Maine Education Ass'n Benefits Trust v. Cioppa ( 2012 )

United States Court of Appeals
For the First Circuit
No. 12-1199
THE MAINE EDUCATION ASSOCIATION BENEFITS TRUST,
and ROGER YOUNG, SUSAN GRONDIN, SALLY PLOURDE,
MARY KAY DYER, CHRIS GALGAY, KELLY LITTLEFIELD, LOIS
KILBY-CHESLEY, DARRELL KING, and DENNIS TOWLE, in their
capacities as trustees of the Maine Education Association
Benefits Trust,
Plaintiffs, Appellants,
v.
ERIC CIOPPA, in his official capacity as Superintendent
of Insurance of the State of Maine,
and
MAINE SCHOOL ADMINISTRATIVE DISTRICT 60; AUGUSTA
SCHOOL DEPARTMENT; MAINE SCHOOL BOARD ASSOCIATION;
BANGOR SCHOOL DEPARTMENT; REGIONAL SCHOOL UNIT 23,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. George Z. Singal, U.S. District Judge]
Before
Lynch, Chief Judge,
Lipez and Howard, Circuit Judges.
Christopher C. Taintor, with whom Norman, Hanson & DeTroy
LLC was on brief, for appellants.
Jonathan R. Bolton, Assistant Attorney General, with whom
William J. Schneider, Attorney General, Andrew L. Black and
Thomas A. Knowlton were on brief, for appellees.
September 24, 2012
HOWARD, Circuit Judge. In October 2011, the State of
Maine enacted L.D. 1326, "An Act To Allow School Administrative
Units To Seek Less Expensive Health Insurance Alternatives,"
pursuant to which health insurers must disclose, upon written
request from a public school district, aggregate loss information
pertaining to any group policies held by the district's employees.1
L.D. 1326, 125th Leg., 1st Reg. Sess. (Me. 2011). Shortly
thereafter, plaintiff-appellant Maine Education Association
Benefits Trust (the "Trust") -- which manages a statewide health
insurance plan for a substantial segment of Maine's public school
work force -- filed suit in the district court, seeking to
permanently enjoin the law prior to its enforcement. The Trust
alleged, inter alia, that because its loss information constitutes
a confidential trade secret, the Act's disclosure requirement
results in an uncompensated taking proscribed by the Fifth
Amendment. The district court denied the Trust's motion for a
preliminary injunction, and the Trust now challenges that denial in
this timely appeal. After careful consideration, we affirm.
I.
A brief overview of the Trust, its health insurance plan,
and the statutory scheme at issue is necessary for an understanding
of the claims presented on appeal. The district court's thoughtful
1
The phrase "school administrative unit" is, for our
purposes, synonymous with "school district."
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and comprehensive order, see Maine Educ. Ass'n Benefits Trust v.
Cioppa, No. 1:11-cv-381-GZS, 2012 WL 363923 (D. Me. Feb. 3, 2012),
contains a detailed exposition of the undisputed facts, from which
we borrow.
A. The Trust and Its Health Insurance Plan
Since 1993, the Trust has provided health insurance to
the bulk of Maine's public school employees and their dependents
through a plan underwritten by various insurers, most recently
Anthem Blue Cross Blue Shield of Maine ("Anthem"). The insurance
plan (the "Plan"), which currently covers nearly 67,000 members
from 99 percent of Maine's school districts, is community-rated;
that is, the price of coverage is negotiated on the basis of group-
wide utilization costs, and accounts for neither geographic
variation nor an individual employer's demographic mix, prior
utilization, or loss experience. This community-rated plan is
designed in part to subsidize, through members who are actuarially
favorable, the premiums paid by members who are actuarially less
attractive to insurers. The Plan as designed economically benefits
employees of educational institutions whose work forces are older
or less healthy than other members of the group, or who reside in
regions -- typically Northern and Eastern Maine -- with higher
health care costs and, on average, lower salaries than their
Southern Maine counterparts. The Plan is thus structured, in part,
to help mitigate this disparity.
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Eligibility for enrollment in the Plan is determined by
the collective bargaining agreements negotiated between local
bargaining units and individual employers, predominantly school
districts. The employees of a given school district are eligible
to participate in the Plan if the largest collective bargaining
unit in that district is represented by the Maine Education
Association ("MEA"), the statewide teachers' union that founded the
Trust. Once eligibility has been established, the school board and
the employees decide together, by a collaborative vote, whether the
employees will be offered the Plan. Those who receive the offer
and elect to enroll do so directly with the Plan's insurer, Anthem.
The Trust has no contracts with individual educational
institutions, and those institutions are not considered to be
sponsors of the Plan. Rather, based on the amount agreed to in its
own collective bargaining agreement, each school district pays to
the Plan a percentage of its employees' health insurance premiums,
and the employees are responsible for the remainder.
For the most recent plan year for which there was
evidence at the preliminary injunction hearing, the Plan's annual
premium was nearly $370,000,000, resulting in an average monthly
cost of approximately $460 per member. The Trust itself maintains
a reserve fund that, according to its last available audit, held in
excess of $87,000,000. The Trust uses the reserve fund to buy down
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rate increases, thereby avoiding inflation in the monthly cost
charged to Plan participants.
B. The Statutory Scheme
Similar to the other states, Maine heavily regulates the
insurance industry. "Title 24-A, the 'Maine Insurance Code,' has
85 separate chapters and fills almost two complete volumes of the
Maine Revised Statutes Annotated. There is [also] an entire
department of State Government, the Insurance Bureau, devoted to
regulating the business of insurance." Lessard v. Allstate Ins.
Co., No. Civ. A. cv-98-162, 2001 WL 1712653, at *4 (Me. Super. Ct.
March 12, 2001).
Under Maine's regime, the state has historically
compelled the disclosure of basic "loss information," generally
defined as the aggregate claims experience of a given policy, or
more specifically, the ratio of premiums charged to claims paid --
in short, a simple equation, and the applicable data, for
deciphering the purchaser's own healthcare costs. For example,
Maine law has entitled holders of property and casualty insurance
policies to obtain such loss information from their carriers since
1989, see 1989 Me. Laws, Ch. 696, "An Act Requiring the
Availability of Insurance Loss Information" (codified at Me. Rev.
Stat. Ann. tit. 24-A, §§ 2910, 3042). In 1995, this access was
expanded to cover current and former policyholders of group and
blanket health insurance, see 1995 Me. Laws, Ch. 71, "An Act to
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Require Insurance Companies to Provide Loss Information to Insured
Groups" (codified at Me. Rev. Stat. Ann. tit. 24-A, § 2803-A)
("Disclosure of Loss information. Upon written request, every
insurer shall provide loss information concerning a group policy or
contract to its policyholder . . . ." (emphasis added)). L.D. 1326
is incidentally more expansive, extending the right of access not
just to "policyholders," but also to the small subgroup of public
school districts whose employees are enrolled in a shared health
insurance policy.
In seeking preliminary injunctive relief, the Trust
mounted challenges to the two provisions of the Act that deal with
loss information, codified at 20-A M.R.S.A. § 1001(14)(E) and 24-A
M.R.S.A. § 2803-A(2). As amended, 20-A M.R.S.A. § 1001(14)(E)
states, in pertinent part:
Insurance purchase by competitive bidding
. . . .
E. In order to facilitate the competitive
bidding process in procuring health insurance
for a school administrative unit's employees
under this subsection, a school administrative
unit may request from the insurer providing
health insurance coverage to its employees and
retirees loss information concerning all of
that school administrative unit's employees
and retirees and their dependents covered
under the school administrative unit's policy
or contract pursuant to Title 24-A, section
2803-A.
24-A M.R.S.A. § 2803-A(2) reads, in turn:
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2. Disclosure of basic loss information. Upon
written request, every insurer shall provide
loss information concerning a group policy or
contract to its policyholder, to a former
policyholder or to a school administrative
unit pursuant to Title 20-A, section 1001,
subsection 14, paragraph E within 21 business
days of the date of the request. This
subsection does not apply to a former
policyholder whose coverage terminated more
than 18 months prior to the date of a request.
The "loss information" at the center of this controversy is
statutorily defined as "the aggregate claims experience of the
group insurance policy or contract," including "the amount of
premium received, the amount of claims paid[,] and the loss ratio,"
but not including "any information or data pertaining to the
medical diagnosis, treatment[,] or health status that identifies an
individual covered under the group contract or policy." Me. Rev.
Stat. Ann. tit. 24-A, § 2803-A(1)(B).
C. The Trust's Past Treatment of Loss Information
The Trust has structured itself, as well as its
relationships with insurers, to keep the Plan's loss information
confidential. Since the Trust's formation in 1993, its Trust
Agreement has provided, in relevant part:
Fiduciary Authority. The Trustees shall have
absolute discretion and authority to make all
fiduciary decisions, plan provision
interpretations and constructions, and other
determinations under this Trust and any plans
maintained under the Trust, except as
specifically delegated to the Plan
Administrator in writing; including, without
limitation, decisions relating to the use and
dissemination (if any) of the participant
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claims experience data under any plan
maintained under the Trust.
Additionally, since 2005, the Trust's Group Agreements with Anthem
have included the following confidentiality clause:
All experience data relative to the [Trust]
and its subgroups is owned by the Trust, and
that data will not be released, either
directly or indirectly, by Anthem without
prior written consent of the Trust, and the
Trust can withhold its permission for any
reason it deems appropriate. Additionally,
Anthem agrees not to utilize data relating to
specific active subgroups for standalone
rating purposes.
In accordance with these provisions, the Trust has always
considered the experience ratings and claims history of individual
school districts to be a proprietary, confidential trade secret.
The information is not conveyed to anyone outside of Anthem
(including to members of the Trust itself), and the Trust has
undertaken reasonable efforts to ensure the information's
confidentiality by neither collecting it nor allowing Anthem to use
or release it.2
A driving force behind these efforts at maintaining
confidentiality is to prevent actuarially desirable districts from
acquiring the information and leaving the community-rated plan for
less expensive individual coverage, thereby increasing the monthly
2
The loss information is collected and maintained not by the
Trust, but by the insurer. The Trust's only role with respect to
the loss information is in preserving its confidentiality by
precluding third-party access.
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costs for the Plan's remaining members (or, alternatively, forcing
the Trust to expend additional resources from its reserve fund to
pay down the resulting rate increases). Prior to the passage of
L.D. 1326, the Trust was able to do exactly that, denying multiple
school district requests for loss information over the years by
virtue of the fact that the Trust, and not the individual school
districts, was always the primary "policyholder." See 1995 Me.
Laws, Ch. 71 (requiring disclosure of loss information concerning
a group health insurance policy or contract only to "its
policyholder").
Generally, group insurers in Maine require at least two
years of aggregate loss information from an employer in order to
provide a quote. Thus, without access to loss information, school
districts cannot meaningfully explore insurance options outside
those offered by the Trust. Following the enactment of L.D. 1326,
at least one district has already submitted a renewed request to
Anthem. In the absence of an injunction, it is apparent that
school districts will continue to request access in order to obtain
competing quotes based on that loss information. Depending on the
quotes and the terms of each district's collective bargaining
agreement, this process may or may not result in some districts
withdrawing their employees from the Plan. In most cases, if not
all of them, negotiating changes to the respective collective
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bargaining agreements is a lengthy process that may take months, if
not years, to complete.
D. The Proceedings Below
The Trust filed suit in the district court shortly after
L.D. 1326 was enacted. Its amended complaint claimed that the Act
was preempted by federal law, and that it ran afoul of several
constitutional impediments, including the Contracts Clause, the
Takings Clause, and the Due Process Clause. The district court
resolved the preemption question, as well as the impairment of
contract and due process claims, in favor of the defendants-
appellees, and it denied the Trust's subsequent request for a
preliminary injunction, finding primarily that the Trust was not
likely to succeed on the merits of its only remaining claim -- that
the Act works as an unconstitutional taking. This interlocutory
appeal ensued, in which the Trust challenges only the denial of its
request for a preliminary injunction on takings grounds.3 We have
jurisdiction under 28 U.S.C. § 1292(a)(1), and on March 30, 2012,
3
We note that, ordinarily, injunctive relief is not available
under the Takings Clause. See Ruckelshaus v. Monsanto Co., 467
U.S. 986, 1016 (1984) ("Equitable relief is not available to enjoin
an alleged taking of private property for public use, duly
authorized by law, when a suit for compensation can be brought
against the sovereign subsequent to the taking."); Fideicomiso De
La Tierra Del Caño Martin Peña v. Fortuño, 604 F.3d 7, 19 n.10 (1st
Cir. 2010). Because the appellees failed to object to the
appropriateness of this remedy on appeal, however, they have waived
the argument. See Philip Morris, Inc. v. Reilly, 312 F.3d 24, 47
n.22 (1st Cir. 2002) (en banc) ("Philip Morris II").
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we entered a temporary injunction prohibiting the enforcement of
L.D. 1326 pending appeal.
II.
In considering a request for a preliminary injunction, a
trial court must weigh several factors: (1) the likelihood of
success on the merits; (2) the potential for irreparable harm to
the movant in the absence of an injunction; (3) the balance of the
movant's hardship if relief is denied versus the nonmovant's
hardship if the relief is granted; and (4) the effect, if any, of
the decision on the public interest. Ross-Simons of Warwick, Inc.
v. Baccarat, Inc., 102 F.3d 12, 15 (1st Cir. 1996). Of these four
factors, the movant's likelihood of success "is the touchstone of
the preliminary injunction inquiry." Philip Morris, Inc. v.
Harshbarger, 159 F.3d 670, 674 (1st Cir. 1998) ("Philip Morris I").
"[I]f the moving party cannot demonstrate that he is likely to
succeed in his quest, the remaining factors become matters of idle
curiosity." New Comm Wireless Servs., Inc. v. SprintCom, Inc., 287
F.3d 1, 9 (1st Cir. 2002).
We will set aside a district court's ruling on a request
for a preliminary injunction only if the court clearly erred in
assessing the facts, misapprehended the applicable legal
principles, or otherwise is shown to have manifestly abused its
discretion. Cohen v. Brown University, 991 F.2d 888, 902 (1st Cir.
1993). This standard requires "a party who appeals from the
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issuance [or denial] of a preliminary injunction [to] bear[] the
considerable burden of demonstrating that the trial court
mishandled the fourpart framework." Philip Morris I, 159 F.3d at
674 (second and third alterations in original) (quoting Ross-
Simmons, 102 F.3d at 16) (internal quotation marks omitted). In
this case, our analysis begins and ends with the evaluation of the
often dispositive factor: whether the Trust has a reasonable
likelihood of success on the merits of its takings claim.
A. Likelihood of Success on the Merits
The Takings Clause of the Fifth Amendment, which applies
to the states through the Fourteenth Amendment, prohibits the
taking of private property for public use without just
compensation. Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 536
(2005). This prohibition extends not only to the paradigmatic
physical taking -- i.e., where the government condemns or
physically appropriates a person's property -- but also to
regulatory interferences, which transpire "when some significant
restriction is placed upon an owner's use of his property for which
'justice and fairness' require that compensation be given." Philip
Morris, Inc. v. Reilly, 312 F.3d 24, 33 (1st Cir. 2002) (en banc)
("Philip Morris II").4
4
"Property," as contemplated by the Fifth Amendment, may be
real, tangible, or intangible like the purported trade secret at
issue here. See Monsanto, 467 U.S. at 1000-04. Although it is far
from clear that the loss information would qualify as a trade
secret under Maine law, see Me. Rev. Stat. Ann. tit. 10, § 1542(4),
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The dichotomy between physical and regulatory takings is
critical, for it often determines the level of scrutiny that a
challenged government action will receive. In contrast to the law
of physical takings, which involves, for the most part, the
"straightforward application of per se rules," the Supreme Court's
regulatory takings jurisprudence has eschewed any bright-line
formulations. Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg'l
Planning Agency, 535 U.S. 302, 322 (2002). To assess the propriety
of a regulatory takings claim, the Court has instead enumerated a
more nuanced, three-pronged inquiry into (1) the extent to which
the regulation interferes with the claimant's reasonable
investment-backed expectations; (2) the regulation's economic
impact on the property owner; and (3) the character of the
government action. Penn Cent. Transp. Co. v. City of New York, 438
U.S. 104, 124 (1978). Designed to facilitate a careful examination
and weighing of all the relevant circumstances, the context-
sensitive "Penn Central" factors operate not as a "checklist of
items that can be ticked off as fulfilled or unfulfilled," but
rather as "lenses through which a court can view and process the
facts of a given case." Philip Morris I, 159 F.3d at 674.
The Supreme Court has recognized two circumstances under
which a regulatory action may justify bypassing the Penn Central
we assume, arguendo, that it comprises a sufficient property
interest on which to ground a Fifth Amendment takings claim.
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factors in favor of per se rules. First, where a regulation
inflicts a permanent physical invasion of private property --
however minor -- the government must provide just compensation.
Lingle, 544 U.S. at 538; see, e.g., Loretto v. Teleprompter
Manhattan CATV Corp., 458 U.S. 419 (1982) (finding a taking where
a state law required landlords to permit cable companies to install
cable facilities in apartment buildings). A second categorical
rule applies to "regulations that completely deprive an owner of
all economically beneficial use of her property." Lingle, 544 U.S.
at 538 (internal quotation marks and alterations omitted); see,
e.g., Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1019 (1992)
(holding that a regulation prohibiting the erection of any
permanent habitable structures constituted a taking). The
allegation here -- that L.D. 1326's disclosure requirement impinges
upon the Trust's purported trade secret -- encompasses neither of
these scenarios. Accordingly, and because the challenged
government action does not directly appropriate the Trust's
property, we proceed to analyze L.D. 1326 under the law of
regulatory takings.5
5
The Trust contends that a taking of intellectual property,
such as a trade secret, is more properly analyzed under the per se
rules of the physical takings rubric. Because the Trust did not
adequately develop this argument in the trial court -- merely
inviting the district court to "truncate its [Penn Central]
analysis if it finds that [L.D. 1326] . . . is more analogous to a
'physical' than a 'regulatory' taking" -- it cannot unveil the
argument's essence for the first time in the court of appeals. See
Back Bay Spas, Inc. v. 441 Stuart Marketing, LLC, 688 F.3d 61, 67
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i. Reasonable Investment-Backed Expectations
Although generally recognized as the figurative ballast
of the Penn Central framework, "reasonable investment-backed
expectations" is a concept that can be difficult to define more
concretely. See generally J. David Breemer & R.S. Radford, The
(Less?) Murky Doctrine of Investment-Backed Expectations After
Palazzolo, and the Lower Courts' Disturbing Insistence on Wallowing
in the Pre-Palazzolo Muck, 34 S.W.U. L. Rev. 351 (2005).
Nevertheless, one very general contour is clear: "Courts [will]
only protect [a claimant's] reasonable expectations." Philip
Morris II, 312 F.3d at 36. Thus, in considering whether the Trust
possesses the requisite expectations to support a takings claim,
the inquiry must acknowledge that "not every investment deserves
protection and . . . some investors inevitably will be
disappointed." Id. The question reduces to whether the Trust,
given all of the attendant facts and circumstances, has a
probability of success of showing that it had a reasonable
(1st Cir. 2012) ("[H]aving chosen its theory of the case below, and
failed, [the appellant] cannot start over."); McCoy v. Mass. Inst.
of Tech., 950 F.2d 13, 22 (1st Cir. 1991) ("If claims are merely
insinuated rather than actually articulated in the trial court, we
will ordinarily refuse to deem them preserved for appellate
review."). In any event, we are confident that under the
circumstances presented, our precedent supports the application of
the Penn Central factors. See Philip Morris II, 312 F.3d at 33-34(applying a regulatory takings analysis to an alleged taking of a
trade secret); see also Monsanto, 467 U.S. at 1005 (same); Pharm.
Care Mgmt. Ass'n v. Rowe, 429 F.3d 294, 315 (1st Cir. 2005) (same).
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expectation that the Plan's loss information will be kept
confidential. We think not.
As a baseline proposition, the Trust's expectations are
substantially diminished by the highly regulated nature of the
industry in which it operates. See Franklin Mem'l Hosp. v. Harvey,
575 F.3d 121, 128 (1st Cir. 2009) (holding that a claimant's
investment-backed expectations were "tempered by the fact that it
operate[d] in the highly regulated hospital industry"); see also
Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1007 (1984) (noting that
expectations are necessarily adjusted in areas that "ha[ve] long
been the source of public concern and the subject of government
regulation"). Given the historically heavy and continuous
regulation of insurance in Maine, see Lessard, 2001 WL 17126553, at
*4, the Trust, in choosing how and where to allocate its resources,
ought to at least be aware of the heightened possibility that new
insurance regulations might hinder the use or value of its loss
information, see Lucas, 505 U.S. at 1027-28.
This is particularly true where, as here, the extensive
regulatory framework in place prior to the passage of the
challenged legislation has consistently regulated the type of
property interest for which the claimant seeks constitutional
protection. See, e.g., Connolly v. Pension Ben. Guar. Corp., 475
U.S. 211, 226 (1986) (finding no reasonable investment-backed
expectations where the property interest at issue had been the
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"object[] of legislative concern long before the passage of [the
challenged legislation]"). Since 1989, holders of property and
casualty insurance in Maine have been able to obtain their
policies' loss information. See 1989 Me. Laws, Ch. 696. In 1995
-- not long after the Trust was formed, and well before it began to
insist on the inclusion of confidentiality provisions in its Group
Agreements -- this right of access to loss information was expanded
to policyholders of group and blanket health insurance like the
Plan at issue here. See 1995 Me. Laws, Ch. 71. Thus, for years
the Trust was spared the obligation of disclosure solely because of
the Plan's unique structure, whereby the Trust, and not the school
district, was the technical policyholder. Throughout this extended
period, several of the state's school districts were clamoring for
loss information, and ultimately, for the legislature to close this
perceived loophole. See Apollo Fuels, Inc. v. United States, 381
F.3d 1338, 1349 (Fed. Cir. 2004) (suggesting that a key aspect of
the investment-backed expectations inquiry is the claimant's
awareness of "the problem that spawned the [challenged]
regulation"). Under these circumstances, the prospect of the
legislature's continued expansion of this right of access was
reasonably foreseeable.6
6
Maine health insurers must additionally submit group-policy
loss information to the Maine Bureau of Insurance through rate
filings, see Me. Rev. Stat. Ann. tit. 24-A, §§ 2736, 2808-B(2-A) &
2839, annual reports, see Me. Rev. Stat. Ann. tit. 24-A, §§ 423 &
423-D, and beginning in 2012, in medical loss ratio reports, see 42
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The Trust, in challenging this conclusion, relies
principally on the distinction between "policyholders" and "non-
policyholders." It contends that because L.D. 1326 grants non-
policyholders (the school districts) access to confidential
policyholder information, it represents an "extraordinary and
unprecedented" regulatory shift. We disagree.
As a preliminary matter, requiring the disclosure of
otherwise private information to non-policyholders is not a novel
concept in Maine insurance law. See, e.g., Me. Rev. Stat. Ann.
tit. 24-A, § 2210 (requiring insurers to provide personal data to
claimants and insureds over a policyholder's objection); Me. Code.
R. 90 590 243 §§ 2, 5 (2003) (requiring insurers to provide claims
data to the government over a policyholder's objection).
Moreover, the significant role that school districts play
in the Plan's overall scheme is important to the analysis. While
it is true that the districts do not formally sign the insurance
agreements on behalf of their employees, and therefore are not the
formal sponsors of the Plan, they are otherwise integrally involved
U.S.C. § 300gg-18(a). Although insurers may request that any such
data submitted in large-group rate filings be treated as
confidential, any loss information included in annual reports or
medical loss ratio reports is subject to full public disclosure.
While the loss information shared in these instruments is typically
aggregated across entire policies (or perhaps even entire blocks of
business), and therefore does not necessitate disclosure of the
district-by-district breakdown that constitutes the Trust's
purported trade secret, these additional disclosure requirements
serve to further highlight the State's extensive regulation of loss
information.
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in just about every step of the process, from negotiating the
collective bargaining agreements to organizing and participating in
collaborative votes to determine whether their employees may enroll
in the Plan in the first instance. In the event that loss
information is to be disclosed for the purpose of exploring
alternative district-specific coverage, the district itself is the
obvious choice to assume "policyholder" status. Indeed, the Act
forecloses the type of "unprecedented" access argued by the Trust,
by restricting disclosure to loss information that concerns the
inquiring district's own employees, retirees, and their dependents;
it does not grant access to the Trust's policy-wide loss ratios.
See Me. Rev. Stat. Ann. tit. 20-A, § 1001(14)(E). Thus, the
districts are not, as the Trust suggests, mere "strangers to the
insurance contract" in the ordinary sense, and L.D. 1326 is not at
odds with Maine's existing body of insurance law.7
7
The Trust's attempt to analogize the facts of this case to
those we considered in Philip Morris II is also unpersuasive. See
312 F.3d 24. Although Philip Morris II addressed, as here, the
potential regulatory taking of a trade secret, its factual context
was dramatically different. There, tobacco companies challenged a
Massachusetts law which compelled them to disclose their cigarette
recipes -- traditionally protected trade secrets in which they
invested substantial amounts to maintain an advantage in a highly
competitive private industry. Here, by contrast, the Trust
challenges a Maine law that compels the disclosure of loss
information -- a purported trade secret in which the Trust has made
no significant developmental investment, and a type of property
interest which has consistently been targeted by state regulation
given the need for transparency in the public-oriented insurance
industry. Fundamentally distinguishable on its facts, Philip
Morris II does not suggest a finding of reasonable investment-
backed expectations in this case.
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While this conclusion is largely dictated by precedent,
it is also rational from a policy standpoint. The motivation
behind the State's previous attempts to regulate loss information
was clear: to prevent sellers of group health insurance from
acquiring disproportionate leverage over buyers by ensuring that
both parties have access to the relevant cost information. The
construct created and advocated by the Trust, under which such
information cannot be released to "non-policyholders," effectively
precludes any member school district from opting out of the Plan,
and thus is contrary to the regulation's intent by denying school
districts the benefit of equal access.
We recognize that the Trust's purpose is to spread health
risk among a larger population, thereby bringing insurance costs
down for districts in which enrollees, on average, are less healthy
and where health care costs are relatively high. Nonetheless, the
fact remains that the legislation is highly consistent with
legitimate policy objectives. L.D. 1326 simply continues what the
1989 and 1995 regulations started by addressing a unique scenario
which, in all likelihood, was not contemplated by the original
legislation. Cf. Connolly, 475 U.S. at 227 ("Those who do business
in the regulated field cannot object if the legislative scheme is
buttressed by subsequent amendments to achieve the legislative
end." (quoting FHA v. The Darlington, Inc., 358 U.S. 84, 91
(1958)).
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The Trust's remaining arguments on this issue require
little discussion. It attempts to treat the aforementioned facts
in isolation, asserting that none, standing alone, was sufficient
to provide the Trust with constructive notice of L.D. 1326. It may
be that neither the fact that the insurance industry is highly
regulated nor the fact that school districts routinely sought
access to the seemingly confidential loss information, standing
alone, sufficiently undermines the reasonableness of the Trust's
expectations. But taken together, and in light of the State's
history of aggressively regulating the use and disclosure of loss
information, L.D. 1326 is a relatively minor expansion which the
Trust could, and should, have anticipated.
We do not discount the fact that, since its inception,
the Trust has gone to lengths to preserve the confidentiality of
its purported trade secret. Its Trust Agreements, as well as its
post-2004 Group Agreements with Anthem, unequivocally reserve to
the Trust all rights respecting the Plan's loss information, and
the Trust has enforced those rights in the face of repeated school
district inquiries. The Trust therefore has demonstrated an
expectation of confidentiality. But unilateral expectations, no
matter how adamantly pursued, are not enough. See Monsanto, 467
U.S. at 1005-06. The expectation must be a reasonable one, and on
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the record before us, we cannot conclude that the plaintiffs have
shown a probability of success on this issue.8
ii. Economic Impact
Evaluating the magnitude of the economic impact of
regulatory action ordinarily requires an assessment of the extent
to which the action "impairs the value or [typical] use" of the
property. PruneYard Shopping Ctr. v. Robins, 447 U.S. 74, 83
(1980). In this regard, a result of the law's requirement that
loss information be disclosed to districts upon request is that the
Trust may be less able to prevent districts with favorable claims
experience from shopping for alternative coverage. Upon acquiring
their respective loss information, some actuarially favorable
school districts may leave the Plan for less expensive district-
specific coverage, resulting in relatively higher premiums for the
Plan's remaining members (or greater expenditures by the Trust to
pay those rate increases down). We do not minimize this possible
impact, and we acknowledge the Trust's defensible goal of making
insurance more affordable for those in areas where health care
costs are higher and teacher salaries are lower.
8
The parties and the district court bifurcate the
expectations analysis, addressing pre- and post-L.D. 1326 loss
information separately. Because the Trust has not demonstrated a
probability of success in establishing a reasonable expectation
regarding the confidentiality of loss information accumulated prior
to L.D. 1326, however, it follows that no such expectation would
exist subsequent to the legislation's enactment.
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The likelihood and severity of the exodus of members,
however, are completely unknown. The only concrete evidence on the
issue includes the affidavits of the parties' dueling actuaries who
debate, at a high level of generality, the extent to which L.D.
1326 will undermine the Trust's prospective viability. To wit, the
Trust's actuarial expert, having been denied access to the
district-specific loss ratios,9 was able to conclude only that "if
individual school districts purchase insurance on their own, some
groups with lower average age, more favorable utilization history,
or a lower cost of geographic area might be able to take advantage
of that more favorable profile and obtain insurance from Anthem or
another carrier at lower cost than they currently pay to
participate in the . . . [P]lan." This evidence merely serves to
highlight the conjectural nature of the Act's economic impact, and
is "not sufficiently concrete to establish a taking." In re Jones
Truck Lines, Inc., 57 F.3d 642, 651 (8th Cir. 1995) (finding that
economic impact was too speculative to support a takings claim);
see also Tenn. Scrap Recyclers Ass'n v. Bredesen, 556 F.3d 442, 456
(6th Cir. 2009) (finding that the economic impact of the challenged
regulation did not support the movant's takings claim, in part
because "the [economic] impact of [the regulation was]
speculative").
9
The expert stated in his affidavit that "I do not have
access to the experience of the individual districts whose
employees and retirees are covered by the . . . [P]lan."
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Whether or not at trial, and with a more developed
evidentiary foundation, the Trust may be able to prove the
requisite economic impact, it has not yet done so sufficiently to
show a probability of success on the merits.
iii. Character of the Government Action
The third and final consideration in the regulatory
takings analysis -- the character of the government action -- also
weighs against the Trust's takings claim. Under Penn Central, "[a]
'taking' may more readily be found when the interference with
property can be characterized as a physical invasion by government
than when [the] interference arises from some public program
adjusting the benefits and burdens of economic life to promote the
common good." Id. (citation omitted). L.D. 1326 clearly falls on
the latter end of the spectrum, reflecting the legislature's
judgment that allowing school districts to access their employees'
loss information will promote the common good by creating a wider
array of competitively priced group health insurance options. See
Me. Rev. Stat. Ann. tit. 20-A, § 1001(14)(E) (enabling school
districts to request their loss information "[i]n order to
facilitate the competitive bidding process in procuring [group]
health insurance").
The Trust argues that even if the Act is intended to
promote the common good, it does so improperly by reallocating to
the Trust alone what is essentially a public burden. Claiming that
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it has been effectively "singl[ed] out" by the Maine legislature,
the Trust directs us to five comments in the Act's legislative
record which, more or less, appear to cast the Trust in a negative
light.
The argument, however, is unavailing. L.D. 1326 does not
apply solely to the Trust; it applies to every existing or future
multi-employer group health insurance plan in which the State's
public school districts choose to enroll. That the Trust attracted
the attention of a handful of legislators, and currently bears the
brunt of the Act's burden, is merely a byproduct of its holding the
predominant share of the targeted market -- a virtual monopoly,
perpetuated by the very policy of non-disclosure which it seeks to
protect. At the preliminary injunction stage, the Trust has not
shown that the Act attempts to impose on the Trust an excessive
burden that should in fairness be borne by other entities or by
society as a whole. Cf. E. Enter. v. Apfel, 524 U.S. 498, 537
(1998) (holding that the character of a state regulation supported
the movant's takings claim only where it "single[d] out certain
employers to bear a burden that is substantial in amount, based on
the employers' conduct far in the past, and unrelated to any
commitment that the employers made or to any injury that they
caused"). Thus, the third Penn Central factor, like the two before
it, counsels against finding that a taking has occurred.
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We emphasize that because we hear this matter on appeal
from the denial of a preliminary injunction, our likelihood-of-
success determinations are to be understood only as probable
outcomes. See Cohen, 991 F.2d at 902. At the upcoming trial, the
Trust will have the opportunity to demonstrate more concretely and
comprehensively the economic impact that it fears, namely, the
withdrawal of school districts with better claims experience and
the resulting increased cost of health insurance coverage for the
Trust's remaining members. Based on the present state of the
record, however, we cannot conclude that the Trust is likely to
succeed on the merits.
III.
Because the plaintiffs have not established a likelihood
of success, and such a showing is essential to the issuance of a
preliminary injunction, see Philip Morris I, 159 F.3d at 674, it
would serve no useful purpose to explore the remaining three facets
of the preliminary injunction framework. We conclude that there
was no abuse of discretion in the denial of the Trust's motion for
a preliminary injunction, and leave to the trial court to determine
whether it should stay enforcement of the Act pending hearing
evidence and decision on the merits. The decision of the district
court is affirmed. Each side shall bear its own costs of this
appeal.
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