Opposition Brief — Auto Club Insurance v. Pentwater Wire Products, Inc.

<a

a ; 7 isreme Court, UE

S_ FILED

No. 93-1180 ii

He eo | 4 1994

Iu The “LDEFKE OF The CLERK |

Supreme Court of the United States

*> October Term, 1993 «

AUTO CLUB INSURANCE ASSOCIATION,

v. Petitioner,

PENTWATER WIRE PRODUCTS, INC.,

Respondent.

AUTO CLUB INSURANCE ASSOCIATION,

v. Petitioner,

FREDERICK & HERRUD, INC.,

Respondent.

BRIEF IN OPPOSITION

ON BEHALF OF FREDERICK & HERRUD, INC.

(now known as Thorn Apple Valley, Inc.)

Oo

> AND APPENDIX <

BRADLEY T. RAYMOND

Counsel of Record

FINKEL, WHITEFIELD & SELIK, PC.

Attorneys for Respondent

32300 Northwestern Highway, Suite 200

Farmington Hills, Michigan 48334-1567

(313) 855-6500

Interstate Brief & Record Company, a division of North American Graphics, Inc.

1629 West Lafayette Boulevard, Detroit, MI 48216 (313) 962-6230

3i et

i

COUNTER-STATEMENT OF QUESTIONS PRESENTED

WHETHER FEDERAL COMMON LAW UNDER ERISA ALLOWS A

STATE COURT TO CREATE A REMEDY IN FAVOR OF A NO-

FAULT AUTO INSURANCE CARRIER AGAINST AN EMPLOYER-

SPONSOR OF AN ERISA WELFARE BENEFIT PLAN DESPITE

THE FAILURE OF CONGRESS TO PROVIDE SUCH A REMEDY IN

SECTION 502 OF ERISA.

WHETHER FEDERAL COMMON LAW UNDER ERISA ALLOWS A

NO-FAULT AUTO INSURANCE CARRIER TO BRING A SUBROGA-

TION ACTION IN STATE COURT AGAINST THE EMPLOYER-

SPONSOR OF AN ERISA WELFARE BENEFIT PLAN.

WHETHER, ASSUMING A CAUSE OF ACTION AND REMEDIAL

AUTHORITY EXIST, FEDERAL COMMON LAW UNDER ERISA

REQUIRES THAT A DISPUTE OVER COVERAGE BETWEEN AN

ERISA WELFARE BENEFIT PLAN AND A NO-FAULT AUTO

INSURANCE POLICY, BOTH CONTAINING COORDINATION OF

BENEFITS PROVISIONS, MUST BE RESOLVED IN FAVOR OF THE

AUTO INSURANCE CARRIER.

ii

PARTIES TO THE PROCEEDINGS

The parties to the proceedings below are listed in the

caption. Respondents are not, however, “self-insured

welfare benefit plans,” as asserted by Petitioner. Rather,

they are corporations which have sponsored self-

insured welfare benefit plans for their employees.

Respondent Frederick & Herrud, Inc., has been known

as Thorn Apple Valley, Inc., for many years. This fact

was reflected in the case caption when this matter was

previously before the Court during the 1989 Term. Thorn

Apple Valley, Inc. v. Auto Club Insurance Association, 489

U.S. 996 (1990). Neither Frederick & Herrud, Inc., nor

Thorn Apple Valley, Inc. have parent companies, affili-

ated companies or nonwholly owned subsidiaries.

———————————

TABLE OF CONTENTS

PAGE

COUNTER-STATEMENT

Si RP UE COUPON TEED cvvcvcveoccvevevcevessunsevesseovevveeesess i

PPRSE ED BOP COU PURPCEEENINGES oocccceccrcesecseoresversesversorecees ii

ETE tcsseteccovsepeodvemnessvesarsestveseunabeses iv

I SPUD cscs scnccesesonmnvarevseverennsiedsnanemeeccsess l

SUEY GR UU GPM cE socsccnicvornssevtvecusvbeceidcrscveoivis 2

REASONS WHY THE PETITION SHOULD BE DENIED:

l. SINCE AUTO CLUB HAS NO ERISA CAUSE OF

ACTION AGAINST FREDERICK TO BEGIN WITH

THERE IS NO NEED TO CONSIDER THE PARAME-

TERS OF FEDERAL COMMON LAW UNDER ERISA. .......

uw

ll. EQUITABLE SUBROGATION CLAIMS ARE NOT PRO-

VIDED UNDER ERISA NOR WOULD THEY BE

WITHIN THE JURISDICTION OF STATE COURTS. .......... 7

lll. THERE IS NO CONFLICT AMONG THE CIRCUITS

CONCERNING THE APPLICATION OF FEDERAL

COMMON LAW TO COVERAGE DISPUTES BETWEEN

ERISA PLANS AND INSURANCE COVERAGES GOV-

a eeccneeneenioses 10

IV. THE REMEDY WHICH AUTO CLUB SEEKS TO

OBTAIN UNDER FEDERAL COMMON LAW WOULD

SUBVERT, RATHER THAN FURTHER, THE POLICIES

SEEN III. ols etats sodessdsighaaigiennstoneneosvonsbscnsanties 1]

III col cali vacenciodedibebeussuvilcossteivevensticedabeestnseunsansinechaanenes 14

reas Ca nc A-|

iv

TABLE OF AUTHORITIES

PAGE

CASES:

Allstate Insurance Co. v. The Sixty-Five Security

Pian, STS F.2d DO (Std Civ. 1SGD) ..ccrcrsscecsrsevversrrssevseese 9

Auto Club v. New York Life Insurance Co., 440

Mich. 126; 485 NW.2d 695 (1992) ............ eee 3 8

Auto Owners Insurance Co. v. Thorn Apple Valley,

Inc., 818 FSupp. 1078 (W.D. Mich., 1993), appeal

docketed, No. 93-1606 (6th Cir. May 5, 1993) ........... 6

Blue Cross/Blue Shield of Connecticut v. Inter Valley

Health Plan, 62 US.LW. 3469 (Jan. 18, 1994) .......... 1]

Cummings by Techmeier v. Briggs and Stratton

Retirement Plan, 797 F.2d 383 (7th Cir. 1986) ......... 13

Federal Kemper Insurance Co. v. Health Ins. Admini-

stration, Inc., 424 Mich. 537; 383 NW.2d 590

DIE cedacaccimuesauseneiaacabverdesueskaesaninumatimmncdaenabeicdss 4,12

Federal Kemper Insurance Co. v. The Western

Insurance Cos., 97 Mich. App 204; 293 NW.2d

rR E.R. G ar Ak Aa eet EINE Ny pete AMER 8

Firestone Tire & Rubber Co. v. Bruch, 489 US. 101

SRE Ai Rie MATTER NS RENAN SAT Bis tc tA AD eae 6

FMC Corp. v. Holliday, 498 U.S. 52 (1990); 498 USS.

REIS ctadimen EP MB stl cere Ran Beat 8, 10

Fort Halifax Packing Co. v. Coyne, 482 US. 1 (1987) .... 12

Foster-McGaw Hospital v. Welfare Fund, 925 F.2d

1023 (7th Cir. 1991), cert. denied, 502 US. __;

Be a Oe IE van cuiadinencitesiesiaceniaaidhicctaaicceceldeae 7

French v. Grand Beach Co., 239 Mich. 575; 215 NW.

Sa MLMIPUNT I - sesiccedsdabiantdcedeabacnaehaadtaeesaanbacmndannedasadiigaaedoann 8

PAGE

Health Choice v. Automotive Employee Benefit Trust,

SES F2d 53 (Sth Cir. 1993) .........cccccccceccccecesecerceccserese 13

Herman Hospital v. MEBA Medical & Benefits Plan,

845 F2d 1286 (Sth Cir. 1988) ooo. .ccccceccececcsessececeecess 9

InterValley Health Plan v. Blue Cross/Blue Shield

of Connecticut, 16 Cal. App. 4th 60; 19 Cal. Rptr.

2d 782 (1993), cert. denied, 62 U.S.LW. 3469

CHU, Fe TE tinsstisisttcdccilinicad eee 10

Machine Parts Corp. v. Schneider, 289 Mich. 567:

ae Vee eee GE icc ee 8

Massachusetts Mutual Life Insurance Co. v. Russell,

She UR. UG Cpe Siocon 6

McGann v. H&H Music Co., 946 F.2d 401 (5th Cir.

1991), cert. denied, 506 US. pppp, 113 S.Ct. 482

5 SER INTL Ath emt chee SE TA, 12

Mertens v. Hewitt Associates, Inc , 508 US. —_: 113

EA, Te CO wcities ees 5

Michigan v. Long, 463 US. 1032 (1983) ....c.cccccccesecceseese 1]

Misic v. Building Services Employees Health & Wel-

fare Trust, 789 F.2d 1374 (9th Cir. 1986) o...c.ccc cece. 9

Moore v. Reynolds Metals Co. Retirement Plan, 740

aes SG CR TID wcivnnvacieins ee 12, 13

Musto v. American General Corp., 861 F.2d 897

(6th Cir. 1988), cert. denied, 490 U.S. 1020

CID siritaneinisenicrecmpctlcidéneenicee cee ee 12

Northwest Airlines v. Transport Workers, 451 US.

BF COED sararesinessscedsiandnecasunaicne nae ee 6

Pilot Life Insurance Co. v. Dedeaux, 481 US. 41

(__ ) Fe PAIRED ese te MA. 6

vi

PAGE

PM. Group Life Insurance Association v. Western

Growers Assurance Trust, 953 E2d 543 (9th Cir.

FUGUE) sesevvissucseeeninssinmetaneninaaemammmiamia 10

Thomason vy. Aetna Life Insurance Co., 9 F.3d 645

CORRE COR, TED acccnsccscvincisinvesieniaiosnaiiemandannimiaiiaadion’ 13

Thorn Apple Valley, Inc. v. Auto Club Insurance

Association, 489 US. 996 (1990) .......cccccccceeeeceeeeeeeeeeees 3

UIU Severance Pay Trust Fund v. Local 18-U, 998

ae Bee CI OIG, FIGS) ccescttenisesstisnrsnensannrna 13

Winstead v. J.C. Penney Co., 933 F2d 576 (7th Cir.

BOGE). cnivserecoceeesarerovcsechinengettindicbiaseentimanmedamevanaton 10

STATUTES:

Sections 502 and 514 of the Employee Retirement

Income Security Act of 1974, as amended 29

Shae Se SEE GUIDED. BWW cncccvctccosssintnteateacnianntoandbace passim

Section 3109a of Michigan's no-fault auto insur-

ance law, MicH. Comp. LAws § 500.3109a_ .......... 1, 3, 4

No. 93-1180

In The

Supreme Court of the United States

*> October Term, 1993 «

AUTO CLUB INSURANCE ASSOCIATION,

: v. Petitioner,

PENTWATER WIRE PRODUCTS, INC.,

Respondent.

AUTO CLUB INSURANCE ASSOCIATION,

v. Petitioner,

FREDERICK & HERRUD, INC.,

Respondent.

BRIEF IN OPPOSITION

ON BEHALF OF FREDERICK & HERRUD, INC.

(now known as Thorn Apple Valley, Inc.)

Respondent Frederick & Herrud, Inc. (Frederick),

respectfully requests the Court to deny the petition for

certiorari, which seeks review of the Michigan Supreme

Court's decision reported at 443 Mich. 358; 505 NW.2d

820 (1993).

STATUTORY PROVISIONS

The decision of the Michigan Supreme Court below

was based on that court's construction of Section 3109a

of Michigan's no-fault automobile insurance law. MICH.

Comp. LAws § 500.3109a.

In addition, resolution of the federal issues raised in

the petition and below, assuming the Court chooses to

consider them, entails interpretation of Sections 502

and 514 of the Employee Retirement Income Security Act

2

of 1974, as amended. 29 USC. §§ 1132 and 1144. Section

3109a of Michigan's no-fault insurance law and Section

502 of ERISA were omitted from the Appendix to the

Petition. They are reprinted here in A-1-A-10.

STATEMENT OF THE CASE'

In 1982, Petitioner Auto Club commenced this action

in Michigan state court. It invoked state law in an effort

to compel Respondent Frederick? to reimburse it for

auto insurance benefits paid to seven Frederick

employees who were also beneficiaries of the company’s

self-insured welfare benefit plan. These seven insureds

had been injured in auto accidents in 1980 and 1981.

Auto Club paid no-fault benefits to them under auto

insurance policies issued under Michigan's no-fault auto

insurance law. Auto Club claimed that Frederick was

required to reimburse it for all of the insurance benefits

it paid despite a provision in Frederick's plan which

states that “in all cases [involving] employees with no-

fault auto insurance coverage, the auto insurance car-

rier will be primary.”

Auto Club initially based its claim against Frederick

entirely on Michigan law. The precise theory of law

proved elusive as the litigation proceeded. The initial

complaint mentioned only general notions of contract

law. Several years later, before the Michigan Court of

Appeals, Auto Club successfully argued that it could

recover from Frederick because of policies emanating

| We are generally satisfied with the summary of facts set forth

in the opinion of the Michigan Supreme Court below. This addi-

tional summary is provided only to clarify the posture of this litiga-

tion.

2 Frederick, or Thorn Apple Valley, Inc., as it is now known, is a

Michigan-based meat packing company.

ee eT Te

3

from Section 3109a of Michigan's no-fault auto insurance

law. 145 Mich. App. 722; 377 NW.2d 902 (1985). That pro-

vision requires that auto insurers in Michigan offer

insureds the option of buying cheaper no-fault insur-

ance coverage with “deductibles and exclusions reason-

ably related to other health and accident coverage on

the insured.” MicH. Comp. Laws § 500.3109a. As late as

1992, however, Auto Club successfully asserted in state

court litigation unrelated to this case that its right to

recover no-fault benefit payments from its insureds’

employer-provided health plans was contractual in

nature after all — in order to benefit from Michigan's

relatively long contract statute of limitations. See Auto

Club v. New York Life Insurance Co., 440 Mich. 126; 485

NW.2d 695 (1992).

In either case, all state law formulations of Auto

Club's claim against Frederick obviously “relate to”

Frederick's self-insured employee benefit plan and,

hence, were preempted by ERISA. This conclusion was

ultimately sustained by this Court in this case in 1990,

489 US 996 (1990), and, on remand, by the Michigan

Court of Appeals in 1991, 191 Mich App 471; 479 NW.2d

18 (1991).

After the Michigan Court of Appeals confirmed that

Auto Club's state law claims against Frederick were pre-

empted, Auto Club then shifted course and argued that

it could still recover from Frederick — but now directly

under ERISA itself. But, since ERISA does not provide a

remedy for disputes over coverage between ERISA plans

and coverages governed by state law, Auto Club urged

that a state law doctrine of prorated liability should be

imported into ERISA jurisprudence and applied in this

dispute — as a matter of federal common law.

In the decision which Auto Club now urges this Court

to review the Michigan Supreme Court rejected Auto

4

Club's effort to resuscitate its suit against Frederick by

relabeling it a federal common law claim. Citing

Michigan public policy favoring employer sponsorship

of employee benefit plans, and federal cases holding

that ERISA coverage disputes should generally be

resolved in accordance with the terms of the pertinent

ERISA plan, the court decided that the provision in

Frederick’s plan which states that auto insurance must

provide primary coverage for auto accidents involving

plan beneficiaries “must be given its clear meaning

without the creation of any artificial conflict [with Auto

Club’s no-fault policy] based upon [Micu. Comp. LAws

§ 500.3109a].” 443 Mich at 387; 505 NW.2d at 833. Noting

that “there is a considerable state interest in facilitating

the creation and voluntary funding of [welfare plans by

employers],” the court concluded that MicH. Comp. LAws

§ 500.3109a “does not reach an ERISA plan with a [coor-

dination of benefits] clause where that clause is unam-

biguous.” 443 Mich at 387-88; 505 NW.2d at 833. In

reaching this conclusion, the court overruled an earlier

decision in Federal Kemper Insurance Co v. Health Ins.

Administration, Inc., 424 Mich. 537; 383 NW.2d 590

(1986), in which that court had held that auto carriers

could sue heaith benefit pians for reimbursement on

the theory that this furthered the underlying policies of

Michigan's no-fault auto insurance law. 443 Mich. at 390;

505 NW.2d at 834. |

Auto Club now urges this Court to decide that federal

law must be construed to afford it a remedy against

Frederick in this case.

3

REASONS WHY THE PETITION SHOULD BE DENIED

SINCE AUTO CLUB HAS NO ERISA CAUSE OF ACTION

AGAINST FREDERICK TO BEGIN WITH THERE IS NO NEED

TO CONSIDER THE PARAMETERS OF FEDERAL COMMON

LAW UNDER ERISA.

The parties here have not chosen a “narrow battle-

field,” leaving only the abstract issue formulated by

Auto Club for consideration. In fact, we have long dis-

puted that a cause of action under ERISA even exists

between Auto Club and Frederick, much less one which

would necessitate the examination of the federal

common law issues determined by the court below. See

generally Mertens v. Hewitt Associates, Inc., 508 US. __;

113 S.Ct. 2063, 2067 (1993). We continue to contend that

in order to reach the federal common law issues

decided by the court below (or those raised in the peti-

tion), a court must consider whether ERISA permits

Auto Club to sue Frederick in the circumstances of this

case — at all. Since maintenance of such a cause of

action by Auto Club cannot be squared with the lan-

guage of ERISA or with previous decisions of this Court,

review of the question of how federal law might resolve

the putative conflict between Auto Club's insurance poli-

cies and Frederick’s ERISA plan is hypothetical, at best.

This past Term this Court reaffirmed that claims and

remedies under ERISA are limited to those specifically

set forth in the statute’s “comprehensive and reticu-

lated” civil enforcement provision. See Mertens v. Hewitt

Associates, Inc., 508 US. __; 113 S.Ct. 2063 (1993). In the

face of this “carefully crafted and detailed enforcement

scheme,” the Court stated that it is “unwilling to infer

causes of action in the ERISA context.” 113 S.Ct. at 2067:

see also Massachusetts Mutual Life Insurance Co. v.

6

Russell, 473 U.S. 134, 146-47 (1985); Pilot Life Insurance

Co. v. Dedeaux, 481 US. 41, 54 (1987).3

Vague notions of “federal common law” provide no

detour around ERISA’s civil enforcement scheme. True

enough, the legislative history underlying ERISA indi-

cates that Congress intended that a “body of federal

substantive law will be developed by the courts to deal

with issues involving rights and obligations under pri-

vate welfare and pension plans.” 120 Cong. Rec. 29942

(remarks of Senator Javitz), guoted in Pilot Life Insurance

Co. v. Dedeaux, 481 US. at 56; see also Firestone Tire &

Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989). But, “the

authority of courts to develop a ‘federal common law’

under ERISA ... is not the authority to revise the text of

the statute.” Mertens v. Hewitt Associates, Inc., 508 US. at

—__; 113 SCt. at 2070.

To allow Auto Club to maintain its claim against

Frederick under federal common law would require this

Court to do just that: impermissibly revise the text of

the statute. ERISA does not explicitly provide a remedy

for Auto Club against Frederick in this case.‘ Auto Club,

and other auto insurers, are plainly not among the “per-

sons empowered to bring a civil action” under ERISA.

Nor is an action by an auto insurance company seeking

3 The unwillingness of this Court to legislate new causes of

action under statutes containing comprehensive enforcement and

remedial provisions is not limited to ERISA litigation. See also North-

west Airlines v. Transport Workers, 451 U.S. 77, 97 (1981) (“the judi-

ciary may not in the face of such comprehensive legislative schemes,

fashion new remedies that might upset carefully considered legisla-

tive programs” ).

4 The one district court that has attempted to fashion a federal

common law remedy against an ERISA plan and in favor of a

Michigan no-fault auto insurer candidly conceded that “the ERISA

statute itself does not provide an answer.” Auto Owners Insurance Co.

v. Thorn Apple Valley, Inc., 818 F.Supp. 1078, 1081 (W.D. Mich.,

1993), appeal docketed, No. 93-1606 (6th Cir. May 5, 1993). That

should have been enough to end that litigation, a contention we are

currently urging to the Sixth Circuit.

7

to recover no-fault insurance benefit payments from an

ERISA plan among those actions comprehended by the

six civil actions enumerated in Section 502. While Con-

gress could have, it did not provide for “litigation when

a plan subject to ERISA interlocks with coverage gov-

erned by state law.” See FosterMcGaw Hospital v. Welfare

Fund, 925 F.2d 1023, 1025 (7th Cir. 1991), cert. denied,

502 US. —; 112 S.Ct. 74 (1991). Courts should not be in

the business of revising acts of Congress where a liti-

gant believes the legislation does not go far enough.

No good reason exists in this case for usurping the

power of Congress, and discarding the statute and pre-

vious decisions of this Court construing it, in order to

infer a new cause of action for Michigan automobile

insurance carriers which Congress could have provided,

but did not see fit to enact. Without a cause of action

against Frederick, the question Auto Club has formu-

lated for review is meaningless.

EQUITABLE SUBROGATION CLAIMS ARE NOT PROVIDED

UNDER ERISA NOR WOULD THEY BE WITHIN THE JURIS-

DICTION OF STATE COURTS.

Review of the abstractions presented in the petition

would arguably also require this Court to consider the

existence of a federal subrogation remedy under ERISA,

an equitable remedy which is nowhere mentioned in the

statute and which no federal circuit has recognized. In

the decision below, the Michigan Supreme Court side-

stepped the absence of a statutory remedy in ERISA for

Auto Club’s dispute with Frederick and concluded that

Auto Club could sue Frederick as the “subrogee of its

insureds’ right to seek payment from their ERISA plans.”

443 Mich. at 370-72; 505 NW.2d at 825-826. Subrogated

to the plan rights of its insureds, Auto Club could then

presumably “step into their shoes” and sue Frederick

for benefits under Section 502(a)(1)(B) of ERISA. There

8

are at least three reasons why subrogation is unavail-

able to Auto Club in this case:

1. Subrogation is a creature of state law. See, e.g.,

Auto Club v. New York Life Insurance Co., 440 Mich. 126,

132-33; 485 NW.2d 695, 698 (1992). There is no generally

recognized federal subrogation remedy. But, if applied

to self-insured ERISA plans, state subrogation doctrines

are preempted by ERISA. See FMC Corp. v. Holliday, 498

U.S. 52 (1990). Accordingly, subrogation must either be

available to Auto Club directly under ERISA, or not at

all.

2. But, even if subrogation can be obtained directly

under ERISA, it is nonetheless unavailable in state court.

Subrogation is an equitable remedy. See, e.g., French v.

Grand Beach Co., 239 Mich. 575, 580, 215 NW. 13 (1927)

(“the doctrine of subrogation rests upon the equitable

principle that one who, in order to protect a security

held by him, is compelled to pay a debt for which

another is primarily liable, is to be substituted in the

place of and to be vested with the rights of the person

to whom such payment is made, without agreement to

that effect”); Machine Parts Corp. v. Schneider, 289 Mich.

567, 574-76, 286 NW. 831, 834-835 (1939); Auto Club v. New

York Life Insurance Co., 440 Mich. 126, 132-33 485 NW.2d

695, 698 (1992); Federal Kemper Insurance Co. v. The

Western Insurance Cos., 97 Mich..App 204, 208; 293

NW.2d 765, 767 (1980) (“the proper action here is one in

equity for subrogation”). And, while equitable relief may

be obtained in an action arising under Section 502(a)(3)

of ERISA, actions arising under that provision fall within

the exclusive jurisdiction of the federal courts. See 29

U.S.C. § 1132(e)(1). Thus, if subrogation is available in

suits against ERISA plans, then the Michigan state courts

nonetheless had no subject matter jurisdiction to con-

sider or apply it here.

9

3. There is no federal right of subrogation under

ERISA in any event. Section 502 of ERISA makes no men-

tion of it. The Michigan Supreme Court in its opinion

below ignored the statute and stated that there is a

split of authority among the courts regarding whether a

subrogation claim can be brought against an ERISA plan

by a party which is not expressly empowered to sue

under ERISA. 443 Mich. at 370-72; 505 NW.2d 825-826. In

fact, there is no such split of authority.

Concededly, several courts have held that persons or

entities may sue, as if they were beneficiaries under

ERISA plans, based upon express assignments of plan

rights by persons who are themselves plan participants.

E.g., Misic v. Building Services Employees Health & Wel-

fare Trust, 789 F.2d 1374 (9th Cir. 1986); Herman Hospital

v. MEBA Medical & Benefits Plan, 845 F.2d 1286 (5th Cir.

1988). But, since a “beneficiary” is defined in ERISA as a

“person designated by a participant, or by the terms of

an employee benefit plan, who is or may become en-

titled to a benefit thereunder,” 29 U.S.C. § 1002(7),

allowing an assignee — i.e., a person or entity expressly

“designated” by a plan participant as entitled to bene-

fits under a plan — to sue as a beneficiary appears

faithful to the statutory text. Subrogation, however,

occurs by operation of law and is not dependent upon

any formal designation by a plan participant. Not sur-

prisingly, no federal circuit so far as we are aware has

ever ruled that claims may be brought under ERISA and

against ERISA plans by entities claiming to assert plan

rights derivatively by way of subrogation. At least one

circuit, the Third, has ruled to the contrary. Allstate

‘Insurance Co. v. The Sixty-Five Security Plan, 879 F.2d 90,

94 (3rd Cir. 1989).

In our 1989 petition for certiorari in this case, we

expressly raised the question of whether ERISA pre-

10

empts Auto Club's subrogation claims. The Court's order

granting certiorari and remanding for proceedings con-

sistent with FMC Corp. v. Holliday, 498 U.S. 52 (1990),

498 US. 996 (1990), arguably sustained our position on

preemption. It did not invite the Michigan courts to

concoct a new federal remedy of subrogation, equitable

relief which they would be powerless to provide under

Section 502.

THERE IS NO CONFLICT AMONG THE CIRCUITS CON-

CERNING THE APPLICATION OF FEDERAL COMMON LAW

TO COVERAGE DISPUTES BETWEEN ERISA PLANS AND

INSURANCE COVERAGES GOVERNED BY STATE LAW.

Citing decisions in which several courts have devel-

oped federal common law remedies for priority of cov-

erage disputes between ERISA plans, Auto Club asserts

that there are conflicting decisions concerning the fed-

eral common law issue presented in its petition. This is

simply not true.

One ERISA plan can arguably sue another ERISA plan

to determine priority of coverage under Section

502(a)(3)(B) of ERISA,® which authorizes suits by a plan

fiduciary to “enforce” the terms of a plan. See Winstead

v. J.C. Penney Co., 933 F2d 576, 578-79 (7th Cir. 1991). It

is in the context of suits between ERISA plans that there

are conflicting decisions concerning how such priority

disputes should be determined. Compare PM. Group Life

Insurance Association v. Western Growers Assurance

Trust, 953 F2d 543 (9th Cir. 1992) (applying “birthday

rule”), with InterValley Health Plan v. Blue Cross/Blue

Shield of Connecticut, 16 Cal. App. 4th 60; 19 Cal. Rptr. 2d

5 State courts, however, would have no subject matter jurisdic-

tion over such a claim. See 29 U.S.C. § 1132(e)(1).

ll

782 (1993), cert. denied, 62 US.LW. 3469 (Jan. 18, 1994)

(divorce judgment applied instead of “birthday rule”).

Petitioner actually cites nothing but decisions involving

disputes between health benefit plans in support of its

assertion that this Court should decide whether and

how federal common law would resolve a dispute

between an ERISA plan and a non-ERISA entity such as

an auto insurance company.

This Court recently decided that the proper applica-

tion of federal common law to resolve disputes between

ERISA plans did not warrant review. Blue Cross/Blue

Shield of Connecticut v. Inter Valley Health Plan, 62

U.S.LW. 3469 (Jan. 18, 1994). There is surely no reason

to consider the even more obscure (and largely

parochial) question presented in the petition, which

was raised in a context in which the very existence of a

federal cause of action is doubtful and in which it is

more doubtful that the Michigan state courts below

even had subject matter jurisdiction.

IV.

THE REMEDY WHICH AUTO CLUB SEEKS TO OBTAIN

UNDER FEDERAL COMMON LAW WOULD SUBVERT, RATHER

THAN FURTHER, THE POLICIES UNDERLYING ERISA.

The rule which Auto Club urges this Court to adopt

as a matter of federal common law® would turn ERISA

6 Although there is no “plain statement” predicating the ruling

below on an independent and adequate state ground, See Michigan

v. Long, 463 U.S. 1032 (1983), the finding that the provisions of

Frederick’s plan should prevail over Auto Club’s no-fault policies

nonetheless rests largely on the Michigan Supreme Court’s con-

struction of state law and considerations of state public policy. The

court’s reasoning is expressly predicated on a decision not to create

an “artificial conflict” between the Frederick plan and Aute Clws's

no-fault policies “based upon” Section 3109a of Michigan’s no-fault

(concluded on page 12)

12

and its underlying policies upside down. After resolving

— we contend erroneously — the question of whether

Auto Club has a cause of action against Frederick over

which state courts could assert jurisdiction, the

Michigan Supreme Court concluded below that in cases

of conflict between the provisions in an ERISA employee

benefit plan and a no-fault automobile insurance policy,

the ERISA plan’s provisions should prevail. The court

reasoned that the federal policy underlying ERISA

encourages rather than discourages the adoption of

employee benefit plans and that allowing Auto Club to

pursue a claim for reimbursement against Frederick

despite what Frederick’s ERISA plan clearly provides

would tend to discourage Frederick and other

employers from providing employee benefit plans for

their employees. This is a consideration frequently cited

by federal courts in resolving ERISA disputes. See, e.g.,

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11 (1987);

McGann v. H&H Music Co., 946 F.2d 401, 407 (5th Cir.

1991), cert. denied, 506 U.S. __, 113 S.Ct. 482 (1992);

Musto v.‘American General Corp., 861 F2d 897, 912 (6th

Cir. 1988), cert. denied, 490 U.S. 1020 (1989); Moore v.

Reynolds Metals Co. Retirement Plan, 740 F2d 454, 456-57

(6th Cir. 1984). This reasoning is sound and requires no

adjustment by this Court.

Moreover, in those situations where federal courts

have proceeded to develop federal common law in

resolving claims under ERISA, courts have repeatedly

cautioned that they will only do so to “effectuate the

(continued from page 11)

auto insurance law. 443 Mich. at 387; 505 NW.2d 833. The court

also observed that the “federal policy furthers the state interest of

fostering the existence of health and welfare benefit plans for its

citizens,” id., and concluded by overruling an earlier decision, Fed-

eral Insurance Co. v Health Insurance Administration, Inc., 424

Mich. 537, 383 NW.2d 590 (1986), which was based entirely on state

law. 443 Mich. at 390; 505 NW.2d at 834.

13

policies underlying ERISA,” see Thomason v. Aetna Life

Insurance Co., 9 F.3d 645, 647 (7th Cir. 1993), or “the statu-

tory pattern enacted by Congress” in ERISA, U/U Sever-

ance Pay Trust Fund v. Local 18-U, 998 F.2d 509, 512 n.10 (7th

Cir. 1993). Clearly, the power to develop federal common

law under ERISA, according to decisions in several cir-

cuits (including the Sixth), does not translate into a

license to override or rewrite the plain terms of an ERISA

plan. Cummings by Techmeier v. Briggs and Stratton Retire-

ment Plan, 797 F.2d 383, 390-91 (7th Cir. 1986) (“we are par-

ticularly reluctant to fashion a federal common law

doctrine of unjust enrichment where such a right would

override a contractual provision in a pension plan’ );

Moore v. Reynolds Metals Co. Retirement Plan, 740 F.2d 454,

456, 57 (6th Cir. 1984) (“the district court modified imper-

missibly the plain language of the pension plan’).

How adoption of Auto Club’s position that federal

common law requires that the provision in Frederick’s

plan making it secondary to auto insurance be voided

would further or effectuate ERISA or its underlying poli-

cies is beyond us. Frederick’s plan expressly provides

that its coverage is secondary to automobile insurance

coverage whenever a plan participant or beneficiary is

involved in an auto accident and has no-fault insurance

coverage. The plan language is not susceptible to any

rational interpretation compatible with its terms or

ERISA which would cause Frederick to pay all or even

some of the medical expenses of Auto Club’s seven

insureds. After more than 10 years of litigation, Auto

Club has failed to articulate a single federal policy that

would support its request that this Court supplement

ERISA with a new federal common law remedy, which

would rewrite ERISA plans in Michigan and benefit no

one except Auto Club and other Michigan no-fault

insurers. See generally Health Choice v. Automotive

Employee Benefit Trust, 988 F.2d 53 (8th Cir. 1993).

14

The contortions of the statutory text and its under-

lying policies which Auto Club urges in support of its

claim do not merit this Court's consideration in this

case.

CONCLUSION

For these reasons, the petition for writ of certiorari

should be denied.

Respectfully submitted,

FINKEL, WHITEFIELD & SELIK, PC.

By: /s/ BRADLEY T. RAYMOND (P 27952)

Counsel of Record

32300 Northwestern Highway Suite 200

Farmington Hills, MI 48334-1567

(313) 855-6500

Counsel for Respondent

Frederick & Herrud, Inc

Dated: February 9, 1994

A-1

APPENDIX

STATUTES INVOLVED’

SECTION 3190a

OF MICHIGAN’S NO-FAULT AUTO INSURANCE LAW;

MICH. COMP. LAWS §500.3109a

Sec. 3109a. An insurer providing personal pro-

tection insurance benefits shall offer, at appro-

priately reduced premium rates, deductibles and

exclusions reascnably related to other health

and accident coverage on the insured. The

deductibles and exclusions required to be

offered by this section shall be subject to prior

approval by the commissioner and shall apply

only to benefits payable to the person named in

the policy, the spouse of the insured and any rel-

ative of either domiciled in the same household.

7 Petitioner has included in its appendix only Section 514 of

ERISA. 29 U.S.C. § 1144.

A-2

SECTION 502

OF THE EMPLOYEE RETIREMENT

INCOME SECURITY ACT OF 1974,

AS AMENDED,

29 U.S.C. § 1132

§ 1132. Civil enforcement

(a) Persons empowered to bring a civil action

A civil action may be brought —

(1)

(2)

(3)

(4)

(5)

by a participant or beneficiary —

(A) for the relief provided for in subsection (c)

of this section, or

(B) to recover benefits due to him under the

terms of his plan, to enforce his rights

under the terms of the plan, or to clarify his

rights to future benefits under the terms of

the plan;

by the Secretary, or by a participant, beneficiary

or fiduciary for appropriate relief under section

1109 of this title;

by a participant, beneficiary, or fiduciary (A) to

enjoin any act or practice which violates any

provision of this subchapter or the terms of the

plan, or (B) to obtain other appropriate equi-

table relief (i) to redress such violations or (ii)

to enforce any provisions of this subchapter or

the terms of the plan;

by the Secretary, or by a participant, or benefi-

ciary for appropriate relief in the case of a viola-

tion of 1025(c) of this title;

except as otherwise provided in subsection (b)

of this section, by the Secretary (A) to enjoin

Peis WP LID eric OP eararie oe.

(6)

A-3

any act or practice which violates any provision

of this subchapter, or (B) to obtain other appro-

priate equitable relief (i) to redress such viola-

tion or (ii) to enforce any provision of this

subchapter; or

by the Secretary to collect any civil penalty under

subsection (c)(2) or (i) or (1) of this section.

(b) Plans qualified under Internal Revenue Code; mainte-

nance of actions involving delinquent contributions

(1)

In the case of a plan which is qualified under

section 401(a), 403(a), or 405(a) of Title 26 (or

with respect to which an application to so

qualify has been filed and has not been finally

determined) the Secretary may exercise his

authority under subsection (a)(5) of this section

with respect to a violation of, or the enforce-

ment of, parts 2 and 3 of this subtitle (relating

to participation, vesting, and funding), only if —

(A) requested by the Secretary of the Treasury,

or

(B) one or more participants, beneficiaries, or

fiduciaries, of such plan request in writing

(in such manner as the Secretary shall pre-

scribe by regulation) that he exercise such

authority on their behalf. In the case of

such a request under this paragraph he may

exercise such authority only if he deter-

mines that such violation affects, or such

enforcement is necessary to protect, claims

of participants or beneficiaries to benefits

under the plan.

(2) The Secretary shall not initiate an action to

enforce section 1145 of this title.

A-4

(c) Administrator’s refusal to supply requested informa-

tion; penalty for failure to provide annual report in

complete form

(1)

(2)

(3)

Any administrator (A) who fails to meet the

requirements of paragraph (1) or (4) of section

1166 of this title or section 1021(e)(1) of this title

with respect to a participant or beneficiary, or

(B) who fails or refuses to comply with a re-

quest for any information which such adminis-

trator is required by this subchapter to furnish

to a participant or beneficiary (unless such

failure or refusal results from matters reasonably

beyond the control of the administrator) by

mailing the material requested to the last known

address of the requesting participant or benefi-

ciary within 30 days after such request may in

the court's discretion be personally liable to

such participant or beneficiary in the amount of

up to $100 a day from the date of such failure or

refusai, and the court may in its discretion order

such other relief as it deems proper.

The Secretary may assess a civil penalty against

any plan administrator of up to $1,000 a day from

the date of such plan administrator's failure or

refusal to file the annual report required to be

filed with the Secretary under section 1021(b)(4)

of this title. For purposes of this paragraph, an

annual report that has been rejected under sec-

tion 1024(a)(4) of this title for failure to provide

material information shall not be treated as

having been filed with the Secretary.

Any employer maintaining a plan who fails to

meet the notice requirement of section 1021(d)

of this title with respect to any participant or

beneficiary or who fails to meet the require-

A-5

ments of section 1021(e)(2) of this title with

respect to any person may in the court's discre-

tion be liable to such participant or beneficiary

or to such person in the amount of up to $100 a

day from the date of such failure, and the court

may in its discretion order such other relief as it

deems proper.

(d) Status of employee benefit plan as entity

(1) An employee benefit plan may sue or be sued

(

2

)

under this subchapter as an entity. Service of

summons, subpoena, or other legal process of a

court upon a trustee or an administrator of an

employee benefit plan in his capacity as such

shall constitute service upon the employee

benefit plan. In a case where a plan has not

designated in the summary plan description of

the plan an individual as agent for the service of

legal process, service upon the Secretary shall

constitute such service. The Secretary, not later

than 15 days after receipt of service under the

preceding sentence, shall notify the adminis-

trator or any trustee of the plan of receipt of

such service.

Any money judgment under this subchapter

against an employee benefit plan shall be

enforceable only against the plan as an entity

and shall not be enforceable against any other

person unless liability against such person is

established in his individual capacity under this

subchapter.

(e) Jurisdiction

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

this section, the district courts of the United

States shall have exclusive jurisdiction of civil

A-6

actions under this subchapter brought by the

Secretary or by a participant, beneficiary, or

fiduciary. State courts of competent jurisdiction

and district courts of the United States shall

have concurrent jurisdiction of actions under

subsection (a)(1)(B) of this section.

(2) Where an action under this subchapter is

brought in a district court of the United States,

it may be brought in the district where the plan

is administered, where the breach took place, or

where a defendant resides or may be found, and

process may be served in any other district

° where a defendant resides or may be found.

(f) Amount in controversy; citizenship of parties

The district courts of the United States shall have

jurisdiction, without respect to the amount in con-

troversy or the citizenship of the parties, to grant

the relief provided for in subsection (a) of this sec-

tion in any action.

(g) Attorney’s fees and costs, awards in actions involving

delinquent contributions

(1) In any action under this subchapter (other than

an action described in paragraph (2)) by a par-

ticipant, beneficiary, or fiduciary, the court in its

discretion may allow a reasonable attorney's fee

and costs of action to either party.

(2) In any action under this subchapter by a fidu-

ciary for or on behalf of a plan to enforce sec-

tion 1145 of this title in which a judgment in

favor of the plan is awarded, the court shall

award the plan —

(A) the unpaid contributions,

(B) interest on the unpaid contributions,

—————

A-7

(C) an amount equal to the greater or —

(i) interest on the unpaid contributions, or

(ii) liquidated damages provided for under

the plan in an amount not in excess of

20 percent (or such higher percentage as

may be permitted under Federal or State

law) of the amount determined by the

court under subparagraph (A),

(D) reasonable attorney's fees and costs of the

action, to be paid by the defendant, and

(=) such other legal or equitable relief as the

court deems appropriate.

For purposes of this paragraph, interest on

unpaid contributions shall be determined by using

the rate provided under the plan, or, if none, the

rate prescribed under section 6621 of Title 26.

(h) Service upon Secretary of Labor

and Secretary of Treasury

A copy of the complaint in any action under this

subchapter by a participant, beneficiary, or fidu-

ciary (other than an action brought by one or more

participants or beneficiaries under subsection

(a)(1)(B) of this section which is solely for the pur-

pose of recovering benefits due such participants

under the terms of the plan) shall be served upon

the Secretary and the Secretary of the Treasury by

certified mail. Either Secretary shall have the right

in his discretion to intervene in any action, except

that the Secretary of the Treasury may not inter-

vene in any action under part 4 of this subtitle. If

the Secretary brings an action under subsection (a)

of this section on behalf of a participant or benefi-

ciary, he shall notify the Secretary of the Treasury.

il

A-8

(i) Administrative assessment of civil penaity

In the case of a transaction prohibited by section

1106 of this title by a party in interest with respect

to a plan to which this part applies, the Secretary

may assess a civil penalty against such party in

interest. The amount of such penalty may not

exceed 5 percent of the amount involved in each

such transaction (as defined in section 4975(f)(4) of

Title 26) for each year or part thereof during which

the prohibited transaction continues, except that, if

the transaction is not corrected (in such manner as

the Secretary shall prescribe in regulations which

shall be consistent with section 4975(f)(5) of Title

26) within 90 days after notice from the Secretary

(or such longer period as the Secretary may

permit), such penalty may be in an amount not

more than 100 percent of the amount involved. This

subsection shall not apply to a transaction with

respect to a plan described in section 2975(e)(1) of

Title 26.

@ Direction and control of litigation by Attorney General

In all civil actions under this subchapter, attor-

neys appointed by the Secretary may represent the

Secretary (except as provided in section 518(a) of

Title 28), but all such litigation shall be subject to

the direction and control of the Attorney General.

(k) Jurisdiction of actions against the Secretary of Labor

Suits by an administrator, fiduciary, participant,

or beneficiary of an employee benefit plan to review

a final order of the Secretary, to restrain the Secre-

tary from taking any action contrary to the provi-

sions of this chapter, or to compel him to take

action required under this subchapter, may be

brought in the district court of the United States for

A-9

the district where the plan has its principal office,

or in the United States District Court for the District

of Columbia.

(1) Civil penalties on violations by fiduciaries

(3)

(1) In the case of —

(A) any breach of fiduciary responsibility under

(or other violation of) part 4 by a fiduciary,

or

(B) any knowing participation in such a breach

or violation by any other person, the Secre-

tary shall assess a civil penalty against such

fiduciary or other person in an amount equal

to 20 percent of the applicable recovery

amount.

For purposes of paragraph (1), the term “applic-

able recovery amount” means any amount which

is recovered from a fiduciary or other person

with respect to a breach or violation described

in paragraph (1) —

(A) pursuant to any settlement agreement with

the Secretary, or

(B) ordered by a court to be paid by such fidu-

ciary or other person to a plan or its par-

ticipants and beneficiaries in a judicial

proceeding instituted by the Secretary under

subsection (1)(2) or (a)(5) of this section.

The Secretary may, in the Secretary's sole dis-

cretion, waive or reduce the penalty under para-

graph (1) if the Secretary determines in writing

that —

(A) the fiduciary or other person acted reason-

ably and in good faith, or

(4)

A-10

(B) it is reasonable to expect that the fiduciary

or other person will not be able to restore

all losses to the plan without severe finan-

cial hardship unless such waiver or reduc-

tion is granted.

The penalty imposed on a fiduciary or other

person under this subsection with respect to

any transaction shal! be reduced by the amount

of any penalty or tax imposed on such fiduciary

or other person with respect to such transaction

under subsection (i) of this section and section

4975 of Title 26.

i