Opposition Brief — Employers Resource Management Co. v. Shannon

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Supreme Court, U.

FILED

No. 95-823 } DEC 19 88

a | SCS ace ;

} CER

In The = eal a

Supreme Court of the United States

October Term, 1995

x ) —

EMPLOYERS RESOURCE MANAGEMENT

COMPANY, INCORPORATED; AMERICAN

EMPLOYERS BENEFIT TRUST,

Petitioners,

PRESTON C. SHANNON, Commissioner,

THEODORE V. MORRISON, JR., Commissioner,

HULLIHEN WILLIAMS MOORE, Commissioner,

STEVEN T. FOSTER, Commissioner of Insurance,

BUREAU OF INSURANCE OF THE

STATE CORPORATION COMMISSION

OF THE COMMONWEALTH OF VIRGINIA,

Responden ts.

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Fourth Circuit

BRIEF IN OPPOSITION

Of Counsel: Patrick H. CANTILO

ANTHONY GAMBARDELLA Counsel of Record

General Counsel

Peter B. SMITH

Senior Counsel

MicHae. D. THOMAS

Associate General

RANDOLPH N. WISENER

STEVEN E. ADKINS

CANTILO, MAIseL &

HussBarp, L.L.P.

Suite 1700

Counsel 7

State Corporation 111 Congress Avenue

. ec VAS O 10 .

Cc “ie ; Austin, Texas 78701

Commission

(512) 478-6000

Office of General Counsel (512) 404-6550 (Telecopier)

P.O. Box 1197

Richmond, Virginia 23209 Counsel to Respondents

OCKLE LAW BRIEF PRINTING CO, (800) 225-6964

OR CALL COLLECT (402) 342-2831

RESTATEMENT OF QUESTIONS PRESENTED

May a state court determine whether a proceeding

pending before it pw*suant to the state’s police power

to regulate insurance has been preempted by Con-

gress in the Employee Retirement Income Security

Act of 1974 (“ERISA”)?

Whether this Court should decline review where the

court of appeals properly affirmed the district court’s

decision to abstain, under principles articulated by

this Court in Younger v. Harris, 401 U.S. 37 (1971),

from enjoining a proceeding pending in state court

under the state’s police power to regulate insurance?

Whether this Court should decline review where the

court of appeals properly affirmed the district court’s

decision that ERISA, in the context of the facts here, is

not an “expressly authorized” exception to the Anti-

Injunction Act, 28 U.S.C. § 2283, and that an injunc-

tion against the state judicial proceedings by the dis-

trict court was not “necessary in aid of its

jurisdiction”?

TABLE OF CONTENTS

Page

RESTATEMENT OF QUESTIONS PRESENTED...... i

TABLE OF CONTENTS 0 5scccdessciccerssrecenseel ii

TABLE OF AUTHORITICS « cscs «des<evycceereeeeees Vv

COGGR 66 oeedsnnsicueedeees nee esasee eee Vv

Statutes and Regulations. ... 66s ccsccveveeaserenes viii

TROGRIOOG. 6.00 kenge ts cceenndued (saves ix

MEOCOTIATIOOUS ne esc cseacdvandesdateieeeee ix

STATUTES INVOLVED .. 3.03 ivvcccecassiseneenneee 1

STATEMENT OF THE CASE. «5.0 2:s22553 57 2

A. The Respondents ...6 ccs sc sceseusseaeeeee 3

BD. The Feuonets ... 65.6 cons seeseneesaess eee a

C. The Enforcement Proceeding Before the Commis-

HOR «0 ccciickesscteiveca se bhRRa RE eee 3

D. The Proceedings in the Federal Courts......... 4

SUMMARY OF THE ARGUMENT ................. 5

REASONS FOR DENYING THE PETITION FOR

WE! OF CERTIORARL « « sc+0c05csn cee eee 7

I. The Fourth Circuit Correctly Held that the Vir-

ginia Court Could Determine its own Jurisdic-

tion over the Issues Raised in the Pending State

Enforcement Proceediee, o.ic50:scn00s bee es 7

A. Under the Savings Clause and the MEWA

Clause, ERISA Specifically Leaves to the

States the Regulation of Insurance Com-

panies and Multiple Employer Welfare

ALTANGOMONS 6 occ: Sci ctxsdgeepias oes 7

ill

TABLE OF CONTENTS - Continued

Page

B. No Finding of Field Preemption or Exclu-

sive Jurisdiction has Been or Could be Made

an ih as keke e nee see

C. Neither Field Preemption nor Exclusive

Jurisdiction in the Federal Courts Would

Preclude the Virginia Court from Deciding

its Jurisdiction Over the Issues Raised

ES ag 2 et 2 Ra a a

II. The District Court Properly Abstained from

Deciding the Merits of ERM’s Claims, and No

Extraordinary Circumstances Exist to Circum-

vent Abstention Under Younger .............-.

A. Abstention Under Younger was Compelled

POC EL UNSC boas 640 Se cesar ee s'en yp cee

B. No Extraordinary Circumstances Exist to

Support an Exception to the Younger

er ee

1. This case does not meet the “flagrantly

and patently violative” standard.......

2. ERM has shown no irreparable injury

which will occur if the Fourth Circuit’s

affirmation of the District Court’s

apetention is left intact............+...

3. This Court should decline ERM’s invita-

tion to expand the extraordinary cir-

cumstance exception to Younger .......

Ill. This Case Does Not Come Within the “Expressly

Authorized” or “Necessary in Aid of its Jurisdic-

tion” Exceptions to the Anti-Injunction Act......

TABLE OF CONTENTS - Continued

Page

A. ERISA is Not an “Expressly Authorized”

Exception to the Anti-Injunction Act...... 19

1. The test formulated in Mitchum v. Foster

Se FF OR Ry eee fares oinee 20

2. Under this Court’s decisions, preemp-

tion is insufficient to create an

“expressly authorized” exception to the

ee ey rere 22

B. The Allegedly Conflicting Decisions Among

the Circuit Courts Concerning Whether

ERISA is an “Expressly Authorized” Excep-

tion to the Anti-Injunction Act are Distin-

guishable on Their Facts .................. 23

C. ERM Has Not Shown that the State Judicial

Proceedings May be Enjoined by the Federal

Court as “Necessary in Aid of its Jurisdic-

tion” Under the Anti-Injunction Act....... 26

COR BAIA ood ees cena eeraVeiden eee aaueetieetes 29

rABLE OF AUTHORITIES

Page

CASES

1975 Salaried Retirement Plan for Eligible Employees

of Crucible, Inc. v. Nobers, 968 F.2d 401 (3d Cir.

1992), cert. denied, __ U.S. _, 113 S. Ct. 1066

UE ci ct ci wade vet eesearkd crew rae a> Seema: 24, 25, 29

Alleghany Corp. v. McCartney, 896 F.2d 1138 (8th

2 OO I Ae hrs cre rey 17, 18

Amalgamated Clothing Workers of Am. v. Richman

Bros., 348 U.S. 511 (1955) .....- 0c eee eee eee ta, at, ae

Atlantic Coast Line R.R. v. Brotherhood of Locomotive

Engineers, 398 U.S. 281 (1970)... 13, 20, 23, 27, 28, 29

Bolingbrook v. Citizens Utils. Co., 864 F.2d 481 (7th

ee eer erpre rrr eerie 11

Capital Service, Inc. v. NLRB, 347 U.S. 501 (1954)..... 28

Casa Marie, Inc. v. Superior Court, 988 F.2d 252 (Ist

Che FOOD i ccciccccsvecccsdtesesstcecigcstesantese 25

Caterpillar, Inc. v. Williams, 482 U.S. 386 (1987) ...... 1]

Champion Int'l Corp. v. Brown, 731 F.2d 1406 (9th

Cte TOOED ccs cccsousccascoedecenes7 ss eeaaetee 19

Chick Kam Choo v. Exxon Corp., 486 U.S. 140 (1988)

PP Perry ere rrr re ries er ree ie eS, 13, 23, 27

CSXT. Inc. v. Pitz, 883 F.2d 468 (6th Cir. 1989), cert.

denied, 494 U.S. 1030 "bp, | ME ee URE EE Cor De At, Y

Federal Express Corp. v. Tennessee Pub. Serv.

Comm’‘n, 925 F.2d 962 (6th Cir.), cert. denied, 502

Toes | ere 917

TABLE OF AUTHORITIES — Continued

Page

Franchise Tax Bd. v. Construction Laborers Vacation

Te RD Ale OC CRUOOE KG ceoNdevceasneceneteavausss y

Fresh Int'l v. Agricultural Labor Relations Bd., 805

ate Coe AOU Geely BOOP roc acsecieeceateuresnss 11, 17

General Motors Corp. v. Buha, 623 F.2d 455 (6th Cir.

ee eee re rere Pre rr eno 24, 25

Gilbert v. Burlington Indus., Inc., 765 F.2d 320 (2d

Cir. 1985), aff'd without opinion, 477 U.S. 901

DEUUE SAK Me chCb as chsssrevuanbecteverieaseeray 24, 25

Howell v. State Corp. Comm'n, 214 Va. 128, 198

PE TROP OD vc aha davccedeuuaudueeseeaseweaens 13

Huffman v. Pursue, Ltd., 420 U.S. 592 (1975) ......... 16

International Ass'n of Entrepreneurs of Am. Benefit

Trust v. Foster, 883 F. Supp. 1050 (E.D. Va. 1995) .... 15

International Ass'n of Entrepreneurs of Am. v. Angoff,

58 F.3d 1266 (8th Cir. 1995), petition for cert. filed,

64 U.S.L.W. 3349 (U.S. Nov. 2, 1995) (No. 95-720)

LEREAED SAE SNR UAVED O50 20 CU SAD OUR R EAS RW ERE SO 9, 10, 24

Marshall v. Chase Manhattan Bank, 558 F.2d 680 (2d

PE a Soh bh be oc ok od Oye dee ede ceae eee dees 19

MDPhysicians & Assocs. v. State Bd. of Ins., 957 F.2d

178 (5th Cir.), cert. denied, __ U.S. __, 113 S. Ct.

DRED 4 6050 4 an gb-bn bad Ceca Sanh eee es bh acaee kh 9

Middlesex County Ethics Comm. v. Garden State Bar

Pe, Mt Vs SED CADRE). oo snc nccsic vedaaveoses 10, 14

Mitchum v. Foster, 407 U.S. 225 (1972)....20, 21, 22, 23, 26

vii

TABLE OF AUTHORITIES - Continued

Page

New Orleans Pub. Serv., Inc. v. Council of New

Orleans, 491 U.S. 350 (19G9). oc osaves 15, 16, 17, 18, 19

New York State Conf. of Blue Cross & Blue Shield

Plans v. Travelers Ins. Co., _— us. .. 1159S. Ct.

SOUS CIGD oc acae ieee ern e rie ene es marae ena ts 468: 8

Olde Discount Corp. v. Tupman, 1 F.3d 202 (3d Cir.

1993), cert. denied, __ us... 446 S. Ce. 7S

(RIED oc ains devcses rns cscctedeverresmrns aeeeres! 16, 19

Osborn v. Ozlin, 310 U.S. 53 CIDED) . vcvcceccccceveesns 7

Pennzoil Co. v. Texaco, Inc., 481 7S 2 CISB7) cc ccces 14

Samuels v. Mackell, 401 U.S. 66 tf) eee 14

Stone & Webster Engineering Corp. v. Ilsley, 690 F.2d

323 (2d Cir. 1982), judgment aff'd without opinion

sub nom. Arcudi v. Stone & Webster Engineering

Corp., 463 U.S. 1220 (1983)....---++ +e er rere rere 19

Sumner v. Mata, 449 U.S. 539 (1981)...----- eee eee 11

Swain v. Pressley, 430 U.S. 372 J Bee 11

Total Plan Servs., Inc. v. Texas Retailers Ass'n, Inc.,

925 F2d 142 (5th Cir. 1991).....--- secre eee reeee: 24

United States Dep’t of Treasury v. Pte. US.

113 S. Ct. 2202 (1993) ....-- ec eer cece eereceeees 7, 8

United States Steel Corp. Plan for Employee Ins. Bene-

fits v. Musisko, 885 F.2d 1170 (3d Cir. 1989), cert.

denied, 493 U.S. 1074 (1990)....-----see eer eeee 24, 25

Vendo Co. v. Lektro-Vend Corp., 433 U.S. 881 (1977)

veg le hy eg sale take kha eee wae wenn 20, 21, 22, 23, 28

Younger v. Harris, 401 U.S. 37 (1971)..-.------++: passim

Viii

TABLE OF AUTHORITIES —- Continued

Page

STATUTES AND REGULATIONS

Be Se ee SR Sab cedavinedeess un ccetraene deren 2

Be a OP esd er ens een ee conver veteetieitersis 5

Pe as ee PN As on 0s wane bee cé Cae ied seen iekers 4

kt ae | Aen oy err ey rrr rr oe 20

ee Fe Perey r er ere reer errr ery passim

Se Sea Oe EE i ac Raasws tetecd Secebueana ark 4

Be ty SE oo vo Sesc kien cece teh er vere 4

Be See SE 660.54: 5 086d ee eaE Ato a ee tones 11

yh ee Tt eee ere Sry er 4, 15

Se Sas ee hae eck Oe RP ERE ENCAN a, ae

as CE A BA i oo 06d Fo cab asenteenaneewend 13

ae ee ee, Serr erry eer er ery 4

Va. Ce ee 2 bos ce neers taser eee a 3, 18

A. GO TO ee I 6 We oo noo et eked nce and 3, 24

Va. Comm Asee. % DRA GGe ke os eek ecsty tenis cceceees 3, 9

Rules Governing Multiple Employer Welfare

Arrangements adopted in Case No. INS910244

| en mer nS ee Pre hres 3, 18

TABLE OF AUTHORITIES —- Continued

Page

TREATISES

17 CHarLEs A. WRIGHT, ET AL., FEDERAL PRACTICE AND

Procepure § 4222 (2d ed. 1988 and Supp. 1995) .... 26

17 CHARLES A. WRIGHT, ET AL., FEDERAL PRACTICE AND

ProcepureE § 4225 (2d ed. 1988 and Supp. 1995) .... 27

17A CHarR.Les A. WRIGHT, ET AL., FEDERAL PRACTICE

AND Procepure § 4255 (2d ed. 1988 and Supp.

San apap ese praee nantes Repo Seer reg Gury gram, "Wrarar ar PA eee 14

MISCELLANEOUS

128 Cong. Rec. 30,557 (Dec. 15, 1962) «0... 0c ssccccee. 12

STATUTES INVOLVED

To ensure accuracy and completeness, the Commis-

sioners of the State Corporation Commission of the Com-

monwealth of Virginia and the Commissioner of

Insurance! respectfully include the following statutory

provisions and rules which are implicated and either ot

included by ERM in its Petition and Appendix (“Pet.

App.”), or have been amended since the version quoted

by ERM was enacted:

Section 514(a) of ERISA, 29 US.C. § 1144(a), (the

“Preemption Clause”) (Appendix to Opposition [“Opp.

App.”]) at A-1;

Section 514(b)(2)(A) of ERISA, 29 U.S.C.

§ 1144(b)(2)(A), (the “Savings Clause”) (Opp. App. at

A-1);

Section 514(b)(6)(A), 29 U.S.C. § 1144(b)(6)(A), (the

“MEWA Clause”) (Opp. App. at A-1, 2);

Section 502(e)(1) of ERISA, 29 U.S.C. § 1132(e)(1), as

amended in 1993 (Opp. App. at A-2);

Virginia Code Annotated Sections 38.2-3420 and

-3421 (Opp. App. at B-1, 2); and

Rules Governing Multiple Employer Welfare

Arrangements adopted in Case No. INS910244 (Regula-

tion 31) (Opp. App. at C-1 through C-11).

' Unless otherwise indicated, Petitioners are collectively

referred to as “ERM” and Respondents are collectively referred

to as the “Commission”.

STATEMENT OF THE CASE

In its zeal to obtain a writ of certiorari, ERM has

misapprehended the fundamental question in this case

and the linchpin of the decisions in the lewer courts. The

threshold issue here is whether a state court may deter-

mine if the preemptive reach of ERISA extends so far as

to vitiate proceedings pending before it under the state’s

police power to regulate the business of insurance.

Sweeping aside the Savings Clause and the MEWA

Clause, ERM argues, without citation to controlling

authority, that ERISA’s preemptive effect wholly deprives

state courts of the ability to determine their own jurisdic-

tion in an area expressly left to the states by Congress in

the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-15 (the

“McCarran-Ferguson Act”), as reinforced by the Savings

Clause and MEWA Clause of ERISA. The very premise of

ERM’s argument would place state insurance regulation

into turmoil, and would effectively jettison fundamental

principles of federalism and comity. For these indepen-

dent reasons, the decision of the United States Court of

Appeals for the Fourth Circuit (the “Fourth Circuit”) was

correct without regard to the questions which ERM seeks

to have reviewed.

Additionally, the Fourth Circuit correctly ruled that

the abstention principles established in Younger v. Harris,

401 U.S. 37 (1971), and the Anti-Injunction Act, 28 U.S.C.

§ 2283, each independently compelled the determination

by the United States District Court for the Eastern District

of Virginia (the “District Court”) that it should not inter-

fere with the state enforcement proceedings pending in

the Virginia court, which was fully capable of determin-

ing, and which should determine, both ERM’s status as a

MEWA under Virginia law and whether such proceedings

had been preempted by Congress under ERISA. Accord-

ingly, the case should not be reviewed by this Court.

A. The Respondents

It is uncontroverted that the State Corporation Com-

mission of the Commonwealth of Virginia is, for purposes

of this proceeding, a state court with exclusive jurisdic-

tion over Virginia’s regulation of the business of insur-

ance including, specifically, regulatory jurisdiction over

multiple employer welfare arrangements (“MEWAs”)

pursuant to Article 3 of Chapter 34 of Title 38.2 of the

Code of Virginia. Sections 38.2-3420 and -3421 of the

Code of Virginia provide that any entity, such as ERM,

offering or providing coverage in Virginia for health care

services is presumed to be subject to the exclusive juris-

diction of Virginia unless that entity demonstrates that it

is subject to regulation by another governmental author-

ity. (See Opp. App. at B-1, 2). The State Corporation

Commission, pursuant to Section 38.2-223 of the Code of

Virginia, has promulgated an extensive regulatory

scheme governing MEWAs. See Rules Governing Multiple

Employer Welfare Arrangements adopted in Case No.

INS910244 (Regulation 31) (Opp. App. at C-1 through

C-11).

B. The Petitioners

Employers Resource Management Company, Inc. is a

Virginia-domiciled corporation which offers or provides

coverage for health care services to employees of

numerous employers in and outside the Commonwealth

of Virginia. American Employers Benefit Trust is a trust

with a situs in the Commonwealth of Virginia which was

created to provide and furnish health care services to

employees covered by the ERM health benefits plan.

C. The Enforcement Proceeding Before the Com-

mission

In response to a request by the Bureau of Insurance

pursuant to ERISA Procedure 76-1, the United States

Department of Labor issued an advisory opinion dated

November 2, 1993, concluding that:

[I]n the absence of any indication that ERM and

its Clients constitute a “control group” within

the meaning of Section 3(40)(B)(i) [29 U.S.C.

§ 1002(40)(B)(i)] of ERISA, it is the view of the

Department that the ERM Program is an

arrangement providing benefits to ‘the

employees of two or more employers and is,

therefore, a multiple employer welfare arrange-

ment (MEWA) within the meaning of section

3(40)(A) [29 U.S.C. § 1002 (40)(A)]. Accordingly,

the preemption provisions of ERISA would not

preclude state regulation of the ERM Program to

the extent provided in ERISA § 514(b)(6)(A) [29

U.S.C. § 1144 (b)(6)(A)].

(See Opp. App. at D-7). On February 18, 1994, the Com-

mission, pursuant to its authority under Virginia Code

Section 38.2-219, entered an Order to Take Notice against

ERM for operating in Virginia without first obtaining a

license from the Commission. This Order provided that

the Commission would enter a cease and desist order

subsequent to March 7, 1994, prohibiting ERM from oper-

ating in the Commonwealth of Virginia unless, on or

before that date, ERM filed with the clerk of the Commis-

sion a responsive pleading objecting to the entry of such

a cease and desist order.

D. The Proceedings in the Federal Courts

While the judicial proceeding was pending before the

Commission, ERM commenced an action before the Dis-

trict Court, seeking (1) a declaration that ERISA preempts

the application of Virginia law regulating MEWAs and (2)

an injunction which would operate to enjoin the pending

state enforcement proceedings against ERM (“Case I”).

ERM also sought removal of the pending state enforce-

ment proceedings pursuant to 28 U.S.C. § 1441(b) (“Case

II”). The Commission moved the District Court to dis-

miss, stay, or abstain from adjudicating the matter, and

for judgment on the pleadings as to Case I and moved to

remand Case II to state court.

On November 22, 1994, the District Court granted the

Commission’s Motion to Dismiss on the independent

grounds that: (i) Virginia’s state judicial system is capable

of passing on ERM’s designation as a MEWA and any

federal defenses raised by ERM; (ii) the Anti-Injunction

Act, 28 U.S.C. § 2283, barred the injunctive and declara-

tory relief sought by ERM because it would improperly

enjoin proceedings in state court; and (iii) abstention

under Younger v. Harris was required in deference to the

pending state court proceedings implicating substantial

state interests. (See Pet. App. at 23a). The District Court,

noting that “(t]he ultimate question in both actions ~ the

question that either a state court or this court must even-

tually decide — is whether ERM and the Trust are part of a

MEWA such that ERISA does not preempt state regula-

tion,” also granted the Motion to Remand on the ground

that Case II, as initiated by the Commonwealth of Vir-

ginia to enforce her own state laws, did not arise under

federal law pursuant to 28 U.S.C. § 1331. (See Pet. App. at

23a).

On appeal by ERM, the Fourth Circuit, noting that it

must resolve whether the state court or the District Court

was the proper forum for determining ERM’s status as a

MEWA, affirmed the District Court’s ruling in all

respects. (See id. at 2a.)

SUMMARY OF THE ARGUMENT

Congress, under the McCarran-Ferguson Act, reaf-

firmed the principle that the regulation of insurance is to

be left to the several States. Under ERISA, Congress

placed the regulation of certain types of employee benefit

plans within the jurisdiction of the federal government.

However, ERISA expressly reserved to the states, under

the Savings and MEWA Clauses, the regulation of insur-

ance and certain types of multiple employer welfare

arrangements. The state judicial proceeding at issue here

is an enforcement action under Virginia’s police power to

regulate an area which was historically and is currently

within its province under the McCarran-Ferguson Act

and the referenced clauses of ERISA. Neither the state

proceedings, nor Virginia’s substantial interest in regulat-

ing insurance transacted within its borders, is preempted

by ERISA.

Nevertheless, ERM has improvidently invoked the

jurisdiction of the federal courts, raising the issues of

preemption and exclusive federal jurisdiction in an

attempt to make an “end-run” around the state court

proceedings and time-honored principles of federalism

and comity. In effect, ERM has attem: ie.’ to invoke fed-

eral jurisdiction through the offensiv» use of federal

detenses. These efforts must fail because, as determined

by the federal courts below, the Virginia court is the

proper forum to determine both ERM’s ERISA status vel

non and the merits of its federal defenses.

In deference to principles of comity and federalism

which have been fashioned and settled for more than two

hundred years, both the District Court and the Fourth

Circuit properly declined to interfere with the on-going

state court proceedings. This Court should now decline

the request for a writ of certiorari to the Fourth Circuit

because:

1. The Virginia court possesses jurisdiction to

determine ERM’s MEWA designation and its

federal defenses to state regulatory action.

As ERM concedes, Younger abstention

applies, and, contrary to ERM’s contention,

no extraordinary circumstances exist to pre-

clude abstention under Younger.

3. Because ERISA is not an “expressly autho-

rized” exception to the Anti-Injunction Act,

it bars the relief sought by ERM.

4. The Anti-Injunction Act bars the relief

sought by ERM because an injunction

against the state court proceedings by the

District Court would not be “necessary in

aid of its jurisdiction.”

REASONS FOR DENYING THE PETITION

FOR WRIT OF CERTIORARI

I. The Fourth Circuit Correctly Held that the

Virginia Court Could Determine its own

Jurisdiction over the Issues Raised in the

Pending State Enforcement Proceeding.

A. Under the Savings Clause and the

MEWA Clause, ERISA Specifically

Leaves to the States the Regulation of

Insurance Companies and Multiple

Employer Welfare Arrangements.

The District Court and the Fourth Circuit correctly

ruled that the Virginia court is the proper forum to deter-

mine ERM’s status under ERISA and any preemption or

exclusive jurisdiction defenses ERM may raise. The pro-

priety of these rulings is clear given the States’ compel-

ling interest in regulating insurance and state courts’

established competence to pass upon federal preemption

and exclusive jurisdiction defenses.

This Court has long recognized that the regulation of

insurance is a matter of substantial importance which is

left to the States. E.g., Osborn v. Ozlin, 310 U.S. 53, 65

(1940). Indeed, Congress, when it enacted the McCarran-

Ferguson Act, placed the regulation of insurance firmly in

the hands of the States. This Court has continued to

recognize the preeminence of state regulation even where

a conflict potentially exists with federal law. See United

States Dep't of Treasury v. Fabe,__ U.S. ___, 113 S. Ct. 2202

(1993).2

Although, in enacting ERISA, Congress subjected to

federal regulation certain plans providing fringe benefits

to employees, ERISA reserves to the States, under the

Savings Clause and the MEWA Clause, the regulation of

insurance and certain types of welfare benefit arrange-

ments, especially the type of enforcement action at issue

here.

B. No Finding of Field Preemption or Exclusive

Jurisdiction has Been or Could be Made on this

Record.

The thrust of ERM’s Petition is that ERISA’s broad

preemptive sweep and an undefined exclusive jurisdic-

tional scheme for proceedings in which a regulated

entity asserts federal defenses* somehow render the

2 In fact, this Court has recently stated that:

[W]e have never assumed lightly that Congress

has derogated state regulation, but instead have

addressed claims of pre-emption with the starting

presumption that Congress does not intend to sup-

plant state law. . . . Indeed, in cases like this one,

where federal law is said to bar state action in fields

of traditional state regulation, ... we have worked on

the “assumption that the historic police powers of the

States were not to be superseded by the Federa! Act

unless that was the clear and manifest purpose of

Congress.”

New York State Conf. of Blue Cross & Blue Shield Plans v. Travelers

Ins. Co., __ U.S. __, __, 115 S. Ct. 1671, 1676 (1995) (citations

omitted).

3 It is axiomatic that use of a federal law affirmative

defense as the pretext for causing a federal court to disrupt a

state court proceeding in which the defense might have been

Commission powerless to adjudicate the questions pre-

sented in the state enforcement proceeding. Not only do

such contentions prove too much, until ERM has proven

its allegation that ERISA is implicated, questions of pre-

emption and exclusive federal jurisdiction should not

even be considered. See International Ass'n of Entrepreneurs

of Am. v. Angoff, 58 F.3d 1266, 1269 (8th Cir. 1995) (until

entity proves allegation that ERISA applies, questions of

preemption and exclusive federal jurisdiction not to be

considered), petition for cert. filed, 64 U.S.L.W. 3349 (U.S.

Nov. 2, 1995) (No. 95-720); MDPhysicians & Assocs. v. State

Bd. of Ins., 957 F.2d 178, 182 (5th Cir.) (same), cert. denied,

__. U.S. __, 113 S. Ct. 179 (1992). Until the preliminary

question of ERM’s status with respect to ERISA is

decided, the exclusive federal protections available to an

ERISA plan under certain circumstances are simply

unavailable to ERM.

Virginia law provides a comprehensive mechanism

for ERM to demonstrate that it is not subject to state

regulation. See Va. Cope ANN. § 38.2-3421; (Opp. App. at

B-1, 2). As ERM concedes, (Petition at 4), neither the

District Court nor the Fourth Circuit decided whether

ERM is subject to ERISA or, as a MEWA, subject to state

regulation. Rather, the courts below properly held that

the state court was the appropriate forum to make such a

determination. (See, e.g., Pet. App. at 21a). At no point

and in no manner does ERISA bestow upon the federal

courts exclusive jurisdiction* to determine the ERISA sta-

tus vel non of a plan or fiduciary, nor does it prescribe

asserted is inappropriate. See, e.g., Franchise Tax Bd. v. Construc-

tion Laborers Vacation Trust, 463 U.S. 1, 15 (1983).

4 In fact, unless instructed otherwise by Congress, state and

federal courts have equal power to decide federal issues. See,

e.g., Federal Express Corp. v. Tennessee Pub. Serv. Comm’n, 925 F.2d

962, 968 (6th Cir.), cert. denied, 502 U.S. 812 (1991); CSXT, Inc. v.

Pitz, 883 F.2d 468, 472 (6th Cir. 1989), cert. denied, 494 U.S. 1030

(1990).

that state enforcement proceedings, such as those present

here, against insurers who assert an ERISA preemption

defense must proceed exclusively in federal court.

Moreover, in light of Virginia’s long established and

substantial interest in regulating insurance and the

express exceptions present in ERISA’s Savings and

MEWA Clauses, it is not open to question that the Com-

mission, as a state court, is capable of deciding ERM’s

status vis-a-vis ERISA. This principle is augmented by the

fact that numerous state courts have capably conducted

such analyses and made such determinations. See Angoff,

58 F.3d at 1269 (and cases cited therein). To regulate this

area of substantial interest to the states, which was speci-

fically reserved to them by Congress, Virginia courts

necessarily must have the power to enforce state law,

determine ERM’s MEWA status, and adjudicate any pre-

emption defenses asserted in a state regulatory enforce-

ment action.

C. Neither Field Preemption nor Exclusive Juris-

diction in the Federal Courts Would Preclude

the Virginia Court from Deciding its Jurisdic-

tion Over the Issues Raised Before it.

Once the threshold determination of ERM’s status is

made, the state court will be capable of entertaining any

potential defenses by ERM concerning preemption and

exclusive federal court jurisdiction. See, e.g., Middlesex

County Ethics Comm. v. Garden State Bar Ass'n, 457 U.S.

423, 432-34 (1982) (state court judges as able as federal

courts to rule on federal preemption claim). Indeed,

ERM’s contentions must be viewed in the context of its

recognition that “state courts are presumed fully compe-

tent to decide issues of federal law and to protect federal

interests in the event of any conflict with state interest.”

(Petition at 21); see Middlesex County, 457 U.S. at 431;

emt 2, ce

Sumner v. Mata, 449 U.S. 539, 549 (1981); Swain v. Pressley,

430 U.S. 372, 383 (1977). ERM has shown no reason why

this presumption fails to apply here.°®

ERM’s exclusive federal jurisdiction theory, see, e.g.,

Petition at 13 and 15, is, likewise, faulty in numerous

respects. For example, although ERISA grants federal

courts exclusive jurisdiction over certain matters where

they are brought offensively as a cause of action by a

narrowly defined class of plaintiffs under 29 U.S.C.

§ 1132(a)(3), there is no grant of exclusive jurisdiction to

federal courts to resolve ERISA preemption questions

where they are asserted defensively. See, e.g., Fresh Int'l v.

Agricultural Labor Relations Bd., 805 F.2d 1353, 1362 n.13

(9th Cir. 1986) (“We do not read section [1132] as foreclos-

ing a state court from considering a defense based on

ERISA pre-emption”); see also Caterpillar, Inc. v. Williams,

482 U.S. 386, 400 (1987) (federal defense in state court

action does not deprive state courts of jurisdiction);

Bolingbrook v. Citizens Utils. Co., 864 F.2d 481, 484-85 (7th

Cir. 1988) (“There is no general right to have federal-law

defenses to state-law claims resolved by federal courts.”).

ERM’s contrary contention that exclusive jurisdiction

over federal defenses to state regulatory and enforcement

proceedings lies in federal court would turn state regula-

tion upside dcos.n and alter the relationship between the

state and federal domains in a manner not intended by

Congress. It would be necessary only for a defendant in a

state regulatory proceeding to assert a federal defense (no

> In fact, ERM concedes that it will have an adequate oppor-

tunity to raise its preemption and exclusive jurisdiction

defenses in state court inasmuch as it concedes that the three

elements of Younger abstention — one of which is the opportunity

to raise federal claims in state court - are present here. (Pet.

App. at 16a; see Petition at 23-24;

matter how weak) in order to disrupt and temporarily

halt the state proceeding.

The type of enforcement action at issue here is

expressly reserved to the States under the Savings and

MEWA Clauses of ERISA which specifically provide,

respectively, that “nothing in this subchapter shall be

construed to exempt or relieve any person from any law

of any State which regulates insurance ...” and that the

States may regulate MEWAs with certain restrictions in

limited circumstances, none of which is relevant here.®

Congressman Erlenborn, for whom the MEWA Clause

amendment was subsequently named, has stated that:

[I]f a multiple employer welfare arrangement

does not meet the definition of an employee

welfare benefit plan under the act, then such an

entity is not exempted — under the preemption

provisions set forth in section 514 of ERISA -

from the application of State insurance and

other laws regulating such entities. . .. Thus, the

amendment removes any potential obstacle that

might exist under current law which could hin-

der the ability of the States to regulate multiple

employer welfare arrangements to assure the

financial soundness and timely payment of ben-

efits under such arrangements.

128 Cong. Rec. 30,357 (Dec. 13, 1982).

Both the express terms of ERISA and its legislative

history support the principle that the Virginia court is an

appropriate forum to determine ERM’s ERISA status and

* ERM attempts to erase the Savings and MEWA Clauses of

ERISA by ignoring them and discussing only the broad preemp-

tion contained in ERISA. Such a construction of ERISA is partic-

ularly remarkable inasmuch as the only body to consider the

merits of ERM’s claims - the federal agency responsible for

enforcing the provisions of ERISA — has determined that ERM is

a MEWA subject to regulation by Virginia. (See Opp. App. at

D-7).

to address any federal defenses properly asserted by

ERM. Of course, if ERM is aggrieved by any such deci-

sion of the Commission, it may seek redress, as a matter

of right under Virginia law, by an appeal directly to the

Supreme Court of Virginia and, ultimately, to this Court.”

See, e.g., Atlantic Coast Line R.R. v. Brotherhood of Locomo-

tive Engineers, 398 U.S. 281, 287 (1970) (“Proceedings in

state courts should normally be allowed to continue

unimpaired by intervention of the lower federal courts,

with relief from error, if any, through the state appellate

courts and ultimately this Court.”). Even if ERM’s notions

concerning preemption were accepted, these issues

should be resolved in the state court in light of this

Court’s settled jurisprudence that “when a state proceed-

ing presents a federal issue, even a pre-emption issue, the

proper course is to seek resolution of that issue by the

state court.” Chick Kam Choo v. Exxon Corp., 486 U.S. 140,

149-50 (1988) (emphasis added).

Accordingly, this Court should decline review of the

Fourth Circuit’s decision which correctly held that the

Virginia state court was a proper forum to determine

ERM’s status relative to ERISA and to adjudicate ERM’s

federal defenses.

II. The District Court Properly Abstained from Decid-

ing the Merits of ERM’s Claims, and No Extraordin-

ary Circumstances Exist to Circumvent Abstention

Under Younger.

A. Abstention Under Younger was Compelled Here.

In Younger v. Harris, 401 U.S. 37 (1971), this Court

called for federal court abstention where: (i) there is a

? Under Virginia law, any party aggrieved by a final order

or decision of the Commission has an appeal, of right, to the

Supreme Court of Virginia. Va. Cope ANN. § 12.1-39 (Michie

1995); see Howell v. State Corp. Comm'n, 214 Va. 128, 198 S.E.2d

611 (1973).

pending state judicial proceeding; (ii) which implicates

important state interests; and (iii) there is an adequate

opportunity for the plaintiff to raise federal claims in the

state forum. Middlesex County, 457 U.S. at 432. As noted

above, ERM “concedes that all three elements of Younger

have been met in this case.” (Pet. App. at 16a; see Petition

at 23-24). Younger abstention is rooted in the notion of

comity, which dictates that there must be

a proper respect for the state functions, . . . and

a continuance of the belief that the National

Government will fare best if the States and their

institutions are left free to perform their sepa-

rate functions in their separate ways.

Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 10 (1987). This

Court’s decisions “repeat time and again that the normal

thing to do when federal courts are asked to enjoin pend-

ing proceedings in state courts is not to issue such injunc-

tions.”® Younger, 401 U.S. at 45.

B. No Extraordinary Circumstances Exist to Sup-

port an Exception to the Younger Abstention

Doctrine.

While there may be narrowly defined instances

where extraordinary circumstances may counsel against

Younger abstention, see Younger, 401 U.S. at 53-54, none

applies here. These exceptions are very narrowly con-

strued by the courts and are rarely found. See 17A

CHARLES A. WRIGHT, ET AL., FEDERAL PRACTICE AND PROCEDURE

§ 4255 (2d ed. 1988 and Supp. 1995). Such extraordinary

circumstances may occur (i) where a challenged statute

“flagrantly and patently” violates express constitutional

provisions or (ii) where the plaintiff can show that he or

® The declaratory relief sought by ERM is just as inap-

propriate as the injunctive relief it seeks. See, e.g., Samuels v.

Mackell, 401 U.S. 66, 73 (1971).

she will suffer irreparable injury if the federal court ab-

stains because there is no adequate remedy at law. See

Younger, 401 U.S. at 53-54. Disregarding the substance of

these narrowly defined exceptions and controlling cases,

ERM presses a notion — cloaked in such catch phrases as

“conflict pre-emption”, “field pre-emption”, and “super-

pre-emption” — that certain undefined extraordinary cir-

cumstances somehow place its Complaint outside the

reach of Younger abstention. (See Petition at 21-23).

1. This case does not meet the “flagrantly and

patently violative” standard.

To remove this case from Younger’s reach, ERM must

show a “flagrant” and “patent” violation “of express

constitutional prohibitions in every clause, sentence and

paragraph, and in whatever manner and against whom-

ever an effort might be made to apply it.” Younger, 401

U.S. at 53-54. ERM’s claim fails under this stringent stan-

dard.

If ERM’s benefit plan is a MEWA, then ERISA does

not preclude Virginia from regulating it. See 29 U.S.C.

§ 1144(b)(6)(A). As a threshold question, then, the Com-

mission must determine whether ERM is, in fact, a

MEWA of the type subject to regulation by Virginia.

Issues which “require[ ] further factual inquiry can

hardly be deemed ‘flagrantly’ unlawful for purposes of a

threshold abstention determination.” New Orleans Pub.

Serv., Inc. v. Council of New Orleans, 491 U.S. 350, 367

(1989) (“NOPSI”); see International Ass'n of Entrepreneurs of

Am. Benefit Trust v. Foster, 883 F. Supp. 1050, 1062-66 (E.D.

Va. 1995) (detailed factual inquiry required in determin-

ing ERISA status).

2. ERM has shown no irreparable injury

which will occur if the Fourth Circuit's

affirmation of the District Court’s absten-

tion is left intact.

ERM evidently concedes that this case does not come

within the stringent Younger standard of an irremediable

harm both “great and immediate.” See Younger, 401 U.S.

at 46. ERM has not even attempted to show (nor could it)

any irreparable harm of such magnitude or the lack of an

adequate remedy at law which it suffered as a result of

the District Court’s having abstained from deciding the

merits of its Complaint. As previously demonstrated, and

as ERM apparently recognizes, its federal rights could be

adjudicated in the Virginia proceeding with an ultimate

right of appeal from the Virginia Supreme Court to this

Court.

3. This Court should decline ERM’s invitation

to expand the extraordinary circumstance

exception to Younger.

Apparently recognizing that it does not fit within the

narrow exceptions to Younger, ERM unabashedly asks this

Court to disregard its established jurisprudence and cre-

ate an additional exception to Younger for which there is

simply neither a factual nor a legal predicate. Younger

does not permit the exercise-of jurisdiction merely upon

an allegation that federal law preempts the state law in

question. See, e.g., Huffman v. Pursue, Ltd., 420 U.S. 592,

602 (1975). As noted by authority relied upon by ERM, a

claim of preemption does not rise to the level of such an

extraordinary circumstance. See Olde Discount Corp. v.

Tupman, 1 F.3d 202, 214 (3d Cir. 1993) (presence of pre-

emption claim not entitled to any more deference than

other constitutional claims in face of abstention chal-

lenge; “[t]he Supreme Court said as much in NOPSI”),

cert. denied, __ U.S. __, 114 S. Ct. 741 (1994).

Bad St os Dia

In NOPSI, the party opposing abstention argued that

a court faced with a preemption assertion should take a

“quick look” at the merits and, if the claim “appears

substantial”, the court must resolve it. This Court

responded, stating:

We disagree. There is no greater federal interest

in enforcing the supremacy of federal statutes

than in enforcing the supremacy of explicit con-

stitutional guarantees, and constitutional chal-

lenges to state action, no less than preemption-

based challenges, call into question the legit-

imacy of the State’s interest in its proceedings

reviewing or enforcing that action. Yet it is clear

that the mere assertion of a substantial constitu-

tional challenge to state action will not alone

compel the exercise of federal jurisdiction.

491 U.S. at 365. Although this Court ultimately found that

the district court should not abstain, it did not conclude

that, simply because the case implicated findings of the

Federal Energy Regulatory Commission preempting a

state decision of local rate-making authorities, a blanket

exception to Younger principles was supported. Moreover

this Court refused to abstain in NOPSI, not because of

any federal claims involved, but because there was no

challenge to judicial proceedings, as is present here, but

rather to a legislative process. NOPSI, 491 U.S. at 370-71.

Numerous courts, before and after this Court's deci-

sion in NOPSI, have not allowed the mere presence of a

federal preemption issue to preclude abstention. See, e.g.,

Federal Express Corp. v. Tennessee Pub. Serv. Comm’n, 925

F.2d 962, 968 (6th Cir.), cert. denied, 502 U.S. 812 (1991)

(“We reject Federal'Express’ argument against abstention

on the basis of federal preemption.”); Fresh Int'l Corp. v.

Agricultural Labor Relations Bd., 805 F.2d 1353, 1362 & n.15

(9th Cir. 1986) (Younger abstention appropriate where

adequate opportunity to present preemption defense in

state court exists); Alleghany Corp. v. McCartney, 896 F.2d

’

1138, 1144-45 (8th Cir. 1990) (abstention under Younger

not rendered inappropriate solely by claim that state

proceedings preempted by Constitution or federal stat-

ute). If the law were otherwise, a federal court litigant

could always circumvent the teaching of Younger and

relevant principles of federalism by asserting an offensive

preemption claim in a parallel federal proceeding. This

cannot be the law, for as this Court has previously noted,

the mere assertion of a substantial federal preemption

challenge to state action does not compel the exercise of

federal jurisdiction. See Younger, 401 U.S. at 52.

ERM has wholly misapprehended the principles

under NOPSI where this Court reasoned that, in a pre-

emption exception claim to Younger, the focus is not on

the outcome of a particular proceeding. NOPSI, 491 U.S.

at 365. “Rather, what we look to is the importance of the

generic proceedings to the state.” Id. Under this standard,

ERM must show more than merely that ERISA preempts

Virginia’s regulation of it. ERM must show that ERISA

preempts Virginia’s interest in regulating the business of

insurance, generally, and insurers and health care pro-

viders specifically, including those which are operating as

MEWAs under Virginia and federal law. This is an insur-

mountable burden which ERM is unable to carry. As

noted above, the Commission has specific regulatory

jurisdiction over MEWAs pursuant to Virginia Code Sec-

tion 38.2-223 and Article 3 of Chapter 34 of Title 38.2 of

the Code of Virginia. See also Rules Governing Multiple

Employer Welfare Arrangements adopted in Case No.

INS910244 (Regulation 31) (Opp. App. at C-1 through

C-11).

As the Fourth Circuit correctly noted, “[t]he fact that

ERM would prefer a federal forum is not a serious

enough interest to rise to the level of an exception to

Younger abstention.” (Pet. App. at 20a). The facts of this

case simply do not support an exception to Younger

<a). ss

ate. Murad Bie Sle Ae cs DAs ts — ela:

OA me

Ne enc ey a ar a ene ee FE et

abstention.’ The District Court’s decision was appropri-

ate under Younger, and under NOPSI, which provide that

even a substantial preemption claim does not compel a

court to consider the merits of a case from which it is

abstaining under Younger. Thus, the District Court cor-

rectly abstained under Younger, and this Court should

deny the Petition on this ground alone.

lif. This Case Does Not Come Within the “Expressly

Authorized” or “Necessary in Aid of its Jurisdic-

tion” Exceptions to the Anti-Injunction Act.

A. ERISA is Not an “Expressly Authorized” Excep-

tion to the Anti-Injunction Act.

For more than two hundred years, Congress has

expressly prohibited interference in state court

*” ERM’s reliance upon Olde Discount Corp. v. Tupman, 1 F.3d

202 (3d Cir. 1993), cert. denied, __ U.S. _ , 1145S. Ct. 741 (1994),

is unavailing. There, unlike in the case at bar, “conflicting statu-

tory demands and an obstacle to Congress’ purposes” was pre-

sent. /d. at 208. ERM’s citation to Champion Int'l Corp. v. Brown,

731 F.2d 1406 (9th Cir. 1984), is equally unavailing inasmuch as

that court found that “no important state interest is implicated,”

and the court did not even consider the other elements of Youn-

ger. Id. at 1408. Neither is ERM’s reliance upon Stone & Webster

Engineering Corp. v. Ilsley, 690 F.2d 323, 326 n.2 (2d Cir. 1982),

judgment aff'd without opinion sub nom. Arcudi v. Stone & Webster

Engineering Corp., 463 U.S. 1220 (1983), appropriate. The Court

in [lsley, in one sentence of dicta, relied upon Marshall v. Chase

Manhattan Bank, 558 F.2d 680 (2d Cir. 1977), for the broad propo-

sition that abstention under Younger is not appropriate in a

preemption case. However, the Court in Marshall found it signif-

icant that the state was not a party to that action and issues of

state law were not raised. In the case at bar, of course, the state is

a party and substantial interests of the Commonwealth of Vir-

ginia are implicated. Moreover, while the courts in Champion

and Ilsley found that Younger was not implicated, ERM has

already conceded as much in the case at bar.

proceedings by federal courts and, with three narrow

exceptions, this prohibition remains in effect today. Atlan-

tic Coast Line R.R. v. Brotherhood of Locomotive Engineers,

398 U.S. 281, 282 (1970). In spite of this longstanding

prohibition, ERM sought to have a federal court review

and terminate a proceeding of a state court in Virginia

brought by the Commonwealth in furtherance of its

police power.!° A more drastic form of interference is

difficult to imagine. This Court has consistently held that

any injunction against a state court proceeding must be

based on one of the specific statutory exceptions to the

Anti-Injunction Act if the injunction is to be upheld and

that “the exceptions [to Section 2283] should not be

enlarged by loose statutory construction.” Id. at 287.

1. The test formulated in Mitchum v. Foster is

not met here.

To avoid the bar of the Anti-Injunction Act under the

“expressly authorized” exception, ERM must demon-

strate that ERISA is

an Act of Congress, clearly creating a federal right

or remedy enforceable in a federal court of equity,

[which] could be given its intended scope only by

the stay of a state court proceeding.

Mitchum v. Foster, 407 U.S. 225, 238 (1972).!! ERM has not

carried this substantial burden. The federal scheme in

10 This action by ERM is, in effect, one to review indirectly

the order remanding the enforcement proceedings to the state

court. ERM’s litigation strategy was ostensibly to circumvent

the law codified at 28 U.S.C. § 1447(d) which provides that:

“{a]n order remanding a case to the State court from which it

was removed is not reviewable on appeal or otherwise.”

1! ERM must also overcome this Court’s decision in Vendo

Co. v. Lektro-Vend Corp., 433 U.S. 881 (1977) (plurality opinion).

Pavement aici esiaeenaean NES

question must be shown by ERM to have established “a

specific and uniquely federal right or remedy.” Id. at 237.

While it is axiomatic that ERISA created various federally

protected rights, it simply was not enacted to create the

type of uniquely federal right considered in Mitchum.

There, this Court examined 42 U.S.C. § 1983, whose “very

purpose. ... was to iiterpose the federal courts between

the States and the people, as guardians of the people's

federal rights.” Id. at 242. While ERISA may have been

designed to unify the nation’s law concerning employee

welfare benefits, it was not enacted out of some fear that

“state courts were being used to harass and injure indi-

viduals.” See id. at 240.

With respect to the second aspect of the Mitchum test,

ERISA does not, on its face or by fair implication, refer to

the Anti-Injunction Act. Neither does ERISA expressly

authorize or its legislative history contemplate injunc-

tions against state-court proceedings. While such absence

is often sufficient to demonstrate that no exception to the

Anti-Injunction Act applies, ERM strains to place itself

within the analysis fashioned by this Court in Mitchum.

In Mitchum, the absence of such express language was

overcome by relevant legislative history indicating that,

in enacting 42 U.S.C. § 1983, Congress was concerned

about the possibility that state courts “might be used as

In Vendo, this Court elaborated on the Mitchum test, explaining

that, “[b]y limiting the statutory exceptions of § 2283 and its

predecessors to these few instances, we have clearly recognized

that the Act countenancing the federal injunction must neces-

sarily interact with, or focus upon, a state judicial proceeding.”

433 U.S. at 640-641. Because the Clayton Act did not “by its very

essence contemplate or envision any necessary interaction with

state judicial proceedings,” it was held not to be an exception to

the Anti-Injunction Act. ERM has made no showing, and indeed

none can be made, that ERISA meets the criterion established in

Vendo.

instruments to deny citizens their rights under the Fed-

eral Constitution.” Vendo, 433 U.S. at 633. Unlike Section

1983, ERISA’s legislative history indicates no such con-

cern by Congress. ERM has not shown that its federal

rights under ERISA could be given their intended scope

only by enjoining the state court proceedings and no such

showing can be made.!? Moreover, and as has been previ-

ously pointed out, the contrary is true; that is, Congress

reserved to the states their important regulatory roles

under both the Savings and MEWA Clause. In light of

this reservation of power under ERISA, it is the relief

sought by ERM which would actually disrupt the

intended scope of ERISA. In fact, the state proceeding at

issue does not even remotely implicate the second prong

of the Mitchum test.

2. Under this Court’s decisions, preemption is

insufficient to create an “expressly autho-

rized” exception to the Anti-Injunction Act.

ERM asserts that, while neither the District Court nor

the Fourth Circuit has ruled on the merits of ERM’s

Complaint, the mere specter that the state court proceed-

ings would invade an area preempted by federal law

places this matter outside the bar of the Anti-Injunction

Act. This Court has rejected such an argument time and

again, and has stated that:

First, a federal court does not have inherent

power to ignore the limitations of § 2283 and to

enjoin state court proceedings merely because

those proceedings interfere with a protected

federal right or invade an area preempted by

federal law, even when the interference is unmis-

takably clear.

'2 Indeed, as noted above, ERM agrees with the basic tenet

that state courts are just as capable as their federal counterparts

of guaranteeing federal rights. (Petition at 21).

i ale NA A Sa AREAS AN a RT rte ARS

Ae NE et att gm La Deh tN ins Seem lb 0%

Zz etd oy

Atlantic Coast Line, 398 U.S. at 294 (emphasis added)

(citing Amalgamated Clothing Workers of Am. v. Richman

Bros., 348 U.S. 511, 519-520 (1955)); see Chick Kam Choo,

486 U.S. at 150-51 (proper course to seek resolution of

preemption issue is in state court). Thus, here, where

such interference is not even articulated by ERM, the

relief requested by ERM may not be granted in the face of

the Anti-Injunction Act.!5

B. The Allegedly Conflicting Decisions Among

the Circuit Courts Concerning Whether ERISA

is an “Expressly Authorized” Exception to the

Anti-Injunction Act are Distinguishable on

Their Facts.

In an apparent attempt to increase the likelihood that

this Court would seriously entertain the grant of a writ of

certiorari, ERM seeks to exploit a purported conflict of

decisions among the circuit courts of appeals concerning

whether ERISA is an “expressly authorized” exception to

the Anti-Injunction Act. Upon closer scrutiny of the facts

of this case and the other decisions cited by ERM, how-

ever, it becomes evident that these cases can be reconciled

on their particular facts.

Notably, the Eighth Circuit, which considered a case

most in point with the factual and legal context of this

‘3 In an attempt to have this action pass the test announced

in Mitchum, ERM stresses that an injunction by the District

Court against the state court proceeding would further Con-

gress’ important interest in the “uniform federal regulation of

employee benefit plans”. (Petition at 14). However, “the impor-

tance of the federal policy to be ‘protected’ by the injunction is

not the focus of the inquiry.” Vendo, 433 U.S. at 636. “(T]he

prohibitions of § 2283 exist separate and apart from these tradi-

tional principles [of equity and comity], and [this Court] cannot

read the ‘intended scope’ language as rendering [§ 2283] . . .

inoperative” merely in light of important federal interests. Id. at

639.

case, resolved that case in the same manner as the Fourth

Circuit resolved the case at bar. See Angoff, 58 F.3d at

1269. Addressing ERM’s assertion of a “split in the cir-

cuits,” the Fourth Circuit also emphasized the substantial

differences in the facts and issues underlying those cases.

(See Pet. App. at 10a (comparing 1975 Salaried Retirement

Plan for Eligible Employees of Crucible, Inc. v. Nobers, 968

F.2d 401 (3d Cir. 1992), cert. denied, _ U.S. __, 113 S. Ct.

1066 (1993); Total Plan Servs., Inc. v. Texas Retailers Ass‘n,

Inc., 925 F.2d 142 (5th Cir. 1991) with Gilbert v. Burlington

Indus., Inc., 765 F.2d 320 (2d Cir. 1985), aff'd without opin-

ion, 477 U.S. 901 (1986)'4; General Motors Corp. v. Buha, 623

F.2d 455 (6th Cir. 1980))). The Third Circuit has also

reconciled any such purported conflict by examining the

particular facts underlying the decisions. See United States

Steel Corp. Plan for Employee Ins. Benefits v. Musisko, 885

F.2d 1170, 1178 (3d Cir. 1989), cert. denied, 493 U.S. 1074

(1990).

Importantly, neither Gilbert nor Buha involved an

action such as the one at bar where a state is attempting

to determine its regulatory authority over an entity which

is facially subject to state regulation. See the MEWA

Clause (Opp. App. at A-1, 2) and Va. Cove Ann.

§ 38.2-3420 (Michie 1995) (Opp. App. at B-1). ERM has

never suggested that it would be unable to carry out its

responsibilities under ERISA if it were subjected to regu-

lation in Virginia. Nor has ERM explained the ways in

which its compliance with ERISA would be jeopardized

by allowing the Commission proceeding to continue. In

the case at hand, ERISA’s purpose would be hindered

only if the state enforcement action were enjoined inas-

much as ERISA reserves — indeed, delegates - to the

14 The Second Circuit’s decision in Gilbert can hardly be

cited to support the notion that ERISA is an “expressly autho-

rized” exception to the Anti-Injunction Act. As other courts

have observed, the Gilbert decision briefly mentioned this

notion as an aside, with little, or no, analysis.

sili

States, under the Savings and MEWA Clauses, the power

to take the actions taken here by Virginia.

Poignantly, neither Gilbert nor Buha involved, as does

this case, the use of ERISA as a shield by state court

defendants who attempt to interpose federal jurisdiction

merely by alleging federal defenses.

In Buha, the plaintiff was not even a party to the state

court action, and, thus, was unable to assert the defense

of federal preemption in that proceeding.'5 Consequently,

the federal plaintiff there was required to raise the issue

by filing a separate claim under ERISA. See Buha, 623 F.2d

at 459. As the Fourth Circuit also pointed out, had the

court in Buha not enjoined the state proceedings, the

trustee of the General Motors Pension Plan might have

been unable to carry out its responsibilities under ERISA.

(Pet. App. at 11a). Under the facts present in Buha, “the

Court of Appeals concluded that where a state court

action makes it impossible for a fiduciary to carry out its

responsibilities under ERISA, the Anti-Injunction Act

does not apply.” Musisko, 885 F.2d 1178. In Gilbert, the

ERISA fiduciary was facing an action brought by plan

participants which provided a compelling basis to enjoin

the state proceedings. However, in Nobers, the court

expressly found no reason why the failure to enjoin state

proceedings would make it impossible for the plans to

comply with their ERISA obligations. 968 F.2d at 410.

Similarly, the court in Musisko found that “important

factual differences between [Buha] and [Musisko] — partic-

ularly in the type of plan . . . make Buha distinguishable.”

885 F.2d at 1178. Thus, no actual conflict exists among

'S Thus, Buha can also be explained by the fact that General

Motors (the federal plaintiff) was not a party to the state pro-

ceeding and, therefore, fell into the “strangers to the state court

proceedings” exclusion to the Anti-Injunction Act. See Casa

Marie, Inc. v. Superior Court, 988 F.2d 252, 264 (1st Cir. 1993) (and

cases cited therein).

these decisions, and there is no basis on which this

Court’s certiorari jurisdiction may be implicated.

Further, even if such a split in the circuits did exist,

those cases holding that ERISA does not create an

expressly authorized exception to the Anti-Injunction Act

were correctly decided and this Court need not reach this

issue because it should deny the Petition on independent

grounds. As leading authorities have noted, even if an

injunction is not barred by § 2283, the injunction may still

be refused on abstention or other grounds of federalism

or comity. See, e.g., 17 CHaRLes A. WRIGHT, ET AL., FEDERAL

Practice AND Procepure § 4222 (2d ed. 1988 and Supp.

1995). As this Court itself noted in Mitchum:

[I]n so concluding, we do not question or qual-

ify in any way the principles of equity, comity,

and federalism that must restrain a federal court

when asked to enjoin a state proceeding.

Mitchum, 407 U.S. at 243. Thus, even if ERISA were an

expressly authorized exception to the Anti-Injunction

Act, this Court should nonetheless decline review of the

case.

C. ERM Has Not Shown that the State Judicial

Proceedings May be Enjoined by the Federal

Court as “Necessary in Aid of its Jurisdiction”

Under the Anti-Injunction Act.

In testing a claim that an injunction of state court

proceedings by a federal court is “necessary in aid of its

jurisdiction,” this Court should be mindful of the admo-

nition that

[aJny doubts as to the propriety of a federal

injunction against state court proceedings

should be resolved in favor of permitting the

state courts to proceed in an orderly fashion to

finally determine the controversy.

Atlantic Coast Line, 398 U.S. at 297. Such a cautious

approach, this Court has stated, is mandated by the

explicit wording of the Anti-Injunction Act and the fun-

damental principle of a dual system of courts. Id. The

exception has historically been limited to a very narrow

line of cases, usually involving the protection of a court’s

in rem jurisdiction. See 17 CHaArLes A. WRIGHT, ET AL.,

FEDERAL PRACTICE AND Procepure § 4225 (2d ed. 1988 and

Supp. 1995).16

Nonetheless, ERM asserts that, inasmuch as Congress

has granted the federal courts such exclusive jurisdiction

under ERISA over a certain category of cases, the District

Court should have, pursuant to the “necessary in aid of

its jurisdiction” exception to the Anti-Injunction Act,

enjoined the state court proceeding. However, this asser-

tion fails outright when tested on the crucible of comity

and federalism. See, e.g., Chick Kam Choo, 486 U.S. at

149-150 (when a state proceeding presents a federal pre-

emption issue, proper course is to seek resolution in state

court). Accepting the reasoning underlying ERM’s broad

application of the “necessary in aid of its jurisdiction”

exception would largely render the exception meaning-

less since, by its reasoning, the exception, rather than the

rule, would almost always apply. In Amalgamated Clothing

Workers, this Court expressly stated that:

'© Nor could ERM advance its position by arguing that the

jurisdiction of the federal court in which ERM initiated this

action must be protected. If this were the law, any party

allegedly aggrieved by state court proceedings could simply

retreat to federal court and halt pending state proceedings so as

to protect the jurisdiction of the newly-instituted federal pro-

ceedings. Such a notion would render the Anti-Injunction Act a

nullity, especially where, as here, the sole thrust of the later-

filed federal proceeding (the jurisdiction of which is alleged to

need protection) is to bring the previously commenced state

proceeding to a halt.

[W]e cannot accept the argument. . . . that § 2283

does not apply whenever the moving party in

the District Court alleges that the state court is

“wholly without jurisdiction over the subject

matter, having invaded a field preempted by

Congress”.

348 U.S. at 515. This Court subsequently described its

decision in Amalgamated Clothing Workers v. Richman Bros.

Co., 348 U.S. 511 (1955) as a case where

[t]his Court found that the action before the

state court was ‘outside state authority,’ and

that jurisdiction was vested solely in the

National Labor Relations Board. But the Court

found that the exclusive federal jurisdiction was not

sufficient to render § 2283 inapplicable.'7

Vendo, 433 U.S. at 637 n.8 (citations omitted) (emphasis

added). Thus, the law on this point is clear - the mere

presence of a claim of exclusive federal jurisdiction does

not overcome the proscriptions of the Anti-Injunction

Act.

A particularly apt example of why ERM’s theory in

this regard is unfounded can be located in Atlantic Coast

'7 Tellingly, this comment in Vendo disposes of ERM’s con-

trived conflict between — and purported reconciliation of — the

decisions in Capital Service, Inc. v. NLRB, 347 U.S. 501 (1954), and

Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623 (1977). (See Petition

at 17-19). Moreover, even a brief review of the decision in Capital

Service reveals that the decision turned on more than just exclu-

sive federal jurisdiction. There, if the state court injunction had

remained in place, the federal court would have been limited in

the actions it could have taken. 347 U.S. at 505-06. In Vendo, as in

the case at bar, neither exclusive federal jurisdiction nor such

direct interference with a federal court’s powers is present.

Further, this Court’s characterization of its decision in Amalga-

mated Clothing Workers, 348 U.S. 511, reveals the misguided

nature of ERM’s effort to distinguish Amalgamated Clothing

Workers. (Petition at 18 n.3).

a en ee ee ee ae ee ee ee Seen ee, ee

Line, 398 U.S. at 282. There, this Court specifically held

that, for the “necessary in aid of its jurisdiction” excep-

tion to apply, a state court proceeding must “so interfer[e]

with a federal court’s consideration or disposition of a

case as to seriously impair the federal court’s flexibility

and authority to decide that case.” 398 U.S. at 295. No

such interference is present here. See Nobers, 968 F.2d at

407 (“ ‘necessary in aid of jurisdiction’ exception is nar-

row and applies only in aid of a court's exclusive jurisdic-

tion over a particular case, not over a general class of

cases.”)

Thus, ERM has failed to show that, under applicable

standards and controlling precedent, an injunction

should have been issued by the District Court as “neces-

sary in aid of its jurisdiction.” Accordingly, this Court

should not grant Certiorari to review the Fourth Circuit's

decision.

CONCLUSION

For the foregoing independent reasons, this Court

should decline to review this case.

Respectfully submitted,

Of Counsel: Patrick H. CANTILO

ANTHONY GAMBARDELLA Counsel of Record

General Counsel

Peter B. SmitH

Senior Counsel

MicHaet D. THomMas

Associate General Counsel

State Corporation

RANDOLPH N. WIsENER

STEVEN E. ADKINS

CANTILO, Maiser &

Hussarp, L.L.P.

Suite 1700

111 Congress Avenue

Commission ;

Office of General Counsel prs Eos Aia

P.O. Box 1197 (512) 476-

(512) 404-6550 (Telecopier)

Counsel to Respondents

Richmond, Virginia 23209

No. 95-823

In The

Supreme Court of the United States

October Term, 1995

EMPLOYERS RESOURCE MANAGEMENT

COMPANY, INCORPORATED; AMERICAN

EMPLOYERS BENEFIT TRUST,

Petitioners,

PRESTON C. SHANNON, Commissioner,

THEODORE V. MORRISON, JR., Commissioner,

HULLIHEN WILLIAMS MOORE, Commissioner,

STEVEN T. FOSTER, Commissioner of Insurance,

BUREAU OF INSURANCE OF THE

STATE CORPORATION COMMISSION

OF THE COMMONWEALTH OF VIRGINIA,

Respondents.

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Fourth Circuit

APPENDIX TO

BRIEF IN OPPOSITION

APPENDIX A

A-l

UNITED STATES CODE ANNOTATED

TITLE 29. LABOR Employee Retirement

Income Security Act of 1974

§ 1144(a). The “Preemption Clause” provides that:

Except as provided in subsection (b) of this

section, the provisions of this subchapter and

subchapter III of this chapter shall supersede

any and all State laws insofar as they may now

or hereafter relate to any employee benefit

plan described in section 1003(a) of this title

and not exempt under section 1003(b) of this

title. This section shall take effect on January

1, 1975.

§ 1144(b)(2)(A). The “Savings Clause” provides that:

Except as provided in subparagraph (B) [29

U.S.C. § 1144(b)(2)(B)], nothing in this sub-

chapter shall be construed to exempt or relieve

any person from any law of any State which

regulates insurance, banking, or securities.

§ 1144(b)(6)(A). The “MEWA Clause” provides that:

Notwithstanding any other provision of

this section -

(i) in the case of an employee welfare

benefit plan which is a multiple employer

welfare arrangement and is fully insured

(or which is a multiple employer welfare

arrangement subject to an exemption

under subparagraph (B)[§ 1144(b)(6)(B)]),

any law of any State which regulates

insurance may apply to such arrangement

to the extent that such law provides -

A-2

(I) standards, requiring the maintenance of

specified levels of reserves and specified

levels of contributions, which any such plan,

or any trust established under such a plan,

must meet in order to be considered under

such law able to pay benefits in full when due,

and

(II) provisions to enforce such standards, and

(ii) in the case of any other employee

welfare benefit plan which is a multiple

employer welfare arrangement, in addition

to this subchapter, any law of any State

which regulates insurance may apply to

the extent not inconsistent with the pre-

ceding sections of this subchapter.

§ 1132(e)(1), as amended in 1993, provides that:

Except for actions under subsection (a)(1)(B) of

this section, the district courts of the United

States shall have exclusive jurisdiction of civil

actions under this subchapter brought by the

Secretary or by a participant, beneficiary,

fiduciary, or any person referred to in section

1021(f)(1) of this title. State courts of compe-

tent jurisdiction and district courts of the

United States shall have concurrent jurisdic-

tion of actions under paragraphs (1)(B) and (7)

of subsection (a) of this section.

APPENDIX B

ale 2

‘fl

B-1

CODE OF VIRGINIA

TITLE 38.2 - INSURANCE

§ 38.2-3420. Authority and jurisdiction of Commission.

- Any person offering or providing coverage in this Com-

monwealth for health care services, whether the coverage

is by direct payment, reimbursement, or otherwise, shall

be presumed to be subject to the jurisdiction of the Com-

mission to the extent the person is not regulated by

another agency of this Commonwealth, any subdivision

of this Commonwealth, or the federal government relat-

ing to the offering or providing of coverage for health

care services. (1983, c. 417, § 38.1-43.7; 1986, c. 562; 1990,

c. 477.)

§ 38.2-3421. How to show jurisdiction of other state

agency or federal government. — A person may show that

it is regulated by another agency of this Commonwealth,

any subdivision of this Commonwealth, or the federal

government by providing to the Commission the appro-

priate certificate, license or other document issued by the

other governmental agency that permits or qualifies it to

provide those services set forth in § 38.2-3420. Provided,

however, in lieu of such certificate, license or other docu-

mentation, the Commission may determine that such per-

son is not subject to the jurisdiction of the Commission if

the Commission is otherwise satisfied that such person is

regulated by another agency of this Commonwealth, any

subdivision of this Commonwealth or the federal govern-

ment relating to the offering or providing of coverage for

health care services. Any person who has provided such

certificate, license, or other document shall immediately

B-2

notify the Commission if such person ceases to be regu-

lated by the governmental agency as stated in the certifi-

cate, license, or other document provided to the

Commission. Any other person who is otherwise deter-

mined by the Commission not to be subject to the juris-

diction of the Commission shall also notify the

Commission of any change in its circumstances which

may materially affect such determination of the Commis-

sion. (1983, c. 417 § 38.1-43.8; 1986, c. 562; 1990, c. 477.)

APPENDIX C

C-1

Regulation 31 (Case No. INS910244)

RULES GOVERNING MULTIPLE EMPLOYER

WELFARE ARRANGEMENTS

Section

1. Authority.

2. Purpose.

3. Applicability and scope.

4. Definitions.

5. Licensing and filing requirements.

6. Licensing of persons soliciting, negotiating, procur-

ing, or effecting applications for coverage.

7. Violations.

8. Service of process.

9. Severability.

§ 1. Authority

This regulation is issued pursuant to the authority

vested in the Commission under § 38.2-223 and Article 3

of Chapter 34 of Title 38.2 of the Code of Virginia.

§ 2. Purpose

The purpose of this regulation is to set forth rules to

carry out the provisions of Article 3 (§ 38-2-3420 et seq.)

of Chapter 34 of Title 38.2 of the Code of Virginia so as to

establish reasonable standards for the licensing and oper-

ation of multiple employer welfare arrangements in the

Commonwealth of Virginia.

§ 3. Applicability and scope

A. This regulation shall apply to all multiple

employer welfare arrangements offering or providing

coverage in this Commonwealth if any of the following

conditions is met:

|. The multiple employer welfare arrangement is

domiciled in Virginia;

2. At least one employer whose principal office or

headquarters is located in Virginia provides health care

benefits to his employees through the multiple employer

welfare arrangement, regardless of the plan’s place of

domicile; or

3. At least one employee who is employed in Vir-

ginia and who has been initially enrolled in the plan in

Virginia is being provided health care benefits through

the multiple employer welfare arrangement, regardless of

the plan’s place of domicile or the location of the

employer’s principal office or headquarters.

B. Multiple employer welfare arrangements shall be

subject to all of the provisions of Title 38.2 to the extent

that such provisions are applicable to multiple employer

welfare arrangements in accordance with § 38.2-3421 of

the Code of Virginia.

§ 4. Definitions

As used in this regulation:

A. “Multiple employer welfare arrangement”

means any plan or arrangement which is established or

maintained for the purpose of offering or providing cov-

erage for health care services, whether such coverage is

C-3

by direct payment, reimbursement, or otherwise, to

employees of two or more employers, or to their benefici-

aries except that such term does not include any such

plan or other arrangement which is established or main-

tained -

1. under or pursuant to one or more agreements

which the Secretary of the United States Department of

Labor finds to be collective bargaining agreements, or

2. by a rural electric cooperative.

For purposes of the definition of multiple employer

welfare arrangement

(a) two or more trades or business, whether or not

incorporated, shall be deemed a single employer if such

trades or businesses are within the same control group,

(b) the term “control group” means a group of

trades or businesses under common control,

in under “common control” with another trade or busi-

ness shall be determined under regulations of the Secre-

tary of the United States Department of Labor applying

principles similar to the principles applied in determin-

ing whether employees of two or more trades or busi-

nesses are treated as employed by a single employer

under section 4001(b) [29 USCS § 130i(b)], except that, for

purposes of this paragraph, common control shall not be

based on an interest of less than 25 percent, and

(d) the term “rural electric cooperative” means-—

(1.) any organization which is exempt from tax

under section 501(a) of the Internal Revenue Code of 1986

C-4

[26 USCS § 501(a)] and which is engaged primarily in

providing electric service on a mutual or cooperative

basis, and

(2.) any organization described in paragraph (4) or

(6) of section 501(c) of the Internal Revenue Code of 1986

[26 USCS § 501(c)(4) or (6)] which is exempt from tax

under section 501(a) of such Code [26 USCS § 501(a)] and

at least 80 percent of the members of which are organiza-

tions described in subclause (1).

B. “Fully insured” means all of the covered benefits

are (i) insured on a direct basis by an insurance company

licensed and in good standing to transact the business of

insurance in Virginia pursuant to Title 38.2 of the Code of

Virginia or (ii) arranged for or provided on a direct basis

by (1) a health services plan licensed and in good stand-

ing in Virginia pursuant to Chapter 42 of Title 38.2 of the

Code of Virginia, (2) a health maintenance organization

licensed and in good standing in Virginia pursuant to

Chapter 43 of Title 38.2 of the Code of Virginia, (3) a

dental or optometric services plan licensed and in good

standing in Virginia pursuant to Chapter 45 of Title 38.2

of the Code of Virginia, or (4) any combination thereof.

The existence of contracts of reinsurance will not be

considered in determining whether a plan is “fully

insured.”

C. “Direct basis” means that the liability of the

insurer, health maintenance organization, health services

plan, or dental or optometric services plan runs directly

to the insured employee or certificate holder.

D. “Member” means an employer which partici-

pates in a multiple employer welfare arrangement.

C-5

E. “Contribution” means the amount paid or pay-

able by the employer or employee for services provided

through the multiple employer welfare arrangement.

F. “Good standing” means the license of any (i)

company to transact the business of insurance in Com-

monwealth of Virginia pursuant to Title 38.2 of the Code

of Virginia, (ii) health services plan license pursuant to

Chapter 42 of Title 38.2 of the Code of Virginia, (iii)

health maintenance organization licensed pursuant to

Chapter 43 of Title 38.2 of the Code of Virginia, or (iv)

dental or optometric services plan licensed pursuant to

Chapter 45 of Title 38.2 of the Code of Virginia where the

license is not suspended or revoked, or the company,

health services plan, health maintenance organization, or

dental or optometric services plan is not precluded by

Order of the Commission from soliciting, negotiating,

procuring or effecting contracts of insurance.

G. “Commission” means the State Corporation

Commission.

H. “Health care services” means services which are

furnished to an individual for the purpose of preventing,

alleviating, or healing human illness, injury, or physical

disability. Such terminology may include services for

optometric or dental care.

I. “Domicile” means the situs of the trust through

which the multiple employer welfare arrangement is

established, the plan’s place of incorporation or, if not set

up through a trust or incorporated, the location of the

plan’s headquarters.

C-6

§ 5. Licensing and filing requirements

A. A multiple employer welfare arrangement that is

not fully insured as defined in this regulation shall not

operate in this Commonwealth without first meeting the

criteria and becoming appropriately licensed as an insur-

ance company, health maintenance organization, health

services plan, or a dental or optometric services plan

pursuant to Title 38.2 of the Code of Virginia.

B. A fully insured multiple employer welfare

arrangement shall not operate in this Commonwealth

without first filing with the Commission:

1. The names, addresses, and biographical summa-

ries of the plan’s trustees, officers, directors or other

members of the plan’s governing body.

2. The names, addresses, and qualifications of indi-

viduals responsible for the conduct of the plan’s affairs,

including any third-party administrators.

3. The names, addresses, and qualifications of per-

sons who will solicit, negotiate, procure, or effect applica-

tions for coverage with the plan.

4. The names and addresses of employers partici-

pating in the plan.

5. Proof of coverage showing that the plan is fully

insured by an insurer, health maintenance organization,

health services plan, or dental or optometric services plan

as required by Section 4.B of this regulation. Proof of

coverage shall be submitted on a form prescribed by the

Commission and shall include but not be limited to (i) a

copy of the policy insuring the plan; (ii) confirmation

from the insurer, health maintenance organization, health

C-7

services plan, or a dental or optometric services plan that

coverage is in force; and (iii) a statement indicating the

length of time coverage has been in force.

6. Any other information the Commission may

require including but not limited to intormation pertain-

ing to the adequacy of the plan’s level of reserves and

contributions.

C.1. If a multiple employer welfare arrangement

changes coverage or does not remain fully insured as

defined in Section 4.B of this regulation, the plan shall

notify the Commission at least 30 days prior to the effec-

tive date of any change or reduction in coverage.

2. Any multiple employer welfare arrangement

which ceases to remain fully insured shall, at least 30

days prior to the effective date of coverage termination,

(i) notify the Commission of a replacement policy in

accordance with subsection B.5 of this section, or (ii)

apply for a license as an insurer, health maintenance

organization, health services plan or a dental or optom-

etric services plan and be subject to all applicable provi-

sions of Title 38.2 of the Code of Virginia. Such plan shall

not be required to cease operations or discontinue bene-

fits to existing members during this 30-day period. How-

ever, such plan shall not solicit, negotiate, procure, or

effect coverage for new enrollments other than for depen-

dents of employees already enrolled during this 30-day

period. The plan shall cease operations and discontinue

benefits at the end of this 30-day period unless (i) the

plan has been licensed as required by this regulation, (ii)

the plan becomes fully insured as defined in Section 4.B

of this regulation and has provided the Commission with

C-8

proof of coverage as required by subsection B.5 of this

section, or (iii) the plan is granted an extension by the

Commission for good cause shown. Nothing contained in

this section shall prevent the Commission from proceed-

ing with an action in accordance with the provisions of

Section 7 of this regulation.

3. Any insurer, health maintenance organization,

health services plan, or dental or optometric services plan

providing coverage to a multiple employer welfare -

arrangement shall notify the Commission and the multi-

ple employer welfare arrangement of any change or

reduction in coverage at least 45 days prior to the effec-

tive date of such change or reduction in coverage.

4. Any insurer, health maintenance organization,

health services plan, or dental or optometric services plan

failing to provide notice to the Commission as required

by paragraph 3 of this subsection shall be required to

continue coverage to the multiple employer welfare

arrangement for an additional forty-five (45) days after

notice of cancellation is provided to the Commission.

D. In addition to the filing requirements stated in

subsection B of this section, each fully insured multiple

employer welfare arrangement shall file on or béfore

March 1 of each year (i) proof of coverage as set forth in

subsection B.5 of this section and (ii) notice of any

changes in information as filed with the Commission.

E. Any multiple employer welfare arrangement

offering or providing coverage in this Commonwealth

shall be subject to examination by the Commission in

accordance with § 38.2-3422 of the Code of Virginia.

C-9

F. Notwithstanding any other provision of this Reg-

ulation, any multiple employer health care plans licensed

and operating, or whose license application is pending

with the Commission on the effective date of this Regula-

tion and subsequently approved by the Commission may

continue to operate as a multiple employer health care

plan in the Commonwealth of Virginia, pursuant to the

Commission’s Rules Governing Multiple Employer

Health Care Plans, for a period not to exceed three (3)

years after the effective date of this Regulation.

§ 6. Licensing of persons soliciting, negotiating, pro-

curing, or effecting applications for coverage

A. No person shall solicit, negotiate, procure, or

effect applications for coverage or member enrollments,

and no multiple employer welfare arrangement, insurer,

health maintenance organization, nonstock health ser-

vices plan, or nonstock dental or optometric services plan

shall knowingly permit a person to solicit, negotiate,

procure, or effect applications for coverage or member

enrollments, in this Commonwealth for a multiple

employer welfare arrangement whether or not the plan is

licensed in this Commonwealth without first obtaining a

license as a life and health agent, and an appointment, if

such appointment is required, in a manner and in a form

prescribed by the Commission pursuant to Chapter 18 of

Title 38.2 of the Code of Virginia.

B. Any person who solicits, negotiates, procures, or

effects applications or member enrollments in this Com-

monwealth for coverage under a multiple employer wel-

fare arrangement shall be subject to all appropriate

provisions of Title 38.2 as set forth in Chapters 2, 3, 5, 6,

C-10

and 18 of the Code of Virginia regarding the conduct of

his business.

C. Salaried officers or employees of any employer

which provides coverage through a multiple employer

welfare arrangement shall not be required to be licensed

under this section provided that the principal duties and

responsibilities of such officers and employees do not

include soliciting, negotiating, procuring, or effecting

applications for coverage or member enrollments for the

plan.

§ 7. Violations

Any violation of this regulation shall be punished as

provided for in § 38.2-218 of the Code of Virginia and any

applicable law of this Commonwealth. The provisions of

§§ 38.2-219 through 38.2-222 shall also apply to any mul-

tiple employer welfare arrangement that fails to comply

with the provisions set forth in this regulation.

§ 8. Service of process

Suits, actions, and proceedings may be begun against

any multiple employer welfare arrangement providing

coverage in this Commonwealth by serving process on

any trustee, director, officer, or agent of the plan, or, if

none can be found, on the clerk of the Commission. If any

multiple employer welfare arrangement that is not fully

insured provides coverage in this Commonwealth with-

out a license, it shall be deemed to have thereby appoin-

ted the clerk of the Commission its attorney for service of

process. Service of process shall be made as provided for

in Article 1 of Chapter 8 of Title 38.2.

§ 9. Severability

If any provision of this regulation or the application

thereof to any person or circumstance is for any reason

held to be invalid, the remainder of the regulation and

the application of such provision to other persons or

circumstances shall not be affected thereby.

APPENDIX D

D-1

U.S. DEPARTMENT OF LABOR

PENSION AND WELFARE

BENEFITS ADMINISTRATION

WASHINGTON, D.C. 20210

Mr. Alfred W. Gross

Deputy Commissioner

Virginia Bureau of Insurance

Box 1157

Richmond, Virginia 23209

Dear Mr. Gross:

This is in reply to your request for an advisory opin-

ion regarding the applicability of Title I of the Employee

Retirement Income Security Act of 1974 (ERISA). Speci-

fically, you ask whether a health benefit program (the

ERM Program) offered by Employers Resource Manage-

ment Company, Inc. (ERM) is a multiple employer wel-

fare arrangement (MEWA) within the meaning of ERISA

section 3(40).

The following facts and representations are contained

in materials submitted by your office. ERM is an

employee leasing firm that markets certain services relat-

ing to employees of client companies. A client company

(the Client) retains ERM by executing a “Service Agree-

ment” that specifies the terms and conditions of the ser-

vices to be provided and the fees payable for those

services.

The “Services” section of the Service Agreement

states that ERM is an independent contractor providing

“management services to Client for certain of Client's

employer responsibilities.” It provides that ERM is

D-2

responsible for “payment of employer federal, state and

local taxes, those various employee benefits which may

be specified, and all required federal, state and local

employee payments or withholdings from wages.” It also

provides that ERM has sole discretion to establish and

maintain an employee welfare benefit plan as defined in

ERISA and that ERM agrees to hold harmless and indem-

nify the Client for any failure to pay any required benefit

or other specified payment.

The “Administration” section of the Service Agree-

ment generally provides that ERM may exercise the right

to direct other aspects of management not designated to

the Client. The management functions that may be exer-

cised by ERM are described to include, but are not lim-

ited to, recruiting, determining qualifications, hiring,

training, evaluation, supervision, discipline, replacement,

and termination of employees.

The “Administration” section also imposes specific

administrative duties on the Client. These duties include

periodically reviewing and evaluating employee perfor-

mance and wages; recommending adjustments to

employee wages, titles and functions; verifying employee

time submission; and assisting ERM with administering

unemployment claims and labor complaints. The Client

also agrees to indemnify and hold harmless ERM for

claims arising out of specific conduct of employees who

are made available to the Client by ERM.

The “Insurance” section of the Service Agreement

gives ERM the option either to maintain workers com-

pensation insurance covering the employees with respect

D-3

to whom it provides services, or to provide occupational

accident and disease benefits under the ERM Program.

The information you have submitted indicates the

ERM offers the ERM Program as an optional part of its

services. If a Client contracts for this service, the ERM

Program provides health benefits to employees with

respect to whom ERM provides management services.

ERM maintains that it acts as a “fiscal employer” or

“co-employer” of employees with respect to whom it

provides management services. All of the documents sub-

mitted indicate that employer responsibilities with

respect to the employees covered by the ERM program

are expected to be divided between ERM and the Client.

For example, section 5.04 of the summary plan

description for the ERM Program and section 3.01(e) of

the trust agreement for the ERM Program both define the

term “Co-Employer” to mean “any client company of

E.R.M.’s which enters into a Contract with E.R.M.

whereby such client company and E.R.M. act as

Employers of such client companies’ [sic] Employees.”

These documents define “Employer” to mean “both

E.R.M. and its Co-Employers.” Further, marketing infor-

mation disseminated by ERM (which you supplied to us)

describes “co-employment” as

... a business arrangement between your com-

pany and [ERM] to share employer respon-

sibilities. As the managing employer, you retain

the responsibilities of hiring, firing, and super-

vising your employees. You're still the boss, just

like in the past, and you continue to run your

business, making all the management decisions.

[ERM] becomes the administrative employer;

D-4

handling the “paperwork” side of your business

- payroll, personnel and benefits administra-

tion.

The term “multiple employer welfare arrangement”

is defined in ERISA section 3(40) (A) as:

. an employee welfare benefit plan, or any

other arrangement (other than an employee wel-

fare benefit plan), which is established or main-

tained for the purpose of offering or providing

any benefit described in paragraph (1) to the

employees of two or more employers (including

one or more self-employed individuals), or to

their beneficiaries, except that such term does

not include any such plan or other arrangement

which is established or maintained -

(i) under or pursuant to one or more agree-

ments which the Secretary finds to be collective

bargaining agreements,

(ii) by a rural electric cooperative, or

(iii) by a rural telephone cooperative associa-

tion.

The only issue relating to the ERM Program's status

as a MEWA presented by this case is whether the Pro-

gram provides health benefits “to the employees of two

or more employers.”'! This issue must be resolved by

determining whether, for purposes of ERISA section 3(40)

(A), the employees who participate in the ERM Program

| There is no indication in the materials submitted that the

ERM Program is established or maintained under or pursuant to

one or more collective bargaining agreements, by a rural electric

cooperative, or by a rural telephone cooperative association.

D-5

are exclusively employees of a single employer, or are,

rather, employees of more than one employer.

Section 3(6) of ERISA defines “employee” as “any

individual employed by an employer.” Section 3(5) of

ERISA defines “employer” as “any person acting directly

as an employer, or indirectly in the interest of an

employer, in relation to an employee benefit plan; and

includes a group or association of employers acting for

any employer in such capacity.”

In order for an individual covered by a plan to be

considered an “employee” of an “employer” for purposes

of section 3(6), an employer-employee relationship must

exist between the employer and the individual. The

Department has taken the position that, for purposes of

section 3(6), such determinations must be made by apply-

ing common law of agency principles.? In applying com-

mon law principles, consideration must be given to,

among other things, whether the person for whom ser-

vices are being performed has the right to control and

direct the individual who performs the services, not only

as to the result to be accomplished by the work, but also

as to the details and means by which the resuit is to be

accomplished; whether the person for whom services are

being performed has the right to discharge the individual

2 While the principles of the common law of agency typ-

ically have been applied to determine whether a person is an

employee or an independent contractor, such common law prin-

ciples are equally applicable to determining by whom an indi-

vidual is employed. See Professional & Executive Leasing, Inc.

v. Commissioner, 89 T.C. 225 (1987), aff’d 862 F.2d 751 (9th Cir.

1988). See also Nationwide Mutual Insurance Co. v. Darden, 503

U.S. 1344, 112 S. Ct. 1344 (1992).

D-6

performing the services; and whether the individual per-

forming the services is as a matter of economic reality

dependent upon the business to which he or she renders

service. In general, whether an employer-employee rela-

tionship exists is a question that must be determined on

the basis of the facts and circumstances involved. In this

regard, payment of wages; payment of federal, state, and

local employment taxes; and the provision of health or

pension benefits (or both) are not the sole determinants of

an employee-employer relationship. Moreover, a contract

purporting to create an employer-employee relationship

must be viewed in light of the facts and circumstances

surrounding the contract

ERM maintains that the ERM Program is a single-

employer plan exempt from state insurance regulation

under ERISA because ERM is the “co-employer” of all of

the employees covered under the ERM Program. How-

ever, the Service Agreement and the other documents

concerning the ERM Program clearly contemplate that

Clients of ERM will, in many instances, retain significant

employer functions.

Specifically, the Service Agreement’s characterization

of ERM as an “independent contractor” providing “man-

agement services” to Clients who may exercise significant

employer functions, and the acknowledgements in the

summary plan description and the trust agreement of the

employer status of Clients indicate that Clients are

expected in specific contractual arrangements to retain

and exercise employer authority and control. In addition,

ERM’s marketing information emphasizes that its ser-

vices are intended to be largely administrative in nature.

D-7

Any Client that in fact exercises employer control

and authority over employees covered under the ERM

Program would be an “employer” with respect to such

employees for purposes of ERISA section 3(6). Your sub-

mission indicates that in at least one instance a Client in

fact retained just such powers.

Therefore, in the absence of any indication that ERM

and its Clients constitute a “control group” within the

meaning of section 3(40)(B)(i) of ERISA, it is the view of

the Department that the ERM Program is an arrangement

providing benefits to the employees of two or more

employers and is, therefore, a multiple employer welfare

arrangement (MEWA) within the meaning of section

3(40)(A). Accordingly, the preemption provisions of

ERISA would not preclude state regulation of the ERM

Program to the extent provided in ERISA section

514(b)(6)(A). In this regard, we are enclosing, for your

information, a copy of opinion 90-18A (dated July 2,

1990), which discusses the scope of the states’ authority

to regulate MEWAs pursuant to section 514(a)(6)(A) of

ERISA. This letter constitutes an advisory opinion under

ERISA Procedure 76-1. Accordingly, it is issued subject to

the provisions of that procedure, including section 10

thereof relating to the effect of advisory opinions.

Sincerely,

Robert J. Doyle

Director of Interpretations and Regulations

[Opinion No. 93-29A, 1993 WL 433783 (E.R.1.S.A.)]

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