Opinion
Civil No. 3:99-CV-1556-BC
June 12, 2000
MEMORANDUM OPINION AND ORDER
Before the Court are Defendant Tucker and Clark's Motion to Dismiss Brought under Fed.R.Civ.P. 12(b)(6), or Alternatively, Under Rule 12(c), filed February 7, 2000, and Plaintiff's Motion for Remand (No Subject Matter Jurisdiction), filed February 25, 2000. At issue is whether Plaintiff Best International U.S.A.'s ("Best") state law claims for breach of contract, fraud, and breach of fiduciary duty are preempted by the Employee Retirement Income Security Act ("ERISA"), as amended 29 U.S.C. § 1001 et seq., and whether this Court may exercise subject matter jurisdiction over those claims. Having considered the pertinent pleadings, the Court DENIES the plaintiff's motion to remand and GRANTS the defendant's motion to dismiss for the reasons that follow.
Plaintiff's motion to remand is contained in its response to Defendant's motion to dismiss.
For purposes of analyzing Defendant's Rule 12(b)(6) motion, the Court must presume all factual allegations in the complaint to be true. Fernandez-Montez v. Allied Pilots Ass'n, 978 F.2d 278, 284 (5 th Cir. 1993). Accordingly, the background facts giving rise to Best's claims are taken directly from its original petition filed in Texas state court.
In 1995, Best and Defendant Tucker and Clark ("Tucker Clark") entered into a contract whereby Tucker Clark agreed to secure and annually renew inter alia group health and group life insurance coverage for Best, and to administer the insurance coverage pursuant to ERISA as a plan administrator for Best's Benefit Plan. Tucker Clark further represented to Best that the insurance coverage included benefits for dental and prescription expenses.
Tucker Clark subsequently failed to renew the insurance coverage and failed to inform Best of the non-renewal. In addition, Tucker Clark charged Best for the dental and prescription coverage despite the fact that such coverage was not provided. Best filed this action on June 10, 1999, in Texas state court alleging state law causes of action for breach of contract, common law fraud, and breach of fiduciary duty. Tucker Clark removed the case to this Court on July 8, 1999, contending that Best's state law claims are completely preempted by ERISA, thus providing this Court with removal jurisdiction for claims arising under federal law. See 28 U.S.C. § 1331 and 1441.
On February 7, 2000, Tucker Clark filed the instant motion to dismiss pursuant to Rule 12(b)(6) claiming that because Best's state law claims are preempted by ERISA, it has failed to state a claim for which relief may be granted. Def.'s Mot. at 1. Best filed its response on February 25, 2000 and moved the Court to remand this case for lack of subject matter jurisdiction, asserting that its claims are not preempted by ERISA but even assuming they are, preemption alone does not confer jurisdiction on this Court. Pl.'s Resp. at ¶¶ 5-6. Before turning to address the merits of the parties' arguments, the Court will discuss the standards governing motions to dismiss and motions to remand.
II. Legal Standards
The standard for dismissal under Rule 12(b)(6) is a familiar one. In construing the motion to dismiss, the court must presume all factual allegations in the complaint to be true and resolve any ambiguities or doubts regarding the sufficiency of the claim in favor of the plaintiff. Fernandez-Montez v. Allied Pilots Ass'n , 978 F.2d 278, 284 (5th Cir. 1993). The complaint should not be dismissed "unless it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him to relief" Conley v. Gibson , 355 U.S. 41, 45, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). A court should therefore dismiss a case only if an affirmative defense or other bar to relief appears on the face of the complaint. Garrett v. Commonwealth Mortgage Co., 938 F.2d 591, 594 (5th Cir. 1991); McGaskey v. Hospital Housekeeping Systems of Houston, Inc ., 942 F. Supp. 1118, 1123 (S.D. Tex. 1996).
With respect to motions to remand, the removing party bears the burden of establishing that federal jurisdiction exists. De Aguilar v. Boeing Co ., 47 F.3d 1404, 1408 (5th Cir.), cert. denied , 516 U.S. 865, 116 S.Ct. 180, 133 L.Ed.2d 119 (1995) (citation omitted). Additionally, whether jurisdiction exists for a removed action is determined by looking at the complaint at the time the notice of removal is filed. Brown v. Southwestern Bell Telephone Co., 901 F.2d 1250, 1254 (5th Cir. 1990). As a general rule, a plaintiff's cause of action may confer federal question jurisdiction only when the well-pleaded complaint raises issues of federal law. Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 1546, 95 L.Ed.2d 55 (1987). The Court now turns to address the parties' arguments regarding these two motions.
III. Analysis
As noted, the instant motions raise the two issues of ERISA preemption and this Court's subject matter jurisdiction. The Fifth Circuit has recognized two types of preemption under ERISA: complete preemption and conflict preemption. McClelland v. Gronwaldt , 155 F.3d 507, 516-17 ( 5 th Cir. 1998). Complete preemption serves as an exception to the well-pleaded complaint rule in that ERISA may occupy a particular area such that "any civil complaint raising this select group of claims is necessarily federal in character." Giles v. Nylcare Health Plans, Inc ., 172 F.3d 332, 336-37 (5 th Cir. 1999) (quoting Metro. Life, 481 U.S. at 64-65, 107 S.Ct. at 1542) (internal quotations omitted). ERISA's civil enforcement provisions, 29 U.S.C. § 1132 (a), completely preempt any state cause of action seeking the same relief, thus a claim falling within § 1132(a), regardless of how artfully pled as a state claim, will be treated as a federal claim. Id . at 337 n. 7 (citations omitted). Because such a claim raises a federal question, it will provide a basis for the Court's exercise of removal jurisdiction from state court. Id at 337.
On the other hand, conflict preemption, also known as ordinary preemption, arises under 29 U.S.C. § 1144 (a) and applies to state law claims which fall outside the scope of ERISA's civil enforcement provisions. Copling v. The Container Store , 174 F.3d 594, 595 th Cir. 1999). Such claims are governed by the well-pleaded complaint rule and, therefore, conflict preemption, in and of itself, fails to establish federal question jurisdiction over those claims. Id.
The Fifth Circuit recently summarized the interplay between the issues of preemption and jurisdiction as follows:
[W]hen a complaint raises state causes of action that are completely preempted, the district court may exercise removal jurisdiction; but when a complaint contains only state causes of action that the defendant argues are merely conflict preempted, the court must remand for want of subject matter jurisdiction. When a complaint raises both completely preempted claims and arguably conflict preempted claims, the district court may exercise removal jurisdiction over the completely preempted claims and supplemental jurisdiction [under 28 U.S.C. § 1367] over the remaining claims.Id . Thus, the issue here with respect to Best's motion to remand is whether any of its state law claims are completely preempted under ERISA. If so, the Court may exercise removal jurisdiction over all of the claims in this case.
To determine whether a plaintiff's claim is completely preempted under ERISA, the Fifth Circuit uses a two-pronged approach. See McClelland , 155 F.3d at 517. The first step is to determine whether the claim is subject to ordinary preemption under 29 U.S.C. § 1144 (a). Id . "[O]rdinary preemption is a necessary — but obviously not a sufficient — precondition to complete preemption in the context of ERISA." Id . Therefore, a claim that is not subject to ordinary preemption cannot be completely preempted. The second step, then, assuming the claim is subject to ordinary preemption, is to determine whether it is completely preempted; i.e. whether the claim seeks the same relief as provided for in ERISA's civil enforcement provisions in § 1132(a). See id.; See also Giles, 172 F.3d at 337 . The Court now turns to step one of this analysis.
A. Ordinary Preemption Under 29 U.S.C. § 1144 (a) 29 U.S.C. § 1144 (a) states that ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . ." 29 U.S.C. § 1144 (a). The Supreme Court defines the phrase "relate to" very broadly. It is to be "given its broad common-sense meaning, such that a state law `relates to' a benefit plan, "in the normal sense of the phrase, if it has a connection with or reference to such a plan.'" Metro. Life Ins. Co. v. Massachusetts , 471 U.S. 724, 739, 105 S.Ct. 2380, 2389 (1985)( quoting Shaw v. Delta Airlines , 463 U.S. 85, 97, 103 S.Ct. 2890, 2900 (1983)). If a state law relates to a benefit plan, then ERISA preempts it. Hogan v. Kraft Foods , 969 F.2d 142, 144 (5 th Cir. 1992).
ERISA preemption is also governed by 29 U.S.C. § 1144 (b)(2)(A) and (b)(2)(B). but these provisions are inapplicable to this case.
Two characteristics units' those state law causes of action which have been preempted by ERISA: (1) these claims address areas of exclusive federal concern, such as the right to receive benefits under the terms of an ERISA plan; and (2) they directly affect the association among traditional ERISA participants — the employer, the plan and its fiduciaries, and the participants and beneficiaries. Mem'l Hosp. Sys. v. Northbrook Life Ins ., 904 F.2d 236, 245 (5 th Cir. 1990); Smith v. Texas Children's Hosp . , 84 F.3d 152, 155 (5 th Cir.), reh'g denied , 95 F.3d 56 (5 th Cir. 1996).
Viewing Best's state law claims for breach of contract, fraud, and breach of fiduciary duty in conjunction with these characteristics, the Court finds that those claims are preempted. Best acknowledges in its response that its contract with Tucker Clark concerning the insurance coverage related to an area of exclusive federal concern, namely the administration of ERISA benefit plans. PI.'s Resp. at 3; See 29 U.S.C. § 1001; See also Cate v. Blue Cross Blue Shield , 434 F. Supp. 1187, 1190 (E.D. Tenn. 1997) ("It is clear from [its] declaration of policy, and from the structure of [ERISA], that the focus of Congress was on the `conduct, responsibility and obligation' of those who were responsible for administering employee benefit plans."). Indeed, Best hired Tucker Clark as a third-party administrator for the express purpose of administering its Benefit Plan under ERISA, and each of its claims pertains to Tucker Clark's alleged wrongful conduct in connection with performing that job. Such claims unquestionably address areas of exclusive federal concern.
Pl.'s Original Petition at 2.
As to the second characteristic, Best's claims clearly affect the association among traditional ERISA entities — the employer and the plan administrator. Since Best's claims involve the two characteristics that are common to other preempted state law claims, the Court concludes that its claims are also subject to ordinary preemption under 29 U.S.C. § 1144 (a).
Nevertheless, Best contends that its claims do not "relate to" an ERISA plan because its allegations do not "concern and/or effect the substantive portions of that plan," but rather they pertain to Tucker Clark's breach of its contractual obligations and its "improper and derelict actions which caused Plaintiff to basically be uninsured." PI.'s Resp. at ¶¶ 8, 11-12. This argument is without merit.
As just explained, Best's claims are directly related to Tucker Clark's conduct in administering an ERISA plan, which is an area that is expressly designed to be governed by federal law. See 29 U.S.C. § 1001 . Moreover, Best has cited no authority, and the Court has found none, suggesting that a state law claim does not "relate to" an ERISA plan unless it "concern[s] and/or effect[s] the substantive portions of that plan." All that is required is that the state law claims "relate to" the plan, a term which has been deliberately construed to have a broad, expansive meaning to give effect to the remedial purposes of ERISA. See Cefala v. RE. Goodrich Co . , 871 F.2d 1290, 1293-95 (5 th Cir. 1989 ) citing legislative history pertaining to ERISA); Smith , 84 F.3d at 155; Degan v. Ford Motor Co . , 869 F.2d 889, 894 n. 7 (5 th Cir. 1989) (quoting Pilot Life Ins. Co. v. Dedeaux , 481 U.S. 41, 46, 107 S.Ct. 1549, 1552 (1987)). Furthermore, arguments that are virtually identical to those asserted by Best have already been presented to and rejected by the Fifth Circuit. See Cefalu 871 F.2d at 1292-95 (finding preemption for breach of contract claim and rejecting plaintiff's claim that preemption was avoided because he was not seeking recovery from the plan, but only from his employer); See also Lee v. E.I. DuPont de Nemours and Co . , 894 F.2d 755, 756-58 (5 th Cir. 1990) (rejecting plaintiff's argument that preemption under § 1144(a) was avoided because his claim was not cognizable under the ERISA civil enforcement provisions in § 1132(a)).
Best also relies on Smith v. Texas Children's Hosp . , 84F.3d 152 (5 th Cir. 1996), in alleging that its fraud claim is not preempted. PI.'s Resp. at ¶¶ 10-11. In Smith , the plaintiff sued Texas Children's Hospital based on a fraudulent inducement theory alleging that they had lured her away from her previous job at St. Luke's Hospital on the promise that she would be eligible for certain disability benefits with Texas Children's. In transferring jobs, the plaintiff relinquished her claim to accrued benefits from St. Luke's. After developing multiple sclerosis, the plaintiff applied for disability benefits from Texas Children's, but her claim was denied. She sued, and the Fifth Circuit held on appeal that her claim against Texas Children's for denied benefits under their ERISA plan was preempted. Smith , 84 F.3d at 155. The Court also stated, however, that the plaintiff may have a separate claim against Texas Children's for the accrued benefits that she relinquished in transferring from St. Luke's, and that such a claim would not be preempted. Id. at 155-56. The Court of Appeals reasoned that plaintiff's claim for the relinquished benefits did not necessarily depend on the scope of her rights under Texas Children's ERISA plan. Id Nor was she suing Texas Children's for benefits that they allegedly owed her under its ERISA plan. Id. at 156-57.
Here, by contrast, Best International makes no allegation that it relinquished anything unrelated to its own Benefit Plan. Rather, it alleges that Tucker Clark committed fraud by inducing Best to renew the insurance coverage and to pay for dental and prescription coverage, knowing that the insurance would not be provided. PI.'s Original Petition at 4. Clearly, Best is seeking a recovery against Tucker Clark for alleged misrepresentations directly related to its administration of Best's ERISA plan. Accordingly, Best's reliance on Smith is misplaced.
Having found that each of Best's state law claims are subject to ordinary preemption under 29 U.S.C. § 1144 (a), the Court now turns to step two to determine whether any of these claims are completely preempted under ERISA.
B. Complete Preemption Under ERISA
As previously explained, a state law claim seeking the same relief as provided for in ERISA's civil enforcement provisions, 29 U.S.C. § 1132 (a), is completely preempted. Giles , 172 F.3d at 337; McClelland , 155 F.3d at 517 . The civil enforcement provisions authorize a "participant, beneficiary or fiduciary" to bring a civil action for breach of fiduciary duties under 29 U.S.C. § 1109. 29 U.S.C. § 1132 (a)(2); ISee Kramer v. Smith Barney, 80 F.3d 1080, 1084 (5 th Cir. 1996). In turn, § 1109 imposes liability on "[any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter." 29 U.S.C. § 1109 (a); See Kramer , 80 F.3d at 1084 .
In this case, Best has asserted a claim for breach of fiduciary duty. PI.'s Original Petition at 4. More specifically, it alleges that Tucker Clark breached its duty by failing to inform Best that it did not renew the group insurance coverage, "thereby allowing Plaintiff to incur medical, dental and other claims that would have been covered had Defendant communicated the non-renewal." Id. Based on these allegations, the Court finds that Best's breach of fiduciary duty claim falls within ERISA's civil enforcement provisions and, therefore, is completely preempted. See Kramer, 80 F.3d at 1084. The Court, consequently, may exercise original federal question jurisdiction over that claim and pendent jurisdiction over Best's other claims for breach of contract and fraud pursuant to 28 U.S.C. § 1367. See Giles, 172 F.3d at 337-38 . Accordingly, Best's motion to remand is DENIED. Furthermore, because the Court has concluded that each of Best's state law claims is preempted by ERISA, Tucker Clark's motion to dismiss those claims pursuant to Rule 12(b)(6) is GRANTED.
Regardless of the merits of the breach of fiduciary duty claim, the allegations in Best's complaint control for purposes of determining the Court's subject matter jurisdiction. See Kramer, 80 F.3d at 1083 n. 2.
On April 26, 2000, Best filed its First Amended Original Complaint asserting an additional cause of action under ERISA. PL's First Am. CompL at 5. The amended complaint was filed subject to Best's motion to remand, and now that the motion has been denied, this amended complaint becomes the operative complaint in this case. While the state law claims for breach of contract, fraud, and breach of fiduciary duty are dismissed, the ERISA claim, and this case, remain pending for disposition.
IV. Conclusion
For the foregoing reasons, the Court DENIES Plaintiff's motion to remand and GRANTS Defendant's motion to dismiss the state law claims for breach of contract, fraud, and breach of fiduciary duty.