IN THE SUPREME COURT OF OHIO

CSAHS/UHHS-Canton, Inc.d/b/a Mercy Medical Center,

Case No. 2012-0665

Appellee,

V.

Aultman Health Foundation, et al.,

Appellants.

On Appeal from theStark County Court of Appeals,Fifth District

Court of AppealsCase No. 2010-CA-00303

MERIT BRIEF OF AMICUS CURIAE INDEPENDENT INSURANCE AGENTS OFOHIO, INC. IN SUPPORT OF DEFENDANTS/APPELLANTS AULTMAN

HEALTH FOUNDATION, AULTMAN HOSPITAL, MCKINLEY LIFEINSURANCE COMPANY, AND AULTCARE CORPORATION

Mark F. Fischer (0054056)Fischer, Evans & Robbins, Ltd.4505 Stephen Circle NW, Suite 100Canton, Ohio 44718mff@fer-law.netTelephone: (330) 244-0997Facsimile: (330) 244-8966

Attorney forAmicus Curiae IndependentInsurance Agents ofOhio, Inc.

John R. Gall (0011813)Keith Shumate (0056190)Heather L. Stutz (0078111)Christopher F. Haas (0079293)Squire Sanders (US) LLP41 South High Street2000 Huntington CenterColumbus, Ohio 43215-6197Telephone: (614) 365-2700Facsimile: (614) 365-2499

Lee E. Plakas (0008628)Edmund Mack (0082906)Tzangas, Plakas, Mannos & Raies220 Market Avenue South-Floor 8Canton, Ohio 44702Telephone: 3 3 0-453-5466Facsimile: 33 0-45 5-6112

Daniel R. Warren (0054595)Scott C. Holbrook (0073110)Karl Fanter (0075686)Baker & Hostetler LLP3200 National City Center1900 East Ninth StreetCleveland, Ohio 44114Telephone: 216-621-0200Facsimile: 216-696-0740

Attorneys forAppellee Mercy Medical Center

O ff . i 5 1U12

CLERK OF CCElRTSUPREhIE COURT OF ®HI®

Robin Weaver (0020673)Squire Sanders (US) LLP4900 Key Tower127 Public SquareCleveland, Ohio 44114Telephone: (216) 479-8500Facsimile: (216) 479-8780

Allen Schulman, Jr. (0001124)Brian L. Zimmerman (0042351)Schulman & Zimmerman236 Third St. SWCanton, Ohio 44702Telephone: (330) 456-4400Facsimile: (330) 456-3641

Attorneys for Appellants Aultman HealthFoundation, Aultman Hospital, AultCareCorporation, and McKinley Life InsuranceCompany

AnneIvlarie Sferra (0030855)Bricker & Eckler LLP100 South Third StreetColumbus, Ohio 43215Telephone: (614) 227-2300Facsimile: (614) 227-2390

Attorney forAmicus CuriaeOhio Man ufacturers'Association

Bradford P. Campbell (PVH-2631-2012)Kristin Going (0070504)Drinker Biddle & Reath LLP1500 K StreetWashington, DC 20005Telephone: (202) 230-5159Facsimile: (202) 842-8465

D. Alicia Hickok (PHV-2632-2012)Drinker Biddle & Reath LLPOne Logan Square, Suite 2000Philadelphia, Pennsylvania 19103Telephone: (215) 988-3364Facsimile: (215) 988-2757

Attorneys forAmicus CuriaeAmerica's Health Insurance Plans

Linda Woggon (0059082)Ohio Chamber of Commerce230 East Town StreetColumbus, Ohio 43215Telephone: (614) 228-4201Facsimile: (614) 228-6403

Attorney forAmicus CuriaeOhio Chamber of Commerce

Robert S. Hendrix (0034468)6295 Emerald Parkway, Suite 101Dublin, Ohio 43016Telephone: (614) 791-2622Facsimile: (614) 791-2621

Attorney forAmicus Curiae NAIFA-Ohio

TABLE OF CONTENTS

Paes

STATEMENT OF AMICUS INTEREST ............................................................................................................1

INTRODUCTION . .................................................................................................................................................. 2

STATEMENT OF THE FACTS ...........................................................................................................................3

ARGUMENTS IN SUPPORT OF PROPOSITIONS OF LAW ......................................................................4

A. Introduction to the Pattern of Corrupt Activities Statute ........................................4

B. Appellants' Proposition of Law Number 6: In a claim under R.C.2923.34, a plaintiff must prove the existence of an enterprise that isan entity separate and apart from the pattern of corrupt activity ....................... 5

C. Appellants' Proposition of Law Number 4: The plaintiff has the burdento prove all of the elements for a violation of R.C. 2923.32, includingall elements of the predicate acts. A jury instruction that shifts theburden to the defendant on one or more of those elements constitutesreversible error .....................................................................................................................10

D. Appellants' Proposition of Law Number 3: R.C. 2923.34(E) authorizesonly a remedy of triple the actual damages sustained by any persondirectly or indirectly injured by conduct in violation of R.C. 2923.32,upon proof of the violation and actual damages by clear andconvincing evidence ............................................................................................................17

E. Appellants' Proposition of Law Number 1: To establish an entitlementto damages under R.C. 2923.34, the person directly or indirectlyinjured must prove that the damages sustained were proximatelycaused by the violation of R.C. 2923.32 ....................................................................... 20

F. Appellants' Proposition of Law Number 7: The Ohio Department ofInsurance has primary jurisdiction over the business of insurance inthis State, and its determination as to the propriety or legality ofconduct relating to that business over which it has regulatoryjurisdiction is dispositive of whether the conduct can be "corruptactivity" for purposes of R.C. 2923.31-2923.36 ............:............:.............................. 24

CONCLUSION ...................................................................................................................................................... 32

CERTIFICATE OF SERVICE ............................................................................................................................ 33

TABLE OF AUTHORITIES

Page(s)

CASES

Associates in Adolescent Psychiatrv S C v. Home Life Ins. Co.941 F. 2d 561 (7th Cir. 1991) ..................................................................................................................17

Chaz Concrete Co., LLC v. Codell,2010 U.S. Dist. LEXIS 29900 (E.D. Ky. March 29, 2010) ...............................................................22

Cochran v. VendMasters. Inc..2006 U.S. Dist. LEXIS 67318 (S.D. Ohio Sept. 20, 2006) ........................................:.......................10

Elkin v. Bell Telephone Co..420 A. 2d 371 (Pa. 1980) ............................................................................................................26, 28-29

Franklin Cy. Law Enforcement Assn . v . Fraternal Order of Police Capital City Lodge No. 959 Ohio St.3d 167 (1991) .........................................................................................................................19

Gladon v . Greater Cleveland Regional Transit Auth.,75 Ohio St. 3d 312 (1996) ........................................................................................................................14

Hemi Group LLC v. City of New York130 S. Ct. 983 (2010) ..................................................................................................................................22

Humana Inc. v. Forsvth.525 U.S. 299 (1999) ....................................................................................................................................30

In re Burzynski,989 F.2d 733 (5th Cir. 1993) ..................................................................................................................... 5

In re Ins. Brokerage Antitrust Litig.,2007 U.S. Dist. LEXIS 73220 (D.N.J. Sept. 28, 2007) .....................................................................8, 9

In re Ins. Brokerage Antitrust Litie.,618 F.3d 300 (2010) ..................................................................................................................................... 9

Lee v. Contel Cellular of the South1996 U.S. Dist. LEXIS 19636 (S.D. Ala. Nov. 21, 1996) ..................................................................26

Lesick v. Mannine1992 Ohio App. LEXIS 6374 (7th Dist. Dec. 17, 1992) ...........................................................20-21

Lonardo v. Lehman Bros.. Inc.548 F. Supp. 2d 450 (N.D. Ohio 2008) ................................................................................................... 5

-ii-

Mehling v New York Life Ins. C.163 F. Supp.2d 502 (E.D. Pa. 2001) ......................................................................................................17

Montanari v. Haworth108 Ohio St. 8 (1923) .................................................................................................................................14

Ohio Bell Tel. Co. v. William Carter Trucking Co..1998 Ohio App. LEXIS 6393 (2nd Dist. Dec. 31, 1998) ......................................................... 21,22

Queen City Terminals v. General Am. Transp. Corn..73 Ohio St. 3d 609 (1995) ................................................................................................................ 21,22

Salvation Army v. Blue Cross & Blue Shield.92 Ohio App. 3d 571 (8th Dist. 1993) .......................................................................................... 24,25

Sante Mineral Waters, Inc. v. Schotz1991 U.S. Dist. Lexis 11347 (N.D. Calif. June 3, 1991) ............................................................16-17

Schweisberger v. Weiner. Stark. Ann..1995 Ohio App. LEXIS 6101 .....................................................................................................................18

Starcher v. Chrysler Corp..15 Ohio App. 3d 57 (9th Dist. 1984) .............................................................................................19-20

Stateex rel. Banc One Corp. v. Walker.86 Ohio St. 3d 169 (1999) .........................................................................................:..............................27

State ex rel. Blue Cross & Blue Shield Mut. v. Carroll,210hio App. 3d 263 (8th Dist. 1985) ..................................................................................................25

State v. Franklin2011-Ohio-6802 (2nd Dist.) ..................................................................................................................6, 7

State v. Hardy,28 Ohio St. 2d 89 (1971) ...........................................................................................................................23

State v. Maine.2005-Ohio-3742 (4th Dist. 2005) .........................................................................................................19

State v. Nucklos.1710hio App. 3d 38 (2007) ....................................................................................................................19

State v. Schlosser,79 Ohio St. 3d 329 (1997) ........................................................................................................................10

State v. Ward168 Ohio App. 3d 701 (4th Dist. 2006) ...............................................................................................19

- iii -

Strack v. Westfield Cos.33 Ohio App. 3d 336 (9th Dist. 1986) .......................................................................................... 24,26

Strates Shows v. Amusements of Am.379 F. Supp. 2d 817 (E.D.N.C. 2005) ....................................................................................................22

TIX Cos. v. Hall183 Ohio App. 3d 236 (2009) ......................................:...................................................................18-19

Turner v. State.2000 Ohio App. LEXIS 2530 (11th Dist. June 9, 2000) .............................. .................................... 19

U S Demolition & Contractine Inc. v. O'Rourke Constr. Co.,94 Ohio App. 3d 75 (8th Dist. 1994) ...................................................................................................... 5

United States v. Schwimmer.706 F. Supp. 6 (E.D.N.Y. 1989) ................................................................................................................11

United States v. Schwimmer924 F.2d 443 (2d Cir. 1991) .............................................................................................................14-15

United States v. Turkette452 U.S. 576 (1981) ...................................................................................................................................... 6

United States v. Western Pacific R.R. Co.352 U.S. 59 (1956) ............................................................................................................................... 25, 26

Watts v. Missouri-Kansas-Texas R.R. Co.383 F.2d 571 (5th Cir. 1967) ...................................................................................................................25

STATUTES

15 U.S.C. §1012 ....................................................................................................................................................30

18 U.S.C. § 1961 ...................................................................................................................................................11

18 U.S.C. §1954 .... .......................................................................................................................................passim

18 U.S.C. §1962 ...................................................................................................................................................... 7

R.C. 1751.31(E) ....................................................................................................................................................30

R.C. 2923.31 ................................................................................................................................................ 5,7,11

R.C. 2923.32 ........................................................................................................................................................4, 7

R.C. 2923.34 .... .............................................................................................................................................passim

- iv-

................30R.C. 3905.56 .... ........................................... ........................................................ ...................................

OTHER AUTHORITIES

3-.51-8 Modern Federal Jury Instructions-Criminal §51.01 ........................................................11-12

3-51-5 Modern Federal Jury Instructions-Criminal §5101 .........................................................14-15

OJI CV §445.03 .....................................................................................................................................................19

STATEMENT OF AMICUS INTEREST

The Independent Insurance Agents of Ohio, Inc. (the "Ohio Big I") is a trade

association representing the interests of independent insurance agents in this state since

1897. The Ohio Big I is the Ohio affiliate to the Independent Insurance Agents and Brokers

of America ("IIABA" or the "Big I"), a national alliance of 300,000 business owners and their

employees who offer all types of insurance and financial services products. In partnership

with IIABA, the Ohio Big I seeks to promote legislation beneficial to the insurance industry

as a whole and to advance the interests and the livelihoods of independent insurance

agents.

The Ohio Big I (and its membership) has an interest in this case, and it strongly

encourages this Supreme Court to reverse the errors in the lower courts' rulings which

resulted in the alarming and unsound verdict entered here. In this case, independent

insurance agents have been wrongfully accused of criminal conduct for simply following

standard industry procedures. The Ohio Big I is particularly concerned with the expansive

use of Ohio's RICO statute to criminalize standard insurance industry conduct, including a

common form of insurance broker compensation that is permitted under Ohio law. The

lower courts also failed to recognize the primary jurisdiction of the Ohio Department of

Insurance, whose extensive inquiries and findings should have ended the matter

completely. It is inconceivable that a broker compensation program that the Ohio

Department of Insurance has found to be typical and not in violation of its laws could

nevertheless be labeled a "corrupt activity" and form the basis for multimillion dollar

liability. Independent insurance brokers play an important role in the selection of

insurance products and rely on the Ohio Department of Insurance's consistent application

of Ohio insurance standards when conducting their business. The lower courts' decisions

have unfairly called into question the independent brokers' role and the means by which

brokers receive compensation for their services. More importantly, the lower courts'

rulings have set impossible standards with which no broker compensation program could

comply, which will turn the insurance industry on its head. It is of paramount importance

to this organization and its members for the Court to reverse the lower courts' errors and

set the proper precedent for other courts in Ohio.

INTRODUCTION

On March 5, 2012, the Court of Appeals for the Fifth Appellate District issued its

Opinion (the "March 5 Opinion") affirming that the Defendants' broker bonus program

;vib;lated the Pattern of Corrupt Activities ("POCA") statute. Not only is the March 5 Opinion

in error, it also raises significant problems for the insurance industry and threatens to

undermine the independent brokerage business, to the detriment of the many employers

and insurers who count on those services.

First, the misapplication of every element of the POCA statute subjects the standard

insurer and broker relationship to prosecution as constituting a pattern of corrupt activity.

As a result, the Appellate Court's decision creates POCA liability, with corresponding high-

stakes remedies, where the General Assembly did not intend for it to exist. For example,

new business bonuses (which encourage brokers to broaden their knowledge base of

suitable insurers) and retention bonuses (which encourage brokers to establish close

relationships with insurers for purposes of understanding their products and services in a

way that fosters successful negotiations on behalf of employers) have essentially been

outlawed by the misapplication of POCA and a federal RICO statute, 18 U.S.C. §1954, here.

This flawed legal precedent will paralyze insurers and brokers from engaging in activities

that have historically had a positive impact on employers who use brokers' services in the

process of selecting and maintaining insurance for their employees.

Second, the Appellate Court refused to recognize the Ohio Department of

Insurance's (the "Department") jurisdiction over the business of insurance. The

Department is specially authorized to enforce and interpret Ohio's insurance laws. The

Department reviewed the broker compensation program at issue here, the "Conversion

Support Program" or "CSP." Although the Department did not find any fault with the CSP,

the lower courts did not defer to those rulings at all. The lower courts took the view that

the Department's position was irrelevant Their refusal to recognize the Department's

authority is wrong as a matter of law. All regulatees, including the Defendants and all Ohio

brokers, are left with a verdict that is ultimately at odds with the Department's findings.

The insurance industry needs consistency in the review, interpretation and enforcement of

the insurance laws. That is why the Department was created in the first place. The lower

courts' rulings have diminished the Department's ability to effectively regulate insurance in

this state and have injected unnecessary confusion in the status and appropriateness of all

regulated activity.

STATEMENT OF THE FACTS

The Ohio Big I adopts the statement of facts contained in Defendants' Merit Brief.

ARGUMENTS IN SUPPORT OF PROPOSITIONS OF LAW

A. Introduction to the Pattern of Corrupt Activities Statute

After a lengthy trial over six separate claims, the jury in this case returned verdicts

for Defendants on all but one claim - the Pattern of Corrupt Activities statute (POCA). The

broad jury instructions, especially related to Mercy's unfair competition and Ohio

Deceptive Trade Practices Act claims, gave the jury every opportunity to find something

untoward with Defendants' CSP. However, they did not do so. The juxtaposition of these

findings with the POCA verdict can only be explained by the lower courts' serial errors

respecting the POCA claim.

POCA is modeled after the federal Racketeer Influences and Corrupt Organizations

Act (RICO). Both statutes were enacted to prohibit acts performed as part of an ongoing

crianinal organization. These statutes were enacted to allow for the leaders of a syndicate

to be tried for the crimes which they ordered others to do or assisted them in doing, closing

a perceived loophole that allowed someone who told a man to commit a crime to be exempt

from the trial because he did not actually do it himself. Neither RICO nor POCA has any

application in a business dispute between competitors concerning a broker compensation

program. The very elements of POCA make that clear.

To establish a POCA claim under R.C. 2923.32 and 2923.34, a plaintiff must

separately prove each of the following elements:

1. That the defendant was associated with an "enterprise";

2. That the defendant participated in the affairs of the "enterprise" through a"pattern of corrupt activity";

3. The plaintiff was i'ured, directly or indirectly; and

4. The defendant's participation in the affairs of the "enterprise" through a"pattern of corrupt activity" was the proximate cause of the plaintiffsinjuries.

The lower courts committed serious, reversible errors with respect to each and

every element of POCA and in doing so, drastically expanded the range of standard and

appropriate business practices now subject to POCA attacks.

B. Anpellants' Proposition of Law Number 6: In a claim under R.C.2923.34, a plaintiff must prove the existence of an enterprise that is anentity separate and apart from the pattern of corrupt activity.

The first element of POCA requires proof of the existence of an enterprise separate

and apart from the pattern of corrupt activity. Here, the Appellate Court missed the

separate legal standard for an "enterprise." Instead, the Court improperly conflated the

enterprise" element and the second element - "pattern of corrupt activity" - into one,

'rndistinguishable element, thereby eliminating the "enterprise" element in its entirety.

The "enterprise" element has its own unique requirements. Enterprise is separately

defined under POCA as "any ... legal entity, or any organization, association, or group of

persons associated in fact although not a legal entity." RC. 2923.31(C) (emphasis added).

Courts have consistently held in this context that the "enterprise" must be a separate entity

from the defendant or defendants. See g., U.S. Demolition & Contracting. Inc. v. O'Rourke

Constr. Co.. 94 Ohio App. 3d 75, 84-85 (8th Dist. 1994); Lopardo v. Lehman Bros.. Inc. 548

F. Supp. 2d 450, 469 n.16 (N.D. Ohio 2008). Moreover, related entities, such as the

Defendants here, cannot form an "enterprise." In re Burzynski. 989 F.2d 733, 743 (5th Cir.

1993). See also Lonardo. 548 F. Supp. 2d at 469 n.16.

-5-

POCA's analogous federal RICO law also requires the "enterprise" to be "an entity

separate and apart from the pattern of activity in which it engages." United States v.

Turkette. 452 U.S. 576, 583 (1981) ("The 'enterprise' is not the 'pattern of racketeering

activity'; it is an entity separate and apart from the pattern of activity in which it engages.").

Although this Court has not addressed the issue specifically, most Ohio courts have

interpreted POCA like its RICO counterpart, holding that the POCA enterprise must also be

separate from the pattern of corrupt activity. See State v. Franldin, 2011-Ohio-6802, ¶¶ 80-

107 (2nd Dist.) (collecting cases). The evidence of the "enterprise" cannot, therefore, also

be the "corrupt activity" itself. The evidence of the two elements must be distinct.

Accordingly, Mercy was required to show an enterprise among the Defendants and

the CSP brokers. To do so, Mercy had to establish that such enterprise existed separate and

ap:art from the pattern of corrupt activity. The lower courts incorrectly relieved Mercy of

the burden to do so.

At trial, the jury was instructed that the enterprise must be separate from the

pattern of corrupt activity, but Mercy presented no evidence on which the jury could find

such separateness. In fact, Mercy claimed that the CSP payments were the "corrupt

activity" and that the four Defendants formed an "enterprise" with the CSP brokers to carry

out this corrupt activity. Mercy did not even attempt to establish an enterprise between

Defendants and the brokers separate from the CSP - the alleged "corrupt activity."

Defendants, therefore, moved for Judgment Notwithstanding the Verdict and/or a New

Trial based on this failure of evidence. The trial court denied that motion, and the

Appellate Court affirmed its ruling. (March 5 Opinion at ¶168-69).

Because Defendants were correct that there was no evidence of any enterprise

separate and apart from the "corrupt activity," the only way the Appellate Court could

affirm was to reject the separateness requirement altogether. That is exactly what it did.

In ruling that Mercy had presented sufficient evidence of an "enterprise," the Appellate

Court incorrectly held that "It is not required an 'enterprise' have an existence separate and

apart from the underlying corrupt activity." (March 5 Opinion at ¶ 67). This ruling did

away with the need to demonstrate a POCA "enterprise" at all, directly contradicting the

language of R.C. 2923.31 through R.C. 2923.34.

There is no basis for the Appellate Court's deviation from the definition of an

"enterprise" under RICO for purposes of POCA, and the Appellate Court did not provide any

rationale for doing so here. Indeed, POCA's statutory definition of an enterprise is

indistinguishable from RICO's. See 18 U.S.C. §1962; R.C. 2923.32; see also Franldin 2011-

Ohio-6802, at ¶ 105 (applying federal law to an "enterprise" under POCA). This Court

should, respectfully, reverse the Appellate Court's error in this respect and set out that

POCA's "enterprise" element, like RICO, requires evidence separate and apart from the

"corrupt activity."

Because it had ruled that there was no separateness requirement, the Appellate

Court went on to conclude that there was sufficient evidence of an "enterprise" by citing

evidence concerning only the alleged "corrupt activity" itself - the CSP. (March 5 Opinion

at ¶168-69). Doing so flies directly in the face of the separateness requirement and

requires reversal.

The Appellate Court compounded its mistake by allowing standard industry

practices to establish the "enterprise" requirement that it had mischaracterized. The

Appellate Court found an enterprise existed based on three facts: (1) the Defendants said

that they and the CSP brokers were a "team," (2) Defendants entered into similar CSP

agreements with each of the brokers, and (3) the CSP brokers attended annual retreats

sponsored by the Defendants. These three facts describe practices that are common in the

insurance industry. (Vol. 8 at 187, Supp. 43 (Mercy's expert testified that it was common

for insurers to partner with brokers); Vol. 8 at 216, Supp. 45 (Mercy's expert testified that

similar confidentiality agreements are common in the industry); Vol. 7 at 145-146, Supp.

36 (Mercy's expert testified that exotic broker retreats are common); Vol. 6 at 169-172,

Supp. 21 (even Mercy, which is not an insurance company, hosts golf outings for insurance

brokers); Vol. 21 at 75-76, 87-88, 232-233, Supp. 190, 193, 196-197; Vol. 24 at 147-148,

Supp. 217 (some insurers offer even more exotic and expensive retreats than AultCare, and

some insurers do not even have an educational component).

A federal district court has found that similar allegations failed as a matter of law at

the pleading stage for want of a valid RICO enterprise. In re Ins. Brokerage Antitrust Litig..

2007 U.S. Dist. LEXIS 73220 (D.N.J. Sept. 28, 2007), affirmed in relevant part at 618 F.3d

300, 374 (3d Cir. 2010). Although the underlying misconduct in that case bears no

resemblance to the four Defendants' conduct, the structure and relationships of the parties

was quite similar. The plaintiffs' allegations arose from the bid-rigging schemes in New

York, whereby insurance brokers collectively agreed to falsify insurance quotes to rig the

insurance bidding process and steer clients to particular insurers. Id. at *74. The plaintiffs

brought a RICO action, alleging that the brokers and insurers constituted the same type of

"association in fact" "enterprise" that Mercy alleged here. Id. at *96.

Despite the serious nature of the allegations, the court found no valid enterprise:

While there is no doubt in this Court's mind that some of the specific actsalleged by Plaintiffs signify, if true, a pernicious industry practice, themandate of 18 U.S.C. S 1961, et seq., and the interpreting precedents do notdefine the practitioners of a pernicious industrv practice as a RICOenterprise. Had it been otherwise, any or all car dealers in the nation whotook used cars to crooked mechanics for "odometer clocking," or "fences"who purchased stolen goods from burglars, or doctors or lawyers engaging ininsurance fraud, etc., could be shuffled into artificially lumped-togethergroups labeled "RICO enterprises." Clearly, such readingof the "enterprise"would grossly violate the congressional mandate since it would allow aplaintiff injured by any act representing any wide-spread societal ill toinitiate and successfully nrosecute a RICO action by merely alleging thatmutually-acquainted members of an industry performed a number ofQuestionable transactions having analogous modi operandi.

Id. at *113-114. In its analysis, the court rejected the notion that the signing of similar

agreements supports the existence of an enterprise. Id. at *105 ("[E]xecution of similarly-

fashioned transactions by various groups of entities neither lumps all these entities into

one enterprise nor creates an interdependency or common goal between the members of

these groups; it merely indicates an industry practice."). The court also rejected the theory

that the defendants' confidentiality supported the existence of an enterprise. Id at *129;

see also In re Ins. Brokerage Antitrust Litig.. 618 F.3d. at 374.

The court's analysis in In re Ins. Brokerage Antitrust Litie, makes it evident that the

facts the Appellate Court relied on here cannot support an "enterprise" either. Defendants

and the brokers had an arms-length business relationship whereby the brokers were

compensated according to a written agreement. As in In re Ins. Brokerage Antitrust Litig.,

these facts concern ordinary business relationships. If these basic acts are sufficient to

-9-

establish the existence of a criminal "enterprise," then every insurance company and

independent broker who work together constitute an illegal POCA "enterprise," and that

element poses no hurdle to other plaintiffs filing POCA claims based on industry-standard

compensation arrangements. This unwarranted expansion of the "enterprise" element

raises concerns for every insurer and broker in Ohio.

Moreover, because the facts the Appellate Court and Mercy relied on to establish an

"enterprise" all relate to the corrupt activity itself, the evidence showing the existence of an

"enterprise" separate and apart from the "corrupt activity" is simply non-existent. Absent

proof of an "enterprise," there cannot be a POCA violation, even if "corrupt activity"

occurred. State v. Schlosser, 79 Ohio St. 3d 329, 333-34 (1997) ("[M]erely committing

successive or related crimes is not sufficient to rise to the level of a RICO violation. Both

th°e,federal and the Ohio RICO statutes require an 'enterprise."'); Cochran v. VendMasters

In ,c. 2006 U.S. Dist. LEXIS 67318, at *14 (S.D. Ohio Sept. 20, 2006) (because a "civil RICO

claim is an 'unusually potent weapon"' a "court must ensure that RICO's severe penalties

are limited to enterprises consisting of more than simple conspiracies").

The Appellate Court applied the wrong "enterprise" standard under POCA, and there

was no proof of an enterprise separate and apart from the alleged corrupt activity in any

event The Appellate Court's decision should be reversed an judgment entered in

Defendants' favor.

C. A12pellants' Proposition of Law Number 4: The plaintiff has the burdento prove all of the elements for a violation of R.C. 2923.32, including allelements of the predicate acts. A jury instruction that shifts the burdento the defendant on one or more of those elements constitutesreversible error.

Turning to the second POCA element, Mercy should have been required to prove all

the elements of the alleged "pattern of corrupt activity." The trial court undeniably relieved

Mercy of this burden and, instead, shifted the burden to Defendants to prove an essential

element of Mercy's "corrupt activity" claim.

Under POCA, "corrupt activity" means "engaging in, attempting to engage in,

conspiring to engage in, or soliciting, coercing, or intimidating another person to engage

in," among other things, "[c]onduct defined as 'racketeering activity' under the 'Organized

Crime Control Act of 1970,' 84 Stat. 941, 18 U.S.C. 1961(1)(B), (1)(C), (1)(D), and (1)(E), as

amended...:' R.C. 2923.31(I)(1). A violation of 18 U.S.C. §1954 constitutes "racketeering

activity" under 18 U.S.C. §1961(1)(B) of RICO. Mercy, therefore, alleged that Defendants'

CSP violated 18 U.S.C. §1954 as the predicate "corrupt activity" for its POCA claim.

Section 1954 makes it a crime to pay bribes or kickbacks to an employee, agent,

officer, or service provider of an "employee welfare benefit plan" with the intent to

influence his or her decisions related to the plan. It also makes it a crime for an employee,

agent, officer or service provider to take a bribe or kickback. Section 1954 goes on to

specifically except out "bona fide" payments for services rendered from its definition of

bribes or kickbacks.

Under §1954, the lan intiff bears the burden to prove that the payments at issue

were not bona fide. United States v. Schwimmer. 706 F. Supp. 6, 8 (E.D.N.Y. 1989) (finding

the jury was properly instructed that the government bore the burden of proving

compensation was not bona fide under §1954). Indeed, the federal jury instructions, which

the trial court here selectively quoted, contain an instruction that "[t]he burden is on the

government to establish beyond a reasonable doubt that the payments were not bona fide

compensation." 3-51-8 Modern Federal Jury Instructions-Criminal §51.01. But nowhere in

the jury instructions in this case did the trial court require Mercy to establish that the CSP

payments were not bona fide. Instead, the jury instructions here placed the burden

squarely on the Defendants to establish that the CSP 12ayments were bona fide. Despite

Mercy's strained argument that the burden was not shifted, there can be no contrary

interpretation of the jury instructions.

The trial court instructed the jury that Mercy must prove the following three

elements to show a violation of §1954:

To prove the charge against Aultman, Mercy must establish each of thefollowing elements by a preponderance of the evidence:

(1) The CSP brokers were service providers, agents, administrators,officers, trustees, custodians, or employees of employee benefit plans;

(2) The CSP brokers received or agreed to receive a fee, kickback,commission, gift, loan, money, or any other thing of value; and

(3) Aultman gave or offered the fee, kickback, commission, gift, loan,money, or any other thing of value to the CSP brokers because of, orwith the intent to influence the CSP brokers' actions, decisions, orduties concerning the employee benefit plans.

(Jury Instructions p. 50, Supp. 777; Vol. 34 at 58-59, Supp. 274). There were only three

elements listed. The "not bona fide" element did not appear anywhere on the enumerated

list.

The point was further stressed by the remaining instructions. After the list, the

instructions described each of the three listed elements separately, labeling them as

"Element #1," "Element #2" and "Element #3." (Jury Instructions p. 51, Supp. 778 ("The

first element Mercy must prove by a preponderance of the evidence is .... The second

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element Mercy must prove by a preponderance of the evidence is . .. ."); Vol. 34 at 59-60,

Supp. 274). These descriptive instructions also noted that Mercy had the burden of proof

for each one. (Id ) The third element was described as the "final" element Mercy had to

prove under § 1954:

The final element Mercy must prove by a preponderance of the evidence isthat Aultman gave or offered the fee ... to the CSP brokers because of theiractions or duties concerning the employee benefit plans ....

(Jury Instructions p. 51, Supp. 778 (emphasis added); Vol. 34 at 60, Supp. 274). The "bona

fide" element was not in these descriptive instructions either and there was no "Element

#4."

After describing the only three elements Mercy was charged with proving, the court

presented its sole instruction on the "bona fide" element as follows:

Affirmative Defense - Bona Fide Compensation

Aultman has raised the defense that the payments it made were bona fidecompensation to the CSP brokers for services performed in the regularcourse of the brokers' duties to the plan....

(Jury Instructions at 52, Supp. 779 (emphasis added); Vol. 34 at 61, Supp. 275). The trial

court's damages followed, stating: "If you find that Mercy has proven all of the elements of

this claim and that Aultman has failed to prove a viable defense to this claim, then you must

further decide the amount of damages to which Mercy is entitled." ()ury Instructions p. 53,

Supp. 780; Vol. 34 at 62, Supp. 275 (emphasis added)). There was no "defense" referenced

other than the "bona fide" defense.

There is no way to interpret these instructions other than relieving Mercy of its

burden on the "bona fide" element and shifting that burden to Defendants. Each of these

mistakes created reversible error.

The trial court's error in this respect requires reversal because "it is well settled that

an instruction which improperly places the burden of proof is reversible error...."

Montanari v. Haworth. 108 Ohio St. 8, 14 (1923). See also Gladon v. Greater Cleveland

Regional Transit Auth.. 75 Ohio St. 3d 312, 314 (1996) (same). Although this Court has not

yet stated so explicitly, this rule should apply with equal force to the elements of all

necessary predicate acts, even where the error relates to the application of a federal

statute, like §1954, to an Ohio POCA claim. As a result of this reversible error in shifting the

burden, this Court should, respectfully, vacate the judgments and order a new trial in which

Mercy is directed to bear the burden of proof on all POCA elements.

The trial court's improper shifting of the burden on the bona fide element has

particularly far-reaching and disturbing consequences in its application here because the

trial court's flawed interpretation of the only three elements it did require Mercy to prove

converted every broker compensation program to a bribe ^er se under §1954.

With respect to the first element, §1954 defines individuals who are subject to being

bribed as an employee, agent, officer, or service provider of an "employee welfare benefit

plan." Because independent brokers are not "agents, employees, or officers" of their

employer clients' health benefits plans, Mercy instead argued generically that the brokers

were "service providers" to their employer clients. However, those positions are reserved

for individuals who exercise at least substantial oc ntrol over the plan's decisions, such as

plan fiduciaries. United States v. Schwimmer. 924 F.2d 443, 447 (2d Cir. 1991). See a so 3-

51-5 Modern Federal Jury Instructions-Criminal §51.01. And rightfully so: only persons

with substantial control have the power to be bribed into making a decision for the plan.

Unlike some financial advisors who may make investment decisions on a company's behalf

respecting retirement plans, health insurance brokers do not exercise "control" over the

employer's insurance decision. Mercy provided no evidence that the CSP brokers exercised

such control. To the contrary, every employer and broker confirmed that the employer, not

the broker, was the decision-maker. (Vol. 19 at 127, 160, Supp. 137, 144; Vol. 21 at 109,

Supp. 195; Vol. 24 at 22, 122-123, Supp. 205, 214). And Mercy's own witness agreed that

the typical broker and employer relationship is not a fiduciary one. (Vol. 6 at 79, Supp. 17).

The jury was instructed, however, that it could find that the CSP brokers were

"service providers" under §1954 if they "exercised substantial influence either directly or

indirectly, over the employee benefit plan's decision making." (Vol. 34 at 59, Supp. 274

(emphasis added)). (See also Vol. 34 at 118, Supp. 279 (Defendants' corresponding

objection)). That is not the correct test. Most independent brokers have some influence

over the employer's insurance decision. It is the broker's job to present suitable options

and make recommendations. Section 1954, however, covers something much different.

The trial court's errant definition of a service provider makes every insurance broker a

§1954 "service provider" when the baseline position should be that they are not §1954

"service providers."

The only other elements Mercy was required to prove under §1954 were that

Defendants gave the CSP brokers (1) something of value (2) with the intent to influence the

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CSP brokers' actions, decisions, or duties concerning the employers. Brokers receive

standard commissions and bonuses all the time from insurers, every one of which is

intended to influence the brokers' actions or decisions respecting what they present to

their clients. Under the lower courts' rulings, all of these perfectly normal and legitimate

payments violate §1954. That is not the law. In fact, Mercy's §1954 expert could not recall

a single broker compensation plan referred to the Department of Justice for a §1954

violation. (Vol. 8 at 98, Supp. 41).

Particularly in light of the trial court's (1) incorrect interpretation of these §1954

elements; (2) refusal to instruct the jury that the typical broker bonus compensation does

not violate § 1954 and (3) shifting of the burden to prove the payments were bona fide, the

trial court's errors effectively and wrongly criminalized all broker incentive compensation

programs. Other courts have avoided this untenable result by holding that payments

intended to encourage brokers to sell an insurer's products (whether as commissions or

bonuses) do not violate §1954. Sante Mineral Waters. Inc., v. Schotz, 1991 U.S. Dist. Lexis

11347 (N.D. Calif. June 3, 1991). The plaintiff in Sante asserted a federal RICO claim and

alleged that the defendant's incentive payments to brokers to sell an insurance product

violated §1954 for its predicate act. The court rejected that argument because

"[clompensation to an insurance company's sales agent in consideration for the agent's sale

of an insurance policy to an ERISA plan is not a criminal act by an insurance company.. '

Id. at *7 (emphasis added). As the court aptly noted, to find otherwise would

fundamentally disrupt the insurance industry:

The Court rejects Sante's position that these commissions show an "intentionto influence [the Schotz defendants] so as to cause VEBA plan to purchase

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more insurance from Executive Life," in violation of section 1954. Sante'sargument leads to untenable results. Every time an insurance companycompensated an ERISA service provider in the hope that the service providerwould continue to encourage purchase of the company's policies on behalf ofthe plan, the insurance company would violate section 1954. That cannot bethe law. Executive Life compensated its agents "because of' their sale of thecertificates, not "because of' their relationship to the Sante Plan. See 18U.S.C. §1954. There was no violation of section 1954 by Executive Life.

Id. (emphasis added); Mehing v. New York Life Ins. Co. 163 F. Supp.2d 502 (E.D. Pa. 2001)

(bonuses based on success in services performed for company are not improper payments

under §1954); Associates in Adolescent PsychiatrX, S.C. v. Home Life Ins. Co.. 941 F. 2d 561,

570 (7th Cir. 1991) ("Funds are not [ldckbacks] when two independent entities agree

between themselves as to the payment to be made for services rendered."). The courts'

failure to recognize the inapplicability of §1954 here, however, has created exactly the

unwarranted disruption Sante sought to avoid. The Ohio Big I respectfully requests that

these substantial errors be reversed so that Ohio law is clear as to the application (or lack

thereof) of §1954 to insurance broker compensation in Ohio.

D. Appellants' Proposition of Law Number 3: R.C. 2923.34(E) authorizesonly a remedy of triple the actual damages sustained by any persondirectly or indirectly injured by conduct in violation of R.C. 2923.32,upon proof of the violation and actual damages by clear and convincingevidence.

The lower courts also erred with respect to the third element of POCA concerning

injury to the plaintiff. In particular, the Courts improperly allowed an award of actual

damages, which is not a POCA remedy at all, upon proof to only a preponderance of the

evidence.

Mercy filed a civil POCA claim under R.C. 2923.34. That statute authorizes only two

remedies: (1) the court may award injunctive relief upon proof of a POCA violation by a

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preponderance of the evidence; and (2) the plaintiff may recover triple damages upon

proof of a violation and actual damages by clear and convincing evidence. R.C. 2923.34(B)

and (E). The statute does not create a cause of action for actual damages remedy upon

proof by a preponderance of the evidence and then a treble damages remedy upon proof to

the higher standard of clear and convincing evidence. The onlv "cause of action" in

subsection (E) is for treble damages, and it requires proof of both a POCA violation and

actual damages by the higher clear and convincing standard.

R.C. 2923.34 does not authorize any other damages remedy. Indeed, its other

language confirms that injunctive relief under subsection (B) and treble damages under

subsection (E) are the sole and exclusive remedies. See k,-, R.C. §2923.34(F) (awarding

attorney's fees if "the plaintiff prevails under division (B) or (E) of this section"); R.C.

2923.34(E) (stating that treble damages are recoverable "in addition to [injunctive] relief

under division (B) of this section").

Although this Court has not had the occasion to address the civil remedies under

R.C. 2923.34, appellate courts have commented on the availability of only treble damages

and only upon proof to a preponderance of evidence:

Unlike RICO's treble damages provision, which permits an award of trebledamages when a claim is demonstrated by a simple "preponderance of theevidence," Ohio's Corrupt Activities Act sets forth a two-tier standard ofproof. Upon a showing of a violation by a"prenonderance of the evidence," aplaintiff is entitled to equitable and injunctive relief under R.C. 2923.34(C)[now subsection (B)]. Treble damages will be awarded only upon a showingof a violation by "clear and convincing evidence." R.C. 2923.34(F) [nowsubsection (E)].

Schweisberger v. Weiner. 1995 Ohio App. LEXIS 6101, *26 (5th Dist. Dec. 12, 1995)

(emphasis added); see also TJX Cos. v. Hall 183 Ohio App. 3d 236, 241 (8th Dist. 2009) ("In

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a civil action under RC. 2923.34, the plaintiff is entitled to relief upon proof of the violation

by a preponderance of the evidence. R.C. 2923.34(B) [injunctive relief]. However, under

certain circumstances, the aggrieved person may receive triple the actual damages [s]he

sustains.").

The lower courts nevertheless affirmed a judgment awarding Mercy actual damages

based on the finding of a POCA violation by only a preponderance of the evidence. That

remedy is not authorized by R.C. 2923.34, constitutes plain error, and must be vacated.

Franklin Cty. Law Enforcement Assn. v. Fraternal Order of Police Capital City Lodge No. 9

59 Ohio St.3d 167, 170 (1991); Turner v. State. 2000 Ohio App. LEXIS 2530 (11th Dist. June

9, 2000).

The only "authority" that Mercy and the lower courts cited in support of the

unauthorized award here was the incorrect POCA Pattern Ohio Jury Instruction, which

allows an award of actual damages upon proof to a preponderance of the evidence. See OJI

CV §445.03; Oct. 19, 2010 Judgment Entry at 2. This incorrect pattern jury instruction is

not authoritative and should not have been followed. "OJI is a respected and authoritative

source of the law, but it is merely a product of the Ohio Judicial Conference and not binding

on the courts. Therefore, adherence to its terms does not insulate a court from reversal."

State v. Nucklos. 171 Ohio App. 3d 38, 48 (2007); State v. Maine 2005-Ohio-3742 (4th Dist.

2005) ("When a court misstates the law, even though it acted in reliance upon the pattern

jury instructions, we conclude that fundamental fairness requires us to reverse the

conviction."); State v. Ward. 168 Ohio App. 3d 701, 712-713 (4th Dist. 2006) (reversing

trial court based on error in OJI). This is especially true where, as here, the instruction

provides no authority for its incorrect statement of law. Starcher v. Chrysler Corp., 15 Ohio

App. 3d 57, 59 fn.1 (9th Dist. 1984).

The existence of an erroneous pattern instruction does not justify the imposition of

a penalty the General Assembly did not authorize. Under these circumstances, the trial

court's award of actual damages upon proof to only a preponderance of the evidence must,

respectfully, be vacated.

E. Appellants' Proposition of Law Number 1: To establish an entitlementto damages under R.C. 2923.34, the person directly or indirectly injuredmust prove that the damages sustained were proximately caused by theviolation of R.C. 2923.32.

The final element of POCA requires Mercy to prove that Defendants' supposedly

corrupt activity proximately caused Mercy's "injuries." POCA allows persons "directly or

indirectly" injured to bring civil claims for their injuries. Despite recognizing the existence

of the proximate cause element under POCA, the lower courts held that POCA's °directly or

indirectly" language meant that causation under POCA is not as rigorous a requirement as

under federal RICO. (March 5 Opinion ¶77; see also Trial Court 10/19 Entry at 10-11).

The lower courts' ruling misinterpreted the POCA statute and watered down the proximate

cause requirement to the point of being meaningless. This Court should, respectfully,

reverse that ruling.

This Court has not yet interpreted the interplay between POCA's "direct or indirect"

language and proximate cause. But a careful analysis reveals that the "direct or indirect"

language does not vary or eliminate the proximate cause element under POCA claims.

Lesick v. Manning. 1992 Ohio App. LEXIS 6374, at *8 (7th Dist. Dec. 17, 1992) (rejecting

plaintiffs argument that because the federal RICO statute does not contain this "directly or

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indirectly" language, RICO's proximate cause principles did not apply to POCA and stating

"[t]here is nothing in the language of the statute" that suggests the General Assembly

intended to eliminate the basic principles of proximate cause). In holding to the contrary,

the Appellate Court misunderstood the difference between whether an injury is direct or

indirect versus whether the injury was proximatelXcaused by the alleged wrongdoing.

As to the former, whether an injury is direct or indirect relates to how many steps

removed the plaintiff is from the initial harm. A "direct" injury is the immediate result of

the wrongful conduct; and an "indirect" injury is one with two or more causal steps

between it and the underlying wrongful conduct. See Queen City Terminals v. General Am.

Transp. Corn.. 73 Ohio St. 3d 609, 614 (1995); Ohio Bell Tel. Co. v. William Carter Truckine

Co., 1998 Ohio App. LEXIS 6393, *5-8 (2nd Dist. Dec. 31, 1998). For example, here, Mercy

claimed that it was injured at the final step of the following chain:

1. Defendants offered CSP bonuses to brokers to incentivize them to sell

AultCare products.

2. Brokers manipulated employers into selecting AultCare productswhen another insurer's product would have been better for theemployer.

3. When the employees needed medical care, they chose AultmanHospital rather than Mercy because of AultCare's provider contract

with Aultman Hospital.

Under this theory, the employer would have supposedly suffered the "direct" injury, while

the insurer that lost out and ultimately, Mercy, would have suffered "indirect" injuries at

best. The "direct or indirect" language, therefore, explains the range of persons who have

standing to sue under POCA.

As to the latter issue, whether an injury is proximately caused by the wrongful

conduct relates to the connection between each step of the chain of causation. To establish

proximate cause here, Mercy should have been required to establish a connection between

what it deemed was the improper conduct and each step of the indirect injury chain. See

Hemi Group, LLC v. City of New York. 130 S. Ct. 983 (2010); see also Queen City Terminals.

73 Ohio St. 3d at 615; Ohio Bell Tel. Co. 1998 Ohio App. LEXIS 6393, at *6. Thus, Mercy

needed to show that absent the CSP, (1) a Mercy-friendly insurer would have won the

employers' insurance business and (2) the employee ultimately would have chosen Mercy

over Aultman Hospital for his/her care. See Chaz Concrete Co. LLC v. Codell. 2010 U.S. Dist.

LEXIS 29900 (E.D. Ky. March 29, 2010) (RICO case holding that "losing bidder" had to show

that it "would have necessarily" won the bid if the other subcontractors had not been

improperly certified); Strates Shows v. Amusements of Am.. 379 F. Supp. 2d 817, 829

(E.D.N.C. 2005) (RICO claim for lack of proximate cause due to the impossibility of "any

after-the-fact judicial determination of which competitor likely would have been selected").

Mercy never presented evidence concerning the link between CSP and each step of

the causal chain, and neither lower court required it to do so. At trial, every employer who

testified stated that AultCare was the best insurance selection for their company, either

because of price, network, service or some other business reason. There was simply no

evidence that absent the CSP, the employer would have necessarily selected a Mercy-

friendly insurer or that the employees (the patients) would have necessarily selected

Mercy over Aultman Hospital.

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So, how did the jury find in Mercy's favor on the POCA claim in light of the total

absence of any proximate cause evidence? The answer is simple: the jury instructions

failed to include a proximate cause element as to POCA. Instead, the POCA instructions

stated that Mercy had to prove only that it "was injured, directly or indirectly, as a result of

the Aultman Defendants' conduct." (Jury Instructions p. 46, Supp. 773; Vol. 34 at 54, Supp.

273). The trial court presented a general instruction on proximate cause in the 78 pages of

instructions, but that was not sufficient as a matter of law. As this Court has stated, the

instructions are misleading if "the correct instruction appears to be a general statement

while the erroneous part of the charge appears as specific." State v^Hardv. 28 Ohio St. 2d

89, 93 (1971). (See also Defendants' Objection at Vol. 34 at 99, Supp. 278).

The prejudice resulting from this glaring error is apparent from the discrepancy

between the single POCA verdict and the jury's numerous other findings that Defendants'

conduct was not wrongful. Qury Interrogatories 3-4) (CSP had not "caused

misunderstanding among the brokers' clients as to whether the brokers were acting in the

clients' best interests or in Aultman's best interests," and Defendants had not "steered

business to AultCare and Aultman Hospital by improperly influencing brokers' decisions

with respect to their clients' health insurance plans.").

The trial court's failure to properly and specifically instruct the jury as to proximate

cause, and the Appellate Court's loosening of the proximate cause definition to affirm that

error, require reversal here.

The Appellate Court compounded the trial court's error and its own error in

misinterpreting POCA's proximate cause standard by applying its new proximate cause

standard in a way that effectively eliminated the proximate cause element entirely. With

no evidence to connect Mercy's alleged harm and the CSP, the Appellate Court ruled that

evidence of Mercy merely sustaining losses (or not doing as well as it had hoped) during

some portion of time over the twelve years that the CSP was in effect was sufficient

evidence to satisfy the Appellate Court's relaxed version of proximate cause. No logical

rationale supports the theory that evidence of two semi-simultaneous events satisfies

proximate cause, particularly where, as here, there are numerous other reasons for the

alleged losses. That is not proximate cause at all.

Because the trial court improperly instructed the jury and because the Appellate

Court applied the wrong legal standard, the judgment should be reversed. In addition,

because there was a total lack of evidence that Mercy's alleged injuries were proximately

caused by Defendants' CSP, Mercy's claim fails as a matter of law and judgment should be

entered in Defendants' favor.

F. Apnellants' Proposition of Law Number 7: The Ohio Department ofInsurance has primary jurisdiction over the business of insurance Inthis State, and its determination as to the propriety or legality ofconduct relating to that business over which it has regulatoryjurisdiction is dispositive of whether the conduct can be "corruptactivity" for purposes of R.C. 2923.31-2923.36.

The Department has the responsibility for regulating the insurance industry in Ohio.

See Strack v. Westfield Cos. 33 Ohio App. 3d 336, 338 (9th Dist. 1986) ("Pursuant to R.C.

§3901.011 the superintendent is granted wide latitude and authority in overseeing

insurance companies. It is his mandated duty to execute and enforce the laws relating to

insurance"). In that role, the Department has "primary jurisdiction" to determine if the

insurance laws have been violated. Salvation Army v. Blue Cross & Blue Shield. 92 Ohio

-24-

App. 3d 571, 576 (8th Dist. 1993). The primary jurisdiction doctrine allows an agency with

special expertise to decide issues that fall within its regulatory charge, and to ensure

uniformitv of decisions as to those issues. United States v. Western Pacific R.R. Co. 352 U.S.

59, 64-65 (1956); Salvation Armv. 92 Ohio App. 3d at 576 (stating that agencies should

make the determination with regard to insurance matters to maintain uniformity in agency

policy and to take advantage of the agency's expertise); Watts v. Missouri-Kansas-Texas

R.R. Co. 383 F.2d 571, 584 (5th Cir. 1967) ("[W]hat is involved is not the narrow matter of

challenges against specific regulations or practices, but the broader issue of 'protection of

the integrity of the regulatory scheme."').

It is for these very reasons that courts have consistently held that primary

jurisdiction means that courts should defer and refer to the agency issues within the

agency's primary jurisdiction:

aascertainine and interuretine the circumstances underlying legal issues to

[in] cases requiring the exercise of administrative discretion, agenciescreated ... for regulating the subject matter should not be passed over. Thisis so even though the facts after they have been appraised by specializedcompetence serve as a premise for legal consequences to be judiciallydefined. Uniformity and consistency in the regulation of business entrustedto a particular agency are secured, and the limited functions of review by theiudiciary are more rationally exercised, by 12reliminary resort for

ncies that are better e C1U1DU ed tha courts b ecialization0s b insi ht

gained through experience. and by more flexible procedure.

Western Pacific. 352 U.S. at 64-65. Indeed, "[i]f an allegedly aggrieved party could

circumvent those procedures by invoking [a separate cause of action] the goals of

presumed administrative expertise and uniformity would be forfeit. The legislature has

expressed its preference for the forum to consider such issues, and the courts should heed

that direction." State ex rel. Blue Cross & Blue Shield Mut. v. Carroll. 21 Ohio App. 3d 263,

-25-

266 (8th Dist. 1985); see also Strack 33 Ohio App. 3d at 338-339 ("The Department of

Insurance was established in order to determine what insurance practices were unfair or

deceptive and how to best control them. The combination of administrative remedies and

civil penalties reflects the legislative solution to a problem perceived by it. This court will

not substitute its judgment for that of the legislature, which could have easily expressly

provided for such a remedy.").

To ensure consistency, once an administrative agency like the Department exercises

primary jurisdiction over a matter, its determination is binding on the parties and the

Court. Western Pacific. 352 U.S. at 65 (the doctrine of primary jurisdiction is not just a

"procedural time table of the lawsuit" but instead transfers the power to determine the

results from the court to the agency); Elkin v. Bell Telephone Co.. 420 A. 2d 371, 376 (Pa.

1980) (noting that concept of primary jurisdiction is "not simply a polite gesture of

deference to the agency seeking an advisory opinion wherein the court is free to ignore the

agency's determination. Rather, once the court properly refers a matter or a specific issue

to the agency, the agency's determination is binding upon the court and the parties ... and

is not subject to collateral attack in the pending court proceeding."). See also Lee v. Contel

Cellular of the South, 1996 U.S. Dist. LEXIS 19636, *21-22 (S.D. Ala. Nov. 21, 1996) (same).

In this case, the Department exercised its primary jurisdiction to determine the

appropriateness of the CSP twice: once in 2004-2006 and once in 2009-2010. However,

neither the trial court nor the Appellate Court properly recognized the Department's

primary jurisdiction over this matter. The trial court's refusal to recognize the

Department's primary jurisdiction created reversible error in at least two respects. First,

the Department's second review was pending before the start of the trial in this case. The

Defendants and the Department both requested that the trial court either dismiss the

insurance issues or stay the litigation until the Department had an opportunity to finish its

second review of the CSP. Under the doctrine of primary jurisdiction, the trial court should

have at least stayed the litigation pending the review. State ex rel. Banc One Corp. v.

Walker, 86 Ohio St. 3d 169, 171 (1999) ("Under this [primary jurisdiction] doctrine, the

judicial process is suspended pending referral of the issues to the administrative body for

its views."). Here, the trial court refused to do that, even though the Department had

articulated its position of having primary jurisdiction over the review of the CSP. (Brief of

Defendants below, p. 14). The trial court's refusal to refer the matter to the Department

was an abuse of discretion requiring reversal.

Second, after wrongfully refusing to stay the matter, the trial court went on to

commit additional errors during the trial. The trial court refused to allow any evidence of

the Department's investigation, including first-hand testimony from AultCare's CEO about

the extent of the investigation and AultCare's reliance on its results; other first-hand

testimony from Ann Womer-Benjamin about the results of the investigation; and testimony

from Mercy's CEO about the effect of the ODI investigation.

This evidence was highly relevant to the POCA claim as it was described in the jury

instructions. For example, the predicate act for the POCA claim was §1954, the "kickback"

statute. A key element of §1954 was whether the CSP payments were "bona fide." After

improperly shifting the burden on that element to Defendants, the trial court instructed the

jury that "bona-fide compensation" means compensation paid in "good faith or with an

honest purpose." The trial court went on to permit the jury to determine if the CSP

represented bona fide compensation by reference to whether the CSP payments were

confidential, improperly concealed from state or federal regulators, or in violation of state

and federal law. Qury Instruction, p. 52; Vol. 34 at 61-62, Supp. 275). No evidence could

have been more relevant to these issues than the Department's actual knowledge of the

CSP; AultCare's good faith compliance with the Department's investigation and reliance on

the result (particularly since AultCare continued the CSP after the Department closed its

investigation); and the Department's ultimate findings, all of which were excluded precisely

because of their highly probative value to Defendants' case. This refusal to recognize the

Department's previous exercise of its primary jurisdiction also requires reversal.

In this case, however, judgment in Defendants' favor is appropriate for at least two

reasons. First, when the Appellate Court considered the matter, the Department's Report

from its second review had been issued. That Report was definitive concerning the CSP

allegations that were at the center of Plaintiffs POCA claim. In its Report, the Department

made determinations about the CSP relating to each of the §1954 "bona fide"

considerations discussed above. The Department ruled that the confidentiality of the CSP

was not illegal, that Defendants did not improperly conceal the CSP from the Department,

and that CSP did not violate the same nine insurance statutes and regulations at issue in

this case. (Appx. 13 to Brief of Defendants below; Report, pp. 11-12). Perhaps most

importantly, the Department found that the CSP was not an illegal "kickback" to brokers for

improperly "steering" business to Defendants. Under these circumstances, the Appellate

Court should have given the Report the preclusive effect to which it was entitled. See Elkin

420 A. 2d at 377.

As a result of the trial and Appellate Courts' failures to properly recognize the

Department's primary jurisdiction, regulated entities can now be subject to different

interpretations of Ohio insurance law, which is exactly what happened here. The POCA

verdict directly contradicts the Department's findings. Like AultCare, brokers are regulated

by the Department and rely on its interpretations in conducting their business. If courts

are not required to defer to an agency's primary jurisdiction or to recognize and give effect

to its exercise of such jurisdiction, brokers, insurers, and all other highly regulated

businesses will now be subject to differing interpretations of the rules of their trade in each

of the counties across Ohio and even by separate judges or juries within a single county.

ThatIs not a workable or fair interpretation of Ohio law.

The Department's primary jurisdiction is definitive in this case for another, separate

reason - Ohio insurance law permitting incentive forms of insurance broker compensation

like the CSP trumps §1954 of RICO, which the trial court has interpreted as prohibiting

such incentive compensation.

Ohio has its own specific health insuring corporation statute designed to prohibit

bribes and kickbacks paid to health insurance brokers. The Ohio statute, however,

explicitly recognizes and permits the payment of "incentive" compensation to insurance

agents:

No health insuring corporation, or its agents or representatives, shall usemonetary or other valuable consideration, engage in misleading or deceptivepractices, or make untrue, misleading, or deceptive representations to induceenrollment. Nothing in this division shall prohibit incentive forms of

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remuneration such as commission sales proerams for the healthinsuring corporation's employees and agents.

R.C. 1751.31 (E) (emphasis added). The CSP and its "incentive" component, therefore, are

directly permitted by this Ohio insurance statute prohibiting bribes and kickbacks.

Nevertheless, the trial court instructed the jury that any incentive payment to a broker was

"corrupt activity" under POCA because it was a bribe or kickback that violated §1954 of

RICO. That instruction automatically criminalized all forms of incentive compensation,

including the CSP, and directly contradicts R.C. 1751.31(E).

Similarly, Ohio insurance law also addresses the disclosure requirements for broker

compensation, and it onlv requires disclosure of broker compensation when the client is a

public entity. R.C. 3905.56. (See also Report, pp. 6, 12). Yet here, the Appellate Court held

that ;{t]he confidentiality agreements which prohibited the brokers from disclosing the

CSP payments to their clients establish the compensation received was not bona fide"

under §1954. (March 5 Opinion ¶ 59). That ruling again effectively criminalizes all broker

compensation, given the Appellate Court's recognition that "[c]onfidentiality agreements

between brokers and insurance companies are common within the industry." (Icl. ¶ 6).

The fact that the CSP is perfectly legal under Ohio insurance law means it cannot

violate §1954. Under the McCarran-Ferguson Act, a federal law that does not "specifically

relate to the business of insurance" cannot "invalidate, impair, or supersede" state

insurance laws. Humana Inc. v. Forsyth. 525 U.S. 299, 307-309 (1999); see 15 U.S.C. §1012.

Section 1954 is not limited to the business of insurance or even directed at the business of

insurance-it is a racketeering statute, and "RICO is not a law that 'specifically relates to

the business of insurance"' under McCarran-Ferguson. Id. To hold that the CSP (and all

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other broker incentive compensation) is criminalized under §1954 would clearly

"invalidate, impair, or supersede" Ohio insurance laws that expressly permit such

compensation.

As such, under the McCarran-Ferguson Act, Ohio insurance law trumps §1954, and

§1954 cannot serve as the predicate act for Mercy's POCA claim. Furthermore, because

§1954 was the only predicate act for the POCA claim (Jury Instruction at 49; Vol. 34 at 56-

57), Mercy's POCA claim fails as a matter of law, and judgment in Defendants' favor is

appropriate.

The Ohio Big I members routinely receive various forms of incentive compensation

from insurance companies in connection with assisting employer group clients select

insurance. Brokers receive base commissions, bonuses, overrides, and other forms of

incentive compensation (which are often based on the broker's amount of business with a

carrier) from insurance companies. These payments are for services rendered and do not

improperly influence a broker's recommendation to his/her client

The Ohio Big I is particularly concerned that its members' receipt of this absolutely

standard incentive compensation, which is specifically permitted by Ohio law, has now

been labeled as "corrupt activity" in violation of §1954 and POCA. Had the lower courts

simply and properly deferred to the Department's primary jurisdiction over the business of

insurance, this conflict between Ohio insurance law and §1954 would not exist.

CONCLUSION

For all of the reasons set forth above and in the memorandum of Appellants, the

Ohio Big I respectfully requests that this Court reverse and enter judgment in Appellants'

favor.

Respectfully submitted

Mark F. Fischer (0054056)Fischer, Evans & Robbins, Ltd.4505 Stephen Circle NW, Suite 100Canton, Ohio 44718mff@fer-law.netTelephone: (330) 244-0997Facsimile: (330) 244-8966

Attorney forAmicus Curiae IndependentInsurance Agents ofOhio, Inc.

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CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing has been served upon the following byU.S. Mail, postage prepaid, this 15th day of October, 2012:

Daniel R. Warren (0054595)Scott C. Holbrook (0073110)Karl Fanter (0075686)Baker & Hostetler, LLPPNC Center1900 East Ninth Street, Suite 3200Cleveland, Ohio 44114

Linda Woggon (0059082)Ohio Chamber of Commerce230 East Town StreetColumbus, Ohio 43215

Attorney forAmicus CuriaeOhio Chamber of Commerce

Lee E. Plakas (0008628)Edmond J. Mack (0082906)Tzangas, Plakas, Mannos & Raies, LTD.220 Market Avenue South, 8th FloorCanton, Ohio 44702

Attorneysfor Plain tiff-Appellee

John R. Gall (0011813)Keith Shumate (0056190)Heather L. Stutz (0078111)Christopher F. Haas (0079293)Squire Sanders (US) LLP2000 Huntington Center41 South High StreetColumbus, Ohio 43215-6197(614) 365-2700(614) 365-2499 (facsimile)John.Gall@squiresanders.com

Robin R. Weaver (0020673)Squire Sanders (US) LLP4900 Key Tower127 Public SquareCleveland, Ohio 44114Telephone: (216) 479-8500Facsimile: (216) 479-8780

Anne Marie Sferra (0030855)Bricker & Eckler LLP100 South Third StreetColumbus, Ohio 43215

Attorney forAmicus CuriaeOhio Manufacturers'Association

Robert S. Hendrix (0034468)6295 Emerald Parkway, Suite 101Dublin, Ohio 43016

Attorney forAmicus Curiae NAIFA-Ohio

Bradford P. Campbell (PVH-2631-2012)Kristin Going (0070504)Drinker Biddle & Reath LLP1500 K StreetWashington, DC 20005

D. Alicia Hickok (PHV-2632-2012)Drinker Biddle & Reath LLPOne Logan Square, Suite 2000Philadelphia, Pennsylvania 19103

Attorneys forAmicus CuriaeAmerica's Health Insurance Plans

Allen Schulman, Jr. (0001124)Brian L. Zimmerman (0042351)SCHULMAN & ZIMMERMAN236 Third St. SWCanton, Ohio 44702Telephone: (330) 456-4400Facsimile: (330) 456-3641

Attorneys for Defendants-Appellants

Mark F. Fischer