9th Cir. stays SF health plan preemption

The Ninth Circuit issued a stay pending appeal to allow San Francisco’s universal health plan to go into effect, after a district court judgment that the plan is preempted by the Employee Retirement and Income Security Act (ERISA). Golden Gate Restaurant Ass’n v. City and County of San Francisco, 512 F.3d 1112 (9th Cir. Jan. 9, 2007) (No. 07-17370).

 The panel held that the city has a strong likelihood of vindicating its system on appeal, and that the balance of hardships and the public interest favor the city. 

               

              The Northern District of California had enjoined the city ordinance and refused to stay its judgment. Golden Gate Restaurant Ass’n v. City and County of San Francisco, 535 F.Supp.2d 968 (N.D.Cal. Dec. 26, 2007) -- see summary here. The district court held that the plan was preempted by ERISA because it required a certain level of employee benefits under ERISA-covered plans.

 

                The circuit panel noted the standard for stays pending appeal, which is similar to the standard for a preliminary injunction: it asks whether the moving party is likely to succeed on the merits; whether the moving party will be irreparably injured absent a stay; whether issuing a stay will harm the other parties; and what result would best promote the public interest. The court noted that test operates as “a sliding scale in which the required degree of irreparable harm increases as the probability of success decreases.” Natural Res. Def. Council, Inc. v. Winter, 502 F.3d 859, 862 (9th Cir. 2007).

 

                The businesses challenging the health plan argued that a higher standard should apply because a stay would “change the status quo.” The court disagreed that “the status quo” is a critical factor in issuing a stay. It further concluded that “granting a stay in this case would, in a real sense, preserve rather than change the status quo,” since the stay would simply allow existing legislation to go into effect. The court noted that other circuits had granted stays to allow existing laws to go into effect “without weighing whether a stay would disturb or preserve the status quo.”

 

                As to the merits, the court stated that under Supreme Court precedent there is a presumption against ERISA preemption in areas “that fall within the traditional police powers of the State.” It further cited statements from the Court that employee health care is such an area.

 

                The panel stated that the San Francisco plan “stands in stark contrast” to laws previously preempted under ERISA:

The Ordinance does not require any employer to adopt an ERISA plan or other health plan. Nor does it require any employer to provide specific benefits through an existing ERISA or other health plan. Any employer covered by the Ordinance may fully discharge its expenditure obligations by making the required level of employee health care expenditures, whether those expenditures are made in whole or in part to an ERISA plan, or in whole or in part to the City. The Ordinance thus preserves ERISA’s “uniform regulatory regime.”

The court stated that while the city ordinance may “influence” employers to adopt or change ERISA plans in light of the alternative requirement of making health care payments to the city, Supreme Court precedent permits this kind of “indirect economic influence.” See NY State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 659 (1995).

 

The court also emphasized that under the ordinance, employers are free to choose how to structure their plans in “in a variety of ways” and are not bound to provide specific benefits. The court acknowledged that the ordinance places administrative burdens on employers, but noted that those burdens are not tied to whether employers have ERISA-covered plans. Finally, the court found it “highly unlikely” that the law makes an “improper reference to an ERISA plan,” because, again, the law’s effect on employers does not depend on the existence of such plans.

 

The court found the law “conceptually similar” to California’s previously upheld prevailing wage law. See WSB Electric, Inc. v. Curry, 88 F.3d 788 (9th Cir. 1996) (requirement that a minimum amount of wages be paid in cash rather than benefits “does not force employers to provide any particular employee benefits r plans, to alter their existing plans, or to even provide ERISA plans or employee benefits at all”).

 

                The court found that the city would experience serious hardships without the stay, as thousands of individuals without health coverage would be “significantly less likely to seek timely medical care.” Therefore, “It is clear that otherwise avoidable human suffering, illness, and possibly death will result if a stay is denied.” (The court noted more briefly the financial burdens on the city.)

 

                Comparing these harms with the costs to the business plaintiffs over the first months of the city plan, the court held that “the balance of hardships tips sharply in favor of the City.” The court cited circuit precedent emphasizing the greater importance of “preventable human suffering” over redressable “financial concerns.”

 

                While noting that its public interest analysis was “subsumed in part” by its balance-of-hardships analysis, the court also noted the general public’s “interest in the health of San Francisco residents and workers,” and health care providers’ interest in the reduced need for more expensive emergency care. The court noted that the local economy could suffer as employer costs are passed on to consumers and consider moving elsewhere, but stated that these concerns were “highly speculative.” Finally, the court found its analysis “constrained” by the fact that local officials “have already considered that interest.”

 

                Finding that all these factors weighed in favor of allowing the health plan to go into effect, the court ordered the stay.

 

                This relatively liberal panel’s unusual decision to grant a stay gives the city a much better hope of ultimate victory, in contrast to prior health plan cases noted in our summary of the district court decision. Briefs in the appeal are due in April.