# Petition for Writ of Certiorari — HealthAmerica v. Menton > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0761%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1990 - **Citation:** 493 U.S. 1093 ## Text 89-989 | —_— ‘rT Supreme Court of the United States ; PETITION FOR WRIT O! EI SUPREME COURT 0! rune ALAN BLOOM JOHN SOUTH WORTE Maxicare Health Plans, Inc 5200 West Century Boulevard Los Angeles, California 90045 December 12, 1989 Wusce . Eras Peers Co lnc 788-0O86 Wasrime’ QUESTIONS PRESENTED (1) Whether the Employee Retirement Income Security Act (“ERISA”) preempts state common law fraud claims, including unlimited punitive dam.ages, whch arise out of the process of explaining plan options and cover- in ages to participants in an existing welfare benefit plan. (2) Whether Alabama’s “twisting statute” is a law which regulates the business of insurance under Section 514(b) of ERISA and is thus saved from preemption (3) Whether a punitive damages award must be propor- tionate to a Plaintiff’s actual damages and to the char- acter of a Defendant’s alleged misconduct to avoid viola- tion of a Defendant’s rights to substantive di under the Fourteenth Amendment. (4) Whether the Alabama standard governing whether punitive damages may be awarded for civil fraud violates the due process clause of the Fourteenth Amendment ue process (5) Whether the Alabama trial and appellate procedures allowing the jury ungoverned and unlimited discretion in awarding punitive damages for civil fraud vio.ates the due process clause of the Fourteenth Amenament ii PARTIES TO THE PROCEEDING Health America * and Pamela Merle Edward Menton * Menton sued “Health America” and Pamela Merle. Health- America and the Mobile Press Register, Inc. entered into a contract Group Application) whereby HealthAmerica agreed to provide certain health care services and benefits in accordance with the provisions of a Group Subscription Agreement and Schedule of Benefits. According to the Group Subscription Agreement, Health- America Alabama L. P., was the legal entity providing health care services and benefits. HealthAmerica Alabama L. P. was formed in December of 1983 to operate a health maintenance organization ir Alabama. Its ultimate general partner is HealthAmerica G. P.., Inc.. which is a wholly owned subsidiary of HealthAmerica Corpora- tion. Neither HealthAmerica G. P., Inc., nor HealthAmerica Cor- poration operate health maintenance organizations. In November of 1986, all of the outstanding stock of HealthAmerica Corporation was acquired by Maxicare Health Plans, Inc. In March of 1987, the name of HealthAmerica Alabama L. P., was changed to Maxicare Alabama, L. P. In August of 1987, Maxicare Southeast Health Plans. Inc.. acquired the assets and liabilities, but not the partner- ship interest of Maxicare Alabama L. P., and continued to conduct Alabama operations. The following are companies that may be deemed affiliates or subsidiaries of Maxicare Southeast Health Plans, Inc, or HealthAmerica Corporation: Account Management Services, Inc.; American Medical Plan, Inc.; Bressco, Inc.; Family Health Services, Inc.; Fhills Partnership; General Med Investors, Ltd: General Medica! Centers, Inc.; HCS Computer, Inc.; Health- America Frankford. Inc.; HealthAmerica G.P., Inc.; HealthAmerica Partners. L.P.: HealthAmerica Tennessee, Inc.; Healthcare Alterna- tives, Inc; Healthcare Assurance Company, Ltd.; Healthcare Con- sultants, Inc; Healthcare USA Inc.; Highland Medical General Partnership: Highland Medical Limited Partnership; Independence Health Plan, Inc.: Independence Health Plan of Southeastern Michi- gan. Inc.. Lomita-Torrance Building Joint Venture; Mauli-Ola, Inc. ; Maxicare: Maxicare Alabama, L.P.; Maxicare Arizona, Inc.; Maxi- Health Plans, Health Plans of Kentucky, Inc.; Maxicare Health Plans the Midwest, Inc . Maxicare Holdings, Inc.; Maxicare Kentucky, Inc.; nN 7 ’ = ' siana wa are yl ans. if Vi are \ S Max are N\ ur a : 5 are narmacies, i Ma re 7 > ’ . > > tional Pharmaceuticai Ser es RCP, In Tucson—Group Health Me s Out of an over-abundance t caut I ret ners ~ . Attorney General of Alabama with this pf . U.S.C. § 2403 (t even though th ure hallenging : stitutionality of any statute; ratne tne ir g b % of punitive damages based on a clair mn aw fraud TABLE OF CONTENTS Page QUESTIONS PRESENTED ............................................. i PARTIES TO THE PROCEEDING .......... te pe SF RS + fy 5 - eee vii GE IE en Oe a eas 1 JURISDICTIONAL STATEMENT ...... 1 CONSTITUTIONAL AND STATUTORY PROVI- SIONS INVOLVED ....................... 2 STATEMENT OF THE CASE ._.. 2 REASONS FOR GRANTING THE WRIT . 8 I. The Preemption Standard Adopted By The Ala- bama Court Was Rejected By Congress _ . II. The Decision Of The Alabama Court Is In Direct Conflict With The Decisions Of This Court And Other Federal Appellate Courts On The Scope Of Federal Preemption Under Sec- RRR 10 III. Congress Specifically Regulated Information Disclosure And Fiduciary Standards Applicable To The Administration Of Welfare Plans, And The Application Of State Remedies In This Area Would Interfere With ERISA’s Exclusive En- forcement Scheme... 13 A. Congress Specifically Regulated The Disclos- ure Of Information About Plan Benefits 13 B. Congress Specifically Imposed Fiduciary Standards And Remedies Governing The Conduct Of HealthAmerica As A Plan (v) vi TABLE OF CONTENTS—Continued Page C. The Award Of Punitive Damages Under Con- flicting And Inconsistent State Law Stand- ards Would Interfere With ERISA’s Civil Enforcement Scheme .........................--....--~.-- 17 IV. The Alabama Court Plainly Misconstrued And Misapplied The ERISA Insurance Savings Clause In Direct Conflict With The Decisions Of This Court And Other Federal Appellate COORD ..--.nncsscssnvcsieciceeiesakammpaaeniieeena nee 19 V. The Disproportionate Punitive Damages Award And The Alabama Standard Governing Puni- tive Damages Awards For Civil Fraud Violate The Due Process Clause Of The Fourteenth AMIR «iccncdintnieictanaitn de 24 VI. The Alabama Procedure Allowing The Jury Un- governed And Unlimited Discretion In Award- ing Punitive Damages For Civil Fraud Violates The Due Process Clause Of The Fourteenth PTOI recievers nvinichadinigeaniaaeneae 25 CONCLUSION vii TABLE OF AUTHORITIES - CASES Page Aetna Life Ins. Co. v. Lavoie, 470 So.2d 1060 (Ala. 1984), rev’d, 475 US. 818 (1986) .............. 26 American Federation of Unions Local 102 v. Equi- table Life Assurance Society, 841 F.2d 658 (5th REARS S SII A Ee 16 Amos v. Blue Cross-Blue Shield of Ala., 681 F. Supp. 1515, reversed, 868 F.2d 430 (11th Cir.), cert. denied, 110 S.Ct. 158 (1989) ...0000 0... 18, 21 Anschulz v. Connecticut General Life Ins. Co., 850 F.2d 1467 (11th Cir. 1988) .. 20 Badgett v. McDonald, 304 So. 2d 228 (Ala. Civ. ESS ING SEES eee 26 Bankers Life & Casualty v. Crenshaw, 486 U.S. 71 ae A a CS 26 Belasco v. W.K.P. Wilson & Sons, Inc., 833 F.2d ae a a 10, 11, 13 Berlin v. Michigan Bell Tel. Co., 858 F.2d 1154 (6th Cir. 1988) ............... 17 Browning-Ferris Industries v. - Kelco, Inc., 109 ee ree 24, 26 Butler v. Fringe Benefits Plan, Inc., 701 F. Supp. 804 (N.D. Ala. 1988)... Oe im 20 Coates v. City of Cincinnati, 402 U. S. 611 (1971). 25 Commercial Life Ins. Co. v. Juliano, 764 P.2d 1659 (Cal. 1988), cert. denied, 109 S.Ct. 2087 (1989) .. 23 Comprehensive Care Corp. v. Doughtry, 682 F. Supp. 616 (S.D. Fla. 1988) ...........00... 12 Connally v. General Construction Co., 269 ‘U. S. EEE EASE I ea 25 Davidian v. Southern Cali ‘fornia Meat Cutters Union & Food Employees Benefit Fund, 859 F.2d 134 (9th Cir. 1988) 0... ....10, 11, 12, 18 Davis v. Liberty Mutual Ins. Co., 871 F.2d 1134 (D.C. Cir. 1989) .. . 14,15 Davis v. Schnell, 81 F. “Supp. “872. (SD. “Ala.), aff'd per curiam, 836 U.S. 933 (1949) . 25 Dennette v. Life of Indiana Ins. Co., 693 F. - Supp. 959 (D. Colo. 1988) ... 0) ee 22 viii TABLE OF AUTHORITIES—Continued Page Edwards v. State Farm Mutual Auto Ins. Co., 851 if BB 8 ve & ) See aoneoear ee 14, 15 FMC Corp. v. Holliday, 885 F.2d 79 (8rd Cir. eR TR OE terest creer en EP REE 23 Farlow v. Union Central Life Ins. Co., 874 F.2d yi tt. Re S| eee 10, 11, 18, 19 Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 3 pee telh Sy Seca Ee Oe tan 9 Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1 (1988) .................... 9 Genter v. ACME Scale & Supply Co., 776 F.2d RE Re RR) Be eens 15 Giacco v. Pennsylvania, 382 U.S. 399 (1977)........ 24 Grayned v. City of Rockford, 408 U.S. 104 (1972).. 24 Group Life & Health Ins. Co. v. Royal Drug Co., Rik S&S BS... Se a ere eree 20, 21, 22 Hathorn v. Lovorn, 457 U.S. 255 (1982) —......0.-...... 25 Herman Hospital v. MEBA Medical & Benefits Plan, 845 F.2d 1286 (5th Cir. 1988) _............. 10 Johnson v. District Two Marine Engineering Bene- ficial Association, 857 F.2d 514 (9th Cir. 1988) .. 12 Juzwin v. Amtorg Trading Corp., 705 F. Supp. 1053, reh’g granted, 718 F. Supp. 1233 (D. N.J. OGD seieink. co ckenb tle 26 Kanne v. Connecticut General Life Ins. Co., 859 F.2d 96 (9th Cir. 1988), cert. denied, 109 S.Ct. SSS Tee oct ee eee 23 Keel v. Group Hospitalization Medical Services, Inc., 695 F. Supp. 223 (F.D. Va. 1988) ............... 22 Kochendorfer v. Rockdale Sash & Trim Co., Inc., 653 F. Supp. 612 (E.D. Ill. 1987) -....0002. 15 Local Union 2134, UMW of America v. Powhatan Fuel, Inc., 828 F.2d 710 (11th Cir. 1987) 0... 17 McKnight v. Southern Life & Health Ins. Co., 758 ye PB Fit, ts S| eee 15 Makar v. Health Care Corp. of the Mid-Atlantic, OTR FDS GD CA Ga ee ake es 17 Massachusetts Mutual Life Ins. Co. v. Russell, 478 U.S. 184 (1985) 2 a Nl a I ix TABLE OF AUTHORITIES—Continued Metropolitan Life Ins. Co. v. Massachusetts, 471 7 ERSTE af ED i ted OPE Moran v. Aetna Life Ins. Co., 872 F. 2d 296 (9th Ep NAAR ai RES EN ae NG Cee eae ol Perry v. P*I*E Nationwide, Inc., 872 F.2d 15 Tee TS NR eS Phillips v. Amoco Oil Co., 799 F.2d 1464 (11th Cir.), cert. denied, 481 U.S. 1016 (1987) ........... Pierre v. Connecticut Gen. Life Ins. Co., 866 F.2d 141 (5th Cir. 1989) .. Page 19, 21 14 12,13 10, 12 16 Pilot Life Ins. Co. v. Dedeauz, 481 US we (1987) passim Powell v. Chesapeake & Potomac Telephone Co. of Virginia, 780 F.2d 419 (4th Cir. 1985), cert. de- nied, 476 U.S. 1170 (1986) Reilly v. Blue Cross & Blue Shield of W isconsin, ff FP a Le Il ) rane Rodriguez v. Meba Pension Trust, 872 F.2d 69 (4th Cir.), cert. denied, 110 S.Ct. 202 (1989) Rollo v. Maxicare of Louisiana, Inc., 695 F. Supp. 245 (E.D. La. 1988) .. ‘ Toesincaaian Shaw v. Delta Air Lines, Ine. “463 U Ss. 85 (1983) Smart v. State Farm Ins. Co., 868 F.2d 929 (7th | a Straub v. Western Union Te legraph Co., 851 F.2d 1262 (10th Cir. 1988) aC Trawick v. Michaels of Oregon Co., No. 88-C-413-N (N.D. Ala. 1989) Tucker v. Employers Life Ins. Co., 689 F. Supp. 1073 (N.D. Ala. 1988) Whett v. Goodyear Tire & Rubber Co. 676 F. Supp. 1119 (N.D. Ala. 1987) .......... STATUTES ERISA § 2, 29 U.S.C. § 1001 (1982) ERISA § 3(21), 29 US.C. § 1002 (21A) ERISA § 101, 29 U.S.C. § 1021(a) (1982) ERISA § 102, 29 U.S.C. § 1022 (a) (1) (1982) ERISA § 104, 29 U.S.C. § 1024(b) (1) (1982) ERISA § 104, 29 U.S.C. § 1024(b) (2) (1982) ERISA § 104, 29 U.S.C. § 1024(b) (4) (1982) 20 14, of » 21 x TABLE OF AUTHORITIES—Continued Page ERISA § 404, 29 U.S.C. § 1104(a) oS ens 16 ERISA § 409, 29 U.S.C. § 1109 (a) , ———aae 18 ERISA § 501, 29 U.S.C. § 1131 (| 14 ERISA &§ 502, 29 U.S.C. § 1182 (a) (1982) _. 16 ERISA § 514(a), 29 U-S.C. § 1144(a) (1982) —-...- * ERISA, 29 U.S.C. § 1144 (b) (2) (B) ____- : 23 ERISA, 29 U.S.C. § 1144 (b) (5) (A) (1982) ------- 9 ERISA, 29 U.S.C. § 1144(b) (7) (Supp. V 1988) 9 15 U.S.C. § 1012 ........---------------- POT Re RE ee cere 20 Ala. Code, § 6-11-20 (Supp. 1989) .......-.-----------~ 25 Ala. Code, § 6-11-21 (Supp. 1989) —........-.-----------~ 25 Ala. Code, § 6-11-30 (Supp. 1989) setotahe 25 Ala. Code, § 27-12-6 (1975) ...-.-------------------- 19 CONSTITUTION U.S. Const., amend. XIV, § 1 .-..----------------- 24, 25 U.S. Const., art. VI, Cl. 2 .....-..-------------------- 10 CONGRESSIONAL MATERIALS H.R. Rep. No. 533, 93d Cong., lst Session (1973), reprinted in 1974 U.S. Code Cong. & Admin. Doerrres GOB a nner 8, 14, 17, 18 120 Cong. Rec. 29197 (1974) (remarks by Rep. 1 5 nnn eee ail 8 120 Cong. Rec. 29933 (1974) (remarks by Sen. Williams) —........ « ssseeniiinsdimaaiannientasaaitesttaetennetrnestet & 120 Cong. Rec. 29942 (1974) (remarks of Sen. pe en rea aaa ae 8 120 Cong. Rec. 29928, 99931-32 (1974) (remarks by Sen. Williams) rr 14 MISCELLANEOUS Gregory, The Scope of ERISA Preemption of State Law: A Study m Effective Federalism, 48 U. Pitt. L. Rev. 427 (1987) x Note, Defining the Contours of ERISA Preemp- tion of State Insurance_ Regulation: Making Employee Benefit Plan Regulation an Exclu- sively Federal Concern, 42 Vand. L. Rev. 607 (1989) ........ 8 IN THE Supreme Court of the United States OCTOBER TERM, 1989 HEALTHAMERICA and PAMELA MERLE. - Petitioners, EDWARD MENTON, _ Respondent. PETITION FOR WRIT OF CERTIORARI TO THE SUPREME COURT OF ALABAMA The Petitioners, HealthAmerica and Pamela Merle, re- spectfully pray that a writ of certiorari issue to review the judgment and opinion of the Supreme Court of Ala- bama entered in this proceeding on July 21, 1989. OPINIONS BELOW The opinion of the Supreme Court of Alabama is re- ported at 23 ABR 3436 (1989) (Ala. Bar Rep.), and appears in App. A, la-44a. The Circuit Court of Mobile County, Alabama, issued no opinion. JURISDICTIONAL STATEMENT The opinion and judgment of the Supreme Court of Ala- bama, affirming the $1,800,000.00 judgment against Peti- tioners, was entered on July 21, 1989. Petitioners filed a timely Application for Rehearing on August 4, 1989, which was denied on September 15, 1989 and no further opinion was issued. App. B, 45a-46a. This petition for 2 writ of certiorari is being filed within ninety (90) days from the denial of Petitioners’ Application for Rehearing in the Supreme Court of Alabama. The jurisdiction of this Court is invoked under 28 U.S.C. § 1257 (a). CONSTITUTIONAL PROVISIONS AND STATUTES INVOLVED This case involves sections 2, 101, 102, 104, 401, 404, 409. 502, and section 514 of the Employee Retirement In- come Security Act of 1974 (“ERISA”), as amended, 29 U.S.C. §§ 1001, 1021/a), 1022, 1024(b), 1101, 1104, 1109, 1132. and 1144(a) & (b); the McCarran-Ferguson Act, 15 U.S.C. § 1012 (1988); the Fourteenth Amendment of the United States Constitution; and Ala. Code, § 27-12-6 (1975). The relevant portions of these provisions are reproduced at App. D, 50a-63a. STATEMENT OF THE CASE < A. Materia! Facts —Prtor to 1985, Respondent’s employer, the Mobile Press Register, Inc. (“MPR”), established an employee welfare benefit plan. The MPR solicited proposals from different insurers as a routine matter each year for possible in- clusion in its welfare benefit plan, in order to provide “the best benefit package for our employees.” In the spring of 1985, the MPR entered into negotiations with two health maintenance organizations (Prime Health and Respondent HealthAmerica) for the purpose of possibly including these HMOs as alternatives to the traditional in- surance option within its benefit plan. On May 15, 1985, the MPR entered into a written contract with Health- America whereby HealthAmerica agreed to provide cer- tain health care benefits to eligible members of the MPR group and their dependents. It is undisputed that Respondent was a participant in the MPR’s welfare benefit plan prior to July 1, 1985, 3 under the traditional health insurance policy, was a par- ticipant in the MPR’s plan after July 1, 1985, and re- mains an employee and participant in the MPR’s plan. Under the traditional health insurance option in which Respondent was enrolled prior to July 1, 1985, Connecticut General paid 80% of the cost of physical therapy and medica] 2ppiiances, such as crutches, braces, and walkers. The Assistant General Manager at the MPR, David Parker, solicited information from insurers and Health- America, negotiated with HealthAmerica, and signed the May 15 agreement between HealthAmerica and the MPR. Parker sent a letter and a packet of information from his office to MPR employees, including Respondent. Parker's May 23, 1985 letter to MPR employees states, “Manage- ment will soon offer employees, as an alternative medica! benefit selection, the two health maintenance organizations (HMOs) in our area... .” Parker also prepared and distributed a two page “summary of benefits.” Although Respondent received this literature from the MPR, he could not determine whether physica! therapy, crutches, and braces would be covered under the new HMO options. Respondent was concerned about these benefits because his son suffered certain medica! problems which would require surgery followed by physical therapy. Re- spondent was interested in a program that would pay more than the 80% paid under the traditional] insurance option. Respondent went to see Parker with his question, and Parker suggested that Respondent should go to one of the scheduled informational meetings and ask the rep- resentatives of the two new plan options. Parker testi- fied that he avoided answering questions about coverage “I try and avoid putting myself in the position of answer- ing specific questions about coverage just to avoid an) liability on the company’s part as to making a representa- tion of coverage.” Respondent attended a June 17, 1985 meeting at the MPR during which Petitioner Pamela Merle (a Health- s America employee) explained the HealthAmerica option, a representative from Prime Health explained its option, and Parker explained the traditional Connecticut General insurance. At the end of the meeting, Respondent ap- proached the HMO representatives and informed them of his son’s need of surgery and subsequent rehabilitation. He said, “and I asked how they covered or would it be covered or something like that.” Respondent testified, “I was told it would be covered a hundred percent by Health- America.” The HealthAmerica schedule of benefits does cover physical therapy or rehabilitation at one hundred percent, but only for the first two months of treatment. There is no evidence that Ms. Merle was aware of the limitation on physical therapy or rehabilitation benefits when she answered Respondent’s question at the meeting. Immediately after the meeting, Parker, who was pres- ent when Respondent asked his question, told Respondent, “You're not going to lose anything if you go that way,” meaning HealthAmerica. On June 24, 1985, Respondent enrolled himself and his family under the HealthAmerica option, with an effective date of July 1, 1985. He testified that he did not receive a copy of the actual Schedule of Benefits under the HealthAmerica program until after he had enrolled. Although he received the Schedule before his son com- menced therapy on July 30, 1985, he was concerned be- cause the Schedule clearly indicated that physical therapy er rehabilitation services were covered for only two months from the beginning of such treatment. Respond- ent again consulted Parker and told him, “It looks like this particular coverage on rehabilitation is limited or excluded.” Parker suggested Respondent cal] Ms. Merle at HealthAmerica. Respondent called Ms. Merrie. He told Merle he had received the Schedule of Benefits and it indicated that 5 coverage was limited, and, “She said she wasn’t sure about that, she would check on it and call me back.” Merle called him back and confirmed that he was reading the schedule correctly. Respondent then went to Parker and got him involved with handling the problem. There were several telephone communications between Respond- ent, Parker, and HealthAmerica, attempting to resolve the situation, and Parker wrote a letter to HealthAmerica. By letter of November 11, 1985, HealthAmerica said it would extend rehabilitation benefits for an additional sixty days. Ultimately, HealthAmerica paid for Re spondent’s son’s physical therapy for only the first sixty days, through September 30, 1985, and did not extend benefits for the additional sixty days. Respondent's ac- tual or out-of-pocket damages equal $2,412.00. App. at 24a. The Group Subscription Agreement provides for the fil- ing of written proof of a claim for benefits and, if such a claim is denied by HealthAmerica, the Agreement also provides for a formal grievance procedure, which includes an appeal to HealthAmerica’s Board of Governors. While Respondent did attempt an informal resolution of his problem, it does not appear from the record that he ex- hausted these administrative procedures. Instead, Re- spondent filed a one count claim for common law fraud. The complaint was not predicated on any Alabama statu- tory provision. B. Presentation of Federa! Issues Over a month before trial, Petitioners filed a motion for summary judgment and motion to strike Respondent's jury demand, supported by a brief, pursuant to the Em- ployee Retirement Income Security Act of 1974 (ERISA). Petitioners’ motions were denied on January § and 11, 1988, respectively. The day before trial, Petitioners filed a supplemental memorandum of law in support of their ERISA motions. 6 At the close of the Plaintiff’s case, Petitioners moved for a directed verdict based upon ERISA preemption, inter alia. When the motion was argued, the trial court, ex mero motu, asserted that Alabama’s “twisting” stat- ute, Ala. Code § 27-12-6 (1975), and HMO statute, Ala. Code § 27-2la-1 (1975), might “save” Respondent’s fraud claim from ERISA preemption. Despite Petitioners’ ob- jections that they were not sued for violation of those statutes and that neither statute provides a private cause of action, the trial court denied the Petitioners’ motion and submitted the case to the jury on Respondent’s com- mon law fraud claim. The jury returned a verdict for Respondent in the amount of $1,800,000.00. Final judgment was entered on January 14, 1988. Respondent subsequently filed an Amended Complaint alleging a violation of Alabama's twisting statute. Petitioners filed a timely motion for JNOV or, in the alternative, for new trial or remittitur, which included challenges to the constitutionality of the punitive dam- ages award. The trial court entered a written order deny- ing Petitioners’ motions and holding that Petitioners’ fed- eral constitutional issues were timely raised: ‘T]he Court has considered Defendants’ claims that the imposition of punitive damages, both generally under Alabama law and specifically in the amount and as returned by the jury under the facts of this case, is unconstitutional under the Alabama as well as the United States Constitutions (particularly, the Due Process Clause of the 5th Amendment; the Due Process, Equal Protection, and Privileges and Im- munities Clauses of the 14th Amendment; Ex cessive Fines Clause of the 8th Amendment; tracts Clause and prohibition of Ex Post of Article I, Section 10, Clause 1) : 7 damages, both generally under Alabama law and spe- cifically in the amount as returned by the jury under the facts of this case, is constitutional under both the state and federal constitutions. App. at 48a. On appeal, a majority of the Alabama Supreme Court affirmed the judgment of the trial court, including the damages award. The majority adopted an alternative standard on the issue of ERISA preemption which finds no support in the decisions of this Court: A state law is not preempted unless it “purports” .o regulate, directly or indirectly, “the terms and conditions of a plan.” This alternative approach to ERISA preemption directly con- travenes the intent of Congress in enacting the broadest express preemption clause in federal law. The Alabama court reached its opinion notwithstanding that: (a) ERISA and its legislative history demonstrates that Con- gress intended federal standards to be the exclusive source of law governing ERISA plans; ‘b) the imposition of in- consistent state law remedies in the administration of ERISA plans impedes interstate commerce and deters em- ployers, insurers, and health care providers, from offering new benefits and options to participants; ‘c) Congress has specifically mandated the disclosure of information regarding plan benefits and coverages to participants and provided remedies for violation of said provisions and the allowance of state common law fraud actions interferes with this congressional plan and civil enforcement scheme; (d) the award of punitive damages under state fraud actions directly supplants the exclusive ERISA enforce- ment scheme and subject plans to ungovernable and in- consistent state standards. 8 REASONS FOR GRANTING THE WRIT Il. The Preemption Standard Adopted By The Alabama Court Was Rejected By Congress Prior to the enactment of ERISA, Congress was dis- satisfied with attempts at pension plan regulation which left many aspects subject to a conflicting system of state and federal regulation. H. R. Rep. No. 533, 93d Cong., Ist Session 2-5 (1973), reprinted in 1974 U.S. Code Corg. & Admin. News 4639, 4640-43 [hereinafter Report 533]. In enacting ERISA, Congress sought to protect interstate commerce and the interests of participants in employee benefit plans by creating a comprehensive federal regula- tory scheme which would require the disclosure and re- porting of information to participants, establish uniform standards of conduct and fiduciary obligations, and would provide certain specified remedies. ERISA Section 2, 29 U.S.C. § 1001 (1982). To insure that this framework would be preeminent, eliminating the threat of conflicting and inconsistent state regulation, Congress expressly pre- empted, with narrow exceptions, all state laws which “re- late to any employee benefit plan.” ERISA Section 514 (a), 29 U.S.C. § 1144(a) (1982). ERISA’s sponsors emphasized that the bill was intended to foreclose non-federal regulation of employee benefit plans and to eliminate the threat of conflicting and in- consistent state laws. 120 Cong. Rec. 29197 (1974) (re- marks of Rep. Dent) ; 120 Cong. Rec. 29933 (1974) (re- marks of Sen. Williams); 120 Cong. Rec. 29942 (1974) (remarks of Sen. Javits). As the Court recognized in Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98 (1983), the original House and Senate versions would have limited : For a genera! discussion of plan regulation prior to ERISA, see, Gregory, The Scope of ERISA Preemption of State Law: A Study in Effective Federalism, 48 U. Pitt. L. Rev. 427 (1987); and Note, Defining the Contours of ERISA Preemption of State Insurance Regulation: Making Employee Benefit Plan Regulation an Ezciu- sively Federal Concern, 42 Vand. L. Rev. 607 (1989). r cA oorr ’ ‘% ~~ > , ’ —T ’ ~ TY ’ te " — -—* _ — ese f anguasg om nt 2 enn, . ? : y | ~ ’ ¢ é g — , 6 + ye + . ¢ ; . ~\V e+ | . y nore , . ~ . 7 ~~ = 7 7 . =) . . ‘ - 4 re - “+ . Pul< , 1a . 7 ix m ’ @ » i , i _ + » YY y 4h 7 . Pe ine preemis I ~ yr ry ro. . La s ii t t ‘ ‘ $ : - Inter I \ gress . r = a > Ww ul i & Yel iit 2s PD,.> ee €.9g rut i Prepaid codified tic relations orders ‘odified at Health Care Act Pub. I at 29 U.S.C ~~ to , - ‘ ' ’ = 4 «© ’ : . ™ — ‘ + ‘ Y - + _ - - ‘ * ~ ° , _ ric ‘ — < r ‘ ? TY ’ “ . a4 10 Il. The Decision Of The Alabama Court Is In Direct Con- flict With The Decisions Of This Court And Other Federal Appellate Courts On The Scope Of Federal Preemption Under Section 514(a) The decision of the Alabama court has resulted in the anomalous situation that a state law fraud claim in an Alabama court is not preempted while the identical claim in a federal district court in Alabama is preempted. This intolerable violation of the supremacy clause, U.S. Const. Article VI, must be resolved. The decisions of this Court, the Fifth, Ninth, and Eleventh Circuits all hold that a claim such as Respondent’s is within the scope of Section 514\a) because it is concerned with and arises out of the administration of an ongoing ERISA benefit plan. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987); Farlow v. Union Central Life Ins. Co., 874 F.2d 791 (11th Cir. 1989}; Davidian v. Southern California Meat Cutters Union & Food Employees Benefit Fund, 859 F.2d 134 9th Cir. 1988); Herman Hospital v. MEBA Medical & Benefits Plan, 845 F.2d 1286 (5th Cir. 1988) ; Belasco v. W.K.P. Wilson & Sons, Inc., 833 F.2d 277 (11th Cir. 1987); Phillips v. Amoco Oil Co., 799 F.2d 1464 (11th Cir.), cert. denied, 481 U.S. 1016 (1987). In Shaw v. Delta Air Lines, Inc., the Court recognized that Congress used the words “relate to” in Section 514 a) in their broad sense and that the Courts must give effect to the intent of Congress and the plain language of the preemption clause. In Pilot Life Ins. Co. v. De- deaux, 481 U.S. 41, 43 (1987), the Plaintiff brought state law claims for “Tortious Breach of Contract,” “Breach of Fiduciary Duties,” and “Fraud in the Inducement” against the insurer providing benefits under the plan. After reviewing the legislative history of Section 514/a) and reaffirming that, “the express preemption provisions of ERISA are deliberately expansive, and designed to ‘establish pension plan regulation as exclusively a federal concern,’” id. at 46, the Court stated that all three of the Plaintiff's common law claims related to the benefit ~~ Sm ae 11 plan: “There is no dispute that the common law causes of action asserted in Dedeaux’s complaint ‘relate to’ an employee benefit plan and therefore fall under ERISA’s express pre-emption clause, § 514/a).” Jd. at 47. In Farlow v. Union Central Life Ins. Co., 874 F.2d 791 (11th Cir. 1989), the Eleventh Circuit held that Alabama state law claims of fraudulent misrepresentation and negligence arising out of representations made to induce the Plaintiffs to purchase a new or different health plan related to the ERISA plan and were preempted. In de- termining whether a cause of action “relates to” an em- ployee benefit plan, the Eleventh Circuit looked to whether the conduct giving rise to suek*claim was not “wholly remote in content” from the benefit plan. /d. at 794. In the present case, Respondent brought his fraud action when he failed to receive physical therapy and rehabilita- tion benefits beyond the sixty days specified in the Health- America schedule of benefits. Respondent’s claims are based on certain representations which were made to him during the process, established by his employer, of ex- plaining the coverages and benefits available under the three options within his employer’s welfare benefit plan. Clearly, Respondent’s claim would be preempted under the Farlow standard. Similarly, in Belasco v. W.K.P. Wilson & Sons, Inc., 833 F.2d-277 (11th Cir. 1987), the Plaintiffs claimed in their Amended Complaint that they were induced into pur- chasing certain coverage under an ERISA plan and, in reliance upon representations regarding coverage under that plan, into discontinuing their coverage under another existing policy of insurance. The Eleventh Circuit held that such Alabama fraud claims “relate to” the plan and are preempted. A certified copy of the Amended Com- plaint in Belasco was submitted to the Alabama Supreme Court following oral argument in this case. The decision of the Alabama court is also in direct con- flict with Davidian v. Southern California Meat Cutters 12 Union & Employees Benefit Fund, 859 F.2d 134 (9th Cir. 1988). In Davidian, the Plaintiff elected to switch or change options within his employer’s welfare benefit plan as a result of certain representations made to him concerning the merits of the various available options. The Ninth Circuit held that the Plaintiff's fraud and de- ceit claims “related to” the plan and were preempted.* In reaching its decision, the majority of the Alabama court relied on several] inapplicable federal district court decisions which involved suits against employers for wrongful breach of the employment contract, for repre- sentations which induced the Plaintiff to accept employ- ment, and for representations made by the employer dur- ing the ordinary course of business and not as part of the administration of a benefit plan. None of these cases can be properly applied to the facts of this case where the representation providing the basis for Respondent’s suit occurred during the process of explaining coverages and options under an existing welfare benefit plan. The majority opinion also relied on Perry v. P*]*E* Nationwide, Inc., 872 F.2d 157 (6th Cir. 1989). Perry is factually distinguishable from the present case as the isrepresentation in Perry arose out of the sale of the corporation which employed the Plaintiffs and concerned the continuation or termination of employment if the Plaintiffs did not take certain action concerning a stock investment plan. The representations of the employer 3’ Numerous other decisions recognize that a fraud or fraud in the inducement claim “relates to” the administration of the benefit plan and is preempted: Herman Hospital v. MEBA Medical & Bene- fits Plan: Johnson v. District Two Marine Engineering Beneficial Association. 857 F.2d 514 (9th Cir. 1988) ; Straub v. Western Union Telegraph Co., 851 F.2d 1262 (10th Cir. 1988) ; Reilly v. Blue Cross & Blue Shield of Wisconsin, 846 F.2d 416 (7th Cir. 1988) ; Phillips v. Amoco Oil Co., 799 F.2d 1464 (11th Cir. 1986); Tucker v. Em- ployers Life Ins. Co., 689 F. Supp. 1078 (N.D. Ala. 1988); Com- prehensive Care Corp. v. Doughtry, 682 F. Supp. 516 (S.D. Fla. 1988). 13 were made by the employer in its capacity as employer rather than by any entity providing benefits as part of an employee welfare benefit plan, and the misrepresenta- tion did not occur during either the employer’s or pro- vider’s conduct in administering a benefit plan. In the instant matter the representation occurred during the administration of an existing welfare benefit plan and the explanation of options available under that plan. This Court should accept this petition and take this opportunit) to insure that factually distinguishable cases are not used to narrow improperly the scope of ERISA preemption. To the extent that Perry could be applied to the facts of this case, it is in conflict with the weight of federal authority. It is abundantly clear from P lot Life, Farlow, Belasco, and Davidian that Congress did intend to pre- empt state laws regulating fraud or representations which occur during or arise out of the administration of an ERISA governed welfare benefit plan. The explanation of plan benefits and options within a plan is obviously part of the administration of the plan and, in fact, the disclosure of information to participants is specifically regulated by Congress. Thus, Respondent’s claims ‘“‘re- late to” the benefit plan and are preempted because they arise out of the administration of the plan and the con- duct giving rise to his claims is not “wholly remote in content” from the benefit plan. III. Congress Specifically Regulated Information Disclos- ure And Fiduciary Standards Applicable To The Ad- ministration Of Welfare Plans, And The Application Of State Remedies In This Area Would Interfere With ERISA’s Exclusive Enforcement Scheme A. Congress Specifically Regulated The Disclosure Of Information About Plan Benefits In the Court below, Respondent insinuated that he is left without a remedy if his state claim is preempted However, Congress provided for the disclosure of benefit 14 information to plan participants and provided remedies if these disclosure requirements are not met. One of the primary purposes of Congress in enacting ERISA was to insure that plan participants would receive accurate and full information about the benefits available under a plan. Rodriguez v. Meba Pension Trust, 872 F.2d 69, 74 (4th Cir.) cert. denied, 110 S.Ct. 202 (1989) ; Edwards v. State Farm Mutual Auto Ins. Co., 851 F.2d 134 (6th Cir. 1988); ERISA Section 2, 29 U.S.C. § 1001 (a) and (b); Report 533, at 7-11, 18-20, reprinted in 1974 U.S. Cong. & Adm. News 4645-50, 4656-58; 120 Cong. Rec. 29928, 29931-32 (1974) (remarks of Sen. Williams). Specifically, Congress provided that a suffi- ciently accurate and comprehensive summary plan de- scription should be furnished to all participants. ERISA Section 101, 29 U.S.C. § 1021(a) (1982); ERISA Section 102, 29 U.S.C. § 1022(a) (1) (1982); ERISA Section 104, 29 U.S.C. § 1024(b) (1982). Plan administrators are also required to make copies of the plan description avail- able for examination by any plan participant in the prin- cipal office of the administrator and, upon written re- quest of a participant, to furnish a copy of the latest up- dated summary plan description. ERISA Section 104, 29 U.S.C. § 1024(b) (2) & (4). Congress even provided crim- inal penalties for willful violation of the disclosure and reporting requirements of the act. ERISA Section 501, 29 U.S.C. § 1131 (1982). An ERISA plan “administrator” has a statutory duty of disclosure and reporting. Moran v. Aetna Life Ins. Co., 872 F.2d 296 (9th Cir. 1989); 29 U.S.C. § 1021 (a) (1982). Because neither the Group Subscription Agree- ment nor Schedule of Benefits designates HealthAmerica as the administrator, the MPR as the “plan sponsor” is the administrator. Moran v. Aetna; Davis v. Liberty Mutual Ins. Co., 871 F.2d 1134 (D.C. Cir. 1989). Mr. Parker, acting on behalf of the MPR, solicited and received information from the two new HMO op- 15 tions. Parker prepared a two page comparative summary of benefits available under the three options which he sent to MPR employees before the June 17, 1985 meeting and before the June 30, 1985 option election date. After receiving information from Parker, including the sum- mary, Respondent went to Parker with his question about coverage under the HealthAmerica option and, instead of either making a copy of the complete schedule of benefits available for Respondent to review in his office or obtain- ing a schedule for Respondent to review, Parker merely instructed him to attend the informational meetings being held at the MPR. The MPR may have failed to provide Respondent with a “sufficiently accurate and comprehensive” description of the HealthAmerica option within its welfare benefit plan as required under 29 U.S.C. §§ 1021(a), 1024/b) (1) (1982). The MPR may have failed to make a copy of the HealthAmerica option available for examination by plan participants prior to the option election date, which may be a violation of 29 U.S.C. § 1024(b) (2) (1982). Section 1024(b) (1) imposes a duty on the administrator to furnish a plan description, without requiring a writ- ten request, and the failure to supply such information _or the distribution of inaccurate or incomplete summary plan description provides the basis for an action under ERISA’s civil enforcement scheme. Davis v. Liberty Mutual; Rodriguez v. Meba Pension Trust. An inaccu- rate or incomplete summary plan description provided by the administrator, upon wh‘ch the participant relies. pro- vides the basis for an action for benefits under ERISA. Edwards v. State Farm; McKnight v. Southern Life & Health Ins. Co., 758 F.2d 1566 (11th Cir. 1985); Genter v. ACME Scale & Supply Co., 776 F.2d 1180 (3rd Cir. 1985) ; Kochendorfer v. Rockdale Sash & Trim Co., Inc., 653 F. Supp. 612 (E.D. Ill. 1987). Also, if Respondent made a written request to Parker for a complete schedule _of benefits and Parker failed to comply before the option election date, July 1, 1985, the MPR would have violated 16 29 U.S.C. § 1024(b) (4) (1982) for which there would be an additional action under ERISA’s enforcement scheme. In conclusion, Congress specifically regulated the dis- closure of information to plan participants so as to enable them to make informed choices regarding plans and op- tions therein, and Respondent may have an action under ERISA’s civil enforcement scheme for violation of these provisions. Since Congress has specifically regulated this aspect of the administration of welfare benefit plans and provided remedies for enforcement, the intrusion of state law and remedies into this area is beyond question pre- empted by Section 514(a). This case should have been remanded to the trial court for a determination of Re spondent’s rights under 29 U.S.C. § 1182(a) (1982). B. Congress Specifically Imposed Fiduciary Standards And Remedies Governing The Conduct Of Health- America As A Plan Fiduciary According to the documents governing the Health- America option within the MPR’s benefit plan, the Sched- ule of Benefits and Group Subscription Agreement, HealthAmerica had the responsibility for determining claims for benefits and coverage under the HealthAmerica option. Accordingity, HeaithAmerica is an ERISA fidu- ciary. Pierre v. Connecticut General Life Ins. Co., 866 F.2d 141 (5th Cir. 1989); Smart v. State Farm Ins. Co., 868 F.2d 929 (7th Cir. 1989); America Federation of Unions Local 102 v. Equitable Life Assurance Society, 841 F.2d 658 (5th Cir. 1988); ERISA Section 3(21), 29 U.S.C. § 1002/21) (A). “ERISA imposes a prudent man’s standard of care upon anyone acting as a fiduciary with respect to an employee benefit plan as defined in the Act.” American Federation of Unions Local 102, 841 F.2d at 662. Any fiduciary who violates 29 U.S.C. §1104(a)’s duty to act in the best interest of participants is subject to liability under 29 U.S.C. §1109(a). Jd. Pamela Merle 17 Was stil] in the process of being trained as a representa- tive for HealthAmerica and her answer of Respondent's specific coverage question, obviously given without know!- edge of the sixty day limit on rehabilitation benefits, may have constituted a breach of fiduciary duty under ERISA. Berlin v. Michigan Bell Tel. Co., 858 F.2d 1154, 1163 (6th Cir. 1988); Local Union 2134, UMW v. Powhatan Fuel, 828 F.2d 710 (11th Cir. 1987). Additionally, Respondent testified that Ron Scott, a manager at HealthAmerica, called Mr. Parker and told him to tell Respondent not to fill out the formal “griev- ance forms” sent to him by HealthAmerica because “we're going to take care of this.” If this conversation actually occurred and if Respondent failed to pursue his formal grievance or appeal procedures because of this, HealthAmerica could be liable for additional breach of fiduciary duties under ERISA’s enforcement scheme. Congress intended that the internal dispute resolution procedures required by the act should be followed, in part, because the exhaustion of such forma! procedures creates a fully developed factual record which assists courts in reviewing the actions of fiduciaries. Makar v. Health Care Corp. of the Mid-Atlantic, 872 F.2d 80 (4th Cir. 1989) (Plaintiff failed to exhaust the grievance and ap- peal procedures established by the health maintenance organization). C. The Award Of Punitive Damages Inder Conflicting And Inconsistent State Law Standards Would In- terfere With ERISA’s Civil Enforcement Scheme Congress provided uniform nationwide standards gov- . erning the duties and liabilities of plan sponsors, admin- istrators, and fiduciaries; and Congress enacted a care fully crafted civil enforcement scheme which was intended to be exclusive so as to insure a uniform nationwide source of law. Pilot Life Ins. Co. v. Dedeaur, 481 US. at 54-56. See also Report 533, supra at 12, 17, reprinted 18 in 1973 U.S. Code Cong. & Admin. News 4649, 4655. Congress recognized that benefit plans were increasingly interstate in nature and intended to promote the growth of benefit plans by providing a uniform set of standards and remedies. Id. The Alabama court’s imposition of conflicting and inconsistent state law remedies arising out of the process of explaining plan coverages, benefits, and options would discourage the growth and development of benefit plans contrary to the express intent of Con- gress. In Massachusettes Mutual Life Ins. Co. v. Russell, 473 U.S. 134 (1985), the Court held that ERISA Section 409, 99 U.S.C. §1109(a), providing an action for breach of fiduciary duty, does not allow the recovery of extra con- tractual or punitive damages by a participant or bene- ficiary. The Court stated that, “The six carefully inte- grated civil enforcement provisions . . - provide strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly.” 473 U.S. at 146. The majority of the circuits have held that plan participants cannot recover extracontractual or punitive damages for claims, whether designated as state law claims or ERISA claims, that “relate to” the benefit plan. Amos v. Blue Cross-Blue Shield of Alabama, 868 F.2d 430, 431 n.2 (11th Cir.), cert. denied, 110 S.Ct. 158 (1989). The imposition of state law remedies allowing the award of ungoverned and unlimited punitive dam- ages, such as Respondent’s Alabama claims, for conduct occurring during the administration of a benefit plan and the explanation of options and coverages within that forcement mechanism and would discourage plans from offering new options or benefits which might subject them to devastating punitive awards. Whether or not Respond- ent would prevail on his potential claims for breach of ERISA’s information disclosure and fiduciary responsi- bilities in this case, Congress intended that state law claims such as Respondent’s would be preempted. 19 IV. The Alabama Court Plainly Misconstrued and Mis- applied The ERISA Insurance Savings Clause In Direct Conflict With The Decisions Of This Court And Other Federal Appellate Courts The Alabama court failed to address the question of whether Alabama’s “twisting” statute, Ala. Code § 27- 12-6 (1975), provides for a private cause of action.* In- stead, having held that Respondent’s common law fraud claim is not preempted, the Court opined that “if some other court” decides that such a fraud claim is pre- empted, “then we would hold that a claim under § 27-16-6 ‘sic] could still be maintained under the savings clause of ERISA as a state law regulating the business of in- surance.” App. at 16a. The Court so held even though HealthAmerica, a health maintenance organization, was not engaged in the business of insurance and did not issue policies of insurance. Second, the twisting statute does not meet any of the three McCarran-Ferguson Act factors applied by this Court to determine whether a state law regulates the “business of insurance.” Third, the judicial creation of private remedies under trade practices acts would allow the different states to regulate the information disclosure and fiduciary standards spe- cifically regulated by Congress and reserved to the fed- eral government under ERISA. Simply put, to allow such remedies would devastate ERISA’s exclusive en- forcement scheme and the “savings clause” would con- sume the preemption clause. In Pilot Life, and Metropolitan Life Ins. Co. v. Mass- achusetts, 471 U.S. 724 (1985), the Court established a three tiered test to determine whether a state law is * This issue was extensively briefed and the Alabama court was well aware that the majority of courts nationwide recognize that a trade practices act does not support a private action unless ex- pressly provided therein. See Farlow v. Union Centrai Life Ins. Co., 874 F.2d 791 (11th Cir. 1989). Ce Sa ee ee ee eS a ee ee re * —_—— ae 20 “saved” from ERISA preemption under Section 514(b) (2): First, a Court must take whatever guidance is avail- able from a “common sense view” of the language of the savings clause itself; second, a Court must consider the case law interpreting the phrase “business of insurance” under the McCarran-Ferguson Act, 15 U.S.C. § 1012; third, and most significant, the Court must consider the relationship between the application of the specific state law and the role of the savings clause in ERISA as a whole. ‘“A common-sense view of the word ‘regulate’ would lead to the conclusion that, in order to regulate insurance, a law must not just have an impact on the business of in- surance, but be specifically directed toward that indus- try.” Pilot Life, 41 U.S. at 50. As the Court noted in Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 230, n. 38, “[m]Jany aspects of insurance companies are regulated by state law, but are not the ‘business of insurance.’ Alabama’s twisting provision, whether ap- plied to an insurance company or, as in the instant case, an entity not engaged in the business of insurance, does not “regulate” the “business of insurance” as that phrase is used in the narrowing context of McCarran-Ferguson or ERISA. The first McCarran-Ferguson factor, “the spreading and underwriting of a policyholder’s risk,” in the one in- dispensable characteristic of insurance. Royal Drug Co., 440 U.S. at 211-12. See also Anschulz v. Connecticut Gen- eral Life Ins. Co., 850 F.2d 1467 (11th Cir. 1988) ; Powell v. Chesapeake & Potomac Telephone Co. of Virginia, 780 F.2d 419 (4th Cir. 1985), cert. denied, 476 U.S. 1170 (1986). Even District Judge Acker in Butler v. Fringe Benefits Plan, Inc., 701 F. Supp. 804 (N.D. Ala. 1988), a case relied on by the majority of the Alabama court, recognized that Alabama’s twisting statute does not 21 spread or transfer policyholder risks.* Alabama’s twisting Statute does not regulate how insurers assign or transfer risks, establish reserves, or otherwise underwrite risks To the contrary, the twisting provision is simply con- cerned with prohibiting certain practices in the solicita- tion of insurance policies and nothing more. With regard to the second McCarran-Ferguson factor. this Court has observed that the core of the business of in- surance is the “relationship between the insurer and the insured, the type of policy which could be issued, its re- liability, interpretation, and enforcement.” Royal Drug Co., 440 U.S. at 215-16. See also Pilot Life, 481 U.S. at 51. Unlike the mandated benefits law “saved” in Metro- politan Life Ins. Co. v. Massachusetts, 471 U.S. 72 (1985), the twisting statute does not regulate the terms provisions, or benefits available under a policy of insur- ance—those things integral to the insurer-insured rela- tionship. Rather, according to the opinion of the Alabama court, the twisting statute somehow allows the imposition of a private remedy for certain prohibited practices. In Powell v. Chesapeake & Potomac Telephone Co. of Virginia, the Fourth Circuit found that the Plaintiff's state law claims, including a claim under Virginia’s Un- fair Trade Practices Act, were not saved from preemption as they did not bear upon the “busines of insurance.” ' 5 The Alabama court chose to rely on Judge Acker’s opinion i: the Butler case even though the Court was aware that Judge Acker has a record of being reversed on ERISA matters: Amos v. Blue Cross-Blue Shield of Ala., 681 F. Supp. 1515, reversed, 868 F.2d 43) (11th Cir. 1989); Whett v. Goodyear Tire & Rubber Co., 676 F Supp. 1119, 1132 (N.D. Ala. 1987) (Judge Acker was forced to reverse himself in face of overwhelming precedent). * Plaintiff's claims included an alleged violation of Section 28 1- 52.1 of the Virginia Unfair Trade Practices Act, which provides as follows: “No person shall make, issue, circulate... any estimate illustration, circular, statement, sales presentation, omission. or comparison which (1) Misrepresent the benefits, advantages, condi- tions, or terms of any insurance policy.” 780 F.2d at 422 n.4. 22 Similarly, in Dennette v. Life of Indiana Ins. Co., 693 F. Supp. 959 (D. Colo. 1988), the Court held that claims under Colorado’s code, including a claim under a statute which prohibited “[mJisrepresenting pertinent facts or insurance policy provisions relating to coverages at issue” were not saved from ERISA preemption because such state laws did not effect the transferring or spreading of policyholder risk and were not integral to the insurer- insured relationship because they did not seek to regulate the substantive terms of the insurance contract itself. See also Keel v. Group Hospitalization Medical Services, Inc., 695 F. Supp. 223 (E.D. Va. 1988); Rollo v. Maxicare of Louisiana, Inc., 695 F. Supp. 245 (E.D. La. 1988). The twisting statute, as applied in this case, also fails to meet the third McCarran-Ferguson criteria. Although the Alabama Trade Practices Law is generally directed to the insurance industry, the twisting provision is not so restricted as it applies to any “person.” The evidence was undisputed that HealthAmerica is a health mainte- nance organization and not an insurance company and did not issue any policy of insurance to Respondent or to the welfare benefit plan. There is authority that health main- tenance organizations and other alternative health care providing arrangements are not generally considered en- gaged in the business of insurance for purposes of the McCarran-Ferguson Act. Royal Drug Co., 440 U.S. at 225-26. The Alabama court impliedly held that Health- America was engaged in the busines of insurance and subject to state insurance regulations even though it did not discuss this question or cite any authority for the proposition that HMOs are subject to such regulation. Further, Alabama’s twisting statute would not be saved even if HealthAmerica was an insurance company en- gaged in the busines of insurance because the statute fails to satisfy the other two McCarran-Ferguson factors. Additionally, a claim for punitive damages against an ERISA administrator or fiduciary based upon violation of 23 a state insurance trade practices act provision, even if the state law otherwise satisfied the above criteria. would be preempted because of its disruption of ERISA’s ex- clusive civj] enforcement scheme. Kanne vy. Connecticut General Life Ins. Co., 859 F.2d 96 (9th Cir. 1988). cert denied, 109 S.Ct. 3216 (1989) - Commercial Life Ins. Co. v. Juliano, 764 P.2d 1059 (Cal. 1988), cert. denied, 109 S.Ct. 2087 (1989). As shown above, the disclosure of information to plan participants concerning plan coverages and options is spe- cifically governed under ERISA, as js the standard of conduct which governs ERISA fiduciaries in their deal- ings with plan participants, and Respondent may have a claim under ERISA’: enforcement scheme for Violation of these areas Specifically regulated by Congress. Accord- ingly, it appears that the ERISA “deemer clause,” 29 U.S.C. § 1144(b) (2) (B), may also be implicated as “the deemer clause guards against any insurance regulation that infringes on such ERISA areas as reporting, dis- closure, and non-forfeitability.” FMC Corp. v. Holliday, 885 F.2d 79. gg (3rd Cir. 1989). To the extent that Alabama’s twisting statute purports to treat Health- America as an insurance Company and purports to regu- late HealthAmerica’s conduct in the explanation of cov- erages and administration of benefits under the MPR welfare benefit plan, the deemer clause may require the preemption of Alabama’s twisting provision even jf said Provision was otherwise Saved from ERISA preemption as a law regulating the business of insurance. As the dissent in this Case indicated, Respondents’ claim should be remanded to the trial court for determination of the unlikely event that Respondent's situation is not gov- erned by ERISA’s information and fiduciary standards or enforcement scheme, it is within the power of Congress to broaden the information requirements or expand the enforcement scheme. Additionally, the federal courts have 24 a duty to develop the federal common law of ERISA to fulfill the purposes of the Act. However, regardless of whether Respondent will prevail in an ERISA action against Petitioners, Congress has expressly preempted his state law claims; and the conflict in the application of federal law, created by the Alabama court, must be re- solved. V. The Disproportionate Punitive Damages Award And The Alabama Standard Governing Punitive Damages Awards For Civil Fraud Violate The Due Process Clause Of The Fourteenth Amendment The punitive damages award represents 745 times the amount of Plaintiff's actual damages and was made based upon a punitive damages standard which is incom- prehensibly vague and unintelligible.’ The verdict is so grossly disproportionate to the character of Petitioners’ alleged misconduct as to be constitutionally excessive and to violate Petitioners’ rights to substantive due process. See Browning-Ferris Industries v. Kelco, Inc., 109 S.Ct. 2909 (1989). Further, Petitioners were given no warn- ing that their conduct would be subject to such penalties, and the absence of a meaningful standard resulted in the deprivation of Petitioners’ “property” rights without due process of law. Fundamental to the concept of due process is an ele ment of fair warning and notice of what conduct will give rise to punishment so that a person of ordinary in- telligence would have a reasonable opportunity to under- stand what conduct is prohibited. See Grayned v. City of Rockford, 408 U.S. 104, 108-109 (1972); Giacco v. Pennsylvania, 382 U.S. 399, 402-403 (1977).* The Ala- ™The meaningless standard customarily applied in Alabama is stated in the opinion, App. A, 22a-24a: “so recklessly done as to amount to the same thing” as intentional] fraud. ® Although Defendants’ constitutional issues were first raised post-trial, the trial judge carefully considered them and specifically 25 bama standard allowing the imposition of punitive dam- ages for fraud does not provide a rational or intelligible standard for the jury to use in determining whether to award punitive damages and fails to provide potential! Defendants with an adequate notice of what conduct will subject them to punitive sanctions. A law is unconstitutionally vague “when men of com- mon intelligence must necessarily guess as to its meaning and differ as to its application.”” Connally v. General Construction Co., 269 U.S. 385, 391 (1926); Coates City of Cincinnati, 402 U.S. 611 (1971); Davis Schnell, 81 F. Supp. 872 (S.D. Ala.), aff'd per curiam, 836 U.S. 933 (1949). Anyone of “common intelligence”’ would have to “guess’”’ as to the meaning of the standard used in Alabama, as the jury did in this case. As a result of such a “standard,” juries are given an unre- strained license to impose their own persona! biases and prejudices against unpopular Defendants. VI. The Alabama Procedure Allowing The Jury Ungov- erned And Unlimited Discretion In Awarding Punitive Damages For Civil Fraud Violates The Due Process Clause Of The Fourteenth Amendment The jury had unlimited discretion in determining the c amount of punitive damages awarded to Menton.'® One held that they were “timely” raised. App., at 48a. Further. there is ample precedent to support the power of this Court t nsider these issues. Hathorn v. Lovorn, 457 U.S. 255, 262-65 (1982 * Plaintiff’s counsel repeatedly referred to Defendant Health America as an “insurance company” at trial even though Health- America is a health maintenance organization 10 In 1987, the Alabama legislature enacted “tort reform” statutes which capped punitive damage awards at $250,000.00, with excep- tions, and imposed a “clear and convincing evidence” standard for the award of punitive damages. Ala. Code Ann. §§ 6-11-20; 6-11-21 (Supp. 1989). However, these statutes do not apply to the case at bar. Ala. Code Ann. § 6-11-30 (Supp. 1989). Further, the statute capping punitive damage awards is currently under attack in at 26 court has held that due process places a limit on punitive damage awards in some contexts. See Juzwin v. Amtorg Trading Corp., 705 F. Supp. 1054, 1064, reh’g granted, 718 F. Supp. 1233 (D.N.J. 1989). Further, Petitioners submit that the Alabama punitive damages scheme chills their “fundamental right of access to the courts by au- thorizing unlimited punitive damages,” and members of this Court have noted the amount of jury discretion in awarding punitive damages “may violate the Due Process Clause.” See Bankers Life & Casualty v. Crenshaw, 486 U.S. 71, 108 S.Ct. 1645, 1655 (1988) (O’Connor. J.. dis- senting); see also Browning-Ferris Industries v. Kelco. Inc., 109 S.Ct. 2909 (1989) As a matter of common law in Alabama, punitive dam- ages are intended to punish a civil defendant and deter future similar conduct. See Aetna Life Ins. Co. v. Lavoie, 470 So.2d 1060 (Ala. 1984), rev’d., 475 U.S. 813 (1986) - Badgett v. McDonald, 304 So.2d 228 (Ala. Civ. App. 1974). However, under Alabama’s scheme Petitioners were not provided any semblance of the procedural] and substantive safeguards afforded criminal defendants be- fore they can be punished: The jury was not given mean- ingful guidelines to apply in determining the award of punitive damages; there was no limit on the amount which could be awarded; there was no requirement that the punitive award bear any particular relationship to the amount of actual damages; there was no increased burden of proof required for the imposition of such pun- ishment; and there was no meaningful appellate review of the jury’s excessive award. Such a scheme violates the Due Process Clause of the Fourteenth Amendment. least one court in Alabama. Trawick v. Michaels of Oregon Co., No. 88-C-413-N (N.D. Ala. 1989). If that statute is struck down. then the unbridled and standardless scheme approved in Menton will again apply in Alabama. 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Maxicare Health Plans, In Suite 5200 West Century Boulevard Los Angeles, Califor Los Angeles, California 90045 213) 557-2008 December 12, 1989 4 ttorneys APPENDICES APPENDIX TABLE OF CONTENTS APPENDIX A July 21, 1989 Opinion of Supreme Court of Ala- 0 et APPENDIX B September 15, 1989 Order of Supreme Court of Alabama denying Application for Rehearing APPENDIX C June 13, 1988 Order of Trial Court denying De fendant’s post-trial motions...» - APPENDIX D Federal Statutory and Constitutional Provisions: 29 U.S.C. § 1001 (1982) (Congressional findings & declaration of policy) .-............................... 29 U.S.C. §1021(a) (Duty of disclosure and re- porting)... SE 29 U.S.C. § 1022 (Plan description and summary plan Aencciation).. 29 U.S.C. § 1024 (b) “(1982 & ‘Supp. Vv 1988) ( Fil- ing and iucbiihing of information—Publication of summary plan description and annual report to participants and beneficiaries of plan) ___..... 29 U.S.C.§1101(a) (Fiduciary responsibility— Coverage) _ 29 U.S.C. § 1104(a) (1) ‘(Fiduciary duties). 29 U.S.C. § 1109 (Liability for breach of fiduciary sc crcreeccdevgueeneooeeoces- oo 29 U.S.C. § 1131 (Criminal penalties) 29 U.S.C. §1132(a) (1982) and (c) (Civil en- forcement) (Supp. V 1988) ...... 29 U.S.C. § 1144(a) and (b) (2) (A) and (b) (2) (B) (Other laws) and (b)(5)(A) (1982) and (b) (7) (Supp. V 1988) . 15 U.S.C. § 1012... U.S. Constitution, Amendment XIV, § 1. U.S. Constitution, Article VI, Cl. 2.0.0.0. APPENDIX E State Statutes : SS 47a la APPENDIX A THE STATE OF ALABAMA JUDICIAL DEPARTMENT THE SUPREME COURT OF ALABAMA SPECIAL TERM, 1989 87-1100 HEALTHAMERICA and PAMELA MERLE v. EDWARD MENTON 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 provided 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, Health- America, without suffering an interruption of benefits. 2a Menton had a son, Jacob, whose premature birth neces- sitated 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. Health- America’s list of physicians included both of the physi- cians who had been treating Jacob’s legs; Prime Health’s did not. Menton read the promotional literature regard- ing HealthAmerica’s coverage but could not determine from that whether HealthAmerica would provide cover- age for Jacob’s physical therapy and orthopedic appli- ances. At the suggestion of the assistant general manager of the Press Register, who had initially reviewed the cover- age provided by HealthAmerica and had helped Health- America distribute information about its plan to the Press Register employees, Menton attended an informa- tional meeting of Press Register employees three days before Jacob’s second surgery. This meeting was pre- sided over by defendant/appellant Pamela Merle, who had worked for HealthAmerica for approximately 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 health maintenance 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 ex- penses. He explained Jacob’s medical history, his im- 3a pending operation, and his need for extensive physical therapy and orthopedic appliances after his second sur- gery. 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 representations, Menton dropped his health insurance and enrolled in the Health- America plan. After Menton enrolled in the Health- America 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. Menton 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. HealthAmerica 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 HealthAmerica and its agent, Merle, in which he alleged a state common law action for fraud, asserting misrepresentations of a mate- rial fact made willfully to deceive, or recklessly without knowledge, that 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 and pre- emption by the Employee Retirement Income Security Act of 1974 (“ERISA”), 88 Stat. 829 as amended, 29 U.S.C. § 1001 et-seg. Menton did not file a claim under ERISA. Predicated on the ERISA preemption, the de- fendants moved for a directed verdict at the close of Menton’s case and at the close of all the evidence. The trial court observed that the Alabama Health Main- tenance Organizations Statutes (“HMO Statutes’), Code 4a 1975, §§27-21A-1 to 27-21A-32, and the Alabama “twisting” statute, Code 1975, § 27-12-6, might be saved by §514\b) of ERISA if Menton’s claim were subject to ERISA preemption; overruled the defendants’ motions for a directed verdict: and submitted the case to the jury with instructions on Alabama civil actions for misrepre- sentation, without reference to the HMO statutes or the twisting statute. The jury returned a verdict in favor of Menton. After final judgment was entered, Menton filed a motion to amend his complaint to conform to the evi- dence, alleging a violation of § 27-12-6, the “twisting” statute. The defendants’ objection to this 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 alleges that he relied on misrepre sentations made by the defendants in dropping his old hospital insurance and electing coverage under the de fendants’ 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 on Ein- stein, 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 represented 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 160 (quot- ing Chandelor v. Lopus). To this Justice Stone wrote, “We submit, if this language does not sanction looser ne ae ee ip ee ee 5a 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, s 6-5-100), for misrepresentations of material fact (now $ 6-5-101), for suppression of material facts (now § 6-5- 102), and for deceit (now § 6-5-103). With ERISA, Congress imposed comprehensive federal oversight of employee benefit plans of employers engaged in interstate commerce. Under ERISA Section 502(a), as set forth in 29 U.S.C. § 1132(a) (1) (B), a civil action may be brought by a participant or beneficiary “to re- cover 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 preempted from brigning actions under state laws when they “relate to” any employee benefit plan. ERISA’s preemption provision states: “Except as provided in subsection (b) of this sec- tion [the saving clause], the provisions of this sub- chapter 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. § 1144 (a). The defendants argue that Menton is preempted under this ERISA preemption provision from filing a state com- mon 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 em- ployee of the Press Register, and the Press Register had 6a an employee benefit plan prior to and after Menton ¢n- rolled in the HealthAmerica plan. Therefore, we must determine whether his claim is preempted by ERISA. The defendants rely upon Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S. Ct. 1549, 95 L. Ed. 2d 39 (1987), wherein the Supreme Court ruled that a state lawsuit asserting improper processing of a claim for benefits under an ERISA-regulated plan was preempted by federal law. In Pilot Life the Supreme Court held that the phrase “relate to” is to be given its “*broad common-sense meaning, such that at 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 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]ome 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, the Court cited with approval Ameri- can Telephone & Telegraph Co. v. Merry, 592 F.2d 118 (2d Cir. 1979), in which the Second Circuit Court of Appeals held that ERISA did not preempt a state’s gar- nishment of a spouse’s benefit plan income to enforce alimony and support orders. In accord, see, Savings & Profit Sharing Fund of Sears Employees v. Gago, 717 F.2d 1038 (7th Cir. 1983); Howard v. Parisian, Inc. 807 F. 2d 1560 (11th Cir. 1987); Sommers Drug Stores Co. 7a Employee Profit Sharing Trust v. Corrigan Enterprises, Inc., 793 F. 2d 1456 (5th Cir. 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 preempted 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 En- tex, Inc. Entex sponsored a long-term disability plan that qualified as an 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 is- sued by Pilot Life Insurance Company. Following Dedeaux’s accident, Pilot Life provided bene- fits to him for two years. His benefits under the plan were first interrupted, then terminated altogether. When they were discontinued, Dedeaux sued Pilot Life. Al- though the complaint in Pilot Life contained a count for “fraud in the inducement,” the opinion makes it unmis- takably clear that the only claims he pursued were claims seeking damages for improperly processing his claims for benefits under an ERISA-regulated plan. Justice O’Con- nor, writing for the Supreme Court, stated as follows: “Although Dedeaux’s complaint pled several state common law causes of action, before this Court De- deaux has described only one of the three counts— called ‘tortious breach of contract’ in the complaint, and ‘the Mississippi law of bad faith’ in respondent’s brief—as protected from the pre-emptive effect of § 514(a). The Mississippi law of bad faith, Dedeaux 8a argues, is a law ‘which regulates insurance,’ and thus is saved from pre-emption by § 514(b) (2) (A).” Pilot Life Ins. Co. v. Dedeaux, 481 U.S. at 48, 107 S.Ct. 1549, 1553, 95 L.Ed.2d 39, at 48 (footnote omitted). Having considered this single count, the Court held: “lWJe conclude that Dedeaux’s state law suit assert- ing improper processing of a claim for benefits under an ERISA-regulated plan is not saved by § 514(b) (2) (A), and therefore is pre-empted by § 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 that Metro- politan Life had created in the lower federal courts. Following Metropolitan Life, several lower courts heid that insurance companies serving as claims review fidu- ciaries to fully insured employee benefit plans were sub- ject to the full measure of state remedies, while fidu- ciaries 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 process- ing 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 misrepresenta- tions made by the defendants to him prior to his becom- ing a member of the HealthAmerica plan. This is the clear distinction between this case and Pilot Life. The Supreme Court has not drawn a hard, clear line as to which state law is preempted by §514/a). This is demonstrated 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 requir- ing employers to make a one-time severance payment to employees when a plant closed was not preempted Sa by ERISA. The Court noted that the preemption clause expressly states that state laws are superseded to the extent that they “relate to any employee benefit plar The Court stated that the preemption provision “does no refer to state laws relating to ‘employee benefits.’ bu: State laws relating to ‘employee benefits plans.” Ju at 7. (Emphasis in original.) The Court observed tha: ERISA uses the words “benefit” and “plan” separate!’ 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.” /d. at 8 107 S. Ch. a 2216, 96 L.Ed.2d at 9 (1987 The distinction made by the Court in Ft. Halifa: tween laws that relate to employee benefits plans anc laws that relate simply to employee benefits, is analogous to the instant case and demonstrates why Menton’s ciain for fraudulent inducement does no: “relate : Health America’s plan. Teper v. Park West Galleries, Inc.. 431 Mich. 202. 427 N.W. 2d 535 (198), presented a much closer questior on preemption than exists here. In that case the Michigar Supreme Court held that a plaintiff's claim agains: he: employer for breach of an employment contract. wh ct claimed, in part, compensation for future pension bene- fits, was not preempted by ERISA. The court held tha “the simple fact that the damage award was based > part upon the terms of the plan does not place amy fiscs or administrative burden upon the plan itself This rela- tionship to the plan is, in the words of the Shaw Cour’ too ‘peripheral’ to trigger ERISA preemption.” 43° Mich. at 208, 427 N.W.2d at 541. Chief Justice Riler concurring 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 im the definitional section. 29 [S¢ 10a § 1144(c) (2), wherein the term ‘state’ for pre- emption purposes is characterized as ‘a State, any political subdivision thereof, or any agency or instru- mentality of either, which purports to regulate, di- rectly or indirectly, the terms and conditions of em- ployee 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 partici- pant in a retirement pension plan. Plaintiff’s decedent received eight years’ of monthly annunity payments fol- lowing his retirement. Following his death, his estate brought an action against UNUM for breach of contract and misrepresentation. 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.” I/d., at 82. In so holding the court 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 stave regulation 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 regulations 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 8. Ct. 2211, 2216, 96 L. Ed. 2d 1 (1987).” Id., at 82-83. In Greenblatt v. Budd Co., 666 F. Supp. 735 (E.D. Pa. 1987), the plaintiff sued his employer for misrepresenting to him that the benefits he was receiving under one of lla two pension plans would be made equal to those available under the other plan. The Court, after first acknowledg- ing that the Supreme Court has determined that ‘Con- _ ~~~~gress made the preemption provision ‘deliberately expan- sive’ 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 preempted the plaintiff’s claim: “The cause of action for misrepresentation 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 a baseball game, plaintiff’s em- ployer’s promise to provide the plaintiff with certain benefits at some unknown time in the future, upon which the plaintiff could reasonably rely, is the es- sence 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 empleyment contract against former employer did not “relate to” ERISA plan, despite the fact that plaintiff claimed as part of her damages the value of certain future fringe benefits under an ERISA plan) ; McNamee v. Bethlehem Steel Corp., 692 F. Supp. 1477 (E.D. N.Y. 1988) (plaintiff claimed fraudulent misrep- resentation by employer that upon rehiring he would suffer no break in pension coverage, and court found that because plaintiff’s claims did not “seek benefits under the plan” his claim was not preempted). 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. 12a 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 480 (11th Cir. 1989); Farlow v. Union Central Life Ins. Co., 874 F.2d 791 (11th Cir. 1989) ; Anschultz v. Connecticut General Life Ins. Co., 850 F.2d 1467 (11th Cir. 1988); Belasco v. W.K.P. Wil- son & Sons, Inc., 8383 F.2d 277 (11th Cir. 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.2d 886 (1988); Board of Trustees of Cedar Rapids Pediatric Clinic, P.A., Pension Plan v. Conti- nental Assurance Co., 690 F. Supp. 792 (W.D. Ark. 1988); Perry v. P*I*E Nationwide, Inc., 872 F.2d 157 (6th Cir. 1989); Idaho Plumbers and Pipefitters Health and Welfare Fund v. United Mechanical Contractors, Inc., 875 F.2d 212 (9th Cir. 1989) ; Totton v. New York Life Ins. Co., 685 F. Supp. 27 (D. Conn. 1987); Tesch v. General 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. 656 (S.D. Ohio 1988); Urban Health Services, Ltd. v. Travelers Ins. Co., 703 F. Supp. 53 (N.D. Il. 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 Cali- fornia Meat Cutters Union & Food Employees Benefit Fund, 859 F. 2d 134 (9th Cir. 1988) ; Hood v.. Prudential Ins. Co. of America, 522 So.2d 265 (Ala. 1988); Landy v. Travelers Ins. Co., 530 So. 2d 214 (Ala. 1988) ; Massa- chusetts 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 13a 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 Observations, Pre- emption 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 contem- plates 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 ‘purports to regu- late, directly or indirectly, the terms and conditions’ of the plan. “An inquiry into the significance of the word ‘pur- ports’ sheds considerable light on the elusive ‘relate to’ language of section 514(a). ‘Purport’ has two ordinary meanings: ‘to . .. imply or profess out- wardly’ and ‘to have in mind.’ Both meanings com- prehend purpose—the first speaks to apparent pur- pose, the second to actual purpose or intent. In the state law context, an apparent 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 di- rected toward employee benefit plans ‘purports’ to regulate the plans within the meaning of section 514. “Congress meant to preempt such state laws, how- ever, whether or not they are styled as employee benefit plan regulations. In light of this congres- sional intent, ‘purports’ must be construed in its ‘normal sense’ of ‘to have in mind.’ This construc- 14a tion necessitates an inquiry into the actual legislative or judicial purpose underlying the state law in ques- tion. To determine whether the purpose of a state law is to regulate benefit plans, a court should iden- tify what the law seeks to accomplish and ask whether the law presupposes the existence of benefit plans to achieve that aim. If the purpose of the law is to affect the terms and conditions 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 iden- tify those state ‘legislative’ laws that Congress in- tended 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 adjudications 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 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 15a under the terms of the plan... .’ Section 502(e) (1) provides that this civil action may be brought in either federal or state court. To reconcile this grant of concurrent jurisdiction with section 514’s preemption 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 adjudi- cate the rights of a participant or beneficiary must be deemed not to regulate the plan’s terms and con- ditions. 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 interpretation alone does not constitute regulation of the terms and con- ditions of a plan. If interpretation is not regulation of the plan’s terms when federal and state courts have concurrent jurisdiction, there is no basis for a different 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 require- ments. The states can, therefore, create decisional law, but they may not apply existing state law, deci- sional 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 in- directly, the terms and conditions of a plan, and the application of Alabama’s fraud law to the facts of this case does not relate to or affect the administration of the plan. 16a The analysis suggested by Kilberg and Inman would promote the policy endorsed by the United States Su- preme Court in Ft. Halifax: “ERISA pre-emption anal- ysis ‘must be guided by respect for the separate spheres of government authority preserved in our federalist sys- tem.’” 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 judg- ment was entered, to allege a violation of the “twisting” statute, § 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 complaint stating a common law cause of action for fraud, now codified at § 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 § 27-12-6 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 § 6-5-101 or its common law counterpart is preempted by section 514(a) of ERISA, then we would hold that a claim under § 27-16-6 could still be maintained under the sav- ing clause of ERISA as a state law regulating the busi- ness of insurance: “{N]Jothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance... .” : 17a Section 514(b) (2) (b), 29 U.S.C. § 1144 (b) (2) (A). The purpose of Chapter 12 (“Trade Practices Law’’) of Title 27 (“Insurance”) of the Alabama Code is ex- pressed in § 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 In- surance 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 prohibit- ing the trade practices so defined 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 mis- representing or making misleading incomplete com- parisons as to the terms, conditions, or benefits con- tained 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.” Section 27-1-2(3) defines “person” for the purposes of Title 27 as follows: “An individual, insurer, company, association, or- ganization, Lloyd’s insurer, society, reciprocal in- surer or interinsurance exchange, partnership, syn- dicate, 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. § 1011 et seqg., in interpreting the saving clause, and in doing so it used the following criteria to deter- mine whether a practice falls under the “business of insurance” : 18a “<“'FJirst, whether the practice has the effect of transferring or spreading a policyholder’s risk; sec- ond, whether the practice is an integral part of the policy relationship between the insurer and the in- sured; and third, whether the practice is limited 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 U.W. 119, 129 (1982)). The legis- lature of Alabama, in adopting the “twisting” statute § 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 § 514(b). We acknowledge that the Eleventh Circuit Court of Appeals has held in Farlow v. Union Cen. Life Ins. Co., [No. 88-7513, June 6, 1989] —— F.2d (1989), that the Alabama “twisting” statute does not create a private cause of action and that, if it did, a claim under it would be preempted 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 the statutory sanctions against insurance companies that violate § 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 precise issue involved in this case: fraud in the inducement. Perry v. P*I*E Nationwide, Inc., 872 F.2d 157 (6th Cir. 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 preemption under § 514(a). The district court held that “preemption by ERISA applies only once the benefit plan is in existence” and does not 19a apply to alleged common law actions of fraud or mis- representation “to get the plaintiffs to join the plan.” Because the purported misconduct of P*I*E occurred 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 com- mon law action for fraudulent inducement was not pre- empted 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 the positions taken by both sides concerning preemption of state common law claims of fraud, ete.’ It adopted in Perry the position expressed in Dependahl v. Falstaff Brewing Corp., 653 F.2d 1208 (8th Cir.), cert. denied, 454 U.S. 986, 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’ contention that the trial court erred in denying the defendants’ motion for a 1Cefalu v. B. F. Goodrich Co., 871 F.2d 1290 (5th Cir. 1989); Cantrell v. Great Republic Ins. Co., 873 F.2d 1249 (9th Cir. 1989) ; Straub v, Western Union Telegraph Co., 851 F.2d 1262 (10th Cir. 1988); Hermann Hosp. v. Meba Medical & Benefits Plan, 845 F.2d 1286 (5th Cir. 1988). 20a mistrial based upon alleged improper argument by plain- tiff’s counsel. The defendants claim that the plaintiff’s counsel improperly aroused the passion and prejudice of the jury against the defendants. 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 lati- tude is that the perpetrator of a fraud is often the sole possessor of the actual knowledge of fraud. Sessions Co. v. Turner, 493 So.2d 1387, 13891 (Ala. 1986). Questions of materiality, relevancy, 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 discretion extends to argument of counsel. We have said: “The control of arguments rests largely in the dis- cretion 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 prejudicial atmosphere is created by such remarks; therefore, we will not interfere where this discretion is not abused.” Southern Ry. Co. v. Jarvis, 266 Ala. 440 at 446, 97 So.2d 549 (1957), in accord, Old Southern Life Ins. Co. v. Woodall, 348 So.2d 1877 (Ala. 1977). Counsel may state or comment upon all evidence ad- mitted at trial and draw inferences 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 21la has resulted. Jd., at 1136. In denying defendants’ mo- tion 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 circumstances similar to the present case, in which there was a reference to the wealth of the de- fendants. We observed that the court heard the remark in context, witnessed the effect upon the jury, and was able to make a better judgment than 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 carefully 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 prejudi- cial atmosphere. The defendants also claim that the trial court erred in charging the jury. The jury asked: “Are the defend- ants ‘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 dosen’t make any difference. I mean, you know, we’re con- cerned—you know, the representations are the rep- resentations 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 correctly instructed the jury that a corporation is responsible for the acts of its agents. We find no error in so instructing the jury. 22a Defendants contend that the trial court erred in refus- ing 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 verdict is within the sound discretion of the trial court. After instructing the jury on willful misrepresentation, based on the Alabama Pattern Jury Instructions, the trial court charged the jury on the definition of reckless misrepresentation as follows: “A reckless misrepresentation which is also action- able [sic]; the law says that if you are reasonably satisfied from the evidence that the defendant mis- represented a material fact recklessly without know!- edge of the truth or the 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 misrep- resentation as I just described to you, you would go no further. Your verdict would be for the defend- ant.” [R. 295-96. ] One of the Alabama pattern jury instructions defines “reckless misrepresentation” as follows: “Tf 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 that plaintiff acted upon said reckless misrepre- sentation to his injury, then defendant is guilty of a legal fraud.” 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 23a @ reckless misrepresentation”” The foreman reniiu “Yes, Sir.” To this the tria! judge respondec “If you are reasonabiy satisfied from the evidenc: that the defendants misrepresented a materia tise recklessly without knowledge of the truth or fais: and with the intent to induce the pluinti®’ w or and the plaintiff did act upon the reckless =» srep resentation to his injury. then the defendam: of a legal fraud.” ‘R. 306 The trial court gave the identical definition of rack: less misrepresentation beth during his oral charge and at the jury's question. In doing so. be correct ean riares The defendants a contend that the court's charm On punitive Sane’ ma Tau case constitutes re ble error. The longstanding rule of thi: ar follows. “[P)umitive damages may be recoverad in 4 fray action if the frauduient misrepresentution was ms licious, oppressive. or gross. or made with know. edge of its falsity or so reciiessiy as to amour: the same thing OF Was Made With the purpos juring the plaintiff ” Curry Motor Co. v. Hasty. 505 So2d 347 Alp YoR” See. Morgan v. South Central Bei! T eteonen a So.2d 107 | Ala. 1985 =| In the present case. the trial judge instreened the oor in his oral charge as foilows “[TYhe law says that you are authorized % swe Punitive damages in 2 frauc actor if t w& shown 24a the same thing and committed with the intent to in- jure and to defraud.” [R. 296-97. ] The jury had a question on the meaning of reckless fraud during its deliberations. The trial court further in- structed the jury as follows: “T just want to clarify one thing, ladies and gentle- men, I want to clarify this: the definition I just read to you would authorize if the plaintiff proved it, to recover actual damages. With respect to re- covering punitive damage, the law says that the fraud must be malicious, oppressive or gross or made with knowledge of the falseness of the representa- tion 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 not- withstanding the verdict, and a new trial based upon the insufficiency of the evidence or either intentional or reckless fraud. We have carefully reviewed the record in this case. The record supports the decision of the trial judge. The defendants argue that the award of punitive dam- ages violates the Constitution of Alabama and the Con- stitution 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 not- withstanding 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 defend- ants’ challenges to the constitutionality of the award of punitive damages “were timely raised and effectively 25a presented,” in fact, these issues were not raised until 29 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 trial 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, 225 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 resolution before the trial court and [were] presented for the first time on appeal.” Nation- wide Mutual Ins. Co. v. Clay, 525 So.2d 1339, 1344 (Ala. 1987), cert. denied, USS. , 109 S. Ct. 863, 102 L.Ed.2d 988 (1989). Thus, the defendants did not pre- serve their constitutional issues for appeal. 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. v. 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 $51,146. 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), § 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) : 26a “The rules governing our consideration of this question are clear and have been reiterated quite 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, preju- dice, corruption, or other improper motive or cause . . .; but 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. 999 (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 defendants’ motion for a remittitur, and in it the trial judge ex- pressly acknowledged that he had carefully considered all of the evidence on all issues. The trial judge noted that a remittitur or new trial is proper “where the court can clearly see that the verdict is tainted by bias, passion, prejudice, corruption, or other improper motive or cause on the part of the jury.” The trial judge stated in his order as follows: 27a “The Court has carefully considered all of the evidence in the case on all issues. The Court has carefully considered 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 cor- rectly 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 enor- mity 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 demonstra- tive evidence produced at trial, the Court’s observa- tion of all parties and witnesses, and the Court’s charge to the jury on damages, the Court is con- vinced that the jury carefully and conscientiously followed the Court’s instructions in assessing dam- ages in the case at $1,800,000.00 and that the award is consistent with the Court’s instructions and sup- ported by the evidence. “This Court finds, after a review of the entire trial, that the central issue presented in the Defend- ant’s motion for remittitur is whether or not the jury verdict of $1,800,000.00 in this case is, in and of itself, evidence of bias, passion, prejudice, corrup- tion 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, preju- dice, corruption, or other improper motive or cause on the part of the jury. On the contrary, the Court 28a 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 $1,800,00.00 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 pre- viously adopted to be used by a trial court in reviewing judgments. 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 1879 (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 have examined the record in the light of our rules as to remittitur. We are of the opinion that the judg- ment 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 it is hereby is, affirmed. AFFIRMED. Hornsby, C. J., and Jones, Adams, Steagall, and Ken- nedy, JJ., concur. Maddox and Houston, JJ., dissent, with opinion by Houston, J. ; 29a 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 authority 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 def- erence 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 “regulation-interpretation” distinctions suggested as an alternative approach to the “relate to” requirement by William J. Kilberg’s and Paul D. Inman’s article Pre- emption 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 unani- mous 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 financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for 80a fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.’ § 2, as set forth in 29 U.S.C. § 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 sickness, accident, disability or death. § 3(1), 29 U.S.C. § 1002(1). “Congress capped off the massive undertaking of ERISA with three provisions relating to the pre- emptive effect of the federal legislation: “ “Except as provided in subsection (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 em- ployee benefit plan... .’ §514(a), as set-forth in 29 U.S.C. § 1144(a) (pre-emption clause). coe ’ oes © “ ““<'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 ultimate touchstone.’”’ Allis-Chalmers Corp. v. Lueck, 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, 1038, 84 S.Ct. 219, 222, 11 L.Ed.2d 179 (1963). We have observed in the past that the express pre-emption provisions of ERISA are delib- erately expansive, and designed to ‘establish pension plan regulation as exclusively a federal concern.’ Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 3la 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.2d 490 (1983) : “The bill that became ERISA originally con- tained a limited pre-emption clause, applicable ' only to state laws relating to the specific sub- jects covered by ERISA. The Conference Com- mittee 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).’” (Emphasis supplied.) In Kilberg and Inman’s Preemption of State Laws Re- lating to Employee Benefit Plans: An Analysis of ERISA Section 514, 62 Tex.L.Rev. 1313, 1315-16, the following appears: “Express preemption provisions such as sectior 514 must be distinguished from the implied pre- emption that arises from the supersession inherent in antithetical federal and state commands or 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 for a clash be- tween zones of sovereign interest. The goal of an implicit preemption analysis should be to accommo- date the federal interest with the least possible dis- placement 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 preemp- tion cases to section 514 cases, in which the issue is 32a whether the federal law—by its express terms—pre- empts the state law in question. Once Congress has declared its express intent to preempt or to save a state law, it has largely obviated judicial inquiry into considerations other than those concerning the text of the preemption provision.” (Emphasis sup- plied. ) “TAj]ny and all State laws insofar as they may now or hereafter relate to any employee benefit plan,” sub- ject to certain exceptions that will be discussed later, is what Congress expressly preempted. 29 U.S.C. § 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. §1144(c). Does this preempt a civil action by Menton, who is a “participant” (29 U.S.C. § 1002(7)) and a “party in interest” (29 U.S.C. § 1002 (14)) for an intentional or reckless misrepre- sentation by HealthAmerica, which is a “party in inter- est” (29 U.S [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0761%3A1. Public record. Not legal advice.