The opinion of the court was delivered by: Flaum, District Judge:
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
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remanded in an unpublished opinion by the Court of Appeals for the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
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
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
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
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
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 ...