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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1988

## Text

inves Goat, U.S,
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,

v.

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

ke

Ss |
.

6.

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?

ee

il

TABLE OF CONTENTS

Questions Presented for Review

Table of Contents

Table of Authorities

Opinions Below _ .

Jurisdictional Statement

Statement of the Case

Argument

1.

Il.

Ill.

IV.

V.

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. —-...

20

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

iv

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

i

10

Ny 02, 33, 44

oe

ee ee

a ee ee
Svs sta

Vv

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.

9

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

3

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.

4

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

_

5

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) .

ao

§ The feane OF Whether The Punitive Damages Award
Vinlates The United States Camatitution Should Not
She Camaidered Hy Bhie Court Heranze It Waa Not
Mreperly Haized Below

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7

jets Of thew Bauitathe triets relating to positive darn
ages) *

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8

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

9

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.

10

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

1]

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

12

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.

13

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
(c) (3) and (4); 463 U.S. at 99. The declarations of policy
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) .

14

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

15

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

16

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

17

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.

18

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-

19

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.

20

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%.

(C) Marshall Durbin’s Fraud Claims. The Equitable, in
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.

(c) Defendant’s position. The Retrospective Premium
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;

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

ve

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.

(c) Whether the plaintiff should have reasonably relied
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

A-26

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.

A-27

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

:
2

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385019_1692%3A2. Public record. Not legal advice.