Carparts, et al. v. Auto Wholesalers CV-92-592-M 09/30/97 P UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE

Carparts Distribution Center, Inc., Daniel Drish and Shirley M. Senter, Co-Executors of the Estate of Randv J. Senter, and the Equal Employment Opportunity Commission,

Plaintiffs

v. Civil No. C-92-592-M

Automotive Wholesaler's Ass'n of New England, Inc., and Automotive Wholesaler's Ass'n of New England, Inc. Insurance Plan.

Defendants

O R D E R

Plaintiffs bring this action pursuant to Titles I and III of

the Americans with Disabilities Act of 1990, Title I of the Civil

Rights Act of 1991, and

(3), seeking damages for

alleged acts of unlawful discrimination in the administration of

certain health insurance benefits claimed by the Estate of Randy

Senter. The complaint also alleges several statutory and common

law causes of action under the law of the State of New Hampshire.

Pending before the court are plaintiffs' motion for summary

judgment on their claims under Title I of the ADA and defendants'

motion for summary judgment as to all of plaintiffs' claims.

Factual Background Prior to his death, Randy Senter was the sole shareholder,

president, and an employee of Carparts Distribution Center, Inc.,

an automotive parts wholesaler located in Plaistow, New

Hampshire. In May of 1986, Senter learned that he was infected

with the Human Immunodeficiency Virus ("HIV"). Approximately

five years later, he was diagnosed as suffering from Acguired

Immune Deficiency Syndrome ("AIDS"). He died on January 17,

1993.

In 1977, Carparts became a participant in a self-funded

medical cost reimbursement plan known as Automotive Wholesaler's

Association of New England Health Benefit Plan (the "Plan"),

which was offered by defendants Automotive Wholesaler's

Association of New England, Inc. ("AWANE") and its administering

trust. Automotive Wholesaler's Association of New England, Inc.

Insurance Plan (the "Trust"). As an employee of Carparts, Senter

enrolled in the Plan in 1977, which, at the time, provided

lifetime medical insurance benefits in the amount of $1,000,000

per eligible member. In January of 1991, however, defendants

instituted a $25,000 cap on lifetime benefits for AIDS-related

illnesses. Plaintiffs claim that defendants instituted the cap

with knowledge that Senter was HIV positive, suffering from AIDS,

and incurring AIDS-related medical expenses. Defendants deny any

2 knowledge of Sender's illness prior to implementation of the cap.

They also deny that their conduct is prohibited by the ADA.

In 1993, this court (Loughlin, J.) dismissed plaintiffs'

complaint, concluding that the ADA does not apply to this case

because defendants were neither Senter's "employers" under Title

I nor were they "public accommodations" under Title III.1 The

court also concluded that plaintiffs "failed to identify a source

of congressional power other than the Americans with Disabilities

Act so as to reach the private conspiracy alleged by plaintiffs."

Finally, the court dismissed plaintiff's state law claims as

preempted by the provisions of ERISA. Carparts Distribution

Center, Inc. v. Automotive Wholesaler's Ass'n of New England,

Inc., No. C-92-592-L, slip op. (D.N.H. July 19, 1993) ("Carparts

I") •

On appeal, the Court of Appeals for the First Circuit held

that Judge Loughlin had interpreted the provisions of Title I and

Title III of the ADA too narrowly and erred in dismissing

This case presents a somewhat unusual situation insofar as Carparts, Senter's employer, is a plaintiff, rather than a defendant. Apparently, when the Plan refused to reimburse Senter for certain AIDS-related medical treatment, Carparts paid for some of his medical expenses. Accordingly, Carparts, like Senter's estate, claims to have suffered damages as a result of defendants' allegedly wrongful conduct.

3 plaintiffs' complaint. With regard to Title I of the ADA, the

court of appeals observed that "defendants could be considered

Sender's 'employers,' and therefore subject to liability under

Title I, under any one of at least three theories." Carparts

Distribution Center, Inc., v. Automotive Wholesaler's Ass'n of

New England, Inc.,

(1st Cir. 1994) ("Carparts

II"). With regard to Title III of the ADA, the court concluded

that "public accommodations" are not limited to physical

structures.

. Accordingly, the appellate court

reasoned that Title III of the ADA may well prohibit self-insured

group health benefit plans from discriminating against protected

individuals with regard to the content of the goods and/or

services they provide.

The court of appeals then remanded the case with

instructions to reconsider plaintiffs' claims in light of its

opinion. Upon Judge Loughlin's retirement, the case was

reassigned to this judge.

Discussion

I. Jurisdiction Over Plaintiffs' Title I Claims.

At this juncture, the existence of unresolved factual issues

(and undeveloped legal arguments), preclude the court from

4 determining whether it has jurisdiction over plaintiffs' Title I

claims. Although alluded to in the parties' papers, the

following issue remains largely unaddressed: Provided defendants

may, under the tests articulated by the court of appeals in

Carparts II, properly be deemed to be Senter's "employer" for

purposes of the ADA (which seems likely), did that "employer"

have "25 or more employees for each working day in each of 20 or

more calendar weeks."

(5). Obviously, that

guestion raises another: Whether this court should count the

number of individuals employed by the plaintiff, Carparts

(Senter's actual employer, which appears to have employed more

than 25 individuals), or the number employed by defendants, AWANE

and/or the Trust (Senter's constructive "employers" for purposes

of Title I, neither of which appears to have employed 25 or more

individuals) .

Resolution of that guestion (which turns on not only legal

issues, but factual ones as well) will obviously determine

whether Title I of the ADA properly governs defendants' conduct

in this case and whether the court has jurisdiction over

plaintiffs' Title I claims. Accordingly, on or before November

14, 1997, the parties shall file memoranda addressing that issue,

providing appropriate citation to any relevant legal authority

5 (binding or persuasive). Additionally, the parties shall brief

the following legal and factual guestions:

1. If the court determines that defendants are properly deemed to have acted as Senter's "employer" because they "exercised control over an important aspect of his employment," Carparts II, at 17, must defendants have employed the statutory minimum number of employees during the relevant period of time in order for the court to exercise jurisdiction over plaintiffs' Title I claims? See, e.g.. United States v. State of Illinois,

,

(N.D. 111. 1994) (holding that the administrator of a pension fund was subject to the provisions of Title I of the ADA (without directly addressing the allegation that it employed fewer than 15 employees) because it had "the power to significantly affect access to employee benefits which are a portion of a police officer's or firefighter's compensation.").

2. If the court determines that defendants are properly deemed to have acted as Senter's employer because they were "'agents' of a 'covered entity', who act[ed] on behalf of the entity in the matter of providing and administering health benefits," Carparts II, at 17, must defendants have employed the statutory minimum number of employees during the relevant period of time in order for the court to exercise jurisdiction over plaintiffs' Title I claims? See, e.g., DeVito v. Chicago Park District,

(7th Cir. 1996) ("[a]gents [of employers] are liable under the ADA only if they otherwise meet the statutory definition of an employer. For example, an agent of an employer is not liable under the ADA unless it has the reguisite number of employees and is engaged in an industry affecting

6 commerce.") (citation and internal quotation marks omitted).

3. When determining the number of individuals employed by defendants, is it appropriate for the court to include in its count those individuals employed by Carparts as well as defendants, pursuant to the "single employer" or "joint employer" or "integrated enterprise" doctrine?

4. When determining the number of individuals employed by defendants, is it appropriate for the court to include in its count those individuals employed by entities closely associated with AWANE and/or the Trust (but not named as defendants), pursuant to the "single employer" or "joint employer" or "integrated enterprise" doctrine?

5. How many individuals did each of the entities referenced above actually employ during the time at issue in this case?2

II. Plaintiffs' Title III Claims.

In Carparts II, the court of appeals held that

establishments of "public accommodation" are not limited to

actual physical structures and suggested that "plaintiff may be

The court acknowledges that the EEOC has briefed some of the issues specified above (i.e., the integrated enterprise theory). It has also represented that United States v. Illinois, supra, is the only published opinion it has uncovered which addresses the first of the four issues specifically listed above. The other issues identified by the court, however, remain largely unaddressed. If the EEOC and/or the remaining plaintiffs are satisfied that the EEOC's discussion of the issues it has briefed is thorough and adequately addresses all pertinent authorities, they need not supplement their prior submissions as to those issues. 7 able to develop some kind of claim under Title III." Carparts

11, at 20. It then remanded this case, with instructions to

afford plaintiffs the opportunity to present further evidence

supporting their view that defendants qualify as places of publi

accommodation within the meaning of Title III of the ADA.

While there are no doubt sound policy reasons which support

the appellate court's broad construction of the phrase "public

accommodation," reconciling that broad construction with the

Federal Regulations implementing the ADA requires some effort.3

Indeed, there appears to be disagreement among the circuits as t

the scope of Title Ill's reach and the proper interpretation of

the phrase "public accommodation." See, e.g., Parker v.

Metropolitan Life Insurance Co., ___ F.3d ___,

(6th Cir. 1997) (en banc) (reversing an earlier panel decision

and holding that "[t]he clear connotation of the words in §

12181(7) is that a public accommodation is a physical place. . .

defines a public accommodation as "a facility, operated by a private entity, whose operations affect commerce." That regulation then defines a "facility" as:

all or any portion of buildings, structures, sites, complexes, equipment, rolling stock or other conveyances, roads, walks, passageways, parking lots, or other real or personal property, including the site where the building, property, structure, or equipment is located. To interpret these terms as permitting a place of accommodation

to constitute something other than a physical place is to ignore

the text of the statute and the principle of noscitur a sociis").

Nevertheless, consistent with our court of appeals' holding

in Carparts II, this court must accept that there are

circumstances under which a "public accommodation" might be

something other than a physical structure or other real or

personal property. The relevant inguiry, then, is whether

defendants are such public accommodations.

Having been provided with an opportunity to demonstrate that

defendants are places of "public accommodation," plaintiffs have

taken the view that resolution of that issue reguires a trial.

Defendants, on the other hand, continue to assert that they are

not public accommodations and are, therefore, entitled to

judgment as a matter of law with regard to plaintiffs' Title III

claims. They have, however, failed to carry their burden of

proof.

In support of their claimed entitlement to summary judgment,

defendants merely state: Defendants respectfully continue to contend that the remedial intent of the ADA cannot serve to alter the plain language employed by the drafters, whose definition of "public accommodation" did not just give examples, but purported to list each such accommodation, and in so doing does not include any entry even approaching the likeness of a health insurance plan.

Defendants' Memorandum in Support of Summary Judgment (document

no. 40) at 23. At this juncture, particularly in light of the

appellate opinion in Carparts II, defendants must provide more

than merely a conclusory statement asserting disagreement with

the view adopted by the court of appeals. Based upon their

submissions to date, defendants have failed to demonstrate the

absence of any genuine issue of material fact related to whether

they are "public accommodations" under Title III. Nor have they

demonstrated that they are entitled to judgment as a matter of

law (either because Title III does not apply to them or because

their conduct was not prohibited by Title III).

III. Discrimination Under the AD A .

Even assuming that defendants may properly be treated as

Sender's "employer" for purposes of Title I, and as "public

accommodations" for purposes of Title III, the existence of

genuine issues of material fact precludes the entry of summary

judgment in favor of either plaintiffs or defendants. In short.

10 neither party has demonstrated an entitlement to judgment as a

matter of law with regard to the guestion of whether defendants'

conduct was unlawful under the ADA.

Provided that an insurer is otherwise subject to the

provisions of the ADA (e.g., as a "public accommodation"). Title

IV of the ADA sets forth certain "safe harbor" provisions

applicable to those insurers:

Subchapters I through III of this chapter and title IV of this Act shall not be construed to prohibit or restrict --

(1) an insurer . . . or entity that administers benefit plans, or similar organizations from underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with State law; or

(2) a person or organization covered by this chapter from establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with State 1aw; or

(3) a person or organization covered by this chapter from establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that is not subject to State laws that regulate insurance.

(c). As this court (Devine, J.) has previously

held, the safe harbor provisions permit those insurers which are

11 subject to the ADA to base insuring decisions upon either

actuarial principles or reasonably anticipated experience.

Doukas v. Metropolitan Life Insurance Co.,

(D.N.H. 1996). Accord World Insurance Co. v. Branch,

(N.D. G a . 1997) ("insurance practices are protected to

the extent they are in accord with sound actuarial principles,

reasonably anticipated experience, or bona fide risk

classification."); Cloutier v. Prudential Insurance Co.,

(N.D. Cal. 1997) ("the ADA requires that

underwriting and classification of risks be based on sound

actuarial principles or be related to actual or reasonably

anticipated experience.") (citation and internal quotation marks

omitted).

Here, there appears to be no dispute that defendants failed

to base the decision to implement the AIDS-related cap upon any

actuarial data. In fact, John Healy, the executive director of

AWANE, testified at deposition that he was unaware of any such

actuarial data when the Trust decided to impose the cap. See

Healy deposition at 498. There is, however, a genuinely disputed

and material factual issue: Whether defendants based the decision

to implement the AIDS-related illness cap upon legitimate,

reasonably anticipated claims experience. Plaintiffs argue that

12 defendants acted out of bias and bigotry when they instituted the

cap. In support of that claim, they cite the affidavit of David

Lodemore, a former employee of Blue Cross/Blue Shield of

Massachusetts (which formerly administered some of the benefits

for the Plan). Mr. Lodemore's affidavit recounts a meeting

between him and Healy, at which Lodemore had the "impression that

Mr. Healy was morally opposed homosexuals and believed that AIDS

was primarily a homosexual disease. Mr. Healy made clear that he

was vehemently opposed to AWANE paying any benefits for members

with AIDS because he considered homosexuals to be 'perverts and

criminals.'" Lodemore affidavit at para. 5.

In response, defendants claim that they were unaware that

Senter was HIV positive or suffering from AIDS when the Trust

decided to implement the cap. Healy affidavit at para. 26.

Rather than basing their decision to institute the cap on moral

judgments or discriminatory animus, defendants claim that the

decision was reasonably based upon a legitimate perception that

AIDS-related claims would create an intolerable and unsustainable

financial drain upon the assets of the Plan and, therefore, posed

an unjustifiable insurance risk. They say that the cap was

merely an effort to limit and manage that legitimately perceived

risk. For example, Healy suggested at his deposition that he was

13 concerned AIDS-related claims might overwhelm the Plan and that,

in turn, would render the Plan financially incapable of competing

in the marketplace. Accordingly, he likened the cap on AIDS-

related medical reimbursement to similar caps applicable to other

illnesses and/or medical services: "We have to be competitive in

the marketplace on levels, coverages and costs, and that's the

reason why there are caps on mental illness, chiropractors,

physical therapy, alcoholism, drug abuse, skilled nursing. . .."

Healy deposition at 283.

Ultimately, while the record on this point is not entirely

clear (the parties having submitted only excerpts from relevant

deposition testimony), the court cannot rule, as a matter of law,

that defendants failed to base their decision to implement the

cap on reasonably anticipated claims or losses related to

reimbursement for AIDS-related medical expenses. It appears from

the record that Healy and/or the trustees of the Plan could have

honestly believed, based upon reports in the media and issued by

the government and medical experts, that the potentially rapid

and devastating spread of HIV in 1990-91 represented a serious

medical threat to the population and, in turn, to the medical

insurance industry. What remains unclear is whether those

beliefs were "reasonable" and whether defendants' claimed concern

14 for the fiscal health of the Plan was, in fact, legitimate. On

the record presently before the court, that issue cannot be

resolved as a matter of law.4

At this juncture, defendants' proffered explanation for

their decision to implement the AIDS-related reimbursement cap is

minimally sufficient to preclude the court from granting

plaintiffs' motion for summary judgment. Conversely, however,

because plaintiffs have adduced evidence which, if credited by a

trier of fact, could reasonably support the conclusion that

defendants acted with an unlawful discriminatory animus and/or

upon unreasonable speculation regarding the medical and fiscal

threat posed by the Human Immunodeficiency Virus and AIDS, the

court also denies defendants' motion for summary judgment.

Some of Healy's deposition testimony certainly suggests that the magnitude of his fear concerning the mode and speed at which HIV was infecting the population was unwarranted and unsupported by the then-current state of medical knowledge. While not dispositive of the issue, Healy's testimony certainly lends support to plaintiffs' claim that the cap was, at least in part, based upon irrational fear and impermissible speculation.

15 II. Plaintiffs' State Law Claims.

Defendants also move for summary judgment with regard to

plaintiffs' state law claims, asserting that those claims are

either preempted by ERISA or fail to state viable causes of

action. Plaintiffs object.

A. Claims Under N.H. Rev. Stat. Ann, ch. 354-A.

As this court (Devine, J.) has previously held, N.H. Rev.

Stat. Ann. ("RSA") ch. 354-A "does not create a private right of

action for individuals aggrieved by unlawful discrimination."

Evans v. Work Opportunities Unlimited, Inc.,

(D.N.H. 1996). Accord Tsetseranos v. Tech Prototype, Inc.,

(D.N.H. 1995). Accordingly, defendants'

motion for summary judgment with regard to plaintiffs' claims

under RSA 354-A is granted.

B. Plaintiffs' Remaining State Law Claims.

Defendants assert that plaintiffs' remaining state common

law and statutory claims are preempted by the provisions of

ERISA. In response, plaintiffs deny that ERISA either governs or

preempts their claims. They assert that Senter, as the sole

shareholder of Carparts, was (like Carparts itself) an "employer"

rather than an "employee," as those terms are defined by ERISA.

16 Plaintiffs also argue that neither Carparts nor Senter was a

beneficiary or participant in an ERISA-governed employee benefit

plan and, therefore, do not have standing to raise an ERISA-based

claim against defendants. Accordingly, they conclude that their

state law claims against defendants are not preempted by ERISA.

See generally, Tavlor v. Carter,

(W.D. Tex.

1996) (collecting cases and discussing the three distinct means

by which courts have resolved whether an individual is an

"employer" or an "employee" under ERISA and whether that

individual has standing to bring claims under ERISA). See also

Kwatcher v. Mass. Service Emp. Pension Fund,

(1st

Cir. 1989) (holding that the sole shareholder and employee of a

corporation was an "employer" under ERISA and, therefore,

ineligible to participate in an ERISA-gualified pension plan).

In short, plaintiffs say that: (1) Carparts and Senter are

"employers" under ERISA, (2) as employers, they lack standing to

raise ERISA-based claims, and, therefore, (3) their state law

causes of action are not preempted by ERISA. Defendants have

failed to address those legal and factual claims. Instead, they

merely rely upon traditional arguments that an employee's state

law claims against an ERISA plan or ERISA plan administrator are

preempted by ERISA. Conseguently, defendants have demonstrated

17 neither a lack of genuine issues of material fact nor an

entitlement to judgment as a matter of law with regard to the

preemption issue. While the court may ultimately conclude that

plaintiffs' state law claims are preempted by ERISA, the record

as presently developed does not support such a ruling.

Defendants are, of course, free to renew their motion for

summary judgment with regard to plaintiffs' state law claims. If

they elect to do so, however, they should: (1) address in detail

plaintiffs' legal argument that ERISA does not preempt state law

claims raised by employers against ERISA plans or plan

administrators; and (2) either demonstrate that plaintiffs' legal

analysis of that issue is flawed or demonstrate that Senter was

an "employee," rather than an "employer," under the provisions of

ERISA.

The legal and factual issues raised in this case are, of

course, complex. The court will not base its rulings upon an

inadeguately developed factual record, nor is it inclined to

engage in extensive legal research and analysis, which should,

initially, be performed by the parties.

18 Conclusion

For the foregoing reasons, defendants' motion for summary

judgment (document no. 40) is granted with regard to plaintiffs'

claims under RSA 354-A. Otherwise, that motion is denied.

Plaintiffs' motions for summary judgment (documents no. 38 and

39) are likewise denied.

On or before November 14, 1997, the parties shall submit

their legal memoranda addressing the Title I jurisdictional

guestions raised by the court.

SO ORDERED.

Steven J. McAuliffe United States District Judge

September 30, 1997

cc: James Q. Shirley, Esg. Paul R. Cox, Esg. Elizabeth Grossman, Esg.

19