Emanuel Redfield: -- I'm about to say that after a trial, sometime before Christmas of that year. And If you recall, the temporary injunction was granted in September and the trial took place shortly before Christmas. After deliberating over the question, despite the law of saying that judgments have to be made within two days. The court took until, I think subsequent June before he rendered a decision. The injunction restrained these appellants from distributing, selling or acquiring possession of these books. It held the volumes to be obscene.
Speaker: I take it --
Emanuel Redfield: And --
Speaker: -- in your position, nothing turns on the degree of the obscenity that's at bar.
Emanuel Redfield: No.
Speaker: That it's hard -- what the Government calls in the next case hardcore obscenity, why your point would be still --
Emanuel Redfield: I'm -- I'm not touching that point at all. I'm -- I -- I did not contest it from the beginning.
Speaker: (Inaudible)
Emanuel Redfield: Yes, and in that action, of course, I raised the constitutional questions that I'm here raising. But the court held the law to be constitutional. It held that there was no prior restraint involved and the very voluminous opinion written seems to focus its attention on the fact that these books were so bad that it didn't appeal to this judge. He also held that the law will be constitutional because no prior restraint was involved in that by analogy to certain picketing cases. There could not be a prior restraint. Then we appealed to the Court of Appeals of New York, and the court there sustained the constitutionality of the statute with three judges siding with one opinion and three judges with another opinion. In my argument as I stated earlier, the only issue is would a prior restraint by this injunctive procedure. In attacking this problem, for the moment, I have to omit the feature of obscenity, I will come to that and if I don't have time to come to it, it's in my brief. And we have to start with this. What is the effect of this statute? Under the law of both the statute and the general equity procedures in New York, a stay was obtained, a temporary injunction was granted and seizure of the books follows. The statute therefore in effect, and that is the important element, in effect operates to prevent the publication from reaching the public. The injunction might well issue before the books are even bound, if they're merely being printed and held ready for distribution. And in that sense the advice goes to the very heart of protecting publications from suppression. It was established long ago in this Court, that distribution is protected as well as publication. The (Inaudible) case holds that. And if distribution is protected as well as publication, then I don't see that it makes any difference whether or not this book is directed against somebody who has a manuscript only or whether it's directed against distribution. In both cases the suppression is effectual. The books cannot reach the public.Only recently, this Court held in Butler against Michigan, that the public's interest to be able to read what is published is a right that must be affirmed. And if this injunction deprives the public of that right, it well comes within the scope of that Butler articulation. Now --
Speaker: What was (Inaudible) criminal conviction, under New York statute it provided that one duly convicted for disseminating obscene material, all the material of that class is to be destroyed (Voice Overlap) --
Emanuel Redfield: Yes, I'm -- I'm very happy you raised that because I thought of that many times. But I would say things should be reached when you have to dispose of them. This is not that case. I -- in other words, if I were defending a person convicted such as you mention, I might well raise at that time the question as to whether or not the Court make -- I mean that whoever is empowered, whichever public officer is empowered to destroy, may be violating the constitutional rights of -- the both, the public to read and also of the person who owns those books. But I say --
Earl Warren: (Voice Overlap)
Emanuel Redfield: -- that's not involved here --
Earl Warren: No, please finish. I --
Emanuel Redfield: I'm sorry.
Earl Warren: Excuse me.
Emanuel Redfield: But -- but that's not involved here and I say we have enough difficulty with this case without taking on additional ones. Now, this brings me --
Earl Warren: Before you get to a new -- new subject, may I ask. It makes no difference to you then whether there had been a sale of one or more copies of this book before this action was brought or whether they were just held there for distribution.
Emanuel Redfield: Well, the -- the question -- that question, however, is one of -- let me put it this way. The -- the sale of it is sort of evidentiary of the existence of these books for the purpose of sale.
Earl Warren: Yes.
Emanuel Redfield: But I don't think it will make any difference in principle, so long as you are suppressing the book.
Earl Warren: Well, that's what I understood you to say --
Emanuel Redfield: Yes.
Earl Warren: -- that the -- that the Constitution protects the distribution --
Emanuel Redfield: Yes.
Earl Warren: -- as well as the publication.
Emanuel Redfield: Yes, sir. That's exactly what I meant.
Earl Warren: Yes.
Emanuel Redfield: Now, in Near against Minnesota, this Court had before it a case which I think is not only a guide but as an authority for determination of this case. The facts are almost identical. The only difference being that in Near, you have a libel situation, whereas here one of obscenity. In Near, this person published a magazine -- a newspaper -- a weekly newspaper that was sought to be enjoined under the Minnesota statute, comparable in every way to this one. The statute enable public officer to go into Court and get an injunction against the distribution of any publication, present or future on the ground that such a publication was a public nuisance. And the public nuisance is that of being either libelous or else obscene. And this Court voided that Minnesota statute, so far as it applied to that particular issue. The issue there being that the newspapers were very libelous and they were certainly were very libelous. The Court held that the issue there was not punishment of Near but rather suppression. And Chief Justice Hughes for review, the history for the First Amendment -- Amendment, concluded that the First Amendment was enacted for just that situation.
Speaker: But he also had a sentence in there that indicated they might be some difference whether it is an obscenity issue.
Emanuel Redfield: I'm coming to that. Well, if I don't have a chance to come to that, I'd like to take the opportunity at this moment. What he said there, if you recall, was not well articulated. That is, he didn't treat it comprehensively. It was just one of those passing remarks. It was not based upon any authority under the Constitution. There were no decisions prior thereto. There were no statutory or constitutional provisions covering that point. He just made that remark in passing. It was pure dicta. Now, what he said there is obscure, too, because whether or not he referred to criminal prosecutions or referred to civil suits, is not made clear. Therefore, I say that the Near case, so far as obscenity is concerned, cannot be deemed the authoritative. All that was involved in that particular case were these libelous newspapers. And I dare say, that if one were given the choice between the fulminations of newspapers like Near's, in which he libeled race, people, innumerable public officials and did it continuously, if one were to give a choice between that and some of this stuff that is termed obscene, I'm sure that there are many people who would think that the obscene were a lesser evil, for the reason as we all know that some of the fulminations that appear in the Near magazines were comparable to the Hitler ranklings that resulted in about six million people dead. Now, whether obscene, books can produce six million dead, I don't know. But certainly when you have social conduct, such as involved in Near's newspapers, I give pause as to which social evil was greater. Now --
Felix Frankfurter: Is that pause -- if I may say so. That pause is just where legislation comes in. If we have to fall then we have to pause and the and the agency which on whole seeks to express what social policy should be paid its role. That's what they're for.
Emanuel Redfield: Well, the question is this --
Felix Frankfurter: If you call that a pause it doesn't mean that they've transcended their powers.
Emanuel Redfield: All right. But you come and let's -- let's -- it's off my path here but as long as the right that the (Inaudible) case in which you took particular interest --
Felix Frankfurter: I wrote the opinion in that case.[Laughter]
Emanuel Redfield: Yes. Was one of criminal prosecution for libeling a race and you sustained it because of the criminal nature of it. The libel being criminal, whereas in Near, there was libel and yet the civil nature of it saves -- saved the Near from -- from the -- being condemned by injunction.
Felix Frankfurter: You don't quite mean that. If you do not mind -- if I see what your words imply --
Emanuel Redfield: Well --
Felix Frankfurter: -- that the -- the power of a legislature to impose criminal penalty was greater than to deal with it civilly.
Emanuel Redfield: Well, when it comes to expressions, yes.
Felix Frankfurter: Really?
Emanuel Redfield: Well --
Felix Frankfurter: You turn in advance, the man can --
Emanuel Redfield: No.
Felix Frankfurter: -- public sampling.
Emanuel Redfield: No, that's right.
Felix Frankfurter: That's a very different thing --
Emanuel Redfield: Yes, that's right --
Felix Frankfurter: -- in subjecting him to jury trial after he's published it to see whether he's trying to vest the law.
Emanuel Redfield: Well, for this reason that in criminal cases, you have a right to a jury trial, whereas, what do you have in a case like this? It's the -- it's the opinion --
Felix Frankfurter: But (Voice Overlap) jury trial's tomorrow if it wanted to as far as --
Emanuel Redfield: Very true.
Felix Frankfurter: -- Federal Constitution is concerned.
Emanuel Redfield: Very true. So, what aid would you have in deciding whether or not a -- a book is obscene?
Felix Frankfurter: The responsibility of the judge.
Emanuel Redfield: Well, with all due respect, I -- I might say this. Where does a judge get expert opinion that he knows more than, let's say, an administrator's official?
Felix Frankfurter: But you're not -- you're not undertaking the burden that you very wisely injected of passing on whether Near would pass this obscenity statute. You're merely objecting in this case, who are -- the arrangement to an exercise of power, whereby a concededly obscene book is prohibited from being disseminated after it's found to be obscene.
Emanuel Redfield: Yes.
Felix Frankfurter: But if you afford any of the fine place between coming on to be heard and eventually determining if it is obscene and not disseminating it in the mean time. That's your posture, isn't it?
Emanuel Redfield: Well --
Felix Frankfurter: It's obvious.
Emanuel Redfield: From the beginning here. I mean, it's a series of suppression from the very minute that the order of show cause is served. Now, in -- in the dissent in Near case, the dissenting judges took the position that because there was a court that was rendering judgment and not an administrative official, that that did not make any difference. Whereas the majority did see the difference between a judge -- no, I'm sorry, I should say this that the -- the majority in Near, felt that there was no difference between a judge rendering a decision and an administrative official rendering a decision. That in both cases there was somebody who was hearing and determining what should be done with these publications.
Felix Frankfurter: Mr. Redfield, this Court decided some years ago that it makes all the difference in the world to such an extent that it's unconstitutional to allow an administrative person to determine citizenship. That in deportation cases it requires the Court. That's reading given in that case by Mr. Justice Brandeis that somehow (Inaudible) is a matter of discipline, is a matter of lot of things there are protections through a judicial proceeding that are not afforded by the administrative proceedings. And now you should say it doesn't make any difference.
Emanuel Redfield: Well, from my reading of the cases in this Court, I didn't see that there was any difference so far as -- as censorship is concerned between an administrative official and a judicial officer. The Near case made it clear. The Near case said a judge can't do it. And later on in Cantwell case there was a remark to that effect that censorship by a judiciary is a -- is as of noxious to the Constitution as censorship by an -- an administrative official --
Felix Frankfurter: That's your problem to establishing this case. This proceeding through the statute was carried out by the New York judges for censorship.
Emanuel Redfield: That's right.
Felix Frankfurter: That's your job.
Emanuel Redfield: That's right. And that's what I have done. And it can't -- it can't be avoided.
Felix Frankfurter: Censorship other than that the determination after judicial proceeding, satisfying all the requirements of the process a book is condemned for having been obscene. But that's not what we mean by censorship. All it meant in the Near case is prior censorship. If you can or that you can't show expressions of the mind in advance.
Emanuel Redfield: Well, but may I -- also this in the -- in the second that I have that prior censorship in the mind cannot exist because you can't sense of something in a person's mind. You've got to have it in some tangible form.
Felix Frankfurter: That was the advice of the Near case. That they said, “Hereafter, you can't publish your papers.” And that was the advice in -- what was that case we had here? (Inaudible)
Emanuel Redfield: Yes, sir.
Felix Frankfurter: That they said simply because you were -- unless she was the mayor of yesterday you can't be the mayor in the future. That's power.
Earl Warren: Mr. Quel.
Seymour B. Quel: If the Court pleases. In order that Your Honors may understand how narrow is the issue in this case I should like to tell you a little bit about the New York practice which is pertinent to this appeal. This case was tried before a judge without a jury in the New York Supreme Court, which is our Court of original jury -- of original jurisdiction. Now, after a judgment has entered in the Supreme Court, there are two methods of appeal open to an aggrieved party or a party who considers themselves aggrieved. He may, if he wishes, appeal to the Appellate Division of the Supreme Court. And thereafter, he may appeal to the Court of Appeals, provided that the appeal lies and it always does when it's a constitutional question. Now, if you take that kind of an appeal, you'll bring before the appellate division in a non-jury case every question which was before the judge below. They can review the weight of the evidence. They can reverse if the findings were against the weight of the evidence. They can consider any question which the judge below could have considered. They can render any judgment which the judge below should have rendered. Now, the defendants in this case did not follow that method. They went by another route, also allowed by our practice, but under which the issues are much more limited. They took a direct appeal to the Court of Appeals from the judgment of the Supreme Court. Now, you can only do that under the New York practice, where the only question involved is the constitutionality of a statute. And when you take that kind of an appeal you waive every other question. You waive every factual question. So that when they got to the Court of Appeals, for example, they could not say that the finding of obscenity was against the weight of the evidence. That question was not open to them. If they wanted to do that they should have gone to the appellate division and then to the Court of Appeals. So that they were left in the Court of Appeals by the method of the -- of procedure which they deliberately chose with one question and question only. Namely, that the statute was unconstitutional on its base. There can be no quarrel with the finding of obscenity as a factual finding by the court below. They didn't bring that up for review.
Earl Warren: It wasn't open to them to have determined the constitutionality of the statute as applied?
Seymour B. Quel: Oh, yes. That was open to them but -- but it was not open to them, for example, to say that the books were not obscene as a matter fact than if the finding of obscenity was against the weight of the evidence. Now, in addition to that, by that method which they chose --
Felix Frankfurter: But I take it -- I don't think --
Seymour B. Quel: Surely.
Felix Frankfurter: -- so I ask --
Seymour B. Quel: Surely.
Felix Frankfurter: -- if -- if the book on which they were convicted was Darwin's argument of species and they came up and the chief justice is just suggesting, them as applied, I suppose the Court of Appeals could take judicial notice of what the argument of the species was and say, that isn't what the statute, but the statute (a), doesn't mean that, if it did it would be unconstitutional.
Seymour B. Quel: That is, the statute was not designed to cover that kind of a book.
Felix Frankfurter: That would --
Seymour B. Quel: Yes.
Felix Frankfurter: -- or wouldn't it?
Seymour B. Quel: I think -- I think --
Felix Frankfurter: Not that (Voice Overlap) --
Seymour B. Quel: -- that was open to them.
Felix Frankfurter: -- not contested questions of that.
Seymour B. Quel: That -- that's correct. And I -- and I think it might -- I think it was open to them to argue on an appeal of that character. I think you can always argue that there was no evidence whatsoever to support a finding of fact. But so long as there is some evidence, you may not argue that the finding of fact was against the weight of the evidence. It's a much more limited and narrow type of appeal. And they -- they deliberately chose it. They could've gone by the other route.
Felix Frankfurter: If there is -- if there is also a constitutional question, thus the question of evidence and they go to the appellate division and they didn't go to the Court of Appeals as a matter of course?
Seymour B. Quel: As a matter of right. You can appeal --
Felix Frankfurter: If there is a constitution (Voice Overlap) --
Seymour B. Quel: That's -- that's correct, Your Honor. When there is not a constitutional question you need permission.
Felix Frankfurter: All right.
Seymour B. Quel: But assuming that -- assuming I should add one --
Felix Frankfurter: The others do not displace the matter of right, do they?
Seymour B. Quel: That's correct. You -- I won't go into the --
Felix Frankfurter: I understand.
Seymour B. Quel: -- circumstances under which you can appeal when there are others in constitutional question. But there's no gainsaying the fact that where there's a constitutional question, the appeal lies as of right. So that, for example, in this case they could have gone to the appellate division, raised any question they wanted to in the appellate division and then if there were a unanimous affirmance against them, appeal that as a right to the Court of Appeals.
Felix Frankfurter: I don't know why you're arguing this because as I understood Mr. Redfield, he concedes -- he assumes that this is obscene. Did -- did I misunderstand it?
Seymour B. Quel: No, I -- I think that's -- I think that's right, Your Honor. Now, more than that when they got to the Court of Appeals or under the limited method which they had chosen, they could, of course, have raised the question that the statute was so vague and -- so vague as to be unconstitutional. But they never raised that question. Now, those questions which are raised in the companion cases, which are being argued both before and after this case, were never raised by the defendants in this case. And for that reason I won't devote any more of my argument to that question. I'd like to get down to the only question in the case which is open to these defendants and that is the question of prior restraint. Now, their position is in essence that although it was perfectly all right to enact the criminal statute against the distribution of obscene literature, there's nothing you can do about enjoining it. You can put a man in jail. You can fine him, but he has a constitutional right according to their argument, to go on and carry the jail sentences. And there's nothing that can be done about it. Now, the prior restraint involved in our statute, if it can be fairly called any kind of a restraint at all, is about as narrow a restraint as you could possibly get. To begin with, the action is civil It is not criminal. Secondly, the statute specifically provides that after the joinder of issue, the defendants are entitled to a trial within one day thereafter and are entitled to a decision within two days after the completion of the trial. Now, in this particular case, that provision was waived and the record -- is specifically in the record that counsel waived that. Otherwise, the Court would have had to decide this matter under the statute within a -- within two days. Now, the only other --
Felix Frankfurter: What's the --
Seymour B. Quel: Surely.
Felix Frankfurter: -- what is the normal cause which brings you up when the issues are joined? If it begins with -- what's the technical term of the papers that you give me?
Seymour B. Quel: This -- this -- the summons --
Felix Frankfurter: Summons --
Seymour B. Quel: -- and the complaint.
Felix Frankfurter: Now, between the summons -- well, this is a summons to which is annexed to decide to have this -- this enjoined, is that right?
Seymour B. Quel: In an ordinary injunction action.
Felix Frankfurter: No, I mean in this, an ordinary --
Seymour B. Quel: Oh.
Felix Frankfurter: -- injunction case. Now, between the summons of this old fashioned bill and what you call the joining the issue, what is the normal procedural time?
Seymour B. Quel: Well, under -- under our New York practice, you normally have 20 days in which to answer a complaint in the Supreme Court. But you don't have to wait for 20 days. You can put your answer in the next day. An issue was joined when the answer comes in.
Felix Frankfurter: Now, are these -- these allegedly noxious books at once -- is their dissemination at once enjoined automatically on the party of the complaint?
Seymour B. Quel: No, not automatically, Your Honor. But that comes in under -- not the provisions of section 22 (a) of the Code of Civil -- Civil Procedure which is here involved, but under our Civil Practice Act. Under section 877 of the Civil Practice Act. In any equity action you may make an application for an injunction pendente lite. And the granting of that injunction and whether a stay shall be granted, pending the hearing of the motion for that kind of an injunction are matters within the discretion of the trial court. Now --
Felix Frankfurter: Well, it's not ex parte, is it?
Seymour B. Quel: The granting of the order to show cause.
Felix Frankfurter: Yes, it was not the --
Seymour B. Quel: May it may -- it may be ex parte generally is. But the granting of the injunction pendente lite is not. Now, in this particular case --
Speaker: The stay is ex parte though. The order to show cause includes to stay that's (Inaudible)
Seymour B. Quel: And if a judge signs it, he might strike it out and sometimes judges will not sign an ex parte but will -- will say they'll -- they'll have a hearing. That frequently happens. But nevertheless, a judge may sign it ex parte. And in this particular case, the order to show cause with the stay in it was presented on September 10th. And it was signed retainable on September 14th, and then apparently the motion was adjourned for three days until September 17th. And on September 17th, the motion was heard and the defendants consented to an injunction pendente lite. So, that that question, as far as I can see it, is out of the case at least as far as these particular defendants are concerned. Now, that it seems to me points up the very narrow issues here. Now, throughout his brief, counsel has spent a great deal of time on the Near case. And he pens almost all of his argument on what he says was the holding in the Near case. Because in the Near case the Minnesota statute, which was under attack, permitted the enjoining of future publications of the particular issues involved. And this Court held that that was unconstitutional. Now, counsel says that's true but also involved in the Near case were some issues of the particular magazine which -- which had already published. And the judgment enjoined the -- the judgment appeal from enjoining the sale or distribution of those particular issues. And therefore says, counsel that's just like our case. Now, actually, of course, the thrust of the Near case was against the publication of the future issues because the Near case which -- was one -- which were -- was brought against the publisher. It's true that incidentally involved in Near were some copies of the -- of the newspaper which had already been published. But nobody was particularly interested in those if it'd be just as though you were trying to get an injunction against the New York Times with reference to future publications. Now, of course, nobody would be very much interested in whether issues of the Times which were lying around at all and had already been printed and were a week or a month old were being circulated. It's the future issues of the magazine involved which were the main thing in the Near case. And these incidental matters were simply caught up in the sweep, so to speak, in the whole thrust of the Court's opinion, as I read it, was aimed at those future issues. Now, I --
Speaker: What's the practice under the statute? Do you go after criminal, answer at the same time or do you like to --
Seymour B. Quel: Well, Your Honor, that's a -- not an easy question to answer for this reason. We began this proceeding in 1954. That is as far New York City is concerned. Of course, this is a statewide statute and I'm not familiar with how it may operate in other cities. And then this case was tried and -- and the appeal was taken -- appeal taken to the Court of Appeals and has been pending in this Court for quite awhile. And -- and in the mean time, as I recall it, there's only one other case that we brought in New York City under this particular statute and everybody agreed to await further proceedings until the determination of this Court. So that in actually practice, as far as I know, they've only been these two cases at least in reason is --
Felix Frankfurter: You're of the statute, Mr. Quel?
Seymour B. Quel: Well, the statute has been on the books since 1941. But in 1954, it was amended for the first time to provide that the corporation counsel was one of the persons authorized to bring the action --
Felix Frankfurter: No, I mean the substantive law. Is that not early? Is that date from 1941?
Seymour B. Quel: The penal provisions about obscenity --
Felix Frankfurter: I understand.
Seymour B. Quel: -- have been there for a long time. But this -- this law permitting an injunction dates from 1941 --
Felix Frankfurter: That's a very common statute, isn't it? In -- in the various states?
Seymour B. Quel: I think not, Your Honor. I have not -- I have not been --
Felix Frankfurter: So, the English --
Seymour B. Quel: I have not found any --
Felix Frankfurter: The English statute's a parent to this statute is -- is 1857, isn't it?
Seymour B. Quel: Yes.
Felix Frankfurter: That's the one that came up (Inaudible)
Seymour B. Quel: In -- in covering the decision.
Felix Frankfurter: Yes.
Seymour B. Quel: But as far as I know -- well, Your -- Your Honor, I -- I'm not certain now whether the statute involved in the Hickman case was a -- was a criminal or a --
Felix Frankfurter: No, no, it was this.
Seymour B. Quel: It was this?
Felix Frankfurter: The proceedings before magistrates claiming that the book is indecent and therefore --
Seymour B. Quel: I might say while we're on the subject, Your Honor, I -- I feel constrained to call Your Honor's attention to something which I do not believe affects the decision in this case. But think I should call it to your attention. A few days ago, to be exact on -- on March 26th, this statute was amended in several respects. The only one which is material to our present discussion is that it added a provision which enjoins among other things the publication of obscene matter. Now, what that means, I don't know.
Felix Frankfurter: This is a separate section.
Seymour B. Quel: It is not a separate section. It is an amendment of the statute of section 22 (a) of the Code of Criminal Procedure, which is now before Your Honors. The amendment of course was not in effect when this case was brought or when it was decided. And how that provision would be construed by the New York courts, the amended -- to reprovision --
Felix Frankfurter: Or construed out.
Seymour B. Quel: Or -- yes. I think actually what they mean is republished. I don't think that they meant to imply that you can enjoin the publication of -- as yet unpublished obscene matter. If they did mean that, I can see that the statute would raise grave constitutional questions. But that is not involved in the instant case.
Hugo L. Black: That would be Near --
Seymour B. Quel: I beg your pardon?
Hugo L. Black: That would be Near, wouldn't it? That would be Near.
Seymour B. Quel: I -- I think it would be if -- if it were actually meant to enjoin the -- the publication of matter as it -- as an -- as yet unpublished. And I might say in that connection, Your Honor, I forgot to mention the fact that in this very case, perhaps in an excessive order, in the trial court we tried to enjoin not only the 14 issues which had been published, but two other issues which had not yet been published because we said it's quite evident that they're going to be just like all the others. And the trial court refused to grant that injunction and we did not take any appeal from that, thereby, recognizing the correctness of that phase of the judgment. I think your -- I think Your Honors in view of the narrowness of the issues I can -- I can rest my argument there.
Earl Warren: Number 582 --
Seymour B. Quel: Excuse me -- excuse me Your Honor. Shall I leave a copy of this amended bill?
Earl Warren: You may -- you may leave it with the clerk.
Seymour B. Quel: Thank you.


William H. Rehnquist: Mr. Nolan, you may proceed whenever you are ready.
John E. Nolan, Jr.: Thank you, Mr. Chief Justice. May it please the Court: This case involves the issue of federal preemption of state common law claims of general application in the context of ERISA. The real significance of the case is whether or not the federal system of regulation of employee benefit plans, as governed by ERISA, will now be largely supplanted by the varying state laws that Congress intended ERISA to replace. Congress believed, and believes, that there are great advantages to ERISA, that those advantages admittedly do not include jury trials, punitive damages, consequential damages, de novo review of claims, decisions and other features that may be available from time to time under state law. If such state remedies are available, as the Court of Appeals opinion holds, then ERISA will effectively be nullified for all insured plans. Now, this is more than 80 percent of the health benefit plans in the United States, the vast majority of them. We argue that Congress could never have intended this result and expressly provided against it in ERISA. The focus of this case is an employee benefit plan governed by ERISA in its claims procedure as provided in Section 503 of ERISA. Pilot Life, the petitioner in this case, is the named fiduciary for that plan as provided in ERISA and as designated in the plan itself, and Pilot Life has full responsibility for all claims decisions and claims administration. Mr. Dedeaux, the respondent here is a participant in that plan and his claim for benefits was denied by Pilot Life. When it was denied, Mr. Dedeaux did not avail himself of the statutorily-mandated claims review procedure in ERISA, in Section 503. Instead, he filed suit in a Federal District Court in Mississippi, diversity jurisdiction. He claimed tortious breach of contract, fraud, and breach of fiduciary relationship. He sought disability benefits, consequential damages for mental and emotional distress in the amount of $250,000, and punitive damages in the amount of $500,000. There was a demand of jury trial, no mention of ERISA in the case. The District Court granted summary judgment for defendant. It held that ERISA provided the exclusive remedy. The Court of Appeals for the 5th Circuit reversed, holding that Mr. Dedeaux's state common law claims of general application were preserved by the so-called insurance saving clause of ERISA which keeps from preemption the state laws that regulate insurance. Now we say that that decision is wrong. The Congress in enacting ERISA sought to preempt all of the state law that came within the sphere of the statute, that the saving clause is not applicable to state laws like this because they don't regulate insurance and that, in any event, it was plain that Congress sought to prevent the direct application of any state law to an employee benefit plan. In cases like this which involve federal preemption of state law, this Court has said, as it did most recently in California Federal v. Garrett, decided last week, that its sole task is to ascertain the intent of Congress, and to do that it looks at the language and the legislative history, and the structure and purpose of the statute. The key language here is found in Section 514 of ERISA, it's entitled, "Effect on Other Laws". Section 514(a), is a sweeping, express provision for preemption. It says that ERISA supersedes any and all state laws that may now, or hereafter, relate to any employee benefit plans. It's followed in 514(b), by the so-called saving clause, which provides that nothing in ERISA shall exempt any person from any law of any state that regulates insurance. And that clause is immediately followed and modified by the so-called "deemer clause" which provides that no employee benefit plan shall be deemed to be an insurance company or engaged in insurance for purposes of any state law purporting to regulate insurance. Now there are two things to notice about the language in 514. The first is that when Congress uses the term, "state law that regulates insurance", it is using a term of art and in this instance one that has acquired very specific meaning through years of interpretation under the McCarran-Ferguson Act. The second is that Congress very plainly showed its purpose to prevent any direct regulation of employee benefit plans by state laws. That was the finding of this Court in the case of Metropolitan Life v. Massachusetts, decided a couple of years ago, where the Court said that the purpose of the deemer clause is to take out of the operation of the saving clause any state laws that apply directly to an employee benefit plan. These state common law claims not only apply directly to the employee benefit plan, but they clash directly with the key provision of ERISA with the provisions dealing with fiduciary responsibility, claims review, civil enforcement remedies. These are the core functions of ERISA. They go to the very heart of ERISA regulation and that's why Congress provided that they couldn't be regulated by state law. The legislative history of ERISA plainly confirms the intent of Congress, that the fiduciary standards of ERISA, govern the entire claims administration process. That was the finding of this Court in Mass. Mutual v. Russell, decided also a couple of years ago. It's in the opinion of the Court and it's very expressly in Justice Brennan's concurring opinion as well. Congress intended that ERISA provide a uniform source of law for evaluating fiduciary standards, that that law would apply all over the United States, and that it would provide standards for fiduciary and that the federal courts would be used exclusively for cases of--
Byron R. White: What was was the insurance company's fiduciary duty or position in this case?
John E. Nolan, Jr.: --In this case, Justice White, the insurance company had the responsibility for claims administration. It also had the insurance policy on... it funded the plan.
Byron R. White: It sold insurance, it sold insurance to the plan, I take it.
John E. Nolan, Jr.: It sold insurance to Entex and--
Byron R. White: But, it wasn't a trustee of the plan?
John E. Nolan, Jr.: --It was acting for the trustee and that's really the key to the case. It was performing the ERISA function that otherwise would have been provided by the trustee of the plan. It was acting in place of, and standing in the shoes of the trustee. It is the named fiduciary under ERISA and it was provided--
Byron R. White: It is the named fiduciary?
John E. Nolan, Jr.: --It is the named fiduciary under ERISA. To it was delegated the authority to make the decisions involved in claims administration; to confirm or deny claims submitted to it. That's the discretion and that's the function of the named fiduciary. So, it's playing the key role.
Byron R. White: And under ERISA how do you get at a claimed breach of fiduciary duty?
John E. Nolan, Jr.: At ERISA... under ERISA you, if you have a case like this, first you go to the claims review procedure provided in 503. When you finish that you go to 502 which provides what this Court has referred to before as the six very carefully--
Byron R. White: If your claim is denied, why you can contest it?
John E. Nolan, Jr.: --If your claims is denied, you can contest it through the procedures provided expressly in the statute.
Byron R. White: And what if you think its just too slow?
John E. Nolan, Jr.: Well, we... our position is that this is the law that Congress provided. I suppose that from time to time--
Byron R. White: Was the insurance company under this plan, or under the statute required to act within a certain time?
John E. Nolan, Jr.: --Yes, it is. And if the claims review procedure, for example, is required to be finished in sixty days and then there may be an additional sixty days. If there has not been action at the end of that time then the claim is deemed to be denied under regulations provided by the Department of Labor, and then you go into the civil enforcement proceedings. It's a very carefully--
Byron R. White: And, and what is the civil enforcement proceeding in a court?
John E. Nolan, Jr.: --The civil enforcement proceeding is in a court, yes. State or federal court; for some types of actions only federal court.
Byron R. White: Well, let's assume you go to civil enforcement proceeding and you win and the insurance company has breached its fiduciary duty to act in time, or in some other way. Then what happens?
John E. Nolan, Jr.: Then you get whatever--
Byron R. White: You get your claim paid.
John E. Nolan, Jr.: --You get your claim paid.
Byron R. White: With interest, I suppose.
John E. Nolan, Jr.: Possibly. You get attorney's fees, you get other types of equitable relief.
Byron R. White: But, you get no remedy against the trustee, against the insurance company.
John E. Nolan, Jr.: Well, in this instance, Justice White, the insurance company, Pilot Life, is in effect the trustee.
Byron R. White: All right, but you get no other remedy. You just make Pilot Life do what it should have done.
John E. Nolan, Jr.: It is correct.
Byron R. White: Plus attorneys' fees.
John E. Nolan, Jr.: It is correct that you make Pilot Life do what it should have done. You are not necessarily limited to that remedy.
Byron R. White: Well what can, what else can you get?
John E. Nolan, Jr.: Well you can get all of the civil enforcement rights provided in Section 502.
Byron R. White: Well, can you get any--
John E. Nolan, Jr.: You can recover benefits under the plan. You can enforce, or clarify your rights.
Byron R. White: --But no consequential damages?
John E. Nolan, Jr.: No consequential damages.
Byron R. White: So even if your not getting your money on time has caused you to lose some money, or to cost you some money, you can't have any remedy for that?
John E. Nolan, Jr.: Well, you can sue to obtain equitable relief specifically under the statute. You can sue to enjoin the fiduciary.
Byron R. White: Well, I know, but can you get any money?
John E. Nolan, Jr.: You can have the fiduciary removed.
Byron R. White: But, can you get any money, Mr. Nolan?
John E. Nolan, Jr.: Yes, you can get money.
Byron R. White: In what form?
John E. Nolan, Jr.: In whatever form the court to which the application for equitable relief is made finds appropriate.
Byron R. White: But, if there's a cause of action that's applied to all insurance companies in the state that says that bad faith or refusal to honor a claim is remediable by some damages or by punitive damages, that state law is inapplicable in ERISA context?
John E. Nolan, Jr.: That's correct, Your Honor.
William H. Rehnquist: Mr. Nolan, you said that in the equitable side of the thing you could get money. Did I understand that correctly?
John E. Nolan, Jr.: Well, I said that you could get money in the context of seeking to obtain equitable relief from the Court.
William H. Rehnquist: Well, be more specific.
John E. Nolan, Jr.: Well--
William H. Rehnquist: I mean you can get the amount of the claim plus attorney's fees on the law's side I take it.
John E. Nolan, Jr.: --That's correct.
William H. Rehnquist: And you say you could remove the trustee in equity. What sort of--
John E. Nolan, Jr.: You can enjoin the trustee, you can remove the trustee.
William H. Rehnquist: --But now I want to know, because I thought you said that the equity side could award you some sort of money damages?
John E. Nolan, Jr.: Well, I did not say damages, Mr. Chief Justice.
William H. Rehnquist: Well, what did you mean?
John E. Nolan, Jr.: I meant that an application for equitable relief to the Court, pursuant to the specific provisions of Section 502, can take whatever form the court, in that instance, might find appropriate.
Byron R. White: Have you ever been--
John E. Nolan, Jr.: There have been a variety of--
Byron R. White: --Has there ever been a case where they, under ERISA... and it's been around for a while now... where some insurance company has had to pay a disappointed claimant some money on review?
John E. Nolan, Jr.: --Well, I think that, generally speaking, punitive and consequential damages have not been allowed in ERISA cases by this Court or, by and large, by other courts.
Byron R. White: That's really what this case is all about.
John E. Nolan, Jr.: That is what this case is all about.
William H. Rehnquist: And certainly a Court on equity never awards punitive damages.
John E. Nolan, Jr.: That's correct. The court on equity never does.
William H. Rehnquist: So, there is no prospect of recovery of punitive damages if the state law is preempted? Isn't that correct?
John E. Nolan, Jr.: I think that's right and I think that's the key distinction between state law and federal law here. This was to be achieved by Section 514, the effect on other laws provision, the preemption of state law to allow the federal system to control employee benefit plan regulations. That section is referred to--
John Paul Stevens: But, Mr. Nolan, I really was puzzled, as the Chief Justice was, about your notion of some other money. Maybe there isn't all as much difference between the federal scheme and the state scheme, if there's some general equitable power to give money. I don't know about that myself.
John E. Nolan, Jr.: --Well, I don't know--
John Paul Stevens: And what section are you referring to when you say that?
John E. Nolan, Jr.: --I don't know of a general equitable power to give money. I know that... I know that this Court in Mass. Mutual v. Russell, the case that was before it two years ago, reserved its judgment about anything more than the specific sections that were involved in that case. And, that was the thrust of the concurring opinion. I know that--
Speaker: You argued that case?
John E. Nolan, Jr.: --I argued that case, yes, Justice White.
Speaker: Twice.
John E. Nolan, Jr.: It, I know also that the, that the law provides for equitable relief and I just can't presume to say that that could never include the concept of making someone whole. I think it very plainly did not include damages.
Sandra Day O'Connor: Well, what could it be other than restitution? I just think this argument strikes me as very strange and almost misleading. I understood that if the federal law preempts then there are no consequential damages available. There are no punitive damages available. There's no jury trial available and so on.
John E. Nolan, Jr.: That is correct. But, there is equitable relief under Section 502. And I don't know what form that would take. I think it's pretty clear that it would not take the form of damages, punitive or consequential.
Byron R. White: Punitive damages?
John E. Nolan, Jr.: Yes.
Byron R. White: Now, Mr. Nolan, why isn't it a regulation of insurance if there is a state law that says insurance companies must act promptly on claims and if they don't there's... then the insureds have remedies? Now, if an insurance company is stuck in violation of that law, if it has to pay some money, it comes out of its pocket, doesn't it? Why is that a regulation of a plan?
John E. Nolan, Jr.: Well, I think that in, where a plan exists, as it does in this case, the claims administration is provided by the named fiduciary.
Byron R. White: All right.
John E. Nolan, Jr.: This Court has recognized that that whole function is controlled, governed by federal law under ERISA and the fiduciary standards of that law are applicable.
Byron R. White: Well, that may be so, that may be so, but you think this, why should a state be preempted from providing a further remedy for a violation of a federal standard?
John E. Nolan, Jr.: Well, I guess the... I guess the clearest answer to that, Justice White, is shown by the circumstances of this case. I believe that it is accurate to say, beyond question, that if punitive damages are available under state remedies, no participant, no beneficiary, not Mr. Dedeaux nor anyone else, will utilize the provisions of Section 503 of ERISA which provides for claims review.
Byron R. White: Perhaps you could say he has to exhaust those remedies before he can have an independent action.
John E. Nolan, Jr.: Well, you could, but his remedies there I guess would be viewed as never adequate if he had a shot at punitive damages in a state court. It isn't just that Mr. Dedeaux did this. I think it unmistakably clear that every litigant similarly situated would do it. If that happens, that reduces 503 to a dead letter. It repeals it in effect.
Byron R. White: I suppose it would also raise insurance premiums substantially.
John E. Nolan, Jr.: Well, I think that, I think that in ERISA Congress had that concern, Justice White. I think that it was... these plans are voluntary, nobody has to set them up. This is a law to provide for a voluntary system that companies will take on individually. So it was intended to be run efficiently and effectively, and at low cost.
William H. Rehnquist: Does ERISA, Mr. Nolan, require that there be an independent trustee of some sort to administer the plan? Entex in this case couldn't do it itself?
John E. Nolan, Jr.: It requires that there be a trustee. The trustee does not have to be independent. Entex could have done it. Entex is the plan's sponsor and administrator, but has delegated to Pilot Life this key fiduciary role.
William H. Rehnquist: Do you have any, do you have any way of knowing what percentage of the administrators of ERISA plans are insurance companies?
John E. Nolan, Jr.: I think that it varies quite a bit. Generally speaking, I think that larger companies do more of it themselves. I think that the insurance companies are most important for medium-sized and small companies where the kind of catastrophic losses that may be available in the plan would be too much for their resources.
William H. Rehnquist: I suppose if an employer were a self-insurer there would be no question of the plan coming under the insurance savings clause.
John E. Nolan, Jr.: That's correct. And there isn't. There are a myriad of variations. In other words, there are insurance companies that only insure, they fund the plan; but an independent agency, another insurance company, a claims administrator, the plan sponsor, someone else administers the claim and makes the claims decisions. There are other cases where the insurance company takes on all of the administration, including all of the claims part of it, but does not fund the plan. And so there are all of these varieties.
Antonin Scalia: Mr. Nolan, what was the insurance exception meant to cover? I mean, you painted for us this picture of pristeen uniformity, but we have in the statute an exception that seems to indicate that there are some instances where the uniformity will be disrupted or otherwise you wouldn't need the exception.
John E. Nolan, Jr.: Yes.
Antonin Scalia: What does the exception cover where without it you'd get a different result?
John E. Nolan, Jr.: That's the... that is actually the key question, Justice Scalia, and I think that the clearest, most concise statement of that is found in a report of the House Labor Committee, it's dated January, 1977. It was referred to and relied on by this Court in the Metropolitan Life case and it goes directly to that point and the report says on the one hand it was clear that the plans subject to ERISA needed to be freed of the possibility of state regulation. On the other, it was important to limit the effect of pre-emption in order to avoid disrupting state efforts to regulate the conduct of other financial entities not subject to the federal act. So, I think that that really says it about as clearly as it can be said. Congress--
Antonin Scalia: Do you need an exception for that?
John E. Nolan, Jr.: --Excuse me?
Antonin Scalia: Would you need an exception for that? I mean, what kind of thing that arguably would have been covered by the statute has been excepted from it by this provision, or is it just a, you know, better make doubly sure kind of an exception?
John E. Nolan, Jr.: I guess it could have been--
Antonin Scalia: I tend to think exceptions are in there because without them something different would happen.
John E. Nolan, Jr.: --Yes.
Antonin Scalia: What different would happen if this exception weren't there?
John E. Nolan, Jr.: I think you're right, Justice, that it could have been done either way and perhaps the reason that it was done this way in this instance is the McCarran-Ferguson Act and the tradition of insurance regulations that follows from it and Congress's awareness of that. But, as far as the purpose of Congress is concerned there isn't anything in the legislative history that is inconsistent with the paragraph that I just read from the report.
Antonin Scalia: All I'm asking for is an example of a case that would come out differently had the exception not been in the statute.
John E. Nolan, Jr.: Well, I guess the... I'm not sure Metropolitan Life satisfied, satisfies that, but I think it probably comes pretty close to it. Any of, any of those... Metropolitan Life was a case that involved a mandated benefits law of the state of Massachusetts and it's exemplary, I think, of the principle, what we're talking about here. Anything that the state says, you have to put that in your policy, all of the regulation of insurance companies. I've read several law review articles in this subject in the course of preparing for this case, and the emphasis on insurance regulation is a thousand different regulatory features having to do with financial soundness and licensing and the selling of insurance and what the content of the policy is, and so on. You don't get to a question like this until you get into the operation of ERISA, in this instance until you get into the claims approval procedure. So, all of those cases in point of time back of where we are would be regulated by state insurance law.
Byron R. White: I think you think Metropolitan Life really supports you here.
William C. Walker, Jr.: Yes, I think it very clearly does, Justice White, because it defines the deemer clause, not a clause which is necessarily self evident on its meaning on first reading. But the Court in Metropolitan said that the deemer clause takes out of the saving clause state insurance laws when they apply directly to employee benefit plans.
Sandra Day O'Connor: Well, Mr. Nolan, don't you think we'd have to cut back a bit on some of the language in that Metropolitan Life case for you to prevail here?
William C. Walker, Jr.: For us to prevail, no, Justice O'Connor, I don't. I think that the case is great for us because it does define the deemer clause. It says, the Court says, we aren't going to limit the deemer clause any further than Congress has limited it in the clause itself, and that's, the Court says, we're not going to limit the insurance saving clause any more than Congress has limited it in the clause itself and in the deemer clause, and that's good enough for us. I'd like to reserve the remainder of my time for rebuttal.
William H. Rehnquist: Very well, Mr. Nolan. Now we'll hear from you, Mr. Walker.
William C. Walker, Jr.: Mr. Chief Justice, may it please the Court: Petitioner says that this is a case in which Congressional intent is to be discerned, and I agree. Fortunately and rarely in this particular case, Congress has expressly stated in the saving clause itself, its intent, its intent to save from preemption state laws which regulate insurance. We don't have to look anywhere else. And, indeed, it says it in the language of statutory construction. It says, don't construe any other provision in this whole ERISA as exempting or relieving any person from state laws.
Antonin Scalia: From the law of the state actually, right?
William C. Walker, Jr.: From the law of any state, you're right, which regulates insurance. Now, the distinction between the law of any state and state laws, I think, is one that was made in petitioner's brief, but which was rejected as not significant in the brief of the United States. This Court used the term "state law" in describing the preemptive effect in the Metropolitan Life decision.
Antonin Scalia: xxx.
William C. Walker, Jr.: No, sir. But, the legislative history also says it, and it uses the term "state law", and indeed, of course, the presumption is against preemption. And indeed, Section 514(b)(2) says nothing in ERISA shall be construed. That includes 514(c), which has the definition and which the slight change in language is present. So--
Byron R. White: xxx... state law that said that insurance companies will act on a claim within a week, seven days, and that would end. The state said this includes insurance companies who insure ERISA plans; that that would be the controlling time limit.
William C. Walker, Jr.: --Yes, sir. It certainly would be. And--
Byron R. White: Despite what the plan said?
William C. Walker, Jr.: --Yes, sir. That's certainly true and the important thing about that is, that's the distinction that the deemer clause makes. If the, if that same regulation purported to regulate plans by calling plans insurance companies--
Byron R. White: No, no, no.
William C. Walker, Jr.: --it wouldn't work.
Byron R. White: No. On the state says the insurance company shall have thirty days to act and the plan says fifteen days. The state law would control.
William C. Walker, Jr.: Absolutely, if it's an insured plan.
Byron R. White: Yes, yes, yes.
William C. Walker, Jr.: And, that's the distinction. The distinction is between insured and self-insured plans. And, the reason is--
Byron R. White: So, it wouldn't make a bit of difference what the plan said in terms of the time or the procedure.
William C. Walker, Jr.: --Absolutely.
Byron R. White: And, the state law could say, if you don't act within thirty days, you're in court?
William C. Walker, Jr.: Yes, sir.
Byron R. White: You don't, you can disregard all of the appellate procedures the plan might provide?
William C. Walker, Jr.: Yes, sir.
Sandra Day O'Connor: Well, Mr. Walker, I think that we have to focus on the deemer clause, because whatever is covered by the deemer clause is removed from the savings clause, if you will, that you're relying on. So, we have to know whether the deemer clause extends to a trust established under a plan, whether or not the trustee is the insurance company that happens to be serving to insure that ERISA plan. And if anything at all seems clear from the history, the congressional and legislative history, of ERISA, it would seem to be that remedies provided for employees covered by an ERISA plan, whether insured or not, are limited to those spelled out in the legislation. And so I think there a very logical argument can be made and is being made that the deemer clause backs out of the savings clause at least the remedies provided for an insured employee.
William C. Walker, Jr.: Your Honor, that's certainly the argument the petitioner is making. In doing so, petitioner is failing to look at the precise language of the deemer clause which says expressly, that no plan or trustee shall be deemed to be an insurance company or in the business of insurance. In other words, the deemer clause comes in to limit the savings clause. The savings clause says--
Sandra Day O'Connor: Well, it says, "for purposes of any law of any state purporting to regulate insurance companies. "
William C. Walker, Jr.: --Yes. Yes, Your Honor. But, the deemer clause only limits the savings clause and the distinction has been made by this Court in the Metropolitan Life decision between direct and indirect regulation of plans. This Court has said that regulating an insurance company and an insurance-funded plan may in fact cause some consequences on the plan. But, that's okay, because Congress has said so and we're not in the position to decide Congress was wrong.
Sandra Day O'Connor: Well, that's why I asked Mr. Nolan if he didn't think you had to cut back on some of the language in that Russell case. He thought not, but I think there's some difficulties.
William C. Walker, Jr.: Yes, Your Honor. In the Metropolitan Life case, I think you absolutely do have to cut back on the language if you don't find for us. What the insurance companies want in this case, of course, is no regulation at all. They choose state regulation in the McCarran-Ferguson Act, because federal regulation is serious on the antitrust laws. They now see that state regulation in the developing common law of bad faith is serious and they will have to do what they promised to do and pay claims that they owe and not cheat their insured's, so they say, wait a minute, ERISA's designed to take care of this. I submit that Congress has made this intent clear and if the insurance companies want to take this up with somebody they ought to take it up with Congress.
Sandra Day O'Connor: Well, do you really think that Congress intended to allow the very detailed civil enforcement procedures for an employee covered by an ERISA plan to be completely bypassed at the plaintiff's option?
William C. Walker, Jr.: In the case of insured plans, I do, because Congress says so in the saving clause. It saves insurance regulations.
Sandra Day O'Connor: But, it may have backed out of that in the deemer clause, that's the problem.
William C. Walker, Jr.: I don't think they backed out of it under the deemer clause. In the deemer clause, all that's said is you cannot sneakily regulate a plan by calling it insurance. We're not calling it insurance. Now, there's a difference that ought to be drawn and notice here between administrative services. An insurance company can wear two different hats. It can simply come in and perform administrative services and that's all it does. If it does that it's not an insured plan. And, if it's not an insured plan, all of ERISA, including the specific enforcement remedies, applies. If on the other hand, it wore only the hat of insurance company selling a policy to an insured then it would be clear. We wouldn't have that problem of civil enforcement.
Antonin Scalia: Mr. Walker, if what you say is true, if that interpretation is correct, there is a severe disadvantage in having an insurance company act as trustee under the plan. Right? I mean,--
William C. Walker, Jr.: Your Honor--
Antonin Scalia: --an enormous disadvantage. Is there any indication in the legislative history or any reason why Congress would have wanted to create that disadvantage?
William C. Walker, Jr.: --First of all, the insurance companies don't usually act as trustees; they act as plan administrators. But there's still a serious disadvantage on that point.
Speaker: xxx.
William C. Walker, Jr.: And the, but the disadvantage does not apply if that's all they act as. In other words, the only disadvantage applies if they sell insurance policies. And that's because state law controls that.
Speaker: Only if they're insurance companies?
William C. Walker, Jr.: xxx... control it.
Speaker: Yes. What I'm saying, is there any indication that Congress for some reason didn't want insurance companies to act as administrators, because that's going to be the result of what you're saying. And, nobody in his right mind is going to have an insurance company act as administrator. The fees are going to go up so much that it will make it impossible. But, other companies are, just can't be self-insurers; they can't handle it. So the disadvantage is going to devolve on the smaller companies who either buy insurance or they won't have their plan.
William C. Walker, Jr.: First of all, some of... if they only act as administrators there's no problem. It's only when they sell insurance. You're exactly right, Mr. Justice.
Speaker: Why do you say that? They're not insurance companies if they don't sell insurance, right?
William C. Walker, Jr.: Well, they may be insurance companies for other purposes, but plenty of them perform administrative services only now.
Speaker: What about... I don't understand your position. If you have an insurance company that administers a plan for say, General Motors which self-insures the payments and liability--
William C. Walker, Jr.: Yes, sir.
Speaker: --would not your... wouldn't you have your state law cause of action in that case?
William C. Walker, Jr.: No, sir. And the reason is the Metropolitan Life case makes clear that in the case of self-insured plans, self-funded plans, the savings clause does not apply because the deemer clause eats it up. But in the case of insured plan--
Speaker: Even if the state law required an insurance company which administers all sorts of insurance to avoid bad faith denials of benefits and all the rest?
William C. Walker, Jr.: --Would not apply.
Speaker: Would not apply.
William C. Walker, Jr.: The difference... and this distinction is made in the Metropolitan decision.
Speaker: Well, Mr. Walker, do you happen to know what percentage of all employees covered by ERISA plans are covered by insurance company benefits as opposed to self-insured?
William C. Walker, Jr.: No, ma'am. There are statistics that are offered by the petitioner in the United States in their brief. Obviously it's a lot of them because of the interest that's been drawn by the insurance industry. I do think that it will have a consequence. The consequence will be that the beneficiaries of these plans, the small plans, will get state law protection when that state has decided that it's important to have claims paid. ERISA after all was not drafted to protect insurance industries.
Speaker: No, but it was partly drafted to encourage small companies to have such plans and maybe some will decide it's too expensive. And, also to have some uniformity in the administration of these plans, which a lot of them cross several state lines. And you have just a great confusion of state law.
William C. Walker, Jr.: Yes, sir. The conflicting policies which this Court recognized in Metropolitan Life, it said, leave it to Congress. Congress drafted the statute in which these two policies go different directions.
Speaker: Mr. Walker, do you know of any company that's big enough to be a self-insurer and yet calls in an insurance company just to administer the plan?
William C. Walker, Jr.: Yes, sir. I will--
Speaker: Are there some that do that?
William C. Walker, Jr.: --I have a bunch of cases like that. Penrod does it, for example. They use Life Insurance Company of the Southwest to perform administrative services only. Bordens uses Metropolitan to perform administrative services only, and I've experienced that. As to the cost, I don't understand exactly why insurance companies say, if we're forced to pay punitive damages when we cheat our insureds, we're going to have raise rates. That's what bad faith is about. That's like Las Vegas saying that if we, if we're going to have to have a square table--
Speaker: That's a great argument in theory, but if the insurance company has lost money on its ERISA business for the last two or three years, I can't believe that they aren't going to raise their rates.
William C. Walker, Jr.: --Well, Your Honor, if they choose to do so, let them come to Congress and get an amendment to this statute and provide the information.
Speaker: Well, that certainly is an argument.
William C. Walker, Jr.: They refuse to do that. Across the Board they refuse to provide information about these losses they claim. If they want it, let them come to Congress instead of this Court, which is not a body that's specifically designed to take care of this.
Speaker: Yes, but the question we're considering now is whether Congress, in enacting ERISA with the various preemption savings clause, contemplating the sort of system that you're urging it did.
William C. Walker, Jr.: Well, I'm not sure what Congress contemplated, except I know what Congress said, and Congress said that insurance regulation is saved and said it broadly and this Court has agreed and read the statute and refused to limit it beyond what Congress has done. And Congress has had an opportunity to change that as this Court pointed out in Metropolitan, and yet it's not done so.
Speaker: Well, do you have any reason to dispute the government's figures in the Department of Labor's study that 91 percent of health plans covering fewer than a hundred employees are insured plans and that 83 percent of those with over a hundred employees are insured plans?
William C. Walker, Jr.: I'm sure those figures were accurate at the time. It was about 1980. And, my personal experience has been that insurance companies are already changing over to administrative services only, at least in the large companies and that may have changed somewhat. I don't know.
Speaker: That would certainly be the trend.
William C. Walker, Jr.: Yes, sir.
Speaker: If you win.
William C. Walker, Jr.: Yes, sir. And, of course, if this Court decided, which it has not clearly decided, the question of punitive damages under ERISA, in the Russell case, of course, it's been pointed out that that was reserved, and, while there's been a suggestion made that courts of equity may not award punitive damages, in Mississippi they may. And I think in, generally they may, although I'm not sure they would reward them for breach of trust quite in this context. But, if this Court decided to allow punitive damages to protect the plan beneficiaries, the people ERISA was designed to protect, then insurance companies would all of a sudden be reading the savings clause very differently. Because that's what this is about... the question of whether insurance companies are going to be made to pay what they've already promised to pay in the first place, or whether they're going to be able to be outside the law altogether.
Speaker: Well, under ERISA you can sue an insurance company and make it pay what it promised to pay in the first place. What you want it to pay is a lot of consequential damages that might of resulted from its failure to pay what it promised to pay. xxx.
William C. Walker, Jr.: Yes, sir. I want them to pay what they owe before somebody sues them. I want them to know that if they don't go ahead and pay and live up to their obligations they will have to pay more later. If the most they will have to pay is what they owed anyway, and if a litigant has got to hire an attorney... and by the way, attorney's fees are not automatic under ERISA; it's within the judge's discretion whether the plaintiff's attorney even gets attorney's fees... I want them to have to treat their insureds fairly from the beginning. Mississippi bad faith law--
Speaker: Mr. Walker,--
William C. Walker, Jr.: --Yes, sir.
Speaker: --you say insurance companies are saved. Insurance companies were also saved in the McCarran-Ferguson Act.
William C. Walker, Jr.: Yes, sir.
Speaker: But, Congress did not save anything except legislation governing insurance companies there, right?
William C. Walker, Jr.: Yes, sir. I agree with you.
Speaker: Now, what--
William C. Walker, Jr.: Although that statute has... I think some of this Court's decisions have suggested that that includes at least administrative regulation in addition to legislation. And, of course, the ERISA provision very--
Speaker: --But not, but surely not decisional law.
William C. Walker, Jr.: --The Court has not expressly said that. It hasn't expressly not said it.
Speaker: Oh, you think the McCarran-Ferguson may cover decisional?
William C. Walker, Jr.: It may cover decisional law, but I don't think that that's important for this case. I think this case has ERISA which very expressly deals with the problem and makes clear in the statute itself the decisional law is included.
Speaker: Well, you think Congress's concern for state authority over insurance in one Act is totally unrelated to Congress's concern for state authority over insurance in another one?
William C. Walker, Jr.: No, sir. I think in both cases Congress--
Speaker: Don't you think they both have the same scope?
William C. Walker, Jr.: --I'm not sure they have exactly the same scope. I think in both cases Congress was trying its best to allow insurance companies to avoid federal regulation and to live where they were happy to live in the various states. Now the insurance companies aren't happy there because of bad faith and they're trying to come back under the umbrella of ERISA. Now, I do think that the McCarran-Ferguson Act and the saving, and the regulation of insurance question is certainly related, as this Court has said in Metropolitan Life, to the questions here in ERISA. But, I think it comes down the same way, as this Court said in the--
Speaker: But, the language here is ambiguous if you assume that the definition of a law of any state is not necessarily the same as the definition contained in the act of state laws. And it's not the same phrase, so in this Act, it's at least ambiguous and in McCarran-Ferguson it's pretty clear, it seems to me, that it doesn't cover decisional law, because it refers there to any law enacted by any state. And, it says, "unless such act specifically relates".
William C. Walker, Jr.: --Well, there's a--
Speaker: xxx under McCarran-Ferguson that it relates to legislation and perhaps implementing regulations, so if the two have to be construed in pari materia, I think you're going to lose on that point.
William C. Walker, Jr.: --Your Honor, I don't think so because there's a presumption against preemption. And, to use the strained distinction between any law of any state and state law then I believe there is a presumption against. You all said in Metropolitan Life that there was a presumption against preemption and apply, and use that language in interpreting the savings clause. And I think that if any presumption against preemption is applied certainly this kind of what I would view as restrained construction, this distinction should not be drawn.
Speaker: Is this a negotiated plan?
William C. Walker, Jr.: Your Honor, I don't know. This--
Speaker: Well, a lot of plans are in fact the result of collective bargaining?
William C. Walker, Jr.: --As far as I know it was not. I don't know. I don't think that's part of the record anywhere. This case was brought at a time when nobody much knew ERISA was around, neither the plaintiff nor the defendant. The defendant found out about it a couple of years later and amended its answer, and I'm not sure about that. Well, Mississippi bad faith law and indeed any common law of general application, although Mississippi bad faith law specifically focuses on insurance and thus does not fall within that argument that's made, an argument that I don't accept by the petitioners. Certainly, it's designed to focus upon the insurance industry.
Speaker: xxx.
William C. Walker, Jr.: To force the insurance industry to do what it ought to do and to protect the people that ERISA is designed to protect. Happily it does that as well. Since it is a state law which regulates insurance, since this Court has said that that's where the inquiry stops, since in its reply brief the petitioner has almost admitted that even if it is a state law which regulates insurance they still win, the language in the Metropolitan case, correctly decided in my view, of course, is that that's where the inquiry stops. There's a state law which regulates insurance. It is therefore saved from preemption. This is an insured rather than a non-insured plan.
Speaker: Well, any state law of general applicability regulates insurance, right?
William C. Walker, Jr.: Yes, sir.
Speaker: If we apply your first principle of presumption against preemption then I guess we would have to say that all state laws of general applicability continue to apply.
William C. Walker, Jr.: Yes, sir.
Speaker: So long as they're being applied to insurance companies.
William C. Walker, Jr.: To regulate it. Of course, as Dean Keaton has said, and as his footnote in the U.S. Brief points out, that's the way insurance is basically regulated, through Court decision which interprets meanings of policies--
Speaker: What about the Mississippi Statute of Frauds; would that apply? Would that be something that wasn't pre-empted?
William C. Walker, Jr.: --I think first of all, the Mississippi Statute of Frauds might not relate to the plan in the first place. In other words, it might not fit under 514(a) in the beginning.
Speaker: Well, what, but what if it did?
William C. Walker, Jr.: Since... if some special wrinkle developed to deal with insurance policies, I would say it did.
Speaker: Well, supposing it's just a general statute of frauds that doesn't have any provision in it about insurance, but it just applies to all written contracts. The argument is, this is a written contract. In this case, it regulates an insurance company, because the insurance company is one of the parties.
William C. Walker, Jr.: Well, you're asking me makes some assumptions that are not correct, but for purposes of argument I would say that a law of general application, first of all, if it's that general, is not going to be, is not going to relate to the plan. Secondly, assuming--
Speaker: Why? I don't understand why.
William C. Walker, Jr.: --Because it's got to focus on the plan in some way, some manner to relate to the plan. I mean, I'm not really prepared--
Speaker: You mean, by its terms, about the law, by its terms has to refer to plans?
William C. Walker, Jr.: --No, sir. To fit under 514(a) it doesn't take too much. And, of course, since that's not the issue in this case, since we've admitted that what we've got fits under 514(a), I can't point out the nuances to you. But, a law of general application that applies equally, then perhaps there's no reason to view it as insurance regulation. But, a law of general application, to simply use that phrase, "general application", when in fact it is applied to the insurance industry or insurance contracts, or insurance claims handling in a specific way, then that regulates insurance. And, all insurance teachers agree that it regulates insurance. And, all insurance industry agrees as well that it regulates insurance xxx--
Speaker: What if Mississippi law didn't focus particularly on an insurance company's duty to pay, but just say that any debtor's duty to pay, you could have a breach of good faith and recover punitive damages for the failure of a debt to pay the, debtor to pay the debt on time.
William C. Walker, Jr.: --First of all, let me make clear that respondent's, I mean petitioner's argument in his reply brief that any intentional refusal to pay a contract justifies punitive damages, is clearly contrary to Mississippi law, contrary to Cliver Wendell Holmes, contrary to the Restatement Second of Contracts, Section 355, so that's not the general law. But, assuming that it were, the... if it is not applied directly or in any way more significantly toward insurance companies than anything else, then I don't think xxx--
Speaker: It applies to them more often than anybody else probably just because they happen to pay more claims than anybody else, or to be liable to pay more claims than anybody else. xxx Even though that were true, by terms the doctrine applied to any debtor.
William C. Walker, Jr.: --Well, let's put it this way, we do have a rule that says any debtor is supposed to pay his debts. All right? And, if he doesn't he's got to pay damages. And that's the general contract rule that was modified in the Beall case in which the court applied it in Mississippi law for insurance companies. That's not a law which specifically focuses on insurance. It has not been applied more directly toward insurance than anything else as far as I can tell based on that narrow hypothesis. And, I don't think that it's, that it would be saved; frankly, I don't think it would be necessary for it to be saved. The--
Speaker: Where do you get that limitation out of the statute, that it has to relate more narrowly to insurance companies?
William C. Walker, Jr.: --It says "insurance regulation". In other words, it says state laws which regulate insurance. The word "regulate" probably means something and the question is what precisely does it mean. It clearly includes a state law that's designed to force insurance companies to pay legitimate claims. The question is does it include--
Speaker: Sure, but a general state law saying everybody shall pay his debts applies to insurance companies. Surely that regulates insurance companies.
William C. Walker, Jr.: --It certainly may xxx--
Speaker: It regulates them and everybody else.
William C. Walker, Jr.: --It certainly may do that.
Speaker: But, you're giving it a narrower interpretation because it would frankly seem somewhat absurd to give it a fuller--
William C. Walker, Jr.: No, sir. Absolutely not. It doesn't seem absurd to me.
Speaker: --Well, then your general principle of construe everything to avoid preemption, I would have thought you would have answered the Chief Justice's question entirely differently saying, yes, it covers all state laws. I don't know how else your principle would play out in this case. Or otherwise you're not being loyal to your principle and, you know, once you acknowledge that then we have to start drawing lines and I don't know why we should draw the line where you want us to between somehow applying specially to insurance companies and not applying specially. Why we should draw it there rather than between, as McCarran-Ferguson did, between statutory regulation and non-statutory regulation or some other fashion?
William C. Walker, Jr.: The reason I'm having difficulty, I believe, is because the hypothesis is one that I think will be taken care of by never even coming up because of it not relating sufficiently to the plan in the first place under 514(a). But assuming that it does, I agree with you, there is no reason in principle to draw a distinction if it has the effect of regulating and if that's the decision that this Court wants to... wants to make, if it has the effect of regulating, fine.
Speaker: I think that's a more, what should I say, consistent position.
William C. Walker, Jr.: This case involves state law regulating insurance. It involves state law that was expressly, clearly preserved by Congress in the statute itself. The 5th Circuit correctly construed this Court's opinion in Metropolitan Life and recognizing that such state law was safe from preemption, we request the Court to affirm the 5th Circuit.
William H. Rehnquist: Thank you, Mr. Walker.
William C. Walker, Jr.: No further questions?
William H. Rehnquist: Mr. Nolan, you have three minutes remaining.
John E. Nolan, Jr.: Just a few points, if the Court please. First, to respond to the Chief Justice's comment about what did Congress contemplate, I think that's very important. I think that's really what we're doing here. What Congress contemplated is repeated over and over and over again in the legislative history. They contemplated a uniform system of federal regulation of employee benefit plans. There is by stark contrast not a single reference anyplace in the legislative history to preservation of any kind of a state cause of action like this. That's very significant. The legislative history of ERISA runs 15 volumes.
Speaker: Well, it might have; it also might be that silence may run the other way.
John E. Nolan, Jr.: Well, I think the silence, Justice White, runs toward the uniformity that you commented on earlier and that's what Congress was thinking of. It's inconceivable that Congress, in a legislative history that extensive, could make a major exception to what it was providing in the statute and make no reference to it.
Speaker: Well, you might have expected somebody to say that the state causes of action are preempted.
John E. Nolan, Jr.: Well, there are references to state causes of action in a lot of other statutes as you know, Justice White, from the Silkwood case, as this Court knows, from Title VII and so on. There are a lot of different ways to do it, but none of those ways took place here. The definition of the employee benefit plan very specifically includes plans funded through the purchase of insurance or otherwise. That's definitional in the statute. It isn't that Congress provided one statute for insured plans and another for self-insured plans. Employee benefit plans are defined as plans that provide benefits through the purchase of insurance or otherwise.
Speaker: Mr. Nolan, where do you draw the line that I was just discussing with Mr. Walker? You don't draw it between statute and non-statute. How do we know when its a law regulating insurance?
John E. Nolan, Jr.: We would draw the line, Justice Scalia, on the function and we think what function is the actor, insurance company in this instance, performing? If it is performing a compulsorily, an ERISA-mandated function, in this instance claims administration, we would say that that was ERISA and preemption applied.
Speaker: Well, then the insurance company doesn't have to keep a certain reserve?
John E. Nolan, Jr.: All of that is regulated by state law. That doesn't really rise to the level of an ERISA.
Speaker: No, but as far as, as far as his ERISA function is concerned, he's insuring under ERISA. Doesn't he have to comply with the state law requiring insurance companies--
John E. Nolan, Jr.: He does. Insurance companies for all of those kinds of considerations comply with state law. You don't get to an issue like this until you get into the administration of an employee benefit plan. And this function reaches into the very vitals of that administration.
William H. Rehnquist: Thank you, Mr. Nolan. The case is submitted.