District Court, Montrose County, Colorado

Court Address: 1200 North Grand Avenue Bin A Montrose, CO 81401 Court Phone: 970-252-4300

EFILED Document CO Montrose County District Court 7th JD Filing Date: Dec 6 2011 3:49PM MST Filing ID: 41254780 Review Clerk: N/A

Plaintiff: PNC BANK, NATIONAL ASSOCIATION v. Defendants: INTERMOUNTAIN RESOURCES, LLC and INTERMOUNTAIN FOREST PRODUCTS, LLC And concerning: Receiver: CORDES & COMPANY, and Joined Party: TIMBER PRODUCTS MANUFACTURERS TRUST COURT USE ONLY

Case Number: 2010 CV 227 Division: 4 Courtroom: 2B

ORDER REGARDING CONTEMPT MOTION

This matter came before the Court on 10-27-11 for a hearing on a contempt motion filed on 4-12-11 by Cordes & Company (Receiver) against Timber Products Manufacturers Trust (Trust). A representative of the Receiver appeared with counsel, Mr. Dempsey. A representative of the Trust appeared with counsel, Mr. Sanchez. At the conclusion of the evidence, the Court directed the parties to file closing arguments in writing. They have now done so. Having now reviewed the motion, response, the applicable law, the evidence presented, the arguments of counsel, and the history of this case in general, the Court finds, concludes and orders as follows:

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This is a contempt proceeding under C.R.C.P. 107. On May 19, 2010, this Court entered an Order Appointing Receiver (the “Receivership Order”) in the above-captioned action placing certain assets of Intermountain Resources, LLC and Intermountain Forest Products, LLC (collectively, “Intermountain”) in the control of Cordes & Company (the “Receiver”), the Court-appointed receiver. Intermountain operates a lumber mill in Montrose, Colorado. The Receiver continues to operate the lumber mill. Timber Products Manufacturers Trust (the “Trust”) is a self-funded Multiple Employer Welfare Arrangement (“MEWA”) pursuant to the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. 1101, et seq.. The Trust provides health benefits to employers in the timber and lumber industry. Brian Davis (“Davis”) is the Health Plan Director for the Trust. The Trust is not a fully-funded MEWA. From 2005 to 2010, the Trust provided health benefits to Intermountain’s employees and their families. Although licensed in and authorized to operate in the states of Wyoming, Montana, Washington, and Oregon, the Trust has not obtained authority to transact business in Colorado. The Trust failed to comply with any of Colorado’s

insurance licensure requirements including C.R.S. 10-3-903.5 and operated in Colorado without authority from the Colorado Division of Insurance (“DOI”) for five years. The Trust hired Allegiance Benefits Plan Management, Inc. (“Allegiance”) to serve as its agent and administrator with respect to benefits provided to Intermountain and its employees. Allegiance is a Montana corporation and has obtained authority to transact business in Colorado. Roger Cowan (“Cowan”) is a manager of Allegiance. He is a lawyer but is not licensed in Colorado.

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Although the Trust admits that it has never been authorized to operate in Colorado, the Oregon-licensed Trust nevertheless provided health benefits under its Oregon plan to Intermountain beginning in 2005 based on its determination that Intermountain was part of a “control group” with McDougal Brothers Investments, an Oregon-based company. According to the Trust, Intermountain’s eligibility terminated in August 2008 when McDougal Brothers Investments sold its interest in Intermountain and thus Intermountain was no longer part of the McDougal Brothers “control group.” The Trust now contends that Intermountain failed to give notice of Intermountain’s ineligibility in 2008 and misled the Trust into providing coverage from September 2008 through April 2010. As a result,

the Trust asserts that it paid $1,209,821 in “ineligible claims and expenses" during that period and is entitled to recover from Intermountain and/or the employees the sum of $532,756 — the amount of benefits the Trust has paid in excess of Intermountain’s premiums (the “Alleged Overpayment”).
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Under the terms of the benefits plan, the

Trustees of the Trust possess the right to recover benefits paid in error. Prior to the entry of the Receivership Order, the Trust was in the process of evaluating Intermountain’s eligibility for coverage and had started to take steps to terminate coverage of the Intermountain employees. For example, in early April 2010, the Trust engaged counsel in Colorado to make an anonymous inquiry to the Colorado
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The Trust's position is undercut by its admission that it relied on participants to "self-report" their ineligibility for coverage and that the Trust did not perform its own eligibility audits during the time it provided benefits to Intermountain. Second, the record is clear that the Trust questioned Intermountain's eligibility in 2009 yet chose to renew Intermountain's coverage for 2010 without resolving its questions regarding Intermountain's eligibility. Finally, the Trust’s assertion that Intermountain misled the Trust for more than a year generates little sympathy when the Trust operated in Colorado without legal authority for more than five years.
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Division of Insurance (“DOI”) as to how a MEWA operating in Colorado without authority could extract itself from the state of Colorado. During these brief communications, the DOI advised the Trust’s counsel that a MEWA operating without authority from the DOI must stop providing coverage in Colorado. The DOI also indicated that if an unlicensed MEWA withdrew from Colorado without any harm to employees, the DOI would not pursue regulatory enforcement action. Obviously seeking to avoid regulatory enforcement by the DOI, neither the Trust nor the Trust’s counsel ever disclosed the identity of the Trust or Intermountain to the DOI. On April 15, 2010, the Trust sent Intermountain a “Notice of Termination of Coverage” advising Intermountain that it was no longer eligible for coverage and that coverage would terminate effective June 1, 2010. This Notice was sent only to

Intermountain and not to the employees. Intermountain and its employees paid the Trust all invoiced premiums through April 2010. Due to its financial difficulties, Intermountain made its last payment to the Trust in April 2010. On May 19, 2010, the Court issued an order placing certain assets of Intermountain into receivership and appointed Cordes & Company to be the Receiver for such assets. On May 19, 2010, the same day that the Court issued the Receivership Order, the Trust sent a letter to Intermountain’s employees informing them that their coverage under the Trust’s health benefits plan would terminate in approximately two weeks, effective May 31, 2010. This was the first letter Intermountain’s employees received regarding the

termination of their policy. With this letter, the Trust sent Intermountain employees a Certificate of Group Health Plan Coverage (“Certificate of Coverage”) certifying to the

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employee and any successor insurer that the employee’s coverage for health and prescription benefits would terminate on May 31, 2010. By June 7, 2010, the Trust and Allegiance knew that Intermountain was in receivership. At this time, the Trust and Allegiance confirmed to each other in emails between Davis and Cowan that the receivership would “create some big obstacles” to collect the Alleged Overpayment. On June 9, 2010, Cowan advised Davis that he was working to obtain the name of the Receiver and was calling this Court to obtain a copy of the Receivership Order. Moreover, on June 9, 2010, the Receiver sent a letter and a copy of the Receivership Order via U.S. mail to all of Intermountain’s known vendors and creditors. In particular, the Receiver sent his letter and a copy of the Receivership Order to the address of the Trust’s office in Spokane, Washington. Davis claims that the Trust was not aware of the Receivership Order until he received the Receiver’s July 19, 2010 letter. While conceding that the Receiver’s June 9, 2010 letter and order was sent to the correct physical address for the Trust, Davis testified that the Trust did not “receive” the letter in early June 2010 because it was addressed to TPM Services Inc., a separate legal entity and affiliate of the Trust that also provided services to Intermountain. Davis’s testimony lacks credibility, however, as Davis admitted that TPM Services, Inc. and the Trust are affiliates that share the same office space where only 11 employees work and all the mail is opened by the same person. Assuming normal delivery speed for first class U.S. mail, the Court finds that the Trust had knowledge of the Receivership Order by at least June 16, 2010, a week after the Receiver sent his letter and a copy of the Receivership Order to the Trust’s

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offices. Even if the Trust received the Receivership Order on July 19, 2010 as the Trust contends, the difference of dates has no impact on the Court’s decision. By receiving the Receivership Order, the Trust was on notice that the Receivership Order enjoined any creditor of Intermountain from engaging in any collection efforts against Intermountain or terminating any insurance policies. Specifically, as of at least June 16, 2010, the Trust was on notice that paragraph Q of this Court’s Receivership Order stated: Creditors and all other persons are hereby restrained and enjoined from commencing any action to interfere with or impede the activities and actions of the Receiver hereunder and its efforts to take exclusive control of the Receivership Assets. All persons or entities claiming to be creditors of any of the Collateral Defendants are hereby enjoined from (i) instituting or prosecuting any action, suit or proceeding against any of the Collateral Defendants or any of the Receivership assets, (ii) seeking or executing on any levy, attachment or garnishment against any of the Collateral Defendants or any of the Receivership Assets, (iii) taking or attempting to take possession of any of the Receivership Assets, and (iv) canceling any insurance policy, lease or other contract with any of the Collateral Defendants or terminating any telephone, electric, gas or other utility services to any of the Collateral defendants without first obtaining the prior approval of this Court. Any other person who becomes aware of this Order shall not interfere in any way with the possession or operation of any of the Collateral Defendants and/or Receivership Assets by the Receiver. On June 24, 2010, the Trustees of the Trust conducted a Trustee Meeting and discussed the Intermountain receivership, the fact that the Alleged Overpayment was an unsecured claim and would be “hard to get,” but that the Trust may have an opportunity to recover from Intermountain’s insurance broker’s insurance policy. Alternatively, Brian

Davis, a 21-year veteran of the Department of Labor, stated at this meeting that the Trust may be able to “use the labor department resources to help with recovery.” The Trustees approved a motion to authorize demand letters be sent to participants and the receiver and to authorize Davis to approach the Department of Labor.

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Aware of the receivership and the Receivership Order, and after certifying to the employees that their coverage would end on May 31, 2010, the Trust nevertheless sent a second set of letters to Intermountain’s employees on June 30, 2010, informing them that their health and prescription benefits coverage under the Trust’s policy would be retroactively terminated as of April 30, 2010 due to Intermountain’s failure to pay its May 2010 premium. With this letter, the Trust sent employees a second Certificate of

Coverage certifying that the employee’s coverage for health and prescription benefits terminated on April 30, 2010 rather than May 31, 2010. On the same date, the Trust sent out an additional set of letters to the Intermountain employees demanding that they reimburse the Trust within 30 days for any payments the Trust paid for prescriptions filled by the employees in May 2010. Meanwhile, the Trust denied all employee claims

submitted by the employees’ providers during the month of May 2010. Despite knowledge of the receivership and the Receivership Order, the Trust made no effort to advise the Receiver or the Court of this action and made no effort to seek Court approval for this action. The Trust’s actions caused immediate impact on Intermountain’s employees and its operations. Many employees had relied on the Trust’s previous letters and Certificate of Coverage certifying that coverage would terminate May 31, 2010. The Trust’s retroactive termination of coverage to April 30, 2010, rendered the employees uninsured for all services performed and prescriptions filled in May 2010. Employee and Human

Resources manager H’Eloise Cunningham testified that she and other employees were scared, nervous, and unsure of what they would do to pay for all the services and prescriptions obtained in May 2010. Cunningham testified that employees were very

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upset and that between 20 to 40 employees came to Intermountain’s administration offices to ask what they were supposed to do with these medical and prescription bills from May 2010. One employee was very upset because his wife had obtained all her supplies to treat her diabetes during the month of May 2010 and that claims for such supplies would now be denied. The Trust’s unapproved action to retroactively terminate coverage back to April 30, 2010 caused significant disruption among the Intermountain employees and required the Receiver and his staff to investigate the Trust’s actions and respond to dozens of employees’ inquiries. On July 16, 2010, the Trust sent a letter to the Receiver demanding that Intermountain remit $523,756, the Alleged Overpayment. Writing for the Trust, Davis’s letter threatened the Receiver that the Trust intends to “pursue this matter vigorously, including litigation if necessary, and reporting the matter to the United States Department of Labor for investigation and assistance.” On July 19, 2010, the Receiver sent Davis and the Trust a response wherein he informed the Trust that Intermountain had been placed into receivership, and that any prereceivership claims against the estate would have to be submitted in accordance with the terms of the Receivership Order. The Receiver’s letter also informed the Trust that his letter was neither a denial nor acceptance of the Trust’s claim but, to the extent it had a valid claim, that claim would likely be treated as an unsecured claim. The Receiver

included another copy of the Receivership Order with his letter. The Trust did not respond to the Receiver’s July 19, 2010 letter. Rather than follow the Receivership Order and submit its claim to the Receiver like Intermountain’s other trade vendors, the Trust elected to pursue Davis’s “Department of

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Labor” collection strategy to collect on its claim: i.e., create intense pressure on Intermountain’s owners and principals to repay the Trust on its claim by provoking the U.S. Department of Labor (“DOL”) to open an investigation against Intermountain and its owners/principals. Admitting that the DOL would likely be more reactive to complaints from employees rather than directly from the Trust itself, Davis and the Trust developed a plan to spark widespread financial havoc among Intermountain’s employees to provoke employees into filing complaints with the DOL and indirectly prompt a DOL investigation targeting Intermountain’s owners and principals. To instigate employee complaints to the DOL, Davis and the Trust engineered a plan to send demand letters to every healthcare provider that received any portion of the more than $1.2 million that the Trust paid on claims between September 2008 and May 2010. Meanwhile, the Trust would also notify each of the current and former employees and other family participants that had obtained health benefits from the Trust during the period from 2005 to April 2010 with separate letters alerting them that such demands were being made to their providers. While the Trust hoped to recover funds directly from the providers, the real purpose of the plan was to cause such disruption with the employees that they would file complaints with the DOL, who would, in turn, put pressure on Intermountain’s owners/ principals. At first, the Trust’s DOL plan just started out as a threat. On August 20, 2010, Davis sent a letter directly to Harold Rosbottom, one of the principals of Intermountain, demanding payment of the Trust’s alleged $532,756 claim. In that letter, the Trust warned Rosbottom that, if the Trust’s claim went unpaid, the Trust would report the matter to the DOL. Davis’s letter further represented to Rosbottom that the Trust had “begun the

process of seeking refunds for all claims paid by the Trust from both your employees and

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the medical providers.” However, at the time the letter was sent to Rosbottom, the Trust had not yet sent any demand letters to employees or providers. At trial, Davis confirmed that his statement was meant to serve as a threat in order to get Intermountain’s attention. The Trust’s claim for the Alleged Overpayment remained unpaid. Therefore, in late September 2010 and early October 2010, the Trust further escalated its collection efforts and launched its collection campaign against the employees and their healthcare providers. Again, fully aware of the receivership and the Receivership Order, and after

previously certifying to the employees that their coverage would end on May 31, 2010, then April 30, 2010, the Trust nevertheless sent a third set of letters to employees on September 29, 2010, informing them that their health and prescription benefits coverage under the Trust’s policy would be retroactively terminated as of August 31, 2008. With

this letter, the Trust sent employees a third Certificate of Coverage certifying that the employee’s coverage for health and prescription benefits terminated on August 31, 2008, rather than May 31, 2010 or April 30, 2010. At the same time, the Trust sent out demand letters to the employees’ healthcare providers as well as separate letters to the employees alerting them to the demands being made to their providers. One employee, H’Eloise Cunningham, received approximately a dozen separate letters from the Trust during this period. Such letters advised Ms.

Cunningham that the Trust was denying approximately $13,000 in claims submitted by her providers between September 2008 and April 2010 arising primarily from her week-long stay at a Delta hospital to recover from a heart attack. At least one of Ms. Cunningham’s providers paid the Trust’s demand. That provider then sought payment on their 2008 invoice from Ms. Cunningham. When she failed to immediately pay it, the provider

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assigned the invoice to a collection agency to pursue collection from Ms. Cunningham and a negative report about Ms. Cunningham’s failure to pay the invoice was sent to credit reporting agencies. In response, Cunningham spent several hours investigating the

identity of the claim and provider, speaking with the provider’s office by phone, and writing a detailed response to the letter from the provider’s collection agency. Testifying also as the Human Resources Manager for Intermountain and the receivership, Ms. Cunningham testified all employees received the same types of letters from the Trust. Despite knowledge of the receivership and the Receivership Order, the Trust made no effort to advise the Receiver or the Court of these actions and made no effort to seek Court approval for these actions. When the Trust began sending these letters, it was well aware that many of the providers would refuse to voluntarily remit funds to the Trust. Instead, the real purpose of sending out these letters was to use Intermountain’s employees as a collection tool. 2 Along with sending out the letters, the Trust, through Allegiance, trained its call center employees on how to respond to the inquiries and complaints from employees and providers. The Trust’s call center employees were instructed to inform employees and providers that their policy was retroactively terminated due to the fault of their employer, and that the employee or provider should file a complaint against Intermountain with the
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The evidence at trial reflects that the Trust employed a shotgun approach to collection whereby it sent out demand letters to essentially all the providers that received any payments between September 2008 and April 2010 (totaling approximately $1.2 million) to collect its Alleged Overpayment of $532,756 (payments made in benefits in excess of premiums received). The Trust’s plan was illconceived and reckless in that the Trust had not developed a plan for how it would account for or otherwise reconcile reimbursements received from its stop-loss providers or funds it received from various providers serving several employees.
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DOL. The call center employees even provided instructions on how to file a complaint, including supplying the employees and providers with phone numbers to the DOL. The Trust’s plan to spark panic and anger among the employees by sending collection letters into the employees and providers worked. Immediately after the Trust sent out its collection letters, the Receiver and the administrative staff of the lumber mill were inundated with employees coming into the mill’s administrative office with copies of the many letters they had received and expressing anger over the loss of benefits back to 2008. Cunningham testified that at least 75% of the employees do not speak English and that they were unclear about what the Trust was doing and the possible impact the Trust’s actions would have on them and their families. Due to the numerous complaints and the enormous disruption on the receivership’s operations caused by the Trust’s collection letters, the Receiver immediately sent a letter to the Trust on October 5, 2010, demanding that the Trust rescind the demand letters it had recently sent to providers. The Receiver noted in his letter that the Trust’s demand letters to providers was nothing more than an attempt to circumvent the receivership and collect on its alleged claim via Intermountain’s employees. The Receiver advised the Trust that as providers received the Trust’s demands, the providers would in turn contact the employees demanding repayment from them. The Receiver advised that the Trust’s actions were causing his employees to be harassed and threatened with negative consequences to their personal credit reports. Meanwhile, given the numerous employee complaints and the fact that many of the employees did not speak English, and to minimize the negative impacts the Trust’s letters were having on the mill’s operations, the Receiver and his administrative staff were

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required to develop and carry out a campaign to neutralize the impact of the Trust’s actions. For example, Ms. Cunningham and other administrative staff devoted significant time to gathering the letters received by employees and researching the contact information for the providers targeted by the Trust as such information was not included in the Trust’s letters. Ms. Cunningham and others in the administrative office spent several days researching contact information through the phone book and began making calls to providers advising them that the Receiver disputed the Trust’s actions and that the Receiver requested that the provider hold the issue in abeyance pending resolution of the matter in the receivership court. Many providers requested additional backup information and Ms. Cunningham, the Receiver, and others in the administrative office dedicated many hours to preparing and sending information packets to numerous providers on behalf of the employees. In addition, Ms. Cunningham and the Receiver have responded to and continue to respond to numerous telephone inquiries from employees, former employees, family members of employees, providers, investigators and others to provide periodic status updates about the situation. Ms. Cunningham and the Receiver have also been required to devote significant time and resources to participate in the multiple phases of this contempt proceeding. By letter dated October 19, 2010, the Trust responded to the Receiver’s October 5, 2010 letter and refused to rescind the letters. Instead, the Trust concluded its response by “warning” and threatening the receiver that the Trust would take legal action against any person interfering with the Trust’s collection efforts. Ignoring the Receiver’s October 5, 2010 demand to stop collection efforts against providers and the employees, the Trust continued to escalate its collection campaign by

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sending a second round demand letters in November 2010. In December 2010, the Trust followed up with a third round of even more aggressive demand letters to providers. Many providers complied with the Trust’s demand and reimbursed the previously paid claims to the Trust. After repaying the Trust, such providers then sent bills to the employees for the amount remitted to the Trust. As a result, many employees were receiving medical bills for services provided during the period from September 2008 to April 2010. In some instances, the unpaid medical bills were sent to collections, and many employees’ credit reports were negatively affected. On December 13, 2010, the Receiver’s newly engaged counsel sent a letter to Davis and the Trust reiterating the Receiver’s demand that the Trust comply with Paragraph Q of the Receivership Order and rescind its demand letters to the employees’ providers. The Trust ignored the Receiver’s letter. During the first few months of 2011, the Trust continued to prosecute its collection campaign against the employees and their providers. On April 12, 2011, the Receiver filed a Motion for Order to Show Cause Why Timber Products Manufacturers Trust Should Not be Held in Contempt of Court for Violation of the Order Appointing Receiver (the “Contempt Motion”). Specifically, the Receiver claimed that the Trust violated the

Receivership Order by terminating Intermountain’s health-benefits policy in violation of the Receivership Order and engaging in a collection campaign to collect two years’ worth of previously paid insurance claims as a way to circumvent the terms of the Receivership Order. The Court issued its Order to Show Cause and Citation for Contempt on April 15, 2011. On May 9, 2011, the Trust filed a response asserting that the Trust was not subject

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to the personal jurisdiction of this Court and that the Receivership Order was preempted by ERISA. The Court held an advisement hearing on May 11, 2011. The Court permitted the parties to engage in limited jurisdictional discovery and scheduled a preliminary evidentiary hearing on the Trust’s request to dismiss the contempt proceeding on the grounds that the Court lacked personal jurisdiction over the Trust. On June 30, 2011, the Court conducted an evidentiary hearing on the Trust’s challenge to personal jurisdiction. After receiving testimony of witnesses and admitting numerous documents as evidence, the Court made oral findings and conclusions at the end of the hearing which are incorporated herein by reference. In sum, the Court found that the Receiver presented overwhelming evidence that the Trust had significant contacts with Colorado. Noting that it wasn’t even a close call, the Court held that it had both specific and general jurisdiction over the Trust. The Trust’s collection campaign continues to cause harm to the employees, Intermountain, and to the Receiver and its staff. The Receiver representative and Ms. Cunningham testified that they continue to learn of instances where employees are being impacted by the Trust’s collection campaign. Just days before the October 27, 2011

hearing, Ms. Cunningham discovered that a garnishment order on an employee’s wages arose from the Trust’s collection of funds from the employee’s healthcare provider. Employees have taken time to research and submit formal complaints to the Colorado Division of Insurance. Nine employees recently traveled several hours to and from Grand Junction in an effort to meet with the Commissioner of the Colorado Department of Insurance to follow up on their complaints. In addition, Receiver and its staff continue to devote time and energy responding to numerous written end telephonic inquiries about the

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Trust’s collection campaign from employees, former employees, family members of employees, providers, provider’s collection agents, as well as the investigations that have been commenced by the Colorado Division of Insurance and the U.S. Department of Labor. The Receiver has also continued to devote significant time to the prosecution of this contempt proceeding and has incurred and paid substantial legal bills to prosecute the Contempt Motion. Raymond Akers, the Supervisor of Corporate Affairs for the Colorado Division of Insurance, testified that a MEWA may operate in Colorado provided that it obtains a letter of authority from the Division of Insurance and that it comply with annual reporting requirements imposed by statute and regulations. Mr. Akers testified that the purpose of these and other requirements on MEWAs is to make sure the MEWA is financially sound, that it is offering benefits in compliance with Colorado statutes, and that the MEWA’s operations do not cause any harm to the consumer. To prevent the possibility of any harm to the consumer, Akers testified that the DOI requires that any contract that a MEWA has with a provider would have a “hold harmless” provision stating that the provider could not pursue collection against the policy holder. As a further protection for consumers, Akers testified that the DOI requires MEWAs to give policy holders advance notice of any decision to discontinue coverage in Colorado so that consumers can replace their coverage. Because the Trust was providing benefits to Colorado residents, Akers testified that the Trust is subject to regulation by the DOI. Akers testified that Colorado’s insurance statutes presume that any entity that provides health benefits in Colorado to be subject to the regulation of the DOI unless the entity can show an exemption. Akers testified that the

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Trust had never sought an exemption. Likewise, the Trust did not disclose to DOI that it intended to seek reimbursement from providers. Akers further testified that the DOI’s position is that ERISA does not preempt the DOI’s requirements or regulation of MEWAs such as the Trust. Akers confirmed that the DOI had received nine written complaints from Intermountain employees arising from the Trust’s collection campaign and that the DOI was investigating the complaints. Had the Trust disclosed to the DOI in April 2010 that it planned to retroactively terminate benefits to 2008 and seek recovery of two years’ worth of payments from providers, Akers testified that the DOI would not have permitted the Trust to carry out such a plan. Akers testified that the DOI would have advised the Trust that such a plan would not be acceptable as such plan would harm consumers, and that the DOI would pursue any and all legal action against such action. Akers advised the Court that given the Trust’s actions since April 2010, the DOI is investigating legal action against the Trust but the Insurance Commissioner has not yet authorized the Attorney General’s (A.G.) office to commence an action. The DOI, Akers and the A.G. seem to be waiting for the outcome of this case before deciding whether to take action. This inaction puts an unfair burden on the Receiver, the employees of Intermountain and the providers to effectively pursue enforcement of Colorado insurance regulations. The issue before the Court is limited to whether the Trust violated the Receivership Order. The Court does not make any findings or conclusions as to Intermountain’s

eligibility for coverage under the Trust’s plan or the Trust’s entitlement to recover the Alleged Overpayment as such issues are controlled by the plan documents, ERISA, and Colorado’s insurance laws and regulations.

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A person who resists or interferes with any lawful writ, process, order, rule, decree, or command of court can be held in contempt. White v. Adamek, 907 P.2d 735, 737 (Colo. App. 1995). Contempt for failure of a party to comply with a court’s order, which failure takes place outside of the courtroom, constitutes “indirect contempt.” C.R.C.P. 107(a)(3); see also Martinez v. Affordable Housing Network, Inc., 109 P.3d 983 (Colo. App. 2004). A court may enter either punitive and/or remedial sanctions under C.R.C.P. 107. Remedial sanctions are “[s]anctions intended to force compliance with a lawful order or to compel performance of an act within the person’s power or present ability to perform.” C.R.C.P. 107(a)(5). In this case, the Receiver requests the imposition of remedial A party seeking remedial sanctions must establish that the

sanctions against the Trust. offending party: 1) 2) 3)

did not comply with a lawful order of the court; knew of the order; and has the present ability to comply with the order.

In re Marriage of Cyr and Kay, 186 P.3d 88, 92 (Colo. Ct. App. 2008). Additionally, proof of willfulness is not required in order for a court to impose remedial contempt sanctions. Id. The Trust does not challenge the validity of the Receivership Order and has not

requested any modification or relief from the order. The Receiver asserts that the Trust is in violation of the Court’s Order Appointing Receiver because: 1) it terminated Intermountain’s health care plan after entry of the Receivership Order without prior approval of this Court; 2) it twice backdated its effective termination of Intermountain’s health plan after this Court’s entry of the Receivership Order without prior approval of the Court; and 3) it is engaging in collection efforts that are
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interfering with the activities of the Receiver because it is intentionally trying to circumvent the Receivership Order by improperly requiring repayment from the healthcare providers as a way to avoid compliance with the Receivership Order. The Court concludes that the Trust is not in contempt of Court for terminating Intermountain’s health care plan after entry of the Receivership Order without prior approval of this Court. It is undisputed that Intermountain stopped paying premiums for the health care plan after April, 2010. Although the Receivership Order prohibited

termination of insurance coverage without Court approval, the Trust provided Intermountain with Notice of Termination of Coverage approximately one month prior to the entry of the Order Appointing Receiver. The intent of the order was to prevent

disruption to the ongoing operations of Intermountain. Prohibiting termination of insurance coverage assumed that Intermountain was willing and able to pay for such coverage. It would not be fair, and the Court probably does not have the authority to order anyone to provide a service or product to Intermountain free of charge simply because Intermountain was in receivership. When the Receiver took control of Intermountain, the Receiver Neither Intermountain nor the

essentially stepped into the shoes of Intermountain.

Receiver can reasonably expect to be provided insurance coverage without paying for it. Had the matter come before the Court, the Court likely would have approved the Trust’s request to terminate coverage, subject to the Trust’s compliance with the requirements and policies of the Colorado DOI. Likewise, the Court concludes that the Trust is not in contempt of Court for terminating Intermountain’s health care plan retroactively. Had the Trust simply

terminated the plan retroactively and withdrawn from the State of Colorado as represented

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to the DOI, then there would have been no harm to employees of Intermountain and no significant disruption of the Intermountain operations. It was not the retroactive

termination of the health care plan that caused the problems, but rather the efforts to claim reimbursements for providers. The Court concludes that the Trust is in contempt of Court for engaging in collection efforts by seeking reimbursements from providers who provided services to employees of Intermountain and were initially paid under the health care plan. This action by the Trust interfered with the activities and actions of the Receiver in taking control of and operating Intermountain. The action taken by the Trust in this regard was disruptive to the ongoing operation of Intermountain and contrary to the Receivership Order. action was an attempt to circumvent the Receivership Order. The lawful order that the Trust violated is this Court’s Order Appointing Receiver that was filed on May 19, 2010 (the “Receivership Order”). Specifically, the Trust is in violation of paragraph Q of the Receivership Order. The Trust’s conduct and collection campaign violated Paragraph Q of the Receivership Order because the Trust interfered with the Receiver’s operation of the receivership assets. The Receivership Order is akin to the automatic stay in a bankruptcy proceeding in that both serve as a temporary injunction preventing creditors from attempting to collect from the debtor without first obtaining court approval. In the The

bankruptcy context, interfering with and exploiting a debtor’s employees as a way to indirectly attempt to collect a debt is a violation of the automatic stay. See In re A and C Electric Co, Inc., 188 B. R. 975, 980–81 (Bankr. N.D. Ill. 1995) (holding that a union’s letter to the debtor’s employees stating that they would lose their benefits if they continued to

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work for the debtor was an indirect attempt to collect a debt and a violation of the automatic stay). In this case, the Trust’s collection campaign and related conduct

impermissibly interfered with the Receiver’s operation of the lumber mill (the Receivership Assets). The evidence and findings above clearly establish that the Trust’s collection campaign accomplished the Trust’s goal of inflicting substantial and continuing financial hardship and distraction among the employees. In addition, the Trust’s collection

campaign has distracted the Receiver and his staff with the obligation to spend a considerable amount of time addressing complaints from employees and healthcare providers as well as toward the prosecution of this action and response to investigations being conducted by the Colorado DOI and the U.S. Department of Labor. Accordingly, the Court finds and concludes that the Trust has violated and failed to comply with the Receivership Order. As set forth in the findings above, the Court concludes that the Trust was aware of the Receivership Order at the times it violated the Receivership Order. Finally, the Trust has the ability to comply with the Receivership Order. The Trust has the ability to cease its collection campaign and to rescind all of the demand letters it sent to the healthcare providers. Additionally, the Trust has assets in excess of $1 million and therefore can afford to disgorge the funds it collected from the healthcare providers and cover costs associated with restoring employee credit reports that were negatively impacted. In addition to the findings and conclusions made above, the Court finds and concludes that the Trust is simply being greedy. The Trust is trying to saddle innocent health care providers and employees with the burden of poor business decisions made by

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the Trust. Had the Trust actually collected more in premiums than it paid out in claims during the same disputed period, the Trust likely would not be offering to return the difference. The Trust played fast and loose with Colorado insurance laws and regulation. This Court should not allow the Trust to take action which would have been prohibited had the Trust complied with proper procedures and regulations of Colorado insurance law.. The Trust’s sole objective was to collect its Alleged Overpayment and it did not care whether its collection efforts violated the Receivership Order, caused any impact on the Receiver’s operation of the mill, or whether its efforts imposed harm on the mill’s current and former employees and their families or numerous healthcare providers in Montrose County and Colorado. The Trust demonstrated its contempt for Colorado’s insurance laws and Colorado’s Division of Insurance. For five years, the Trust operated in Colorado without ever obtaining required approval from the Colorado DOI and failed to file any of the annual records required by Colorado’s insurance statutes. When dealing with the

Colorado DOI, the Trust hid its identity to evade enforcement activity and failed to ever disclose its collection campaign to the DOI before launching its campaign. In sum, the Trust has operated in Colorado with an overall disregard of and contempt for Colorado’s insurance laws, Colorado’s regulatory bodies and courts, and Colorado’s residents and healthcare providers. The Trust argues that as a self-funded ERISA Multiple Employer Welfare Arrangement that is licensed to conduct insurance business in Wyoming, Montana, Idaho, Washington, and Oregon, and given the Trust’s status as a MEWA created under ERISA, the Contempt Motion should be dismissed because the Receivership Order is preempted by ERISA. The Court disagrees.

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Presented as an affirmative defense to the Contempt Motion, the Trust has the burden of establishing its defense. While there is no dispute that the Trust’s Plan

Document is subject to the provisions of ERISA, that fact does not alter the conclusion that the Trust is subject to the Receivership Order and this Court’s finding of contempt. Subject to certain exceptions, ERISA provides that its provisions “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 4(a) and not exempt under section 4(b).” 29 U.S.C. § 1144(a). While ERISA’s preemptive scope can be broad, “it is certainly not boundless.” Woodworker’s Supply, Inc. v. Cipal Mutual Life Insurance Co., 170 F.3d 985, 990 (10th Cir. 1999). The Tenth Circuit has identified four causes of action that “relate to” a benefit plan for purposes of ERISA preemption, which are: 1) 2) such plans; 3) laws providing rules for calculating the amount of benefits to be paid under laws regulating the type of benefits or terms of ERISA plans; laws creating reporting, disclosure, funding or vesting requirements for

such plans; and 4) laws and common-law rules providing remedies for misconduct growing out

of the administration of such plans. Woodworker’s Supply, 170 F.3d at 990. At the same time, the Tenth Circuit has held: ERISA does not preempt all state law claims. It has no bearing on those which do not affect the relations among the principal ERISA entities, the employer, the plan, the plan fiduciaries and the beneficiaries' as such. As

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a corollary, actions that affect the relations between one or more of these plan entities and an outside party similarly escape preemption. Id. (internal quotations and citations omitted) (emphasis added). Preemption does not apply in this case because the claim at issue has been asserted by the Receiver. The Receiver represents the receivership estate which is a separate legal entity from Intermountain. The receivership estate is not one of the ERISA plan entities. The Receivership Order as well as the Receiver’s claim that the Trust

violated the Receivership Order affects the relations between the outside Receiver and the Trust. Accordingly, under the Tenth Circuit’s application of ERISA preemption provisions, neither the Receivership Order nor the Receiver’s claim that the Trust violated the Order is preempted by ERISA. Additionally, the Tenth Circuit has stated: [I]f a state-law claim has only a tenuous, remote, or peripheral connection with the plan, as is true of most laws of general applicability, it is not preempted. Claims that solely impact a plan economically generally fall within this latter category. Indeed, [a]s long as a state law does not affect the structure, the administration, or the type of benefits provided by an ERISA plan, the mere fact that the law has some economic impact on the plan does not require that the law be invalidated. David P. Coldesina, D.D.S., P.C., Employee Profit Sharing Plan and Trust v. Estate of Simper, 407 F.3d 1126, 1136 (10th Cir. 2005) (internal quotations and citations omitted). One court that applied this principal to a receivership case found only a tenuous relationship and determined that ERISA does not preempt receivership laws. See Credit Managers Assoc. v. Kennesaw Life Accident Ins. Co., 25 F.3d 743, 752 (9th Cir. 1994) (“Because California receivership law has, at most, only a tenuous relationship with the ERISA actions . . . the state law is not preempted.” (internal citations omitted)).

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The Receiver’s Contempt Motion is not preempted by ERISA because the Contempt Motion does not fall within one of the four categories listed above. While the Contempt Motion certainly has a connection to a MEWA plan, the connection is peripheral at best. The Court’s ruling in this contempt proceeding is not altering, affecting, or

regulating the terms of the Trust’s ERISA-based plan; rather this contempt proceeding is premised on the Trust’s failure to abide by the mandates of this Court’s Receivership Order. Moreover, the remedies outlined in this order are designed to remedy the damages resulting from the Trust’s contempt of the Receivership Order, and the remedies are not directed at any misconduct by the Trust in its administration of the Intermountain plan. The Receivership Order is akin to a law of general applicability, all persons, to the extent they are creditors of Intermountain, are subject to the Receivership Order. The Trust’s status as an ERISA-based trust does not give it immunity over all state laws of general applicability. In this situation, the Trust is in contempt of this Court’s Receivership Order because it did not first seek the approval of this Court before it engaged in its collection campaign. Even if the Contempt Motion does fall within one of the four categories above, the Contempt Motion is still not preempted because it falls within one of the enumerated exceptions to 29 U.S.C. § 1144(a). ERISA’s preemption clause includes a savings clause that provides: “Except as provided in subsection (B), nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.” 29 U.S.C. § 1144(b)(2)(A). Subsection B of the savings clause, known as the “deemer clause” provides that a state law cannot deem a ERISA trust to be an insurance company. 29 U.S.C. § 1144(b)(2)(B).

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However, an analysis of the deemer clause is not required for the Contempt Motion because ERISA’s preemption clause also provides an exemption to the deemer clause that authorizes states to regulate non-fully insured MEWAs pursuant to state insurance laws, as long as those laws are not inconsistent with ERISA. 29 U.S.C. § 1144(b)(6)(A)(ii); see also Fuller v. Norton, 86 F.3d 1016 (10th Cir. 1996). Specifically, the Tenth Circuit has held that non-fully insured MEWAs are subject to Colorado’s state insurance regulations to the extent the MEWA is conducting insurance business in Colorado. See Fuller, 86 F.3d at 1024. Accordingly, the fact that by this Order, the Court is enjoining the Trust from engaging in its collection campaign against the Intermountain employees and their healthcare providers does not create an ERISA preemption issue. In this case, the Trust has admitted that it is not fully insured. As a non-fully insured MEWA operating in

Colorado, the Trust is subject to Colorado’s insurance laws and the regulatory authority of the Colorado DOI and does not receive the full benefit of ERISA’s preemption provisions. Accordingly, even the underlying issues of whether the Trust has a valid claim against the receivership estate and/or is allowed to engage in its current collection efforts (assuming it first obtains Court approval) are not preempted by ERISA. Those issues must be

determined in accordance with Colorado’s insurance laws, including its consumer protection provisions. Therefore, the Receiver’s Contempt Motion and the remedial

sanctions sought therein are not preempted by ERISA.

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ORDER Based on the Court’s findings and conclusions set forth above that the Trust has violated and is in contempt of the Receivership Order, it is hereby ORDERED that the Receiver’s request for remedial sanctions under C.R.C.P. 107(d)(2) to purge the contempt is GRANTED; and it is FURTHER ORDERED that the Court imposes a fine and/or jail sentence, the amount of which and/or the length of which will be determined at a future hearing if and when the Court is made aware of a failure to comply with the balance of this Order which provides the Trust a way to purge the sanctions; and it is FURTHER ORDERED that the Trust, its agents, employees and all others acting in concert with the Trust are hereby ENJOINED from taking any further collection efforts against the healthcare providers or any other person that received payment on claims submitted to the Trust by or on behalf of Intermountain participants from August 31, 2008 to the present; and it is FURTHER ORDERED that the Trust shall: a. submit any claim regarding the Alleged Overpayment to the Receiver to be

administered with all other creditor claims against the receivership estate; b. within ten (10) business days of the entry of this Order, (1) send a letter rescinding

its demand for repayment of claims in a form approved by the Receiver to each and every healthcare provider to which the Trust sent demands for reimbursement of claims paid from August 31, 2008 to the present, and (2) provide a copy of all such letters to the Receiver and each affected employee or participant;

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c.

within ten (10) business days of the entry of this Order, provide the Receiver and

the Court with a detailed accounting of each payment received by the Trust as a result of any letters sent from and after May 19, 2010 to providers and employees or other participants demanding repayment or reimbursement for claims paid from August 31, 2008 to the present (identifying the amount received from each provider or participant and the contact information of the individual or entity that returned each payment); d. within ten (10) business days of the entry of this Order, disgorge to the Receiver

all funds returned to the Trust by providers, employees or other participants in response to the Trust’s demands for reimbursement of claims paid from August 31, 2008 to the present. The Receiver shall hold the funds disgorged by the Trust in a separate bank account for the benefit of the providers and/or employees or participants. The Court hereby appoints the Receiver to serve as the Receiver over such funds and directs the Receiver to take any necessary actions to properly reconcile and return such funds to the provider or employee or participant such that the provider and the employees are restored to the same position they were in as of the entry of the Receivership Order on May 19, 2010. The Trust shall fully cooperate with the Receiver in fulfilling this task. The Receiver shall keep records of all payments made to providers, employees or participants. The Trust shall advance $15,000 to the Receiver as an

advance retainer for the Receiver’s reasonable fees and expenses (and legal fees) incurred in fulfilling the requirements of this Order. The Court directs the Receiver to use its best efforts to fulfill the requirements of this Order by January 31, 2012 and directs that the Receiver shall provide the Court with a status report and accounting by January 31, 2012. The Receiver may submit to the Court and the Trust regular monthly invoices for

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fees and expenses incurred in fulfilling the requirements of this Order. If the Trust does not file a written objection to the invoice within fifteen (15) business days of service of the invoice, the Receiver may draw on the retainer to satisfy the invoice. If the Trust files an objection, the Receiver may file a response within fifteen (15) business days and the Court will enter an order resolving any issues. Once the Receiver provides notice to the Court that it has completed the work required by this Order, any unused portion of the retainer shall be refunded to the Trust. In the event the retainer is insufficient, the Trust shall remain responsible for the payment of the Receiver’s fees and expenses relating to this Order and the Receiver may apply to the Court for an order requiring the Trust to replenish the retainer. e. if either the Colorado Division of Insurance or the Department of Labor take

any action against the Trust while the Receiver is performing its obligations under this Order, the Receiver shall notify the Court of such actions within ten (10) business days of receiving notice of such actions. To the extent any actions taken by either the Colorado Division of Insurance or the Department of Labor overlap with the Receiver’s obligations under this Order, the Receiver shall cooperate and coordinate with either or both agencies, including but not limited to, seeking a modification of this Order. f. within ten (10) business days of the entry of this Order, provide the Receiver with

a letter executed by the Trust, in a form approved by the Receiver, advising providers and credit agencies of this proceeding and directing such providers and agencies to remove or withdraw any negative credit information reported on any Intermountain participant’s credit report arising or resulting from the Trust’s demand letters.

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IT IS FURTHER ORDERED that the Receiver is entitled to an award of its attorneys’ fees and costs incurred in prosecuting the Contempt Motion. The Receiver shall submit an application for its fees and costs pursuant to the procedure set forth in C.R.C.P. 121 § 1-22 within 15 days. The normal response and reply time shall follow. Any objection to the attorney fees requested shall be specific, including whether the objection is to the hourly rate being charged and/or the number of hours devoted to the contempt proceeding. FINALLY, IT IS FURTHER ORDERED that failure of the Trust to comply with this Order shall be brought to the attention of the Court by motion of the Receiver requesting that the matter be set for a hearing to impose the remedial sanctions for failure to purge. Likewise, final compliance with this Order shall be brought to the attention of the Court by motion of the Receiver requesting that the contempt citation be dismissed.

Signed this 6th day of Dec., 2011. By the Court: ________________________________ James Schum—District Court Judge

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