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ATLANTIC HEALTH CARE BENS. TRUST v. FOSTER

December 23, 1992

ATLANTIC HEALTH CARE BENEFITS TRUST, UNITED HEALTH CARE ASSOCIATION OF AMERICA, NATIONAL INSURANCE CONSULTANTS, INC., EDWARD M. ZINNER, and WILLIAM MOULTON, Plaintiffs
v.
CONSTANCE B. FOSTER, INSURANCE COMMISSIONER OF THE COMMONWEALTH OF PENNSYLVANIA; and the INSURANCE DEPARTMENT OF THE COMMONWEALTH OF PENNSYLVANIA, Defendants; CHARLES R. ZIMMERMAN, Plaintiff v. CONSTANCE B. FOSTER, INSURANCE COMMISSIONER OF THE COMMONWEALTH OF PENNSYLVANIA; and the INSURANCE DEPARTMENT OF THE COMMONWEALTH OF PENNSYLVANIA, Defendants; HAROLD W. KING, Plaintiff v. CONSTANCE B. FOSTER, INSURANCE COMMISSIONER OF THE COMMONWEALTH OF PENNSYLVANIA; and the INSURANCE DEPARTMENT OF THE COMMONWEALTH OF PENNSYLVANIA, Defendants



The opinion of the court was delivered by: SYLVIA H. RAMBO

 Before the court is Defendants' motion to dismiss Plaintiffs' complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Plaintiffs seek a declaration that Pennsylvania insurance laws regulating its benefits plan are preempted by ERISA, and further seek to enjoin the Commissioner from interfering with their benefits plan. Defendants assert that they are immune from suit pursuant to the Eleventh Amendment, and that Plaintiffs' complaint fails to state a claim since state licensing regulations are not preempted by ERISA as Plaintiffs allege. The matter has been fully briefed and is now ripe for consideration.

 Background

 The following facts are undisputed by the parties; any contested points will be noted by the court: On February 1, 1991, Edward Zinner and William Moulton created Atlantic Health Care Benefits Trust ("Atlantic"). Plaintiff United Health Care Association of America is a group of employers who provide their employees coverage through Atlantic. Plaintiff National Insurance Consultants administers Atlantic. Plaintiffs Zimmerman and King are insurance agents working with Atlantic. On June 28, 1991, the Pennsylvania Insurance Department claimed that Plaintiffs were operating an insurance company without the proper license required by 40 Pa. Cons. Stat. Ann. § 46. Subsequently, on November 27, 1991, the Commissioner ordered Atlantic to cease and desist solicitation of subscribers, renewal of policies, or acceptance of premium payments.

 Defendants in the captioned case are Cynthia M. Maleski, the Commissioner for the Pennsylvania Insurance Department, who has been sued both in her individual and official capacities, and the Insurance Department itself. *fn1"

 Plaintiffs seek declaratory relief, to obtain clarification of the interplay between federal and state law, and injunctive relief, to prevent Defendants' allegedly unlawful interference in the benefits plan. Plaintiffs contend that Pennsylvania's regulation of Atlantic is preempted, and thus precluded by the Employee Retirement Security Act of 1974 ("ERISA"), which purportedly governs Plaintiffs' scheme.

 Discussion

 I. Eleventh Amendment

 A. Introduction

 Defendants assert that this court has no subject matter jurisdiction over the captioned action because of Eleventh Amendment immunity afforded states and their agencies. As the present suit implicates a state body and a state official, Defendants seek dismissal of the captioned case pursuant to Federal Rule of Civil Procedure 12(b)(1).

 The Eleventh Amendment provides:

 The Judicial power of the United States shall not be construed to extend to any suit in law or equity commenced or prosecuted against any one of the United States by citizens of another State, or by citizens or subjects of any Foreign State.

 This amendment, while facially applicable to both states and state officials, has been differentially interpreted in the two instances.

 B. Suit against Pennsylvania Insurance Department

 The Eleventh Amendment has always been interpreted as precluding suit against a state without a waiver of immunity by the state. Furthermore, the Ex Parte Young doctrine, discussed below, does not alter the fundamental prohibition against directly suing a state. Ex Parte Young, 209 U.S. 123, 52 L. Ed. 714, 28 S. Ct. 441 (1908). See also Alabama v. Pugh, 438 U.S. 781, 782, 57 L. Ed. 2d 1114, 98 S. Ct. 3057 (1978).

 Nor may a state body be sued without a waiver of immunity. This bar to suit just as clearly applies to Commonwealth agencies as it does to the Commonwealth itself. See Helfrich v. Pennsylvania, Department of Military Affairs, 660 F.2d 88, 90 (3d Cir. 1981) (Department of Military Affairs immune from suit due to Eleventh Amendment); Pugh, 438 U.S. at 782 (Board of Corrections immune due to Eleventh Amendment). Plaintiffs concede that the Pennsylvania Insurance Department is an arm of the Commonwealth. Complaint at P 8. Moreover, there is no indication that the Commonwealth has consented to this suit. Thus, Defendants are correct that Plaintiffs' suit must fail as to defendant Insurance Department of Pennsylvania. The Insurance Department will be dismissed from the case.

 C. Suit against Pennsylvania Insurance Commissioner

 The words of the Eleventh Amendment would appear to preclude federal courts from granting injunctive relief to ensure that states, through state officials, conform to constitutional or federal law. However, case law has not so interpreted the Eleventh Amendment.

 The seminal case, Ex Parte Young, held that any state official acting inconsistently with the federal Constitution is "stripped of his official or representative character and is subjected in his person to the consequences of his individual conduct." Ex Parte Young, 209 U.S. at 160. Thus, Ex Parte Young created a fiction to enable state officials to be required to comply with federal law -- if a state officials's actions are not in compliance with federal law, the acts are deemed not to be sanctioned by the state, thereby permitting a personal suit against the officials to go forward. Because of the fiction of Ex Parte Young, technically, injunctive relief is only available against officials in their individual capacity; however, courts have gradually approached this fiction more leniently and permitted claims against state officials acting solely in their official capacity.

 The principle enunciated in Ex Parte Young, permitting suits for injunctive relief against state officials who violate federal constitutional rights, has been expanded to apply to violations of federal statutes as well. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96, 77 L. Ed. 2d 490, 103 S. Ct. 2890 n. 14 (1983); Almond Hill School v. United States Dept. of Agric., 768 F.2d 1030, 1034 (9th Cir. 1985); Allegheny Count Sanitary Auth. v. United States Envtl. Protection Agency, 732 F.2d 1167, 1174 (3d Cir. 1984).

 Moreover, declaratory relief, ancillary to injunctive relief, against a state official is not barred by the Eleventh Amendment. Green v. Mansour, 474 U.S. 64, 72-73, 88 L. Ed. 2d 371, 106 S. Ct. 423 (1985), reh'g denied, 474 U.S. 1111, 88 L. Ed. 2d 933, 106 S. Ct. 900 (1986); Lee v. Western Reserve Psychiatric Habilitation Center, 747 F.2d 1062, 1066 (6th Cir. 1984).

 Although it appears that much of the challenged conduct may have occurred prior to defendant Maleski's tenure on the Commission, the prospective nature of the relief which Plaintiffs seek clearly implicates her as she is the individual charged with carrying out the disputed conduct. Moreover, "personal action by defendants individually is not a necessary condition of injunctive relief against state officers in their official capacity. All that is required is that the official be responsible for the challenged action." Luckey v. Harris, 860 F.2d 1012, 1015 (11th Cir. 1988).

 Because the Eleventh Amendment does not preclude Plaintiffs from seeking injunctive or declaratory relief against defendant Maleski, this court's subject matter jurisdiction over her is not defeated by the Eleventh Amendment.

 A Rule 12(b)(6) motion tests the legal foundation of the plaintiff's claims; it is not intended to question the plaintiff's facts. United States v. Marisol, Inc., 725 F. Supp. 833, 836 (M.D. Pa. 1989). The court must determine if the plaintiff's claim would fail even if all facts alleged in the complaint were true. Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957). The 12(b)(6) movant carries the burden of showing this legal insufficiency of the claims asserted. Johnsrud v. Carter, 620 F.2d 29, 33 (3d Cir. 1980).

 To prevent unwarranted dismissal of the plaintiff's claims, the allegations put forth in the complaint are taken as true and inferences from those facts are viewed in the light most favorable to the plaintiff. Mortensen, 549 F.2d at 891; Truhe v. Rupell, 641 F. Supp. 57, 58 (M.D. Pa. 1985). However, "conclusory allegations of law, unsupported conclusions and unwarranted inferences need not be accepted as true." Pennsylvania House, Inc. v. Barrett, 760 F. Supp. 439, 449-50 (M.D. Pa. 1991) (citing Conley, 355 U.S. at 45-46). A Rule 12(b)(6) motion will be granted only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. at 45-46.

 III. ERISA preemption

 A. Introduction

 The Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et seq., regulates a broad range of employee plans. As one court has described:

 Congress enacted ERISA to protect working men and women from abuses in the administration and investment of private retirement plans and employee welfare plans. Broadly stated, ERISA established minimum standards for vesting of benefits, funding of benefits, carrying out fiduciary responsibilities, reporting to the government and making disclosures to participants.

 Donovan v. Dillingham, 688 F.2d 1367, 1370 (11th Cir. 1982).

 To help achieve these goals, Congress provided for federal preemption over state laws regulating specified employee benefit and welfare plans by mandating that ERISA shall "supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan . . . ." 29 U.S.C. § 1144(a). However, to maintain states' traditional role in regulating the insurance industry, Congress limited the scope of this preemption by providing that nothing in ERISA "shall be construed to exempt ...


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