injured workers into a system which was intended to
provide a balance between the needs and rights of all parties
but which instead gives the insurers a significant advantage by
allowing unilateral suspension of health coverage with the
support and approval of the state. Especially when viewed
together, these factors conclusively demonstrate that the
insurance companies are state actors.

ARGUMENT

THE COURT BELOW CORRECTLY APPLIED THE
PRINCIPLES WHICH HAVE BEEN ESTABLISHED BY
THIS COURT AND FORMULATED INTO A CLEARLY
STATED FRAMEWORK.

A. This Court should apply the state action test which it
has developed over time and which it has now
definitively delineated.

1. It has become a truism that the state action inquiry is a
difficult one, which “frequently admits of no easy answer.”
Jackson v. Metropolitan Edison Co., 419 U.S. 345, 350 (1974).
The court below termed it “one of the most troublesome issues
of constitutional law,” Sullivan, 139 F.3d at 167, and this Court
recently acknowledged again the “difficult terrain”. Lebron v.
National R.R. Passenger Corp., 513 U.S. 374, 378 (1995).

10

Not surprisingly, the commentators have been anxious to

propose their solutions to the apparent dilemma,” appearing
almost gleeful in their criticism. One 1991 analysis stated that
“nearly every article about the state action doctrine published
in the last twenty years quotes and concurs with Professor
Charles Black’s characterization of the doctrine as ‘a
conceptual disaster area,”” Henry C. Strickland, The State
Action Doctrine and the Rehnquist Court, 18 HASTINGS CONST.
L.Q. 587, 588 (1991) (citation omitted), while another contends
that the doctrine “remains a dark thicket of constitutional law.”
Ronald J. Krotoszynski, Jr., Back to the Briarpatch: An
Argument in Favor of Constitutional Meta-analysis in State
Action Determinations, 94 MICH. L. REV. 302, 303
(1995)[hereinafter, Constitutional Meta-Analysis).

The difficulty of devising a state action standard, however,
should not lead to despair that such a task is impossible -- or
that, as one of the amicus briefs supporting petitioners
expressly requests, the Court simply replace the existing
standard. See Br. Amicus Curiae on Behalf of the National
Ass’n of Waterfront Employers, et a/., at 15-17 (urging “two
clarifications”). Indeed, the irony of attacking the Court’s
efforts to develop a fair and effective analytical tool is that the
Court has already done exactly that. While there undoubtedly
have been fits and starts in the process, and, as the Court itself
has noted, its decisions in the area “have not been a model of
consistency,” Lebron, 513 U.S. at 378 (quoting Edmonson v.
Leesville Concrete Co., Inc., 500 U.S. 614, 632 (1991)
(O’Connor, J., dissenting)), the Court, after analyzing state
action in a wide variety of legal and factual circumstances, has

” See, e.g., Barbara Rook Snyder, Private Motivation, State Action and the
Allocation of Responsibility for Fourteenth Amendment Violations, 75
CORNELL L. REV. 1053 (1990); Erwin Chemerinsky, Rethinking State
Action, 80 Nw. U. L. REV. 503 (1985).

ll

arranged those considerations into a viable conceptual
framework. While some factors were originally evaluated
independent of an integrated test, the Court has now described
and applied a mechanism which both observes past precedent

2. The first step to effect this organizational arrangement
took place in 1982, when the Court summarized its previous
holdings as “insist{ing] that the conduct allegedly causing the
deprivation of a federal right be fairly attributable to the State.”
Lugar v. Edmondson Oil Co., 457 U.S. 922, 937 (1982). To
establish this “fair attribution”, the Court divined, from prior
cases, two necessary components or principles:

First, the deprivation must be caused by the exercise of
some right or privilege created by the State or by a rule of
conduct imposed by the State or by a person for whom the
State is responsible .... Second, the party charged with the
deprivation must be a person who may fairly be said to be
a State actor.

Id.

Although this clear-cut statement and summary of the law
remains the standard for determining state action, petitioners
are determined to undercut its effective application. In a
transparent attempt to secure a rule which is less likely to bind
them to the inconvenient standards applicable to the
government, petitioners and their supporting amici are ready
and willing to decry the state of state action law and to request
that the Court “bring order to this cacophony.” Petition for
Writ of Certiorari (Pet. Writ Cert.) at 22. They begin this
attack by dismissing the first component of the Lugar test as
essentially meaningless, describing it as relevant only when the

12

private entity violates the law. Brief for Petitioners (Br. Pet’r)
at 14.

Justice White, the author of Lugar, explained the broader
sweep of that component by comparing two prior decisions. In
one, Moose Lodge No. 107 v. Irvis, 407 U.S. 163 (1972), the
Court had reached its conclusion of no state action by
“focus[ing] primarily on the question of whether the admittedly
discriminatory policy could in any way be ascribed to a
governmental decision.” Lugar, 457 U.S. at 937-938. By
contrast, in the second, Flagg Bros., Inc. v. Brooks, 436 U.S.
149 (1978), since “the State was responsible for the statute” at
issue, the analysis was directed at “the other component of the
state-action principle.” Lugar, 457 U.S. at 938.% While illegal
action by the private entity may place its behavior outside the
realm of state action, that is only part of the equation: any
conduct carried out without the authorization of the state has
the same effect and cannot be state action. In short, Lugar’s
first component allows a holding of state action only when the
state has sanctioned a private entity to undertake the allegedly
impermissible conduct. See also, e.g., Edmonson v. Leesville
Concrete Co., Inc., 500 U.S. 614, 620-621 (1991).

* Justice White added further explanation through his concurrences to two
other state action cases decided on the same day as Lugar. In both, he
agreed that there was no state action because the activity at issue was not
based on conduct or policy of the state. See Rendell-Baker v. Kohn, 457
U.S. 830, 843-844 (1982) (White, J., concurring in the judgment); Blum v.
Yaretsky, 457 U.S. 991, 1012 (1982) (White, J., concurring in the
judgment). And, as Justice White added, this was, for all practical purposes,
the crucial factor in the majority's B/um analysis: “This is the clear import
of the majority’s conclusion that the ‘decisions ultimately turn on medical
judgments made by private parties according to professional standards that
are not established by the state ...."” /d. (citation omitted).

motivated the Court through the years of state action analysis.
He focused on the fact that, once the state’s involvement had
been established through a rule or policy (the first component),

a State actor ....” Lugar, 457 U.S. at 939. To make this
determination requires the practical and realistic recognition
that state action may exist in a variety of circumstances, and
that, to respond to these variations, the Court has “articulated
a number of different factors or tests in different contexts.” Jd.
Although the Court has attached various labels to the several
“tests” which it has employed and the commentators have
attempted to further refine them or suggested other terminology
to describe them,” the bottom line of this second component is
the recognition first stated in 1961: “‘Only by sifting facts and
weighing circumstances can the nonobvious involvement of the
State in private conduct be attributed its true significance.’” Jd.

at 939 (quoting Burton v. Wilmington Parking Auth., 365 U.S.
715, 722 (1961)). The precise nature of these tests -- whether

confronts the Court in such a situation” —- need not be resolved.
Lugar, 457 U.S. at 939. The second component therefore
incorporates the considerations which imbue the actions of a
private party with the state’s mantle.

? See, e.g, G. Sidney Buchanan, A Conceptual History of the State Action
Doctrine: The Search for Governmental Responsibility (1), 34 Hous. L.
REV. 333, 345-351 (1997), Constitutional Meta-Analysis, supra, at 318-320.

14

3. Nine years later, in Edmonson, a case which petitioners
mention only in passing (see Br. Pet’r at 14, 18, 24) and with
studied indifference to its significance and relevance, the Court
took the next step in summarizing and setting out the guiding
principles for state action analysis. Applying “the framework
for state-action analysis set forth in Lugar,” the Court
concluded that the first component was met, as the right to
peremptory challenges clearly derived from state authority.
Edmonson, 500 U.S. at 620-621.

The Court then described the critical inquiry relating to the
second component:

[O)jur cases disclose certain principles of general
application. Our precedents establish that ... it is relevant
to examine the following: the extent to which the actor
relies on governmental assistance and benefits ...; whether
the actor is performing a traditional governmental function
...; and whether the injury caused is aggravated in a unique
way by the incidents of governmental authority ....

Id. at 621-622 (citations omitted). Applying “these three
principles to the circumstances” of the case, a court may then
determine whether the second aspect of the Lugar framework
is satisfied. Jd. at 622.

The Edmonson Court reviewed the three principles in turn,
relying on prior decisions to provide the supporting analysis.
In so doing, the Court indicated that no one factor is
determinative, that they are not discrete or distinct tests which
require complete satisfaction in order for state action to exist;
rather, “the principles of general application” should be looked
at in each instance to determine whether, in light of the totality
of those circumstances, the private entity may be deemed a

15

government actor. As Judge Greenberg of the Third Circuit has
summarized:

Rather than stating a series of discrete tests and applying
them separately to determine whether each by itself is
satisfied, the Court considered a number of factors, and
weighed them to determine whether, all things considered,
the otherwise private actor fairly could be deemed to be a
state actor. Under that new framework, courts should
consider the principles furthered by the previous tests as
part of a single balancing and weighing approach. And it
should apply to all cases involving the question of whether
a private actor is engaged in state action.

Mark v. Borough of Hatboro, 51 F.3d 1137, 1156 (3d Cir.
1995) (Greenberg, J., concurring); see also Grijalva, 152 F.3d
at 1120; accord, Constitutional Meta-Analysis, supra, at 337-
345; G. Sidney Buchanan, A Conceptual History of the State
Action Doctrine: The Search for Governmental Responsibility
(I), 34 Hous. L. REV. 665, 756-764 (1997).

The actual application of the three principles summarized
in Edmonson requires careful analysis of each situation’s
circumstances in light of this Court’s prior decisions. That
separate inquiry forms the next part of this brief, but the amici
wish to emphasize that the framework for the state action
Edmonson. And that analytical approach was expressly
reaffirmed in Georgia v. McCollum, 505 U.S. 42, 50-51 (1992).

Although neither the court below nor the Ninth Circuit in
Grijalva referred to the Lugar-Edmonson model, by implication
and explicit analysis both courts considered and applied the
principles which this Court imported from previous decisions
to define that framework. See Grijalva, 152 F.3d at 1119-

16

1120; Sullivan, 139 F.3d at 168-169. The petitioners’ strident
accusations -- that the Third Circuit “essentially threw up its
hands, justifying its conclusion ... by reference to a congeries of
seemingly unrelated factors”, Pet. Writ Cert. at 22, and, instead
of providing an “analytical structure”, id., “offered a vague set
of truths, half-truths, and irrelevancies,” Br. Pet’r at 14, and,
further, “did not think it necessary to offer a coherent theory,”
id. at 15 -- misapprehends that court’s reliance on the analyses
which this Court has condoned. The court below merely failed
to specify the precise contours of the tests and their place
within the overall framework. In its substance, however, the
analysis was entirely consistent with this Court’s
pronouncements, and no good reason exists to alter the
roadmap which now provides clear directions.

B. The Third Circuit’s analysis and conclusion rely on the
principles and their application which the Edmonson
Court gleaned from this Court’s prior decisions.

1. In this case, there can be no dispute that the first step of
the Lugar test -- that the deprivation at issue be caused “by the
exercise of some right or privilege created by the State,” 457
U.S. at 936 -- is met. Here, the denial of due process is
authorized by the utilization review procedures and supersedeas
mechanism in Pennsylvania Workers’ Compensation Act, 77
Pa.StatAnn. § 531(5) and (6), and its implementing
regulations. 34 Pa.Code § 127.208(e). A statute authorizing
the action which forms the basis for the deprivation represents
the paradigm for satisfaction oi this first element. See, e.g.,
McCollum, 505 U.S. at 51; Edmonson, 500 U.S. at 621. In all
likelihood, because this step was so obviously met, the court

17

below saw no reason to state the point explicitly.” Indeed, on
several occasions after the Lugar standard was announced, this
Court itself neglected to mention specifically this first part of
the test, see, e.g., Tulsa Professional Collection Services, Inc.
v. Pope, 485 U.S. 478, 485-486 (1988), but that failing does not
imply that a court is operating without an “analytical structure”.

2. In discussing the second part of the Lugar test, the Third
Circuit did not announce that it was considering the three
principles. But, again, the failure to do so does not condemn
the analysis as inherently faulty, especially where, as here, the
court demonstrated its awareness of the issues surrounding the
State action inquiry -- the difficulty of application, the
dependence “upon the factual contexts in which the
controversies arise,” and the use of variously worded standards
and the problems thereby occasioned. Sullivan, 139 F.3d at
167.

First, the Third Circuit carefully examined the extent to
which the insurance companies’ actions in stopping payments
relied on governmental assistance; it made clear that this was
one of the relevant principles informing its conclusion that the
insurers were state actors:

The insurers have no power to deprive or terminate such
benefits without the permission and participation of the
Commonwealth ...._ [T]he Commonwealth is intimately
involved in any decision by an insurer to terminate an
employee’s constitutionally protected benefits because an

© The Ninth Circuit also failed to mention this aspect of the Lugar test, see
Grijalva, 152 F.3d at 1119, and probably for the same reason. Since the
HMOs were operating under the authority of the federal statutes and rules
governing Medicare and pursuant to contract with the federal government,
id. at 1117-1119, there could be no doubt on this point.

18

insurer cannot suspend medical payments without first
obtaining authorization from the Bureau. However this
authorization may be characterized, any deprivation that
occurs is predicated upon the State’s involvement.

Id. at 168. Just as the private litigants in Edmonson were
unable to exercise peremptory challenges without invoking the
overt, significant assistance of the court, so too are the insurers
unable to halt medical benefit payments without employing the
power and assistance of state officials. The Pennsylvania statute
specifies that an insurer may only be relieved of its obligation
to pay for health coverage by following the utilization review
procedures, which mandate significant state involvement. 77
Pa. Stat.Ann. § 531(5).

The state creates the system of utilization review ("UR")
and must authorize and certify the organizations (“UROs”)
which will perform the reviews. 77 Pa.Stat.Ann. § 531(6)(i);
34 Pa. Code §§ 127.650-.670. The state mandates what kind
of provider may perform the review, what the review process
should be, how long it may take, and what information the
URO may examine to reach its conclusion. 77 Pa. Stat.Ann.
§ 531(6)(ii); 34 Pa. Code §§ 127.461-.476. The state’s
implementing regulations provide that the insurance company’s
obligation to make payment within thirty days “may be tolled
only if review . . . of the treatment is requested during the 30-
day period under the UR provisions." 34 Pa. Code
§ 127.208(e).

Furthermore, the insurer’s "request" for the UR is filed
with the state on a state prescribed form, 34 Pa. Code
§ 127.452(a) and (c), which asks the state to invoke the
statutorily created procedures of UR. 34 Pa. Code

19

§ 127.452(a).2 The state requires the insurer to certify that it
served its request for UR on all parties, including the employee,
but, significantly, does not require the insurer to provide notice
that, once the state accepts the request, the insurer may
terminate the injured employee’s medical benefits during the
review or for an even longer period of time, perhaps
permanently. See 34 Pa. Code §§ 127.208 (e) - (g), 127.452.

If the state determines that the form has been properly
completed, the state assigns the request to a URO and sends the
Notice of Assignment to the URO, the employee, the employer,
the insurer, and the provider. The Notice prominently features
its origin: The Commonwealth of Pennsylvania, Department of
Labor and Industry, Bureau of Workers’ Compensation. J.A.
at 6.

At this point, while the state-created URO resolves the
dispute, the state may toll the insurer’s obligation to pay for
health coverage. 34 Pa. Code § 127.208(e). The URO reports
to the state and sends a copy to the parties. See 34 Pa. Code
§§ 127.472, 127.476. A party may appeal the URO’s findings
by filing a petition with the state, on yet another state
prescribed form. See 77 Pa. Stat.Ann. § 531(6)(iv); 34 Pa.
Code § 127.551. The state assigns the appeal to an
administrative law judge, who engages in a de novo review, 77
Pa. Stat.Ann. § 531(6)(iv); 34 Pa. Code § 127.556, and makes
the final determination as to whether the insurer must pay.

® “I hereby request the Bureau of Workers’ Compensation assign an
necessity of proposed, current or past care of the above employee.”
“Utilization Review: Initial Request” J.A. at 5.

20

The state is thus intimately involved in every aspect of the
dispute resolution process, from its creation of the utilization
review system, to its authorization of the decision making
body; from its assignment of the case, to its receipt of the
report; from its provisions for notice, to its mechanisms for
appeal. The state is overtly providing significant assistance to
the insurer in tolling its obligation to pay worker’s health
benefits pending dispute resolution. As in McCollum, 505
U.S. at 52, Edmonson, 500 U.S. at 624, and Tulsa Professional
Collection Services, Inc., 485 U.S. at 486-487, the actions of
the private entity are not self-executing; in those cases, courts
were the state enablers, making it possible for the private actors
to carry out the challenged activity, while, in this situation, the
Bureau of Workers’ Compensation plays a critical role in the
continuum of activity which may result in the suspension of
health coverage. Also, like the parking authority in Burton, the
state has here created a partnership with the insurers to replace
the tort system; this is a working or symbiotic relationship
within a comprehensive statutory scheme, so that the state has
“so far insinuated itself into a position of interdependence with
[the private entity] that it must be recognized as a joint
participant in the challenged activity.” Burton, 365 U.S. at 725.

Second, the court below also recognized that the insurance
companies’ ability to "invoke the supersedeas, or to stop
payments, is a power that traditionally was held in the hands of
the State." Sullivan, 139 F.3d at 168% In creating and

There has been some dispute about the Edmonson Court's elimination of
the “exclusivity” element of the governmental function test. See, e.g.,
United Auto Workers v. Gaston Festivals, Inc., 43 F.3d 902, 906 n.2 (4th
Cir. 1995). This Court did take that action, however, and followed it in
McCollum, 505 U.S. at 52. In light of the Edmonson decision to weigh
several factors, rather than to require total compliance with one, it was
logical to “delete the ‘exclusivity’ requirement and use the public function

(continued...)

21

administering its worker’s compensation system, the state is
exercising its traditional police powers of resolving disputes
and creating remedies for injuries to its citizens, and this Court
has held that protecting the rights of litigants is a "critical
governmental function." Edmonson, 500 U.S. at 624. In
exchange for providing a courtroom forum in which injured
workers may seek redress for their injuries, Pennsylvania has
created administrative remedies, eliminating the need to prove
fault and establishing a statutory obligation to pay medical
benefits for the injured worker. Although the state compels the
insurer to pay the benefits prior to a determination that the
medical treatment is reasonable or necessary, the insurer may
dispute that obligation, and, while seeking resolution by the
state, may toll further payment. Tolling or suspension of a
legal obligation pending dispute resolution is unquestionably a
governmental function, one which courts and administrative
agencies traditionally perform. See, e.g., Mathews v. Eldridge,
424 U.S. 319, 324 (1976) (Social Security Administration
suspending disability benefits pending administrative and
judicial review). Pennsylvania has thus delegated to insurers the
discretion to delay their legal obligations when they invoke
utilization review, the state-created forum for dispute
resolution.

Third, the state’s significant participation in the unilateral
suspension of medical benefits prior to resolution of the dispute
aggravates the deprivation. The critical feature of
Pennsylvania’s scheme is the substitution of guaranteed and
quick wage and medical benefits for the possibility of
obtaining, in the long run, economic damages, damages for
pain and suffering, and punitive damages. This is a mandatory

i (...continued)
concept as part of a broader state action inquiry.” Mark, 51 F.3d at 1157n2

(Greenberg, J., concurring); see also id. at 1157-1158.

22

and exclusive system, with the workers having no option. As
the Third Circuit emphasized by comparing the injured workers
to the prisoners in West v. Atkins, 487 U.S. 42 (1988), “they are
locked into the system, and any relief that the employees obtain
is strictly through the program which the State has designed.”
Sullivan, 139 F.3d at 169.

The balance of this scheme is greatly skewed, however, by
the stat2’s elimination of the right to immediate payment of
medical benefits, which occurs when an insurance company
invokes the state’s procedures to delay or terminate the benefits
pending the dispute resolution. And, it is unmistakably the
state and its functionaries who ultimately determine whether
the worker will receive medical benefits; even the Notice of
Assignment for utilization review comes with the state’s
imprimatur, on Commonwealth letterhead complete with the
Commonwealth’s seal. It is the state which permits the insurer
to cease payment even before the state has made its
determination that the treatment was unreasonable -- despite the
fact that one of the statute’s fundamental premises was the
guarantee of health care to injured workers.

Although the forum in which this deprivation takes place,
the utilization review process, is administrative, it is as much
a creature of the state as were the courts in Edmonson. Just as
the courthouse in that situation served as the backdrop for, and
provided the implicit approval of, racial discrimination, so too
does the administrative process created by the state furnish the
stage on which the insurers deprive injured workers of medical
coverage.

In sum, the insurance companies’ actions are intertwined
with those of the state, and they can only suspend payments
pursuant to that relationship and in reliance on state authority.

23

Furthermore, taking that action is the typical function of a state
agency, as the insurers have been thrust into a role historically
played by agencies. Finally, the state has aggravated the harm
by locking injured workers into a system that was supposedly
a fair replacement for the expense and vagaries of tort law but
which instead authorizes unilateral and indefinite suspension of
that most cherished of modern rights, health coverage. This
situation is not a matter of mere state regulation, which alone
is not sufficient to describe state action, see, e.g., Jackson v.
Metropolitan Edison Co., 419 U.S. 345, 350 (1974), nor does
it depict only a state reaction to an independent private decision
made pursuant to professional standards, as in Blum, 457 U.S.
at 1008-1009. The insurers’ actions here are authorized by the
state as part of a comprehensive state-created and -run scheme
which encompasses all the participants in the drama: the
employers, the insurers, the workers, and the state. When
viewed in the totality of its circumstances which Edmonson
demands, this scenario depicts the essence of state action.

CONCLUSION
The judgment of the court of appeals should be affirmed.

Respectfully submitted,

GILL DEFORD

SARAH LENZ LOCK

AARP Foundation Litigation

MICHAEL SCHUSTER

American Association of Retired
Persons

SALLY HART
Center for Medicare Advocacy, Inc.

24

JEANNE FINBERG
National Center for Youth Law

JANE PERKINS
National Health Law Program

VICKI GOTTLICH

National Senior Citizens Law Center

JUDITH L. LICHTMAN

National Partnership for Women &
Families

DECEMBER 1998

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0186%3A19. Public record. Not legal advice.