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

Supreme Court, U.S.

) FILED

No. 99-1786 JUN 8 9000

ste CLERK

SUPREME COURT OF THE UNITED STATES

———

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY, EARTH

SYSTEMS, INC., AND THE HEALTH AND WELFARE PLAN FOR

EMPLOYEES AND DEPENDENTS OF EARTH SYSTEMS, INC.

Petitioners,

v.

JANETTE KNUDSON AND ERIC KNUDSON,

Respondents.

——

On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For the Ninth Circuit

———

MOTION FOR LEAVE TO FILE BRIEF OF AMICUS

CURIAE AND BRIEF OF AMICUS CURIAE OF

SELF-INSURANCE INSTITUTE OF AMERICA, INC.

IN SUPPORT OF PETITIONERS

—_o—

J. Dudley Hyde

Richard D. Nix

Mark D. Spencer*

*Counsel of Record

McAFEE & TAFT

A Professional Corporation

10 Floor, Two Leadership Square

211 North Robinson Avenue

Oklahoma City OK 73102

(405) 235-9621

MOTION FOR LEAVE TO FILE AN AMICUS

CURIAE BRIEF

The Self-Insurance Institute of America,

Incorporated (SIIA) moves for leave to file an amicus

curiae brief pursuant to Supreme Court Rule 37.2(b). This

brief is filed with the consent of Petitioners, and a letter

reflecting this consent has been filed with the Clerk of the

Court. Respondents, Janette Knudson and Eric Knudson,

have withheld their consent to the filing of this brief.

The issue in this case complements the issue in Cement

Masons Health & Welfare Trust Fund for Northern Call.v.

Stone, 197 F.3d 1003 (9" Cir. 1999), petition for cert. filed,

68 U.S.L.W. 3566 (U.S. Feb 22, 2000)(No. 99-1403).

Last week, on May 30, 2000, the Court invited the

Solicitor General to file an amicus curiae brief in Stone,

and granted motions for leave to file amicus curiae briefs

by: Health Insurance Association of America; International

Training Institute for Sheet Metal and Air Conditioning

Industry; Multiemployer Trust Funds; and Central States,

Southeast and Southwest Areas Health and Welfare Fund.

There is currently a split among the circuits as to

whether an employee benefit plan fiduciary may seek to

recoup benefits paid in third-party liability situations under

ERISA Section 502(a\(3) when the remedy involves a

monetary recovery.

For this reason, SIIA respectfully requests that its

Motion For Leave To File Amicus Curiae Brief be granted.

‘

TABLE OF CONTENTS

Page

MOTION FOR LEAVE TO FILE BRIEF...........0.0s+0000 i

TABLE OF CONTENTS. ........sccccccccccssssssssssssnsssssssssovese ii

TABLE OF AUTHORITIES .u.......cccccsssssssssssssssssseeeees iii

INTEREST OF AMICUS CURIAE .......ccssssssssssssssssss00 1

AROS cancer 3

The Issue in this Case, Involving Abdication of

Exclusive Federal Jurisdiction Within a

Pre-empted Field, Affects the Interests of Millions of

Participants in Self-Insured and Fully-Insured Benefit

Plans.

Ot I Ne 11

‘ii

TABLE OF AUTHORITIES

CASES

Barnes v. Independent Auto. Dealers,

64 F.3d 1389 (9 Cir. 1995) ........ccccseeccssneeeeneesesees 4

Caterpillar, Inc. v. Williams,

SS a 4

Cement Masons Health & Welfare Trust Fund

for Northern Cal . v. Stone,

197 F.3d 1003 (9" Cir. 1999), petition for

cert. filed,68 U.S.L.W. 3566 (U.S. Feb 22, 2000)

ee i

Deakins v. Monaghan,

a x

Donovan v. Mazzola,

716 F.2d 1226 (9™ Cir. 1983) ........ccsecccsvesesneeeeneees 9

FMC Corp. v. Holliday,

cee 5

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

a 7

Mertens v. Hewitt Assoc’s,

ee ceerentnencnnsnensnesnesenened 4,5

Metropolitan Life Ins. Co. v. Massachusetts,

TTT TE 3

Life Ins. Co. v. Taylor,

I odieteneseermanenstasecnsssenseccssesed 4, 10

New York State Conference of Blue Cross & Blue

Shield Plans v. Travelers Ins. Co.,

ED cenntcctinctetinnineniemennsniniaitiis

Pane v. RCA Corp.,

868 F.2d 631 (3° Cir. 1989) .o.....ccccccccccceccsseeseseeseee

Peay v. BellSouth Med. Assistance Plan,

205 F.3d 1206 (10™ Cir. 2000) .o.....ccccccccccceceeeeeeene

Thermtron v. Hermansdorfer,

> SEE rcensnncccnsememepnmeeil

Binnie iia a

Page

STATUTES

ee Oe Oe erricnciercintrensttenrensecsieninsnemnntensinetpneniane 5

ee i Oe rrncetiinssccaparnitenienacnsentnsimeinenetnraeteniteee l

Se I erecncnscesesesencentreneeneinerentntscennesennatenpeate 3

as Op CD itcccctinnniitinnsnttnennticdiiiantnniainntitenntii 3,6

ls Oy i rindtcnencernttapreinninneneiteseenantnniel 4

is ID ctrcccernrcempmenmmmsennae 10

CC passim

Se ricsrecnrtiesneternensntsennsicsiiinnstiinanans 5

es Op CD cccccincstnnsnntonnsintittmeeel 4, 8,10

a ie 0 Ste encernctemennmesennmesnntimmenanessten 3, 5,7

a ee OD acintetnitencstatantinenennemntitninnrnenitionael 3

ee te rcrrterrerententersniinccetsemnammammanees 3

te Oo ccritartrccenttcnnnenecccrtnecmnctstecnneeel 3

Se ie Oe Re cietinscniereneciisnsenennnpnsienpentntinns 3,7

RULES

Supreme Court Rule 37.2() .............c.cccccecessessereeneeneeeees i

SeaeNS Cates BRR FFG ceccececescesesessesssccecensesessssssesssssees 1

OTHER AUTHORITIES

Thomas R. Hrdlick, Appellate Review of Remand

Orders in Removed Cases: Are They Losing a

Certain Appeal? , 82 Marq. L. Rev. 535 (1999)...8, 9

l

INTEREST OF AMICUS CURIAE

The Self-Insurance Institute of America, Inc. (SILA)

submits this brief in support of Great-West Life & Annuity

Insurance Company, Earth Systems, Inc., and the Health

and Welfare Plan for Employees and Dependants of Earth

Systems, Inc.’s Petition for a Writ of Certiorari.'

SIIA is a non-profit corporation having over 700

dedicated to the advancement and protection of the self-

insurance industry. SIIA’s membership includes users of

self-insurance such as employer plan sponsors, as well as

service providers such as third-party administrators,

reinsurance companies, and other entities engaged in the

self-insurance business. SIIA is the only association in the

U.S. which represents ffirms, professionals, and

organizations which participate in the broad spectrum of

self-insurance, including self-insured group health plans.

Through SIIA, its members coordinate their views

and provide practical information and recommendations to

government and the public on how the self-insurance

system functions, and on the impact of government

Retirement Income Security Act of 1974 (ERISA) 29

U.S.C. §§ 1001 ef seg., concerning self-insured health plans

and plan participants. This includes rendering assistance to

courts in their deliberations on significant self-insured

health plan issues of broad concern to members.

' Counsel of record for SIIA, Mark Spencer, certifies

pursuant to Supreme Court Rule 37.6 that this brief was not

authored in whole or in part by counsel for a party and that

no person or entity, other than the amicus curiae, its

members, or its counsel, made a monetary contribution to

the preparation or submission of the brief.

2

SIIA has an interest in the ERISA pre-emption

issue presented in this case -- whether an employee benefit

plan fiduciary may seek to recoup benefits paid in third-

party liability situations under ERISA Section 502(a)(3)

(29 U.S.C. § 1132(a)(3)) when the remedy involves a

monetary recovery.

First, the issue presented is of major concern to the

self-insurance industry because the rising cost to employers

of providing health benefits will escalate if self-insurance

plans are not able to recoup their losses in third-party

tortfeasor situations using the tools Congress supplied

under ERISA. This will result either in reduced health care

benefits, or higher out-of-pocket costs for participants in

the form of higher co-payments and deductibles, or both.

The Ninth Circuit’s decision may even threaten the

continued viability of self-insurance as a cost-effective

alternative for providing health benefits to millions of

employees.

Second, because many SIIA employer members

operate on a multi-state basis, they are legitimately

concerned that any erosion of ERISA’s pre-emption

provisions will lead to plans abandoning attempts to

recover money paid to participants. These participants

agreed to reimburse the plan if they received money from a

third-party tortfeasor, but later may decide to keep the

double recovery and hide behind the state court system at

the expense of other plan participants. This is exactly what

Congress intended to avoid by enacting ERISA.

When it enacted ERISA, Congress found that the

growth in numbers and size of employee benefit plans had

been substantial, and that “the continued well-being and

security of millions of employees and their dependents are

directly affected by these plans; that they are affected with

a national public interest... .” 29 U.S.C.§ 1001(a). The

stated policy of ERISA is “the interests of participants in

employee benefits plans . . . by providing for appropriate

remedies, sanctions, and ready access to the Federal

courts.”” 29 U.S.C. § 1001(b)(emphasis added).

Congress capped off the federal legislation with a

pre-emption provision that has been | described as

“sweeping.” See 29 U.S.C. § 1144(a).? ERISA pre-

emption is so powerful that it displaces not only state

legislation, but any form of state action including state

lawsuits that “relate to” benefit plans. See 29 U.S.C. §

1144(c\1)\(broadly defining “state action”). Pre-emption

of state law is even more forceful with respect to “self-

insured” plans (as opposed to “fully-insured” plans). See

29 U.S.C. § 1144(b)(2).*

2 29 U.S.C. § 1001(b).

* See Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.

724, 746 (198SXERISA pre-emption provision is

“sweeping”).

* Under ERISA’s “savings clause,” state laws that regulate

the “busiaess of insurance” are saved from pre-emption.

See 29 U.S.C. § 1144(6X(2)(A). However under ERISA’s

4

ERISA also includes a civil enforcement section

that establishes exclusive federal civil causes of action. See

29 U.S.C. § 1132(a). When read in connection with

ERISA’s pre-emption provisions, this civil enforcement

section is so powerful as to displace any state cause of

action within the pre-empted field. See Metropolitan Life

Ins. Co. v. Taylor, 481 U.S. 58, 62-63 (1987). Such actions

are “necessarily federal in character” and may be removed

from state court even if the federal question does not appear

on the face of the plaintiff's well-pleaded state court

complaint. See id. at 63-64. A corollary to this rule is that

ERISA jurisdiction cannot be avoided through “artful

pleading.”°

Congress also included various “tools” to protect

the federal nature of these federal civil actions. This

includes for example, nationwide service of process under

29 U.S.C. § 1132(e)(1), which permits service wherever the

defendant resides or may be found, thus avoiding

Fourteenth Amendment minimum contacts hurdles to

service of process. See, e.g, Peay v. BellSouth Med.

Assistance Plan, 205 F.3d 1206, 1210 (10 Cir. 2000).

“deemer clause,” benefit plans cannot be “deemed” to be in

the business of insurance. See 29 U.S.C. § 1144(b)(2)(B).

The result is that certain state laws which regulate the

business of insurance are not preempted with respect to

fully insured plans, but remain preempted with respect to

self-funded plans. See generally Mertens v. Hewitt

Assoc’s, 508 U.S. 248 (1993), for a discussion of this

distinction. As noted above, the Self-Insurance Institute of

America has a significant interest in the regulation of self-

insured benefit plans.

* See generally Caterpillar, Inc. v. Williams, 482 U.S. 386,

397 (1987)(where Congress intended complete pre-emption

of state law, the “artful pleading” doctrine cannot be

invoked).

—

5

Similar to nationwide service in federal interpleader

situations, see 28 U.S.C. § 1367, this permits parties to

“lock” all interested or potentially interested parties to

dispute into a single lawsuit regardless of where they

happen to reside. This is very important for example, when

there are numerous participants, beneficiaries, fiduciaries,

and other parties interested in the dispute. Plans have sue-

or-be-sued status so that they can be “heard” in federal

court. See 29 U.S.C. § 1132(d)\(1). Conflicting state laws

are pre-empted. See 29 U.S.C. § 1144(a).

Finally, ERISA’s civil actions are equitable in

nature, meaning that courts can fashion a wide variety of

remedies tailored to fit a particular situation. See, e.g., Pane

v. RCA Corp., 868 F.2d 631, 636 (3 Cir. 1989). This is

especially true in cases such as the one at bar arising under

29 U.S.C. § 1132(aX(3). See Mertens v. Hewitt Assoc’s,

508 U.S. 248, 253-54 (1993). It also that court-

imposed remedies are enforceable through contempt, rather

than through expensive and cumbersome state remedies

such as “execution.” See, e.g., Pane, 868 F.2d at 636.

One of ERISA’s civil actions — the one at issue here

is 29 U.S.C. § 1132(aX(3) — permits a plan fiduciary to

bring an action for injunctive and equitable relief to enforce

the provisions of ERISA and/or the terms of the plan, or to

redress violations thereof. See generally Mertens, 508 U.S.

at 253-54. This is a broad and open-ended statute that can

encompass an almost infinite variety of situations where a

person or entity has violated or is attempting to evade

ERISA and/or the terms of the plan. See id One of those

situations is the one at bar, where a plan participant is

violating a plan’s terms requiring subrogation and

reimbursement. See id. at 253.

Typically, these disputes arise in the context of a

catastrophic injury to a plan participant by a third party.

See generally FMC Corp. v. Holliday, 498 U.S. 52 (1990).

The plan pays a significant sum to satisfy the participant’s

6

recovers a significant sum, but refuses to reimburse the

plan. This results in a significant loss of plan assets (which

must be borne by the plan participants or sponsor) and a

double recovery to the injured participant (who has his/her

bills paid in full and also recovers damages in the tort

action).

To protect against this, many plans include

provisions that give the plan a lien on any recovery by the

participant, and require the participant to reimburse the

plan from any recovery. These are “terms of the plan”

within the meaning of 29 U.S.C. § 1132(a\3). But

frequently, participants and their attorneys, who are often in

highly sympathetic positions, try to artfully craft ways to

avoid the plan’s subrogation/reimbursement provisions.

This includes, for example, structured settlements,

payments to persons other than the participant, agreed

“findings” in the tort action that are “binding” on the

participant, state declaratory actions, etc. Within this pre-

empted field, however, these are merely “artful” efforts to

violate the subrogation and reimbursement terms of the

plan.

Congress provided a federal remedy under Section

1132(aX(3), which permits a plan fiduciary to file a federal

cause of action to enforce the relevant terms of the plan,

and to redress violations thereof. This is part of the “ready

access” to federal courts envisioned by Congress. See 29

U.S.C. § 1001(b).

The attendant tools that accompany such federal

actions -- nationwide service of process, sue-or-be-sued

status, enforcement through contempt, etc. -- all operate to

allow the plan to recover its losses, recoup its assets,

maintain its financial integrity, and be restored to its former

position. It also protects participants and beneficiaries

7

collectively in that restoration of funds ensures assets to pay

future claims.°

Typically, the injured participant and _ the

participants’ attorneys, however, seek to evade their

state law, and argue that the plan must negotiate a maze of

traditional state law hurdles such as restricted service of

process, minimum contacts, discovery, jury trials,

execution procedures, etc. to recover the lost assets.

But ERISA pre-empts these “state laws,” which are

defined as such under 29 U.S.C. § 1144(c\(1). This Court

recently reaffirmed that the legislative purpose behind

Section 1144(a) is “to ensure that plans and plan sponsors

would be subject to a uniform body of benefits law, the goal

was to minimize the administrative and financial burden of

complying with conflicting directives among States or

between States and the Federal Government..., [and to

prevent] the potential for conflict in substantive

law...requiring the tailoring of plans and employer conduct

to the peculiarities of the law of each jurisdiction.” New

York State Conference of Blue Cross & Blue Shield Plans

v. Travelers Ins. Co., 514 US 645, 656-57 (1995) (emphasis

added).

° In Massachusetts Mut. Life Ins. Co. v. Russell, 473 US.

134, 141-42 & n. 9 (1985), this Court held that ERISA’s

fiduciary regulatory scheme was designed to protect the

participants and beneficiaries collectively, rather than to

protect individual participants. Similarly, in ERISA

restitution actions by plan fiduciaries under 29 U.S.C. §

1132(aX(3), federal courts should be primarily concerned

about the welfare of the participants and beneficiaries

collectively, rather than the welfare of a specific

participant.

A lawsuit by a fiduciary to enforce the terms of a

plan -— whether those terms require subrogation,

reimbursement, or other action — or a lawsuit to redress

violations of such terms, falls squarely within the scope of

Section 1132(a)(3). These lawsuits should be subject to a

uniform body of federal law, and benefit plans should not

be required to enforce their subrogation and reimbursement

provisions based on the nuances and peculiarities of the

state where the offending participant happens to be located.

Participants cannot avoid ERISA through "artful

pleading," and federal courts should not be permitted to

avoid ERISA through “artful” reasoning. In fact, federal

district courts have exclusive jurisdiction over such actions.

See 29 U.S.C. § 1132(e)(1). Federal courts have an

unflagging obligation to exercise their exclusive

jurisdiction over such actions. See, e.g, Deakins v.

Monaghan, 484 U.S. 193, 203 (1988); Thermtron vy.

Hermansdorfer, 423 U.S. 336 (1976).

Unfortunately, there is a willingness by some

federal courts to shirk this responsibility through what can

only be called “artful opinion drafting” — the judicial

equivalent of “artful pleading.” Some federal courts,

including the lower courts in this case, employ Thermtron-

like logic’ to divest themselves of cases that fall squarely

within their jurisdiction. While this has the effect of

lightening the federal caseload® and helping individual

” See Thermtron v. Hermansdorfer, 423 U.S. 336 (1976).

In Thermtron, this Court held that federal district courts

cannot remand cases simply because they are “too busy” or

do not want to adjudicate them.

* Thermtron-like disposal by federal courts of actions that

fall within 29 U.S.C. § 1132(aX(3) is becoming especially

prevalent in the context of removed actions, perhaps due

largely to the fact that such orders are essentially non-

reviewable. See generally Thomas R. Hrdlick, Appellate

9

participants in sympathetic circumstances retain large

sums, it has a devastating financial effect on benefit plans,

especially self-insured ones, and their participants and

beneficiaries collectively.

The Ninth Circuit is rife with examples of such

cases. See, e.g., Barnes v. Independent Auto. Dealers.’ In

Barnes, the Ninth Circuit adopted the make-whole rule.

This rule mandated that plans pay for the medical expenses

of injured participants and only then may the plans seek

subrogation. The Ninth Circuit even held that the make-

whole rule would not permit double recovery and that it

was consistent with ERISA’s related purpose of

maintaining the interest of other employees in their benefit

plans.’ That was the Ninth Circuit's first barrier to plan

recovery actions.

Here, the Ninth Circuit placed another hurdle in the

path at such actions by holding that ERISA jurisdiction

does not exist because the plan is seeking “money” rather

than equitable relief. However, the Ninth Circuit

previously held that Congress intended to provide courts

with a “broad authority to fashion remedies.” See Donovan

v. Mazzola, 716 F.2d 1226, 1235 (9" Cir. 1983).

Furthermore, the Ninth Circuit held in Donovan that “an

order to pay money under ERISA is enforceable through

contempt.” See id at 1240. Now, according to the Ninth

Circuit, whenever a plan attempts to recover assets by filing

a lawsuit to enforce its subrogation or reimbursement

provisions, the action is not governed by ERISA Section 29

U.S.C. § 1132(a\(3), but is instead purely a matter of state

concern.

Review of Remand Orders in Removed Cases: Are They

Losing a Certain Appeal? , 82 Marq. L. Rev. 535 (1999).

° 64 F.3d 1389 (9™ Cir. 1995).

10 Id. at 1395.

10

This misses the point completely. Under ERISA,

benefit plans must have ready access to the federal courts —

and to the attendant tools that accompany federal actions

under ERISA — to enforce the terms of the plan that require

the participant to reimburse the plan for expenditures made

on behalf of the participant, and to redress violations of

such terms. This is in the nature of an “equitable” action

for specific performance of the terms of the plan,

disgorgement of wrongfully withheld funds, restitution of

plan assets, etc. The mere fact that an equitable order

requires the payment of money does not necessarily convert

the case into a “legal” action.

Proof lies in this Court’s decision in Taylor.

Taylor held that an action by a plan participant seeking

payment of “money” or “money damages” (i.e., plan

benefits) under a plan through a state law theory does not

render the action exempt from ERISA. See Taylor, 481

U.S. at 62-63. Conversely, an action by a plan or a plan

fiduciary seeking “money” (i.e., wrongfully withheld

funds) from a plan participant is not exempt from ERISA.

This conclusion is reinforced by ERISA’s jurisdictional

statute, which gives state courts concurrent jurisdiction

over the former cases, but gives federal courts exclusive

jurisdiction over the latter cases. See 29 U.S.C. §

1132(e\(1).""

'! Actions by plan fiduciaries for the recovery of plan

assets fall under 29 U.S.C. § 1132(a)(3), and thus within

the exclusive jurisdiction of the federal courts, whereas

actions by participants for the recovery of benefits fall

under 29 U.S.C. § 1132(a)(1\(B), see Taylor, 481 U.S. at

62-63, and thus within the concurrent jurisdiction of both

state and federal courts. See 29 U.S.C. § 1132(e)(1).

Consequently, federal courts should guard their jurisdiction

even more closely in cases such as this one than in benefit

disputes that are federalized under Taylor.

11

CONCLUSION

When federal courts abdicate their exclusive

jurisdiction in these cases, as occurred here, participants are

able to avoid ERISA and thus require plans to pursue

recovery under varying and often inconsistent state laws.

This includes expensive and time consuming discovery,

trials, counterclaims, and other roadblocks. This is exactly

what Congress intended to avoid by providing 29 U.S.C. §

1132(aX(3) and “ready access to federal courts” which

provides more vigorous protection of employee benefit

plans. The Ninth Circuit’s decision in the present case

recovery an opportunity to abuse the system at the expense

of other participants.

Respectfully Submitted,

J. Dudley Hyde

Richard D. Nix

Mark D. Spencer*

*Counsel of Record

McAfee & Taft

A Professional Corporation

Two Leadership Square

Tenth Floor

211 North Robinson Ave.

Oklahoma City OK 73102

(405) 235-9621

Dated: June 8, 2000