1

29 U.S.C. § 1002(1). 

United States Court of Appeals,

Fifth Circuit.

No. 92-8612.

NGS AMERICAN, INCORPORATED and MASCO Industries Self-Funded Employee Benefit

Plans, Plaintiffs-Appellees,

v.

Phillip W. BARNES, in his capacity as Commissioner of Insurance for the State of Texas,

Defendant-Appellant.

Aug. 20, 1993.

Appeal from the United States District Court for the Western District of Texas.

Before REAVLEY, DUHÉ, and BARKSDALE, Circuit Judges.

DUHÉ, Circuit Judge:

Appellee NGS American, Inc. (NGS) and Appellee Masco Industries(Masco)sued to enjoin

Appellant Phillip Barnes, in his capacity as Commissioner of Insurance for the State of Texas, from

enforcing article 21.07-6 of the Texas Insurance Code against NGS and Masco. The district court

granted summary judgment in favor of NGS and Masco, holding that art. 21.07-6, insofar asit relates

to administrators of ERISA-governed insurance plans, is pre-empted by ERISA and therefore

unconstitutional under the Supremacy Clause of the United States Constitution, 805 F.Supp. 462.

We affirm.

FACTS

Masco is based in Michigan with operations in eighteen states, including Texas. Masco

established a Self-Funded Employee Benefit Plan (Masco Plan) to provide medical and other benefits

to its employees. The Masco Plan is an "employee benefit plan" within the meaning of the Employee

Retirement Income Security Act (ERISA).1 NGS, also a Michigan corporation, serves as a

third-party administrator to the Masco Plan. Certain beneficiaries of the Masco Plan reside in Texas.

When Appellant Texas Commissioner of Insurance (the Commissioner) sought to enforce

TexasInsurance Code article 21.07-6 against both NGS and Masco, they sued in the Eastern District
 

2The Commissioner originally contested NGS's and MASCO's standing to bring this action, but

now concedes that both have standing pursuant to 28 U.S.C. § 1331 and this Court's recent

decision in Self-Insurance Institute v. Korioth, 993 F.2d 479 (5th Cir.1993). 

of Michigan, to enjoin the Commissioner from such action on the basis that the article is pre-empted

by § 514(a) of ERISA. NGS and MASCO then moved for summary judgment. In addition to his

response to the motion for summary judgment, the Commissioner filed a motion to dismiss and

notices of discovery. NGS and MASCO sought to quash the Commissioner's notices of discovery,

so the Commissioner moved to compel discovery. The court then transferred the case to the Western

District of Texas while NGS's and MASCO's motion for summary judgment and the Commissioner's

motion to compel discovery were still pending.

The court in Texas ordered NGS and MASCO to submit evidence establishing their standing

under ERISA. They responded by submitting the affidavit of an NGS employee, describing NGS's

business. Without ruling on the Commissioner's motion to compel discovery, the court granted

summary judgment in favor of NGS and MASCO, holding that both had standing pursuant to 28

U.S.C. § 1331 and ERISAto challenge whether ERISA pre-empts art. 21.07-6. The court concluded

that the article is pre-empted by ERISA to the extent that it applies to third-party administrators of

ERISA-governed insurance plans.

The Commissioner appeals the grant of summary judgment, arguing that (1) art. 21.07-6 is

a valid regulation of the business of insurance under § 514(b) of ERISA and therefore is not

pre-empted, and (2) summary judgment was premature because the Commissioner was not afforded

an opportunity for discovery.2

DISCUSSION

I. Standard of Review

Our standard of review of a district court's grant of summary judgment is plenary. Dorsett

v. Board of Trusteesfor State Colleges &Universities, 940 F.2d 121, 123 (5th Cir.1991). Summary

judgment is appropriate if the record discloses "that there is no genuine issue as to any material fact

and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In

reviewing the summary judgment, we apply the same standard as did the district court. Waltman v.
International Paper Co., 875 F.2d 468, 474 (5thCir.1989); Moore v. Mississippi Valley State Univ.,

871 F.2d 545, 548 (5th Cir.1989). We must "review the facts drawing all inferences most favorable

to the party opposing the motion." Reid v. State Farm Mut. Auto. Ins. Co., 784 F.2d 577, 578 (5th

Cir.1986).

II. ERISA Pre-emption Analysis

A. An Overview of ERISA Pre-emption.

We begin our inquiry into whether a federal statute pre-empts state law by determining

Congressional intent. FMC Corp. v. Holliday, 498 U.S. 52, 56-58, 111 S.Ct. 403, 407, 112 L.Ed.2d

356 (1990). "In performing this analysis we begin with any statutory language that expresses an

intent to pre-empt, but we look also to the purpose and structure of the statute as a whole."

Corcoran v. United Healthcare, Inc., 965 F.2d 1321, 1328 (5thCir.1992), cert. denied, --- U.S. ----,

113 S.Ct. 812, 121 L.Ed.2d 684 (1992) (citing FMC Corp., 498 U.S. at 56-58, 111 S.Ct. at 407).

ERISA regulates employee benefit plans. As the Supreme Court explained in Metropolitan

Life Ins. Co. v. Massachusetts, 471 U.S. 724, 732, 105 S.Ct. 2380, 2385, 85 L.Ed.2d 728 (1985),

employee benefit plans may self-insure, or may purchase insurance for their beneficiaries. Plans that

purchase insurance may find themselves directly affected by state laws regulating the insurance

industry. For the sake of uniformity and to ease the administrative burdens imposed on employee

benefit plans complying with both state insurance laws and ERISA, Congress provided that ERISA

shall "supersede any and all State laws insofar as they may now or hereafter relate to any employee

benefit plan." ERISA § 514(a); 29 U.S.C. § 1144(a). This pre-emption provision is "intended to

apply in its broadest sense in all actions of State or local governments which have the force of law."

Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 46, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987).

Pre-emption under ERISA is extensive. The Supreme Court recently stated: "The pre-emption

clause is conspicuousfor its breadth. It establishes as an area of exclusive federal concern the subject

of every state law that "relate[s] to' an employee benefit plan governed by ERISA." FMC

Corporation v. Holliday, 498 U.S. 52, 56-58, 111 S.Ct. 403, 407, 112 L.Ed.2d 356 (1990). The

term "relates to" must be given the broadest possible reasonable interpretation. Shaw v. Delta Air
Lines, Inc., 463 U.S. 85, 96, 103 S.Ct. 2890, 2899, 77 L.Ed.2d 490 (1983).

As Congress giveth, Congresstaketh away: Although § 514(a) of ERISA broadly pre-empts

state laws relating to employee benefit plans, § 514(b)(2)(A) qualifies that pre-emption by broadly

stating that, with one exception, "nothing in [ERISA] shall be construed to exempt or relieve any

person from any law of any State which regulates insurance, banking, or securities." 29 U.S.C. §

1144(b)(2)(A). This section, commonly called the "savings clause," is nearly as expansive as §

514(a). The one exception to § 514(b)(2)(A) is found in § 514(b)(2)(B), commonly called the

"deemer clause," which providesthat "no employee benefit plan, with certain exceptions not relevant

here, "shall be deemed to be an insurance company or other insurer ... for purposes of any law of any

State purporting to regulate insurance companies....' " Metropolitan Life, 471 U.S. at 733-34, 105

S.Ct. at 2385-86 (quoting 29 U.S.C. § 1144(b)(2)(B)).

With this background in mind, we turn to art. 21.07-6 of the Texas Insurance Code.

B. ERISA Pre-emption of art. 21.07-6.

The Commissioner blendstwo argumentsinto one: He argues that art. 21.07-6 regulates the

business of insurance as permitted by § 514(b), and that art. 21.07-6 is merely a licensing statute that

does not "relate to" an ERISA plan. We address these arguments separately.

1. Does art. 21.07-6 fall within § 514(b), the savings clause?

The Commissioner baldly asserts that art. 21.07-6 regulates the business of insurance, but

overlooksthe Supreme Court's pronouncement on this very subject. In Metropolitan Life, 471 U.S.

at 724, 105 S.Ct. at 2380, the Supreme Court set forth the two-pronged test a statute must meet to

fall within the savings clause of § 514(b): First, a court evaluating a state statute determines whether

the statute meets the common sense definition of insurance regulation. Second, the court looks to

the following three factors: (1) Whether the state statute spreads the policyholders' risk; (2) whether

the state statute is an integral part of the policy relationship between the insurer and the insured; and

(3) whether the practice is limited to entities within the insurance industry. If the statute fits the

common sense definition of insurance regulation, and the court answers "yes" to each of the three

inquiries in the second prong of the test, then the statute falls within the savings clause and is not
 

3Because we conclude that art. 21.07-6 fails one inquiry of the second prong of the test, we

need not address the rest of the test. 

 

4Appellant relies on Benefax Corp. v. Wright, 757 F.Supp. 800 (W.D.Ky.1990). In this case

the court upheld a Kentucky state licensing statute for administrators of insurance plans on the

basis that any effect the statute had on ERISA plans was tenuous. The Kentucky statute provided

that "the Commissioner shall not issue, ... any administrator license ... unless such person

demonstrates ... that he or she is 21 years of age, competent, trustworthy, reliable, maintains a

good reputation, has attained an acceptable level of education, is financially responsible, has never

had a license issued by the Commissioner terminated for cause and has paid the fee prescribed by

law." Benefax is distinguishable because art. 21.07-6 is far more intrusive than the Kentucky

statute. 

pre-empted by ERISA. Tingle v. Pacific Mut. Ins. Co., 996 F.2d 105 (5th Cir.1993) (citing

Metropolitan Life, 471 U.S. at 743-44, 105 S.Ct. at 2391).

It strikes us as we apply this test to the case at hand that the Commissioner's own brief

undermines his contention that art. 21.07-6 regulates the business of insurance. Article 21.07-6

purportedly regulatesinsurance by regulating the administrators ofinsurance plans. In explaining the

functions of administrators regulated by art. 21.07-6, the Commissioner states that "[w]here an

administrator enters into a contract with an insurer to collect premiums and adjust claims, that

administrator stands in the shoes of the insurer for all purposes except the bearing of risk."

Appellant's brief p. 26 (emphasis added). Thus, the Commissioner concedes that the administrators

that Texas seeks to regulate under art. 21.07-6 perform no risk-bearing function. Because these

administrators perform no risk-bearing function, regulating them under art. 21.07-6 does not spread

risk among policyholders. Therefore, art. 21.07-6 fails the first inquiry of the second prong of the

Metropolitan Life test.3 Article 21.07-6 is not a regulation of insurance within § 514(b).

2. Does art. 21.07-6 "relate to" an ERISA plan?

Having rejected the Commissioner's argument that art. 21.07-6 is a valid regulation of

insurance, we turn to his argument that the article does not "relate to" an ERISA plan.

TheCommissioner arguesthat art. 21.07-6 isfirst and foremost a licensing statute that applies

to administrators "regardless of whether they contract to provide servicesto conventional insurance

products or ERISA plans."4 We disagree. Article 21.07-6 does far more t han merely license

administrators. For example, section Eight of the article provides that the Commissioner may review
the financialstatements ofthe administrator and allwritten agreements between the administrator and

various insurers and plans. Section Nine provides that each administrator must file an annual report

with the Commissioner. Section Fourteen provides that the Commissioner be given access to an

administrator's books and records for the purposes of examination, audit, and inspection. It is clear

to us, particularly in light ofthe breadth ofthe § 514(a) pre-emption clause, that art. 21.07-6 imposes

significant burdens on administrators ofERISA-governed employee benefit plans. It is these burdens

of complying with conflicting state regulationsthat Congresssought to eliminate by enacting ERISA.

Shaw v. Delta Airlines, Inc., 463 U.S. 85, 105, 103 S.Ct. 2890, 2904, 77 L.Ed.2d 490 (1983)

(Congress sought to "ensur[e] that employers would not face "conflicting or inconsistent State and

localregulation of employee benefit plans.' " (quoting 120 Cong.Rec. 29933 (1974) (remarks of Sen.

Williams))).

In our view art. 21.07-6 impermissibly "relates to" NGS in its role as administrator for the

Masco Plan, and to that extent the article is pre-empted by ERISA.

III. Lack of Discovery

The Commissioner argues that the court erred in granting summary judgment in favor of

NGS and Masco without ruling on his motion to compel discovery. In the Commissioner's view this

premature grant of summary judgment violates the Supreme Court's mandate that the non-moving

party in a summary judgment proceeding should have "an opportunity to make full discovery."

Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Appellant theorizes that if, through discovery, he could prove that NGS administers

non-ERISA governed insurance plans as well as ERISA-governed plans, then he could persuade the

Court that NGS should not be permitted to evade art. 21.07-6 on the basis that it administers only

ERISA plans.

Appellant has failed to point to any issue of material fact that could preclude summary

judgment. Masco is clearly governed by ERISA, and NGS is its administrator. Whether ERISA

pre-empts art. 21.07-6 is a question of law, and Appellant's position that the article regulates

insurance would be unaided by additional facts regarding NGS's business. Whether NGS may also
administer plans other than Masco's and not governed by ERISA is left to be resolved another day.

CONCLUSION

For the foregoing reasons, we conclude that art. 21.07-6 of the Texas Insurance Code, as

applied to third-party administrators of ERISA-governed insurance plans in their capacity as third

party-administrators ofERISA-governed insurance plans, is pre-empted by ERISA. Our holding does

not preclude the Texas Commissioner of Insurance from enforcing the article against third-party

administrators of non-ERISA governed insurance plans, or against third-party administrators of both

ERISA and non-ERISA governed plans in their capacity as administrators of non-ERISA governed

plans. The district court's grant of summary judgment in favor of NGS and Masco is

AFFIRMED.