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

, FLED Of

a “

No. 08-1515 “UL 8 ~ 2009

THE CLERK

IN THE

Supreme Court of the United States

GOLDEN GATE RESTAURANT ASSOCIATION,

Petitioner,

V.

CITY AND COUNTY OF SAN FRANCISCO,

Respondent,

SAN FRANCISCO CENTRAL LABOR COUNCIL, et al.,

Intervenors/ Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF OF AMICI CURIAE SOCIETY FOR

HUMAN RESOURCE MANAGEMENT,

NATIONAL FEDERATION OF INDEPENDENT

BUSINESS SMALL BUSINESS LEGAL

CENTER, AND NATIONAL ASSOCIATION OF

MANUFACTURERS IN SUPPORT OF

PETITION FOR WRIT OF CERTIORARI

Of Counsel: THOMAS M. CHRISTINA

Counsel of Record

OGLETREE, DEAKINS, NASH,

SMOAK & STEWART, P.C.

Suite 500

300 North Main Street

Greenville, SC 29601

KAREN R. HARNED

Executive Director

NATIONAL FEDERATION OF

INDEPENDENT BUSINESS

SMALL BUSINESS LEGAL

CENTER :

1201 F Street, N.W. (864) 271-1300

Suite 200 Counsel for Amici Curiae

Washington, 1I).C. 20004

(202) 314-2061

|Additional Counsel] Listed On Inside Cover]

WILSON-EPES PRINTING Co., INC. — (202) 789-0096 — WASHINGTON, D.C. 20002

Of Counsel:

QUENTIN RIEGEL

Vice President, Litigation &

Deputy General Counsel

NATIONAL ASSOCIATION OF

MANUFACTURERS

1331 Pennsylvania Avenue, NW

6th Floor

Washington, DC 20004

(202) 637-3058

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIBG...................... SSonanakenaie il

INTERESTS OF THE AMICI CURIAE.................. l

SUMMARY OF ARGUMENT. ..................cceceeeeeeeeee: 3

PATRAS UIMEEG DE csccsevescsncsscccssess sisuisscaiensnniahnesl caeduatabanetiuleepadadin 4

SAE ALIEN discaclvcnnasnceuduunnicensaevsitnespusasseiasokusteaiaoh 25

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TABLE OF AUTHORITIES

Page(s)

CASES

Alessi v. Raybestos-Manhattan, Inc.,

ne a ns cuceuacensaneuucuces 2

Brown v. Ampco-Pittsburgh Corp.,

876 F.2d 546 (6th Cir. 1989) 0.0.0... cece eee eee eee 13

Brundage-Peterson v. Compcare Health

Services Ins. Co.,

877 F.2d 509 (7th Cir. 1989) ooo... cccc cece cecceeeeeeeees 9

Credit Managers Ass'n v. Kennesaw Life &

Accident Ins. Co.,

809 F.2d 617 (9t® Cir. 1987) ...........ccccecceseeecees 8, 9

Deibler v. United Food & Commercial

Workers’ Local Union 23,

973 F.2d 2OG (Sd Cir. 1002) ...ccccocccccscscccccces 12, 13

Donovan v. Dillingham,

688 F.2d 1367 (11t» Cir. 1982) ......... 9, 12, 13, 14

Ed Miniat, Inc. v. Globe Life Ins. Group, Inc.,

805 F.2d 732 (7% Cir. 1986).................c.ccccecceees 13

Elmore v. Cone Mills Corp.,

23 F.3d 855 (4% Gir. 1994) (en band) ......... 6.0008. 13

Fort Halifax Packing Co. v. Coyne,

en snc cscacuevoxaentabecensevs 10

il

Golden Gate Restaurant Association v. City

and County of San Francisco,

535 F.Supp.2d 968 (N.D. Cal. 2007)...........002... 20

Golden Gate Restaurant Association v. City

and County of San Francisco,

546 F.3d 639 (9th Cir. 2008).........0....00..000-- passim

Golden Gate Restaurant Association v. City

and County of San Francisco,

558 F.3d 1000 (9% Cir. 2009).............cc00s0+000 4,18

Grimo v. Blue Cross/Blue Shield of Vermont,

ee BT We” ee Co” 9

Gruber v. Hubbard,

me ee” Eo: ee ar 8

Guilbert v. Gardner,

SO Fk BO Ce Ck, FTP vnnce covkiccecndecinicce ee

Harris v. Arkansas Book Co.,

794 F.2d 358 (8t» Cir. 1986) 0.0.0.0... eeeeeeeeeee eee 13

Int'l. Association of Entrepreneurs v. Foster,

883 F. Supp. 1050 (E.D. Va. 1995) ................... 15

Inter-Modal Rail Employees Ass'n. v.

Atchison, Topeka & Santa Fe Ry.,

te re across fnetcedetlce 19

Kenney v. Roland Parson Contracting Corp.,

28 F.3d 1254 (D.C. Cir. 1994)............... sca 8, 13

Kidder v. H & B Marine, Inc., 932 F.2d 347

Rr a a ean neuennasocgincneiccunwsane 9g

Madonia v. Blue Cross & Blue Shield of

Virginia,

ED Fk BOE CA Coie. 1D ovine ccdccccocseccccscses 8,9

Massachusetts v. Morash,

ON Te RENT CI nv cccn ccs vaccncien veccsseseacesverete 10

Memorial Hospital System v. Northbrook Lufe

Ins. Co.,

904 F.2d 236 GP Cir. 1900) o.nn....ccesccsceccscccsscssses: 3

Patelco Credit Union v. Sahni,

962 F.3d BOT (O™ Cig. DOOD) oncccccccsscesccscsevcccsccons 10

Peckham v. Gem State Mut.,

964 F.2d 1043 (10t Cir. 1992)...................00 &, 13

Postma v. Paul Revere Life Ins.,

223 F.3d 533 (7 Cir. 2000)..............0..2-0.00 eee ee ee )

Randol v. Mid-West Nat'l Life Ins. Co.,

987 F.2d 1547 (11 Cir. 1998) ............<.cccescsccoveeses 9

Retail Industry Leaders Ass'n v. Fielder,

475 F.3d 180 (4th Cir., 2007)....................-- passim

Robinson v. Linomaz,

58 F.3d 365 (8th Cir. 1995) ......... eee eee ee eee e ee 8, 9

Sandstrom v. Cultor Food Science, Inc.,

214 F.3d 795 (7th Cir. 2000)............0..02.000-- 13, 14

Scott v. Gulf Onl Corp.,

754 F.2d 1499 (9th Cir. 1985)................ eo aeaker 13

V

Shaw v. Delta Air Lines, Inc.,

AGS U.S. 85 (1069) «0. :60.cicneee 18

Sipma v. Massachusetts Casualty Ins. Co.,

256 F.3d 1006 (10th Cir. 2001) 0.0.0... cece ec eeceeeceee ees 9

Wickman v. Northwestern National Ins. Co.,

908 F.2d 1077 (18t Cir.1990) ...0..0..e cece eee. 9,12

Winterrowd v. Am. Gen. Annuity Ins. Co.,

321 F.3d 933 (0® Civ, SOUS)... cee 13

STATUTES

§ 105 of the Internal Revenue Code, 26 U.S.C.

© DOS ov sesicnsiavaseecnsanavennencunnnnsseeeeevene ieee 19

Title I of the Employee Retirement Income

Security Act of 1974, 29 U.S.C. §§ 1001 e¢

DOE iidaiacccicinnuneoeac ae passim

ERISA § 3(1), 29 U.S.C. § 1002(1) ..........00...... passim

ERISA § 3(2), 29 U.S.C. § 1002(2) .......2...2..... passim

ERISA § 3(3), 29 U.S.C. § 100204) ...5.4.... 15

ERISA § 4(a), 29 U.S.C. § 1003(a) ...... eee eee 15

ERISA § 4(b)(3), 29 U.S.C. § 1003(b)(3)..............2.. 14

ERISA § 502, 29 U.S.C. § 1132............. uso 15

ERISA § 514, 29 U.S.C. § 1144... 6

ERISA § 514(a), 29 U.S.C. § 1144(a) ...0000000.... passim

vi

ERISA $ 601, 29 U.S.C. § 1161, et seq. ................. 15

ERISA § 601(b), 29 U.S.C. § 11610) ..... ee 3

ERISA § 607(1), 29 U.S.C. § 1167(1) ............... 15, 16

ERISA § 701(f), 29 U.S.C. § 1181(f) ..00. eee. 21, 22

42 USC § 1397ee(c)(10)(A), as added by Pub.

Law 111-3, Tit. III, Subtitle A, § 301(a)Q)

ssc sexcencuauaseateasdsosenanenents 31. 3

Children’s Health Insurance Program

Reauthorization Act of 2009, Pub. Law 111-

II, 5, knaxgpndenneceusunnioaceroeueean 21

Children’s Health Insurance Program

Reauthorization Act of 2009, Pub. Law 111-

3, Title III, Subtitle B, § 311(b)(1)(A) (Feb.

EEE ag SE een Ee RepeaRLInNe IE Sa 2

Children’s Health Insurance Program

Reauthorization Act of 2009, Pub. Law 111-

3, Title VI, Subtitle C, § 622(b)(3) (Feb. 4,

aa, on ccnunucicesteectuuneanaenene nara 21

American Recovery and Reinvestment Act of

2009, Pub. L. 111-5 (Feb. 17, 2009) ....0..00.00...... 22

American Recovery and Reinvestment Act of

2009, Pub. L. 111-5, Title III, § 3001(a)(1)

<a’ Sucvsacavexsenataess ance esuas MantaeeEe 22

STATE STATUTES AND REGULATIONS

Maryland’s Fair Share Health Care Fund Act,

2006 Md. Laws 1, Maryland Code

vil

Annotated, Labor & Employment. §§ 8.5-

OE Ge WOT CG visi vesceesecretcs onescrsrnes 16, 17

Maryland Code Annotated, Health-Gen. § 15.-

SBR. os saniniseorneiceen aera: 17

CITY AND COUNTY STATUTES AND REGULATIONS

San Francisco Health Care Security

Ordinance §§ 14.1 et seg. (2007)................... 4, 23

San Francisco Health Care Security

Ordinance § 14. 1b)(7)(e) ................cccccessereccesseees 6

San Francisco Health Care Security

Cen 2 FE os 6, 8

Regulations Implementing Healthy San

Francisco and Medical Reimbursement

Account Provisions of the San Francisco

Health Care Security Ordinance ("Plan

Barntationen’), © 6. FORD oc hoscvcccccshncsacscosicntsasecnvee 6

Regulations Implementing Healthy San

Francisco and Medical Reimbursement

Account Provisions of the San Francisco

Health Care Security Ordinance ("Plan

ee ag ke SR RoR oD ert aay ren 6

OTHER AUTHORITIES

Suppo Cet TR TG wives ivcicocik cov acesnnccdasmnacvascicccns 1

SOC .F I. 8 2510.3 ORI icccinerin ee eae 11

29 C.F RR. & SG5EO.B- RGM SIV) aiid ccnccccscccesscsscdseces 11

oe Oe ge ae ST, Oh |) re ee 11, 12

DE NO, BE. Fav cexcseakicy covicncdasacasdesktecneveuees 11

ERISA Opn. Ltr. 94-14 (April 20, 1994) ................ 1]

ERISA Opn Ltr. 96-25 (Oct. 31, 1996)............... 9,10

Roundtable to Discuss Reforming America’s

Health Care Delivery System: Hearing

Before S. Committee on Finance, 111th

Cong. (April 21, 2009), available at

http://finance.senate.gov/sitepages/hearing

Re II oh ances cicicude sea savencssiens ces amasnaseaxaenens 21

Statement of John J. Castellani, President,

Business Roundtable, speaking before the

Senate Finance Committee during a

roundtable discussion on healthcare

coverage on May 5, 2009, available at

http://finance.senate.gov/sitepages/hearing

Pe vce ceca te occ cae cc dence eeccia enduaderse 20

Roundtable Discussion on “Expanding Health

Core Coverage”: Hearing Before S.

Committee on Finance, 111 Cong. (May

12, 2009), available at

http://finance.senate.gov/sitepages/hearing

SOT IN: gveccavcrasnsdicicsd ens teeta 21

HRET/Kaiser Family Foundation, 2008

Employer Health Benefits Survey,

http://ehbs.kff.org/pdf/7790.pdf. ....................... 20

M. 8S. Gordon, /ntroduction- The Social Policy

Origins of ERISA, in Employee Benefits

1x

Law (S.J. Sacher and J.I. Singer, eds.,

PRA, DG Od. BOO) BE MO soiceieconecisdekescstectorsices 24

Pension and Benefits Reporter, vol. 36, No. 20

CREA) Citas 20, SOI oi icsiccscssnecnncccccsccensssencecces 19

E.A. Zelinsky, ‘Golden Gate Restaurant

Association' E'mployer Mandates and

ERISA Preemption in the Ninth Circuit,

Cardozo Legal Studies Research Paper No.

219, 23-28 (2008) available at

http://ssrn.com/abstract=1090122 ...................... 5

E.A. Zelinsky, Maryland's "Wal-Mart" Act-

Policy and Preemption, 28 Cardozo L.Rev.

0 ee riccrcciitanec eee eee 19

J.A. Wooten, A Legislative and Political

History of ERISA Preemption, Part J, 14 J.

of Pension Benefits 10 (2006) ................c0eceee0ee 25

INTERESTS OF THE AMICI CURIAE

Amicus National Federation of Independent

Business Small Business Legal Center (“NFIB Legal

Center”), is a nonprofit, public interest law firm and

is the legal arm of the National Federation of

Independent Business (“NFIB”). NFIB is’ the

nation’s leading small business association,

representing about 350,000 small businesses

throughout the United States. Amucus Society for

Human Resource Management ("SHRM") is the

world's largest association devoted to human

resource management, representing more than

250,000 individual members in over 140 countries

and with more than 575 affiliated chapters in the

United States. Amicus the National Association of

Manufacturers ("NAM") is the nation's largest

industrial trade association, representing small and

large manufacturers in every industrial sector and in

all 50 states. !

Two long-standing interests of the Amuci are put

in jeopardy by the decision of the Court of Appeals in

this case: (1) preserving the exclusivity of federal

1 Amici Curiae NFIB Legal Center, SHRM, and NAM

(collectively, “the Amici’) have obtained the written consent of

all the parties to file this brief with the Court. Pursuant to

Supreme Court Rule 37.6, the Amzci note that counsel for Amicr

wrote the entirety of this brief and that no person or entity,

other than the Amzci, their members, or their counsel, made a

monetary contribution to the preparation or submission of this

brief. The parties were notified more than ten days prior to the

due date of this brief of the intention to file.

2

regulatory authority over employee benefit plans

subject to Title I of the Employee Retirement Income

Security Act of 1974, 29 U.S.C. §§ 1001 et seq.

("ERISA" or “the Act”), that this Court recognized

over twenty-five years ago in Alessi v. Raybestos-

Manhattan, Inc., 451 U.S. 504, 522 (1981); and (2)

restoring the long-established judicial and regulatory

consensus that any recurring process adopted by an

employer to pay or provide in advance for health care

coverage for its employees is an “employee welfare

benefit plan” as defined in Section 3(1) of ERISA.

BRIEF OF AMICI CURIAE NATIONAL

FEDERATION OF INDEPENDENT BUSINESS

SMALL BUSINESS LEGAL CENTER, NATIONAL

ASSOCIATION OF MANUFACTURERS, AND

SOCIETY FOR HUMAN RESOURCE

MANAGEMENT

IN SUPPORT OF PETITION

FOR WRIT OF CERTIORARI

SUMMARY OF ARGUMENT

The petition for certiorari should be granted for

three reasons.

First, the Ninth Circuit ruled that a private

employer does not “establish[] or maintain{]” an

employee welfare benefit plan within the meaning of

those terms as used in Section 3(1) of ERISA when it

makes regular, periodic payments in determinable

amounts to pay for health coverage for its employees

under programs established by a = municipal

ordinance. See Golden Gate Restaurant Association

v. City and County of San Francisco, 546 F.3d 639,

646-47, 649-653 (9tb Cir. 2008) (““GGRA IP). In

reaching this conclusion, the Ninth Circuit departed

from an essentially unanimous body of prior case law

and regulatory guidance regarding what constitutes

establishing or maintaining a plan. ‘Thus, the

decision in this case creates fundamental doubt over

the applicability of Title I of ERISA as a whole,

including its broad preemption provision, ERISA §

514(a).

4d

Second, the Ninth Circuit’s decision in this case is

in direct conflict with the Fourth Circuit’s decision in

Retail Industry Leaders Ass'n v. Fielder, 475 F.3d

180, 196 (4th Cir., 2007) (“RILA”), regarding the

application of ERISA § 514(a) to state and local “pay

or play” laws. See Golden Gate Hestaurant

Association v. City and County of San Francisco, 558

F.3d 1000, 1006-07 (9tb Cir. 2009) (M. Smith, Circuit

Judge, dissenting from denial of petition for

rehearing en band (“GGRA JIT). The Court should

grant the petition to resolve that conflict because its

continuation will have immediate practical

implications for employers that sponsor group health

plans for their employees both within and outside

the Ninth Circuit.

Third, the need to resolve the uncertainties

created by the Ninth Circuit’s decision in this case is

especially urgent in light of the high priority the

President and Congress have given to enacting

comprehensive health care reform this year. Both

the conflict between GGRA JI] and FILA over the

application of ERISA § 514(a) and the more general

uncertainty about what constitutes the

establishment or maintenance of a welfare benefit

plan are potential obstacles to adopting uniform

federal health care reform legislation.

ARGUMENT

I. The Ninth Circuit held that ERISA does not

preempt the health care spending requirement of the

San Francisco Health Care Security Ordinance, as

amended, San Francisco Administrative Code §§ 14.1

et seq. (2007) ("the Ordinance"). GGRA JI, 546 F.3d

5

at 642. The Court of Appeals concluded that the

spending mandate does not require a_ covered

employer to adopt or amend an ERISA-governed

plan. /d., 546 F.3d at 646. The court reasoned that

the “City-payment option . . . allows employers to

make payments directly to the City ... without

requiring them to establish, or to alter existing,

ERISA plans.” /d. In support of this conclusion, the

Ninth Circuit held that “An employer electing the

City-payment option does not ‘establish{] or

maintain[]’ the HAP [the City-administered plan]

through its payments.” Jd, 546 F.3d at 653 (citing

and quoting ERISA Section 3(1), 29 U.S.C. § 1002(1),

defining “welfare benefit plan”).

The Ninth Circuit was profoundly mistaken in

holding that an employer's election of the “City-

payment option” does not entail the employer's

establishment or maintenance of an ERISA plan, as

the leading academic authority on ERISA

preemption has pointed out. See E.A. Zelinsky,

““Golden Gate Restaurant Association’ Employer

Mandates and ERISA Preemption in the Ninth

Circuit," Cardozo Legal Studies Research Paper No.

219, 23°28 (2008), available at

http://ssrn.com/abstract=1090122. More significantly,

the Ninth Circuit’s mistake in this regard is not the

result of misapplying established law to unusual

facts. It is the product of a complete departure from

existing law and regulatory guidance.

A. San Francisco’s Ordinance has two primary

components: a quarterly employer health care

spending requirement, and a City-administered

health care program. GGRA IJ, 546 F.3d at 642-43.

6

The employer spending provisions of the Ordinance

mandate that covered employers make “required

health care expenditures to or on behalf of” each of

their covered employees each calendar quarter.

Ordinance § 14.3(a); see also GGRA IT, 546 F.3d at

643. The City-administered health program (“HAP”)

consists of a point-of-service arrangement (“Healthy

San Francisco”) and a Medical Reimbursement

Account Plan. See Regulations Implementing

Healthy San Francisco and Medical Reimbursement

Account Provisions of the San Francisco Health Care

Security Ordinance ("Plan Regulations"), § 7(c).

Although distinct, the employer’ spending

requirement and the health care’ program

components of the Ordinance are not entirely

independent of each _ other. A “health care

expenditure” is defined generally as any payment by

an employer to or for the benefit of its covered

employees “for the purpose of providing healthcare

services to [its] covered employees or reimbursing

the cost of such services to its covered employees.”

Plan Reg. § 4.1(A). The Ordinance defines “health

care expenditure” to include payments to the City on

behalf of one or more of the employer's covered

employees. Ordinance, § 14.1(b)(7)(e). A payment of

this kind is used to subsidize the covered employee's

participation in the point-of-service arrangement (if

the employee is a City resident and meets other

requirements for Healthy San Francisco eligibility)

or to fund a medical reimbursement account for the

covered employee who does not meet the Healthy

San Francisco eligibility requirements. GGRA /1/,

supra,, 546 F.3d at 645. <A covered employer can

satisfy its spending requirement in whole or in part

7

by making quarterly payments in the required

amounts to the City on behalf of one or more of the

employer's covered employees. /d. Thus, when an

employer chooses the “City-payment option” as a

mode of compliance with the Ordinance’s spending

requirement, the employer’s choice necessarily

entails providing its employees prospectively with

health care coverage on a programmatic basis

through regular periodic payments that are made to

a third party (the City) and used exclusively to

provide medical coverage to those employees. GGRA

IT, 546 F.3d at 649-650.

B. On these facts, the Ninth Circuit concluded

that “An employer electing the City-payment option

does not ‘establish{] or maintainl]’ the HAP through

its payments.” GGRA //, 546 F.3d 653. The Court of

Appeals cited no authority to support this conclusion,

which is completely at odds with the statutory

language, long-standing regulatory guidance, and a

substantial body of case law.

Section 3(1) defines the term “employee welfare

benefit plan” to include

any plan, fund, or program .. . established or

maintained by an employer... to the extent

that such plan, fund, or program was

established or is maintained for the purpose of

providing for its participants or their

beneficiaries, through the purchase of insurance

or otherwise .. . medical, surgical, or hospital

care or benefits ....

8

It has long been recognized that the degree of

employer involvement. necessary to trigger the

application of this definition is minimal. As the

Ninth Circuit itself observed more than two decades

ago, “An employer .. . can establish an ERISA plan

rather easily.” Credit Managers Ass'n v. Kennesaw

Life & Accident Ins. Co., 809 F.2d 617, 625 (9t» Cir.

1987). The statutory requirement that a plan be

“established or maintained” by an employer has been

interpreted merely to require that plan coverage 1s

“part of an employment relationship.” Peckham v.

Gem State Mut., 964 ¥.2d 1043, 1049 (10th Cir.

1992). See also, Kenney v. Roland Parson

Contracting Corp., 28 F.3d 1254, 1259 (D.C. Cir.

1994). Here, the Ordinance itself provides the

necessary assurance that an employer choosing the

City payment option does so to fulfill an obligation to

a covered employee in his or her capacity as such.

Ordinance § 14.3(a).

Furthermore, an employer's election of the City-

payment option is a deliberate choice to pay a third

party to provide medical coverage for its employees.

GGRA /I1T, 558 F.3d at 1002. That fact alone is a

sufficient basis on which to find that the employer

“established” a plan subject to ERISA. See, e.g,

Madonia v. Blue Cross & Blue Shield of Virginia, 11

F.3d 444 (4th Cir. 1993). Indeed, every Court of

Appeals that seems to have considered the question

has determined that the employer's payment of

policy premiums or plan contributions for its

employees’ health coverage is “evidence” or

“substantial evidence” that the employer established

or maintained a welfare benefit plan. Gruber v.

Hubbard, 159 F.3d 780, 789 (3d Cir. 1998); Robinson

9

v. Linomaz, 58 F.3d 365, 368 (8th Cir. 1995);

Madoma, supra, 11 F.3d at 447; Randol v. Mid-West

Nat? Life Ins. Co., 987 F.2d 1547, 1551 (11 Cir.

1993); Brundage-Peterson v. Compcare Health

Services Ins. Co., 877 F.2d 509, 511 (7 Cir. 1989);

Credit Managers Ass'n v. Kennesaw Life & Accident

Ins. Co. supra, 809 F.2d at 625; Sipma_ v.

Massachusetts Casualty Ins. Co., 256 F.3d 1006,

1012 (10th Cir. 2001) (substantial evidence of

establishment): see also, Postma v. Paul Revere Life

Ins., 223 F.3d 533, 537 (7+ Cir. 2000) (“An employer

establishes or maintains a plan if it enters a contract

with the insurer and pays its employees’ premiums.”)

(citation omitted); and cf Kidder v. H & B Marine,

Inc., 932 F.2d 347, 353 (5t» Cir. 1991); Grimo v. Blue

Cross/Blue Shield of Vermont, 34 F.3d 148, 151-52

(2d Cir. 1994), and Wickman v. Northwestern

National Insurance Co., 908 F.2d 1077, 1083 (1% Cir.

1990), each citing and quoting Donovan v.

Dillingham, 688 F.2d 1367, 1373 (11th Cir. 1982) (en

bano (“the purchase of a group policy or multiple

policies covering a class of employees _ offers

substantial evidence that a plan, fund, or program

has been established”). Thus an_employer’s

implementation of a decision to make payments

under the “City-payment option” clearly falls within

the literal terms of the statutory definition of a

welfare benefit plan, as reflected in the consensus of

the Courts of Appeals.?

2 It is immaterial that the third-party recipient of the premiums

in this case was created by municipal law and is open to

numerous employers. “If an employer adopts for its employees

a program of benefits sponsored by a group or association that

does not itself constitute an ‘employer’ or an ‘employee

organization,’ such an employer or employee organization may

10

C. Thus the question Petitioner seeks to present

does not arise from a debatable application of settled

law. It results from subverting and supplanting

established law. This conclusion is evident from two

of the bases on which the decision suggests that the

City-payment option does not result in the

establishment or maintenance of an employee benefit

plan as a matter of law.

1. The Ninth Circuit concluded that if an

employer’s regular periodic payments of cash in an

amount calculated based on the number of hours

worked by the employee does not constitute an

employee benefit plan under Fort Halifax Packing

Co. v. Coyne, 482 U.S. 1, 16, (1987), and

Massachusetts v. Morash, 490 U.S. 107, 109 (1989),

then a fortiori the regular periodic payment under

the Ordinance of the same amount, calculated on the

same basis, to the City for the employee’s benefit

rather than to the employee directly does not.

constitute an employee benefit plan. GGHA I/, 546

F.3d at 649-50.

have established a_ separate, single-employer (or single

employee organization) employee benefit plan covered by Title I

of ERISA." ERISA Opn. Ltr. 96°25 (Oct. 31, 1996). See also

Patelco Credit Union +. Sahni, 262 F.3d 897, 907-08 (9t» Cir.

2001) ([Wlhether a multi-employer welfare arrangement itself

is an employee welfare benefit plan is a separate question from

whether an employer subscribing to a multi-employer welfare

arrangement has established an ERISA employee welfare

benefit plan vis-a-vis its own employees.”)

11

This conclusion is quite literally the opposite of

the conclusions reached by the Department of Labor

in a body of regulatory guidance stretching back

nearly thirty-five years. According to that guidance,

an employers payment to a third parity for the

benefit of its employee causes certain otherwise non-

covered arrangements to be subject to ERISA. See,

e.g, ERISA Opn. Ltr. 77-90 (April 25, 1977) (fal

vacation benefit account established pursuant to a

collective bargaining agreement” under which “[eJach

contributing employer makes a payment to lan

employers’ association] based upon the number of

hours credited to that employer's employees covered

by the agreement” does not fall within the exemption

under 29 C.F.R. § 2510.3-1(b)(3)G) because the

employer’s association “deposits these contributions

in the vacation benefit account and, pursuant to the

agreement, distributes the vacation pay to the

covered employees,” and therefore payment is not

made from an employer’s general assets.); and

ERISA Opn. Ltr. 94-14 (April 20, 1994) (payments of

apprenticeship program benefits from a trust covered

by ERISA, even though payments to the trust are

“derived exclusively from employer contributions,” in

part because the benefits “are not paid from the

general assets of an employer or an employee

organization, as described in subsections 2510.3-

1(b)(3)Gv) and 2510.3-1(k).”) Cf, 29 C_F.R. § 2510.3-

1(b)(3)G) (exempting from coverage under ERISA

payment of an employee’s compensation during a

vacation or holiday, if made from an employer's

general assets); 29 C.F.R. § 2510.3-1(b)(3)(iv)

(exempting from coverage under ERISA “[playment

of compensation on account of periods of time during

which an employee performs little or no productive

12

work while engaged in training,” but only if payment

is made from the Employer's general assets); and §

2510.3-1(k) (exempting from ERISA _ coverage

unfunded scholarship programs, e., “scholarship

programl|s], including a tuition and education

expense refund programls], under which payments

are made solely from the general assets of an

employer or employee organization.”) (August 15,

1975).

2. The second indication that the Ninth Circuit

broke with established case law is that it declined to

apply the well-recognized test for plan establishment

first articulated by the Eleventh Circuit in

Dillingham, supra, 688 F.2d at 1371 (11t Cir. 1982)3

although it had followed Dillingham and adopted

that test in the past.

The Ninth Cuircuit’s refusal to apply the

Dillingham test in this case is a conspicuous

departure from precedent. Dillingham has been

followed on point by every federal Court of Appeals

with appellate jurisdiction over ERISA actions,

including the Ninth Circuit itself. See Wickman v.

Northwestern National Ins. Co., 908 F.2d 1077,

1082-83 (1st Cir. 1990); Gui/bert v. Gardner, 480 F.3d

140, 146 (2d Cir. 2007); Deibler v. United Food &

3 Under that test,

a 'plan, fund, or program’ under ERISA is established if

from the surrounding circumstances a reasonable person

can ascertain [1] the intended benefits, [2] a class of

beneficiaries, [3] the source of financing, and [4]

procedures for receiving benefits.

Id., 688 F.2d at 1373.

13

Commercial Workers' Local Union 23, 973 F.2d 206,

209 (3d Cir. 1992); Elmore v. Cone Mills Corp., 23

F.3d 855, 861-862 (4% Cir. 1994) (en band; Memorial

Hospital System v. Northbrook Life Ins. Co., 904

F.2d 236, 240-41 (5th Cir. 1990); Brown v. Ampco-

Pittsburgh Corp., 876 F.2d 546, 551 (6tb Cir. 1989);

Ed Mrniat, Inc. v. Globe Life Ins. Group, Inc., 805

F.2d 732, 738-39 (7t Cir. 1986); Harris v. Arkansas

Book Co., 794 F.2d 358, 360 (8th Cir. 1986); Scott v.

Gulf Oil Corp., 754 F.2d 1499, 1503-04 (9th Cir.

1985); Peckham v. Gem State Mut., 964 F.2d 1043,

1047-48 (10t Cir. 1992); Kenney v. Roland Parson

Contracting Corp., 28 F.3d 1254, 1257 (D.C. Cir.

1994). The Ninth Circuit’s refusal to apply the

Dillingham test in this case is particularly ironic

given that in 1985, the Ninth Circuit became the

first Court of Appeals to follow that path, see Scott,

supra, 754 F.2d at 1503-04, and had affirmed the

continued vitality of Scott as recently as 2003. See

Winterrowd v. Am. Gen. Annuity Ins. Co., 321 F.3d.

933, 939 (9b Cir. 2003).

3. The revolutionary character of the law applied

below ‘s also evident from the Ninth Circuit’s

ostensi!,. > basis fer declining to apply Dillingham, as

it had in “he past. That departure from recently re-

affirmed precedent was based on nothing more than

the panel’s “doubt” that the Dil/ngham test should

be applied “to an employer's administrative

obligations imposed by a state or local law.” GGRA

II, at 652.4 However, any doubt on that score had

4 The GGRA II pane) also stated that it “shareld] the view

expressed by the Seventh Circuit in Sandstrom v. Cultor Food

Science, Inc., 214 F.3d 795 (7th Cir. 2000),” where in dictum the

Seventh Circuit stated that, “It is not clear that the approach

14

nothing to do with the precise question to be

considered, which was whether the Dillingham test

should be applied to an employer's choice of method

for discharging its “administrative obligations

imposed by a state or local law,” not to the

obligations themselves. GGRA IJ, at 652.

Furthermore, the statutory text demonstrates that

there is no basis for doubt that the definition of an

employee welfare benefit plan under ERISA § 3(1)

encompasses plans established or maintained merely

by employer contributions to provide medical

benefits in compliance with state law. ERISA §

4(b)(3) - provides that, subject to a handful of

statutory exceptions, Title I of ERISA applies

generally to all employee welfare benefit plans and

employee pension benefits as defined in Sections 3(1)

and 3(2) of the Act. One of those exceptions is that

Title I does not apply to “any employee benefit plan

. maintained solely for the purpose of complying

with applicable workmen's compensation laws.” 29

U.S.C. § 1003(b)(3). This exemption is unnecessary

(and its continuous presence in the text of the statute

ever since the Act was adopted in 1974 is

inexplicable) if an employer’s systematic payments to

a state workers’ compensation fund, undertaken

solely for the purpose of complying with applicable

taken in Dillingham is compatible with more recent decisions of

the Supreme Court, which emphasize different considerations

when asking whether an informal policy or arrangement is a

‘plan.” Jd. at 797 (citations omitted). Since there is nothing

“informal” about the terms of the City-payment option, it is

difficult to see what is the significance for this case of the doubt

expressed in the Sandstrom dictum.

15

workmen's compensation laws, cannot be an

employee benefit plan to begin with.

D. GGRA //s departure from a long-standing and

virtually unanimous body of prior case law and

regulatory authority is tremendously significant.

The question whether a plan, fund, or program is

“established or maintained” is implicated in literally

every case where Title I of ERISA provides a basis

for subject matter jurisdiction and/or a rule of

decision. See, e.g., Int’. Association of Entrepreneurs

v. Foster, 883 F.Supp. 1050, 1056 (E.D.Va. 1995) &

n.2 (federal court must determine whether plaintiffs

plan is covered by ERISA, even if that fact is not

outcome-determinative, because subject matter

jurisdiction depends on it). The establishment or

maintenance of a plan, fund, or program of some

kind by an employer or employee organization is a

prerequisite for finding that an employee benefit

plan exists. See ERISA § 3(3) (defining “employee

benefit plan” or “plan” to mean an employee welfare

benefit plan or an employee pension benefit plan)

and see also § 3(1) (defining “employee welfare

benefit plan”) and § 3(2) (defining “employee pension

benefit plan”). The existence of an employee benefit

plan is a prerequisite for the application of any

provision of Title I of ERISA, including the

jurisdictional provisions of Section 502, 29 U.S.C.

§ 1132. See ERISA § 4(a). Moreover, fundamental

rights and guarantees such as the right to elect post-

employment continuation coverage under’ an

employer-sponsored group health plan (popularly

referred to as “COBRA”) depends on_ the

establishment or maintenance of a plan. See, gen/y,

ERISA §§ 601 et seqg., and esp. § 607(1) (defining

16

“group health plan” as a subset of employee welfare

benefit plans).

II. Even if the Ninth Circuit were correct that an

employer's election of the City-payment option is not

the establishment or maintenance of an employee

benefit plan, the GGRA decision directly conflicts

with the Fourth Circuit’s decision in R/LA regarding

the application of this Court’s ERISA Section 514

jurisprudence. The very existence of that conflict

creates uncertainties about the design of employee

benefit plans that impinges on the ability of multi-

jurisdictional employers to continue to provide

employee health coverage and other benefits as they

have done in the past. Given the huge percentage of

Americans for whom the only source of health

coverage is an employer-sponsored plan, _ the

continuation of this uncertainty threatens a crucial

component of the existing health care delivery

system in the United States.

A. Despite minor variations in the surrounding

facts, both A/LA and GGRA rule on the same

question: is a state or municipal employer health

care spending mandate saved from preemption by

ERISA as a matter of law merely because it includes

a provision that the state or municipality

characterizes as allowing an employer to comply with

the spending requirement by a means other than an

ERISA-governed plan? |

In ARILA, the Fourth Circuit held that ERISA

§ 514(a) preempted Maryland’s Fair Share Health

Care Fund Act, 2006 Md. Laws 1, Md. Code Ann.,

Lab. & Empl. §§ 8.5-101 to 107 (2006) (“the

17

Maryland Fair Share Act”), on two bases. The

Maryland Fair Share Act imposed a_ spending

requirement on a covered employer by requiring the

employer to calculate the amount by which its health

care expenditures for its Maryland employees fell

short of 8% of its Maryland payroll, and to pay an

amount equal to the shortfall to the state. Under the

Maryland Fair Share Act, payments received by the

state could be spent only on the Maryland Medical

Assistance Program, which consisted of Maryland's

Medicaid and children's health programs. 475 F.3d

at 185, crting Md. Code Ann., Health-Gen. § 15°

142(f). As Respondents are expected to do here,

Maryland characterized the statute at issue in RILA

as offering a compliance option (payments to the

state) that did not require a covered employer to

establish or maintain an ERISA-governed plan. 475

F.3d at 190, 194-95.

The first basis on which the Fourth Circuit held

the Maryland Fair Share Act preempted by ERISA

was that the Act did not offer a genuine non-ERISA

alternative to complying with the minimum spending

mandate, and _ therefore “effectively requires

[covered] employers in Maryland .. . to restructure

their employee health insurance plans.” 475 F.3d at

183. Respondents likely will argue that GGFRA does

not conflict with A/LA because in GGRA, the Ninth

Circuit believed the Ordinance offered a genuine

non-ERISA compliance option.

However, GGRA and A/ZA are in direct and

irreconcilable conflict regarding the alternative basis

on which the Fourth Circuit held that the Maryland

Fair Share Act was preempted by ERISA. As

18

explained by Circuit Judge Smith in his dissent from

the Ninth Circuit’s denial of en banc review,

The Fielder court explained that even were

there a more "meaningful avenue" by which the

employer could make non-ERISA healthcare

payments, the Maryland statute was. still

impermissibly connected to ERISA plans. 475

F.3d at 196-97 ("If [the employer) were to

attempt to utilize non-ERISA health spending

options to [comply with the statute], it would

need to coordinate those spending efforts with

its existing ERISA plans. . . . Decisions

regarding one would affect the other and

thereby violate ERISA's, preemption

provision."). Covered employers under San

Francisco's Ordinance must coordinate their

non-ERISA payments with their ERISA plans

in the very manner the Fie/der court deemed

impermissible. GGRA //T, 558 F.3d at 1006-07.

B. The importance of resolving this conflict is

clear because it stems directly from employers’

reliance on the well-established principle that state

law cannot dictate benefit plan design. In Shaw v.

Delta Air Lines, Inc., 463 U.S. 85, 96, 97 (1983), this

Court established that for purposes of Section 514(a),

a state law “relates to” an employce benefit plan “if it

has a connection with or reference to such a plan.”

Id. (footnote omitted). It is generally understood that

under the “connection with” branch of Shaw, state

law cannot require that an employer design a new or

existing welfare benefit plan to coordinate its

functions with a state law, even if the state law does

not refer to the ERISA-governed plan.

19

Not unexpectedly, then, the conflict between A/LA

and GGRA I// regarding “connection with”

preemption under Shaw poses numerous practical

difficulties for any business with locations in San

Francisco and locations elsewhere. For example, it

has been reported that such employers face difficult

payroll tax and wage reporting issues that stem from

having one or more self-insured health plans for

employees not covered by the Ordinance and a

different arrangement to comply with the Ordinance

for covered employees. Pension and Benefits

Reporter, Vol. 36, No. 20 (BNA) (May 19, 2009)

(noting that such a scenario might fail to satisfy

certain nondiscrimination provisions essential to

favorable tax treatment of employer-provided

coverage under Section 105 of the Internal Revenue

Code). It is therefore essential that all parties

responsible for adopting, amending, and

administering those plans know as soon as possible

whether and to what extent state and local law may

apply either instead of or in addition to ERISA, so

that they may plan accordingly.

Resolving the conflict is important at a more

fundamental level, as well. ERISA’s broad

preemption provision was a key element by which

Congress established “[a] zone of employer autonomy

in the design and operation of employers' welfare

plans.” See E.A. Zelinsky, Maryland's "Wal-Mart"

Act: Policy and Preemption, 28 Cardozo L.Rev. 847,

869 (2006). Cf Inter-Modal Rail Employees Ass'n. v.

Atchison, Topeka & Santa Fe Ry. Co., 520 U.S. 510,

515 (1997) (ERISA's grant of employer's freedom to

amend plans prospectively encourages employer to

20

adopt more generous benefits at the outset). Yet, as

the District Court correctly found, the Ordinance

“interferels]) with preserving employer autonomy

over whether and how to provide employee health

coverage." Golden Gate Restaurant Association v.

City of San Francisco, 535 F. Supp.2d 968, 975 (N.D.

Cal. 2007). Thus, the conflicting approaches in

GGRA Iland RILA to the “connection with” branch

of this Court’s ERISA Section 514(a) preemption case

law creates an obstacle to the continuation and

growth of employer-sponsored group health plans,

particularly where the employer has employees both

within and outside the Ninth Circuit.

Removing this obstacle is an urgent matter

because employment-based coverage is_ the

predominant method for providing health coverage in

the United States. Almost 133 million Americans

currently obtain health coverage through plans

maintained by employers in the private sector. See

Statement of John J. Castellani, President, Business

Roundtable, speaking before the Senate Finance

Committee during a roundtable discussion on

healthcare coverage on May 5, 2009, available at

http://finance.senate.gov/sitepages/hearing050509. ht

ml. Sixty-two percent of Americans under age 65

receive health benefits through their employers or a

family member's employer. See, HRET/Kaitser

Family Foundation, 2008 Employer Health Benefits

Survey, http://ehbs.kff.org/pdf/7790.pdf.

III. The uncertainty engendered by the decision in

this case is especially problematic because of when it

arose—i.e., on the eve of a national consensus that

the federal government must devise a comprehensive

21

solution to the widespread lack of affordable health

coverage. See Roundtable to Discuss Reforming

America’s Health Care Delivery System: Hearing

Before S. Committee on Finance, 111th Cong. (April

Si, 2009), available at

http://finance.senate.gov/sitepages/hearing042109.ht

m; and Roundtable Discussion on “Expanding Health

Care Coverage”: Hearing Before S. Committee on

Finance, 111% Cong. (May 12, 2009), available at

http://finance.senate.gov/sitepages/hearing050509. ht

ml. Unless that uncertainty is resolved by this

Court, it will impede Congress’s ability to arrive ata

workable solution.

A. Employer-provided health coverage is so

entrenched as part of our current system that any

reform of health care coverage in the United States

inevitably will involve employer’sponsored group

health plans covered by Title I of ERISA, at least as

a transitional measure. This conclusion is evident

from both of the reform measures adopted by the

111tt Congress to date, each of which uses ERISA-

governed group health plans as vehicles for providing

coverage to those who otherwise might be uninsured.

The Children’s Health Insurance Program

Reauthorization Act of 2009, Pub. Law 111°3 (Feb. 4,

2009) (“CHIPRA”), authorizes states to offer

federally funded premium subsidies to defray the

cost of covering targeted low-income children under

certain group health plans maintained by their

parents’ employers. See 42 USC § 1397ee(c)(10)(A),

as added by Pub. Law 111-3, Tit. III, Subtitle A,

§ 301(a)(1) (Feb. 4, 2009). CHIPRA also amended

Section 7014) of ERISA to require employer’

22,

sponsored group health plans to provide special

enrollment rights based on changes in eligibility for

the premium subsidies, and to require employers to

give employees written notice of the potential

opportunity for premium subsidies in the states in

which the employees reside. Pub. Law 111-3, Tit. IT],

Subtitle B, § 311(b)()(A).5

The American Recovery and Reinvestment Act of

2009, Pub. L. 111-5 (Feb. 17, 2009) (“ARRA”),

requires employer-sponsored group health plans,

including those governed by ERISA, to treat

“assistance eligible individuals” who pay 35% of a

plan’s monthly premium for’ continued post-

employment coverage as if they had paid 100% of 2° >

required monthly premium~ under _ specified

conditions. ARRA, Title II, § 3001(a)Q1). Prior to

the ARRA, federal law did not impose continuation

coverage requirements on group health plans

sponsored by relatively small employers, leaving the

* CHIPRA also includes an affirmation of the Senate’s intention

to enact legislation in 2009 that “improves access to affordable

and meamrgful health insurance coverage for employees of

small businesses and individuals by . . . facilitating pooling

mechanisms, 49cluding pooling across state lines; and providing

assistance to small businesses and individuals, including

financial assistance and tax incentives, for the purchase of

private insurance coverage.” /d., § 622(b)(3) (emphases added).

The linkage between financial assistance to small businesses

and improving the insurance opportunities of the employees of

small business demonstrates a commitment to the continued

use of ERISA-governed plans as instruments of coverage

reforms. The commitment to pooling across state lines

demonstrates that Congress continues to think, as it has since

1974, that state laws which could impede the continued vitality

of emp!loyer-sponsored plans should be displaced by federal law.

23

matter entirely to state law. ERISA § 601(b), 29

USC § 1161(b). By contrast, the premium subsidy

provisions of ARRA apply to employer-sponsored

group health plans that are required by state law to

provide post-employment continuation coverage.

Similarly, other federal initiatives currently under

consideration also would act through employer-

provided group health plans to change how health

care 1s financed and provided in the United States.

For example, the initial drafts of the “Affordable

Health Choices Act” proposed by the Senate Health,

Education, Labor and Pensions (“HELP”) Committee

in June 2009, would amend ERISA to prohibit pre-

existing condition exclusions, abolish limits on

annual or lifetime benefits, extend to 26 the age at

which a dependent may be covered, limit which

employers may adopt self-insured plans, and

mandate employers cover employees or pay a

penalty.

B. Continued uncertainty about the scope of state

and municipal authority to mandate employer-

sponsored health care expenditures is~ an

impediment to reaching a resolution on national

health care reform. If state and local governments

may attach health care financing obligations to

employment, the advocates of any federal initiative

that will be implemented via employer-provided

group health plans must decide whether and to what

extent to propose that state and local mandates be

taken into account in defining an employer's federal

obligations. At the same time, if ERISA does

preempt state and local measures such as the San

Francisco HCSO, the advocates of allowing the states

24

to function as laboratories for the improvement of

health care delivery and finance would be required to

include a cut-back on the scope of ERISA preemption

in measures they advocate.

At best, the uncertainty over what the law

currently allows in the way of state and local

mandates will waste valuable legislative time and

energy on debate over whether and how to limit state

and local authority, or whether and how to

accommodate its unpredictable future exercise m

federal legislation. At worst, the uncertainty could

impede the compromises, splinter the coalitions, and

prevent the formation of the consensus necessary to

enact any meaningful health care reform. This is so

because the decision in GGRA /7 completely unravels

the legislative compromises reached at the national

level in 1974 that allowed Congress to pass ERISA.

Cf Michael S. Gordon, Jntroduction- The Social

Policy Origins of ERISA, in Employee Benefits Law

(S.J. Sacher and J.I. Singer, eds., ABA, 2d ed. 2000)

at xc—cii (ERISA would not have been adopted if it

had not been premised on preserving employer

autonomy over plan adoption and plan design).

Thus GGRA II leaves Congress with an

unpalatable choice if it wants to harness employer-

provided group health plans successfully as an

engine of national health care reform: it either must

revisit the controversies surrounding ERISA

preemption that it resolved thirty-five years ago

while simultaneously trying to reconcile all of the

contemporary issues that have made _ reform

legislatively unobtainable until now, or it must

abandon any hope of a nationally uniform solution to

25

what a national constituency clearly believes is a

national crisis. Moreover, the conflict between the

Ninth and the Fourth Circuits will act as an

impediment to fashioning a successful bill regardless

of whether it favors state employer mandates or

leaves no room for them. Proponents of either

position will be forced to guess which of the GGRA JT

or the A/LA decisions represents the true state of the

law in order to know whether their bills must

contain a provision augmenting or reducing the scope

of federal preemption under ERISA.

As the leading historian of ERISA has noted,

giving ERISA broad preemptive effect was essential

to its adoption. "The desire for federal preemption

was a key factor — perhaps, the key factor — in

creating the coalition that pushed ERISA through

Congress." J.A. Wooten, A Legislative and Political

History of ERISA Preemption, Part I, 14 J. of

Pension Benefits 10 (2006). That compromise came

only after a protracted, hard-fought battle that

lasted many years. There is no reason to believe that

the rematch forced on Congress by the decision in

this case will be any less contentious than the

original battle.

CONCLUSION

The petition should be granted.

Respectfully submitted,

Thomas M. Christina

(Counsel of Record)

26

Ogletree, Deakins, Nash,

Smoak & Stewart, P.C.

Suite 500

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Greenville, SC 29601

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Counsel for Amici Curiae

Of Counsel

Karen R. Harned, Esq.

Executive Director

National Federation of

Independent Business

Small Business Legal

Center

1201 F Street, N.W.

Suite 200

Washington, D.C. 20004

Ph. (202) 314-2061

Fax (202) 554-5572

Of Counsel

Quentin Riegel, Esq.

Vice President, Litigation

& Deputy General Counsel

National Association of

Manufacturers

1331 Pennsylvania

Avenue, NW, 6th Floor

Washington, DC 20004-

1790

PH:. (202) 637-3058

FAX (202) 637-3024