Petition for Writ of Certiorari — City of Fort Worth v. Garris

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Supreme Court, U.S.

89-210 stages

4 | JosePH F. SPANIOL, JR.

CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1989

HARLEY AMOS AND GAIL AMOS,

Petitioners

BLUE CROSS BLUE SHIELD OF ALABAMA,

JAN CULLIGAN,

Respondents

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR THE

ELEVENTH CIRCUIT

DANIEL B. KING

757 Chestnut Street

Gadsden, Alabama 3599]

Phone: (205) 547-2431

Counsel of Record

Counsel for Petitioners

Of Counsel:

KING & KING, ATTORNEYS, P.C.

757 Chestnut Street

Gadsden, Alabama 35901

Phone: (205) 547-2431

QUESTION FOR REVIEW

Does the Federal Judiciary have the

obligation to develop a federal common law

under ERISA in order to protect the bene-

ficiaries of medical insurance plans and to

achieve the intent and purposes of ERISA by

providing full compensation for wronged

beneficiaries including, when appropriate,

punitive damages in order to discourage

future Similar wrongs?

oi fo

LIST OF ALL PARTIES

Pursuant to Rule 21.1(b), Rules of the

Supreme Court, counsel for petitioners’

certify that the complete list of all

parties to the proceeding below and ail

parties and persons believed to be

interested in the outcome of this Petition,

includes:

Hariey Amos

Gail Amos

Blue Cross Blue Shield of Alabama

Jan Cullighan

DANIEL B. KING

Counsel for Petitioners

-iii-

TABLE OF CONTENTS

QUESTION TO BE REVIEWED..............0i

LIST OF ALL En F |

TABLE OF EE ee Fe |

TABLE OF REE WES 5 cK 0 ss cckcccccccel¥

DEES PRESS SG 65066505660 6ecccccec¥iti

MUS 6 BSS Kose ccccccceccecee

LEGISLATIVE HISTORY...........

LAW REVIEW ARTICLES...........

REFERENCE TO DECISION TO BE

DMO ChE GG Gh 606660606600

STATEMENT OF JURISDICTION.....

STATEMENT OF THE CASE.........

REASONS FOR GRANTING THE WRIT.

a ee

APPENDIX A--Decision to be

MOI Bowe cccccecccccccce

oeeWad

sacVak

et 7 e |

APPENDIX B--District Court Order....

APPENDIX C--Petition for Re-Hearing

and Suggestion of Re-Hearing in

DPM CRE EGG 6660 a 6c Gececceces

APPENDIX D--Supreme Court of

Alabama, July 21, 1989......

«hig

TABLE OF AUTHORITIES

Amos v. Blue Cross-Blue Shield,

of Alabama, 681 F. Supp.

1515 (ND-Ala. LOGS? < vain occa vesctalks 39

Amos v. Blue Cross-Blue Shield,

of Alabama, 868 F.2d 430

(llth yh ERO) 0066 0046406665008 64

Anderson v. John Morrell & Co.,

830 F.2d 872, 875 (8th Cir.

SOOT 6 60.066666 640466006608 66000056668F

Armbuster v. Benefit Life Ins.

Co., 687 F.Supp. 403 (N.D.,

Til. 9886) (Lith Cits 29G7) 0 cccecdS

Belasco v. WKP Wilson & Sons,

Iac., $33 F.2€ 277 (llth Cir.

oy) Pe rer eee eee ee 26

Cedar Rapids Ped. Cl. P.P. v.

Continental Assur., 90 F.Supp.

792 (W.D., Ae. LOSS) s0c6ee eve eeesee 26

Dependahl v. Falstaff Brewing

Corp., 653 F.2d 1208, 1215

(8th Cir. 1981), cert.

denied, 545 U.S. 968, 102 S.Ct.

512, 70 L.Ed. 24 384 (1981).......27

Firestone Tire & Rubber Co. v.

, 109

a are ee ere

S.Ct 48 (1989)

Franchise Tax Board v. Construction

Laborers Vacation Trust, 463

U.S. 1, 24 N. 265, 103 S.Ct.

2841, 2854 N. 26, 77 L.Ed.2d

420. C2983) cc cccicaseccosesvecse ges

-V—-

Graves v. Blue Cross of

California, 688 F.Supp.

1405, 1413 (N.D. Cal. BUUO) cece dd

HealthAmerica and Pamela Merle

Vv. Edward Menton, S.Ct.

No. 87-1100, So.2d eecccecc ee 38, 39

Helms v. Monsanto Co., Inc.,

728 F.2d 1416 C1984) occ cence cee e382.

Idaho Plumbers «& Pipe Fitters

Healch & Welfare Fund v,

Gnited Mechanical Contractors,

Inc., 1989 WL 475 84 (9th Cir,

May 9, [<P Od WPS oe ekankenc, ieee. 29

Kuntz v, Reese, 760 F.24 926

(9th Cir. 1985), vacated on

Other grounds, 785 F.2d 1410

(9th Cir. 1986) (per curiam),

cert. denied, 479 U.S. 2°16,

107 €.ct., 318, 93 L.Ed, 24 291

i CERT eee rn aes +a eo 26

Mendez-Bellido vy. Board of

Trustee of Div, 1181, No.

87 CV 700 (E.D.N.Y. March 30,

APOE) s s0 884646 kn ss eabusackescecacct®

Nachwalter vy, Christy, 805 F.2q4

956, 960 (llth Cir. err | |

Perry v. P*I*R Nationwide, tac...

872 F.2d 157 (6th Cir, 1969) ...00e28

Pilot Life Ins, oO. v. Deceaux,

481 U.S. 41, 107 S.ct. 1549

SANT) Wi sos 0s ose 0 500445 e0nasenncs key ih

18, 19

-vi-

Rizzi v. Blue Cross-Blue

Shield of California, 206

Cal. App. 3rd 350 (1988) ........-29

Shaw v. Delta Airlines, Inc. ‘

463 U.S. 90, 103 S.Ct.

2986 ee efeees eeeeeeerkeersekeeeeeeeeeeee @ “esa@e 31

Textile Workers v. Lincoln

Mills, 353 U.S. 488, 451, 77

S.ct. 912, 915, 918, 1 L.Ed.

ZG S72 CADST) ccccccceccesesessesers 34

-vii-

STATUTES

29 U.S.C. Sections 1002(7),

1002(8), 1002(21) (A),

1102(a), REWOS 5666406 oben ud ci lecnek®

29 U.S.C. Sections 1101-1104.......15

29. U.S.C. Section SROGtOl 6 oécack see

29 U.S.C. Section Raweees (2) 2.647. 89

29 U.S.C. Section ROweeeGadwi eles Oe

29 U.S.C. Section 10001

TRUE LGGEETe Te oO |

CONSTITUTION

Seventh Amendment

LEGISLATIVE HISTORY

H.R. Rep No. 801, 100th Cong. 2d Sess, P.2

at 63 (1988).

LAW REVIEW ARTICLES

ERISA Preemption: Judicial Flexibility and

Statutory Rigidity, 19 Mich Journal of Law

and Reform 109 (1985)

ERISA's Fundamental Contradiction: The

Exclusive Benefit Rule, 55 University of

Chicago Law Review 1105 (1988)

=j<

REFERENCE TO DECISION TO BE REVIEWED

The case to be reviewed is Harley Amos

and Gail Amos, Plaintiffs-Appellees vs. Blue

Cross Blue Shield of Alabama and Jan

Cullighan, Defendants-Appellants, 868 F.2d

430 (llth Cir, 1989), a copy of which is

attached as Appendix A. This was an Appeal

from a Decision entered by the United States

District Judge William M. Acker, Jr., on

March 22, 1988, cited as: Amos vs. Blue

Cross Blue Shield of Alabama, 681 F. Supp. .

1515 (N.D. Ala. 1988), a copy of which is

attached as Appendix B.

STATEMENT OF JURISDICTION

This Court has authority for this

review under 28 U.S.C. 2101. The Eleventh

Circuit Court of Appeals entered its

Decision in this cause on March 24, 1989,

and thereafter, Harley Amos and Gail Amos,

and

through

Petitions

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STATEMENT OF THE CASE

This action arises out of a grossly

wrongful and inexcusable denial of claim for

insurance benefits under an employee

insurance benefit plan as defined by ERISA.

The action was initially filed in Circuit

Court of Etowah County, Alabama, against

Blue Cross Blue Shield of Alabama (Blue

Cross) and Jan Cullighan, an employee of

Blue Cross. The complaint asserted various

‘

State law claims against defendants for

breach of contract, fraud in the inducement

and bad faith. Because the insurance

contract at issue was obtained through the

plaintiffs' employer, the defendants removed

the action from the State Court to the

Federal Court, namely the Northern District

of Alabama. With their'Petition for Re-

moval, the defendants filed a Motion to Dis-

miss or in the Alternative Motion for More

Definite Statement. Defendants asserted

that all of plaintiffs' claims based upon

State Law were preempted by ERISA and should

be dismissed. In the alternative,

defendants moved for an order directing

plaintiffs to file an amended complaint

setting forth any claims plaintiffs may have

against the defendants under ERISA.

Pursuant to the order granting the motion

for more definite statement, Plaintiffs

filed an amended complaint on November 9,

1987. The amended complaint asserts claims

both under ERISA and Alabama Common Law and

seeks to recover compensatory and punitive

damages.

On November 6, 1987, defendants filed a

motion to strike all claims for damage,

Other than for the benefits themselves,

as to strip the plaintiffs of their

admitted pre-ERISA right to full compen-

Sation for the wrongs committed against them

by the defendants Blue Cross-Blue Shield of

Alabama, et al. In this motion, defendants

asserted that under ERISA plaintiffs are not

entitled to damages other than the benefits

provided for by the Plan. In other words,

no matter how egregious Or wrong Or willful |

and even fraudulent the denial, Plaintiffs’

going to Court can only obtain from them,

according to the defendants, are the right

to have medical bills, interest and if the

court, in its discretion, wishes to award

attorney's fees, then, that would also be an

allowable benefit, but sisi stad ahi to

compensate the plaintiffs for all of the

other injuries, damages and losses suffered

by the plaintiffs as a result of the

defendants fraud, bad faith or intentional

breach of contract. The United States

District Court denied the defendant's motion

by Order dated December 30, 1987. On

January 20, 1988, defendants filed a

petition for leave to appeal the District

Court Trial Judge's Order. This petition

was denied by the United States Court of

Appeals for the Eleventh Circuit on February

24, 1988.

On March 9, 1988, defendants Filed a

motion for reconsideration regarding the

Order dated December 30, 1987, in which

defendants' motion to strike claims for full

compensatory and punitive damages other than

benefits was denied. The motion for

reconsideration was denied by the Federal-

District Court by Order of March 22, 1988.

Defendants filed a petition for leave to

appeal under 28 U.S.C., Section 1292(b) on

April 1, 1988. This petition was granted wa

Order of the United States Court of Appeals

for the Eleventh Circuit on May ll, 1988.

The appellant panel made up by Senior

Circuit Judge Henderson, Judge Fay and Judge

Anderson on March 24, 1989, entered an Order

reversing the Federal District Trial Judge's

Order and remanding the case to Federal

District Court, among other things, said

panel held the following:

"Accordingly, we are compelled by

controlling precedent to reverse

the judgment of the district court.

We acknowledge that by eliminating

the possibility that insurance com-

panies may be liable for punitive

or extra-contractual damages, the

courts are removing an historical

disincentive to insurance company

misbehavior. Consequently, our

decision may produce unintended

results. However, any change in

the law's course will have to be

charted by the Congress or the

Supreme Court." (emphasis added).

Before the Eleventh Circuit opinion was

rendered, Plaintiffs-Appellees supplemented

their brief by sending to the panel whom had

heard coral argument important legislative

=§-

history that clearly revealed Congress'

intent that the Federal Judiciary develop

Substantive law under ERISA so as to enable

wronged employees/beneficiaries to receive

full compensatory damages including possible

punitive damages, even if the remedies are

not specifically enumerated in Section 502

Of ERISA. Thereafter, within a very short

period of time the panel's March 24, 1989,

Order came out and therefore, the plaintiffs

-appellees' attorney of record believes that

the panel did not consider said Congress-

ional intent/legislative history revelation

in rendering its March 24, 1989 decision.

Thereafter, plaintiffs-appellees'

attorney of record filed Petition for Re-

Hearing and Suggestion of Re-Hearing in

Banc, which was denied by the United States

Court of Appeals for the Eleventh Circuit on

May 5, 1989, a copy of which is attached

hereto as Appendix C.

REASONS FOR GRANTING THE WRIT

Petitioners present a case of first

impression that will affect each and every

employee throughout America if he or she

obtains his or her medical insurance or

other insurances through his or her

employer. Petitioners are aware of the fact

that this Court has for consideration

another petition for Certiorari in Rizzi v.

Blue Cross of Southern California, Supreme

Court No. 88-2055, which seeks to review

the California Court of Appeals, 206 Cal.

App. 3rd 350, a case which has some

similarity to this case in that a Blue Cross

Company denied benefits and successfully

asserted ERISA preemption in the lower

courts to protect it from any but minimum

exposure. There are several reasons why

this Honorable Court should issue a Petition

for Writ of Certiorari to the Court of

«1 G-

Appeals for the Eleventh Circuit, review

this case and thereafter enable the federal

judiciary to develop common law under ERISA

that will serve the purpose of ERISA by

providing protection to the employees, who

have obtained their insurance through their

employers, from the wrongful misconduct of

the insurance industry and/or the employers.

Many Federal Appellate Courts and District

Courts have entered decisions expressing

frustration and clearly requesting this

Honorable Court to chart a course of law

that will enable the federal judiciary to

create federal common law under ERISA not

expressly provided by the Statutory scheme

as set forth in ERISA which as presently

interpreted by many courts, including the

Eleventh Circuit, enables the insurance

industry and the employers to commit as much

wrong as against the employees as they so

«jle-

desire without fear of having to pay full

compensatory damages and/or possibly suffer

the sanction of punitive damages to thwart

similar future wrongs. The United States

Court of Appeals for the Eleventh Circuit in

its decision of March 24, 1989, openly

acknowledged that its decision was in fact

protecting wrongdoers and punishing the

innocent when the panel that entered the

opinion concluded with the following lament:

"we acknowledge that by eliminating

the possibility that insurance com-

panies may be liable for punitive or

extra-contractual damages the courts

are removing an historical disin-

centive to insurance company misbe-

havior. Consequently, our decision

may produce unintended results. How-

ever, any change in the law's course

will have to be charted by the

Congress or the Supreme Court.

Amos, Dp. 1869.

In rendering the aforementioned

decision, the panel's major mistake was in

not detecting that the law's course has

=) 2<

already been charted by the Congress and/or

by the Supreme Court and charted ina

direction contrary to that of the panel.

The panel said it felt reiuctantly bound

by Pilot Life Ins. Co. v. Dedeaux, 481 U.S.

41, 107 S.Ct. 1549 (1987), which the panel

erroneously interpreted as Blue Cross-Blue

Shield of Alabama wanted it interpreted,

namely, as holding that ERISA preempts all

claims by the beneficiary of an ERISA-

governed medical benefits plan, except that

beneficiary's actual claim for bene-fits.

Blue Cross argued, and the panel agreed as

follows:

"In the instant case, there can

be no dispute that the common

law causes of action assserted -

by the plaintiffs--bad faith

refusal to pay, fraud and

breach of contract -- "relate

to" an employee benefit plan

and therefore, fall within

ERISA's express preemption

clause." Amos, p. 1868

(emphasis added).

Ree aes,

The panel correctly recognized that

Mr. and Mrs. Amos are endeavoring to bring

traditionally "common law" claims under the

ERISA umbrella, but the panel concluded

"that the effect of ERISA preemption is to

wholly eliminate state law claims, leaving

plaintiffs only the causes of action

expressly provided for in the ERISA civil

enforcement provisions." Amos p. 1868

(emphasis added).

We respectfully suggest that the panel

fell short when it failed to mention or to

realize the significance of Firestone Tire &

Rubber Co. v. Bruch, _ U.S. , 109

S.Ct. 948 (1989). Bruch, which was not

Aecided until February 21, 1989, perhaps did

not come to the panel's attention in time to

be factored into its opinion. Nevertheless,

Bruch constitutes that hoped for "change in

the law's course ... charted by ... the

-14-

Supreme Court." Amos, Dd. 1869. The Supreme

Court in Bruch, a month before Amos, had

already accepted the Panel's invitation to

chart a different course, a ccurse which

would provide a disincentive to insurance

company misbehavior and which would not

Produce unintended results. Not only does

Bruch very clearly overrule the Eleventh

Circuit's previous holdings that the turning

down of ERISA claims by an insurance company

evaluator is to be judged under the

"arbitrary and Capricious" standard, but

Bruch very clearly rejects Blue Cross'

current argument that no ERISA Plaintiff can

ever have a cause of action unless

"expressly provided for in the ERISA civil

enforcement provisions." Amos, dD. 1868,

Except for one relatively unimportant

section of the Bruch opinion, the Supreme

Court was unanimous. This Court there said:

=} 5-

"ERISA abounds with the language

and terminology of trust law.

See, e.g. 29 U.S.C. Sec. 1002(7)

("participant"), 1002(8)

("beneficiary"), 1002(21) (A)

("fiduciary"), 1102(a) ("trustee"),

1104 ("fiduciary duties"). ERISA's

legislative history confirms that the

Act's fiduciary responsibility

provisions, 29 U.S.C. Sec. 1101-1104,

"codif[y] and make [ ] applicable to

[ERISA] fiduciaries certain principles

developed in the evolution of the

law of trusts." H.R. Rep. No.

93-533, p. 11 (1973), U. S. Code

Cong. & Admin. News 1974, pp. 4639,

4649. Given this language and his-

tory, we have heid that courts are

to develop a "federal common law of

rights and obligations under ERISA-

regulated plans." Pilot Life Ins.

Co. v. Dedeaux, 481 U.S. at 56,

107 S.Ct. at 1558.

See also, Franchise Tax Board v.

Construction Laborers Vacation

Trust, 463 U.S. 1, 24 N. 26, 103

S.Ct. 2841, 2854, N. 26, 77 L.Ed.

24d 420 L.Ed. 2d 420 (1983) (" ‘a

body of Federal substantive law

wil] be developed by the courts

to deal with issues involving

rights and obligations under

private welfare and pension

plans" ') (quoting 129 Cong.

Rec. 29942 (1974) (remarks of

Senator Javits)."

109 S.Ct. 954 (emphasis added).

-16-

As the panel said On March 24, 1989,

Mr. and Mrs, Amos' "complaint asserted

various state law Violations, including

fraud and bad faith refusal to Pay ...*

AMOS, p. 1866. It goes without Saying that

an action for fraud seeks a “common law"

remedy. It is a cause found in every common

law jurisdiction. It provides a remedy

available against fiduciaries and trustees,

No court, federa} Or state, has yet said

ERISA immunizes a group medical benefits

Plan from claims based on the claims

evaluators' own Willful, fraudulent

misconduct. Tf we are to take at face Value

what the panel and Blue Cross Said on March

24th, Blue Cross can, with perfect impunity,

deny a claim to Save money or for a personal

reason, which invidiously and maliciously

discriminates against or abuses, a Plan

beneficiary, The Supreme Court, in Bruch,

clearly recognizes that Congress,

cting ERISA, nev

en=

intended for bene-

luatorcr

Ich.

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ficiaries to be helpless or for the courts

to be impotent when an ERISA fiduciary is

Jeserving of more than a simple money

judgment against im, Or against the

administers, for the elatively small

noney which he has wrongfully refused

pay. In most instances, a claims eva

in the ase of Blue Cross, has the

mnflict-of-interest Cc cognized in Br

His loyalty is to Blue Cross, his emp

n to Mr. 14 Mrs. Amos. TO Qlve

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"oxtra-contractual"™ damag is t

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Congress, 7 yrding e n

Bruch, did not lint

Not only do¢ Bruch point

different direction than the

panel's opinion

of March 24th, but there is a recent

legislative history which is even more

persuasive than the legislative history

»9y the Supreme Court in Bruch for the

proposition that Congress, in adopting

}

ERISA, fully intended for the courts to

fashion appropriate federal common law, as

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1549 (1987)) as preempting state

laws that authorize punitive or

other extra-contractual damages

in connection with claims for

benefits effectively denies

them of legal recourse. The

Committee shares their concern.

In Pilot Life, the Supreme Court

held that state common law claims

against an insurance company for

breach of contract and bad faith

arising out of an improper denial

of disability benefit claims under

an ERISA-covered plan were pre-

empted. In addition, the Supreme

Court declined to fashion a federal

common law remedy for improper

processing of benefit claims

holding that ERISA's civil enforce-

ment provisions under Section 502,

were intended to be the exclusive

remedies afforded to plan partici-

pants and beneficiaries. The

Committee disagrees with this

latter concjusion.

The Committee believes that the

legislative history of ERISA and

subsequent expansions of ERISA

Support the view that Congress

intended for the courts to develop

a federal common law with respect

to employee benefit plans,

including the development of

appropriate remedies, even if they

are not specifically enumerated in

Section 502 Of ERISA. Since the ©

issue Of preemption and civil

remedies under ERISA is within the

exclusive purview of the labor

-20-

committees of Congress, the Com-

mittee has, over the years, con-

Sidered the option of amending the

Statute to encompass Specifically

Several additional remedies. [In

light of the legislative nistory

On this issue, however, the

Committe believes such action is

unnecessary. The Committee re-

affirms the authority of the

Federal Courts to Shape legal

and equitable remedies to Fit

the facts and Circumstances

of the cases before them, even

though those remedies may not be

Specifically mentioned in ERISA

itself. In cases in which, for

instance, facts and circumstances

Show that the processing of

legitimate benefit claims has been

unreasonably delayed or totall

disregarded by an insurer, an

employer, a plan administrator,

or a plan, the Committee intends

the Federal Courts to develop a

federal common law of remedies,

including (but certainly not

limited to) the imposition of

punitive damages on the person

responsible for the failure to

pay claims ina timely manner."

H.R. Rep. No, 801, 100th Cong., 24 Sess,

PD. 2, at 63 (1988) (emphasis Supplied),

Tt would Seem, then, that not Only has

the Supreme Court accepted in advance the

-2li-

Eleventh Circuit's invitation, but Congress

accepted that invitation before it was

issued.

There is another good reason for the

Supreme Court to elaborate on what is meant

by “preemption” before the insurance

industry and the employers succeed in

building an impenetrable fence around

themselves, protecting themselves with

respect to any and all wrongdoing they may

desire to commit.

Although for Mr. and Mrs. Amos'

Seventh Amendment right to a Jury Trial was

denied by the District Court and they have

not appealed from that ruling, the Seventh

Amendment is implicated because Blue Cross'

argument, if successful, simultaneously

squeezes out Mr. and Mrs. Amos' right to a

jury trial and their right to seek extra-

contractual damages. Congress could not

tee ootiattahied

ree

have intended such over-kill ana trampling

on the Seventh Amendment, when the avowed

purpose of ERISA was to protect bene-

ficiaries and not fiduciaries.

In addition to a number of Jurist

there are legal scholars who seriously

question the form of total so-called

"preemption" being enunciated by some Courts

contrary to the ERISA intent.

One such expression is found in

Fischel and Langbien, ERISA'S Fundamental

Contradiction: The Exclusive Benefit Rule,

95 U. Chi. L. Rev. 1105 (1988), where

Fischel and Langbien, on the very first page

of their article, Say:

"The overbroad preemption pro-

vision has wreaked aimless inter-

ference upon state regulation of

areaS such as health insurance

that are quite peripheral to

pension policy. Neither a sub-

Stantial string of Supreme Court

cases nor occasional Congressional

repair has been able to cure the

mess,"

o23-

Id. at 1105-06 (footnotes omitted).

To the same effect is Irish & Cohen, ERISA

Preemption: Judiciel Flexibility and

Statutory Rigidity, 19 Mich. J. of L. &

Reform 109 (1985), where these two critics

say:

" Por courts to determine not

only that state laws have been

preempted but also how and whether

to fill in gaps created by pre-

emption, they must develop a

common, coherent understanding

of why state laws have been pre-

empted. Were the basis for ERISA

preemption similar to the broad

principles of federalism set out

by Justice Frankfuter in the Garmon

case [359 U.S. 236 (1959)] then it

would be clear that state laws, even

if preempted, remain an important

source of policy in crafting federal

common law to fill the void. If

preemption were limited to the sub-

ject matters ERISA covers, then it

would be resonable to infer that

state laws should be respected only

where Congress remain silent in

ERISA. When all the state laws

that have any relation to benefit

plans are preempted by willy nilly,

however, regardless of whether

their purpose and subject matter

are complementary to ERISA, it is

hard for courts to craft a reasoned

——

=24-

basis on which to reverify appro-

priate and compatible state policies

through the creation of a federal

common law of benefit plans. The

problem with Section 514(a) plans,

succinctly stated, is that it

drains the preemption doctrine of

both rationale and flexibilty,

implying that any law from a non-

federal source is simply not

relevant to benefit plans."

Id. at. 157 (emphasis in original).

There would be no reason for evolving a

“federal common law" if all possible

remedies are expressly set forth in the

ERISA language itself, and if all others are

precluded. For the court to fashion a

"federal common law," the courts must look,

like all common law courts do, to what other

courts have historically fashioned in

response to particular societal needs. It

matters not whether the "federal common law"

is found by a conversion of state remedies

into ERISA remedies as the District Court

here did (see Appendix "B"), or by looking

~9S-

to logic and tradition for remedies

appropriate to a particular fact situation

but not expressly described in the ERISA

statute.

Many Courts, throughout the Federal

Judiciary, seeing the wrongs being per-

petrated against employees/beneficiaries of

insurance plans, have anticipated subsequent

expressions of Congressional intent and

Supreme Court interpretation, that will

enable the Courts to create Federal common

law under ERISA to provide for full and

complete compensatory damages and under

appropriate circumstances punitive damages

to thwart similar future wrongs. In

Armbuster v. Benefit Life Ins. Co., 687

F.Supp. 403 (N.D., Ill. 1988), a district

judge cited Belasco v. WKP Wilson & Sons,

Inc., 833 F.2d 277 (llth Cir. 1987), for

the proposition that "a common law action

-26-

displaced by a federal statute ... arises

under that statute [ERISA] ..." 687 F.Supp.

at 405. In Cedar Rapids Ped. Cl. P. P.

v. Continental Assur. 90 F.Supp. 792 (W.D.

Ark. 1988), the district judge felt

precisely as the Eleventh Circuit did in

Belasco v. WKD Wilson and Sons, Ine. , 833

F2d 277 (llth Cir 1987), and as the Supreme

Court suggested in Bruch, correctly

interoreting Dedeaux as follows:

"Essentially, “he plaintiffs con-

tend that what might ordinarily

be considered state common-law

Claims are in fact now federal =

common-law claims, having been

incorporated common-law because

of the "comprehensive" protection

intended by ERISA "to promote the

interests of employees and their

beneficiaries in employee benefit

plans." Shaw, 463 U.S. at 90, 103

S.Ct. at 2896. In support, they

cite Kantz Vv. Reese, 760 F.2d 926

(9th Cir. 1985), vacated on Other

grounds, 785 F.2d 1410 (9th Cir.

1986) (per Curiam), cert. denied,

479 U.S. 916, 107 S.ct. 318, 93

L.Ed. 2d 291 (1986).

In Kuntz, the court found that a

=27-

state common law claim for mis-

representation was preempted by ERISA.

Id. at 935. See also, Anderson v. John

Morrell and Co., 830 F.2d 872, 875 (8th

Cir. 1987), ane Dependahl v. Falstaff

Brewing Corp., 53 F.zd 1208, 1215 (8th

Cir. 1981), cert. denied, 454 U.S.

968, 102 S.Ct. 512, 70 L.Ed.2d 384

(1981).

The court also found, however,

that the plaintiffs' allegations

of misrepresentation stated a claim

for breach of fiduciary duty under

ERISA. Kuntz, 760 F. 2d at 935; see

also, 29 U.S.C. Section 1104(a) (1).

As a practical matter, the effect of

finding certain state common-law

causes of action preempted, but

then holding that the allegations

as to those causes of action are

sufficient to state a claim under

ERISA seems tu be only that the

number of separate fact questions

to be answered at trial would be

reduced. Certainly, the court in

Kuntz did not hold that the alle-

gations in question stated federal

causes of action separate from

those under ERISA, and if that

is the argument the plaintiffs are

making here, this court decline to

accept it.

However, following the reasoning

used in Kuntz, this court finds

that the plaintiffs' allegations

as to common-law claims based on

breach of contract and negligence

state a claim under ERISA for

~29-

breach of fiduciary duty. See 29

U.S.C. Section 1104(a). The court

further finds that the plaintiffs'

ailegations as to common-law based on

fraud, con-version, breach of fiduciary

duty, right to an accounting, and con-

Spiracy, state a claim under ERISA

either for breach of fiduciary duty,

taking into consideration the

plaintiffs' allegations as to agency,

see 29 U.S.C. Section 1104(a), or for

breach of duty by a co-fiduciary, see

29 U.S.C. 1105(a), or both.

For the reasons discussed, the

court holds, therefore, that

although state common-law claims

are preempted under ERISA and

will be dismissed as state claims,

the court will not strike the

allegations in counts 4-11 of

plaintiffs’ First amended complaint

Or those in paragraphs 30-43 of the

complaint of intervening plaintiff

F & M Pension Plan, but instead

will construe those allegations as

descriptive of the claims that can

admittedly be brought under ERISA,"

690 F. Supp. at 795-96,

The Sixth Circuit on April i0, 1989, in

Perry v. P*I*E Nationwide, Inc., 872 F.2d

157 (6th Cir. 1989), held that preemption

Should apply to state law claims only if

songress had provided in ERISA a remedy for

=29—

any historically legally recognized wrongs

asserted. Also, the Ninth Circuit recently

held that the liquidated damage provision of

ERISA does not pre-empt alternative con- _

tractual remedies formerly available under

federal common law. Idaho Plumbers and Pipe

Fitters Health and Welfare Fund v. United

Mechanical Contractors, Inc., 1989 WL 470 84

(9th Cir. May 9, 1989). See also, Graves v.

Blue Cross of California, 688 F.Supp. 1405,

1413 (N.D. Cal. 1988) (ERISA does not pre-

empt claims brought pursuant to the

California Insurance Code).

A very important case was decided by

the Eastern District, New York on March 30,

1989, Mendez-Bellido v. Board of Trustees of

— —— - ——_— —_—— ——— ll —

Div., 1181, F. Supp, Case No. 87CV3000 (ED.

N.Y. 1989). It held that ERISA did not

preempt a New York law prohibiting a killer

from profiting from his crime and said that

lespite the absence of Such a defense j

benerits to a beneficiary convicted Of

naving Killed the insured. What Tele ls

: .

for the qoos should be auce for the

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brrincipvie r law, ngr iS tr gn: } as

>) ) 7 . . * :

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} . male RRTEeA «ats " 1] + - ]

Wry ee ] ] mOmodi 1 W1LDeE ] ? | rad] LONAaL,

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rer just nort of murder

+ % . md ma Y > -F , , +

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issues involving rights and obligations

under the medical insurance plans obtained

through the beneficiary's employers. This

entails the power to convert the state law

theory of breach of contract, bad faith,

fraud in the inducement, etc., into federal

common-law under ERISA so as to provide the

wronged beneficiary full compensation for

all the injuries, damages and losses

suffered as well as in the appropriate case,

punitive damages in order to thwart similar

wrongs in the future. It is undisputed that

the central policy goal of ERISA 1s to pro-

ect the interst of employees and their

beneficiaries and the employee benefit plan.

29 U.S.C. Section 10001, et. seqg.;

Nachwalter v. Christy, 805 F.2d 956, 960

llth Cir. 1986), citing Shaw v. Delta

2890 (1983). It is undisputed that the

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ind

reprinted in 1974 U.S. Code Cong.

and Ad. Nw 4639, 4670, 4676-77.

Also see, the comments of Senate

Sponsors of ERISA wherein, Senator Javits,

one of the two orincipal Senator sponsors of

ERISA stated:

"Tt is also intended that a

body of federal substantive

law will be developed by the

courts to deal with obligations

under private welfare and pension

plans." 120 Cong. Rec. 19,942

(1974) (remarks of Senator Javits).

- Ltkewise, the other Senate Sponsor,

Senator Williams, Committee Chairman of the

Senate Committee on Labor and Public Wel-

fare, emphasized that suits involving bene-

ficiaries' rights:

"Will be cegarded as arising

under the laws of the United

States, in similar fashions

with those orought under

Section 301 of the Labor

“Management Relations Act.”

120 Cong.Rec. 29,933 (1974)

(remarks of Senator Williams).

Section 301 of the Labor

Management Relations Act,

"Expressly authorizes the

=3h-

federal courts to look at the

legislation and fashion a

remedy to effectuate the

policy thereof." Textile

Workers v. Lincoln Mills,

yea Use. $608, 451, 77°S.Ct.

912, 915, 918, 1 L.Ed.2d 972

(1957).

It is undisputed that federal courts are not

restricted by ERISA in the development of

remedies to effectuate the policy of ERISA.

Thus, the question arises whether the fed-

eral judiciary will fulfill its responsi-

bility and develop federal common law under

ERISA that will provide full and complete

compensation to wronged beneficiaries and

under the appropriate circumstances cunitive

damages to thwart similar wrongs in the

future. It is clear, that the legislative

history shows Congress intended to

incorporate into ERISA federal principals of

the law of trust. Under trust law, the duty

of the fiduciary flows directly to the

-35-

beneficiary of the trust. Although, the

remedy of a beneficiary against a defaulted

or negligent trustee is ordinarily in

equity, "the beneficiary 1s entitled to all

e-dress for harm caused by the breach of a

duty arising from the relation." The Re-

Statement of Torts Section 874, at (b)

(1979) VIOLATION OF FIDUCIARY DUTY.

Therefore, a fiduciary is not shielded from

redress for his wrongs whether his wrongs

have been negligent or intentional and full

compensatory damages as well as punitive

damages in the appropriate case maybe

assessed against a trustee for his wrongs,

in order, to insure and effectuate full and

complete justice. The Eleventh Circuit

Court of Appeals' panel that heard this

caus

ie)

has as aforesaid, made request for

this Honorable Court to give a clear

AJirection that will enable the federal

-36§-

judiciary, including, but not limited to,

the Eleventh Circuit Court of Appeals to

begin the development of federal common law

under ERISA that will provide full and

complete compensation to the victims of

various wrongs perpetrated as against them

by the insurance industry and/or by the

employer and where appropriate the sanctions

of punitive damages to thwart similar wrongs

in the future.

This is the best case to come before

this Honorable Court with respect to the

question of whether or not the federal

judiciary has the obligation to develop

federal common law under ERISA so as to

provide for full and complete comoensatory

damages and wheres appropriate, punitive

damages, so as to provide a remedy for

wrongful conduct not otherwise provided for

in the presently existing ERISA statutes.

o3Ju

This case, clearly presents the issue of

what "preemption" actually means and whether

or not federal common law may be developed

under ERISA as aforesaid, unclouded by

Significant extraneous questions such as

whether or not the wording of a specific

ERISA statute or statutes provide for such

common law development under ERISA. At this

Stage in this cause, neither the factual or

legal issues preclude review. Respondents

for the purpose of allowing them to appeal,

the U. S. District Judge's Order, have

admitted all the factual issues are

virtually uncontested and thus, admitted

their fraud, and other wrongful conduct.

The respondents' positior is that ERISA

gives them a license to take whatever action

they desire, whether wrongful or not, and

immunizes them so that they would only have

to pay those benefits that should have been

-38-

paid in the first place, interest and if the

trial court so orders, in its discretion,

then the attorney's fee so that the wrong-

doers will not have to pay full and complete

compensatory damages proximately caused from

their wrongful acts and/or under the appro-

priate circumstances, suffer the sanctions

of punitive damages.

The decision of the Court of Appeals

shouid be reviewed because it presents a

question.

clear opportunity to instruct the lower

courts on an increasingly important

Earlier decisions and the

decision of the Eleventh Circuit below must

be reviewed in light of the new legislative

intent expression as aforesaid.

Petitioners

are aware that the Supreme Court of Alabama

has decided on July 2l,

1989 an appeal,

87-1100,

to-wit: HealthAmerica v. Edward Menton, No.

SO. 2

(see Appendix

’

which involves the same or similar

=39-

issues. Alabama's highest court has

instructed the Alabama courts which have

concurrent jurisdiction over ERISA governed

cases, contrary to the Eleventh Circuit, and

thus an intolerable situation exist. This

Honorable Court will quickly see that

HealthAmerica is in direct conflict with the

opinion of the Court of Appeals for the

Eleventh Circuit in Amos v. Blue Cross, as

to which petitioners have asked this Court

to direct a Writ of Certiorari. There is no

Court except the Supreme Court of the United

States which can resolve the sharp and

obvious difference of opinions between the

State and federal courts in Alabama over the

meaning of Dedeaux and "preemption" in ERISA

cases.

CONCLUSION

Premises considered, plaintiffs-

appellees-petitioners respectfully request

-40-

this Court to issue a Writ of Certiorari to

the Court of Appeals for the Eleventh

Circuit and to accept this case for review.

This will enable this Honorable Court

to give guidance to all federal judges and

State judges with respect to the Creation of

common-law under ERISA that will provide

full and complete compensation to the

victims of the Wrongful acts of the

insurance industry and the employers and,

where appropriate, sanctions of punitive

damages to thwart similar wrongs in the

future. Anything less would as the Fleventh

Circuit said, constitute the removal of

historical disincentives to insurance

company misbehavior which was not intended

by ERISA as evidenced by the aforementioned

Congressional intent/history.

a&l«

Respectfully submitted,

Kank fifo

DANIEL B. KING 757

Chestnut Street

Alabama 35901 Phone:

(205) 547-2431

Of Counsel:

KING & KING, ATTORNEYS, P.C.

757 Chestnut Street

Gadsden, Alabama 35901

Phone: (205) 547-2431

CERTIFICATE OF SERVICE

This is to certify that I have this

jJate served a copy of the foregoing upon the

Honorable Lawrence B. Clark, Sally S.

Reilly, Duncan B. Blair, 1700 First Alabama

Bank Building, Birmingham, Alabama 35203.

This the ava day of Fast, 1989.

eel yA KK

DANIEL B. !KING

APPENDIX A

Harley AMOS and Gail Amos,

Plaintiffs-Appellees,

BLUE CROSS-BLUE SHIELD OF ALABAMA and

Jan Cullinghan, Defendants-Appellants.

No. 88-7287 ;

United States Court of Appeals,

Eleventh Circuit.

March 24, 1989.

Rehearing and Rehearing In Banc

Denied May 5, 1989

Beneficiaries brought state court

actions to recover money allegedly due and

Owing them under employee benefit plans, and

cases were removed to federal court under

ERISA. The United States District Court for

the Northern District of Alabama, No.

87-AR-1644-M, William M. ACRGEs Glscsc Ves

676 F.Supp. 1119, struck beneficiaries

ow)

demand for jury trial and, at 681 F.Supp.

—

1515, denied motion for reconsideration and

determined that pendant state law claims

could be tried as ERISA claims with

possibility oO! ounitive damages. in appeal,

the Court f Apps A ls, held that ftect I

ERISA preemption 1S to wholly eliminate

a + ~ + . } + . | >» IM Wer sm Y> sSt7TQa EQ , sry «+ rr _*

~~ eo ae SS. aw ‘ s - sie y x a! D x x ‘ A ‘ &

beneficiaries, leaving beneficiaries yn]

causes of action specially provided for 11

FRISA civil enforcement provisions, ratnel

to>~"“ak ro.UBt att Law laims, r1llowing tnen

-. A > * 4 on 1! > | CT Te. Tr ~ inst neo I

Tato y rm nr - - . ’ Y ¢ Om ? ’ sr ‘ Tim?

) i , bX A y : r

poss ity f punitli xtra ntr t

jamaq DI idea by state law.

Dowe } ry ramand |

i remand :

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lam y ; = + s " 7 " i-n am™ } —

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S..

Before FAY and ANDERSON Circuit Judges,

and HENDERSON, Senior Circuit Judge.

PER CURIAM:

This action arises out of the alleged

wrongful denial of claims for benefits under

an employee benefit plan as defined by the

Employee Retirement Income Security Act of

1974, 29 U.S.C. Section 1001, et seq.

(1982) ("ERISA"). The plaintiffs, Harley

and Gail Amos, originally brought this

action in an Alabama state court against

defendants Blue Cross-Blue Shield of Alabama

as underwriter of the plan and Jan

Cullinghan, an employee of Blue Cross

(collectively, "Blue Cross"). The complaint

asserted various state law violations

including fraud and bad faith refusal to pay

and sought extra-contractual compensatory

and punitive damages. Blue Cross

immediately removed the action to the United

States District Court for the Northern

District of Alabama.

In November, 1987, Blue Cross filed a

motion to strike claims for damages other

than the contractual benefits sought in the

plaintiffs' amended complaint, alleging

that, under ERISA, extra~contractual and

punitive damages are not recoverable as a

matter of law. The district court denied

Blue Cross' motion, 676 F.Supp. 1119, and

leave to appeal that order Subsequently was

denied by this court in February, 1988. On

March 9, 1988, Blue-Cross filed a motion for

reconsideration of the order denying its

motion to strike. That motion was denied.

681 F.Supp. 1515. This court, on May ll,

1988, granted Blue Cross' petition for leave

to appeal the trial court's interlocutory

Order denying Blue Cross' motion for

reconsideration. The parties agree that

this case involves a purely legal question

and that there are no facts other than those

set forth above which are relevant to the

issue on appeal.

The issue in this case is whether the

effect of ERISA preemption-which, at least

for purposes of removal jurisdiction,

converts state law causes of action into

federal questions-is to completely eliminate

State law causes of action relating to an

ERISA plan, or whether ERISA pre-emption

operates to "absorb" state law claims,

allowing them to proceed unaffected in

substance by the conversion. We hold that

ERISA preemption is not a gateway but a

barrier to state law causes of action, the

effect of which is to completely displace

State law claims. Accordingly, we reverse

the district court's judgment. :

ERISA comprehensively regulates, among

other things, employee welfare benefits

plans that, "through the purchase of

insurance or otherwise," provide such

benefits as, for example, insurance coverage

for medical, surgical, or hospital care, or

the payment of sums in the event of

Sickness, accident, disability or death. 29

U.S.C. Section 1002(1); Pilot Life Ins. Co.

v. Dedeaux, 481 U.S. 41, 44, 107 S.Ct. 1549,

1551, 95 L.Ed.2d 39, 46 (1987).! ERISA

contains six civil enforcement provisions,

section 1132(a) (1)-(6), which set forth the

remedies available to participants, bene-

ficiaries, fiduciaries and the Secretary of

Labor against all parties that fail to

comply with the statute's dictates. How-

ever, the various types of relief available

1 The parties do not dispute that

Plaintiffs are beneficiaries of an ERISA

‘ plan,

-§-

to plaintiffs in civil actions brought pur-

Suant to ERISA's civil enforcement scheme

do not include extra-contractual or punitive

damages. Massachusetts Mut. Life Ins. Co.

Russell, 473 U.S. 134, 148 105 S.Ct. 3085,

3094, 87 L.Ed.2d 96, 107 (1985); Bishop v.

Osborn Transp., inc., 838 26.1173, i275

(llthCir), cert. denied, 0.8. , 109

S.Ct. 90, 102 L.Ed.2d 66 (1988).° Thus,

the plaintiffs cannot obtain the relief they

seek here by pursuing a cause of action

arising under ERISA. Rather, they are en-

titled to punitive damages only if some

alternative theory of recovery grounded in

state law is available to them.

*although plaintiffs steadfastly maintain

that the issue regarding whether punitive

damages are available in civil actions

brought pursuant to Section 1132(a) (3) has

not been conclusively settled, the Eleventh

Circuit, following the lead of a half dozen

other circuits, has unequivocally answered

that question in the negative. Bishop, 838

F.2d at 1174.

section 1132(a) (1)-(6), which set forth the

remedies available to participants, bene-

ficiaries, fiduciaries and the Secretary of

Labor against parties that fail to comply

with the statute's dictates. However, the

various types of relief available to

plaintiff's in civil actions brought pur-

Suant to ERISA's civil enforcement scheme do

not include extra-contractual or punitive

damages. Massachusetts Mut. Life Ins. Co.

v. Russell, 473 U.S. 134, 148, 105 S.Ct.

3085, 3094, 87 L.Ed.2d 96, 107 (1985);

Bishop v. Osborn Transp., Inc., 838 F.2d

1173, 1174 (llth Cir.), cert. denied,

U.S. , 109 S.Ct. 90, 102 L.Ed.2d 66

(1988). Thus, the plaintiffs cannot obtain

the relief they seek here by pursuing a

cause of action arising under ERISA plans.

29 U.S.C. Section 1144. Generally, if a

State law relates to employee benefit plans,

«10-

it is preempted, although a saving clause

excepts from the preemption provision state

laws which regulate insurance. Dedeaux, 481

U.S. at 45, 107 S.Ct. at 1552, 95 L.Ed.2d

at 46. In the instant case, there can be no

dispute that the common law causes of action

asserted by the plaintiffs--bad faith

refusal to pay, fraud and breach of

contract--"relate to" an employee benefit

plan and therefore fall within ERISA's

express preemption clause. See id. at 47,

107 S.Ct. at 1553, 95 L.Ed.2d at 47-46.

Also above question is that the plaintiffs'

state law causes of action are not excepted

from ERISA preemption. See id. at 57, 107

S.Ct. at 1558, 95 L.Ed.2d at 54.

Blue Cross maintains that the effect of

ERISA preemption is to wholly eliminate

State law claims, leaving plaintiffs only

the causes of action expressly provided for

in the ERISA civil enforcement provisions.

Blue Cross' position would be impregnable

were it not for a single sentence in one of

this court's cpinions. In Belasco v.

W.K.P. Wilson & Sons, Inc., 833 F.2d 277,

282 (llth Cir. 1987), this court, discussing

whether removal was proper where plaintiffs'

complaint raised only claims provided by

state laws relates to an ERISA plan, wrote

that "ERISA pre-emption does not act as a

defense to a state-law claim, which is the

usual effect of federal pre-emption;

instead, ERISA pre-emption converts the

related claim into a federal question." In

so stating, this court followed the Supreme

Court's decision in Metropolitan Life Ins.

Co. v. Taylor, 481 U.S. 58, 107 S.Ct. 1542,

95 L.Ed.2d 55 (1987). In that case, the

Court held that the preemptive force of

ERISA is so powerful that it completely

a} De

displaces state law claims. As a result, a

cause of action which relates to aim ERISA

plan, though it purports to be grounded in

state law, "is necessarily federal in

character by virtue of the clearly mani-

fested intent of Congress" and is removable

to Federal court. Taylor,, 481 U.S. at 67,

107 S.Ct. at 1548, 95 L.Ed.2d at 65.

The plaintiffs observe that neither the

opinion in Taylor, nor the one in Belasco,

addressed the question of the disposition of

a state law claim following removal into

federal court. They contend that the state

law causes of action survive, permitting the

recovery of such damages as would be

available under the state substantive law.

Blue Cross takes the position that the

conversion of state law claims into federal

questions described by the courts in Taylor

and Belasco operates only to supply federal

ee ae

«aj 3<

question removal jurisdiction. In this

latter view, the state law causes of action

do not thereafter provide alternative

avenues to relief not mapped out in ERISA.

The plaintiffs' argument is a creative

one, but there is little law to sustain it.

The district court's opinion effectively

argued the cause but misread Belasco and

Bishop. Moreover, the district court

Sidestepped the Supreme Court's decisions in

Dedeaux and Taylor, and its reasoning has

been undercut by a case subsequently

decided in this court, Anschultz v. Ct.

Gen. Life Ins. Co., 80 F.2d 1467 (llth Cir.

1988). In Anschultz, the court, following

Dedeaux, affirmed the district court's order

granting summary judgment in favor of

the insurance company defendant on the

ground that ERISA preempted the plaintiff's

State common law and statutory claims. Id.

=} de

at 1469 ("Where otherwise applicable, ERISA

preempts all state law"). The plaintiff,

seeking both compensatory and punitive

damages based upon the alleged wrongful

denial of long term disability benefits

under a group insurance policy governed by

ERISA, had originally filed his action in a

Florida state court, and the defendant later

removed the case to the federal district

court. Although the Eleventh Circuit Court

of Appeals in Anschultz may not have been

asked to consider the effect of Belasco on

the survival of a state claim following

removal (indeed, the Belasco opinion is not

cited in Anschultz), the court's holding

implicitly rejected the notion that the

State law claims continued to be viable.

Similarly, in Dedeaux, upon which this

court principaily relied in Anschultz, the

Supreme Court upheld the district court's

=} $e

grant of summary judgment in favor of the

defendant insurance company On the ground

that the plaintiff's common law claims were

preempted by ERISA. True, in Dedeaux the

plaintiff originally had instituted the

action in the district court on ties Bante of

diversity of citizenship, and thus the Court

did not need to consider the effect of the

conversion of state law claims into federal

questions. But it would be Strange if the

initial choice of forum were dispositive of

the preemptive effect of ERISA. Rather, it

would seem that to permit a state claim to

continue following removal of a federal

court would be contrary to the Dedeaux and

Anschultz Gecisions, notwithstanding that

under Taylor and Belasco such causes will

Survive preemption long enough to form the

basis for federal question jurisdiction.

Accordingly, we are compelled by

Federal Courts--Key 15

Pendent state law claims of pension

plan beneficiaries continued as viable ERISA

claims by “absorption,” and could be tried

as ERISA claims with the possibility of

punitive damages, notwithstanding claim that

beneficiaries were limited to recovery of

benefits to which they might be entitled

under the plan. Employee Retirement Income

Security Act of 1974, Section 2 et seq., 29

U.S.C.A. Section 1001 et seq.

Daniel B. King, Robert H. King, SC.,

King & King, Gadsden, Ala., for plaintiffs.

Lawrence B. Clark, Sally S. Reilly,

Lange, Simpson, Robinson & Somerville,

Birmingham, Ala., for defendants.

MEMORANDUM OPINION

ACKER, District Judge.

Defendants, Blue Cross-Blue Shield of

f...._J

Alabama and Jan Cullighan (Blue Cross), have

moved for a reconsideration of this court's

ruling of December 30, 1987, which held that

the pendent state law claims of plaintiffs,

Harley Amos and Gail Amos, continue as

viable ERISA claims, by absorption, as a

consequence of the Eleventh Circuit's

Opinion in Belasco v. W.K.P.

Wilson and

sons, Inc., 833 F.2d 277 (llth Cir. 1987),

decided on December 2, 1987, by a panel

consisting of Judges Hill, Hatchett and

Thomas. Blue Cross now cites, with

understandable relish, Bishop v. Osborn

Transportation, Inc., 838 F.2d 1173 (llth

Cir.1988), decided on March 1, 1988. In

Bishop, this very court was affirmed by an

Eleventh Circuit panel consisting of Judges

Hill, Fay and Hatchett, who there deduced,

despite the deliberately equivocal opinion

of the Supreme Court in Massachusetts Mutual

Ins. Co. v. Russell, 473 U.S. 134, 105

S.Ct. 3085, 87 L.Ed.2d 96 (1985), that

punitive damages cannot be recovered under

the Employee Retirement Income Security Act

of 1974, 29 U.S.C. Section 1132(a) (ERISA),

thus apparently solving the problem, as far

as the Eleventh Circuit is concerned, which

had been reserved in Howard v. Parisian,

Inc., 807 F.2d 1560, 1565 (llth Cir. 1987).

In its motion for reconsideration, Blue

Cross makes very clear its position that

"plaintiff is not entitled to damages beyond

the benefits to which he may be entitled

under the employee welfare benefit plan of

which he is a participant." In its brief

Blue Cross also makes clear its further

position that a trustee or plan admini-

Strator cannot even be held liable for

benefits unless his decision to turn down a

claim is "arbitrary and capricious,” i1.e.,

totally irrational or in bad faith.

The question to be revisited here

concerns the extent to which the national

public policy enacted in ERISA narrows the

exposure of the trustees of welfare benefits

funds and plan administrators. Does it

close the door against all meritorious tort-

type claims by plan beneficiaries? If the

recognized purpose of ERISA was to protect

beneficiaries, will this "new dispensation,"

by judicial construction, take away all of

the effective traditional remedies of the

beneficiaries? Would Blue Cross carry its

argument so far as to suggest that ERISA

wipes out a plan beneficiary's state tort

Claim arising out of his administrator's

running over him with a truck in his

driveway while attempting to deliver a

benefit check? This activity would be

directly related to the administration of

the plan. It very arguably comes within the

"supersedure”" of 29 U.S.C. Section 1144(a).

Where is the line to be drawn? It is

provocative to note that there is now a

petition on this subject pending in the

Supreme Court for certiorari to the Third

Circuit in Continental Group, Inc. v.

McLendon, No. 87-911 (3rd Cir.1987), decided

by the Third Circuit on November 11, 1987.

In Continental Group, the Third Circuit

dealt with the serious problem of preserving

a party's constitutional right to jury trial

in an action which combines legal and

equitable claims, certain of them admittedly

being ERISA claims. The law as to the

breadth of ERISA preemption and as to the

right to jury trial in ERISA or ERISA-

related claims remains highly volatile,

conflicting and undefined. For instance, in

Schlenz v. United Airlines, 678 F. Supp.

230 (N.D.Cal.1988), decided as recently as

January 19, 1988, Judge Henderson found that

a former employee's pendent state law claims

for wrongful discharge and breach of

contract against his employer are not

preempted by ERISA. See also Hickman v.

Tosco Corp., 840 F.2d 564 (8thCir.1988).

These decisions square wih this court's

reading of Belasco although the rationale is

different. In Schultz v. National Coalition

of Hispanic Mental Health & Human Services,

678 F.Supp. 936, (D.D.C.1988), decided on

February 11, 1988, Judge Richey held that a

former employee's action for fringe benefits

lost when plaintiff allegedly was illegally

terminated, does not create a ground for

ERISA preemption of the employee's state law

discrimination claim. Again, Schultz can be

reconciled with Belasco by recognizing that

the two courts arrived at the same result by

using different semantic routes. Both

routes leave the court door ajar for

remedies beyond mere U.S. , 107 S.Ct.

2211, 96 L.Ed.2d 1 (1987), in which a

divided Supreme Court decided that the

enforcement of a particular law of Maine,

although it directly invoived employment

benefits in the context of severance pay, is

not preempted by ERISA, because it does not

"relate to any employee benefit plan.” 29

U.S.C. Section 1144(a). The majority

expanded this rationale by articulating

several reasons why Maine's cause of action

is not precluded by ERISA. Without here

repeating these reasons, several of them

could well be used to characterize the state

law claims which were originally presented

by Mr. and Mrs. Amos and are now

"converted."

If ERISA was congressionally designed

to eliminate any and all causes of action

against pension trustees and pian

administrators not expressly found within

the four corners of ERISA, not only are

overlapping state claims precluded but a

federal cause of action under the Age Dis-

crimination in Employmeat Act of 1967, 29

U.S.C. Section 621-634, even though arising

out of many of the Same operative facts, if

"related to any employee benefit plan,"

would be precluded. How exclusive did

Congress intend for ERISA to be?

Blue Cross likes the sound of Rasmussen

v. Metropolitan Life Ins., 676 F.Supp. 1360

(W.D.La. 1988), decided on January 21,

1988, in which Judge Stagg stated the

extreme belief that not only does ERISA

preempt (in the sense of "eliminate") all

State law claims but that a plan beneficiary

cannot even go to court to invoke ERISA by

=«10<

claiming that the administrator was "ar-

bitrary and capricious" until he has

exhausted all administrative remedies

provided by his plan. Other courts have

held the same thing. The looming possi-

bility of having to submit to the binding

arbitration of an already tightly circum-

scribed ERISA claim (limited, if Blue Cross

is correct, to a bare claim for benefits),

is again suggested by Printing Specialty

Local 680 v. Nabisco Brands, 833 F.2d 102

(7th Cir.1987). Printing Specialty

necessarily implies that if a pension plan

contains a provision requiring binding

arbitration, resort to court is forever

precluded unless there is some way to attack

the arbitrator's finding. In other words,

if Blue Cross can take the step off

"eliminating them entirely," as contrasted

with the Belasco sense of "converting them

«in

into ERISA claims," then Blue Cross would no

doubt want to take the next logical step and

introduce into its various plans a binding

arbitration provision. It would be ironic,

indeed, for a beneficiary who becomes the

victim of monumental fraud or of classically

abusive behavior by a plan administrator not

only to be limited to a recovery of benefits

clearly due under the terms of his contract

(with all ambiguities to be resolved in

favor of the administrator), but if the plan

requires it, to submit the issue of whether

Or not the administrator was “arbitrary and

capricious" to binding arbitration, thus, as

a practical matter, eliminating entirely the

beneficiary's access to court. From the

point of view of reducing this court's case

load, this scenario would produce a highly

desirable result. It would be the reverse

bootstrap working at its best.

«1 20

A puzzle is presented by the fact that

Bishop, decided on March l, 1988, makes no

mention of Belasco, decided on December 2,

1987. Therefore, Bishop does not attempt to

distinguish Belasco or to reconcile the two

expressions on the same subject only three

months apart. If the two panels had not

contained two of the same judges, this court

might reason that the Bishop court was un-

aware of the Belasco decision, but the fact

that two of the same judges participated

in both decisions makes this reasoning im-

possible. The matter is further complicated

by the fact that on February 24, 1988,

Judges Tjoflat and Edmondson, in the instant

case, denied Blue Cross' application for an

interlocutory appeal from this court's order

of December 30, 1987, which recited this

court's interpretation of Belasco, as

follows:

=o} 3<

This court finds it impossible to

read this language [Belasco, p.

281-82] spoken less than a month

ago by the Eleventh Circuit for

anything except what it literally

means, namely that while ERISA does

preempt state tort claims it effects

that preemption not by eliminating

the state tort claims but by absorbing

them and allowing them to proceed as

federal claims, either as matter of

federal common law or as matters within

the contemplation of the ERISA statutory

language. Belasco answers the question

reserved in Howard v. Parisian, Inc., 807

F.2d@ 1560, 1565 (llth Cir.1987).

By denying the interlocutory appeal, were

Judges Tjoflat and Edmondson postponing the

Eleventh Circuit's addressing of the meaning

of Belasco, Or were they suggesting agree-

: 4

=}4=

ment with this court's reading of Belasco?

At the time this court spoke on December 30,

1987, Bishop had not been decided. Bishop

was still around the corner. The question

is: Does Bishop call upon this court to

alter its interpretation of Belasco?

If there is a logical way of a lower

court to reconcile arguably contradictory

expressions by a binding appellate court,

the lower court certainly has a duty to do

so. This court, therefore, now undertakes

to prevent Bishop from contradicting

Belasco.

In Bishop, the plaintiff sought

ounitive or extracontractual damages under

ERISA. The Eleventh Circuit was not asked

in Bishop to rule on the question of

preemption of state law claims. Therefore,

it had no reason to discuss the possible

metamorphosis of the ugly-cater-

=-]5-

pillar-state-law-claims, a la Belasco, into

beautiful-butterfly-ERISA-claims. The dis-

cussion in Bishop centered exclusively

around the ERISA relief includable as “other

appropriate equitable relief" under 29

U.S.C. Section 1132. If a pendent state

tort claim for a fraud perpetrated by a plan

administrator or trustee, or a state tort

claim for a bad faith refusal to pay a

clearly due claim, is "converted" into a

federal question by ERISA "preemption," as

the Eleventh Circuit defined “preemption" in

Belasco, 833 F.2d 282, this "conversion" is

meaningless if the beneficiary can recover

by way of the benefits clearly due by con-

tract. This court thus can only conclude

that Bishop was decided on the narrow basis

that the plaintiff there only presented the

question of the definition of “other

appropriate equitable relief," and did not

«i 6<

seek to enjoy the opening afforded by

Belasco, because he did not know about

Belasco and did not anticipate Belasco.

This court knows thet it had not antici-

pated Belasco when, as the lower court, it

ruled in Bishop.

Blue Cross argues that when the

Eleventh Circuit in Belasco announced that

"ERISA pre-emption converts the related

[state] claim into a federal question,” 833

F.2d at 282, the Eleventh Circuit inserted

by implication the additional words "for the

limited ourpose of ascertaining whether or

not 'federal question’ removal jurisdiction

exists." Blue Cross argues that this is

the only interpretation of Belasco consis-

tent with the Eleventh Circuit's denial of

the right to jury trial in all ERISA cases

and consistent with the denial of punitive

damages in Bishop. See Whitt v. Goodyear

oj Ja

Tire & Rubber Co., 676 F.Supp. 1119 (N.D.

Ala.1987), for this court's feelings on the

subject of jury trial in ERISA cases. In

Order to understand Belasco, it must be

remembered that Belasco began just as the

instant case began, with a complaint being

filed in an Alabama state court alleging,

inter alia, "bad faith" and "fraud." 833

F.2d at 279. If the panel in Belasco had

Only meant that these two garden variety

State tort claims are reduced in size or

limited to a recovery of the plan benefits

contractually due, as is here urged by Blue

Cross, the panel would surely have made

clear such intention. Instead, the

Eleventh Circuit said that these state torts

of "bad faith" and "fraud" had been

"converted" by ERISA into federal claims.

Nowhere did the Court say or imply that this

"conversion" was less than total. This

—T =

court is forced to take the Eleventh

Circuit's opinion in Belasco at face value

and to construe it under the rules of

English grammar. If the Eleventh Circuit

ultimately chooses to: agree with Blue Cross,

instead of agreeing, in substance and

effect, with what the several other courts

above cited have recently held, the Eleventh

Circuit will, of course, do so when the

opportunity presents itself, whether in this

case Or some cther case.

For the present, this court is

unwilling to adopt Blue Cross' means for

reconciling Belasco and Bishop. Instead,

this court prefers the means of reconcilia-

tion above employed. It remains to be seen,

of course, which means of reconciliation is

correct.

Blue Cross’ motion for reconsideration

will be denied by separate order, and the

o19-

Amos' former state law claims, now having

become ERISA claims, although not entitling

plaintiffs to trial by jury because of

Chilton v. Savannah Foods & Industries,

Inc., 814 F.2d 620 (11th Cir.1987), will be

tried as ERISA claims with a possibility of

punitive damages. This court is not unaware

of the anomaly arising from the decision of

the Supreme Court of Alabama (without

considering Belasco or Bishop) when that

court recently held that punitive and

extracontractual damages are not recoverable

under ERISA, Hood Ve Prudential Insurance

Co. of America, 522 So.2d 265 (1988).

Potentially, the Amos' former state tort

claims, now ERISA claims, will call for the

imposition of punitive damages despite the

fact that according to Bishop, ERISA itself,

as distinct from state claims converted by

ERISA, does not authorize punitive damages.

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APPENDIX D

HealthAmerica and Pamela Merle,

Vv.

Edward Menton.

No. 87-1100

The Supreme Court of Alabama

Special Term, 1989

Appeal from Mobile Circuit Court

(CV-86-003049)

SHORES, JUSTICE.

The plaintiff/appellee, Edward Menton,

was employed as city editor for the Mobile

Press Register newspaper (“Press Register").

As part of his employment, Menton was pro-

vided with medical insurance coverage, for

which the Press Register paid 50 to 60

percent of the premiums and the balance was

deducted from Menton's salary.

In June 1985, the Press Register offered an

alternative medical benefit selection, which

allowed qualified Press Register employees

either to keep the medical insurance that

they had, or to cancel it and enroll in one

of the two health maintenance organizations

then in the Mobile area, Prime Health and

defendant/appellant, HealthAmerica, without

suffering an interruption of benefits.

Menton had a son, Jacob, whose pre-

mature birth necessitated a series of

Surgical operations to lengthen and

straighten the tendons in his legs and feet.

After each such operation, and after his

casts were removed, Jacob would undergo

physical therapy treatments three times a

week until he was ready for his next

surgical operation.

Menton's health insurance under the

Press Register's employment benefit plan

paid 80% of the cost of Jacob's physical

therapy treatments and orthopedic

appliances. Jacob's second operation was

imminent when the Press Register employees

were offered alternative coverage by either

of the health maintenance organizations.

HealthAmerica's list of physicians included

both of the physician's who had been

treating Jacob's legs; Prime Health's did

not. Menton read the promotional literature

regarding HealthAmerica's coverage but could

not determine from that whether Health-

America would provide coverage for Jacob's

physical therapy and orthopedic appliances.

At the suggestion of the assistant

general manager of the Press Register, who

had iritially reviewed the coverage provided

by HealthAmerica and had helped Health-

America distribute information about its

plan to the Press Register employees, Menton

attended an informational meeting of Press

second surgery. This meeting was presided

over by defendant/appellant Pamela Merle,

who had worked for HealthAmerica for ap-

proximately one and one-half months prior to

this meeting. During the meeting, the Press

the coverage provided by the nealth mainten-

ance Organizations such as HealthAmerica and

Prime Health was generally the same as, or

was better than, the medical coverage that

Menton and other employees had. After the

meeting, Menton asked Merle specific

questions about HealthAmerica's coverage of

Jacob's medical expenses. He explained

Jacob's medical history, his impending

operation, and his need for extensive

physical therapy and orthopedic appliances

after his second surgery. In response to a

direct question from Menton, Merle informed

Menton that Jacob's medical expenses would

be "covered one hundred percent by Health-

America."

In reliance upon Merle's representa-

tions, Menton dropped his health insurance

and enrolled in the HealthAmerica plan.

After Menton enrolled in the HealthAmerica

plan, he received a schedule of benefits in

the mail. On reviewing the schedule, Menton

noticed that outpatient services for

physical therapy were apparently covered for

only 60 days. Menten attempted to get

HealthAmerica to provide the coverage that

he had been promised when he dropped his

previous insurance, which provided coverage

for 80% of Jacob's physical therapy expenses

for an unlimited period of time. Health-

America extended coverage for 60 additional

days after the initial 60-day period, but

would not provide coverage beyond that.

Jacob's physical therapy expenses amounted

to approximately $150 a week.

Menton filed this suit against Health-

America and its agent, Merle, in which he

alleged a state common law action for fraud,

asserting misrepresentations of a material

fact made willfully to deceive, or reck-

lessly without knowledge caused him to drop

the hospital coverage he had under an

insured employment benefit plan and to elect

the HealthAmerica coverage also provided

under the plan. The defendants pleaded the

general issue sis eseuacsan by the

Employment Retirement Income Security Act of

19974 ("ERISA"), 88 Stat. 829 as amended, 29

U.S.C. Section 1001 et seq. Menton did not

file a claim under ERISA. Predicated on the

ERISA preemption, the defendants moved for a

directed verdict at the close of Menton's

7 / “ ty j « inc

violation of Section <é2/-1iz-0O, Lé wl1sting

celal tana iis

was Overruled, as was their motion for a

judgment notwithstanding the verdict or in

the alternative for a new trial.

The first issue presented by this case

is whether ERISA preempts a state common law

action for fraud where the plaintiff allegns

that he relied on misrepresentations made by

the defendants in dropping his old hospital

insurance and electing coverage under the

defendants' plan. We hold that a claim for

fraud in the inducement does not "relate to"

an employee benefit plan and is therefore

not preempted by ERISA.

The courts in Alabama have recognized a

common law right of action for fraud, at

least since the case of Einstein, Hirsch &

Co. v. Marshall & Conley, 58 Ala. 153

(1877), when Justice Stone criticized the

old case of Chandelor v. Lopus, 1 Smith

Lead. Cas. 319 (9th ed. 1889) (adjudged in

the Court during the Reign of James the

First), which involved alleged fraud in the

sale of a stone, which the seller repre-

sented as a bezoar stone and sold as such.

All the Barons, except Anderson, in the

Court of Exchequer held that "'the bare

affirmation that it was a Bezoar stone,

without warranting it to be so, is no cause

of action; and although he knew it to be no

Bezoar stone, it is not material.'" 58 Ala.

at 1690 (quoting Chandelor v. Lopus). To

this Justice Stone wrote, "We submit, if

this language does not sanction looser

morals than the present state of the law

will justify." 58 Ala. at 160. To make

certain that it did not sanction those

looser morals of Chandelor v. Lopus, the

legislature of Alabama in 1907 codified laws

that it had enacted that provided civil

actions for fraud (now Code 1975, Section 6-

=10«

5-100), for misrepresentations of material

fact (now Section 6-5-101), for suppression

of material facts (now Section 6-5-102), and

for deceit (now Section 6-5-i03).

With ERISA, Congress imposed compre-

hensive federal oversight of employee bene-

fit plans of employers engaged in interstate

commerce. Under ERISA Section 502(a), as

set forth in 29 U.S.C. Section

1132(a) (1) (B), a civil action may be brought

by a participant or beneficiary "to recover

benefits due to him under the terms of his

plan, to enforce his rights under the terms

of the plan, or to clarify his rights to

future benefits under the terms of the

plan." This limits the options of the

employee, who is pre-empted from bringing

actions under the state laws when they

"relate to" any employee benefit plan.

ERISA's preemption provision states:

=} Fa

"Except as provided in subsection

(b) of this section [the saving

clause], the provisions of this

subchapter and subchapter III of

this chapter supersede any and all

State laws insofar as they may now

or hereafter relate to any employee

benefit plan...."

29 U.S.C.A. Section 1144(a).

The defendants argue that Menton is

pre-empted under this ERISA preemption

provision from filing a state common law

action for fraud. Under the facts of this

case, the Press Register is engaged in

interstate commerce; the undisputed evidence

shows that the Press Register solicits

advertisements from outside Alabama,

advertises for businesses located outside

Alabama, and sells its papers outside

Alabama. Menton was a full-time employee of

the Press Register, and the Press Register

had an ployee benefit plan prior to and

after Menton enrolled in the HealtnAmerica

plan.

a} Qo

Therefore, we must determine whether

his claim is preempted by ERISA. The

defendants rely upon Pilot Life Ins. Co. v.

Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95

L.Ed. 2d 39 (1987), wherein the Supreme

Court ruled that a state lawsuit asserting

improper processing of a claim for benefits

under an ERISA-regulated plan was pre-empted

by federal law. In Pilot Life the Supreme

Court held ein the phrase “relate to" is to

be given its "'broad common-sense meaning,

such that a state law "relate[s] to" a

benefit plan "in the normal sense of the

phrase, if it has a_ connection with or

reference to such a plan."'" 481 U.S. at

47, citing Metropolitan Life Insurance Co.

v. Massachusetts, infra, and Shaw v. Delta

Air Lines, Inc., infra.

The United States Supreme Court had

considered ERISA's preemption provision

=} 3=

three times prior to Pilot Life: Alessi v.

Raybestos-Manhattan, Inc., 451 U.S. 504, 101

S.Ct. 1985, 68 L.Ed.2d 402 (1981); Shaw v.

Delta Air Lines, Inc., 463 U.S. 85, 103

S.Ct. 2890, 77 L.Ed.2d 490 (1983); and

Metropolitan Life Ins. Co. v. Massachusetts,

471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728

(1985).

In Shaw v. Delta Air Lines, Inc., the

Court noted that "{s]Jome state actions may

affect employee benefits in too tenuous,

remote, Or peripheral a manner to warrant a

finding that the law ‘relates to' the plan."

463 U.S. at 100 n.21. In Shaw, tue Court

cited with approval American Telephone &

Telegraph Co. v. Merry, 592 F.2d 118

(2dCir.1979), in which the Second Circuit

Court of Appeals held that ERISA did not

preempt a state's garnishment of a spouse's

benefit plan income to enforce alimony and

=14-

Support orders. In accord, see, Savings &

Profit Sharing Fund of Sears Employees v.

Gago,, 717 F.2d 1038 (7thCir. 1983); Howard

v. Parisian, Inc., @vu7 F.2d 1560 (llthCir.

——

1987); Sommers Drug Stores Co. Employee

Profit Sharing Trust v. Corrigan

Enterprises, Inc., 793 F.2d 1456 (5thCir.

1986), cert. denied, 479 U.S. 1034, 107

S.Ct. 884, 93 L.Ed.2d 837 (1987).

HealthAmerica argues that Pilot Life

forecloses debate and that Menton's claim is

pre-empted by ERISA as one “relating to" an

employee benefit plan. We disagree. Pilot

Life involved an individual who was

receiving benefits under a plan insured by

the Pilot Life Insurance Company. In 1975,

Everate W. Dedeaux injured his back in an

accident related to his employment with

Entex, Inc. Entex sponsored a long-term

disability plan that qualified as an

al Sa

employee benefit plan under ERISA, for

employees who became permanently disabled.

While Entex assumed responsibility for the

disability plan's day-to-day operation and

administration, benefits under the plan were

provided by a group insurance policy issued

by Pilot Life Insurance Company.

Following Dedeaux's accident, Pilot

Life provided benefits to him for two years.

His benefits under the plan were first

interrupted, then terminated altogether.

When they were discontinued, Dedeaux sued

Pilot Life. Although the complaint in Pilot

Life contained a count for "fraud in the

inducement," the opinion makes it

unmistakably clear that the only claims he

pursued were claims seeking damages fcr

improperly processing his claims for

benefits under an ERISA-regulated plan.

Justice O'Connor, writing for the Supreme

-16-

Court, stated as follows:

"Altnough Dedeaux's complaint pled

several state common law causes of

action, before this Court Dedeaux

has described only one of the three

counts--called ‘tortious breach of

contract’ in the complaint, and ‘the

Mississippi law of bad faith' in re-

spondent's brief--as protected from

the pre-emptive effect of Section

514(a). The Mississippi law of bad

faith, Dedeaux argues, is a law

"which regulates insurance,' and

thus is saved from pre-emption by

Section 514(b) (2) (A) ."

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. at

“eg, i107 S.Ct. 1549, 1553, 95 L.Ed.2d 39, at

«8 (foot-note omitted). Having considered

this singie count, the Court held:

"([Wle conclude that Dedeaux's state

law suit asserting improper processing

of a claim for benefits under an

ERISA-regulated plan is not saved by

Section 514(b) (2) (A), and therefore

is pre-empted by Section 514(a)."

Id. 481 U.S. 41, at 57, 107 S.Ct. 1549 at

1558, 95 L.Ed.2d 39, at 54 (footnote

omitted).

Pilot Life merely cleared the confusion

=j J=

that Metropolitan Life had created in the

lower federal courts. Following Metropoli-

tan Life, several lower courts held that

insurance companies serving as claims review

fiduciaries to fully insured employee

benefit plans were subject to the full

measure of state remedies, while fiduciaries

of self-insured plans were not. Pilot Life

rejected the artificial distinction between

fully-insured and self-insured plans created

by Metropolitan Life.

In this case, Menton does not claim

improper processing of a claim, nor any

benefits under the terms of the plan. To

the contrary, he claims he was fraudulently

induced to drop his existing coverage by

misrepresentations made by the defendants to

him prior to his becoming a member of the

HealthAmerica plan. This is the clear

«}8-

distinction between this case and Pilot

The Supreme Court has not drawn a hard,

clear line as to which state law is pre-

empted by Section 514(a). This is demon-

strated by the case of Ft. Halifax Packing

Co. v. Coyne, 482 U.S. 1, 107 S.Ct. 2211,

96 L.Ed.2d 1 (1987), which was decided two

months after Pilot Life. In Ft. Halifax,

the Court held that a Maine statute re-

quiring employers to make a one-time

severarte payment to employees when a plant

closed was not preempted by ERISA. The

Court noted that the preemption clause

expressly states thai state laws are super-

seded to the extent that they “relate ‘*o any

employee benefit plan." The Court stated

that the preemption provision “does not

refer to state laws relating to ‘employee

benefits,' but to state laws relating to

-1|19-

‘employee benefits plans.'" Id., at 7.

(Emphasis in original.) The Court observed

that ERISA uses the words “benefit” and

"plan" separately throughout and nowhere

treats the two as synonymous. "Given the

basic difference between a 'benefit' and a

‘plan,' Congress' choice of language is

significant in its pre-emption of only the

latter." Id. at 8, 107 S.Ct. at 2216, 96

L.Ed.2d at 9 (1987).

The distinction made by the Court in

Ft. Halifax, between laws that relate to

employee benefits plans and laws that relate

simply to employee benefits is analogous to

the instant case and demonstrates why

Menton's claim for fraudulent inducement

does not "relate to" HealthAmerica's plan.

Teper v. Park West Galleries, Inc., 431

Mich. 202, 427 N.W. 2d 535 (1988), presented

a much closer question on preemption than

-20<-

exists here. In that case the Michigan

Supreme Court held that a plaintiff's claim

against her employer for breach of an

employment contract, which claimed, in part,

compensation for future pension benefits,

was not preempted by ERISA. The court held

that "the simple fact that the damage award

was based in part upon the terms of the plan

does not place any fiscal or administrative

burden upon the plan itself. This re-

lationship to the’plan is, in the words of

the Shaw Court, too 'peripheral' to trigger

ERISA preemption." 431 Mich. at 208, 427

N.W.2d at 541. Chief Justice Riley, con-

curring with the majority in Teper, found

ERISA's definition of a “state" important

for the purposes of the ERISA preemption

clause:

"Congress has further explained

the scope of ERISA preemption in

the definitional section, 29 U.S.C.

Section 1144(c) (2), wherein the

a%}<

term 'state' for preemption purposes is

characterized as ‘a State, any political

subdivision thereof, or any agency or

instrumentality of either, which

purports to regulate, directly or

indirectly, the terms and conditions

of employee benefit plans covered by

this subchapter.”

431 Mich. at 212, 427 N.W.2d at 545

(emphasis in original).

In Quigley v. UNUM Life Ins. Co., 688

F.Supp. 80 ({(D.Mass.1988), the plaintiff's

decedent was a participant in a retirement

pension plan. Plaintiff's decedent received

eight years’ of monthly annuity payments

following his retirement. Following his

death, his estate brought an action against

UNUM for breach of contract and misrepre-

sentation. UNUM contended that the claims

were preempted by ERISA. The federal

district court rejected UNUM's preemption

argument, finding that the plaintiff's

causes of action were "so tenuously related

to an ERISA plan that the claims are not

preempted." Id., at 82. In so holding the

cour

Id.,

735

@32-

t found:

"The dispute in this case does

not involve the plan and the

plaintiffs do not claim that

any term of the pension plan

was violated...Litigation of

these issues will not, in

effect, result in state regu-

lation of the pension plans

contrary to the purposes of

ERISA. The concern which

motivated the enactment of the

ERISA preemption provisions,

the threat of inconsistent

and conflicting state regu-

lations of ERISA plans, is

not implicated if this action

is allowed to go forward. See,

Ft. Halifax Packing Co. Inc.,

v. Coyne, 482 U.S. 1, 107 S.Ct.

2211, 2216, 96 L.Ed.2d 1 (1987)."

at 82-83.

In Greenblatt v. Budd Co., 666 F.Supp.

(E.D.Pa.1987), the plaintiff sued his

employer for misrepresenting to him that the

benefits he was receiving under one of the

two

pension plans would be made equal to

those available under the other plan. The

Cour

Super

t, after first acknowledging that the

eme Court has determined that "Congress

-23-

made the preemption provision ‘deliberately

expansive’ and 'designed to "establish

pension plan regulation exclusively as a

federal concern,"'" id., at 741, quoting

Pilot Life, rejected the employer's argument

that ‘ERISA pre-empted the plaintiff's claim:

"The cause of action for misrepre-

sentation alleged by the plaintiff

at Count II of his complaint should

not be preempted because, Simply put,

the premise underlying this action

was that plaintiff was deceived

by the verbal statements made

and the actions taken by his

employer. That the subject of

the deception concerned pension

benefits is only incidental and

not essential to the plaintiff's .:

cause of action. Like promises

for a raise in salary, a promotion,

or the use of tickets to 4 baseball

game, plaintiff's employer's promise

to provide the plaintiff with cer-

tain benefits at some unknown time

.in the future, upon which the

plaintiff could reasonably rely,

is the essence of the fraud alleged."

Id., at 742, In accord: Morningstar v.

Meijer, Inc., 662 F.Supp. 555 (E.D.Mich.

1987) (plaintiff's claim for breach of

employment contract against former employer

did not "relate to" ERISA plan, despite the

»2é-

fact that plaintiff claimed as part of her

damages the value of certain future fringe

benefits under an ERISA plan); McNaee v.

Bethlerem Steel Corp., 692 F. Supp. 1477

(E.D.N.Y.1988) (plaintiff claimed fraudulent

misrepresentation by employer that upon

rehiring he would suffer no break in pension

coverage, and court found that because

Dlaintiff's claim did not "seek benefits

under the plan" his claim was not pre-

empted).

Courts nationwide continue to struggle

with ERISA preemption issues occasioned by

the "relate to" language in Section 514(a).

See: Springer v. Wal-Mart Assoc. Group

Health Plan, [No. 88-AR-5226, June 6, 1989]

F.Supp. (N.D.Ala. 1989); Amos

v. Blue Cross-Blue Shield of Alabama, 681

F.Supp. 1515 (N.D.Ala.1988), rev'd, 868 F.2d

430 (llthCir.1989); Farlow v. Union Central

=25—

Life Ins. Co., 874 F.2d 791 (llthCir.1989);

Anschultz v. Connecticut General Life Ins.

Co., 850 F.2d 1467 (llthCir. 1988); Belasco

v. W.K.P. Wilson & Sons, Inc., 833 F.2d 277

(llthCir.1987); Jordan v. Reliable Life Ins.

Co., 694 F.Supp. 822 (N.D. Ala.1988);

Graves v. Blue Cross of California, 688

F.Supp. 1405 (N.D.Cal.1988); Mackey v.

Lanier Collections Agency & Service, Inc.,

486 U.S. , 108 S.Ct. 2182, 100 L.Ed.24

836 (1988); Board of Trustees of Cedar

Rapids Pediatric Clinic, P.A., Fension Plan

v. Continental Assurance Co., 690 F.Supp.

792 (W.D.Ark.1988); Perry v. P*I*E

Nationwide, Inc., 872 F.2d 157 (6thCir.

1989); Idaho Plumbers and Pipefitters Health

and Welfare Fund v. United Mechanical Con-

tractors, Inc., 875 F.2d 212 (9thCir.1989) ;

Totton v. New York Life Ins. Co., 685

F.Supp. 27 (D.Conn.1987); Tesch v. General

~26—-

Motors Corp., 685 F.Supp. 1084 (E.D.Wis.

1988); Southern California Meat Cutters

Unions & Food Employers Pension Trust Fund

v. Investors Research Co., 687 F.Supp. 506

(C.D.Cal.1988); Hall v. Pennwalt Group

Comprehensive Medical Expense Benefits Plan,

(E.D.Pa.1989); Schultz v. Boesken Elec.

Co., 703 F.Supp. 6565 (S.D.Ohio 1988); Urban

Health Services, Ltd. v. Travelers Ins.

Co., 703 F.Supp. 53 (N.D.111.1989); Holmes

v. Pacific Mut. Life Ins. Co., 706 F.Supp.

733 (C.D.Cal.1989); Seafarers' Welfare Plan

v. Dixon, 512 So.2d 53 (Ala.1987); Davidian

v. Southern Calirornia Meat Cutters Union &

Food Employees Benefit Fund, 859 F.2d 134

(9thCir.1988); Hood v. Prudential Ins. Co.

of America, 522 So.2d 265 (A1.1988); Landy

v. Travelers Ins. Co., 530 So.2d 214

(Ala.1988); Massachusetts v. Morash, 490

U.S. , 109 S.Ct. 1668, 104 L.Ed.2d 98,

(Mass. 1989). Although there is authority

on both sides, the better reasoned cases,

and those which recognize the dual role of

State and federal law after ERISA, have

reached the conclusion that we have reached

today.

Authors Kilberg and Inman in their

Observation, Preemption of State Laws

Relating to Employee Benefit Plans: An

Analysis of ERISA Section 514, 62 Tex.L.Rev.

at 1328-30 (1984), suggest that the Act

contemplates a different approach to these

cases. They argue, and we agree, that the

Act itself provides a better formula for

discerning which state cases are preempted

and which are not:

"Although the courts often have

turned to the ‘indirectly'

language of. section 514(c) (2)

in their analysis, they have

largely ignored another critical

word contained in the same clause.

Section 514(c) (2) defines a

"State' as an entity that '

=29-

purports to regulate, directly

Or indirectly, the terms and

conditions' of the plan.

"An inquiry into the significance

of the word 'purports' sheds con-

siderable light on the elusive

‘relate to' language of section

514(a). ‘'Purport' nas two or-

dinary meanings: 'to...imply or

profess outwardly' and 'to have

in mind.' Both meanings compre-

hend purpose=-the first speaks

to apparent purpose, the second

to actual purpose or intent.

In the state law context, an

appareit purpose to regulate,

manifested by a reference to

employee benefit plans in the

text of the law, invariably

reflects an actual regulatory

purpose. Hence, any law

expressly directed toward

employee benefit plans

‘purports’ to regulate the

plans within the meaning of

section 514.

"Congress meant to preempt such

state laws, however, whether or

not they are styled as employee

benefit plan regulations. [In

light of this congressional in-

tent, ‘purports' must be con-

strued in its 'normal sense' of

‘to have in mind.' This

construction necessitates an

inquiry into the actual

legislative or judicial purpose

underlying the state law

in question. To determine

whether the purpose of a state

-29-

law is to regulate benefit

plans, a court should identify

what the law seeks to accomplish

and ask whether the law pre-

Supposes the existence of

benefit plans to achieve that

aim. If the purpose of the law

is to affect the terms and con-

ditions of employee benefit plans,

the law may be found to ‘relate

to' the plans under section 514(a).-

If such a purpose is absent, the

‘relate to' requirement will not

be met and the law will not be

preempted, even though it may

have some tangible effect on

benefit plans.

"This purpose-effect distinction

serves well to identify those state

‘legislative’ laws that Congress

intended to preempt with section 514.

In addition, this approach is useful

in determining whether section 514

preempts a state court or agency

application of an otherwise valid

State law to a benefit plan. In

these adjudicative settings, a

second "State Law' emerges that

seeks to impose a provision of state

law on the plan irrespective of the

plan's terms. Such state adjudi-

cations invariably 'purport' to

regulate the plan and consequently

should be preempted under section

514(a). State adjudicative decisions

raise a different issue, however,

when the decisions are grounded in

the terms of the plan itself, rather

than in the terms of the state law

=30-

applied to the benefit plan. The

question then arises whether this

act of interepresentation itself

constitutes a state law that

‘relates to' the plan. This

problem is treated in the following

Subpart.

"Section 502(a) (1) (B) provides

that a participant or beneficiary

of a plan may bring a civil action

‘to recover benefits due to him

under the terms of his plan, to

enforce his rights under the terms

of the plan, or to clarify his

rights to future benefits under

the terms of the plan...' Section

503(e) (1) provides that this civil

action may be brought in either

federal or state court. To recon-

cile this grant of concurrent

jurisidiction with section 514's

pre-emption of state laws that

regulate the terms and conditions

of a plan, state court decisions

that merely interpret the terms

of the plan in order to adjudicate

the rights of a participant or

beneficiary must be deemed not to

regulate the plan's terms and

conditions. Any other conclusion

would reduce the grant of concurrent

jurisdiction to surplusage: decisions

Sanctioned by sections 502/a) (1) (B)

and 502(e) (1) would be preempted by

section 514.

"Thus, the jurisdictional sections

of ERISA, by allocating authority to

the state courts to interpret the

terms of a plan, imply that

aZlhe

interpretation alone does not constitute

regulation of the terms and conditions

of a plan. If interpretation is not

regulation of the plan's terms when

federal and state courts have con-

current jurisdiction, there is no

basis for a differe xt conclusion

when the state court interprets the

terms of a plan in a case over which

only the state court has jurisdiction.

Thus, although the states are barred

from regulating employee benefit plans,

they are invited to construe the plans'

terms, a task that often entails

construing ERISA's requirements. The

states can, therefore, create decisional

law, but they may not apply existing

state law, decisional or otherwise, that

overrides the terms of the plan."

Neither Alabama's fraud statute nor the

common law action for fraud purports to

regulate, directly or indirectly, the terms

and conditions of a plen, and the appli-

cation of Alabama's fraud law to the facts

of this case does not relate to or affect

the administration of the plan.

The analysis suggested by Kilberg and

Inman would promote the policy endorsed by

the United States Supreme Court in Ft.

=32<

Halifax: "ERISA pre-emption analysis 'must

be guided by respect for the separate

spheres of government authority preserved in

our federalist system.'" 482 U.S. at,

quoting Alessi v. Raybestos-Manhattan, Inc.,

supra. It is equally consistent with the

Court's decision in Metropolitan Life

Insurance Co. v. Massachusetts, where the

Court stated: "We must also presume that

Congress did not intend to preempt areas of

traditional state regulation." 471 U.S. at

724, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985).

The defendants argue that the trial

court erred in allowing Menton to amend his

complaint after final judgment was entered,

to allege a violation of the "twisting"

Statute, Section 27-12-6. The trial court

did not err, for two reasons. The first is

that every element underlying the "twisting"

Statute is included in the plaintiff's

o33-

complaint stating a common law cause of

action for fraud, now codified at Section 6-

5-101 (misrepresentations of a material fact

made willfully to deceive, or recklessly

without knowledge). Therefore, the

amendment to the complaint alleging

violation of Section 27-12-5 was redundant,,

and it could not have prejudiced the

defendants in any way. Second, if it is

assumed for purposes of argument, or if some

other court decides that a claim under

Section 6-5-101 or its common law counter-

part is preenpted by section 514(a) of

ERISA, then we would hold that a claim under

section 27-16-65 could still be maintained

under the saving clause of ERISA as a state

law regulating the business of insurance:

"(N]othing in this subchapter

shall be construed to exempt or

relieve any person from any law

of any State which regulates

insurance..."

=34-

Section 514(b) (2) (B), 29 U.S.C. Section

1144(b) (2) (A).

The purpose of Chapter 12 ("Trade

Practices Law") of Title 27 ("Insurance")

of the Alabama Code is expressed in Section

27-12-1 (a):

"The purpose of this chapter is to

regulate trade practices in the

business of insurance in accordance

with the intent of congress as

expressed in the Insurance Regulation

Act by defining, or providing for the

determination of, all such practices

in this state which constitute unfair

methods of competition or unfair or

deceptive acts or practices and by

prohibiting the trade practices so de-

fined or determined." (Emphasis added.)

Section 27-12-6 ("Twisting") provides as

follows:

"No person shall make or issue, or

cause to be made or issued, any written

Or Oral statement misrepresenting or

making misleading incomplete comparisons

as to the terms, conditions, or benefits

contained in any policy for the purpose

of inducing, or attempting or tending

to induce, the policyholder to lapse,

forfeit, surrender, retain, exchange or

convert any insurance policy."

-35-

Section 27-1-2(3) defines “person" for the

purposes of Title 27 as follows:

"An individual, insurer, company,

association, organization, Lloyd's

insurer, society, reciprocal insurer

Or interinsurance exchansce, partner-

ship, syndicate, business trust,

corporation and every legal entity."

The United States Supreme Court in

Pilot Life looked to “common sense" and to

the McCarran-Ferguson Act, 15 U.S.C. Section

1911 et seq., in interpreting the saving

clause, and in doing so it used the

following criteria to determine whether a

practice falls under the "business of

insurance";

""(F)irst, whether the practice

nas the effect of transferring or

spreading a policyholder's risk;

second, whether the practice is an

integral part of the policy relation-

ship between the insurer and the

iasured; and third, whether the

practice is limitd to entities

within the insurance industry."

Pilot Life, 481 U.S. at 48, 107 S.Ct. at

1553-54, 95 L.Ed.2d at 48 (1987) (quoting

Union Labor Life Ins. Co. v. Pireno, 458

eee...

=36<

U.W. 119, 129 (1982)). The legislature of

Alabama, in adopting the "twisting" statute

Section 27-16-6, has enacted a fraud and

misrepresentation statute that specifically

relates to the insurance industry and,

therefore, we believe it is “saved" from

preemption by a proper interpretation of

Section'514(b).

We acknowledge that the Eleventh

Circuit Court of Appeals has held in Farlow

v. Union Cen. Life Ins. Co., [No. 88-7513,

Jun 6, 1989} F.2d (1989), that the

Alabama "twisting" statute does not create a

DOrivate cause of action and that, if it lia,

a claim under it would be pre-empted under

ERISA if the employer's conduct giving rise

to the claim was not “wholly remote in

content" from the benefit plan, Presumably,

under this holding, the commissioner of

insurance would be preempted from imposing

———S=_

my ee

the statutory sanctions against insurance

companies that violate Section 27-12-1 et

seq. We are unconvinced that Congress

intended this result.

We recognize that the cases from the

various federal courts are disparate. We

adopt the position taken by the Sixth

Circuit on the vrecise issue involved in

this case: fraud in the inducement. Perry

v. P*I*E Nationwide, Inc., 872 F.2d 157

(6thCir.1989). In that case, the plaintiffs

alleged that the defendant had Fraudulently

induced them to participate in a plan

covered by ERISA. The defendants claimed

ore-emption under section 514(a). The

district court held that "preemption by

ERISA applies only once the benefit plan is

in existence" and does not apply to alleged

common law actions of fraud or misrepre-

sentation "to get the plaintiffs to join the

-38-

plan." Because the purported misconduct of

P*I*E occured before the plaintiffs became

participants or beneficiaries, and because

they were not suing for benefits under the

plan, the district court had held that

preemption did not apply. In accord, Butler

v. Fringe Benefits Plan, Inc., 701 F.Supp.

804 (N.D.Ala.1988).

The Circuit Court of Appeals for the

Sixth Circuit affirmed, citing Miller v. Lay

Trucking Co., 606 F.Supp. 1326 (N.D.Ind.

1985) (holding that the plaintiff's common

law action for fraudulent inducement was not

preempted by ERISA because the fraud

occurred prior to the time the plaintiff

entered the plan, and because the fraud

claim did not directly affect the regulation

of the ERISA plan).

The Sixth Circuit acknowledged, as we

do that there is respectable authority for

»39-

the positions taken by both sides concerning

pre-emption of state common law claims of

fraud, etc. It adopted in Perry the

position expressed in Dependahl v. Falstaff

Brewing Corp., 653 F.2d 1208 (8thCir.),

cert. denied, 454 U.S. 968, 102 S.Ct. 512,

70 L.Ed.2d 384 (1981), that preemption

should apply to a state law claim only if

Congress has provided a remedy for the wrong

Or wrongs asserted.

Congress has not provided a remedy for

the wrong asserted by Mr. Menton, and we are

loath to imply an intent on its part to do

SO.

We next address the defendants' con-

tention that the trial court erred in deny-

Cefalu v. B.F. Goodrich Co., 871 F.2d 1290

(5thcCir.1989); Cantrell v. Great Republic

Ins. Co., 873 F.2d 1249 (9thCi I585)5

Straub v. Western Union Telegraph Co., 851

F.2d 1262 (10thCir.1988); Hermann Hosp. v.

Meba Medical & Benefits Plan, 845 F.2d 1286

(5th Cic.t988).

-40-

ing the defendants' motion for a mistrial

based upon alleged improper argument by

plaintiff's counsel. The defendants claim

that the plaintiff's counsel improperly

aroused the passion and prejudice of the

jury against the detendants. The plaintiff

claims that the jury verdict is the result

of the overwhelming evidence of fraud,

cover-up, and conspicuously selective

memories that was introduced at the trial of

the case. We have repeatedly held that in

fraud actions "great latitude is allowed in

the scope of evidence introduced." Simmons

Mach. Co. v. M & M Brokerage, Inc., 409

So.2d 743, 756 (Ala.1981). The reason for

allowing such latitude is that the

perpetrator of a fravd is often the sole

possessor of the actual knowledge of fraud.

“~

Sessions Co. v. Turner, 493 So.2d 1387, 1391

(Ala.1986).

Questions of materiality, relevancy,

ahil<

and remoteness of evidence are matters

resting within the discretion of the trial

court, whose exercise of that discretion

will not be reversed unless it has been

grossly abused. Dorcal, Inc. v. Xerox

Corp., 398 So.2d 665, 670-71 (Ala.1981).

This Giscretion extends to argument of

counsel. We have said:

"The control of arguments rests

largely in the discretion of the

trial court, before whom the

argument is made, and who sees

and can judge the demeanor of the

counsel making the argument, and

who can determine whether a pre-

judicial atmosphere is created by

such remarks; therefore, we will

not interfere where this discretion

is not abused."

Southern Ry. Co. v. Javris, 266 Ala. 440 at

446, 97 So.2d 549 (1957), in accord, Old

Southern Life Ins. Co. v. Woodall, 348 So.24

L377 (ALG, L977) ss

Counsel may stat? or comment upon all

evidence admitted at trial and draw infer-

jak: RIO ET EL Be RD DNR

ences and conclusions from that evidence.

Seaboard Coastline R.R. v. Moore, 479 So .2d

1131 (Ala.1985). This Court has established

a standard of review on claims for improper

argument whereby we will not reverse unless

substantial prejudice has resulted. Id., at

1136. In denying defendants’ motion for a

JNOV, new trial, and remittitur, the trial

court stated: "(T]he court cannot call to

mind [nor] have the attorneys for the

defendants shown to the court any factor at

all that could be construed to indicate

bias, passion, prejudice, corruption, or

other improper motive or cause on the part

of the jury."

We recently affirmed a trial court's

refusal to grant a mistrial, under circun-

stances similar to the present case, in

which there was a ref2rence to the wealth of

the defendants. We ooserved that the court

o$ 3«

heard the remark in context, witnessed the

effect upon the jury, and was able to make a

better judgment that we were as to whether

the remark was improper argument and might

have prejudiced the jury. L.W. Johnson &

Assoc., Inc. v. Rivers Construction Co., 532

So .2d 618 at 625 (Ala.1988). We have care-

fully examined the record in this case and

find no error by the trial judge, who had

the opportunity to judge the demeanor of

counsel and who could determine whether his

remarks created a prejudicial atmosphere.

The defendants also claim that the

trial court erred in charging the jury. The

jury asked: "Are the defendants ‘the corp.

and Pam‘ or ‘the corp. or Pam?'" The judge

replied:

"THE COURT: Well, for your purposes

it doesn't make any difference. I mean

the corporation is fully responsible

for the acts of its agents, so it

doesn't make any difference. I mean,

you know, we're concerned--you know,

the representations are the repre-

sentations of the agent. I mean, I

don't think I--is that--

"JUROR: That's what we needed to

know."

Defendants admit that the trial court cor-

rectly instructed the jury that a corpora-

tion is responsible for the acts of its

agent. We find no error in so instructing

the jury.

Defendants contend that the trial court

erred in refusing to submit special verdict

questions to the jury and in charging the

jury as to reckless fraud. Under Rule 49,

Ala. R. Civ. P., the use of a Special ver-

dict is within the sound discretion of the

trial court. After instructing the jury on

willful misrepresentation, based on the Ala-

bama Pattern Jury Instructions, the trial

court charged the jury on the definition of

reckless misrepresentation as follows:

=45-

"A reckless misrepresentation

which is also actionable [sic];

the law says that if you are

reasonably satisifed from the

evidence that the defendant

misrepresented a material fact

recklessly without knowledge

of the truth or falsity thereof

and with the intent to induce

the plaintiff to act and that

the plaintiff acted upon said

reckless misrepresentation to

his injury, then the defendant

is also guilty of a legal fraud

under those circumstances.

"If the plaintiff has not proved

the case of fraud through either

an intentional or a reckless mis-

representation as I just described

to you, you would go no further.

Your verdict would be for the

defendant." [R. 295-96.]

One of the Alabama pattern jury instructions

defines "reckless misrepresentation" as

follows:

"If you are reasonably satisfied

from the evidence that the defendant

misrepresented a material fact

recklessly without knowledge of the

truth or falsity thereof and with the

intent to induce plaintiff to act and

and that plaintiff acted upon said

reckless misrepresentation to his

injury, then defendant is guilty of a

legal fraud."

-46-

Alabama Pattern Jury Instructions (Civil),

Instruction 18.02, p. 270.

During jury deliberations, the jury had

a question. The trial court asked the

foreman: "You want me to define a reckless

misrepresentation?" The foreman replied:

"Yes, Sir." To this the trial judge

responded:

"If you are reasonably satisfied

from the evidence that the defendants

misrepresented a material fact

recklessly without knowledge of the

truth or falsity and with the intent to

induce the plaintiff to act, and the

plaintiff did act upon the reckless

misrepresentation to his injury, then

the defendant is guilty of a legal

fraud." [R. 306]

ee ee

The trial court gave the identical

Gefinition of reckless misrepresentation

both during his oral charge and after the

jury's question. In doing so, he correctly

charged the jury.

The defendants also contend that the

;

}

court's charge on punitive damages in a

-47

fraud case constitutes reversible error.

The longstanding rule of this Court is as

follows:

"(P]unitive damages may be recovered

in a fraud action if the fraudulent

misrepresentation was malicious,

oppressive, Or gross, Or made with

knowledge of its falsity or so

recklessly as to amount to the same

thing or was made with the purpose of

injuring the plaintiff."

Curry Motor Co. v. Hasty, 505 So.2d 347

(Ala. 1987). See: Morgan v. South Central

Bell Telephone Co., 466 So.2d 107 (Ala.

1985).

In the present case, the trial judge

instructed the jury in his oral charge as

follows:

"[T])he law says that you are

authorized to award punitive

damages in a fraud action if

it is shown to your reasonable

Satisfaction from the evidence

that the fraud was malicious,

oppressive, Or gross, Or a

misrepresentation was made with

the kncewledge of its falseness

Or so recklessly done as to

amount to the same thing and

let

-48-

committed with the intent to injure and

to defraud." [R. 296-97.]

The jury had a question on the meaning of

reckless fraud during its deliberations.

The trial court further instructed the jury

as follows:

"I just want to clarify one thing,

ladies and gentlemen, I want to

clarify this: the definition I

just read you world authorize if

the plaintiff proved it, to recover

actual damages. With respect to

recovering punitive damage, the law

says that the fraud must be malicious,

oppressive or gross or made with

knowledge of the falseness of the

representation or so recklessly done

as to amount to the same thing and

committed with the intent to injure

and defraud."

The trial court did not err in charging the

jury.

The defendants argue that the trial

court erred in denying their motions for

directed verdict, judgment notwithstanding

the verdict, and a new trial based upon the

insufficiency of the evidence of either

intentional or reckless fraud. We have

-49-

carefully reviewed the record in this case.

The record supports the decision of the

trial judge.

The defendants argue that the award of

punitive damages violates the Constitution

of Alabama and the Constitution of the

United States of America. They argue that

the jury verdict of $1,797,588 in punitive

damages is based upon only $2,412 in

compensatory damages. However, the

defendants did not raise any constitutional

question prior to filing their motion for

judgment notwithstanding the verdict, or, in

the alternative, for a new trial or for a

remittitur. Although the trial judge, in

his order of June 13, 1988, states that the

defendants' challenges to the constitution-

ality of the award of punitive damages "were

timely raised and effectively presented," in

fact, these issues were not raised until 29

-50-

days after the trial court had entered

judgment on the jury's verdict.

It is settled law that constitutional

issues must be raised before the triai court

in order to be preserved for review upon

appeal, Marion v. Hall, 429 So.2d 937

(Ala.1983); Talley v. A & M Construction

Co., 284 Ala. 371, 373, 255 So.2d 359, 360

(1969), cert. denied, 397 U.S. 995, 90 S.Ct.

1133, 25 L.Ed.2d 402 (1970); Hicks v.

Huggins, 405 So.2d 1324 (Ala.Civ.App.),

cert. denied, 405 So.2d 1328 (Ala. 1981).

We have declined previously to consider

Similar issues because “these challenges

were not presented for resoluti¢:n before the

trial court and [were] presented for the

first time on appeal." Nationwide Mutual

Ins. Co. v. Clay 525 So.2d 1339, 1344

(Ala.1987), cert. denied, 8. , 109

S.Ct. 863, 102 L.Ed.2d 988 (1989). Thus,

aS)

the defendants did not preserve their

constitutional issues for appeai. However,

we would be remiss if we neglected to note

that the United States Supreme Court has

recently ruled in the case of Browning-

Ferris Industries of Vermont, Inc. Ve

Kelco Disposal, Inc. [No. 88-556, June 26,

1989) U.S. __ (1989) that the excessive

fines clause of the Eighth Amendment does

not apply to punitive damages awards in

cases between private parties. In doing so,

the Supreme Court upheld an award of $6

million in punitive damages when the

compensatory damages were $511,146.

Finally, the defendants claim that the

verdict of the trial court was excessive and

should be set aside.

With respect to the question of a

remittitur, it is within the authority of

this Court to order a remittitur, pursuant

to Code of Alabama (1975), Section 12-33-71,

if it finds the judgment to be excessive.

The rules that govern this Court's review of

a verdict claimed to be excessive were set

out in Vest v. Gay, 275 Ala. 286, 154 So.2d

297 (1963):

"'The rules governing our

consideration of this question

are clear and have be reiterated

guite often. We refer to them

briefly for emphasis: The

verdict of a jury should not be

interfered with merely because in

the opinion of the court the jury

gave too little or too much...?

and the authority vested in the

courts to disturb a verdict of the

‘jury on the ground of excessive

damages is one which should be

exercised with great caution...;

where there is no set standard

for the admeasurement of the

damages but the damages to be

awarded are left to the sound

discretion of the jury, a

remittitur or a new trial

should not be ordered on the

ground of excessiveness of the

jury's verdict except in those

cases where the court can clearly

see that the verdict has been

reached on account of bias, passion,

prejudice, corruption, or other

improper motive or cause...; but

~$3-

where the damages allowed are

so excessive as to warrant the

belief that the jury must have

been misled by some mistaken

view of the merits of the case

the court may interfere and set

the verdict aside...; also,

where the trial court refuses

to grant a new trial because

[it] does not believe the

verdict to be excessive, the

favorable presumption attending

the jury's verdict is thereby

strengthened...'"

(As quoted in Black Belt Wood Co., Inc. v.

Sessions, 514 So.2d 1249, at 1264-65 (Ala.

1986) .)

The trial court issued an order denying

defendant's motion sae a remittitur, and in

it the trial judge expressly acknowledged

that he had carefully considered all of che

evidence on all issues. The trial judge

noted that a remittitur or new trial is

proper "where the court can clearly see that

the verdict is tainted by bias, passion,

prejudice, corruption, or other improper

motive or cause on the part of the jury."

The trial court stated in his order as

follows:

"The Court has carefully considered

all of the evidence in the case on all

issues. The Court has carefully con-

sideced the nature and quality of the

testimony of all of the witnesses, as

well as the demeanor of each witness

while testifying. The Court has

further reviewed its Charge to the

jury on the issue of damages and has

found that it correctly instructed

the jury on damages. As a part of

the charge, the jury was instructed

that if they found in favor of the

Plaintiff, Edward Menton, and against

the Defendants, HealthAmerica and

Pamela Merle, that in assessing

damages they should take into

consideration and give due regard

to the enormity of the wrong and

the necessity of preventing similar

wrongs in the future.

"After a careful review by the

Court of the entire trial of the

case, including the testimony of

all of the witnesses, all of the

documentary and demonstrative

evidence produced at trial, the

Court's observation of all parties

and witnesses, and the Court's

charge to the jury on damages, the

Court is convinced that the jury

carefully and conscientiously

followed the Court's instructions

in assessing damages in the case at

: $1,800,000.00 and that the award is

2 ——EEEEE

ee AS

=§5~

consistent with the Court's in-

structions and supported by the

evidence.

"The Court finds, after a review

of the entire trial, that the central

issue presented in the Defendants'

motion for remittitur is whether or

not the jury verdict of $1,800,090.00

in this case is, in and of itself,

evidence of bias, passion, prejudice,

corruption or other improper motive

Or cause. The Court cannot call to

mind [nor] have the attorneys for the

Defendants shown to the Court any

factor at all that could be construed

to indicate bias, passion, prejudice,

corruption, or other improper motive

or cause on the part of the jury.

On the contrary, the Court finds that

there was clear and convincing evidence

of fraud on the part of the Defendants,

HealthAmerica and Pamela Merle, which

in the Court's opinion fully justified

the jury's verdict.

"The Court finds that the

$1,800,000.00 verdict is not

excessive and is not the result of

bias, passion, prejudice, corruption,

Or Other improper motive or cause."

We have reviewed this order of the

trial judge, and we find that he followed

the guidelines we have previously adopted to

be used by a trial court in reviewing judg-

~8E~

ments. Hammond v. City of Gadsden, 493

So.2d 1374 (Ala.1986); Harmon v. Motors Ins.

Corp., 493 So.2d 1370 (Ala. 1986); Alabama

Farm Bureau Mutual Cas. Ins. Co. v.

Griffin, 493 So.2d 1379 (Ala.1986). The

trial judge applied the principles of law

adopted in those cases, held a hearing, and

set forth the reasons why he felt that the

law did not authorize him to order a

remittitur.

We ave examined the record in the

light of our rules as to remittitur. We are

of the opinion that the judgment of the

trial court, including the damages award,

which the trial court reviewed on motion for

JNOV, for a new trial, and for remittitur,

is due to be, and is hereby is, affirmed.

AFFIRMED.

Hornsby, C. J., and Jones, Adams,

Steagall, and Kennedy, JJ., concur.

«$7

Maddox and Houston, JJ., dissent, with

opinion by Houston, J.

HOUSTON, JUSTICE (dissenting) The second

paragraph in Article VI, of the Constitution

of the United States, provides:

"This Constitution, and the laws of

the United States which shall be made

in pursuance thereof; and all treaties

made, Or which shall be made, under

the cuthority of the United States,

shall be the supreme law of the land;

and the judges in every state shall be

bound thereby, any thing in the

Constitution or laws of any state to

the contrary notwithstanding."

(Emphasis supplied.)

If I were writing on a clean slate,

freed from the deference that I do and must

give to the opinions of the United States

Supreme Court, I could reach the result

reached by the majority of this Court in

this case, on the preemption issue, for I

would adopt the "purpose-effect" and "regu-

lation-interpretation" distinctions

-58-

suggested as an alternative approach to the

"relate to" requirement by William J.

Kilberg's and Paul D. Inman's article

Preemption of State Laws Relating to

Employee Benefit Plans: An Analysis of

ERISA Section 514, 62 Tex.L.Rev. 1313, 1328-

30 (1984). However, I have given my solemn

oath to uphold the Constitution of the

United States, and that includes the second

paragraph of Article VI; therefore, I must

dissent.

Justice O'Connor, in delivering the

Opinion for a unanimous Court in Pilot Life

Insurance Co. v. Dedeaux, 481 U.S. 41,

44-46, 107 S.Ct. 1549, 1551-52 (1987),

wrote:

"In ERISA, Congress set out to

""protect...participants in

employee benefit plans and

their beneficiaries, by

requiring the disclosure

and reporting to participants

and beneficiaries of

=§9-

financial and other infor-

mation with respect thereto,

by establishing standards of

conduct, responsibility, and

obligation for fiduciaries of

employee benefit plans, and by

providing for appropriate

remedies, sanctions; and ready

access to the Federal courts.'

Section 2, as set forth in

29 U.S.C. Section 1001(b).

"ERISA comprehensively regulates,

among other things, employee welfare

benefit plans that, ‘through the

purchase of insurance or otherwise,'

provide medical, surgical, or hospital

care, Or benefits in the event of sick-

ness, accident, disability or death.

Section 3(1), 29 U.S.C. Section 1002(1).

"Congress capped off the massive under-

taking of ERISA with three provisions

relating to the pre-emptive effect of the

federal legislation:

""Except as provided in sub-

section (b) of this section

[the saving clause], the

provisions of this subchapter

and subchapter III of this

chapter shall supersede any

and all State laws insofar as

they may now or hereafter

relate to any employee benefit

plan..." Section 514(a), as

set-forth in 29 U.S.C. Section

1144(a) (pre-emption clause).

-60-

"" (T]he question whether a certain

state action is pre-empted by federal

law is one of congressional intent.

"'The purpose of Congress is the ulti-

mate touchstone.'"' Allis-Chalmers Corp.

v. Leuck, 471 U.S. 202, 208, 105 S.Ct.

1904, 1909, 85 L.Ed.2d 206 (1985),

quoting Malone v. White Motor Corp.,

435 U.S. 497, 504, 98 S.Ct. 1185, 1189,

55 L.Ed.2d 443 (1978), quoting Retail

Clerks v. Schermerhorn, 375 U.S. 96,

103, 84 S.ct. 291, 222, 11 L.Ed.2d 179

(i963). We have observed in the past

that the express pre-emption provisions

of ERISA are deliberately expansive,

and designed to ‘establish pension plan

regulation as exclusively a federal

concern.’ Alessi v. Raybestos-

Manhattan, Inc., 451 U.S. 504, 523,

101 S.Ct. 1895, 1906, 68 L.Ed.2d 402

(1981). As we explained in Shaw v.

Delta Air Lines, Inc., 463 U.S. 85,

98, 103 S.Ct. 2890, 2900, 77 L.Ed.24

490 (1983):

pt bad Et cats

eS fo rT

"'The pill that became ERISA

Originally contained a limited

pre-emption clause, applicable

only to state laws relating to

the specific subjects covered by

ERISA. The Conference Committee

rejected those provisions in

favor of the present language,

and indicated that section's pre-

emptive scope was as broad as its

language. See H.R.Conf.Rep. No.

93-1280, p. 383 (1974); S.Conf.Rep.

No. 93-1090, p. 383 (1974).‘"

eel a a

oh ORS eS

=a¢$1@-

(Emphasis supplied.)

In Kilberg and Inman's Preemption of

State Laws Relating to Employee Benefit

Plans:

An Analysis of ERISA Section 514,

Tex.L.Rev. 1313, 1315-16, the following

appears:

"Express preemption provisions such

as section 514 must be distinguished

from the implied preemption that arises

from the supersession inherent in

antithetical federal and state commands

on from the encroachment of state law

into a field occupied by comprehensive

federal regulation or interests. To

strike down a state law in an implied

preemption case, the court must find

either a specific conflict between

federal and state commands or a clash

between zones of sovereign interest.

The goal of an implicit preemption

analysis should be to accommodate the

federal interest with the least

possible displacement of state law.

The goals of an express pre-emption

analysis, in contrast, should be to

prevent subtle or incremental state

encroachment into a field that

Congress has chosen expressly to

reserve for federal law. Yet, courts

have mistakenly applied preemption

doctrines fashioned in implied pre-

emption cases to section 514 cases,

in which the issue is whether the

federal law -- by its express terms --

preempts the state law in question. Once

Congress has declared its express intent

to preempt or to save a state law, it has

lar ely obviated judicial inquiry into |

considerations other than those

concerning | the text of the pre-emption

provision." (Emphasis supplied.)

"{[A]ny and all State laws insofar as

they may now or hereafter relate to any

employee benefit plan, “Subject to certain

exceptions that will be discussed later, is

what Congress expressly preempted. 29

U.S.C. Section 1144(a). "The term ‘State

law'

includes all laws, decisions, rules,

regulations, or other State action having

the effect of law... .”" 29 U.S.C. Section

1144(c). Does this preempt a civil action

by Menton, who is a "participant" (29 U.S.C.

Section 1002(7)) and a “party in interest"

(29 U.S.C. Section 1002(14)) for an

intentional or reckless misrepresentation,

by HealthAmerica, which is a “party in

interest" (29 U.S.C. Section 1002(14)) as to

-63- .

the medical coverage benefits provided by a

particular employee benefit plan?

Medical coverage benefits are benefits

that “accumulate over a period of time and

are payable only upon the occurrence of a

contingency outside of the control of

[Menton];" therefore, they are "risks that

ERISA is intended to address, “Massachusetts

v. Morash, U.&. , 169 S.Ct. 1668

(1989). Likewise, the phrase "relate to"

has been given its broad common-sense

meaning, so that a state law relates to an

employee benefit plan "if it has a

connection with or reference to such a

plan." Shaw v. Delta Air Lines, Inc., 463

U.S. 85, 97, 103 S.Ct. 2890, 77 L.Ed.2d 490

(1983); Metropolitan Life Ins. Co. v.

Massachusetts, 471 U.S. 724, 105 S.Ct. 2380,

85 L.Ed.2d 728 (1985); Pilot Life Ins. Co.

v. Dedeaux, Supra. In this case, the

-64=

representation was made by a party in.

interest as to an employee benefit plan to a

party in interest as to that same employee

benefit plan concerning medical benefits

payable under that employee benefit plan.

Clearly, the representation related to the

employee benefit plan, as “related to" is

defined by the United States Supreme Court.

In Pilot Life Ins. Co. v. Dedeaux,

supra, Dedeaux's complaint contained three

counts: “'tortious breach of contract'";

""breach of fiduciary duties'"; and "'fraud

in the inducement.'" (Emphasis supplied.)

481 U.S. at 43, 107 S.Ct. at 1551. At the

closing of discovery, Pilot Life moved for

Summary judgment, arguing ERISA preemption.

The district court entered summary judgment;

the Court of Appeals for the Fifth Circuit

reversed; the United States Supreme Court

granted certiorari and reversed the Fifth

———— eee

-65-

Circuit and reinstated the summary judgment

for Pilot Life. In Belasco v. W.K.P.

Wilson & Sons, Inc., 833 F.2d 277 (llthCir.

1987), the Eleventh Circuit Court of Appeals

held that Alabama state law claims of bad

faith and fraud (which a review of the

amended complaint in Belasco shows to be

remarkably similar to the fraud alleged in

the case at issue) of a plaintiff, who was a

"participant" and a "party in interest" as

to an employee benefit plan against an

insurance company that was a "party in

interest" as to that employee benefit plan

related to the plan and were pre-empted.

The facts in Davidian v. Southern

California Meat Cutters Union & Food

Employee Benefits Fund, 859 F.2d 134

(9thCir. 1988), are similar to the facts in

the case at issue. Davidian, a

"participant" and "party in interest" as to

an employee benefit plan, alleged that he

was planning to retire and that the plan

gave him a choice of one of three benefit

programs. A "party in interest” as to the

plan described the third option as paying

“approximately 80%" of major medical

coverage, like plaintiff's prior coverage,

but did not inform the plaintiff that,

unlike his prior coverage, reimbursement for

major medical expenses under the third

option was capped at $20,000.00. The

plaintiff enrolled in the third option and

cubsequently underwent heart surgery. The

plan refused to pay plaintiff's medical

expenses in excess of $20,000.00. Davidian

filed suit against the plan for fraud and

deceit. The Ninth Circuit held that

Davidian's claims were preempted and

addressed Davidian's contention that claims

for future benefits, as distinguished from

aif P=

past benefits, are not preempted, as

follows:

"There is no reason for such a dis-

tinction based on the purpose of the

preemption provisions of the Act. The

potential for conflicting and in-

consistent state and local regulation

of employee benefit plans is as real

whether past or future benefits are

involved."

ee ee ee ee

859 F.2d at 135.

This Court held that the bad faith

refusal to pay insurance benefits under an

employee benefit plan by a party in interest

as to an employee benefit plan to a party in

interest as to that same employee benefit

plan did not relate to the plan and was not

preempted by ERISA. Hood v. Prudential Ins. .

Co. of America, 460 So.2d 1227 (Ala. 1984).

After the United States Supreme Court

decided Massachusetts Mutual Life Insurance

Co. v. Russell,, 473 U.S. 134, 105 S.Ct.

3085, 87 L.Ed.2d 96 (1985), and Pilot Life

Ins. Co. v. Dedeaux, supra, we reversed

-68-

ourselves and held that Hood's bad faith

claim was preempted. Hood v. Prudential

Ins. Co. Of America, 522 So.2d 265 (Ala.

1988). Having had our judicial flexibility

rendered rather rigid by our federalist

system, we have ruled in favor of ERISA

preemption of common law causes of action.

See, Landy v. Travelers Insurance Co., 530

So.2d 214 (Ala.1988); Hood v. Prudential

Ins. Co. of America, 522 So.2d 265

(Ala.1988); and Seafarers' Welfare Plan v.

Dixon, 512 So.2d 53 (Ala.1987).

Justice O'Connor in Pilot Life, supra,

wrote:

"The Solicitor General, for the

United States as amicus curiae,

argues that Congress clearly ex-

pressed an intent that the civil

enforcement provisions of ERISA

Section 502(a) be the exclusive

vehicle for actions by ERISA-plan

participants and beneficiaries

asserting improper processing of

a claim for benefits, and that

varying state causes of action for

claims within the scope of Section

-69-

502(a) would pose an obstacle to

the purposes and objectives of Con-

gress. Brief for United States as

Amicus Curiae 18-19. We agree.

The conclusion that Section 502(a)

was intended to be exclusive is

supported, first, by the language

and structure of the civil enforcement

provisions, and second, by legislative

history in which Congress declared that

the pre-emptive force of Section 502(a)

was modeled on the exclusive remedy

pro-vided by Section 301 of the Labor-

Management Relations Act (LMRA), 61

Stat. 156, 29 U.S.C. Section 185.

"The civil enforcement scheme of

Section 502(a) is one of the essential

tools for accomplishing the stated pur-

poses of ERISA. The civil enforce-

ment scheme is sandwiched between

two other ERISA provisions relevant

to enforcement of ERISA and to the

processing of a claim for benefits

under an employee benefit plan.

Section 501, 29 U.S.C. Section 1131,

authorizes criminal penalties for

violations of the reporting and

disclosure provisions of ERISA.

Section 503, 29 U.S.C. Section

1133, requires every employee benefit

plan to comply with Department of Labor

regulations on giving notice to any

participant or beneficiary whose claim

for benefits has been denied, and

affording a reasonable opportunity for

review of the decision denying the

claim."

481 U.S. at 52-53, 107 S.Ct. at 1555-1556.

~WGa

(Emphasis supplied.)

In view of this policy, I cannot see

how civil actions for bad faith in pro-

cessing claims for benefits under ERISA

plans are preempted and civil actions for

misrepresentations made by a "party in

interest" to a “party in interest/

participant" concerning the coverage under

ERISA plans are not, and, indeed, they have

been so preempted in most cases since Pilot

Life, supra. See, i.e., Pilot Life (fraud

in the inducement); Belasco (misrepresenta-

: tion of benefits payable under an ERISA

plan); Davidian (misrepresentation of

benefits payable under an ERISA plan). I

have studied all of the cases cited in the

majority opinion, in briefs, and at oral

argument by the parties, and I do not

believe that an analysis of each case would

be helpful to the bench or bar. Contrary to

oF ia

what the majority contends, I believe that

the weight of authority of cases decided

since Pilot Life, supra, supports my

conclusion.

Reluctantly, I would hold Menton's

claim to be related to the Press Register's

employee benefit plan and preempted by ERISA

on authority of Shaw v. Delta Air Lines,

Supra; Metropolitan Life Ins. Co. v.

Massachusetts, supra; Pilot Life Ins. Co. v.

Dedeaux, Supra; Belasco V. W.K.P. Wilson &

Sons, Inc., Supra; and Davidian v. Southern

California Meat Cutters Union & Food

Employees Benefits Fund, supra.

I am not persuaded that civil actions

for bad faith or fraud have anything to do

with regulation of employee benefit plans or

that the purpose for such actions is to

affect the terms and conditions of employee

benefit plans. However, I believe that this

-72-

as been decided otherwise by a higher court;

and I cannot justify holding that Menton's

cause of action does not "relate to" an em-

ployee benefit plan in order to save it from

pre-emption, when the causes of action

asserted in Pilot Life, supra, for tortious

breach of contract and fraud in the induce-

ment and the causes of action asserted in

Belasco, supra, for bad faith and fraud were

held to "relate to" employee benefit plans

and therefore to be preempted. To so hold

would be to make a distinction without a

difference.

Is Menton's cause of action exempted

from preemption under 29 U.S.C. Section

1144(b) (2) (A)? That statute reads:

"([NJothing in this subchapter shall be

construed to exempt or relieve any per-

son from any law of any State which

regulates insurance... ."

The trial court indicated that it was

not granting HealthAmerica's and Merle's

~~ ate

motions tor directed verdict, because the

HMO statutes and the Alabama "twisting"

statute were laws regulating insurance and,

under the evidence, could be the basis of

Menton's cause of action. Prior to the

final judgment, Menton's complaint did not

mention or purport to be brought under

either statute.

The HMO statutes did not become

effective until May 29, 1986, almost a year

after Mentoni's cause of action accrued. As

a general rule, statutes, except remedial

statues, will not be construed to have

retroactive effect unless the language of

the statute expressly indicates that the

Legislature so intended. Jones v. Casey,

445 So.2d 873 (Ala. 1983). There is no

expression of legislative intent that the

HMO statutes apply to causes of action that

accrued prior to the effective date of that

;

legislation. This Court defined remedial

Statutes in Street v. City of Anniston, 381

So.2d 26, 29 (Ala. 1980), as "those relating

to remedies or modes of procedure, which do

not create new rights or take away vested

ones." For Menton's cause of action to be

saved from preemption by the HMO statutes,

the statutes would have to regulate

insurance and give him a new private cause

of action. A statute creating a new right,

a new cause of action, is clearly sub-

Stantive in nature and would not be given

retroactive application in the absence of a

provision indicating a contrary legislative

intent. I need not address whether th2 HMO

Statutes create a private cause of action,

for if they do they will not be given

retroactive effect. Therefore, I need not

discuss whether the Alabama HMO statutes

"regulate insurance," for Menton's cause of

=75-

action for misrepresentation is not saved

from preemption by the HMO statutes.

The purpose of Chapter 12 ("Trade

Practices Law") is expressed in Section

27-12-1 (a):

"The purpose of this chapter is

to regulate trade practices in

the business of insurance in

accordance with the intent of

congress as expressed in the

Insurance Regulation Act by

defining, or providing for the

determination of, all such

practices in this state which

constitute unfair methods of

competition or unfair or decptive

acts or practices and by prohibiting

the trade practices so defined or

determined."

Section 27-12-6 ("Twisting") provides:

"No person shall make or issue, or

cause to be made or issued, any

written or oral statement misrepre-

senting or making misleading incom-

plete comparisons as to the terms,

conditions or benefits contained in

any policy for the purpose of in-

ducing, Or attempting or tending to

induce, the policyholder to lapse,

forfeit, surrender, retain, exchange

Or convert any insurance policy."

(Emphasis supplied).

~FE—

Section 27-1-2(3) defines "person" for the

purposes of Title 27 as follows:

"An individual, insurer, company,

association, organization, Lloyd's

insurer, society, reciprocal insurer

or interinsurance exchange, partner-

ship, syndicate, business trust, cor-

poration and every legal entity."

Section 27-1-2-(2) defines "insurer" for the

purposes of Title 27 as follows:

"Every person engaged as indemnitor,

Surety Or contractor in the business

of entering into contracts of

insurance."

In Pilot Life, supra, Dedeaux did not

contend that his cause of action for fraud

in the inducement was a law that regulated

insurance and was thus saved from pre-

emption, so this was not discussed by

Justice O'Connor in her opinion. Dedeaux

did contend that the cause of action for bad

faith did regulate insurance and was saved

from preemption by Section 514(b) (2) (A). In

regard to this, Justice O'Connor wrete that

-77- |

the Court first took “what guidance was

available from a ‘common-sense view' of the

language of the saving clause itself." 481

U.S. at 48, 107 S.Ct. 1553 ("any law of any

State which regulates insurance").

"Second," she wrote, "we made use of the

case law interpreting the phrase ‘business

of insurance’ under the McCarran-Ferguson

Act, 15 U.S.C. Section 1011 et seg., in

interpreting the saving clause"; and, she

noted that in doing so the Court used these

criteria:

""(Fjirst, whether the practice has

the effect of transferring or

spreading a policyholder's risk;

second, whether the practice is an

integral part of the policy

relationship between the insurer

and the insured; and third, whether

the practice is limited to entities

within the insurance industry."

481 U.S. at 49,, 107 S.Ct. at 1553.

In applying the “common sense view",

Justice O'Connor reasoned that the phrase ~-

=7Q<

"regulates insurance" does not support the

argument that the Mississippi law of bad

faith falls under the saving clause, since

the Mississippi Supreme Court, as early as

1915, had recognized that punitive damages

were available in a contract case when "'the

act or omission constituting the breach of

[any contract, not just an insurance]

contract amounts also to the commission of a

cort.””

"Certainly a common-sense under-

standing of the phrase ‘regulates

insurance' does not support the

argument that the Mississippi law

of bad faith falls under the saving

clause. A common-sense view of the

word ‘regulates’ would lead to the

conclusion that in order to regulate

insurance, a law must not just have an

impact on the insurance industry, but

be specifically directed toward that

industry. Even though th Mississippi

Supreme Court has identified its law

of bad faith with the insurance in-

dustry, the roots of this law are

firmly planted in the general

principles of Mississippi tort and

contract law."

481 U.S. at 50, 107 S.Ct. at 1554.

The Alabama "twisting" statute appears

to be directed toward the insurance

industry. However, since 1907, the Alabama

Legislature has provided a civil action for

'"('m]) isrepresentations of a material fact

made willfully to deceive, or recklessly

without knowledge." Section 6-5-101. The

Alabama Supreme Court, at lease since 1933,

has allowed punitive damages to be recovered

in such misrepresentation actions, when the

misrepresentations were made by the

defendant with the intent to defraud the

plaintiff. Cartwright v. Hughes, 226 Ala.

464, 147 So. 399 (1933). So the roots of

misrepresentation were firmly planted in the

general principles of Alabama tort law,

before the Legislature enacted the

"twisting" statute in 1971. Until the post-

final judgment amendment of his complaint,

Menton had pursued his civil action against

-80-

HealthAmerica and Merle under this firmly

planted general principle of Alabama tort

law.

In Pilot Life, supra, the United States

Supreme Court found that the factors set out

in the McCarran-Ferguson Act did not support

Dedeaux's assertion that the Mississippi law

of bad faith "regulates insurance," for (1)

it did not affect a spreading of policy-

holder risk; (2) "[t]he state common law of

bad faith is ... no more ‘'integral' to the

insurer-insured relationship than any

State's general contract law is integral to

a contract made in that State." 481 U.S. at

Sl, 107 S.Ct. at 1555; and (3)

"Mississippi's law of bad faith, even if

associated with the insurance industry, has

developed from general principles of tort

and contract law available in any

Mississippi breach of cantract

-§1<

case." 481 U.S. at 51, 107 S.Ct. at 1555.

The Court then held "the Mississippi common

law of bad faith at most meets one of the

three criteria used to identify the

‘business of insurance’ under the

McCarran-Ferguson Act, and used in

Metropolitan Life to identify law that

'regulat[e] insurance’ under the saving

clause."

I do not find that the "twisting"

Statute affected a spreading of the risks

among policyholders; or that the "twisting"

statute is more integral to the insurer-

insured relationship than Alabama's

misrepresentation statute, as developed from

general principles of tort law; or that the

statute in its definition of "person" and

"insurer" is limited to entities in the

-82-

insurance business.? Therefore, using

Justice O'Connor's criteria for deter-

* Alabama Code 1975, Section 27-12-24,

provides:

"No insurer shall, without just cause,

refuse to pay or settle claims arising

under coverages provided by its

policies in this state... ." (Emphasis

supplied.)

From the pleadings in Belasco v. W.K.P.

Wilson & Son, Inc., supra, we cannot

determine whether this Code section, which

is contained in Chapter 12 ("Trade Practices

Law") of Title 27 ("Insurance") was relied

on by Belasco as a law regulating insurance.

"Plaintiffs argue that the Alabama law

of bad faith, which forms the basis of

one of their claims, is a 'law ...

which regulates insurance,' 29 U.S.C.

Section 1144(b) (2) (A), and therefore

falls under the saving clause.

However, the Alabama law of bad faith

appears to us to have the same roots

"in the general principles of ... tort

and contract law' as was the case in

Dedeaux."

833 F.2d at 281

~3~

mining when a state law "regulates

insurance” and is therefore saved from ERISA

preemption, I would find that the “twisting”

statute does not save Menton's claim from

preemption. By this, I do not mean to imply

that Alabama's “twisting” statute affords a

3 I need

private cause of action to Menton.

not reach this issue.

A unanimous United States Supreme Court

in Pilot Life , supra, held that Dedeaux's

state law claims, including bad faith and

fraud in the inducement, were preempted,

even though Dedeaux elected not to assert

any of the remedies that would be available

under ERISA. Menton elected not to assert

any of the remedies that would be available

to him under ERISA, i.e., to clarify and

In Farlow v. Union Cent. Life Ins.

Co., 874 F.2d 791 (1lthCir.1989), the

Eleventh Circuit Court of Appeals held that

the Alabama twisting statute does not create

a private cause of action.

-84-

enforce his rights under the terms of the

plan as reprsented to him, and to obtain

equitable relief (reformation of the health

insurance contract to remove the time

limitation on physical therapy and

orthopedic appliances benefits), etc. 29

U.S.C. Section 1132(a). These benefits and

an award of attorney fees could have been

available to Menton under ERISA, whether he

sued in federal or in state court, if he had

prevailed on his ERISA claim. Pilot Life,

481 U.S. at 53, 107 S.Ct. at 1556.

Therefore, ERISA did not deny Menton a

remedy. At the conclusion of Pilot Life,

466i U.S. at 57, 107 S.Ct. at 1558, Justice

O'Connor wrote:

"Metropolitan Life [Ins. Co. v.

Massachusetts, supral, did not

involve a state law that con-

flicted with a substantive

provision of ERISA. Therefore

the Court's general observation

-- that state laws related to

ERISA may also fall under the

~§S~

saving clause --was not focused

on any particular relationship

or conflict between a substantive

provision of ERISA and a state law.

In particular, the Court had no

occasion to consider in Metropolitan

Life the question raised in the

present case: whether Congress

might clearly express, through

the structure and legislative

history of a particular substantive

provision of ERISA, an intention that

the federal remedy provided by that

provision displace statue causes of

ACtiION. cee

"Considering the common-sense

understanding of the saving clause,

The McCarran-Ferguson Act factors

defining the business of insurance,

and, most importantly, the clear

expression of congressional intent

that ERISA's civil enforcement scheme

be exclusive, we conclude that

Dedeaux's state law suit asserting

improper processing of a claim for

benefits under an ERISA-regulated

plan is not saved by Section

514(b) (2) (A), and therefore is pre-

empted by Section 514(a).”"

This action was filed while Hood v.

Prudential Ins. Co. of America, supra (Hood

I), was the law. Prior to final judgment in

this case, the United States Supreme Court

decided Pilot Life, supra, and we decided

-86-

Seafarers' Welfare Plan v. Dixon, supra.

However, it was after final judgment in this

case that this Court reversed Hood v.

Prudential Ins, Co. of America, supra (Hood

II) and decided Landy v. Travelers Insurance

Co., supra. Therefore, I would reverse the

judgment of the t:rial court; however, rather

than rendering judgment or remanding with

instructions that the trial court grant

HealthAmerica and Merle's motion for JNOV, I

would reverse and remand and afford Menton

the opportunity to amend to state a claim

under ERISA.

At the time this complaint was filed,

Menton had every reason to believe, every

reason to predict, that this state law cause

of action asserting misrepresentation of

coverage afforded by a health insurance plan

would not be preempted by ERISA. See Hood

I. During the course of this litigation in

-87-

the circuit court and during this appeal,

the rules were changed. This Court could

not and did not predict this. See Hood I.

I, aS a member of the Supreme Court of

Alabama, will not thwart an opportunity for

2 remedy for one whose right to a particular

remedy was foreclosed only by his astute

attorney's not being able to guess how

Justices would rule. It seems appropriate

and altogether just to invoke equitable

relief, which is afforded by 29 U.S.C.

Section 1132(a) (3), to one whose civil cause

of action was foreclosed by an expansion of

the ERISA preemption after that cause of

action had accrued and after & action to

enforce it had been filed. See Culberson v.

Bankers Life Co., 541 So.2d 480 (Ala.1989).

I would reverse and remand to permit

Menton to amend and proceed with a cause of

0D npg FP ae

=$9-

action under ERISA, 29 U.S.C, Section

1132(a). Therefore, I dissent.

Maddox, J., concurs.

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.