Angoff v. Kenemore

• Decision Date: 29 November 1994
• Docket Number: No. WD,WD
• Citation: 887 S.W.2d 782
• Parties: Jay ANGOFF, Respondent, v. Lawrence KENEMORE and Association of Trust and Guarantee, Appellants. 48993.
• Court: Missouri Court of Appeals

Page 782

887 S.W.2d 782

Jay ANGOFF, Respondent, v. Lawrence KENEMORE and Association of Trust and Guarantee, Appellants.

No. WD 48993.

Missouri Court of Appeals Western District.

Nov. 29, 1994.

Sandra L. Schermerhorn, Kansas City, for appellants.

Dori J. Drummond, Dept. of Ins., Jefferson City, for respondent.

Before KENNEDY, P.J., and BRECKENRIDGE and SPINDEN, JJ.

SPINDEN, Judge.

Jay Angoff, director of the Missouri Department of Insurance, seeks to regulate sales by Lawrence Kenemore and Association of Trust and Guarantee (AT & G) in Missouri. Kenemore and AT & G claim that they were selling employee benefit plans, not insurance, and that state regulation of their activity was preempted by the federal Employee Retirement Income Security Act (ERISA). Angoff contends that AT & G and Kenemore had set up a subterfuge to avoid state regulation. The trial court agreed with Angoff and issued a permanent injunction prohibiting AT & G and Kenemore from selling their plans in Missouri without a certificate of authority.

AT & G and Kenemore contend that 29 U.S.C. § 1144 (ERISA) preempts state regulation of their employee benefits plans. They also contend that the permanent injunction order was vague and was not supported by substantial evidence. We disagree and affirm the trial court's judgment.

Kenemore and two partners organized AT & G to sell health and welfare benefits packages to employers. The benefits included workers' compensation, hospitalization, accidental death, vision care, death benefits, and disability benefits.

AT & G told employers who purchased the plan that they had to join AT & G and their employees had to join the National Employees Trade Association Local 101 (NETA). AT & G, however, sold benefits to one employer whose employees did not join NETA. AT & G provided the employers with "authorization cards" to enroll their employees in NETA, and the employers paid NETA's dues for the employees. The employees who belonged to NETA engaged in various occupations. Employees' wages, work hours, and other working conditions did not change when an employer joined AT & G. For at least one employer, the employees did not participate in any union elections and did not select NETA as their bargaining agent; nor did the employees engage in any union activities or have a role in selecting the AT & G benefits package. AT & G told its members:

ATG, Association of Trust & Guarantee, clearly in no way, would bring our members into an arrangement that would take away your control of your employees.

The officers and directors of ATG Association of Trust & Guarantee, wish to assure you that we stand for free enterprise and that includes the total freedom of members to run the daily operations of their companies. ¹

AT & G told its members that the sole purpose for the collective bargaining agreement with NETA was to allow for participation in NETA's welfare fund to provide the members' employees with workers' compensation and health benefits. AT & G told its members:

The worker's compensation benefits and health benefits are provided by the welfare fund of N.E.T.A. National Employees Trade Association Local 101, through a collective bargaining agreement between N.E.T.A. National Employees Trade Association Local 101 and ATG Association of Trust & Guarantee. As you will note in the collective bargaining agreement, article XI (eleven), no strike/no lockout, that "during the life of this agreement, there shall be no strike, stoppage of work, slow down, picketing, boycotting, lockout, or any other economic pressure or activity of any other kind by either party against the other for any reason or matter, controversy or grievance, or claim or breach of contract of any kind, nature or description, between the parties hereto."

In fact, you can see that the very things that you and the association dislike about collective bargaining have been removed. The collective bargaining agreement merely allows us to participate in the welfare fund of N.E.T.A. National Employees Trade Association Local 101. This arrangement allows us to be in compliance with a federal law that preempts state regulatory authority. ²

The members were not involved in the benefit plans' administration. AT & G administered the benefit plans. AT & G gave its associates commissions for selling the plans. ³ AT & G's benefits were not guaranteed under a contract or policy of insurance issued by any insurance entity authorized to conduct business in Missouri.

AT & G and Kenemore contend that they were not selling or soliciting "insurance" in Missouri--they were selling employee benefit plans. They contend that the Department had no authority over its employee benefit plans because such authority is preempted by ERISA. We disagree.

ERISA preempts state laws which regulate employee benefit plans, but Congress did not intend for the act to interfere with state regulation of insurance schemes. 29 U.S.C. § 1144; ⁴ Empire Blue Cross and Blue Shield v. Consolidated Welfare Fund, 830 F.Supp. 170, 172 (E.D.N.Y.1993). As this court's Eastern District said in St. Louis Children's Hospital v. Commerce Bancshares, Inc., 799 S.W.2d 87, 91 (Mo.App.1990):

There are three basic provisions of ERISA relating to its preemptive effect. The "pre-emption clause" provides that ERISA supercedes any and all state laws "relating to" ERISA-covered employee benefit plans. 29 U.S.C. § 1144(a). The "savings clause", however, limits this section by providing that no ERISA section exempts any person from state law regulating insurance, banking or securities. 29 U.S.C. § 1144(b)(2)(A). The "deemer clause" then qualifies the "savings clause" by precluding any state law purporting to regulate insurance from deeming an employee benefit plan to be an insurance company. 29 U.S.C. § 1144(b)(2)(B).

The issue we must resolve, therefore, is whether AT & G's scheme was an employee benefit plan or insurance in disguise. Given the linguistic overlaps in ERISA's language, this is not an easy task. ⁵ Exacerbating the difficulty is ERISA's failure to define "insurance."

ERISA defines an "employee benefit plan" as "an employee welfare benefit plan or an employee pension benefit plan or a plan which is both an employee welfare benefit plan and an employee pension benefit plan." 29 U.S.C. § 1002(3). AT & G's plan was not a pension benefit plan; therefore, whether AT & G's scheme was an "employee benefit plan" turns on whether it fit within the definition of "employee welfare benefit plan." 29 U.S.C. § 1002(1) defines "employee welfare benefit plan:"

[A]ny plan, fund or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, 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, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or (B) any benefit described in section 186(c) of this title (other than pensions on retirement or death, and insurance to provide such pensions).

So, we must determine whether AT & G's plan was established by an employer or an employee organization or both. ERISA defines "employer" as "any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity." 29 U.S.C. § 1002(5).

AT & G did not act directly as an employer. It had no employment or economic relationship with its members' employees.

Nor did AT & G act indirectly in the interest of an employer in relation to an employee benefit plan. In MDPhysicians & Associates, Inc. v. State Board of Insurance, 957 F.2d 178, cert. denied, 506 U.S. 861, 113 S.Ct. 179, 121 L.Ed.2d 125 (1992), the United States Court of Appeals for the Fifth Circuit held that an association of physicians did not act as a group or association of employers in the interest of employers who subscribed to the association's benefit plan. The court found that the association established the plan to generate profits and that the subscribing employers were not involved in the establishment and maintenance of the plan.

The MDPhysicians court concluded that Congress evidenced its intent, shortly after the passage of ERISA, that ERISA not cover plans maintained by entrepreneurs for the purpose of marketing insurance. In particular, the court recognized the Activity Report of the Committee on Education and Labor, which said:

"[C]ertain entrepreneurs have undertaken to market insurance products to employers and employees at large, claiming these products to be ERISA covered plans. For instance, persons whose primary interest is in profiting from the provision of administrative services are establishing insurance companies and related enterprises. The entrepreneur will then argue [its] enterprise is an ERISA benefit plan which is protected, under ERISA's preemption provision, from state regulation.... [W]e are of the opinion that these programs are not 'employee benefit plans'.... [T]hese plans are established and maintained by entrepreneurs for the purpose of marketing insurance products or services to others. They are not established or maintained by the appropriate parties to confer ERISA jurisdiction.... They are no more ERISA plans than is any other insurance policy sold to an employee benefit plan.

....

... [W]e do not believe that the statute and legislative history will support the inclusion of what amounts to commercial products within the umbrella of the ['employee benefit plan'] definition.... [T]o be properly characterized as an ERISA employee benefit plan, a...