Reply Brief — Mutual Life Insurance v. Kanakis

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No. 90-327

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JOSEPH F. BPAMIOL, 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.

On Petition for a Writ of Certiorari to the

Supreme Court of California

PETITIONERS’ REPLY BRIEF

Of Counsel:

WEAVER H. GAINES, JR., Esq.

WILLARD G. ELDRED, Esa.

ANTHONY F. R&CINE, Esq.

GERALD J. CARROLL, JR., Esq.

4 Manhattanville Road

Purchase, New York 10577

(914) 697-3604

Wrecon - Grae Printine Co. Inc

Jesse D. MILLER, Ese.

(Counsel of Record)

FULBRIGHT & JAWORSKI

700 S. Flower Street

Sixth Floor

Los Angeles, CA 90017

(218) 626-5241

+ 7@S-O0O86 « Wasninaron, 0.C. 20001

TABLE OF CONTENTS

TABLE OF AUTHORITIES -oo-cssscsseccccccccccccsssssescscssssssssn

ARGUMENT

I. RESPONDENTS BLATENTLY MISSTATE

II.

THE HOLDINGS OF THE SEVENTH AND

NINTH CIRCUITS IN SUPPORT OF THE

STATE COURT’S NOVEL INTENT RE-

IE itenserncicilcccesilepalititisentstinenessiheneseiienen

RESPONDENTS MISCONSTRUE THE

FACTS AND HOLDINGS OF FORT HALIFAX

AND KANNE TO SUPPORT A REQUIRE-

MENT OF ADMINISTRATIVE ACTIVITY

Fe IT siiinniethcitcisihsinicaniennirninsnintesnntces

NIE “sis icsitassaichisc annhadicamsinsedinceinieieibancaintiasaauinanees

ii

TABLE OF AUTHORITIES

CASES: Page

Commissioner of Internal Revenue v. McCoy, 484

U.S. 3 (1987), rehearing denied, 484 U.S. 982

CRIED sniscisstcciestandennatneaaemaeaee 3

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

ef bee ft S| Re ern ae 2,3

Fort Halifax Packing Co. v. Coyne, 482 US. 1

CRIED accnaccsscasrentacnspinnsmeapiatidensiadenmaaanae nar 5, 6

Gilbert v. Burlington Industries, Inc., 477 U.S.

RE HI gssciniscasstencinedccisnsensadeometndenmnaeisinrces 5

Holland v. Burlington Industries, Inc., 477 U.S.

EE I cenisnnecisciscsccucicnbieeiteadineece ieee 5

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

86 (9th Cir. 1988), amended on denial of rehear-

ing, 867 F.2d 489 (1988) (en banc), cert. denied,

oe te Be Reem ern ne passim

Perry v. Thomas, 482 U.S. 483 (1987) .................. 3

Shaw v. Delta Airlines, 463 U.S. 85 (1983) .......... 4

Wayne Chemical v. Columbus Agexcy Service

Corp., 567 F.2d 692 (7th Cir. 1977) .................... 2

FEDERAL REGULATIONS AND STATUTES:

4,6

Bee A A SE. Tt | eee een er

Employee Retirement Income Security Act of 1974

(ERISA), 29 U.S.C. § 1001 et seq. (1982) ........passim

ERISA §3(1), (5), 29 U.S.C. § 1002(1), (5)

CEEEED | cccvsnsesecinsqntnisesvinnanidenaaianaanee 5, 6

eo

IN THE

Supreme Court of the United States

OCTOBER TERM, 1990

No. 90-327

te

Se

THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK,

NANCY A. HIORTDAHL and DON LUHRSEN,

a Petitioners,

TELLY KANAKIS and PATRICIA KANAKIS,

Respondents.

On Petition for a Writ of Certiorari to the

Supreme Court of California

PETITIONERS’ REPLY BRIEF

| Petitioners, The Mutual Life Insurance Company of

| New York, Nancy A. Hiortdahl, and Don Luhrsen (col-

lectively, “Mutual Of New York”), respectfully submit

this Reply Brief in further support of their Petition for

a Writ of Certiorari to the Supreme Court of California.

I. RESPONDENTS BLATENTLY MISSTATE THE

HOLDINGS OF THE SEVENTH AND NINTH CIR-

CUITS IN SUPPORT OF THE STATE COURT'S

NOVEL INTENT REQUIREMENT

Respondents have misstated the relevant holdings of

the Seventh and Ninth Circuit Courts of Appeals. Re

spondents state (Brief in Opposition (“Brief in Opp.”),

p. 12) that the California Court of Appeal’s requirement

that an employer intend to create a plan to be governed

by the Employee Retirement Income Security Act of

1974, as amended, 29 U.S.C. § 1001 et seg. (1982)

— #

2

(“ERISA”) is supported by the Seventh Circuit in Wayne

Chemical, Inc. v. Columbus Agcy. Serv. Corp., 567 F.2d

692 (7th Cir. 1977), (upon which the trial court relied)

and that Ed Miniat, Inc. v. Globe Life Ins. Group, Inc.,

805 F.2d 732 (7th Cir. 1986), (the case cited by Peti-

tioners) further supports an intent requirement.

While the Wayne Chemical employer had originally

purchased group medical insurance for its employees, its

agents (without the employer’s prior consent) transferred

the program to an unauthorized insurer purporting to es-

tablish a multi-employer trust. The court in Wayne Chem-

ical determined that the employer had no knowledge of

the existence of the plan purportedly established by the

trust or of the trust itself and “never entered into an

agreement to establish any plan.” Wayne Chemical, Inc.

v. Columbus Agcy. Serv. Corp., supra, 567 F.2d at 699.

The court, therefore, held that in order for an employer

to become a participant in, or establish or maintain a

plan, the employer must intend to form an employee ben-

efit plan. The decision, however, did not impose a fur-

ther requirement that the employer must intend that the

plan be governed by ERISA.

Respondents’ quote from Ed Miniat (Brief in Opp., p.

12) is misleading because it conveys the impression that

the court required employer intent to create a plan gov-

erned by ERISA; when in fact an employer need only

intend to provide benefits to its employees. The excerpt

must be read in its context, which is as follows:

At most the cases suggest that, when the sole em-

ployee of a corporation, for that employee’s own bene-

fit or for that of his or her family, subscribes to a

trust, the necessary tntent on the part of the corpora-

tion to provide benefits for its employees may be lack-

ing. Thus, although Donovan and Taggart are not

controlling here, they do support the defendant’s

broader contention that we should examine the cor-

poration’s intent. In the case before us the corpora-

tion has via a written agreement, established its tn-

tent potentially to provide benefits to all salaried em-

ployees. This is not a case, like Taggart, in which a

corporation arguably failed to express the necessary

intent.

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

F.2d at 741 (emphasis added). Respondents can not dis-

pute the fact that Mrs. Kanakis’ employer, Insurance

Systems Incorporated (“ISI’’), intended to provide bene-

fits to its employees. In fact, in its announcement, ISI

stated:

It gives us considerable pleasure to announce to you

that we have completed arrangements for a plan of

Group Insurance offering benefits for you and your

dependents.

Our Plan is known as the Insurance Systems, Incor-

porated Employee Benefit Plan and is being under-

written under a group insurance contract issued by

Mutual of New York....

Appendix to Petition (“App.”) at 46a.

Respondents cite the California Court of Appeal’s mis-

placed reliance on Kanne v. Connecticut Gen. Life Ins.

Co., 859 F.2d &6 (9th Cir. 1988), amended on denial of

rehearing, 867 F.2d 489 (1988) (en banc), cert. denied,

109 S.Ct. 3216 (1989), as authority for their assertion

that the Ninth Circuit imposes an ERISA plan intent

requirement.

In its unpublished opinion,* the California Court of

Appeal cited Kanne as authority for its novel holding

* Respondents argue that the unpublished opinion of the Cali-

fornia Court of Appeal has no precedential value and cannot con-

flict, therefore, with the numerous federal cases that impose no

requirement of employer intent or administrative activity. Respond-

ents imply that a California state court may effectively preclude

review of its decision by declaring that the decision not be published.

That argument is frivolous. The Court will reverse state court opin-

ions that conflict with federal law whether they ure published or

unpublished. See Perry v. Thomas, 482 U.S. 483 (1987) (reversing

an unpublished opinion of the California Court of Appeal, Second

Appeliute District). i‘he fact that u decision is unpublished “car-

ries no weight in [the Court’s] decision to review the case.” Com-

missioner of Internal Revenue v. McCuy, 484 U.S. 3, 7 (1987),

rehearing denied 484 U.S. 982 (1987).

——————————

E 4 4

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.” App. at 15a; emphasis

added. Kanne does not support the California court’s

holding.

The California court extended Kanne’s reference to a

plan brochure “evidencing the intent to create an ERISA

plan” in the context of a discussion relating to whether

the multi-employer trust was merely advertising the

group insurance or endorsing the program within the

meaning of Department of Labor regulations (29 C.F.R.

§ 2510.3-1(j) (3)) to a holding that an employer’s intent

is a “prerequisite” to the creation of an ERISA plan.

The California court’s blatently contrived holding is not

supported by any legal authority in the Ninth Circuit or

of this Court.

Mutual Of New York’s reliance on Shaw v. Delta Air-

lines, 463 U.S. 85 (1983), is appropriate. This Court,

in Shaw, held that subjective intent cannot supplant ob-

jective criteria to determine whether a plan is maintained

“solely” for the purpose of compliance with ERISA. In

substantiating the California court’s holding, contrary to

Shaw, that the subjective intent of an employer is a

factor to be considered, Respondents vehemently contend

(i) that an officer of ISI had no knowledge whether

ERISA governed the ISI Plan; (ii) that there is no

proof that the ISI letter to employees (describing the ISI

plan as being designed to meet the requirements of

ERISA) and the booklet entitled “Group Insurance Bene-

fits” (App. 46a-72a) were distributed to the employees of

ISI, and (iii) that those documents were not drafted by

ISI. Brief in Opp., p. 4. This evidence was the basis on

which the jury found a lack of employer intent to estab-

lish an ERISA plan. Accordingly, Respondents have in-

advertently bolstered Mutual of New York’s case by prov-

ing the materiality of the erroneous jury instruction—an

instruction that is contrary to this Court’s holding in

Shaw.

II. RESPONDENTS MISCONSTRUE THE FACTS AND

HOLDINGS OF FORT HALIFAX AND KANNE TO

SUPPORT A REQUIREMENT OF ADMINISTRA-

TIVE ACTIVITY BY AN EMPLOYER

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

U.S. 1 (1987), determined that a one-time severance pay-

ment did not implicate the concerns of ERISA, as it did

not involve the administration of a plan and the obliga-

tion of an employer to pay benefits on a regular basis.

The lack of administrative activity in Fort Halifax was

cited as authority by the California Court of Appeal to

invent a requirement that to create an ERISA plan the

employer must perform the plan administrative duties

to the exclusion of all others. Such a holding is incon-

sistent with the mandates of ERISA §3(1}, 29 U.S.C.

§ 1002(1), and distorts this Court’s holding in Fort

Halifaz.

Citing its summary affirmance of lower court decisions

in Holland v. Burlington Industries, Inc., 477 U.S. 903

(1986), and Gilbert v. Burlington Industries, Inc., 477

U.S. 901 (1986), this Court noted in Fort Halifax that

severance payments from a benefit plan paid from gen-

eral assets of an employer would implicate the concerns

of ERISA and constitute an ERISA plan. Fort Halifax

Packing Co. v. Coyne, supra, 482 U.S. at 17. The dis-

tinction noted by the Court was that in the Burlington

cases “there was a ‘plan’ and the only issue was whether

the type of benefits paid by that plan are among those

covered by ERISA.” Jd. at 18. In holding that ERISA

governed, the Court reasoned that “if an employer has

an administrative scheme for paying benefits, it should

not be able to evade the requirements of the statute

[ERISA] merely by paying those benefits out of general

assets.” Id.

Under the holding of the California Court of Appeal

in this case, employers may evade the requirements of

ERISA simply by delegating performance of the ad-

ministrative plan functions to a third party. Certainly,

Fort Halifax does not support such a result.

In their final effort to support the opinion of ihe Cali-

fornia Court of Appeal, Respondents argue that Kanne

requires that an employer must administer a plan for it

to be governed by ERISA.

The plaintiffs in Kanne argued on appeal that the

group health insurance plan administered by a multi-

employer trust was not an ERISA plan. The Ninth Cir-

cuit rejected the argument, as it found that the trust

did not merely “advertise the group insurance, but

rather, as administrator of the plan, ‘endorses’ it within

the meaning of 29 C.F.R. 2510.3-1(j/(3).” Kanne v.

Connecticut General Life Ins. Co., supra, 867 F.2d at

493.

Understandably, Respondents merely cite to the Cali-

fornia Court of Appeal’s incorrect analysis of Kanne

(Brief in Opp., pp. 16-18). The California court, how- —

ever, incorrectly reasoned that because the ISI Plan did

not resemble the multi-employer plan in Kanne, the ISI

Plan could not be governed by ERISA. A multi-employer

trust, however, is but one vehicle used to establish em-

ployee benefit plans. ERISA § 3(5), 29 U.S.C. § 100215).

There is no dispute that ISI, as the plan sponsor, en-

dorsed the plan, designated the administrator, paid pre-

miums for employees and, as such, did more than simply

advertise the program. App. at d6a-47a.

The Kanne court searched for administrative activity

by any entity, and found that the employer group was

the administrator. The court did not hold that the em-

i...

7

ployer had to be involved in administrative activity and,

in fact, specifically noted that the Kannes had incorrectly

assumed that the employer’s functions with respect to

the plan determined ERISA coverage. Kanne v. Con-

necticut General Life Ins. Co., supra, 867 F.2d at 492-

493.

The contrived nature of the California court’s holding

| cannot be understated. The court ignored the existence

| of an employee benefit plan and misapplied the holdings

of this Court and that of the Ninth Circuit to justify a

windfall to the Respondents. It then purportedly neutered

the holding by declaring it to be “unpublished.” Al-

though Mr. Kanakis suffered serious injury, the Cali-

fornia court’s willingness to yield to the emotional pleas

of Respondents (App. at 3a-4a) does not make sound

law. The decision should not be permitted to stand.

CONCLUSION

For the foregoing reasons and for the reasons set forth

in the Petition and Brief Amici Curiae of American

Council of Life Insurance and Health Insurance Associa-

tion of America, a writ of certiorari should issue to ex-

amine the denial of a petition for review by the Supreme

Court of California.

Respectfully submitted,

Of Counsel: JessE D. MILLER, Esq.

WEAVER H. GAINES, Jz., Esq. (Counsel of Record)

WILLARD G. ELprep, Esq. FULBRIGHT & JAWORSKI

ANTHONY F. R&CINE, Esq. 700 S. Flower Street

GERALD J. CARROLL, Jk, Esq. Sixth Floor

4 Manhattanville Road Los Angeles, CA 90017

Purchase, New York 10577 (213) 626-5241

(914) 697-3604

October 11, 1990