Amicus Curiae Brief — Leviton Manufacturing Co. v. Rhode Island Insurers' Insolvency Fund

FILED

NUV 19 [993

OFFICE OF THE CLERM

In The SUPREME COURT, U.S.

Supreme Court of the United States

October Term, 1998

LEVITON MANUFACTURING CO., INC.,

Petitioner,

We

RHODE ISLAND INSURERS’ INSOLVENCY FUND,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI TO THE

SUPREME COURT OF THE STATE OF RHODE ISLAND

BRIEF OF AMICUS CURIAE

NEW ENGLAND LEGAL FOUNDATION IN SUPPORT

OF PETITIONER

Michael E. Malamut

Counsel of Record

Loretta M. Smith

New England Legal Foundation

150 Lincoln Street

Boston, MA 02111

(617) 695-3660

Counsel for Amicus Curiae

QUESTIONS PRESENTED

Whether the Rhode Island Supreme Court erred

in concluding that the 1988 amendment of

Rhode Island Insurers’ Insolvency Fund law,

which imposed a new duty on Leviton

Manufacturing Company, was not retroactive

legislation.

Whether the retroactive application of the 1988

amendment of the Rhode Island Insurers’

Insolvency Fund law to claims that arose in

1983-1986 violates the Due Process Clause.

TABLE OF CONTENTS

Qumsracecs PRT 55 5S i ewe cciccne i

TAME CP AIO ses Ek Si nccwcns iii

INTEREST OF AMICUS COMIAB 3 ois cc ccccccascécccs 1

STATUMAITE CP SME 2a 5 Sec awa cea dubabeueeewen 2

SUMMARY GP-ADOUIIINE 5 3 RRA ies 2

ARG 0055 BV Sea 2

IL THE RHODE ISLAND SUPREME COURT ERRED IN

HOLDING THAT THE 1988 AMENDMENT TO THE RHODE

ISLAND INSURERS’ INSOLVENCY FUND LAW WAS NOT

RETROACTIVE LEGISLATION AS APPLIED TO CLAIMS

COVERED By INSURANCE POLICIES PURCHASED BEFORE

Irs Bee Ss er aac 2

A. THE HISTORICAL CONTEXT ............. 2

B. APPLYING THE 1998 Act To LEVITON FoR

EVENTS OCCURRING PRIOR TO ITS ENACTMENT

Is RETROACTIVE LEGISLATION ........... 5

IL. THE RETROACTIVE APPLICATION OF THE 1988 ACT TO

LEVITON VIOLATES THE DUE PROCESS CLAUSE ... 8

Coats KN on a eee eae eee ee 12

ii

TABLE OF AUTHORITIES

CASES

En ises v. Apfel, _U.S.__,

. ..., . >See 5, 8-11

General Motors Corp. v. Romein, 503 U.S. 18] (1992) ... 8

Kaiser Aluminium & Chemical Corp. v. Bonjomo,

Lehn oo tate oe ee ee 8

Landgraf v. USI Film Products, 511 U.S. 244 (1994) ... 6,7

Miller v. Florida, 482 U.S. 423 ( ee ME eS Te 6

Pension fit Gu orp. v. R.A. Gray & Co.,

a 2S 8

Sturges v. Carter, 114 U.S. 511 (1885) ............... 6

Usery v. Turner Elkhorn Mining Co.,

ee ed Sees... ........ 9

CONSTITUTIONAL PROVISIONS

U.S. CONST., amend. XTV (Due Process Clause) ..... 2.3

STATUTES

R. L Gen. Laws § 27-34-1 et SUE OMalb DaNseidnings cia ae +

R. I. Gen. Laws § 27-34-8 ....... rena ees Lobe eT 12

R. I. Gen. Laws § 27-34-11 ....................... 4,5

—R-L. Gen. Laws § 27-34-8 (1970) (repealed) ............ 4

R. L Gen. Laws § 27-34-9 (1970) (repealed) ........... 12

EGGS Oh. 1 Pubs ha, We. OT, BB so on snes eens cd wae 4

1970 R. L. Pub. Laws, ch. 166, § 27-34-8 ............ 4,7

RULES

I EEE i 6 a okie 0005.0 n0ekoeennne 1n.1,2

MISCELLANEOUS

Charles B. Hochman, The Supreme Court and the

Constitutionality of Retroactive Legislation, 73 Harv. L. Rev.

GOA CH: 6 Bai kk HET re 7,8

iv

No. 98 - 669

In The

Supreme Court of the United States

October Term, 1998

LEVITON MANUFACTURING Co., INC.,

Petitioner,

Vv.

RHODE ISLAND INSURERS’ INSOLVENCY FUND,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI TO THE

SUPREME COURT OF THE STATE OF RHODE ISLAND

BRIEF OF AMICUS CURIAE

NEW ENGLAND LEGAL FOUNDATION IN SUPPORT

OF PETITIONER

INTEREST OF AMICUS CURIAE

The New England Legal Foundation (“NELP’”), a non-

profit, public interest law firm, was incorporated in 1977.' Its

membership consists of corporations, individuals, and others

who believe in promoting balanced economic growth for New

England, protecting the free enterprise system and defending

1. Pursuant to Supreme Court Rule 37.6, counsel for Amicus

States that neither counsel for Petitioner nor Respondent

authored this brief in whole or in part and no person or entity

other than Amicus made a monetary contribution to the

preparation or submission of the brief.

economic rights. NELF’s more than 130 members and

supporters include a cross-section of large and small

corporations from all parts of New England and the United

States. NELF has regularly appeared in state and federal court,

as party or counsel, in cases raising issues of general economic

significance to the business community. See, e.g., Lockheed

Corp. v. Spink, 517 U.S. 882(1996); BMW v. Gore, 517 U.S.

559 (1996); Reich _v. Southern __New __ England

Telecommunications Corp., 121 F.3d 58 (2d Cir. 1997); Cigna

Health Plan of Louisiana v. Louisiana, 82 F.3d 642 (Sth Cir.

1996), Georgine v_Amchem Products, Inc.. 89 ronda

Air Force, 79 F.3d 1250 (Ist Cir. 1996); Preseault v. United

States, 66 F.3d 1167 (Fed. Cir. 1995); Eastern Mountain

Platform Tennis, Inc. v. Sherwin-Williams Co., 40 F.3d 492

(Ist Cir. 1994); B.F. Goodrich Co. v. Murtha, 958 F.2d 1192

(2d Cir. 1992); International Paper Co. v. Town of Jay, 665

A.2d 998 (Me. 1995); O'Brien v. New England Telephone &

Telegraph Co., 422 Mass. 686, 664 N.E.2d 743 (1996).

NELF seeks to bring to the Court’s attention its views

on the importance of the constraints imposed by the Due

Process Clause on retroactive economic legislation. Retroactive

economic legislation, like the recoupment provision at issue in

Leviton’s Petition, not only upsets settled expectations but also

destroys a company’s ability to engage in sound financial

planning. As this case demonstrates, it is fundamentally unfair

to impose severe financial burdens on businesses after they

have, in good faith, complied with and relied on existing law.

Pursuant to Supreme Court Rule 37.2, counsel for

Amicus, who are employed by the New England Legal

Foundation, have secured written consent for the filing of this

brief from counsel for Petitioner and Respondent.

Seen

STATEMENT OF THE CASE

Amicus accepts and adopts the Petitioner Leviton

Manufacturing Co., Inc.’s Statement of the Case. See Leviton

Manufacturing Co., Inc.’s Petition for Writ of Certiorari

(“Writ”) at 2-7.

SUMMARY OF ARGUMENT

The Rhode Island Supreme Court erroneously

concluded that the recoupment provision added to the Rhode

Island Insurers’ Insolvency Fund law in 1988 was not

retroactive legislation as applied to claims that arose in 1983-

1986 when the Fund was prohibited from seeking

reimbursement from any insureds. The retroactive application

of the recoupment provision to Leviton’s 1983-1986 workers’

compensation claims imposes a severe financial burden on

Leviton and imposes a new obligation on Leviton that it could

not have anticipated when it purchased insurance coverage.

The retroactive application of the recoupment provision to

Leviton is fundamentally unfair in violation of the Due Process

Clause of the United States Constitution.

ARGUMENT

L. THE RHODE ISLAND SUPREME COURT ERRED IN

HOLDING THAT THE 1988 AMENDMENT TO THE

RHODE ISLAND INSURERS’ INSOLVENCY FUND LAW

Was Not RETROACTIVE LEGISLATION AS APPLIED

TO CLAIMS COVERED By INSURANCE POLICIES

PURCHASED BEFORE ITs ENACTMENT.

A. THE HISTORICAL CONTEXT

Leviton Manufacturing Company (“Leviton”) bought

3

workers’ compensation insurance from American Mutual

Insurance Company (“American Mutual”) from April 1, 1983

to April 1, 1986. Claims were made against those policies

which American Mutual paid until its insolvency in March,

1989. When Leviton bought the American Mutual policies, the

Rhode Island Insurers’ Insolvency Fund (the “Fund”) was

prohibited from seeking reimbursement from any insureds for

any covered claims paid on behalf of the insured. Since 1970

through the dates that Leviton purchased the American Mutual

policies, Rhode Island law provided that the Fund “shall have

no cause of action against the insured of the insolvent insurer

for any sums it has paid out.” 1970 R. L Pub. Laws, ch. 166,

§ 27-34-8-(f).? As the Rhode Island Supreme Court has noted,

the Rhode Island legislature designed the Fund “to protect both

claimants and policyholders from the catastrophic consequences

of an insurer’s insolvency.” Rhode Island Insurers’ Insolvency

Fund v. Leviton Manufacturing Co., 716 A.2d 730, 732 (1998).

In 1988, before American Mutual was declared

insolvent, the Rhode Island legislature repealed the 1970 Act

and enacted 1988 R.L Pub. Laws, ch. 407, § 2 et seq. (codified

at R-L Gen. Laws § 27-34-1 et seq.) (the “1998 Act”). Under

the 1988 Act, the Fund was given the right to recover the

amount of claims paid on behalf of insureds having a net worth

in excess of $50,000,000 “on December 31 of the year next

preceding the date the insurer became an insolvent insurer.” R.L.

Gen. Laws § 27-34-11 (b) (1) (1988). Leviton’s net worth

exceeded $50,000,000 on the relevant date. In May, 1993, the

Fund brought suit against Leviton to recover the amounts it had

2. In 1988, the Rhode Island legislature repealed the 1970 Act

and replaced it with 1988 R.I Pub. Laws, ch. 407, § 2 et seq.,

codified at R.L. Gen. Laws § 27-34-1 et seq.

paid to Leviton’s workers under the American Mutual policies.

In its answer to the complaint, Leviton asserted affirmative

defenses challenging the constitutionality of the 1988 Act as

applied to insured claims which arose prior to the Act. Among

other defenses, Leviton argued that the 1988 Act violates the

Due Process Clause by imposing a retroactive obligation on

Leviton for workers’ compensation claims that arose in 1983-

1986 when the Fund was required to step into the shoes of an

insolvent insured and was prohibited from seeking recovery

from any Rhode Island insureds.

The trial court granted the Fund’s motion for partial

summary judgment challenging Leviton’s affirmative defenses;

the Rhode Island Supreme Court affirmed. Rhode Island

Insurers’ Insolvency Fund v. Leviton Manufacturing Co., 716

A.2d 730 (1998). The Rhode Island Supreme Court held that

the 1988 Act was not retroactive because the event that

triggered its application was the 1989 insolvency of American

Mutual, not the occurrence of liability under the policies

purchased years earlier. Id. at 735. By concluding that the

1988 Act was not applied retroactively, the Court found it

“unnecessary . . . to analyze § 27-34-11(b)(1) further with

regard to defendants’ due process rights.” Id. at 736. The

Court’s conclusion that the 1988 Act, as applied to claims

which arose under policies purchased prior to its enactment, is

not retroactive is incorrect and produces a result that is harsh

and oppressive in violation of the Due Process Clause.

B. APPLYING THE 1998 AcT To LEVITON FOR

EVENTS OCCURRING PRIOR TO ITS

ENACTMENT IS RETROACTIVE LEGISLATION.

Under this Court’s precedent, including the recent

decision in Eastern Enterprises v. Apfel, __ U.S. ___, 118 S. Ct.

2131 (1998), the 1988 Act, as applied to workers’

5

compensation claims that arose under the 1983-1986 policies,

is retroactive legislation. To determine whether a statute

operates retroactively “the court must ask whether the new

provision attaches new legal consequences to events completed

before its enactment.” Landgraf v. USI Film Products, 511 U.S.

244, 269-70 (1994). As this Court has explained:

The conclusion that a particular rule operates

“retroactively” comes at the end of a process of

judgment concerning the nature and extent of

the change in the law and the degree of

connection between the operation of the new

rule and a relevant past event.

Id. at 270. “A law is retrospective if it ‘changes the legal

consequences of acts completed before its effective date,’”

Miller v. Florida, 482 U.S. 423, 430 (1987), or “takes away or

impairs vested rights acquired under existing laws, or creates a

new obligation, imposes a new duty, or attaches a new

disability.” Sturges v. Carter, 114 U.S. 511, 519 (1885)

(citation omitted). One commentator has explained:

A retroactive statute is one which gives to

preenactment conduct a different legal effect

from that which it would have had without the

passage of the statute. The most obvious kind

of retroactive statute is one which reaches back

to attach new legal rights and duties to already

completed transactions. However, a statute may

be retrospective even if does not purport to have

effect prior to its enactment; this is true, for

example, of a statute which declares preexisting

obligations unenforceable in the future.

Charles B. Hochman, The Supreme Court and the

6

Constitutionality of Retroactive Legislation, 73 Harv. L. Rev.

692, 692 (1960) (footnotes omitted). Under all of these

“similar functional conceptions of legislative ‘retroactivity,””

Landgraf, 511 U.S. at 269, the 1988 Act, as applied to Leviton

in this case, is retroactive legislation.

As noted above, when Leviton purchased workers’

compensation insurance in 1983-1986 and when American

Mutual incurred liability under those policies, the Fund was

prohibited from recovering “against the insured of the insolvent

insurer for any sums it has paid out.” 1970 R. I. Pub. Laws, ch.

166, § 27-34-8(f). In 1983-1986, there was no reason for

Leviton to take additional steps to protect itself and its workers

from the prospect of the insolvency of its insurer because the

law required the Fund to step into the shoes of an insolvent

insurer and pay the claimants without recourse against Leviton.

With the passage of the 1988 Act, a new obligation was

placed on Leviton that it did not have before: Leviton became

a self-insurer in the event its insurer became insolvent. This

unexpected new duty or obligation, of which it had no notice

when it purchased the policies in 1983-1986, was imposed not

only for future workers’ compensation claims, for which

Leviton could take steps to protect itself against the possible

insolvency of its insurer, but also for past claims against which

Leviton could no longer insure. Moreover, the Fund’s

“preexisting obligation” to step into the shoes of insolvent

insurers, on which Leviton and others relied in planning their

affairs, was declared “unenforceable in the future.” Hochman,

supra, 73 Harv. L. Rev. at 692. As applied to Leviton’s

liability for the workers’ compensation claims covered by the

1983-1986 policies, the 1988 Act is retroactive.

Il. THE RETROACTIVE APPLICATION OF THE 1988 ACT

TO LEVITON VIOLATES THE DUE PROCESS CLAUSE.

All members of this Court agreed in Eastern Enterprises

that “[r]etroactivity is generally disfavored in the law . . . in

accordance with ‘fundamental notions of justice’ that have been

recognized throughout history.” 118 S. Ct. at 2151 (plurality

opinion) (citations omitted). See id. at 2158 (Kennedy, J.,

concurring) (noting “disfavor of retroactive economic

legislation”); id. at 2163 (Breyer, J., dissenting) (“an unfair

retroactive assessment of liability upsets settled expectations”).

“The principle that the legal effect of conduct should ordinarily

be assessed under the law that existed when the conduct took

place has timeless and universal appeal,” Kaiser Aluminium &

Chemical Corp. v. Bonjorno, 494 U.S. 827, 255 (1990) (Scalia,

J., concurring), and “has long been a solid foundation of

American law.” Id. This Court has noted that

[rjetroactive legislation presents problems of

unfairness that are more serious than those

posed by prospective legislation, because it can

Geprive citizens of legitimate expectations and

upset settled transactions.

General Motors Corp. v. Romein, 503 U.S. 181, 191 (1992).

Moreover, “a person should be able to plan his conduct with

reasonable certainty of the legal consequences.” Hochman,

supra, 73 Harv. L. Rev. at 692. “[T]o the extent that statutory

law should serve as a guide to individual conduct, this purpose

is thwarted by retroactive enactments.” Id. at 693. Accordingly,

“retroactive legislation does have to meet a burden not faced by

legislation that has only future effects.” Pension Benefit

Guaranty Corp. v. R. A. Gray & Co., 467 U.S. 717, 730 (1984).

“The retroactive aspects of legislation, as well as the

prospective aspects, must meet the test of due process, and the

8

i an ta etna ee ees

justifications for the latter may not suffice for the former.”

Usery v. Tumer Elkhorn Mining Co., 428 U.S. 1, 17 (1976).

While economic legislation comes “to the Court with a

presumption of constitutionality,” id. at 15, the Court’s

decisions, however, have left open the

possibility that legislation might be

unconstitutional if it imposes severe retroactive

liability on a limited class of parties that could

not have anticipated the liability, and the extent

of that liability is substantially disproportionate

to the parties’ experience.

Eastern Enterprises, 118 S. Ct. at 2149.

A majority of this Court agreed in Eastern Enterprises

that the Due Process Clause affords protection against

retroactive legislation. Id. at 2158-59 (Kennedy, J.,

concurring); id. at 2163-64 (Breyer, J., concurring). Justice

Breyer explained:

To find that the Due Process Clause protects

against this kind of fundamental unfairness --

that it protects against an unfair allocation of

public burdens through this kind of specially

arbitrary retrospective means -- is to read the

Clause in light of a basic purpose: the fair

application of law, which purpose hearkens

back to the Magna Carta.

Id. at 2164 (emphasis in original). As summarized by J ustice

Kennedy, “due process requires an inquiry into whether in

enacting the retroactive law the legislature acted in an arbitrary

and irrational way.” Id. at 2158. The question is whether “the

9

_ law before us is fundamentally unfair or unjust.” Id. at 2164

(Breyer, J., dissenting). “The fairness question is, why

Eastern?” Id.

The plurality and Justice Kennedy concluded that the

Coal Act, as applied to Eastern, was fundamentally unfair.’ The

plurality reasoned that the Coal Act “has forced a considerable

financial burden upon Eastern,” id. at 2149, estimating that the

total payments Eastern would be required to make would be

between $50 and 100 million dollars. Id. The plurality

reasoned that this burden was not a “responsibilit[y] that

Eastern accepted under any benefit plan the company itself

adopted.” Id. at 2150. In addition, the plurality noted that

Eastern had no control over former employees after Eastern left

the coal industry in 1965. Id.

The plurality also found that the Coal Act “substantially

interferes with Eastern’s reasonable investment-backed

expectations” by attaching “new legal consequences to [an

employment relationship] completed before its enactment.” Id.

at 2151 (alteration in original). In addition, the plurality

concluded that “the nature of the governmental action in this

case is quite unusual.” Id. at 2153. While acknowledging that

“Congress sought a legislative remedy for what it perceived to

be a grave problem in the funding of retired coal miners’ health

benefits,” id., the plurality held that, as to Eastern, that remedy

implicated “fundamental fairness”:

3. The dissenting Justices concluded that it was not unfair

to apply the Coal Act to Eastern Enterprises “because the

relationship between Eastern and the payments demanded by

the Act is special enough to pass the Constitution’s

fundamental fairness test.” Id. at 2164.

10

When . . . that solution singles out certain

employers to bear a burden that is substantial in

amount, based on the employers’ conduct far in

the past, and unrelated to any commitment that

the employers made or to any injury they

caused, the governmental action implicates

fundamental principles of fairness .. - -

Id.

A similar analysis suggests that, as applied retroactively

to Leviton’s workers’ compensation claims that arose in 1983-

1986, the 1988 Act is fundamentally unfair. Like the Coal Act,

the 1988 Act “singles out certain employers to bear a burden

that is substantial in amount.” The liability is unrelated to

Leviton’s conduct because it was created by the 1988 Act and

the subsequent insolvency of American Mutual, an event over

which Leviton had no control. The 1988 Act also upset

Leviton’s settled expectations. In 1983-1986, when Leviton

purchased workers’ compensation insurance from American

Mutual, it believed it was protected in the event of its insurer’s

insolvency because Rhode Island law required the Fund to pay

claimants and prohibited the Fund from seeking recoupment

from insureds. Accordingly, Leviton did not need to consider

whether to take additional steps to protect itself in the event that

American Mutual became insolvent. After the 1988 Act was

passed and, thereafter, when American Mutual became

insolvent in 1989, Leviton was stripped of this protection and

became a self-insurer. At that point, Leviton was powerless to

protect itself retroactively for the claims that arose years earlier.

Also like the Coal Act, the nature of the governmental

action is unusual because the 1988 Act’s recoupment provision

singles out a small number of companies — those with net

worths exceeding $50,000,000 — to lessen the burden on

insurers who are required by Rhode Island law to contribute to

11

the Fund through assessments as determined by the Fund. R.L

Gen. Laws § 27-34-9 (1970); R.L Gen. Laws § 27-34-8 (a) (3).

Moreover, the 1988 Act is arbitrary because it does not impose

liability retroactively on all insureds based on the benefits they

received from the Fund. Rather it singles out those that the

legislature apparently believed were in a better position to

absorb some of the expenses of the Fund, thus imposing on

those few insureds a burden that should properly be borne by all

taxpayers, all insureds, or all insurers. It is fundamentally

unfair to apply the 1988 Act retroactively to a few companies

for claims that arose years before its enactment.

CONCLUSION

For the reasons stated above, this Court should grant the

petition for a writ of certiorari.

Respectfully submitted,

New England Legal Foundation

By its attorneys,

Atcrhathe. Abela?

Michael E. Malafnut

Counsel of Record

Loretta M. Smith

New England Legal Foundation

150 Lincoln Street

Boston, MA 02111

(617) 695-3660

Counsel for Amicus Curiae

12