Opposition Brief — Thorn Apple Valley, Inc. v. Auto Club Insurance

re

| +)

No. 89-1125

mi me Court, U.S.

| 2 PILED

|) FEB 9 BR

JOSEPH F. SPANIOL, JR.

*

——_

In The

Supreme Court of the United States

atnnmend jntnninais

October Term, 1989

——

THORN APPLE VALLEY, INC.,

y. Petitioner,

AUTO CLUB INSURANCE ASSOCIATION,

SUBROGEE OF:

ALI CHEHAB, FAYSAL MASLOUM, HOUHAD JAMIL BASSI,

HUSSEIN E. HABA, NASRI JOMAA, ALI K. HASHEM,

AND SAMI M. ALAOUIE,

Respondent.

—_—

ON PETITION FOR WRIT OF CERTIORARI

TO THE MICHIGAN COURT OF APPEALS

RESPONDENT'S BRIEF IN OPPOSITION

NANCY L. BOSH JOHN WESLEY KLINE

577 E. Larned, Suite 210 17515 West Nine Mile Road

Detroit, Michigan 48226 Suite L150

(313) 961-1525 Southfield, Michigan 48075

Counsel of Record (313) 557-8370

for Respondent Co-Counsel for Respondent

Interstate Brief & Record Company, a division of North American Graphics, Inc.

1629 West Lafayette Boulevard, Detroit. MI 48216 (313) 962-6230

i

QUESTIONS PRESENTED

I.

IS THE QUESTION WHETHER THE PREEMPTION PROVI-

SION OF THE EMPLOYEE RETIREMENT INCOME SECUR-

ITY ACT, 29 U.S.C. § 1144, BARS AN INSURER FROM

ASSERTING AS SUBROGEE THE RIGHTS OF EMPLOYEE

WELFARE BENEFIT PLAN PARTICIPANTS AND BENEFICI-

ARIES IN AN ACTION BROUGHT IN STATE COURT PUR-

SUANT TO SECTION 502 OF ERISA, 29 U.S.C. § 1132(a)(1)}(B),

SUBJECT TO REVIEW BY THIS COURT, WHERE THE

QUESTION WAS NEITHER PRESENTED TO NOR DECIDED

BY THE COURT BELOW?

Il.

MAY THE RULE OF MICH. COMP. LAWS ANN. § 500.3109a,

AS CONSTRUED BY THE MICHIGAN SUPREME COURT

IN FEDERAL KEMPER INS. CO. v. HEALTH INSURANCE

ADMINISTRATION, 424 MICH. 537; 383 N.W.2d 590

(1986), BE APPLIED TO A SELF-FUNDED ERISA EMPLOYEE

WELFARE BENEFIT PLAN UNDER SECTION 514 OF ERISA,

29 U.S.C. § 1144, AS INTERPRETED BY THIS COURT?

il

PARTIES TO THE PROCEEDINGS

All parties to the proceeding in the court below

appear in the caption. Auto Club Insurance Association

is a Michigan reciprocal insurance exchange affiliated

with the Automobile Club of Michigan and having no

parent company and no subsidiaries except wholly

e@wned subsidiaries.

ili

TABLE OF CONTENTS

PAGE

ef ys oe sy 9 5 » ae i

Poe ae BaP BOM POPC... ........-2.- li

PE OP PE RD 5 ww ee eee eee iv

EE ]

ee ee ey | or 2

REASONS WHY THE WRIT SHOULD BE DENIED:

I.

Il.

Ill.

1V.

THE FIRST QUESTION PRESENTED BY THE

PETITION WAS NEITHER PRESENTED TO NOR

DECIDED BY THE COURT BELOW._..........

THE DECISION OF THE STATE COURT DOES

NOT CONFLICT WITH, BUT RATHER APPLIES

THE REASONING OF, THIS COURT’S DECI-

SIONS IN THE AREA OF ERISA PREEMPTION.

PETITIONER’S CLAIM THAT THIS CASE IN-

FRINGES ON CONGRESS’ INTENDED PRE-

EMPTION OF THE FIELD OF ERISA DISPUTE

RESOLUTION FINDS NO SUPPORT IN THE

0 EA ree oe were ee eee

CERTIORARI SHOULD NOT BE GRANTED TO

RESOLVE NON-EXISTENT CONFLICTS, OR TO

RESOLVE ALLEGED CONFLICTS BETWEEN

CIRCUITS ON QUESTIONS NOT PRESENTED

EE. ns 5 4-4 66-0 0 we. 6.5 46 08 804 00%

THIS CASE IS NOT AN APPROPRIATE VEHICLE

FOR CONS: DERATION OF THE QUESTIONS

Saks a Wor ich 9 oe 0 bad eee kk oars

eS POR c's org c'e ee eee e ewe

14

16

iV

TABLE OF AUTHORITIES

PAGE

CASES:

Allstate Ins. Co. v. The 65 Security Plan, 879

Bae ee, BOD ov oese cane skeeesecees 17

American Surety Co. of New York v. Bethlehem

National Bank of Bethlehem, Pa., 314 U.S. 314

EE Suits aoe a aaa oo Ris A a 9

Auto Club Insurance Association v. Frederick &

Herrud, 145 Mich. App. 722; 377 NW.2d 902

a a ioe ce Saas Gee ae 3

Auto Club Insurance Association v. Frederick &

Herrud, 175 Mich. App. 412; 438 NW.2d 320

Res rn oye pe ey ote han me Ny RS NORE nn rg 1, 6

Dowood Co. v. Michigan Tool Co., 14 Mich. App.

158; 165 NW.2d 450 (1968) ................ 6

Exxon Corp. v. Eagerton, 462 U.S. 176 (1983) .... 7

Federal Kemper Ins. Co. v. Health Insurance

Administration, 424 Mich. 537; 383 NW.2d

cn os wae ee kes a 9 18, 21, 23

Fuller v. Oregon, 417 U.S. 40; 94 S.Ct. 2116; 40

Renee Se ob ok ha sh We ees de adds « 7

Hermann Hospital v. MEBA Medical & Benefits

Plan, 845 F2d 1286 (5th Cir. 1988) ....... 10, 16

Illinois v. Gates, 462 U.S. 213 (1983) ....... e 4

Kanne v. Connecticut General Life Ins. Co., 867

F2d 489 (9th Cir. 1988), cert. denied 109 S.Ct.

NN OR (5 or Do te 2 oe 18, 19

Kukowski v. Piskin, 415 Mich. 31; 327 NW.2d

ad Genk ater oe a an 6

PAGE

Liberty Mutual Insurance Group v. Iron Workers

Health Fund of Eastern Michigan, 879 F.2d

ROBG GE AE PG ib ok oc hee cee 21, 22, 23

Mackey v. Lanier Collections Agency, 486 U.S.

mee Fe Re) ere 10, 15, 18

Metropolitan Life Ins. Co. v. Massachusetts, 471

CLE. Fe Ee 0 he ones cateeanaa eae passim

Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58

ROT av cca os ee~ ccna eee eee 8, 10

Midwest Bridge Co. v. Highway Dept., 24 Mich.

App. 151; 180 NW.2d 117 (1970) ............ 6

Misic v. Building Service Employees Health &

Welfare Trust, 789 F2d 1374 (9th Cir. 1986) 10, 16

Northeast Department ILGWU Health & Welfare

Fund v. Teamsters Local Union Number 229

Welfare Fund, 764 F.2d 147 (3d Cir. 1985) .. 16, 17

Northern Group Services v. Auto-Owners Ins.

Co., 833 E2d 85 (6th Cir. 1987), cert. denied

OGRE BCE T7D LT ec eee ees passim

Pearlman v. Reliance Ins. Co., 371 U.S. 132

OE vk kk 4 eee eee be eee 9

People v. Hamacher, 432 Mich. 157; _. NW.2d —_

PE ken nv iets cadayveensescs br 6

Perry v. Thomas, 482 U.S. __; 107 S.Ct. 2520

STTT ok sco ces beeeseecveeeee etree 4

Pilot Life Ins. Co. v. Dedeaux,

QBN. SER, Gh Bre 4 os bk bo ko chen passim

Street v. New York, 394 U.S. 576; 89 S.Ct. 1354;

2a (ESE STR PO ke ei ee gxenscieweeie 7

vi

PAGE

Tebo v. Havlik, 418 Mich. 350; 343 NW.2d 181

SS ee eres reer ay er ae re are 7

Winstead v. Indiana Ins. Co., 855 E2d 403 (7th

Cir. 1988), cert. denied __ U.S. __; 109 S.Ct.

esha S. ainrice 6 was « 6.0 eae ee we 20, 21

STATUTES:

Emergency Petroleum Allocation Act of 1973,

GD «A a ae ea 7

McCarran-Ferguson Act,

ee 8 oboe ek sawn nee es 12

National Gas Policy Act of 1978,

Seeeee GONE St seg. ............ 0.055 7

Se oe eS ]

ee Geen © LESZIORI AB) . ww ww nc ce cess 5,9, 10, 16

ee gy 5, 15

eee a 4

0 Se Re: | rr 5

Mich. Comp. Laws Ann. § 500.3109a......... 2, 3,

9 12, 18, 21

California Insurance Code § 790.03(h)......... 19

MISCELLANEOUS:

GS |) ra 15

| 5

No. 89-1125

In Che

Supreme Court of the United States

——

®Mctober Cerm, 1989

i %

THORN APPLE VALLEY, INC.,

v. Petitioner,

AUTO CLUB INSURANCE ASSOCIATION,

SUBROGEE OF:

ALI CHEHAB, FAYSAL MASLOUM, HOUHAD JAMIL BASsI,

HUSSEIN E. HABAB, NASRI JOMAA, ALI K. HASHEM,

AND SAMI M. ALAOUIE,

Respondent.

a; an

ON PETITION FOR WRIT OF CERTIORARI

TO THE MICHIGAN COURT OF APPEALS

RESPONDENT'S BRIEF IN OPPOSITION

Respondent Auto Club Insurance Association respect-

fully asks that this Court deny the Petition for Writ of

Certiorari seeking review of the Michigan Court of

Appeals’ opinion in this case, which is reported as Auto

Club Insurance Association v. Frederick & Herrud, 175

Mich. App. 412; 438 NW.2d 320 (1989).

JURISDICTION

Petitioner asserts that the jurisdiction of this Court

is invoked pursuant to 28 U.S.C. § 1257(a). Respondent

' submits that this Court is without jurisdiction to

decide the first Question Presented in the Petition,

because it was neither presented to nor decided by the

court below.

tials ie iat cneadaiiiiaiin

2

STATEMENT OF THE CASE

Respondent Auto Club Insurance Association insured

Respondent’s subrogors under several policies of no-

fault insurance. Respondent’s subrogors were also par-

ticipants in or beneficiaries of an employee welfare

benefit plan for employees of Petitioner Thorn Apple

Valley, Inc. (then known as Frederick & Herrud). The

policies issued by Respondent provided, as authorized

by Mich. Comp. Laws Ann. § 500.3109a, that medical

expense coverage was to be coordinated with coverage

provided by Petitioner's plan.

When Respondent’s subrogors were injured in motor

vehicle accidents, Respondent paid their medical costs

and sought reimbursement from Petitioner, as adminis-

trator of its employee welfare benefit plan. When Peti-

tioner refused, on the ground that its plan provided

only excess coverage for medical expense occasioned by

an automobile accident, where the employee was also

covered by a no-fault insurance policy, Respondent

brought this action. |

In their pleadings, the parties relied upon the provi-

sions of their contracts and Michigan law. Both parties

brought motions for summary disposition, each alleging

that the other was entirely responsible for payment of

the medical expense incurred by the employee-insureds

as a result of motor vehicle accidents. The circuit

judge, applying contract law, ruled that each party was

responsible for payment of one-half the medical

expenses and judgment was entered accordingly.

On appeal, the Michigan Court of Appeals ruled that

the public policy underlying the Michigan no-fault

' A number of actions originally filed by Respondent in Mich-

igan district courts were consolidated and removed to the Oakland

County Circuit Court.

3

insurance statute requireu that the coordination of

benefits provision in Respondent's contract be given

overriding effect, and Petitioner was therefore primarily

liable for payment of medical expenses incurred by the

employee-insureds. See Auto Club Insurance Associa-

tion v. Frederick & Herrud, Inc., 145 Mich. App. 722;

377 NW.2d 902 (1985). Petitioner did not seek leave to

appeal this decision to the Michigan Supreme Court.

Upon remand to the circuit court, Petitioner sought

leave to amend its answer to allege for the first time a

defense of federal preemption of Michigan law by the

Employee Retirement Income Security Act, 29 U.S.C.

§ 1001, et seg. Defendant also moved for summary dis-

position on the ground that ERISA not only preempted

Michigan law, but also deprived Michigan courts of

jurisdiction over the subject matter of this action. The

circuit court denied both of Petitioner’s motions.

Petitioner appealed again to the Michigan Court of

Appeals, arguing that Mich. Comp. Laws Ann. § 500.3109a

was preempted by ERISA as applied to Petitioner, that the

circuit court abused its discretion in refusing to allow

Petitioner to amend its answer to assert the preemption

defense, and that ERISA deprived Michigan courts of juris-

diction over actions such as that brought by Respondent.

The Michigan Court of Appeals recognized that the

merits of Petitioner’s claim of federal preemption were

not addressed by the circuit court, but chose to address

the merits of that defense anyway. Relying on Northern

Group Services, Inc. v. Auto-Owners Ins. Co., 833 F.2d

85 (6th Cir. 1987), cert. denied __ U.S. __; 108 S.Ct.

1754 (1988), the Michigan Court of Appeals ruled that

Mich. Comp. Laws Ann. § 500.3109a is not preempted

by ERISA. Petitioner’s timely application for leave to

appeal the Court of Appeals’ decision to the Michigan

Supreme Court was denied on November 1, 1989.

4

REASONS WHY THE WRIT SHOULD BE DENIED

THE FIRST QUESTION PRESENTED BY THE PETITION

WAS NEITHER PRESENTED TO NOR DECIDED BY THE

COURT BELOW.

As the first Question Presented in the Petition, Peti-

tioner asks this Court to determine whether “Section

514 of ERISA, 29 U.S.C. § 1144, preempts a state

common law subrogation claim...” That question,

however, was never properly presented to nor decided

by the Michigan courts.

This Court has long adhered to the rule that it will

not review on a petition .or writ of certiorari a question

not presented to or decided by the state court, either

because the Court lacks jurisdiction to do so or because

prudential considerations counsel against such review.

See Jllinois v. Gates, 462 U.S. 213, 217-224 (1983). See

also Perry v. Thomas, 482 U.S. —; 107 S.Ct. 2520, 2526-

2527 (1987).

In the present case, Petitioner failed to raise any

federal question whatsoever until after the case was

disposed of on the merits by the Michigan trial court

and appealed to the Michigan Court of Appeals. Upon

remand following the decision of the Michigan Court

of Appeals, Petitioner sought leave to amend its answer

to the complaint to add the affirmative defense of

ERISA preemption. Petitioner also moved for summary

disposition on the ground that ERISA ousted the state

courts of subject matter jurisdiction. Both motions

were denied by the circuit court.

On further appeal to the Michigan Court of Appeals,

Petitioner in its Brief on Appeal asserted that three

questions were involved in the appeal: (1) Whether the

kala aa a

5

Michigan no-fault insurance act is preempted by Section

514(a) of ERISA; (2) whether ERISA deprived the trial

court of subject matter jurisdiction over this case; and

(3) whether Petitioner was entitled to assert the defense

of federal preemption upon remand after the earlier deci-

sion of the Michigan Court of Appeals. In its arguments,

Petitioner contended that ERISA preempted the Michigan

no-fault automobile insurance act and any public policy

considerations underlying that act; that ERISA preemption

deprived the state court of subject matter jurisdiction;

and that the trial court abused its discretion under Mich-

igan law in refusing to allow Petitioner to amend its

answer to assert the defense of federal preemption.

In its Brief on Appeal as appellee in the Michigan

Court of Appeals, Respondent, replying to Petitioner’s

statement that Respondent’s action was not authorized

by ERISA Section 502, 29 U.S.C. § 1132(a)}({1)(B) and (e}(1)

because Respondent was not a participant in or bene-

ficiary of an employee welfare benefit plan, maintained

that Respondent was entitled to bring an action in state

court under the cited provision because it was asserting

as subrogee the rights of participants and beneficiaries.

Respondent’s Brief as appellee was filed in the Mich-

igan Court of Appeals in July of 1987. Petitioner’s argu-

ment that common-law subrogation is preempted by

ERISA was first asserted in Petitioner’s Second Supple-

mental Brief, filed in July of 1988. At no time did

Petitioner amend or seek to amend its statement of

questions to add the issue of ERISA preemption of sub-

rogation rights in its appeal to the Michigan Court of

Appeals. In any event, the Michigan Court Rules pro-

vide that a supplemental brief may not raise a new?

question. Mich. Court R. 7.212(F).

Michigan courts have also long applied the rule that

an issue not raised in the trial court and not timely

6

presented to the appellate court need not be considered.

See People v. Hamacher, 432 Mich. 157, 168, n. 18; —

NW22d __ (1989); Kukowski v. Piskin, 415 Mich. 31, 41,

n.4; 327 NW.2d 832 (1982); Midwest Bridge Co. v.

Highway Dept., 24 Mich. App. 151, 153; 180 NW2d 117

(1970). See also Auto Club Insurance Association v.

Frederick & Herrud, 175 Mich. App. 412, 415; 438

NW2d 320 (1989).

“The point is not squarely presented on this

appeal and it was not briefed and argued here

except in a passing reference in defendant's brief.

We leave initial resolution of the question to the

learned trial judge.”

Dowood Co. v. Michigan Tool Co., 14 Mich. App. 158,

164; 165 NW.2d 450 (1968). Although the Michigan

Court of Appeals elected to address the question of

ERISA preemption of the Michigan no-fault insurance

statute despite Respondent’s failure to raise the ques-

tion in the trial court, the Court of Appeals did not

discuss (or even mention) the issue of preemption of

common-law subrogation. The issue was thus never

pressed upon nor decided by the Court in the opinion

of which Petitioner now seeks review in this Court.

Petitioner did raise the issue of ERISA preemption of

the subrogation doctrine in its application for leave to

appeal to the Michigan Supreme Court. This belated

attempt to bring the issue before the Michigan courts

does not serve to preserve the issue for review by this

Court. As noted above, Petitioner seeks review in this

Court of the decision of the Michigan Court of Appeals,

not a decision of the Michigan Supreme Court. The

order of the Michigan Supreme Court denying leave to

appeal cannot be viewed as a ruling on the merits of

Petitioner’s claim of preemption of subrogation law, for

it is well established in Michigan law that an order of

7

the Michigan Supreme Court denying leave to appeal

does not constitute an expression of opinion on the

merits. See Tebo v. Havlik, 418 Mich. 350, 371, n.2; 343

NW22d 181 (1984) (opinion by RYAN, J.).

In Exxon Corp. v. Eagerton, 462 U.S. 176 (1983), this

Court reviewed a decision of the Alabama Supreme

Court holding that an Alabama statute was not pre-

empted by the Natural Gas Policy Act of 1978, 15

U.S.C. § 3301, et seg., but declining to consider the

question whether the Alabama law was preempted by

the Emergency Petroleum Allocation Act of 1973, 15

U.S.C. § 751, et seq.:

“The decision below does not discuss this

issue, and when ‘“the highest state court has

failed to pass upon a federal question, it will be

assumed that the omission was due to want of

proper presentation in the state courts, unless

the aggrieved party in this Court can affirma-

tively show the contrary.”’ Fuller v. Oregon, 417

U.S. 40, 50, n. 11, 94 S.Ct. 2116, 2123, n. 11; 40

L.Ed.2d 642 (1974), quoting Street v. New York,

394 U.S. 576, 582; 89 S.Ct. 1354, 1360; 22

L.Ed.2d 572 (1969).”

Exxon, 462 U.S. at 181, n.3. The Court concluded that

the appellants had failed to make the requisite show-

ing, noting that the trial court opinion made no men-

tion of the EPAA and nothing in the record showed that

the issue had even been raised in the trial court. The

Court also noted that appellants addressed the issue in

their brief before the Alabama Supreme Court, but that

court did not pass on the issue. This Court also noted

that it is the practice of the Alabama courts not to

consider issues raised for the first time on appeal. Id.

The issue of ERISA preemption of subrogation doc-

trine, like the EPAA preemption issue in Exxon, has

8

not been passed upon by the Michigan courts as a result

of Petitioner’s failure to timely press the issue upon the

state courts. Under these circumstances, it is the prac-

tice of this Court to decline to review the question.

II.

THE DECISION OF THE STATE COURT DOES NOT CON-

FLICT WITH, BUT RATHER APPLIES THE REASONING

OF, THIS COURT’S DECISIONS IN THE AREA OF ERISA

PREEMPTION.

The decision of the state court does not conflict

with this Court’s decisions in Pilot Life Ins. Co. v.

Dedeaux, 481 U.S. 41 (1987) and Metropolitan Life Ins.

Co. v. Taylor, 481 U.S. 58 (1987). In Pilot Life, this Court

held that state common-law causes of action for torti-

ous breach of contract, breach of fiduciary duties and

fraud in the inducement, seeking extra-contractual and

tort damages, were preempted by ERISA, and did not fall

within the insurance savings clause because their appli-

cation was not limited to insurance law. In Metro-

pdélitan Life v. Taylor, the Court held that, in light of

the fact that Taylor’s common-law contract and tort

claims are preempted by Section 514(a) of ERISA and

that an action by a beneficiary to recover benefits due

from an ERISA plan falls within the express grant of

jurisdiction to federal courts under § 502(a)(1)(B), such

an action is removable to federal district court. Peti-

tioner argues that the decision of the state court in this

case conflicts with Dedeaux and Taylor because

Respondent asserts a claim relying upon common-law

subrogation which, being a general common law doc-

trine, is not saved from preemption by the insurance

savings clause. Petitioner misperceives the nature of

Respondent's claim.

9

Petitioner confuses the source of Respondent’s cause

of action with the source of Respondent’s standing to

assert that cause of action. The substantive law upon

which Respondent’s cause of action rests is § 3109a of

the Michigan no-fault act, Mich. Comp. Laws Ann.

§ 500.3109a, as construed by the Michigan Supreme

Court in Federal Kemper Ins. Co. v. Health Insurance

Administration, 424 Mich. 537; 383 NW.2d 590 (1986).

Under Federal Kemper, beneficiaries of Petitioner’s plan

who are injured in motor vehicle accidents and have

purchased coordinated no-fault coverage are entitled to

obtain medical benefits from Petitioner’s plan as pri-

mary coverage, even though the plan itself attempts to

make its coverage for such injuries excess. The rights

given Respondent’s subrogors by Federal Kemper may

be asserted under 29 U.S.C. § 1132(a)}(1)(B). The doctrine

of subrogation merely transfers the rights of Respond-

ent’s subrogors to Respondent, thus giving it standing

to sue Petitioner.

The doctrine of subrogation is recognized in both

state and federal law. In the context of bankruptcy

actions, this Court has long recognized the existence of

equitable doctrines such as subrogation in federal

common-law:

“Among the oldest of these doctrines is the

rule of subrogation whereby ‘one who has been

compelled to pay a debt which ought to have

been paid by another is entitled to exercise all

the remedies which the creditor possessed

a”

against that other’.

American Surety Co. of New York v. Bethelehem

National Bank of Bethlehem, Pa., 314 U.S. 314, 317

(1941). Accord, Pearlman v. Reliance Ins. Co., 371 US.

132, 136-137 (1962). The American Strety court also

noted that the subrogee succeeds not only to the rights

10

of the subrogor, but to his means for enforcing those

rights. Id.

The common-law doctrine of subrogation is like the

statutory procedure of garnishment, whose applicability

to ERISA plans was recently upheld in Mackey v. Lanier

Collections Agency & Services, Inc., 486 U.S. __; 108

S.Ct. 2182 (1988). In Mackey, this Court struck down a

provision of the Georgia garnishment statute exempting

ERISA plans from garnishment except in certain limited

circumstances, holding that the provision was pre-

empted by ERISA. However, the Court held that the

general provisions of the Georgia garnishment statute

were not preempted, and garnishment actions brought

pursuant to the Georgia statute could be asserted

against ERISA plans. See also Misic v. Building Service

Employees Health & Welfare Trust, 789 F.2d 1374, 1378-

1379 (9th Cir. 1986), and Hermann Hospital v. MEBA

Medical & Benefits Plan, 845 F2d 1286, 1289-1290 (5th

Cir. 1988), upholding the right of a participant in or a

beneficiary of an ERISA plan to assign his rights to

benefits under the plan, and the right of the assignee to

bring an action under 29 U.S.C. § 1132(a}(1)(B).

Unlike the substantive contract and tort claims that this

Court found preempted by ERISA in Pilot Life and Metro-

politan Life v. Taylor, the doctrine of subrogation creates —

no substantive rights. Subrogation, like assignment and

garnishment, simply provides the mechanism for transfer-

ring already existing rights from one party to another.

Such procedural doctrines, whether common-law or

statutory, are not preempted by federal law simply

because the substantive right asserted by the subrogee

is against an employee benefit plan subject to ERISA.

The decision in this case doed not conflict with Pilot

Life and Metropolitan Life v. Taylor, but rather is vali-

dated by this Court’s decision in Mackey.

1]

The state court decision does not conflict with

this Court’s decision in Metropolitan Life Ins. Co. v.

Massachusetts, 471 U.S. 724 (1985). In Metropolitan

Life, this Court held that ERISA did not preempt a state

mandated-benefits law which required insurers pro-

viding health benefits to include benefits for mental

health services. The Court concluded that such provi-

sions of state law fall within the insurance saving provi-

sion of ERISA. Both appellants in Metropolitan Life

were insurance companies. Therefore, this Court had no

occasion to pass upon the scope of the deemer clause.

However, the Court concluded its discussion of ERISA

preemption with these remarks:

“We are aware that our decision results in a

distinction between insured and uninsured

plans, leaving the former open to indirect regula-

tion while the latter are not. By so doing we

merely give life to a distinction created by Con-

gress in the ‘deemer clause,’ a distinction Con-

gress is aware of and one it has chosen not to

alter. We also are aware that appellants’ construc-

tion of the statute would eliminate some of the

disuniformities currently facing national plans

that enter into local markets to purchase insur-

ance. Such disuniformities, however, are the

inevitable result of the congressional decision to

‘save’ local insurance regulation. Arguments as

to the wisdom of these policy choices must be

directed at Congress.”

471 U.S. at 747 (footnote omitted). Petitioner construes

the quoted passage as holding that self-insured em-

ployee welfare benefit plans are “entirely exempt from

all state regulation” (Pet. 8). In fact, it appears to be

nothing more than a recognition that Congress, in

enacting the deemer clause, intended some distinctions

12

to be made between regulation of insured and un-

insured plans. The decision of the state court in this

case does no violence to that proposition.

The decision of the Michigan Court of Appeals was

based almost entirely upon the decision of the Sixth

Circuit in Northern Group Services v. Auto-Owners Ins.

Co., 833 F.2d 85 (6th Cir. 1987), cert. denied 108 S.Ct.

1754 (1988). That decision, in turn, relied upon and

sought to apply this Court’s rulings in Metropolitan

Life v. Massachusetts and to discern the intent of the

Congress in enacting the deemer clause. The Sixth

Circuit in Northern Group Services recognized the

federal principle, embodied in the McCarran-Ferguson

Act (15 U.S.C. § 1011, et seq.), to allow the states to

regulate insurance without interference by the federal

government. Quoting Metropolitan Life, the Sixth Cir-

cuit in Northern Group Services said, “In this area of

traditional state regulation, ‘the presumption is against

pre-emption.’” 833 F2d at 92. The Sixth Circuit then

reviewed the legislative history of the ERISA preemp-

tion provisions, and concluded:

“Certain aspects of the legislative history

imply that a main concern of Congress in

adopting the final broad version of Section 514

that emerged from the conterence committee

was to avoid intentional — and perhaps pre-

textual — attempts by states to restrict the dis-

cretion of ERISA plans to engage in practices that

otherwise would be permitted by federal law.”

833 F2d at 93 (footnote omitted). Noting that neither

intention nor pretext was involved in the enactment of

Mich. Comp. Laws Ann. § 500.3109a, the Sixth Circuit

decided:

“In the absence of a showing of state purpose

specifically to regulate the content of welfare

( 13

benefits provided by ERISA, the effect of the

deemer clause should be assessed by a bal-

ancing of the interests in federal uniformity

against those of state primacy in the regulation

of insurance.”

833 F.2d at 93. Weighing the interest in federal unifor-

mity in the area of coordination of benefits against the

effect on Michigan insurance law, the Sixth Circuit

concluded that Michigan insurance law should prevail.

The Sixth Circuit then said:

“Nor is this approach necessarily inconsistent

with the dicta in Metropolitan Life concerning

insured versus self-insuring plans. [citation omit-

ted]. We preserve a distinction between insured

and self-insuring plans. Insured plans would be

per se ‘open to indirect regulation.’ [citation

omitted]. Self-insuring plans would be subject to

state regulation only when no independent fed-

eral interest in national uniformity exists to

inform and guide the creation of federal

common law.”

833 F2d at 94-95 (footnote omitted).

Petitioner characterizes this attermpt to balance fed-

eral versus state interests (which it ascribes to-the

Michigan court} as “entirely misconceived,” and urges

that “|t|]his straight-forward expression of congressional

intent [the deemer clause] should be strictly enforced”

and not sacrificed to “parochial and local concerns”

(Pet. 8).? In fact, a careful reading of the Sixth Circuit's

decision in Northern Group Services, upon which the

> Petitioner appears to be alone in its perception that Section ,

514, particularly the deemer clause, constitutes a straight-forward

expression of congressional intent. See Metropolitan Life Ins. Co. v.

Massachusetts, 471 U.S. 724, 739-740.

14

state court decision is based, reveals that court’s

analysis to be well-grounded in law and policy. Far from

conflicting with this Court’s decision in Metropolitan

Life v. Massachusetts, Northern Group Services and the

opinion of the state court at issue here assiduously

apply the principles enunciated and applied in Metro-

politan Life.

Iil.

PETITIONER’S CLAIM THAT THIS CASE INFRINGES ON

CONGRESS’ INTENDED PREEMPTION OF THE FIELD OF

ERISA DISPUTE RESOLUTION FINDS NO SUPPORT IN

THE RECORD.

Petitioner claims that the decision of the state court

improperly interferes with the congressional intent to

make ERISA’s civil enforcement provision the exclusive

remedy for claims relating to ERISA-regulated employee

welfare benefit plans. In this argument, as in others,

Petitioner fails to distinguish between the law that

confers the substantive right to claim benefits on

Respondent’s subrogors {Michigan insurance laW) and

the doctrine that gives Respondent the right to assert

its subrogors’ rights (subrogation, recognized in both

state and federal law).

Contrary to Petitioner’s assertion, the decision

of the state court does not confer on Respondent rights

greater than those possessed by its subrogors. Under the

decision of the state court in the case at bar, and under

Northern Group Services, a plan beneficiary who has

purchased no-fault insurance providing for coordination

of medical benefits may compel the employee welfare

benefit plan of which he is a beneficiary to provide

primary coverage for medical expense occasioned by an

auto accident, even if the plan purports to provide only

15

excess coverage. As subrogee, Respondent is seeking to

assert only those rights in this action.

In ERISA Section 502(a)(1)(B), Congress provided

a right of action for plan participants or beneficiaries to

recover benefits due them or to enforce their rights or

to_clarify their rights under the plan. 29 U.S.C.

§ 1132\a)(1)(B). In the same section, Congress specifi-

cally provided that state courts and federal district

courts should have concurrent jurisdiction of actions

arising under Section 502(a)(1}(B). 29 U.S.C. § 1132/(e).

Under decisions of this Court and of the circuit courts,

state laws that allow for the transfer of rights of partici-

pants or beneficiaries to third parties, and allow those

third parties to assert the rights of the participants or

beneficiaries against the plan, are not preempted by

ERISA. See Mackey v. Lanier Collections Agency &

Service, Inc., 486 U.S. __; 108 S.Ct. 2182 (1988). Subro-

- gation is one of those laws.

Moreover, subrogation is a well-established tenet of

federal law, long recognized by this Court. See discus-

sion in II, supra.

Subrogation creates no new right of action nor any

substantive remedy, but simply allows the transfer of

already-existing rights and remedies to a third party,

who can then assert those rights in either state or

federal court. Allowing subrogees of plan participants or

beneficiaries to assert their rights against employee

welfare benefit plans neither interferes with nor adds to

the scheme of enforcement and dispute resolution

established by Congress.

16

IV.

CERTIORARI SHOULD NOT BE GRANTED TO RESOLVE

NON-EXISTENT CONFLICTS, OR TO RESOLVE ALLEGED

CONFLICTS BETWEEN CIRCUITS ON QUESTIONS NOT

PRESENTED BY THIS CASE.

Petitioner asks this Court to grant a writ of certiorari

to review and resolve certain alleged conflicts among

the circuits and state courts. None cf the alleged con-

flicts provides any ground for granting certiorari in this

case.

There is no clear conflict among the circuits on

the question whether ERISA preempts application of a

state statute or common-law doctrine recognizing the

right of subrogation. Respondent contends that a con-

flict exists among the circuits on the question whether

employee welfare benefit plan rights may be assigned

and whether an assignee or subrogee may bring an

action against a plan under Section 502 of ERISA. Peti-

tioner correctly points out that the Fifth Circuit and

the Ninth Circuit have held that the right to benefits

under an ERISA-regulated plan may be assigned, and the

assignee has standing to sue under Section 502. See

Hermann Hospital v. MEBA Medical & Benefits Plan,

845 F.2d 1286 (5th Cir. 1988); Misic v. Building Service

Employees Health & Welfare Trust, 789 F.2d 1374 (9th

Cir. 1986). It is, however, less clear that the Third Cir-

cuit has squarely held that participant er beneficiary

rights under ERISA are not subject to assignment or

subrogation. In Northeast Department ILGWU Health

& Welfare Fund v. Teamsters Local Union Number 229

Welfare Fund, 764 F.2d 147 (3d Cir. 1985), the Tyhird

Circuit, en route to finding no federal court jurisdiction

under 29 U.S.C. § 1132(a}(1)(B), declined to hold that the

ILGWU fund was the assignee or subrogee of the bene-

ficiary. The Third Circuit noted that “Congress simply

17

made no provision in § 1132(a)(1)(B) for persons other

than participants and beneficiaries to sue, including

persons purporting to sue on their behalf.” 764 FE2d at

154, n.6. The Third Circuit also noted, however, that

no assignment was in fact made in that case, and

expressed its doubts that the fund had pursued only the

beneficiary’s rights in the action and its doubts about

whether the right to sue in federal court could be

assigned along with substantive rights against an ERISA

fund. 764 F2d at 154, n.6.

Subsequently, in Allstate Ins. Co. v. The 65 Security

Plan, 879 F.2d 90 (3d Cir. 1989), the Third Circuit found

that the federal district court had no removal jurisdic-

tion over an action brought in state court by a no-fault

insurer against an employee berefit plan, finding that

the complaint stated only state law causes of action.

Citing Northeast Department ILGWU v. Teamsters, the

Third Circuit in Allstate rejected an argument that an

action under ERISA was stated because the no-fault

insurer was subrogated to the beneficiary’s claim

against the employee welfare benefit plan. Even taken

together, the two Third Circuit cases present something

less than a clear holding that the right to benefits

under an employee welfare benefit plan is not subject

to assignment or subrogation. It is thus far from clear

that a conflict on this question exists.

In any event, the question whether the right to bene-

fits may be assigned or transferred by subrogation is not

subject to review by this Court, Petitioner having failed

to press the issue in the state courts, with the result

that the state court did not pass upon the question.

[A] This case does not involve the question whether

state statutory vr <ommon-law anti-subrogation provi-

sions may be applied to employee welfare benefit plans,

or are preempted by ERISA. Petitioner asks this Court

|

18

to grant certiorari to resolve the conflict among the

circuits on the question whether state anti-subrogation

rules, either common-law or statutory, may be applied

to prevent employee welfare benefit plans from being

subrogated to the rights of plan participants or bene-

ficiaries. The question whether a state law barring

subrogation may be applied to prevent an ERISA-

regulated plan from asserting subrogation rights that it

would otherwise have under federal common law pre-

sents an entirely different issue than the question

whether ERISA preemption prevents a no-fault insurer

trom asserting as subrogee the rights of its insureds

against an ERISA-regulated plan. The latter question

might conceivably have arisen in the context of this

case, had Petitioner timely and properly asserted it

before the state courts. The former question can by no

stretch ot the imagination be considered to arise out of

the facts of this case. This case simply does not involve

a state anti-subrogation law. Cf Mackey v. Lanier Col-

lections Agency, 486 U.S. __; 108 S.Ct. 2182 (1988),

striking down a provision of a state statute expressly

exempting ERISA-regulated employee welfare benefit

plans from garnishment, but upholding against a pre-

emption claim the application of general provisions of

garnishment statute to ERISA plans.

The Sixth Circuit’s decision in Northern Group

Services v. Auto-Owners Ins. Co., 833 F2d 85 (6th Cir.

1987}, cert. denied 108 S.Ct. 1754 (1988), is not in con-

flict with Kanne v. Connecticut General Life Ins. Co.,

867 F2d 489 (9th Cir. 1988), cert. denied 109 S.Ct. 3216

(1989). In Northern Group Services, the United States

Court of Appeals for the Sixth Circuit held that applica-

tion of Mich. Comp. Laws Ann. § 500.3109a, as con-

strued by the Michigan Supreme Court in Federal

Kemper Ins. Co. v. Health Insurance Administration,

424 Mich. 537; 383 NW.2d 590 (1986), was not pre-

19

empted by ERISA, even as applied to self-insured

employee welfare benefit plans, because the statute fell

within the insurance savings clause and did not fall

afoul of the deemer clause. In Kanne, the Ninth Circuit

held, inter alia, that ERISA preempted a claim by plan

participants and beneficiaries for compensatory and

punitive damages arising from delay in payment, a

private right of action recognized by California courts

and grounded upon California Insurance Code § 790.

03(h), which prohibited certain unfair trade practices,

including failure to act reasonably promptly with

respect to claims.

According to Petitioner, the Sixth Circuit’s ruling in

Northern Group Services cannot be reconciled with the

Ninth Circuit’s ruling in Kanne. The two cases, how-

ever, are easily distinguishable. Northern Group Ser-

vices simply decided that a statute regulating insurance,

as construed by Michigan courts, could be applied to

both insured and uninsured employee welfare benefit

plans because it came within the insurance savings

clause and its application to uninsured plans was not

barred by the deemer clause. In Kanne, by contrast, the

Ninth Circuit held that a judge-created cause of action

based on duties imposed upon insurers by the statute

was preempted, just as common-law causes of action

for bad faith were held preempted by this Court in Pilot

Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987):

“The Kannes and the amici point out that the

preempted common-law causes of action for bad

faith in Pilot Life were held not to be laws regu-

lating insurance within the savings clause. They

argue that because § 790.03(h) regulates insur-

ance, the savings clause saves that provision

from preemption. We can assume, without decid-

ing, that § 790.03(h) is a law regulating insur-

20

ance under the savings clause. Nevertheless,

under Pilot Life we find the conclusion inescap-

able that the private right of action for violation

of § 790.03(h) is preempted by ERISA.”

867 F2d at 493 (footnote omitted). In the omitted foot-

note, the Ninth Circuit declined to express an opinion

as to whether administrative enforcement of the unfair

insurange practices provision of the statute were pre-

empted {so as to bar administrative enforcement by

California's Insurance Commissioner.” 867 F2d at 493,

n. 6.

Thus, the Ninth Circuit in Kanne simply held that

Pilot Life preempted a new, judge-made cause of action

for extra-contractual damages, even though that cause

of action allegedly arose out of duties imposed on the

insurer by statute. The Ninth Circuit ruled that the

new cause of action for extra-contractual damages in

Kanne was not a law which regulated insurance, and

did not reach the deemer clause. See 867 F.2d at 494,

n.7. By contrast, Northern Group Services simply

approved application of a statute regulating insurance

to an uninsured employee welfare benefits plan, based

upon its interpretation of the deemer clause. The stat-

ute construed in Northern Group Services did not

create a new cause of action for damages, but simply

imposed a mandatory construction on certain insurance

policy terms. Because the statute in question applied

only to insurance, the rule of contract construction at

issue in Northern Group Services, unlike the general

law of contract interpretation struck down in Kanne,

was not preempted by ERISA. For all these reasons,

Northern Group Services and Kanne are not in conflict.

The decision of the Seventh Circuit in Winstead

v. Indiana Ins. Co., 855 F.2d 403 (7th Cir. 1988), cert.

denied 109 S.Ct. 839 (1989), does not conflict with the

21

decision of the Sixth Circuit in Northern Group Ser-

vices. In Winstead, the trustees of an ERISA-governed

employee welfare benefit fund brought an action (appar-

ently as subrogees) against a Michigan no-fault auto-

mobile insurance carrier to recover amounts paid the

insured for medical care necessitated by a motor

vehicle accident. Both the plan and the no-fault policy

contained coordination of benefits clauses. The district

court ruled that the plan and the no-fault insurer were

liable for pro-rata shares of the medical expense. On

appeal, the Seventh Circuit affirmed. The no-fault car-

rier asked the Seventh Circuit to apply the Sixth Cir-

cuit’s decision in Northern Group Services and hold the

plan liable for all the insured’s medical benefits. The

Seventh Circuit did not reach the issue, however,

because the no-fault insurer had failed to file a cross-

appeal. Thus no conflict with Northern Group Services

was created by the Winstead decision.

The decision of the Sixth Circuit in Liberty

Mutual Insurance Group v. Iron Workers Health Fund

of Eastern Michigan, 879 F.2d 1384 (6th Cir. 1989), does

not conflict with its decision in Northern Group Ser-

vices. In Liberty Mutual v. Iron Workers, a beneficiary

of the Iron Workers fund, who was insured for no-fault

automobile insurance coverage by Liberty Mutual, was

injured in a motor vehicle accident. Liberty Mutual

paid his medical expenses, and brought an action

against the Iron Workers fund to recover sums paid the

insured, relying on Mich. Comp. Laws Ann.

§ 500.3109a, as interpreted by the Michigan Supreme

Court in Federal Kemper v. Health Insurance Adminis-

tration. The fund, which was self-insured, expressly

excluded coverage for loss resulting from an automobile

accident. The district court ruled that § 3109a applied

only to health insurance policies in which there was a

coordination of benefits provision, and had no applica-

22

tion where coverage tor motor vehicle accident injuries

was entirely excluded.

On appeal, the Sixth Circuit affirmed, but on a dif-

ferent ground. The Sixth Circuit declined to construe

Michigan law. Instead, that court assumed that Mich-

igan courts would hold that Federal Kemper applied to

exclusions as well as coordination of benefits clauses,

and would require the fund to pay medical expense for

automobile accident injuries. If Michigan courts would

so hold, the Sixth Circuit said, § 3109a, so construed,

would constitute a mandated benefits law, and would

be preempted (as it applied to self-insured plans) by

ERISA, as interpreted by this Court in Metropolitan Life

Ins. Co. v. Massachusetts, 471 U.S. 724 (1985). The

Sixth Circuit in Liberty Mutual v. Iron Workers distin-

guished Northern Group Services, noting that the effect

of the rule as applied in Northern Group Services was

very different from the effect of the rule contended for

by the no-fault insurer in Liberty Mutual.

“The Northern Group Services court was not

interpreting a statute which requires ERISA plans

to provide coverage for automobile accidents

even where the plan’s unambiguous language

excludes such coverage. Section 3109a, as it had

then been interpreted by Federal Kemper did not

regulate the content of welfare benefits provided

by ERISA plans, but merely required plans which

provide automobile accident coverage to assume

primary liability when such coverage is also

provided by a no-fault carrier.”

879 F2d at 1387-1388. The rule contended for by Lib-

erty Mutual, the Court said, would “fall within the

narrow reading given the ‘deemer’ clause by the court

in Northern Group Services.” 879 F.2d at 1388. Based

on its assumption regarding the Michigan courts’ likely

23

interpretation of Federal Kemper, the Sixth Circuit

concluded that the state law could not be applied to

the Iron Workers Fund because it would be preempted

by ERISA.

The distinction cited by the Sixth Circuit in Liberty

Mutual v. Iron Worxkers is a valid one, and prevents a

conflict with Northern Group Services.

V.

THIS CASE IS NOT AN APPROPRIATE VEHICLE FOR

CONSIDERATION OF THE QUESTIONS PRESENTED.

In its Petition, Petitioner repeatedly refers to the

“parochial” view taken by the state court in this case

and its disregard of federal law in general and the deci-

sions of this Court in particular. In fact, the state court

in this case followed federal law, as enunciated in a

decision of the United States Court of Appeals for the

circuit in which the state is located. See Northern

Group Services v. Auto-Owners Ins. Co., 833 F.2d 85

(6th Cir. 1987). This Court has already denied certiorari

in Northern Group Services. This case presents no more

compelling reasons for granting certiorari than did

Northern Group Services. The factual record in this

case is certainly no more extensive than that in North-

ern Group Services, for this case, like Northern Group

Services, was decided entirely on motions for summary

disposition.

The issue in the case at bar is not more clearly pre-

sented than it was in Northern Group Services. Indeed,

as the Petition shows, Petitioner confuses the separate

issues allegedly presented in this case.

Respondent respectfully submits that the resources of

this Court would be better expended elsewhere.

24

CONCLUSION

For all of these reasons, Respondent respectfully asks

that the Petition for a Writ of Certiorari be denied.

Respectfully submitted,

Bv: NANCY L. BOSH (P27409)

577 E. Larned, Suite 210

Detroit, Michigan 48226

(313) 961-1525

Counsel of Record

for Respondent

Dated: February 5, 1990