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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1982
- **Citation:** 459 U.S. 864

## Text

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tonne
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

Ve

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.
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APPENDIX A--Decision to be
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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......

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TABLE OF AUTHORITIES

Amos v. Blue Cross-Blue Shield,
of Alabama, 681 F. Supp.
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-19-

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,

s
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,"

a

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
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issues involving rights and obligations

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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

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the central policy goal of ERISA 1s to pro-

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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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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
D)

Ou

(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,

Ve

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.

—

rh

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
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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

ee

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

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Appellate Procedure; Eleventh Circuit Rule
35-5), the Suggestion(s) of Rehearing In

Banc are DENIED.

atm
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
Register employees three days before Jacob's
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
Register employees were repeatedly told that
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

i

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

j

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

Pu

~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

my

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

i
°
¥
;
:
}
3
Q
:

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

EE

-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."

a

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-

Ee

~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 --

62

4
.
7
E
q
*
5
!

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

i
s
4
4
2
ty
7
PJ
*
.
$

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

en

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).

ey

~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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0104%3A1. Public record. Not legal advice.