Opposition Brief — Hartford Life & Accident Insurance v. Fugarino

Supreme Court, U.S.

FILED

No. 92-893 | Jal 22 1993

OFFICE OF FE CLERK

IN THE

Supreme Court of the United States

October Term, 1992

HARTFORD LIFE AND ACCIDENT INSURANCE

COMPANY and CONSOLIDATED GROUP, INC.,

Petitioners,

vs.

RICHARD FUGARINO, JO MARIE FUGARINO,

and MARC A. FUGARINO,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES CouURT OF APPEALS FOR THE SIXTH CIRCUIT

BRIEF FOR RESPONDENTS IN OPPOSITION

WALTER R. LAWRENCE

Counsel of Record

FRED W. LAWRENCE

LAWRENCE & LAWRENCE Co., L.P.A.

101 Northeast Avenue

Tallmadge, Ohio 44278

(216) 630-9502

Attorneys for Respondents

Richard Fugarino, Jo Marie

Fugarino and Marc A. Fugarino

THE GATES LEGAL PUBLISHING CO., CLEVELAND, OHIO—TEL. (216) 621-5647

1.

TABLE OF CONTENTS

TABIS OF RUTTER IBD 6 occ cc ccc cc cesesses

STATEMENT OF THE CASE ..................

A. Statement of the Facts..................

B. Decisions of the Courts Below............

REASONS FOR DENYING THE WRIT .........

A. The Court Below Did Not Er In

Determining That Sole Proprietors,

Partners, And Corporate Owners Cannot

Be ‘‘Participants’’ In ERISA Plans When

They Are Covered By Such Plans........

B. The Decision Below Is Not At Odds With

Prior Decisions Of This Court And Of

Other Circuit Courts of Appeal ..........

C. The Sixth Circuit’s Decision Is Consistent

With Clearly Expressed Congressional

Intent, And Will Not Create Disruption,

Confusion, And Unnecessary Expense In

The Implementation Of ERISA..........

be a Pe See TET eL ET eT eRe Ee

APPENDIX:

ee ee ee I OI og oo 6 ooo Seb e cawa a weae

10

TABLE OF AUTHORITIES

Cases

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504

CROGA). oo cc cccn en 6 ub eh One eee bak 8

Blessitt v. Retirement Plan for Employees of Dixie

Engine Co., 848 F.2d 1164 (11th Cir. 1988) ...... )

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

BOGE ci ive ccndauced uses 5 6 4RGR EEE eae 4,11

Forbau v. Aetna Life Insurance Co., No. D-1235

(Tex. Nov. 4, 1982) (available on WESTLAW,

I9GS WLI1LGEGS TEC 6 oct eeu ans eee ee eee 10

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1

(IGST) . . ceciacvccesnsanase anne eee esas 7

Giardono, et al. v. Jones, 867 F.2d 409 (7th Cir.

BON wscccenctacse tense hab see eee 7,10,11

Harper v. American Chambers Life Insurance Co.,

806 F.2d 1498 Gee Cae... File \ nc oa eee seeks 10

Kivatcher v. Massachusetts Service Employees

Pension Fund, 879 F.2d 957 (1st Cir. 1989) ...... 10

Massachusetts v. Morash, 490 U.S. 107 (1989) ..... 7,8

Nationwide Mutual Insurance Co., et al. v. Darden,

213 S. Ce. 1366 (UG ove dc iecne veer 10,13,14

Peckham v. Board of Trustees, 653 F.2d 424 (10th

Cir. ROBES... cass ccecceeatew ae eh eee li

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987)... 7

—

Shaw v. Delta Air Lines, Inc. 463 U.S. 85

epee aia a gt, ALA el a Pen eee er ee 7,8:

Swartz vu. Gordon, 761 F.2d 864 (2d Cir.

ARP ee Sa ko ee ee ee ee 1]

Williams v. Wright, 927 F.2d 1540 (11th Cir.

Ae eh en ee arr 9,11,12

States, Rules and Regulations

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EE cen cee pes aee esse ses ateeenees 5

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No. 92-893

Supreme Court of the United States

October Term, 1992

HARTFORD LIFE AND ACCIDENT INSURANCE

COMPANY and CONSOLIDATED GROUP, INC.,

Petitioners,

VS.

RICHARD FUGARINO, JO MARIE FUGARINO,

and MARC A. FUGARINO,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

Sratres Court OF APPEALS FOR THE SIXTH CIRCUIT

BRIEF FOR RESPONDENTS IN OPPOSITION

STATEMENT OF THE CASE

A. Statement of the Facts

The question in this case is whether or not Title I of

the Employee Retirement Income Security Act of 1974

(‘ERISA” or the ‘‘Act’’), 29 U.S.C. §§1001, et seq., pre-

empts state law claims brought by and on behalf of a

sole proprietor against the insurance company issuing a

health insurance policy purchased by the sole proprietor.

Respondent, Richard Fugarino owned and operated an

2

unincorporated business known as ‘The Glen's

Restaurant’’. This business had always been operated as

a sole proprietorship. At no time was the business

incorporated.

In 1985, Mr. Fugarino purchased an insurance policy

from an independent insurance agent. This policy was

issued by Petitioner, The Hartford Life and Accident

Insurance Company (‘‘Hartford’’), and administered by

Petitioner, Consolidated Group, Inc. (‘Consolidated’’).

The policy provided health and medical insurance

coverage to Mr. Fugarino, his dependents and some of

his restaurant employees.

In February 1988, Mr. Fugarino’s seventeen (17)

year old son, Marc Fugarino, was involved in a severe

automobile accident which left him a paraplegic. In the

year following the accident, several disputes arose

regarding Marc Fugarino’s medical claims which had

been submitted for payment pursuant to the terms of the

insurance policy. The failure to resolve these disputes

lead to the filing of a lawsuit in the Court of Common

Pleas, Summit County, Ohio, in 1989.

Respondents sought compensatory and punitive

damages for alleged bad faith by the Petitioners in their

handling of Marc Fugarino’s medical claims and certain

of the Respondents’ employees. Respondents also sought

a declaratory judgment that the insurance contract was

in full force and effect; that the Petitioners are

responsible for payment of all past and future medical

bills incurred by the Respondents and for a

determination of their rights under the insurance policy.

3

Certain Counts contained in the Complaint were

subsequently dismissed by agreement of the parties.’

On March 20, 1989, Petitioners removed the case to

the United States District Court for the Northern

District of Ohio pursuant to 28 U.S.C. §§1441 & 1446,

claiming exclusive federal jurisdiction under ERISA.

On April 27, 1989, Petitioners filed a Motion to

Dismiss Petitioners’ Complaint on the grounds that

Respondents’ claims arise under ERISA and were

prematurely filed because Respondents had failed to

follow administrative remedies provided under ERISA

and the insurance policy itself.

Respondents filed a Motion in Opposition to the

Motion to Dismiss, contending that ERISA was not

applicable and that all administrative remedies had been

exhausted prior to the filing of the Complaint.

On August 3, 1989, Respondents filed a Motion To

Remand to state court pursuant to 28 U.S.C. §$1447(c).

The basis for the Motion To Remand was that no federal

question was raised, removal jurisdiction did not exist,

ERISA was not applicable and Respondents were not

proper parties to bring an ERISA action even if ERISA

was applicable.

' Remaining before the Court, were causes of action seeking damages

against Petitioners as a result of Petitioners’ actions in handling

Respondents’ claims submitted under the terms of the insurance

policy. Furthermore, Respondents’ request for a determination of

their rights and Petitioners’ obligations under the insurance policy

was not dismissed. Specifically, Respondents alleged that Petitioners

were obligated to cover the tremendous amount of medical bills and

expenses expected to be incurred on behalf of Marc Fugarino as a

result of the injuries he incurred while the insurance policy was in

effect.

teeter

4

B. Decisions of the Courts Below

On June 4, 1991, more than two (2) years after

Respondents’ Motion to Dismiss was filed, the District

Court dismissed the complaint pursuant to Federal Rule

of Civil Procedure 12(b)(6) (Pet. App. C at 25a).

The District Court granted Petitioners’ motion, not

on the grounds that Respondents failed to exhaust

administrative remedies as raised in Petitioners’ motion,

but instead found that Respondents’ claims were not

actionable due to ERISA pre-emption. In reaching this

conclusion, the District Court, relying upon 29 U.S.C.

$1001, et seq.,? stated that two issues must be addressed

in order to determine whether or not the case would be

remanded back to the state court or resolved in the

District Court (Pet. App. C at 22a).

The first issue was whether the insurance contract in

question was a plan governed by ERISA. ‘econdly, the

court must determine whether or not Respondents were

participants in such plan within the meaning of ERISA

(Pet. App. C at 22a). The District Court went on to state

that ‘‘[i]f Plaintiffs prove that they were not participants

under ERISA, then this case must be remanded back to

state court to resolve the remaining issues.” (Pet. App. C

at 20a).

In finding that an ERISA plan had been established,

the Court applied the test set out in Donovan uv.

Dillingham, 688 F.2d 1367 (11th Cir. 1982) (Pet. App. C

* The District Court stated that ‘‘[a] specific plan or program wili be

governed by ERISA if the plan or program covers participants

because of their employee status in an employment relationship, and

an employer or employee organization is the person that establishes

the plan or program.” (Pet. App. C at 22a). Emphasis added.

5

at 22a-23a). However, the District Court merely took for

granted or assumed that the Fugarinos were participants

without providing any discussion or basis for its finding.

On appeal, the United States Court of Appeals for

the Sixth Circuit agreed with the District Court’s finding

that the insurance policy purchased by Mr. Fugarino

constituted an Employee Welfare Benefit Plan

(““EWBP’’) covered by ERISA, as to his employees (Pet.

App. A at 11a).

However, the Sixth Circuit specifically addressed the

question, not discussed by the District Court, of whether

or not the Fugarinos were ‘participants’ or

‘beneficiaries’ as defined by ERISA. The Sixth Circuit

found that Mr. Fugarino and his dependents were not

‘“participants’’ or ‘beneficiaries’ as those terms are

defined by ERISA §3(7)-(8), 29 U.S.C. §1002(7)-(8), and

therefore, not an ERISA plan as to Respondents. Thus,

they ‘‘may sue under and seek the broader relief

provided by state tort law’’ (Pet. App. A at 12a-13a). The

case was reversed and remanded to the District Court

with instructions to remand Plaintiffs’ remaining claims

to state court for further proceedings (Pet. App. A at

13a & 15a).

In reaching this conclusion, the Court of Appeals

relied upon the plain language of the Act, its express

purpose, well established case law, and the class of

individuals the Act was designed to protect.

On August 24, 1992, the Sixth Circuit Court denied

Petitioners’ Petition for Rehearing en banc.

6

REASONS FOR DENYING THE WRIT

The Sixth Circuit's decision is not exceptionable in

its construction of those terms contained in ERISA. The

decision below applies the well-grounded rules of

statutory construction in a consistent, rational, and

judicious manner. Petitioner does not contend that the

Sixth Circuit failed to follow the well accepted rules of

statutory construction, nor that the Sixth Circuit

improperly applied these rules. Rather, Petitioner seeks

to construe ERISA in a manner which is completely at

odds with the intent and purpose of the Act which is to

protect employees from employer abuses. An exercise of

this Court's certiorari jurisdiction would serve no

constructive purpose and should not be granted.

The decision of the Sixth Circuit does not conflict

with decisions of this Court and other federal circuit

courts of appeal, and therefore, is not worthy of

certiorari.

The Court of Appeals decision reflects a clear

understanding of the purposes of ERISA and its decision

is consistent with the express intent of Congress as set

out in the Act. Furthermore, the decision below is

consistent with this Court’s articulation of that purpose.

Finally, no important federal question is presented

that would warrant further consideration by this Court.

7

A. The Court Below Did Not Err In Determining

That Sole Proprietors, Partners, And Corporate Owners

Cannot Be ‘“Participants’”’ In ERISA Plans When They

Are Covered By Such Plans.

Petitioners first request this Court to revisit a long

line of cases which clearly and consistently reiterate the

purpose and intent of ERISA. Petitioners challenge to

the Sixth Circuit’s decision is that the Court

misinterpreted the basic provisions of ERISA,

misunderstood the purpose of the Act and contravenes

Congressional intent in rendering its decision (Pet. at 7).

However, their argument ignores the clear expression

of the intent and purpose of ERISA, as set out by

Congress in 29 U.S.C. §1001 (a) & (c) entitled

“Congressional Findings and Declaration of Policy”’.

Specifically, §1001 states that ERISA was enacted

for the protection of ‘employees and_ their

beneficiaries,...; in order to protect “the interests of

participants in employee benefit plans and_ their

beneficiaries, ...”’ (App. at ____), 29 U.S.C. §1001(a) &

(c) (Emphasis Added).

Furthermore, this Court and other circuit courts of

appeal have consistently found that ERISA was enacted

for the benefit of employees and their beneficiaries. (See

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983); Pilot

Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987); Fort Halifax

Packing Co. v. Coyne, 482 U.S. 1 (1987); Massachusetts

v. Morash, 490 U.S. 107 (1989); Giardono, et al. v. Jones,

867 F.2d 409 (7th Cir. 1989)).

In Shaw, 463 U.S. 85, 90, this Court stated that:

‘“Erisa is a comprehensive statute designed to

promote the interests of employees and_ their

beneficiaries in employee benefit plans.’ (Emphasis

added).

‘——_

7

8

See also Alessi v. Raybestos-Manhattan, Inc., 451 U.S.

504 (1981); Morash, 490 U.S. 107.

This exhaustive analysis of the purpose and intent of

ERISA by this Court leaves no doubt that ERISA was

designed to protect employees and their beneficiaries

frem employer abuses. Respondents have not found any

decision by this Court which determines that ERISA

was intended for the protection of employers. The Sixth

Circuit's decision is consistent with Congressional intent.

The intent and purpose of ERISA clearly reflects the

concerns of Congress in protecting employees and their

beneficiaries, not employers. Moreover, there can be no

doubt that, under ERISA, employees and employers are

meant to be two different classes of individuals. The

definition of beneficiary as one entitled to benefits

because of his or her relationship to an employee is

consistent with the Act and the Sixth Circuit’s decision

is consistent with that premise.

Acceptance of Petitioners’ interpretation of

““beneficiary’’, as used in ERISA, to include an employer

is inconsistent with Congressional intent to protect

employees from employer abuses. Moreover, the

inclusion of an employer in the definition of beneficiary

clearly adds a new class of individuals, not provided for

by ERISA, who have standing to enforce ERISA

remedies. See Shaw, 463 U.S. at 90.

Congressional intent, case law, and the provisions of

ERISA itself, clearly reflect that the fundamental

purpose of ERISA is to protect the interests of

employees and their beneficiaries. Clearly, the Sixth

Circuit’s ruling that a sole proprietor can not be a

‘‘beneficiary’’ is consistent with the express purpose and

intent of ERISA, which is to provide employees

9

protection from employer abuses. Any _ other

interpretation would not only be inconsistent with the

express language of the Act, but would render

meaningless Congressional policy declarations as set out

in 29 U.S.C. §1001.°

Petitioners further suggest that the Sixth Circuit’s

decision dated July 8, 1992, ignored a Department of

Labor opinion letter dated July 31, 1992 (Pet. App. E at

27a-28a, Pet. at 9). While a Department of Labor Opinion

Letter can provide guidance to the federal courts, they

are not binding. Williams v. Wright, 927 F.2d 1540, 1545

(llth Cir. 1991); Blessitt v. Retirement Plan for

Employees of Dixie Engine Co., 848 F.2d 1164, 1167-

1168 (11th Cir. 1988).

This Court should not exercise its discretionary

jurisdiction because Petitioners feel their definition of

employee is better, or should be applied, rather than that

found in ERISA itself, and in 29 C.F.R. §2510.3-3(c).

* Petitioners’ assertion that the Sixth Circuit misapplied 29 C.F.R.

2510.3-3(a) (Pet. at 9-12), is not supported by that Court's decision.

The Sixth Circuit specifically addressed the issues Petitioner

contends it ignored or erroneously applied in its decision (Pet. App. A

at 12a-13a).

10

B. The Decision Below Is Not At Odds With Prior

Decisions Of This Court And Of Other Circuit Courts Of

Appeal.

Petitioners’ attempt to place the Sixth Circuit's

decision at odds with other decisions of this Court and

other circuit courts of appeal falls short. Petitioners have

failed to cite any decision of these courts inconsistent

with the decision of the Sixth Circuit in this case.‘

On the contrary, there are decisions of this Court

that, although do not address the specific issues of this

case, would suggest that the Sixth Circuit’s decision is

consistent with this Court and other Circuit's

interpretation of ERISA. See Nationwide Mutual

Insurance Co., et al. v. Darden, 112 S. Ct. 1344 (1992),

where this Court found that an independent contractor

was not an employee for purposes of ERISA.‘

Moreover, several Circuits have held that employers

are not participants within the meaning of ERISA and

therefore not entitled to bring an action under ERISA.

See Kivatcher v. Massachusetts Service Employees

Pension Fund, 879 F.2d 957 (1st Cir. 1989); Giardono,

* Petitioners cite Harper v. American Chambers Life Insurance Co.,

898 F.2d 1432 (9th Cir. 1990), in support of their contention that

Respondents are beneficiaries under ERISA. However, this case was

appealed from the District Court’s grant of summary judgment only

on the issue of whether or not an ERISA plan had been established.

In reversing the District Court’s dismissal of the complaint, the

Eleventh Circuit stated ‘‘[t]he district court apparently decided that

as a matter of law the . .. policy was an ERISA plan.” Jd. at 1433.

* Respondents do, however, direct this Court's attention to a case out

of the Texas Supreme Court, Forbau v. Aetna Life Insurance Co., No.

D-1235 (Tex. Nov. 4, 1992) (available on WESTLAW, 1992 WL316493

(Tex.)). However, this case held that a dependent of a corporate

shareholder could maintain an action under ERISA as a beneficiary.

It did not address the question of whether or not a sole proprietor

was a participant or beneficiary under ERISA.

1]

867 F.2d 409; Peckham v. Board of Trustees, 653 F.2d

424 (10th Cir. 1981);* Swartz v. Gordon, 761 F.2d 864 (2d

Cir. 1985); Donovan, 688 F.2d 1367.

Petitioners’ contention that the Court of Appeals’

decision in this case will create inconsistency in

implementing ERISA is unfounded and unsupported.

Petitioners further contend that:

‘‘[nJumerous other decisions provide further support

for a strict dichotomy between ERISA and non-

ERISA plans. With respect to the former, all benefit

remedies (including those of employers) are governed

by ERISA.” (Pet. at 16).

In support of this statement, Petitioners cite

Williams v. Wright, 927 F.2d 1540 (11th Cir. 1991). In

this case, the Eleventh Circuit found that an ERISA

plan covering only one employee had been established.

These cases did not consider whether an employer could

pursue ERISA remedies on his own behalf under

ERISA. In fact, the Eleventh Circuit found that

although only one plan had been created, one of the

employee's four claims did not concern ERISA benefits

and, therefore, must be pursued in state court. Jd. at

1550.

* Petitioners acknowledge these three cases as holding that employers

are not ‘participants’, however, attempts to distinguish them on the

basis that they all deal with plans jointly administered by

management and Unions, or so-called ‘“‘Taft-Hartley plans’’. Thus,

Petitioners reason, “the results in these cases could be sustained

through application of the independent requirements of the LMRA

...”’ (Pet. at 15, fn. 9) (Emphasis added). However, Petitioners’

contention disregards the plain fact that all of these cases involved

pension plans subject to ERISA. Moreover, the respective Courts of

Appeal relied upon ERISA in reaching their decisions.

12

The Appellant in Williams, 927 F.2d 1540, was an

employee who brought several claims against his

employer, some pursuant to ERISA and others under

state law. The District Court had dismissed all of

Appellant's ERISA claims finding that an ERISA plan

had not been established. Appellants state law claims

were dismissed based upon various state law doctrines,

not ERISA. The Eleventh Circuit found that an ERISA

plan had been established and that one of Appellants

state law claims was not pre-empted by ERISA. The

apparent basis for this is that the particular claim

survived ERISA pre-emption because the underlying

benefits themselves were not covered by ERISA. Even

so, the Court held that only one plan had been

established and that Appellant had actionable remedies

under that plan pursuant to both ERISA and state law.

13

C. The Sixth Circuit’s Decision Is Consistent With

Clearly Expressed Congressional Intent, And Will Not

Create Disruption, Confusion, And Unnecessary Expense

In The Implementation Of ERISA.

Petitioners contend that the Sixth Circuit's decision

will create disruption, confusion and _ unnecessary

expense in the implementation of ERISA. This argument

is based upon their contention that the decision will

provide different remedies to persons covered under an

ERISA plan depending upon whether they are an

employee or employer.

However, this contention skirts the Sixth Circuit’s

decision which found that Respondents’ insurance policy,

in so far as concerns Respondent and his dependents, did

not constitute an ERISA plan. Furthermore,

Respondents maintain that the converse is true.

In a_ situation where a_ self-employed person

purchases a health and medical insurance plan for

himself and his beneficiaries only, ERISA will not apply.

But, once the employer adds an employee to that very

same plan, he loses his ability to seek state law remedies

and is confined to ERISA remedies only. Surely this is

not what Congress intended when it enacted ERISA. On

the contrary, the conversion of an employer's remedies

under a health insurance contract subject to state law to

an ERISA plan subject to ERISA, merely by including

an employee in the plan, will result in more confusion to

both state insurance agencies and employers.

Petitioners’ attempt to align the Sixth Circuit’s

decision with the concerns raised by this Court in

Darden, 112 S. Ct. 1344. However, the concern this

Court expressed in Darden about the problems an

——

14

employer would have in determining who are employees

and what pension fund obligations the employer may

owe to whom will not result from the Sixth Circuit's

decision.

In Darden, this Court expressed these concerns in the

context of the uncertain test used by the Fourth Circuit

in determining whether an individual was an employee or

independent contractor. The Fourth Circuit’s resolution

of that question would turn on the nature and extent of

the individual's ‘‘reliance’’ upon his expectation of

benefits. No such problems will result from the decision

below because the question of whether an individual is

an “employee’’ or ‘“‘employer’’ is clear and can be

determined without extensive inquiry into subjective and

varying facts.

In Darden, this Court suggested that normal agency

principles should ordinarily be sufficient to determine

who is an employee and who is an_ independent

contractor. A similar approach has been taken here. No

special rules or tests will be necessary to distinguish who

is an employee and who is the employer for purposes of

ERISA.

15

CONCLUSION

Based upon the above, the petition for writ of

certiorari should be denied.

Respectfully submitted,

WALTER R. LAWRENCE

Counsel of Record

FRED W. LAWRENCE

LAWRENCE & LAWRENCE Co., L.P.A.

101 Northeast Avenue

Tallmadge, Ohio 44278

(216) 630-9502

Attorneys for Respondents

Richard Fugarino, Jo Marie

Fugarino and Marc A. Fugarino

Al

APPENDIX

29 U.S.C. §1001

§100la. Additional Congressional findings and

declaration ef policy

(a) Effects of multiemployer pension plans

The Congress finds tlhat—

(1) multiempioyer pension plans have a

substantial impact on interstate commerce and are

affected with a national public interest;

(2) multiemployer pension plans _ have

accounted for a substantial portion of the increase in

private pension plan coverage over the past three

decades;

(3) the continued well-being and security of

millions of employees, retirees, and their dependents

are directly affected by multiemployer pension

plans; and

(4)(A) withdrawals of contributing employers

from a multiemployer pension plan frequently result

in substantially increased funding obligations for

employers who continue to contribute to the plan,

adversely affecting the plan, its participants and

beneficiaries, and labor-management relations, and

(B) in a declining industry, the incidence of

employer withdrawals is higher and the adverse

effects described in subparagraph (A) are

exacerbated.

A2

(c) Policy

It is hereby declared to be the policy of this Act—

(1) to foster and facilitate interstate commerce,

(2) to alleviate certain problems which tend to

discourage the maintenance and growth of

multiemployer pension plans,

(3) to provide reasonable protection for the

interests of participants and _ beneficiaries of

financially distressed multiemployer pension plans,

and

(4) to provide a_ financially _ self-sufficient

program for the guarantee of employer benefits

under multiemployer plans.