Brown v. Reliance Standard Life Insurance Company
MEMORANDUM OPINION. Signed by Judge R David Proctor on 9/16/2014. (AVC)
2014 Sep-16 PM 12:24
U.S. DISTRICT COURT
N.D. OF ALABAMA
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
RELIANCE STANDARD LIFE
Case No.: 2:13-CV-00261-RDP
This case is before the court on the parties’ Cross-Motions for Summary Judgment (Docs.
# 22 & # 26),1 both of which were filed on October 31, 2013. The Motions (Docs. # 22 & # 26)
have been fully briefed. (Docs. # 27, # 28, # 33, # 34). For the reasons outlined below, after
carefully reviewing the record and briefs and with the benefit of oral argument, Defendant’s
Motion (Doc. # 22) is due to be granted, while Plaintiff’s Motion (Doc. # 26) is due to be denied.
This case was originally initiated by Plaintiff Genetta Brown (“Plaintiff”) on January 3,
2013, in the Circuit Court of Jefferson County, Alabama, Bessemer Division.
Complaint (Doc. # 1 at 13-30) included claims for breach of contract and bad faith. The case
was removed to the United States District Court for the Northern District of Alabama upon
Defendant Reliance Standard Life Insurance Company’s (“Defendant”) filing of a Notice of
Only Defendant’s Motion for Summary Judgment (Doc. # 22) is currently characterized as a motion;
however, both Defendant’s Motion (Doc. # 22) and Plaintiff’s Amended Initial Brief (Doc. # 26) move for
substantive relief as to the same issue, and, as such, the court construes the Documents (# 22 & # 26) as CrossMotions for Summary Judgment.
Removal (Doc. # 1) on February 6, 2013. Plaintiff challenged Defendant’s removal, filing a
Motion to Remand (Doc. # 6) -- along with a Motion to Strike Defendant’s Affirmative Defenses
(Doc. # 7) -- on March 5, 2013. By Order (Doc. # 13) dated April 1, 2013, this court denied the
Motions (Docs. # 6 & # 7) and set the case for a status conference. Following that conference,
the court permitted the parties to engage in limited discovery on the issue of “whether the Policy
at issue is covered by ERISA or is a governmental plan exempt from ERISA coverage,” after
which the parties were to file dispositive motions on the subject. (Doc. # 14). On October 31,
2013, Defendant filed a Consolidated Motion for Summary Judgment and Brief in Support
Thereof Regarding the Applicability of ERISA (Doc. # 22), along with Evidentiary Materials
(Doc. # 24). That same day, Plaintiff filed an Amended Initial Brief on the Applicability of
ERISA (Doc. #26), which she supplemented with Evidentiary Materials (Doc. # 25). The parties
filed their Responses (Docs. # 27 & # 28) on November 14, 2013, and submitted their Replies
(Docs. # 33 & # 34) on November 21, 2013, rendering their Cross-Motions (Doc. # 22 & # 26)
properly under submission.
During the briefing period, the court also received a Motion for Leave to File Amicus
Curiae Brief on the Applicability of ERISA (Doc. # 29) from The Healthcare Authority for
Medical West (“Medical West”), which the court granted over Defendant’s Opposition (Doc. #
30) by Order (Doc. # 31) dated November 21, 2013. Thereafter, Medical West filed its Amicus
Brief (Doc. # 32), and Defendant filed a Response (Doc. # 36), both of which the court has
reviewed and considered in reaching its decision.
Plaintiff Genetta Brown (“Plaintiff”) brings this suit both individually and as the
executrix of the estate of her late husband, Enoch Brown, Jr. (“Brown”). In June 2004, Brown
began working at Medical West as a supervisor in its Environmental Services Department.
(Doc. # 1 at 17).
Brown obtained a life insurance policy with Defendant through his
employment with Medical West. (Doc. # 25, Ex. M-13, Pennington Dep. at 140-41). In January
2008, Brown was diagnosed with lung cancer. (Doc. # 1 at 18). After Brown’s death in
February 2011, Plaintiff submitted a claim for death benefits, but it was rejected by Defendant.
(Doc. # 1 at 20). Thereafter, Plaintiff brought suit against Defendant, alleging breach of contract
and bad faith. (Doc. # 1 at 13-30).
Prior to 2002, Medical West was known as Bessemer Carraway Medical Center
(“BCMC”) and was owned and operated by an Alabama nonprofit corporation of the same name.
(Doc. # 25, Ex. K-2). In February 2002, BCMC entered into an Affiliation Agreement with
UAB Health System (“UABHS”), at which point BCMC’s name was changed to UAB Medical
West. (Doc. # 25, Ex. M-13, Pennington Dep. at 114-16; Doc. # 25, Ex. A-3). UABHS is an
Alabama nonprofit corporation that manages hospitals and is comprised of two entities: the
Board of Trustees of the University of Alabama (“UA Board”) and the University of Alabama
Health Services Foundation, P.C. (Doc. # 25, Ex. A-2). In December 2005, the UA Board,
UABHS, UAB Medical West, and the Western Health Services Foundation (“Foundation”), an
Alabama private nonprofit corporation, entered into a new Affiliation Agreement (Doc. # 25, Ex.
The facts set out in this opinion are gleaned from the parties’ submissions of facts claimed to be
undisputed, their respective responses to those submissions, and the court’s own examination of the evidentiary
record. All reasonable doubts about the facts have been resolved in favor of the nonmoving party. See Info. Sys. &
Networks Corp. v. City of Atlanta, 281 F.3d 1220, 1224 (11th Cir. 2002). These are the “facts” for summary
judgment purposes only. They may not be the actual facts that could be established through live testimony at trial.
See Cox v. Adm’r U.S. Steel & Carnegie Pension Fund, 17 F.3d 1386, 1400 (11th Cir. 1994).
D-4), pursuant to which all of UAB Medical West’s assets, liabilities, and employees were
transferred to a health care authority -- The Healthcare Authority for Medical West, an Affiliate
of UAB Health System -- created by the UA Board. (See generally Doc. # 25, Ex. C-3). The
Healthcare Authority for Medical West (“Medical West”) is controlled by an eleven-member
board of directors (six of whom are selected by the UA Board) and is required to pay UABHS
twenty-five percent of its net income each year. (Doc. # 25, Ex. C-3; Doc. # 25, Ex. M-13,
Pennington Dep. at 125, 128). Like all other health care authorities in the State of Alabama,
Medical West was created pursuant to the Health Care Authorities Act of 1982 (the “HCA Act”),
Alabama Code § 22-21-310 et seq. (Doc. # 25, Ex. C-1).
The HCA Act vests counties, municipalities, and educational institutions with the power
to create “public corporations whose corporate purpose shall be to acquire, own and operate
health care facilities.” Ala. Code § 22-21-312. Such corporations are referred to as health care
authorities and are vested with numerous powers and quasi-governmental characteristics. Id. §
22-21-318. For instances, health care authorities are exempt from any state, county, or municipal
taxes (id. § 22-21-333), have the power to issue tax-exempt bonds (id. § 22-21-330), and
potentially, have the power of eminent domain (id. § 22-21-319). Medical West bears all of
these hallmarks of a health care authority. (Doc. #25, Ex. C-2 & C-3).
However, a health care authority is distinct in many ways from a quintessential
governmental entity. For instance, health care authorities do not have the power to levy taxes
(Ala. Code § 22-21-318(d)), they are not subject to Alabama’s competitive bid requirements (id.
§ 22-21-335), their directors’ meetings are not subject to Alabama’s Open Meeting Act (id. § 2221-316(c)), and their directors, officers, and employees are not covered by the State’s ethics laws
(id. § 22-21-334). Likewise, the debts and obligations of a health care authority are not imputed
to the State of Alabama or its political subdivisions. Id. § 22-21-325. And, in this specific
instance, Medical West has limited, state-imposed financial reporting requirements (e.g., it is not
required to report its income or expenditures to the state). (Doc. # 25, Ex. M-13, Pennington
Dep. at 68-69). Medical West receives no appropriations from the State of Alabama (id. at 7778), and Medical West maintains an employee benefits plan that is separate and apart from that
applicable to state employees. (Id. at 37).
After careful review of the parties’ briefs and evidentiary submissions, and for the
reasons stated below, the court concludes that Defendant’s motion should be granted and
Pursuant to this court’s Order (Doc. # 14), the parties engaged in limited discovery on the
question of “whether the Policy at issue is covered by ERISA or is a governmental plan exempt
from ERISA coverage.” (Doc. # 14 at 1). They have since filed dispositive motions (Docs. # 22
& # 26), with Plaintiff arguing that the underlying policy is part of a “governmental plan” (and
thus, is exempt from ERISA), and Defendant asserting that it is not (and thus, is subject to
Although ERISA casts a wide net, an employee benefit plan can nevertheless evade that
broad coverage if it is a statutorily exempt. See 29 U.S.C. § 1003(b). ERISA specifically
exempts five categories of employee benefit plans: (1) government plans; (2) church plans; (3)
plans established solely for complying with workers’ or unemployment compensation or
disability insurance laws; (4) plans maintained outside the United States primarily for
nonresident aliens; and (5) unfunded excess benefits plans. Id. § 1003(b)(1)-(5). As such, under
ERISA, those employee benefit plans that are deemed to be “governmental plans” are exempt
from the statute’s coverage. Id. § 1003(b)(1). ERISA defines a “governmental plan” as: “A plan
established or maintained for its employees by the Government of the United States, by the
government of any State or political subdivision thereof, or by any agency or instrumentality of
any of the foregoing . . . .” Id. § 1002(32). As the employee benefit plan upon which Plaintiff’s
suit is based was established by Medical West, the question before this court is whether Medical
West is (1) a “political subdivision” or (2) an “agency or instrumentality” for purposes of
ERISA’s “governmental plan” exemption.
Whether a given entity is a “political subdivision” or “agency or instrumentality” is a
question of federal law. Rose v. Long Island R.R. Pension Plan, 828 F.2d 910, 915 (2d Cir.
1987). ERISA fails to define these terms, and the Eleventh Circuit has yet to weigh in on their
construction in the context of ERISA’s “governmental plan” exception. However, many district
courts within the Circuit have grappled with the issue. See, e.g., Williams-Mason v. Reliance
Std. Life Ins. Co., 2006 U.S. Dist. LEXIS 40052 (S.D. Ga. June 16, 2006); Germaine v. Unum
Life Ins. Co. of Am., 2004 U.S. Dist. LEXIS 24019 (N.D. Ga. Sept. 23, 2004); Dickerson v.
Alexander Hamilton Life Ins. Co., 130 F. Supp. 2d 1271 (N.D. Ala. 2001); Hutto v. Blue Cross &
Blue Shield of Ala., 1997 U.S. Dist. LEXIS 16386 (M.D. Ala. June 9, 1997); Culpepper v.
Protective Life Ins. Co., 938 F. Supp. 794 (M.D. Ala. 1996).
In addition, although the Eleventh Circuit has not addressed this particular question, other
courts of appeal have. Those courts have looked elsewhere for guidance in determining the
meaning of those terms.
For instance, in attempting to define “political subdivision,” the
Second, Third, and Seventh Circuits have utilized the “NLRB Test,” 3 which was promulgated by
the NLRB and adopted by the Supreme Court in the context of determining what amounts to a
Rose, 828 F.2d at 915-17; Koval v. Wash. Cnty. Redevelopment Auth., 574 F.3d 238, 242 (3d Cir. 2009);
Shannon v. Shannon, 965 F.2d 542, 547-48 (7th Cir. 1992).
“political subdivision” under the National Labor Relations Act. NLRB v. Natural Gas Util.
District, 402 U.S. 600, 604-05 (1971). Under the NLRB Test, an entity constitutes a “political
subdivision” if it is “either (1) created directly by the state, so as to constitute departments or
administrative arms of the government, or (2) administered by individuals who are responsible to
public officials or to the general electorate.” Id.
Similarly, when attempting to determine whether an entity is a governmental “agency or
instrumentality,” courts have looked to provisions of the Internal Revenue Code for guidance.
See Rose, 828 F.2d at 916; see also Dickerson, 130 F. Supp. 2d at 1275; Culpepper, 938 F. Supp.
at 797. The Revenue Ruling that accompanies the IRS’s “governmental plan” definition -which is nearly identical to ERISA’s governmental plan definition -- considers six factors in
determining whether an entity is a governmental agency or instrumentality:
whether it is used for a governmental purpose and performs a governmental function;
whether performance of its functions is on behalf of a state or political subdivision;
whether there are private interests involved, or whether the states or political
subdivisions involved have the powers and interests of an owner;
whether control and supervision of the organization is vested in a public authority;
if express or implied statutory or other authority is necessary for the creation or use of
such an instrumentality, and whether such authority exists; and
the degree of financial autonomy and the source of its operating expenses.
See Rev. Rul. 57-128, 1957-1 C.B. 311. In the absence of direction from the Eleventh Circuit,
this court concludes that the decisions of the Second, Third, and Seventh Circuits are persuasive.
Accordingly, consistent with these opinions, the court will apply the NLRB test and the IRS
factors in its evaluation of Medical West’s governmental status as either a “political subdivision”
or an “agency or instrumentality” of the State.
Medical West Is Not a “Political Subdivision” Within the Meaning of ERISA
In spite of the HCA Act’s confusing use of terminology,4 it seems clear that Medical
West does not constitute a “political subdivision” for purposes of ERISA. The court fully
understands the argument that the UA Board exerts de facto control over Medical West (as the
UA Board controls six of the directorships on Medical West’s eleven-member board), and the
members of the UA Board are public officials.5 Regardless, Medical West satisfies neither prong
The HCA Act establishes that a health care authority is entitled “[t]o exercise all powers granted [by the
statute] . . . , notwithstanding that as a consequence of such exercise of such powers it engages in activities that may
be deemed “anticompetitive” within the contemplation of the antitrust laws of the state or of the United States.” Ala.
Code § 22-21-318(a)(31). The statute continues, providing that “[a]s a basis for the power granted in [the
aforequoted provision], the Legislature hereby: (2) Determines, as an expression of the public policy of the state
with respect to the displacement of competition in the field of health care, that each authority, when exercising its
powers hereunder with respect to the operation and management of health care facilities, acts as an agency or
instrumentality of its authorizing subdivisions and as a political subdivision of the state.” Ala. Code § 22-21-318(c)
(emphasis added). Plaintiff seizes on the preceding language, broadly asserting that “[t]he enabling provision of the
HCA states that a health care authority ‘acts as an agency or instrumentality of its authorizing subdivisions and as a
political subdivision of the state.’ ” (Doc. #26 at 2). However, Plaintiff’s assertion, no doubt intended to sway the
court’s “governmental plan” determination, misunderstands the statute, and fails to acknowledge the context in
which the terms “agency or instrumentality” and “political subdivision” were used. Indeed, the plain language of
the statute indicates that health care authorities are to be considered governmental entities only for purposes of
antitrust evaluation, so as to allow such authorities to engage in anticompetitive conduct. See Health Care Authority
for Baptist Health v. Davis, 2013 WL 2149493 at *9 (Ala. 2014) (“[I]t is apparent that the legislature has stated than
a health-care authority acts as an agency or instrumentality of its authorizing subdivision and as a political
subdivision of the State only in connection with its engagement in anticompetitive conduct.”). As such, the court
places little weight on the Alabama Legislature’s use of the terms as it relates to the issue presently before the court
and this limitation distinguishes this case from decisions such as Todorov v. DCH Healthcare Auth., 921 F.2d 1438
(11th Cir. 1991) (finding DCH, a hospital organized under the Alabama HCA, was a local governmental entity for
purposes of antitrust analysis). See Askew v. DCH Healthcare Auth., 995 F.2d 1033 (11th Cir.) (same), cert. denied,
510 U.S. 1012 (1993); accord Dellocono v. Thomas Hosp., 894 So. 2d 694, 697 (Ala. Civ. App. 2004) (“It is clear
that the holdings in Askew and Todorov are limited to antitrust cases . . . .”).
Alabama’s Code of Ethics defines public official as: “Any person elected to public office, whether or not
that person has taken office, by the vote of the people at state, county, or municipal level of government or their
instrumentalities, including governmental corporations, and any person appointed to a position at the state, county,
or municipal level of government or their instrumentalities, including governmental corporations. For purposes of
this chapter, a public official includes the chairs and vice-chairs or the equivalent offices of each state political party
as defined in Section 17-13-40. Ala. Code § 36-25-1. The UA Board has two public officials that sit as ex officio
members by virtue of their respective offices, namely, the Governor and the Superintendent of Education of the
State of Alabama. See Board of Trustees of the University of Alabama, Board Manual, art. 1, § 1 (Rev. 2013). The
remaining board members however are elected by the UA Board itself. See id. Three members are elected by the
Board from the congressional district in which the Tuscaloosa campus is located, and two members are elected from
each of the other congressional districts in the State of Alabama. See id. Each trusteeship is subject to confirmation
by the Alabama Senate. See id. at art. 1, § 2. It is undisputed that the UA Board is an instrumentality of the State of
Alabama. It follows that any person elected or appointed by the UA Board and each member of the UA Board is a
of the widely-used “NLRB Test”: (1) it was not created directly by the State of Alabama itself,
but rather by an arm of the State (i.e., the UA Board), and (2) its administrators are not
responsible to public officials or the general electorate. Furthermore, as the UA Board’s powers
of oversight are much more circumscribed than that which appears to be contemplated by the
second prong of the NLRB Test, it makes little sense that the Alabama Legislature would grant
entities other than the State itself the power to create political subdivisions of the State (e.g.,
counties, municipalities, and educational institutions).
Medical West Is Not a Governmental “Agency or Instrumentality” Within
the Meaning of ERISA
Likewise, the court concludes -- after careful consideration of the IRS’s six “agency or
instrumentality” factors -- that Medical West is not an “agency or instrumentality” for purposes
of ERISA. Some of the IRS factors (e.g., control exercised by public authority and creature of
statute) may weigh in favor of construing Medical West as an “agency or instrumentality,” and
others (e.g., performance on behalf of state or its political subdivisions and ownership interests
of the state or its political subdivisions) fail to break one way or the other. But here, the fact that
Medical West does not perform a governmental function and enjoys nearly complete financial
autonomy convinces this court that Medical West should not be considered a governmental
“agency or instrumentality” for purposes of ERISA.
Previous versions of the ethics law clarified that the definition of public official: “excludes members of all
other boards not named including but not limited to those commissions, committees, councils, boards of authorities,
functioning solely for cultural or historical purposes and advisory board members and members of boards of trustees
of institutions of higher learning of the State of Alabama.” See Comer v. City of Mobile, 337 So. 2d 742, 747 (Ala.
1976) (quoting Ala. Code § 36-25-1(11), Code 1975). This clarifying language has been removed. The court will
not look beyond the plain language of the current statute in resolving this question.
Governmental Purpose or Function
Contrary to Plaintiff’s assertions (Doc. # 26 at 22-24), Medical West is not used for a
governmental purpose and does not perform a governmental function. The court reaches this
conclusion for the following reasons.
While it is true that “[t]he Authority’s stated purpose is to promote the public health of
the people of Alabama and to ensure access to primary and secondary care in Bessemer” (id.),
such a mission evinces a public function, not necessarily a governmental one. This public versus
governmental distinction, delicate as it may be, has previously been recognized by the Supreme
Court of Alabama in The Health Care Authority for Baptist Health v. Davis, in which the court
noted as follows:
[a]lthough the powers to arrange for the provision of health-care
services to the indigent and to promote public health are legitimate
ends of government, they certainly are not functions unique to
government. Thus, the power granted authorities under the HCA
Act in this regard . . . is not of the same character, for example, as
the power granted an entity that is charged with a strictly
government function, e.g., law enforcement.
Davis, 2014 WL 2149493, at *6.
Contrary to Defendant’s argument, Davis’s ultimate
conclusion that The Health Care Authority for Baptist Health “is an entity separate from the
State and from the persons and entities who participated in its creation” is not dispositive as to
the federal question presently before this court.
After quoting from Davis in his initial brief, Defendant asserts that:
[t]he inquiry really ends there. As held by the Supreme Court of
Alabama, because Medical West is a public corporation, it is an
entity separate from the State and from the persons and entities
who participated in its creation. Therefore, as held in Davis, it is
not a governmental entity.
Consequently, the government
sponsored employee benefit plan exception to ERISA does not
(Doc. # 22 at 12). The court declines to afford Davis the level of precedential value advocated
by Defendant for two reasons. First, to do so would ignore the Rose court’s well-taken reminder
that federal law, not state law, controls on the issue of whether a given entity constitutes a
“political subdivision” or an “agency or instrumentality” under ERISA. Rose, 828 F.2d at 915.
Second, such an invitation fails to recognize that Davis was rendered in the context of an inquiry
into state immunity. Davis, 2014 WL 2149493 at *4. To be sure, and as already noted, Davis
does have persuasive value -- particularly as it relates to whether health care authorities
authorized by state law perform a state governmental function -- and the court has factored that
decision into its analysis. But even taking full account of Davis, the court is not persuaded that
Medical West serves a governmental purpose or function.
Plaintiff also suggests that Medical West fulfills a government function because it was
designed to specifically address the problem of indigent care in its surrounding area (Oral Arg.
Tr. at 5-7, 12, Sept. 4, 2014).6 This assertion is wide of the mark for at least two reasons. First,
Medical West’s Affiliation Agreement and other governing documents (Doc. # 25-1) fail to
mention this purpose at all. Second, every hospital and healthcare provider exists (or at least is
called upon) to provide indigent care; indeed, the law imposes this duty on many private health
In response to the court’s inquiry into governmental function and purpose, Plaintiff responded at oral
argument on the issue as follows:
Q: Brookwood has a hospital in town. St. Vincents has a hospital in town, Trinity . . . . Those
aren’t governmental entities. They provide the same functions, though right? Isn’t it more of a
public function as opposed to a governmental function that medical center west and even UAB
A: But I think the difference is that the Health Care Authority act was passed to address a specific
need of providing indigent care to citizens of in the State of Alabama.
(Oral Arg. Tr. at 5, Sept. 4, 2014).
care providers through various statutes and regulatory schemes.7 It is clear indigent care is
merely a single aspect of Medical West’s overall purpose — promoting public health and
providing public health care. Medical West is not unique in this regard; the mere provision of
medical services, even to the indigent, is not a governmental function. There are many private
hospitals in Alabama (and elsewhere) that provide this service.8 It is a public function.
For these reasons, the court concludes that Medical West does not perform a
governmental function, lending credence to the idea that Medical West is not a governmental
“agency or instrumentality” within the meaning of ERISA.
2. Performance on Behalf of State or Its Political Subdivisions
After a careful review of the record, the court notes that it is unclear whether Medical
West “performs on behalf of” the State of Alabama or its political subdivisions. Plaintiff argues
Medical West “carried out [its governmental] function for the UA Board, and it does so under
the exclusive direction and control of the UA Board. . . . [Medical West’s] Board is controlled by
the UA Board, thus providing indicia of being a governmental entity.” (Doc. # 26 at 30). As
Plaintiff correctly notes, this factor is related to two different questions the court must answer:
(1) whether the entity serves a governmental function or purpose; and (2) whether an entity is
controlled and supervised by a political subdivision of the State. The Rule 56 evidence indicates
that while Medical West does not serve a strictly governmental function or purpose, it is, to some
extent, arguably controlled and supervised by the UA Board — a political subdivision of the
State. Therefore, this inquiry cuts in both directions.
For example, the Emergency Medical Treatment & Labor Act (“EMTALA”) requires all Centers for
Medicare and Medicaid Services-participating hospitals (i.e., almost every hospital) to provide emergency care to all
individuals seeking care irrespective of ability to pay. 42 U.S.C. § 1395dd.
To the extent Plaintiff suggests that Medical West is an agent or instrumentality of the government
necessary to meet the needs of the indigent population of Bessemer, it is interesting to note that the government not
only did not mention this in Medical West’s Affiliation Agreement, but also failed to provide the presumably
necessary financial means to support this end.
On the one hand, Medical West performs the public function -- as opposed to a
governmental one -- of promoting the public health “on behalf of” the State. On the other, as
Plaintiff notes, Medical West may perform “on behalf of” the UA Board, at least to the extent
that the UA Board exerts control over that public corporation. This so-called “control” is a
function of the UA Board’s power to appoint the majority of the members of Medical West’s
Board. A closer look at the circumstances of this case, however, reveals that this later “control”
argument conflates two of the IRS factors.
A conclusion that because Medical West is “controlled by” the UA Board it necessarily
follows that Medical West performs its functions “on behalf of” the UA Board is problematic for
at least three reasons. First, it renders the fourth factor of the IRS test redundant. Under the IRS
six-factor test, “performance on behalf of the state” is a unique and independent factor, distinct
from the “control and supervision” inquiry. There may be interlocking facts that affect the
analysis of the two issues, but the inquiries are substantively distinct.9 Second, and as more fully
explained below, merely because the UA Board appoints six of the eleven members of the
Medical West Board does not mean that the former controls the latter. In this case, because the
court questions whether the UA Board actually controls and supervises the Medical West Board,
it cannot say on that basis that alone Medical West performs on behalf of the UA Board. Finally,
and in any event, standing alone, a finding that the UA Board may exercise some amount of
control and supervision over Medical West is insufficient to win the argument that Medical West
performs on behalf of the UA Board. This factor is at best indeterminate, and regardless, as will
Of course, the court is cognizant that these two factors may often point to the same result, as an entity that
performs on behalf of a state is often, to some degree, controlled and supervised by the state. In many cases,
attempting to discern the contours of the second and fourth factors is likely to create a distinction without a
be revealed, the governmental function and financial autonomy factors are more critical to this
3. State Ownership
Medical West is not wholly owned by the State of Alabama or its political subdivisions;
therefore, at best, this factor is indeterminate. In reality, pursuant to the Affiliation Agreement
between the UA Board, UABHS, UAB Medical West (an entity different than Medical West),
and the Foundation, Medical West is a separate public corporation authorized to own and operate
a hospital and health care delivery system. Under Alabama law, “a public corporation is a
separate entity from the state and from any local political subdivision.” Ala. Hosp. Ass’n v.
Dillard, 388 So. 2d 903, 905 (Ala. 1980). The Affiliation Agreement has the effect of (1)
transferring the assets of UAB Medical West to the ownership and operation of Medical West, a
health care authority, and (2) outlining the joint governance rights and responsibilities of each of
the interested parties. Thus, Medical West may best be considered a joint venture by and among
each of the interested parties as co-owners.
For example, the presence of a purchase option in favor of a private entity further
indicates that Medical West is not solely, or even primarily, owned by the State of Alabama or
one of its political subdivisions. (See Doc. # 25, Ex. D-4 at 7-8). Upon dissolution, the
Foundation has the right to repurchase the hospital and related assets. (Id.) The purchase option
indicates that while the government may one day own the assets of Medical West, that will be the
case if -- and only if -- dissolution occurs and the Foundation fails to exercise the purchase
option. (Id.) Until that daily double occurs, Medical West is not wholly owned by the State.10
Furthermore, the later disposition of net proceeds upon the sale of Medical West by the Foundation under
the Affiliation Agreement illustrates the ambiguity in divining ownership. Upon the Foundation’s sale of Medical
West within the five-year term governed by the Affiliation Agreement, the net proceeds are distributed as follows:
(i) the Foundation receives sale proceeds in an amount equal to the net book value of the hospital;
Nor does Medical West resemble a state-owned entity. The State is not responsible for
the debts and obligations of Medical West (Ala. Code § 22-21-325), and Medical West may be
sued in its own name (Id. § 22-21-318(a)(2)). Medical West remits (by virtue of a contract) only
25 percent of its net income to the State, and Medical West receives no appropriations from the
State of Alabama. (Doc. # 25, Ex. M, Pennington Dep. at 77-78). Medical West is not required
to report its income or expenditures to the State. (Doc. # 25, Ex. M, Pennington Dep. at 68-69).
Ultimately, for all these reasons, the court finds that the Rule 56 evidence fails to
establish that the State is the owner of Medical West for purposes of determining whether or not
Medical West is an “agency or instrumentality” under ERISA.
4. Control and Supervision
As mentioned above, on first blush it may appear that, to the extent that control of
Medical West is vested in the UA Board, the control and supervision factor appears to weigh in
favor of construing Medical West as an “agency or instrumentality.”
Plaintiff argues that
Medical West carried out its function under the “exclusive direction and control” of the UA
Board, a political subdivision or state agency.11 (Doc. # 26 at 30) (emphasis added). But this is
(ii) the Foundation receives sale proceeds equal to the “Change in Value” of Medical West; and
(iii) the Foundation and UAB Health Systems will split the excess evenly.
(See Doc. # 25, Ex. D-4 at 7-8).
See Eubank, 210 F.App’x at 844 (“The University of Alabama Board of Trustees is a state
agency . . . .”). “The Alabama Supreme Court has held on at least two occasions that state universities . . . are
agencies or instrumentalities of the state.” Harden v. Adams, 760 F.2d 1158, 1163 (11th Cir. 1985) (citing Massler v.
Troy State Univ., 343 So. 2d 1 (Ala.1977); Ellison v. Abbot, 337 So. 2d 756 (Ala. 1976)); see also Cox v. Bd. of
Trustees of Univ. of Ala., 49 So. 814, 817 (1909):
[T]he various boards of trustees of the University of Alabama, etc., are but agents appointed by the
state to manage the affairs of the University of Alabama; that, while the name of the agency has
been several times changed, the legal entity of the University of Alabama has remained all the
while. It therefore clearly appears that the University of Alabama, by whatever corporate name or
under the control of whatever agents it may be, is a part of the state; that it was founded by the
state; that it is under the state control, and that the University is therefore a public municipal
corporation; that as to its lands the state is and has always been the trustee; and that the board of
trustees are mere agents of the state.
simply not supported by the Rule 56 record. Without question, the governance of Medical West,
the health care authority, is subject to the Affiliation Agreement between the UA Board,
UABHS, and the Foundation. (Doc. # 25, Ex. D-4). Various control rights are assigned through
this agreement with no single party enjoying exclusive right to control. (Id.) The State may only
indirectly control and supervise Medical West, if at all, through its authority to appoint a
majority of Medical West’s board members.
On one hand, Defendant argues Medical West has its own, separate board that supervises
and controls the entity. (Doc. # 34 at 4). The Medical West Board is not a public authority itself
or subject to appointment or confirmation by the Governor, Legislature, a city council, a county
commission, or the general electorate. The Foundation, an Alabama nonprofit corporation,
appoints five members to Medical West’s eleven-member board, and there is no requirement in
Medical West bylaws, Affiliation Agreement, or HCA Act requiring that board members be
officers of a governmental entity (See Docs. # 25, Ex. D-4 at 5; 34 at 5). On the other hand, the
UA Board appoints six of Medical West’s eleven directors. (Doc. # 25, Ex. D-4 at 5).12
Here, the court is called upon to decide the extent to which this organizational structure
reflects control and supervision of Medical West by the State of Alabama. At most, potential de
facto control could be inferred from the UA Board’s ability to appoint a majority of the directors
of the Medical West Board. Certainly, this appointment power is indicative of some level of
control, but alone it is insufficient to suggest an “exclusive” direction and control argued for by
Plaintiff. Moreover, Directors owe their fiduciary duties to the corporation not to those who
appoint them. See, e.g., Enstar Grp., Inc. v. Grassgreen, 812 F. Supp. 1562, 1569 (M.D. Ala.
1993) (“Corporate directors and officers have been variously described as trustees, fiduciaries,
Currently, the UA Board and the Medical West Board share two common members.
and agents of their corporation and stockholders. As such, they owe their corporation complete
loyalty, honesty, and good faith; their first duty is to act in all things of trust wholly for the
benefit of the corporation.”).
Indeed, in this specific instance, the State appears to have intentionally relinquished -and indeed insulated itself -- from direct control and supervision of Medical West. For example,
Medical West has limited, state-imposed financial reporting requirements and therefore is not
required to report its income or expenditures to the State. (Doc. # 25, Ex. M, Pennington Dep. at
68-69). Medical West receives no appropriations from the State of Alabama (Id. at 77-78),
meaning the State has little means of controlling or influencing Medical West’s allocation of
resources. Furthermore, Medical West’s directors’ meetings are not subject to Alabama’s Open
Meeting Act (Ala. Code § 22-21-316(c)); its directors, officers, and employees are not covered
by the State’s ethics laws (Id. § 22-21-334); and it is not subject to Alabama’s competitive bid
requirements (Id. § 22-21-335). Taken together, each of these factors suggests that the State has
not subjected Medical West to public oversight and accountability.
Here, outside of the appointment of six out of eleven Board members, the court is unable
to conclude that the UA Board exercises the kind of control and supervision that alone would
tend to show that Medical West is a governmental “agency or instrumentality.” And for the
reasons explained above, and particularly because Directors owe their fiduciary allegiance to the
Board they sit upon (not to those who appoint them),13 this is not enough to show the level of
control and supervision necessary to find that Medical West is an agency or instrumentality of
the State of Alabama.
Suggesting that members of a board of directors are controlled by, and perform their duties on behalf of,
those who appoint them is neither supported by logic or the law. (This faulty argument is similar to a suggestion
that judges are controlled by those who appoint or elect them). Appointing authorities appoint board members but it
does not follow a fortiori that they then control them. Any assertion to the contrary is like bad plumbing — it does
not withstand the pressure of close scrutiny and does not hold water.
5. Creation Under Express Statutory Authority
It is undisputed that Medical West is, to some extent, a creature of statute — a factor
weighing in Plaintiff’s favor. (Doc. # 22 at 25). Medical West, like every health care authority
in the State, is the product of Alabama’s HCA Act. Ala. Code § 22-21-310 et seq. Defendants
downplay the importance of statutory authorization to the issue, suggesting: “The same is true of
every other corporation that is incorporated in Alabama. Healthcare authorities are not special in
this regard.” (Doc. # 27 at 22-23). Defendant’s also suggest that because the enabling statute
exempts health care authorities from complying with Alabama’s Open Meeting Act, appointing
public officials to their boards, State ethics laws, and State competitive bidding laws (Doc. # 22
at 9, 16, 25-26). This factor weighs in favor of a finding that Medical West is a governmental
agency or instrumentality. But, in the context of this case, it is not a significant factor.
6. Degree of Financial Autonomy
Finally, and perhaps most importantly, the large degree of financial autonomy enjoyed by
Medical West weighs strongly in favor of the conclusion that Medical West is not an “agency or
instrumentality” for purposes of ERISA. Medical West receives no appropriations from the State
of Alabama (Doc. #25, Ex. M-13, Pennington Dep. at 77-78), is solely responsible for all of its
debts and obligations (Id. at 70), and has limited financial reporting requirements (e.g., it is not
required to report its income or expenditures to the State). (Id. at 68-69).
Such an expansive degree of financial autonomy -- and particularly the lack of outside
funding -- not only encourages the conclusion that Medical West is not an “agency or
instrumentality,” but also distinguishes the present case from some of those cited by Plaintiff in
which the opposite result has been reached. For example, Plaintiff relies upon Advisory Opinion
2000-13A from the U.S. Department of Labor as a prime example of a time when an entity
created under the HCA Act (the East Alabama Health Care Authority of Lee County, Alabama)
was deemed to be an “agency or instrumentality” under ERISA. DOL Advisory Opinion 200013A, 2000 ERISA LEXIS 14 (Oct. 24, 2000). However, unlike Medical West, the East Alabama
Health Care Authority was “supported in part by County taxes.” Id. The court notes that the
Second Circuit’s holding in Rose (that the Long Island Railroad was an “agency or
instrumentality”) also depended in large part on the Railroad’s receipt of significant state
funding,14 a factual circumstance that simply does not exist here. Rose, 828 F.2d at 918.
In fact, Medical West’s lack of outside funding, in combination with its inability to levy
taxes (Ala. Code § 22-21-318(d)), removes from the equation one of the primary factors that
drove Congress’s exemption of “governmental plans” from ERISA. Indeed, “despite ERISA’s
regulatory and remedial sweep, Congress did not include public or governmental plans within its
reach, believing in part, state and local governments’ ability to tax, would enable them to operate
employee welfare benefit systems that would ‘avoid the pitfalls of underfunding.’ ” McGraw v.
Prudential Ins. Co. of Am., 137 F.3d 1253, 1257 (10th Cir. 1998) (emphasis added) (quoting
Hightower v. Tex. Hosp. Ass’n, 65 F.3d 443, 449 (2d Cir. 1987) (citing H.R. Rep. No. 533, 93d
Cong., 2d Sess., reprinted in 1974 U.S. Code Cong. & Admin. News 4639)).15 This legislative
history figured prominently in the Rose court’s determination that the Long Island Railroad was
a governmental “agency or instrumentality.”16 The Railroad did not run the risk of being
underfunded because it could rely upon the public revenue sources to fund its plan.
Rose, 828 F.2d at 918 (“The LIRR has been, in effect, a state-owned railroad since 1966 when it was
acquired by the MTA. Every year since then, the LIRR has received massive state operating subsidies.”).
See also Rose, 828 F.2d at 914 (“It was believed that ‘the ability of the governmental entities to fulfill
their obligations to employees through their taxing powers’ was an adequate substitute for both minimum funding
standards and plan termination insurance.”) (quoting and citing S. Rep. No. 383, 93d Cong., 2d Sess., reprinted in,
1974 U.S. Code Cong. & Ad. News 4890, 4965; H.R.Rep. No. 807, 93d Cong., 2d Sess., reprinted in, 1974 U.S.
Code Cong. & Ad. News 4670, 4756-57).
Rose, 828 F.2d at 918 (“LIRR employees . . . like other governmental employees, can depend on the
state’s taxing power to protect their right to retirement income”) (emphasis added).
Simply put, one of ERISA’s principal purposes is to help assure that sufficient resources
remain in retirement and other employee benefit plans.
This concern is minimized in
government plans where a government entity has the ability to raise taxes and protect plan funds
with the guaranty of the state and federal treasuries. Where an entity (public or private) has nearcomplete financial autonomy (i.e., the ability to fail on its own), however, Congress felt
additional protective measures were necessary. In these cases, ERISA is designed to avoid the
potential abuses of underfunding in nongovernmental plans.
Here, Medical West does not receive funding from the State, and neither the State, nor
UABHS is responsible for Medical West’s debts. Therefore, Medical West’s high degree of
financial autonomy strongly contributes to the court’s conclusion that Medical West is not an
“agency or instrumentality” for purposes of ERISA.17 The court also concludes that this analysis
is a critical factor in the analysis.
Under the “NLRB test,” the court finds that Medical West is not a political subdivision of
the State of Alabama. Similarly, although several of the IRS’s six “agency or instrumentality”
factors arguably weigh in Plaintiff’s favor, on balance, the factors support the conclusion that
Medical West, a public corporation and health care authority, is neither an agency nor
instrumentality. For these reasons, Defendant’s Motion (Doc. #22) is due to be granted and
The court recognizes that Medical West pays 25 percent of its net income to UABHS to be applied to its
academic and research mission. This fact alone, however, does nothing to counter the policy rationale proffered by
Defendants. Medical West does not receive funding or other appropriations from the State and is liable for its own
debts and obligations; therefore, the authority is still at risk of underfunding — a key concern giving rise to ERISA.
Indeed, the only hint of tangible financial assistance to Medical West in the record is testimony suggesting the
authority “refinanced some tax-free bonds . . . .” (Doc. # 25, Ex. M-13, Pennington Dep. at 128:14-129:2). Without
more, the record is insufficient to suggest the financial autonomy of Medical West has at any point been
compromised by the refinancing of bonds.
Plaintiff’s Motion (Doc. #26) is due to be denied. A separate order in accordance with this
opinion will be entered.
DONE and ORDERED this September 16, 2014.
R. DAVID PROCTOR
UNITED STATES DISTRICT JUDGE
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