State v. Ind. State Teachers Ass'n, Ista Ins. Trust, Ista Fin. Servs. Corp.
| Decision Date | 17 April 2013 |
| Docket Number | No. 1:09–cv–01506–SEB–DML.,1:09–cv–01506–SEB–DML. |
| Citation | 950 F.Supp.2d 993 |
| Parties | State of INDIANA ex rel. Chris NAYLOR, Indiana Securities Commissioner, Plaintiff, v. INDIANA STATE TEACHERS ASSOCIATION, ISTA Insurance Trust, ISTA Financial Services Corporation, ISTA Welfare Benefits Trust, ISTA Administrative Services Corporation, and National Education Association, Defendants. |
| Court | U.S. District Court — Southern District of Indiana |
OPINION TEXT STARTS HERE
Alan S. Brown, Joel E. Tragesser, Michele Lorbieski Anderson, Thomas E. Satrom, Frost Brown Todd LLC, Indianapolis, IN, for Plaintiff.
Abigail V. Carter, Daniel Zibel, Douglas L. Greenfield, Jeremiah A. Collins, John M. West, Robert M. Weinberg, W. Gary Kohlman, Bredhoff & Kaiser P.L.L.C., Washington, DC, Alice Mckenzie Morical, Andrew W. Hull, Kimberly L. Cohen, Hoover Hull LLP, Indianapolis, IN, for Defendants.
ORDER ADDRESSING DEFENDANTS' PENDING MOTIONS FOR SUMMARY JUDGMENT
Presently before the Court are two motions for summary judgment, 1 filed pursuant to Federal Rule of Civil Procedure 56 on April 13, 2012, by Defendants, the Indiana State Teachers Association (“the ISTA”) et al. [Docket No. 170], and the National Education Association (“the NEA”) [Docket No. 174], respectively. Plaintiff opposes both of the pending motions. For the reasons set forth in this entry, the Court finds that genuine issues of disputed material fact remain concerning both motions and, accordingly, DENIES these motions.
Plaintiff, Chris Naylor (“the Commissioner”), serves the State of Indiana as its duly appointed Securities Commissioner. Am. Compl. ¶ 3. In his official capacity, the Commissioner oversees the Securities Division of Indiana's Office of the Secretary of State. He is tasked with administration and enforcement of the Indiana Uniform Securities Act (“the Act”), Ind.Code § 23–19–1–1 et seq.Id. In performing his duties, he has the power to conduct investigations of potential Act violations and bring an action on behalf of the State of Indiana if he believes such a violation has occurred. Id.
The ISTA is an Indiana not-for-profit corporation with its principal place of business in Indianapolis, Indiana. Am. Compl. ¶ 4. Four other defendants in this action (collectively, “the ISTA Entities” 2) are ISTA subsidiaries that maintain their principal places of business in Indianapolis, Indiana and have in common certain “directors, employees, officers, offices, and funds.” Id. ¶¶ 5–8. One of the ISTA Entities' key functions is to provide insurance products (including long-term disability and health arrangements) to ISTA members, i.e., teachers and other school employees in Indiana. Id. ¶ 12. Specifically, the ISTA Trust (“the Trust”) was established in 1985 to furnish group medical benefits to forty-one Indiana school districts. ISTA Br. at 3. The school districts joining these arrangements executed Participation Agreements and/or Funding Agreements with the Trust. See ISTA Br. Exs. 9, 10. Pursuant to these agreements, each participating school district was responsible for funding: 3 “(i) the premiums 4 on the stop-loss insurance policy; (ii) the Plan's share of administrative and operating expenses of the Trust; (iii) the funding of the Reserve; and (iv) the funding of incurred claims.” ISTA Br. Ex. 10 at 3. Plans designed by the Trust included, inter alia, the “Health e Perks Program,” a prescription drug card and mail order program, and a disease management program. ISTA Br. at 4.
Another feature of the Trust's health insurance plan was a claims stabilization reserve (“the CSR Program”).5 Am. Compl. ¶ 14. Under the CSR Program, a Trust participant “would be credited with a CSR balance if the total amount of payments by the school district to ISTA exceeded the amount of claims paid, plus administrative expenses and other overhead amounts assessed by ISTA.” Id. ¶ 15. Many Funding Agreements—notably, those for school districts participating in the Guaranteed Group Advantage (“the GGA”)—described the CSR Program as a way the Trust could grow its reserves 6 “as a result of more favorable than anticipated claims experience.” ISTA Br. at 6. School districts participating in the GGA knew that their CSR would exclusively benefit participants in their respective plans. By contrast, school districts taking part in the Small Group Pool (“SGP”) and PRIDE programs understood that CSR accumulated for all participants in those specified plans. Id. at 7. Plaintiffs allege that Defendants told the school districts that, to the extent possible, they “would receive a return on their CSR balances.” Am. Compl. ¶ 16. Part of the method for calculating this return involved determining the return earned by ISTA and the Trust on their investments. In some instances, school districts were promised guaranteed rates of return. Id. ¶ 17.
Although school districts did not typically withdraw CSR contents, these funds could be used to offset a portion of premium responsibilities for a given month (a “premium holiday”) or year. ISTA Br. at 7–8; see also Sullivan Dep. at 200–03. Local teachers' associations often had some input as to whether the school districts within their purview could use CSR for a “premium holiday” or as a pledge against the full year's premium. ISTA Br. at 8. A particular school district's entitlement to retain accumulated CSR upon the district's termination of participation in the Trust depended on whether that district was part of the GGA, SGP, or PRIDE program. Many GGA districts “could use accumulated CSR to purchase continuing benefits for participating employees through another provider,” whereas SGP and PRIDE districts' “accumulated CSR remained with the Trust.” Id. at 8–9. However, to the extent that any specific school district's teachers contributed money to cover premium costs, some portion of that district's CSR balance included money paid by teachers. Id. at 8.
Interest was applied to CSR balances at varying rates during the relevant time period of this lawsuit. ISTA Br. at 9–10. It is not entirely clear how the Trustees established interest rates each year, but the parties have cited several methods: establishing a “conservative enough” number; going over “the financial situation” via consultants; looking at the five- to ten-year Treasury rate; and even assessing previously employed bond measurements. Rogers Dep. at 133–35; Wise Dep. at 40–41; ISTA Br. Exs. 36–38. Between 1998 and 2007, the interest rates applied to CSR balances ranged from a low of 3% to a high of 6.5%. ISTA Br. at 10. Thus, when a school district was deciding whether to renew its participation in the Trust's health care program for another year, the Trust would provide a detailed report of the plan's financial history. These reports, which sometimes included accumulated interest dollars, typically focused on details like PPO savings, hospitalization charges, and expenses categorized by medical diagnosis. Id. at 13. Such data was presumably useful to school districts “consider[ing] an array of factors” in their efforts to differentiate the Trust from other group health providers. See id. at 12. The ISTA asserts that “school districts did not give controlling weight—or[,] indeed, any significant weight at all—to the interest rate the Trust might apply to CSR balances.” 7Id. at 14.
Although the foregoing facts (and, of course, the name “ISTA Insurance Trust”) establish that the Trust furnished group health insurance coverage, the Trust has never been registered with the Indiana Department of Insurance (“the IDOI”) as an insurance company. ISTA Br. at 18; Pl.'s Resp. at 9. The IDOI “held off ... asserting jurisdiction” over the Trust for approximately twenty years. ISTA Br. Ex. 75 (). But in 2005, based on its evolving understanding of the Trust's structure, the IDOI began expressing its view that the Trust met the statutory definition of a Multiple Employer Welfare Arrangement (“MEWA”).8 ISTA Br. at 16–17. Between 2005 and 2009, the Trust and the IDOI maintained a regular correspondence regarding the Trust's continuing operations and, specifically, whether the Trust should be required to register as a MEWA. Id. at 17. The Trust eventually acquiesced by submitting a MEWA registration application, which the IDOI received on May 4, 2009. Id. Ex. 4. Four days later, the IDOI issued an order responding to the Trust's application as follows:
The Enforcement Division of the [IDOI] will decline to act with regard to ISTA's MEWA registration ... through July 1, 2009, in order to allow the transition to fully insured status with UHC to be fully implemented. The ISTA is ordered to place $4.7 million, within five business days from the date of the order, into a trust or joint custodial account so as to secure the cash necessary to facilitate the transition, pursuant to a form of trust or custodial agreement acceptable to the [IDOI].
Id. at 4. This decision appears to have resulted in part from the IDOI's questions as to the Trust's solvency. Relying on advice from a consulting firm, the IDOI expressed concern regarding “the inability of the [Trust's] current assets to adequately fund the liabilities” and reported that, “[i]n the event of insolvency[,] there is no state guarantee fund for the ISTA, either as a registered MEWA or in its current unregistered status.” Id. at 3.
According to the Commissioner, the ISTA failed to disclose numerous material facts to each of the CSR Program participants during the foregoing time period (which involved numerous offers and reports to school districts). Am. Compl. ¶ 20. The Commissioner alleges, inter alia, that the ISTA Entities withheld adverse information regarding the stability of the health arrangement and represented that it was financially sound when it was not. Id. ¶¶ 18–19. Importantly, the Commissioner asserts, CSR Program...
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