National Council of Allied Employees v. State of Texas

CV2-392 IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS, AT AUSTIN NO. 3-92-392-CV NATIONAL COUNCIL OF ALLIED EMPLOYEES, ET AL., APPELLANTS vs. STATE OF TEXAS, APPELLEE FROM THE DISTRICT COURT OF TRAVIS COUNTY, 201ST JUDICIAL DISTRICT NO. 92-04263, HONORABLE PETER M. LOWRY, JUDGE PRESIDING PER CURIAM NCAE and Local-615 (1) appeal the trial court's order granting the State of Texas a temporary injunction and imposing a bond requirement. The State sued in quo warranto, alleging that appellants were engaged in the unauthorized business of insurance. The State applied for a temporary injunction and requested that a bond be imposed. Tex. Ins. Code Ann. art. 1.36, § 11 (West Supp. 1994). Appellants contend that ERISA (2) preempts state regulation of their activities and that the bond requirement violates rights under the United States Constitution and the Texas Constitution. We will affirm the trial court's order. TEMPORARY INJUNCTION The first point of error we will consider (point E-1) is contained in the brief filed by the International Association of Entrepreneurs of America, Inc. ("Entrepreneurs"). (3) In this point, appellants contend that the trial court abused its discretion in granting a temporary injunction because the evidence does not support the State's probable right to recovery. As the applicant for the temporary injunction, the State had to plead a cause of action, show a probable right to recovery and a show a probable injury would be sustained during the pendency of the trial if the temporary injunction were not issued. Transport Co. of Texas v. Robertson Transports, Inc., 261 S.W.2d 549, 552 (Tex. 1953). Appellants do not contend that the State has failed to meet any other requirement for obtaining a temporary injunction but assert only that the State cannot show a probable right to recovery because appellants are engaged in activities controlled by ERISA and state action is preempted. We disagree. The trial court did not abuse its discretion in granting the temporary injunction because the State, as applicant, met its burden of proof to show a probable right to recovery, based on the resolution of a disputed fact issue about the existence of a plan controlled by ERISA. Unless ERISA controls, ERISA preemption cannot occur. Standard of Review The trial court has broad discretion in granting or denying a temporary injunction, and its action will not be reversed on appeal unless the trial court clearly abused its discretion. Davis v. Huey, 571 S.W.2d 859, 861-62 (Tex. 1978). The test for an abuse of discretion is whether the trial court acted without reference to any guiding rules or principles, that is, in an arbitrary and unreasonable manner. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985), cert. denied, 476 U.S. 1159 (1986). An abuse of discretion can occur if a court exercises its discretion without sufficient facts from which it may make a rational decision. Reyna v. Reyna, 738 S.W.2d 772, 774 (Tex. App.--Austin 1987, no writ); see also Landon v. Jean-Paul Budinger, Inc., 724 S.W.2d 931, 939-40 (Tex. App.--Austin 1987, no writ). Although many cases state that if conflicting evidence is presented, the appellate court must decline to hold that the trial court abused its discretion in rendering its order, see, e.g., Davis, 571 S.W.2d at 862; Henderson v. KRTS, Inc., 822 S.W.2d 769, 773 (Tex. App.-Houston [1st Dist.] 1992, no writ), this Court has expanded on that statement and said that whether a court has abused its discretion must be determined with regard to the entire context of the proceeding, including the circumstance that the trial court had a fact dispute before it. Anderson Oaks v. Anderson Mill Oaks, 734 S.W.2d 42, 44 (Tex. App.--Austin 1987, no writ). "Probable right to recover" does not mean that the judge at the hearing on the temporary injunction predicts the applicant's chances of success at trial, based upon the judge's estimate of where the truth probably lies. Id. at 44 n.1. Rather the applicant, with regard to both facts and law, need show only that a bona fide issue exists as to his right to ultimate relief." Id. (quoting L. Hamilton Lowe, Remedies § 153 at 188 (Texas Practice 2d ed. 1973)). The requirement of demonstrating the likelihood of prevailing on the merits requires evidence from an applicant that will at the least tend to support a right to recovery. Id. (citing Bob E. Shannon, Charles F. Herring, Jr., & J. Matthew Dow, Temporary Restraining Orders and Temporary Injunctions in Texas--A Ten Year Survey, 1975-85, 17 St. Mary's L.J. 689, 717-18 (1986)). ERISA Preemption Appellants contend that the State cannot show a probable right to recover because ERISA preempts any State law regulation of the activities about which the State complains. As authority for the proposition that ERISA covers appellants' activities, they rely on a decision from a United States District Court in Phoenix, Arizona, (4) and its "finding" that United Labor Council Local 615 Welfare Fund is an "employee welfare benefit plan" within the meaning of ERISA. A copy of the order, signed after the signing of the temporary injunction in this cause, is attached to the Entrepreneurs' brief. We note first, that the finding of fact appellants cite was an agreed one between the plaintiff Secretary of Labor and defendants Herbert Marshall, David Marshall, Douglas Carpa, and Fred Goodman and was adopted by the Court only as to those defendants. (David Marshall and Fred Goodman were not defendants below in this cause). Appellants supply no authority for why this agreed determination should have any preclusive effect on the previously rendered Texas state court determination. (5) Appellants cite no authority other than that supporting general propositions on the issue of ERISA preemption. Neither appellants nor the State refer (6) to the multiple-volume statement of facts from the temporary injunction hearing. ERISA preemption is complex. See, e.g., John F. Wagner, Jr., Construction and Application of Preemption Exemption, Under Employee Retirement Income Security Act (29 USCS §§ 1001 et seq.), for State Laws Regulating Insurance, Banking, or Securities (29 USCS § 1144(b)(2)), 87 ALR Fed 797-863 (1988); E. Thomas Bishop and Paula Denney, Hello ERISA, Good-Bye Bad Faith: Federal Pre-emption of DTPA, Insurance Code, and Common Law Bad Faith Claims, 41 Baylor L. Rev 267-289 (1989); William J. Kilberg & Paul D. Inman, Preemption of State Laws Relating to Employee Benefit Plans: An Analysis of ERISA Section 514, 62 Tex. L. Rev. 1171-1361 (1984). Before launching into the complexities of preemption analysis, however, we must determine whether ERISA applies to the activities. For ERISA to apply, an "employee welfare benefit plan" must exist. Meredith v. Time Ins. Co., 980 F.2d 352, 354 (5th Cir. 1993); MDPhysicians & Assocs., Inc. v. State Bd. of Ins., 957 F.2d 178, 182-83 (5th Cir. 1992). An "employee welfare benefit plan" is any plan, fund or program . . . 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 maintained for the purpose of providing its participants or their beneficiaries, through the purchase of insurance or otherwise, [with certain medical and health benefits]. 29 U.S.C. § 1002(1) (1988). An "employee" means "any individual employed by an employer." 29 U.S.C. § 1002(6) (1988). An "employee organization" is: any labor union or any organization of any kind, or any agency or employee representation committee, association, group, or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning an employee benefit plan, or other matters incidental to employment relationships; or any employees' beneficiary association organized for the purpose in whole or in part, of establishing such a plan. 29 U.S.C. § 1002(4) (1988). A "multiple employer welfare arrangement" provides benefits to "two or more employers." 29 U.S.C. § 1002(40)(A) (1988). All multiple employer welfare arrangements, however, do not qualify as "employee welfare benefit plans" under ERISA. Meredith, 980 F.2d at 354. The line between multiple employer welfare arrangements that are employee welfare benefit plans under ERISA, and multiple employer arrangements by which a group of entities "pool" premiums to buy insurance through an entity that may in essence be an entrepreneurial venture organized to sell, purchase, or administer insurance, has been troublesome. In MDPhysicians, the court considered whether a multi-employer welfare arrangement qualified as an ERISA plan. 957 F.2d at 178. MDPhysicians sponsored and marketed an insurance plan. Over one hundred disparate employers subscribed to the plan and paid a monthly per-employee fee. Id. at 180. The court held that the organization sponsoring the plan did not act directly as an employer because no employment or economic relationship existed between it and the employees of subscribing employers. Id. at 183. The subscribing employers did not participate in the operation of the plan. Id. The court focused on the relationship between the entity offering the plan and the recipients of the benefits; the entity that maintains the plan and the individuals that benefit must be tied by a common economic interest, unrelated to the provision of benefits. Id. at 186. Taggart Corp. v. Life & Health Benefits Administration, Inc., 617 F.2d 1208 (5th Cir. 1980), involved an entity called the Security Multiple Employers Trust, which provided insurance to employers too small to secure group insurance on their own. Employers became members of SMET, which then pooled premiums to purchase insurance. Id. at 1210. Taggart purchased insurance through SMET for its sole employee, Stanley Kansas. The court found that SMET was neither established nor maintained by an employer or an employee organization. Id. Rather, SMET was a proprietary enterprise that acted as a "mere conduit" for hundreds of unrelated subscriber customers, forwarding premium payments to a group insurer. Id. Neither Taggart nor any other employer participated in SMET's operation or administration. The court concluded that ERISA plans are broader in scope than a pure insurance transaction. Id. at 1211. Probable Right to Recovery Similarly, the existence of an employment relationship as opposed to the mere sale and purchase of insurance is the essential problem in this case. (7) If an employment relationship exists, ERISA applies and preempts state regulation. The State, therefore, could not show a probable right to recovery. Whether an benefit program qualifies as an ERISA plan is a factual determination. See MDPhysicians, 957 F.2d at 178 (5th Cir. 1992); Burghart v. Connecticut Gen. Life Ins. Co., 806 S.W.2d 324, 327 (Tex. App.--Texarkana 1991, no writ). In reviewing the statement of facts, we note that the existence of an employee organization in the form of a union was vigorously disputed. The State called several witnesses who testified that they had purchased health insurance through appellants, but were not union members; that they did not participate in the union and were unaware of any right to such participation. The fact situation presented in this case is analogous to those in MDPhysicians, 957 F.2d at 178, and Taggart, 617 F.2d at 1208, in that there appears to be a lack of an "employer" or "employee organization" or a common economic interest between the entity offering the plan and the individuals that benefit from it. The trial court had before it evidence from which it could conclude that no employee welfare benefit plan covered by ERISA existed. If a benefit program is not a plan controlled by ERISA, then ERISA would not preempt Texas law. The court had before it enough evidence to show a probable right to recovery; it did not need to make a final determination that the State would prevail on the merits. The court did not abuse its discretion in issuing the injunction. We overrule point of error E-1 (and all points adopting it) and conclude the granting of the temporary injunction was not an abuse of discretion. BOND REQUIREMENT In two points of error, appellants contend that the trial court erred in imposing a bond requirement because the requirement to post the bond violated their federal and state constitutional rights (NCAE-1); and because there was no evidence or insufficient evidence to support requiring the bond (NCAE-2). (8) The Insurance Code The trial court imposed the bond under the authority of Texas Insurance Code Ann. art 1.36, § 11(a)(1) (West Supp. 1994), which provides that: "Before an unauthorized person or insurer files or has filed any pleading in any court action, suit or proceeding . . . that person or insurer must either: (1) deposit with the clerk of the court in which the action suit or proceeding is pending cash or securities or a bond . . . in an amount to be determined by the court sufficient to secure the payment of any final judgment that may be rendered in that court proceeding . . . . The statute further provides that the court may dispense with the deposit or bond if the insurer makes a satisfactory showing that it has funds elsewhere sufficient to satisfy a judgment (Tex. Ins. Code Ann. art 1.36, § 11(a)(1)(West Supp. 1994)); that the court may order "any postponement necessary" to allow the defendant to meet the requirement (Id. at (b)); and that a motion to quash or set aside service on the basis that the unauthorized person has not done any of the acts in the article may be filed without bond (Id. at (c)). Open Courts Appellants contend that the bond requirement violates their federal due process rights because the bond is imposed without regard to ability to pay. As well, appellants contend that the bond requirement violates the "Open Courts" provision of the Texas Constitution. Tex. Cons. Ann. art I, § 19. Several recent cases have dealt with the "Open Courts" provision: R Communications v. Sharp, 37 Tex. Sup. Ct. J. 727-731 (April 28, 1994); Texas Ass'n of Business v. Texas Air Control Board, 852 S.W.2d 440, 448-50 (Tex. 1993); and State v. Flag--Redfern Oil Co., 852 S.W.2d 480, 484-86 (Tex. 1993). The current cause differs procedurally from the above cases. Those cases dealt with a requirement that an administrative penalty (Texas Association of Business) or a disputed audit amount (Flag-Redfern, R Communications) be prepaid before any review by a court could occur. This section of the Insurance Code, at least with regard to court proceedings, provides that the court sets the amount of the bond, and gives the court a range of discretion as to how and when the security must be posted. (9) We think the situation before us is comparable to an appeal or supersedeas bond, and we do not read Texas Association of Business as abolishing appeal or supersedeas bond requirements. See Maniccia v. Johnson & Gibbs, No. 3-92-614-CV (Tex. App.--Austin February 2, 1994, writ requested). Rather, Texas Association of Business is a restatement that under the open courts provision of the Texas constitution, a citizen's access to the courts cannot be impeded by "unreasonable financial barriers" in light of the interest involved. Id. In this case, the State traditionally has had a strong interest in protecting its consumers from deceptive practices in the area of insurance. To support the amount of the bond, the State points to provisions as to how many dollars per day per violation it might recover in the underlying lawsuit based on appellants' engaging in the unauthorized businesses of insurance, deceptive trade practice act violations, and article 21.21 Insurance Code violations. By multiplying these amounts by the number of days of potential violations, the State contends that the bond requirements are actually less than the State's potential recovery. Appellants' briefs do not identify any place in the record, and we have found none, at which any of them produced evidence showing specifically that this requirement would, under their particular financial circumstances, prevent them from litigating this cause in court. Assertions in a brief that the requirement would prevent them from being able to pursue this cause are not adequate to show that their access to the courts would be unreasonably impeded under the Texas Constitution or that they have been denied due process rights to trial under the United States Constitution. As noted above, appellants have been litigating this cause on temporary injunction. At this point, appellants have not demonstrated that they have been harmed by the imposition of any unreasonable financial barriers to pursuing this litigation. We overrule points of error NCAE--1 and NCAE-2 and all points adopting these points. We affirm the judgment of the trial court imposing the temporary injunction and bond requirements. Before Justices Powers, Aboussie and Jones Affirmed Filed: May 25, 1994 Do Not Publish 1. 1 Appellants consist of two groups: National Council of Allied Employees, National Council of Allied Employees Welfare Fund, National Council of Allied Employees Local Union 555, National Benefit Services, Inc., Angelo Valente, and Gary Rickard ("NCAE" appellants); and National Council of Allied Employees Local Union 615, National Council of Allied Employees Local Union 615 Welfare Plan, National Council of Allied Employees Local Union 615 Welfare Fund, United Labor Council Local Union 615, United Labor Council Local Union 615 Welfare Plan, United Labor Council Local Union 615 Welfare Fund, Royal Guardian Mutual Benefit Association, Inc., Intrepid Reinsurance Group, Ltd., International Association of Entrepreneurs of America, Inc., Taylor & Associates, Inc., Corporate Benefit Administrators, Inc., American Global Adjusting Company, Insurance Services Claims Administration, Carlton J. Kirel, Herbert M. Marshall, Douglas Carpa, Jack L. Stevenson, Norman E. Meyer, James E. Taylor, and Joseph N. Fiore ("Local-615" appellants). Not all defendants below are appellants. Each of the two groups of appellants filed an appeal bond. 2. 2 Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 (1988). 3. 3 Several briefs have been filed on behalf of various combinations of appellants. We will consider all points of error as they relate to all appellants, as the briefs adopt various of each other's points of error and arguments. This brief adopts as its argument in point of error two, the arguments of the NCAE appellants with regard to the bond. A brief filed on behalf of the entire group of Local-615 appellants adopts all points in the Entrepreneurs and NCAE briefs. 4. 4 Lynn Martin v. Carlton Kirel, No. CIV 92-2075 PHX RCB (D. Ariz. Jan. 5, 1993). 5. 5 An opinion was issued on remand of this cause to state court. State of Texas v. National Council of Allied Employees, 791 F. Supp. 1154 (W.D. Tex. 1992). The opinion states that it should not have any preclusive effect on the state court's consideration of the preemption defense under ERISA. Id. at 1156 n.2. The opinion later contains the statement: "This ruling should not be used in any way with the State's allegations against the various defendants, both individuals and entities." Id. at 1161. This statement is rather puzzling. It is unclear whether the "ruling" is the one remanding the cause, or the previous sentence, asking the Attorney General to contact the appropriate federal offices to see if a federal action should be initiated. Inasmuch as no party mentions the opinion, apparently the parties' interpretation has been that the opinion cannot be cited or used. 6. 6 The State argues that the point was waived because not raised as such in the NCAE brief, which was filed first. The point is made explicitly in the Entrepreneurs' brief. 7. 7 Appellants contended that they were a bona fide union and therefore qualified as an employee organization. Although a union is a type of employee organization, the question whether appellants were a union was disputed. 8. 8 These points are contained in the brief filed by the NCAE appellants. The Entrepreneurs' brief adopts the arguments and authorities of the NCAE appellants brief. A brief filed on behalf of the entire group of Local-615 appellants adopts the NCAE and Entrepreneurs' briefs. 9. 9 We do not confront, and therefore make no holding on, the sections of the statute dealing with bond requirements in proceedings before the Insurance Board.