Pennsylvania Professional Liability Joint Underwriting Association v. Wolf
MEMORANDUM (Order to follow as separate docket entry) re: 6 MOTION for Preliminary Injunction filed by Pennsylvania Professional Liability Joint Underwriting Association. (See memo for complete details.) Signed by Chief Judge Christopher C. Conner on 11/22/17. (ki)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
LIABILITY JOINT UNDERWRITING :
TOM WOLF, in his Official Capacity
as Governor of the Commonwealth of
CIVIL ACTION NO. 1:17-CV-2041
(Chief Judge Conner)
On October 30, 2017, defendant Tom Wolf, in his capacity as Governor of
the Commonwealth of Pennsylvania, signed into law Act 44 of 2017 (“Act 44 or the
Act”), No. 44, 2017 Pa. Laws __ (Oct. 30, 2017). The Act, inter alia, mandates that
the Pennsylvania Professional Liability Joint Underwriting Association (“Joint
Underwriting Association” or “Association”) transfer $200,000,000 of its “surplus”
funds for deposit into the Commonwealth’s General Fund by Friday, December 1,
2017. Act 44 includes a “sunset” provision abolishing the Association should it fail to
comply with the December 1 deadline. The Association moves the court to enjoin
enforcement of Act 44.
The Joint Underwriting Association commenced this action with the
filing of a verified complaint1 on November 7, 2017. The Association challenges
the constitutionality of Act 44 pursuant to 42 U.S.C. § 1983.2 In its complaint, the
Association asserts that Act 44 violates the Substantive Due Process Clause (Count
I), the Takings Clause (Count II), the Contract Clause (Count III), and the doctrine
of unconstitutional conditions (Count IV).3 The Association also asserts a claim for
declaratory and injunctive relief pursuant to Section 1983 and the Declaratory
Judgment Act, 28 U.S.C. § 2201 (Count V).4
On November 8, 2017, the Association filed the instant motion5 for a
temporary restraining order and preliminary injunction. The court denied the
request for temporary restraining order and scheduled an expedited hearing on the
request for a preliminary injunction.6 On November 13, 2017, the General Assembly
of the Commonwealth of Pennsylvania (“General Assembly”) moved for leave to
intervene both as of right and on a permissive basis under Federal Rules of Civil
Procedure 24(a) and 24(b).7 The court granted the motion pursuant to Rule 24(b),
finding that the General Assembly had established an adequate basis for permissive
Id. at 19-26.
Id. at 26-27.
The court convened a preliminary injunction hearing on November 14,
2017, taking evidence in the form of documentary exhibits and witness testimony.
The parties filed proposed findings of fact and conclusions of law in support of their
respective positions subsequent to the hearing.9 With briefing concluded and the
record closed, the Association’s motion for preliminary injunction is ripe for
Findings of Fact10
The General Assembly created the Joint Underwriting Association in
1975 in response to a “hard market”11 for medical malpractice insurance in the
Commonwealth.12 The Association was established and organized under the
Pennsylvania Health Care Services Act, No. 111, 1975 Pa. Laws 390 (Oct. 15, 1975).
Docs. 38, 39, 40.
Consistent with the directive of Federal Rule of Civil Procedure 65(d),
the following factual narrative represents the court’s findings of fact as derived
from the record. Citations to the record include the transcript of the preliminary
injunction hearing convened on November 14, 2017 (“Tr.”), as well as exhibits
introduced by the Association (“Assoc. Ex.”) and Governor Wolf (“Gov. Ex.”).
During the hearing, the court deferred ruling on Governor Wolf’s objection to
admissibility of various letter attachments to the Association’s Exhibit 1. See
Assoc. Ex. 1, Exs. B, C. Because neither attachment is necessary to the court’s
disposition of the instant motion, the Governor’s objection is rendered moot.
The cyclical nature of insurance markets is described in academic
literature as follows: “Property/liability insurance markets alternate between
hard and soft markets in a phenomenon known as the underwriting cycle. In soft
markets, underwriting standards are relaxed, prices and profits are low, and the
quantity of insurance increases. In hard markets, underwriting standards become
restrictive, and prices and profits increase. There are many policy cancellations or
non-renewals, and policy terms (deductibles and policy limits) are tightened as the
quantity of insurance coverage generally decreases.” Seungmook Choi et al., The
Property/Liability Insurance Cycle: A Comparison of Alternative Methods, 68 S. ECON.
J. 530, 530 (2002).
Doc. 38 at 6 ¶¶ 9-10; Doc. 40 ¶¶ 21-22.
The General Assembly repealed the Health Care Services Act on March 20, 2002,
enacting in its stead the Medical Care Availability and Reduction of Error
(“MCARE”) Act, 40 PA. STAT. ANN. § 1303.101 et seq.
The MCARE Act explicitly retains the Joint Underwriting Association.13
Specifically, the MCARE Act provides:
There is established a nonprofit joint underwriting
association to be known as the Pennsylvania Professional
Liability Joint Underwriting Association. The joint
underwriting association shall consist of all insurers
authorized to write insurance in accordance with section
202(c)(4) and (11) of the act of May 17, 1921 (P.L. 682, No.
284), known as The Insurance Company Law of 1921 . . . .14
The law provides that the Association shall be “supervised by” the Insurance
Department of the Commonwealth (“the Department”) but that its “powers and
duties . . . shall be vested in and exercised by a board of directors.”15
The Association’s Operations, Finances, and Relationship with the
The Association’s statutory purpose is to provide coverage to health care
providers who cannot “conveniently” acquire medical malpractice insurance at
rates comparable to similarly-situated providers.16 According to the Association,
there are four principal types of health care providers who struggle to obtain
coverage at competitive market rates: (1) providers with a history of malpractice
claims; (2) providers who practice a high-risk specialty; (3) professionals who have
gaps in coverage; or (4) those providers who reenter the profession after loss or
See 40 PA. STAT. ANN. § 1303.731(a).
Id. §§ 1303.731(b)(3), -.732(a).
suspension of license or voluntary withdrawal from practice.17 Membership in the
Association is mandatory for all insurers authorized to write medical malpractice
insurance policies in the Commonwealth.18 Currently, there are 621 member
companies in the Association.19
The Association operates pursuant to a Plan of Operations (“the Plan”).20
Development of the Plan is a requirement under the MCARE Act, and the Plan is
subject to approval by the Commissioner of the Department (“the Insurance
Commissioner”).21 The Plan establishes a 14-member governing board of directors
consisting of the current president of the Association; eight designees of member
companies chosen by cumulative voting among Association members; one agent or
broker elected by Association members; and four health care provider or general
public representatives.22 The four health care provider or general public
representatives may be nominated by anyone and are appointed by the Insurance
Commissioner.23 The Plan provides that the Association may be dissolved (1) “by
operation of law” or (2) at the request of the Association’s members, subject to the
Insurance Commissioner’s approval.24 The Plan also provides that “[u]pon
dissolution, all assets of the Association, from whatever source, shall be distributed
Doc. 7 ¶ 9.
40 PA. STAT. ANN. § 1303.731(a).
Doc. 38 at 8 ¶ 16; see also Doc. 39 ¶ 5; Doc. 40 ¶¶ 30-33.
See 40 PA. STAT. ANN. § 1303.731(b)(1).
Doc. 38 at 8 ¶¶ 16-17; see also Doc. 7-1 at 3-4; Doc. 40 ¶ 24.
Doc. 38 at 8 ¶ 17; Doc. 40 ¶ 24.
Doc. 7-1 at 10; see also Doc. 39 ¶ 10 & n.3; Doc. 40 ¶¶ 35-36.
in such manner as the Board may determine subject to the approval of the
The Association is organized as a nonprofit association and is federally
registered as tax-exempt pursuant to 26 U.S.C. § 501(c)(6).26 Susan Sersha
(“Sersha”), the Association’s current president and chief executive officer, testified
that the Association has operated in the same manner as a private insurance
company since its inception.27 Its staff are not paid by the state and are not part of
the Pennsylvania State Employees’ Retirement System.28 The Association leases
real estate in its own name without Commonwealth involvement or approval.29
The Association retains its own legal counsel and has never been represented by
Commonwealth attorneys.30 Sersha testified that, prior to October 30, 2017, the
Commonwealth never treated the Association as a state agency or instrumentality.31
The Association is funded exclusively by policyholder premiums and
investment income generated from those premiums.32 These premiums are paid to
the Association by medical providers in exchange for the Association’s acceptance of
considerable insurance risk.33 The Association has never received state funding.34
The Association’s assets are not held in the state treasury or in any other
Doc. 7-1 at 10; Doc. 39 ¶ 11; Doc. 40 ¶ 86.
See Tr. 39:11-21.
See id. at 39:22-40:2, 40:13-15; 40:22-25, 52:21-53:2.
Id. at 41:14-24.
See id. at 41:25-42:5.
Id. at 42:17-25; Doc. 7 ¶ 29.
See Tr. 40:16-21; cf. 40 PA. STAT. ANN. § 1303.731-.733.
Tr. 35:2-6, 41:1-3; see also Doc. 38 at 10-11 ¶ 28; Doc. 40 ¶ 37.
See Tr. at 69:24-70:1.
Id. at 41:4-6.
Commonwealth-controlled fund; they are privately held in the Association’s own
Sersha testified that the Association maintains two pools of assets: the
“reserves,” which represent funds designated for payment of anticipated claims
during the calendar year, and the “surplus,” which includes all assets over and
above the reserves.36 She explained that industry standards require an insurance
company to maintain a “certain amount” of surplus above its earmarked reserves.37
The requisite surplus amount varies and is recalculated annually pursuant to an
actuarial risk-based capital formula.38 The surplus serves as a safety net for the
insurance company in the event its actuary underestimates claim maturation or
other market factors.39 At the end of the 2016 fiscal year, the Association reported
a surplus of $268,124,502.40
Doc. 7 ¶ 23.
See Tr. 21:15-23:3.
See id. at 27:21-28:24.
See id. at 76:18-77:10, 79:1-5.
Doc. 38 at 20-21 ¶ 69; Doc. 39 ¶ 27. The $268,124,502 figure adopted by
the principal parties varies slightly from the $268,124,490 figure identified in the
Association’s year-end statement of actuarial opinion. Compare Doc. 38 ¶ 69 and
Doc. 39 ¶ 27 with Gov. Ex. at 8 and Doc. 40 ¶ 42. This discrepancy is de minimis and
does not impact upon the court’s analysis sub judice.
Act 85 of 2016
On July 13, 2016, Governor Wolf signed into law Act 85 of 2016 (“Act 85”).41
Act 85 is a wide-ranging and lengthy piece of legislation, but its principal effect was
to amend the General Appropriation Act of 2016 and balance the Commonwealth’s
budget.42 Among other things, Act 85 provides for certain transfers to the
Commonwealth’s General Fund.43 Pertinent sub judice, section 18 of Act 85 requires
a transfer to the General Fund from the Joint Underwriting Association. The
relevant language states:
Notwithstanding [the MCARE Act], the sum of
$200,000,000 shall be transferred from the
unappropriated surplus of the Pennsylvania Professional
Liability Joint Underwriting Association to the General
Fund. The sum transferred under this section shall be
repaid to the Pennsylvania Professional Liability Joint
Underwriting Association over a five-year period
commencing July 1, 2018. An annual payment amount
shall be included in the budget submission required
under Section 613 of the Act of April 9, 1929 (P.L. 177,
No. 175), known as the Administrative Code of 1929.44
The Association did not transfer funds to the Commonwealth pursuant to Act
85.45 On May 18, 2017, the Association commenced a lawsuit—also pending before
the undersigned—challenging the constitutionality of Act 85.46 The Association’s
lawsuit names as the sole defendant Randy Albright (“Albright”) in his capacity
See Act of July 13, 2016, No. 85, 2016 Pa. Laws __ (July 13, 2016) (codified
prior to repeal at 72 PA. STAT. ANN. § 1726-C).
See id. § 1.
See id. § 1(7).
Id. § 18.
See Doc. 1 ¶ 27.
See Pa. Prof’l Liab. Joint Underwriting Ass’n v. Albright, No. 1:17-CV-886,
as the Commonwealth’s Secretary of the Budget.47 Secretary Albright moved to
dismiss the Association’s complaint on August 22, 2017.48 The motion to dismiss
is pending, and it only recently became ripe for review.49
Act 44 of 2017
Governor Wolf signed Act 44 into law on October 30, 2017, in another
attempt to bring balance to the state budget.50 Therein, the General Assembly
expressly repeals Act 85.51 Among other objectives, Act 44 amends the
Commonwealth’s Fiscal Code to include “findings” concerning the Joint
Underwriting Association’s relationship to the Commonwealth and the nature of
its unappropriated surplus.52 The General Assembly in Act 44 specifically “finds”
(1) As a result of a decline in the need in this
Commonwealth for the medical professional liability
insurance policies offered by the joint underwriting
association under [the MCARE Act], and a decline in
the nature and amounts of claims paid out by the joint
underwriting association under the policies, the joint
underwriting association has money in excess of the
amount reasonably required to fulfill its statutory
(2) Funds under the control of the joint underwriting
association consist of premiums paid on the policies
issued under [the MCARE Act] and income from
investment. The funds do not belong to any members
of the joint underwriting association nor any of the
insureds covered by the policies issued.
See id., Doc. 12.
See id., Doc. 14.
See id., Docs. 15, 19, 22, 24.
See Act 44 of 2017, § 1.
See id. § 13.
Id. § 1.3.
(3) The joint underwriting association is an
instrumentality of the Commonwealth. Money under
the control of the joint underwriting association belongs
to the Commonwealth.
(4) At a time when revenue receipts are down and
the economy is still recovering, the Commonwealth is in
need of revenue from all possible sources in order to
continue to balance its budget and provide for the
health, welfare and safety of the residents of this
(5) The payment of money to the Commonwealth
required under this article is in the best interest of the
residents of this Commonwealth.53
Following these findings, Act 44 mandates the monetary transfer at the heart of this
litigation: “On or before December 1, 2017, the joint underwriting association shall
pay the sum of $200,000,000 to the State Treasurer for deposit into the General
Fund.”54 Per the Act, the funds shall be appropriated by the General Assembly to
the Department of Human Services “for medical assistance payments for capitation
Act 44 contains two additional pertinent provisions. Its “no liability”
clause purports to immunize both the Association and its officers, board of directors,
and employees from liability arising from the transfer mandated by Act 44.56 The Act
also contains a “sunset” clause which threatens to abolish the Association if payment
is not made by December 1.57 That clause states that if the Association does not meet
the Act’s deadline, the provisions of the MCARE Act creating it will immediately
expire, the Association will be abolished, and its assets will be transferred to the
Insurance Commissioner for administration of the Association’s function.58 Act 44
then directs the Insurance Commissioner to transfer the $200,000,000 for deposit into
the Commonwealth’s General Fund “as soon as practicable after receipt.”59
The court applies a four-factor test in determining the propriety of
preliminary injunctive relief. The movant must, as a threshold matter, establish
the two “most critical” factors: likelihood of success on the merits and irreparable
harm.60 Under the first factor, the movant must show that “it can win on the
merits.”61 This showing must be “significantly better than negligible but not
necessarily more likely than not.”62 The second factor carries a slightly enhanced
burden: the movant must establish that it is “more likely than not” to suffer
irreparable harm absent the requested relief.63 Only if these “gateway factors” are
satisfied may the court consider the third and fourth factors: the potential for harm
to others if relief is granted, and whether the public interest favors injunctive
relief.64 The court must then balance all four factors to determine, in its discretion,
whether the circumstances favor injunctive relief.65
Reilly v. City of Harrisburg, 858 F.3d 173, 179 (3d Cir. 2017).
Id. at 176, 179.
Id. at 179.
Governor Wolf offers a multifaceted response to the Association’s instant
motion, invoking both jurisdictional and merits defenses. The General Assembly
as intervenor defendant raises similar preliminary challenges.
Eleventh Amendment Immunity
Governor Wolf asserts sovereign immunity as a jurisdictional defense to
suit. The Eleventh Amendment precludes federal claims for monetary damages
against a state and its agencies.66 This jurisdictional bar applies to agencies of the
state and to employees thereof sued in their official capacity.67
Eleventh Amendment immunity is not absolute. Its protections are subject
to three basic limitations: (1) Congress may specifically abrogate a state’s sovereign
immunity by exercising its enforcement power under the Fourteenth Amendment;
(2) a state may waive its sovereign immunity by consenting to suit; or (3) under Ex
parte Young, 209 U.S. 123 (1908), a state official may be sued in their official capacity
for prospective injunctive or declaratory relief.68 The Association invokes the third
exception, suing Governor Wolf in his official capacity to enjoin enforcement of
U.S. CONST. amend. XI; see also Kimel v. Fla. Bd. of Regents, 528 U.S. 62, 7273 (2000); Lombardo v. Pennsylvania, 540 F.3d 190, 194-95 (3d Cir. 2008).
See Will v. Mich. Dep’t of State Police, 491 U.S. 58, 66 (1989); Hindes v. FDIC,
137 F.3d 148, 158 (3d Cir. 1998).
See Coll. Sav. Bank v. Fla. Prepaid Postsecondary Educ. Expense Bd., 527
U.S. 666, 670 (1999); Kentucky v. Graham, 473 U.S. 159, 169 n.18 (1985); Koslow v.
Pennsylvania, 302 F.3d 161, 168 (3d Cir. 2002).
In Ex parte Young, the Supreme Court crafted an exemption to state
sovereign immunity for cases seeking to enjoin state officials from implementing
an unconstitutional state law.69 The Court emphasized that plaintiffs cannot simply
name any state official to bypass the Eleventh Amendment.70 Rather, a named
official “must have some connection” to enforcement of the act.71 Nonetheless,
in determining whether Ex parte Young applies, a court “need only conduct a
straightforward inquiry into whether the complaint alleges an ongoing violation
of federal law and seeks relief properly characterized as prospective.”72
The Third Circuit Court of Appeals has yet to address the “unsettled”
question of whether Ex parte Young can apply to cases concerning self-enforcing
See Constitution Party v. Cortes, 824 F.3d 386, 396 (3d Cir. 2016) (quoting Ex
parte Young, 209 U.S. at 157; MCI Telecomm. Corp. v. Bell Atl. Pa., 271 F.3d 491, 506
(3d Cir. 2001)).
See Ex parte Young, 209 U.S. at 157.
Id.; Constitution Party, 824 F.3d at 395-96.
NCAA v. Governor of N.J., 832 F.3d 389, 395 n.3 (3d Cir. 2016) (en banc)
(quoting Verizon Md., Inc. v. Pub. Serv. Comm’n of Md., 535 U.S. 635, 645 (2002)), cert.
granted on other grounds, 137 S. Ct. 2326 (2017).
or self-executing statutes.73 We need not embark on the difficult task of reconciling
sovereign immunity with wholly self-executing statutes, because we find that Act 44
is not one. Certain components of Act 44 are automatic. If the Association does not
make the mandated payment by December 1, 2017, for example, provisions of the
MCARE Act establishing the Association automatically “expire.”74 No state official
must direct or take action to ensure implementation or enforcement of this
provision.75 Thus, were passive repeal of the Association’s originating legislation
the exclusive achievement of Act 44, we may indeed be faced with a “truly” selfexecuting statute.76
But partial expiration of the MCARE Act is only a prefatory function
of Act 44. The law includes several further—and affirmative—requirements. It
mandates that the Association “be abolished.”77 It also orders that $200,000,000 of
the Association’s monies “be transferred” to the Commissioner of the Insurance
See id. However, the Third Circuit has acknowledged the Sixth Circuit
Court of Appeals’ treatment of the issue in Allied Artists Picture Corp. v. Rhodes, 679
F.2d 656 (6th Cir. 1982), aff’g in relevant part, 496 F. Supp. 408 (S.D. Oh. 1980). See
Rode v. Dellarciprete, 845 F.2d 1195, 1208-09 (3d Cir. 1988). In Allied, the Sixth
Circuit affirmed a district court decision allowing litigation to proceed against the
governor of Ohio notwithstanding the “self-enforcing” nature of the challenged
statute. Id. at 665 & n.5. The appellate court noted that plaintiffs would have been
barred from vindicating a constitutional harm had they not been allowed to name
the governor as defendant. Id. Both the district court and the appellate court
further observed that, although the governor had no explicit enforcement obligation
under the statute, he would inevitably be motivated by “substantial public interest”
in the particular legislation to ensure that the law was enforced. See Allied, 679 F.2d
at 665 & n.5; Allied, 496 F. Supp. at 426-27.
See Act 44, § 1.3.
See NCAA, 832 F.3d at 395 n.3.
Act 44, § 1.3.
Department immediately upon expiration of the MCARE Act.78 These dual
objectives are Act 44’s raison d’être. Although passive statutory language obscures
exactly who must enforce these directives, there is little doubt that some state
official must act to implement them.79
The function of administering and enforcing Act 44 will ultimately fall
at the feet of Governor Wolf, either directly in his capacity as chief executive of
the Commonwealth,80 or through directives and delegation to the Insurance
Commissioner as a member of his cabinet.81 In either event, there is a “realistic
potential”—indeed, a virtual certainty—that Governor Wolf will employ his
executive authority to ensure transfer of the funds and abolition of the Association
in accordance with the Act.82 We conclude that the Association has pled an
appropriate claim for prospective injunctive and declaratory relief against Governor
Wolf to invoke Ex parte Young and its progeny.
The Governor also oppugns the Association’s standing to bring this
suit. Article III, Section 2 of the United States Constitution confers upon federal
courts the power to adjudicate “Cases” and “Controversies.”83 To satisfy the case
Id.; see also NCAA, 832 F.3d at 395 n.3.
See PA. CONST. art. IV, § 2.
See 71 PA. STAT. ANN. § 61(a).
See Rode, 845 F.2d at 1208 (quoting Allied, 473 F. Supp. at 568).
U.S. CONST. art. III, § 2.
or controversy requirement, a plaintiff must establish standing.84 If a plaintiff fails to
meet this burden, the court cannot proceed and must dismiss the action for lack of
The “irreducible constitutional minimum of standing” requires a plaintiff to
establish: (1) an injury in fact, to wit: “an invasion of a legally protected interest” that
is both “concrete and particularized” and “actual or imminent”; (2) a causal relation
between the conduct complained of and the alleged injury; and (3) that it is “likely”
rather than merely “speculative” that the requested relief will redress the alleged
injury.86 With these factors as guideposts, the court must satisfy itself that a litigant
has a sufficient “personal stake” in the matter to justify a federal court’s exercise
Governor Wolf first contends that he is unable to redress the Association’s
claimed injury.88 He intimates that his involvement with Act 44 ended with his
signing of the law.89 We reject this argument for reasons identified supra concerning
sovereign immunity. The Commonwealth’s “supreme executive power” rests with
Governor Wolf, who is obligated to guarantee faithful execution of the law, and the
See Valley Forge Christian Coll. v. Am. United for Separation of Church and
State, Inc., 454 U.S. 464, 471 (1982); Common Cause of Pa. v. Commw., 558 F.3d 249,
258 (3d Cir. 2009) (quoting Sprint Commc’ns Co. v. APCC Servs., Inc., 554 U.S. 269,
See Common Cause of Pa., 558 F.3d at 257 (quoting Taliaferro v. Darby Twp.
Zoning Bd., 458 F.3d 181, 188 (3d Cir. 2006)).
Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61 (1992); Constitution Party of
Pa. v. Aichele, 757 F.3d 347, 360 (3d Cir. 2014) (quoting Lujan, 540 U.S. at 560-61).
Summers v. Earth Island Inst., 555 U.S. 488, 493 (2009) (quoting Warth v.
Seldin, 422 U.S. 490, 498-99 (1975)).
See Doc. 39 ¶ 17.
Governor will surely exercise that power to ensure compliance with Act 44’s
mandates.90 To enjoin Governor Wolf from either enforcing (or directing
enforcement of) Act 44 squarely redresses the Association’s impending injury.
Governor Wolf also avers that the Association has no personal interest
in the $200,000,000 subject to Act 44.91 He contends that the funds are designated
“surplus” by the Association itself, oppugning the Association’s need therefor, and
further asserts that the funds do not “belong to” the Association.92 This argument is
inextricably intertwined with the parties’ merits arguments and is addressed infra at
length. For justiciability purposes, it is sufficient that Act 44 threatens immediate
abolition of the Association should it decline to turn $200,000,000 over to the
Commonwealth by December 1, 2017. Whether this threatened harm is one of
constitutional dimension is a merits question which does not impact upon
Governor Wolf invokes legislative immunity in a final attempt to evade
merits resolution of the Association’s motion.93 The doctrine of legislative immunity
shields legislators for “all actions taken ‘in the sphere of legitimate legislative
See PA. CONST. art. IV, § 2.
See Doc. 39 ¶¶ 20-21.
See Doc. 18 at 13; Doc. 39 ¶ 21.
See Doc. 39 ¶¶ 7-9. The court implicitly rejected this defense during the
evidentiary hearing. See Tr. 88:21-25, 115:12-19. The court herein expands on its
ratio decidendi and memorializes its preliminary finding as articulated on the
activity.’”94 It extends beyond legislators and protects any public officials
performing “legislative functions.”95
Governor Wolf remonstrates that he cannot be held liable for the distinctly
legislative act of signing a bill into law.96 We agree. Third Circuit precedent
unequivocally establishes that public officials cannot be held liable for advocating
or promoting legislation or for signing bills into law.97 If the Association sued
Governor Wolf solely on the theory that signing Act 44 violated the Constitution,
legislative immunity may well apply. But it did not. The Association has sued
Governor Wolf in anticipation of imminent efforts to enforce enacted legislation in
a manner which may well implicate constitutional rights.98 In this capacity, the
Governor is not entitled to legislative immunity.
Preliminary Injunctive Relief
Likelihood of Success on the Merits
To establish a likelihood of success on the merits, a movant must produce
sufficient evidence to satisfy the essential elements of the underlying cause of
action.99 We must examine the legal principles controlling the claim and the
potential defenses available to the opposing party.100 A mere possibility that the
Baraka v. McGreevey, 481 F.3d 187, 195-96 (3d Cir. 2007) (quoting Bogan v.
Scott-Harris, 523 U.S. 44, 54 (1998)).
Id. (collecting cases).
Doc. 39 ¶¶ 7-9.
Baraka, 481 F.3d at 196-97.
Doc. 1 ¶ 2; id. at 27-28; see Tr. 115:12-14.
Punnett v. Carter, 621 F.2d 578, 582-83 (3d Cir. 1980).
See BP Chems. Ltd. v. Formosa Chem. & Fibre Corp., 229 F.3d 254, 264 (3d
claim might be defeated does not preclude a finding of probable success if evidence
clearly satisfies the essential prerequisites of the cause of action.101 A showing that is
“significantly better than negligible but not necessarily more likely than not” is
sufficient to obtain preliminary injunctive relief.102 The requisite strength of a claim
on the merits depends ultimately on the balance of the harms: “the more net harm
an injunction can prevent, the weaker the plaintiff’s claim on the merits can be while
still supporting some preliminary relief.”103
Section 1983 creates a private cause of action to redress constitutional
wrongs committed by state officials.104 The statute is not a source of substantive
rights, but serves as a mechanism for vindicating rights otherwise protected by
federal law.105 To state a Section 1983 claim, plaintiffs must show a deprivation of a
“right secured by the Constitution and the laws of the United States . . . by a person
acting under color of state law.”106 Governor Wolf does not dispute that he is a state
Highmark, Inc. v. UPMC Health Plan, Inc., 276 F.3d 160, 173 (3d Cir. 2001).
Reilly, 858 F.3d at 179.
See 42 U.S.C. § 1983.
Gonzaga Univ. v. Doe, 536 U.S. 273, 284-85 (2002); Kneipp v. Tedder, 95 F.3d
1199, 1204 (3d Cir. 1996).
Kneipp, 95 F.3d at 1204 (quoting Mark v. Borough of Hatboro, 51 F.3d 1137,
1141 (3d Cir. 1995)).
actor. We must thus assess whether Act 44 potentially deprives the Association of
rights secured by the United States Constitution.107
The Takings Clause of the Fifth Amendment prohibits the government
from taking private property for public use without just compensation.108 The
Takings Clause is made applicable to the states by the Fourteenth Amendment.109
It applies not only to the taking of real property, but also to government efforts to
take identified funds of money.110 Takings claims generally fall into two
categories—physical takings and regulatory takings.111 The Association’s claim
concerns an alleged physical taking.112
The Supreme Court in Williamson County Regional Planning Commission
v. Hamilton Bank, 473 U.S. 172 (1985), established a threshold ripeness element
for takings cases. To proceed on a physical taking claim, a plaintiff must first show
that it sought and was denied just compensation using state procedures, assuming
The Association seeks preliminary injunctive relief based on all four
Section 1983 claims asserted in its verified complaint. (See Doc. 38 ¶¶ 16-39). A
court need only determine that the moving party would likely succeed on one claim
to issue injunctive relief. See Trefelner ex rel. Trefelner v. Burrell Sch. Dist., 655 F.
Supp. 2d 581, 590 (W.D. Pa. 2009); First Health Grp. Corp. v. Nat’l Prescription
Adm’rs, Inc., 155 F. Supp. 2d 194, 234 (M.D. Pa. 2001). Because we find that the
Association has established a reasonable probability of success on the merits with
respect to its Fifth Amendment takings claim, we restrict our analysis to that cause
U.S. CONST. amend. V.
See U.S. CONST. amend. XIV; Murr v. Wisconsin, 582 U.S. __, 137 S. Ct.
1933, 1942 (2017) (citing Chicago, B. & Q. R. Co. v. Chicago, 166 U.S. 266 (1897)).
See, e.g., Phillips v. Wash. Legal Found., 524 U.S. 156, 160, 164-65 (1998);
Webb’s Fabulous Pharms., Inc. v. Beckwith, 449 U.S. 155, 164-65 (1980).
See Yee v. City of Escondito, 503 U.S. 519, 522-23 (1982).
See Doc. 38 at 32-33 ¶ 25; see also Doc. 18 at 16-17.
such procedures are both available and adequate.113 No such state procedure is
available to the Association.114 The Commonwealth’s Eminent Domain Code115
provides no procedure for obtaining compensation for personal property. Nor does
Act 44 itself include a reimbursement mechanism.116 Indeed, in Act 44, the General
Assembly deliberately removed reimbursement provisions contained in the Act’s
predecessor.117 Neither Governor Wolf nor the General Assembly identify an
available and adequate state procedure.118 Under the circumstances, we are
compelled to conclude that the Association’s takings claim satisfies threshold
Governor Wolf asseverates that Act 44 does not effect an unconstitutional
taking because the surplus funds are not property of the Association.119 He
avers that the Association owes its existence to the Commonwealth and suggests
that it follows therefrom that the Association’s assets unequivocally belong to
the sovereign.120 Act 44’s “finding” that the Association’s funds “belong to the
Commonwealth” rests on this logic.121 The Association answers that it is funded
See Knick v. Twp. of Scott, 862 F.3d 310, 323 (3d Cir. 2017) (citing
Williamson Cty., 473 U.S. at 194).
Doc. 38 at 33 ¶ 26.
26 PA. CONS. STAT. § 101 et seq.
See Act 44, § 1.3.
Compare Act 44, §1.3 with Act 85, § 18.
See Docs. 39, 40.
Doc. 39 ¶ 40.
See Act 44, § 1.3; see also Tr. 91:6-93:5.
exclusively by policyholder premiums and investment income and has never
received state funding.122
The Association has preliminarily demonstrated that Act 44 affects a
“legally cognizable property interest” in its surplus funds.123 The Supreme Court
more than three decades ago admonished that a “state, by ipse dixit, may not
transform private property into public property without compensation.”124 Even
if we were to accept as controlling Act 44’s finding that the Association is an
“instrumentality” of the state—and we do not—that status does not accord carte
blanch access to the entity’s assets.125
The General Assembly perceives as dispositive the Pennsylvania
Supreme Court’s recent ruling in Hospital & Healthsystem Ass’n of Pennsylvania
v. Commonwealth, 77 A.3d 587 (Pa. 2013), in which the state supreme court held
that monies paid into the reserves of the state-run MCARE insurance fund were
held in trust for providers who paid into the fund, but that any “surplus” belonged
to the state.126 This decision—which involved a similar legislative acquisition to
remedy a prior state budget deficit—concerned ownership interests in monies
paid into a statutory “special fund” held within the Commonwealth’s treasury.127
See Doc. 38 at 10-11 ¶ 28, at 30 ¶ 15.
See Prometheus Radio Project v. F.C.C., 373 F.3d 372, 428 (3d Cir. 2004)
(citing Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 538 (1985); Webb’s
Fabulous Pharms., 449 U.S. at 160-61).
Webb’s Fabulous Pharms., 449 U.S. at 164.
Cf. Hosp. & Healthsystem Ass’n of Pa. v. Commonwealth, 77 A.3d 587, 603-05
Doc. 30 at 9; see also Doc. 40 ¶ 153.
Hosp. & Healthsystem Ass’n of Pa., 77 A.3d at 592.
The Commonwealth’s possessory interest in the funds at issue in Hospital
& Healthsystems is a key factual distinction from the funds in this case. The
Association’s funds have never been held in or commingled with Commonwealth
Counsel for Governor Wolf suggested during the evidentiary hearing
that the Association’s governing Plan itself establishes that the funds ultimately
belong to the Commonwealth.129 Counsel adjured: “The plan as approved, the plan
provides that upon dissolution, whether by law or otherwise, the money becomes the
Commonwealth’s. That’s what the plan says. That’s what they approved. That’s
what they voted on.”130 This argument misinterprets the Plan’s plain language.
Article XI of the Plan, subtitled “Dissolution,” provides that “[u]pon dissolution,
all assets of the Association, from whatever source, shall be distributed in such
manner as the Board may determine subject to the approval of the [Insurance]
Commissioner.”131 Thus, while the Insurance Commissioner may reject the board’s
proposed asset distribution, the authority to develop a distribution plan in the first
instance is vested in the Association’s board.132
The surplus held by the Association is comprised singularly of monies paid
to it by private healthcare providers in exchange for the Association’s acceptance
of high level insurance risk.133 None of the funds in the Association’s coffers are
See Doc. 38 at 11-12 ¶ 32.
See Tr. 99:3-13.
Tr. 99:7-13 (emphasis added).
Doc. 7-1 at 10 (emphasis added).
Tr. 35:2-6, 41:1-3, 69:24-70:1.
sovereign dollars in a traditional sense: the Association is not and has never
been taxpayer-funded, and it has never otherwise received Commonwealth
appropriations.134 Against this backdrop, the Commonwealth’s self-serving
“finding” that the Association is a state instrumentality whose funds belong to the
sovereign is of no moment.135 For the limited purpose of obtaining preliminary
injunctive relief, the Association has adequately demonstrated a “reasonable
probability” of success on the merits.136
Irreparable injury is harm of such an irreversible character that
prospective judgment would be “inadequate” to make the moving party whole.137
Mere risk of injury is not sufficient to meet this standard. Rather, the moving
party must establish that the harm is imminent and probable.138 Harm that may be
contained effectively only through immediate injunctive relief is properly deemed
See Tr. 35:2-6, 41:1-6, 69:24-70:1; see also Doc. 38 at 10-11 ¶ 28; Doc. 40 ¶ 37.
See Webb’s Fabulous Pharms., 449 U.S. at 164.
We are mindful that the acts of state legislatures generally enjoy a
presumption of constitutionality. Pennsylvania’s Statutory Construction Act
applies a presumption in all statutory interpretation cases that “the General
Assembly does not intend to violate the Constitution of the United States.” 1 PA.
CONS. STAT. § 1922(3). The presumption does not control in the instant matter
because Act 44 is unambiguous and the Commonwealth’s stated public intentions
are not in dispute.
See Anderson v. Davila, 125 F.3d 148, 163-64 (3d Cir. 1997) (citing Beacon
Theatres v. Westover, 359 U.S. 500, 506-07 (1959)); Instant Air Freight Co. v. C.F. Air
Freight, Inc., 882 F.2d 797, 801 (3d Cir. 1989).
Anderson, 125 F.3d at 164.
Instant Air Freight, 882 F.2d at 801.
The Association will lose $200,000,000 on December 1, 2017 if Act 44 takes
effect.140 Sersha testified that the Association’s anticipated harm is not limited to
that sum.141 Because the Association’s surplus is heavily invested, accessing the
surplus for transfer will require the Association to liquidate a significant portion
of its investment portfolio.142 Sersha estimated these transaction costs could
run as high as ten percent or $20,000,000.143 In addition, the Association will lose
prospective investment income on the divested surplus.144 All told, the Association
faces considerable financial harm.
Moreover, the financial injury wrought by Act 44 is a bell that cannot be
unrung. The Eleventh Amendment bars a retroactive award of damages against
state officials.145 The General Assembly expressly conceded that, should the
Association ultimately prevail on the merits, sovereign immunity would preclude
monetary recovery.146 Governor Wolf effectively concedes as much but rejoins that
there is no irreparable harm because the Association will retain a residual surplus
adequate to remain solvent.147
This court and others have held that the Eleventh Amendment’s insulation of
sovereign defendants renders suits for damages “inadequate” to compensate state-
See Act 44, § 1.3.
See Tr. 43:13-44:14.
Doc. 38 at 22-23 ¶ 76.
See Doc. 38 at 22-23 ¶ 76.
See Edelman v. Jordan, 415 U.S. 651, 663 (1974); Christ the King Manor, Inc.
v. Sec’y U.S. Dep’t of Health & Human Servs., 730 F.3d 291, 319 (3d Cir. 2013).
See Doc. 39 at 14-15 n.10.
inflicted injuries.148 In such circumstances, the complete absence of available
recompense satisfies the irreparable harm requirement. The court concludes that
the impending and uncompensable financial injury to the Association strongly
favors preliminary injunctive relief.
The public interest generally supports an award of preliminary injunctive
relief when a plaintiff has demonstrated both a reasonable probability of success
on the merits and irreparable harm.149 This interest is particularly compelling when
the right to be vindicated derives from the United States Constitution.150 We have no
quarrel with the Governor’s assertion that the citizens of this Commonwealth have a
genuine interest in a balanced state budget, and we are not unsympathetic to the
Byzantine intricacies of the General Assembly’s budget process.151 But a sovereign
See Firetree, Ltd. v. Creedon, No. 1:08-CV-245, 2008 WL 2078152, at
*14-15 (M.D. Pa. May 15, 2008) (Conner, J.) (quoting Temple Univ. v. White, 941
F.2d 201, 215 (3d Cir. 1991); Atl. Coast Demolition & Recycling, Inc. v. Bd. of Chosen
Freeholders of Atl. Cty., 893 F. Supp. 301, 309 (D.N.J. 1995)).
AT&T v. Winback & Conserve Program, Inc., 42 F.3d 1421, 1427 n.8 (3d Cir.
See Johnson v. Wetzel, 209 F. Supp. 3d 766, 781 (M.D. Pa. 2016) (Conner,
C.J.) (collecting cases).
During oral argument, counsel for the General Assembly stated: “This is
the budget of the Commonwealth of Pennsylvania, and I think the court . . . should
tread lightly into the notion of inserting itself into the budgetary process of the
Commonwealth of Pennsylvania.” (Tr. 105:9-12). Counsel further suggested that
issuance of an injunction sub judice would encourage future federal litigation over
the Commonwealth’s budget process. Notwithstanding the obvious difficulties in
reaching a budget agreement that crosses the lines of political parties and starkly
divergent fiscal philosophies, the court suggests that the main driver of future
federal litigation will be the General Assembly’s continued efforts to tap nontraditional and legally murky sources of state funding, such as the Association’s
coffers, which support medical professionals who are in need of liability insurance.
cannot achieve a legitimate end by unconstitutional means. On balance, the public
interest favors temporary enjoinder of Act 44.
To determine whether injunctive relief would result in greater harm to the
nonmovant, the court must examine the terms of the proposed injunction, consider
the parties’ respective positions, and assess the ramifications of the requested
relief.152 Injunctive relief should generally be denied if the potential harm to the
nonmovant substantially outweighs the potential benefit to be bestowed upon the
The impending harm to the Association is considerable and concrete. Act
44 presents the Association with a Hobson’s choice: the Association must make an
irreversible transfer of $200,000,000 to the Commonwealth or face immediate
abolition.154 Defendants, per contra, identify neither relative harm to the public nor
urgent need for the subject funds.155 Instead, both Governor Wolf and the General
Assembly simply entreat the court to refrain from unraveling their resolution of the
Commonwealth’s latest budget impasse.156 As the court has already noted, granting
the Association’s motion merely preserves the status quo.157 Because the court
is prepared to expedite full merits disposition of this matter, Act 44 will be
preliminarily enjoined for only a short period of time. In the absence of any
Novartis Consumer Health, Inc. v. Johnson & Johnson—Merck Consumer
Pharms., Inc., 290 F.3d 578, 596-97 (3d Cir. 2002).
Act 44, § 1.3.
See generally Docs. 39, 40.
Doc. 39 ¶ 61; Doc. 40 ¶¶ 164-67.
See Tr. 95:24-96:13.
particularized countervailing harm to the defendants, the balance of the respective
hardships favors injunctive relief.
The court recognizes that preliminary injunctive relief is an “extraordinary”
remedy which should issue only in limited circumstances.158 The uncompensable
constitutional exigency imposed by Act 44 is one of extraordinary proportion.
Accordingly, for all of the reasons stated herein, the court concludes that
preliminary injunctive relief is necessary sub judice. An appropriate order shall
/S/ CHRISTOPHER C. CONNER
Christopher C. Conner, Chief Judge
United States District Court
Middle District of Pennsylvania
November 22, 2017
AT&T, 42 F.3d at 1426-27; see also FED. R. CIV. P. 65.
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