19 Employee Benefits Cas. 1708, Pens. Plan Guide P 23912q Dean Moideen John Wright Maribeth Kaye Kathleen Snyder Patricia Malczewski, as Trustees of United Healthcare Benefits v. Roxani M. Gillespie, Commissioner of the California Department of Insurance

Citation: 55 F.3d 1478Docket: 93-55643

Court: Court of Appeals for the Ninth Circuit; June 7, 1995; Federal Appellate Court

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United Health Care Benefits Trust (UHBT) offers health benefit plans to small businesses. The California Insurance Commissioner seeks to regulate UHBT as an insurance company. Dean Moideen, a trustee of UHBT, along with other trustees, filed a lawsuit claiming that the federal Employee Retirement Income Security Act (ERISA) preempts California's Insurance Code in its application to UHBT and that the Commissioner violated Moideen's constitutional rights. Both parties moved for summary judgment, while Moideen also requested the recusal of the district judge. The district court ruled in favor of the Commissioner and denied Moideen's motions, leading to Moideen's appeal, which the Ninth Circuit Court affirmed.

UHBT was established in 1987 and began providing benefits in October 1988. Its governance rests with a Benefit Committee elected annually by a diverse group of small business employers. Significant roles in plan administration are held by entities owned by Tony Ullah, who also owns the marketing entity, Small Business Insurance Services. Employers must join the United Association of Small Businesses to participate and contribute to cover claims and administrative costs. Although UHBT insures itself against catastrophic claims exceeding $50,000, it does not directly purchase insurance for participant claims and is thus not considered a fully or partially insured plan under ERISA.

While UHBT adheres to ERISA's structural and reporting requirements, the Commissioner argues it is not an ERISA plan but instead an unlicensed insurance entity operated by Ullah. On March 20, 1990, the Commissioner issued a Cease and Desist Order against UHBT, alleging it was unlawfully selling insurance and demanding compliance with California insurance regulations.

Moideen initiated a legal action requesting: (1) a declaration that ERISA preempts California's Insurance Code concerning UHBT; (2) a permanent injunction against California's regulation of UHBT as an insurance entity; and (3) unspecified relief for alleged due process and equal protection violations. Both Moideen and the Commissioner sought summary judgment regarding whether UHBT qualifies as an 'employee welfare benefit plan' and a 'multiple employee welfare arrangement' under ERISA. Additionally, the Commissioner requested summary judgment on Moideen's constitutional claims. Following the judge's comments about self-funded benefit plans, Moideen sought the judge's recusal, which was later denied by a different judge.

Moideen presented evidence suggesting that UHBT was established by two employers, managed by a Benefit Committee composed of employers, and adheres to ERISA's reporting and structural stipulations. The district court fully granted the Commissioner's summary judgment motion. On appeal, Moideen argues that the district court incorrectly ruled in favor of the Commissioner and wrongly denied the recusal motion.

The review of the district court's summary judgment is conducted de novo, focusing on whether evidence, viewed favorably to Moideen, presents any genuine material fact disputes. Moideen asserts that UHBT qualifies as an ERISA plan since it is established and maintained by participating employers. The Commissioner argues that UHBT is not an ERISA plan, but rather an unauthorized insurer providing health benefits in California. If UHBT is classified as an ERISA plan, it cannot be considered an insurance company, thus exempting it from California's regulations. Conversely, if it is not an ERISA plan, it falls under the full scope of the California Insurance Code.

An ERISA 'employee welfare benefit plan' is defined as a program established by an employer or employee organization to provide various benefits to participants or their beneficiaries. An 'employer' encompasses any individual or group acting on behalf of an employer in relation to an employee benefit plan.

Insurance arrangements involving employers may claim exemption from state insurance requirements if broadly interpreted; however, to limit ERISA preemption to intended employer-employee benefit plans, the Department of Labor requires a bona fide "organizational relationship" among members, not just an association for benefits. This interpretation was upheld in *Credit Managers Ass'n v. Kennesaw Life, Accident Ins. Co.*, where a trust was deemed not an ERISA plan because it involved unrelated employers. The district court applied this precedent, ruling that UHBT is not an ERISA employer due to insufficient organizational relationships among its members, which only share membership in the United Association of Small Business (UASB). Membership in UASB does not create a bona fide group, as the employers lack the necessary common interests. Moideen argued that whether a plan is an ERISA plan is a factual question dependent on the plan's operation in relation to member employers or entrepreneurs. However, the lack of a pre-existing organizational relationship among the employers, along with the broad membership criteria, disqualifies UHBT from being classified as an ERISA employee welfare benefit plan. 

Regarding Moideen's motion for recusal of the district judge, which was prompted by the judge's comments about self-funding health plans and their risks, the motion was referred to another judge and subsequently denied. The discretion of the district court in denying the recusal is reviewed for abuse, with recusal warranted if a reasonable person might question the judge's impartiality.

The judge's concern about unfunded benefit plans did not warrant recusal, as judges are expected to remain aware of surrounding events. The district court acted within its discretion in denying the recusal motion. Moideen's claims under 42 U.S.C. Sec. 1983, alleging violations of due process and equal protection by the Commissioner, are deemed frivolous. Key arguments include the assertion that the Commissioner improperly conducted hearings under California's Insurance Code section 1065.1 instead of section 700, deprived UHBT of property without due process, and failed to provide adequate notice of regulation. However, the statutes provided sufficient notice, the hearings complied with federal law, and no constitutional right against regulation was established. Moideen's vague equal protection claim lacks merit, as he does not belong to a suspect class, and regulating insurance serves a legitimate state interest. The court affirmed that UHBT is not an employee welfare benefit plan and thus is not preempted by ERISA from California's insurance regulations. The district court's summary judgment favoring the Commissioner and denial of the recusal motion were upheld.