Amicus Curiae Brief — Great-West Life & Annuity Ins. Co. v. Knudson

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No. 99-1786

In the

Supreme Court of the Gnited States

GREAT-WEST LIFE & ANNUITY INSURANCE

COMPANY, EARTH SYSTEMS, INC., AND THE

HEALTH AND WELFARE PLAN FOR EMPLOYEES AND

DEPENDENTS OF EARTH SYSTEMS, INC.,

a Petitioners,

JANETTE KNUDSON AND ERIC KNUDSON,

Respondents.

On Petition for a Writ of Certiorari to the United

States Court of Appeals for the Ninth Circuit

MOTION FOR LEAVE TO FILE A BRIEF AS

AMICUS CURIAE AND BRIEF OF AMICUS CURIAE

CENTRAL STATES, SOUTHEAST AND SOUTHWEST

AREAS HEALTH AND WELFARE FUND IN

SUPPORT OF PETITION FOR WRIT OF CERTIORARI

WILLIAM J. NELLIS JOHN A. KUKANKOS

Secretary to the Board Counsel of Record

of Trustees JAMES L. COGHLAN

Central States, Southeast FRANCIS E. STEPNOWSKI

and Southwest Areas DEBRA M. CYRANOSKI

Health and Welfare Fund COGHLAN KUKANKOS COOK

9377 W. Higgins Road One N. Franklin Street

Rosemont, IL 60018 Suite 900

(847) 518-9800 Chicago, IL 60606

(312) 357-9200

Attorneys for Amicus Curiae

—_

ID _

Midwest Law Printing Company/Photex — Chicago — (312) 321-0220

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1

MOTION FOR LEAVE TO

FILE A BRIEF AMICUS CURIAE

Central States, Southeast and Southwest Areas Health

and Welfare Fund (“Welfare Fund”), pursuant to Su-

preme Court Rule 37, respectfully moves this Honorable

Supreme Court of the United States of America to grant

it leave to file a brief amicus curiae in support of the

Petition for Writ of Certiorari filed by Great-West Life &

Annuity Insurance Company, Earth Systems, Inc., and

Health and Welfare Plan for Employees and Dependents

of Earth Systems, Inc. (collectively, “Petitioners”). The

Welfare Fund submits its brief amicus curiae together

with this motion. In support, the Welfare Fund states:

1. Petitioners have consented to the filing of the

Welfare Fund’s brief amicus curiae. The Welfare Fund

has been unable to obtain the consent of Respondents

Janette Knudson and Eric Knudson to the filing of the

Welfare Fund’s brief amicus curiae. Petitioners’ letter of

consent accompanies this motion for filing with the Clerk

of this Court.

2. The Welfare Fund is a Taft-Hartley trust and an

employee benefit plan as defined in Section 3(1) of the

Employee Retirement Income Security Act of 1974

(“ERISA”), 29 U.S.C. § 1002(1). See Central States, South-

east & Southwest Areas Pension Fund v. Central Trans-

port, Inc., 472 U.S. 559, 561-62 (1985), reh’g denied, 473

U.S. 926 (1985). Welfare Fund beneficiaries are team-

sters and dependents of teamsters (collectively, “Benefi-

ciaries”) from local unions throughout the country who

negotiate collective bargaining agreements with their

employers. The employers pay contributions to the Wel-

fare Fund to fund benefits for Beneficiaries.

2

3. The Welfare Fund provides medical, hospital, den-

tal, disability, vision and life benefits to more than three

hundred thousand Beneficiaries who reside in thirty-six

states. The Welfare Fund is self-funded and not-for-

profit. Like Petitioners, the Welfare Fund has imple-

mented a subrogation program which it actively enforces

in all jurisdictions where its Beneficiaries reside.

4. The issue in this case is whether an employee bene-

fit plan regulated by ERISA can sue in federal court to

obtain reimbursement of paid medical benefits from the

proceeds of its beneficiary's personal injury settlement.

The resolution of this issue depends upon whether such

an action seeks equitable relief under Section 502(aX3)

of ERISA, 29 U.S.C. § 1132(aX3).

5. Pending before this Court are separate petitions for

writs of certiorari in the following cases which involve the

above issue: a) the case at bar; b) Reynolds Metals Co. v.

Ellis, 202 F.3d 1246 (9" Cir. 2000), petition for cert. filed,

No. 99-1787 (U.S. May 10, 2000) (the “Ellis Case”); and

c) Cement Masons Health and Welfare Trust Fund for

Northern California v. Stone, 197 F.3d 1003 (9 Cir.

1999), petition for cert. filed, No. 99-1403 (U.S. Feb. 22,

2000) (the “Stone Case”). Each of these cases involves a

decision of the Ninth Circuit holding that the above relief

is not equitable relief and that the federal court therefore

lacks jurisdiction to hear such matter under ERISA.

6. On May 30, 2000, this Court allowed the motions of

the Welfare Fund and other employee benefit plans to file

briefs amicus curiae in support of the Petition for a Writ

of Certiorari in the Stone Case. On that same date, this

Court invited the Solicitor General to file a brief in the

Stone Case. The Welfare Fund is also filing its Motion

for Leave to File a Brief Amicus Curiae in the Ellis Case

together with the filing of this motion.

7. The Welfare Fund seeks leave to file its brief

amicus curiae to bring to the attention of the Court

relevant matters not raised by Petitioners, viz., the effect

which the Ninth Circuit’s decision wil! have on large

employee benefit plans, such as the Walfare Fund, which

operate in many states. For these employee benefit plans,

the decision of the Ninth Circuit will cause the exact

harm which Congress sought to prevent in enacting

ERISA. The decisions of the Ninth Circuit in this case,

the Ellis Case, and the Stone Case impact large, multi-

state employee benefit plans in the same way. For that

reason, the Welfare Fund’s briefs in each case are essen-

tially the same.

8. In enacting ERISA, Congress recognized the im-

portance of employee benefit plans, the problems which

conflicting state and local regulation could cause for such

plans, and the need for exclusive federal regulation of

such plans to ensure uniformity in enforcement of plan

terms. This Honorable Court has, on many occasions,

noted these laudable goals of ERISA. See Shaw v. Delta

Air Lines, Inc., 463 U.S. 85, 99 (1983) (quoting 120 Cong.

Rec. 29933 (1974)); FMC Corp. v. Holliday, 498 U.S. 52,

60 (1990).

9. The Ninth Circuit's decision not only creates a split

in the Circuits, but also directs plans to state court as the

exclusive forum for enforcing the terms of the plan and

redressing violations of the terms of the plan. For these

4

reasons, that decision will create the exact patchwork

enforcement of plan terms which Congress sought to

avoid in enacting ERISA.

10. As discussed in the brief amicus curiae, because

ERISA preempts state laws, 29 U.S.C. § 1144a), and

provides plan fiduciaries with access to federal district

courts which have exclusive jurisdiction in actions to

enforce plan terms and redress violations of plan terms,

29 U.S.C. §§ 1152(aX3) and 1132(e), directing fiduciaries

to state courts for such actions may result in no remedy

at all. Moreover, that direction invites state courts to

apply a wide range of varying state laws which diminish

or eliminate subrogation rights in different ways from

state to state.

11. Finally, subrogation results in significant cost-

savings for the Welfare Fund. Since its inception in 1984,

the Welfare Fund’s subrogation program has achieved

direct reimbursements and savings of approximately

$62.0 million. Because the decision of the Ninth Circuit

will result in the diminishment of subrogation recoveries

and savings, that decision will lead to the inevitable

reduction in benefits for Beneficiaries—a result which

further detracts from ERISA’s goals as described in

Shaw, 463 U.S. at 99, and FMC, 498 U.S. at 60.

For each of the above reasons, the Central States,

Southeast and Southwest Areas Health and Welfare

Fund requests this Honorable Court to grant it leave to

JOHN A. KUKANKOS

JAMES L. COGHLAN

FRANCIS E. STEPNOWSKI

DEBRA M. CYRANOSKI

COGHLAN KUKANKOS COOK

One North Franklin Street

Suite 900

Chicago, Illinois 60606

(312) 357-9200

WILLIAM J. NELLIS

Secretary to the Board of Trustees

Central States, Southeast

and Southwest Areas Health

and Welfare Fund

9377 West Higgins Road

Rosemont, Illinois 60018

(847) 518-9800

e

A. The Decision of the Court of Appeals

for the Ninth Circuit Prevents Uni-

2. The Decision of the Ninth Circuit

Fosters the Very Harm Which

Congress Sought to Prevent in

B. If Allowed to Stand, the Ninth Cir-

cuit’s Decision Will Diminish a Valu-

able Cost-Saving Mechanism for Self-

C. The Decision of the Ninth Circuit

Prevents the Trustees From Adminis-

tering the Plan in Accordance with

ERISA’s Mandate .................005- 15

0. GET. n.d eecencccchancnteomnecens 16

iii

TABLE OF AUTHORITIES

Cases PAGE(S)

Administrative Comm. v. Gauf,

188 F.3d 767 (7 Cir. 1999) ................... 3

Blue Cross & Blue Shield of Ala. v. Sanders,

138 F.3d 1347 (11" Cir. 1998)................. 3

Bollman Hat Co. v. Root,

112 F.3d 113 (3™ Cir. 1997),

cert. denied, 522 U.S. 952(1997).............. 12

Cagle v. Bruner,

112 F.3d 1510 (11" Cir. 1997),

reh’g denied, 124 F.3d 223 (11" Cir. 1997) ...... 16

Central States, Southeast & Southwest Areas

Pension Fund v. Central Transport, Inc.,

472 U.S. 559 (1985), reh’g denied, 473 U.S.

MITE WRU WUD Rb ites ocnnhcockccccecece, 1

Community Ins. Co. v. Richardson,

172 F.3d 872 (6" Cir. 1999) .................. 12

Cutting v. Jerome Foods, Inc.,

993 F.2d 1293 (7 Cir. 1993),

cert. denied, 510 U.S. 916 (1993)........... 12, 16

Davis v. Line Constr. Benefit Fund,

589 F. Supp. 146 (W.D. Mo. 1984) ............ 12

iv

Descant v. Administrators of the Tulane Educ.

Fund, 706 So. 2d 618 (La. Ct. App. 1998) ...... 11

Electro-Mechanical Corp. v. Ogan,

9 F.3d 445 (6 Cir. 1993) ........ 6. cece ee ees 12

Fields v. Farmers Ins. Co., Inc.,

18 F.3d 831 (10 Cir. 1994) ...........ceeeeee 13

Firestone Tire & Rubber Co. v. Bruch,

GBD UD. 100 CIBER) oc cccccesccccccccccccees 16

FMC Corp. v. Holliday,

GED TEE, GREED cccccscceceocessun 7,9, 12,13

Fort Halifax Packing Co., Inc. v. Coyne,

GBB UB. 1 CAGRT) nc ccccccccccccess 4, 8,9, 10, 13

Hampton Indus., Inc. v. Sparrow,

981 F.2d 726 (4 Cir. 1992) ........-. eee eee: 12

Health Cost Controls v. Isbell,

139 F.3d 1070 (6" Cir. 1997) ........0. eee eee 12

Health Cost Controls v. Washington,

187 F.3d 703 (7" Cir. 1999),

cert. denied, 120 S. Ct. 979 (2000) ...........- 15

Ingersoll-Rand Co. v. McClendon,

498 U.S. 183 (1990) ....... ccc cece eee eens 11

Jefferson-Pilot Life Ins. Co. v. Krafka,

57 Cal. Rptr.2d 723 (Cal. Ct. App. 1996) ....... 11

v

Pilot Life Ins. Co. v. Dedeaux,

EERE ee eae ae 9,10

Ryan v. Federal Express Corp.,

78 V.O8 188 (9 Cllr. 1006) . o.oo. occ cicecee. 12

Shaw v. Delta Air Lines, Inc.,

EE ee RS 4, 7,8,13

Southern Council of Indus. Workers v. Ford,

83 F.3d 966 (8 Cir. 1996) .................... 3

Sunbeam-Oster Co., Inc. v. Whitehurst,

102 F.3d 1368 (5" Cir. 1996) .............. 15, 16

United McGill Corp. v. Stinnett,

154 F.3d 168 (4 Cir. 1998) .................. 12

Walker v. Wal-Mart Stores, Inc.,

159 F.3d 938 (56 Cir. 1998) .................. 12

Waller v. Hormel Foods Corp.,

120 F.3d 138 (8 Cir. 1997) .................. 12

Wendy’s Int'l v. Karsko,

94 F.3d 1010 (6 Cir. 1996) .................. 15

vi

Statutes

i Ae. |... i cesceceeunenesaen 1

SOG, CODED, « 6 ci cdidsnneddasndeibnads 6

SOE: OOMIIIID . 65. «5 isvacceviscdsceninveue 1

OG AE. oo. ccvscutavekonienes 15

29 U.S.C. § 1104(aXIMA) oo. cece cece eee eeeeeeeees 2

SD UAM. 6 LIDGE i. 00.0060 ccsnenadocennin 2

29 U.S.C. § 1132(aNX3). 2.2... cece . 5,7, 11

SPUD. OUMIND ... . 5 siddccesescucemss 5,7, 11, 15

SPUR, BOO k. 5. shccstemadonneeenw 7,9

Other Authorities

120 Cong. Rec. 29983 (1974) .........eeceeeeeeees 7

120 Cong. Rec. 29942 (1974) ........0seeeeeeeeees 7

H.R. Rep. No. 1785, 94th Cong., 2d Sess.,

Py YAO i) 8

H.R. Rep. No. 533, 93rd Cong., 1st Sess.,

at 12 (1973), reprinted in 1974

U.S.C.C.A.N. 4639, 4650 .. 0.6... cece eee eee 10

1

BRIEF OF AMICUS CURIAE

I. THE INTEREST OF THE AMICUS CURIAE

Central States, Southeast and Southwest Areas Health

and Welfare Fund (“Welfare Fund”) is an employee

benefit plan as defined in Section 3(1) of the Employee

Retirement and Income Security Act of 1974 (“ERISA”),

29 U.S.C. § 1002(1). See Central States, Southeast &

Southwest Areas Pension Fund v. Central Transport, Inc.,

472 U.S. 559, 561-62 (1985), reh’g denied, 473 U.S. 926

(1985). Welfare Fund beneficiaries are teamsters and

dependents of teamsters (collectively, “Beneficiaries”)

from local unions throughout the country who negotiate

collective bargaining agreements with their employers.

These collective bargaining agreements require employ-

ers to pay a certain level of contributions to the Welfare

Fund in return for a set benefit package offered by the

Welfare Fund for that particular contribution rate. Each

contributing employer executes a participation agree-

ment with the Welfare Fund agreeing, among other

things, to pay the required contributions and to abide by

all rules and regulations set by the Welfare Fund Trust-

ees who administer the Welfare Fund. Established under

the Taft-Hartley Act, the Welfare Fund has ten trust-

ees—five appointed by contributing employers and five

elected by the unions whose members are Beneficiaries.

See 29 U.S.C. § 186.

' As provided in United States Supreme Court Rule 37.6, the

Welfare Fund states that no counsel for any party authored any

part of this brief, and that no person other than amicus curiae,

its members, or its counsel made any monetary contribution to

the preparation or submission of the brief.

2

The Welfare Fund provides medical, hospital, dental,

vision, life and disability benefits to more than three

hundred thousand Beneficiaries who reside in thirty-six

states. The Welfare Fund is self-funded and pays benefits

directly from the contributions of participating employ-

ers. The Welfare Fund is not-for-profit, and its assets are

used exclusively to provide benefits for Beneficiaries or

to defray the reasonable costs of administering the bene-

fit plan. See 29 U.S.C. § 1104(aX(1)(A).

ERISA and the law of trusts require plan fiduciaries to

manage the asset3 of the Welfare Fund prudently and in

the best interests of all beneficiaries. 29 U.S.C. § 1104(a)

(1XB). To comply with these requirements, the Welfare

Fund has implemented cost-containment measures in-

cluding the promulgation of a subrogation provision. This

provision requires Beneficiaries who receive recoveries in

accident cases to, among other things, reimburse the plan

from any recovery in the full amount of accident-related

benefits advanced by the Welfare Fund. Since its incep-

tion in 1984, the Welfare Fund’s subrogation program

has achieved recoveries and savings totaling approxi-

mately $62.0 million.

Since benefit levels are based on actuarial assumptions

which assume a certain level of subrogation recoveries,

such recoveries are necessary to provide assets sufficient

to fund the benefit levels stated in the various benefit

plans offered by the Welfare Fund. Like other large

multiemployer plans where contribution rates are set

pursuant to collective bargaining agreements and a

participation agreement, the Welfare Fund cannot un-

ilaterally increase contribution rates. Thus, if subroga-

tion recoveries are reduced, benefits provided to Benefi-

ciaries will be correspondingly reduced.

The Welfare Fund will be materially and adversely

affected by the decision of the Ninth Circuit Court of

Appeals in this case. That decision conflicts with deci-

sions of the Seventh, Eighth and Eleventh Circuits which

permit the enforcement of subrogation and reimburse-

ment rights in federal courts. See Administrative Comm.

v. Gauf, 188 F.3d 767 (7 Cir. 1999); Blue Cross & Blue

Shield of Ala. v. Sanders, 138 F.3d 1347 (11 Cir. 1998);

Southern Council of Indus. Workers v. Ford, 83 F.3d 966

(8™ Cir. 1996). If the Ninth Circuit’s decision is allowed

to stand, state courts will be the exclusive forum for

enforcement of the Welfare Fund’s subrogation rights in

that Circuit. As a result, and as discussed herein, the

Welfare Fund will be able to enforce in piecemeal fashion

only, or not at all, its subrogation rights in the Ninth

Circuit and other jurisdictions which follow the Ninth

Circuit’s lead. In contrast, the Welfare Fund will be able

to fully enforce its subrogation rights in the Seventh,

Eighth and Eleventh Circuits and other jurisdictions.

Contrary to the intent of Congress when it passed

ERISA, the above split in the Circuits will lead to non-

uniform enforcement of the Plan and impose a costly

administrative burden on the Plan because the Welfare

Fund enforces its subrogation rights in many jurisdic-

tions. In addition, allowing the Ninth Circuit’s decision

to stand will lead to a reduction of subrogation recoveries

and the consequent loss of benefits for Plan Beneficiaries.

Moreover, the decision of the Ninth Circuit will have

implications for many other employee benefit plans.

4

Many multiemployer plans and plans of single employ-

ers with nationwide facilities operate in many different

states. The Ninth Circuit’s decision will cause for these

plans the same reduction in subrogation recoveries, in-

crease in administration expenses, and patchwork en-

forcement of plan terms. The administrative difficulty

and added expense caused by such a piecemeal scheme of

federal and state regulation of multistate employee bene-

fit plans which Congress rejected when it passed ERISA

will thus become a reality for many ERISA plans. See

Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 9-11

(1987); Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 107-08

(1983).

Il. SUMMARY OF THE ARGUMENT

The Welfare Fund seeks to bring to the Court's at-

tention matters not focused on by Petitioners. When it

passed ERISA into law, Congress recognized the national

interest in employee benefit plans, and the need for ex-

clusive federal regulation of such plans to ensure unifor-

mity in enforcement of plan terms and to eliminate con-

flicting state and local regulation of such plans. For large

multistate plans like the Welfare Fund, the Ninth Cir-

cuit’s decision makes these laudable goals of ERISA un-

attainable, creates added administrative expense, and

results in reduced subrogation recoveries and consequent

reduced benefits for Beneficiaries.

For several reasons, the decision of the Ninth Circuit

causes the very harm which ERISA was designed to

prevent. First, the Ninth Circuit’s decision conflicts with

decisions of the Seventh, Eighth and Eleventh Circuits,

causing the unequal, non-uniform enforcement of the

Welfare Fund’s subrogation provision. Second, the re-

quirement that multistate plans sue in state court to

enforce subrogation rights invites state courts to apply a

panoply of state laws which diminish or eliminate sub-

rogation rights, further fostering piecemeal enforcement

of plan terms.

Moreover, the decision of the Ninth Circuit prevents

plan fiduciaries from enforcing the terms of the plan and

redressing violations of plan terms as required by ERISA.

See 29 U.S.C. § 1132(aX3). In fulfilling these obligations,

Congress authorized plan fiduciaries to sue exclusively in

federal court to obtain equitable relief under ERISA. 29

U.S.C. §§ 1132(aX3), 1132(e). In denying the Trustees re-

lief in federal court, the forum which has exclusive jur-

isdiction over these matters, the Ninth Circuit’s decision

effectively bars plan fiduciaries from enforcing plan

terms as required by ERISA.

Ill. ARGUMENT: REASONS FOR

GRANTING THE WRIT

A. The Decision of the Court of Appeals for the

and the Need for Exclusive Federal Regula-

tion of Such Plans to Ensure Uniformity in

Enforcement of the Terms of the Plan.

When Congress enacted ERISA in 1974, it recognized

that employee benefit plans involved the national public

interest and stressed the importance of the uniform

federal regulation of such plans. Congress set forth its

findings and declaration of policy in Sectidn 2 of ERISA,

which, in part, provides:

The Congress finds that the growth in size, scope,

and numbers of employee benefit plans in recent

years has been rapid and substantial; that the op-

erational scope and economic impact of such plans is

increasingly interstate; that the continued well-being

and security of millions of employees and their de-

pendents are directly affected by these plans; that

they are affected with a national public interest; that

they have become an important factor affecting the

stability of employment and the successful develop-

ment of industrial relations.

29 U.S.C. § 1001(a). As recognized by this Court,

ERISA’s legislative sponsors emphasized the necessity

for uniform federal regulation of not only the substantive

provisions, but also of enforcement provisions applicable

to such plans:

“It should be stressed that with the narrow excep-

tions specified in the bill, the substantive and en-

forcement provisions of the conference substitute are

intended to preempt the field for Federal regulations,

thus eliminating the threat of conflicting or inconsis-

tent State and local regulation of employee benefit

plans. This principle is intended to apply in its broad-

est sense to all actions of State or local governments,

or any instrumentality thereof, which have the force

or effect of law.”

7

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 99 (1983)

(quoting 120 Cong. Rec. 29933 (1974));* see also FMC

Corp. v. Holliday, 498 U.S. 52, 60 (1990).

In order to permit plan Trustees to structure plan

provisions uniformly for all plan participants, Congress

enacted ERISA’s preemption provisions. See 29 U.S.C.

§ 1144. To further this same purpose, Congress enacted

Section 502(aX3) of ERISA, 29 U.S.C. § 1132(aX3),

ERISA’s enforcement provision, allowing plans to sue to

obtain equitable relief to enforce plan terms and redress

violations of plan terms. To ensure uniform enforcement

of plan terms, Congress provided that federal district

courts shall have exclusive jurisdiction in the above

actions. See 29 U.S.C. § 1132(e).

Congress rejected amendments to ERISA which would

have required ERISA plans to comply with multiple and

potentially conflicting state laws which would raise the

possibility of “endless litigation” on issues of whether

state regulation impinged upon federal regulation. Shaw,

463 U.S. at 99 n.20. Thus, after a period of monitoring by

the Congressional Pension Task Force and hearings by

a House Subcommittee, a report evaluating ERISA’s

preemption provisions was issued, stating that “‘the

* Senator Javits echoed these comments, stating: “‘Although

the desirability of further regulation—at either the State or

Federal level—undoubtedly warrants further attention, on bal-

ance, the emergence of a comprehensive and pervasive Federal

interest and the interests of uniformity with respect to inter-

state plans required—but for certain exceptions—the displace-

ment of State action in the field of private employee benefit

programs.’” Shaw, 463 U.S. at 99 n.20 (quoting 120 Cong. Rec.

29942 (1974)).

Federal interest and the need for national uniformity

are so great that enforcement of state regulation should

be precluded.’” Jd. (quoting H.R. Rep. No. 1785, 94th

Cong., 2d Sess., at 47 (1977)).

This Court has also on several occasions noted the

necessity for exclusive federal regulation of employee

benefit plans. In Shaw, the Court considered the question

of whether New York’s Disability Benefits Law was pre-

empted by ERISA. In finding preemption, this Court

noted that the obligation of the plans to comply with “the

varied and perhaps conflicting” requirements of particu-

lar state fair employment laws would make nationwide

administration of plans more difficult. 463 U.S. at 105

n.25. The Court emphasized that this sort of interference

with the administration of employee benefit plans was

exactly what ERISA’s comprehensive preemption of state

law was designed to minimize. Jd.

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

(1987), this Court recognized that requiring an employer

to adopt different payment formulae for employees inside

and outside the State would subject the employer to pre-

cisely the burden that ERISA preemption was intended

to eliminate. Jd. at 10. This court recognized the diffi-

* Since the laws and regulations applicable to health care

benefits vary widely from state to state, the disruptive effect of

state regulation is compounded for employee benefit plans,

such as the Welfare Fund, which have empl yees in more than

one state. Benefit plans which operate in many states often

choose to self-fund benefit payments rather than purchase

insurance to cover such benefits. Because state laws vary dra-

matically, purchasing insurance for plans which operate in

(continued...)

culties which these state rules imposed on plan adminis-

trators and stated:

An employer that makes a commitment systemati-

cally to pay certain benefits undertakes a host of

obligations, such as determining the eligibility of

claimants, calculating benefit levels, making dis-

bursements, monitoring the availability of funds for

benefit payments, and keeping appropriate records in

order to comply with applicable reporting require-

ments. The most efficient way to meet these respon-

sibilities is to establish a uniform administrative

scheme, which provides a set of standard procedures

to guide processing of claims and disbursement of

benefits. Such a system is difficult to achieve, how-

ever, if a benefit plan is subject to differing regula-

tory requirements in differing States. A plan would

be required to keep certain records in some States

but not in others; to make certain benefits available

in some States but not in others; to process claims in

a certain way in some States but not in others; and to

comply with certain fiduciary standards in some

States but not in others.

Id. at 9.

ERISA’s uniform enforcement mechanism complements

ERISA’s administrative scheme. In Pilot Life Ins. Co. v.

Dedeaux, 481 U.S. 41 (1987), this Court again confirmed

that ERISA was designed to achieve uniformity of deci-

——"—

* (...continued)

many states is inefficient, inequitable and increasingly ex-

pensive. It was for this reason that Congress passed the pre-

emption clause of ERISA, 29 U.S.C. § 1144. See Fort Halifax,

482 U.S. at 10; see also FMC Corp. v. Holliday, 498 U.S. 52

(1990).

10

sion to assist fiduciaries “‘to predict the legality of pro-

posed actions without the necessity of reference to vary-

ing state laws.’” Jd. at 56 (quoting H.R. Rep. No. 533,

93rd Cong., lst Sess., at 12 (1973), reprinted in 1974

U.S.C.C.A.N. 4639, 4650). This Court noted ERISA’s

expectation that federal courts would develop federal

common law:

The expectations that a federal common law of rights

and obligations under ERISA-regulated plans would

develop, indeed, the entire comparison of ERISA’s

§ 502(a) to § 301 of the LMRA, would make little

sense if the remedies available to ERISA participants

and beneficiaries under § 502(a) could be supple-

mented or supplanted by varying state laws.

Pilot Life, 481 U.S. at 56.

This Court also noted in enacting ERISA, Congress

realized that employers establishing and maintaining

employee benefit plans are faced with the task of coordi-

nating complex administrative activities:

A patchwork scheme of regulation would introduce

considerable inefficiencies in benefit program opera-

tion, which might lead those employers with existing

plans to reduce benefits, and those without such

plans to refrain from adopting them. Pre-emption

ensures that the administrative practices of a benefit

plan will be governed by only a single set of regula-

tions.

Fort Halifax, 482 U.S. 1, 11 (1987) (citing H.R. Rep. No.

533, 93rd Cong., 1st Sess., at 12 (1973), reprinted in 1974

U.S.C.C.A.N. 4639, 4650).

ll

2. The Decision of the Ninth Circuit Fosters the

Very Harm Which Congress Sought to Prevent

in Enacting ERISA.

The Ninth Circuit’s decision will create the exact

patchwork scheme of regulation and enforcement which

Congress sought to avoid in enacting ERISA. Ingersoll-

Rand Co. v. McClendon, 498 U.S. 133, 142 (1990). Most

obviously, the split in the Circuits which the Ninth

Circuit’s decision creates will result in the unequal, non-

uniform enforcement of the Welfare Fund’s subrogation

provision. First, denying ERISA plans the right to en-

force subrogation rights in federal court under Section

502(aX3) of ERISA, 29 U.S.C. § 1132(aX3), may indeed

result in the complete abrogation of such rights. Courts

in a number of jurisdictions have held that federal courts

have exclusive jurisdiction in enforcing such rights and

have dismissed lawsuits seeking to enforce these rights.

See, e.g., Descant v. Administrators of the Tulane Educ.

Fund, 706 So. 2d 618 (La. Ct. App. 1998); Jefferson-Pilot

Life Ins. Co. v. Krafka, 57 Cal. Rptr.2d 723 (Cal. Ct. App.

1996). In fact, ERISA itself provides that federal district

courts shall have exclusive jurisdiction over enforcement

of plan terms. 29 U.S.C. § 1132(e).

Second, the requirement that multistate plans sue in

state court to enforce their subrogation provisions invites

state courts to apply local laws which diminish sub-

rogation rights and prevents the uniform enforcement of

plan terms. See Ingersoll-Rand, 498 U.S. at 142. For ex-

ample, the laws of some states prohibit the enforcement

of subrogation rights against uninsured motorist recov-

eries, recoveries by minors, or recoveries which do not

12

make a plan participant whole. In other states, the

amount of the recovery may be reduced by an award of

pro rata attorney’s fees for a participant’s attorney under

the common fund doctrine.‘

* Federal courts are often forced to decide whether to apply

state laws that would forbid or limit an ERISA plan’s sub-

rogation rights. When confronted with this issue, most federal

courts have held that ERISA preempts such laws or that the

written language of the plan overrides such laws. See, e.g.,

FMC, 498 U.S. 52 (1990) (ERISA preempts state automobile

insurance anti-subrogation law); Community Ins. Co. v. Rich-

ardson, 172 F.3d 872 (6™ Cir. 1999) (ERISA preempts Ohio

statute prohibiting reimbursement of medical claims from

municipalities); Electro-Mechanical Corp. v. Ogan, 9 F.3d 445

(6™ Cir. 1993) (ERISA preempts Tennessee statute prohibiting

subrogation of health care costs in malpractice cases); Hampton

Indus., Inc. v. Sparrow, 981 F.2d 726 (4" Cir. 1992) (ERISA

preempts North Carolina subrogation statute limiting a self-

funded ERISA plan’s recovery from third party settlement

funds); Davis v. Line Constr. Benefit Fund, 589 F. Supp. 146

(W.D. Mo. 1984) (ERISA preempts State law preventing sub-

rogation of an otherwise unassignable personal claim).

Courts have also considered application of the common fund

doctrine to ERISA plans. See, e.g., Walker v. Wal-Mart Stores,

Inc., 159 F.3d 938, 940 (5" Cir. 1998); United McGill Corp. v.

Stinnett, 154 F.3d 168, 173 (4 Cir. 1998); Bollman Hat Co. v.

Root, 112 F.3d 113, 118 (3™ Cir. 1997), cert. denied, 522 U.S.

952 (1997); Health Cost Controls v. Isbell, 139 F.3d 1070, 1072

(6" Cir. 1997); Ryan v. Federal Express Corp., 78 F.3d 123 (3™

Cir. 1996). In Waller v. Hormel Foods Corp., 120 F.3d 138, 141

(8 Cir. 1997), the court ruled that whether ERISA preempts

the common fund doctrine depends on the language of the

benefit plan. In Cutting v. Jerome Foods, Inc., 993 F.2d 1293,

1296 (7" Cir. 1993), cert. denied, 510 U.S. 916 (1993), and

(continued...)

13

The decision of the Ninth Circuit will create huge

burdens on multistate plans and force such plans to rely

on myriad rules to enforce subrogation and reimburse-

ment rights. Uniformity in the application of plan terms

will cease. The end result of the Ninth Circuit’s decision

will be the exact patchwork administration of employee

benefit plans that Congress sought to avoid in enacting

ERISA. See FMC Corp., 463 U.S. at 60; Fort Halifax, 482

U.S. at 10-11; Shaw, 463 U.S. at 105, n.25.

B. If Allowed to Stand, the Ninth Circuit’s Decision

Will Diminish a Valuable Cost-Saving Mechanism

for Self-Funded Plans.

Many of the cost-containment measures implemented

by employee benefit plans transfer actual costs to benefi-

ciaries or restrict the type, length or choice of medical

care. Unlike such cost-containment measures, a sub-

rogation provision merely prevents the duplication of

benefits by the plan where other coverage exists for a

particular injury or illness. In other words, the partici-

pant does not recover twice for accident-related medical

damages, and the responsibility for the medical care is

shifted to the party causing the injury or to the specific-

risk insurer who has specifically assumed the kind of risk

leading to the injury. Subrogation not only shifts the

* (...continued)

Fields v. Farmers Ins. Co. Inc., 18 F.3d 831, 835-36 (10" Cir.

1994), courts held that the terms of the plan override contrary

State laws related to subrogation in Wisconsin and Oklahoma,

respectively. See also footnote 6, infra, pp. 15-16.

14

costs of medical care to the responsible party, but also

constitutes a valuable cost-savings device. Since the in-

ception of the Welfare Fund’s subrogation program, the

Welfare Fund has achieved recoveries and subrogation

savings totaling approximately $62.0 million.

Under the Ninth Circuit’s ruling, employee benefit

plans will be ushered to state court to enforce their

subrogation rights. As discussed previously, some state

courts have held that the federal courts have exclusive

jurisdiction over such matters and will, therefore, not

entertain such actions. Other states may indeed apply

laws which prohibit or diminish the enforcement of

subrogation rights. (See footnote 4, supra, pp. 12-13.) The

inevitable result of the Ninth Circuit’s ruling will be a

loss in subrogation recoveries for the Welfare Fund and

_ other plans, and the consequent loss of benefits for plan

participants.°

* The Ninth Circuit’s decision could lead benefit plans to re-

consider their policy of advancing payment for medical bills

related to injuries sustained in accidents. If benefit plans can-

not enforce their subrogation rights in certain states, and in

order to avoid having one employer subsidize the benefits of

another employer's employees, plans could add plan provisions

to exclude from coverage claims related to accidents in those

states where the plan’s subrogation provision could not be en-

forced. Although compensating for lost subrogation recoveries,

this added layer of administration would delay payment of a

beneficiary's benefits, increase the costs of administering the

plan, and lead to the hodge-podge administration of plans

which ERISA condemned.

15

C. The Decision of the Ninth Circuit Prevents the

Trustees From Administering the Plan in Accor-

dance with ERISA’s Mandate.

ERISA requires that every employee benefit plan be

established pursuant to a written instrument and that

named fiduciaries control and manage the operation and

administration of the Plan. 29 U.S.C. § 1102(aX1). Con-

gress bestowed upon fiduciaries the power and author-

ity to accomplish these objectives by enacting ERISA’s

enforcement mechanism. Section 502(e) of ERISA, 29

U.S.C. § 1132(e), affords fiduciaries access to federal

courts to enforce plan terms and to redress violations of

plan terms. The Ninth Circuit’s decision, which denies

access to federal court, prevents fiduciaries from admin-

istering the Plan as required by ERISA.

Subrogation is not a simple contractual matter between

an insured and its insurer where state issues predomi-

nate. Subrogation involves enforcing the written terms of

the plan under the enforcement mechanism of ERISA. In

many instances, the enforcement of subrogation rights by

a self-funded employee benefit plan involves the interpre-

tation of a plan’s precise subrogation provision—a func-

tion best left to the discretion of plan Trustees.’ Because

° For example, plan fiduciaries must decide whether the writ-

ten terms of the plan include recoveries from tortfeasors as well

as their insurers or recoveries from uninsured motorist cov-

erage. See Health Cost Controls v. Washington, 187 F.3d 703,

711-12 (7 Cir. 1999), cert. denied, 120 S. Ct. 979 (2000);

Wendy’s Int'l, Inc. v. Karsko, 94 F.3d 1010, 1013 (6 Cir. 1996);

Sunbeam-Oster Co., Inc. v. Whitehurst, 102 F.3d 1368, 1378 (5"

Cir. 1996). Another question of interpretation arises when the

(continued...)

16

ERISA considerations permeate the enforcement of Plan

terms such as subrogation, Congress legislated that fed-

eral district courts have exclusive jurisdiction to enforce

Plan terms and redress violations of those terms. These

are core ERISA issues best left, as Congress intended, to

the federal courts. Contrary to the Ninth Circuit’s po-

sition, the equitable relief which Congress set forth in

ERISA is sufficient to accomplish these objectives.

IV. CONCLUSION

The Ninth Circuit’s decision is directly at odds with the

goals of Congress in enacting ERISA. If the decision of

the Ninth Circuit is permitted to stand, employee benefit

plans will be subjected to non-uniform regulations and

enforcement. The consequent increased administrative

expenses and decreased subrogation recoveries will result

in a loss of benefits for plan beneficiaries. Plan fiducia-

ries will be denied the uniform enforcement mechanism

needed to enforce plan terms and redress violations of

plan terms. For the reasons stated above, Central States,

Southeast and Southwest Areas Health and Welfare

® (...continued)

written terms of the plan set the priority of allocations between

the subrogee and subrogor. See Cagle v. Bruner, 112 F.3d 1510,

1520-22 (11 Cir. 1997), reh’g denied, 124 F.3d 223 (11® Cir.

1997); Sunbeam-Oster Co., 102 F.3d at 1373-76; Cutting v.

Jerome Foods, Inc., 993 F.2d 1293 (7™ Cir. 1993), cert. denied,

510 U.S. 916 (1993). See also Firestone Tire & Rubber Co. v.

Bruch, 489 U.S. 101 (1989) (arbitrary and capricious standard

_ applied when plan gives fiduciary discretionary authority to

construe terms of plan).

17

Fund respectively requests this Honorable Court to grant

the Petition for Writ of Certiorari.

June 8, 2000.

Respectfully submitted,

WILLIAM J. NELLIS JOHN A. KUKANKOS

Secretary to the Board Counsel of Record

of Trustees JAMES L. COGHLAN

Central States, Southeast FRANCIS E. STEPNOWSKI

and Southwest Areas DEBRA M. CYRANOSKI

Health and Welfare Fund COGHLAN KUKANKOS COOK

9377 W. Higgins Road One N. Franklin Street

Rosemont, Illinois 60018 Suite 900

(847) 518-9800 Chicago, Illinois 60606

(312) 357-9200

Attorneys for Amicus Curiae