Opposition Brief — Baker v. Minerex Erdoel, Inc., 109 S. Ct. 57 (1988) (No. 87-1789)

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87-1798 @ <«iLED

MAY 26 1984

No.

IN THE

Supreme Court Of The United States

October Term, 1987

THE EQUITABLE LIFE ASSURANCE SOCIETY

OF THE UNITED STATES,

Petitioner,

MARSHALL DURBIN FOOD CORPORATION,

Respondent.

BRIEF IN OPPOSITION TO PETITION FOR A

WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

OF RESPONDENT MARSHALL DURBIN FOOD

CORPORATION

FRANK M. Youn, III

Counsel of Record

JONATHAN H. WALLER

WILLIAM T. CARLSON, JR.

LisA J. HuGGINs wm

HASKELL SLAUGHTER & YOUNG,

Professiona! Association

800 First National-Southern

Natural Building

Birmingham, Alabama 35203

(205) 251-1000

Counsel for Respondents

_ Sos hana IN bl NRE RR AS SE a SEINE NREL ENR ES

Ss |

QUESTIONS PRESENTED

Whether this Court should review the issue of the consti-

tutionality of a punitive damages award when that issue was

not properly raised in the court below?

Whether there is any basis for a challenge to the sufficiency

of pleadings under Rule 9(b) when the fraud claim was

described in detail in the pretrial order and the Defendant

had ample opportunity for, and conducted, extensive pre-

trial discovery on the fraud claim?

Whether this Court should review the issue of alleged

ERISA preemption of the punitive damages award, when

that issue was not properly raised below?

Whether ERISA has any application to the award of puni- -

tive damages in litigation between an employer and an

insurance company unrelated to the beneficial aspects of an

expired group insurance program?

Whether the Excessive Fines Clause of the Eighth Amend-

ment applies to an award of punitive damages in a civil jury

trial?

Whether the award of punitive damages in this case violates

the Due Process Clause?

TABLE OF CONTENTS

Questions Presented for Review

Table of Contents

Table of Authorities

Opinions Below _ .

Jurisdictional Statement

Statement of the Case

Argument

Il.

Ill.

IV.

Conclusion —.......- see

The Issue Of Whether The Punitive Damages

Award Violates The United States Constitution

Should Not Be Considered By This Court

Because It Was Not Properly Raised Below.

Durbin Provided The Informauon Required

By Federal Rule Of Civil Procedure 9 (b) .

The Employee Retirement Income Security

Act Does Not Preclude The Award Of Punitive

Damages In This Case. —_ oer ee

A. Petitioner Failed to Properly Raise Its

ERISA Preemption Argument In the

Eleventh Circuit Court of Appeals.

B. ERISA Does Not Preempt the Cause of

Action or the Award of Punitive Damages

in the CO.

The Eighth Amendment Does Not Apply To

An Award Of Punitive Damages In A Civil Case.

The Punitive Damages Award In This Case

Does Not Violate Either Substantive Or

Procedural Due Process. —-...

TABLE OF AUTHORITIES

Cases: Page

Aetna Life Ins. Co. v. Lavoie, 475 U.S. 813 (1986) 8

Banker's Life & Casualty Co. v. Crenshaw,

No. 85-1765 (U.S. May 16, 1988) _. 6,7, 8,9, 11, 12,15

City of Springfield, Mass. v. Kibbe,

U.S. _.., 107 S.Ct. 1114 (1987) i

Conley v. Gibson, 355 U.S. 41 (1957) - LSE

Consumer Prod. Safety Comm. v. GTE ‘iteiite

eee ree wee OO 16

Dekle v. Vann, 223 So, 2d 30 (Ala. 1969) ; ieee

Dempsey v. Auto Owners Ins. Co.,

717 F.2d 556 (1ith Cir. 1983) 0. EAE

Duignan v. United States, 274 U.S. 195 (1927). hapten FCT

Gulf Atlantic Life Ins. Co. v. Barnes,

7 oe ee oie (Ale. 1981)

Hammond v. City of Gadsden, 493 So. 2d 1374

(Ala. 1986) ae TLE A EE

Illinois v. Gates, 462 U.S. 213 (1983) spec caai or acean

Ingraham v. Wright, 430 U.S. 651 (1977) 19, 16, 47

J. Truett Payne Co., Inc. v. Chrysler Motors

Corp., 451 U.S. 557 (1981) 7

Lassiter v. Dep't. of Social Services,

452 U.S. 18 (1981) ; <n Bg ORY Ae TO Ee a 17

Marshall Durbin Food Corp. v. Equitable Life

Assurance Soc’y of the United States, 834 F re

49 (11th Cir. 1987) ae me Seo, oe. 14,18,

Martort Bros. Dist. v. James-Massengale,

781 F.2d 1349 (9th Cir. 1986) EL pd AS EE

Massachusetts Mutual Life Ins. Co. v. Russell,

Se |

Mishkin v. New York, 383 U.S. 502 (1966) 8

TABLE OF AUTHORITIES — (Continued)

Cases:

Pension Benefit Guar. Corp. v. R. A. Side

and Co., 467 U.S. 717 (1984) -

Pilot Life Ins. Co. v. Dedeaux,

i US. ..., 300 OAR. 1968 (1982)

Purcell Co. Inc. v. Spriggs Enterprises, Inc.,

431 Se. 36 355 (AM. Tee

Rebaldo v. Cuoma, 749 F.2d 133 (2d Cir. 1984)

Saporito v. Combustion Engineering, Inc.,

ee rere tr a

Shaw v. Delta Airlines, 463 U.S. 85 (1983) —_.

Sommers Drug Stores v. Corrigan Enterprises,

790 f.28 143; Oe Ce. He ..

Southern Life and Health Ins. Co. v.

Smith, 518 So. 2d 77 (Ala. 1987) _... ............

Todd v. United Steelworkers of America,

441 So. 2d 889 (Ala. 1983) —

U-Haul Co. of Alabama v. Long, 382 So. 2d

oP aa Sree eee ee

Youakim v. Miller, 425 U.S. 231 (1976) —.

Constitutional Provisions:

U. S. Const. Amend. V __...__ Ps AS Pees

U. S. Const. Amend. VIII

ee ee ne oeaewne

Statutes:

29 U.S.C. § 1001

Oe ees

29 U.S.C. § 100la(c) (3)

29 U.S.C. § 100la(c) (4)

Page

...14

11, 12, 14

is ae Le

Ny 02, 33, 44

ee ee

a ee ee

Svs sta

TABLE OF AUTHORITIES — (Continued)

Statutes:

BUA. URW 14, 15

SOUS Siew ee 14

29 U.S.C. § 1144

4. Cole §G1I0 ig

J. Se eee on anh eoneee 9

Me GO Nee

Ala. Code § 6-11-24 tt

Rules:

Fed. R. Civ. P. 9(b)

a Oi, FS

PO ae Pe Oe

Other Authorities:

5 C. Wright & A. Miller, Federal Practice

and Procedure § 1291

120 Cong. Rec. 29197 (1974)

120 Cong. Rec. 29933 (1974)

= ns mee

No.

IN THE -

Supreme Court Of The Mnited States

October Term, 1987

THE EQUITABLE LIFE ASSURANCE SOCIETY

OF THE UNITED STATES,

Petitioner,

Vv.

MARSHALL DURBIN FOOD CORPORATION,

Respondent.

BRIEF IN OPPOSITION TO PETITION FOR A

WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

OF RESPONDENT MARSHALL DURBIN FOOD

CORPORATION

Respondent Marshall Durbin Food Corporation respectfully

submits this brief in opposition to the issuance of a writ of cer-

tiorari to the United States Court of Appeals for the Eleventh

Circuit.

STATEMENT OF JURISDICTION

Respondent agrees with the Petitioner's allegations of this

Court's jurisdiction to consider this petition, except that Re-

spondent denies that the punitive damages and ERISA issues

were properly raised in the court below.

CITATIONS TO OPINIONS BELOW

Respondent agrees with the Petitioner's citation of the sole

written opinion in this case.

STATEMENT OF THE CASE

The relevant facts are clearly and succinctly stated in the de-

cision of the Eleventh Circuit, which is the subject of this ap-

peal. Marshall Durbin Food Corp. v. Equitable Life Assurance

Soc’y of the United States, 834 F.2d 949 (11th Cir. 1987).

These tacts are briefly restated for convenience.

Equitable issued a group health insurance policy (the “pol-

icy”) to Marshall Durbin Food Corporation (“Durbin”) which

became effective on January |, 1976. This policy was renewed

on an annual basis until it was cancelled effective June 30.

1982. The policy was experience rated; in other words, at the

beginning of each policy period, Equitable projected that losses

under the policy would be a specified percentage of the total

premium. This percentage, also called the “objective loss ra-

tio,” was expressed in a document called the retrospective pre-

mium adjustment rider, or “retro rider,” which was included

in the policy.

The difference between the objective loss ratio and the total

premium was reserved by Fquitable as maximum retention

charges. Retention is intended to cover the insurer's adminis-

trative and claim processing costs. Retention charges cannot be

more than the difference between 100%, and the objective loss

ratio.

The retro rider provided that, when the actual incurred

claims exceeded the projected claims under the policy, Durbin

would pay Equitable an additional premium to cover the un-

anticipated losses. However, the rider made no reference to

any action to be taken if the incurred claims were less than

the projected claims.

Upon Durbin’s initial inquiry at the time it obtained the

policy, Equitable represented to Durbin that if Durbin’s actual

ail iitiedeateeee ae

claims were less than projected, then Equitable would refund

the difference to Durbin. According to those representations,

the refund of premium would be calculated by subtracting

(a) the claims incurred and (b) the retention charges, from

the amount of the total premium.

At the time it obtained coverage, Durbin also asked Equi-

table to provide a breakdown of the charges which constituted

the retention portion of the premium. Equitable represented

to Durbin that the first year acquisition expenses were

$24,549.00. For each subsequent year in which the policy was

renewed, Equitable purported to send Durbin annual break-

downs of the amounts which were included in the retention

charge for that year; however, Equitable never included an

acquisition expense on any of the subsequent retention break-

downs, even though Equitable was secretly carrying substantial

deferred acquisition expenses on its books. Thus, Equitable

misrepresented the fact that it was deferring additional acqui-

sition expense charges.

Equitable also misrepresented to Durbin that if the policy

_ was terminated, Durbin would not be penalized for termina-

tion, and would be treated the same way with regard to its

premiums as ‘t had been treated upon annual renewal of the

policy.?

In the policy years 1976, 1977, 1978 and 1981, Durbin’s in-

curred claims were in excess of the projected loss ratio. Thus,

Durbin paid additional premiums (‘pick-up premiums) to

Fquitable for each of those years. However, the incurred

claims for the policy years 1979 and 1980 were less than ex-

pected. Equitable paid Durbin return or refund premiums of

$39,415.00 and $19,201.00, respectively, in those years.

Durbin terminated the policy with Equitable effective June

1Jn the words of the Eleventh Circuit:

Equitable responded that a dividend calculation would be made

upon termination and that Durbin would not receive any penalty.

Equitable also stated that in the event of termination it would treat

Durbin “the samme way that [it] had in the past.”

834 F.2d at 951.

30, 1982. The final policy period ran from April 1, 1982 until

June 30, 1982 (the “Final Policy Period’). During the Final

Policy Period, Durbin’s claims were substantially less than pro-

jected and Durbin was, therefore, entitled to a refund for the

Final Policy Period, as in 1979 and 1980. However, Equitable

improperly changed its method of calculating retention for the

Final Policy Period, in an illegal attempt to nullify Durbin’s

entitlement to a premium refund.

Specifically, prior to the Final Policy Period, retention

charges had never exceeded approximately 13% of billed pre-

mium. See 834 F.2d at 952 (chart). Because the objective loss

ratio for the Final Policy Period was 87.8%, retention charges

should not have exceeded 12.2% of the billed premium. How-

ever, for the Final Policy Period, Equitable added previously

undisclosed retention charges for alleged “‘balance of acquisi-

tion expense” and “investment selection charges,’” which re-

sulted in a total retention of $81,603 or 28% of billed pre-

miums for the Final Policy Period. As the jury undoubtedly

noted, this improper increase 1n retention was enough to cancel

out a premium refund to Durbin. 834 F.2d 952-53.

Equitable never refunded any premium to Durbin for the

Final Policy Period. The Final Policy Period was the first time

that Equitable had ever asserted any charge for “balance of

acquisition expense” or “investment selection charge.”

Durbin filed suit against Equitable in the United States Dis-

trict Court for the Northern District of Alabama on October

25, 1984. Its complaint alleged breach of contract and fraud.

The case was tried before a jury beginning on March 17, 1986.

On March 20, the jury rendered a verdict awarding Durbin

compensatory damages in the amount of $46,060.00 and puni-

tive damages in the amount of $1,000,000.00. Equitable ap-

pealed to the United States Court of Appeals for the Eleventh

Circuit. On December 23, 1987, the Eleventh Circuit affirmed

the jury’s verdict, including the award of punitive damages.

Petitioner's Appendix (‘‘Pet. App.”) at A-3.

The Eleventh Circuit carefully analyzed Durbin’s fraud

claims; it found that there was abundant evidence presented

at trial to support the punitive damage award and, indeed,

that “[cJlearer evidence of fraudulent intent [was] difficult to

imagine.””?

The only issue regarding punitive damages which Equitable

raised in the Eleventh Circuit prior to decision was allegedly

“insufficient evidence.” 834 F.2d at 954. Equitable complete-

ly failed to raise federal Constitutional issues regarding the

punitive damages award until after the Eleventh Circuit's de-

cision, in its Petition for Rehearing. Equitable also completely

failed to raise an alleged ERISA preemption claim in the

appeal briefs which it filed in the Eleventh Circuit prior to

decision.

Finally, the Fleventh Circuit summarily rejected Equitable’s

alleged claim that fraud was not pleaded with sufficient par-

ticularity under Fed. R. Civ. P. 9(b).

2 Evidence admitted at trial showed that Equitable knowingly made

false representations. This Court recently recognized that under Ala-

bama law an intent to deceive may be inferred from a showing that

representations were made wilfully, recklessly or mistakenly. Neff, 708

F.2d at 642. Equitable expressly agreed that upon termination it

would neither penalize nor treat Durbin differently than it had in

the past. After charging Durbin for acquisition expenses in the first

year, Equitable secretly accrued annual acquisition expenses on its

books. Equitable never included such charges in its breakdowns of

retention until the Final Policy Period.

When queried at trial about Equitable’s motive and intent in con-

cealing the deferred acquisition charges, Fred Bicknese, the Equitable

underwriting manager responsible for Durbin's account, admitted that

Equitable deferred these charges because disclosing all of them in the

first year “wouldn't paint us in a very favorable light.” Equitable de-

ferred substantial amounts of acquisition expenses, and later penalized

Durbin by assessing those expenses only when Durbin terminated its

policies. Contrary to its representation, Equitable knew that it would

charge Durbin extraordinary expenses, and therefore, would not treat

Durbin the same upon termination as it had at renewal. Clearer evi-

dence of fraudulent intent is difficult to imagine.

834 F.2d at 954 (emphasis added) .

§ The feane OF Whether The Punitive Damages Award

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She Camaidered Hy Bhie Court Heranze It Waa Not

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whether to exercise jurisdiction over questions not properly

raised below, the Court has focused on “‘a constellation of prac-

tical considerations, chief among which is our own need for a

properly developed record on appeal.’ Crenshaw, slip op. at 7.

An obvious consequence of Equitable’s failure to raise the

constitutional issues in a timely fashion is that there is no rec-

ord of consideration and analysis of these issues from the courts

below. This Court has stated that the relationship between the

Fighth and Fourteenth Amendments and the award of punitive

damages must be resolved “in an appropriate setting.” Aetna

Life Ins. Co. v. Lavoie, 475 U.S. 813, 106 S.Ct. 1580, 1589

(1986) .

This case does not represent that setting since these issues in-

volve ‘a question of some moment and difficulty,” Crenshaw,

at 7, and there are strong policy reasons for deciding such issues

only when the Court has the benefit of a record produced in

the crucible of argument before the trial and appeals courts.

See Illinois v. Gates, 462 U.S. 213, 224 (1983) (“Where diffi-

cult issues of great public importance are involved, there are

strong reasons to adhere scrupulously to the customary limita-

tions on our discretion.) These policy reasons are made even

stronger in this case since the lack of a developed record is due

to Equitable’s failure to timely raise these issues despite the

Court's recognition of them in Aetna in 1986. See Mishkin v.

New York, 383 U.S. 502, 512-13 (1966) (“The far-reaching and

important questions tendered by this claim are not presented

by the record with sufficient clarity to require or justify their

decision.’’)

Review should also be forestalled on the basis of comity to

the States. The Alabama Legislature has shown its willingness

to act specifically in the area of punitive damages. After the

date on which Durbin was awarded compensatory and punitive

damages against Equitable, the Legislature enacted an exten-

sive package of legislation commonly referred to as “tort re-

form,” one part of which concerned standards for and restric-

tions on punitive damage awards. See Ala. Code §§ 6-11-20

through 6-11-30 (Supp. 1987). The Legislature enunciated

standards concerning when punitive damages were allowable,

restricted the amount of punitive damage awards with certain

specified exceptions, and provided for a post-verdict hearing on

punitive damages as well as de novo review of punitive damage

awards by_the trial judge and appellate courts. See Ala. Code

S§ 6-11-20, 6-11-21, 6-11-23, 6-11-24 (Supp. 1987) .

The Alabama Supreme Court has also indicated that it will

review these issues if they are raised in the pleadings, pre-trial

order, or as an objection to jury instructions.’ See Southern

Life and Health Ins. Co. v. Smith, 518 So. 2d 77, 82 (Ala.

1987) (Alabama Supreme Court refused to consider the consti-

tutionality of a punitive damage award not properly raised in

the court below). Therefore, appellate review of these un-

timely-raised issues is not only unwarranted, but unnecessary.

Durbin respectfully urges that this Court’s decision in

Crenshaw mandates that Equitable’s petition be denied. The

constitutional issues were not sufficiently raised below, and

the prudential policy considerations set forth by this Court in

Crenshaw, slip op. at 7-8, are directly applicable here. Just as

the Court declined to decide important federal issues without

the “benefit of a well developed record and a recent opinion

on the merits” in the lower courts, id. at 8, the Court should

likewise decline to do so here. Equitable is a sophisticated cor-

porate entity with significant legal resources to assert any claims

it may have. An attempt by such a party to assert claims at this

late date, particularly in light of Crenshaw, should be rejected.

II. Durbin Provided The Information Required By

Federal Rule Of Civil Procedure 9(b).

Equitable claims that the lower courts erred in permitting

Durbin’s fraud claims because they were not pled with the

particularity required by Federal Rule of Civil Procedure

9(b). Petition at 14. However, when applying Rule 9 (b)

5As noted previously, Equitable failed to raise the constitutional issues

at any of these times.

in light of the spirit of the Federal Rules, “focusing exclusively

on its ‘particularity language’ is too narrow an approach and

fails to take account of the general simplicity and flexibility

contemplated by the Rules.” Saporito v. Combustion Engineer-

ing, Inc., 843 F.2d 666, _. - (3d Cir. 1988). Rule 9 must be

read in light of the basic pleading philosophy set forth in Rule

8. 5 C. Wrightand A. Miller, Federal Practice and Procedure

§ 1291, at 389. Any failure to meet the special pleading pro-

visions in Rule 9 can be corrected through the use of discovery

procedures. Jd. See also Conley v. Gibson, 355 U.S. 41, 47

(1957) (“... simplified ‘notice pleading’ is made possible by

the liberal opportunity for discovery and the other pretrial pro-

cedures ..."). The fact that Equitable had ample opportunity

to, and did, avail itself of the liberal discovery provided for in

the Federal Rules defeats its Rule 9(b) objection.

As the Eleventh Circuit noted, “Equitable obtained exten-

sive pretrial discovery dealing with Durbin’s fraud claim.”

Marshall Durbin Food Corp. v. Equitable Life Assurance, 834

F.2d 949, 955 (11th Cir. 1987) (Pet. App. A-3). In addition,

the Pretrial Order specifically described Durbin’s fraud claims.

See Res. App. A at 4-6. In short, Equitable engages, at best,

in hyperbole when it states to this Court that “[o}nly at trial

did Equitable learn what it would be called on to detend itself

against.” Petition at 14. This claim was squarely and properly

rejected by the Eleventh Circuit. 834 F.2d at 955.

Ill. The Employee Retirement Income Security Act

Does Not Preclude The Award Of Punitive Dam-

ages In This Case.

As almost an afterthought to the other grounds raised in its

Petition for Certiorari, Equitable now argues that the Em-

ployee Retirement Income Security Act, 29 U.S.C. § 1001 e/ seq.

(“ERISA”) precludes the award of punitive damages against

Equitable. This case was not tried, either in the District Court

or in the Court of Appeals, under ERISA. Neither was ERISA

addressed by the Eleventh Circuit. Aside from the prudential

considerations which require that the petition for certiorari on

this ground should be denied (see infra at 6-9), the Court

should also deny certiorari on the ERISA issue under the hold-

ing in Shaw v. Delta Airlines, 463 U.S. 85 (1983).

A. Petitioner Failed to Properly Raise Its ERISA

Preemption Argument in the Eleventh Circuit

Court of Appeals.

As with the constitutiona] arguments, Equitable completely

failed to raise the ERISA preemption issue until after the

Eleventh Circuit Court of Appeals heard oral argument on this

case. After briefing and argument, in a letter to the panel that

decided this case, petitioner argued that ERISA preempted the

punitive damages award, citing Pilot Life Insurance Co. v.

Dedeaux, 481 U.S. __, 107 S. Ct. 1549 (1987). (Res. App. D)

Later, in Equitable’s Petition for Rehearing, the ERISA issue

was revisited.

Fquitable’s letter brief was not a timely assertion of the

ERISA question. The ERISA statute itself became effective in

1975. At least three years prior to the trial date, this Court

addressed the scope of the ERISA preemption clause. See, e.g.,

Shaw v. Delta Airlines, 463 U.S. 85 (1983). The idea that

E.RISA might preempt a state law claim was not, by any means,

one that originated with this Court's decision in Pilot Life.

The prudential considerations addressed in Banker's Life and

Casualty Co. v. Crenshaw, No. 85-1765 (U.S. May 16, 1988)

mandate that this Court decline review of Equitable’s belated

ERISA claim. Among the practical considerations cited in

Crenshaw as justification for the “not pressed or passed upon

below” rule, id. at 7, is the “need for a properly developed

record on appeal.” Jd. There is no indication whatsoever that

the Eleventh Circuit even considered this argument. Certainly,

there is no discussion of ERISA in the decision. In light of the

relative complexity of the ERISA statute, and the fact that the

case law construing it is far from settled, it would be preferable

for this Court's review of any ERISA question to “gain the

benefit of a well-developed record and a reasoned opinion on

the merits.” Crenshaw, slip op. at 8. This is clearly not the

appropriate case for that review.

B. ERISA Does Not Preempt The Cause of Action

or the Award of Punitive Damages in this Case.

The ERISA statute contains a broad preemption clause. 29

U.S.C. § 1144(a); see 107 S.Ct. at 1551-52. Section 1144 (a)

provides that ERISA

“shall supersede any and all State laws insofar as they may

now or hereafter relate to any employee benefit plan. . .”

29 U.S.C. § 1144 (a). For purposes of § 1144 (a), “state laws”

include the decisional or common law as well as the statutory

law of the states. 29 U.S.C. § 1144 (c) (1).

Nonetheless, the case at bar does not fall under this provi-

sion. Durbin’s suit against Equitable is based upon Equitable’s

tortious refusal to pay a premium refund to Durbin after

Durbin cancelled a group insurance policy issued by Equitable.

834 F.2d at 951. Neither the allegations of the complaint nor

the proof at trial have any connection whatsoever with the im-

proper payment or refusal to pay a claim for benefits under an

employee benefit plan. Cf. Pilot Life at 1551; Massachusetts

Mutual Life Ins. Co. v. Russell, 473 U.S. 134 (1985). Durbin’s

allegations in this litigation concern the cancellation of the pol-

icy purchased by Durbin from Equitable, and not the beneficial

aspects of the employee benefit plan. There is nothing about

this case which would invoke the Congressional concern with

the protection of “‘participants in employee benefit plans and

their beneficiaries...” 29 U.S.C. § 1001 (b).

This Court has recognized that state laws which relate to

an employee benefit plan in only a peripheral sense are out-

side the scope of the ERISA preemption. Shaw v. Delta Air-

lines, 463 U.S. 85, 99 n.21 (1983). If a state law bears such an

attenuated relationship to an employee benefit plan that Con-

gress could not reasonably have contemplated that preemption

would take place, then § 1144 (a) will not operate to supersede

the state law. See 463 U.S. at 98-99.

In Shaw, this Court addressed the meaning of the provision

in § 1144(a) that ERISA preempts state laws which “‘relate to”

an employee benefit plan. 463 U.S. at 97. Acknowledging that

Congress used the phrase “relate to’’ in a “broad sense’, the

Court went on to cite the remarks of two of the bill’s sponsors

which highlighted the fact that the ERISA preemption clause

was specifically intended to

“round out the protection afforded participants by

eliminating the threat of conflicting and inconsistent State

and local regulation.” 120 Cong. Rec. 29197 (1974).

463 U.S. at 99 (remarks of Representative Dent) (emphasis

added.) Further, the Court quoted Senator Williams’ statement

that preemption would

“eliminatfe] the threat of conflicting or inconsistent

State and local regulation of employee benefit plans.” Id.

at 29933.

(footnote omitted) (emphasis added) .

The cancellation of the insurance policy involved in this law-

suit In no way threatens the ERISA scheme by allowing incon-

sistent state regulations. See id. Its relationship, if any, to the

plan is “too tenuous, remote [and] peripheral to warrant a

finding that the law ‘relates to’ the plan.” 463 U.S. at 99 n.21.

See also id. at 98 n.17.°

The Court's statements in Shaw are supported by the legis-

lative history as well as the Congressional findings and declara-

tion of policy for ERISA. See 29 U.S.C. § 1001 (b) and § 1001a

and intent found in the statute, as well as the statements by

6At least three of the Circuit Courts of Appeal have ruled that ERISA

did not preempt state laws affecting employee benefit plans in only a

tangential manner. See, e.g., Martort Bros. Dist. v. James-Massengale, 781

F.2d 1349 (9th Cir. 1986) (“make-whole” awards calculated with reference

to fringe benefits not a subject of preemption) ; Rebaldo v. Cuomo, 749

F.2d 133 (2d Cir. 1984) (ERISA did not preempt cooperative demonstra-

tion project to contain hospital costs); Sommers Drug Stores v. Corrigan

Enterprises, 793 F.2d 1457 (5th Cir. 1986) (ERISA did not preempt state

common law of corporate fiduciary duty) .

the two sponsors quoted in Shaw, show that the target of

ERISA's protective provisions is the covered work force. Con-

gress enacted the comprehensive scheme for the purpose of in-

suring that employees, retirees and their dependents would not

be injured or left destitute by virtue of the mishandling of

pension funds and other benefit plans. See id.; Pension Bene-

fit Guar. Corp. v. R. A. Gray and Co., 467 U.S. 717, 720

(1984). The preemption of state laws governing the contrac-

tual relationship of a corporation with a group health insurer

would serve none of the purposes for which ERISA was enacted.

To make the case against ERISA preemption even more com-

pelling, any connection between Respondent and an employee

benetit plan had been extinguished by the time the facts giving

rise to Durbin’s claims arose. This lawsuit came about as a

result of Equitable’s refusal to pay an agreed-upon dividend

to Durbin which was due upon Durbin's cancellation of the

policy. Durbin, 834 F.2d at 951. (Pet. App. A-3) . Durbin also

stated a claim for fraud in the inducement for Durbin to enter

into the contract with Equitable. /d. By contrast, the tortious

conduct in Dedeaux was the insurer's termination of long-term

disability benefits due to the plaintiff employee. 107 S.Ct.

at 1551.

Aside from the fact that this case does not “relate to” an

employee benefit plan, the possibility of ERISA preemption

is also foreclosed by the more obvious lack of any ERISA cause

of action available to Durbin under the facts of this case.

The civil enforcement provision of ERISA does not em-

power an “employer” per se to sue under the statute. Rather,

it empowers only the Secretary of Labor, a fiduciary, a bene-

ficiary, a participant, or the plan itself, to bring suit. 29 U.S.C.

§ 1132(a) and (d) (1). Respondent would have standing to sue

only as a fiduciary under § 1132(a) (2) and § 1109, for breach

of fiduciary duties, or § 1132 (a) (3), for equitable relief. Since

the policy at issue was no longer in existence as an employee

benefit plan at the time this cause of action arose, Durbin

could not have brought suit as a fiduciary. § 1132 (a) (2).

In addition, as the plan no longer existed, there was no basis

for any claim for equitable relief under § 1132 (a) (3). There

was no standing available to Respondent to sue for breach of

fiduciary duty for the additional reason that, assuming that

Equitable had originally qualified as a plan fiduciary under

§ 1102, it would no longer qualify as a fiduciary after the plan

had been cancelled and the cause of action arose. It follows,

then, that this cause of action could not possibly be preempted

by ERISA as there is no ERISA cause of action available to

Durbin for the loss it incurred, at the time it occurred.

In sum, there is no evidence in this case that any employee

or other plan beneficiary has been harmed in any way or de-

nied any benefit which ERISA is intended to protect. Only

Durbin was harmed. The State law applied in this case does

not “relate to” an employee benefit plan in a manner which

invokes ERISA’s preemption provision. Therefore, the peti-

tion for writ of certiorari on this issue is due to be denied.

IV. The Eighth Amendment Does Not Apply To An

Award Of Punitive Damages In A Civil Case.

Petitioner asserts that the Excessive Fines Clause of the

Fighth Amendment prohibits the award of punitive damages

affirmed by the Eleventh Circuit in this case. However, the

history of the Fighth Amendment and of this Court's decisions

on that aspect of the Constitution belie the Petitioner's argu-

ment. The Amendment is clearly inapplicable to civil jury

verdicts. It is noteworthy that Petitioner has not cited a single

case to the contrary. See generaily Brief of Appellee at 37-43,

Bankers Life and Casualiy Co. v. Crenshaw, No. 85-1765 (U.S.

May 16, 1988).

The Eighth Amendment contains three prohibitions, forbid-

ding the imposition of cruel and unusual punishment, excessive

bail and excessive fines. U.S. Const. Amend. VIII. The Exces-

sive Bail Clause has its only possible application in a criminal

setting. The Cruel and Unusual Punishment Clause, likewise,

applies in a criminal context. See /ngraham v. Wright, 430 U.S.

651 (1977). This leaves the Excessive Fines Clause which, when

read in context according to the ordinary meaning of the lan-

guage used, should be interpreted only as another limitation on

the state’s power to impose criminal sanctions or penalties. Any -

other reading would constitute a strained interpretation of the

Amendment which ignores the common understanding of the

three prohibitions. This Court should give effect to the plain

language of the Amendment unless there is good reason to be-

lieve that the Framers of the Constitution intended it to have

some meaning different froma that of the usual meaning of the

words used. See Consumer Product Safety Comm. v. GTE

Sylvania, Inc., 447 U.S. 102, 108 (1980).

Though this Court has never ruled on the question of

whether the Eighth Amendment is applicable in any context

other than criminal sanctions or punishments that are paid to

or imposed by the government, the decision in Jn@¥Faham v.

Wright, 430 U.S. 651 (1977), indicates that the Amendment

should not be otherwise applied. In Ingraham, the plaintiffs

challenged the use of corporal punishment as a means of main-

taining discipline in the Florida schools, claiming that the pad.

dling of students constituted cruel and unusual punishment in

violation of the Eighth Amendment. The Court concluded that

corporal punishment imposed by public school teachers and

administrators was not a proper subject of Fighth Amendment

scrutiny. 430 U.S. at 671.

In reaching this conclusion, the Court examined the history

of the Eighth Amendment, including the Excessive Fines

Clause. Though the holding in /ngraham was diyected only to

the Cruel and Unusual Punishinent Clause, the Court noted

that the entire Amendment has traditionally been viewed as a

limitation on the state’s power to impose criminal sanctions.

Bail, fines, and punishment traditionally have been as-

sociated with the criminal process, and by subjecting the

three to parallel limitations the text of the Amendment

suggests an intention to limit the power of those entrusted

with the criminal-law function of government.

430 U.S. at 664. Since the time of Biackstone, all three of the

prohibitions contained in the Eighth Amendment have been

treated as “bearing only on criminal proceedings and judg-

ments.” Jd. at 665. The Court even noted that the Eighth

Amendment, which was the Arnerican adaptation of a proviso

contained in the English Bill of Rights of 1689, was, like its

English forebear, intended to apply to ‘the criminal process.”

Id. at 666.

There are important differences between the punishment

and procedures associated with a criminal conviction, and

punitive sanctions available in civil litigation, which jus-

tify the refusal to extend the constitutional protections of the

Eighth Amendment to civil proceedings that do not involve

the imposition of a disability by the government itself. In Jn-

graham, the court recognized the additional burden and the

significant stigma imposed by a criminal conviction, particu-

larly when that conviction is accompanied by punishment of

any kind. 430 U.S. at 669. That stigma is one which runs to

an individual, not to a corporation; clearly, it is the individual

that the Framers intended to protect with the Eighth Amend-

ment. There is no appropriate comparison between the impo-

sition of a criminal conviction and the imposition of a civil

judgment for punitive damages. The judgment may be paid

and is then extinguished save for the judicial opinions ren-

dered in its connection to serve as legal precedent. A criminal

conviction, however, remains on the individual's record forever.

See id.

V. The Punitive Damages Award In This Case Does Not

Violate Either Substantive Or Procedural Due

Process.

This Court's decisions defining the scope of the Due Process

Clause are based on the notion that legal deprivations of life,

liberty or property should be carried out with “fundamental

fairness.” Lassiter v. Dep't. of Social Services, 452 U.S. 18, 25

(1981). The jury's decision to award one million dollars in

exemplary damages against the Petitioner in no way violates

this provision, either substantively or procedurally.

These deliberations were attended with all of the “funda-

mental fairness’’ provided for by the Due Process Clause. Cer-

tainly Petitioner cannot claim that it was deprived of adequate

procedural due process after receiving:

(1) “[E}xtensive pre-trial discovery dealing with Dur-

bin’s fraud claim,”’ 834 F.2d at 955;

(2) The appropriate application of the Federal Rules

of Civil Procedure and the Federal Rules of Evidence;

(3) A jury trial; and

(4) A full appeal to the Eleventh Circuit Court of Ap-

peals. See 834 F.2d 949.

In short, Petitioner received a tull-blown evidentiary hearing

and the full panoply of rights to cross examination, presenta-

tion of witnesses and jury selection.

As to the substantive aspect of the Due Process Clause, Peti-

tioner also shows no evidence of deprivation. Contrary to the

statement in the petition that ‘fundamental fairness is violated

by the vagueness of the criteria for determining punitive dam-

ages and the failure of the law to put all people on notice of

what activities will suffer punitive damages,” Petition at 8, the

assessment of punitive damages is governed by definite stan-

dards under Alabama law. Petitioner’s argument ignores these

important safeguards.

First, Alabama law requires that there may be no award of

punitive damages absent an actual injury. Purcell Co. Inc. v.

Spriggs Enterprises, Inc., 431 So. 2d 515 (Ala. 1983). The issue

of punitive damages may not even be submitted to the jury

without proof of actual damage. Jd. Furthermore, Alabama

law requires that the jury must find that the defendant's act

involves malice, wilfulness, wantonness or some other aggra-

vating circumstance before it may assess exemplary damages.

Gulf Atlantic Life Insurance Co. v. Barnes, 405 So. 2d 916

(Ala. 1981) ; Dekle v. Vann, 223 So. 2d 30 (Ala. 1969). Also,

an award of punitive damages may be overturned by the trial

court or on appeal if it is clearly “the result of passion or preju-

dice” on the part of the jury. U-Haul Co. of Alabama v. Long,

382 So. 2d 545 (Ala. 1980).

The Alabama courts also require that the amount of puni-

tive damages should be based on a determination of the enor-

mity of the wrong which was inflicted upon the plaintiff. See

Todd v. United Steelworkers of America, 441 So. 2d 889 (Ala.

1983). In other words, the jury's discretion over the amount

of punitive~damages to be awarded is not absolute; either a

remittitur or a new trial should be ordered when there is an

improper award of damages. Dempsey v. Auto Owners Ins. Co.,

717 F.2d 556 (11th Cir. 1983) (interpreting Alabama law) .

Under Alabama law, trial judges are required to “reflect

in the record the reasons for interfering with a jury verdict, or

refusing to do so, on grounds of excessiveness of the damages.”

Hammond v. City of Gadsden, 493 So. 2d 1374, 1379 (Ala.

1986) (emphasis added). See also infra at 8-9 (discussion of

effect of Alabama tort reform statutes on punitive damages.)

In Hammond, the Alabama Supreme Court enumerated sev-

eral factors which the trial court should consider in passing

upon the excessiveness of the jury verdict, including the nature

of the defendant's conduct, the desirability of discouraging sim-

ilar conduct and the impact upon the parties. Hammond at

1379. Remittitur is also available under the Federal Rules for

excessive jury awards. See Fed. R. Civ. P. 59(f). Thus, the

award of punitive damages under Alabama law in this case is

not the kind of standardless, arbitrary action which would con-

stitute a deprivation of substantive due process.

Finally, it is not an overstatement to say that any person, even

a relatively unsophisticated one, who carries on any kind of

business, may be charged with the knowledge that fraudulent

activity may be the basis for a civil suit and significant punitive

damages. There is no basis for Petitioner's argument that this

award was unattended by appropriate notice of the charges

against Equitable or by sufficiently clear standards. In order

for the jury to assess punitive damages, it had to make a factual

determination that the Petitioner's conduct was intentional.

See 834 F.2d at 953.

The mere tact that this finding went

against Petittoner does not make it “vague.”

CONCLUSION

For the reasons stated herein, Respondent respectfully re-

quests that this Court deny the petition for a writ of certiorari

and allow the decision of the Eleventh Circuit Court of Appeals

to stand.

May 26, 1988

Respecttully submitted,

Frank M. Young, IIl

Counsel of Record

Jonathan H. Waller

William T. Carlson, Jr.

Lisa J]. Huggins

Haskell Slaughter & Young,

Professional Association

800 First National-Southern

Natural Building

Birmingham, Alabama 35203

(205) 251-1000

Counsel for Respondents

APPENDIX

A-|

APPENDIX A

PRETRIAL ORDER

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

MARSHALL DURBIN FOOD r

CORPORATION, i

Plaintiff,

CIVIL ACTION NO.

vs. 84-C-2646-S

THE EQUITABLE LIFE

ASSURANCE SOCIETY OF

THE UNITED STATES,

i i i i i

Defendant,

PRETRIAL ORDER

A pretrial conference was held in the above case on

January 23, 1986, wherein, or as a result of which, the

following proceedings were held and action taken:

1. Appearances. Appearing at the conference were:

Jonathan H. Waller, for the plainuff; Jack B. Porterfield, Jr.,

and Mark S. Boardman, for the defendant.

2. Jurisdiction and venue. Subject matter jurisdiction exists

under 28 U.S.C. § 1332 by reason of the amounts in con-

troversy and the admitted diversity of citizenship. Personal

jurisdiction and venue are not contested.

3. Parties and tral counsel. Any fictitious defendants are

deleted; the parties before the Court are correctly named as

set out below; and the designated trial counsel for the parties

are as set out below:

PARTIES TRIAL COUNSEL

Plaintiff: Marshall Durbin Frank M. Young, III

Food Corporation Jonathan H. Waller

(HASKELL, SLAUGHTER,

YOUNG & LEWIS)

A-2

Defendant: The Equitable Jack B. Porterfield,

Life Assurance Jr., Mark S. Boardman

Society of the (PORTERFIELD,

United States SCHOLL, BAINBRIDGE,

MIMS & HARPER);

Michael W. Brody

4. Pleadings. The tollowing pleadings have been allowed:

plainuff’s complaint; defendant's answer to Count | of the

complaint; defendant’s answer to Counts II, III, and IV;

defendant's amended answer, allowed on October 1, 1985;

detendant’s amended answer, allowed on November 15,

1985.

5. Statement of the case.

(a) Agreed summary. From 1976 through June 1982,

Equitable issued to Marshall Durbin, certain group life,

group accidental death and dismemberment benefits, and

group health policies of insurance identified, respectively, as

policy numbers 54907, 54906-D, and 54907-M or 54907-H.

Equitable and Marshall Durbin entered into Retrospective

Premium Adjustments with effective dates of January I,

1976, April 1, 1979, April 1, 1981, and April 1, 1982. The

Retrospective Premium Adjustments dated April 1, 1981

and April 1, 1982 amended only the group health insurance

policy.

The policies became effective on January 1, 1976; were

renewed on an annual basis; and were cancelled by Marshall

Durbin effective June 30, 1982. The annual anniversary date

was changed from January | to April 1, 1978. Thus, the last

annual anniversary date was April 1, 1982. The policies were

then in effect for a final three month period trom the last

annual anniversary date of April 1, 1982 through June 30,

1982 (the “Final Policy Period”).

(b) Plaintiff's position.

(A) Background Facts. The Retro Agreements provide, in

substance, that if the ratio of “Incurred Claims” to “Billed

Premiums” (the “actual loss ratio”) is higher than a stated

percentage (the “objective loss ratio”), then Marshall Durbin

would owe an additional premium to Equitable. The stated

objective loss ratios in the 1976, 1979, and 1981 Retro

A-3

Agreements were .82 (or 82%), .852 (or 85.2%), and .878 (or

87.8%), respectively.

However, the converse — i.e., the refund of premiums

in the event of favorable loss experience — was also an issue

of importance to Marshall Durbin when the policies were

initially obtained from Equitable. Marshall Durbin was spe-

cifically concerned with whether Marshall Durbin would

receive a return of premium or a dividend, if loss experience

was such that Incurred Claims were less than the specified

percentage of Billed Premiums.

When Marshall Durbin obtained the Equitable coverage,

Marshall Durbin received written assurances from Equitable

that if the actual loss ratio was less than the objective loss

ratio, then Equitable would pay or refund to Marshall

Durbin an amount of Billed Premiums representing at least

the difference between these ratios. Such a representation

was contained in a letter dated June 11, 1976, from Mr.

Clyde Jennings, Jr., then Divisional Group Manager of

Equitable, to Marshall Durbin regarding the manner in

which the Retro Agreements would operate. — -

In fact, in two subsequent years in which the actual loss

ratio was less than the objective loss ratio, Equitable did pay

substantial dividends or refund premiums to Marshall Dur-

bin. Specifically, for policy year 1979 and policy year 1980,

Equitable paid Marshall Durbin monies identified by Equita-

ble as “dividend or retroactive rate refunds” in the amounts

of $39,415.00 and $19,201.00, respectively, plus interest.

Following each annual policy period, Equitable provided

Marshall Durbin with summaries of loss experience, pre-

miums, dividends, and retention charges. Retention charges

are charges by Equitable to Marshall Durbin for certain

overhead or administrative expenses. These annual sum-

maries are hereafter referred to as the “Policy Premium

Summaries”.

Based upon oral and written communications, and

course of dealing between Equitable and Marshall Durbin,

the parties agreed that Equitable’s retention charges to

Durbin would not exceed the difference between one

hundred percent (100% ) and the objective loss ratio stated in

the applicable Retro Agreement.

A-4

In fact, up through and including the final annual policy

period which ended on April 1, 1982, Equitable never

assessed retention charges to Durbin which exceeded the

difference between 100% of Billed Premiums and _ the

applicable objective loss ratio.

(B) Durbin’s Breach of Contract Claims. During the Final

Policy Period, Marshall Durbin’s actual loss ratio was sub-

stantially less than the applicable objective loss ratio of

87.8%. Thus, during the Final Policy Period retention

charges should not have exceeded 12.2%. Accordingly,

under the agreement between the parties, Marshall Durbin

was entitled to a dividend or retroactive premium refund in

the amount of at least the difference between the actual loss

ratio and the objective loss ratio. The amount of dividend or

return premium paid by Equitable should have been calcu-

lated by subtracting proper retention charges (i.e., no greater

than 12.2% of Billed Premiums) plus Incurred Claims from

Billed Premiums, with the balance or remainder represent-

ing the dividend or return premium properly payable to

Marshall Durbin. Properly calculated, the dividend or return

premium for the three month Final Policy Period should

have been at least approximately $60,000.00.

However, Equitable wrongfully breached its agreement

with Marshall Durbin by assessing retention charges against

Marshall Durbin for the Final Policy Period in the amount of

$8 1,603.00 or nearly 30% of Billed Premiums. This violated

the agreement between the parties, based upon prior written

correspondence, related oral discussions, and course of

dealing, that retention charges would not exceed 12.2%

when the objective loss ratio was 87.8%.

bad faith, fraudulently induced Marshall Durbin to believe

that (i)a retrospective premium adjustment or dividend

calculation would be calculated in accordance with its prior

agreements and past dealings upon termination of insurance

coverage, (ii) dividends or refund premiums would be paid

to Marshall Durbin, and (ii) Marshall Durbin would not

incur any financial penalty upon termination of insurance

coverage.

A-5

Marshall Durbin continued its coverage with Equitable,

relying on representations of Equitable that Marshall Durbin

would be paid surplus premiums following the termination

of insurance coverage, without penalty by reason of such

termination.

Equitable intentionally and in bad faith accepted the

premiums of Marshall Durbin with the intent of making

dividend calculations or retrospective premium adjustments,

if Marshall Durbin terminated coverage, in a manner which

materially penalized Marshall Durbin and which was con-

trary to the agreement and course of dealing between the

parties.

Following the termination by Marshall Durbin of insur-

ance coverage, effective June 30, 1982, Equitable applied a

different dividend calculation than agreed upon by Marshall

Durbin and Equitable, for the Final Policy Period. In this

regard, Equitable, in bad faith, materially changed and

altered its method of calculating retention charges to justify

the figures utilized in the calculations by Equitable;

moreover, Equitable initially concealed the wrongful manner

in which Equitable materially altered its method of calculat-

ing retention charges for the Final Policy Period. In fact,

although the Final Policy Period concluded on June 30,

i982, Eqqutable misrepresented the method and nature of

its wrongful calculation of retention charges and the div-

idend until at least February, 1984 and Marshall Durbin did

not know and could not reasonably have known of Equita-

ble’s fraudulent conduct unul at least that ume.

Moreover, during prior annual policy periods, Marshall

Durbin requested explanations from Equitable regarding a

“catch all” category of retention expenses shown on policy

premium summaries as “balance of retention.” Equitable

misrepresented to Durbin the types and categories of ex-

penses included in “balance of retention” and, further,

expressly, impliedly, and by course of dealing misrep-

resented the manner in which Equitable assessed a type of

retention charge against Marshall Durbin known as “acquisi-

tion expense.”

Furthermore, Equitable affirmatively misrepresented to

Marshall Durbin that, if Marshall Durbin terminated its

A-6

insurance coverage, then Equitable would assess new and

different types of retention charges which would substan-

tially increase retention charges assessed against Marshall

Durbin, as a percentage of Billed Premium, and would

materially penalize Marshall Durbin.

Equitable persisted in its misrepresentations to Marshal!

Durbin after Equitable became aware that Marshall Durbin

was considering placing its insurance program with another

insurance carrier, for the purpose of inducing Marshall

Durbin to continue coverage with Equitable.

Equitable’s fraudulent conduct is evidenced by corre-

spondence in June and July, 1976, idenutied as deposition

exhibits in the case, relating to the payment of dividends and

relating to the types of expense that would be included in

retention charges, and also correspondence from Equitable

-to Durbin in September, 1980 relating to calculation of a

dividend or retroactive premium retund if the policies were

terminated. The course of dealing referred to herein in-

cludes the fact that, prior to termination, Equitable paid

dividends to Marshall Durbin in each year that the actual loss

ratio was less than the objective loss ratio.

Marshall Durbin claims punitive charges in the amount

of $10,00,000.00 by reason of Equitable’s fraud.

Adjustment does not provide the plainuff with dividends,

nor is the dividend formula a function of the Retrospective

Premium Adjustment. If dividends are paid, they are paid

because the defendant is a mutual company and are paid on

all policies, not just those with retrospective agreements. No

Retrospective Premium Adjustment or policy here provides

for “retroactive rate refunds” or “refund of premiums.”

The defendant denies that the Retrospective Premium

Adjustment was altered in any way from the contracts signed

by plainuff and defendant, aside from amendments signed

by plainuff and defendant. Detendant denies all breach of

contract claims and all fraud claims, pleads the general issue,

and states that the fraud alleged is not pleaded with particu-

larity so as to properly state a claim against Equitable.

Equitable pleads the one year statute of limitations on all

tort claims and states that any tort actions for fraud should

2 ————— See eee

A-7

have been filed within one year of termination of the

contract (June 30, 1982).

Equitable pleads the defense of payment and says that

all sums owed to plaintiff have been paid.

Equitable is compelled to respond to plaintiff's

“Background Facts.” Marshall Durbin misstates the actual

loss ratio. In the Retrospective Premium Adjustment, the

actual loss ratio is the ratio between incurred Claims under the

health policy only (the amount of claims and losses, including

an estimate of incomplete and unreported claims), excluding

any Pooled Insurance plus the amount of cumulative experi-

ence loss balance reduced by premium stablization plan

reserves plus interest as to Billed Premiums under the health

policy. Uf the actual loss ratio exceeds the objective loss ratio,

then Marshall Durbin would owe Equitable an additional

premium subject to the maximum specified in each retro-

spective agreement.

Equitable denies that Marshall Durbin ever made an

issue of “the refund of premiums” as stated in the second

paragraph of Plaintiff's position. Equitable does not offer

and did not offer Marshall Durbin any contract with a

provision for “refund of premiums.”

In the third paragraph of plainuff’s position, Marshall

Durbin states it received “written assurances.” This ap-

parently refers to a single item of correspondence, Clyde

Jennings’ (of Equitable) letter to Barry Justice of Marshall

Durbin, dated June 11, 1976. This letter dealt only with the

first year of the health policy and when there was no

unfavorable loss experience. (“Loss Experience” is losses

carried forward from previous years.) Further, this letter did

not promise a dividend would be paid and did not tell

Marshall Durbin that a refund of premiums was payable

under the Retrospective Premium Adjustment.

Dividends are the product of a complex formula. Fac-

tors include total premiums paid, the claims incurred, inter-

est rates, the cost of doing business, and other factors.

Dividends are paid by Equitable even under policies which

are not group insurance and which do not contain retro-

spective premium adjustment riders. In 1980 Equitable paid

Marshall Durbin a dividend plus interest of $41,672 for the

A 4

proliey yeu ending April b, LosO In LONI, bguitable pani

Marshall Derbi a dividend plus uterest of $19,848 for the

policy your « vichinape Agoral OD, LOH) The above checks and then

cover letters clearly identify these checks as dividends, Phan

Hf s alleyations i paragraph four of phantlls position are

wien and apparently arise from a musreading of a federal

yovernment fon filled out annually for Marstiall Dearborn boy

bc peant alle

beitable did provide Marshall Durbin wath yearly

Stones Of loss experience, prenmiiinns, dividends, ane

retention charges (the cost of domp business, also the prod

ietol wecomples formula) Phancdt lias Labeled these reports

Poloy Premium Strmmanies’, bat these reports are actually

wonuinber of midividial reports that do net have a collective

rate to tbentibly thei

bauitable denies plantits allegations in pur saperapl sin

Of plamtll's position Phere was no course of dealing or onal

Cob WEEEEO HD COPDDEEDCEEEEG athont lisneatenaye the amount of retention

a) Plante fs Contract Clams Plamttt clans a divichene

for the fialthiee months of the polis baguitable dlemes this

chatty because dividends are a product of a feorauneeba Chaat

thofides the costot dotmig business athe hist three months of

thre proliey Divtclenels are tot the prrcnclered Of COmmp arity the

cobra tine loss tattoo te the aetinal loss tithe Asstirinig,

areuende thicat clivicleniels AS oe | porerctinet at COPTEP OUTED DDS ihe

objective loss tatio to the actual loss natio as planet Alleges,

thee polartett’s chav would only be tor 8.40%) Phanatt's

Calcolation as ceronmeous because plamdtls calculation dloes

hot follow the chvtdemel fommuha, but follows the tiusstated

acttnal boss patie cleseribedh an pret capen apels one ob plamiult's

jrersetberts

Papuitable lentes any agreement with Maastiall Darton

that retention Was tematect tm any way Retention charges bor

the Last thiee cnonmthis ot the pratiey, When stated asa pereen

tage tay appeaut high) because the yeatly retention charges

are compared Goa thre month period ot chars, whereas all

othe preebeeribapes tte compared tard 0 code Val perro ol

chaatias

Tha Last pret agee apely vt prlarititt’s prersatianty, “HR Clomtract

Chars cotmeeris aterest, whreth as tet rdentitied by chate,

nn eeeEeeEeEeEeEeEeEeEeEoeEeEeeeeeee

A-9

not identihied by amount, mot mentified as to principal, not

identified in planut!s complaint and apparently not yet a

Clann agaist kquitable because plamufts allegations in

cludes the word “may.” This claus does not appear in

phanull’s compliant, kquitable is without knowledge of it

and demies it

(ui) Plaintiff's Fraud Clams, Plainutts traud claims are

restated in the same language of the complaint and are not

specific as required by Fed R.Civ.P. 9b). Equitable denies

that ito made any imsrepresentations, denies that plamtilt

rehed to its detriment, demes a duty (assumed or required by

law) to advise Marshall Durbin, and demies that plaintiff took

any action to its detriment. Equitable believes that the

testimony of those who negotiated the policies will show that

there as no fraud im the inducement and no discussion about

“penalties.” Marshall Durbin was not penalized upon termi

nation. kqutable computed the dividend on termination as it

had previously done.

bquitable demes that it made representations too Maa

Shall Durbin to continue with coverage

Marshall Durbin makes no argument that) Equitable

tlways failed to disclose retention charges, but states that

hquitable delayed nul February L984. bquitable denies this.

bvenoab true, this as mot fraud

Marshall Durbin makes conclusory allegations about

mnisrepresentations of a “catchall Category of retention

bquitable demes this. kven it trae, there is no fraud because

there as no detrmental reliance

Marshall Dutbin’s position contuns five paragraphs of

conclusory allegations of Lalure to disclose or of suppression,

Cated an these five paragraphs are two statutes of the dlabama

Code which, together with the claim of tatire to disclose, are

Hot alleged to phantells Compliant. Pquitable demes these

tlegations. ven ab trae, there as no fraud because bquitable

Hach mo chuty or fidtaenary duty to Marshall Durbin and

Martshall Duttbin did mot rely to oats detroument, Kquitable

denies i tated to educate and tram its employees and agents

byenl trae, this ts not fraud. Equitable denies any practice

of not disclosing material information. Equitable dentes that

A-10

Marshall Durbin “lacked group insurance expertise.” Even if

these allegations are true, there is no fraud.

Equitable denies plaintiff's allegations in the next-to-last

paragraph of plainuff's position. The 1976 correspondence

has already been discussed. The second letter of September

22, 1986, simply stated that the dividend calculation would

be made at the time that the plaintiff decided to terminate

the contract, but did not discuss how that dividend would be

calculated. Equitable denies that any course of dealing

created by contract or duty by Equitable to pay dividends to

Marshall Durbin.

Plainuff’s last paragraph is an ad damnum of

$10,000,000. None of the complaint’s four counts contain an

ad damnum exceeding five percent of that sum. Equitable

denies that plaintiff is due any money.

6. Discovery and other pretrial procedures. The parties are

given leave to proceed with further discovery provided it is

commenced in time to be completed by March 10, 1986.

7. Voir Dire questions and requested jury instructions. When the

case 1s called for trial, the parties shall present to the Court

any special questions or topics for voir dire examination of

the jury venire; and, to the extent the same can be antici-

pated, any requests for instructions to the jury (including

extracts of any statutes on which instructions are requested).

8. Special damages. The parties shall by February 10, 1986,

exchange lists itemizing all special damages claimed to have

been incurred, showing the amount (and, where applicable,

the method oi computation) of such items.

9. Witnesses. The parties shali —

(a) By February 10, 1986, exchange lists stating the

names and addresses of all expert witnesses whom they

expect to offer at trial and stating, to the extent not previ-

ously provided, the information specified in FRCP 26(b)

(4)(A)(1) with respect to any such person other than a medical

expert; and

(b) By March 10, 1986, exchange lists stating the names

and addresses of all witnesses (other than expert witnesses)

whom they expect to offer at trial.

Unless specitically agreed between the parties or allowed

by the Court for good cause shown, the parties shall be

A-11

precluded from offering substantive evidence through any

witness not so listed. The listing of a witness does not commit

the party to have such witness available at trial or to call such

witness to testify, but does preclude the party from objecting

to the call of such witness by another party. Except to the

extent written notice to the contrary is given within five days

after receiving such list, each party sahll be deemed to have

agreed that the conditions of FRCP 32(a) (3) are satisfied

with respect to the deposition of any listed medical expert or

of any other person identified in the list as one whose

testimony is expected to be offered by deposition.

10. Exhibits. The parties shall by March 10, 1986, ex-

change lists describing all writings, recordings, documents,

bills, reports, records, photographs and other exhibits (col-

lectively called “exhibits”) which they may utilize at trial.

Unless specifically agreed between the parties or allowed by

the Court for good cause shown, the parties shall be pre-

cluded from offering as substantive evidence any exhibit not

so identified. Except where beyond a party’s control or

otherwise impracticable (e.g., records from an independent

third-party being obtained through subpoena), each party

shall make such exhibits available for inspection and copying.

Except to the extent written notice to the contrary is filed

with the Clerk of the Court within five days after receiving

such list, each party shall be deemed to have agreed (for

purposes of this litigation only):

(a) that the originals of the listed exhibits are authentic

within FRE 901 and 902;

(b) that a duplicate, as defined in FRE 1001, of the listed

exhibits is admissible to the same extent as would the

original;

records described in FRE 803(6) meet the requirements of

such rule without extrinsic evidence;

(d) that any of the listed exhibits purporting to be

correspondence were sent by the purported sender and

received by the purported recipient on approximately the

dates shown or in accordance with customary delivery

schedules;

A-12

(ce) that any listed photographs fairly and accurately

portray the scene therein depicted as of the ume when made;

({) that any listed bills for services or materials are

reasonable in amount for the services or materials therein

billed; and

(g) that each of the listed documents is admissible at

trial.

ORDERED, this 27th day of January, 1986, that the above

provisions be binding on all parties unless modified by

further order tor good cause shown.

/s/ U. W. Clemon

UNTETED STATES DISTRICT JUDGE

UL. W. CLEMON

A-13

APPENDIX B

EXCERPTS FROM BRIEF OF APPELLANT

THE EQUITABLE LIFE ASSURANCE

SOCIETY OF THE UNITED STATES

IN THE UNITED STATES

COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT COURT

MARSHALL DURBIN FOOD

CORPORATION,

)

Plainuff-Appellee )

) Case No.:

\. ) CV 86-7307

) me

THE EQUITABLE LIFF. )

ASSURANCE SOCIETY OF )

THE UNITED STATES, )

)

Deftendant-Appellant.

ON APPEAL FROM THE UNITED STATES

DISTRICT COURT FOR THE NORTHERN

DISTRICT OF ALABAMA,

SOUTHERN DIVISION

- BRIEF OF APPELLANT

THE EQUITABLE LIFE ASSURANCE

SOCIETY OF THE UNITED STATES

No Preterence Claimed

ATTORNEYS FOR APPELLANT:

Jack B. Porterfield, Jr.

Mark S. Boardman

#2 Office Park Circle

P. O. Box 7688-A

Birmingham, AL 35253

(205) 879-9370

i ais

A-14

TABLE OF CONTENTS

PAGE

CERTIFICATE OF INTERESTED PERSONS ...... il

STATEMENT REGARDING PREFERENCE ....... iv

REQUEST FOR ORAL ARGUMENT .............. \

py Pek Bet fg 8 gy ee ree, vi

Py. (Fee igs. 8 1 es. eee Vill

SEATERMEEN TET GCF THE ISSUES. o osc cc ick cc cck cn l

SEVER (pee Bee | et. Seana omer, 2

SUMMARY OF THE ARGUMENT ............... 13

STATEMENT OF JURISDICTION ...............46

PE EE a 5.26 eC SO eee een eee 17

1. The Trial Court Erred in Submitting

Be bic Bg OER OP PR Te te 18

A. The expectation of dividends was

not a fact material to Durbin’s

decision to establish or renew

WR ea eiten a tnt re che kona tlaaxe 1Y

B. Equitable made no false

oe cab os ce ge ag ON ET ETE EE EET ET eS 2]

i. A miunderstanding is

OE ee ts he se ne oe oe 27

il. Equitable had no intent

ene ee earn ee 28

C. Durbin did not rely to its detriment ....... .30

D. Durbin should not have relied on two

year old statements in terminating

er, reer Tee rere

A-15

PABLE OF CONTENTS —- (Continued)

PAGE

E. The alleged misrepresentation

proximately caused no damage .............34

Fk. Durbin’s evidence is insufficient

to support a claim for punitive damages .... 36

G. Assuming arguendo, a breach

of contract, that is not fraud ...............38

lt. The Trial Court Erred in Submitting

the Contract Count to the Jury te ee

A. Durbin never particularly stated

SE eee Ser eye ee eee ee eee 43

B. The trial court erred in allowing

both the traud in the inducement

and the contract counts to go to the

ST eee ae ee Te ee eee ee eee Eeee 45

lil. The Trial Court Erred in Not Requiring

Durbin to Plead Fraud with Specificity rahe aes 46

IV. The Trial Court Erred in Allowing

Durbin to Present Expert Pree 4Y

V. The Trial Court Erred in Denying

Equitable the Right to Qualify its

Corporate Representative When She

I CO Sito re en ens or ek

Nt tt ak ts ial ce bg a Oe

‘ho. geil eo ea Bh Be | i» ee eee!

Piao fot. ee Re ee Og Se ree mer

A-16

STATEMENT OF THE ISSUES

1. Whether the plainuff can recover for fraud without

sufficient evidence of a misrepresentation, when the plaintif!

did not act to its detriment, when there is no evidence of

Intent to misrepresent, and when the plaintiff would have

been in the same position if the alleged misrepresentation

had not been made.

(a) Whether the plaintiff presented clear and convinc-

ing evidence of fraud.

(b) Whether the plainuff must show that the misrep-

resentations alleged caused the plaintiff to act to its

detriment.

on two year old statements in cancelling group

insurance policies.

(d) Whether the plaintiff presented sufficient evidence

for punitive damages.

ll. Whether a mutual insurer breached a contract of

insurance by not paying a dividend when its legally adopted

dividend formula did not allocate a dividend.

(a) Whether it is error for a trial court to charge a jury

with a specific figure of damages for breach of

contract when that specific figure is not in evidence.

(b) Whether it is error for a trial court to submit counts

of both breach of contract and fraud in the induce-

ment of that contract to the jury.

ill. Whether a trial court is in error if it fails to require a

plainuft to plead traud with the specificity required by Fed.

R. Civ. P. Gib).

IV. Whether a triai court is in error in allowing expert

tesumony of insurance industry standards and practice to

support allegations of fraud and breach of contract when the

plainutf presents no evidence that it knew of insurance

industry standards and practice.

V. Whether a trial court is in error in prohibiting the

detendant’s employee who made calculations showing that

the plainuff was not damaged from stating her professional

background and qualifications.

A-17

SUMMARY OF ARGUMENT

Equitable did not breach its group policies of insurance

with Durbin or commit fraud. Durbin made these claims

because Equitable did not pay it a dividend in 1982. Accord-

ing to New York and Alabama law, Equitable, a mutual

insurance company organized under New York law, can pay

a dividend only if it has unimpaired surplus and then only

pursuant to a dividend formula adopted by Equitable’s

Board of Directors. Under the 1982 dividend formula,

Durbin was not due a dividend regardless of the inclusion or

exclusion of acquisition or investment selection expenses.

Durbin said 1982 dividend formula applied to it included

two expenses in retention which prevented it from receiving

a dividend. Equitable applied the same dividend formula

nationwide; Equitable could not and did not single out

Durbin to include two expenses against Durbin only. Equita-

ble proved, and Durbin did not dispute, that Durbin would

not have received a dividend in 1982 even if the two

expenses were deleted. Equitable did not breach the con-

tract. -

Equitable committed no fraud. Equitable never promised

Durbin a dividend. Durbin never proved how it acted to its

detriment, either in renewing or cancelling the policies.

Durbin alleged that misrepresentations were made in 1976

and 1979 or 1980. Yet Durbin did not decide to terminate

until 1982. Durbin admitted at tria] that, at the ume of that

decision, no one knew if Durbin would receive a dividend.

Equitable had not paid Durbin a dividend for the previous

two years. Durbin, therefore, could not have reasonably

relied on the expectation cf a dividend in reaching its

decision to terminate the policies. Durbin never proved it was

damaged, except to say that it did not receive a dividend that

Durbin never proved was due.

Durbin alleged three misrepresentations, two written and

one oral. The alleged misrepresentations, which do not meet

the legal requirements for fraud because they were not

material and were not made with intent to deceive, turned

out to be true. Whatever it alleged, Durbin did not prove that

the dividend formula actually did or should have provided

Durbin a dividend. As a policyholder of a mutual insurance

A-18

company, Durbin is conclusively presumed under Alabama

law to know that Equitable’s charter prevents Equitable from

paying dividends unless the dividend formula permits it.

The trial court erred in its jury instructions. Despite the

lack of any testimony on an exact amount of alleged damage,

the trial court's jury instructions included an exact figure of

$46,060.00 in compensatory damages. The trial court also

allowed the jury to consider two conflicting legal theories and

return a verdict on both: breach of contract and fraud in the

inducement of that contract. Alabama law prohibits this.

Additionally, the trial court abused its discretion by allow-

ing expert testimony on health insurance industry practice.

Durbin never proved that it relied on any insurance indust: s

practices. Fraud, by definition, must be between the parties.

What others do is irrelevant unless one party knows what

others do and relies on the opposite party to follow others.

Breach of a written contract is governed by the four corners

of the document. Durbin’s expert did not testify that Equita-

ble breached the contract. Durbin’s expert testimony was

neither probative nor relevant, yet was highly prejudicial.

The trial court abused its discretion in denying Equitable

the right to qualify its corporate representative when she

testified. By not allowing Equitable to show the qualifications

of is corporate representative, the jury was without a basis for

considering her testimony that Durbin would not have been

entitled to a dividend even if the two expenses had been

eliminated.

Durbin never pleaded its allegations of fraud with par-

ticularity. Equitable did not learn what it would be called to

detend itself against until trial. Federal Rule of Civil Proce-

dure 9(b) prevents trial by ambush on fraud issues. The trial

court erred in not requiring Durbin to plead its Complaint

with specificity.

Equitable respectfully requests that this Court reverse the

judgment of the trial court and render a verdict in favor of

Equitable. Alternatively, Equitable respectfully requests that

this Court reverse the judgment of the District Court and

remand this matter for a new trial after Durbin has pleaded

its fraud with specificity. The new trial should exclude expert

testimony and allow Equitable to present to the jury the

A-19

educational and professional background of all of its wit-

nesses. Alternatively, Equitable requests this Honorable

Court reverse the trial court and declare that the evidence

presented does not warrant a finding of punitive damages.

XXXXXXX

(F) DURBIN’S EVIDENCE IS INSUFFICIENT TO SUP-

PORT A CLAIM FOR PUNITIVE DAMAGES.

The trial court erred in instructing the jury that it could

consider punitive damages. To support a claim for punitive

damages, Durbin must show that the alleged misrepresenta-

tion was committed with intent to deceive and was gross,

malicious and oppressive. Williams v. United Insurance Co.,

634 F.2d 813 (5th Cir. 1981). Equitable’s repreated revela-

tions to Durbin show that Equitable had no intent to defraud

Durbin because Equitable did not hide the acquisition or

investment selection expenses in the retention for the final

three months of the policies. Both Durbin’s and Durbin’s

trial expert had no trouble reading the documents Equitable

sent to Durbin. See Plaintiff's Exhibits 34, 35 and 36 (corre-

spondence and dividend reports). Equitable’s alleged failure

to inform sales representatives is not gross, malicious or

oppressive. See Williams, 634 F.2d at 816 (United Insurance's

alleged practice of issuing policies without alcohol exclusions

while refusing to pay claims involving alcohol, but not telling

its policyholders, was not gross, malicious or oppressive even

when United represented to plaintiff that it would pay in the

event of accidental death.).

A mistake will not support fraud or punitive damages.

Ralston Purina Co. v. Hobson, 554 F.2d 725, 727 (5th Cir.

1977). The Alabama Supreme Court has held that a mis-

assessment of a customer’s needs does not support punitive

damages. Burroughs Corp. v. Hall Affiliates, Inc., 423 So. 2d

1348, 1354 (Ala. 1982). If John Pegram misunderstood

Durbin’s questions or if Durbin misunderstood Pegram’s

answers, then this misunderstanding does not allow punitive

damages.

Durbin presented no testimony of active concealment.

Failure to communicate what one party may deem impor-

A-20

tant, but what another party does not deem important or

may, by error, have failed to learn, does not support a claim

for punitive damages. Hopkins v. Lawyers’ Title Insurance Corp.,

20 Ala. Bar Rep. 2250, 2258-59 (Ala. Supreme Ct., May 30,

1986).

Dissatisfaction by one party to a contract is not grounds for

punitive damages either. Equitable tried to answer Durbin’s

questions and certainly provided vast amounts of documen-

tation. See Ford Motor Co. v. Burkett, 494 So. 2d 416 (Ala.

1986) (wherefore Ford repeatedly tried to satisfy the cus-

tomer, but she sued for fraud anyway. The Alabama Su-

preme Court found no grounds for punitive damages be-

cause Ford voluntarily and repeatedly attempted to satisfy its

customer).

Alternatively, and for the same rationale as above, if

punitive damages are warranted, the jury verdict was ex-

cessive and the trial court committed error in denying

Equitable’s Motion for Judgment Notwithstanding the Ver-

dict, or, Alternatively, for a New Trial and/or not remitting

the verdict {[R1-81], especially in light of allegations of small

actual damages and New York and Alabama law on dividend

allocation.

A-21

APPENDIX C

EXCERPTS FROM REPLY BRIEF OF APPELLANT

THE EQUITABLE LIFE ASSURANCE

SOCIETY OF THE UNITED STATES

IN THE UNITED STATES

COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT COURT

MARSHALL DURBIN FOOD

CORPORATION *

Plainutt- \ppellee

Case No.:

\ ' CV 86-7307

PHeE FOULTABLE LIFE

ASSURANCE SOCIETY O}

IHRE UNITED STATES,

Detendant- Appellant.

ON APPEAL FROM THE UNITED STATES

DISTRICT COURT FOR THE NORTHERN

DISTRICT OF ALABAMA,

SOUTHERN DIVISION

REPLY BRIEF OF APPELLANT

THE FOUTTABLE LIFE ASSURANCE

SOCIETY OF THE UNITED STATES

No Preterence Claimed

ATTORNEYS FOR APPELLANT:

Jack B. Portertield, Jr.

Mark S. Boardman

#2 Ottice Park Circle

P.O. Box 7688-Q

Birmingham, AL 35253

(205) 879-9370

A-22

TABLE OF CONTENTS

PAGE

ve eg i ft ge gee. lS l

a ale ial ee ]

eC Nar me Tr re ae 2

1. EQUITABLE DID NOT BREACH THE

*s ge Fo ge Bi. 8) 7 4 a Sa 2

A. The dwidend formula did not

provide for a dividend for the

i i cen eeSea se sees sa eennedn eas 2

1. Even if acquisition expense

and investment selection

charges were deleted, Durbin

would have received no

Sa et a ee al al 4

2. Durbin used the wrong figures

in its chart and in computing

ee ee aes j

3. The retrospective premium

adjustment riders do not

provide for return of any

rrr errr rrr rer rrr rere 1

4. Retention was not limited by

the objective Ee nt MeL are a Pe 5

5. Durbin’s purported

calculations tor the

payment of dividends 1s

SBA MEN OP ERG PP HOPE ECC EOC CTET TCE 6

B. Dividends are not calculated

based on “actual losses (being |

more favorable than the

DOIN TRE ncn ccs cece dcevansenecesories x

C. The trial court erred in

allowing both the fraud in

the inception and contract

counts to go to DME So Waweocsuccsantbasesness &

—SES—___e_a_—..SaaaS_™

A-23

TABLE OF CONTENTS — (Continued)

PAGE

THE TRIAL COURT ERRED IN SUBMITTING

PIRPRIEE BOE COU RORE deka oie cceueecenes

\. Durbin did not expect

a dividend when it terminated

its bolicies Se ee ER eee etd i dre Gk ei ee Be eee ak

B. Equitable made no false

VOPVEOSETUGTIONS .cccscsscsseccvecessescsesevns

1. Clyde Jennings made

| PTT EL CT Tee eT eee

2. John Pegram made no

MUSTEPTESEMIAUIONS ...... 6. ccc er secsvcscees

3. Durbin does not dispute

ihe acquisition expense

for the Tupelo plant, but

only questions when the

expense was ND tre Pe Se)

1. Durbin concedes thei

the investment selection

charge assessed on

terminavion Was proper ............6..

5. Equitable committed no

fraud by deterring

TT TEC UTEL TC Ce Tee Tee

f Equitable had no intent

lo misrepresent SORE en Ger Gere oe oh a ota gt, 2 a og ig gl gap

D. Durbin never proved it bought,

renewed, or terminated its

Group policies with Equitable

as a result of a misrepresentation ... 00.6 c cee eee

Kk. The alleged misrepresentation

eS oy ioe dd ood ba ede ee aes

Fk. The trial court erred in

mstructing the jury that it

could consider punitive

[SEAS Leong » Gh RSS be OE ear

A-24

TABLE OF CONTENTS — (Continued)

PAGE

111. DURBIN’S ACTION WAS DUE TO

Bk DISMISSED FOR FAILURE TO

CAPE Ee WORE ESR E OED oid chs eck isa taasex: 22

IV. THE COURT ERRED IN ALLOWING

DURBIN TO PRESENT EXPERT

NEE Sh ge os BOE eh aes 6S 23

V. THE TRIAL COURT ERRED IN

DENYING EQUITABLE THE RIGHT

TO QUALIFY ITS CORPORATE

REPRESENTATIVE WHEN SHE

Pe a ee ae re a ee nee 24

eR a 6 cS SANs dks a eA wes Oo Oe esse eas 24

CERIFICATE OF SERVICE 2. ikcccccceccuescenaes 25

ee Beene Ae OARS WED 6 vo ean cae nyse edideukcecn 26

A-25

XKKRERERX

F. The trial court erred in instructing the jury that it could

consider punitive damages.

The trial court had no grounds for submitting to the jury

the issue of punitive damages. In Durbin’s dividend calcula-

tion, Equitable followed its nationwide dividend formula;

Equitable did not single out Durbin with any particular

expenses. In fact, Durbin learned of these expenses in

retention only because Equitable provided documents de-

claring these expenses. Plaintiffs Exhibits 34, 35, and 36.

Equitable did not act intentionally, grossly, maliciously or

oppressively. The law of punitive damages is not clear in

Alabama; the Chief Justice of the Alabama Supreme Court

wrote in American Honda Motor Company v. Boyd, 475 So. 2d

835 (Ala. 1985):

The law as to punitive damages for deceit and fraud is

far from being well settled in this state; as my dissent in

Ex parte Lewis outlined, this Court has set forth several

standards for the awarding of punitive damages and

continues to mystify the bench and bar by failing to

adopt one clear standard that properly takes into ac-

count the purpose and gravity of punitive damage

awards. The standard “that if the evidence establishes an

intent to deceive or defraud, then punitive damages are

recoverable” defeats the purpose of punitive damages,

which are intended to punish and deter gross, malicious,

or oppressive conduct that is coupled with an intent to

deceive or defraud. Simply proving an intent to deceive

or defraud is not enough to warrant the extraordinary

award of punitive damages. This Court has long fol-

lowed “the gross, malicious or oppressive conduct with

an intent to deceive or defraud” test. /d., at 840 (Tor-

bert, C. J., dissenting.)

Every case cited by Durbin to support its claim for punitive

damages involved an unsophisticated individual consumer

who was defrauded by a large corporation. Durbin’s cases do

not involve parties in equal bargaining position as here. For

example, in American Honda, the manufacturer knew that the

“new” car had been damaged betore it was sold; the issue was

whether the damage was “major” or “minor.” In Mobile Dodge

v. Alford, 487 So. 2d 866 (Ala. 1986) (Shepard’s says a U.S.

appeal is pending), the issue was whether the 1978 Corvette

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had ever been wrecked. The salesman told the consumer that

it had not; in fact the car was a combination of two wrecked

vehicles. In Washington National Insurance Co. v. Strickland,

491 So. 2d 872 (Ala. 1985), the issue was not what the

insurance agent said, but whether that agent had authority to

make any representations.

Unless there is an initial finding of the knowledge of the

falsity of the material representation, there can be no puni-

tive damages. American Honda Motor Company v. Boyd, 475 So.

2d 835, 838 (Ala. 1985). Circumstantial evidence is not suf-

ficient; the evidence must be clear and convincing. See No-

bility Homes, Inc. v. Ballentine, 386 So. 2d 727, 730 (Ala. 1980).

Where the defendant acted as it was entitled under its con-

tract with plaintiff, there can be no fraud. McIntyre Electric

Services, Inc. v. SouthTrust Bank, 495 So. 2d 1043 (Ala. 1986).

Durbin suggest circumstantial evidence is enough to prove

intent to deceive and award punitive damages, citing Neff v.

Kehoe, 708 F.2d 639 (11th Cir. 1983). No punitive damages

were awarded in Neff where the representation was made

recklessly or mistakenly, not with intent to deceive. /d. at 643.

No punitive damages were awarded in the other case cited by

Durbin in its conclusion either, First Virginia Bankshares v.

Benson.

Durbin refers to its “repeated legitimate inquiries about

retention” on page 43 of its brief, but never outlines these or

provides a citation to the record. These inquiries occurred

only prior to 1978 and once 18 months after the termination

(Plaintiff's Exhibit 35). Durbin also alleges an affirmative

corporate policy to conceal. Not only is no policy shown, but

there was no affirmative action by any employee of Equitable

to conceal any issues. Durbin did not plead concealment.

Alternatively, and for the same rationale as above, 1

punitive damages are warranted, the jury verdict was exces-

sive. The cases cited in Equitable’s initial brief support this.

Durbin’s brief claims on page 41 that Equitable did not

provide case law and thus waived this argument. Using

Durbin’s rationale, Durbin has waived any argument on the

issue of whether it was damaged because Durbin tailed to

demonstrate that it would have received a dividend, even it

Equitable excluded expenses from its 1982 dividend tor-

mula.

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APPENDIX D

EQUITABLE LETTER TO U.S. COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

PORTERFIELD, SCHOLL, BAINBRIDGE

Mims & HARPER, P.A.

#2 OFFICE PARK CIRCLE

POST OFFICE BOX 7688-A

BiRMINGHAM, ALABAMA 35253

(205) 879-9370

JACK B. PORTERFIELD, JR FRANK BAINBRIDGE (1895-1980)

ROY Wo SCHOLL, JR

FRANK M. BAINBRIDGE WALTER L. MiMS

LARRY W. HARPER OF COUNSEL

WHELIAM T. MILLIS. II

WDE DLY MOTLOW, JR

BRUCE F. ROGERS

MARK S. BOARDMAN

SEANLEY KOSMITH

SALLEY PWALKER August 25, 1987

BRENIE V. EYRA

Mr. Miguel J. Cortez

Clerk of the Court

United States Court of Appeais

Clerk’s Office, 4th Floor

U.S. Courthouse & Federal Bldg.

15 Lee Street

Montgomery, Alabama 36104

Mr. Miguel J. Cortez

Clerk of the Court

United States Court of Appeals

for the Eleventh Circuit

56 Forsyth Street, N.W.

Auanta, Georgia 30303

RE: Marshall Durbin Food Corp. v. Equitable Life

Assurance Society of the United States, Appellant

Circuit Court Case No. 86-7307

Dear Mr. Cortez:

Under Rule 28, Fed. R. App. P. 28(j) and the correspond-

ing Llth Circuit Internal Operating Procedures, the appel-

lant, The Equitable Life Assurance Society of the United

States, directs to the Court the recently decided United States

A-28

Mr. Miguel J. Cortez

August 25, 1987

Page Two

Supreme Court case of Pilot Life Insurance Company v. Dedeaux

451, U.S. —., 108 S. (4. , 95 L. Ed Za 59 (1987) in

support of Equitable with regard to punitive damages found,

in particular, in Equitable’s brief beginning on page 36. the

Supreme Court determined in Pilot Life that state law torts

with their accompanying claims for punitive damages are

pre-empted by Section 514 of ERISA, 29 USC Sec. 1144 (a).

In keeping with the court’s rule for succinct comment,

Equitable states simply that both Pilot Life and the principal

case arise from employer-funded employee benefit: plans

governed by ERISA. Durbin served as employer, plan spon-

sor, and had discretionary control, making Durbin a

fiduciary.

In Dedeaux, plaintiff alleged tortious breach of contract just

as Durbin alleged in Count I. In Dedeaux, plainut! alleged

fraud in the inducement, just as in Durbin’s Count II.

Durbin’s remaining counts allege fraud under the Alabama

Code.

Sincerely,

/s/ Jack B. Porterfield, Jr.

Jack B. Portertield, Jr.

/s/ Mark S. Boardman

Mark S. Boardman

MSB:jIp

cc: Mr. Frank M. Young, IIl

Mr. Johathan H. Waller

Mr. Thomas Samford, IV

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.