Opposition Brief — HealthAmerica v. Menton

Supreme Court brief1990

Ask Donna

What actually matters in this document.

Text

vs.

x) FILED

No. 89-939 san UE he

. SPA

In The TS ol

Supreme Court of the United States

October Term, 1989

HEALTHAMERICA AND PAMELA MERLE,

Petitioners,

EDWARD MENTON,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

SUPREME COURT OF ALABAMA

RESPONDENT'S BRIEF IN OPPOSITION

ANDREW T. CItRIN

(Counsel of Record)

Rosert T. CUNNINGHAM, JR.

CUNNINGHAM, BOUNDS, YANCE,

CROWDER AND BROWN

Post Office Box 66705

Mobile, Alabama 36660

(205) 471-6191

Attorneys for Respondent

COCKLE LAW BRIEF PRINTING CO,, em 225-6964

OR CALL COLLECT (402) 342

’

foe,

Sec

QUESTIONS PRESENTED

1. Whether a state common law action for fraud

“relates to” an employee benefit plan within the meaning

of ERISA’s preemption clause where the plaintiff alleges

that the defendants fraudulently induced him to drop his

existing medical insurance and to join defendants’ health

plan?

2. Whether an Alabama insurance trade practices

law, which prohibits any person from making false or

misleading representations to induce policyholders to

drop or change insurance coverage, is a law which “regu-

lates insurance” within the meaning of ERISA’s savings

clause?

3. Whether a punitive damage award of

$1,797,588.00 for reprehensible, fraudulent conduct,

which personally exposed the respondent to potentially

“hundreds of thousands of dollars” of unexpected medi-

cal bills, violates the Due Process Clause of the Four-

teenth Amendment, where the amount of the award was

subject to an “extensive post-trial evidentiary hearing”,

and to searching de novo review by both the trial and

appellate courts?

TABLE OF CONTENTS

Page

TABLE OF CORTRIGES «6/35 icc oe Geese ii

TABLE OF AUTSIERRERGH Ki sntncksncketecarcdede cs iv

STATEMENT OF THE CASE..... PEF Ce ee Te ree 1

SUMMARY OF ARGAROR 6 irh cited cnvesactescsss 6

REASONS FOR DENYING THE WRIT............. 7

I. THIS COURT SHOULD NOT GRANT

REVIEW TO DECIDE WHETHER ERISA

PREEMPTS A CLAIM FOR FRAUDU-

LENTLY, INDUCING AN EMPLOYEE TO

CHANGE HIS HEALTH COVERAGE...... 7

Il. THIS COURT SHOULD NOT GRANT

REVIEW TO DECIDE WHETHER A STATE

INSURANCE TRADE PRACTICES LAW

“REGULATES INSURANCE” WITHIN THE

MEANING OF ERISA’S SAVINGS CLAUSE | 13

Iii. THIS COURT SHOULD NOT GRANT

REVIEW TO DECIDE WHETHER ERISA’S

r FIDUCIARY AND DISCLOSURE REQUIRE-

MENTS PERTAIN TO THE SOLICITATION

OF PLAN MEMBERSHIP ................. 18

IV. THE COURT SHOULD NOT GRANT

REVIEW IN THIS CASE TO DECIDE

WHETHER THE DUE PROCESS CLAUSE

LIMITS THE SIZE OF PUNITIVE DAM-

AGES AWADERR s c6scanesadadeienresins’s 24

A. Petitioners’ Failed to Timely and Prop-

erly Raise Any Federal Constitutional

Challenges To The Size of the Punitive

Damages AIG 63 6550 ieaeecacnvevnss 24

ili

TABLE OF CONTENTS - Continuea

Page

B. Alabama Provides Substantial Stan-

dards and Procedures for Assessing and

Reviewing Punitive Damages Awards 26

SP coe Sick s Cewdrudede Mawetgas sence ai an 30

TABLE OF AUTHORITIES

Page

CASES

Alabama Power Co. v. Capps, 519 So. 2d 1328 (Ala.

BOA Ea nis eee eas 54 oad cnc een deer eta eackaess 25

Bankers Life and Cas. Co. v. Crenshaw, 100 L.Ed.2d

Se Pe in be 5 Vavina nae FRET RKe Ma eee RT 25, 26

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

SEAT h Sotie see wsnaig AWN E AES Leanne eka a's 12

Berlin v. Michigan Bell Tel. Co., 858 F.2d 1154 (6th

Be EE Sgn 56 adh OS 50d eR ne Tew eee Fee 23

Browning-Ferris v. Kelco Disposal, 106 L.Ed.2d 219

Lo PCP eee eee ee re pee 20, 29

Butler v. Fringe Benefits Plan, Inc., 701 F. Supp. 804

ES | Serr Tee rer pore Perr Troe 11

Central Ala. Elec. Co-op. v. Tapley, 546 So. 2d 371

NE EE hur Vinin s 6s nc 0nd aenete eas Keeeununeaces 27, 28

Comprehensive Care Corp. v. Doughtry, 682 F. Supp.

Se A I a veers e paveda eres tone heey «'s 12

Davidian v. Southern Cal. Meat Cutters Union, 859

eee Se | Pree rer eee 12, 13

Davis v. Liberty Mutual Ins. Co., 871 F.2d 1134

CEG ME Weer cbk heavy ach Rahn ee evo ees «5 21

Denette v. Life of Indiana Insurance Co., 693 F. Supp.

ee ee I Pa fits vss denen sdicneeeans ys 15

Dexter v. Equitable Life Assurance Soc’y of the United

States, Sar FAO Soe (2nd Cie. TGS) ..« .cecccvvecese 15

Edwards v. State Farm Mut. Auto. Ins. Co., 851 F.2d

oe Le See ere ree ores 22

TABLE OF AUTHORITIES - Continued

Page

Farlow v. Union Cent. Life Ins. Co., 874 F.2d 791

CUR Ge ees ks os cos dk censcbosceua 1% 3, 1% %

Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1

CSSD T i 5500s oii a opis ned eee he ee eae om 10, 12

FTC v. National Cas. Co., 357 U.S. 560 (1958) ........ 14

Genter v. Acme Scale & Supply Co., 776 F.2d 1180

08 Che: THR i erie eee 22

Green Oil Co. v. Hornsby, 539 So. 2d 218 (Ala. 1989) .... 27

Greenblatt v. The Budd Co., 666 F. Supp. 735 (E.D.

DO. THE oak as cen so bag ad et pane nee eae eee sen 11

Group Life & Health Ins. Co. v. Royal Drug Co., 440

LPR See REET enka Ns ches donee eee eee 17

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

SO i oko nn cepakvvs peer cuamaceen esis eae 27

Hermann Hospital v. MEBA Medical & Benefits Plan,

GES Fide TO CU Ge TO os 8 ees elec enelen ek 12

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

cert. denied, 405 So. 2d 1328 (Ala. 1985)........... 25

Industrial Chem. and Fiberglass Corp. v. Chandler,

Pa7-Se: Be Cis RI. Foes occ weeds eee cadast ces 28

Jarrard v. Nationwide Mut. Ins. Co., 495 So. 2d 584

CAM. TRIG 6c iive ne xe cee teks sagt eee eben ae 16

Johnson v. District 2 Marine Eng. Beneficial Ass’n,

SSF Fae SUS CH CL Fe ec eects vcwcewaenernes 12

TABLE OF AUTHORITIES - Continued

Page

Juzwin v. Amtorg Trading Corp., 705 F. Supp. 1053

CON]. TGGG) oicecnecccadevals Ver irwekaene eens 29

Keel v. Group Hospitalization Med. Serv., 695 F.

Supp. 223 (E.D. Va. 1988).........-seeerserscceene 15

Kochendorfer v. Rockdale Sash & Trim Co., Inc., 653 F.

Supp. 612 (N.DTIL 1967). 0... .ccccccccevcersceses 22

Local Union 2134, United Mine Workers of America v.

Powhatan Fuel, 828 F.2d 710 (11th Cir. 1987)....... 23

Locklear v. Visko’s, Inc., 545 So. 2d 695 (La. App.

1GOD).... vd vcvescds ov st05udy neue cone ene 16

Makar v. Health Care Corp. of Mid-Atlantic, 872 F.2d

SO (6th Cle, 1008). oc kcc ca vevestucdiveneeteaseeeees 23

Marion v. Hall, 429 So. 2d 937 (Ala. 1983)........... 25

McKnight v. Southern Life and Health Ins. Co., 758

F.2d 1966 CUBES) ow. occ ecvereeveseveeresantuaoeoure 22

McNamee v. Bethlehem Steel Corp., 692 F. Supp. 1477

E.DNLY. TGR)... sc cvvesssissstenienwenennedenaen 11

Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.

TOG (IGGS) o cocsccccccisentausnpeneeeuseenenees passim

Miller v. Cudahy Co., 858 F.2d 1449 (10th Cir. 1988),

cert. denied, 109 S.Ct. 3265 (1989). ......scecvceeees 29

Morningstar v. Meijer, Inc., 662 F. Supp. 555 (E.D.

Mich. 1907). 5 .ccccacccssvssatesceunnownaveeninetes 11

Perry v. P*I*E Nationwide, Inc., 872 F.2d 157 (6th

Cie. 190F) ow cccccvccsedencneseeseuans sacena eae 11

vii

TABLE OF AUTHORITIES - Continued

Page

Phillips v. Amoco Oil Co., 799 F.2d 1464 (11th Cir.

teens ERE ee OEE EET Te PO PEO TE 12

Physicians Health Plan, Inc. v. Citizens Ins. Co. of

Am., 673 F. Supp. 903 (W.D. Mich. 1987).......... 17

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987)

éon bee CPEERENE NG ChdE SOE RCTRER SOULS Ws HEED passim

Powell v. Chesapeake & Potomac Telephone Co. of

Virginia, 780 F.2d 419 (4th Cir. 1985).............. 15

Quigley v. Unum Life Ins. Co., 688 F. Supp. 80 (D.

I, IIE ek 6 04h) cay be oh wan mene bass cwacecs 11

Reilly v. Blue Cross & Blue Shield of Wisconsin, 846

Pee ee Se Se PU 6 Fon ce Ne ane ee cddewnqnes 12

Rodriguez v. MEBA Pension Trust, 872 F.2d 69 (4th

RI I bens eds tins ds tens ceceonera de veKea 21

Rollo v. Maxicare of Louisiana, Inc., 695 F. Supp. 245

ee is sinc a a kos oan sah aiirn chee lied oe eeewe. 15

Seasongood v. K & K Ins. Agency, 414 F. Supp. 698

Ne IE yak Wied vind TERS SR eiee GLa SR ee ke 15

SEC v. National Securities, Inc., 393 U.S. 453 (1969) ..14, 15

Singleton v. Wulff, 428 U.S. 106 (1976)............... 20

Soniat v. Travelers Ins. Co., 538 So. 2d 210 (La. 1989) .... 16

Stephens v. Central of Ga. RR Co., 367 So. 2d 192

TE Chik uesia eseicd aon tao Cele ea eee eeeeirs 19

Straub v. Western Union Telegraph Co., 851 F.2d 1262

AN SIO 055. bee nnd okey acon eee e eeeolaes 12

viii

TABLE OF AUTHORITIES — Continued

Page

Talley v. A&M Const. Co., 284 Ala. 371, 225 So. 2d

359 (1969) cert. den., 397 U.S. 995 (1970) .......... 25

Teper v. Park West Galleries, Inc., 431 Mich. 202, 427

ok 2 & ee ee ee ee eee ee 11

Tucker v. Employers Life Ins. Co., 689 F. Supp. 1073

Es ied an spa veeKe Reon Dasscwdeeseues 12

Wells v. General Motors Corp., 881 F.2d 166 (5th Cir.

Sy cst ena hddG dda Ken twhacs (oue CR Mawas peewee ys 11

West Michigan Health Care Network v. Transamerica

Ins. Corp. of Am., 167 Mich. App. 218, 421

PT EE NUP icc cas ae ctdesscdrwttemndseesse: 17

OTHER:

Cf A EOE ee er ere eer ee Pere rere 5

Err ere) er rere rere 23

ee RePe eep Se eRe: 21, 22

rd oe ks ca siaey eudweade ties 18

2 USA. 6 1144........ Deeb Gs vical bees eae eae eee 18

IE vcs ce cccctavcnsanccnsasecestas 28

ee ere Ee eee EEE 15, 16

i ire eb ooh sees nan tay ecenst ea 5, 6

Ala. Code §§ 27-21A-1 et Seq. ...... ce cece cece eeenees 17

Be A OE eg oo b.nsewiddnenseden ons vine we 16

Supreme Court Rule 17. ..6....ccccescccececcceeeses 13

No. 89-939

In The

Supreme Court of the United States

October Term, 1989

HEALTHAMERICA AND PAMELA MEK.E,

Petitioners,

EDWARD MENTON,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

SUPREME COURT OF ALABAMA

RESPONDENT’S BRIEF IN OPPOSITION

STATEMENT OF THE CASE

As set forth in the July 21, 1989 Opinion of the

Alabama Supreme Court (hereinafter “Opinion”), respon-

dent, Edward Menton, was employed as city editor for

the Mobile Press Register newspaper (“Press Register”). As

part of his employment, Mr. Menton was provided medi-

cal insurance coverage through the Connecticut General

Insurance Company (“Connecticut General”). The Press

and the balance was deducted from Mr. Menton’s salary.

Mr. Menton had a son, Jacob, who suffered from a

form of cerebral palsy which affected his ability to walk.

To walk normally, Jacob required regular physical ther-

apy treatments, leg braces, crutches, walkers, and other

orthopaedic appliances. Pursuant to its policy, Connecti-

cut General paid eighty percent of the costs for Jacob’s

surgeries, physical therapy, and orthopaedic appliances.

In June, 1985 the Press Register announced “an alter-

native medical benefit selection”, which allowed quali-

fied employees either to keep the Connecticut General

insurance or to enroll in one of two health maintenance

organizations, Prime Health and petitioner, Health-

America. The announcement stated: “Prime Health,

Health America [sic] and Connecticut General will be

offered to you as a multiple choice option; permitting

each employee to continue his or her current health bene-

fits program or to select either of the HMOs for your

health care needs.” Qualified employees could elect to

change coverage during the month of June, 1985 without

suffering an interruption of benefits.

With the assistance of David Parker, the assistant

general manager of the Press Register, HealthAmerica

and Prime Health distributed information about their

plans, including a summary of benefits, to the Press Reg-

ister employees. Because HealthAmerica’s list of health

care providers included both of Jacob’s physicians, Mr.

Menton considered joining HealthAmerica’s plan, if

HealthAmerica’s coverage of Jacob’s medical and therapeutic

expenses was better than Connecticut General's. The sum-

mary of benefits, however, did not indicate whether

HealthAmerica provided coverage for long-term physical

- therapy and orthopaedic appliances.

Mr. Menton asked Parker whether HealthAmerica

provided coverage for Jacob’s medical and therapeutic

expenses. Parker could not answer Mr. Menton’s ques-

tion, but suggested that Mr. Menton ask the Health-

America representative who was scheduled to hcld an

informational presentation at the Press Register. The pur-

pose of the presentation was to enable both Health-

America and Prime Health “to specifically outline their

plan{s]” and to answer specific questions from Press Reg-

ister employees about coverage. Petitioner, Pamela Merle,

presided over this meeting on behalf of HealthAmerica.

Mr. Menton attended Merle’s presentation for the

sole purpose of determining whether HealthAmerica’s

plan provided more than eighty percent coverage for

Jacob’s medical and therapeutic expenses. During the

presentation, Press Register employees were repeatedly

told that the coverage provided by HealthAmerica and

Prime Health was “the same or better” than the Connecti-

cut General coverage. In addition, HealthAmerica distrib-

uted a pamphlet which stated that HealthAmerica’s plan

provided “[mJore benefits, fewer limitations and no

financial surprises” and had “generally no time or dollar

limits on coverage”.

After the presentation, Mr. Menton asked Merle spe-

cific questions about HealthAmerica’s coverage of Jacob’s

medical and therapeutic expenses. He explained Jacob’s

medical history and his need for extensive, long-term

physical therapy and orthopaedic appliances. In response

to a direct question from Mr. Menton, Merle informed Mr.

Menton that Jacob’s medical and therapeutic expenses

would be “covered 100% by HealthAmerica.” Merle gave

no suggestion or hint that physical therapy benefits

would be limited in any way.

In reliance upon Merle’s representations, Mr. Menton

dropped his Connecticut General coverage and enrolled

— 4

in HealthAmerica’s plan. After enrolling, Mr. Menton

received a schedule of benefits in the mail. On reviewing

the schedule, Mr. Menton noticed that “short-term” out-

patient services for physical therapy were apparently

covered for only two months and none of the expenses

for Jacob’s crutches, braces and walker were covered. At

the suggestion of David Parker, who witnessed Merle’s

representations at the informational meeting, Mr. Menton

contacted Merle about the meaning of the limitation con-

tained in the schedule of benefits. Merle told Mr. Menton

that HealthAmerica’s plan indeed covered only two

months of Jacob’s physical therapy and none of the

expenses for orthopaedic appliances. Merle also admitted

to Mr. Menton that she had misrepresented the coverage.

Thereafter, Mr. Menton attempted to get Health-

America to provide the coverage he had been promised

when he dropped his Connecticu! General insurance. Mr.

Menton was told that his problem would have to be

presented to a board of doctors to determine whether the

physical therapy benefits could be extended. After sev-

eral months and numerous dealings, HealthAmerica

eventually offered to extend coverage for Jacob’s physical

therapy for an additional sixty days, but refused to pro-

vide coverage beyond that because Mr. Menton’s claim

was “outside [the] benefit plan” and “could certainly

involve hundreds of thousands of dollars... .” Even with

the extension,’ HealthAmerica intentionally exposed Mr.

Menton to potentially “hundreds of thousands of dollars”

of uncovered medical bills and gave no thought to the

fact that Jacob might be deprived of needed treatment as

a result.

1 HealthAmerica never paid any of the bills incurred dur-

ing the additional sixty day period.

Despite Merle’s previous admission, petitioners

steadfastly denied that Merle misrepresented the cover-

age to Mr. Menton. It was later revealed that Merle had

confessed making the misrepresentation during an inter-

nal investigation of Mr. Menton’s claim. At the subse-

quent trial, the jury quite clearly concluded that

petitioners lied to Mr. Menton during his attempts to

resolve the matter and that Merle and HealthAmerica’s

executive vice president testified falsely under oath.

Mr. Menton filed the instant action against peti-

tioners alleging a state common law action for fraudulent

misrepresentation, asserting that petitioners willfully or

recklessly induced him to drop his Connecticut General

insurance and to elect the petitioners’ coverage. Peti-

tioners did not seek to remove this action to federal

district court on the basis of ERISA, nor did they allege

the failure to exhaust grievance procedures under Health-

America’s plan as a defense. Instead, petitioners pleaded

the general issue and, by amended answer filed two days

before trial and motion for summary judgment filed

barely a month before trial, preemption by the Employee

Retirement Income Security Act of 1974 (“ERISA”). 29

U.S.C. §§ 1001 et seq.

The trial court determined that Mr. Menton’s claim

was “saved” from preemption by the Alabama “twisting”

statute, Ala. Code § 27-12-6, an Alabama Insurance Trade

Practices Law which expressly forbids the petitioners’

conduct. See, Pet. at 63a. The trial court submitted the

case to the jury with instructions on Alabama civil actions

for misrepresentation, without reference to the twisting

statute. The jury returned a verdict in favor of Mr. Men-

ton. After final judgment, Mr. Menton filed a motion to

amend his complaint to conform to the evidence, alleging

a violation of Ala. Code § 27-12-6, i.e., the “twisting”

statute. Petitioners’ objection to this was overruled, as

was their motion for a judgment notwithstanding the

verdict and new trial.

On appeal, the Alabama Supreme Court affirmed the

judgment of the trial court. The Alabama Supreme Court

held that Mr. Menton’s fraud action does not “relate to” a

benefit plan within the meaning of ERISA’s preemption

clause. Opinion, Pet. at 8a-15a. The court also held that

Mr. Menton’s claim is excepted from preemption by

ERISA’s insurance savings clause because his claim was

based upon a state law, the twisting statute, which “regu-

lates insurance”. Pet. at 16a. The Alabama Supreme Court

refused to review petitioners’ constitutional challenges

because such issues were not timely raised in the trial

court. Pet. at 25a. Following the Alabama Supreme

Court’s denial of their application for rehearing, peti-

tioners sought a stay of the judgment from Circuit Justice

Kennedy, who granted the stay on October 3, 1989 pend-

ing this Court’s action on the instant petition.

SUMMARY OF ARGUMENT

The Alabama Supreme Court’s opinion involves the

dual interpretation of ERISA’s preemption and savings

clauses. Both aspects of the court’s opinion are fully

consistent with this Court’s ERISA decisions. While deci-

sions rendered by the Ninth and Eleventh Circuits con-

flict with the Alabama Supreme Court’s opinion with

respect to ERISA preemption, these decisions do not con-

flict with that portion of the court’s opinion which con-

cerns ERISA’s savings clause. Hence, the decisions

rendered by the Ninth and Eleventh Circuits do not

wholly conflict with the court’s opinion.

; 7

With regard to the court’s holding that the twisting

statute is saved from ERISA preemption, the court’s opin-

ion appears on its surface to conflict with a decision

rendered by the Fourth Circuit Court of Appeals. The

Fourth Circuit held that a state trade practices law does

not “regulate insurance”. However, a closer examination

reveals that the Fourth Circuit failed to consider this

Court’s previous ERISA and McCarran-Ferguson deci-

sions which plainly establish that state trade practices

laws are indeed laws which “regulate insurance”. The

stated purpose of Alabama’s twisting statute is to “regu-

late trade practices in the business of insurance”. Since

the Alabama Supreme Court’s decision on the “savings”

issue is consistent with this Court’s previous decisions,

this Court need not grant review to decide this issue.

Petitioners failed to timely raise both the due process

challenges and the potential applicability of ERISA’s

fiduciary and disclosure requirement in the courts below.

Consequently, neither of the courts below considered or

resolved these issues. Due to the absence of a properly

developed record with respect to these important issues,

this Court should deny review.

REASONS FOR DENYING THE WRIT

I. THIS COURT SHOULD NOT GRANT

REVIEW TO DECIDE WHETHER ERISA PRE-

EMPTS A CLAIM FOR FRAUDULENTLY

INDUCING AN EMPLOYEE TO CHANGE

HIS HEALTH COVERAGE.

The Alabama Supreme Court's decision is entirely

consistent with the decisions of this Court. In Metropolitan

Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985), this

Court, in an unanimous decision, observed that laws

which regulate the manner in which insurance is sold do

not “relate to” benefit plans:

“Appellants assert that state laws that

directly regulate the insurer, and laws that regu-

late such matters as the way in which insurance

may be sold, are traditional laws subject to the

[savings] clause, while laws that regulate the

substantive terms of insurance contracts are

recent innovations more properly seen as health

laws rather than as insurance laws, which

§ 514(b)(2)(A) does not save. This distinction

reads the savings clause out of ERISA entirely,

because laws that regulate only the insurer, or the

way in which it may sell insurance, do not ‘relate to’

benefit plans in the first instance. Because they

would not be preempted by § 514(a), they do not

need to be ‘saved’ by § 514(b)(2)(A) . . . Ap-

pellants’ construction, in our view, violates the

plain meaning of the statutory language and

renders redundant both the savings clause it is

construing, as well as the deemer clause which

proceeds it, and accordingly has little to recom-

mend it.”

Id. at 741. Because Mr. Menton’s action was based on the

twisting statute (see, Pet. at 63a), which specifically regu-

lates the activities of insurance companies in selling

insurance and the activities of other entities offering poli-

cyholders an alternative to insurance, Mr. Menton’s claim

does not “relate to” HealthAmerica’s plan in the first

instance. Thus, the Alabama Supreme Court’s decision is

consistent with the plain holding of this Court in Metro-

politan Life.

Despite petitioners’ assertion to the contrary (Pet. at

10-11), the Alabama Supreme Court correctly concluded

that this Court did not address this issue in Pilot Life Ins.

Co. v. Dedeaux, 481 U.S. 41 (1987).2 In fact, this Court

expressly noted that there was “no dispute” that

Dedeaux’s claims were embraced by ERISA’s preemption

clause; the only dispute concerned whether his claims

were “saved” from preemption. Id. at 47. Since Pilot Life

does not address an action alleging fraudulent induce-

ment to join an employee benefit plan, the Alabama Supreme

Court’s decision is hardly inconsistent therewith.

It is extremely important to note that the basis of Mr.

Menton’s action concerns the fact that petitioners fraudu-

lently induced him to drop his health insurance and opt

for HealthAmerica’s plan. Opinion, Pet at 8a. Mr. Men-

ton’s action, therefore, concerns matters external to

HealthAmerica’s plan and acts preliminary to his joining

the plan. His action claims damages for being induced to

drop his Connecticut General coverage. It is for this rea-

son, as petitioners so correctly pointed out in the court

below, that Mr. Menton’s actual damages are calculated

by reference to the benefits he would have received if he

had kept his Connecticut General coverage. In other

words, Mr. Menton’s claim concerns the destruction of his

old plan, not the confection of the new. For this reason,

Mr. Menton’s fraud action does not “relate to” Health-

America’s plan. Opinion, Pet. at 6a.

2 The Alabama Supreme Court noted: “Although the com-

plaint in Pilot Life contained a count for ‘fraud in the induce-

ment’, the opinion makes it unmistakably clear that the only

claims [Dedeaux] pursued were claims seeking damages for

improperly processing his claims for benefits under an ERISA-

regulated plan.” Opinion, Pet. at 7a.

Petitioners assert that Mr. Menton’s fraud action “is

concerned with and arises out of the administration of an

ongoing ERISA benefit plan” and that Merle’s misrepre-

sentation “occurred during the process of explaining cov-

erage and options under an existing welfare benefit plan”.

Pet. at 10 & 13 (emphasis added). These assertions clearly

mischaracterize the nature of petitioners’ conduct. Peti-

tioners were not engaged in the “administration” of an

employee benefit plan and were not “explaining coverage

and options”. Rather, petitioners were engaged in the

solicitation of membership for their plan. Merle’s very

purpose for being at the Press Register was to induce

employees to drop their existing medical insurance in

favor of HealthAmerica’s purportedly better, less expen-

sive medical plan.?

In reaching its decision, the Aiabama Supreme Court

relied upon the Court’s holding in Fort Halifax Packing

Co., Inc. v. Coyne, 482 U.S. 1 (1987), which was decided

two months after Pilot Life. Opinion, Pet. at 8a-9a. In Fort

Halifax, the Court held that a Maine statute requiring

employers to make one-time severance payments to

employees when a plant closed was not preempted by

ERISA. The Court noted that the preemption clause

expressly states that state laws are superseded to the

extent they “relate to any employee benefit plan.” The

Court stated that the preemption clause “does not refer to

state laws relating to ‘employee benefits’, but to state

laws relating to ‘employee benefit plans.’” Id. at 7

(emphasis in original). “Given the basic difference

3 These activities are subject to substantial state regulation

which is expressly saved from preemption. See Argument II,

infra.

between a ‘benefit’ and a ‘plan’, Congress’ choice of

language is significant in its pre-emption of only the

latter.” Id. at 8. The Alabama Supreme Court concluded

that the distinction drawn by this Court between laws

which relate to employee benefit plans and laws which

simply relate to employee benefits precludes the preemp-

tion of Mr. Menton’s fraud action. Opinion at 9a. At best,

Mr. Menton’s action concerns only employee benefits -

and then only to the extent that benefits were the induce-

ment falsely offered to secure his membership — not to the

plan itself.

The Alabama Supreme Court’s opinion on this issue

is consistent with the decisions of the Fifth and Sixth

Circuit Courts of Appeals, the Michigan Supreme Court,

and several federal district courts. Wells v. General Motors

Corp., 881 F.2d 166 (5th Cir. 1989)(action based upon false

inducements to opt for different plan, held not pre-

empted); Perry v. P*I*E Nationwide, Inc., 872 F.2d 157 (6th

Cir. 1989)(fraudulent inducement to participate in plan,

held not preempted); Teper v. Park West Galleries, Inc., 431

Mich. 202, 427 N.W.2d 535 (1988)(breach of oral assur-

ances for lifetime employment, held not preempted); But-

ler v. Fringe Benefits Plan, Inc., 701 F. Supp. 804 (N.D. Ala.

1988)(fraudulent inducement to switch plans and viola-

tion of Alabama twisting statute, held not preempted);

McNamee v. Bethlehem Steel Corp., 692 F. Supp. 1477

(E.D.N.Y. 1988)(misrepresentation of pension benefits to

induce reemployment, held not preempted); Quigley v.

Unum Life Ins. Co., 688 F. Supp. 80 (D. Mass. 1988); Green-

blatt v. The Budd Co., 666 F. Supp. 735 (E.D. Pa. 1987)(mis-

representation that pension benefits under new plan

equal benefits under old plan, held not preempted); Morn-

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

1987)(breach of employment contract). Several of these

courts relied heavily upon this Court’s decision in Fort

Halifax in finding no preemption.

Petitioners contend (Pet. at 10 & 12) that the deci-

sions of ten federal courts conflict with the Alabama

Supreme Court’s decision. However, only two of the deci-

sions cited by petitioners, Farlow v. Union Cent. Life Ins.

Co., 874 F.2d 791 (11th Cir. 1989) and Davidian v. Southern

Cal. Meat Cutters Union, 859 F.2d 134 (9th Cir. 1988),

actually conflict, and these two cases did not consider

this Court’s important distinction between employee ben-

efits and employee benefit plans as discussed in Fort Hal-

ifax. The eight remaining cases do not deal with claims

asserting fraudulent inducement to join a plan.* Hence,

the Alabama Supreme Court’s decision on this issue actu-

ally conflicts with only the Ninth and Eleventh Circuits in

4 Two of the cases alleged misrepresentation of coverage

for hospital admittance. These misrepresentations occurred

well after the employees had been participants in the plans.

Hermann Hosp. v. MEBA Medical & Benefits Plan, 845 F.2d 1286,

1287 (5th Cir. 1988) and Comprehensive Care Corp. v. Doughtry,

682 F. Supp. 516, 517 (S.D. Fla. 1988). The five remaining cases

mention the word “fraud”, but the claims did not involve

fraudulent inducement to join a plan. Johnson v. District 2

Marine Eng. Beneficial Ass'n, 857 F.2d 514 (9th Cir. 1988); Straub

v. Western Union Tele. Co., 851 F.2d 1262 (10th Cir. 1988); Reilly

v. Blue Cross & Blue Shield of Wis., 846 F.2d 416 (7th Cir. 1988);

Phillips v. Amoco Oil Co., 799 F.2d 1464 (11th Cir. 1986); Tucker v.

Employers Life Ins. Co., 689 F. Supp. 1073 (N.D. Ala. 1988).

Although petitioners assert (Pet. at 11) that the complaint in

Belasco v. W.K.P. Wilson & Sons, Inc., 833 F.2d 277 (11th Cir.

1987), alleged fraudulent inducement, the court’s opinion

makes no reference to fraudulent inducement to join the plan.

Farlow and Davidian. However, because neither Farlow nor

Davidian deals with the second part of the Alabama

Supreme Court's decision concerning the savings clause,°

it cannot be said that these cases fully conflict with the

Alabama Supreme Court’s holding. Because the whole of

the Alabama Supreme Court’s decision does not conflict

with the decisions of any federal circuit court, there exists

no “special and important reasons” for granting tue

instant petition. S. Ct. R. 17.

II. THIS COURT SHOULD NOT GRANT

REVIEW TO DECIDE WHETHER A STATE

INSURANCE TRADE PRACTICES LAW

“REGULATES INSURANCE” WITHIN THE

MEANING OF ERISA’S SAVINGS CLAUSE

In Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.

724 (1985), this Court noted that ERISA’s preemption

clause is “substantially qualified by an ‘insurance savings

clause,’ .. . which broadly states that, with one exception,

nothing in ERISA ‘shall be construed to exempt or relieve

any person from any law of any State which regulates

insurance, banking, or securities.’ ” Id. at 733 (emphasis

added)(citation omitted). The Court noted that ERISA’s

insurance savings clause saves “an entire body of law

from the sweeping general pre-emption clause”. Id. at 745

n.23. In discussing the varicus types of state insurance

regulation, this Court specifically noted: “Group insur-

ance is presently subject to extensive state regulation,

> While an action under Alabama’s twisting statute was

raised in Farlow, the Eleventh Circuit never reached this issue:

“Because we conclude that the twisting statute does not create

a private cause of action, we do not address whether ERISA

preempts this claim.” 874 F.2d at 795 n.3.

14.

including regulation of the carrier, regulation of the sale

and advertising of the insurance, and regulation of the con-

tent of the contracts.” Id. at 727-28 (emphasis added).

This Court further recognized that Congress

designed the ERISA savings clause to preserve the

McCarran-Ferguson Act’s reservation of the regulation of

the business of insurance to the states.6 Therefore, as

aptly stated by petitioners (Pet. at 20), “a Court must

consider the case law interpreting the phrase ‘business of

insurance’ under the McCarran-Ferguson Act” in decid-

ing which state laws “regulate insurance” for the purpose

of ERISA’s savings clause. Pet. at 20 (citing Pilot Life v.

Dedeaux).

In FTC v. National Cas. Co., 357 U.S. 560 (1958), this

Court held that the in-person solicitation of insurance by

agents of an insurance company constituted the “business

of insurance” within the meaning of the McCarran-Fer-

guson Act and was subject to state unfair trade practices

laws prescribing unfair insurance advertising. Id. at 564.7

In its opinion, this Court specifically noted that thirty-six

states had enacted the “Model Unfair Trade Practices

Bill”. Id. at 565 n.6. Alabama’s “Trade Practices Law”,

6 “The ERISA savings clause, with its similarly worded

protection of ‘any law of any State which regulates insurance,’

appears to have been designed to preserve the McCarran-

Ferguson Act's reservation of the business of insurance to the

States. The savings clause in the McCarran-Ferguson Act

served the same federal policy and utilized similar language to

define what is left to the States.” Metropolitan Life, 471 U.S. at

744 n.21.

7 See, also, SEC v. National Sec., Inc., 393 U.S. 453, 460

(1969)(“selling and advertising of policies” constitutes “busi-

ness of insurance”).

including specifically the “twisting” statute, was adopted

from the Model Unfair Trade Practices Bill. Ala. Code

§ 27-12-1; Farlow v. Union Cent. Life Ins. Co., 874 F.2d 791,

796 (11th Cir. 1989).

Other courts have recognized that “[a]n insurance

company’s method of inducing people to become poli-

cyholders pertains to the company-policyholder relation-

ship, and thus constitutes an integral part of the ‘business

of insurance’ ”. Dexter v. Equitable Life Assurance Soc’y of

the United States, 527 F.2d 233, 235 (2nd Cir.

1975)(emphasis added); see, also, Seasongood v. K & K Ins.

Agency, 414 F. Supp. 698, 701 (E.D. Mo. 1976)(convincing

plaintiff to switch his insurance coverage constituted the

- “business of insurance”) rev'd on other grounds, 548 F.2d

729 (8th Cir. 1977).

Thus, although petitioners insist (Pet. at 19) that the

Alabama Supreme Court erred by not individually

analyzing each of the McCarran-Ferguson factors utilized

by this Court in Pilot Life, an individual analysis of such

factors was clearly not necessary. This Court’s previous

decisions construing the McCarran-Ferguson Act clearly

establish that state insurance trade practices laws are

indeed laws which “regulate insurance”.® Accordingly,

8 The cases cited by petitioners for the contrary position

completely fail to consider the case law construing the McCar-

ran-Ferguson Act. Rollo v. Maxicare of La., Inc., 695 F. Supp. 245,

248 (E.D. La. 1988); Keel v. Group Hospitalization Med. Serv., 695

F. Supp. 223, 227 n.13 (E.D. Va. 1988); Denette v. Life of Ind. Ins.

Co., 693 F. Supp. 959, 963-64 (D. Colo. 1988). Although the

Fourth Circuit in Powell v. Chesapeake & Potomac Tel. Co. of Va.,

780 F.2d 419 (4th Cir. 1985) cites SEC v. National Sec., the court

did not consider that aspect of SEC v. National Sec. which

expressly holds that state trade practices laws regulating the

selling and advertising of insurance are within the scope of the

McCarran-Ferguson Act. Powell, 780 F.2d at 423.

the Alabama Supreme Court correctly held that the twist-

ing statute “regulates insurance”. Opinion, Pet. at 18a.?

This conclusion is supported by the Alabama Legisla-

ture’s expression of purpose in enacting the Trade Prac-

tices Law: “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 [McCar-

ran-Ferguson Act]... .” Ala. Code § 27-12-1(a)(emphasis

added). Other courts confronted with state laws expressly

designed to regulate the insurance business have con-

cluded that civil actions based on those laws were saved

from ERISA preemption. Soniat v. Travelers Ins. Co., 538

So. 2d 210, 214-15 (La. 1989); Locklear v. Visko’s, Inc., 545

So. 2d 695, 696 (La. App. 1989).

Petitioners claim (Pet. at 19 & 22) that the twisting

statute, when applied to HealthAmerica’s solicitation

activities, does not “regulate insurance” because Health-

America is a health maintenance organization, not an

insurance company. However, HMO’s, by statute, are

expressly regulated by Alabama’s Trade Practices Law.

Ala. Code § 27-21A-13(b). The Alabama Legislature

placed the laws governing the organization and operation

of HMO’s in the Alabama Insurance Code, indicating that

9 Petitioners also suggest (Pet. at 19) that the Alabama

Supreme Court may have erred in finding a private cause of

action under the twisting statute. However, the question of

whether a state statute provides a private cause of action is a

question of state law. Farlow v. Union Cent. Life Ins. Co., 874 F.2d

791 (11th Cir. 1989). Moreover, the Alabama Supreme Court

has previously held that a violation of the twisting statute

supports a cause of action for fraud. Jarrard v. Nationwide Mut.

Ins. Co., 495 So. 2d 584, 586 (Ala. 1986).

HMO’s are regarded as a form of insurance in Alabama.

See, Ala. Code §§ 27-21A-1 et seq. The fact that the twist-

ing statute applies to HMO’s does not diminish its force

as a law that regulates the business of insurance, partic-

ularly because HMO’s compete against insurance com-

panies for membership. The instant case serves as a

perfect example of why HMO’s are subject to the twisting

statute. While an HMO might not meet the classic defini-

tion of an insurance company,!° when an HMO competes

for a share of the insurance market, it is subject to laws

that “regulate insurance”. In other words, the Alabama

Supreme Court did not hold that petitioners were

engaged in the “business of insurance”; rather, the court

found that petitioners’ solicitation activities were gov- _

erned by a state law “regulating insurance”. Opinion, Pet.

at 18a.

Without specifying how, petitioners also contend that

even if Mr. Menton’s claim were saved, it would nev-

ertheless be preempted because of its “disruption of

ERISA’s exclusive civil enforcement scheme”. Pet. at 23.

First, it bears repeating that Mr. Menton did not seek to

enforce or recover any benefits due under the terms of any

plan. Mr. Menton sought damages for the destruction of his

insurance plan, not benefits under petitioners’ plan. All

10 Although not determinative of the Alabama Supreme

Court’s decision, Mr. Menton asserted below that an HMO is

functionally indistinguishable from health insurance. See,

Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205,

237-38 (1979)(Brennan, J. dissenting); Physicians Health Plan,

Inc. v. Citizens Ins. Co. of Am., 673 F. Supp. 903 (W.D. Mich.

1987); West Michigan Health Care Network v. Transamerica Ins.

Corp. of Am., 167 Mich. App. 218, 421 N.W.2d 638 (1987).

e 18

of the remedies enumerated in ERISA’s civil enforcement

scheme speak of actions to recover benefits, or to enforce

or clarify rights to benefits, due “under the terms of the

plan.” 29 U.S.C. § 1132(a). See, Pet. at 58a-59a.

Second, even if the twisting statute creates disunifor-

mity, which has not been established and is denied,

“[s]uch disuniformities . . . are the inevitable result of the

congressional decision to ‘save’ local insurance regula-

tion.” Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.

724, 747 (1985). Congress intentionally saved state laws

~ Tike the twisting statute from preemption. Thus, applica-

tion of the twisting statute in this case does not disrupt

Congress’ intention, but carries out its intention.

Ill. THIS COURT SHOULD NOT GRANT

REVIEW TO DECIDE WHETHER ERISA’S

FIDUCIARY AND DISCLOSURE REQUIRE-

MENTS PERTAIN TO THE SOLICITATION

OF PLAN MEMBERSHIP

This Court should not grant review to resolve peti-

tioners’ proposed fiduciary and disclosure issues for sev-

eral reasons. First, because Mr. Menton action is

“saved” from preemption by the insurat-e savings

clause, it is expressly not displaced by ERISA’s fiduciary

and disclosure provisions. As previously noted, Congress

substantially qualified the preemptive effect of ERISA by

broadly stating in the savings clause that “nothing in this

subchapter shall be construed to exempt or relieve any

person from any law of any State which regulates insur-

ance... .” Metropolitan Life Ins. Co. v. Massachusetts, 471

U.S. 724, 733 (1985); 29 U.S.C. § 1144(b)(2)(A). With this

statement, Congress could not have made its intent any

clearer that nothing in ERISA, which includes the fiduci-

ary and disclosure provisions, shall be construed to

exempt or relieve any person from state laws regulating

insurance. Because petitioners’ fraudulent conduct was

regulated by the Alabama twisting statute, the fiduciary

and disclosure requirements cannot be invoked to relieve

petitioners of liability.

Second, petitioners’ proposed fiduciary and dis-

closure issues were neither raised in nor resolved by the

courts below. Petitioners never sought to remove this case

to federal district court on the basis of ERISA, and waited

fourteen months after the action had been filed (barely a

month before trial) to raise ERISA preemption as a

defense. Moreover, petitioners did not so much as sug-

gest in the trial court that ERISA’s fiduciary and dis-

closure provisions might be applicable to this action.

Consequently, as petitioners admitted in the court below,

“there is little evidence in the record as to Menton’s

possible ERISA claim against the administrator or fiduci-

aries of the MPR’s employee welfare benefit plan.”

Likewise, petitioners did not suggest the potential

applicability of the fiduciary and disclosure provisions

before the Alabama Supreme Court until the filing of

their reply brief. The Alabama Supreme Court does not

review issues raised for the first time on appeal. Stephens

v. Central of Ga. R.R. Co., 367 So. 2d 192, 194-95 (Ala.

1979). As a result, neither court below made any findings

of fact relevant to these issues nor considered or resolved

the potential applicability of these provisions.

The difficulty created by the absence of factual find-

ings in resolving these important issues is well illustrated

by petitioners’ arguments. For example, petitioners assert

that the Press Register “may” have failed to provide Mr.

Menton with a sufficient description of HealthAmerica’s

plan and “may” have failed to make a copy of the plan

available (Pet. at 15); that “if’ Mr. Menton had made a

written request for a complete schedule of benefits and

“if” the Press Register had failed to comply, neither of

which occurred, the Press Register would have violated a

disclosure requirement (Pet. at 15-16); that Merle, assum-

ing she was a fiduciary, “may” have breached a fiduciary

duty (Pet. at 17); that “if” Mr. Menton failed to pursue

formal grievance procedures because of a statement made

by a HealthAmerica employee, HealthAmerica “could”

be liable for breach of fiduciary duty (Pet. at 17).

Obviously, petitioners’ failure to timely raise the

fiduciary and disclosure provisions in the courts below

has resulted in the total absence of a properly developed

record from which this Court might decide these impor-

tant issues.

“It is the general rule, of course, that a fed-

eral appellate court does not consider an issue

not passed upon below ... . [T]his is ‘essential in

order that parties may have the opportunity to

offer all the evidence they believe relevant to the

issues . . . [and] in order that litigants may not be

surprised on appeal by final decision there of

issues upon which they have had no opportunity

to introduce evidence.’ ”

Stngleton v. Wulff, 428 U.S. 106, 120 (1976)(citation omit-

ted); see, also, Browning-Ferris v. Kelco Disposal, 106

L.Ed.2d 219, 239 n.23 (1989) (Court declined review due

to “the absence of a record on the due process point

developed in the District Court and the Court of

Appeals”). Petitioners’ failure to raise the fiduciary and

disclosure provisions has forced petitioners to argue

hypothetical facts, completely remote in some instances

from the facts in this case, which, “may” have invoked

fiduciary and disclosure obligations “if” they had

occurred. This case obviously does not provide this Court

with a practical opportunity to review these issues.

Third, the fiduciary and disclosure provisions plainly

do not pertain to the solicitation of plan membership.

Petitioners contend (Pet. at 15) that the Press Register

“may” have violated ERISA’s disclosure requirements by

failing to provide Mr. Menton with a “sufficiently accu-

rate and comprehensive” summary plan description and

a copy of the HealthAmerica plan itself. However, the

record clearly reflects that no violation of ERISA’s dis-

closure requirements occurred. Assuming the Press Reg-

ister was the “administrator” of the plan, ERISA does not

require administrators to provide a summary plan

description until after an employee becomes a participant

in the plan. 29 U.S.C. § 1024(b)(1)(A). Hence, the Press

summary plan description until after he enrolled in

HealthAmerica’s plan.!! Moreover, Mr. Menton did not

contend that the Press Register provided an inaccurate

11 For this reason, both Rodriguez v. MEBA Pension Trust,

872 F.2d 69 (4th Cir. 1989) and Davis v. Liberty Mut. Ins. Co., 871

F.2d 1134 (D.C. Cir. 1989), cited by petitioners (Pet. at 15), are

inapplicable. Both cases involve failure to supply the employee

with a summary plan description after he became a participant.

summary plan description.’ Furthermore, ERISA

requires administrators to provide participants with a

copy of the actual plan instrument only “upon written

request” of a plan participant. 29 U.S.C. § 1024(b)(4)

(emphasis added). It is undisputed that Mr. Menton did

not request, in writing or otherwise, a copy of the plan

instrument. Hence, ERISA’s disclosure requirements were

not violated under the facts of the instant case.

Petitioners also contend that Mr. Menton may have a

claim for breach of fiduciary duty. To reach this conclu-

sion, petitioners assume that Merle was, in fact, a fiduci-

ary. There is no evidence to support this assumption in

the record. ERISA defines the term fiduciary as follows:

“[A] person is a fiduciary with respect to n

to the extent (i) he exercises any discretidtrary

authority or discretionary control respecting

management of such plan or exercises any

authority or control respecting management or

disposition of its assets, (ii) he renders invest-

ment advice for a fee or other compensation,

direct or indirect, with respect to any moneys or

12 In three of the cases cited by the petitioners, the plain-

tiffs specifically alleged that the summary plan description was

inaccurate or materially different from the terms of the plan

instrument. Edwards v. State Farm Mut. Auto. Ins. Co., 851 F.2d

134 (6th Cir. 1988); McKnight v. Southern Life and Health Ins. Co.,

758 F.2d 1566 (11th Cir. 1985); Kochendorfer v. Rockdale Sash &

Trim Co., Inc., 653 F. Supp. 612 (N.D. Ill. 1987). In Genter v. Acme

Scale & Supply Co., 776 F.2d 1180 (3rd Cir. 1985), the plaintiff

alleged that the terms of the plan were contrary to the plan

administrator’s practice of allowing participants to increase

life insurance benefits prior to the time specified in the plan.

The instant case is clearly distinguishable.

other property of such plan, or has any author-

ity or responsibility to do so, or (iii) he has any

discretionary authority or discretionary respon-

sibility in the administration of such plan.”

29 U.S.C. § 1002(21)(A). There is no evidence that Merle

possessed or exercised any discretionary authority or

control over the management or administration of the

plan or the disposition of its assets. To the contrary, Merle

was simply a sales representative whose sole role was to

solicit membership for HealthAmerica. As the court

noted in Berlin v. Michigan Bell Tel. Co., 858 F.2d 1154, 1160

(6th Cir. 1988), “ ‘before the court can determine whether

a fiduciary violated his duties, the court must determine

if he was acting as a fiduciary when he engaged in the

disputed conduct.’” Even assuming Merle possessed

some discretionary authority over the plan, she did not

become a fiduciary with respect to Mr. Menton until after

he became a participant in HealthAmerica’s plan.'%

Petitioners also suggest (Pet. at 17) that Mr. Menton

“may” have failed to pursue formal grievance pro-

cedures. To support this contention, petitioners cite Makar

v. Health Care Corp. of Mid-Atl., 872 F.2d 80 (4th Cir. 1989).

However, in Makar, the Plan removed the action to fed-

eral court and raised plaintiffs’ failure to exhaust plan

remedies as an affirmative defense. Id. at 82. In the

13 The cases cited by petitioners concern misrepresenta-

tions by fiduciaries to employees who were already partici-

pants in the plan. Local Union 2134, United Mine Workers of

America v. Powhatan Fuel, 828 F.2d 710 (11th Cir. 1987); Berlin v.

Michigan Bell Tel. Co., 858 F.2d 1154 (6th Cir. 1988).

instant case, petitioners completely failed to raise this

issue at any stage in these proceedings prior to the

instant petition. Obviously, petitioners waived this

defense.

ERISA’s fiduciary and disclosure provisions have

nothing whatsoever to do with the independent solicita-

tion of plan membership, or other activities designed to

induce employees to become members of a plan. ERISA

does not speak to these activities because it was Con-

gress’ intent as expressed in the savings clause to pre-

serve the regulation of these activities to the States. Any

other holding would leave solicitation activities designed

to induce employees to join employee benefit plans

wholly unregulated by either ERISA or state law.

IV. THE COURT SHOULD NOT GRANT

REVIEW IN THIS CASE TO DECIDE

WHETHER THE DUE PROCESS CLAUSE

LIMITS THE SIZE OF PUNITIVE DAMAGES

AWARDS.

A. Petitioners’ Failed to Timely and Prop-

erly Raise Any Federal Constitutional Chal-

lenges To The Size of the Punitive Damages

Award

It is undisputed that petitioners did not raise any

constitutional challenges to Alabama’s process of award-

ing punitive damages until they filed motions for judg-

ment notwithstanding the verdict and new trial, twenty-

nine days after the trial court had entered judgment on the

jury's verdict. App. at 25a. Under settled Alabama law, a

party “cannot ‘invoke action by a court and have a case

tried on certain issues and then later, when dissatisfied

with the result, raise an entirely new issue, such as the

constitutionality of the statutes under which he was pro-

ceeding, on motion for new trial.’ ” Alabama Power Co. v.

Capps, 519 So. 2d 1328, 1330 (Ala. 1988), quoting, Talley v.

A&M Const. Co., 284 Ala. 371, 373, 225 So. 2d 359, 360

(1969), cert. den., 397 U.S. 995 (1970). In Alabama, consti-

tutional issues raised for the first time in a motion for

judgment notwithstanding the verdict or new trial will

not be considered on appeal. Hicks v. Huggins, 405 So. 2d

1324 (Ala. Civ. App.), cert. denied, 405 So. 2d 1328 (Ala.

1985); Marion v. Hall, 429 So. 2d 937 (Ala. 1983). For this

reason, the Alabama Supreme Court correctly refused to

consider petitioners’ constitutional challenges. Opinion,

Pet. at 25a.

Because the Alabama Supreme Court refused to

review petitioners’ constitutional challenges based upon

valid, settled, Alabama procedural principles, this Court

should follow its customary practice of refusing to grant

review on questions not pressed or passed upon below. In

Bankers Life and Cas. Co. v. Crenshaw, 100 L.Ed.2d 62

(1988), this Court noted that it declines to exercise its

certiorari jurisdiction under circumstances such as in the |

instant case.

“In determining whether to exercise jurisdiction

Over questions not properly raised below, the

Court has focused on the policies that animate

the ‘not pressed or passed upon below’ rule.

These policies are first, comity to the States, and

second, a constellation of practical consider-

ations, chief among which is our own need for a

properly developed record on appeal. See, Webb

v. Webb, supra, at 500-501, 60 L.Ed.2d 392, 101

S.Ct. 1889. Because the chief issue appellant

would have us resolve — whether the Eighth

Amendment's Excessive Fines Clause serves to

limit punitive damages in States’ civil cases — is

a question of some moment and difficulty, these

policies apply with special force. See, Illinois v.

Gates, supra, at 224, 76 L.Ed.2d 527, 103 S.Ct.

2317 (‘where difficult issues of great public

importance are involved, there are strong rea-

sons to adhere scrupulously to the customary

limitations on our discretion’); Mishkin v. New

York, 383 U.S., at 512-513, 16 L.Ed.2d 56, 86 S.Ct.

958 (‘The far-reaching and important questions

tendered by this claim are not presented by the

record with sufficient clarity to require or justify

their decision’).”

Id. at 72-73. The factors which led this Court to deny

review of difficult constitutional issues in Crenshaw are

present here. Petitioners have offered no compelling rea-

son why the principles which led this Court to deny

review in Crenshaw should not be followed in the instant

case.

In the interest of comity, the Alabama Supreme Court

has determined, as a matter of state law, that petitioners

failed to timely raise any constitutional issues. Opinion,

Pet. at 25a. Moreover, petitioners’ failure to timely raise

this issue below has resulted in the complete absence of a

properly developed record. In the absence of such a

record, the difficult constitutional questions proposed to

be raised by petitioners would be made even more

difficult.

B. Alabama Provides Substantial Standards

and Procedures for Assessing and Reviewing

Punitive Damages Awards

Petitioners do not here contend that the jury’s verdict

was the product of bias, passion, prejudice, corruption, or

other improper motive, and the trial court found as a fact

that it was not. Opinion, App. at 28a. Nor was the jury’s

Te.

award the product of “unbridled and standardless” dis-

cretion. To the contrary, under recently augmented com-

mon law standards and procedures, jury discretion is

constrained by very specific standards and instructions,

and jury verdicts are subjected to searching post-trial

review by trial and appellate courts to insure those ver-

dicts are fair and reasonable. “If a defendant is dissat-

isfied with a jury’s verdict, and feels that it is excessive,

or otherwise flawed, he is entitled to the protection of a

variety of safeguards.” Central Ala. Elec. Co-op. v. Tapley,

546 So. 2d 371, 376 (Ala. 1989).

The Alabama Supreme Court has fashioned pro-

cedural and substantive safeguards to insure fair and

consistent administration of punitive damages. Upon

motion of a defendant, trial courts must hold evidentiary

hearings and to provide written reasons for accepting or

modifying a jury’s verdict. Hammond v. City of Gadsden,

493 So. 2d 1374, 1378-79 (Ala. 1986); Green Oil v. Hornsby,

539 So. 2d 218, 223-24 (Ala. 1989). In deciding whether a

particular award is excessive, the trial court is authorized

to consider many factors, including the degree of repre-

hensibility of the defendant’s conduct, defendant’s

awareness of the harm likely to be caused by his conduct

and defendant’s attempt to “cover-up” the wrongdoing.

Trial courts are instructed that punitive damages should

bear a reasonable relationship to the harm which was

likely to occur from the defendant’s conduct. Hornsby at

223-24; Tapley at 377. The defendant is permitted to pre-

sent evidence to show that the jury’s verdict is “unrea-

sonable, disproportionate or economically destructive”.

Industrial Chem. and Fiberglass Corp. v. Chandler, 547 So. 2d

812, 839 (Ala. 1988).14

The defendant may appeal “as a matter of right”

from the trial court’s denial of motions for remittitur or

new trial and “is entitled to a de novo review of the jury’s

verdict on appeal.” Tapley, 546 So. 2d at 376-77; Ala. Code

§ 12-22-71. Appellate courts are free to make their own

independent assessment of the factual basis for the

amount of the award, and can “order a new trial due to

the excessiveness of the verdict”, or can “order a new

trial unless the plaintiff accepts a remittitur.” Id. at 377

(citations omitted).

- Petitioners had the benefit of all of these standards

and procedures. The jury was properly instructed as to

the law of punitive damages, including the admonition

that the jury “must take into consideration the character

and degree of the wrong as shown by the evidence in the

case and the necessity of preventing similar wrongs in the

future”. After the jury’s verdict, petitioners filed motions

for judgment notwithstanding the verdict, a new trial and

a remittitur. The trial court denied these motions and

entered an order setting forth its reasons for finding that

the award was not excessive. The trial court found that

the “jury carefully and conscientiously followed the

14 “In sum ‘fundamental fairness’ requires that the defen-

dant be given the opportunity to present proof to the trial court

during post-judgment review of the verdict that the punitive

award is unreasonable, disproportionate or economically

destructive (the plaintiff, of course, is entitled to offer proof

contradicting the defendant’s, or, conversely, to offer proof that

the award is inadequate).” Industrial Chem. at 839.

court’s instructions in assessing damages in the case at

$1,800,000.00” and that “there was clear and convincing

evidence of fraud on the part of [petitioners], which in

the Court’s opinion fully justified the jury’s verdict.” Pet.

at 49a. Petitioners appealed that decision as of right to the

Alabama Supreme Court, which conducted a de novo

review and affirmed the trial court in its entirety. Opin-

ion, Pet. at 25a-28a.

Clearly, the unique post-judgment procedures

afforded to and invoked by petitioners have protected

them against any “arbitrary” action on the jury’s part in

awarding punitive damages. Accordingly, petitioners

have been afforded all of the essentials of due process.

Browning-Ferris v. Kelco Disposal, 106 L.Ed.2d 219, 242

(1989)(Brennan, J., concurring).

Petitioners have not cited any federal appellate cases

which adopt the due process limitation on punitive dam-

ages they urge, because there are none.'> To the contrary,

courts that have addressed the issue have rejected any

such due process limitations. See, e.g., Miller v. Cudahy

Co., 858 F.2d 1449, 1459 (10th Cir. 1988)(“appellants have

cited no persuasive federal constitutional authority to

support their argument” [that the Fourteenth Amend-

ment requires limits on award of punitive damages)), cert.

denied, 109 S.Ct. 3265 (1989).

1S Petitioners do cite Juzwin v. Amtorg Trading Corp., 705 F.

Supp. 1053 (D.N.J. 1989). However, that court vacated its deci-

sion. 718 F. Supp. 1233. In any event, the court’s due process

ruling concerned “repetitive awards of punitive damages for

the same conduct .. . ”, 718 F. Supp. at 1234, which has not

occurred in the instant case.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted,

ANDREW T. CrtRIN *

Rosert T. CUNNINGHAM, JR.

CUNNINGHAM, BOUNDS, YANCE,

CROWDER AND BROWN

1601 Dauphin Street

Mobile, Alabama 36660

(205) 471-6191

Attorneys for Respondent

* Counsel of Record

January 17, 1990

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