Judge Delays $200M Fund Transfer from Pennsylvania Joint Underwriting Association to State

The implementation of a law requiring the Pennsylvania Professional Liability Joint Underwriting Association (JUA) to turn over $200 million of its reserve funds to the Commonwealth has been delayed.

On Nov. 22, 2017, the United States District Court for the Middle District of Pennsylvania issued an order granting the JUA's request for a preliminary injunction. The order—issued by Chief Judge Christopher Conner—temporarily blocks the state from taking $200 million from the JUA to balance the state's budget.  

Background
On Oct. 30, 2017, Gov. Wolf signed Act 44 into law, requiring the JUA to pay $200 million to the state by Dec. 1 or face abolishment. On Nov. 7, the JUA filed a complaint in federal court, suing Governor Tom Wolf in his capacity as governor and challenging the constitutionality of Act. 44.

The JUA followed the filing of the federal complaint with a motion seeking a temporary restraining order and preliminary injunction against the enforcement of the Act. The federal court denied the JUA's requests for the temporary restraining order; however, the court scheduled an expedited preliminary injunction hearing for Nov. 14.

The Pennsylvania Medical Society (PAMED) submitted an amicus curiae (friend of the court) brief to the federal court in support of the JUA's complaint and motion for preliminary injunction to prevent the enforcement of Act 44. The brief argued in support of the important role the JUA continues to play for Pennsylvania physicians as a stabilizing force in Pennsylvania's medical malpractice insurance market. 

The JUA's Motion to Temporarily Block the State from Taking $200 Million is Granted
In support of its order granting injunctive relief to the JUA, the federal court rejected several of the arguments advanced by the state to allow enforcement of the law.

First, the state asserted that, under the federal constitution, the state and its agencies were protected against federal claims for monetary damages. Judge Conner noted, however, that the protection afforded by the Constitution is not absolute and could be overcome by one of several factors, including one which allows a state official to be sued in his or her official capacity for prospective injunctive or declaratory relief; Judge Conner found this exception applicable in rejecting the state's assertion.

Second, the state argued that the JUA did not have standing to allow the case to be heard in federal court and, therefore, the court should dismiss the JUA's complaint for lack of jurisdiction. Judge Conner dismissed this argument as well, acknowledging once again that since the JUA faced immediate eradication if it refused to pay the $200 million, the JUA had a sufficient personal stake in the matter to justify the federal court's jurisdiction.

And, finally, the state contended that Gov. Wolf has legislative immunity, which shields legislators and any public officials performing legislative functions for "all actions taken 'in the sphere of legitimate legislative activity." Judge Conner, however, refuted the state's argument, pointing out that the JUA sued Gov. Wolf in anticipation of his enforcement of legislation, not just because he signed the bill into law. Therefore, Gov. Wolf is not entitled to legislative immunity.

In assessing the remaining factors for granting the injunction, Judge Connor found that the JUA successfully argued deprivation of its federal constitutional rights due to the state's attempt to take the Association's funds. The federal judge disagreed with the state's argument that the JUA's surplus funds belonged to the Commonwealth because the JUA owes its existence to the state. Judge Conner stated that even if the court "were to accept as controlling Act 44's finding that the Association is an "instrumentality" of the state—and we do not—the status does not accord carte blanch access to the entity's assets." 

The court also acknowledged that the JUA's surplus is comprised solely "of monies paid to it by private healthcare providers" in exchange for the JUA's acceptance of high level insurance risk. The court further recognized that none of the money held by the JUA are "sovereign dollars in the traditional sense: the Association is not and has never been tax-payer-funded, and it has never otherwise received Commonwealth appropriations."

And, although the court observed the state's "genuine interest in a balanced state budget," it also reproached the state's efforts, stating that it "cannot achieve a legitimate end by unconstitutional means."

While a date for the case has not been set, Judge Conner notes in his opinion that Act 44 will only be blocked for a short period of time and plans to "expedite" a full hearing and decision on the merits of the case.

PAMED will continue to track this issue and provide additional member updates as soon as possible. 

PAMED's Legal Resource Center

PAMED's Legal Resource Center provides quality, timely legal advocacy and resources for member physicians who practice in Pennsylvania. Please visit
www.pamedsoc.org/LegalResourceCenter for more details.

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