328 F. Supp. 3d 400
M.D. Pa.2018Background
- The Pennsylvania Professional Liability Joint Underwriting Association (JUA) is a nonprofit insurer created by the legislature in 1975 and continued under the MCARE Act; it is funded solely by premiums and investment income and held private assets (surplus and reserves).
- The MCARE Act requires JUA to submit plans and rates to the Insurance Commissioner but vests powers in a member-led board; the statute disclaims state liability for JUA debts.
- Earlier litigation (JUA I) challenged Act 44 (2017), which sought a $200 million transfer from JUA to the Commonwealth; the court held JUA’s surplus private and ruled Act 44 an unconstitutional taking under the Fifth Amendment, permanently enjoining enforcement.
- In response, the General Assembly enacted Act 41 (2018), which (a) declares JUA an instrumentality of the Commonwealth; (b) places JUA within the Insurance Department; (c) replaces the member-led board with politically appointed directors and a commissioner-selected executive director; and (d) requires transfer of all JUA documents and assets to the Department within 30 days.
- JUA filed suit under 42 U.S.C. § 1983 seeking declaratory and injunctive relief, asserting substantive due process, takings, and Contract Clause claims and moved for a preliminary injunction to block Act 41; the court adopted findings from JUA I for the record.
- The court found JUA likely to succeed on its Takings Clause claim (issue precluded as to Governor Wolf by JUA I), concluded irreparable harm would follow if Act 41 took effect, and granted preliminary injunctive relief to preserve the status quo pending merits review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Act 41 unlawfully takes JUA's surplus (Takings Clause) | Act 41 is a post hoc attempt to convert JUA's private assets into public property without just compensation | Legislature can reshape or absorb entities it creates; new statute alters legal status so prior ruling does not control | Court: JUA likely to succeed; JUA I precludes re-litigation as to private nature of funds (at least against Governor Wolf); Act 41 plausibly effects a taking requiring compensation |
| Whether JUA's governance can be retroactively restructured by statute | Legislature cannot destroy or strip private entity of accrued private property and rights by after-the-fact statutes | State may reshape or abolish units it creates (Hess) and can assert control by statute | Court: Whether legislature may recapture JUA raises complex questions; but under JUA I, JUA's funds are private and cannot be taken without compensation — plaintiff showed likelihood of success |
| Whether preliminary injunction is warranted (irreparable harm) | Transfer of assets, replacement of board, and dismissal of pending appeals would inflict irreversible harm and moot claims | Public interest and legislative prerogative weigh against delay; no exigency shown | Court: Irreparable harm shown; balance of harms and public interest favor injunction |
| Whether issue preclusion (collateral estoppel) bars relitigation of private-funds finding | JUA I decided that JUA funds are private; that issue is identical, litigated, and essential | Act 41 changes controlling law/facts; legislature can alter status, so collateral estoppel should not apply | Court: Traditional elements satisfied as to Governor Wolf; defendants’ change-in-law argument raises plausible questions but does not defeat preclusive effect for present preliminary-injunction analysis |
Key Cases Cited
- Miss. Surplus Lines Ass'n v. Mississippi, [citation="261 F. App'x 781"] (5th Cir. 2008) (analyzing whether a state-created insurer’s funds are public or private)
- Asociacion de Subscripcion Conjunta del Seguro de Responsabilidad Obligatorio v. Flores Galarza, 484 F.3d 1 (1st Cir. 2007) (treats public-versus-private factors for joint underwriting associations)
- Tex. Catastrophe Prop. Ins. Ass'n v. Morales, 975 F.2d 1178 (5th Cir. 1992) (consideration of state control over insurer-like entities)
- Med. Malpractice Ins. Ass'n v. Superintendent of Ins. of the State of N.Y., 72 N.Y.2d 753 (N.Y. 1988) (state-created malpractice insurer governance and control analysis)
- Hess v. Port Auth. Trans-Hudson Corp., 513 U.S. 30 (1994) (state may destroy or reshape units it creates)
- Gonzaga Univ. v. Doe, 536 U.S. 273 (2002) (§ 1983 enforces rights secured by federal law)