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DONOVAN v. ROBBINS

January 18, 1983

RAYMOND J. DONOVAN, SECRETARY OF LABOR, PLAINTIFF,
v.
LORAN W. ROBBINS, ROBERT E. SCHLIEVE, THOMAS O'MALLEY, R.V. PULLIAM, ROBERT BAKER, EARL L. JENNINGS, JR., EARL N. HOEKENGA, ANDREW G. MASSA, ROY L. WILLIAMS, WILLIAM PRESSER, JACKIE PRESSER, FRANK E. FITZSIMMONS, JOSEPH W. MORGAN, JOHN F. SPICKERMAN, THOMAS J. DUFFEY, JACK A. SHEETZ, AND JOHN E. DWYER, DEFENDANTS. RAYMOND J. DONOVAN, SECRETARY OF LABOR, PLAINTIFF, V. ALLEN M. DORFMAN, ROSE DORFMAN, MYER BREEN, SOL C. SCHWARTZ, AMALGAMATED INSURANCE AGENCY SERVICES, INC., FEDERAL COMPUTER SYSTEMS, INC., HEALTH PLAN CONSULTANTS SERVICE, INC., PRESCRIPTION PLAN, INC., ROBERT BAKER, EARL L. JENNINGS, JR., HOWARD MCDOUGALL, THOMAS F. O'MALLEY, RUDY V. PULLIAM, SR., LORAN W. ROBBINS, MARION M. WINSTEAD, HAROLD J. YATES, JOHN E. DWYER, AND CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS HEALTH AND WELFARE FUND, DEFENDANTS.



The opinion of the court was delivered by: Flaum, District Judge:

MEMORANDUM OPINION

This matter is before the court on the motion of Raymond J. Donovan, the Secretary of Labor (the "Secretary"), for a preliminary injunction. A four-day hearing was held on the motion during which seven witnesses testified and over one hundred exhibits were submitted. After hearing oral argument on the motion and reviewing all of the evidence and briefs submitted, the court concludes that, on the basis of the current record, the preliminary injunction sought is not warranted and, accordingly, the Secretary's motion is denied.

With respect to its disposition of the Secretary's motion for a preliminary injunction, the court enters the following findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52 (a).

FINDINGS OF FACT

1. The controversy originated on October 16, 1978, when the Secretary filed his initial complaint against the Trustees and the Executive Director of the Central States, Southeast and Southwest Areas Health and Welfare Fund (the "Fund") in Marshall v. Robbins, 78 C 4075 ("78 C 4075"). The Fund and Amalgamated Insurance Agency Services, Inc. ("Amalgamated") were permitted to intervene as defendants. The Secretary moved for temporary and preliminary injunctive relief to enjoin the Fund from entering into a claims adjustment agreement with Amalgamated. The case was assigned to Judge Thomas R. McMillen who held a five-day hearing beginning on October 25, 1978. The Secretary's motion for preliminary injunction was denied at the conclusion of the hearing, as was the Secretary's motion for an injunction pending appeal. The Secretary did not pursue an appeal of those rulings. On June 25, 1979, the court granted summary judgment in defendants' favor on most of the Secretary's claims. On June 24, 1980, that decision was reversed and the case remanded in an unpublished opinion by the Court of Appeals for the Seventh Circuit (the "Seventh Circuit"). On remand, the case was assigned to Judge Joel M. Flaum and the parties proceeded with further discovery.

2. On December 29, 1982, the Secretary filed a new action, Donovan v. Dorfman, 82 C 7951 ("82 C 7951"), which was assigned to Judge Nicholas J. Bua. In addition, the Secretary filed a motion for a finding that case 82 C 7951 is related to 78 C 4075 pursuant to Local Rule 2.31. On that same day, the Secretary also made an application for an ex parte temporary restraining order in cases 78 C 4075 and 82 C 7951. The Fund joined the Secretary on the motion. The ex parte application was heard by Judge Bua, who was the designated emergency judge in Judge Flaum's absence from the court. Judge Bua granted the Secretary's application for a temporary restraining order and entered an injunctive order submitted by the Secretary. The order required the appointment of a receiver and the law firm of Scariano, Kula & Associates, Ltd. (the "Receiver") was appointed.

3. On December 30, 1982, the defendants in 82 C 7951 were granted a hearing before Judge Bua at which they moved to dissolve the receivership and other injunctive relief granted in the temporary restraining order. After argument of counsel, Judge Bua denied the defendants' motion to vacate the temporary restraining order. Judge Bua also appointed Kevin M. Forde to be the Receiver's attorney.

4. Both cases were set for a status hearing before Judge Flauni on January 3, 1983, at 10:30 a.m., at which time the defendants moved to dissolve the temporary restraining order. The status continued until the same afternoon when the Secretary's counsel could be present. At that time, the court determined that the matter should proceed on the Secretary's motion for preliminary injunction which had been filed in both cases on December 29, 1982. The Fund also joined in the motion. The court also granted the Secretary's motion for a finding of relatedness.

5. A hearing on the Secretary's motion for preliminary injunction began on the morning of January 4, 1983, and continued until the afternoon of January 7, 1983. After extensive argument on the Secretary's motion for an extension of the temporary restraining order, the court extended the order to remain in effect until 2:00 p.m. on January 18, 1983. The court also directed the parties to submit proposed findings of fact and conclusions of law on the motion for preliminary injunction by 12:00 noon on January 12, 1983. Oral argument on the motion was held at 3:00 p.m. on that day.

6. The Fund is a trust formed pursuant to an Agreement and Declaration of Trust dated March 14, 1950, as amended, and has its principal place of business in Chicago, Illinois. The Fund was established and is maintained by employers and employee organizations engaged in commerce for the purpose of providing medical, hospital care, dental, vision, prescription and related medical benefits to approximately 500,000 eligible participants and beneficiaries who reside in all fifty states. The Fund's assets are held in trust.

7. The Fund is administered from Chicago, Illinois by a Board of Trustees (the "Trustees") composed of eight trustees. The same trustees also comprise the Board of Trustees of and administer the Central States, Southeast and Southwest Areas Pension Fund (the "Pension Fund").

8. From May 17, 1977, until December 20, 1982, Thomas F. O'Malley ("O'Malley") served as a trustee of both the Fund and the Pension Fund.

9. Commencing February 1, 1976, the Fund became self-funded with respect to the payment of benefit claims submitted by its participants and beneficiaries. These health and welfare benefits are paid from funds contributed by employers as required by the applicable collective bargaining agreements.

10. Prior to February 1, 1976, the Fund entered into a contract with Amalgamated under the terms of which Amalgamated provided claims processing services directly to the Fund.

11. A new three year claims processing agreement between the Fund and Amalgamated (the "1979 Contract") which had a commencement date of March 1, 1979, was executed on November 8, 1978.

12. Myer Breen ("Breen") is the president and a director of Amalgamated and has served in these offices for many years. He has been associated with Amalgamated for nearly twenty-seven years.

13. Sol C. Schwartz ("Schwartz") was the secretary and a director of Amalgamated for many years. He resigned from these positions on January 12, 1983.

14. David Dorfman, Allen M. Dorfman's son, is the third director of Amalgamated and has served in this office for several years.

15. Allen M. Dorfman ("Dorfman") owns, and for many years has owned, 50% of the issued and outstanding stock of Amalgamated. He holds no corporate office in Amalgamated and has no corporate title.

16. Rose Dorfman, Dorfman's mother, owns, and for many years has owned, 50% of the issued and outstanding stock of Amalgamated and is the assistant secretary of Amalgamated.

17. Health Plan Consultants Service, Inc. ("Health Plan Consultants") processes all claims relating to dental benefits submitted on behalf of the Fund's participants and beneficiaries., Schwartz is the president and a director of Health Plan Consultants; Jay Dorfman is the vice-president; Breen is the secretary and a director; and David Dorfman is the treasurer and the remaining director. No evidence was submitted concerning the stock ownership of Health Plan Consultants.

18. Prescription Plan, Inc. ("Prescription Plan") was created to process all claims relating to prescription and drug benefits submitted on behalf of the Fund's participants and beneficiaries. The issued and outstanding stock of Prescription Plan is owned as follows: James Dorfman, 16%; David Dorfman, 16%; Kim Dorfman Glefke, 16%; Michael Dorfman, 16%; Andrew Dorfman, 10%; Marla Dorfman, 10%; Brian Dorfman, 10%; Charles Schwartz, Schwartz's son, 4%; and Breen, 2%. Breen is the president and a director of Prescription Plan; David Dorfman is the secretary and a director; and Schwartz is the treasurer and the remaining director.

19. Federal Computer Systems, Inc. ("Federal Computer") owns or leases computer equipment used to process the claims for Amalgamated, Health Plan Consultants and Prescription Plan. Federal Computer controls the software that enables Amalgamated, Health Plan Consultants and Prescription Plan to process all benefit claims submitted by the Fund's participants and beneficiaries. The issued and outstanding stock of Federal Computer is owned as follows: Dorfman, 31%; Jay Dorfman, 20%; Michael Dorfman, James Dorfman, Kim Dorfman Glefke, David Dorfman, Andrew Dorfman, Marla Dorfman and Brian Dorfman, 7% each. Breen is the president and a director of Federal Computer; James Dorfman is the vice-president and assistant secretary; David Dorfman is the secretary and a director; Schwartz is the treasurer and the remaining director.

20. According to the Blomquist Report, the software package developed and used by Amalgamated and Federal Computer to process claims is tailor-made for the needs of the Fund. The Blomquist Report, which was prepared for the Fund on October 12, 1981, is an analysis of the bids the Fund received in 1981 for claims services.

21. Dorfman has been associated with Amalgamated, Federal Computer, Health Plan Consultants and Prescription Plan since the inception of these respective entities. For the fiscal year ending October 31, 1983, Dorfman's projected salary, exclusive of dividends, from Amalgamated, Federal Computer and Health Plan Consultants totals $416,000.00. The amount from Amalgamated alone exceeds $300,000.00.

22. Dorfman is consulted with and provides input for major management decisions at Amalgamated, including significant changes with respect to marketing, installation of equipment, expansion, corporate structure, business direction, future planning and big expenditures. Dorfman does not participate in the day-to-day operation of Amalgamated.

23. Amalgamated's total income is derived from compensation paid by the Fund for the processing of claims by Amalgamated on behalf of the Fund's participants and beneficiaries. Since February 1976 the Fund has paid Amalgamated approximately $56,000,000.00. In 1982 the Fund paid Amalgamated approximately $10,000,000.00.

24. In 1982 Amalgamated, Health Plan Consultants and Prescription Plan processed an average of 141,426 claims per month. Approximately 100,000 more claims were paid in 1982 than in 1981. When medical claims are received, Amalgamated reviews them to determine if the charges are fair and reasonable using adjustment standards jointly established by the Fund and Amalgamated based on ...


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