JEROME B. FALK, JR. (No.

39087) Exempt from filing fee pursuant to

STEVEN L. MAYER (No. 62030) Government Code Section 6103
2 JOHN P. DUCHEMIN (No. 250501)
HOWARD RICE NEMEROVSKI CANADY
3 FALK & RABKIN
A Professional Corporation
4 Three Embarcadero Center, 7th Floor
San Francisco, California 94111-4024
5 Telephone: 415/434-1600
Facsimile: 415/217-5910
6
ADAM M. COLE (No. 145344)
7 General Counsel
RICHARD G. ICRENZ (No. 59619)
8 Assistant Chief Counsel
JILL A. JACOBI (No. 114892)
9 ANTONIO CELAYA (No. 133075)
GEORGE T. TEEKEL (No. 211850)
10 Senior Staff Counsel
CALIFORNIA DEPARTMENT OF INSURANCE
11 45 Fremont Street, 23rd Floor
San Francisco, California 94105
12 Telephone: 415/538-4500
Facsimile: 415/538-5889
HOWARD 13
RICE
NEMEROVSKJ Attorneys for Petitioner and Plaintiff STEVE
CANADY
FALK 14 POIZNER, Insurance Commissioner
& RASKIN

SUPERIOR COURT OF THE STATE OF CALIFORNIA

16 COUNTY OF SACRAMENTO

17 STEVE POIZNER, in his official capacity as No.

Insurance Commissioner of the State of California,
18 VERIFIED PETITION FOR WRIT OF
Petitioner/Plaintiff, MANDATE; COMPLAINT FOR
19 INJUNCTIVE AND DECLARATORY
RELIEF; AND COMPLAINT FOR
20 DETERMINATION OF INVALIDITY
MICHAEL C GENEST, Director of Finance;
21 BILL LOCKYER, State Treasurer; STATE OF
CALIFORNIA; ALL PERSONS INTERESTED IN
22 THE VALIDITY OF THE SALE OR
DISPOSITION OF THE ASSETS AND
23 LIABILITIES OF THE STATE
COMPENSATION INSURANCE FUND
24 AND/OR THE CONTRACTS IMPLEMENTING
SAID SALE OR DISPOSITION; and DOES 1
25 through 20,
Defendants,
26
STATE COMPENSATION INSURANCE FUND,
27
Real Party in Interest.
28

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

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

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

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

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

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

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

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

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

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

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

HOWARD 13 from the sale of SCIF's assets and liabilities, or other funds received as a result of the transaction, be
RICE
NEMEKOVSKI
CANADY 4 deposited into the State's General Fund, where they may be used for any purpose, whether related to
FALK 1
14 KABKIN

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

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

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

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

19 2 ABX4 12 is unconstitutional, in whole or in part, for two reasons. First, the sale or

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

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

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

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

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

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

26 Section 4. ABX4 12 therefore violates that provision.

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

28 that made the Insurance Commissioner an elective office, rather than an office filled by a
-1-
VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF
 1 gubernatorial appointee. The voters who enacted that initiative could not have intended that the

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

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

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

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

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

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

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

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

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

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

12

HOWARD 13 PARTIES
RICE
NEMEKOVSKI
CANADY
FALK 14 4. Plaintiff ("Plaintiff' or "Commissioner") Steve Poizner is the elected Insurance
& RASKIN

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

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

17 brings this action in his official capacity.

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

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

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

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

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

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

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

25 transaction authorized by ABX4 12 is to be conducted.

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

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

28 implement that sale or disposition.

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VER. PET. WRIT OF MANDATE; CO PL. INJUNCTIVE & DECLARATORY RELIEF
 1 9. Real Party in Interest State Compensation Insurance Fund ("SCIF") is California's

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

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

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

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

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

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

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

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

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

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

12 true names and identities when ascertained.

HOWARD 13 11. Plaintiff is informed and believes, and thereon alleges, that in committing the acts herein
• RICE
NEMEROVSKI
CANADY A
FALK •LRF,
alleged, Defendants, and each of them, acted as the agent, servant, or employee of each and every
83 RASKIN
,„‘„,,„,„,,,„„t„„„,,
15 other Defendant, and committed the acts described in the course of this Complaint in the course and

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

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

18 other Defendant.

19

20 SERVICE OF PROCESS
21 12. The Sacramento Bee is a newspaper of general circulation published in the County of

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

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

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

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

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

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

28 manner provided by law for service of the summons in a civil action.

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VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF
 13. In addition, Plaintiff will seek an order ex parte that notice be given by mailing a copy
2 of the summons and complaint to those persons, if any, or their attorneys, who, not later than the

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

4 have notified Plaintiff's attorneys of record in writing of their interest in this matter. Such service
5 by mail is the only reasonably practicable means of additional notice of the pendency of this

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

8 FACTUAL BACKGROUND
9 14. SCIF was created in 1913, with the passage of the Boynton Act 1913 Cal. Stat. ch. 176,

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

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

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

HOWARD 13 workers in California receive compensation for their job-related injuries and that the cost of
RICE
NEMEROVSKI
CANADY 4 workers' compensation insurance for employers is reasonable. SCIF insures approximately 175,000
FALK 1
& RASKIN

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

16 workers' compensation system in California to work.

17 15. The Legislature that created SCIF required in the Boynton Act that t be `fairly
18 competitive with other insurance carriers," and intended that it be "neither more nor less than self-

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

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

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

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

23 1913 Cal. Stat. ch. 176, §40(b)(1), (2), (3). These requirements have been part of California law

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

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

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

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

28 provisions contained in this act." 1913 Cal. Stat. ch. 176, §37(b). This requirement is currently
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VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF
 1 codified in Insurance Code Section 11774. Accordingly, from 1913 to the enactment of ABX4 12,
2 SCIF' s assets have been used solely to pay workers' compensation claims and SCIF' s expenses.
3 18. As these statutes demonstrate, SCIF was created solely for the purpose of providing
4 workers' compensation insurance. Accordingly, neither the Boynton Act nor any other provision of

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

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

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

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

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

10 §19 (amending Section 37(c) of the Boynton Act). (A true and correct copy of this statute is

attached hereto as Exhibit C.) This provision is currently codified in Insurance Code Section 11776.

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

HOWARD 13 start-up funds for SCIF, SCIF's assets have been derived from premiums paid by employer-
RICE
NEMEROVNCI
CANADY A
FALK I-7 policyholders and the income earned on those premiums.
RAOKIN

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

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

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

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

19 Id. §11800. Even if deposited with the State Treasurer, SCIF funds are not "state moneys." Id.
20 §11800.2. Both SCIF and the State have treated SCIF's funds as separate from, and not to be

21 commingled with, funds belonging to the State of California.

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

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

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

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

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

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

28 appropriate for sale or other disposition. Ins. Code §11885(b). Second, the Director of Finance
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VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF
 1 shall prepare a Notice of Request for Qualifications, to be sent to firms currently providing workers'

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

3 §11885(c)(2). Third, in reviewing the responses to the Notice of Request for Qualifications, the
4 Director of Finance, in consultation with the Treasurer, shall select the entity that "will provide the

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

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

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

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

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

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

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

HOWARD 13 whether the remaining SCIF business can continue to satisfy existing regulatory requirements
RICE
NEMEROVSKI
CANADY
FALK 14 relating to solvency, liquidity, competitiveness, and ability to pay claims.
& RABKIN

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

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

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

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

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

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

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

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

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

24 9 workers' compensation if it did not already have one (see Ins Code §§700, 717); and (2) to

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

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

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

28 authorized by ABX4 12, a securities permit would be required under Insurance Code Sections 820-
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VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF
 60. Finally, Insurance Code Sections 738 and 739-739.1 give the Commissioner responsibility for

2 assessing SCIF' s financial stability.

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

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

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

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

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

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

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

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

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

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

HOWARD 13 of Insurance. Instead, ABX4 12 gives approval power to the non-elected Director of Finance, who
RICE
NEMEROVSKI
CANADY 4 must coordinate on certain issues with the Treasurer and SCIF' s board of directors. SCIF has eleven
FALK I
fd !LARKIN

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

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

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

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

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

20 of workers' compensation insurance in California.

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

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

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

24
25 FIRST CAUSE OF ACTION
(Writ of Mandate To Enjoin Violation of Article XIV, Section 4 of the California
26 Constitution—Improper Diversion of Money from the Workers' Compensation
System to the General Fund)
27
28 26 Plaintiff incorporates by reference as though set forth herein each of the preceding

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

 I allegations of Paragraphs 1 through 25 of this Complaint.
2 27. Article XIV, Section 4 of the California Constitution provides the Legislature with
3 authority "to create, and enforce a complete system of workers' compensation, by appropriate
4 legislation " A "complete system of workers' compensation" includes "full provision for

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

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

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

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

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

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

11 1918 as Article XX, Section 21. Its purpose was to provide a firm constitutional footing for the

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

HOWARD 13 1915 and again in 1917, including the creation of the state compensation insurance fund. Indeed,
RICE
NENIEROVSKI
CANADY 4 the very first section of the "Workmen's Compensation, Insurance and Safety Act of 1917" contains
FALK I
& PARKIN

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

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

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

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

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

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

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

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

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

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

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

26 credits to SCIF's policy-holders.

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

28 portion of its book of business, for the purpose of increasing state revenue and not for the purposes

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

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

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

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

4 violates Article XIV, Section 4.

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

6 disposition of SCIF assets and liabilities from the system by which workers' compensation
7 insurance—and, indeed, all other forms of insurance--are regulated. It does this in several ways:

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

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

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

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

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

HOWARD 13 provisions of Insurance Code Section 11885.5.

RICE
NEMEROVSKI
CANADY
FALK 32. As the chief insurance regulator in this State, the Commissioner has a beneficial interest
RAILKIN

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

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

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

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

19 workers' compensation insurance market in this State.

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

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

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

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

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

25 consummated.

26
27
28
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VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF
 1 U SECOND CAUSE OF ACTION
(Preliminary and Permanent Injunctive Relief: Violation of Article XIV, Section 4)
2

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

4 allegations of Paragraphs 1 through 34 of this Complaint.

5 36. Defendants have taken and continue to wrongfully and unlawfully take actions to

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

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

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

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

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

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

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

HOWARD 13 38. Plaintiff has no adequate remedy at law for the injuries currently being suffered or that
KICK
NEMEROVSKI
CANADY 14 are threatened. No award of damages can compensate for the loss of the "complete system of
FALK
S RASKIN

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

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

17 disposition of SCIF assets authorized by ABX4 12.

18 39. The Commissioner therefore seeks a preliminary and then a permanent injunction

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

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

21

22 THIRD CAUSE OF ACTION

(Declaratory Relief: Violation of Article XIV, Section 4)
23
24 40. Plaintiff incorporates by reference as though set forth herein each of the preceding

25 allegations of Paragraphs 1 through 39 of this Complaint.

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

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

28 of SCIF assets violate Article XIV, Section 4 of the California Constitution. Defendants, on the
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VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF
 1 other hand, contend that ABX4 12 does not violate that provision. The validity of these provisions
2 • is a matter of great public interest that the Court should exercise its discretionary power to resolve.

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

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

6 FOURTH CAUSE OF ACTION

(Petition for Writ of Mandate: Violation of Article II, Section 10(c))
7

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

9 allegations of Paragraphs 1 through 42 of this Complaint.

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

11 held on November 8, 1988.

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

HOWARD 13 establish the requirements, if any, that must be met before the Legislature can amend the initiative.
RICE
NEMEROV9KI
CANADY A
FAIR. L -r Proposition 103 provides, inter alia, that that initiative may only be amended by the Legislature "to
RABKIN

15 further its purposes."

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

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

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

19 the Business, Transportation and Housing Agency.

20 47. At the time that Proposition 103 was enacted, the Insurance Commissioner was

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

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

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

24 duties continue to exist today.

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

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

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

28 when Proposition 103 was adopted.

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VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF
 1 49. The stated purposes of Proposition 103 are "to protect consumers from arbitrary

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

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

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

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

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

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

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

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

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

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

HOWARD 13 §13002.
RECE
NEMEICOVSKI
CANADY 4 • 51. ABX4 12 therefore unconstitutionally and unlawfully attempts to amend the provision
FALK 1
RABKIN

15 of Proposition 103 that requires the Insurance Commissioner be an independently elected official.

16 52. As the Insurance Commissioner elected pursuant to the provisions of Proposition 103,

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

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

19 that initiative.

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

21

22 FIFTH CAUSE OF ACTION

(Preliminary and Permanent Injunctive Relief: Violation of Article II, Section
23 10(c))
24
54. Plaintiff incorporates by reference as though set forth herein each of the preceding
25
allegations of Paragraphs 1 through 53 of this Complaint.
26
55. Defendants have taken steps and continue to wrongfully and unlawfully implement the
27
provisions of ABX4 12 giving the Director of Finance and not the Insurance Commissioner
28
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VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF
 1 authority over the sale or disposition of SCIF assets, even though these provisions are an

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

3 California Constitution.

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

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

6 •
sale or disposition of SCIF assets, and thereby cause great and irreparable injury to the

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

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

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

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

11 unconstitutional amendment to Proposition 103.

12 58. Plaintiff therefore seeks a preliminary and then a permanent injunction restraining

HOWARD 13 Defendants, and each of them, from any further attempts to implement the provisions of ABX4 12
RICE
NEMEROVSKI
CANADY 14 that give the Director of Finance and not the Insurance Commissioner authority over the sale or
FALK I
& RASKIN
15 disposition of SCIF assets.

16

17 SIXTH CAUSE OF ACTION

(Declaratory Relief: Violation of Article II, Section 10(c))
18

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

20 allegations of Paragraphs 1 through 58 of this Complaint.

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

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

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

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

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

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

27 should exercise its discretionary power to resolve.

28 61. Plaintiff therefore seeks a declaration that the provisions of ABX4 12 giving the
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VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF
 Director of Finance and not the Insurance Commissioner authority over the sale or disposition of
2 SCIF assets attempt to amend Proposition 103 and are therefore unconstitutional under Article II,
3 Section 10(c).
4

5 SEVENTH CAUSE OF ACTION

(Determination of Invalidity of Sale Or Disposition Of SCIF Assets And Contracts
6 Implementing Same: Violation of Article XIV, Section 4)
7 62. Plaintiff incorporates by reference as though set forth herein each of the preceding

8 allegations of Paragraphs 1 through 61 of this Complaint.

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

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

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

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

FICWARD 13 specifies that in situations where the state or a state agency could bring a validation action, "any
RICE
NENIEROVSKI
CANADY 14 interested person may bring an action . .. to determine the validity of the matter."
FALK I
RABK1N

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

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

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

18 the same reason.

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

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

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

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

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

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

25 863.
26
27 PRAYER
28 WHEREFORE, Plaintiff prays that judgment be entered against Defendants and each of hem
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VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF
 1 as follows:
2 1. On the First Cause of Action, for a writ of mandate restraining Defendants from selling
3 or otherwise disposing of SCIF's assets and liabilities for the benefit of the State's General Fund or

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

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

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

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

8 workers' compensation system;

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

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

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

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

HOWARD 13 implementing the provisions of ABX4 12 that transfer the powers of the Insurance Commissioner to
RICE
NEMEROVSKI
CANADY 4 the Director of Finance in relation to the sale or disposition of SCIF assets;
FALK
& RASKIN

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

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

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

18 assets;

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

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

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

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

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

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

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

26 8. For costs of suit incurred herein;

27

28
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VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF
 For such other and further relief as the Court deems proper.
2
3 DATED: August .272009.
ADAM M. COLE
4 Chief Counsel
RICHARD G. KRENZ
5 Assistant Chief Counsel
JILL A. JACOBI
6. Senior Staff Counsel
ANTONIO CELAYA
Senior Staff Counsel
GEORGE . . TEEKEL
8 Senior Staff Counsel
CALIFORNIA DEPARTMENT OF INSURANCE
9
JEROME B. FALK, JR.
10 STEVEN L. MAYER
JOHN P. DUCHEMIN
11 HOWARD RICE NEMEROVSKI CANADY
FALK & RASKIN
12 A Professional Corpora

HOWARD 13
RICE
NEMEROVSKI
By:
CANADY
FALK I
4 STEVEN L. M s YER
&RADIUM

15 Attorneys for Petitioner and Plaintiff STEVE

POIZNER, Insbrance Commissioner
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VER. PET. WRIT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF
 1 jj VERIFICATION

2 I, Steven L. Mayer, declare:

3 I am one of the attorneys for Petitioner/Plaintiff Steve Poizner in this action. I have read the
4 foregoing Verified Petition For Writ Of Mandate; Complaint For Injunctive And Declaratory Relief;
5 And Complaint For Determination Of Invalidity. I am informed and believe that the matters stated
6 therein are true and on that ground, I allege that the matters stated therein are true. I further declare
7 that the Petitioner/Plaintiff is absent from the county in which I have my office.
8 I declare under penalty of perjury, under the laws of the State of California, that the foregoing
9 is true and correct. Executed this 24tlay of August, 2009, in San Francisco, California.
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HOWARD 13
RICE
NENIEROVSKI
CANADY 14
FALK
RABKIN

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VER, PET. WRJT OF MANDATE; COMPL. INJUNCTIVE & DECLARATORY RELIEF