Standard Oil Co. of California v. Agsalud

• Decision Date: 21 November 1977
• Docket Number: No. C-76-2740-CBR.,C-76-2740-CBR.
• Citation: 442 F. Supp. 695
• Court: U.S. District Court — Northern District of California
• Parties: STANDARD OIL COMPANY OF CALIFORNIA, a Delaware Corporation, Plaintiff, v. Joshua C. AGSALUD, Director of Labor and Industrial Relations of the State of Hawaii, and Orlando K. Watanabe, Administrator of the Disability Compensation Division of the Department of Labor and Industrial Relations of the State of Hawaii, Defendants.

442 F. Supp. 695

STANDARD OIL COMPANY OF CALIFORNIA, a Delaware Corporation, Plaintiff, v. Joshua C. AGSALUD, Director of Labor and Industrial Relations of the State of Hawaii, and Orlando K. Watanabe, Administrator of the Disability Compensation Division of the Department of Labor and Industrial Relations of the State of Hawaii, Defendants.

No. C-76-2740-CBR.

United States District Court, N. D. California.

November 21, 1977.

Pillsbury, Madison & Sutro, Parker A. Maddux, Woodrow R. Cossey, San Francisco, Cal., for plaintiff.

Ronald Y. Amemiya, Atty. Gen., Edward H. Nakamura, Sp. Deputy Atty. Gen., Linda K. C. Luke, Philip S. Uesato, Mario R. Ramil, Deputy Attys. Gen., Dept. of Labor and Industrial Relations, State of Hawaii, Honolulu, Hawaii, for defendants.

MEMORANDUM OF OPINION

RENFREW, District Judge.

This case presents two important issues, whether the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1381, preempts Hawaii's health insurance laws and, if it does, whether it is constitutional.

I

ERISA regulates the administration of private employee benefit and pension plans affecting interstate commerce. Pursuant to its authority under the Commerce Clause, U.S.Const. art. I § 8, Congress established standards concerning disclosure to plan participants, reporting to the federal government, vesting of benefits, funding of plans, and conduct of the managers of plans. In addition, Congress created tax incentives to encourage the adoption of private plans and a federal insurance system to guarantee that beneficiaries would receive their benefits. As part of this scheme, Congress preempted "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan * * *." Section 514(a), 29 U.S.C. § 1144(a). Congress, however, exempted from ERISA's regulatory provisions benefit plans maintained to comply with "workmen's compensation laws or unemployment compensation or disability insurance laws." Section 4(b)(3), 29 U.S.C. § 1003(b)(3).

Also in 1974, the Hawaii legislature enacted the Hawaii Prepaid Health Care Act ("Hawaii Act") which required workers in the State to be covered by a comprehensive prepaid health care plan. Haw.Rev.Stat. §§ 393-1 — 393-51. The Hawaii Act was amended in 1976 to require that the plans cover diagnosis and treatment of alcohol and drug abuse. 1976 Haw.Sess. Laws c. 25, 28 (amending Haw.Rev.Stat. 393-7(c)). Administrative regulations adopted pursuant to the Hawaii Act include certain reporting requirements which differ from those of ERISA. Sections 14, 16, 60-64 of Reg. XLII. Employers who fail to comply with the requirements of the Hawaii Act may be enjoined from carrying on their businesses in any place in the State, and are liable to fines and other remedies. Act 90 of June 8, 1977 (amending § 393-33).

Plaintiff Standard Oil Company of California ("Standard") is a Delaware corporation conducting business in interstate commerce with employees in Hawaii and many other states. Some Standard employees, annuitants, and their dependents including some in Hawaii, have elected to participate in Standard's self-funded health care plan which reimburses 80 per cent or more of covered medical expenses incurred by the participants. Standard's medical plan does not provide certain benefits required by the Hawaii Act, including coverage of alcohol and drug abuse. Standard has failed to comply with certain reporting requirements of the Hawaii Act. The administrative offices of this plan are in the Northern District of California.

When defendants sought to enforce the Hawaii Act against it, Standard filed this suit on December 7, 1976, seeking declaratory and injunctive relief to prevent such enforcement. The Court has jurisdiction under § 502(e)(1) of ERISA, 29 U.S.C. § 1132(e)(1). Venue is proper under § 502(e)(2), 29 U.S.C. § 1132(e)(2). The parties entered into a stipulation filed on December 22, 1976, in which defendants agreed not to seek Standard's compliance with the requirements of the Hawaii Act during the pendency of this litigation. Also pursuant to this stipulation, Standard withdrew its motion for a preliminary injunction. On March 3, 1977, the Court orally denied defendants' motion to dismiss and continued their motion to transfer this action to the District of Hawaii. On June 16, 1977, Standard filed a motion for summary judgment, and on June 20, 1977, defendants filed a cross-motion for summary judgment. Defendants also filed a supplemental memorandum in support of their alternative motion to transfer the case to the District of Hawaii because they are exposed to other lawsuits by other corporations seeking analogous relief.

The issues in this case have been, it is fair to say, extensively briefed. The Court also heard oral argument on July 21, 1977. There is no disputed issue of material fact, for the only dispute concerns the preemptive effect of ERISA on the Hawaii Act. The Court concludes that the Hawaii Act is preempted by ERISA and that the preemptive provision of ERISA is constitutional.

II

Standard's medical plain is an employee welfare benefit plan and an employee benefit plan with the meaning of §§ 3(1) and 3(3) of ERISA, 29 U.S.C. §§ 1002(1) and 1002(3).

Section 3(1) provides in relevant part:

"The terms `employee welfare benefit plan' and `welfare plan' mean any 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 * * *."

Section 3(3) provides:

"The term `employee benefit plan' or `plan' means 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."

Standard's plan is maintained for the purpose of providing, through the purchase of insurance, medical, surgical, or hospital benefits, and it is therefore an employee benefit plan within the meaning of § 3.¹ See Wayne Chemical, Inc. v. Columbus Agency Service Corp., 426 F.Supp. 316, 320 (N.D.Ind.1977).

Defendants contend that § 3 applies only to plans adopted voluntarily by the employer without the compulsion of state law. This interpretation requires the Court to read limiting language into § 3 which Congress could easily have placed there itself. Furthermore, if plans required by state law are not employee benefit plans within the meaning of § 3, the exemption in § 4 for plans maintained in order to comply with certain state laws would be completely unnecessary. Congress intended to preserve an area in which states could regulate employee benefit plans, but it implemented its intention in § 4, not in § 3.

III

The more difficult question is whether the Hawaii Act is a "disability insurance law" within the meaning of § 4(b)(3), 29 U.S.C. § 1003(b)(3). Section 4(b)(3) exempts from subchapter I of ERISA, which contains the reporting, disclosure, vesting, funding, and fiduciary provisions, any employee benefit plan which "is maintained solely for the purpose of complying with applicable workmen's compensation laws or unemployment compensation of disability insurance laws."

It is helpful first to identify what the preemption issue is and what it is not. The Court is not required in this case to infer preemption from the structure of a federal act without a preemption clause. Cf. DeCanas v. Bica, 424 U.S. 351, 358, 96 S.Ct. 933, 47 L.Ed.2d 43 (1976). Nor is this a case involving the feasibility of dual regulation of employee benefit plans by both state and federal governments. Standard's medical plan is covered either by federal law or by state law but not by both. A case like Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 237, 67 S.Ct. 1146, 91 L.Ed. 1447 (1947), which involves federal regulation of some aspects of a particular field and consistent state regulation of other aspects, is distinguishable because Congress has by unambiguous language eliminated that option of interpretation. See Part IV, infra. Nor need the Court determine whether state health insurance laws in general or the Hawaii Act in particular "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress" in ERISA, Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941), and is therefore implicitly preempted even though the preemption clause drafted by Congress did not cover it. Cf. Jones v. Rath Packing Co., 430 U.S. 519, 97 S.Ct. 1305, 51 L.Ed.2d 604 (1977).

In ERISA, Congress has said that all state laws relating to private employee benefit plans are preempted except workmen's compensation, unemployment compensation, and disability insurance laws. The parties agree that a health insurance law is not a workmen's or unemployment compensation law within the meaning of § 4(b)(3), that workmen's compensation laws only replace lost income and defray medical expenses associated with work-related illness and jury, and that unemployment compensation laws replace income lost by involuntary loss of employment for nonmedical reasons. They also agree that disability insurance laws replace wages lost because of nonoccupational illness and injury. Their dispute centers on whether disability insurance laws, as understood by Congress in § 4(b)(3), provide a second type of benefit related to nonoccupational illness and injury in addition to wage replacement — payment of medical expenses.

Although health and disability insurance laws can also be distinguished by the types of benefits they provide, see pp. 698-702, infra, a more fundamental difference involves the type of contingency against which they insure...