Amicus Curiae Brief — Golden Gate Restaurant Ass'n v. City & County of San Francisco

No. 08-1515

Jn the Supreme Court of the Cnited States

GOLDEN GATE RESTAURANT ASSOCIATION,

PETITIONER

Vv.

CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA,

ET AL.

ON PETITION FORA WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

NEAL KUMAR KATYAL

M. PATRICIA SMITH Acting Solicitor General

Solicitor of Labor Counsel of Record

TimoTHy D. HAUSER EDWIN 5. KNEEDLER

ennai Mnllaliis Deputy Solicitor General

?) sw adeen Sapeiee MATTHEW Ly. ROBERTS

ata al , 1 . oe i y, > \’ 979 *

Counsel for Appellate and a esol the Solicit

Special Litigation ger cag

Department of Justice

MELISSA MOORE Washington, 12.C. 20530-0001

Attorney ; SupremeCtBriefs@usdoj.gov

Department of Labor (202) 514-2217

Washington, D.C. 20210

QUESTION PRESENTED

Whether the Employee Retirement Income Security

Act of 1974, 29 U.S.C. 1144(a), preempts the provisions

of San Francisco’s Health Care Security Ordinance, S.F.

Cal. Admin. Code §§ 14.1-14.8 (2007), mandating that

covered employers in San Francisco spend a specified

amount for health care benefits for their covered em-

plovees.

(1)

TABLE OF CONTENTS

Page

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eee a eres a eke FOS ES CRA ERC EEE Cede oes 8

CN oc dG each ae Fees bate kee bee ee take ees an

TABLE OF AUTHORITIES

Cases:

Aetna Health Inc. v. Davila, 542 U.S. 200 (2004) 1.2.2.2... 3)

Black v. Cutter Labs., 351 U.S. 292 (1956) ............. 19

Chevron U.S.A. Inc. v. NRDC, 467 U.S. 857 (1984) ...... 8

District of Columbia v. Greater Washington Bd. of

TV, ee Ua. RR oo 6 6b econ woe hacevten 20, 21

Egelhoff v. Egethoff, 532 U.S. 141 (2001) ............ 10, 20

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

fo ee es er er ee eee 10, 11

Ingersoll-Rand Co.v. McClendon, 498 U.S. 138

8 REST Tere ere eee Te CPE E CR Ter ree 20), 21

Massachusetts v. Morash, 490 U.S. 107 (1989) .....0... 13

New York State Conference of Blue Cross & Blue

Shield Plans v. Travelers Ins. Co.,514 U.S. 645

RN Boe hart cea are AA ee ara 9 10

Qualls v. Blue Cross of Cal. Imc., 22 F.3d 839 (9th Cir.

TS et od ae to Wine att ete at eal Rennes Cea) 1]

Retaal Indus. Leaders Ass’n v. Fielder, 475 F.3d 180

a I Ol 8 nt hs 2d ee La ae 7,17, 18, 19

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

tS RAE OnE en PRE arte Monee eee PRS 4,9, 17, 20

Wisconsin Pub. Intervenor v. Mortier, 501 U.S. 597

| Bape ael empire rn Sear nagees i eur be ee Meanie gaarrey 16

[V

Statutes and regulations: Page

K;mployee Retirement Income Security Act of 1974,

29 U.S.C. 1001 et seq.:

bie fae ere rr ere eee 9

See Re oes ie 6 0.4a Swed we dees ew aen eet 9

EB FR Re ee ene ee ee )

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ee eS ee ee ew bbe 1, 11

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sd ae os ae be ode ee we 4,9

ee Eb ok 06 0540 Koo ees eN eT EKEN ee 9

BRP Eg Ry 6 . 5 EIR a oe enn eae 9 16

ee ee EN Ss ages 0s he oo eS 60 eek eRe 17

l’ederal Insecticide, Fungicide, and Rodenticide Act,

Pe Se cae eV idee cee u nee Nes tick ecees 16

Health Care and Education Reconciliation Act of

2010, Pub. L. No. 111-152, 124 Stat. 1029 ......... S13

Patient Protection and Affordable Care Act, Pub. L.

ee ee ee, ee ctsesaneeeebs 8 13

Health Care Security Ordinance, S.J°. Cal. Admin.

BR ee, ES Ee eee ae a ae ee ]

Miscellaneous:

ee es ee Dk vce rence ne obce sks sue suepes 12

Jun the Supreme Court of the Gnited States

No. 08-1515

GOLDEN GATE RESTAURANT ASSOCIATION, PETITIONER

7.

Crry AND COUNTY OF SAN FRANCISCO, CALIFORNIA,

ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

INTEREST OF THE UNITED STATES

This bricf is submitted in response to the order of

this Court inviting the Solicitor General to express the

views of the United States. In the view of the United

States, the petition for a writ of certiorari should be de-

nied.

STATEMENT

1. In 2006, respondent City and County of San Fran-

cisco (City) enacted the Health Care Security Ordinance

(HCSO), S.F. Cal. Admin. Code. §§ 14.1-14.8, to provide

health care for its uninsured residents. The HCSO has

two primary components: the Health Access Plan

(HAP) and employer spending requirements. Pet. App.

3a.

(1)

y 4

The HAP is a public health care program, operated

vy the City, which provides health care through a net-

work of public and private providers. The HAP is pri-

marily funded by city taxes but also receives part of its

funding from employer payments under the HCSO and

from payments by participating individuals. All San

IF'rancisco residents who lack health insurance and meet

age and income requirements are eligible to participate

in the HAP whether or not they are employed. Partici-

pants in the HAP pay income-based fees, and employees

who are covered by the employer spending provisions of

the HCSO may enroll at a significantly reduced rate.

Pet. App. 3a, 8a, 113a-115a.

The employer spending requirements mandate that

covered employers make minimum “health care expendi-

tures” to or on behalf of covered employees each calen-

dar quarter. “Covered employers” are for-profit em-

ployers engaged in business within the City that have an

average of at least 20 paid employees during the quarter

and non-profit employers that have an average of at

least 50 paid employees. “Covered employees” are indi-

viduals who work within the City for a certain minimum

number of hours each week, have worked for the em-

ployer for at least 90 days, and are not otherwise ex-

cluded from coverage. Pet. App. 5a-6a, 107a-109a, 127a-

128a, 130a-135a.

The required expenditures are determined by multi-

plying the total number of hours worked by each cov-

ered employee during the quarter by the applicable

“health care expenditure rate.” The current rate is ei

ther $1.23 or $1.85 per hour, depending on the type and

size of the employer, but the rate may increase in future

years based on projections from an annual ten-county

9

2)

survey of health care spending. Pet. App. 6a, 1!1a,

139a-140a.

The HCSO defines “health care expenditures” as

“any amount paid by a covered employer to its covered

employees or to a third party on behalf of its covered

employees for the purpose of providing health care ser-

vices for covered employees or reimbursing the cost of

such services fur its covered employees.” Pet. App.

110a. Eligible “health care expenditures” include but

are not limited to (1) contributions on behalf of covered

employees to federal health savings accounts or other

accounts having substantially the same purpose or ef-

fect; (2) reimbursement of expenditures by covered em-

ployees for health care services; (3) payments to third

parties for the provision of health care services to cov-

ered employees; (4) costs incurred in providing direct

delivery of health care services to covered employees;

and (5) payments to the City to be used on behalf of cov-

ered employees (the city-payment option). The City

uses funds received under the city-payment option ei-

ther to fund membership of covered employees in the

HAP (Gif tne employees are eligible to participate) or to

fund medical reimbursement accounts for the covered

employees (if the employees are not eligible). 7d. at 7a-

Sa, 110a-llla, 1385a-137a.

The HCSO includes a number of recordkeeping re-

quirements to ensure compliance with the health care

spending obligations. Employers must keep records of

health care expenditures and proof that the required

expenditures are made each quarter; they must provide

the City with the information necessary to determine

employees’ eligibility to participate in the HAP or to es-

tablish medical reimbursement accounts; and they must

notify employees if they are making payments to the

4

City to satisfy the health care spending requirements.

Employers who fail to comply with the spending or

recordkeeping requirements may be subject to adminis-

trative action, including monetary penalties. Pet. App.

9a, 116a-119a, 142-144a, 149a-154a.

2.a. After the HCSO was enacted, petitioner, a

trade association for the City’s restaurant industry, filed

suit in the United States District Court for the Northern

District of California, contending that the HCSO’s

spending requirements are preempted by the Employee

Retirement Income Security Act of 1974 (ERISA), 29

U.S.C. 1144(a). Subject to certain exceptions not impli-

cated here, FRISA preempts “any and all State laws

insofar as they may now or hereafter relate to any em-

ployee benefit plan.” Jb¢d. Under ERISA, employee

benefit plans include “welfare plan[s],” which in turn

include “any plan, fund, or program * * * established

or maintained by anemployer * * * for the purpose of

providing for its participants or their beneficiaries”

medical care or benefits. 29 U.S.C. 1002(1).

b. The district court granted summary judgment in

favor of petitioner. Pet. App. 88a-103a. The court con-

cluded that the HCSO’s spending requirements “relate

to” ERISA-covered employee benefit plans within the

meaning of Section 1144(a). Jd. at 98a. The court ex-

plained that state or local laws “relate to” ERISA plans

under that provision if they are “connected with” or

“make reference to” ERISA plans. /d. at 89a (citing

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97 (1983)).

The court concluded that the HCSO’s spending require-

ments are connected with ERISA plans because they

interfere with nationally uniform administration of

plans, affect the structure and administration of plans,

and mandate the provision of benefits covered by plans.

5

)

Id. at 93a-98a. The court also found that the HCSO’s

spending requirements make unlawful reference to

ERISA plans because the vast majority of employers

conduct their health care spending through ERISA

plans and, in order to enforee the spending require-

ments, the City will have to ascertain whether and how

much employers are paying for health care coverage

under their existing ERISA plans. /d. at 98a-102a.

3. a. The City, along with several unions that had

intervened in the lawsuit, sought a stay of the district

court’s judgment pending appeal. The district court

denied their request, but the court of appeals granted a

stay. Pet. App. 3a-4a. In granting the stay, the court of

appeals concluded that the City had a strong likelihood

of success on the merits of the preemption issue. Golden

Gate Rest. Ass'n v. City & County of S.F., 512 F.3d 1112,

1114 (9th Cir. 2008).

b. After briefing and argument on the merits, in-

cluding by the Department of Labor, which argued that

ERISA preempts the HCSO’s spending requirements,

the court of appeals reversed the district court’s judg-

ment. Pet. App. la-40a. The court first concluded that

employers can comply with the spending requirements

without creating or changing ERISA plans because they

can utilize the city-payment option. /d. at 15a-26a. The

court rejected the position that the record-keeping, re-

porting, and payment obligations employers assume

when they choose the city-payment option in themselves

constitute the creation of an ERISA plan. 7d. at 16a-

23a. The court reasoned that, under the city-payment

option, an employer has no responsibility other than to

calculate and make the required payments to the City

for covered employees and to retain records to show

that it has done so. /d. at 18a. The court observed that

6

those administrative obligations are similar to obligu-

tions imposed on employers under many federal, state,

and local tax laws. /d. at 19a. The court similarly con-

cluded that the employers’ responsibilities under the

city-payment option do not involve sufficient discretion

to constitute an “ongoing administrative scheme,” which

is necessary to qualify as an ERISA plan. /d. at 20a

(citation omitted).

The court then rejected the proposition that the

City’s HAP itself is an ERISA plan. Pet. App. 23a-26a.'

The court observed that the HAP is a government enti-

tlement program, administered by the City and available

to City residents regardless of their employment status.

Id. at 24a. In addition, the court noted, the City, rather

than any employer, controls eligibility and coverage de-

cisions and determines the kind and level of benefits.

Id. at 25a-26a.

The court of appeals also rejected the contention that

the HCSO has an impermissible connection with ERISA

plans because it interferes with uniform administration

of ERISA plans. Pet. App. 26a-32a. The court reasoned

that the HCSO does not require any employer to adopt

an ERISA plan, to provide specific benefits, or to foliow

particular rules in administering any ERISA plan that

the employer may provice. /d. at 29a-3la. The court

acknowledged that the HCSO imposes administrative

burdens on covered employers, but concluded that those

burdens do not impermissibly interfere with plan admin-

istration because they exist whether or not an employer

has an ERISA plan. /d. at 32a.

' Contrary to the court’s statement (see Pet. App. 23a-24a), the De-

partment of Labor did not argue that the HAP is itselfan ERISA plan.

See id. at 68a, 77a.

7

The court of appeals further coneluded that the

HCSO’s spending requirements do not make a forbidden

“reference” to ERISA plans because the requirements

“can have [their] full force and effect even if no em-

ployer in the City has an ERISA plan.” Pet. App. 33a.

The court noted that an employer’s obligations under

the I1CSO are not measured by the level of benefits pro-

vided by an ERISA plan but by the payments that the

employer provides either to a plan or to another entity,

such as the City. /d. at 35a.

Finally, the court of appeals rejected petitioner’s

contention that the HCSO would. be preempted under

the analysis adopted by the Fourth Circuit in Retaa/

Industry Leaders Ass’n v. Fielder, 475 F.3d 180 (2007),

which held that a Maryland law mandating a specified

level of health care expenditures was preempted. Tet.

App. 36a-40a. The court reasoned that, unlike the Mary-

land law, which gave employers no realistic method of

compliance that did not involve an ERISA plan, the

HCSO gives employers the city-payment option, which

in the court’s view does not entail creation of an ERISA

plan. The court explained that the city-payment option

is a realistic alternative for employers because, unlike

the state-payment option under the Maryland law in

Fielder, the city-payment option gives employers some-

thing in return for their payments—health care benefits

for their employees. /d. at 38a-40a.

ec. Petitioner sought rehearing en banc, which the

Department of Labor supported in a second amicus

brief. See Pet. App. 82a. The court of appeals denied

the petition for rehearing, with eight judges dissenting

from the denial and one judge concurring and writing to

respond to the dissent. /d. at 4la-61a.

8

DISCUSSION

In the court of appeals, the Department of Labor

took the position that ERISA preempts the employer

health care spending requirements of San Francisco’s

HCSO because an employer can comply with those re-

quirements only by creating or altering an ERISA plan.

After the court of appeals rejected that position, the

Department of Labor began te reexamine its views and

was considering the promulgation of a regulation clarify-

ing when state and local health care programs result in

the creation of ERISA plans. Because that regulation

would have been entitled to deference under Chevron

U.S.A. Ine. v. NRDC, 467 U.S. 837 (1984), it could have

affected the preemption analysis in this case. Since

then, however, Congress has enacted comprehensive

national health care legislation. Patient Protection and

Affordable Care Act (PPACA), Pub. L. No. 111-148, 124

Stat. 119; Health Care and Education Reconciliation Act

of 2010 (HCERA), Pub. L. No. 111-152, 124 Stat. 1029.

Although the federal legislation accommodates state

authority over regulation of health insurance, it signifi-

cantly reduces the potential that state or local govern

ments will choose to enact health care programs like the

HCSO and may also affect the question whether such

programs are preempted by federal law. For these rea-

sons, the Department of Labor has decided that regula-

tory action would be premature at this time. For the

same reasons that the Department has decided that reg-

ulatory action affecting the ERISA preemption issue

would be premature, this Court’s review of the issue is

not warranted at this time. Accordingly, the petition for

a writ of certiorari should be denied.

1. Subject to exceptions not applicable here, ERISA

preempts “any and all State laws insofar as they may

9

now or hereafter relate to any employee benefit plan.”

29 U.S.C. 1144(a). ERISA defines the term “State” to

include subdivisions and agencies of a State, such as the

City and County of San Francisco, and defines “State

law” to include “rules, regulations, or other State action

having the effect of law,” 29 U.S.C. 1144(¢)(1) and (2),

which include ordinances such as the HCSO.

This Court has explained that a law “relate[s] to any

employee benefit plan,” 29 U.S.C. 1144(a), “in the nor-

mal sense of the phrase, if it has a connection with or

reference to such a plan.” New York State Conference

of Blue Cross & blue Shield Plans v. Travelers Ins. Co.,

514 U.S. 645, 656 (1995) (Travelers) (citation omitted).

But the Court has cautioned against conducting that

analysis with an “uncritical literalism,” and has stressed

that whether a law has a prohibited connection with

KE RISA plans turns on whether the law interferes with

I. RISA’s core objectives. /bid.

One core objective of ERISA is “to protect

* * * the interests of participants * * * and their ben-

eficiaries” in those plans. 29 U.S.C. 1001(b); see 29

U.S.C. 1001(a), 1001a(e), 1001b(c). Another core objec-

tive of ERISA, and its preemption provision in particu-

lar, “is to provide a uniform regulatory regime over em-

ployee benefit plans,” Aetna Health Inc. v. Davila, 542

U.S. 200, 208 (2004), by “establishling] the regulation

of * * * benefit plans as exclusively a federal concern,”

Travelers, 514 U.S. at 656 (citation and internal quota-

tion marks omitted).

[In light of these purposes, this Court has held that a

state law has a prohibited connection with ERISA plans

if it “mandate[s] employee benefit structures or their

administration.” Vravelers, 514 U.S. at 658. See, e.g.,

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97 (1983)

10

(finding state law related to ERISA plans because it

mandated provision of specific benefits). State laws are

alsuv preempted if they “interfere[ | with nationally uni-

form plan administration.” Egelhoff v. Egelhoff, 532

U.S. 141, 148 (2001). Accordingly, ERISA preempts not

only state laws that mandate the provision of benefits or

require plans to calculate benefit levels differently in

different locations, see Travelers, 514 U.S. at 657-658,

but also state laws that mandate the creation of ERISA

plans, see Fort Halifax Packing Co. v. Coyne, 482 U.S.

1, 16-17 (1987).

In the court of appeals, the Department of Labor

took the position that ERISA preempts the HCSO’s em-

ployer spending requirements because those require-

ments both mandate employee benefit structures and

interfere with the uniformity of plan administration.

See C.A. Br. for the Seec’y of Labor as Amicus Curiae

Supporting Appellee and Requesting Affirmance 11-28

(Labor Department Br.); Pet. App. 73a-79a. Central to

that position was the Department’s conclusion that “all

of the options for compliance” with the HCSO “require

an employer to create or alter an ERISA plan.” Labor

Department Br. 11.

The court of appeals did not dispute that, in the case

of employers that do not already make health care ex-

penditures at the level mandated by the HCSO’s spend-

ing requirements, many of the options that the HCSO

provides for compliance will involve employers’ altering

existing ERISA plans or establishing new ones. But the

court concluded that “the City-payment option allows

employers to make payments directly to the City, if they

so choose, without requiring them to establish, or to al-

ter existing, ERISA plans.” Pet. App. 12a. The Depart-

ment of Labor disagreed with that conclusion, instead

11

taking the view that when an employer complies with

the HCSO’s spending requirements by utilizing the city

payment option, the administrative undertakings that

the employer must assume constitute the creation of an

ERISA-covered plan. /d. at 73a-75a; see Labor Depart

ment Br. 12-19.

The Department of Labor reasoned that ERISA de-

fines an “employee welfare benefit plan” to include “any

plan, fund, or program * * * established or maintained

by anemployer * * * for the purpose of providing for

its participants or their beneficiaries, through the pur-

chase of insurance or otherwise, * * * medical, surgi-

eal, or hospital care or benefits.” 29 U.S.C. 1002(1).

Accordingly, an employer creates a plan whenever it

establishes “an ongoing administrative scheme” for the

provision of medical or other covered benefits. Fort

Halifax Packing Co., 482 U.S. at 18.

The Department of Labor explained that use of the

city-payment option requires an employer to establish

an ongoing administrative scheme because, each calen-

dar quarter, the employer must determine which em-

ployees are covered by the IfCSO’s spending require

ments and how much is due for those covered employ-

ees. Inthe Department’s view, those calculations some-

times require employers to make discretionary deci-

sions, without clear guidance from the HCSO, about who

is covered and to what extent. Labor Department Br.

14-15. For that reason, the Department concluded that

an employer utilizing the city-payment option “estab

lishes an ERISA-covered plan for its employees, just as

an employer establishes an EF RISA-covered plan when

it provides health benefits for its employees through the

purchase of insurance.” Pet. App. 74a-75a (citing Qualls

v. Blue Cross of Cal., Ine., 22 F.3d 839, 843 (9th Cir.

12

1994) (holding that an employer’s purchase of insurance

for its employees creates an ERISA-covered plan)). The

Department perceived “no relevant difference” between

the two scenarios, noting that, “in both cases, the em-

ployees receive their benefits from a third party and the

program is substantially administered by a third party.”

Id. at 75a.

After the court of appeals’ extensive analysis of the

HCSO and the court’s rejection of the Department of

Labor’s position, the Department began to reexamine its

view. The court of appeals had emphasized the limited

amount of discretion exercised by employers under the

city-payment option and the fact that the City, rather

than the employer, determines the terms, structure, and

administration of the program. Pet. App. 20a, 25a-26a.

In light of those facts, a difficult question arises about

whether an employer’s role under the city-payment op-

tion more closely resembles the collection and payment

of a payroll tax to support a government health program

(which does not involve the creation of an ERISA plan)

than it does the purchase of health insurance from a pri-

vate company (which does involve the creation of an

ERISA plan). As part of the reconsideration process,

the Department stated that it planned to issue a pro-

posed regulation “clarify|ing | the circumstances under

which health care arrangements established or main

tained by state or local governments for the benefit of

non-governmental employees do not constitute an em-

ployee welfare benefit plan” covered by ERISA. 74 Fed.

Reg. 64,276 (2009).

The Secretary of Labor has broad authority to pre-

scribe such regulations as she finds “necessary or appro-

priate” to carry out the provisions of Title I of ERISA.

29 U.S.C. 1155. The Secretary’s authority includes the

13

power to promulgate regulations defining what consti-

tutes a “plan” within the meaning of Title 1. See Massa-

chusetts v. Morasn, 490 U.S. 107, 116-117 (1989). The

Secretary’s reasonable interpretation of what consti-

tutes an ERISA-covered “plan” is entitled to Chevron

deference. See zd. at 116. Therefore, had the Secretary

promulgated a regulation clarifying whether and when

employers’ coverage under local programs like the

HCSO does or does not entail creation of ERISA plans,

that regulation would have been entitled to Chevron def-

erence and could have altered the preemption analysis

in this case.

The Department of Labor has, however, decided not

lo proceed with a proposed regulation at this ame be

cause of the recent passage of comprehensive federa!

health care legislation. See PPACA, Pub. L. No. 111-

148, 124 Stat. 119; HCE RA, Pub. L. No. 111-152, 124

Stat. 1029. As discussed in more detail below (sec

pp. 14-17, infra), the federal legislation has significantly

changed the legal landscape governing health care

spending requirements. In particular, the legislation

includes provisions designed to encourage the provision

and availability of health insurance that reduce substan-

tially the likelihood that state and local governments will

choose to enact new employer spending requirements

like those contained in San Francisco’s HCSO. ‘The fed-

eral legislation therefore significantly reduces the im-

portance of the question whether and when such re-

quirements are preempted by ERISA. See pp. 14-15,

infra. In addition, it is unclear whether the new federal

requirements may have independent preemption conse-

quences for local legislation or may affect the preemp-

tion analysis under ERISA. See pp. 15-17, infra.

14

For these reasons, in light of the new federal legisla-

tion, the Department of Labor has concluded that, at

present, it would be premature to proceed with regula-

tory action. In the unlikely event that additional state

or local governments choose to enact health care spend-

ing requirements like the I[CSO, the Department might

reconsider whether the preemption issue has sufficient

ongoing significance to warrant administrative action to

address it.

2. ‘The preemption issue does not warrant this

Court’s review at this time for the same reasons that the

Department of Labor has determined not to take regula-

tory action on the issue at this time.

Iirst, the new federal health care legislation contains

numerous provisions designed to promote broader ac-

cess to health care coverage. Those provisions include

an employer shared responsibility provision that im-

poses assessments on employers with 50 or more full-

time equivalent employees that do not provide health

insurance to their employees if any full-time employee

receives a premium tax credit in new health insurance

exchanges. See PPACA § 1513, as amended by HCERA

§ 1008. The legislation also includes a requirement that

non-exempted individuals maintain a minimum level of

health insurance or pay a penalty. See PPACA § 1501,

as amended by HCERA § 1002. And the legislation pro-

vides for automatic enrollment of employees in group

health plans offered by large employers, PPACA § 1511,

and contains several other provisions designed to make

health care coverage more affordable and available, e.q.,

id. § 1401, as amended by HCERA § 1001 (premium as

sistance tax credits); PPACA § 1402, as amended by

HCERA § 1001 (reduced cost-sharing); PPACA § 1421

15

(small business tax credits); and zd. § 1311 (state-based

insurance exchanges).

Many of the new provisions will be phased in over

several years, and three different federal agencies—the

Department of Health and Human Services, the Depart-

ment of the Treasury, and the Department of Labor—

will be promulgating regulations implementing the pro-

visions. ‘The full contours and effects of many aspects of

the new federal framework therefore remain to be

fleshed out. Nonetheless, although the new provisions

accommodate state authority over regulation of health

insurance, they will almost certainly significantly in-

crease health care coverage. They therefore make it

much less likely that States and localities will choose to

adopt their own health care programs. Accordingly, the

federal health care legislation reduces substantially the

ongoing importance of the question whether ERISA

preempts state and local health care programs like the

HCSO.

In addition, unresolved issues about the preemptive

force of the new federal legislation may affect the ques-

tion whether local health care programs like the HCSO

are preempted by federal law. The new legislation con-

templates a significant role for the States in promoting

the availability of health care coverage. For example,

the States are authorized to create and administer ex-

changes for the purchase of health insurance by individ-

uals and employers. The States have substantial flexi-

bility in the operation of those exchanges and the en-

forcement of related requirements, including the ability

to obtain waivers that authorize the establishment of

alternative programs. See PPACA 8§ 1311-1333. In

light of the significant role anticipated for the States,

the legislation includes a provision saving certain state

16

laws from preemption by the newly enacted federal pro-

visions. See zd. § 1321(d) (“Nothing in this title shall be

construed to preempt any State law that does not pre-

vent the application of the provisions of this title.”). At

present, however, the savings provision has not been

interpreted by any Department or court. For example,

the responsible federal Departments and the courts

have not addressed whether the PPACA’s savings provi-

sion applies to laws enacted by state subdivisions, such

as the HCSO, or only to laws enacted by the States

themselves. Compare 7d. § 1034(d) (defining “State,” for

purposes of the federal health care legislation, to mean

“each of the 50 States and the District of Columbia”)

with 29 U.S.C. 1144(¢)(2) (defining “State,” for purposes

of ERISA, to include “any political subdivisions thereof,

or any agency or instrumentality of either”); but see

Wisconsin Pub. Intervenor v. Mortier, 501 U.S. 597,

606-608 (1991) (interpreting the term “State” in the

Federal Insecticide, Fungicide, and Rodenticide Act

(FIFRA), 7 U.S.C. 136 et seq., to include local govern-

ments, even though FIFRA’s definition does not ex-

pressly include political subdivisions).

If local health care programs like the HCSO were

somehow independently preempted by the new health

care legislation, that would further reduce the impor-

tance of the question whether such laws would otherwise

be preempted by ERISA. If, on the other hand, local

health care programs were saved from preemption un-

der the new health care legislation, that consequence

could, in turn, alter the analysis of whether those pro-

grams would be preempted by ERISA, perhaps depend-

ing on the relationship between the local programs and

the implementation of the new legislation. As a general

matter, a savings provision, such as Section 1321(d) of

17

the PPACA, that shields state (or local) laws from pre-

emption by only one federal statute has no effect on pre-

emption by other federal statutes. But, unlike most

other federal statutes, ERISA expressly provides that

it shall not “be construed to alter, amend, modify, invali-

date, impair, or supersede any law of the United States.”

29 U.S.C. 1144(d). When state or local laws are integral!

to the operation of a federal law other than ERISA, Sec-

tion 1144(d)’s prohibition on “impair[ing]” other federal

laws may Shield those state or local laws from ERISA

preemption. See Shaw, 463 U.S. at 100-102.

At this early stage, the responsible federal Depart-

ments and the courts have not addressed the possible

relationship between state or local laws like the HCSO

and the new federal legislation—e.g., whether such laws

might form the basis for waivers under Section 1882 of

the PPACA of provisions concerning the creation of in-

surance exchanges. There accordingly is not yet a foun-

dation for assessing whether or how ERISA Section

1144(d) could be implicated by the implementation of the

new health care legislation. These considerations pro-

vide still further reasons why this Court’s review of the

ERISA preemption issue is not warranted at this time.

3.a. Petitioner contends (Pet. 15-34) that the Court

should grant review because the decision below purport-

edly conflicts with the Fourth Circuit’ s decision in Re-

tail Industry Leaders Ass’n v. Fielder, 475 F.3d 180

(2007). Although some of the reasoning contained in

Frelder is in tension with reasoning in the decision be-

low, the two cases do not present a direct conflict that

warrants this Court’s review.

Fielder involved a Maryland law requiring employers

with 10,000 or more Maryland employees to spend at

least eight percent of their total payrolls on health in-

18

surance costs for their employees or to pay the amount

that their spending falls short to the State. The law was

nominally of general application, but it covered only

Wal-Mart Stores, Inc., and it was designed to force Wal-

Mart to increase the health insurance benefits that it

provided under an ERISA plan. Felder, 475 F.3d at

183. The Fourth Circuit held that the Maryland law was

preempted by ERISA because “the only rational choice

employers” had to comply with the law was “to structure

their ERISA healthcare benefit plans so as to meet the

minimum spending threshold.” /d. at 198. Although

employers theoretically had the alternative of paying

money to the State, the court concluded that no rational

employer would select that option because the employer

and its employees would receive nothing in return. /b2d.

As the court below explained, unlike the state-pay-

ment option under the Maryland law, the HCSO’s city-

payment option is a realistic alternative for employers

because it offers them something in return for their

payments—health care benefits for their employees.

Pet. App. 38a-40a. Indeed, almost 900 employers had

selected the city-payment option at the time of the dis-

trict court’s summary judgment ruling. See Br. in Opp.

App. 33. The court below did not dispute that, if the

city-payment option itself effectively required creation

of ERISA plans by participating employers, the HCSO,

like the Maryland law, would be preempted. See Pet.

App. 15a. But the court concluded that the city-payment

option does not entail creation of an ERISA plan. /d. at

15a-26a. That assessment of the operation of the HCSO

does not itself give rise to any conflict with the Fourth

Circuit’s decision in Felder, which did not suggest that

an employer’s election of the state-payment option un-

der the Maryland statute would entail creation of an

19

ERISA plan. And, because that assessment of the

HCSO was the underlying premise of the court of ap-

peals’ ultimate decision in this case, its preemption rul

ing does not conflict with Felder.

The Fourth Circuit also stated in Felder that, even

assuming that an employer could comply with the Mary-

land law without creating an ERISA plan (such as by

providing on-site medical clinies or health savings ac-

counts), the law would still have an impermissible “con-

nection with” ERISA plans because it would interfere

with “uniform nationwide” plan administration by re-

quiring employers “to keep an eye on conflicting state

and local minimum spending requirements and adjust

[their] healthcare spending accordingly.” 475 F.3d at

196-197. That reasoning could also be applied to the

HCSO, and it is therefore in tension with the decision

below, as the Department of Labor pointed out in its

bricf supporting rehearing en banc in the court of ap-

peals. Pet. App. 80a-8la. But the Fourth Circuit’s view

that the Maryland law would disrupt uniformity of plan

administration also reflected in part that court’s conclu-

sion that the state-payment option was not a realistic

alternative for Wal-Mart, the one covered employer.

That conclusion does not apply to the IHCSO, which the

court below also concluded does not impose burdens

significantly different from those necessary to comply

with tax laws of various state and local jurisdictions. Jd.

at 19a. It is therefore not clear that the Fourth Circuit

would find that a law such as the HCSO poses the same

threat to uniformity of plan administration as the Mary-

land law and further find such a law preempted on tha

ground alone.

In any event, this Court “reviews judgments, not

statements In opinions,” Black v. Cutler Labs., 351 U.S.

20

292, 297 (1956), and the judgment in Fielder does not

conflict with the judgment below because, as inter-

preted, the laws at issue in the two cases have funda-

mental differences. As understood by the Fourth Cir-

cuit, the Maryland law in Felder effectively forced the

single affected employer to alter its ERISA plan; but, as

understood by the court below, the HCSO does not re-

quire employers to alter or create any ERISA plans.

b. Contrary to petitioner’s contention, the decision

below does not directly conflict with this Court’s ERISA

decisions. Unlike the law that the Court held preempted

in Shaw, the HCSO does not require employers to pro-

vide specific benefits. Compare Shaw, 463 U.S. at 97

(holding New York law preempted because it “re-

quire[d] employers to pay employees specific benefits”),

with Pet. App. 29a (noting that, unlike the law in Shaw,

the HCSO does not “require any employer to provide

specific benefits through an existing ERISA plan or

other health plan”). Similarly, this Court concluded that

the law in E'gelhoff was preempted because it offered no

method of compliance that did not require a change in

the way an ERISA plan was operated or written. 532

U.S. at 151. In this case, in contrast, the court of ap-

peals concluded that employers can comply with the

HCSO without creating or amending an ERISA plan.

See Pet. App. 29a-30a.

Finally, the decision bviow does not directly conflict

with either /ngersoll-Rand Co. v. McClendon, 498 U.S.

133 (1990), or District of Columbia v. Greater Washing-

ton Board of Trade, 506 U.S. 125 (1992). The law that

this Court held preempted in /ngersoll-Rand Co. was

“premised on[] the existence of [an ERISA] plan” be-

cause, in order to prevail on a claim under the law, the

plaintiff had to establish “that an ERISA plan exist-

21

led].” 498 U.S. at 140. Here, in contrast, under the view

of the court of appeals that the city-payment option does

not require employers to create ERISA plans, an em.

ployer can com»vly with the HCSO even if it has no

ERISA plans. Pet. App. 33a. The HCSO also differs

from the loeal ordinance that this Court held preempted

in Greater Washington Board of Trade because, under

that ordinance, employers were required to provide

workers’ compensation benefits at the same level pro-

vided by their existing ERISA plans. See 506 U.S. at

180. Under the HCSO, an employer’s payment obliga-

tion is based on the hours worked by covered employees.

Although an employer may receive a credit against its

obligation for other health-related expenditures, includ-

ing those made under an ERISA plan, an employer may

also receive credit for payments made to the City

(which, under the court of appeals’ view, do not involve

an ERISA plan). Pet. App. 34a-35a.

¢. In any event, even had a square conflict material-

ized in the courts of appeals, review by this Court would

not be warranted. As discussed above, the intervening

enactment of comprehensive federal health care legisla-

tion has dramatically changed the landscape governing

payment for health care, substantially reducing the im-

portance of the question whether ERISA preempts state

or local requirements and also giving rise to additional

legal issues that have not been addressed by the federal

Departments responsible for implementing the new leg-

islation or by the courts. Accordingly, this Court’s re-

view of the FRISA preemption issue is not warranted at

this time.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

N@EAL KUMAR KATYAL

M. PATRICIA SMITH Acting Solicitor General

Solicitor of Labor EDWIN S. KNEEDLER

TrmoruHy D. HAUSER Deputy Solicitor General

Associate Solicitor MATTHEW D. ROBERTS

ELIZABETH HOPKINS Assistant to the Solicitor

TS can aan

Counsel for Appellate and General

Special Litigation

MELISSA MOORE

Attorney

Department of Labor

MAY 2010