Verified Complaint

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JEROME B. FALK, JR. (No. 39087) STEVEN L. MAYER (No. 62030) JOHN P. DUCHEMIN (No. 250501) HOWARD RICE NEMEROVSKI CANADY FALK & RABKIN A Professional Corporation Three Embarcadero Center, 7th Floor San Francisco, California 94111-4024 Telephone: 415/434-1600 415/217-5910 Facsimile:

Exempt from filing fee pursuant to Government Code Section 6103

6 7 8 9 10 11 12 HOWARD RICE NEMEROVSKJ CANADY FALK & RASKIN

ADAM M. COLE (No. 145344) General Counsel RICHARD G. ICRENZ (No. 59619) Assistant Chief Counsel JILL A. JACOBI (No. 114892) ANTONIO CELAYA (No. 133075) GEORGE T. TEEKEL (No. 211850) Senior Staff Counsel CALIFORNIA DEPARTMENT OF INSURANCE 45 Fremont Street, 23rd Floor San Francisco, California 94105 415/538-4500 Telephone: Facsimile: 415/538-5889

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Attorneys for Petitioner and Plaintiff STEVE POIZNER, Insurance Commissioner SUPERIOR COURT OF THE STATE OF CALIFORNIA

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COUNTY OF SACRAMENTO STEVE POIZNER, in his official capacity as Insurance Commissioner of the State of California, Petitioner/Plaintiff,

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MICHAEL C GENEST, Director of Finance; BILL LOCKYER, State Treasurer; STATE OF CALIFORNIA; ALL PERSONS INTERESTED IN THE VALIDITY OF THE SALE OR DISPOSITION OF THE ASSETS AND LIABILITIES OF THE STATE COMPENSATION INSURANCE FUND AND/OR THE CONTRACTS IMPLEMENTING SAID SALE OR DISPOSITION; and DOES 1 through 20, Defendants,

No. VERIFIED PETITION FOR WRIT OF MANDATE; COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF; AND COMPLAINT FOR DETERMINATION OF INVALIDITY

STATE COMPENSATION INSURANCE FUND, Real Party in Interest.

28 VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

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Petitioner and Plaintiff Steve Poizner, the Insurance Commissioner of the State of California,

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brings this Petition For Writ Of Mandate; Complaint For Injunctive And Declaratory Relief; And

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Complaint For Determination Of Invalidity ("Complaint"), and hereby alleges as follows:

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INTRODUCTION

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1. In an effort to "score" $1 billion for the California budget, the Legislature has passed,

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and the Governor has signed, legislation commonly known as "ABX4 12," purporting to authorize

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the State's Director of Finance to sell or otherwise dispose of assets and liabilities belonging to the

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State Compensation Insurance Fund ("SCIF"). (A true and correct copy of ABX4 12 is attached

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hereto as Exhibit A.) SCIF is the workers' compensation insurer of last resort in California.

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However, the proceeds of the transaction authorized by ABX4 12 will not go to SCIF or otherwise

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be used for purposes related to workers' compensation. Instead, ABX4 12 requires that all proceeds

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from the sale of SCIF's assets and liabilities, or other funds received as a result of the transaction, be

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deposited into the State's General Fund, where they may be used for any purpose, whether related to

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workers' compensation or not. Because he believes that the provisions of AB4X 12 are

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unconstitutional as set forth below, and that the sale or other disposition of SCIF's assets would

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irreparably injure SCIF, its hundreds of thousands of policyholders, and the public, the Insurance

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Commissioner has brought this action to prevent consummation of this transaction.

HOWARD RICE NEMEKOVSKI CANADY FALK 1 14 KABKIN

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2 ABX4 12 is unconstitutional, in whole or in part, for two reasons. First, the sale or

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disposition of SCIF's assets for purposes that are not related to workers' compensation violates

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Article XIV, Section 4 of the California Constitution. That provision requires the Legislature to

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enact "appropriate legislation" to establish a "complete system of workers' compensation." That

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system specifically includes SCIF as a self-supporting entity whose assets must be devoted solely to

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providing compensation to injured employees and their dependents. Selling SCIF's assets for the

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purpose of benefiting the General Fund is not "appropriate legislation" authorized by Article XIV,

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Section 4. ABX4 12 therefore violates that provision.

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3.

Second, ABX4 12 is an unconstitutional amendment to Proposition 103, the initiative

that made the Insurance Commissioner an elective office, rather than an office filled by a -1VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

1

gubernatorial appointee. The voters who enacted that initiative could not have intended that the

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Commissioner's regulatory duties be given to a non-elected, appointed official. Yet ABX4 12

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requires that SCIF's assets be sold, and the transaction negotiated by, the Director of Finance, a

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gubernatorial appointee. Moreover, the statute provides that the sale need not be approved by the

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Insurance Commissioner, the State elected official with the statutory duties of regulating the

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insurance industry, ensuring the solvency of insurance companies (including SCIF) and protecting

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insurance policyholders. This transfer of responsibility from the Insurance Commissioner to the

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Director of Finance will not further the purposes for which Proposition 103 was adopted—which

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included making the Insurance Commissioner politically accountable. Accordingly, the statute

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transferring these responsibilities constitutes an impermissible amendment to that initiative, in

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violation of Article II, Section 10(c) of the California Constitution.

12 HOWARD RICE NEMEKOVSKI CANADY FALK & RASKIN

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PARTIES 4.

Plaintiff ("Plaintiff' or "Commissioner") Steve Poizner is the elected Insurance

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Commissioner of the State of California and is responsible for regulation of the insurance industry,

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and enforcement of all statutes and regulations pertaining to insurance, in the State of California. He

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brings this action in his official capacity.

18.

5.

Defendant ("Defendant") Michael C. Genest is the State's Director of Finance. He is

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named in his official capacity. ABX4 12 purports to authorize the Director of Finance to sell, or

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otherwise obtain value for, SCIF assets and liabilities on behalf of Defendant State of California.

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6.

Defendant Bill Lockyer is the State Treasurer. He is named in his official capacity.

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ABX4 12 purports to authorize the Treasurer to consult with the Director of Finance in connection

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with the sale or other disposition of SCIF assets and liabilities authorized therein.

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7.

Defendant State of California is the entity on behalf of which the sale or other

transaction authorized by ABX4 12 is to be conducted. 8.

Additional Defendants are all persons interested in the validity of the sale or other

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disposition of SCIF assets and liabilities authorized by ABX4 12 and the contracts that will

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implement that sale or disposition. -2VER. PET. WRIT OF MANDATE; CO PL. INJUNCTIVE & DECLARATORY RELIEF

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9.

Real Party in Interest State Compensation Insurance Fund ("SCIF") is California's

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workers' compensation insurer of last resort. SCIF is "subject to the powers and authority of the

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commissioner to the same extent as any other insurer transacting workers' compensation insurance,

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except where specifically exempted by reference." Ins. Code §11778. Although the Commissioner

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does not contend that SCIF has done, or is about to do, anything in violation of law, he names SCIF

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as a Real Party in Interest in this action because its resolution will affect SCIF's property—i.e., the

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assets and liabilities the sale or disposition of which ABX4 12 purports to authorize.

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10.

Plaintiff is unaware of the identity of those Defendants sued as DOES 1 through 20,

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inclusive, and they are thus sued under those fictitious names. Plaintiff is informed and believes,

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and thereon alleges, that he is entitled to the relief requested in this Complaint from those DOE

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Defendants. Plaintiff will seek leave of court to amend this Complaint to reflect these Defendants'

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true names and identities when ascertained.

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HOWARD • RICE NEMEROVSKI CANADY A FALK •LRF, 83 RASKIN ,„‘„,,„,„,,,„„t„„„,,

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Plaintiff is informed and believes, and thereon alleges, that in committing the acts herein

alleged, Defendants, and each of them, acted as the agent, servant, or employee of each and every

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other Defendant, and committed the acts described in the course of this Complaint in the course and

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scope of said agency, service, or employment. Plaintiff is further informed and believes, and

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thereon alleges, that Defendants, and each of them authorized and ratified the acts of each and every

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other Defendant.

19 SERVICE OF PROCESS

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12.

The Sacramento Bee is a newspaper of general circulation published in the County of

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Sacramento, California, the county in which this action is pending. Publication of notice of the

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pendency of this action in the Sacramento Bee, and in such other newspapers, if any, as the Court

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may order, is the method most likely to give notice to persons interested in these proceedings.

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Plaintiff will seek an order ex parte ordering publication of the summons pursuant to Code of Civil

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Procedure Section 861. Plaintiff also will serve the named Defendants (Michael C. Genest and Bill

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Lockyer) and the Real Party in Interest (SCIF) with the summons and complaint in this action in the

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manner provided by law for service of the summons in a civil action. -3VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

13. In addition, Plaintiff will seek an order ex parte that notice be given by mailing a copy 2

of the summons and complaint to those persons, if any, or their attorneys, who, not later than the

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date on which publication of the summons is complete, or such other time as the Court may direct,

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have notified Plaintiff's attorneys of record in writing of their interest in this matter. Such service

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by mail is the only reasonably practicable means of additional notice of the pendency of this

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proceeding to persons interested in the subject matter of this action.

FACTUAL BACKGROUND

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14.

SCIF was created in 1913, with the passage of the Boynton Act 1913 Cal. Stat. ch. 176,

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§36. (A true and correct copy of the Boynton Act is attached hereto as Exhibit B.) SCIF is, and for

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almost a century has been, a self-supporting entity providing workers' compensation insurance to

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California employers. As the insurer of last resort, SCIF plays a critical role in ensuring that

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workers in California receive compensation for their job-related injuries and that the cost of

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workers' compensation insurance for employers is reasonable. SCIF insures approximately 175,000

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employers, many of them small businesses. SCIF's financial condition must be sound for the

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workers' compensation system in California to work.

HOWARD RICE NEMEROVSKI CANADY FALK 1 & RASKIN

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15.

The Legislature that created SCIF required in the Boynton Act that t be `fairly

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competitive with other insurance carriers," and intended that it be "neither more nor less than self-

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supporting." 1913 Cal. Stat. ch. 176, §37(c). These requirements have been part of California law

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since 1913 and are currently codified in Insurance Code Section 11775.

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16.

Similarly, the Boynton Act required that SCIF set its rates so as to cover claims, pay the

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fund's reasonable expenses and "produce a reasonable surplus to cover the catastrophe hazard."

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1913 Cal. Stat. ch. 176, §40(b)(1), (2), (3). These requirements have been part of California law

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since 1913 and are currently codified in Insurance Code Section 11822.

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17.

The Boynton Act also limited the permissible uses of SCIF's assets, by providing that

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the hind "shall be applicable to the payment of losses sustained on account of insurance and to the

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payment of the salaries and other expenses to be charged against said fund in accordance with the

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provisions contained in this act." 1913 Cal. Stat. ch. 176, §37(b). This requirement is currently -4VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

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codified in Insurance Code Section 11774. Accordingly, from 1913 to the enactment of ABX4 12,

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SCIF' s assets have been used solely to pay workers' compensation claims and SCIF' s expenses.

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18.

As these statutes demonstrate, SCIF was created solely for the purpose of providing

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workers' compensation insurance. Accordingly, neither the Boynton Act nor any other provision of

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law enacted prior to ABX4 12 has ever authorized the use of SCIF assets for purposes unrelated to

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workers' compensation or authorized SCIF to set rates so as to produce surpluses that could be

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transferred to the general fund. To the contrary, since 1915 California law has provided that, if

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SCIF has an excess of assets over liabilities, including reserves and a surplus for catastrophes, the

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excess may be refunded to SCIF 's policy-holders as a dividend or credit. 1915 Cal. Stat. ch. 607,

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§19 (amending Section 37(c) of the Boynton Act). (A true and correct copy of this statute is attached hereto as Exhibit C.) This provision is currently codified in Insurance Code Section 11776.

12 HOWARD 13 RICE NEMEROVNCI CANADY A I-7 FALK RAOKIN

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19.

At all times following repayment in or about 1920 of the State loan that provided initial

start-up funds for SCIF, SCIF's assets have been derived from premiums paid by employerpolicyholders and the income earned on those premiums. 20.

As a result, SCIF's assets do not belong to the State of California. SCIF's assets need

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not be invested with the State, but may be invested in "in the same manner as provided for private

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insurance carriers." Ins. Code §11797. Money in excess of current requirements, and not invested,

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may be deposited in "financial institutions authorized by law to receive deposits of public moneys."

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Id. §11800. Even if deposited with the State Treasurer, SCIF funds are not "state moneys." Id.

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§11800.2. Both SCIF and the State have treated SCIF's funds as separate from, and not to be

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commingled with, funds belonging to the State of California.

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21.

ABX4 12, signed by the Governor on July 28, 2009, upends SCIF's well-established

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status as a self-supporting entity separate from the State. Among other things, this bill purports to

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authorize Defendants to sell or otherwise dispose of selected SCIF assets and liabilities for the

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benefit of the General Fund. Accordingly, the bill authorizes Defendants to take a series of steps to

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implement the transaction. First, the Director of Finance, in consultation with the Treasurer, and

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with the concurrence of a majority of the SCIF board of directors, shall select assets and liabilities

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appropriate for sale or other disposition. Ins. Code §11885(b). Second, the Director of Finance -5VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

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shall prepare a Notice of Request for Qualifications, to be sent to firms currently providing workers'

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compensation insurance and other entities proposed by the SCIF board of directors. Id.

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§11885(c)(2). Third, in reviewing the responses to the Notice of Request for Qualifications, the

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Director of Finance, in consultation with the Treasurer, shall select the entity that "will provide the

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best combination of each of the following: (1) The highest price for the State Compensation

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Insurance Fund's workers' compensation insurance assets and liabilities or the best value to the

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General Fund, or both. (2) The greatest security for the payment of the purchase price.

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(3) Demonstrated competence and professional qualifications for • the continued satisfactory

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performance of the workers' compensation insurance services offered for sale or other disposition."

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Id. §11885(a). These criteria do not include any provision requiring the Director of Finance to protect SCIF's financial position or its current policyholders from the adverse effects of the

HOWARD RICE NEMEROVSKI CANADY FALK & RABKIN

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transaction authorized by the statute. Nor do they require the Director of Finance to consider

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whether the remaining SCIF business can continue to satisfy existing regulatory requirements

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relating to solvency, liquidity, competitiveness, and ability to pay claims.

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22. Had SCIF contacted to sell a sizable portion of its assets arid liabilities in the absence of

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ABX4 12, the sale would have been subject to the jurisdiction and/or approval of the Insurance

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Commissioner in several respects. In particular, Insurance Code Section 1011(c) gives the

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Insurance Commissioner power to seek a conservatorship if, without his approval, an insurance

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company without consent "has transferred, or attempted to transfer, substantially its entire property

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or business. ..." This phrase has been defined by regulation (10 Cal. Code Regs. §2303.15) as

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meaning 75% of either the selling or purchasing insurer's premiums or liabilities, unless the transfer

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is pursuant to a reinsurance agreement, in which case the filing threshold is 50%. In addition, any

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purchaser of SCIF's assets and liabilities would need (1) to obtain a certificate of authority for class

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9 workers' compensation if it did not already have one (see Ins Code §§700, 717); and (2) to

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increase (in the case of an admitted insurer) or establish (in the case of a nonadmitted insurer) a

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workers' compensation deposit (see id. §11691) subject to the approval of the Commissioner.

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Moreover, if SCIF were to issue indebtedness in the form of securities as part of a transaction

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authorized by ABX4 12, a securities permit would be required under Insurance Code Sections 820-6VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

60. Finally, Insurance Code Sections 738 and 739-739.1 give the Commissioner responsibility for 2 3

assessing SCIF' s financial stability. 23.

ABX4 12 purports to preempt some or all of the statutes identified in the immediately

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preceding paragraph, as well as the more general provisions of the Insurance Code giving the

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Insurance Commissioner authority to enforce the code's requirements, because it expressly removes

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the Commissioner from the process of approving the transactions purportedly authorized by that

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statute. Insurance Code Section 11885.5 provides that Iniotwithstanding any other law, the

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approval of neither the Attorney General, nor the Insurance Commissioner, nor the Director of

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General Services is required for execution and implementation of the sale or other disposition of the

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assets and liabilities of the State Compensation Insurance Fund or any other agreement authorized

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by this article." ABX4 12 therefore removes from the approval process the one elected state official

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responsible for preserving the solvency of the insurance industry in Califomia--the Commissioner

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of Insurance. Instead, ABX4 12 gives approval power to the non-elected Director of Finance, who

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must coordinate on certain issues with the Treasurer and SCIF' s board of directors. SCIF has eleven

HOWARD RICE NEMEROVSKI CANADY FALK I fd !LARKIN

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directors, nine of whom are appointed by the Governor. 24.

The sale or disposition of SCIF's assets and liabilities authorized by ABX4 12 could

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have disastrous consequences for SCIF itself, for the buyer or buyers of its assets and liabilities, for

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other workers' compensation insurers in California, for the hundreds of thousands of businesses in

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California that purchase workers' compensation insurance from SCIF, and for the overall operation

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of workers' compensation insurance in California.

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25.

Unless otherwise restrained by this Court, Defendants will comply with ABX4 12 and

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take the steps enumerated in that statute to sell or otherwise dispose of SCIF's assets, to the

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detriment of SC1F, its policy-holders and the public interest.

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FIRST CAUSE OF ACTION (Writ of Mandate To Enjoin Violation of Article XIV, Section 4 of the California Constitution—Improper Diversion of Money from the Workers' Compensation System to the General Fund)

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26 Plaintiff incorporates by reference as though set forth herein each of the preceding VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

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allegations of Paragraphs 1 through 25 of this Complaint. 27.

Article XIV, Section 4 of the California Constitution provides the Legislature with

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authority "to create, and enforce a complete system of workers' compensation, by appropriate

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legislation " A "complete system of workers' compensation" includes "full provision for

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adequate insurance coverage against liability to pay or furnish compensation"; and "full provision

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for regulating such insurance coverage in all its aspects, including the establishment and

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management of a State compensation insurance fund." Article XIV, Section 4 further provides that

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the matters described therein "are expressly declared to be the social public policy of this State,

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binding upon all departments of state government." Cal. Const. art. XIV, §4.

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28.

The predecessor of Article XIV, Section 4 was added to the California Constitution in

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1918 as Article XX, Section 21. Its purpose was to provide a firm constitutional footing for the

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system of workers' compensation enacted by the Boynton Act, as enacted in 1913 and amended in

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1915 and again in 1917, including the creation of the state compensation insurance fund. Indeed, the very first section of the "Workmen's Compensation, Insurance and Safety Act of 1917" contains

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a description of the "complete system of workmen's compensation" that is identical in all relevant

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respects to the definition of that system contained in Article XX, Section 21, enacted in 1918.

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Accordingly, one of the ballot arguments submitted in• support of the constitutional amendment that

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added this provision to the constitution stated that it was intended "to sanction, establish and protect

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the full plan in all essentials where the courts have not already passed upon it."

HOWARD RICE NENIEROVSKI CANADY FALK I & PARKIN

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29.

As this history demonstrates, Article XIV, Section 4 gives the Legislature the power to

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create a "complete system of workers' compensation" that is similar to the system that existed when

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that amendment was added to the Constitution. That system included, as one of its constituent

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elements, a state compensation insurance fund that was self-supporting, whose assets and liability

24

were separate and distinct from those of the State, and whose assets could be used only for the stated

25

purposes of paying workers' compensation claims and SCIF's expenses, and paying dividends or

26

credits to SCIF's policy-holders.

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30.

ABX4 12 purports to require the sale or other disposition of SCIF's assets, such as a

portion of its book of business, for the purpose of increasing state revenue and not for the purposes VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

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of advancing the workers' compensation system. ABX4 12's use of SCIF as a cash cow for the

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State exceeds the limited purposes for which the California Constitution authorized the Legislature

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to create SCIF as part of the "complete system of workers' compensation." The bill therefore

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violates Article XIV, Section 4.

5

HOWARD RICE NEMEROVSKI CANADY FALK RAILKIN

31.

ABX4 12 also violates Article XIV, Section 4 because it removes the sale or other

6

disposition of SCIF assets and liabilities from the system by which workers' compensation

7

insurance—and, indeed, all other forms of insurance--are regulated. It does this in several ways:

8

first, by giving authority to sell SCIF assets and liabilities to the Director of Finance; second, by not

9

requiring the Director of Finance to protect SCIF's financial position or the policyholders whose

10

policies will remain with SCIF after the transaction authorized by the statute; and, third, by

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eliminating any requirement that SCIF's regulator, the Insurance Commissioner, regulate or

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otherwise approve the sale of SCIF's business, as he would otherwise be entitled to do absent the

13

provisions of Insurance Code Section 11885.5. 32.

As the chief insurance regulator in this State, the Commissioner has a beneficial interest

15

in keeping intact the "complete system of workers' compensation" authorized by Article XIV,

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Section 4. The Commissioner is also charged with the duty of monitoring and regulating SCIF. He

17

therefore has a legally cognizable and beneficial interest in assuring that SCIF not divest itself of its

18

assets unlawfully, violate financial responsibility requirements or otherwise create instability in the

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workers' compensation insurance market in this State.

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33.

Because the provisions of ABX4 12 that purport to authorize the sale or disposition of

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SCIF's assets are unconstitutional, Defendants have a clear and ministerial duty not to comply with,

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or take any steps authorized by, that portion of the bill.

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34.

Plaintiff has no remedy at law other than this Complaint. He and the public at large will

24

suffer irreparable injury if the sale or other disposition of SCIF assets authorized by ABX4 12 is

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consummated.

26 27 28 -9VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

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SECOND CAUSE OF ACTION (Preliminary and Permanent Injunctive Relief: Violation of Article XIV, Section 4)

2 3 4 5

Plaintiff incorporates by reference as though set forth herein each of the preceding

allegations of Paragraphs 1 through 34 of this Complaint. 36.

Defendants have taken and continue to wrongfully and unlawfully take actions to

6

implement the sale or disposition of SCIF assets purportedly authorized by ABX4 12 even though

7

this portion of the statute violates Article XIV, Section 4 of the California Constitution.

8

HOWARD KICK NEMEROVSKI CANADY FALK S RASKIN

35.

37.

Unless and until enjoined and restrained by order of this Court, Defendants will continue

9

to implement the provisions of ABX4 12 relating to the sale or disposition of SCIF assets and

10

thereby cause irreparable injury to the Commissioner, SCIF, its policy-holders and the public. If

11

Defendants are not enjoined and restrained, these provisions of ABX4 12 may be fully implemented

12

before this action may be heard or taken to final judgment.

13

38.

Plaintiff has no adequate remedy at law for the injuries currently being suffered or that

14

are threatened. No award of damages can compensate for the loss of the "complete system of

15

workers' compensation" authorized by Article XIV, Section 4 of the California Constitution, or for

16

the damage to SCIF, its policyholders and the general public that would be caused by the sale or

17

disposition of SCIF assets authorized by ABX4 12.

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39.

The Commissioner therefore seeks a preliminary and then a permanent injunction

19

restraining Defendants, and each of them, from any further attempts to implement• ABX4 12, or any

20

provision thereof, relating to the sale or disposition of SCIF assets.

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THIRD CAUSE OF ACTION (Declaratory Relief: Violation of Article XIV, Section 4)

23 24 25

40. Plaintiff incorporates by reference as though set forth herein each of the preceding allegations of Paragraphs 1 through 39 of this Complaint.

26

41. An actual controversy has arisen and now exists relating to the rights and duties of the

27

parties herein. Plaintiff contends that the provisions of ABX4 12 relating to the sale or disposition

28

of SCIF assets violate Article XIV, Section 4 of the California Constitution.

Defendants, on the

-10VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

1 2

other hand, contend that ABX4 12 does not violate that provision. The validity of these provisions • is a matter of great public interest that the Court should exercise its discretionary power to resolve.

3

42. The Commissioner therefore seeks a declaration that the provisions of ABX4 12 relating

4

to the sale or disposition of SCIF assets violate Article XIV, Section 4, and are thus unconstitutional.

5 6

FOURTH CAUSE OF ACTION (Petition for Writ of Mandate: Violation of Article II, Section 10(c))

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8 9 10 11 12 13

HOWARD RICE NEMEROV9KI CANADY A L -r FAIR. RABKIN

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43.

Plaintiff incorporates by reference as though set forth herein each of the preceding

allegations of Paragraphs 1 through 42 of this Complaint. 44.

Proposition 103 is a statutory initiative approved by the voters at the general election

held on November 8, 1988. 45.

Article II, Section 10(c) of the California Constitution permits each statutory initiative to

establish the requirements, if any, that must be met before the Legislature can amend the initiative. Proposition 103 provides, inter alia, that that initiative may only be amended by the Legislature "to further its purposes." 46.

Among other things, Proposition 103 enacted Insurance Code Section 12900, which

17

made the office of Insurance Commissioner elective. Prior to that time the Insurance Commissioner

18

had been a gubernatorial appointee who indirectly reported to the Governor through the Secretary of

19

the Business, Transportation and Housing Agency.

20

47.

At the time that Proposition 103 was enacted, the Insurance Commissioner was

21

responsible for enforcing the provisions of the Insurance Code and other laws regulating the

22

business of insurance and requiring every insurer, including workers' compensation insurers, to be

23

in full compliance with all of the provisions of that code. Ins Code §§12921 (a), 12926. These

24

duties continue to exist today.

25

48.

As discussed above, ABX4 12 decreases the duties of the Insurance Commissioner by

26

depriving him of approval authority over the sale or disposition of SCIF assets purportedly

27

authorized by that bill. It therefore reduces the duties of the Insurance Commissioner as they existed

28

when Proposition 103 was adopted. -11VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

1

49.

The stated purposes of Proposition 103 are "to protect consumers from arbitrary

2

insurance rates and practices, to encourage a competitive insurance marketplace, to provide for an

3

accountable Insurance Commissioner and to ensure that insurance is fair, available, and affordable

4

for all Californians." ABX4 12 does not further—indeed, it subverts—these purposes, because it

5

takes authority away from the elected and politically accountable Insurance Commissioner and gives

6

that authority to a non-elected, and not politically accountable, Director of Finance. 50.

7

The voters who approved Proposition 103 and thereby made the office of Insurance

8

Commissioner elective rather than appointive did not intend that the pre-existing powers of that

9

office be divested in favor of non-elected appointed officials. Yet ABX4 12 does just that by giving

10

the Director of Finance, not the Insurance Commissioner, authority over the sale or other disposition of SCIF assets. This violates Proposition 103, because the Director of Finance, unlike the Insurance

12

Commissioner, "is appointed by and holds office at the pleasure of the Governor." Gov't Code

13

§13002.

HOWARD RECE NEMEICOVSKI CANADY FALK RABKIN

1

4

15 16

•

51. ABX4 12 therefore unconstitutionally and unlawfully attempts to amend the provision of Proposition 103 that requires the Insurance Commissioner be an independently elected official. As the Insurance Commissioner elected pursuant to the provisions of Proposition 103,

52.

17

the Commissioner has a beneficial interest in enforcing the constitutional limits on the ability of the

18

Legislature and the Governor to limit the scope of his authority and thereby frustrate the purposes of

19

that initiative.

20

53.

Plaintiff has no adequate remedy at law other than this action.

21 22 23

FIFTH CAUSE OF ACTION (Preliminary and Permanent Injunctive Relief: Violation of Article II, Section 10(c))

24 54.

Plaintiff incorporates by reference as though set forth herein each of the preceding

25 allegations of Paragraphs 1 through 53 of this Complaint. 26 55.

Defendants have taken steps and continue to wrongfully and unlawfully implement the

27 provisions of ABX4 12 giving the Director of Finance and not the Insurance Commissioner 28 -12VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

1

authority over the sale or disposition of SCIF assets, even though these provisions are an

2

unconstitutional attempt to amend Proposition 103, in violation of Article II, Section 10(c) of the

3

California Constitution.

4

Unless and until enjoined by this Court, Defendants will continue to implement the

5

provisions of ABX4 12 giving the Director of Finance and not the Commissioner authority over the

6

• sale or disposition of SCIF assets, and thereby cause great and irreparable injury to the

7

Commissioner, by depriving him of authority that the electorate that approved Proposition 103

8

wanted to repose in an elected and politically accountable Insurance Commissioner.

9

57.

Plaintiff has no adequate remedy at law. No award of damages can compensate the

10

Commissioner for the diminished duties of his office caused by enactment of ABX4 12 as an

11

unconstitutional amendment to Proposition 103.

12 HOWARD RICE NEMEROVSKI CANADY FALK & RASKIN

56.

58.

Plaintiff therefore seeks a preliminary and then a permanent injunction restraining

13

Defendants, and each of them, from any further attempts to implement the provisions of ABX4 12

14 I

that give the Director of Finance and not the Insurance Commissioner authority over the sale or

15

disposition of SCIF assets.

16 17

SIXTH CAUSE OF ACTION (Declaratory Relief: Violation of Article II, Section 10(c))

18 19 20 21

59.

Plaintiff incorporates by reference as though set forth herein each of he preceding

allegations of Paragraphs 1 through 58 of this Complaint. 60.

An actual controversy has arisen and now exists relating to the rights and duties of the

22

parties herein. Plaintiff contends that the provisions of ABX4 12 giving the Director of Finance and

23

not the Insurance Commissioner authority over the sale or disposition of SCIF assets constitute an

24

impermissible attempt to amend Proposition 103, in violation of Article H, •Section 10(c) of the

25

California Constitution. Defendants, on the other hand, contend that these provisions are valid and

26

constitutional. The validity of these provisions is a matter of great public interest that the Court

27

should exercise its discretionary power to resolve.

28

61.

Plaintiff therefore seeks a declaration that the provisions of ABX4 12 giving the -13VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

Director of Finance and not the Insurance Commissioner authority over the sale or disposition of 2

SCIF assets attempt to amend Proposition 103 and are therefore unconstitutional under Article II,

3

Section 10(c).

4 5 6

SEVENTH CAUSE OF ACTION (Determination of Invalidity of Sale Or Disposition Of SCIF Assets And Contracts Implementing Same: Violation of Article XIV, Section 4)

7

62.

8

allegations of Paragraphs 1 through 61 of this Complaint.

9

FICWARD RICE NENIEROVSKI CANADY FALK RABK1N

Plaintiff incorporates by reference as though set forth herein each of the preceding

63.

Government Code Section 17700 authorizes the State, or any department or agency of

•10

the State, to bring a validation action "pursuant to Chapter 9 (commencing with Section 860) of

11

Title 10 of Part 2 of the Code of Civil Procedure" in order to determine the validity of its

12

"contracts," among other things. Gov't Code §17700 (a). Code of Civil Procedure Section 863

13

specifies that in situations where the state or a state agency could bring a validation action, "any

14 I

interested person may bring an action . .. to determine the validity of the matter."

15

64.

The provisions of ABX4 12 that authorize the sale or other disposition of SCIF assets on

16

behalf of Defendant State of California to benefit the General Fund are invalid because they violate

17

Article XIV, Section 4. Hence, any contracts authorized by those provisions are likewise invalid for

18

the same reason.

19

65.

Plaintiff does not believe that these contracts are either subject to validation pursuant to

20

Govemment Code Section 17700 or presently in existence within the meaning of Code of Civil

21

Procedure Section 864. Nevertheless, because the law in this area is shifting, complex and

22

uncertain, the Commissioner seeks a determination pursuant to Code of Civil Procedure Section 863

23

that these contracts, and the statutory provisions authorizing the State to enter into them, are invalid.

24 25

66.

Plaintiff is an "interested party" within the meaning of Code of Civil Procedure Section

863.

26 27 28

PRAYER WHEREFORE, Plaintiff prays that judgment be entered against Defendants and each of hem -14VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

1 2

as follows: 1.

On the First Cause of Action, for a writ of mandate restraining Defendants from selling

3

or otherwise disposing of SCIF's assets and liabilities for the benefit of the State's General Fund or

4

any other purpose that is not related to the operation of the workers' compensation system;

5

2.

On the Second Cause of Action, for a preliminary and then a permanent injunction

6

restraining Defendants from selling or otherwise disposing of SCIF's assets and liabilities for the

7

benefit of the State's General Fund or any other purpose that is not related to the operation of the

8

workers' compensation system;

9

3.

On the Third Cause of Action, for a declaration that Defendants may not sell or

10

otherwise dispose of SC1F's assets and liabilities for the benefit of the State's General Fund or any

11

other purpose that is not related to the operation of the workers' compensation system;

12 13

HOWARD RICE NEMEROVSKI CANADY FALK & RASKIN

4

15

4.

On the Fourth Cause of Action, for a writ of mandate restraining Defendants from

implementing the provisions of ABX4 12 that transfer the powers of the Insurance Commissioner to the Director of Finance in relation to the sale or disposition of SCIF assets; 5.

On the Fifth Cause of Action, for a preliminary and then a permanent injunction

16

restraining Defendants from implementing the provisions of ABX4 12 that transfer the powers of

17

the Insurance Commissioner to the Director of Finance in relation to the sale or disposition of SCIF

18

assets;

19

6.

On the Sixth Cause of Action, for a declaration that the provisions of ABX4 12 that

20

transfer the powers of the Insurance Commissioner to the Director of Finance in relation to the sale

21

or disposition of SCIF assets unconstitutionally amend Proposition 103 and are therefore invalid;

22

7.

On the Seventh Cause of Action, for a declaration that the provisions of ABX4 12

23

purporting to authorize Defendants to sell or otherwise dispose of SCIF's assets and liabilities for

24

the benefit of the State's General Fund, and the contracts authorized by those provisions, conflict

25

with Article XIV, Section 4 and are therefore unconstitutional and/or invalid.

26

8.

For costs of suit incurred herein;

27 28 -15VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

For such other and further relief as the Court deems proper. 2 3 4 5 6.

8 9 10 11 12 13

HOWARD RICE NEMEROVSKI CANADY FALK I &RADIUM

DATED: August .272009.

ADAM M. COLE Chief Counsel RICHARD G. KRENZ Assistant Chief Counsel JILL A. JACOBI Senior Staff Counsel ANTONIO CELAYA Senior Staff Counsel GEORGE . . TEEKEL Senior Staff Counsel CALIFORNIA DEPARTMENT OF INSURANCE JEROME B. FALK, JR. STEVEN L. MAYER JOHN P. DUCHEMIN HOWARD RICE NEMEROVSKI CANADY FALK & RASKIN A Professional Corpora By:

STEVEN L. M s YER

4

15

Attorneys for Petitioner and Plaintiff STEVE POIZNER, Insbrance Commissioner

16 17 •

18 19 20 21 22 23 24 • 25 26 27 28 -16VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF

VERIFICATION

1 jj 2

I, Steven L. Mayer, declare:

3

I am one of the attorneys for Petitioner/Plaintiff Steve Poizner in this action. I have read the

4

foregoing Verified Petition For Writ Of Mandate; Complaint For Injunctive And Declaratory Relief;

5 And Complaint For Determination Of Invalidity. I am informed and believe that the matters stated 6

therein are true and on that ground, I allege that the matters stated therein are true. I further declare

7 that the Petitioner/Plaintiff is absent from the county in which I have my office. 8 9

I declare under penalty of perjury, under the laws of the State of California, that the foregoing is true and correct. Executed this 24tlay of August, 2009, in San Francisco, California.

10 11 12 HOWARD RICE NENIEROVSKI CANADY FALK RABKIN

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 VER, PET. WRJT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF