Opposition Brief — Dixie National Life Insurance Co. v. Ward (No. 07-1434)

\04

No. 07-1434

IN THE

Supreme Court of the Wnited States

DIXIE NATIONAL LIFE INSURANCE COMPANY, et al.,

Petitioners,

v.

MARTHA WARD, Individually and on

Behalf of All Others Similarly Situated,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED StTaTES Court OF APPEALS

FOR THE FOURTH CIRCUIT

BRIEF IN OPPOSITION

RICHARD A. HARPOOTLIAN

GRAHAM L. NEWMAN

RICHARD A. HaRPOOTLIAN, PA.

1410 Laurel Street

Post Office Box 1090

Columbia, SC 29202

(803) 252-4848

Counsel for Respondent

217031 ce

COUNSEL PRESS

(800) 274-3321 + (800) 359-6859

QUESTION PRESENTED

Whether the Fourth Circuit’s reliance upon and

adherence to South Carolina statutory and common law

in declining to defer to contractual interpretations of

administrative agency staff members was correct in view

of the Z'rie Doctrine and traditional notions of federalism

and comity.

it

TABLE OF CONTENTS

QUESTION PRESENTED

TABLE OF CONTENTS

INTRODUCTION

COUNTERSTATEMENT OF THE CASE ....

SUMMARY OF THE ARGUMENT

REASONS FOR DENYINGTHE PETITION ...

A. The lower court adhered to South

Carolina law in declining to grant

deference to the contractual inter-

pretations of administrative agency staff

Because the lower court adhered to State

law, no concerns of federalism, comity or

of the Hrie Doctrine arise

The interlocutory nature of this petition

weighs against granting a writ of

certiorari

CONCLUSION

TABLE OF CITED AUTHORITIES

Page

Federal Cases

American Constr. Co. v. Jacksonville, T. & K. W.

Ry. Co., 148 U.S. 372 (1893)

Bush v. Gore, 531 U.S. 98 (2000)

Erie R. Co. v. Tompkins, 304 U.S. 64 (1938) ... passim

Guidry v. American Pub. Life Ins. Co., 512 F.3d

177 (5 Cir. 2007)

Hamilton Brown Shoe Co. v. Wolf Bros. Co.,

249 U.S. 251 (1916)

United States v. Virginia, 518 U.S. 515 (1996)

Virginia Military Institute v. United States,

508 U.S. 946 (1993)

State Cases

Captain’s Quarters Motor Inn, Inc. v. S.C.

Coasta! Council, 413 S.E.2d 13 (S.C. 1991) ..

Coakley v. Horace Mann Ins. Co., 656 S.E.2d 17

(S.C. 2007)

iv

Cited Authorities

Dunton v. South Carolina Bd. of Examiners in

Optometry, 353 S.E.2d 132 (S.C. 1987)

Leventis v. S.C. Dep't of Health & Envtl. Control,

530 S.E.2d 643 (S.C. Ct. App. 2000)

S.C. Coastal Conservation League v. South

Carolina Dept. of Health & Env. Cntl.,

610 S.E.2d 482 (S.C. 2005)

Constitutions, Statutes and Rules

15 U.S.C. § 1012

S.C. Code Ann. § 38-3-10, et seg. ..............

S.C. Code Ann. § 38-3-200

S. Ct. Rule 10

Miscellaneous Authority

Robert L. Stern, et al., Supreme Court Practice

§ 4.18, at 258 (8th ed. 2062)

1

INTRODUCTION

Petitioners request this Court review an

unpublished opinion of the Fourth Circuit that rests

solely upon State law and has not resulted in the final

adjudication of the case. The Fourth Circuit adhered to

Erie principles by relying upon South Carolina law when

ruling upon the central issue of this case: the

interpretation of a South Carolina contract. Petitioners,

however, seek a “second bite of the apple” by claiming

that the Fourth Circuit incorrectly applied South

Carolina law and, in so doing, violated the Erie Doctrine

as well as principles of federalism and comity.

The premise for Petitioners’ claim to certiorari is

flawed precisely because the Fourth Circuit relied upon

South Carolina law in this very State-specific case.

Furthermore, the Fourth Circuit’s opinion correctly

applied South Carolina precedent and poses no threat

of a split between the Circuits. Finally, this petition. is

interlocutory in nature and certiorari would serve no

interest of immediate importance or judicial economy.

As a result, the Petition for Writ of Certiorari presents

no compelling reason supporting an exercise of this

Court’s jurisdiction.

COUNTERSTATEMENT OF THE CASE

During the early 1990s, Dixie National Life

Insurance Company (“Dixie”) wrote the supplemental

cancer insurance policies at issue and sold them

throughout South Carolina. These supplemental

insurance policies—many of which are still in

existence—differ from traditional primary care health

2

insurance in that they do not require the coordination

of benefits with the policyholder’s other insurers or with

Medicare. Rather, under the terms of these

supplemental policies, the insurer makes direct

payments to its insureds based upon the dollar amount

of “actual charges” resulting from the insured’s cancer

treatinent.

Although used nineteen times in the policies at issue,

the phrase “actual charges” is not defined. Within the

medico-insurance field, “actual charges” carries a

multitude of different definitions. Pet. Appx. lla.

However, at all times relevant to this case, Dixie paid

benefits in a manner wholly consistent with the definition

of “actual charges” as later determined by the Fourth

Circuit. Pet. Appx. 6a. In 1994, Dixie assigned all its

cancer policies to National Foundation Life Insurance

Company (“NFU’). For the next seven years, NFL paid

benefits in a manner wholly consistent with the definition

of “actual charges” as determined by the Fourth Circuit.

Pet. Appx. 6a. Then, in late 2001 to early 2002, NFL

unilaterally changed its practice. It reduced benefit

payments to equal the discounted amounts accepted by

medical providers in satisfaction of the patient’s bill,

perforce the provider’s third-party agreement with the

patient’s general health insurer or group plan. Pet.

Appx. 7a. This change resulted in a reduction of millions

of dollars in benefits paid.

Respondent Martha Ward sued to recover the

difference between the actual charges billed for her

husband’s medical treatment and the lesser amounts

paid in benefits by NFL under its new definition of actual

charges in Mrs. Ward’s cancer policy. She brought two

3

South Carolina common law causes of action still

applicable to this case: breach of contract and breach of

contract accompanied by a fraudulent act. Ward moved

for the certification of a multi-state class of plaintiffs

who purchased policies similar to hers. The District

Court declined to certify a multi-state class action, but

did certify a class of South Carolina policyholders. Pet.

Appx. 8a. Both the Plaintiff class and Petitioners

thereafter moved for summary judgment as to the

meaning of the contractual term “actual charges”. The

District Court granted summary judgment to the

Petitioners in an unpublished order, finding under State

common law that the definition of “actual charges” is

unambiguous and means the amount accepted by a

medical provider from a third-party payor in satisfaction

of the patient’s bill.

The Respondent appealed the order of summary

judgment and the order denying multi-state class

certification to the Fourth Circuit Court of Appeals.

Petitioners, meanwhile, cross-appealed the certification

of the South Carolina plaintiff class. The Fourth

Circuit—also in an unpublished opinion—reversed the

District Court’s order of summary judgment (finding

the phrase “actual charges” to be ambiguous under

South Carolina law) and remanded the case for trial.

Pet. Appx. 4a. The Fourth Circuit also affirmed, however,

the order denying multi-state class certification citing a

lack of commonality in the laws of various states as they

apply to Respondent’s common law claims. Pet. Appx.

4a. The Court declined to address the Petitioners’ cross-

appeal of the South Carolina class certification, finding

it to be interlocutory.

4

The Plaintiff petitioned the Fourth Circuit for a panel

rehearing as to the issue of whether the case should be

remanded for trial or whether, pursuant to South

Carolina law, the ambiguity recognized by the Fourth

Circuit was “patent” and required an entry of summary

judgment in favor of the Plaintiff. The Fourth Circuit

granted Plaintiff’s petition and remanded the case to

the District Court with the mandate that summary

judgment be entered on behalf of Plaintiff Ward as to

her breach of contract claim. Pet. Appx. 15a.

Defendants’ petition for a writ of certiorari followed.

In the meantime, the parties continue to litigate this

case before the District Court. While the Fourth Circuit’s

summary judgment mandate has been entered as to

Respondent’s breach of contract claim, the class’s cause

of action for breach of contract accompanied by a

fraudulent act remains unresolved. Furthermore, while

this petition for certiorari has been pending, Defendants

have filed a new round of motions to dismiss before the

District Court that have not been ruled upon.

SUMMARY OF THE ARGUMENT

The validity of Petitioners’ request for a write of

certiorari turns upon one question: whether the Fourth

Circuit adhered to South Carolina law in declining to

grant deference to the opinions of two South Carolina

Department of Insurance staff members as to the

interpretation of the contracts at issue in this case.

5

According to Petitioners, the portion of the Fourth

Circuit’s opinion giving rise to this petition is found

within footnote 3.

National and its supporting amici contend

that, absent compelling reasons, we must

defer to the Department of Insurance’s

interpretation of “actual charges.”

We disagree. Although an agency’s

interpretation of a statute it is charged with

enforcing is entitled to deference, see Dunton

v. S.C. Bd. of Examiners in Optometry, 291

S.C. 221, 353 S.E.2d 182, 183 (1987), the

Department of Insurance has no statutory

mandate to pronounce the meaning of a term

in an individual insurance policy. We are of

course interested in the Department’s

position, but South Carolina law does not in

this case require us to defer to the

Department’s view of the matter.

Pet. Appx. 12a.

Petitioners insist the following “compelling reasons”

exist for the Court to grant their petition: first, the

Fourth Circuit’s refusal to defer to the contractual

interpretation of the Department of Insurance violates

the Erie Doctrine as well as traditional notions of

federalism and comity; and second, the opinion will have

wide-ranging implications on insurance policies

administered beyond the State of South Carolina. But

as the text of the lower court’s order notes, the Fourth

Circuit relied upon and adhered to South Carolina law

when ruling upon these South Carolina insurance

6

contracts at issue. Thus no compelling reasons exist for

this Court to issue a writ of certiorari and the petition

should be denied.

REASONS FOR DENYING THE PETITION

The lower court adhered to South Carolina law

in declining to grant deference to the contractual

interpretations of administrative agency staff

Petitioners’ appeal to the Hrie Doctrine as the basis

upon which this Court should grant certiorari falls flat.

Justice Brandeis wrote in E’'rie that

Except in matters governed by the Federal

Constitution or by acts of Congress, the law

to be applied in any case is the law of the state.

And whether the law of the state shall be

declared by its Legislature in a statute or by

its highest court in a decision is not a matter

of federal concern.

Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).

Thus the crux of Petitioners’ argument must be that

the Fourth Circuit’s offending footnote not only

misapplied South Carolina law, but fundamentally

ignored State precedent and statute by declining to

defer to an administrative agency’s interpretation of a

contract. The lower court’s opinion, however, both

observes and closely tracks South Carolina law for three

reasons: first, the Department of Insurance has no

statutory authority to interpret contracts; second, at

any rate, no binding agency ruling was issued in this

7

case; and third, South Carolina courts do not defer to

the opinions of agency staff.

The Department of Insurance is an administrative

agency whose duties and powers are dictated by the

State Legislature via statute. See S.C. Code Ann.

§ 38-3-10, et seg. South Carolina courts have established

that “[a]s a creature of statute, a regulatory body is

possessed of only those powers expressly conferred or

necessarily implied for it to effectively fulfill the duties

with which it is charged.” Captain’s Quarters Motor Inn,

Inc. v. S.C. Coastal Council, 413 S.E.2d 138, 14 (S.C.

1991). As the Fourth Circuit noted, the Legislature has

not conferred upon the Department of Insurance the

power to adjudicate the meaning of disputed contractual!

terms within insurance policies. Thus, under the

authority cited above, no such powers exist.

Petitioners contend that the Legislature’s grant of

“broad regulatory authority” over the insurance

industry to the Department encompasses the ability to

rule upon contractual disputes. Pet. 17. But nowhere

within the statutory or regulatory scheme of the

Department has the Legislature even hinted at

transforming the Department into a judicial body with

the ability to resolve disputes of contractual

interpretation. In contrast, however, it is clear that

throughout the Department’s existence the judiciary

has operated as the sole means of resolution of insurance

policy contractual disputes. See, e.g., Coakley v. Horace

Mann Ins. Co., 656 S.E.2d 17 (S.C. 2007) (“An insurance

policy is a contract between the insured and the

insurance company, and the terms of the policy are to

be construed according to contract law.”) Had the

8

Legislature intended to grant such revolutionary powers

to an administrative agency, it would have done so

through a clear and explicit provision rather than

through the vaguely worded “broad regulatory

authority” cited by Petitioners. Because no such clear

and explicit provision exists, the Fourth Circuit was

correct in declining to defer to the Department’s

contractual interpretation.

Beyond the limitations on the statutory authority

of the Department of Insurance, the opinion letters

touted by Petitioners as “rulings” entitled to judicial

deference have no legal efficacy. The South Carolina

legislature has established that “[n]Jo order of the

director or his designee is effective unless made in

writing and signed by the director or by his authority.”

S.C. Code Ann. § 38-3-200. A review of the documents

offered by Petitioners shows that neither letter was

signed by the Director of the Department of Insurance,

nor do they portend to be signed by the Director’s

authority. Pet. Appx. 63a, 67a. Rather these letters are

merely opinions of regulatory staff. Furthermore,

Patricia Wuzzardo—the author of the final opinion letter

attached to Petitioners’ brief—later attested that she

was unaware of the varying definitions of “actual

charges” within the medico-insurance field and, had this

facts been made known to her, she would have “consulted

with counsel for the South Carolina Department of

Insurance prior to submitting any response to

Ms. Ward.” Resp. Appx. 3a. Wuzzardo’s hindsight

recantation lends credence to the wisdom of South

Carolina’s statutory mandate that only official orders

of the Director of the Department are legally effective.

9

Furthermore, the South Carolina Supreme Court

has declined to grant deference to opinion letters from

agency staff such as those in this case. “The Panel, not

[agency] staff, is entitled to deference from the courts.”

S.C. Coastal Conservation League v. South Carolina

Dept. of Health & Env. Cnitl., 610 S.E.2d 482 (S.C. 2005).

The refusal to grant deference to staff members stems

from common sense: if the staff have no binding agency

authority, the agency cannot be said to have rendered a

ruling on the issue at hand.

South Carolina law limits deference owed to

administrative agencies to two circumstances: first, the

interpretation of regulations promulgated by that

agency, see Leventis v. S.C. Dep't of Health & Envitl.

Control, 530 S.E.2d 643 (S.C. Ct. App. 2000); and second,

the interpretation of a statute the agency is charged

with enforcing. See Dunton v. South Carolina Bd. of

Examiners In Optometry, 353 S.E.2d 132 (S.C. 1987).

The Fourth Circuit aptly noted that neither circumstance

is present in this case. Rather the Department staff

letters offered by Petitioners constitute interpretations

of contractual language—a function that has not been

statutorily bestowed upon the Department and has been

traditionally reserved for the judiciary. As a result, the

lower court correctly adhered to South Carolina law in

respectfully declining to grant deference to the

Department’s contractual interpretation.

10

B. Because the lower court adhered to State law, no

concerns of federalism, comity or of the Erie

Doctrine arise

The Fourth Circuit’s sound reliance upon South

Carolina law eliminates the concerns of the F’rie Doctrine

as well as traditional notions of federalism and comity.

Erie stands for the proposition that “[e]xcept in matters

governed by the Federal Constitution or by Acts of

Congress, the law to be applied in any case is the law of

the State.” Hrie, supra. Similarly, “comity and respect

for federalism compel us to defer to the decisions of state

courts on issues of state law.” Bush v. Gore, 531 U.S. 98,

112 (2000) (Rehnquist, J., concurring). By adhering to

South Carolina law in this case when declining to defer

to the Department of Insurance, the Fourth Circuit

observed the very principles that Petitioners argue

merit certiorari.

Petitioners’ appeal to one of the primary objectives

of the Erie doctrine—discouragement of forum

shopping—is curious, at best. All policy holders pertinent

to this suit were South Carolina residents when their

policies were purchased. This case was originally filed

in South Carolina State court, but was removed to the

federal District of South Carolina by Petitioners. The

Fourth Circuit, in issuing its opinion, applied the

substantive laws of the State of South Carolina. Quite

simply, absolutely no forum shopping has taken place in

this matter nor has the lower court impliedly encouraged

future forum shopping by applying South Carolina’s

substantive law.

11

Petitioners’ resort to the McCarran-Ferguson Act

also rings hollow. The Act provides “[n]o Act of Congress

shall be construed to invalidate, impair, or supersede

any law enacted by any State for the purpose of

regulating the business of insurance”. 15 U.S.C.

§ 1012(b). The Fourth Circuit did not rely upon an act of

Congress in issuing its ruling and the Petitioners do not

point to any such authority. Rather Petitioners contend

that the lower court’s failure to defer to the Department

of Insurance’s contractual interpretation constitutes a

violation of the policy declaration of Congress. This

argument may hold water if, in fact, the Fourth Circuit’s

opinion “invalidated, impaired, or superseded” State

law. But again, the Fourth Circuit accurately relzed upon

State law and thus the McCarran-Ferguson Act is not

implicated by its ruling.

The Fourth Circuit’s reliance upon South Carolina

law also disproves Petitioners’ claims of a national,

cataclysmic response to the decision below. Petitioners

cite the recent case of Guidry v. American Pub. Life

Ins. Co., 512 F3d 177 (5 Cir. 2007) as proof of the wide-

ranging consequences of the Fourth Circuit’s decision.

To the contrary, however, Guidry specifically noted that

the Ward opinion “applied similar rules of contract

interpretation wnder South Carolina law.” Id. at 184

(emphasis supplied). The controlling precedential effect

of the Fourth Circuit’s opinion is limited by the

geographical scope of this suit. Because the lower court

constrained its analysis to the-application of South

Carolina law no concerns of national interest arise.

Furthermore, the Fourth Circuit chose not to publish

the opinion giving rise to this petition—a decision that

further mitigates Petitioners’ claim of national

importance.

12

C. The interlocutory nature of this petition weighs

against granting a writ of certiorari

Petitioners ignore another compelling reason to

deny review: the interlocutory nature of the ruling

below. Although this Court has jurisdiction to review

interlocutory decisions of federal courts of appeals under

28 U.S.C. § 1254(1), it seldom does so, and this case is

not the rare case in which interlocutory review is

appropriate. “Ordinarily, in the certiorari context, ‘this

court should not issue a writ of certiorari to review a

decree of the circuit court of appeals on appeal from an

interlocutory order, unless it is necessary to prevent

extraordinary inconvenience and embarrassment in the

conduct of the cause.” Robert L. Stern, et al., Supreme

Court Practice § 4.18, at 258 (8th ed. 2002) (quoting

American Constr. Co. v. Jacksonville, T. & K.W. Ry. Co.,

148 U.S. 372, 384 (1893) (emphasis added)); see also, e.g.,

Hamilton Brown Shoe Co. v. Wolf Bros. Co., 240 U.S.

251, 258 (1916) (interlocutory decisions are reviewed only

“in extraordinary cases”. The posture of this case is

anything but extraordinary. The Fourth Circuit reversed

the judgment of the district court on the purely legal

ground that the district court erred as a matter of South

Carolina law in construing the meaning of the term

“actual charges” in the parties’ contract. The court

remanded the case to the district court for further

proceedings. Within these proceedings Petitioners have

filed motions to dismiss on grounds wholly unrelated to

this petition—motions which, if successful, will render

the proposed question presented to this Court moot.

This case is an even less appropriate vehicle for

immediate, interlocutory review than was true in

13

Virginia Military Institute v. United States, 508 U.S.

946 (1993) (VM/). There, the Fourth Circuit had issued

a final decision holding that the Commonwealth of

Virginia’s sponsorship of a military college for men only

was unconstitutional, but the district court had yet to

rule on the appropriate remedy. The Court denied

certiorari on the ground that the decision was not

sufficiently final because the remedy phase had not been

completed. See zd. at 946 (Scalia, J., concurring). The

Court recognized that there would be time enough to

review the decision if that were necessary after the

remedial portion of the case had concluded, zd., and, in

fact, it later did so. See United States v. Virginia, 518

U.S. 515 (1996). Here, as in VM/, there is no decision

regarding the appropriate remedy, and in fact another |

cause of action remains in dispute. Indeed, the Fourth

Circuit refused, as “premature,” petitioners’ effort to

obtain discretionary review over their petition for

permission to appeal class certification under Federal

Rule of Civil Procedure 23(f). Pet. App. 22a.

Respondent believes, of course, that she will prevail

on the merits. If she does, Petitioners may appeal from

the district court’s final decision and, ultimately, petition

the Court on the same purported Hrie question that

they have presented here. See VM7/, 508 U.S. 946 (Scaiia,

J., concurring). Moreover, unlike the VM/ case, which

was sui generis, here, if petitioners are correct that

Fourth Circuit’s ruling will affect many cases nationwide,

see Pet. 23-27, there will be any number of future

vehicles that would allow this Court to resolve the

question. To be clear: as explained above, the so-called

Erie/federalism question set forth in the petition

represents an inappropriate effort to persuade this

14

Court to review garden-variety issues of state law. And,

therefore, in our view, those questions will never be

worthy of a place on this Court’s docket. But because of

the case’s interlocutory status, even if the Court were

to disagree with our assessment of the cert-worthiness

of the issue posited by petitioners, the Court should stay

its hand and allow this case to run its course.

CONCLUSION

It goes without saying that this Court does not sit

to review issues of State law. S. Ct. Rule 10. In this case,

the Fourth Circuit indisputably resolved only issues of

South Carolina law. The question whether the

contractual term “actual charges” was ambiguous was

one of South Carolina state law; so, too, was the question

whether that ambiguity was “patent” and thus for a

court to resolve. And the question about which the

petitioners premise their claim to certiorari—whether

the South Carolina Department of Insurance’s views are

entitled to deference—was undoubtedly a question of

South Carolina administrative law, as the Fourth Circuit

recognized, see Pet. App. 12a.

Because of the Fourth Circuit’s reliance upon State

law, the concerns of the me Doctrine and federalism

and comity are not implicated by the ruling.

Furthermore, even if Petitioners’ allegations of a

misapplication of State law are relevant to Erie, they

are disproven by an analysis of South Carolina law.

Finally, the interlocutory nature of this petition weighs

against certiorari.

15

For the reasons described herein, the Court should

deny the petition for writ of certiorari.

Respectfully submitted,

RICHARD A. HARPOOTLIAN

GRAHAM L. NEWMAN

RICHARD A. HARPOOTLIAN, PA.

1410 Laurel Street

Post Office Box 1090

Columbia, SC 29202

(803) 252-4848