Opposition Brief — Mutual Life Insurance v. Kanakis

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; Supreme Court, U.S, |

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No. 90-327 StP ® BH

¥ F. SPAMIOL, JR.

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In The

Supreme Court of the United States

October Term, 1990

*

THE MUTUAL LIFE INSURANCE COMPANY

OF NEW YORK, NANCY A. HIORTDAHL

AND DON LUHRSEN,

Petitioners,

vV.

TELLY KANAKIS AND PATRICIA KANAKIS,

Respondents.

>

BRIEF IN OPPOSITION TO PETITION FOR WRIT

OF CERTIORARI TO THE SUPREME

COURT OF CALIFORNIA

Rosert W. CastLeserry, Esa.

(Counsel of Record)

CALLAHAN, McCune & WILLIs

111 Fashion Lane

Tustin, CA 92680

(714) 730-5700

COCKE OR CALL COLLECT Wd) 320881

BEST AVAILABLE COPY

petal ee ee

i

TABLE OF CONTENTS

pe ak eh og Ee eer or re ree

MISSTATEMENTS OF FACT AND LAW IN PETI-

TIONERS’ STATEMENT OF THE CASE..........

I.

II.

Il.

IV.

THERE WAS NO “WINDFALL” TO SERI-

OUSLY INJURED RESPONDENT TELLY

Oey re ea ree Per Pree

THE EVIDENCE DOES NOT SUPPORT THE

PETITIONERS’ CONTENTION THAT

RESPONDENT PATRICIA KANAKIS

RECEIVED ANY INFORMATION THAT

HER MEDICAL INSURANCE WAS AN

ERISA PLAN; SUBSTANTIAL EVIDENCE

SUPPORTS THE OPPOSITE CONCLUSION

WHICH IS INHERENT IN THE JURY’S

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PETITIONERS HAVE OMITTED SIX OUT

OF THE EIGHT ERISA INSTRUCTIONS

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THE UNPUBLISHED COURT OF APPEAL

OPINION CANNOT CONFLICT WITH ANY

PUBLISHED UNITED STATES SUPREME

COURT OR FEDERAL COURT OF APPEAL

DECISION AND PRESENTS NO ISSUE OF

eh eo re

PETITIONERS’ REASONS FOR GRANTING THE

WREE AiRm WESREUUPAlS PRMOUEE occ csccecccsscccse

‘

PETITIONERS MISSTATE THE LAW OF

THE ELEMENT OF INTENT IN THEIR DIS-

CUSSION OF SHAW V. DELTA AIRLINES

AND DECISIONS BY THE FEDERAL

CRP GO PAP 6k ceca sesidaaasess

11

ii

TABLE OF CONTENTS - Continued

Page

II. THE PETITIONERS’ ATTEMPT TO DISTIN-

GUISH THE FORT HALIFAX CASE IS

WITHOUT MERIT AND THEY HAVE

IGNORED THE NINTH CIRCUIT KANNE

ANALYSIS OF THE REQUIREMENT OF

THE EMPLOYER’S INVOLVEMENT IN THE

ADMINISTRATION OF THE BENEFIT PRO-

UNND v ak 0 0-66 C0940 555.00 00S SUERTE EERO 15

CLI AEE oc: nccccocuesshnanhenendd aemebeesan 19

APPENDIX:

EXCERPTS OF TRIAL TRANSCRIPT TESTIMONY

OF MATTHEW OHRNSTEIN .................... 1A

TESTIMONY OF PATRICIA KANAKIS............. 11A

iii

TABLE OF AUTHORITIES

Page

CASEs:

Donovan v. Dillingham, 688 F.2d 1367 (11th Cir.

SE ROPE TT eT rrr ety ey Tee eee eee e eee 6, 7, 8, 11

Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805

PU FONE GE Gs CP a vice cdc cen adecacedees 12, 13

Fort Halifax Packing Co. v. Coyne 482 U.S. 1 (1987) .15, 18

Harris v. Arkansas Book Co., 794 F.2d 358, 360 (8th

SCC aN ed obs peeved en sscecaeene ceed anes ss 13

Kanne v. Connecticut Gen. Life Ins. Co., 859 F.2d 86,

MY, SEs devas ccceenscresccanasces 13, 16, 17

Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58

a SEG ne are are ae a ee re 5

Shaw v. Delta Airlines, 463 U.S. 85 (1983)......... 11, 14

Wayne Chemical Inc. v. Columbus Agency Serv. 567

ey Kt ay (We keV Ee Nowe wees scnet news 11, 12

;

;

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;

No. 90-327

7 =

-

In The

Supreme Court of the United States

October Term, 1990

a.

-

THE MUTUAL LIFE INSURANCE COMPANY

OF NEW YORK, NANCY A. HIORTDAHL

AND DON LUHRSEN,

Petitioners,

TELLY KANAKIS AND PATRICIA KANAKIS,

Respondents.

,%

vw

BRIEF IN OPPOSITION TO PETITION FOR WRIT

OF CERTIORARI TO THE SUPREME

COURT OF CALIFORNIA

La

—

MISSTATEMENTS OF FACT AND LAW IN

PETITIONERS’ STATEMENT OF THE CASE

Pursuant to 15.1, Rules of the Supreme Court of the

United States, Respondents Telly Kanakis and Patricia

Kanakis hereby address the statements of fact in Peti-

tioners’ STATEMENT OF THE CASE.

I

THERE WAS NO “WINDFALL” TO SERIOUSLY

INJURED RESPONDENT TELLY KANAKIS.

Petitioners state on page two of their petition that

respondent Telly Kanakis withdrew his claim against

1

Benefit Fund and pursued his claim against Petitioner

Mutual of New York because Respondent “was interested

not in coverage, but a windfall.” Petitioners “explain” in

footnote one on page three that Respondent’s $50,000

settlement from the third-party motorist involved in the

accident causing the injuries to Respondent exceeded

Respondent’s total medical expenses and, if Respondent

had not withdrawn his claim against Benefit Fund, he

would have been required to reimburse Benefit Fund

with the settlement he received.

This point was urged by Petitioners in the form of a

double recovery argument before the California Court of

Appeal which rejected it as “without merit in fact or law.”

(Appendix to Petition for Writ of Certiorari, p. 17a.) The

Court of Appeal reasoned as follows:

“

. . . Telly’s hospital and medical insurance

expenses here amounted to some $36,897.69.

Telly sustained fractures of his left leg — tibia,

fibula, and femur — and had nerve damage to his

left arm as well as dislocation of his jaw, left

wrist and right finger. Five months after the

accident he still had a severe paralysis of his left

arm, he was in bed for five months after the

accident and in a wheelchair for three months

after that, unable to move without help of his

wife. He had a rod in his leg from the accident

at the time of trial. It was not removed within a

year of the accident because of Telly’s financial

inability. He could not raise his left arm at time

of trial. He has no income whatsoever from the

time of the accident until September. To argue

that there will be a double recovery is again

without factual support. This settlement was

made without allocation as to future medical

expenses, pain and suffering, loss of wages, etc.

After applying $36,000 of the $50,000 recovery

3

to medical costs incurred, there remained less

than $14,000 for loss of earnings, pain, suffering

and the permanent disability sustained by Telly

Kanakis. This argument for reversal is without

merit in fact or law.” (Appendix to Petition for

Writ of Certiorari, pp. 16a-17a.)

Il

THE EVIDENCE DOES NOT SUPPORT THE PETI-

TIONERS’ CONTENTION THAT RESPONDENT

PATRICIA KANAKIS RECEIVED ANY INFORMA-

TION THAT HER MEDICAL INSURANCE WAS AN

ERISA PLAN; SUBSTANTIAL EVIDENCE SUPPORTS

THE OPPOSITE CONCLUSION WHICH IS INHERENT

IN THE JURY’S VERDICT.

On page four of the Petition, it is stated that, four

months prior to the accident of Telly Kanakis, the

employer of Respondent Patricia Kanakis distributed to

her an announcement that it had arranged for a medical

coverage plan which was “designed to meet [ERISA]

requirements and which was accompanied by a ‘state-

ment of ERISA rights.’ ”

In absolute contradiction to these statements, the Cal-

ifornia Court of Appeal in its opinion stated that Respon-

dent Patricia Kanakis “was not told the insurance policy

from MONY was under ERISA rules. The book she

received from her employer did not mention the word

ERISA. The subject had never been discussed with her.”

(Appendix to Petition for Writ of Certiorari, p. 5a.)

In support of their argument, Petitioners rely on

selected testimony from Matthew Ohrnstein which is

attached to the Petition for Writ of Certiorari at pp.

39a-43a.

Other relevant portions of the transcript including

testimony of Ohrnstein and respondent Patricia Kanakis

are set forth in the appendix. Ohrnstein, the executive

vice president and chief financial officer of respondent

Patricia Kanakis’ employer was a certified public accoun-

tant who had graduated from Penn State University and

had been employed as such in New York City and Los

Angeles. (p. 1A) He testified that his “responsibility is in

the acquisition of insurance policies for employees and

for the company as a whole” and that he dealt “with an

insurance broker who actually handles the one-on-one

negotiating with the companies,” and that he “rarely if

ever [had] communications with the company, the insur-

ance company.” (pp. 2A-3A) He was the one in charge of

handling the insurance needs of the company and knew

very little about ERISA. (p. 4A) Prior to his deposition he

does not recall ever seeing Exhibit No. 24 which is enti-

tled “Mutual of New York, Summary of Certain Provi-

sions of Employee Retirement Income Security Act.” (p.

5A) Ohrnstein did not know if there were fiduciaries for

the insurance, he knew that the company paid the pre-

miums, changed names and addresses, added or sub-

tracted dependents and forwarded claims to the broker or

the insurance company and if the claim was not being

paid, the company would interface with the broker who

would then handle the leg work in resolving the problem.

(p. 6A) Ohrnstein did not know if his company had an

ERISA policy in 1983 (pp. 7A-8A). The July 31, 1983 letter,

Exhibit No. 25, was not drafted by Ohrnstein’s company

and he could not say whether it was given or distributed

to Respondent Patricia Kanakis. (p. 9A) Reviewing the

July 31, 1983 letter did not refresh Ohrnstein’s recollec-

tion as to whether or not his company had an ERISA

plan. (pp. 9A-10A)

Respondent Patricia Kanakis received a booklet from

her employer and there was nothing within that booklet

mentioning ERISA and she had never heard of that term

before. That term was never discussed with her. (pp.

11A-12A)

Under Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58

(1987) ERISA preemption is a federal defense and the

burden is on the party raising this defense to prove the

facts necessary to establish it. Petitioners’ contention on

page four that Respondent PATRICIA KANAKIS received

a July 31, 1983 letter referring to an ERISA plan was

rebutted by her denial that she had ever received any-

thing referring to ERISA and that anyone had ever men-

tioned ERISA to her and by Matthew Ohrnstein’s

statement that he could not say she had ever received the

letter. The issue over the existence of an ERISA plan was

submitted to the jury which found that there was no

ERISA plan. That jury verdict was upheld by the trial

judge who entered judgment in the case. The California

Court of Appeal unanimously sustained the trial judge

and the California Supreme Court unanimously refused

to grant review of the Court of Appeal decision.

Ill

PETITIONERS HAVE OMITTED SIX OUT OF THE

EIGHT ERISA INSTRUCTIONS GIVEN TO THE JURY.

Petitioners provide a misleading impression of the

jury instructions on what constitutes an ERISA plan. They

refer to Special Instruction No. 2 which is Jury Instruction

No. 27 setting forth the five elements of an ERISA plan as

set forth in Donovan v. Dillingham, 688 F.2d 1367 (11th Cir.

1982). They state that “the Trial Court then instructed the

jury” with Special Instruction No. 4, which is Jury

Instruction No. 31 and which is set forth in the Petition.

In addition to these two jury instructions, the court also

gave jury instructions 26, 28, 29, 30, 32 and 33, all of

which dealt with what constitutes an FRISA plan. All of

the ERISA plan instructions given by the trial court and

as set forth in the clerk’s transcript are as follows:

No. 26

The defendants have the burden of proving

by a preponderance of the evidence all of the

facts necessary to establish:

I. An ERISA employee benefit plan has been

established or maintained by ISI.

“Preponderance of the evidence” means evi-

dence that has more convincing force than that

opposed to it. If the evidence is so evenly bal-

anced that you are unable to say that the evi-

dence on either side of an issue preponderates,

your finding on that issue must be against the

party who had the burden of proving it.

You should consider all of the evidence

bearing upon every issue regardless of who pro-

duced it. (Clerk’s Transcript (hereinafter C.T.)

390.)

No. 27

For there to be an ERISA employer benetit

plan, these five elements must exist:

7

1. A plan, fund or program;

2. established or maintained;

3. by Insurance Systems Inc. (ISi), the

employer of plaintiff Patricia Kanakis, wife

of plaintiff Telly Kanakis;

4. for the purpose of providing medical, surgi-

cal, hospital care, sickness, accident, disabil-

ity benefits;

5. .or ISA’s participants or their beneficiaries.

(Donovan v. Dillingham, 688 F.2d 1367, 1371.)

(C.T. 391.)

No. 28

The term “participant” of an employee ben-

efit plan includes an employee of an employer

who is or may become eligible to receive a bene-

fit of any type from an employee benefit plan

which covers employees of such employer or

whose beneficiaries may be eligible to receive

any such benefit. The term “employee” means

any individual employed by an employer. (C.T.

392.)

No. 29

The term “beneficiary” of an employee ben-

efit plan means a person designated by a .

pant, or by the terms of an employee benefit

plan, who is or may become entitled to a benefit

thereunder. (C.T. 393.)

No. 30

For the first of the above elements - (a plan,

fund or program) - to be proved, there must

exist the following:

intended benefits;

intended beneficiaries;

a source of financing;

. @ procedure to apply for and collect benefits.

(Donovan v. Dillingham, 688 F.2d 1367, 1372.)

(C.T. 394.)

No. 31

The second of the elements listed above to

prove that an ERISA employee benefit plan

exists — (the plan, fund or program is) established

or maintained — is proved if from the surround-

ing circumstances a reasonable person can

ascertain the intended benefits, a class of bene-

ficiaries, the source of financing, and procedures

for receiving benefits, and if ISI intended to

establish an ERISA plan, being aware that the

plan existed. (Wayne Chemical Inc. v. Columbus

Agency Ser. 567 F.2d 692, 699); Donovan v. Dil-

lingham 688 F.2d 1367, 1373.) (C.T. 395.)

No. 32

The purchase of a group policy of insurance

covering a class of employees offers substantial

but not conclusive evidence that a plan has been

established. (C.T. 396.)

No. 33

An Se oe goes benefit plan is not required to

be established by a formal written plan. If an

employer has an employee benefit plan, there

are certain fiduciary and reporting require-

ments, but these requirements are the respon-

sibilities of the administrators and fiduciaries of

plans covered by ERISA and are not prerequi-

sites to coverage under ERISA. (C.T. 396.)

As a totality the jury instructions given by the trial

court were fair and did not constitute error.

IV

THE UNPUBLISHED COURT OF APPEAL OPINION

CANNOT CONFLICT WITH ANY PUBLISHED

UNITED STATES SUPREME COURT OR FEDERAL

COURT OF APPEAL DECISION AND PRESENTS NO

ISSUE OF PUBLIC IMPORTANCE.

Petitioners point out that the California Court of

Appeal decision was not published but they fail to note

the significance under California Rules of Court. The

Court of Appeal opinion states on its face in this case,

“NOT TO BE PUBLISHED.”

California Rules of Court prohibit the publication of

a Court of Appeal opinion unless a majority of the court

(976(c), Rules of Court) certify that the opinion meets one

or more of the following standards set forth in Rule

976(b), California Rules of Court:

“(1) establishes a new rule of law, applies an

existing rule to a set of facts significantly differ-

ent from those stated in published opinions, or

modifies, or criticizes with reasons given, an

existing rule;

(2) resolves or creates an apparent conflict in

the law;

(3) involves a legal issue of continuing public

interest; or

(4) makes a significant contribution to legal

literature by reviewing either the development

of the common law rule or the legislative or

judicial history of a provision of a constitution,

statute, or other written law.”

10

Rule 977, California Rules of Court provides that an

unpublished opinion “shall not be cited or relied on by a

court or a party in any other action or proceeding except

... when the opinion is relevant under the doctrines of

law of the case, res judicata, or collateral estoppel” or

when the opinion states relevant reasons for a decision

affecting the same defendant or respondent in another

criminal or disciplinary action or proceeding.

The labeling of the Court of Appeal opinion as not

for publication means that the three justice Court of

Appeal and the California Supreme Court decided that

the Court of Appeal opinion does not establish a new rule

of law, that it does not resolve or create an apparent

conflict in the law, that it does not resolve a legal issue of

continuing public interest, and that it does not make a

significant contribution to legal literature.

The unpublished opinion cannot be said to be in

conflict with any reported decision of the United States

Supreme Court or Federal Court of Appeals because the

unpublished opinion cannot be cited or relied upon and

therefore has no “existence” other than under the doc-

trines of the law of the case, res judicata, etc. There are no

constitutional rights of any of the parties impacted by the

Court of Appeal decision. It is respectfully submitted that

no public importance exists in the instant case and the

Petition for Writ of Certiorari should be denied.

,%

vw

11

PETITIONERS’ REASONS FOR GRANTING

THE WRIT ARE WITHOUT MERIT

I

PETITIONERS MISSTATE THE LAW OF THE ELE-

MENT OF INTENT IN THEIR DISCUSSION OF SHAW

V. DELTA AIRLINES AND DECISIONS BY THE FED-

ERAL COURTS OF APPEAL.

In Section I under Reasons for Granting the Writ,

petitioners attack the California Court of Appeal’s state-

ment that, “as a prerequisite to the creation and existence

of an ERISA plan, the employer must intend to create and

to participate in such a plan.” (Petition for Writ of Cer-

tiorari, p. 6.) Petitioners further argue that an “intent”

requirement is contrary to Donovan v. Dillingham, supra,

688 F.2d 1367 and to “numerous circuit courts that have

adopted” the rule and further “contravenes” reasoning in

Shaw v. Delta Airlines, 463 U.S. 85 (1983).

Petitioners make no reference to the California Court

of Appeal’s statement that, “case authority supports such

an instruction,” (Petition for Writ of Certiorari, p. 14a) or

to the California Court of Appeal’s direct quotation from

Wayne Chemical, Inc. v. Columbus Agcy. Serv. Corp., 567

F.2d 692 (7th Cir. 1977) which requires intent and reads as

follows:

“An employer does not become a participant in,

or establish or maintain, a plan by applying for

insurance and paying premiums for what it

understands to be insurance without any knowl-

edge that the plan exists. Establishing, maintain-

ing, or participating in a plan requires an

intent, . . . “ (Appendix to Pet. for Writ, pp.

14a-14b.)

12

Petitioners’ only reference to the Wayne Chemical case

is in footnote 3 on page 7 of the Petition for Writ of

Certiorari where they discuss not the California Court of

Appeal’s analysis of the Wayne Chemical case but the trial

court’s reliance on Wayne Chemical and Petitioners argue

that, “Wayne Chemical, however, states merely that estab-

lishing a plan ‘requires an intent which presupposes an

awareness of the existence of the plan.’ . . . that language

does not support an instruction that specific intent is

required to establish an ERISA plan.” Petitioners then

declare in the same footnote that “even the court that

decided Wayne Chemical [the 7th Circuit] has embraced

the Dillingham criteria” citing Ed Miniat, Inc. v. Globe Life

Ins. Group, Inc., 805 F.2d 732 (7th Cir. 1986). But the very

case cited by Petitioners in fact states as follows,

“Thus, although Donovan and Taggart are not

controlling here, they do support the defen-

dants’ broader contention that we should exam-

ine the corporation’s intent.” (Id. at p. 738.)

Petitioners further argue on p. 7 of their Petition that

the “Dillingham standard” has been adopted by the Sec-

ond, Fifth, Seventh, Eighth, Ninth and Eleventh Circuits

in determining the existence of an ERISA plan, implying

in their argument that this rejects any consideration of

the employer’s intent. However, in support of their argu-

ment petitioners cite incredible authority. In their foot-

note on page 7, they cite a district court case from the

Western District of New York as establishing the rule for

the entire Second Circuit, a district court case from the

Southern District of Mississippi as establishing the rule

for the entire Fifth Circuit-and a district court case for the

Northern District of Alabama as establishing the rule for

13

the entire Eleventh Circuit. Their authority for the Sev-

enth Circuit, the Ed Miniat case, was discussed in the

previous paragraph and supports the requirement of

intent. The Eighth Circuit decision cited by petitioners,

Harris v. Arkansas Book Co., 794 F.2d 358, 360 (8th Cir.

1986) found no ERISA plan in that case.

More incredibly, Petitioners’ statement on page seven

of their Petition that the Ninth Circuit has adopted “the

Dillingham standard” which they state on page six of their

Petition as contrary to an intent requirement, totally

ignores the 1988 Ninth Circuit decision in Kanne v. Con-

necticut Gen. Life Ins. Co., 859 F.2d 86, 99 (9th Cir. 1988),

amended on denial of rehearing, 867 F.2d 489 (1988) (en

banc), cert. denied, 109 S.Ct. 3216 (1989). The California

Court of Appeal commented on the Kanne case as follows:

“...In Kanne v. Connecticut Gen., supra, 859 F.2d

96, the federal court pointed out that, ‘the plan

brochure submitted by Connecticut General as an

exhibit at trial describes the plan as an ERISA plan,

evidencing the intent of ABC to create an ERISA

plan.’ (Id. at p. 99, emphasis added.)

We hold that as a prerequisite to the creation

and the existence of an ERISA plan, the

employer must intend to create and to partici-

pate in such a plan. Such intent may be found in

acts as well as words. (Kanne v. Connecticut Gen.,

supra, 859 F.2d at p. 99.)” (Appendix to Pet. for

Writ, p. 15a.)

It is clear that the California Court of Appeal’s

reliance on intent as a factor is based on the Ninth Circuit

Kanne decision. California is within the Ninth Circuit

geographical area.

14

Petitioners’ analysis of Shaw v. Delta Airlines, Inc.,

supra, 463 U.S. 85, is misleading. That case involved

whether an airline’s multibenefit plan which provided

benefits in addition to those required under a state dis-

ability benefits law came within an ERISA exemption. As

pointed out in the Shaw opinion, at 463 U.S. 106, ERISA

“Section 4(b)(3) exempts ‘any employee benefit plan-

... Maintained solely for the purpose of complying with

applicable . . . disability insurance laws.’ ”

Shaw reasoned that, “Section 4(b)(3)’s use of the word

‘solely’ demonstrates that the purpose of the entire plan

must be to comply with an applicable disability insurance

law.” (Id., at 206.) Thus, Shaw concluded, “the test is not

one of the employer’s motive - any employer could claim

that it provided disability benefits altruistically, to attract

good employees, or to increase employee productivity, as

well as to obey state law - but whether the plan, as an

administrative unit, provides only those benefits required

by the applicable state law.” (Id. at p. 106.)

Petitioners have misstated authority on the role of

the employer’s intent in the Second, Fifth, Seventh,

Eighth, Ninth and Eleventh Circuits and have mis-

construed the Shaw case. Their primary argument for

granting a writ in this case should be rejected.

15

II

THE PETITIONERS’ ATTEMPT TO DISTINGUISH

THE FORT HALIFAX CASE IS WITHOUT MERIT AND

THEY HAVE IGNORED THE NINTH CIRCUIT KANNE

ANALYSIS OF THE REQUIREMENT OF THE

EMPLOYER’S INVOLVEMENT IN THE ADMINISTRA-

TION OF THE BENEFIT PROGRAM.

The California Court of Appeal opinion concluded

that, “The focus of ERISA is on the administrative integ-

rity of employers’ benefit plans,” that “ERISA preemption

presumes some specie of administrative activities by the

employer is taking place [citation omitted]” and that, “the

existence or lack of existence of an ERISA plan depends

upon the extent to which the employer is involved in the

administration of the benefit program so as to implicate

the concerns which gave rise to ERISA.” (Petition for Writ

of Certiorari, pp. 11a-11b.) In reaching that conclusion,

the Court of Appeal pointed out that the United States

Supreme Court in Fort Halifax Packing Co. v. Coyne, 482

U.S. 1 (1987) observed that,

“‘An employer that makes a commitment sys-

tematically to pay certain benefits undertakes a

host of obligations, such as determining the eli-

gibility of claimants, calculating benefit levels,

making disbursements, monitoring the avail-

ability of funds for benefit payments, and keep-

ing appropriate records in order to comply with

applicable — requirements.’ ” (Appendix

to Pet. for Writ, p. 10a.)

The California Court of Appeal also quoted as fol-

lows from the Fort Halifax case:

“... the Maine statute not only fails to implicate

the concerns of ERISA’s seat provision, it

fails to implicate the regulatory concerns of ERISA

16

itself. The Congressional declaration of policy,

codified at 29 U.S.C., 1001, states that ERISA

was enacted because Congress found it desir-

able that ‘disclosure be made and safeguards be

provided with respect to the establishment,

operation, and administration of [employee ben-

efit) plans.’ .. . The focus of the statute thus is on

the administrative integri b benefit plans — which

presumes that some type 3 ministrative activity is

tuking place.” (Id., p. 15, emphasis added.)

The Supreme Court further declared, ‘The fore-

going makes clear both why ERISA is concerned

with regulating benefit “plans,” and why the

Maine statute does not establish one. Only

“plans” involve administrative activity poten-

tially subject to employer abuse. The obligation

imposed by Maine generates no such activity.

There is no occasion to determine whether a

“plan” is “operated” in the interest of its bene-

ficiaries, because nothing is “operated.” No finan-

cial transactions take place that would be listed

in an annual report, and no further information

regarding the terms of the severance pay obliga-

tion is needed because the statute itself makes

these terms clear. It would make no sense for

pre-emption to clear the way for exclusive fed-

eral regulation, for there would be nothing to

regulate. Under such circumstances, pre-emption

would in no way serve the overall purpose of

ERISA.’ (Id. at p. 16, emphasis added.) (Appen-

dix to Pet. for Writ, p. lla)

California is within the Ninth Circuit geographical

area and the California Court of Appeal carefully

analyzed the Ninth Circuit Kanne case as follows:

“What is an employer plan under ERISA is

illustrated in Kanne v. Connecticut General Life

Ins., Co., supra, 859 Fed.2d 96, and cited by the

California Supreme Court as an authoritative

17

statement of the federal ERISA law in Commer-

cial Life Ins. Co. v. Superior Court, supra, 47 Cal.3d

473, 482, 483. The plan brochure, introduced by

the insurance company, described the plan as an

ERISA plan. Associated Builders and Contrac-

tors (ABC) was an employer group to which the

employer (Harlo Carpets) belonged, and was

described as the administrator of the plan. The

employer subscribed to a group health insur-

ance plan administered by ABC. Pursuant to the

requirements of ERISA, the plan was established

as a trust entity, called the ABC Trust. It pur-

chased a policy of group health insurance from

Connecticut General. Kanne was an employee of

Harlo Carpets and covered by the insurance

policy. The Kanne court observed the Connecti-

cut General brochure describes the plan as an

ERISA plan, “evidencing the intent of ABC to cre-

ate an ERISA plan.” (Kanne v. Connecticut General

Life Ins. Co., supra, 859 F.2d 96, 99, emphasis

added.)

It concluded ABC, the employers’ group,

was an administrator of the plan subject to

ERISA regulations. The court also pointed out

‘[a] bare purchase of insurance, without any of

the above elements present, does not constitute

an ERISA plan (although it may be evidence of

the existence of an ERISA plan).’ (Kanne v. Con-

necticut General Life Ins. Co., supra, 859 F.2d 96,

99, emphasis added; see also Donovan v. Dil-

lingham, supra, 688 F.2d 1367, 1375; Martori Bros.

Distributors v. James-Massengale (9th Cir. 1986)

781 F.2d 1349, 1358.)” (Appendix to Pet. for Writ,

p. 12a.)

The California Court of Appeal then applied the

Kanne rules to the instant case:

“Contrast the undisputed facts here. The

only responsibilities and duties of the employer

of Patricia Kanakis was to have the MON)

18

applications filled out for each employee, to

name the beneficiaries on the life insurance, to

inform the insurance company who the

employees were, to pay the premiums directly

to the company, to reconcile the statements reg-

ularly, and to act as a conduit for employee

questions or problems regarding the policies.

There is a total lack of evidence here as to

the nature of the employer’s administrative par-

ticipation in any plan. Patricia’s employer sim-

ply obtained the medical benefits for its

eo through the purchase of the MONY

policy. It distributed the booklets to its

employees describing the benefits and claims

procedures.” (Appendix to Pet. for Writ, pp.

12a-13a.)

From the foregoing, it is also clear that Congressional

intent as discussed above is the answer to Petitioners’

érguments on tax implications and public policy. As

pointed out by the California Court of Appeal in its

opinion, the Fort Halifax case stated that, “‘ “[T]he pur-

pose of Congress is the ultimate touchstone.” ’” (Appen-

dix to Pet. for Writ, p. 10a.)

Finally, in Petitioners’ concluding paragraph on page

13, they put themselves in the guise of protectors for the

employee as well as the employer by asserting the ERISA

purpose of protecting the “millions of employees and

their dependents” and the “public policy” argument that

the California Court of Appeal decision “runs contrary to

the ultimate interests of participants, employers and third

parties administering plans.” Their posturing is hypoc-

risy. Telly Kanakis was severely injured on November 29,

1983. He was covered by medical insurance for which his

wife, Respondent Patricia Kanakis was paying on a

_

19

monthly basis. The Petitioner insurer never paid a cent

for the medical bills of petitioner Telly Kanakis until after

the Application for a Stay of Enforcement of the Judg-

ment was denied by Justice Sandra Day O’Connor in this

case on June 18, 1990.

CONCLUSION

For all of the foregoing reasons, the Writ of Certiorari

should not issue.

Respectfully submitted,

Rosert W. CAsTLeserry

(Counsel of Record)

CALLAHAN, McCune & Wits

111 Fashion Lane

Tustin, CA 92680

(714) 730-5700

September 20, 1990

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APPENDIX

EXCERPTS OF TRIAL TRANSCRIPT

TESTIMONY OF MATTHEW OHRNSTEIN

A_ Yes, I was a graduate of Penn State University,

University Park, Pennsylvania, I have a Bachelor of Sci-

ence Degree in Accounting. I am a certified public

accountant, member of Pennsylvania Institute of CPA’s

and American Institute of CPA’s.

Q Are you presently employed?

A Yes, I am.

Q By whom are you employed?

A

Currently employed by Care Systems Corpora-

tion. ;

Q Is Patricia Kanakis an employee of that organiza-

tion?

A Yes.

Q How long have you been with Care Systems, Sir -

what capacity?

A_ I have been with Care Systems since July 1, 1983

and my current capacity is Executive Vice-President,

Chief Financial Officer and Corporate Secretary.

Q Can you give me the background of the company

where you are working at this time, what they do?

A Okay.

The company was founded in 1978, privately-

held corporation by several entrepreneurs in the latter

CT ae ee

2A

part of ‘78, a company by the name of Insureco, Incorpo-

rated, which is now a fully-owned subsidiary of Trans-

america Corporation, purchased the majority interest in

the predecessor corporation, which was Insurance Sys-

tems Incorporated. ig ar

Insureco held this investment until 1983, then

sold the corporation to a group of investors who cur-

rently continue to hold the majority of the company.

At the time of the 1987 acquisition by Insureco, I

was employed by Pete Marlow Mitchell, Certified Public

Accountants, in New York City, later in Los Angeles.

In 1980, I joined Insureco Incorporated, that par-

ent company, and stayed with Insureco until the time that

Insurance Systems Incorporated was sold to Ventur Capi-

tal Investors (Phonetic Spelling), the Company Care Sys-

tems — you asked what our business is - 1 am giving you

a long answer to a short question.

Care System provides automation systems and

services to insurance companies, agents and brokers,

nationally.

Q_ Do you have anything to do with obtaining insur-

ance benefits for your employees or employees of care?

A Yes, I do.

Q What do you have to do as far as that is con-

cerned?

A My responsibility is in the acquisition of insur-

ance policies for employees and for the company as a

|

3A

whole, I deal with an insurance broker who actually

handles the one-on-one negotiating with the companies.

I rarely if ever have communications with the

company, with the insurance company.

Q Do you try and get good benefits for your

employees and you rely on your broker to go out and

check the marketplace and -

A Yes, my broker is an independent broker and

represents companies and brings to me a proposal each

year or in the case of markets where there is volatile

changes, brings me information several times a year in

order to see what the best program for our employees is,

both from the covered standpoint and cost standpoint.

Q The underlying accident, which is the subject

matter of this lawsuit, occurred in November, 1983.

Your company was called ISI at that time.

A The company was called Insurance Systems

Incorporated, yes.

Q And Patricia Kanakis was an employee of the

company at the time?

A To the best of my knowledge, yes.

Q By whom did your employees have health bene-

fits with that company or with - for your company?

A At that time we were covered by Mutual of New

York for our life - some of our life and our health insur-

ance, in addition to which we were covered by Standard

Insurance Company of Oregon for disability, life, acciden-

tal death and dismemberment. (R.T. 318-321.)

4A

* * +

Q Do you know whether Mrs. Kanakis had her

husband on the policy?

A The only information I have on that is what

comes from a document that was produced for purposes

of this case, which is an application that Mrs. Kanakis

filled out and from my reading of that application, it

appears that her husband was added as a dependent.

(R.T. 323).

* * *

Q By Mr. Castleberry: You were the man in charge

at that time in handling the insurance needs of your

company?

A_ Shortly after joining the company, in July, I was -

I had implied responsibility for handling the relationship

between our company and benefit bank coordinators.

Q This was not a self-funded —

A No, it was not.

Q No committees.

A_ No formal committees but we managed the com-

pany as a democracy in many fashions.

Q Do you know anything about ERISA?

A Very little.

Q Let me show you a document marked as 23, a

November 15, 1983, letter addressed to you, from MONY.

(R.T. 325-326). -

5A

* * *

Q By Mr. Castleberry: Let me show you a document

marked 23.

The Court: 24 would be your next number.

Mr. Castleberry: I’m sorry, 24.

Has the title “Mutual of New York, Summary of

Certain Provisions of Employee Retirement Income Secu-

rity Act.”

It is one, two, three, four, five pages long. Do you

have a copy of that in your file?

A I have that with me, yes.

Q Would you mark 24 in the bottom right-hand

corner — Well, we will use yours, if that is all right.

Do you remember seeing that document?

A I retrieved this document from our file at our

deposition — my deposition.

Prior to that point, I don’t recall ever seeing it.

Q Do you know if any of the items on this particu-

lar document were compiled with -

The witness: I need to read through here and

respond one by one.

Mr. Pierik: I will also object, lack of foundation.

“The Court: If you know, you may answer, sir.

6A

The witness: Firstly, on the named fiduciaries, |

mentioned earlier I don’t know if there were fiduciaries.

There were people in my company that had

responsibility for the relationship but as a title, fiduci-

aries, I don’t know if it was ever formalized.

Q The people in your company would see that the

premiums were paid, is that right?

A Yes.

Q The name changes were made, addresses

changed?

A Yes.

Q Adding or subtracting a dependent, something of

that nature; is that right?

A Yes.

Q If he had a claim, they would forward onto the

broker or company.

A We would not see it. It would go off to the

company.

Q If somebody wasn’t getting paid by Mutual of

New York, your company wouldn’t handle it?

A_ To the extent it was not being paid by Mutual of

New York, they would come to our personnel and voice a

concern or complaint and the personnel department

would then interface with our broker and then, from that

point, the broker would handle all of the leg work in

determining the resolution to that problem.

OO TR RRR A eT SRN DOL NN ee a CS UO SUE

7A

Your company would pass it on to someone else,

either directly or directly to the company, would not go

directly to Mutual Life; is that it?

A Please rephrase that.

Q Your company, for the most part, interfaced

directly with Mutual Life, would they?

A No.

Q Is that correct?

A That is correct.

Q They, if there was a complaint, they would pass it

on to the broker?

A Yes.

Q You relied on your broker to get you good cover-

age?

A Our broker is outstanding. We have been using

him for the predecessor company since 1980 and continue

to use him.

Q Did you helieve at the time frame, November

1983, you had an ERISA policy?

Mr. Pierik: Objection -

Mr. Castleberry: Or did you know?

Mr. Pierik: Objection, irrelevant, lack of foundation.

The Court: I take it this is preliminary, Mr. Castle-

berry:

Mr. Castleberry: Yes, your honor.

8A

The Court: The objection is overruled; you may

answer, if you know.

A I don’t know.

Q By Mr. Castleberry: Do you have a two-page

document dated July 31st, 1983?

Q_ By Mr. Castleberry: Did you produce that letter,

sir?

A_ I believe I did.

Q This - this letter dated July 31st or was it written

by someone from Mutual Life?

A This letter, to the best of my knowledge, was not

drafted by somebody in our company; it was either some-

thing that was generated by Mutual of New York or

Benefit Plan Coordinators. I don’t recall which.

The Court: Now, then, a moment ago you said you

produced it.

Are you talking about the same document, when

you say MONY produced it or someone else other than

you produced it?

Q By Mr. Castleberry: You didn’t mean you pro-

duced, you are bringing it?

A_ I thought said produced, that I produced at the

deposition or am I producing here.

We did not authorize this.

9A

Q Do you have any idea whether that document

was ever sent to Patricia Kanakis or any of the employees

of Insurance Systems Incorporated?

A_ I could not say I know it was given or distributed

to her, but I could say that it was probably — a specula-

tion.

Q I don’t want you to speculate, sir.

You couldn’t say.

A Couldn’t say. (R.T. 328-333)

* * *

Q By Mr. Pierik: Mr. Ohrnstein, before our break, I

was directing your attention to Exhibit 225, which is the

same as Exhibit C, the announcement to your employees,

July 31, 1983 - do you have those exhibits in front of you?

A_ Yes.

| Q Directing your attention to the first sentence of

the third paragraph which, let me read it to you.

“This announcement and the accompanying

booklet are designed to meet the summary plan

description requirement of the Employment

Retirement Income Security Act, commonly

known as ERISA.”

Do you see that entry in the document?

tn ns LE

A Yes.

| Q Does that refresh your recollection as to whether

or not the mutual policy was, according to your under-

standing, an ERISA policy?

| teenies

10A

A_ No, it does not.

Q Do you know one way or the other whether this

was — or you have an understanding one way or the other

whether this was an ERISA plan?

A_ I don't.

Mr. Pierik: Thank you. (R.T. 356-357.)

» + *

Q You had a file specifically for Mutual of New

York?

A Yes, I did.

Q Were exhibits 24, G and H in that file?

A 24, I believe - was it of that file during our

deposition when you asked if there were other docu-

ments dealing with Mutual of New York — I don’t know

why these were in here.

The Court: In where?

The witness: Inside my book.

The Court: Inside your deposition transcript?

The witness: Yes.

Q By Mr. Pierik: Did you put them there?

A I did - I think, when, during our deposition,

when the ERISA question started coming was a - this is

chief financial officer of my company — I wanted to know

what is this ERISA thing, what is this all about, so I found

these documents in that generic group insurance file and,

like I say, my reading of the deposition, they were left in

there. (R.T. 363)

ee

11A

TESTIMONY OF PATRICIA KANAKIS

Q By whom are you employed?

A Insurance Systems Incorporated. They have

recently, in the last year, changed their name to Care

Systems. (R.T. 199.)

* * *

Q By Mr. Castleberry: Did you make a - or receive

a folder from your company about the benefits under that

policy?

A Yes, I did.

Q By Mr. Castleberry: Does that appear to be the

document that you received?

A_ It does.

Q Who did you receive that from?

A My personnel director through my work.

Q Did you ever read that at any time before your

husband's accident?

A_ I looked through it.

Q Do you remember receiving any of the docu-

ments at any time prior to your husband’s accident about

the benefits under that policy?

A Not that I recall.

Q Did you discuss it with anybody before your

husband’s accident, what benefits you would have?

12A

A No.

Q Did you ask that your husband be covered under

that policy?

A_ Yes, I did. (R.T. 201-202).

» > oa

Q You have had a chance to look at that particular

booklet since the accident, haven’t you?

A Yes, I have.

Q Is there anything within that booklet that men-

tioned the word “ERISA”?

A No.

I have never heard of that term before.

Q Anybody from your company ever discuss the

term “ERISA” with you?

A_ Absolutely not. (R.T. 205)

. * *