Opposition Brief — Blackwelder v. Life & Health Services, Inc.

No. 89-1554 \*

IN THE

Supreme Court of the United States

October Term 1990

ROBERT E. BLACKWELDER, et al.,

Petitioners,

VS.

LIFE AND HEALTH SERVICES, INC., et al.,

Respondents.

On Writ of Certiorari to the Supreme Court of Alabama

BRIEF FOR RESPONDENT

HARBOR INSURANCE COMPANY

IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

Clyde C. Owen, Jr.

Ball, Ball, Matthews & Novak, P.A.

1100 Union Bank Tower

Post Office Drawer 2148

Montgomery, Alabama 36197

(205) 834-7680

Attorney For Respondent

Harbor Insurance Company

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QUESTION PRESENTED FOR REVIEW

I. Whether a self-funded employee welfare benefit plan available

to employees of the Junior, Community, and Technical Colleges of

the State of Alabama in 1981 and 1982, was a *‘governmental plan”

as defined in the Employee Retirement Income Security Act of 1974,

29 U.S.C. § 1002(32) [ERISA].

PARTIES

In the Supreme Court of Alabama, the parties were:

i. Robert E. Blackwelder, as representative of a class of persons

who were participants in a self-funded employee welfare benefit plan,

known as the Alabama Junior/Community Colleges and Technical

Colleges Employee Benefit Plan, who incurred medical expenses

which were presented to the Plan, but were not paid. Plaintiffs/

Appellees.

2. Mary R. Holley, as representative of a class of persons who were

participants in the Plan, who either incurred no medical expenses

or who presented medical expenses to the Plan which were paid.

Plaintiffs/Appellees.

3. Life and Health Services, Inc., administrator of the Plan.

Defendant/ Appellant.

4. Betty Duncan, as Administratrix of the Estate of Robert E.

Wilder, President of Life and Health Services, Inc. Defendant/

Appellant.

5. Harbor Insurance Company, reinsurer of the Plan. Defendant/

Appellant. !

1. Pursuant to Supreme Court Rule 28.1, please take note that Harbor Insurance Com-

pany is a wholly owned subsidiary of The Continental Corporation. Its affiliated companies

are listed in Appendix I attached hereto.

Page

QUESTION PRESENTED FOR REVIEW ............. i

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TABLE OF AUTHORITIES ....................--.-. iv

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STATUTORY PROVISIONS INVOLVED .............. 2

STATEMENT OF THE CASE

A. Kdentification of the Parties ..................--. 3

B. Control of the Alabama Junior, Community

and Technical College System .................. 4

CMD Soc avvvcesbsvavvvseceees 5

D. Operation and Demise of the Plan .............. 6

E. Cousse of Proceedings Below ................-. 7

ARGUMENT

A. Petitioners’ First Question Presented

Asserts Facts Not Supported by the Record ....... 10

B. Petitioners’ Second Question Presented

Was Not Raised In A Timely Manner Below ...... 11

C. The Opinion of the Alabama Supreme Court Does

Not Conflict With The Federal Statutes, Federal

Decisions or Opinion Letters of The United

sues Departement Of Labor ................555. 12

ES ne te ala nye sven Wins ¥ a pw sho wie 15

TABLE OF CONTENTS

CERTIFICATE OF SERVICE .............. aia a 16

ote

TABLE OF AUTHORITIES

Page

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CASES

Feinstein v. Lewis,

477 F.Supp. 1256 (S.D. N.Y. 1979) .......... 12, 13, 14

Harbor Insurance Co. v. Blackwelder,

554 So.2d. 329 (Ala. 1989) ......... 1,9, 10, 11, 12, 13

Krupp v. Lincoln University,

663 FSupp. 289 (E.D. Pa. 1987) ................ 12, 14

Rose v. Long Island R.R. Pension Plan,

828 F.2d 910 (2d Cir. 1987), cert. denied,

485 U.S. 936, 108 S.Ct. 1112,

Der ee PIED ov 6 vos wc cecccccneves 12, 13, 14

OTHER AUTHORITY

ERISA Opinion Letter No. 79-62(A) (1979) .............. 12

OPINIONS BELOW

There was no opinion issued by the Circuit Court for Mont-

gomery County, Alabama, which addressed the issue presented here

for review. On December 30, 1987, the Circuit Court for Mont-

gomery County (Fifteenth Judicial Circuit) entered an *‘Order on

Pending Motions and Judgment On Nonjury Issue,”’ in which it held

that the self-insurance fund at issue in this case was a governmental

plan as defined by ERISA, and is exempted from ERISA require-

ments, sO as not to preclude common-law causes of action. Judgment

was entered in favor of the plaintiff classes and against the defen-

dants on this issue. See Appendix A attached hereto. The defendants

appealed the case to the Supreme Court of Alabama, where consoli

dated appeals were assigned Supreme Court Case Nos. 87-391,

87-407, and 87-487.

On September 29, 1989, the Alabama Supreme Court rendered

its opinion which, in part, reversed some of the judgments entered by

the Trial Court. As pertinent to the Question Presented, the Court

ruled, by a six to three vote, that the Trial Court erred in its holding

that the Plan was a governmental plan exempt from the provisions of

ERISA. Harbor Insurance Co. v. Blackwelder, et al. , 554 So.2d 329

(Ala. 1989). See Appendix B attached hereto.

The Application for Rehearing filed on behalf of the Plaintiffs/

Appellees was denied without opinion on November 17, 1989. See

Appendix C attached hereto.

JURISDICTION

Respondent Harbor Insurance Company concedes that the Peti-

tioners’ statement of jurisdiction is sufficient to enable this Court to

entertain its Petition for Writ of Certiorari, pursuant to 28 U.S.C. §

1257.

LL

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STATUTORY PROVISIONS INVOLVED

In addition to the statutory provisions recited in the Petition for

Writ of Certiorari, the following additional provision of the Employee

Retirement Income Security Act of 1974 is involved in the issue pre-

sented by the Petition:

**29 U.S.C. § 1144. Other laws.

(a) Supersedure; effective date. Except as provided in sub-

section (b) of this section, the provisions of this title and title TV

shall supersede any and all State laws insofar as they may now or

hereafter relate to any employee benefit plan described in section

4(a) [29 U.S.C. § 1003(a)] and not exempt under section 4(b)

{29 U.S.C. § 1003(b)]....

KK

(c) Definitions. For purposes of this section:

(1) The term ‘State law’ includes all laws, decisions, rules, regu-

lations, or other State action having the effect of law, of any

ee

STATEMENT OF THE CASE

A. Identification of the Parties

The Petitioners before this Court are two classes of persons em-

ployed by 28 of the 43 junior, community and technical colleges

operated by the State of Alabama in 1981 and 1982. Each of the

Petitioners elected to participate in an employee welfare benefit plan

created in 1981, known as the Alabama Junior/Community Colleges

and Technical Colleges Employee Benefit Plan (hereinafter referred

to as the **Plan’’).

Respondent Life & Health Services, Inc. (hereinafter “‘Life &

Health’’) contracted to assist in the creation and administration of the

Plan, and was instrumental in promoting the Plan to the Petitioners.

Robert Wilder was the president of Life & Health.

Respondent Harbor Insurance Company provided reinsurance of

a portion of the benefits offered by the Plan, pursuant to an Excess

Medical Stop-Loss Reinsurance Agreement. The Reinsurance Agree-

ment obligated Harbor to reimburse the Plan for certain amounts of

health benefits paid in excess of stated ‘‘attachment points,’’ which

are somewhat similar to deductibles in traditional health insurance

policies.

B. Control of the Alabama Junior,

Community and Technical College System

Prior to May 4, 1982, the Alabama Trade School and Junior

College Authority Act, Ala. Code §§ 16-60-80, et seq., (1975)?,

charged the Alabama State Board of Education with the responsibility

for the *‘operation, management, control, supervision, maintenance,

regulation, upkeep, improvement, equipment, and enlargement of

and gdditions to’’ Alabama’s junior, community and technical col-

leges. Ala. Code § 16-60-111 (1975) (repealed by 1982 Alabama Acts,

No. 82-486, § 2, effective May 4, 1982). Effective May 4, 1982,

those responsiblities were vested in the Chancellor of Postsecondary

Education, subject to approval by the State Board of Education. Ala.

Code § 16-60-111.2 (1975).

The State Board of Education discharges its statutory duties

through regular meetings, the minutes of which are public records.

With regard to insurance, the minutes demonstrate that, yearly, the

Board received recommendations for the purchase of consolidated

liability insurance for all vehicles owned by the junior, community

and technical colleges, for specified policy limits, for a specified

premium cost, to be purchased through a specified insurance agency,

and that the Board passed a resolution approving the purchase of such

liability insurance. By contrast, the minutes of the Board meetings

between 1979 and the end of 1982 contain no reference to any pro-

posal to study, create, fund, or operate a consolidated employee

welfare benefit plan for the employees of the schools.

2 Effective May 4, 1982. the Alabama Trade School and Junior College Authority Act

was substantially amended, by the creation of the Postsecondary Education Department,

defined as a “parallel organization to the state department of education directly responsible

to the state department of education for the direction and supervision of junior colleges and

trade schools and community colleges with a chief executive officer entitled a chancellor.”

Ala. Code § \6-60-110(6) (1975).

—— rrr r—O rn rrr

In September of 1981, the State Board of Education passed a

resolution which stated that ‘‘hospital medical insurance assistance

will be provided for all full-time employees in Alabama’s public junior,

community and technical colleges/institutes and Athens State College

and that this assistance will not exceed Three Hundred Nine Dollars

($309) per year per person.’’ There was no restriction on the use of

the funds by the employees for the purchase of any particular insur-

ance, nor were the funds deemed available only for the purchase of

‘‘authorized”’ or “‘approved”’ insurance programs.

C. Creation of the Plan

In the fall of 1980, the Alabama Junior Colleges Presidents Asso-

ciation and the Alabama Technical Colleges Presidents Association

formed a joint committee, called the Presidents Insurance Commit-

tee, to study the existing health insurance programs of the various

schools. The Presidents Insurance Committee determined that a con-

solidated self-funded employee benefit plan should be created, and

thereafter considered a plan offered by Central Bank, in association

with Blue Cross. However, before the Central Bank-Blue Cross plan

was adopted, committee member Dr. William McWhorter contacted

Life & Health and solicited a competitive bid for a consolidated

health benefit program.

Life & Health prepared its own proposal for a consolidated self-

funded employee’ benefit plan, which included medical and hospital

benefits to be provided through a trust funded by contributions from

those employees who elected to participate, excess stop-loss reinsur-

ance to be purchased from Harbor, and life insurance to be purchased

from another insurance company.

In September of 1981, the Presidents Insurance Committee, which

by then also included **insurance reps’’ representing the employees of

the schools, heard presentations from a representative of Central

Bank and from Robert Wilder on behalf of Life & Health, and voted

to adopt the Plan offered by Life & Health. On September 24, 1981,

the Committee, on the letterhead stationery of the Alaban.a Technical

Colleges Presidents Association, sent a memorandum to the presi-

dent of each school stating that the Presidents Insurance Committee

had agreed upon a self-funded medical/health insurance program,

and that representatives of Life & Health would soon be contacting

them to explain the Plan.

D. Operation and Demise of the Plan

The Plan was created and operated pursuant to a Trust Agreement,

which was prepared by Life & Health and executed by four junior and

technical college presidents and by the secretary to a fifth president, as

Trustees. The Trustees also entered into an Administration Services

Agreement with Life & Health io administer the Plan, and the above-

referenced Excess Medical Stop-Loss Reinsurance Agreement with

Harbor.

The stated purpose of the Trust Agreement was to provide and

maintain health henefits for participating school employees and their

families, to establish a fund of money, and to accumulate as part of

that fund an adequate reserve to carry out the purpose of the trust.

In order to fund the trust, the Trust Agreement empowered the

Trustees “to demand, collect and receive employer and employee

contributions”’ and *‘to specify the exact time and manner in which

the payment of such contributions are to be made... .*° On the

recommendation of Life & Health, the Trustees adopted employee

and family contribution rates (“‘premiums’’) which quickly proved

insufficient to pay for the health benefit claims submitted on behalf of

the employee participants. By the end of the first year the Plan had

accumulated approximately $600,000.00 more in payable claims

than it had funds to pay. The paid claims did not reach the attachment

point of the Harbor Reinsurance Agreement.

Wholesale withdrawal of employees from participation in the

Plan occurred at the end of 1982, and the Plan was thereby rendered

defunct. Litigation followed in May of 1983.

E. Course of Proceedings Below

In May 1983, Life & Health filed a Petition for Declaratory Judg-

ment and Other Relief in the Circuit Court for Montgomery County,

Alabama, which sought an order requiring the Plan participants to

contribute additional funds to pay the obligations of the Plan, and a

declaration that Harbor was obligated to pay a $118,373.44 claim

submitted by the Plan under the Reinsurance Agreement. Petitioners

Blackwelder and Holley, and others, were named as class representa-

tives of the Plan participants in this declaratory judgment action.

Blackwelder and Holley filed Motions to Dismiss the Life &

Health Petition for Declaratory Judgment in July of 1983, on the

ground, among others, that Congress has preempted the field and

subject matter of employee benefit plans such as that described and

made the subject matter of the Petition for Declaratory Judgment. See

Appendices D and E attached hereto. These were the first references

to the applicability of ERISA to the issues raised in this action. The

Trial Court denied the Blackwelder and Holley Motions to Dismiss

without opinion. See Appendix F attached hereto.

Thereafter, Blackwelder and Holley sought recovery of damages

from Life & Health, the Plan, the Trustees, and Harbor for their

alleged violation of the provisions of ERISA, and for negligence,

wantonness, fraud, breach of fiduciary duty, bad faith, and breach

of contract.

In October of 1983, the Trial Court realigned the parties, desig-

nating as plaintiffs the *‘Blackwelder class’ and the **Holley class.”’

Life & Health, the Plan, the Trustees, Wilder, and Harbor were

designated as defendants.

The plaintiff classes settled their claims against the Trustees for a

payment of $205,000.00.

In April of 1987, Harbor filed a Motion for Partial Summary

Judgment seeking, in part, judgment in its favor as to the issue of

ERISA’s pre-emption of the claims of negligence, wantonness, fraud,

and breach of contract asserted against it. See Appendix G attached

hereto. The response to this Motion was the first instance. in which

the ‘“‘governmental plan“ exemption from ERISA was specifically

raised. The Trial Court deferred ruling on that aspect of Harbor’s

Motion for Partial Summary Judgment, until after the trial of the

common-law claims asserted against the defendants.

The jury trial of the plaintiffs’ common-law claims resulted in

verdicts in their favor on their negligence claims against all three

defendants, assessing damages of $720,000.00 in favor of the Black-

welder class and $170,000.00 in favor of the Holley class. The jury

also returned verdicts against Life & Health and Wilder on the wan-

tonness and fraud claims, and assessed damages under the fraud

claims totaling $1,668 000.00 in favor of the Blackwelder class, and

$350,000.00 in favor of the Holley class. The jury returned verdicts

in favor of Harbor on the plaintiffs’ wantonness, fraud, and breach of

contract claims.

On December 30, 1987, the Trial Court held that the subject

employee benefit plan was a governmental plan as that term is defined

in ERISA, and that, therefore, the plaintiffs’ common-law claims

against Harbor and the other defendants were not pre-empted. See

Appendix A attached hereto.

al alec

The defendants appealed to the Alabama Supreme Court which,

on September 29, 1989, reversed all judgments entered in favor of the

plaintiffs on the negligence and wantonness claims, but affirmed the

judgments entered in their favor against Life & Health and Wilder on

the fraud claims. Harbor Insurance Co. v. Blackwelder, 554 So.2d

329 (Ala. 1989). See Appendix B attached hereto. The Alabama

Supreme Court opinion held that the Plan was not a governmental

plan within the meaning of ERISA; that the provisions of 29 U.S.C. §

1144 pre-empted the plaintiffs’ common-law claims of negligence

and wantonness; but that the fraud claims did not ‘‘relate to’’ an

employee benefit plan, and thus were not within the scope of claims

pre-empted by 29 U.S.C. § 1144.

The plaintiffs filed an Application for Rehearing with the Alabama

Supreme Court, which was denied without opinion on November 17,

1989. See Appendix C attached hereto.

10

ARGUMENT

WHY THE CAUSE SHOULD NOT BE

REVIEWED BY THIS COURT

A. Petitioners’ First Question Presented

Asserts Facts Not Supported By The Record

The Petitioners’ first question presented avers that the Plan ‘*‘is

funded primarily by state government.’’ Harbor contends that this

assertion is not supported by the record. The only evidence of any

funding of the Plan to which the Petitioners’ averment could relate is

the 1981 resolution of the State Board of Education authorizing

$309.00 per year for all fuli-time employees of the junior, community

and technical college system, for ‘‘hospital medical insurance assis-

tance.’’ Some employees of 28 of the 43 schools participated in the

Plan. No employees of the remaining 15 schools elected to partici-

pate. The Board resolution authorized the funds to be paid to all

employees of all schools.

The opinion of the Alabama Supreme Court addressed this

matter:

‘**The only fact that supports the allegation that the Plan

was maintained by the state is that part of the premiums

paid by the participants came from funds provided by the

state, to all similarly situated employees, that these employ-

ees could use to pay for part of any insurance coverage they

chose. This payment, which came indirectly from the state,

is not sufficient to support a conclusion that the Plan was

maintained by the State.’’ 554 So.2d 329, 333. Appendix

B, p. 8.

ree

1]

B. Petitioners’ Second Question Presented

Was Not Raised In A Timely Manner Below

The Petitioners’ second question presented seeks the Court's

review of the issue of whether the Plan met ERISA’s definition of

‘‘employee welfare plan’’ because it (allegedly) was not established

or maintained by an employer or employee organization. This matter

was raised for the first time when the Petitioners submitted to the

Alabama Supreme Court their Brief in Support of Application for

Rehearing.

In the Triai Court, the Petitioners averred in their July 1983 initial

substantive pleading that ‘‘[a]t all times hereinafter mentioned

Alabama Junior/Community Colleges and Technical Colleges Bene-

fit Plan, a non-profit trust, was and is duly organized and existing

‘qualified plan’ as defined in Title 29 USCS Section Section 1001, et

seq.”’ [sic]. The Pretrial Order entered five days prior to the trial of

this action, on July 8, 1987, included 28 numbered contentions of the

Petitioners, none of which suggested that the Plan did not meet

ERISA’s definition of ‘employee welfare plan.”’

Appendix H sets forth copies of the Statement of Issues contained

in the Brief of Appellant Harbor Insurance Company, and the Issues

Presented for Review contained in the Brief of Appellee Robert E.

Blackwelder, et al., presented to the Alabama Supreme Court.

The opinion of the Alabama Supreme Court states:

‘‘It is undisputed that the Plan involved in the present

appeal is an employee benefit plan covered by the provi-

sions of ERISA. There is a dispute, however, over whether

554 So.2d 329, 331-32, Appendix B, p. 5.

12

Until the Alabama Supreme Court reversed the judgments entered

against Harbor, the question of whether the Plan met ERISA’s

definition of ‘employee welfare plan’ had never been raised and was

not an issue in this case.

Moreover, the evidence is clear that the Presidents Insurance

Committee, which established the Plan, met ERISA’s definition of

‘employee organization’’ set forth in 29 U.S.C. §1002(4). See

ERISA Op. Letter No. 79-62A (1979). The Plan thus met ERISA’s

definition of ‘employee welfare benefit plan’’ found at 29 U.S.C.

§1002(1).

C. The Opinion of the Alabama Supreme Court

Does Not Conflict With The Federal Statutes, Federal Decisions or

Opinion Letters of the United States Department of Labor

The Clerk’s Record of the appeal in this case contains over 3,100

pages. The Reporter's Transcript spans another 1,593 pages. The

opinion of the Alabama Supreme Court begins its discussion by

noting that the facts which led to this appeal are ‘*somewhat

complicated. ** 554 So.2d 329, 330, Appendix B, p. 2.

The Alabama Supreme Court opinion addresses each of the three

reported decisions of the United States Court of Appeals and the

United States District Courts which explore in detail the governmental

plan exemption:

Rose v. Long Island R.R. Pension Plan, 828 F.2d 910 (2d Cir. 1987),

cert. denied, 485 U.S. 936, 108 S.Ct. 1112, 99 L.Ed.2d 273 (1988):

Feinstein v. Lewis, 477 F.Supp. 1256 (S.D. N.Y. 1979); and

Krupp v. Lincoln University, 663 F.Supp. 289 (E.D. Pa. 1987).

In light of the holdings of those three cases, as well as various

ERISA opinion letters issued by the Department of Labor, the

Alabama Supreme Court concluded that *‘under the totality of the

circumstances’ and “‘the particular facts of the present case,”’ the

subject Plan was not a governmental plan. 554 So.2d 329, 333;

Appendix B, pg 8. 10

In Rose, the Second Circuit Court of Appeals noted that ERISA

was enacted in order to remedy long-standing abuses and deficiencies

in the private pension system, including insufficient assets to assure

payment of future benefit obligations and premature termination of

underfunded benefit plans. 828 F.2d 910, 913. The Rose opinion also

noted that governmental plans were exempted from ERISA for a

number of reasons, including the ability of governmental entities to

fulfill their benefit obligations to their employees through their taxing

powers. 828 F.2d 910, 914. The Court observed that **LIRR employ-

ees, therefore, like other governmental employees, can depend on the

State’s taxing power to protect their right to retirement income.’ 828

F.2d 910, 918.

The Pian now before this Court had insufficient assets to assure

the payment of its benefit obligations, was underfunded, and as a

result became insolvent and defunct after barely one year of opera-

tion. The very deficiencies which ERISA was enacted to remedy

existed in this Plan. The key advantage of true governmental plans,

and the primary justification for their exemption from ERISA—

public ftunding—was not available to this Plan.

In Feinstein, the employee welfare benefit plans at issue were

established pursuant to collective bargaining agreements between a

teacher’s union and four employers, two municipalities and two

public school districts. The plans were exclusively funded by contri-

butions from the employers. The traditional governmental bodies

there played a direct role in both the establishment and maintenance of

the plans, and the plans were properly found to have met the ERISA

14

definition of governmental plan.

In Krupp, Lincoln University had a self-insured group health

plan. The Pennsylvania legislature had enacted the Lincoln Univer-

sity Commonwealth Act, 24 P.S. §§ 25-10-401, et seg., to establish

Lincoln University as ‘‘an instrumentality of the Commonwealth to

serve as a State-related institution in the Commonwealth system of

higher education.”’ 24 P.S. §§ 25-10-402(7). The District Court in

Krupp noted that the Commonwealth Act was enacted to allow

Pennsylvania to provide greater financial support to Lincoln Uni-

versity than it could under prior law. Despite these facts, the Court

properly held that there was no traditional governmental entity which

either established or maintained Lincoln University’s employee

welfare benefit plan, and that the Plan neither met ERISA’s definition

of governmental plan nor satisfied any of the policy reasons behind

the exemption of governmental plans from ERISA’s coverage.

The creators and administrators of the Plan at issue before this

Court were not traditional governmental entities. They were the

Presidents Insurance Committee, comprised of representatives of the

Alabama Junior Colleges Presidents Association and the Alabama

Technical Colleges Presidents Association, and ‘‘insurance reps’’

acting on behalf of the employees of the various schools. They sought

neither the advice nor the approval of the State agency charged by law

with the control of the junior, community and technical college

system—the Alabama State Board of Education— before they estab-

lished, funded, administered, and abandoned the Plan.

In view of the peculiar facts surrounding the creation and

operation of this Plan, the Alabama Supreme Court's holding that it

was not a governmental plan is entirely consistent with the holdings

and rationale of Rose, Feinstein, and Krupp. This case, and those

three cases, provide a harmonious discussion of what facts do, and

what facts do not, demonstrate the existence of a bona fide govern-

mental plan, exempt from the provisions of ERISA.

15

CONCLUSION

The Petitioners in this case were afforded every opportunity to

redress their grievances. They have already secured $205,000.00 in

satisfaction of their claims against the Plan Trustees, and remain free

to pursue collection of the more than $2 million in judgments upheld

in their favor against Life & Health and Wilder.

The opinion of the Alabama Supreme Court addressing the

governmental plan issue is not contrary to, but is entirely consistent

with, the opinions of the United States Court of Appeals for the

Second Circuit, the United States District Courts for the Southern

District of New York and the Eastern District of Pennsylvania, and

with the published opinions of the United States Department of Labor.

The Petition for Writ of Certiorari demonstrates neither grounds,

need, nor reason for this Court to accept this case for further review.

Respectfully submitted,

le. Ups:

CLYDE C. OWEN, JR.

Attorney for Respondent

Harbor Insurance Company

OF COUNSEL:

BALL, BALL, MATTHEWS & NOVAK, P.A.

1100 Union Bank Tower

Post Office Drawer 2148

Montgomery, Alabama 36197

(205) 834-7680

16

CERTIFICATE OF SERVICE

I, Clyde C. Owen, Jr., a member of the Bar of the Supreme Court

of the United States and attorney for the Respondent, Harbor

Insurance Company, do hereby certify that on this _&#¥*

day of April, 1990, I did serve the requisite number of copies of the

foregoing on the attorneys for the Petitioners and for Respondents

Life & Health Services, {nc. and Betty Duncan, by mailing the same

to them first-class, postage prepaid and properly addressed as follows:

Hon. George L. Beck, Jr. Hon. C. Knox McLaney III

Post Office Box 5019 Post Office Box 4276

Montgomery, Alabama 36103 Montgomery, Alabama 36101

Hon. Robert S. Lamar, Jr.

Lamar, Henson, Miller & Nelson, P.C.

901 Brown-Marx Tower

2000 Ist Avenue North

Birmingham, Alabama 35203

CLYDE C. OWEN, JR.

Attorney for Respondent

Harbor Insurance Company

OF COUNSEL:

BALL, BALL, MATTHEWS & NOVAK, P.A.

1100 Union Bank Tower

Post Office Drawer 2148

Montgomery, Alabama 36197

(205) 834-7680

APPENDICES

APPENDICES

TABLE OF CONTENTS

APPENDIX A_ Order of Trial Court Find-

ing Plan to be a *‘Govern-

mental Plan’’ December 30, 1987

APPENDIX B_ Opinion of Alabama

Supreme Court Reversing

Judgment of Trial Court on

Governmental Plan Issue September 29, 1989

APPENDIX C_ Notice of Order of

Alabama Supreme Court

Overruling Application

for Rehearing November 17, 1989

APPENDIX D_ Motion to Dismiss

Filed by Petitioner

Blackwelder in Trial

Court July 12, 1983

APPENDIX E Motion to Dismiss

Filed by Petitioner Holley

in Trial Court July 12, 1983

APPENDIX F Order of Trial Court

Overruling Blackwelder

and Holley Motions to

Dismiss August 18, 1983

APPENDIX G_ Motion of Respondent

Harbor Insurance Com-

pany for Partial Summary

Judgment in Trial Court April 22, 1987

APPENDIX H_ Parties’ Statement of

Issues Presented for

Review to Alabama April 26, 1988

Supreme Court and June 16, 1988

APPENDIX I List of Companies Affili-

ated with Respondent

Harbor Insurance

Company December 31, 1989

APPENDIX A

(Order Entered December 30, 1987)

CIRCUIT COURT

FIFTEENTH JUDICIAL CIRCUIT

CASE NO. CV-83-640-G

ROBERT E. BLACKWELDER, et al..

Plaintiffs,

Vs.

ALABAMA JUNIOR/COMMUNITY COLLEGES. et al..

Defendants.

ORDER ON PENDING MOTIONS AND JUDGMENT

ON NON JURY ISSUE

Itis ORDERED, as follows:

|. All post-judgment motions filed by the defendants are, Denied.

2. The court holds that the self insurance fund at issue in this case

was a governmental plan as defined by ERISA, and, as such, is

specifically exempted from ERISA requirements so as not to preclude

the common law causes of action. Judgment is entered in favor of the

plaintiff classes and against the defendants on this issue.

DONE and ORDERED in chambers this the 30th day of December,

1987.

WILLIAM R. GORDON

CIRCUIT JUDGE

ec: Clyde C. Owen, Jr.

George L. Beck

Henry C. Barnett, Jr.

C. Knox McLaney, III

Robert S. Lamar

APPENDIX B

(Opinion Released September 29, 1989)

THE STATE OF ALABAMA—JUDICIAL DEPARTMENT

THE SUPREME COURT OF ALABAMA

SPECIAL TERM, 1989

Harbor Insurance Company

87-391 ,-407

V.

Robert E. Blackwelder, et al.

Life and Health Services, Inc.

and Robert Wilder

87-487

¥.

Robert E. Blackwelder, et al.

Appeals from Montgomery Circuit Court

(CV-83-640-G)

JONES, JUSTICE.

These appeals are from final judgments entered upon jury verdicts

in favor of two classes of plaintiffs. The plaintiffs were all participants

in an insurance plan that, due to underfunding, was unable to pay its

obligations and failed. Because the plan in question is not a **govern-

mental plan,’” as that term is used in the Employee Retirement Incoine

Security Act of 1974 (**ERISA’’) (29 U.S.C. § 1001 et seq.), we hold

that, except for their fraud claims against Life and Health Services,

B2

Inc. (*“‘L&H’’), and its president, Robert Wilder, the plaintiffs’ com-

mon law claims are preempted by ERISA; therefore, the judgments

against L&H and Wilder based on fraud are affirmed; the remaining

judgments against Wilder and L&H, and the judgments against

Harbor Insurance Company (‘‘Harbor’’) are reversed; and the cause

is remanded for entry of judgments consistent with this opinion.

The facts that led to this appeal are somewhat complicated, but they

can be summarized for the purposes of this opinion. In January 1980,

Dr. William McWhorter, the president of one of Alabama’s junior

colleges, became interested in organizing a consolidated health insur-

ance plan for all of Alabama’s junior, community, and technical

colleges.' He sent questionnaires to the presidents of the other schools

to ascertain their interest in such a plan. Once the results were com-

piled, they were provided to L&H, a third-party administrator of

insurance plans with which Dr. McWhorter had had periodic contact

concerning the then-existing insurance plan at his college.

In the fall of 1980, a joint committee of presidents of the colleges

(*‘the Committee’’) was appointed by the Presidents’ Association to

study the then-existing insurance plans of the schools and to make

recommendations for any changes. The Committee concluded that a

self-funded insurance plan should be created; and it initially recom-

mended a plan offered by Central Bank in association with Blue Cross,

with life insurance provided by American Foundation Life Insurance

Company.

The Committee again contacted L&H, this time to determine

whether L&H could offer a better rate for the same coverage offered

by Central Bank. Wilder undertook the task of ‘‘selling’’ the L&H

plan to the Committee and, subsequently, to the individual employees.

Although he knew that the plan was underfunded, based on the cal-

'The Alabama Trade School and Junior College Authority Act is codified at Ala. Code

1975. § 16-60-80 et seq

B3

culations and assumptions upon which it was premised, Wilder failed

-to disclose this fact to either the Committee or to the individual

employees who chose to accept the plan.

The alternative plan proposed by L&H called for lower premiums

than did the plan offered by Central Bank, and it was accepted by the

Committee. This plan was reinsured by Harbor. The acceptance of

the L&H plan led to the creation of the Alabama Junior/Community

Colleges and Technical Colleges Employee Benefit Plan (‘the Plan’).

The Plan was subsequently presented to the employees of the scinools

and, eventually, over 1,300 employees at 28 of the schools decided to

participate. The Plan collapsed after just one year of operation.

Following the collapse of the Plan, certain participants instituted

several actions to recover damages from Wilder, L&H, and Harbor.

After certification of the classes and consolidation of the actions, the

cases proceeded to trial. The trial court ruled that the Plan was a

‘*governmental plan’’ and, therefore, exempt from the provisions of

ERISA. The jury returned special verdicts against Harbor on negli-

gence claims, and against Wilder and L&H on negligence, wanton-

ness, and fraud claims. These appeals followed. |

On appeal, as at trial, the parties raise the issue of the preemptive

effect of ERISA. Two threshold questions are presented: 1) Whether

the Plan is one “‘established or maintained”’ by a governmental body

and thus excepted from ERISA’s operative effect; and 2) whether the

plaintiffs’ claims for fraud against Wilder and L&H fall outside the

operative effect of the federal act. Because we find that the **govern-

mental plan’’ exception to ERISA does not apply, we hold that the

common law causes of action based upon negligence and wantonness,

under which the plaintiffs recovered against all of the defendants, are

preempted; thus, the judgments based on these claims are reversed.

We further hold that the fraud claims against Wilder and L&H,

amounting to claims for fraudulent inducement, are not preempted;

thus, the judgments against these defendants on that claim are

affirmed.

I :

In our treatment of the “‘governmental plan’’ exception, we have

undertaken a three-part analysis: 1) The first step, when examining

any insurance or benefit plan, is to determine whether the plan falls

within the scope of ERISA’s coverage; 2) if the plan is so covered, then

we must next examine the exceptions to ERISA to ascertain wheter

any of them apply; and, finally, 3) if we find that the plan is within

ERISA’s coverage, and that no exception applies, we must examine

the preemptive effect of these determinations.

Our inquiry begins with the language of the statute itself. The

applicable section of ERISA, governing the scope of its coverage, is

found at 29 U.S.C. § 1003:

‘*(a) Except as provided in subsection (b) of this section

and in sections 1051, 1081, and 1101 of this title, this sub-

chapter shall apply to any employee benefit plan if it is

established or maintained—

““(1) by any employer engaged in commerce or in any

industry or activity affecting commerce; or

**(2) by any employee organization or organizations repre-

senting employees engaged in commerce or in any industry

or activity affecting commerce; or

**(3) by both.

‘*(b) The provisions of this subchapter shall not apply to an

employee benefit plan if (1) such plan is a governmental

plan (as defined in section 1002(32) of this title)... .””

The definitions of an *‘employee welfare benefit plan’’ and of a

BS

‘‘governmental plan’’ are found at 29 U.S.C. § 1002, which states,

in relevant part:

‘*(1) The terms ‘employee welfare benefit plan’ and

‘welfare plan’ mean any plan, fund, or program which was

heretofore or is hereafter established or maintained by an

employer or by an employee organization, or by both, to

the extent that such plan, fund, or program was established

or is maintained for the purpose of providing for its par-

ticipants or their beneficiaries, through the purchase of

insurance or otherwise, (A) medical, surgical, or hospital

care or benefits, or benefits in the event of sickness, acci-

dent, disability, death or unemployment. . .

‘*(32) The term ‘governmental plan’ means a plan

established or maintained for its employees by the Govern-

ment of the United States, by the government of any State

or political subdivision thereof, or by any agency or

instrumentality of any of the foregoing.”

It is undisputed that the Plan involved in the present appeal is an

employee benefit plan covered by the provisions of ERISA.* There

is a dispute, however, over whether an exception to coverage applies.

As noted earlier, the trial court ruled that the **governmental plan”

exception applied and, therefore, that ERISA did not control the

determination of liability under the Plan. We disagree.

*It is important to note here that while the Plan is covered by ERISA, a further

determination is required to test ERISA’s preemptive effect on the separate state law claims

on which the special verdicts were based. See our later discussion of the fraud-in-the-

inducement claims under part II of this opinion.

B6

Although the ‘‘governmental plan’’ exception has been discussed

in several cases, an analysis of the available authority leaves u

without a clear, definitive standard by which we may determine

whether the Plan is a governmental plan. Thus, any plan must be

closely examined to determine whether it falls within this exception

to the coverage of ERISA. Initially, we must bear in mind the broad

scope of ERISA’s preemption in the employee benefit field.

‘In determining whether various benefit policies

fall within ERISA, courts should interpret the act’s coverage

broadly. Sly v. P.R. Mallory & Co., 712 F.2d 1209, 1211

(7th Cir. 1983).”°

Scwartz v. Newsweek, Inc., 653 F.Supp. 384,387 (S.D.N.Y. 1986),

aff'd, 827 F.2d 879 (2d Cir. 1987).

One of the first cases to discuss the ‘governmental plan’’ excep-

tion was Feinstein v. Lewis, 477 F.Supp. 1256 (S.D.N.Y. 1979),

aff'd, 622 F.2d 573 (2d Cir. 1980). In Feinstein, the court considered

whether employee welfare plans, established as the result of a collec-

tive bargaining agreement between a union of public employees and

their municipal or school district employers, were *‘ governmental

plans.’’ The court went into a thorough discussion of the term

**governmental plan’’ before ruling that the exception applied to the

plans in question. In its analysis of the intention of Congress in enact-

ing ERISA, the court stated:

‘*These discussions clearly demonstrate that Congress, in

exempting governmental plans, was concerned more with

the governmental nature of public employees and public

employers than with the details of how a plan was estab-

lished or maintained.”

Id. at 1262.

B7

In its holding that the ‘‘governmental plan’’ exception applied,

the Feinstein court emphasized that the governmental instrumentality,

as the employer, provided 100% of the fundin, sor the plans. Further,

the Feinstein court reasoned that the mere fact that the public em-

ployers acted in conjunction with the employees’ union, pursuant to a

collective bargaining agreement, to establish and maintain the benefit

plan, *‘does not lead us to the conclusion that the plan was not ‘estab-

lished’ by the [public employers].’’ /d. at 1260.

An equally extensive discussion of the ‘governmental plan’ ex-

ception is found in Rose v. Long Island R.R. Pension Plan, 828 F.2d

910 (2d Cir. 1987), cert. denied, U.S. 1, WS S.QA. NL,

99 L.Ed.2d 273 (1988). The court in Rose ruled that a plan estab-

lished by the Long Island Railroad was, under the facts of the case,

a governmental plan. Of particular interest is the analysis used by the

Rose court to define the terms ‘‘agency or instrumentality.’ These

two terms are not defined in ERISA; but the Rose court reasoned that

the definitions given these terms by the Internal Revenue Service, one

of the agencies charged with enforcing ERISA, were entitled to great

deference. The term **governmental plan’’ is defined at 26 U.S.C. §

414(d), and this definition is virtually identical to the one found at

29 U.S.C. § 1002(32).

‘‘In interpreting the § 414(d) exemption, the IRS has con-

sistently relied on Revenue Ruling 57-128, 1957-1 C.B.

311, which lists six factors to be considered in determining

whether a particular entity is an agency or instrumentality:

‘In cases involving the status of an organization as an in-

strumentality of one or more states or political subdivi-

sions, the following factors are taken into consideration:

(1) whether it is used for a governmental purpose and

performs a governmental function; (2) whether perfor-

mance of its function is on behalf of one or more states or

B8

political subdivisions; (3) whether there are any private

interests involved, or whether the states or political sub-

divisions involved have the powers and interests of an

owner; (4) whether control and supervision of the organi-

zation is vested in public authority or authorities; (5) if

express or iniplied statutory or other authority is necessary

for the creation and/or use of such an instrumentality, and

whether such authority exists; and (6) the degree of financial

autonomy and the sources of its operating expenses.””

Rose, 828 F.2d at 918.

After an examination of these factors, as they relate to the present

appeal, we find that the Plan was not established or maintained by an

agency or instrumentality of the State of Alabama, or any political

subdivision of it. While it could be argued that some of the six factors

listed above apply to the Plan, we nonetheless conclude that, under

the totality of the circumstances, the Committee was not an agency or

instrumentality of the State; thus, the Plan is not a governmental plan.

Because we find that the Committee is not an agency or instru-

mentality of the state, we further hold that the Plan was not estab-

lished or maintained by the state. The Plan was established by the

independent actions of the presidents of some of Alabama’s junior

and technical colleges. This clearly does not meet the establish-

ment criteria contained in the “‘governmental plan’ exception.

Neither is the Plan maintained by the state. The only fact that sup-

ports the allegation that the Pian was maintained by the state is that

part of the premiums paid by the participants came from funds pro-

vided by the state, to all similarly situated employees, that these

employees could use to pay for part of any insurance coverage they

chose. This payment, which came directly from the state, is not

sufficient to support a conclusion that the Plan was maintained by

the State.

ee

B9

Our conclusion is further supported by the fact that the *‘govern-

mental plan’’ exception was contemplated as a narrow exception to

the otherwise expansive coverage of ERISA. In a federal case quite

similar to the present one, the district court discussed the reasons

behind a narrow construction of this exception:

‘Indeed, the legislative history’s frequent reference to

the exception simply as the ‘governmental plan’ excep-

tion,. ..without ever elaborating on the significance of

the individual terms chosen to describe the scope of the

exception, suggest that the exception was meant to cover

the entire range of organizations traditionally character-

ized as governmental organizations, but not to expand the

range to include organizations having some significant

relationship with a government but not themselves viewed

as governmental. ””

Krupp v. Lincoln University, 663 F.Supp. 289, 292 (E.D.Pa.

1987).

In Krupp, the court ruled that a university’s health care plan was

not a governmental! plan, even though a legislative act had established

the university as an instrumentality of the Commonwealth. The fact

that the university was characterized as a ‘‘state-related institution,”’

reasoned the Krupp court, did not mandate that its insurance plan be

considered a governmental plan. We approve the rationale for the

Krupp decision, and we hold that the instant Plan is not a govern-

mental plan.

As was previously mentioned, we realize that there is no clear

guide to determine when the ‘governmental plan’’ exception to

ERISA applies. There have been cases involving colleges in which

the insurance plan was properly found to be a governmental plan.

See ERISA Op. Letter No. 77-13; and ERISA Op. Letter 76128.

B10

However, under the particular facts of the present case, we do not

find these authorities to be controlling here.*

Because the *‘governmental plan’’ exception does not apply to

the instant Plan, the provisions of ERISA are applicable here. The

preemptive provisions of ERISA are found at 29 U.S.C. § 1144:

‘*Except as otherwise provided in subsection (b) of this

section, the provisions of this.subchapter and subchapter

II of this chapter shall supersede any and all State laws

insofar as they may now or hereafter relate to any employee

benefit plan described in section 1003(a) of this title and

not exempt under section 1003(b) of this title. This sec-

tion shall take effect on January 1, 1975.”’

In discussing this section, the United States Supreme Court has

provided guidance in understanding the scope of the preemptive

aspects of ERISA:

‘*To summarize the pure mechanics of the provisions

quoted above: If a state law ‘relate[s] to. . .employee

benefit plan[s],’ it is pre-empted. § 514(a). The saving

clause excepts from the pre-emption clause laws that

‘regulat[e] insurance.” § 514(b)(2)(A). The deemer clause

makes clear that a state law that ‘purport[s] to regulate

insurance’ cannot deem an employee benefit plan to be an

insurance company. § 514(b)(2)(B) [state laws that regulate

insurance, banking, or securities are not preempted by

ERISA].

‘For a thorough discussion of the “‘governmental plan’ exception and the cases and

interpretive releases analyzing it, see RIA Employment Coordinator, € B-10131 to B-10133,

at 30, 115-118.

Bll

‘*.. We have observed in the past that the express pre-

erption provisions of ERISA are deliberately expansive,

and designed to ‘establish pension plan regulation as ex-

clusiveiy a federal concern.’ {Citations omitted. ]"’

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 45 (1987).

If.

In regard to the state common law claims for fraud against Wilder

and L&H, we hold that these claims are not preempted under the

provisions of ERISA and we affirm that aspect of the trial court’s

judgments. In the recent case of HealthAmerica v. Menton, {Ms.

87-1100, July 21, 1989) _So.2d ______ (Alla. 1989), we held

that a claim for fraud in the inducement does not “‘relate to’’ an

employee benefit plan and is therefore not preempted by ERISA.

In the instant case, the plaintiffs, relying upon, among other

things, Wilder’s misrepresentations that the plan was ‘‘fully funded ,”’

forwent accepting the plan offered by Central Bank and accepted the

L&H Plan. With their acceptance of the L&H Plan, however, the

plaintiffs did not receive the promised benefits. The plaintiffs,

according to their claim for misrepresentation, were not damaged as

a result of the fraudulent administration of the Plan or as a result of

non-payment pursuant to the Plan; rather, as a consequence of the

misrepresentations and promises of benefits, they were induced to

accept the L&H Plan, as opposed to a more auequately funded plan.

This *‘fraud in the inducement” claim is not covered by the provi-

ions of ERISA; therefore, it falls outside ERISA’s preemptive effect.

B12

The facts of the instant case fall clearly within the holding in

HealthAmerica. L&H knew that the Committee had received from

Central Bank a proposal for a plan in which the Committee had

expressed an interest. In order to *‘sell’’ its proposal to the Committee

and the schools’ personnel, L&H had to offer a plan that was com-

petitive with that proposed by Central Bank. The fraud committed by

Wilder, on behalf of L&H (i.e., offering the Plan with knowledge that

L&H’s own actuarial criteria for a viable plan showed inadequate

funding), was aimed at inducing the Committee and the individuals

it represented to select L&H’s proposal over that of its competitor.

Conduct of this nature will not be tolerated in Alabama; and it was

not the intent of Congress, in enacting ERISA, to preclude state

regulation of such activity. See HealthAmerica, supra, and the cases

cited therein.

L&H contends that the trial court erred in certifying the plaintiff

classes because *“‘commonality’’ and “‘typicality’’ do not exist, as

required by A.R.Civ.P.23(a)(2) and (3). We disagree, and we hold

that there are questions of law and fact common to the classes and

that the claims of the representative parties are typical of the claims

of the classes.

Although the misrepresentations were made to the members of

each class at varying times, the misrepresentations were basically

the same and were redressable under the same theory of recovery.

Where plaintiffs allege and prove a standard claim for fraud based

On misrepresentations with a common thread, as is the case here.

their cause is maintainable as a class action.

It is within the sound discretion of the trial court to certify a class

under Rule 23, and we will reverse such a ruling only upon a showing

of an abuse of that discretion. Marshall Durbin of Jasper, Inc. \.

Jasper Utilities Board of the City of Jasper, 437 So.2d 1014 (Ala.

1983). We have not been shown that the trial court abused its dis

cretion in certifying the classes in the instant case.

fe ee

B13

Therefore, the judgments against Wilder and L&H, based on the

non-preempted fraud claims, are affirmed; the judgments against all

the defendants based on the remaining preempted state law claims are

reversed; and the cause is remanded for entry of judgments consistent

with this opinion.

REVERSED AND REMANDED WITH INSTRUCTIONS AS

TO 87-391 AND 87407.

AFFIRMED AS TO 87-487.

Hornsby, C.J., and Adams, Steagall, and Kennedy, JJ., concur.

Maddox, Almon, Shores, and Houston, JJ., concur in part and

dissent in part.

MADDOX, JUSTICE (concurring in part and dissenting in part).

I concur in the portion of the majority’s opinion that holds that

the fraud claims are not preempted by ERISA, but because I am of

the opinion that this was a ‘‘governmental plan,’ I would hold that

none of the claims in this case are preempted, and I would affirm.

ERISA defines ‘‘governmental plan’’ as ‘‘a plan established or

maintained for its employees by the Government of the United States,

by the government of any State or political subdivision thereof, or by

any agency or instrumentality of any of the foregoing.”’ 29 U.S.C.

§ 1002(32). The factors listed in Rose v. Long Island R.R. Pension

Plan, 828 F.2d 910(2d Cir. 1987), cert. denied, U.S.

108 S.Ct. 1112 (1988), show that the ‘governmental plan’’ exception

should be interpreted broadly. In this case, the plan was for govern-

ment employees and their dependents; its trustees consisted of

government employees who established and maintained the plan, and

it was partially funded with government money. I believe that this plan

B14

was exempt from ERISA and that none of the plaintiffs’ claims are

preempted. Therefore, I must dissent from that portion of the

majority’s opinion holding that certain claims were preempted.

SHORES, JUSTICE (concurring in part and dissenting in part).

I] concur in part II of the opinion and join Justice Maddox’s dissent

as to Part I.

Almon, J., concurs.

HOUSTON, JUSTICE (concurring in part; dissenting in part).

See my dissent in HealthAmerica v. Menton, |Ms. 87-1100,

July 21, 1989] So.2d (Ala. 1989). I would reverse and

remand to permit the plaintiffs to amend their fraud cause of action

to proceed with a cause of action under ERISA, 29 U.S.C. § 1132(a).

Therefore, I concur in part and dissent in part.

APPENDIX C

(Notice Dated November 17, 1989)

HARBOR INSURANCE COMPANY,

LIFE & HEALTH SERVICES, INC., et al.

Appellant

V.

Robert E. Blackwelder, et al.

Appellee

You are hereby notified that the following indicated action was

taken in the above cause by the Supreme Court today:

Application for rehearing overruled. No opinion written on

rehearing. Jones, J. Hornsby, CJ., Adams, Steagall and Kennedy,

J.J., concur; Maddox, Almon, Shores and Houston, J.J., concur in

part and dissent in part.

11/17/89 Prd

bsa Robert G. Esdale, Clerk

Supreme Court of Alabama

ee nate are Ee ee eee

2 Haber Point

Petites ne —

APPENDIX D

(Motion Filed July 12, 1983)

IN THE CIRCUIT COURT OF

MONTGOMERY COUNTY, ALABAMA

Civil Action No. 83-640-G

LIFE & HEALTH INSURANCE

SERVICES. INC).

of Alabama corporation

PETITIONER

VS.

ALABAMA JUNIOR/COMMUNITY

COLLEGES AND TECHNICAL COLLEGES

EMPLOYEE BENEFIT PLAN, etc. et. als.

RESPONDENTS

MOTION TO DISMISS

Comes now Robert E. Blackwelder, a Defendant in the

above entitled cause, individually and as a proposed representative of

a class of employees and claimants, and appearing specially, and

without consenting to the jurisdiction of this Court, files this Motion

to Dismiss, pursuant to the Alabama Rules of Civil Procedure, and

assigns the following separate and several grounds:

1. This Court is without jurisdiction of the subject matter

of this complaint.

2. Congress has pre-empted the field and subject matter

of Employee Benefit Plans such as that described and made the

subject matter of this complaint.

3. The complaint states no cause of action recognizable

under state law.

D2

4. Federal courts have exclusive subject matter juris-

diction of the matters complained of in the complaint.

5. This complaint is not brought by a participant or bene-

ficiary to recover plan benefits or to clarify future rights and is

therefore not within the concurrent jurisdiction of state courts.

Respectfully submitted,

BAXLEY, BECK & DILLARD

BY:

George Beck

Attorney for Blackwelder, Defendant

P.O. Box 5019

305 South Lawrence Street

Montgomery, AL 36103-5019

205/832-4878

APPENDIX E

(Motion Filed July 12, 1983)

IN THE CIRCUIT COURT OF

MONTGOMERY COUNTY, ALABAMA

Civil Action No. 83-640-G

LIFE & HEALTH INSURANCE

SERVICES, INC.,

of Alabama corporation

PETITIONER

VS.

ALABAMA JUNIOR/COMMUNITY

COLLEGES AND TECHNICAL COLLEGES

EMPLOYEE BENEFIT PLAN, etc. et. als.

RESPONDENTS

MOTION TO DISMISS

Comes now Mary R. Holley and Sarah B. Everage,

Defendants in the above entitled cause, individually and as a proposed

representative of a class of employees, and appearing specially, and

without consenting to the jurisdiction of this Court, files this Motion

to Dismiss, pursuant to the Alabama Rules of Civil Procedure, and

assigns the following separate and several grounds:

1. This Court is without jurisdiction of the subject matter

of this complaint.

2. Congress has pre-empted the field and subject matter

of Employee Benefit Plans such as that described and made the

subject matter of this complaint.

3. The complaint states no cause of action recognizable

under state law.

E2

4. Federal courts have exclusive subject matter juris-

diction of the matters complained of in the complaint.

5. This complaint is not brought by a participant or bene-

ficiary to recover plan benefits or to clarify future rights and is

therefore not within the concurrent jurisdiction of state courts.

Respectfully submitted,

BAXLEY, BECK & DILLARD

BY:

George Beck

Attorney for Holly & Everage, Defendants

P.O. Box 5019

305 South Lawrence Street

Montgomery, AL 36103-5019

205/832-4878

ee | +. _— peaeeneg —

APPENDIX F

(Order Entered August 18, 1983)

CIRCUIT COURT

FIFTEENTH JUDICIAL CIRCUIT

MONTGOMERY COUNTY, ALABAMA

CASE NO. CV-83-640-G

LIFE & HEALTH SERVICE, INC.,

Plaintiff,

VS.

ALABAMA JUNIOR/COMMUNITY

COLLEGES AND TECHNICAL COLLEGES, et al.,

Defendants.

\

The court having read and considered defendants’ Motions to

Dismiss, it is ORDERED that defendants Blackwelder, Holley,

Everage, Harbor and Dill’s Motions are DENIED and defendants

shall file their Answers within ten (10) days from the date of this

Order.

DONE and ORDERED in chambers this 18th day of August,

1983.

WILLIAM R. GORDON

Circuit Judge

Robert Alton

Larry Lewiski

Thomas Dean

Kenneth Cooper

Richard Allen

John Matthews

George Beck

Robert Abrams

APPENDIX G

(Motion Filed April 22, 1987)

IN THE CIRCUIT COURT

FOR

MONTGOMERY COUNTY, ALABAMA

CIVIL ACTION NO. CV-83-640-G

Robert E. Blackwelder, et al.,

Plaintiffs,

VS.

ALABAMA JUNIOR/COMMUNITY COLLEGES,

et al.,

Defendants.

MOTION FOR PARTIAL SUMMARY JUDGMENT

Defendant Harbor Insurance Company moves the Court to

enter partial summary judgment on the claims and issues specified

hereinbelow:

1. Count II of the Crossclaim of Alabama Junior/Community

Colleges and Technical Colleges Employee Benefit Plan (**Plan’’)

against Harbor, alleging negligence.

2. Count III of the Crossclaim of the Plan against Harbor,

alleging fraud.

3. The issue of an agency relationship between Harbor, as

principal, and Life & Health Services, Inc., and/or any of its officers,

agents or employees, as agents.

4. The preemption of the Employee Retirement Income

Security Act of 1974, 29 U.S.C. §§1001, et seq. (ERISA) of the

negligence, wantonness, fraud and fraudulent concealment claims of

the plaintiffs against Harbor, and the negligence, breach of contract

and fraud claims of the Plan against Harbor.

i NP ed i na

A OENAR a nt

A NA et te Maal te a Naan ab

G2

5. The claim of the plaintiffs against Harbor seeking extra-

contractual and punitive damages under its claim alleging liability

pursuant to ERISA.

As grounds for said motion, defendant Harbor avers the

following:

1. As to Counts II and III of the Plan’s Crossclaim against

Harbor, said claims are barred by the Statute of Limitations, and as

to such matter there exists no genuine issue as to any material fact

and Harbor is entitled to judgment in its favor as a matter of law.

2. As to the issue of an agency relationship between it as

principal and Life & Health Services, Inc., and/or any of its officers,

agents and employees, as agents, there exists no genuine issue to any

material fact and Harbor is entitled to a declaration that no such

agency relationship exists, as a matter of law.

3. As to the issues of the preemption of the negligence,

wantonness, fraud, fraudulent concealment and breach of contract

claims of the plaintiffs and the Plan, respectively, against Harbor,

such issue is a question of law, and any factual disputes presented

by the record do not constitute genuine issues of material facts con-

cerning the issue of preemption.

In support of said Motion for Partial Summary Judgment,

defendant Harbor offers the following:

1. The original Petition for Declaratory Judgment and Other

Relief filed by Life & Health Services, Inc., to commence this

proceeding.

2. The original answers, and all amendments thereto, filed by

all parties to this action.

3. The Counterclaim/Crossclaim, and all amendments thereto,

of the now plaintiff classes against all other parties to this action.

4. The answers and/or replies of all parties to the Counter-

claim/Crossclaim of the now plaintiff classes, and all amendments

thereto.

G3

5. The Crossclaim of the Plan against Harbor.

6. Harbor’s Answer to the Crossclaim of the Plan.

7. All evidence offered in support of or in opposition to any

previously filed Motion for Summary Judgment, by Harbor or any

other party.

8. The depositions of Robert Wilder, Judith Reif, Eugene

Allen, Robert Percival, Edward Addy, Robert Markwith, and

William H. McWhorter.

DEFENDANT HARBOR REQUESTS PERMISSION TO

BRIEF AND PRESENT ORAL ARGUMENT RESPECTING

THE MERITS OF THIS MOTION.

Clyde C. Owen, Jr.

Attorney for Defendant

Harbor Insurance Company

OF COUNSEL:

Ball, Ball, Duke &

Matthews, P.A.

1100 Union Bank Tower

P.O. Drawer 2148

Montgomery, Alabama 36197

(205) 834-7680

A Ne A a a el la

4m.

iat escort ees

APPENDIX H

(Brief Filed April 26, 1988)

IN THE SUPREME COURT

OF ALABAMA

CASE NUMBERS: 87-391, 87-407, 87-487

HARBOR INSURANCE COMPANY and

LIFE AND HEALTH SERVICES, INC.,

Appellants,

VS.

ROBERT E. BLACKWELDER, etc., et al.,

On Appeal From The Circuit Court for Montgomery County

Appellees.

BRIEF OF APPELLANT

HARBOR INSURANCE COMPANY

Clyde C. Owen, Jr.

Gerald C. Swann, Jr.

Attorneys for Appellant

Harbor Insurance Company

OF COUNSEL:

BALL, BALL, MATTHEWS & NOVAK, P.A.

1100 Union Bank Tower

Post Office Drawer 2148

Montgomery, Alabama 36197

(205) 834-7680

ORAL ARGUMENT REQUESTED

H2

(Appellant’s Brief— Alabama Supreme Court)

STATEMENT OF ISSUES

I. Whether the Governmental Plan Exemption from ERISA

Applies To The Plan.

29 USC §100i(a)

29 USC $1002(32)

29 USC §1003(b)

29 USC §1144(b) (2) (B)

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

95 L.Ed.2d. 39, 107 S.Ct. 1549 (1987)

Rose v. Long Island R.R. Pension Plan, 828 F.2d 910

(2d Cir. 1987)

II]. Whether the Evidence Justified Submitting the Employees’

Negligence Claims Against Harbor to the Jury.

Jones v. Newton, 454 So.2d 1345 (Ala. 1984)

Sungas, Inc. v. Perry, 450 So.2d 1085 (Ala. 1984)

Hall v. Booth, 423 So.2d 184 (Ala. 1982)

Metropolitan Life Ins. Co. v. James, 238 Ala. 337,

191 So. 352 (1939)

Lazzara v. Howard A. Esser, Inc. , 8302 F.2d 260

(7th Cir. 1986)

§6-5-102, Code of Alabama, 1975

§27-8-l(c), Code of Alabama, 1975

§27-8-S(c), Code of Alabama, 1975

III. Whether the Holley Class Judgment for Mental Anguish Can

Stand Absent Proof of Actual Damages.

Vincent v. Blue Cross-Blue Shield of Alabama,

373 So.2d 1054 (Ala. 1979).

Alabama Power Company v. Harmon, 483 So.2d 386

(Ala. 1986)

B&M Homes, Inc. v. Hogan, 376 So.2d 667 (Ala. 1979)

Restatement (2d) Torts, §436A

> Pah nh Re a Wa ne a i a PON neat

H3

(Brief Filed June 16, 1988)

IN THE SUPREME COURT

OF ALABAMA

CASE NUMBERS: 87-391, 87-407, 87-487

HARBOR INSURANCE COMPANY and

LIFE AND HEALTH SERVICES, INC.,

Appellants,

VS.

ROBERT E. BLACKWELDER, etc., et al.,

Appellees

On Appeal From The Circuit Court for Montgomery County

BRIEF OF APPELLEE

ROBERT E. BLACKWELDER, ET AL.

GEORGE L. BECK, JR.

Attorney for Appellee Blackwelder

Post Office Box 5019

Montgomery, Alabama 36103

Telephone (205) 832-4878

C. KNOX MCLANEY, III

Attorney for Appellee Holley

Post Office Box 4276

Montgomery. Alabama 36101

Telephone (205) 265-1282

H4

(Appellees’ Brief—Alabama Supreme Court)

ISSUES PRESENTED FOR REVIEW

I

THE EVIDENCE MORE THAN JUSTIFIED SUBMIT-

TING THE EMPLOYEE’S NEGLIGENCE CLAIMS AGAINST

HARBOR TO THE JURY.

Hand v. Butts, 289 Ala. 653, 270 So.2d 789.

Beasley v. MacDonald Engineering Company, 287 Ala.

Ala. 189, 249 So.2d844 (Ala. 1971).

Restatement of the Law, 2d Tort 2d, Section 324(a).

Fireman's Fund American Insurance Company v. Coleman,

394 So.2d 334 (Ala. 1981).

Kennedy v. City of Montgomery, 423 So.2d 187 (Ala. 1980).

Fricke v. City of Guntersville, 254 Ala. 370, 48 So.2d 420

(Ala. 1950).

Berkell and Company Contractors, Inc. v. Providence

Hospital, 454 So.2d 496 (Ala. 1984).

Federal Mogul Corporation v. Universal Construction

Company, 378 So.2d 716 (Ala. 1979).

McGaha vy. Steadman, 410 So.2d 420 (Ala.Civ. App. 1981).

Williams v. The Jackson Company, 359 So.2d 798

(Ala.Civ.App. 1978).

H5

Daley v. City of Birmingham, 378 So.2d 728 (Ala. 1979).

Ziegler v. Blount Brothers Construction Company, 364 So.2¢

1163, 1167 ¢Ala. 1978).

Harvard v. Palmer and Baker Engineers, Inc. , 293 Ala. 301,

307, 302 So.2d 228, 232 (Ala. 1974).

North Carolina Mutual Life Insurance Company v. Mattie

Holley, (M.S. 84-1211, 1223, Sept. 19, 1987], __ So.2d __

(1987).

II

WHETHER THIS WAS A GOVERNMENT PLAN

Krupp v. Lincoln University, 663 F.Supp. 289 (E.D.Pa.

1987).

Feinstein v. Lewis, 477 FSupp. 1256 (S.D.N.Y., 1979).

Rose v. Long Island R.R. Pension Plan, 828 F.2d 910

(C.A.2, 1987).

Private Opinion Letter 79-36A, Department of Labor

Private Opinion Letter 8/-82A, Department of Labor

Private Opinion Letter 83-24A, Department of Labor

Private Opinion Letter 86-24A , Department of Labor

H6

Il

WHETHER THE HOLLEY CLASS CAN RECOVER

FOR MENTAL ANGUISH

Cates v. Taylor, 428 So.2d 637 (Ala. 1983).

Taylor v. Baptist Medical Center, 400 So.2d 369 (Ala. 1981).

American Road Insurance Company v. Inmon, 394

So.2d (Ala. 1980).

APPENDIX I

LIST OF AFFILIATE COMPANIES

OF RESPONDENT HARBOR INSURANCE COMPANY

AFCO Agent Service Corporation

The Buckeye Union Insurance Company

Boston Old Colony Insurance Company

Casualty Insurance Company

Workers Compensation and Indemnity Company of California

First Fire and Casualty of Hawaii, Ltd.

First Indemnity Insurance of Hawaii, Inc.

The Mayflower Insurance Company, Ltd.

Niagara Fire Insurance Company

The Continental Insurance Company

AFCO Credit Corporation

Puerto Rican-American Insurance Company

Preferred Risk Insurance Company

Security National Life Insurance Company

Deutsche Continental Reinsurance, A.G.

The Hong Kong Fire Insurance Company, Ltd.

Lombard Insurance Company, Limited

Lombard General Insurance Company, Ltd.

The Continental Insurance Company (Europe), Limited

The Continental Insurance Company (U.K.), Limited

Marine Office of America (UK), Limited

Continental Reinsurance Corporation (U.K.), Limited

Unionamberica Management Company, Limited

Union American Leasing Company, Limited

Continental Risk Services, Ltd.

The CPI Group, Inc.

California Central Bank Trust Corporation

CPI Pension Services, Inc.

Settlement Options, Inc.

East River Insurance Company (Bermuda), Ltd.

Continental Reinsurance Corporation International, Limited

East River Insurance Company, Ltd.

Deutsche Continental Reinsurance, A.G.

Continental Holdings (Bermuda), Ltd.

Inter-Continental Seguradora S.A.

The Fidelity and Casualty Company of New York

CTEX, Inc.

Firemen’s Insurance Company of Newark, N.J.

Commercial Insurance Company of Newark, N.J.

Continental Lloyd’s Insurance Company

The Continental Insurance Company of N.J.

The Glens Falls Insurance Company

The Continental Insurance Company of Canada

The Dominion Insurance Corporation

Continental Insurance Management, Ltd.

TCC Acquisition Corporation

Continental Asset Management Corporation

Kansas City Fire and Marine Insurance Company

Marine Office of America Corporation

Associated Aviation, Inc.

Hull & Cargo Surveyors, Inc.

Global Marine Services, Ltd.

United States P&I Agency

Marine Office of America Corporation

National-Ben Franklin Insurance Company of Illinois

Bayside Reinsurance Company, Ltd.

Continental Loss Adjusting Services, Inc.

UAC Rehabilitation International, Inc.

Continental Rehabilitation Resources, Inc.

Pacific Insurance Company

Lombard Continental Insurance

Lombard Insurance Holding, Ltd.

Continental Pacific Insurance Company, Ltd.

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