ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
D. LOWELL JENSEN, UNITED STATES DISTRICT JUDGE
The Court heard the parties' cross-motions for summary judgment on April 4, 1990. Appearing for plaintiff was Vincent J. Chiarello of Morrison & Foerster. Appearing for defendant Department of Insurance ("Department") was Deputy Attorney General Miles Washington. Appearing for defendant The Workers' Compensation Insurance Rating Bureau ("Bureau") was Richard C. Cole of LeBoeuf, Lamb, Leiby & MacRae.
After review of the briefs submitted by the parties, the oral argument of counsel, and the applicable legal standard, the Court hereby GRANTS summary judgment in favor of defendants.
Plaintiff is a licensed general contractor and employer whose premiums for workers' compensation insurance are set by defendant Department of Insurance, a function delegated by the Department to defendant Bureau. Under a statutory program entitled the California Experience Rating Plan ("CERP"), Cal. Code Regs. Title 10 § 2353, an employer's premium may be increased or reduced in consideration of loss experience.
Plaintiff anticipated a loss experience reduction in its premiums of 45%, to take effect on December 1, 1988. However, in September 1988, plaintiff made a transfer of 100% of its common stock, which transfer implicated CERP Rule 8 (since superseded).
Rule 8 as applicable at the time of plaintiff's rate setting eliminated consideration of past experience in setting employer premiums where a material change of ownership had occurred, specifically transfer of more than 50% of the employer's issued voting stock. CERP Rule 8(c)(2). In view of this rule and the conceded change of ownership, there was no reduction in plaintiff's workers' compensation insurance premium.
The Complaint seeks a declaration that Rule 8(c)(2) is unconstitutional as violating the Due Process (Claim One) and Equal Protection (Claim Two) Clauses of the Fourteenth Amendment. Plaintiff also seeks injunctive relief and compensatory damages.
A. Standard for Summary Judgment
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment may be granted when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the party is entitled to a judgment as a matter of law."
In a motion for summary judgment, "if the party moving for summary judgment meets its initial burden of identifying for the court those portions of the materials on file that it believes demonstrates the absence of any genuine issues of material fact," the burden of production then shifts so that "the nonmoving party must set forth, by affidavit or as otherwise provided in Rule 56, ' specific facts showing that there is a genuine issue for trial.'" T.W. Electric Service, Inc. v. Pacific Elec. Contractors, 809 F.2d 626, 630 (9th Cir. 1987) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1983); Kaiser Cement Corp. v. Fischbach & Moore, Inc., 793 F.2d 1100, 1103-04 (9th Cir.), cert. denied, 479 U.S. 949, 107 S. Ct. 435, 93 L. Ed. 2d 384 (1986)) (emphasis in original). When judging the evidence at the summary judgment stage, the Court does not make credibility determinations or weigh conflicting evidence, and is required to draw all inferences in a light most favorable to the nonmoving party. T.W. Electric, 809 F.2d at 630-31 (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986)). Summary judgment may issue "after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp., 106 S. Ct. at 2552. The standard for judging either a defendant's or plaintiff's motion for summary judgment is the same standard used to judge a motion for a directed verdict: "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S. Ct. 2505, 2512, 91 L. Ed. 2d 202 (1986).
B. The Merit Rating System Statutory Scheme
The California Constitution vests in the Legislature "plenary power, unlimited by any provision of this Constitution, to create, and enforce a complete system of workers' compensation . . . ". Cal. Const. Art. 14, § 4. Among the express legislative powers of creating and enforcing this system are "full provision for regulating such insurance coverage in all its aspects, including the establishment and management of a State compensation insurance fund . . . and full provision for vesting power, authority and jurisdiction in an administrative body with all the requisite governmental functions . . .". Id.
Under this plenary power, the legislature has provided that the Commissioner of Insurance may classify risks and set rates using a "merit rating system," Cal. Ins. Code § 11732, in which "experience of the particular insured is used as a factor in raising or lowering his rate." Id. § 11730. If such a system is used, it must be uniformly applied to all insurers. Id. § 11732. Pursuant to this authority, the Insurance Commissioner promulgated the California Experience Rating Plan ("CERP"), which is codified at Cal. Code Regs., Title 10, § 2353.
CERP is implemented by a rating organization, as defined and licensed under Ins. Code §§ 11750-11759, in this action named defendant The Workers' Compensation Insurance Rating Bureau ("Bureau"). Section III of CERP directs that "experience of a risk" shall be used to set and modify the rate for an individual policy for an "experience period" of three years. CERP § III(2)-(3). Premium reductions for loss experience, therefore, cannot be granted unless a three-year "experience period" has run.
The rule challenged in this action is former CERP § III(8), which by its terms overrides the experience rating provision of § III(3):
For the purposes of this Rule management is considered to be vested in ownership. Except as specifically provided otherwise herein, ownership whether active or inactive, governs the administration of this rule . . . . [If] the change is denominated 'material', the past experience shall be disregarded and the risk written at Manual rates until it qualifies anew for experience rating.